The secret of American exceptionalism may very well be the uniquely American susceptibility to narratives of decline. From the American defeat in Vietnam and the Soviet launch of Sputnik to the quagmire in Afghanistan and the current financial crisis, naysayers proclaim the end of the American century. And yet the prophecies of decline are nearly always, in a uniquely American spirit, followed by calls for rejuvenation. Americans are neither pessimists nor optimists. Instead, they are darkened by despair and fired by hope.
Decline, writes Josef Joffe in a recent essay in The American Interest, “is as American as apple pie. “ The tales of decline that populate American cultural myths have many morals, but one common shared theme: Renewal.
“Decline Time in America” is never just a disinterested tally of trends and numbers. It is not about truth, but about consequences—as in any morality tale. Declinism tells a story to shape belief and change behavior; it is a narrative that is impervious to empirical validation, whose purpose is to bring comforting coherence to the flow of events. The universal technique of mythic morality tales is dramatization and hyperbole. Since good news is no news, bad news is best in the marketplace of ideas. The winning vendor is not Pollyanna but Henny Penny, also known as Chicken Little, who always sees the sky falling. But why does alarmism work so well, be it on the pulpit or on the hustings—whatever the inconvenient facts?
Joffe, the editor of the German weekly Die Zeit, writes from the lofty perch of an all-knowing cultural critic. Declinism is, when looked at from above, little more than a marketing pitch:
Since biblical times, prophets have never gone to town on rosy oratory, and politicos only rarely. Fire and brimstone are usually the best USP, “unique selling proposition” in marketing-speak.
The origins of modern declinism, pace Joffe, are found in “the serial massacre that was World War I,” the rapacious carnage that revealed “the evil face of technology triumphant.” WWI deflated the enlightenment optimism in reason and science, showing instead the destructive impact of those very same progressive ideals.
The knowledge that raised the Eiffel Tower also birthed the machine gun, allowing one man to mow down a hundred without having to slow down for reloading. Nineteenth-century chemistry revolutionized industry, churning out those blessings from petroleum to plastics and pharmacology that made the modern world. But the same labs also invented poison gas. The hand that delivered good also enabled evil. Worse, freedom’s march was not only stopped but reversed. Democracy was flattened by the utopia-seeking totalitarians of the 20th century. Their utopia was the universe of the gulag and the death camp. Their road to salvation led to a war that claimed 55 million lives and then to a Cold War that imperiled hundreds of millions more.
America, the land of progress in Joffe’s telling, now exists in a productive tension with the anti-scientific tale of the “death of progress.”
“Technology and plenty, the critics of the Enlightenment argued, would not liberate the common man, but enslave him in the prison of “false consciousness” built by the ruling elites. The new despair of the former torchbearers of progress may well be the reason that declinism flourishes on both Left and Right. This new ideological kinship alone does not by itself explain any of the five waves of American declinism, but it has certainly broadened its appeal over time.
Joffe stands above both extremes of the declinism pendulum. Instead of embracing or rejecting the tale of decline, he names decline and its redemptive flipside the driving force of American exceptionalism. Myths of decline are necessary in order to fuel the exceptional calls for sacrifice, work, and innovation that have for centuries turned the tide of American elections and American culture.
[D]awn always follows doom—as when Kennedy called out in his Inaugural Address: “Let the word go forth that the torch has been passed to a new generation of Americans.” Gone was the Soviet bear who had grown to monstrous size in the 1950s. And so again twenty years later. At the end of Ronald Reagan’s first term, his fabled campaign commercial exulted: “It’s morning again in America. And under the leadership of President Reagan, our country is prouder and stronger and better.” In the fourth year of Barack Obama’s first term, America was “back”, and again on top. Collapse was yesterday; today is resurrection. This miraculous turnaround might explain why declinism usually blossoms at the end of an administration—and wilts quickly after the next victory.
Over and over the handwriting that showed that decline was on the wall was, in truth, “a call to arms that galvanized the nation.”
Behind this long history of nightmares of degeneration and dreams of rebirth is Joffe’s ultimate question: Are the current worries about the death of the American century simply the latest in the American cycle of gloom and glee? Or is it possible that the American dream is, finally, used up? In other words, is it true that, since “at “some point, everything comes to an end,” this may be the end for America? Might it be that, as many in Europe now argue, “The United States is a confused and fearful country in 2010.” Is it true that the US is a “hate-filled country” in unavoidable decline?
Joffe is skeptical. Here is his one part of his answer:
Will they be proven right in the case of America? Not likely. For heuristic purposes, look at some numbers. At the pinnacle of British power (1870), the country’s GDP was separated from that of its rivals by mere percentages. The United States dwarfs the Rest, even China, by multiples—be it in terms of GDP, nuclear weapons, defense spending, projection forces, R&D outlays or patent applications. Seventeen of the world’s top universities are American; this is where tomorrow’s intellectual capital is being produced. America’s share of global GDP has held steady for forty years, while Europe’s, Japan’s and Russia’s have shrunk. And China’s miraculous growth is slipping, echoing the fates of the earlier Asian dragons (Japan, South Korea, Taiwan) that provided the economic model: high savings, low consumption, “exports first.” China is facing a disastrous demography; the United States, rejuvenated by steady immigration, will be the youngest country of the industrial world (after India).
In short, if America is to decline it will be because America refuses to stay true to its tradition of innovation and reinvention.
As convincing as Joffe is, the present danger that America’s current malaise will persist comes less from economics or from politics than from the extinguishing of the nation’s moral fire. And in this regard, essays such as Joffe’s are symptoms of the problem America faces. Joffe writes from above and specifically from the position of the social scientist. He looks down on America and American history and identifies trends. He cites figures. And he argues that in spite of the worry, all is generally ok. Inequality? Not to worry, it has been worse. Democratic sclerosis? Fret not; think back to the 1880s. Soul-destroying partisanship? Have you read the newspapers of the late 18th century? In short, our problems are nothing new under the sun. Keep it in perspective. There is painfully little urgency in such essays. Indeed, they trade above all in a defense of the status quo.
There is reason to worry though, and much to worry about. Joffe may himself have seen one such worry if he had lingered longer on an essay he cites briefly, but does not discuss. In 1954, Hannah Arendt published “Europe and America: Dream and Nightmare” in Commentary Magazine. In that essay—originally given as part of a series of talks at Princeton University on the relationship between Europe and America—she asked: “WHAT IMAGE DOES Europe have of America?”
Her answer is that Europe has never seen America as an exotic land like the South Sea Islands. Instead, there are two conflicting images of America that matter for Europeans. Politically, America names the very European dream of political liberty. In this sense, America is less the new world than the embodiment of the old world, the land in which European dreams of equality and liberty are made manifest. The political nearness of Europe and America explains their kinship.
European anti-Americanism, however, is lodged in a second myth about American, the economic image of America as the land of plenty. This European image of America’s stupendous wealth may or may not be borne out in reality, but it is a fantasy that drives European opinion:
America, it is true, has been the “land of plenty” almost since the beginning of its history, and the relative well-being of all her inhabitants deeply impressed even early travelers. … It is also true that the feeling was always present that the difference between the two continents was greater than national differences in Europe itself even if the actual figures did not bear this out. Still, at some moment—presumably after America emerged from her long isolation and became once more a central preoccupation of Europe after the First World War—this difference between Europe and America changed its meaning and became qualitative instead of quantitative. It was no longer a question of better, but of altogether different conditions, of a nature which makes understanding well nigh impossible. Like an invisible but very real Chinese wall, the wealth of the United States separates it from all other countries of the globe, just as it separates the individual American tourist from the inhabitants of the countries he visits.
Arendt’s interest in this “Chinese wall” that separates Europe from America is that it lies behind the anti-Americanism of European liberals, even as it inspires the poor. “As a result,” of this myth, Arendt writes, “sympathy for America today can be found, generally speaking, among those people whom Europeans call “reactionary,” whereas an anti-American posture is one of the best ways to prove oneself a liberal.” The same can largely be said today.
The danger in such European anti-Americanism is not only that it will fire a European nationalism, but also that it will cast European nationalism as an ideological opposition to American wealth. “Anti-Americanism, its negative emptiness notwithstanding, threatens to become the content of a European movement.” In other words, European nationalism threatens to assume on a negative ideological tone.
That Europe will understand itself primarily in opposition to America as a land of wealth impacts America too, insofar as European opposition hardens Americans in their own mythic sense of themselves as a land of unfettered economic freedom and unlimited wealth. European anti-Americanism thus fosters the kind of free market ideology so rampant in America today.
What is more, when Europe and America emphasize their ideological opposition on an economic level, they deemphasize their political kinship as lands of freedom.
Myths of American decline serve a purpose on both sides of the Atlantic.
In Europe, they help justify Europe’s social democratic welfare states, as well as their highly bureaucratized regulatory state. In America, they underlie attacks on regulation and calls to limit and shrink government. These are all important issues that should be thought and debated with an eye to reality. The danger is that the European emancipation and American exceptionalism threatens to elevate ideology over reality, hardening positions that need rather to be open for innovation.
Joffe’s essay on the Canard of Decline is a welcome spur to rethinking the gloom and the glee of our present moment. It is your weekend read.
China has embraced the idea of a Western college education in a big way. As the NY Times reported recently, the country is making a $250 billion-a-year investment designed to give millions of young Chinese citizens a college education. “Just as the United States helped build a white-collar middle class in the late 1940s and early 1950s by using the G.I. Bill to help educate millions of World War II veterans, the Chinese government is using large subsidies to educate tens of millions of young people as they move from farms to cities.”
But for most of these newly minted college graduates, jobs are scarce. One reason is that these graduates often have few marketable skills and they refuse to take the jobs that actually exist. What China needs are people to work in factories. But for college graduates, factory work has little or even no allure.
Consider the case of Wang Zengsong.
Wang Zengsong is desperate for a steady job. He has been unemployed for most of the three years since he graduated from a community college here after growing up on a rice farm. Mr. Wang, 25, has worked only several months at a time in low-paying jobs, once as a shopping mall guard, another time as a restaurant waiter and most recently as an office building security guard.
But he will not consider applying for a full-time factory job because Mr. Wang, as a college graduate, thinks that is beneath him. Instead, he searches every day for an office job, which would initially pay as little as a third of factory wages.
“I have never and will never consider a factory job — what’s the point of sitting there hour after hour, doing repetitive work?” he asked.
This story is actually not unique to China. In the United States too, we here repeatedly that small businesses are unable to expand because they cannot find qualified workers. The usual reprise is that high school graduates don’t have the skills. Rarely asked is why college graduates don’t apply? I assume the reason is the same as in China. College graduates see production work as beneath them.
Plenty of college graduates, many with debt, are interning for free or working odd jobs that pay little; yet they do not even consider learning a skill and taking a job that would require them to build something. Just like their comrades in China, these young people identify as knowledge workers, not as fabricators. For them, a job making things is seen as a step down. Something that is beneath them.
Disdain for manual labor combined with respect for cognitive work is the theme of Matthew B. Crawford’s book Shop Craft as Soul Craft, based on his article by the same name that appeared in 2006 in The New Atlantis. Crawford’s writing is rich and his thinking profound. But boiled down, I took three main points from his book and article.
First, there is a meaningful and thoughtful component to manual labor. To make something is not thoughtless, but requires both skill and intelligence. This is true if you are building a table, where you must think about the shape, functionality, and aesthetics of a table. But even in factory work, there is the challenge of figuring out how to do something better. And in the modern factory, labor demands technical skill, problem solving, and creativity. Whether you are building a house or making a battery, making things requires thought. What is more, it is good for the soul. Here is how Crawford writes about the soul benefits of craft:
Hobbyists will tell you that making one’s own furniture is hard to justify economically. And yet they persist. Shared memories attach to the material souvenirs of our lives, and producing them is a kind of communion, with others and with the future. Finding myself at loose ends one summer in Berkeley, I built a mahogany coffee table on which I spared no expense of effort. At that time I had no immediate prospect of becoming a father, yet I imagined a child who would form indelible impressions of this table and know that it was his father’s work. I imagined the table fading into the background of a future life, the defects in its execution as well as inevitable stains and scars becoming a surface textured enough that memory and sentiment might cling to it, in unnoticed accretions. More fundamentally, the durable objects of use produced by men “give rise to the familiarity of the world, its customs and habits of intercourse between men and things as well as between men and men,” as Hannah Arendt says. “The reality and reliability of the human world rest primarily on the fact that we are surrounded by things more permanent than the activity by which they were produced, and potentially even more permanent than the lives of their authors.”
Arendt values those who make things, especially things that last, because lasting objects give permanence to our world. And such workers who make things are above all thinkers in her understanding. Work is the process of transfiguring the idea of something into a real and reliable object.
But even laborers who make consumable goods are, for Arendt, doing deeply human activity. To be human has been, for time immemorial, also to labor, to produce the goods one needs to live. A life without labor is impoverished and “the blessing of labor is that effort and gratification follow each other as closely as producing and consuming the means of subsistence.” Granted, in repetitive factory labor these blessings may seem obscure, but then again, Dilbert has taught us much about the supposed blessings of office work as well.
Second, Crawford tells the story of how schools in the U.S. have done away with shop classes, home economics, and auto-repair, all classes I and many others took in junior high and high school. In the pursuit of college preparation, education has ceased to value the blessings of labor and work.
Third, Crawford argues that in a global economy it will be work with out hands and not just work with our brains that pays well. When legal analysis can be outsourced or replaced by robots as easily as phone operators, the one kind of job that will remain necessary for humans is repair work, fixing things, and building things. Such work requires the combination of mental and physical dexterity that machines will unlikely reach for a very long time. Thus, Crawford argues that by emptying our schools of training in handwork, we are not only intellectually impoverishing our students, but also failing to train them for the kinds of jobs that will actually exist in the future.
Many of my students might now agree. I have former students who have written excellent senior theses on Emerson and Heidegger now working on Organic farms or learning the trade of gourmet cheese production. Others are making specialty furniture. One is even making a new custom-built conference table for the Hannah Arendt Center here at Bard. These students love what they do and are making good livings doing it. They are enriching the world with meaningful objects and memories that they are producing, things they can share as gifts and sell with pride.
Many of the best jobs out there now are in the specialty craft areas. These jobs require thought and creativity, but also experience with craftsmanship and labor. Crawford does not argue against training people well in the liberal arts, but he does raise important questions about our valuation of intellectual over manual labor. We here in the U.S. as well as our friends in China should pay attention. Perhaps we need to rethink our intellectual aversion to production. Maybe we should even begin again to teach crafts and skills in school.
Crawford will be speaking at the next Hannah Arendt Center Conference “The Educated Citizen” on Oct. 3-4, at Bard College. We invite you to join us. Until then, I commend to you his book or at least his essay; Shop Craft as Soul Craft is your weekend read.
I haven't read Mo Yan's books, but congratulations to him for the Nobel Prize.
That said, his supporters have a funny way of explaining why he won. In the WSJ, I read this:
Chad Post, director of University of Rochester's Open Letter Books, a press that specializes in literature in translation, said he saw Mo Yan give a reading several years ago. "What struck me is that he seems to have an almost playful approach to writing," said Mr. Post. "For example, he's written a novel called 'Big Breasts and Wide Hips.' This is a good and interesting person to honor. Mo Yan is engaged with the issues of contemporary China but his books are also full of sex and food."
Not exactly the reasons I would choose for selection.
On the other hand, critics are overly focused on Mo Yan's politics, which lean towards the authoritarian Beijing regime. The great Chinese artist and dissident Ai Weiwei is quoted as saying:
For a contemporary writer to avoid the very clear issues of today's struggle is something that's not negotiable. I cannot separate literature from the people's struggle.
What is most remarkable about the press coverage so far of Mo Yan's prize is the focus on politics, sex, and food, with painfully little attention to writing. I hope that changes soon as some of us have a chance to read his books.
It is a fallacy to think that political thinking can exist separately from economic thinking. Hannah Arendt, no economist, saw clearly that the origins of totalitarianism were, in large part, traceable to the importing of economic thinking (unlimited growth) into the political realm, where politics is concerned with geographical, social, and moral limits. The economic victory over politics at that time went under the name of imperialism. Today, under the rubric of globalization, economic thinking continues to subsume political thinking to economic calculations.
The economic crisis of the last four years has brought with it a particular challenge to politics. The crisis is so large and so devastating and it so completely threatens to undermine our ways of life that there is a feeling of political futility. What possibly can be done to address this crisis? From out of this futility arises a kind of head-in-the-sand approach that denies the crisis instead of addressing it. One end point of such an approach is the kind of technocratic governance by bureaucrats now holding sway in Greece and Italy, as well as in a selection of American cities and counties. If we are to avoid giving up our political self-determination and if we want to engage the crisis rather than submit to it, we must first understand it, something that few politicians have been willing to do.
To confront the depth of our ongoing crisis, it is helpful to look at a new report out from the New America Foundation, authored by Daniel Alpert, Robert Hockett, and Nouriel Roubini. This report was sent to me by a long-time supporter of the Arendt Center. It is well worth reading in full. A few basic facts to set the stage:
•Four years into the Great Recession, more than 25 million working-age Americans remain unemployed or underemployed;
•The employment-to-population ratio lingers at a near-historic low of 58.3 percent;
•Consumption expenditure remains weighed down by massive private sector debt overhang left by the bursting of the housing and credit bubble a bit over three years ago (even if debt levels are coming down, as Floyd Norris argued today in the NY Times.)
The basic argument that Alpert, Hockett, and Roubini make is that economists and politicians have misunderstood the nature of the financial crisis. As a result, our responses have been ineffective. As they write: "The principal problem in the United States has not been government inaction. It has been inadequate action, proceeding on inadequate understanding of what ails us. "
So what is really the problem? Alpert, Hockett, and Roubini argue that the crisis is a conjunction of an extreme a credit crisis along with two other long-term trends that exacerbate that crisis. While most commentary and political response has focused on the credit crisis, the importance and impact of the two long-term trends have been largely overlooked. The two trends are:
First, the steady entry into the world economy of successive waves of new export- oriented economies, beginning with Japan and the Asian tigers in the 1980s and peaking with China in the early 2000s, with more than two billion newly employable workers.
Second, the "long term development that renders the current debt-deflation, already worse than a mere cyclical downturn, worse even than other debt-deflations is this: The same integration of new rising economies with ever more competitive workforces into the world economy also further shifted the balance of power between labor and capital in the developed world. That has resulted not only in stagnant wages in the United States, but also in levels of income and wealth inequality not seen since the immediate pre-Great-Depression 1920s."
The upshot of these two trends is that wage labor in developed countries is under continuing downward pressure. Whether the limpid economic recovery continues or not, the wage levels of the pre-crisis period will not return and those workers who earn wages for their performance will continue to experience lower real wages and thus a deteriorating standard of living.
What many still have not wanted to see is that the crisis itself was a response to these trends. For the last 20 years, the decreasing wages of workers in developed countries was hidden and compensated for by increasing debt, both private and public. As the report sees,
Easy access to consumer credit and credit-fueled rises in home values – themselves facilitated by recycled savings from emerging economies’ savings – worked to mask this widening inequality and support heightening personal consumption.
There is a chart in the report that itself shows the problem with crystal clarity. In Figure 2, we see that until 1982, the wages of workers and the income of non-wage earners (thus the higher-paid supervisory workers) was largely equal. Beginning in 1982, however, the earnings of non-wage earners began to rise significantly faster than the income of wage workers. This is at least one original source of the increasing inequality of the American populous and it is exacerbated by an increasingly less-progressive tax code and also by the increasingly profitability of capital investments in the global economy. As the report concludes,
Because many workers were no longer sharing the fruits of the economy’s impressive productivity gains, capital was able to claim a much larger share of the returns, further widening wealth and income inequality which by 2008 had reached levels not seen since the fateful year of 1928.
For anyone concerned with politics in the 21st century, understanding our current economic predicament is essential. That is why reading such a lucid report as this one from the New America Foundation is so important. It is, this weekend, your weekend read.
We are witness to more handwringing today from the international community over Syria. Something must be done to respond to the tragedy unfolding in slow motion. And yet, unwilling to act outside the rubric of humanitarianism, the international community is paralyzed. What the rebels in Syria want is not humanitarian aid, but weapons so that they can fight, defend themselves, and bring about a revolution. But that is what the international community will not give them.
The NY Times reports today that the "Friends of Syria" met in Istanbul over the weekend to debate whether they might, under the rubric of humanitarian aid, send $100 Million to the Syrian rebels to pay their soldiers and offer communications equipment. Weapons are off the table because Russia and China have limited UN action to solely humanitarian assistance.
Even such tepid help as money and communications assistance is not yet agreed to, since aid beyond bandages and food is understood as political, not humanitarian.
There remains no agreement on arming the rebels, as countries like Saudi Arabia and some members of Congress have called for, largely because of the uncertainty regarding who exactly would receive the arms.
The assistance to the rebel fighters as Mr. Assad’s loyalists press on with a brutal crackdown could worsen a conflict that has already led to at least 9,000 deaths and is increasingly showing signs of descending into a sectarian civil war. Some say that enabling the uprising to succeed is now the best bet to end the instability and carnage sooner.
In Syria, such hand wringing is a non-event. The Syrian rebels have ignored the conference in Istanbul. One Syrian activist blasted that the absence of promises of arms far overshadowed the financial and communications aid: “I’m the only one who watched this conference in our neighborhood, because there was no electricity and people don’t care,” he said. “I only watched it because Al Jazeera wanted my comment.”
The revolutionaries opposing Butcher Assad in Syria are inspirational—at least those who have been opposing him for nearly a year now at grave risk to themselves. As I have written before, we should feel gratitude to them for showing us what it means to fight and stand up for and suffer for what they believe in. The rhetoric of humanitarianism clouds this issue and calls for medicine and bandages, or tries, as the Conference in Istanbul last weekend, to extend humanitarianism to communications equipment. But if the revolutionaries deserve our support, we should arm them and let them fight the battle they believe in. If not, or if the situation is too confusing, we should stand back. But this is a political question, not a humanitarian one.
Hannah Arendt was always careful to insist that life is not the most important human right. The core right of humanity is to speak and act in public, which Arendt also called The Right to Have Rights. The Right to Have Rights includes the right to resist and even to die for one's beliefs. To do so is human, and is not senseless, especially when one is then remembered for bravery and heroism. Indeed, human life can often have more meaning in martyrdom then in a comfortable life. Whatever else one can say about Syria, it is the case that people fighting and struggling there are being seen and heard both in Syria and around the world.
The revolutionaries in Syria have shown their bravery, courage, and dedication. They are fighting for freedom, even if different groups understand that in dangerously various ways. After one year, however, they have earned our respect. For that, we should be grateful for their example and awed by their sacrifices. We should also have the courage of our convictions and give them the arms and means to carry on their struggle themselves.
This week, Greg Smith announced his resignation as an executive from Goldman Sachs in a highly publicized Op-Ed piece for the New York Times, aptly titled “Why I am Leaving Goldman Sachs.” The letter describes a transformation in the “culture” of the giant investment firm that has gone from a business with integrity to one which is now “as toxic and destructive” as Smith has ever seen it during his twelve year tenure. “To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money.”
Such behavior being tied to a Wall Street firm is not exactly surprising. And in Goldman's case, one wonders where Mr. Smith has been. In the last few years, a number of Goldman's clients have sued the bank, including ACA Financial Guaranty, Basis Capital, an Australian hedge fund, and ABP, a Dutch pension fund. Each argues that Goldman materially harmed them by selling them bad products. And Goldman already paid out $500 Million dollars to settle the Abacus case, in which Goldman was accused of illegally profiting by deceptively selling worthless paper to its customers.
There is a sense in which one looks at Mr. Smith's holier than thou revelation that Goldman was not the noble corporation he once thought it was and asks: really? Haven't you read anything Michael Lewis has written over the last 10 years? Not to mention Matt Taibi—the author of a take down of the mythic Goldman Sachs culture that was published two years ago.
Smith derides his former employer for focusing on profit above the well-being of the client. He puts this is stark business terms. He writes:
It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.
What Smith takes as a simple truth, is anything but. Trust is in short supply, and yet people work with Goldman and others because they believe that Goldman will make them money. As long as they think that Goldman will make them money, they don't really care that Goldman will make more money or that Goldman is looking out for itself. Clients continue to flock to Goldman because making money is what everyone cares about, not trust. One client of Goldman Sachs was even quoted as calling Smith “naïve” for believing that the business he is in was ever about anything but profit.
Frank Portnoy, writing in the Financial Times, argues that what is really at stake here is the definition of a client. Goldman is now a huge public firm with a few big clients it serves as advisors, and then thousands if not millions of smaller clients who simply buy its products. Goldman needs to have the trust of its major clients, but not is smaller ones. Just as Coca-Cola has an obligation to make sure that what it is selling is actually Coca-Cola, Goldman has a responsibility to sell you what it tells you it is selling you. But neither Coca-Cola nor Goldman are obligated to tell you that their products aren't healthy for your body or your wallet.
The Goldman myth is just that, at least today. After Goldman went public it transformed from a small investment bank with $1.4 billion in investments in 1998 to a huge corporation with investments of $13.96 billion in 2008, using a leverage ration of 26 percent. Does anyone really think that such a company is not driven by the bottom line?
Reconciling ourselves to reality—telling ourselves the truth—is one of the first demands of ethical life.
One such truth is that business today is very different than it used to be. One needs to confront and comprehend such a truth, especially if you want to resist it. And that is the problem with too many of the responses to Greg Smith's letter.
Yes, Smith seems naive and snarky. And why did he give us his resume at the end of his letter? He clearly has some issues. But the basic point he raises—that business should be conducted with some basic ethical standards beyond that of minimally following the letter of the law—is one worth discussing. There are some clients who want to work with bankers that treat them both kindly and respectfully, and they should know to avoid swimming with the sharks. And there is a real question whether pension funds and other institutions are sophisticated enough to swim in the waters with the likes of Goldman. And finally there is the worry that so many of our brightest young people want to work for firms at which the unmitigated search for profit—restrained only by the letter of the law—is the cultural demand. We need more discussions of such questions. So, as distasteful as I found Smith's letter, I must admit I am happy he published it.
A better airing of many of these same issues happened at the Hannah Arendt Center's 2009 Conference, The Intellectual Origins of the Financial Crisis. A number of our panelists touched precisely on this question of the cultural change in business and Wall Street in particular. The book of essays based on that conference will be published this year.
In the book is included an interview with Vincent Mai, at the time the Chairman and Partner of AEA Investors. In this interview, Mai offers an insiders' perspective on the cultural changes that the financial world has undergone. With more eloquence and also more awareness than Greg Smith, Mai offers an account of an inverted world, one in which trust, reputation, and respect have been replaced by a whole new set of values.
I don’t mean that everybody was a saint and today they’re all sinners. Far from it. But there was a set of ground rules that governed the way you did business which imposed a discipline which was central to the way Wall Street worked. It was the same in all the firms. And I’ve watched with a combination of fascination and horror at the way the world has changed, turned upside down.
Mai's story of the way the world of Wall St. has been turned upside down is fascinating reading, and worth more of your time than another 10 commentaries on Greg Smith. The book with Mai's interview won't be out for a few months still, but for now you can read it here. I recommend you do so for your weekend read.