Some Ethical and Theological Considerations
John M Hull
Published in Dialogue: a Journal of Religion and Philosophy, issue 20, April 2003, pp. 21-25
Competition affects our lives in many ways. Children compete for the attention of their parents. Students compete to obtain the best examination results. Football teams compete for their positions on the league ladders. Politicians and economists are concerned about the competitiveness of British industry on the international stage. But there is one competition which is far more influential upon our lives today than any other, and yet it is a form of competition which seldom occurs to us. I am referring to the competition between various currencies.
The obvious way in which competition between the currencies comes to the attention of the public is through the daily and sometimes hourly announcements of the exchange rates in which we are told how much of one pound sterling will be required to buy one American dollar and so on. In other words, the value of each currency rises and falls against the value of other currencies, and this is called the currency market or the money market.
What justification is there for describing the money market as being the most significant form of competition in the world today? In what follows this question will be answered, and competition between currencies will be compared with competition of other kinds and at various levels.
You may have noticed that only a limited number of national currencies are mentioned when the currency exchange rates are announced. These are the Japanese yen, the euro of the European Community, the US dollar and occasionally the Swiss franc and the Canadian and Australian dollar. The concentration upon these currencies is partly a question of where we are – in Norway the media will announce the fluctuations of the Norwegian kroner against the leading world currencies but wherever you are in the world, a small group of leading currencies are recognised. These are called the hard currencies, because they are reliable in the sense that they tend to hold their value and they are significant in the global economy because they are the currencies of the world’s richest countries. For example, the US dollar represents about 70% of the world’s money whereas the UK pound represents less than 1%, but it is still regarded as a hard currency. The hard currencies are sometimes described as the tradable currencies because they are valid forms of international payment.
But what about the rest? Broadly speaking, the hard currencies are those of the Organisation for Economic and Cultural Development (OECD) which represents about 2/7 of the world’s population. The currencies of the remaining 5/7 are described as soft, because they tend not to retain their value. They are usually less stable than the hard currencies and are generally not acceptable in international payment . Moreover, they tend to depreciate against the hard currencies so that the gap between the hard and soft currencies gets wider. Of course, the distinction between hard and soft currencies is not absolute; it is rather a continual line with the US dollar at one end and the poorest and least desirable of the world’s currencies at the other end. One of the purposes of the OECD is to ring-fence the currencies of the wealthy countries and to protect them from deterioration.
Money is several thousand years old. It was a brilliant idea to take a small piece of one of the metals already in use as a means of exchange and to stamp on one side an emblem of authority and on the other side a mathematical symbol. The effect of this brilliant idea, the development of which took centuries, was to guarantee the exchangeability of the coins in question within the territory over which the authority was exercised. The authority might be that of a temple or a king. Wherever the territories of two adjacent authorities met in a border, there would be money changers. There must always have been a rough calculation of one currency in terms of the other, and to that extent there has always been a kind of money market.
However, what we have in the modern world is on an altogether different scale. In the first place, the territorial character of a currency has diminished. This took a huge leap forward in the 1950s when certain countries, who wanted US dollars but were afraid that the US government might make it difficult for them to get access to their money , began to keep dollars in banks outside the territory of the United States. This practice became more and more popular and today there are hundreds of these so-called off-shore tax havens. These are often located in small countries such as the Cayman Islands where banks keep huge quantities of hard national currencies which are therefore exempt from government control, e.g. interest rates and other forms of currency regulations. It is now estimated that the amount of money in these tax havens far outweighs that which still circulates in the national territories. In other words, money has become globalised and is thus beyond easy political control. The power of any government, even that of the United States, is now severely limited.
The next factor to consider is what we might describe as the spiritualisation of money. Originally, as we have seen, money took the form of a precious metal, usually silver or gold. The idea of marking each coin with a number already made the money rather abstract, since it was no longer so important what the coin actually weighed. Then bills of exchange, or promises to pay written on paper, came along and in about the fourteenth century C.E. the Chinese invented paper money. Gradually the physical base grew less and less and today money exists in the form of electronic information. Thus the mobility of money has vastly increased to the point where money to the value of approximately three trillion US dollars is bought and sold on the money markets every day. This is vastly more than the value of the entire annual product of a major industrial country such as France. Moreover, the percentage of the monetary wealth of the UK which is in the form of coins and bank notes is steadily decreasing. Forty years ago it represented about 25% of our money but today what we think of as the money in our pockets is less than 2.5%. All of this means that the rapid movement which is essential to the modern money market is made possible.
From the end of the Second World War until the early 1970s the value of the US dollar was fixed at $35 for one ounce of gold, and the rest of the world currencies were similarly fixed in relation to the dollar. This gave the world a fairly stable economic system. But in the 1970s this system broke down and the currencies were permitted to float against each other. This is called volatility, and it is this which is announced day by day on the exchange rates.
Volatility means that the currency value of anything you produce will be unpredictable, particularly if it involves import and export. This has led to the development of all kinds of new forms of money intended to safeguard against volatility. These are called hedging funds, because you can hedge your bets against the possibility that your own currency will be less valuable when it comes to buying things abroad, or that it will be more valuable and therefore more costly if other countries want to purchase your products. On the other hand, the volatility also means that speculators can create enormous profits by moving huge sums from one currency into another. This is described as the flows of hot money.
In the mid-1960s the value of the leoni, the currency of Sierra Leone, was about the same as that of the US dollar. If a business person in Sierra Leone borrowed $1,000 US, it would cost only a little more than 1,000 leoni to repay. However, to repay that loan today would cost the business person approximately 200,000 leoni since the value of the leoni is about 2,000 to $1. In other words, the currency of Sierra Leone is practically worthless outside that country. The situation is similar with most of the currencies of sub-Saharan Africa. Of course, the person from Sierra Leone would also have to repay the interest.
In the 1970s and 1980s many countries from the so-called third world borrowed huge amounts of hard money, being offered cheap rates of interest and the promise of easy repayment as the export value of their products increased. However, the export value of most of the primary products such as coffee and cane sugar has dropped and these countries are now faced with huge annual interest charges, let alone the problem of the repayment of the original money. Indeed, in many cases the interest repayments have been much more than the value of the original loan but still the loan is outstanding or has been supplemented by further loans taken out in subsequent years. The result is quite catastrophic for the poor countries of the world. Take, for example, the present widespread famine in southern Africa. In response to appeals from charities, the British public gave £12 million in 2002 for the relief of famine in the worst affected countries of southern Africa, but during the same year these countries paid out to banks and governments in the rich world about £47 million in dept repayment.
The competition between the hard and soft currencies has created a world in which the rich get richer and the poor get poorer. We sometimes speak of our world as having become a global village but it is only a village for those who live inside the 2/7 rich world. In other words, around the rich world there is a kind of money curtain. When you are on the inside, the curtain is more or less invisible but when you are on the other side, it appears as a brass wall. We in the rich world can visit them but they cannot visit us, unless we give them grants and scholarships, or unless they are amongst a tiny elite of very rich individuals.
There are many factors in this growing disparity between the rich and the poor but there is no doubt that the financial arrangements created by the money markets is an important element in it. Recent developments in a country such as Argentina where the peso has lost its value and millions of people are reduced to poverty as the government struggles to repay outstanding debts illustrates this.
The impact of the money markets upon the poor countries is only one consequence of its creation. The competition between the hard currencies themselves has an enormous impact upon the people living in the countries of the rich world. First, nations are placed in competitive relations with each other. When we consider the history of the nation state in Europe, this is nothing new but what is new is that the competition between nations now takes the form of a competition between currencies. Governments themselves have become weaker, partly because the central bank of a country is no longer able to control a significant portion of its currency because of the hot money flows and the off-shore tax havens, and partly because no government dare resist the combined weight of the money markets. At any time it is possible for a currency to become unpopular. This may be because the economic forecasts for that country are poor, or because there seems likely to be political instability. But there are many cases where there has been a run, as it is called, on a currency even where these conditions did not seem to apply. When the speculators decide to sell their holdings in a certain currency, the value of that currency will drop. It is then possible for outside investors to move in and buy local assets at bargain prices. In ways such as these it is possible for powerful and wealthy institutions to gain enormous profits at the cost of poverty and unemployment for others.
The effect of the situation in which governments and thus countries are placed in fierce competitive relations with each other is considerable in other respects as well. For example, if the money invested in the tax havens were subject to taxation, huge sums would become available for social welfare but no country dare attempt this for fear of hostile attacks upon their own currency. It is interesting to see that the OECD has become increasingly aware of this situation and is studying ways of overcoming it.
Just as the currency competition puts pressure on governments, so it puts pressure upon industrial companies. In order to evade the consequences of the volatility of exchange rates, and to gain other benefits, the multi-national corporations have now become the trans-national companies. Many of these have a turnover greater than the annual budget of medium sized nations and because they are trans-national they can play off one country against another. A TNC will not locate its new establishment in your country unless your government offers it tax concessions, but even then the factory might be located in a poor country where labour cost is lower. Thus the workforce in the rich countries is in competition with the workers in the poor countries but in this competition the workers can never win because people are less mobile than money.
The result of this continual economic pressure on governments and between governments and between TNCs themselves, and TNCs and governments is that there is a trickle down effect upon every institution in a country, whether industrial companies, hospitals, universities or schools. Every individual and institution must be continually squeezed for maximum profit in order to maintain the value of the currency, while the currency itself continually bleeds into the tax havens.
We can now distinguish between four spheres or levels of competition, beginning with the face to face level and passing through the industrial level to the governmental level. The highest and most powerful level is that of money competition itself.
At the face to face level, competition is often both useful and enjoyable. Competition between athletes increases the quality of athletic achievement, just as healthy competition between the students of, say, mathematics is likely to motivate some students to higher levels. Moreover, competition can add zest and excitement to life. It is fun for the family to laugh and scream around a board game and nearly everyone enjoys a hard-fought tennis match or chess game. These are the two criteria which should be used to assess the ethical quality of competition: does it enhance quality and is it fun?
When we move up to the industrial level, we see that competition between firms is in the public interest because it tends to keep prices low and quality high. This is why governments pass laws to encourage competition and to prevent the emergence of monopolies which would stifle it. However, the adverse effects of ruthless competition as obvious. Companies must make sure that their value on the stock exchange does not drop too much, because they might become vulnerable to takeover. It is noticeable that when a company announces a cut in its labour force, its value on the stock market often rises. Thus, the concept of a stock company, originally intended to enable the risk of the enterprise to be shared by many people, has become another source of intense and often destructive competition.
As we go up the four levels, we see that the ethical aspects of competition become less obvious. At the face to face level there is considerable ethical and personal advantage in competition provided it is balanced by co-operation. At the industrial level we have seen that a measure of competition is good for the consumer, but when we reach the national level the benefits of competition become extremely dubious. After all, we should ask not only what is in the best interests of our nation but what is in the best interest of our species. As for the currency competition, does it raise the quality of a currency when it is in competition with another currency? The quality of a currency ultimately lies in its usefulness in enriching the lives of the citizens and supplying their needs. But if the pound increases in value against, say, the South African rand, then to that extent the people who live in the UK and those who hold quantities of pounds elsewhere will be richer while those who live with or own the rand will become poorer. What is the ethical status of an arrangement which can only enrich some at the cost impoverishing others? It is claimed that the currency competition will in the end enrich everyone but the history of it and its present impact upon the world do little or nothing to encourage that belief.
Moreover, when profits earned as the result of the labour of the citizens or of exchanges transacted in their currency are invested so as to avoid returning to those citizens some entitlement for their community beyond the actual wages that they have been paid, is there not an ethical question? Can it be a mark of good citizenship to avoid a legitimate benefit to which fellow citizens are entitled? It is not illegal, but surely it is unethical. And yet many a company has deliberately transferred its assets to a tax haven specifically to avoid tax, which is nothing but the income of the community.
The basic affirmation of Judaism, Christianity and Islam is that the world is created by God to be the scene or theatre of human life and growth in partnership with other forms of life and with nature itself. ‘The earth is the Lord’s and its fullness, and all who dwell in it’ (Ps 24:1). God is the God of life who intends the nurture and the satisfaction of every living thing (Ps 104:28). God is an economist, who intends to manage the domestic economy of the earth in a way such that no child will die of hunger, and no adult will die in despair.
Although the Bible does speak of competition, the reference is always to struggling against our own weaknesses (1 Cor 9:24-7) or competing with one another in loving service of each other. Jesus taught that human life cannot be measured by the abundance of possessions (Lk 12:15) and was critical of those who stored up the necessary things of life in order to make money (Lk 12:16-21). Indeed, in one famous saying, Jesus says that it is impossible to serve both God and money (Mat 6:24). The calling of the Christian, and this is true of the Jew and the Muslim and followers of all the main religions, is to seek for justice within the kingdom or the city of God (Mat 6:33). The mode of the spiritual life which is held out by the Christian faith and by all the great religions is that we are to build one another up in love, not destroy each other in ruthless competition (Gal 5:15). The teachings of the Roman Catholic Church and of the World Council of Churches make it very clear that the impact upon values and human relations of the present destructive money competition is to be deplored and that Christians are called to protest and it inaugurate a new society.
In tackling these problems Christian faith as we have inherited it in the rich world offers only limited inspiration. Faith has become conceived of as a private and personal thing, affecting your own individual happiness or guaranteeing the happiness of your soul after death. This means that Christian faith appears to be more immediately relevant at the face to face level but is less applicable at the industrial, national or pure finance levels. As you mount these circles, the face to face element diminishes and human relationships become more abstract and remote. The trickle down effect is concealed from us by the fact that we tend to take society for granted, and may not realise the forces which are shaping us. And yet it is the higher levels, especially the pure money level, where competition has become most destructive. It is not an exaggeration to say that in many ways money has become the God of the modern world, rewarding those who serve money and have plenty of it, and crushing those who lose out in the race for life.
Many Christians are aware of the need to rethink Christian faith today so as to focus the enormous spiritual and ethical potential of this and other religions upon the real causes of suffering and death today. You can follow up this in your own thinking and action through the suggestions in the resources which follow.
A readable account of the rise of the competitive money markets may be found in The Global Trap: Globalization and the Assault on Democracy and Prosperity by two German journalists Hans-Peter Martin and Harald Schumann (London, Zed Books 1998) and the Belgian financier Bernard Lietaer is very critical of the money markets in his The Future of Money: Creating New Wealth, Work and a Wiser World (London, Century 2001). He also suggests new directions for money. The Oxford economist Kamran Mofid discusses world economics from a theological and ethical point of view in Globalisation for the Common Good (London, Shepheard-Walwyn 2002). Many articles on the ethics of money and world development are to be found in the monthly magazine The New Internationalist whose web address is www.newint.org . Lots of information and campaigning activities may be found on the websites of the Christian Council for Monetary Justice (CCMJ) http://go .to/ccmj the World Development Movement (WDM) www.wdm.org.uk and people of all faiths and none will find much of interest on the Christian Aid website www.christian-aid.org.uk
© John M. Hull 2003