The current issue and full text archive of this journal is available at www.emeraldinsight.com/0306-8293.htm
Global financial crisis: dharmic transgressions and solutions
Dharmic transgressions and solutions
N. Sivakumar Department of Commerce, Sri Sathya Sai Institute of Higher Learning, Bangalore, India, and
39
Sundara R. Krishnaswami Dallas, Texas, USA Abstract Purpose – The 2008-2009 global crisis was not only a financial calamity, but also a major ethical disaster. The purpose of this paper is to discuss the dharmic transgressions that took place in connection with the crisis using the philosophy of Bhagavan Sri Sathya Sai Baba, a world spiritual leader and teacher. Design/methodology/approach – The paper initially gives a brief overview of the unfolding crisis, its devastation of the world economy and a review of related literature. The paper then outlines the concept of dharma which, as expounded by Bhagavan Baba, must ultimately result in social welfare. The paper goes on to analyze the factors that created, triggered and fuelled the crisis from this perspective. The paper also outlines solutions based on Baba’s philosophy to prevent such a crisis from occurring in the future. Findings – The fundamental finding of the paper is that the global financial crisis was triggered and fuelled by factors which were transgressions of dharma. Thus, the solution to prevent such a crisis is adherence to dharma. Practical implications – The paper gives several recommendations to investors, institutions and regulators to act in a way to prevent such crises in the future. Social implications – If the principles of dharma are adhered to, they will not only prevent occurrence of financial crises, but will also make the financial system work for the welfare of the entire society. Originality/value – The paper shows the relevance of the teachings of Bhagavan Baba which are quintessentially the philosophy of “Sanathana Dharma” (eternal dharma) in solving current economic problems and contributing to social welfare. Keywords World economy, Social welfare economics, Economic depression, Global financial crisis, Dharma, Bhagawan Sri Sathya Sai Baba Paper type Conceptual paper
Introduction – an overview of the crisis The financial crisis which rocked the global economy during 2008 and 2009 is considered as the most devastating economic event since the great depression of the 1930s (Papademos, 2009). The after effects of the crisis are still being felt across the world, with the Greece and Ireland crisis being the latest of its manifestations (Vocke, 2010). The global crisis was initially founded on a low interest rate regime combined with large inflows of foreign funds fueling a housing construction boom Dedication: the authors humbly dedicate the paper to Bhagavan Sri Sathya Sai Baba, The Revered Founder Chancellor of Sri Sathya Sai Institute of Higher Learning, Prasanthinilayam, India.
International Journal of Social Economics Vol. 39 No. 1/2, 2012 pp. 39-54 q Emerald Group Publishing Limited 0306-8293 DOI 10.1108/03068291211188866
IJSE 39,1/2
40
and encouraging debt-financed consumption in the USA. The US Federal Government made it possible for almost everyone to own a home by giving a 1 percent rate on mortgages. Loans including mortgages were granted to almost everybody without checking the borrower’s credit worthiness. Lenders were keen and confident to grant “risky subprime” loans because of financial innovation. The loans were aggregated and sold to investment banks which in turn bundled these loans into higher yielding mortgage-backed securities (MBS) and sold to investors around the world. Such financial innovation enabled institutions and investors around the world to invest in the US housing market. However, credit rating agencies and investors failed to properly price the risk involved with mortgage related financial products. As housing prices declined, major global financial institutions that had borrowed and invested heavily in subprime MBS reported significant losses. Falling prices also resulted in homes worth less than the mortgage loan, providing a financial incentive to enter foreclosure. This crisis peaked towards the end of 2008. Several financial institutions and banks in the USA and Europe failed due to this crisis. The governments had to bail out institutions which were considered too big to fail. Economies worldwide including Asia, Africa and Latin America slowed as credit tightened and international trade declined. Several market-based and regulatory solutions were implemented to contain the risk but significant risks continue to remain for the world economy till the current time (Chossudovsky and Marshall, 2010; Smith, 2010). Economic crisis or ethical crisis? A review of linkages Several scholars studied the ethical issues related to the global financial crisis from various perspectives. Buiter (2007) pointed out that the crisis was the product of a perfect storm bringing together a number of microeconomic and macroeconomic pathologies. Among the microeconomic systemic failures were wanton securitization, fundamental flaws in the rating agencies’ business model, the procyclical behavior of leverage in much of the financial system, privately rational but socially inefficient disintermediation and competitive international de-regulation. Among the macroeconomic pathologies that contributed to the crisis were excessive global liquidity and an ex-ante global saving glut. Researchers analyzed the failure of ethics which caused and fuelled the crisis. While Wesberry (2009) linked the crisis to ethical and cultural decline, Longstaff (2008) showed that negative values of lying, cheating, using power oppressively and financial dishonesty had distorted the free market leading to the crisis. Gilani (2009) stated that the compensation-defined culture of Wall Street led to the crisis. These researchers called for a stronger values system to prevent such crisis. Benton (2009) in this regard emphasized that it is necessary to empower employees to stand in opposition, to question, to push, and to think morally about ways to meet corporate goals in order to create an ethical financial system. The need of the hour is to develop a better work ethic, reduce greed and be conservative (Robinson, 2008). Scholars analyzed the impact of greed on the crisis and highlighted its consequences (Knights, 2009; Poon, 2008; Robinson, 2008). Nielsen (2008, p. 3)commented that one of the important results of the subprime crisis was the transfer of wealth from ordinary people to financial institutions. This has led to a situation of “private profits and socialized risk”. Lo (2009) studied the impact of greed on asset bubbles while Birch (n.d.)
analyzed the distortions in risk taking due to greed. These negative outcomes can be curbed only when the financial system is based on more inclusive goals and objectives. The importance of inculcation of inclusive social goals in the financial world was stressed by Keynes as early as 1929 at the inception of the great depression:
Dharmic transgressions and solutions
[. . .] it will take 100 years before the economy reorganizes itself on more positive values, such as solidarity and understanding towards the most unfortunate and the needy, placing human beings at the top of every economic activity and establishing ethical finance to be at the service of human and social progress (Triquell, 2009, p. 21).
41
Sen (2009) argued that the crisis raised concerns whether capitalism in its current form needs revision. The crisis necessitated economic organizations to go beyond providing short-term solutions to enabling creating a more decent world. Scholars also analysed the importance of an economic system based on trust and stewardship to handle such crisis. Subbarao (2009) in this regard stated that the term credit derives from the Latin word credere, meaning to believe. Trillions of financial transactions take place everyday based on trust. Without broad based trust and presumption of honest behavior, it will not be possible for the financial sector to grow in importance. Similarly Bogle (2010, para 10) emphasized that true reform of financial markets will not be found until financial professionals turn their focus away from the salesmanship that produced so much of the excess of the recent era, and embrace the stewardship that their profession demands. Ultimately, Rhodes (n.d.) stated that financial crisis has highlighted a spiritual void in modern society and therefore it is necessary to turn back to spiritual values to put back the world economy on track. Facets of dharma – the philosophy of Bhagavan Sri Sathya Sai Baba Bhagavan Sri Sathya Sai Baba, who is worshipped by millions as a foremost spiritual leader has expounded on the concept of dharma on several occasions. (More information about Bhagavan Baba can be had at www.srisathyasai.org.in). Baba (2008, p. 238) describes that “dharma is a power-packed term epitomizing an entire philosophy and a way of life”. At the level of performing actions dharma means: [. . .] being careful not to offend propriety or the canons of good nature; not playing false to the promptings of the inner voice; being prepared at all times to respect the appropriate dictates of conscience; watching ones steps to see whether they are in someone else’s way and being ever vigilant to discover the truth behind all the scintillating variety (Baba, 2003, p. 5).
Dharma at a rule-based level can be observed in the golden rule, “Do unto others what you wish them to do unto you; do not do unto others what you do not wish them to do unto you” (Baba, 2005, vol. 2, p. 252). Other rules that can be derived from dharma include (Baba, 1999, vol. 30; 1999, vol. 25; 2002, vol. 16): . Misuse of money is a great evil. . It is better to aspire for goodness than greatness. . Destroying anger, one is free from grief. . By conquering desire, one becomes unselfish. . Conquering greed, one realises happiness. . When duties are discharged properly, rights will be secured of their own accord.
IJSE 39,1/2
42
According to Baba, dharma is integrated with several other values. “Dharma is imbued with truth and justice” (Baba, 2003, p. 109). The attributes of dharma are justice, sense control, sense of honour, love, dignity, goodness, meditation, sympathy, nonviolence (Baba, 2003, p. 28). Dharma is selfless. Baba (2004, p. 250) explains, “it is only when selfishness is removed while doing an act, can that act be described as an aspect of dharma”. Dharma is expressed in love filled acts. Baba (1999, vol. 14, p. 335) elaborates, “dharma must flow through the triple channel of love, mercy and detachment, in order to feed the roots of service”. Respect is the main lesson that dharma teaches. Gratitude is the spring which feeds that respect (Baba, 2005, vol. 4). Dharma is intimately spiritual in nature. According to Baba, the goal of dharma is the merging of the self in the over-self. To become intoxicated with the nectar of union with over-self; that is the ultimate goal of dharma and of action inspired by dharma. The aim of dharma is to make individuals give up attachment to external nature and the illusion that it causes and to make individuals realize their reality or rather, unrealize what they have now taken as real so that they may stand revealed in their genuine identity (Baba, 2003). Dharma is the foundation for social welfare states Bhagavan Baba (2005, vol. 4, p. 18). Baba (1999, vol. 25, p. 46) exhorts: [. . .] entertain the sacred feeling that the society’s good is also individual’s good. There can be no nobler feeling than this. The true mark of a human being is the cultivation of a broad outlook.
The various facets of dharma as outline above show that Baba’s philosophy is quintessentially “Sanathana Dharma” (eternal dharma). The current paper is therefore an endeavor in understanding the relevance of Bhagavan Baba’s philosophy in diagnosing and providing solutions even to complex global problems like the financial crisis. The focal thrust of the paper is to emphasize that the practice of Baba’s philosophy of dharma could have avoided the crisis and all its devastations in the first place and show that through the practice of dharma, every sphere of activity including finance, banking and investments can ultimately promote social welfare. Dharma for social welfare – new insights and applications The philosophy of dharma as propounded by Baba has found its applications in several projects and institutions which promote social welfare. These projects encompass a wide variety of areas like medical care, education and social care. The uniqueness of these projects is that the benefits of all these projects are offered to all beneficiaries without any distinction absolutely free of cost This has resulted in the creation of a values-based institute of higher learning (Sri Sathya Sai Institute of Higher Learning), a super specialty hospital and a water supply project which helps a population of more than a million (Chaden, 2004). The institute of higher learning has the vision of imparting values-based education creating citizens who have zeal to promote social welfare (Arweck and Nesbitt, 2007). It is interesting to note that alumni of Sri Sathya Sai Institute of Higher Learning have joined several financial institutions promoting the practice of dharma (Aitken, 2004). The new insight gained from all these projects of Bhagavan Baba is that practice of dharma must ultimately result in social welfare. Dharmic transgressions and the global crisis Several dharmic transgressions triggered and fuelled the global financial crisis. These have been discussed below, in the light of the philosophy of Bhagavan Baba.
Greed Bhagavan Baba (2003) explains that greed is one of the biggest vices of current society. Greed is caused due to insecurity and spiritual emptiness (Yau, 2005). According to Baba, greed is an insatiable attitude for possessing things caused due to falling prey to ceaseless prompting of the senses and incapability to renounce belongings. Ultimately, these are caused due to the weakening of the human consciousness (Baba, 1999, vol. 23). Greed was manifested in several segments of the economy during the crisis and led to several moral lapses which compounded the financial crisis. It was first manifested in the actions of house owners who started taking loans to buy homes in order to “flip them and make a killing” (Robinson, 2008). The greed of speculators inflated the housing asset bubble to unsustainable levels (Lo, 2009). Financial institutions manifested their greed when high-risk collateralized debt obligations were bought, split and mixed and then sold to trusting investors (Poon, 2008; Siegel, 2009). Greed and selfishness of analysts were reflected in their highly inflated remunerations (Knights, 2009) which were on an average more than 400 times those of other workers even when the firms they worked for were going bankrupt. Festinger called all these manifestations as excessive ambitions (Elster, 2009). In the current crisis greed led to higher risk tolerance. According to Birch (n.d., p. 57) “risk tolerance is antithetical to successful investing. When people aren’t afraid of risk, they’ll accept risk without being compensated for doing so and risk compensation will disappear”. Baba (2002, vol. 33) explains that a greedy man can never be happy or attain prosperity. Greed according to Baba is antithetical to social welfare. In the current financial crisis, greed ultimately led several economies to a recession. Regulatory failure Regulatory failures contributed in a large way to the current global crisis. Bhagavan Baba explains the importance of regulating institutional behavior by pointing out that the atmosphere today is fouled by hate, greed and sickly competition, which have cast out the virtues of reverence, humility and equanimity. So organizations have to be ever vigilant, efficient and well regulated lest they too are drawn into the vortex (Baba, 1999, vol. 7). The global financial crisis also had its origin in regulatory deficiencies. Baba (1999, vol. 14) in this regard asserts that nowadays persons in authority talk of discipline and exhort others to be disciplined, but they do not practice what they want others to do. Rangarajan (2010) states “what stands out glaringly in the current international financial crisis is regulatory failure”. The failure was two-fold. First, some parts of the financial system were either loosely regulated or were not regulated at all, a factor which led to “regulatory arbitrage” with funds moving more towards the unregulated segments. Examples of “soft-touch” regulation were investment banks, hedge funds and rating agencies. Second, there was imperfect understanding of the implications of various derivative products. Rating agencies were irresponsible in creating a booming market in suspect derivative products. There was a mismatch between financial innovation and the ability of the regulators to monitor them. Regulation failed during the crisis as regulators failed to exercise authority. Beenstock (2008) used the “capture theory” to explain this failure. Regulators enjoyed to show off their power and therefore had a self-interest in allowing problems to develop. Further as regulators would at a future time go back to the financial services industry
Dharmic transgressions and solutions 43
IJSE 39,1/2
they once regulated, they did not like to jeopardize their future careers by being too hard on their quarries. This double-edged moral hazard made regulatory failure inevitable. Bhagavan Baba (2003, p. 47) succinctly, explains this dharmic transgression: “if dharma is followed with an eye on the consequences, it will be neglected when the advantage is not patent or immediate”.
44
Unconscientious behavior The global crisis could have been averted even with regulatory failures if financial firms and executives had based their actions and decisions on the dictates of the conscience. According to Young (2003), capitalism, in Adam Smith’s view, cannot not be separated from conscience and even a divine providence, a guiding hand. For Smith, without conscience, without the “invisible hand” of divine grace, untamed capitalism too easily leads to corruption and greed, a loss of common sense and common humanity. Dharma according to Bhagavan Baba (2003) is to ensure that in all activities, one is careful not to offend propriety or the canons of good nature, not play false to the promptings of the inner voice and be prepared at all times to respect the appropriate dictates of conscience. Gurria (2009) laments that one of the main lessons of the crisis was that companies and markets did not know how to govern themselves. Executives not guided by their conscience ended in poor reporting of their actions (Ku¨ng, 2009). Investment firms ran amok without proper regulation (Krugman, 2009a). The recession that followed the crisis led to massive layoff of employees in the name of organisational restructuring. Violating the promptings of the conscience made executives view their fellow workers not as persons, but as abstract figures in computer printouts – mere mathematical entities who could be subjected to cool-eyed managerial restructuring (Raines, n.d.). Bhagavan Baba condemns all unconscientious actions by asserting that, “no one should act against the dictates of the conscience. Acting in violation of the conscience is evil” (Baba, 1999, vol. 21, p. 268). Unrestrained profit seeking Bhagavan Baba (2008, vol. 3, p. 298)describes the deterioration in the current times stating, “this is the age of profit”. The question that anyone asks to do anything is, “what is the profit?”, “how much is the profit?” and “how sure is the profit?” One of the major fallouts of greed was the unrestrained profit seeking by various players which resulted in the crisis. According to Gurria (2009) during the crisis financial innovation sacrificed business ethics for the sake of extraordinary profit. Financial innovation through derivative products created unrestrained profits for investment firms (Siegel, 2009). However, Buffet (2003, p. 14) the legendary investor cautioned against using such innovative yet risky products as early as 2002: “In our view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal”. Apart from investment firms who used financial innovation, the other culprit, according to Frilay (2008), were rating agencies. These agencies had to give unbiased ratings of securities. Unfortunately, these companies who were paid by clients whose financial products they were evaluating started consulting them on how to get better credit ratings in search of more revenues. According to Frilay, they announced that the subprime mortgages had been transformed into golden products safe enough to be held by pension funds, when in truth they were worthless.
The solution to unrestrained profit seeking is to be more moderate in search of profits. Bhagavan Baba advices business firms to be content with reasonable profit margins. Even if this policy does not pay in the beginning, in the long run it will be most rewarding (Baba, 1999, vol. 23). Moderate profit seeking will also ensure that the welfare of all stakeholders and the society is promoted. Unfortunately this injunction was transgressed in the crisis. Unrestrained profit seeking by investment firms affected consumers and investors in financial products by creating huge losses and led to massive unemployment for workers. Profit maximization behaviors can also rob peace and joy. Baba (2008, vol. 3, p. 298) asks of what gain is all the striving and struggling, the earning and saving and spending, the losing and gaining, the speeding in cars and planes, if by these means one does not get peace in the mind or joy in the heart? Individualism One of the major issues in the crisis was individual-centric behavior devoid of social concern. Bhagavan Baba (1999, vol. 23, p. 53) emphasizes that, “the prevailing deplorable situation in current times is due to the ubiquitous growth of selfishness and self-centredness”. Economics tends to view people as individualistically selfish in their behavior. Therefore, the value it gives to social life is limited only to the benefits that can be obtained from such transactions for individuals (Sivakumar, 2007). When people live for themselves, they start living beyond their means on the resources meant for overall social welfare. According to Renesch (2009), the financial crises was created and fuelled when consumers started living on credit, spending tomorrow’s anticipated resources to enjoy the benefits today. In such situations people start taking unnecessary risks. Robinson (2008) provides the example of individual borrowers considering the old rule of thumb that mortgages should never be more than two-and-half times the annual income as quaint and silly and taking on mortgages that were high risk and believing that the house of cards would continue to stand. Thus, the modern society according to Etzioni (1988) created nations that build by day and destroy by night. Individual-centric behavior can be reduced when people understand their larger role in society. For this purpose it is necessary for people to know that their welfare depends on the welfare of the society. Bhagavan Baba advices people: “Get rid of selfishness. Regard yourself as an integral member of society” (Baba, 1999, vol. 23, p. 53). Since the unfolding of the crisis, economists have called for capitalism to be more attuned to national and social concerns. Frilay (2008) emphasized that the overall outcome of all economic activity should be the common good and therefore scarce resources should be used to their maximum efficiency for the benefit of people and society and the accumulation of all wealth must benefit the society. When capitalism is based on the social good, then excesses like the crisis can be avoided. Misuse of asymmetries A number of players misused the asymmetries that existed during the crisis to their advantage. One of the major evils of modern society is the passion for power. These days there is an apparent tendency for people in positions of power to conduct themselves without any understanding of how to wisely exercise authority. In the pursuit of power, people are prepared to use any means, sacrificing morality and justice (Baba, 1999, vol. 27). In the economic sphere Luckham (2009, p. 8) describes that:
Dharmic transgressions and solutions 45
IJSE 39,1/2
46
[. . .] decisions taken in international agencies, governments and corporate boardrooms in the North have reverberated throughout the global South. Yet vulnerable people affected by these decisions have had next to no ability to influence them, nor to hold those responsible accountable.
Bhagavan Baba (1999, vol. 6, p. 126) asserts that information and “knowledge in the adharmic person gets converted into power misused for the stratagems of greed”. It is interesting to note that such misuse was quite rampant during the crisis. For example, Stiglitz (2003) argues that it is socially unjust to benefit at the expense of someone who is poorer and that negative redistributions are ethically wrong. Market economics shunted these concerns aside during the crisis. Credit markets remained highly imperfect, with borrowers typically had access only to limited sources of credit, while creditors faced a large number of potential borrowers. Borrowers often turned to lenders in times of crisis. Lenders took advantage of the asymmetries in power to gain for themselves. Similarly, Lall (2009) states that deep information asymmetries were used by international G-10 banks to claim first-mover advantage in the banking sector. However, for community banks, developing country banks and public groups the information asymmetries led to severe consequences. As an antidote to this dharmic transgression Baba (1999, vol. 27) advices that people should realize that power carries with it limits and obligations. Pursuit of success regardless of consequences One major dharmic transgression visibly noticed in the financial crisis was the reckless pursuit of success, with utter disregard to the consequences. Telmesani (2010) argues that reckless pursuit of success can lead to a conundrum that might adversely affect the sense of happiness and peace of mind. Knights (2009, p. 12) describes this reckless attitude as a “masculine pursuit of material and symbolic wealth”. He further explains: [. . .] it is a paradigm grounded in a technical rationality that denies or ignores the social embeddedness of its programmatic routines and, by so doing, becomes wholly detached from the bodily, material and tangible aspects of lived experience. No better example of this dematerialization of relations can be found than in the trading of mortgage and other credit securities created by complex derivatives and the (re)bundling of a diverse range of loans into tradable commodities.
The masculine approach was noticed not only among the investors who precipitated the crisis but also among the intellectual economists whose models were mostly widely used in the period leading to the crisis. Dorman (2009) states that economists were much too enamored of elegance in their models. The shortest path to elegance turned out to be a pernicious set of assumptions – that the economy can be represented entirely as a nexus of instantaneous exchanges, that the people and organizations who made these exchanges had a single goal that they maximize return with unfailing precision, and that all decisions were made in perfect isolation from one another and were not subject to social dynamics. Krugman (2009b, para 4) further argues: [. . .] unfortunately, this romanticized and sanitized vision of the economy led most economists to ignore all the things that can go wrong. They turned a blind eye to the limitations of human rationality that often led to bubbles and busts; to the problems of institutions that could run amok; to the imperfections of markets – especially financial markets – that could cause
the economy’s operating system to undergo sudden, unpredictable crashes; and to the dangers created when regulators don’t believe in regulation.
The crisis was also precipitated by bankers who followed reckless practices for profit maximization. Brooks (2009) asserts that bankers became overconfident with their practices which led to a situation where they threw caution to the wind. Krugman (2009a, para 7) elaborates: [. . .] underlying the glamorous new world of finance was the process of securitization. Loans no longer stayed with the lender. Instead, they were sold on to others, who sliced, diced and pure´ed individual debts to synthesize new assets. Subprime mortgages, credit card debts, car loans – all went into the financial system’s juicer. Out the other end, supposedly, came sweet-tasting AAA investments. And financial wizards were lavishly rewarded for overseeing the process. But the wizards were frauds, whether they knew it or not, and their magic turned out to be no more than a collection of cheap stage tricks. Above all, the key promise of securitization – that it would make the financial system more robust by spreading risk more widely – turned out to be a lie. Banks used securitization to increase their risk, not reduce it, and in the process they made the economy more, not less, vulnerable to financial disruption.
Birch (n.d.) compares the practices of bankers to that of parasites: [. . .] banking in its current form does not aid trade and business; it ultimately destroys what it was meant to serve. Like any selfish parasite it moves from host to host until none is left.
Baba (2000, vol. 28) cautions that no one can escape from the consequences of their deeds. Such reckless behavior of bankers has put economies (for example Iceland) into jeopardy (Economist, 2009). Economy as a mechanism of generating money An important debate created by the crisis has been about the purpose of the economy and its capitalist foundations. Andros (2009, para 16) states that “capitalism delivers what is always does; creating millions of wealth-building opportunities”. Specific to the financial sector Simanovsky (n.d.) observes that the financial corridor has connected a wide spectrum of traders, market analysts and investors to take full advantage of the global interconnectedness and spin money at a rapid fire pace. Stroupe (2009) describes the “new model asset-inflating economy” created by financial innovation and distinguishes it from the traditional income generating economy. According to Stroupe, an income-generating machine derives wealth from the production and sale of goods and services, while an asset-inflating one derives wealth from accelerated asset appreciation, or targeted inflation of assets – in other words, by the creation of asset bubbles. In this new model, traditional wealth generation takes a back seat to paper wealth generation via serial asset bubble creation. In the new model, innovative and grandiose opportunities arise for the generation of gigantic sums of “paper” wealth from within the financial sector. In this model the entire economy takes on a decidedly finance/investment/asset-oriented complexion, with such ventures and operations coming to the foreground, while traditional income-based business tends to be eclipsed. Irrespective of the complexion, the economy has taken, it is important to note that the central idea about the purpose of the economy continues to be a single minded pursuit of money making and generating wealth. This sort of “casino capitalism” according to Jones (2009) has encouraged approval of several values implicit in that objective:
Dharmic transgressions and solutions 47
IJSE 39,1/2
among them, self-interest and indifference to larger social welfare. Bhagavan Baba (1999, vol. 15, p. 2) pointed to this dharmic transgression by explicitly warning that: [. . .] when earning money is held as the goal, the system fosters falsehood and injustice; it restricts the vision to family and community, and brings in its train, anxiety, sorrow and hatred.
48
There have been several calls to broaden the purposes of the economy and the goals of capitalism. Sivakumar (2007) called for an economics which can promote true human development and more attuned to global concerns. The Archbishop of Canterbury (2009) observed that there is a need to move away from a model of economics which simply assumes that it is essentially about the mechanics of generating money. Ruckelshaus (1989) argues that an economy with more inclusive goals can be built by inculcating a sustainability consciousness in the quest for a peaceful and sustainable world. Such a consciousness would require, understanding that the human species is part of nature, acknowledging that economic development must account for the environmental costs of production, and realising that to ensure a livable peaceful global environment, it is necessary to pursue the goal of sustainable development of the entire human family. Rights orientation The global crisis was precipitated when the players involved focused on obtaining their rights or returns without giving proper attention to discharging their responsibilities or duties. In fact, the World Bank (Sumner and Melamed, n.d.) even feels that the rights-based approach – the idea of achievement of human rights – both political and economic rights – is the key goal of development. Baba (1999, vol. 14, p. 132) describes the rights orientation of the current times thus: [. . .] these days, the concern of everyone is to see how and by what means can they increase comforts in their lives. No one worries about the happiness that they can contribute, the joy they can give, the duty they must discharge. Every one is calculating the happiness others can give them, the joy they can extract from society and the duty that society owes to them. The number of those who concentrate on their responsibilities rather than their wants is very small. “How can I as an individual get the maximum benefit out of society?” – that is the urge.
The rights orientation is against the principles of dharma as Baba (2008, vol. 5) declares following dharma means discharging obligations, duties and observing regulations, rather than working for achieving rights. According to Frilay (2008) the artificial separation of profit from responsibility is at the core of the crisis. Modern day corporations act as if there are responsibilities to itself from the society, but none of itself to the society (Graves, 2009). The rights orientation was observed on several fronts during the crisis. At the most fundamental level it was noticed in the economics profession that has failed in communicating the limitations, weaknesses, and even potential misuses of its preferred models to the public. The investment bankers failed to notice whether their pay packages bore some relationship to the performance of the firm they worked for. Rating agencies failed in their duty when they gave highest ratings to securities which soon became valueless, and appealed to their freedom of expression to defend themselves. Speculators made money by investing in developing countries without returning any benefits to these economies (Colander et al., 2009; Klessig, n.d.; Stiglitz, 2003). Duties have to be discharged because no institution can prosper without the assistance and cooperation of the society. Therefore, when the society is responsible for
one’s prosperity, it is necessary to sacrifice and perform duties for the sake of serving the society (Baba, 2006). Thus, when duties are discharged properly, rights will be secured of their own accord (Baba, 1999, vol. 13). Discharge of duties therefore leads to mutual peace and happiness. A factory or a society or a workshop can be happy, healthy, only when all workers or individuals do their duties or functions well (Baba, 1999, vol. 11, p. 249). It is unfortunate that such a duty orientation was sadly absent during the crisis. Spiritual vacuum Ultimately the global crisis was created and fuelled because of a spiritual vacuum. According to Mayer (Tammam, 2009), the crisis can be connected to with a lack of respect for spiritual and moral principles in the field of finance. Several values and characteristics of spiritual insight and development as enunciated by Baba (2008, p. 22) were absent during the crisis. “The harmony between thoughts, words and deeds is the first step in spiritual growth”. This was absent in the actions of credit rating agencies who gave high rating to securitized mortgages fully knowing that they were worthless. “Spiritual growth calls for restraint on desires” (Baba, 1999, vol. 29, p. 173). However, investment bankers accumulated their personal wealth at the cost of investors. In the spiritual path it is necessary to observe restrictions and restraints. However, regulatory failure and unregulated behavior were clearly noticed in the crisis. Spiritual discipline involves leading a purposeful life (Baba, 1999, vol. 14). According to Thomson (n.d.) modern life has become meaningless as it has marginalized wisdom and removed deeper meaning in life. As a consequence, many people feel that something very significant is missing from their lives. Spiritual practice involves realizing that pursuit of property and possessions cannot uplift the heart (Baba, 2002, vol. 10). On the other hand, Aghdasi (2002) describes that the mistake economic policy makers made was to assume that material development was the only thing worth pursuing – that material considerations were the main determinants of human existence. However, they ignored the spiritual nature of humankind and the spirit with which people achieve everything including development. Thus, the economy became a machine to generate money regardless of consequences during the crisis. Finally, “true spiritual practice lies in joining hands and working for the progress of society as a whole” (Baba, 2001, vol. 32, p. 152). Misusing the asymmetries was rampant during the crisis dominated by self-interest and individualism. Various scholars have therefore highlighted the need to integrate spiritual principles in finance and economics to make it more holistic. Zed (2008) pointed out that spiritual economics is the solution to the financial crisis. Thomson (n.d.) states that the need of the hour is a new economic philosophy that values people and nature much higher than money and property, and that is empowering and humanizing. Younis (2009) calls for a movement from an economics with “human face” to an economics with a “human soul”, so that it can understand and interact with the true dimensions of human change and transformation. Once spiritual principles are integrated with economic development, egalitarianism, gifting, care and concern for the welfare of others, absence of greed, activity proportionate to need and similar virtues will be the natural outcome (Goswami, 2008).
Dharmic transgressions and solutions 49
IJSE 39,1/2
50
Solutions The most important behavioral flaw which triggered and fuelled the crisis was self-centered behavior of the concerned players without any regard for social welfare. As discussed earlier, the philosophy of dharma of Baba stresses the importance of promoting social welfare in every sphere of activity. Therefore, the solutions to prevent a crisis of this magnitude in the future would be to inculcate dharmic values and implement practices guided by dharmic injunctions. These solutions would specifically stress the need to contain self-centered behavior and explicitly contribute towards larger social welfare. The suggestions will include the following. For investors . Investors must be satisfied with expectations of reasonable returns. This can be achieved with restraining greed in return expectations. . Investors must realize that their investments can have a social goal, in routing funds towards socially desirable goals. For institutions . Financial institutions must not misuse their power and exercise due restraints in their transactions with customers. . Economic institutions must develop a social consciousness and work towards it with the ideology that that individual welfare is bound up with the welfare of the society. . Banks and financial institutions must regard that running their business honestly is a form of social service and spiritual fulfillment. For regulators . Regulators of various sections of the economy must be guided by dharmic principles. . Regulators must realize that regulating the economy is a sacred duty and can result in overall social good. General . It is important to restrain all economic actions motivated by greed. . The conscience must be the guide that dictates all economic behavior. . Everyone has to face the consequences of their actions and this must be a deterrent towards any unethical behavior in any sphere of the economy. . Dharma must be the witness of all thoughts, words and deeds. . True economic success will be the result of being guided every instant by the dictates of Dharma. . Knowing that rights and duties are inseparably inter-related. Rights are earned only by the proper discharge of the responsibilities. When duty is shirked, rights too are lost. . All actions to be dharmic must ultimately promote larger social good.
This paper has shown that the principles of dharma are extremely relevant and useful in providing solutions to complex problems like the global financial crisis. Ultimately all activities and behaviors will be guided by dharma in its pristine purity when it is understood that the central purpose of life and all actions is to promote social welfare. When this goal is pursued, the economy will function smoothly for the benefit and welfare of all.
Dharmic transgressions and solutions 51
References Aghdasi, F. (2002), Science, Religion and Development, available at:www.bci.org/bahaistudies/ conferences/portelizabeth/farhad02.doc Aitken, B. (2004), Sri Sathya Sai Baba: A Life, Penguin Books India, New Delhi. Andros, T. (2009), “Global financial crisis, globalization and the economy in 2010”, December, available at: www.marketoracle.co.uk/Article16169.html Arweck, E. and Nesbitt, E. (2007), “Spirituality in education: promoting children’s spiritual development through values”, Journal of Contemporary Religion, Vol. 22 No. 3, pp. 311-26. Baba, B.S.S.S. (1999-2008), Sri Sathya Sai Speaks, Vol. 1-33, Sri Sathya Sai Sadhana Trust, Publications Division, Puttaparthi. Baba, B.S.S.S. (2003), Dharma Vahini, Sri Sathya Sai Sadhana Trust, Publications Division, Puttaparthi. Baba, B.S.S.S. (2004), Summer Showers in Brindavan 1973, Sri Sathya Sai Sadhana Trust, Publications Division, Puttaparthi. Baba, B.S.S.S. (2006), Summer Showers in Brindavan 1995, Sri Sathya Sai Sadhana Trust, Publications Division, Puttaparthi. Baba, B.S.S.S. (2008), Summer Showers in Brindavan 1979, Sri Sathya Sai Sadhana Trust, Publications Division, Puttaparthi. Beenstock, M. (2008), “Market foundations for the new financial architecture”, December, available at: www.pmcg.ge/docum/ARCHITECTURE.DOC Benton, M. (2009), “Emotions, personal ethics and professional life: the lost link”, Finance and Common Good, Vol. 33 No. 1, pp. 38-45, available at: www.cairn.info/article.php?ID_ ARTICLE¼FBC_033_0038 Birch, T. (n.d.), “The role of derivatives in creating the financial crisis”, available at: www.al-azmah.com/en/?p¼18 Bogle, J.C. (2010), “Financial reform: will it forestall a future crisis of ethic proportions?”, July, available at: www.investingcontrarian.com/financial. . ./john-c-bogle-financial-reform-willit-forestall-a-future-crisis-of-ethic-proportions/ Brooks, D. (2009), “Greed and stupidity”, April, available at: www.nytimes.com/2009/04/03/ opinion/03brooks.html Buffet, W.E. (2003), 2002 Annual Report – Berkshire Hathaway Inc, February, available at: www.berkshirehathaway.com/2002ar/2002ar.pdf Buiter, W.H. (2007), Lessons from the 2007 Financial Crisis, December, available at: www.nber. org/,wbuiter/lessons.pdf Chaden, C.L. (2004), A Compendium of the Teachings of Sri Sathya Sai Baba, Sai Towers Publishing, Bangalore. Chossudovsky, M. and Marshall, A.G. (2010), The Global Economic Crisis. The Great Depression of the XXI Century, Global Research Publishers, Montreal, May.
IJSE 39,1/2
52
Colander, D., Fo¨llmer, H., Haas, A., Goldberg, M., Juselius, K., Kirman, A. and Sloth, B. (2009), “The financial crisis and the systemic failure of academic economics”, February, available at: www.ifw-members.ifw-kiel.de/publications/the-financial-crisis-and-the-systemicfailure-of-academic-economics-1/KWP_1489_Titel_Financial_Crisis.pdf Dorman, P. (2009), “Did Krugman get it right on how the economists got it wrong?”, September 7, available at: www.econospeak.blogspot.com/2009/09/did-krugman-get-it-right-on-how. html (The) Economist (2009), “Iceland’s boiling point”, January, available at: www.economist.com/ blogs/freeexchange/2009/01/icelands_boiling_point Elster, J. (2009), “Excessive ambitions”, Capitalism and Society, Vol. 4 No. 2, pp. 1-30. Etzioni, A. (1988), The Moral Dimension – Towards a New Economics, The Free Press, New York, NY. Frilay, B. (2008), “The global financial crisis – what are the lessons, particularly the ethical ones?”, December, available at: www.socialpolicyconnections.com.au/Portals/3/docs/ Frilay.%20Financial%20crisis%20Dec%2008.doc Gilani, S. (2009), “How wall street’s compensation-defined culture fueled its demise”, February, available at: www.moneymorning.com/2009/02/05/infrastructure-stimulus/ Goswami, A. (2008), “Toward a spiritual economics”, September, available at: www.amitgoswami.org/spiritual-economics/ Graves, T. (2009), “Another note on spiral dynamics”, October 1, available at: www.weblog. tomgraves.org/index.php/2009/10/01/note-on-spiral/ Gurria, A. (2009), “Business ethics and OECD principles: what can be done to avoid another crisis?”, January, available at: www.oecd.org/document/3/0,3343,en_2649_201185_ 42033219_1_1_1_1,00.html Jones, C. (2009), “After the GFC – rethinking our subprime values”, In Beyond Economics – Families in the Forefront. State of the Family 2009, pp. 1-15, available at: www.anglicare. asn.au/sotf-reports.htm Klessig, L. (n.d.), “American greedy CEO”, available at: www.businesstraining.com/resources/ ethical-research-american-greedy-ceo/ Knights, D. (2009), “The failure of regulation in banking: ethical reflections”, available at: www.cardiff.ac.uk/carbs/conferences/pefdt09/David%20Knights.pdf Krugman, P. (2009a), “How did economists get it so wrong?”, The New York Times, March 26, available at: www.nytimes.com/2009/09/06/magazine/06Economic-t.html?_r¼3&em Krugman, P. (2009b), “Most economists, including nobel-prize winners, are idiots or fools”, September 6, available at: www.georgewashington2.blogspot.com/2009/09/krugmanmost-economists-including-nobel.html Ku¨ng, H. (2009), “The global economic crisis requires a global ethic”, October, available at: www.unglobalcompact.org/docs/news_events/9.1_news_archives/2009_10_06/Hans_ Kxng_Einleitung.pdf Lall, R. (2009), “Why Basel II failed and why any Basel III is doomed”, October, available at: www.globaleconomicgovernance.org/wp-content/uploads/GEG-Working-paper-RanjitLall.pdf Lo, A.W. (2009), “Regulatory reform in the wake of the financial crisis of 2007-2008”, Journal of Financial Economic Policy, Vol. 1 No. 1, pp. 4-43. Longstaff, S. (2008), “Ethics and the global financial crisis”, available at: www.corporateresponsibility.com.au/content/articles/ethics-and-global-financial-crisis
Luckham, R. (2009), “Introduction: transforming security and development in an unequal world”, IDS Bulletin, Vol. 40 No. 2, pp. 1-10. Nielsen, R.P. (2008), “The current subprime financial crisis: ethics issues and potential reforms”, June, available at: www.alba.edu.gr/uploads/speech.pdf Papademos, L. (2009), “Beyond the crisis: economic policy in a new macroeconomic environment”, available at: www.ecb.int/press/key/date/2009/html/sp090514.en.html Poon, A. (2008), “Anatomy of greed”, October, available at: www.asiasentinel.com/index.php? Itemid¼323&id¼1463&option¼com_content&task¼view Raines, J.C. (n.d.), “Conscience and the economic crisis”, available at: www.religion-online.org/ showarticle.asp?title¼1334 Rangarajan, C. (2010), “Regulatory failure in financial sector”, Business Standard, February 9, available at: www.business-standard.com/india/news/c-rangarajan-regulatory-failure-infinancial-sector/385074/ Renesch, J. (2009), “The dark side of individualism”, April, available at: www.refresher.com/ mindfulnetwork/articlelive/articles/165/1/The-Dark-Side-of-Individualism/Page1.html Rhodes, M. (n.d.), “Financial scandals highlight spiritual void”, available at: www.wnponline.org/ wnp/wnp0906/financial-scandals-spiritual-void.htm Robinson, A.B. (2008), “Articles of faith: ethical lessons to draw from economic crisis”, September, available at: www.seattlepi.com/local/379840_faith20.html Ruckelshaus, W.D. (1989), “Toward a sustainable world”, Scientific American, Vol. 261, September, pp. 166-75. Sen, A. (2009), “Capitalism beyond the crisis”, The New York Review of Books, March 26, available at: www.nybooks.com/articles/archives/2009/mar/26/capitalism-beyond-thecrisis/ Siegel, J. (2009), Lesson One: What Really Lies Behind the Financial Crisis?, January, available at: www.knowledge.wharton.upenn.edu/article.cfm?articleid¼2148 Simanovsky, O. (n.d.), “Influence on analysis over economic theory”, available at: www.ezinearticles.com/?Influence-on-Analysis-Over-Economic-Theory&id¼2883718 Sivakumar, N. (2007), “Economics for true human development – future directions”, Humanomics, Vol. 23 No. 2, pp. 93-101. Smith, S. (2010), “A brief history on the global financial crisis”, March, available at: www.homemortgagerefinancing.com/mortgage/a-brief-history-on-the-global-financial-crisis/ Stiglitz, J.E. (2003), “Ethics, market and government failure, and globalization”, March, available at: www.j-node.homeip.net/wfb/research%20archive/favorite/2003_Ethics_Market_and_ Government_Failure_and_Globalization-Stiglitz.pdf Stroupe, W.J. (2009), “Recession ‘shape’ points down”, Asia Times Online, May 22, available at: www.atimes.com/atimes/Global_Economy/KE22Dj02.html Subbarao, D. (2009), “Ethics and the world of finance”, August, available at: www.bis.org/ review/r090828c.pdf Sumner, A. and Melamed, C. (n.d.), “The MDGS and beyond: pro-poor policy in a changing world”, available at: www.un-ngls.org/spip.php?page¼article_s&id_article¼1962 Tammam, H. (2009), “Identifying signals of religious trends”, September, available at: www. islamonline.net/servlet/Satellite?c¼Article_C&pagename¼Zone-English-ArtCulture% 2FACELayout&cid¼1252187896717 Telmesani, A. (2010), The Balanced Way: The Path to Excellence and Contentment, BookSurge Publishing, Charleston, SC.
Dharmic transgressions and solutions 53
IJSE 39,1/2
54
The Archbishop of Canterbury (2009), “Ethics, economics and global justice”, March, available at: www.archbishopofcanterbury.org/2323 Thomson, C. (n.d.), “Spiritual progress and spiritual wealth”, available at: www.altruists.org/ static/files/Spiritual Progress and Spiritual Wealth (Chris Thompson).pdf Triquell, J.M. (2009), “The world economic crisis: an essay on its origins, characteristics and possible outcomes from a liberal perspective”, May, available at: www.liberalinternational.org/contentFiles/files/LiberalInternationalPaperOnEconomicCrisis2009.pdf Vocke, W. (2010), “Greece, goldman, and financial transparency?”, March 12, available at: www.cceia.org/resources/audio/data/000454 Wesberry, J. (2009), “The falling darkness”, January 24, available at: www.jimwes.com/id27.html (accessed August 5, 2010). Yau, P. (2005), “Wisdom of living (16): greed”, February 13, available at: www.fcbcmemphis.org/ SF/WISDOM%20OF%20LIVING16%20GREED.html Young, S. (2003), Moral Capitalism, Berrett-Koehler Publishers, San Francisco, CA. Younis, A. (2009), “Embracing spiritual economics”, November 12, available at: www.kosmosjournal.org/kjo/articles/articlessub2/spiritual-economics.shtml Zed, R. (2008), “Spiritual economics: the answer to financial crisis”, October, available at: www.merinews.com/article/spiritual-economics-the-answer-to-financial-crisis/143935. shtml About the authors Dr N. Sivakumar is an Assistant Professor in the Department of Commerce, Sri Sathya Sai Institute of Higher Learning, Bangalore, India. He has over 65 research papers to his credit and is on the board of reviewers of international journals. N. Sivakumar is the corresponding author and can be contacted at:
[email protected] Sundara R. Krishnaswami is an Energy Industry Executive based in Dallas, Texas, He has over three decades of experience in petroleum refining, petrochemicals and consulting industries.
To purchase reprints of this article please e-mail:
[email protected] Or visit our web site for further details: www.emeraldinsight.com/reprints
