Comments - To regain trust (and sense) for a new fair market

A Nice Long Road

by Luigino Bruni

published on Avvenire on 12/08/2011

Behind the crisis we are experiencing there is, above all, a grave crisis of confidence. No one knows any longer where to find reliable investments; therefore they sell stocks preferring cash (or gold and safe havens). Today it is clearer than ever how true that the word credit comes from “believe,” from trust. In 1936 the great British economist J. M. Keynes well described, in its essence, what is happening now, a phenomenon that depends very little on sophisticated financial instruments and more on simple psychological mechanisms: we have fallen into a "trap of negative expectations," a situation in which a serious crisis of confidence (in this case in the public debts of "sovereign” States) that the workers have strong preference for liquid assets and lack of confidence in financial stocks. And when one falls into these traps, the only effective policy is to recreate that missing trust, recreate positive expectations. The current capitalist economic system does not have - and here is the point - anthropological and ethical resources before techniques, in order to raise these expectations, because they lack cultural perspectives to the challenges posed.

In times of crisis, the memory is always an important resource to imagine and draw scenarios of hope. Trust comes from the Latin fides, a word that means confidence, reliability, tie (rope) and religious faith. I trust you, I will give you credit (you are credible), because we share the same fides, that faith which was the main guarantee of reliability and loan repayments, especially when trading with strangers. On this fides-trust-credibility-reliability-bond-faith, the first European single market between the fourteenth century and modernity was born. With the Protestant Reformation fides enters in crisis, the rope breaks (Christian fides was no longer enough for businesses and for peace), then Europe found new forms of trust in order to support the emerging markets: it is in fact in the seventeenth century that central banks, stock exchanges, which became the new “secular” guarantee of the new fides-free market. Parallel to these new economic institutions the national states were also born, which became the new "places of trust," the great safeguards for markets and currencies, as were the cities in the Middle Ages. This brief historical overview is just to say that the secular modern economy comes from a very close relationship between economics and national policy, between finance and national states. Behind exchanges and finance there were the states, peoples, ethnic communities, territories, affiliations. The political and economic democracy as we know it was based largely on national markets and economic institutions. This national capitalism, in its two great Anglo-Saxon and European versions, has held up until a few decades ago, when we entered in a more accelerated way in the era of globalization and financial capitalism.

This crisis is telling us that we still do not know nor understand nor govern the globalized capitalism, because while the economy and finance have changed radically, the policy and its instruments are still those of early capitalism, including creation of huge public debt without control and guarantees, an expression of ancient idea of sovereignty of nation states and seigniorage. Not to mention the tax issue: to fight tax evasion seriously we should at least acknowledge that there is a mega "tax issue" and of justice that plays in the global financial markets, where they create huge profits and returns that escape tax systems and are still too anchored to the national dimension, which may be used as ex post to the dangerous and immoral trick of amnesties.

In Europe, the euro is in deep crisis because we have not found a relationship between euro and Europe. Credibility always remains an effect of a single country (it will not be a coincidence that the Milan Stock Exchange is almost always the worst!), but it is not crucial to understand and deal with the crisis. It is enough to observe that the guarantees offered by Obama in the U.S. have become inadequate. In reality, it would need a political dimension of globalization, a policy that does not yet exist nor does one have a glimpse of. A new Bretton Woods world would be necessary to give life to a post-capitalist economy market where finance is regulated and taxed as (and perhaps more than) all income-generating activities, where one creates independent authorities of controlled public debt, where one regulates also the governance of multinational large firms (some of today's richest and most influential of small nation-states), and much more. That's why in this crisis the new market economy in the era of globalization is in play, which should be different from what we have created thus far. The global financial economy needs trust but, as in the case of energy, it consumes without being able to recreate, because its tools create reputation (which is a normal market good) which tends to displace the trust (which is instead a relational good).

What is certain today is that the old politics based on national governments, partisan balance and sovereignty no longer works. What will emerge from this failure we do not know: we can only predict a few years of fragility, systemic risk, uncertainty, and sacrifices for all, hopefully with bit of fairness. And we must above all raise the hope which is the great virtue in all times of crisis, it is the fertile ground from which even confidence can flourish.

All of Luigino Bruni's comments on Avvenire can be found under Avvenire Editorial.