‘Critic & Conscience’ of Society

Ian Shirley

In 2010 I participated in an OECD Forum in Paris. The Forum was ostensibly focused on the ‘Road to Recovery’ following the onset of what was called the global financial crisis of 2007-2008. In contrast to previous OECD events the forum was dominated by pessimism. The chief economist of the OECD began proceedings by acknowledging the crisis.

We began the past two decades with hope but it has ended with the uncoupling of law and markets leaving many national economies on life support.

Over the next three days of the forum, the usually optimistic club of the world’s wealthiest nations focused on the ill-gotten gains of global finance, the concomitant corruption of politics and the abject failure of national governments in the industrialized world to safeguard the public interest. Whereas some commentators called for the elevation of moral philosophy and ethics in the wake of greed and corporate failure, others advocated the separation of capital-market banking from standard commercial banking – the separation of retail banking from speculation and the casino economy. Most remained pessimistic that governments in Europe and North America would make the structural changes necessary to control and audit the financial sector. As a consequence the forum concluded with predictions that another crisis would follow, even more devastating than the three years of turmoil that preceded the 2010 review.

The past five years has reinforced that prophecy as the world economy has witnessed what Schechter refers to as ‘the chain of criminality’ that began in Wall Street where three industries (Finance, Insurance and Real Estate) ‘colluded to sell fraudulent subprime loans thereby enriching themselves while plundering the rest of us’. The scale of this fraudulent process was not only evident in exorbitant salaries and bonuses extracted by finance company Chief Executive’s, the banks and finance houses they built by speculating with public and private savings, but also the trillion-dollar bailouts by ‘governments’ spending taxpayers funds that dwarfed Third World aid and military expenditure. The scale of corporate welfare required to underwrite individual and corporate greed was graphically illustrated in the 2009 summary compiled by Anup Shah.


The most obscene aspect of the finance sector bailout stems from the fact that most of the money went to those who had caused the problem rather than the victims. It went to the perpetrators in the form of banks and finance houses so that they could resume speculating with other peoples’ money thereby socializing the costs of the crisis while privatizing the profits. As Joseph Stiglitz suggests we became accustomed to hypocrisy. The banks rejected any suggestion that they should face regulation and they stringently opposed any moves to impose standards and controls over ‘the market’. Yet when the market failed, as fail it did, they demanded government intervention. They considered themselves to be too big, too important to be allowed to fail while the costs of the toxic mixture they inflicted on the public at large meant that homeowners, workers, investors and taxpayers (the public) paid the price for the corruption and greed of a small cartel who benefited directly from the casino economy.

It is not surprising that few individuals have had to account for their greed. It was the speculative financial markets they helped establish that ensured their immunity from prosecution. Governments in turn capitulated infused as they were by a form of ‘trickle-down economics’ – you throw enough money at Wall Street and some of it will trickle down to the rest of the economy. J.K. Galbraith once referred to this thinking as the ‘horse and sparrow theory’ – you feed the horse enough oats and eventually some of it passes through to the sparrow waiting by the roadside – as Galbraith commented at the time, ‘if you believe that you’ll believe anything!’

But governments in Europe and North America did believe, and as a consequence they failed the public they were elected to represent. The implications of this failure on the part of national governments across the industrialized world is patently evident as austerity measures have been introduced to curb the infection and technicians have been appointed in place of democratically elected governments to implement technical solutions to a systemic problem. The measures they introduced were merely aimed at treating the symptoms rather than curing the disease. Thus the disease spread from country to country as policy makers lacked the courage to design robust regulatory systems capable of monitoring financial markets and ensuring transparency and accountability.

The fallout from the global financial crisis has continued unabated as illustrated by bank collapses and house foreclosures through to street protests, occupation movements and a massive increase in the numbers seeking employment and financial assistance. As we know from the lessons of history, whenever there is a gross imbalance between different groups or sectors of society the system that generates these inequities cannot be sustained. They inevitably lead to huge disparities of wealth and power and the outcome will be levels of poverty and destitution that will rank alongside other obscenities such as slavery and apartheid.

If there is a positive construction to be put on the global financial crisis of the twenty-first century then it stems from the way in which the speculative infection deeply affected us all. The global financial crisis brought the era of market triumphalism to an end but at the same time it alerted us to the way in which market values have permeated every aspect of our lives. As Sandel (2012) has suggested, the most fundamental lesson from the global financial crisis was not just corporate greed and corruption but the way in which ‘markets became detached from morals’ leading to the expansion of markets, and market values, into spheres of life where they do not belong. Markets are not morally neutral – there are certain moral and civic goods that money cannot buy. How policy-makers and citizens address these moral questions will undoubtedly be a key factor in rebuilding the finance sector along with those institutions and systems that establish trust and confidence in government.

During 2016 the Policy Observatory will focus on critical spheres of Public Policy including the lessons generated by international events such as the global financial crisis and the experience of policy initiatives in comparative countries. While the issues in New Zealand stem from a distinctive set of economic and social conditions many of the dysfunctional aspects of the global financial crisis have surfaced in this country over recent years such as increasing inequality (especially child poverty), low wages and systemic unemployment, housing unaffordability, a rise in major health problems such as obesity and an increasing skepticism with government in general and the organs of public policy that are supposedly designed to protect ‘the public interest’. Whereas the integrity of government has often been considered ‘a strength’ of public policy in this country there has been a contagious infection in the quality of governance over recent years and a well-documented disenchantment with politics and politicians.

As the disenchantment with ‘government’ has increased so public confidence in mechanisms such as the Official Information Act, the Ombudsman’s Office and indeed Parliament itself has declined. Perhaps the greatest disenchantment is with the mainstream media and the dumbing down of current affairs reporting and comment. At the very time when it is crucial to have an informed and ‘critical’ fourth estate we have economic media comment dominated by finance sector commentators and bank economists while social policy is increasingly reliant on individuals and groups taking political action to generate a response from government as in the reluctant upgrading of state housing and in the belated attempt to deal with obesity.

Throughout 2015 the Policy Observatory in general and the Briefing Papers in particular generated informed responses to these and many critical issues confronting New Zealand society and this role will be expanded in 2016 with the formation of the Economic Policy Network and the hosting of public forums such as the forum on Education Policy to be held in February. The public forums will be complimented by new and innovative education and training initiatives such as Master classes in public policy and in economic and social development. In these ways the Observatory is seeking to fulfill the aspirations of the Education Act to both appreciate and pursue its role as ‘critic and conscience’ of society.

Categories: Democracy, Economic policy
Ian Shirley
About the author

Ian Shirley

Professor - Auckland University of Technology
Ian Shirley is Professor of Public Policy and Pro Vice Chancellor of the Auckland University of Technology. He has led major research programmes in New Zealand and overseas the most recent being a 15 country study of the major metropolitan cities across Asia the Pacific and Latin America which was published in 2013 by Routledge as Asian and Pacific Cities. Ian is the Convenor of the University’s Professorial Forum and Director of The Policy Observatory.