Economic consequences of a lack of ethics and morals

The times of constant real economic growth in the Western world are over. We are at a secular turning point. Despite ever more inventions and technical progress, despite constantly increasing labour productivity, there will probably be hardly any further real, welfare-enhancing economic growth for the majority of the population in the future. Or we will even see a shrinking of our real prosperity for most of the people of the Western world and many other countries.

Europe is currently in a rapidly progressing process of bureaucratisation, ossification and surveillance and is struggling with ever-increasing diseases of civilisation. Slowly but surely, the economy is becoming heavier and heavier with ballast, so that at some point it will run out of steam. The phase of ascent is probably over. With a bit of luck, we may be able to maintain the level we have reached for a few more decades.

Examples

That many countries should be in or facing a phase of real welfare stagnation or even shrinkage may sound very implausible at first glance. Therefore, a few empirical proofs based on countries in which the predicted development has already largely occurred for several years:
  Measured in terms of officially reported purchasing power-adjusted gross domestic product (GDP) per capita, there has been virtually no per capita economic growth in the UK, South Africa, Mexico and Japan for the past 14 years. Brazil has been stagnant for 10 years, and people in Italy are poorer today than 20 years ago, according to government figures.
  In Germany, GDP per capita adjusted for purchasing power officially increased by a total of 11.6 percent from 2007 to 2021. That actually does not sound bad. However, a study by the Hans Böckler Foundation from 2016 arrives at quite different results for a period somewhat further back in time. The trade union-affiliated researchers contrasted GDP with their own welfare indicator, the National Welfare Index (NWI). This supplements GDP with, among other things, distributional components, voluntary employment, and it subtracts harm reduction activities such as costs from crime, environmental pollution, noise pollution, etc.
  From 1991 to 2014, real GDP in Germany increased by a total of 34.3 percent. The welfare index NWI, however, only increased by 4.4 percent in the same period. This is a dramatic difference. According to this index, real welfare for the majority of people in Germany hardly increased at all during these 25 years, although real GDP growth of one third was reported. This is an impressive result that raises some questions.
  Presumably, the welfare measure developed by the Hans Böckler Foundation for Germany between 2007 and 2021 will show real contraction instead of economic growth of 11.6 percent. The results published by the Trade Union Foundation in 2016 underline the statement made above that we may in fact have long since entered a phase of stagnation in the real growth of prosperity for the majority of the population. Only the official statistics do not let us know.
  But people still feel it. Many people wonder, for example, why it is no longer possible for many young families today for only one parent to work to finance the family, why for economic reasons very often both parents have to work, whereas a generation ago, when we were officially much poorer, this was often not necessary.
  The six countries mentioned first have thus already been officially in a state of far-reaching economic stagnation or even shrinkage of the actual material standard of living for many years. Germany has probably also been de facto in a phase of stagnation of real well-being for many years. If the method of the Hans Böckler Foundation’sNational Welfare Index were also applied to the six other countries, the results would most likely be much worse than the official GDP figures described above. Presumably, in these six countries, real welfare has been falling for a long time for the majority of the population. If you talk to people from Italy, they usually confirm this vehemently. The same applies to conversations with people from South Africa or Mexico.

Causes for the end of economic growth

In my view, there are two main drivers that are leading us into decline. One is declining health. Secondly, and probably the main reason, declining ethical and moral standards.

1. Declining Health, Increasing Diseases of Civilisation
   If we are getting sicker and sicker, if allergies, neurodermatitis, diabetes, high blood pressure, caries, ADHD, obesity, arthrosis, rheumatism, cancer are already on the increase at a young age, we need more and more health personnel and medicines. This officially increases economic power. An increase in these health services or products increases GDP. In reality, however, there is no increase in wealth or well-being, on the contrary. One only “repairs” expensively, with a lot of time, energy and pain, trying to regain the state of health that was there before, or at least not let it deteriorate further.
2. Declining standards of morality and ethics
   When moral and ethical standards in a country decline, there are serious damaging economic effects. Key factors are trust and reliability. Our economy is highly organised based on the division of labour. Production chains are often very long and stretch across many countries and continents. If one link in the production chain breaks, the whole supply chain no longer functions, as we had to painfully experience during the lockdowns. How do you ensure that supply chains work on a large and small scale, that all parties involved abide by the rules, that delivery deadlines and quality criteria are fulfilled?

The less the people involved in the economic process adhere to ethics and morals, the higher the transaction costs become. This makes the production and distribution of goods and services more expensive. The lower the moral standards, the more cheating takes place. Cum-Ex deals, diesel scandal, Wirecard, rotten meat, insurance fraud, glycol wine, tax evasion, financial fraud, concealed shortening of product life cycles, etc.: The list of small and large frauds and overreaching in everyday business life is long and constantly growing. In my estimation, white-collar crime, dishonesty and overreaching in business life have been increasing significantly for decades and will continue to increase in absolute and percentage terms.
  How does this concretely affect our lives? One example: If crime increases because of declining moral standards, we need more and more police, security and guard personnel, more people to produce surveillance cameras or other security items such as locks, deadbolts, security software, weapons, protection and defence devices or defence items, more lawyers, judges and prisons. Increasing the benefits of these people increases GDP, but not real prosperity. On the contrary. With increasing crime and surveillance, people feel less comfortable than before when crime was non-existent or rare and GDP was lower.
  No real improvement in people’s lives comes from such an increase in GDP. One only “repairs”, one tries to restore the state of security and trust that existed before the rise in crime, or at least not to let it deteriorate further. In economics, these kinds of goods are also called “regrettables”.
  So, if you want to maintain production despite declining moral standards, you need ever stricter rules, controls, bureaucracy and enforcement instruments or personnel such as supervisors, surveillance cameras, controlling, lawyers, courts and police. All this leads to rising production costs. The lower the ethical standards, the more expensive it becomes to produce, the more resources, capital, human spirit, energy and vitality have to be put into administration, control, surveillance and bureaucracy instead of productive activities.
  In short: the more egoism prevails in economic life and in society in general, the more difficult and unproductive the production of goods and services becomes. What will happen to Europe in the medium term if moral standards continue to fall can be well studied in the Mafia in Sicily or in some slums in South America. When core elements of morality and decency are really destroyed, mafia systems and other organised criminal gangs can flourish. In some favelas in South America, only the law of the strongest counts, pure egoism or, what is perhaps even worse, group egoism, gang egoism prevails. In Rio de Janeiro, for example, about a quarter of the area or a good two million people are under the control of such gang structures. Then there is a system of fear and extortion.
  Apart from the social and psychological devastation that such frightening structures bring, this wipes out all kinds of sensible economic activity. Under such conditions, economic life can only produce what is necessary for survival. Growth or even prosperity is no longer conceivable under such circumstances. The more our society develops in such a direction from a moral point of view, the more prosperity will decline.
  It is a big mistake to believe that one can compensate for declining ethical standards, which lie within human beings, through external strict laws, rules of the game and their enforcement by means of external pressure. It is precisely the enforcement of rules through external pressure, with threats of punishment, etc., that leads to the increasing control, monitoring and bureaucracy described above, which does not create prosperity, but only sucks up more and more resources unproductively.
  If Europe goes downhill in moral terms, the real standard of living for the majority of people will also go down. As we are on this path in Europe, in my estimation, our welfare will experience a decline instead of an ascent in the coming decades.  •

* Professor Dr Christian Kreiß, born in 1962: studied economics and economic history at the LMU Munich. Worked as a banker for nine years, seven of which as an investment banker. Since 2002 professor of business administration with a focus on investment, financing and economics. Author of seven books: Gekaufte Wissenschaft (Bought Science) (2020); Das Mephisto-Prinzip in unserer Wirtschaft (The Mephisto Principle in our economy) (2019); BWL Blenden Wuchern Lamentieren (Business Studies Dazzle Usury Lament) (2019, together with Heinz Siebenbrock); Werbung nein danke (Advertising no thanks)  (2016); Gekaufte Forschung (Purchased research) (2015); Geplanter Verschleiss (Planned wear) (2014); Profitwahn (Profit mania) (2013). Three invitations to the German Bundestag as an independent expert (Greens, Left, SPD). Numerous television, radio and magazine interviews, public lectures and publications. Member of ver.di and Christians for a Just Economic Order. Homepage: https://menschengerechtewirtschaft.de/.