Tomáš Sedláček: “In paradise, there is no such thing as economic growth”

Czech top economist Tomáš Sedláček on economy and crisis

Maths is the new myth, says Czech economist Tomáš Sedláček. He looks at the Greek debt crisis, global inequality and economic theory and assesses the underlying philosophical and ethical viewpoints, rather than mathematical models.

  • Michaela Danelova Tomáš Sedláček Michaela Danelova

Tomáš Sedláček is a young god amongst economists, and he looks like one, too. A wreath of golden curls adorns his permanently beaming face and his sturdy build seems to add weight to his arguments. Even his laugh sounds Olympic. He was Vaclav Havel’s economic adviser in the nineties and, today, Sedláček is still head of macro-economic strategy at the Československá Obchodní Banka (ČSOB), Czech Republic’s largest bank, and member of the National Economic Council in Prague. He says economy is about mythology rather than science, not implying that he’s bad at maths, but pointing out that the role of mathematical models is far too overrated. Sedláček: “Every economic model is a story helping us to explain reality. Today, mathematical stories do what mythological stories did in the past. But we are so convinced that numbers correspond to reality that we live in an extremely ideological world where stories have merged with reality.”

Tomáš Sedláček: It would be extremely difficult to fit the logic of friendship into an economic model; it would also be useless as everyone knows that friendship works without applying maths. The same applies to the debate about Greece: you can see that it is more of a theological rather than an economic issue. Increasingly, the figures appear to be minor or even unimportant, turning the debate into a discussion about law versus mercy. Should we apply the rules strictly or should we forgive? And if we forgive, then how many times? Seven, seventy-seven, seven times seventy-seven?

But in Greece, isn’t it about calculable debts and problems?

Tomáš Sedláček: The figures do exist, of course, and they shouldn’t be ignored. But they will never provide the answer. My point is that people don’t behave in a mathematical way, rather in a philosophical way. As long as we refrain from acknowledging this, we will continue to create crises like the one in Greece.

Economy is often seen as a discipline that functions according to immutable laws inherent to the nature of things, like the invisible hand of the market.

Tomáš Sedláček: The first level of regulation is to accept moral norms: I won’t cheat, I won’t produce harmful products…If this norm holds up, there’s no need to coordinate or regulate externally. The second level is competition and coordination within competition. If all shoe manufacturers decide against using plastic, preferring to use only quality materials, then the market will do the rest. But when neither of these levels works, then there’s no escape: the government must enforce ethical rules. If the question is whether we must subject ourselves to the rules of the market, or control the economy with rules enforced by the government, then I choose the second option. Otherwise all we do is exchange the unmoved mover of medieval theology for the market, which rules over our lives and behaviour, forbidding us to regulate it. I reject the divine providence of the markets.

Today’s economy seems to be running on credit and debts. Is this because the financial sector dominates the real economy?

Tomáš Sedláček: It’s not the use of money that turned society into a permanent debtor. It has to do with the fact we can’t control interest rates. All classic philosophers and religious thinkers warned against the use of interest. Be it Aristotle or the Old Testament, the Quran, the Veda or the classic Sumerian legal system, they all repeat the same message: interests are strange and complex, we fail to understand them, let alone control them, so use them as scarcely as possible. This old wisdom was thrown overboard and interest became one of the pillars of our economic system. Along with all its consequences.

Is it the central role of interest rates that forces the economy to constantly grow?

Tomáš Sedláček: The West’s growth over the past decade was bought in exchange for instability. It can be compared to a car that goes really fast, but when you hit the brakes, it explodes. I don’t know if this type of car would be successful on the market, but it certainly is the model we recommend for the world economy. We urgently need to cool down.

Are there functioning economies that can offer employment and quality social services to the people without growing?

Tomáš Sedláček: Everything is easier when the economy grows, of course. But we know growth isn’t permanent or self-evident. That’s why countries or societies have to organise themselves in order to survive in times when the economy does not grow, or even shrinks, without demolishing the achievements of the welfare state. This won’t work if you consider growth as a kind of divine warranty or an absolute human right. In periods of growth, one must take precautionary measures for the hard times, since they are inevitable. Finland, for instance, purposefully slowed down its economic growth so as to stabilise the country’s debt ratio.

Ancient Hebrew society solved its problems of inequality and debts with the Jewish jubilee year. Every 49 years all debts were relieved and the means of production redistributed. Would this be an idea for the European Union today? Or is it just a nice story to remind us of the dangers of accumulation of capital and inequality?

Tomáš Sedláček: Both, I think. The system existed in a local economy 3,000 years ago. If you were to apply the same principle today, it would have to have a whole different outlook. You could see the financial crisis as an enforced debt forgiveness, except it isn’t anything like the ancient jubilee year. The Jews built a predictable system meant to avoid the concentration of wealth and to help people who, for all kinds of reasons, had become marginalised. Today’s crisis, however, was not predictable and, in a very unequal and unjust way, forgave debts where wealth was concentrated, putting the burden upon the already vulnerable.

If Greece had gone bankrupt 80 years ago, the other European countries wouldn’t have deliberated on how to save the country but rather how to attack it, to exploit Greece’s misfortune as much as possible.
The jubilee year is strongly linked to the conviction that you must rest every seven days, that the land must rest every seven years, that the financial system must rest every 49 years. This sabbatical commandment is the most violated of the Ten Commandments. We are no longer able to let our economy rest. This is all too clear in Czech Republic. Ever since we freed ourselves from totalitarian communism twenty years ago, all we have done is work like mad. People, nature, technology, machines: all have run ceaselessly. Yet we are not able to enjoy it. All we can say is: we want more!

You describe the history of economic theory partly as a constant battle between a stoic and a hedonistic approach, as a choice between an economy of restraint and sufficiency versus one of personal satisfaction and growth. Will climate change force us whether or not we end up choosing the stoic option?

Tomáš Sedláček: Our fundamental mistake is that we regard nature as natural resources and raw materials for a consumption economy, just as we have transformed human beings into human resources. This paradigm inevitably leads to a total exploitation of all of these resources. On the other hand, there’s the growing impact of the ancient story telling us that if we don’t respect nature, it will turn itself from a benevolent environment into a huge demolition machine. If this myth can help us change our approach to man and nature into a new equilibrium, then there’s no doubt we will all benefit from it.

So for good economic advice, is it better to turn to the stoics?

Tomáš Sedláček: Economic theory rejected the school of stoicism in favour of utilitarianism, which assumes one can strive for personal, individual profit by all means. But even John Stuart Mill, one of the founders of this school, began with the idea that the whole community benefits and, today, this would refer to a global benefit. If this is the benchmark, then we must stop taking care of the rich and rich countries immediately, since it is virtually impossible to increase benefits for this category. Even if we double the quantity of our chocolate, films, tablets or clothes, our happiness will hardly increase. Yet, increasing the quantity of food by only half in poor countries or for the world’s poorest people will give happiness a tremendous boost. In short: even if you rigorously apply Mill’s economic theory, you’ll end up with a compassionate economy, one which we could be proud of, with values and practices that are the very opposite of today’s utilitarian economy.

In reality, the wishes of the richest 1 % are taken into account, but those of the millions of poor people are hardly considered or not at all.

Tomáš Sedláček: The great Catholic theologian of the Middle Ages, Thomas Aquinas said that ownership is a justifiable human institution as long as it doesn’t clash with fundamental human principles, such as the right to life. In extreme circumstances, the individual right to ownership becomes subordinate to the collective interest. Then theft isn’t theft anymore, as people’s lives are at stake. I assume everybody agrees with this.

Thomas Aquina’s principle seems self-evident when the situation occurs in an environment of physical proximity, but the globalised economy causes millions of people to die from hunger or poverty, whereas the richest top layer isn’t prepared to give up even a tiny bit of its wealth to eradicate this injustice.

Tomáš Sedláček: Exactly, and this brings about an enormous moral guilt. The notion of the neighbour has been stretched expansively, from the literal neighbour or fellow countryman to the stranger – the Samaritan in Jesus’ parable – and the needy all over the world. In the past, this hasn’t stopped us from enslaving Africans and exploiting their land for our profit and to their detriment. Still, today I see a heightened conscience surrounding our global moral responsibility, and I hope it will lead to a different kind of interaction, both with each other and with the world at large. I hope that within a generation we will successfully install the instruments to translate this conscience into tangible and effective care for all of Earth’s inhabitants. But I also believe mankind has already made big progress. If Greece had gone bankrupt 80 years ago, the other European countries wouldn’t have deliberated on how to save the country but rather how to attack it, to exploit Greece’s misfortune as much as possible.

In the beginning of your book The Economics of Good and Evil, you describe the difference between the Sumerian and the Hebrew notion of paradise. For the Sumerian, both paradise and man’s fate lie in the city, whereas the Hebrew idea places paradise explicitly in a rural environment of nature and agriculture. Where is the paradise of the 21st century?

Tomáš Sedláček: For me, paradise or heaven for today’s European initially means inner peace and balance. What you lack, or the opposite of what threatens you the most: this is what you project in the Promised Land. In our paradise, there’s no chaos, stress or the extreme inequality found in the city, it’s all harmony between man, nature and god – whatever you understand by that. In ever increasing numbers, we choose for life in the city, because it offers the best economic prospects. On the flipside, our images of paradise don’t refer to productivity or economy, but to restraint. Paradise is the state of mankind where you no longer need the things you now have to work and care for, day in day out. In paradise there is no economic growth.

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