Morality – what price?

Destructive competition is forcing people to forget the common goals and pursue their individual ones.

A few weeks ago I was discussing with a friend of mine a New York Times podcast on tech which touched on the recent controversies surrounding cryptocurrencies. The podcast included mention of the world’s largest crypto exchange, Binance, which acquired a reputation for playing fast and loose with regulators.

Binance was launched back in 2017 in China. They famously did not have a headquarters for many years, and when asked where their company was based, they would just sort of change the subject.  All the while, they were here in Malta operating under the radar.  In 2018, the crypto trading giant relocated to Malta from China and Japan.  Five years later, a special report published by Reuters found that Binance never paid a cent in tax in Malta, despite processing billions of dollars (including payments for criminals and companies evading American sanctions).

Last year, Binance was accused by the US Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) of not having a proper anti-money laundering (AML) programme, of operating an unlicensed money-transmitting business and of violating sanctions law.  In November, it agreed to enter a guilty plea and pay a $4.3 billion fine.  Its owner, Changpeng Zhao, agreed to pay a $50 million fine and step down as CEO of the company but was allowed to maintain his ownership as part of the deal.

An important factor

At one point, I told my friend that the whole set-up, including its stay in Malta, was immoral.  At first he just looked surprised, but then he asked me how on earth morality came into it.  To him, it was just a case of somebody breaking the law.

Not quite, I replied.  Morality is an important factor in individual behaviour and thus in financial, legal, and economic outcomes.  It encompasses individual values and beliefs about norms of good conduct.  Binance’s operations flouted many of these values.

I had to explain that economic backwardness is typically associated with a wide range of institutional, organisational, and government failures. In countries where politicians are corrupt, public policies confer rents to privileged élites, law enforcement is inadequate, and moral hazard is widespread inside public and private organisations, morality is failing in a big way.  And so it is in Malta – Transparency International’s 2022 Corruption Index put us in the 54th place, with the likes of Rwanda, for God’s sake.

It does matter

Does it matter? Most certainly. A whopping 73% of the population feel that corruption is never justifiable, even to help a family member, while only 3 percent agree it is.  This results from the ‘General Opinion Survey of the Maltese Population’ conducted by the University’s Faculty for Social Wellbeing in 2021.  The survey also revealed that 68.8% do not agree with corruption, even if it benefits the whole population.  The aversion to corruption is further emphasised by the finding that 47.5% disagree with requesting preferentian treatment from politicians while only 15.3% agree.

An influential body of research in economic history, political economics, and macroeconomics has shown that conceptions of what is right or wrong, and of how one ought to behave in specific circumstances, exert a strong influence on behavioural aspects that directly affect economic outcomes. The list includes voters’ demands and expectations, citizens’ participation in group activities, the extent of moral hazard inside public organisations, and the willingness of individuals to provide public goods.

Values also evolve slowly over time, as they are largely inherited from previous generations. Thus, morality is an important channel through which distant political history can influence the functioning of current institutions.  This itself is something which could be explored by history buffs.

How did we finish up with our current low level of public morality?   Could the fact that we had an important piracy industry at the times of the Knights of Malta, even being licensed by them, be responsible?  Could it be that our dependency on the British Crown inculcated a culture that, to survive, we needed to fleece the Crown, as illustrated by the famous saying ‘the Crown pays’ whenever people were asked about their ill-gotten gains?  Nowadays, many have substituted the word ‘Government’ for the ‘Crown’.

Between states

Morality (or the lack of it) also exists in the relations between states.  Some political narratives, full of stereotypes, widely used by xenophobic and nationalist parties in Europe, portray citizens of the North as austere, thrifty, responsible, hard-working and “virtuous”, while citizens of the South are portrayed as “bon vivants“, wasteful, lazy, unmanageable, and even “wicked”. The citizens and authorities of the countries most affected by the pandemic (Italy and Spain) were negatively stigmatised. 

These attitudes imbue the attitude of Germany and Scandinavian countries towards fiscal imbalances. We cannot forget the period between 2008 and 1012, when the European Union imposed extremely harsh structural adjustment programmes to save States plunged into financial and budgetary crisis. No one questions the fact that these countries (e.g. Greece) certainly made economic policy mistakes. However, their ostracisation from the pulpit of moral supremacy, the reminder of their wrongs, the lessons given, and the technique used by some of their partners were sometimes very humiliating.

Another saga to remember is the continuing refugee crisis and the impossibility of applying the temporary resettlement mechanism for applicants for international protection – the quota system adopted by the EU Council (and recently validated by the European Court of Justice) – due to the non-negotiable refusal of the governments of some Member States.

The consequences of this lack of solidarity have been extremely serious. Public opinion in the Mediterranean countries has been deeply shocked by the lack of empathy and understanding on the part of some Central and Eastern European countries. Therefore, it is not surprising that an anti-European feeling has developed in some countries which traditionally were champions of the European integration project.

In-depth studies

I cannot fail to mention that the importance of morality in public life has been studied in depth.  For example,Guido Tabellini, who was the Chair in Political Economics at Bocconi University and its Rector, has published evidence from a variety of sources and presented finding about the link.

Using measures of Trust and Respect, which are intrinsically linked with morality, he found that within European countries these traits are more widespread in regions where centuries ago executive powers were constrained by the prerogatives of independent judiciaries, or by a Chamber of political representatives. Although the precise mechanism of cultural transmission remains to be pinned down, the inference that political history influences current attitudes and values is robust.  Consider this in the context that for untold centuries Malta was ruled by foreign powers and that we got our own first parliament in 1921 and that, even then, the legislature and the judiciary were there at the mercy of the British Crown.

Anybody who has studied Philosophy will tell you that moral motives induce people to cooperate in the pursuit of common goals and to suppress destructive competition. A motive is conceived in psychological terms as a force that gives direction and energy to one’s behaviour, influencing the objective of the behaviour. Moral motives are understood as motives associated with right or wrong actions or with good or bad outcomes, primarily within a social context. We conceive of moral motives as forces supporting our collective interests. Moral incentives are the psychic benefits and costs arising from the moral motives.

Common goals

Perhaps one of the biggest failures of our educational system is that Philosophy is thought of as a subject for somebody wanting to become a priest.  On the contrary, it is needed in everyday life.  I mentioned common goals.  What are they in our case?  Unbridled economic growth, enrichment for the few, utter disregard of the environment?  Surely not.  But destructive competition is forcing people to forget the common goals and pursue their individual ones.  The sum of those individual, often selfish, goals is not the collective will for the common good, but a collective suicidal wish. 

The key point about moral motives is that they redirect behaviour away from those that would dominate with a purely self-serving goal towards those that drive group objectives.  Economists would call it a self-imposed Pigouvian tax or subsidy (named after the British economist A.C. Pigou, who first analysed systematically how taxes can correct for negative externalities and subsidies can do so for positive externalities). Moral motives are a social, not a monetary, method for encouraging socially beneficial actions and restraining socially damaging ones.

An issue of context

Mind you,  it is evidenti from countless studies that people are neither consistently selfish, along the lines of Homo economicus, nor consistently altruistic. Instead, their public-spiritedness depends on their contexts   ̶   crises like Covid make them help each other; disasters like the Sofia case make them feel empathy for others; corruption in the institutions of the State make them doubt their own standards and wonder whether there are forms of corruption that can be tolerated while others shouldn’t.

In practice, most people adhere to moral values even if they may be in conflict, but their application of these values is conditioned by the context.  This is why moral dilemmas arise. The context could be political, like it is in Malta, where those perpetrating the corruption make them feel that loyalty trumps honesty, reducing the focus on harm and fairness.  

People are demanding higher standards of behaviour from public authorities and business. We can no longer look to politics to teach and impose moral behaviour, for it is the politicians themselves who are committing serious crimes or tolerating them.  But nor can we allow politics to be devalued, through scepticism or pragmatism. That is why civil society has a strong role to play here.  Ethics cannot be left out of the political equation, so we must find the right relationship between the two. This is why we should never, for whatever reason, try to divorce the exercise of political power from the moral dimension.

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