From Ethical Corporation:
Legendary financier and pro-democracy campaigner George Soros is a self-confessed corporate social responsibility sceptic. He spelt out his reasoning at a recent conference. At the European Academy of Business in Society conference in Milan in September keynote speaker George Soros, piped in from the US via video, talked of his concerns about corporate social responsibility being used as a cover for business-as-usual practices by companies.
A self-confessed sceptic on corporate social responsibility, because of its “built-in incentives for hypocrisy”, Soros said that, in his experience, if there is a conflict between making money and social responsibility, then making money tends to dominate. However, he said, to maximise money-making opportunities in modern times it is important for companies to pretend to be interested in corporate social responsibility. The right attitude is therefore one of scepticism, he told the audience at Bocconi University. “But that does not mean I am opposed to it, I prefer hypocrisy to ignoring the common good,” he said.
One of the challenges to genuine social responsibility is that market fundamentalism, widespread in the US, holds that the common good is served by participants pursuing their own good. In Soros’s view, this is “a distortion of economic theory”. For Soros, this fundamentalism is based purely on short-term considerations, the question of “what are the earnings this quarter?” […]
Read the full article here.
[via Paul]
GlobaLab 
What do you call “market fundamentalism”?
What Soros is saying is correct. The new interest of corporations towards social, environmental and racial issues is only guided by money, prestige ( within industry rankings) and competitiveness. The last two ultimately bring money!
Actions are not necesseraly taken to make money but to avoid losing any.
Companies have been pushed to embrace a more social acceptable stance to remain alive.
New recruiters prefer to work for companies with a “heart”, in order to grab the best candidates, they have to offer a better work environment and a better attitude towards the world.
Clients will shop at Tesco’s if they give you a point back if you don’t ask for a plastic bag and stock fair trade organic food, they’ll power their houses with London energy for a cleaner environment, bank with Coop because it’s supposed to be the people’s bank.
Companies adopt new measures, donate to charity, involve employees in social services, match donations with marathon runners, recycle paper, switch off pc at night, move towards a paperless office, respect the elderly and make every effort to seem dedicated to diversity. Why?
Well to attract recruits, clients and to avoid some old fat woman suing them for being undiverse.
Do you think they really care? No they don’t. They only implement new measures in what maximise their profits and enhance their profiles.
Have you seen companies organising bus for their employees, have you seen run a car sharing database? Have you seen anybody checking how many cars are already leaving the office for the airport at the same time?
If wasn’t all just for money why share rise and fall based on profit margins and not of tons of carbon emissions their employees’travels create?
Therefore yes it’s hypocrisy. Nowadays you need to look caring Machiavelli said that the end justify the means, in modern times the means are for once the good ones and if they are used to get a better end, well at least you get fair trade coffee in your latte.
Is that Market Fundamentalism?
Uhm no! The article ( no longer visible) was referring to one of Soros’s view. It is ultimately embedded in the concept of market fundamentalism, but it is not completely it.
The article above was debating that what they companies are doing to help society and the environment is an hipocrisy because they only do it to gain further profits.
In his ideas for Market Fundamentalism he invokes companies to help society and the environment otherwise they won’t be able to survive, not necessarily because the competition kills you attracting more clients and better employees, but invokes creation of a global market with common rules, all under an international power, think of a map in the map, not a geopolitical sense but in a global sense, to avoid the end of the financial markets.
The book was written in 1998
In the 90’s the market encountereed various crises.
Mexico in 1994
Asia Meltdown mid 1997
Russia’s crisis and the near collapse of LTCM & almost with it the financial market.
LTCM ( long term capital management ) – very rarely you won’t find a reference to this hedge fund. The greatest minds including Nobel prizes caused the worst crisis of modern times- appropriately so a book dedicated to the story is entitled When Genius Failed.
As the entire market was involved in their bets in order to avoid the collapse of the entire system somebody had to take control. The Federal Reserve had to intervene and cut rates, something unheard of, the Fed organising an emergency meeting with the biggest banks to save the world.
But this event in particular highlited new concerns about the linkages between countries and financial markets, because it didn’t only affect financial markets in emerging countries, but in many advanced economies.
The one above is an extremely summarised version of the situation in the financial markets, to give you an idea of the framework in which market fundamentalism comes into play.
The concept of Market Fundamentalism was introduced in the book entitled The Crisis of the Global Capitalism where Soros voices his fears about the operations of the international financial markets.
With statistics showing the beginning of a recession and with the growing realization
that the so-called “Asian meltdown” was in fact a crisis of the world capitalist system, a series of warnings from within ruling circles highlited the dangers posed by the unrestricted operations of financial markets.
The World Bank, for example, implicitly criticized the prescriptions of its sister organization the International Monetary Fund insisting that the primary role of fiscal and monetary policy must be to shore up aggregate demand and “expand the social safety net.”
The Financial Times published numerous articles and comment pieces warning that unless central banks took corrective action there was the danger that the world could have plunged into a 1930s-type depression. Likewise, The Economist issued several warnings that the rise in share values on Wall Street signified the development of a “bubble economy” the collapse of which could have had far-reaching consequences.
Some of the most strident warnings about the state of global financial markets came guess from whom? Soros, who achieved international notoriety after his Quantum Fund made around $2 billion at the expense of the Bank of England during the sterling currency crisis of 1992.
Soros began the year with an article in the Financial Times warning that the Asian financial crisis–at that stage dismissed by US president Clinton as a “glitch” along the road–could set off a world deflation tendency unless action were taken to counter it.
When the financial crisis spread to Russia in August, Soros published a letter declaring that its banking system was on the point of collapse. The following month, during testimony to the US Congress, he pointed to wider implications of the Russian events, warning that the global capitalist system was “coming apart at the seams.”
He told the Congress there was a need to “rethink and reform” the global capitalist system and that as the Russian experience had shown “the problems will become progressively more intractable the longer they are allowed to fester.”
Rethinking the capitalist system, Soros insisted, had to begin with the recognition that financial markets are inherently unstable. The global capitalist system was based on the belief that markets, if left to their own devices, would tend to return to an equilibrium position. But this view was false and “instead of acting like a pendulum financial markets have recently acted more like a wrecking ball, knocking over one economy after another.”
Soros sets out his concerns in the opening paragraph: “We live in a global economy, but the political organization of our global society is woefully inadequate. We are bereft of the capacity to preserve peace and to counteract the excesses of the financial markets. Without these controls, the global economy, is liable to break down.”
And on the next page Soros continues this theme: “The development of a global economy has not been matched by the development of a global society. The basic unit for political and social life remains the nation-state. International law and international institutions, insofar as they exist, are not strong enough to prevent war or the large-scale abuse of human rights in individual countries. Ecological threats are not adequately dealt with. Global financial markets are largely beyond the control of national or international authorities.”
There was nothing particularly original in these thoughts. Soros merely pointed to the central contradiction of world capitalism identified by Marxists throughout this century–that between the development of a global economy and the division of the world into rival competing nation-states.
According to Soros, the chief danger to stability is the emergence of what he calls “market fundamentalism”– the belief that the common interest is best served by individual decision-making and that attempts to maintain the common interest by collective action distort the market mechanism. “It is market fundamentalism,” he insists, “that has rendered the global capitalist system unsound and unsustainable.”
Soros noted that it wasn’t the first time that a global capitalist economy had developed. The first version of the global economy developed at the end of the nineteenth century. However, despite being sustained by major imperial powers, with a common ideological outlook and a stable monetary system based on gold, the system broke down.
“The nineteenth-century incarnation of the global capitalist system,” he writes, “in spite of its relative stability, was destroyed by the First World War. After the end of the war, there was a feeble attempt to reconstruct it, which came to a bad end in the crash of 1929 and the subsequent Great Depression. How much more likely is it, then, that the current version of global capitalism will also come to a bad end, given that the elements of stability that were present in the nineteenth century are now missing?”
Soros was critical of the moves by the IMF, the US Treasury and the leaders of the G7 to improve the flow of information on financial markets to try to prevent the emergence of crises in the future. The prevailing doctrines about the operation of financial markets have not changed and the assumption is that with perfect information markets can take care of themselves. He insists that the “debate” must be broadened.
“It is time to recognize that financial markets are inherently unstable. Imposing market discipline means imposing instability, and how much instability can society take? … To put it bluntly, the choice confronting us is whether we will regulate global financial markets internationally or leave it to each individual state to protect its interests as best it can. The latter course will surely lead to the breakdown of the gigantic circulatory system, which goes under the name of global capitalism.”
Soros insists that to “stabilize and regulate” the global economy and prevent such a breakdown, a global system of political decision making is necessary. However in advancing this “solution” Soros runs up against the real contradictions and conflicts generated by the system of rival capitalist nation-states.
“A global society,” he writes, “does not mean a global state. To abolish the existence of states is neither feasible nor desirable; but insofar as there are collective interests that transcend state boundaries, the sovereignty of states must be subordinated to international law and international institutions.”
However, as Soros himself acknowledges, the greatest opposition to this idea is coming from the United States which is “unwilling to subordinate itself to any international authority.” In other words, at the very point where the development of a truly global economy requires the creation of international institutions to prevent a breakdown of the whole system, the divisions between the most powerful nation-states are deepening, thereby rendering such collaboration increasingly difficult, if not impossible.
There are many examples of this process: the increasing inability of the major capitalist powers of the G-7 to reach agreement on economic policies, the conflicts within the IMF over funding and policy issues, the trade tensions between the US and Europe and between the US and Japan, the development of the euro as an international currency to challenge the dollar, and the recent breakdown of the APEC summit, to name but a few.
And in the two weeks after the publication of Soros’ book, one of the most graphic examples of “unilateralism” occurred with the US onslaught against Iraq aimed at securing its interests against its capitalist rivals in the resource-rich Middle East and central Asian regions.
Soros pointed to some of the central contradictions of the world capitalist system. But the proposals he advanced make clear that the representatives of the bourgeoisie, even where they were conscious of the disasters which the market system was producing, wasunable to advance any program which could lead civilization out of the impasse in which it was finding itself in 1998.
Is the situation different now? My personal opinion is that the market has made some progress towards it, central banks are now more transparent, meaning they communicate clearly their actions to the market, for the first time monetary policy is coordinate, more nations this year raised rates than ever, Japan came out of deflation. We now look at economies, yes individually, but more so as global, because growth in one region affects the rest of the world as does global slowdown.
The economy is now global, and considering that China holds more than 1 trn of reserves of which 70% are guess in what? Us treasury bonds= translated in normal terms that means that China feeds US debt, hence they are dependant, hence the world is.
The transparency of central bank has brought the lowest volatility in the last 12 years.
So despite it doesn’t seem so, the world is more stable, regulated and countries are working financially together, for a more controlled financial system. Is it? no if you look at housing bubbles, carry trades etc etc, but the financial system has more control on itself.
This is fascinating stuff. Do you have specific documents/web references to give as well? Are these last opinions your own or are they from some other analyst?
The quoted stuff is from Soros book, the last opinions ( last 3 paragraphs) my own..as some comments in the middle. Remember I do that for a living!!
I did a very short summary at the beginning to put everything in a context, otherwise you won’t get the evolution, the timing of Soros’ comments and what happened since.
On Long Term Capital Management read “When Genius failed”, there is an enourmous amount on the internet too, it’s just not all correct.
The are a couple of interesting papers on the IMF website, but are too long and they only give you one side of the story.
On national reserves they are published, and everytime there is a change the market moves as a result. Not sure where you can get them on the internet but ask me any time I’ll send you a screen print of the latest figures.
On central bank transparency, that has been the aim of central banks for the last decade and it has been finally achieved, on the Federal reserve or on the ECB website you can find any reference you want. The major achievement has been with the appointment of Trichet which promptly communicates with the market. Also there is a language analysis that is done on all the statements that are published, so that certain words indicate exactly what is the next action they gonna take. This is to avoid misinterpretations and error during translations.
I’ll try to find the right documents and I’ll post some links, however they still need to be explained.
You might also be interested in a paper published by a central banker, don’t remember who, presume Kohn, on globalisation and the effect of global inflation. Basically one of the questions of market participant in the last year was if in reality the fact that lots of manpower has moved to countries where it’s cheaper has decreased the prices of goods or not. You would think so, I do think so for example, but one of the theory is that this effect has also given more power to spend to a new number of people hence generating inflation, therefore the two effects net eachother out.
Moving on, last week Friedman died, today there was an interesting article on the FT Milton vs Keynes, probably the two greatest economist of the century.
This can open another quiet interesting discussion. I saved the article, I’ll provide that as well, it’s just can’t blog from work and keep most of this stuff at work.
“Their differences were, indeed, profound. But so was what they shared. More interesting, neither won and neither lost: today’s policy orthodoxies are a synthesis of their two approaches.
Keynes concluded from the great depression that the free market had failed; Friedman decided, instead, that the Federal Reserve had failed. Keynes trusted in discretion for sophisticated mandarins like himself; Friedman believed the only safe government was one bound by tight rules. Keynes thought that capitalism needed to be in fetters; Friedman thought it would behave if left alone.” (FT 22nd Nov. pag.19)
Some of the references you asked.
When somebody says something in financial markets you don’t need quotes if that’s an accredited person. If it’s not true it’s called a rumour… the news that move the market without fundamental reason, however as you all seem to want sources.. here you go.
Financial Markets are not right or wrong, not black or white, however some people are fundamentally wrong, not because I might not share their opinion but because what they say is economically, statistacally, mathematcally and logistically wrong, however it’s very difficult to realise that from reading sources or from quoting books.
I believe I chose in my quotes useful information that give you both the views. However because in order to continue to type on this I will have to quote things that don’t actually need to quoted, I’ll add some financial stuff on my blog, because if Trichet says something, it’s Trichet, it doesn’t really matter where when and how did he say that. He said it, it’s what he thinks, you don’t need a source for it, if somebody wants a source he’s missing the all point of getting the news out first. You need to be on top of the matter, and your information need to be correct, the rest is irrelevant.
On central bank transparency
central bank transparency
here
here
And the official ecb piece.
here
The Effects of Globalization on Inflation and Their Implications for Monetary Policy
This instead is an example of something which is interesting, but it could be totally wrong, and all the references are wrong and the people mentioned are useless but it’s something that can interest you. None of the people mentioned here are relevant to the financial market, but they express opinions in the name of a free market.
And if you are wondering what happened to the dollar in the last couple of days and why everybody today that was a finance minister said not to worry here you go.
A thin market, with central bank offers below not being filled for many days in a row, what cant go up, goes down. We break through barriers and head lower.
What has changed in big picture macro? Not much, but the drip-drip-drip of same direction finally got market to break from multi-month consolidations. This week, for example, we learnt that a/ IFO went back UP (WOW! changing trend is very rare) matching its 15-year high, b/ Japan recorded its longest post-war expansion (double wow), c/ China wants to reduce its dependency on USD. The global slowdown, local strength story remains the same: the rest of the world is very resilient to the modest US slowdown. In this environment, rate normalisation continues, burdening those who need to borrow (such as the US). The drum of the ECB has become deafening, and BoJ has laid out a January hike. Meanwhile, China is bent on rebalancing its economy (stronger currency, less reserve accumulation, less investment) and people have stopped listening or dont believe them.
Why now? A butterfly causes a hurricane. Same thing happens in markets when you have a long-term technical formation. Low volatility sows the seeds of its own demise. When vol is low, and st dev are low, investors are forced to take on more risk and tighten their stops. This means that a small event, which normally wouldn’t have produced a large effect, this time does, as stops get triggered and risky positions need to be adjusted. This is the typical problem with carry trades: if there were a way to find out ahead of time which exact date they unwind, they wouldn’t be profitable!
Not sure why, some links didn’t work
The Effects of Globalization on Inflation and Their Implications for Monetary Policy
http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2006/20060616/default.htm
THE FREE MARKET STUFF
http://www.free-market.net/resources/fnn/2005fall/koln-spkr-txt/erich-weede.html
http://www.free-market.net/network/global/index.html
Some links didn’t work here you go again
The Effects of Globalization on Inflation and Their Implications for Monetary Policy
http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2006/20060616/default.htm
THE FREE MARKET STUFF
http://www.free-market.net/resources/fnn/2005fall/koln-spkr-txt/erich-weede.html
http://www.free-market.net/network/global/index.html
Ah and the FT article Milton vs Friedman
Keynes v Friedman: both can claim victory
By Martin Wolf
Published: November 21 2006 19:34 | Last updated: November 21 2006 19:34
John Maynard Keynes, who died in 1946, and Milton Friedman, who died
last week,were the most influential economists of the 20th century. Since Friedman spent much of his intellectual energy attacking the legacy of Keynes, it is natural to consider them opposites. Their differences were, indeed, profound. But so was what they shared. More interesting, neither won and neither lost:
today’s policy orthodoxies are a synthesis of their two approaches.
Keynes concluded from the great depression that the free market had
failed; Friedman decided, instead, that the Federal Reserve had failed. Keynes trusted in discretion for sophisticated mandarins like himself; Friedman believed the only safe government was one bound by tight rules. Keynes thought that capitalism needed to be in fetters; Friedman thought it would behave if left alone.
These differences are self-evident. Yet no less so are the similarities.
Both
were brilliant journalists, debaters and promoters of their own ideas; both saw the great depression as, at bottom, a crisis of inadequate aggregate
demand;
both wrote in favour of floating exchange rates and so of fiat (or
government-made) money; and both were on the side of freedom in the
great ideological struggle of the 20th century.
If it were not for the fact that the UK and US are two nations divided
by a common language, one might even call both “liberals” in the 18th and
19th century English sense of that word. But Keynes, though temperamentally a
liberal, was also a pessimistic member of the upper middle classes of a
declining country: he thought the survival of a measure of freedom
required jettisoning large elements of 19th century orthodoxy. Friedman, a child of poor Jewish immigrants and thoroughly American, was optimistic: he hoped to restore free markets and limited government.
To achieve this end, Friedman sought to demolish what he saw as the
mistakes made by Keynes and his successors: the assumption that a fixed
propensity to consume out of current income drove aggregate demand; the trust in fiscal policy as the most potent instrument in the policy armoury; the belief that changes in nominal demand would secure durable changes in real output; and confidence in the exercise of discretion by governments.
In his work of the 1950s and 1960s, Friedman took on all these
propositions in turn. In a celebrated paper published in 1957 he argued that consumption depended not on current, but on permanent or long-term, income; in A Monetary History of the United States (1963), co-authored with Anna Schwartz, and a number of empirical studies co-authored with David Meiselman, he sought to reinstate the quantity theory of money, the view that a stable
relationship exists between the money supply and nominal demand; and in his famous presidential address to the American Economic Association in 1968 he
advanced the “natural rate of unemployment”, also known as the “non-accelerating inflation rate of unemployment” (NAIRU), in place of the trade off between inflation and output implied by the then-fashionable “Phillips Curve”.
In the 1960s, most economists regarded Friedman’s belief in the free market and rejection of Keynesian ideas as evil, misguided or, more often, both. I
remember the shock when, at Oxford, I read his arguments supporting the idea of a natural rate of unemployment just after its appearance. The great
inflation of the 1970s – unprecedented in peacetime – transformed the climate of opinion. So, too, did the collapse of the fixed exchange rate regime in
1971 and move to free floating, which preceded the price surge.
A new theory was required to guide this world of more or less freely
floating exchange rates and soaring inflation. The answer, it was hoped, was
Friedman’s monetarism – the targeting of some measure of the money supply. As
chairman of the Federal Reserve, Paul Volcker tried that experiment in the US
between 1979 and 1982. Margaret Thatcher’s government tried it in the UK between 1979 and the mid-1980s. In both cases inflation was crushed. But the relationship between money and nominal demand also crumbled. Keynesianism had, indeed, died.
But so, too, did Friedman’s monetary rule.
From the ashes, a new orthodoxy has emerged: policy should, as Friedman
argued, target a nominal variable, not a real one; that target should be the
goal, inflation, not the instrument, money; central banks should be free to
move the interest rate as needed to hit their target. This, then, is a regime of rules-bound discretion. Friedman would approve of the rules; Keynes
would approve of the discretion. Friedman has won on the primacy of monetary
policy; but Keynes has won on the rejection of the quantity theory.
Yet both have won in the most important sense. Over the past two decades, a
world of fiat money has supplied modest inflation and supported stable
growth.
This is unprecedented. Friedman himself stated early this year that “Alan
Greenspan’s great achievement is to have demonstrated that it is
possible to maintain stable prices”. Thus did the great proponent of rules commend the great employer of discretion.
Are the inflation-targeting independent central bank and floating currencies
“the end of history” in macroeconomic policy? I suspect not. The vagaries of
floating exchange rates seem to cry out for yet another experiment in
monetary integration, perhaps even a stab at a world currency.
The march of technology may even make money redundant as anything more
than a unit of account.
Policy debate, too, continues. The European Central Bank may yet persuade its
peers that the monetary data tell one something useful. Central banks may learn, as well, that they ignore asset prices at their peril. Even
expansionary fiscal
policy may again be needed, as proved the case in Japan during the
deflationary 1990s.
Also uncertain is the future of the market economy. Here, too, the present
position is a draw. Keynes would have worried about the destabilising
consequences of the freeing of capital flows. But Friedman had to recognise that a comprehensive rolling back of the state was not on the agenda. The
market has indeed been freed from many of its mid-20th century shackles. But the state commands resources and regulates economies on a scale unimaginable a
century ago. Globalisation itself may yet founder.
Keynes and Friedman were the protagonists of the policy debate of the
last century. But today, we can see that neither won and neither lost.
Some of the links on the comment before didn’t work. Here you go
The Effects of Globalization on Inflation and Their Implications for Monetary Policy
http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2006/20060616/default.htm
http://www.free-market.net/resources/fnn/2005fall/koln-spkr-txt/erich-weede.html
http://www.free-market.net/network/global/index.html
Uhm. If I had a 48 hour day maybe I would have time to check all this stuff… Will do my best, but thanks in the meantime for it, especially for the FT article which is really interesting…
On quoting, I am sorry, it doesn’t work this way, not even in finance. If Whoever said something, you must have read it somewhere, or else you heard it at some conference or on the media, in which case that’s what you refer to. Any source, since the dawn of social sciences, needs to be referenced. To my knowledge the rules didn’t change for Economics.
;o)
You may appreciate a post I have up about Soros. It juxtaposes his background with Rupert Murdoch’s empire.