Vita

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ABCDEconomy by Luigino Bruni

Gift.  Don´t think that it means a present…

Published in the weekly Vita, May 15, 2009

With the word “Gift”, which we will cover this week and next week, we will conclude the series ABCDEconomy by Luigino Bruni. We proposed this series as a guide to the key words within economic behavior, after breaking down the myths and bursting a few bubbles.  Here´s an index of the analyzed words: Happiness, Profit, Market, Bank, Investment, Responsibility, Rules, Interests, Organization, Reciprocity, Capital.  This week, as mentioned above, presents the first part about the concluding word, “Gift”.

There exists a close relationship between community, life in community, and gift.  A study of the origins of the word community shows it as a derivative of communitas, from cum-munus, or from munus (reciprocal gift).  But the word´s very suggestive origins immediately demonstrate its conflicting meanings, hidden in the Latin word munus.  Munus means both gift and obligation, and the ambivalence continues to be traced in the Anglo-Saxon word “gift”, which maintains its form in English but with the same spelling in German means “venom”.  The perfumed and colorful gift of an apple can also show itself to be poisoned.  Why?  First of all, because there are many types of gifts, and there are multiple forms of giving. There is the anonymous and unilateral gift of philanthropy, either through donations to help those far away and in need or in the case of natural disasters.

ABCDEconomy - G as in Gift - Part 1

[fulltext] =>

There is the personal gift given to loved ones, which can be material but most often is a gift of our time, attention, a listening-ear, our life.  Then, there is the conventional gift that often recalls ancient traditions, like gifts to newlyweds or a bottle of wine when one is invited over for dinner.  But there is also the gift of a payoff to one´s equals or superiors that don´t have anything to do with gratuitousness.

Anyway, the key word that best explains the nature of a gift is reciprocity, about which we have already written in our small handbook.  More than the gift, human beings love reciprocity.  Or better, they love a gift when given within a relational grammar context where one both gives and receives.  We want that the gift, so that it be a good gift, be given with a good reason.  The gift is a sign of something more profound.

One day, during a (low cost) plane trip, I decided to offer a sandwich to a young person (who didn´t have any money).  I remember the disturbed look that I received, as if he was asking himself, “What does this man want from me? Why is he offering me 5 euro?”  Not accepting candy or gifts from strangers is still valid advice to children and youth – at least if there isn´t a good reason to do so, like in emergency situations or other particular circumstances. And even when we are in need, the gift which does not produce reciprocity over time, or gives life to static and asymmetrical reciprocity, often ends up hiding power-based relationships and a desire to dominate the other. The free-gift, which is the experience we all associate with a beautiful and good life, requires that we take turns playing the role of giver and recipient. It requires that who receives a gift feels capable of reciprocating, finding himself in the condition to be able to respond on a plan of substantial equality, especially when the gift mechanism falls outside of the family, and when it deals with adults (even if they are convinced that the experience of gift-reciprocity is fundamental and an important foundation even for youth and children). Gifts break the balance between social relationships, as they create an asymmetry that the human being, and absolutely the modern one, is not capable of handling for a long period of time. The unreciprocated gift is means for unbalance, disorder.  Rather, human societies – even archaic ones and even though differently from modern ones – love symmetry: and so the explanation of the market´s great power, based on a symmetrical exchange of equivalent values (or perceived as such). Next week, we´ll try to understand in what way “gift” is not necessarily a gift, and neither is it “free”. The second part of this article will be published in the next issue.

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ABCDEconomy by Luigino Bruni

Gift.  Don´t think that it means a present…

Published in the weekly Vita, May 15, 2009

With the word “Gift”, which we will cover this week and next week, we will conclude the series ABCDEconomy by Luigino Bruni. We proposed this series as a guide to the key words within economic behavior, after breaking down the myths and bursting a few bubbles.  Here´s an index of the analyzed words: Happiness, Profit, Market, Bank, Investment, Responsibility, Rules, Interests, Organization, Reciprocity, Capital.  This week, as mentioned above, presents the first part about the concluding word, “Gift”.

There exists a close relationship between community, life in community, and gift.  A study of the origins of the word community shows it as a derivative of communitas, from cum-munus, or from munus (reciprocal gift).  But the word´s very suggestive origins immediately demonstrate its conflicting meanings, hidden in the Latin word munus.  Munus means both gift and obligation, and the ambivalence continues to be traced in the Anglo-Saxon word “gift”, which maintains its form in English but with the same spelling in German means “venom”.  The perfumed and colorful gift of an apple can also show itself to be poisoned.  Why?  First of all, because there are many types of gifts, and there are multiple forms of giving. There is the anonymous and unilateral gift of philanthropy, either through donations to help those far away and in need or in the case of natural disasters.

ABCDEconomy - G as in Gift - Part 1

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ABCDEconomy "G" as in "Gift" - Part 1

ABCDEconomy by Luigino Bruni Gift.  Don´t think that it means a present… Published in the weekly Vita, May 15, 2009 With the word “Gift”, which we will cover this week and next week, we will conclude the series ABCDEconomy by Luigino Bruni. We proposed this series as a guide to the k...
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ABCDEconomy by Luigino Bruni

Capital. A Lesson from Genovesi

Published in the weekly Vita, May 8, 2009

A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles.  Here are the words already analyzed by Luigino Bruni: Happiness, Profit, Market, Bank, Investment, Responsibility, Rules, Interests, Organization, and Reciprocity.  This week, the second part on the word “Capital.”

As explained in the previous issue, the history of economy can also be explained as the evolution of the meaning of capital. The word capital derives from the Latin word caput, capitis, which means "boss" or "head".

Between the 7th and 8th century, classical economy considered capital as a the principle factor in production and with Marx it becomes the key to interpreting not only the dynamics within the economy but within the entire society as well.

ABCDEconomy - C as in Capital - Part 2

[fulltext] =>

In 1942, J.A. Schumpeter, an Austrian liberal economist, was able to go beyond the link between capital and the entrepreneur.  He foresaw a new form of capitalism rising on the scene: financial capital.

 Over the last few decades, the word capital has been distinguishing itself more and more independantly from the word capitalism.

After World War II, the term human capital was the first to come into the debate. At that time, important economists (like G. Becker) began constructing models to explain that a business or an economic system grows when it goes beyond just physical, financial and technicalogical capital. It needs to have at its disposal human capital - people who are qualified, formed, who have made investments in their education and so have increased the value of their own person, and, therefore, of their business.

In the 90s, the term social capital began making an appearance as well. It is built by the weaving together of trust and civil virtue, which allow the market to develop and grow. Here, too, one of the first to intuit the essential role of social capital was Antonio Genovesi. In 1754, he wrote that the reason his kingdom wasn´t growing like the other European states was precisely because it lacked what he called "public faith". In Naples, he said, there was an abbundance of personal faith and honor, but what was lacking was the public faith which leads one to trust the institutions and, therefore, even park rangers, establishing the development of markets and of society.

Today, another term shyly making its appearance is "relational capital". This establishes an organization as not only something more than a group of individuals, but a body link by trust, by fides, which Genovesi remembered also means "cord that binds and unites".

And finally, an even more recent concept is that of ¨"spiritual capital", which consists in the resource of interior life (not neccessarily religious) which characterizes a person, a community, a business.

This type of capital proves itself particularly precious in moments of crisis, where the capacity to go ahead in moments of suspension and uncertainty, to deal with deep conflicts and to know how to start again and truly forgive, are all much needed.

A final note.  I´m convinced that among the various types of capital there is a complementary and interdependant correlation.  When, for example, a business in crisis begins to talk about possibly firing workers, what often takes place is that the best workers immediately take their leave. They have more options.  You confirm a type of exile of the best, and those remaining are less qualified workers. The situation becomes even more serious than it was in the beginning. Instead, if you respond to a crisis by reinforcing the faith, or relational capital (and maybe spiritual) of the business, you can avoid the deterioration of its human capital (and consequently, economic and financial capital). Talking about capital, it all comes down to the same pot, but there are many types within it.  The most difficult art is knowing how to attend to them all with constant upkeep.

Next week, we present the last part on the word, "Gift."

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ABCDEconomy by Luigino Bruni

Capital. A Lesson from Genovesi

Published in the weekly Vita, May 8, 2009

A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles.  Here are the words already analyzed by Luigino Bruni: Happiness, Profit, Market, Bank, Investment, Responsibility, Rules, Interests, Organization, and Reciprocity.  This week, the second part on the word “Capital.”

As explained in the previous issue, the history of economy can also be explained as the evolution of the meaning of capital. The word capital derives from the Latin word caput, capitis, which means "boss" or "head".

Between the 7th and 8th century, classical economy considered capital as a the principle factor in production and with Marx it becomes the key to interpreting not only the dynamics within the economy but within the entire society as well.

ABCDEconomy - C as in Capital - Part 2

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ABCDEconomy "C" as in "Capital"- Part 2

ABCDEconomy by Luigino Bruni Capital. A Lesson from Genovesi Published in the weekly Vita, May 8, 2009 A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles.  Here are the words already analyzed by Luigino Bruni: Happiness, Profit...
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ABCDEconomy by Luigino Bruni

Capital. Not only capitalism

Published in the weekly Vita, May 1, 2009

A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles.  Here are the words already analyzed by Luigino Bruni: Happiness, Profit, Market, Bank, Investment, Responsibility, Rules, Interests, Organization, and Reciprocity.  This week, the first part on the word “Capital”.

The history of economy can also be told as the evolution of the meaning of capital.  CAPITAL derives from the Latin caput, capitis, which means “boss”, or “head”, but also a central point from which the other parts descend. One of the first economic meanings of CAPITAL was, in fact, a financial one, where CAPITAL (principle part, caput) generated secondary elements (interests) that descended from such.  
icon ABCDEconomy - Capital - Part1

[fulltext] =>

In ancient times, CAPITAL also referred to “heads” of livestock, an important form of wealth.  With the classic economy between seven-hundred and eight-hundred, CAPITAL was seen as the main productive factor (together with work and land) on which the fortune of the economic system depended, and which, not by chance, from Marx onwards was named “capitalism”.

In Marxism, CAPITAL (also the title of Marx´s most important book, 1867) becomes the key to interpreting not only the economical dynamic of a society but the dynamic of the society as a whole.  The appropriation of the means of productions (CAPITAL) by capitalists becomes seen as the origins and the explanation of every inequality and of every social injustice (among which, embezzlement by part of the capitalists of the creative value of workers).
Marx theorized a transitory nature of capitalism, considering that the intrinsic laws which move history would have led to it being overcome. The idea of a system which would overcome capitalism dominated the theoretical debate until the Second World War.  The Austrian liberal economist, J.A. Schumpeter, for example, one of the greatest social scientists of the 20th century, in introducing one of his most important books (Capitalism socialism democracy, 1942) wrote, “Can capitalism survive? No, I do not believe that it can.”

The explanation of this prophecy consisted in the deteriorating function of the entrepreneur that Schumpeter caught a glimpse of during the birth of the financial capitalism dominated by a few large businesses. Afterwards, until the recent crisis, no other among theoretical or liberal economists spoke of an end to capitalism. One of the reasons of this partial eclipse is the very common confusion between capitalism and the market economy: today, no longer being able to question the market economy, one no longer questions capitalism as well.

In reality, the market economy does not coincide with capitalism.  It was born well before capitalism and knew various non-capitalistic forms which co-existed with capitalism (thinking about the cooperative movement), and it will certainly outlive them.

Over the last few decades, the word CAPITAL has distinguished and directed itself always further away from capitalism.  One speaks of human CAPITAL and of social CAPITAL, understood as new factors of production on which the production of wealth (and not only) depends.

Human CAPITAL was the first to enter into the debate, after the war. At that time, important economists (among whom G. Becker) began to build models where they explained that a business or an economic system grows when – besides physical, financial and technological capital – it arranges for human CAPITAL, meaning people who are qualified, prepared, who have invested in instruction and who have consequently raised the CAPITAL value of their own person and, in doing so, the business.

In reality, this idea was already present in classic economists like Pareto at the end of the 8th century, or the Venetian Ortes when he affirmed that the wealth of a people is its people (1792).

With the next issure of VITA, we´ll continue with the second part about “Capital”

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ABCDEconomy by Luigino Bruni

Capital. Not only capitalism

Published in the weekly Vita, May 1, 2009

A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles.  Here are the words already analyzed by Luigino Bruni: Happiness, Profit, Market, Bank, Investment, Responsibility, Rules, Interests, Organization, and Reciprocity.  This week, the first part on the word “Capital”.

The history of economy can also be told as the evolution of the meaning of capital.  CAPITAL derives from the Latin caput, capitis, which means “boss”, or “head”, but also a central point from which the other parts descend. One of the first economic meanings of CAPITAL was, in fact, a financial one, where CAPITAL (principle part, caput) generated secondary elements (interests) that descended from such.  
icon ABCDEconomy - Capital - Part1

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ABCDEconomy "C" as in "Capital" - Part 1

ABCDEconomy by Luigino Bruni Capital. Not only capitalism Published in the weekly Vita, May 1, 2009 A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles.  Here are the words already analyzed by Luigino Bruni: Happiness, Profit, Market...
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ABCDEconomy by Luigino Bruni

Dragonetti. The thinker of virtue

Published in the weekly Vita, April 24, 2009

During this week of mourning, we wanted to interrupt the usual course of the words in our handbook of civil economy to express our solidarity with the city of Aquila (Abruzzo, Italy). This article remembers one of it´s citizens who is among classic civil economy authors, Giacinto Dragonetti, Aquilan marquis whose historic palace was among those damaged by the earthquake.

Giacinto Dragonetti is the author of a small but very successful book in prevolutionary Europe: Delle Virtú e de´premi (Of Virtues and Rewards), associated with the celebrated Dei delitti e delle pene (Of Crimes and Punishments) by Cesare Beccaria.  In fact, Dragonetti´s book widely circulated during the 7th century.  The book first came out in Naples under an anonymous author in 1766.  It was then published in French (1767), in English (1769), in German (1769) and in Russian (1769).

ABCDEconomy - Dragonetti

[fulltext] =>

I found a Spanish edition from 1838, and I don´t leave out the possibility of other editions.  Dragonetti was, therefore, more frequently translated than his teacher Antonio Genovesi, and (if you don´t count Beccaria), it is not until Pareto in 1900 before another Italian scholar of social sciences earns such international notoriety.

With a juridical background, Dragonetti was interested both in economy and in juridical themes.  As a youth, and soon after the publication of Beccaria´s Dei delitti e delle pene, he published that small book which aspired to complement and develop Beccaria´s thesis.

In the introduction of the book, it says, "Men have made millions of laws to punish crime, and they haven´t established even one to award virtue." Dragonetti proposed a true piece of legislation to award virtues, even including a code of virtues to accompany the penal code.  "The Roman legislators," he said, "knew about the need for reward. They hinted at it, but they did not have the courage to codify it." Then, he added, "talking about awarding obliged virtue will not be a lost cause in this century, believed to be destined to render the respective human rights in their original effectiveness."

Obviously, Dragonetti did not deny the importance of punishments.  On the contrary, he recognizes their essential role.  He believed, however, that aiming only at punishment of crimes was not sufficient to put his country on the road to civil and economic development.  But what is virtue?

For Dragonetti, virtue is associated with the direct and intentional research of the public good.  When someone acts for "the other´s advantage", we´re then dealing with virtue. He said, "One calls virtue all actions which regard the interests of others or that prefer the other´s good above one´s own", (pg. 7). Virtues must be awarded: "As virtue is a product not of the law´s command but of our free will, society does not hold a true claim over it. Virtue doesn´t enter into the social contract, and if you don´t award it, the society commits a similar injustice as those who defraud others´hard work" (pg. 11-12).

The "prize" therefore is a reward for the action that goes "beyond" contracts and laws.  It´s a reward to a substantially free act.  "It´s true," says Dragonetti, "that all members of the state should be goverened by the law, but it is also without a doubt that Citizens should be distinguished and awarded, in proportion to their free services."

Pages and ideas of great value and current relevance, which give homage to the Aquilan lands.  In his theses, Dragonetti always wrote "Citizen" with a capital C.  While writing, I thought of the many from Abruzzo (and not only) who in these days are showing that today the capital C in Citizen is more than ever appropriate, just as before.

That these civil virtues, still alive in Abruzzo, although not always adequately recognized and awarded, be the start of a rebirth among those nobel lands.

Next week´s word: Capital.

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ABCDEconomy by Luigino Bruni

Dragonetti. The thinker of virtue

Published in the weekly Vita, April 24, 2009

During this week of mourning, we wanted to interrupt the usual course of the words in our handbook of civil economy to express our solidarity with the city of Aquila (Abruzzo, Italy). This article remembers one of it´s citizens who is among classic civil economy authors, Giacinto Dragonetti, Aquilan marquis whose historic palace was among those damaged by the earthquake.

Giacinto Dragonetti is the author of a small but very successful book in prevolutionary Europe: Delle Virtú e de´premi (Of Virtues and Rewards), associated with the celebrated Dei delitti e delle pene (Of Crimes and Punishments) by Cesare Beccaria.  In fact, Dragonetti´s book widely circulated during the 7th century.  The book first came out in Naples under an anonymous author in 1766.  It was then published in French (1767), in English (1769), in German (1769) and in Russian (1769).

ABCDEconomy - Dragonetti

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ABCDEconomy "Dragonetti"

ABCDEconomy by Luigino Bruni Dragonetti. The thinker of virtue Published in the weekly Vita, April 24, 2009 During this week of mourning, we wanted to interrupt the usual course of the words in our handbook of civil economy to express our solidarity with the city of Aquila (Abruzzo, Italy). Thi...
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ABCDEconomy by Luigino Bruni

Reciprocity. Exchange without deceptions

Published in the weekly Vita, April 17, 2009

A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles.  Here´s are the words already analyzed: Happiness, Profit, Market, Bank, Investment, Responsibility, Rules, Interests, Organization. This week we take a look at "Reciprocity".

Reciprocity is probably the most relevant social norm in civil life. The entire dynamic of communal living, from the micro to the macro, can be read as a network of relations which are very different from each other, but have as common denominator some type of norm of reciprocity.

The original meaning of reciprocity comes from the Latin rectus-procus-cum, "that which goes and returns between one another".

ABCDEconomy - R as in Reciprocity

[fulltext] =>

Human communities - from families to nations - grow when among the various forms of reciprocity those "positive" ones prevail, those which therefore give life to cooperation and civil development (contracts, market, mutualness, friendship, love), and therefore, when the "negative" forms of reciprocity (conflict, war, revenge, retaliation) do not take the upper hand.

There are two main types of reciprocity: direct and indirect. Direct reciprocity is presented by the action of A towards B, B towards A; one person (A) gives or does something for another (B), and this one responds back towards the same person. If what is exchanged between A and B is of equivalent value, we are in the form of reciprocity typical of contracts.  If it is of unequal value, we´re dealing with other forms of reciprocity, like friendship, for example.

But in any case, the response of B towards A should be considered suitable by A (even if not equivalent), if one wants this reciprocity to continue over time and be affirmed as a social norm.

Reciprocity is often, in fact, a repeated interaction, and the suitability of the exchange is a necessary condition for the rapport to last over time. If one of the parties in the rapport feels taken advantage of by the other, the reciprocity is not sustainable.

There are, however, other forms of reciprocity that are very relevant to social life.  They are the indirect forms of reciprocity.

Indirect reciprocity has a double structure.  The first is A towards B towards C: A behaves towards B, and A´s action produces the effect that B in turn similarly treats a third subject C, without there being a direct relationship between C and A.

In a family, such relational structure is the basis of a good deal of the educative process, but many dynamics within organizations also depend on the indirect reciprocity at the base of the organizational culture, created over time and from spontaneous cooperation.

The second type of indirect reciprocity is instead as follows: A towards B, C towards A.  A behaves in a certain way towards B, and an external subject, C, who observes the first action by A towards B, is influenced in his relationships towards A.

In more ordinary economic life, similar dynamics are very important. Think, for example, of a client (C) of a business (A) who considers the actions that this does in favor of a social project (B) as means of increasing its profits; this client could also penalize the "social" actions of the business.

Much of the success obtained by social responsibility campaigns also depends on how the various stakeholders understand the intentions of the protagonists. Human beings are the only animals capable of attributing meaning to their own actions and those of others: that´s why reciprocity doesn´t lay its stakes only on recorded actions, but also on intentions. "Objective" facts aren´t enough for us.  We want to understand the relational and motivational message that these incorporate.

Next week´s word: Capital

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ABCDEconomy by Luigino Bruni

Reciprocity. Exchange without deceptions

Published in the weekly Vita, April 17, 2009

A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles.  Here´s are the words already analyzed: Happiness, Profit, Market, Bank, Investment, Responsibility, Rules, Interests, Organization. This week we take a look at "Reciprocity".

Reciprocity is probably the most relevant social norm in civil life. The entire dynamic of communal living, from the micro to the macro, can be read as a network of relations which are very different from each other, but have as common denominator some type of norm of reciprocity.

The original meaning of reciprocity comes from the Latin rectus-procus-cum, "that which goes and returns between one another".

ABCDEconomy - R as in Reciprocity

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ABCDEconomy "R" as in "Reciprocity"

ABCDEconomy by Luigino Bruni Reciprocity. Exchange without deceptions Published in the weekly Vita, April 17, 2009 A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles.  Here´s are the words already analyzed: Happiness, Profit, Market...
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ABCDEconomy by Luigino Bruni

Organization. Invest on the difference

Published in the weekly Vita, April 10, 2009

A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles.  Here are the words already analyzed: Happiness, Profit, Market, Bank, Investment, Responsibility, Rules, and Interests. This week´s topic is Organization.

A good deal of our life takes place within organizations. Families, gyms, associations, businesses, and supermarkets are all forms of organizations. A business or a hospital are among the more complex institutions created and coordinated with a future goal (or goals) in mind, and with the proper structures and instruments.

A family or a sporting association isn´t immediately perceived as an organization, because it is not easy to identify either the goal for which they are created or the instruments that make them work. What we need to remember, however, also because it is often forgotten by organizational theorists, that social life is not only composed of organizations. The other half of the big picture contains conventions: that is, complex actions that are not "created" by someone (as is a business or a school).  A classic example of a convention is street traffic.

ABCDEconomy - O as in Organization

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In organizations, the dominating factor is cooperation.  With conventions, cooperation is much less evident and normally not intentional. Who leaves his house by car in the morning isn´t thinking about cooperating with other drivers as much as getting to work as quickly and safely as possible. In a way, cooperation is an objective fact. Better still, we would say that an important difference between organizations (businesses) and that large convention-institution (non-organization) of the market, precisely deals with the binary model of cooperation-competition.
The market, they say, functions when subjects compete among each other, while business essentially entails cooperation. Or better: the business is cooperation inasmuch as it is an organization, in its internal relationships. Instead, the business as a subject of the market, in its external relationships, is competition. In reality, this vision (based on well-established theory) has some flaws, both for the binary model of business-organization as for that of market-convention. Competition is also, above all, important within an organization. Of course, if this prevails over cooperation, organizations go into crisis.  But competition can also be meant as competing or searching together. At the same time, the market cannot be seen only as a matter of rivalry, as its dynamic is also - and according to me, mostly - a joint cooperative action.
Then, there is an aspect that I consider particularly dangerous today, in the theory and even more in the practice of organization. We can call it organizational "reductionism" or "isomorphism". What does this deal with? It´s the tendency to treat all forms of organization as substantially similar realities. Obviously, a commercial business, a cooperative and a religious community have many things in common.  But good organizational theory must focus itself on the differences.
Human beings and chimpanzees share 98% of their DNA, but what counts more is exactly the 2% that is different. The globalization culture brings with it a radical tendency to standardize organizational tools. If one doesn´t give importance to the 2% difference, we´ll no longer be able to see each organization´s decisive elements, like culture, identity, values and missions. The organization of a social cooperative might have only 2% difference with respect of a capitalistic business, but if consultants and managers treat it in the same way, they cancel out centuries of history, of freedom, of civilization, and so they often bring it along unsustainable paths.
A civil society, instead, grows well when it allows various organizational forms to flourish, respecting and favoring them in their specificity and culture.
The next topic in ABCDEconomy is: Reciprocity
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ABCDEconomy by Luigino Bruni

Organization. Invest on the difference

Published in the weekly Vita, April 10, 2009

A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles.  Here are the words already analyzed: Happiness, Profit, Market, Bank, Investment, Responsibility, Rules, and Interests. This week´s topic is Organization.

A good deal of our life takes place within organizations. Families, gyms, associations, businesses, and supermarkets are all forms of organizations. A business or a hospital are among the more complex institutions created and coordinated with a future goal (or goals) in mind, and with the proper structures and instruments.

A family or a sporting association isn´t immediately perceived as an organization, because it is not easy to identify either the goal for which they are created or the instruments that make them work. What we need to remember, however, also because it is often forgotten by organizational theorists, that social life is not only composed of organizations. The other half of the big picture contains conventions: that is, complex actions that are not "created" by someone (as is a business or a school).  A classic example of a convention is street traffic.

ABCDEconomy - O as in Organization

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ABCDEconomy "O" as in "Organization"

ABCDEconomy by Luigino Bruni Organization. Invest on the difference Published in the weekly Vita, April 10, 2009 A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles.  Here are the words already analyzed: Happiness, Profit, Market, Ba...
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    [title] => ABCDEconomy "I" as in "Interest" - Part 2
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ABCDEconomy by Luigino Bruni

Interest. The opposite of benefit

A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. Luigino Bruni´s "Dictionary" offers its eighth entry.  The words already analyzed over the last few weeks include: Happiness, Profit, Market, Bank, Investment, Responsibility and Rules. This week Luigino Bruni concludes the reasoning, begun last week, about the word "Interest".

Interest is a word with an ambivalent meaning.  In economy, it could refer to at least two different realities. The first meaning refers to money interest, as we explained last week.

Since the beginning of modernity, the lending with interest was prohibited and the main reason was philosophical and theological: the sterile nature of money. Then, thanks to the growth of commerce and the markets, towards the end of the Medieval Ages and when loans begin to be used for productive investments, it becomes morally licit to ask interest on the borrowed sum. This is then seen as a recompense for one´s participation in the risk of an enterprise..

ABCDEconomy - I as in Interest - Part 2

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Then, there is a second meaning to the term interest, which goes back the motives of economical behavior. Normally, it´s affirmed that one´s economic actions are motivated by personal interests, which Adam Smith refered to as "self-interest" (translated as personal "benefit" in Italian). Near the end of the 8th century, Maffeo Pantaleoni, one of the best Italian economists, wrote the following: that which brings "street sweepers to sweep the streets, dressmakers to make a dress, tram conductors to offer 12-hour service, miners to go down into the mines, stockbrokers to carryout orders, millers to buy and sell grain, farmers to hoe the land, etc." is economic interest, and certainly not "honor, dignity, the spirit of sacrifice, the expectation of heavenly rewards, patriotism, love of neighbor, spirit of solidarity, imitation of ancestors and the good for one´s posterity."
Even recogizing the realism of this great economist´s thesis, we must also remember that many parts of the social and civil economy today (and yesterday) tell us that the search for "dignity", one´s own and that of others, "love for neighbor" and "spirit of solidarity" can be motives even of economic actions, and even if not the only motives. An economic project lasts through time if, other than responding to general interests and the common good, it also responds to the interests and benefits of those who promote it and those who work for it.  Personal interest and the common good, the personal dignity and that of others can and should coexist in a good society. A society begins to decline, even economically, when you begin to see opposition between individual and common interests. Today, in markets and in society, there is no need to be afraid of who has personal interests or of who goes after his own benefit when working in economy and finance.
The economy has the function of assuring people their own benefit, of putting them in the position to reach their interests: this is a worthy and noble function. Sure, an economy comprised of lone searchers of individual interests can´t build a good society, but no society is possible if the people don´t express their interests, if they have no desires.  Interest, in fact, can also be meant as: this activity "interests me", I am "interested" in this. The opposing or speculative term of interest is not primarily altruism or benevolence, but "disinterest", which is close to "apathy" and "indifference". Culture is also knowing how to redefine everyday words: we will get out of this crisis by learning to interpret interests as desires, and to view our interests with the interests of the others.
Next week in ABCDEconomy, the word "Organization"
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ABCDEconomy by Luigino Bruni

Interest. The opposite of benefit

A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. Luigino Bruni´s "Dictionary" offers its eighth entry.  The words already analyzed over the last few weeks include: Happiness, Profit, Market, Bank, Investment, Responsibility and Rules. This week Luigino Bruni concludes the reasoning, begun last week, about the word "Interest".

Interest is a word with an ambivalent meaning.  In economy, it could refer to at least two different realities. The first meaning refers to money interest, as we explained last week.

Since the beginning of modernity, the lending with interest was prohibited and the main reason was philosophical and theological: the sterile nature of money. Then, thanks to the growth of commerce and the markets, towards the end of the Medieval Ages and when loans begin to be used for productive investments, it becomes morally licit to ask interest on the borrowed sum. This is then seen as a recompense for one´s participation in the risk of an enterprise..

ABCDEconomy - I as in Interest - Part 2

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ABCDEconomy "I" as in "Interest" - Part 2

ABCDEconomy by Luigino Bruni Interest. The opposite of benefit A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. Luigino Bruni´s "Dictionary" offers its eighth entry.  The words already analyzed over the last few weeks include: Ha...
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ABCDEconomy by Luigino Bruni

Interest, that "something more" has well-based reasoning

published on Vita, 27/03/2009

A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. This is the eighth entry in Luigino Bruni´s "Dictionary". The topics already analyzed over the last weeks are: Happiness, Profit, Market, Bank, Investment, Responsibility, and Rules. This week (and next) we consider "Interest".

Interest is a word with an ambivalent meaning.  In economy, it could refer to at least two different realities. The first meaning that comes to mind is money interest. This interest, understood as compensation for who allows others to use money that does not belong to them (origin of "usury"), has been the object of century-long if not millennium-long debates, which are still well alive and of high civil relevance today.
ABCDEconomy - I as in Interest - Part 1

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Since the beginning of modernity, the lending with interest was prohibited from moral (religious) norms, and the main reason was of philosophical and theological nature, the sterile nature of money. In the story of Pinocchio, the Cat and the Fox well know that money does not bear true fruit, but naive Pinocchio believes that it will if he plants it in the Field of Miracles. If I borrow seeds from my neighbor in order to sow my crop, I would have the possibility to give back the seeds with interest because, in the meantime, those 10 seeds produced 100 more. With money, it was thought that this multiplication wouldn´t come about, and asking "something more" when it came time to collect on the loan was considered an immoral act. Theologically, another argument was added: if I lend 100 today and tomorrow I reclaim 101, I´m profiting in time, the only element that changed.  But time is not ours, time is of God.
At this point we can ask ourselves: was this condemnation of interest due only to a primitive and involved economic theory? Not only, as there is also a reasonable explanation today. We may intuit this explanation when we near the ancient prohibition ourselves, when some of us may consider it morally unjust to ask for "something more" from a neighbor when he gives back the money we loaned him to fix his house. In Medieval Christianity, fraternity was extended towards every Christian neighbor.
At the same time, we can understand how that ancient prohibition becomes obsolete if we think of the difference between a loan given to a relative to fix the house and a loan which allows him to not lose out on a good deal. In the second case, it becomes ethically legitimate to ask even a family member to receive a small share of future gains (interest). In fact, thanks to growth of commerce and markets, by the end of the Medieval Age, loans begin to be used normally for production investments, and it becomes morally licit to ask interest upon them. Interest was now viewed as compensation for one´s participation in the risk of the enterprise (an idea still present today, even in the Islamic banking experience).
So, it was possible (at least for a few decades) to reconcile interest with Christian fraternity. That´s why the taxation of interest is always directly linked to the risk of the investment. One of the reasons for the crisis that we´re now living was the underestimation of this ancient truth. There is also a second meaning to the word interest, going back to the motivation of economic actions. Normally, it is affirmed that one´s economic behavior is moved by personal interests, by what Adam Smith called "self-interest" (in Italian, it translates to personal "benefit"). Actually, an economic project lasts through time if, besides answering to the general interests and the common good, it also responds to the interests and personal benefit of who promotes that activity and who works for it.  But how can individual and collective interests coexist?
We´ll find out next week.
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ABCDEconomy by Luigino Bruni

Interest, that "something more" has well-based reasoning

published on Vita, 27/03/2009

A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. This is the eighth entry in Luigino Bruni´s "Dictionary". The topics already analyzed over the last weeks are: Happiness, Profit, Market, Bank, Investment, Responsibility, and Rules. This week (and next) we consider "Interest".

Interest is a word with an ambivalent meaning.  In economy, it could refer to at least two different realities. The first meaning that comes to mind is money interest. This interest, understood as compensation for who allows others to use money that does not belong to them (origin of "usury"), has been the object of century-long if not millennium-long debates, which are still well alive and of high civil relevance today.
ABCDEconomy - I as in Interest - Part 1

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ABCDEconomy "I" as in "Interest" - Part 1

ABCDEconomy by Luigino Bruni Interest, that "something more" has well-based reasoning published on Vita, 27/03/2009 A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. This is the eighth entry in Luigino Bruni´s "Dictionary". The topics ...
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ABCDEconomy by Luigino Bruni

Rules: whoever makes them, we´re the “referees”

Published in the weekly Vita, March 20, 2009

A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. Luigino Bruni´s "Dictionary" has arrived at it´s seventh entry. The topics already analyzed over the last weeks are: Happiness, Profit, Market, Bank, Investment and Responsibility. This week, "Rules".

No civil system could work without rules. The market is one moment in civil life and therefore, to work well, it requires rules. However, it has been at least two centuries since the debate began about who should write the rules and who should reinforce them. The popular idea about the rules/market relationship is more or less as follows: politics write the rules, judges reinforce them, and the market accepts them as good and moves within them, considering them as limits.

[fulltext] =>

Often associated with this popular view, especially in the media, is a metaphor dealing with sporting alliances: the Italian Football Association or the Italian National Olympic Committee writes the rules, the referees and sporting judges reinforce them, and the players play within these given rules. If each does his part, the sport is a civil and good activity. From this perspective, politics isn’t one of the players on the field, and neither is the magistrate or the various organs and institutions who hold the responsibility of implementing the rules and making sure they are respected.

Being faced with the current crisis evokes this simple metaphor: the crisis exists because the rules aren’t written, or they are not written well, and the few good ones that do exist aren’t reinforced. Here is the simple recipe for getting out of the crisis: more political presence in finance and in economy, with new and efficient rules, more control and more attention on behalf of the referees and sporting judges.

In reality, as you may have already intuited, history is much more complex. Before anything, with so-called globalization, it´s no longer clear who is playing, who writes the rules and who is the referee. The large businesses, banks and finance are not only "players" within rules written by others (like politics). They themselves now set the norms: they call the free-kicks, the penalties, the off-sides and the handballs.

They also decide when substance-use is doping or not, and in some cases they affirm that doping is even positive and virtuous for the market (as in the case of the doubled executive salaries). On the other hand, politics no longer limits itself to making rules, but becomes a player as well. Today, we know that political subjects have private and economic objectives: they want to be re-elected; they have constraints of budget, consensus and public debt. Therefore, they often leave their post as producer of rules and walk onto the playing field to compete with the economic players.

Rules are never neutral, especially in markets, and by fact, every rule is advantageous to someone and penalizes another. The rules of Basle II, for example, made life very difficult for civil society’s subjects who went to banks to get credit. By applying the rules, many toxic titles were more secure than those of parishes or social cooperatives.

That is why there are always more people who sustain that the only good rules are those that arise from the "bottom", from self-regulation in the business world. This debate is particularly lively when talking about a business’s social responsibility. There are many who maintain that ethic rules should be freely adopted only by those who wish, and that the "old" market competition will "force" businesses to be responsible, otherwise clients will punish them.

How then are things going? In the first place, we certainly need to use a more sophisticated and complex metaphor while referring to the mechanisms of the economy and of global finance: it’s not sufficient to think of the market as a soccer tournament, or of politics as the only custodian of the rules and the common good. We need to acknowledge that today the rules are written by (or often not written by) various subjects and agencies, including the market and civil society. In a world that moves in real time, the timing of politics have become too slow for the economy, and the rules show up when the phenomenon to be regulated has already changed into another one. Besides, more and more, the rules need to be set with a global vision. In an economy and finance which has lost it’s local connection (to which traditional rules were linked, thinking of taxes), if a country severely regulates finance, businesses and banks  move their headquarters elsewhere. Until registered business headquarters exist (that will publish splendid public reports) in fiscal paradises (also European), it will only be naive to speak of new governance of economy and finance.

In the end, even in a pluralistic approach to regulation, we must recognize that spheres of civil life do exist - among which is finance - where information is asymmetric, and where there are incentives for who knows better how to take advantage of who knows less. In these sectors, more effective rules and better attention from the part of economic and civil institutions would be very opportune. What remains even truer today is that it is adult citizens who need to recover entire portions of freedom, democracy and civilization,  which they have too long delegated to politics and inspectors, thinking that they are inspired by the common good. Independently from who is a "producer" of rules (parliament, government, agency or self-regulation norm), as citizens we must "inhabit" the places of economy and finance, taking back our active citizenship. The first to have legitimate interest that the rules be applied, from wherever they originate, are citizens.

This crisis also tells us that we have been too long distracted, thinking that impartial referees are watching over our savings and gains. From the fear and uncertainty of these times, you don’t only come out with Leviathan or Hobbesian or more severe sanctions. On the contrary, these authoritarian threats end up increasing mutual distrust, and they put freedom and democracy in peril. The first rule of economy today is called participation.

Next week’s word is "Interest".

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ABCDEconomy by Luigino Bruni

Rules: whoever makes them, we´re the “referees”

Published in the weekly Vita, March 20, 2009

A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. Luigino Bruni´s "Dictionary" has arrived at it´s seventh entry. The topics already analyzed over the last weeks are: Happiness, Profit, Market, Bank, Investment and Responsibility. This week, "Rules".

No civil system could work without rules. The market is one moment in civil life and therefore, to work well, it requires rules. However, it has been at least two centuries since the debate began about who should write the rules and who should reinforce them. The popular idea about the rules/market relationship is more or less as follows: politics write the rules, judges reinforce them, and the market accepts them as good and moves within them, considering them as limits.

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ABCDEconomy “R” as in “Rules”

ABCDEconomy by Luigino Bruni Rules: whoever makes them, we´re the “referees” Published in the weekly Vita, March 20, 2009 A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. Luigino Bruni´s "Dictionary" has arrived at it´s seventh entry....
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    [title] => ABCDEconomy "R" as in "Responsibility"
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ABCDEconomy by Luigino Bruni

Responsibility, people rather than procedure

Published in the weekly Vita, March 13, 2009

A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. Luigino Bruni´s "Dictionary" has arrived at it´s sixth entry. The words already analyzed over the last few weeks are: Happiness, Profit, Market, Bank and Investment.

Responsibility derives from respond.  To be responsible, in fact, means responding, offering reasoning, when one is consulted by someone else. A person or a business is irresponsible when he does not offer reasoning, good reasoning, for his actions. By tradition, the dominating business and economic culture is irresponsible, since the predominantly Anglo-Saxon logic on which the market logic and that of competition has been built in the last century is based on what A. Hirshman called "exit" (results). 
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In the political sphere, people protest and want answers (because the result is difficult and very costly), but in the economic sphere where instead one can change companies, it doesn’t make sense to protest. In other words, if I don’t like a product or service on the market, I only have one way of protesting: changing to a different company.

In reality, we know that in recent years, the boundary between politics and economy is always more blurred. Citizens also protest in the market, asking businesses for "good reasons" for their actions. We could define the responsible citizen as he who, before leaving (or changing companies) protests by trying to obtain a change from the business, voting, as you say, "with his buying power". The need to ask and to protest also in the market represents an anomaly, or a truly new fact, in our development model.

In fact, in the past decades, even the growth of large distribution was the result of this same culture of anonymity. The consumerism dogma of the 20th century, or second-generation capitalism, was the following: the less personal the relationships, the less proximity in the consumption, the more efficient the economic system, the more satisfied the citizens. The crisis we’re living is also the crisis of this market culture.

If we look well in the folds of our society, we realize that a general phenomenon is developing which goes in the opposite direction. I’m referring to the tendency to "shorten the distribution chain", reducing the distance between producer and consumer, personalizing economic encounters. In other words, there is a request for increased responsibility along with a reaction against the irresponsible practice in our countries of passing the buck when questioned about a problem - referring the questioner to someone else who is absent, far away, anonymous and therefore unreachable. What’s happening today, especially in the food industry, is that the "big, anonymous and far-away" doesn’t work anymore.

My guess is that the tendency to "shorten the distances" will spread from foodstuffs to many other sectors. It’s already evident in tourism, art, restoration, and care services. New alliances between businesses and banks, economy and society must also keep this need to "reduce distance" in mind. In these months, we’re realizing that a good life doesn’t depend only on the quality of food, but also that of retirement funds, savings, and mortgages for a healthy individual and societal life. They poison us with polluted food, but also with toxic mortgages. When anonymity becomes systematic, one sets foot outside of human territory. Social responsibility of businesses isn’t gambled upon "instruments" (social balance, ethic codes...) but above all and mainly on people. To get out of this crisis, a new alliance based on responsibility is needed.

Only an alliance of people, amidst people, for people will be able to create the foundation for a new economy.

Next week, Luigino Bruni will analyze "Rules"

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ABCDEconomy by Luigino Bruni

Responsibility, people rather than procedure

Published in the weekly Vita, March 13, 2009

A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. Luigino Bruni´s "Dictionary" has arrived at it´s sixth entry. The words already analyzed over the last few weeks are: Happiness, Profit, Market, Bank and Investment.

Responsibility derives from respond.  To be responsible, in fact, means responding, offering reasoning, when one is consulted by someone else. A person or a business is irresponsible when he does not offer reasoning, good reasoning, for his actions. By tradition, the dominating business and economic culture is irresponsible, since the predominantly Anglo-Saxon logic on which the market logic and that of competition has been built in the last century is based on what A. Hirshman called "exit" (results). 
icon ABCDEconomy - R as in Responsibility

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ABCDEconomy "R" as in "Responsibility"

ABCDEconomy by Luigino Bruni Responsibility, people rather than procedure Published in the weekly Vita, March 13, 2009 A guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. Luigino Bruni´s "Dictionary" has arrived at it´s sixth entry. T...
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ABCDEconomy by Luigino Bruni

He who hopes invests well

Published in the weekly Vita, March 6, 2009

We continue with Luigino Bruni´s handbook: a guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. The topics already analyzed are: Happiness, Profit, Market, Bank and, now, Investment.

In one of the first economy lessons, one explains to his students that spending (on which the GDP and development depends) is comprised of purchases and investments. One spends by consuming goods and services, and especially, investing. Today, those who would encourage spending in order to support the economy should be reminded of this first economics lesson: the economy is also and especially sustained by investments.  
icon ABCDEconomy - I as in Investment

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Investment is a typically entrepreneurial act, even though not exclusively so. One thinks of investments in human capital, instruction, on behalf of private citizens or public investments, that is a co-essential element in a any good economy.

Everyone can consume and many save, but in a market economy, investments primarily depend on entrepreneurs.

Investment is an expenditure that is not focused on satisfying a need (as in the case of consumption), as its objective is instead the creation of future wealth that can, in turn, satisfy other future needs, both personal and of others. Therefore, investment is a propagator of wealth, an instrument for redistributing it, and which in any society based solely upon revenue and consumption remains blocked in the hands of the very same people. But what are the sense and the nature of investment? When an entrepreneur buys new technology, builds a facility, hires new workers or does research, he is saying to himself and to society: "I believe in the future - I have hope."

Making an investment, then, is substantially an act of hope, of faith that "what is to come will be better than the past" (to use a nice expression of the theologian Teilhard de Chardin). Who invests gives up the consumption of currently available resources, takes on a debt with the bank and/or with families, because he has hope, because he has good expectations that tomorrow this choice will bear fruit.

On what, then, does the amount of investments (and so innovation, research and development) in an economy depend? Certainly its cost in money, but, especially as Keynes showed us in the 1930s, investment mostly depends on the expectations of entrepreneurs, on their vision and interpretation of the world.

Here is why a country with pessimistic and cynical entrepreneurs doesn’t invest, even when interest tax might be very low (like today) - precisely because there is a lack of hope in the future.

In order to get out of today’s crisis, the economy above all needs entrepreneurs capable of imagining a better future.  It needs that great virtue of hope.

In fact, hope is a virtue because it requires moral strength to not succumb when faced with trial and to go ahead. Without hope, there is only consumption, consumerism and depression. But hope, even an economic virtue, isn’t born and isn’t regenerated inside the economy, in the markets. This is born and is nourished in civil society and in the life of the polis.

This is why the economy today has an urgent need of entrepreneurs that invest because they rediscover reasons to hope again, but these reasons are always bigger than just economy. Politics serves the economy not so much by sustaining consumption, but by accompanying entrepreneurs in the activity of building and rebuilding hopeful scenarios, in which investments are imaginable and possible. This is the only way to get out of the crisis.

Next week, Luigino Bruni will analyze the word "Responsibility".

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ABCDEconomy by Luigino Bruni

He who hopes invests well

Published in the weekly Vita, March 6, 2009

We continue with Luigino Bruni´s handbook: a guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. The topics already analyzed are: Happiness, Profit, Market, Bank and, now, Investment.

In one of the first economy lessons, one explains to his students that spending (on which the GDP and development depends) is comprised of purchases and investments. One spends by consuming goods and services, and especially, investing. Today, those who would encourage spending in order to support the economy should be reminded of this first economics lesson: the economy is also and especially sustained by investments.  
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ABCDEconomy "I" as in "Investment"

ABCDEconomy by Luigino Bruni He who hopes invests well Published in the weekly Vita, March 6, 2009 We continue with Luigino Bruni´s handbook: a guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. The topics already analyzed are: Happiness,...
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    [title] => ABCDEconomy "B" as in "Bank"
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ABCDEconomy by Luigino Bruni

Dear bank, relearn which is your trade

Published in the weekly Vita, February 27, 2009

The continuation of Luigino Bruni´s dictionary: a guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. The words already analyzed are: Happiness, Profit and Market. Now he takes a look at Bank.

Economy was born with man. Even prehistoric economic problems were presented every time there were scarce resources. And with economy began savings, renunciation to a present consumption for a future one.

The bank, instead, was an invention all in all recent, going back to the Middle Ages, even if the activity of depositing and loaning has existed since ancient times. Saving and banks are, in fact, two logically and historically distinct and autonomous concepts. One can save even without a bank, as we’ve especially learned  from J. Keyes.

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The bank arises with the development of markets, when the demand for money increases on the part of merchants who had entrepreneurial projects but not the necessary financial resources.

In those early banks, there was a clear distinction between loaning for investment (or to markets) and loaning for family consumption. While from Humanism onward no one seriously doubted that loaning to entrepreneurs should be accompanied by interest tax, many instead denied that interest should be paid also in the case of a family consumption loan.

Why? The reason is simple: when one lends to an entrepreneur, that loan in itself has the premise of future fruits. Instead, when one makes a loan for the consumption of basic necessities, that consumption "destroys" wealth - it isn´t fruitful. That´s why the only interest charged by the Mounts of Piety to needy families was, in fact, a contribution to the costs for running the bank. In present terms, those banks were non-profit institutions.

But if we look well at the nature of the bank, without straining ourselves too much, we could arrive at the affirmation that it’s normal nature shouldn’t be searching for profit, for the simple fact that it administers and risks resources that are not its own. The bank is, by nature, a civil enterprise whose goal is much bigger than profit. That is why a banking sector which generates high profits denounces a pathology. The current crisis, in fact, is telling us two fundamental things. The first is that the system of incentives and rewards is wrong: the financial market has compensated too many people who assumed high risks (with other people’s money). Secondly, we have seen too much indifference to the transformation process of banks from civil institutions to speculatory ones.  The bank is too important to be left in the hands of profit seekers.

A re-civilization of the banking system is needed to re-launch the entire social pact that keeps our complex societies together.

Next week, Luigino Bruni will face the word "Interest".

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ABCDEconomy by Luigino Bruni

Dear bank, relearn which is your trade

Published in the weekly Vita, February 27, 2009

The continuation of Luigino Bruni´s dictionary: a guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. The words already analyzed are: Happiness, Profit and Market. Now he takes a look at Bank.

Economy was born with man. Even prehistoric economic problems were presented every time there were scarce resources. And with economy began savings, renunciation to a present consumption for a future one.

The bank, instead, was an invention all in all recent, going back to the Middle Ages, even if the activity of depositing and loaning has existed since ancient times. Saving and banks are, in fact, two logically and historically distinct and autonomous concepts. One can save even without a bank, as we’ve especially learned  from J. Keyes.

icon ABCDEconomy - B as in Bank

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ABCDEconomy "B" as in "Bank"

ABCDEconomy by Luigino Bruni Dear bank, relearn which is your trade Published in the weekly Vita, February 27, 2009 The continuation of Luigino Bruni´s dictionary: a guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. The words already ana...
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ABCDEconomy by Luigino Bruni

From market economy to market society

Published in the weekly Vita, 20 February 2009

Luigino Bruni´s Dictionary continues: a guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. Last week we talked about "Profit".

The word MARKET holds in itself a plurality of meanings. Originally, market was the physical place where exchanges took place: the Greek agora, the Roman forum, the Medieval square, the fairs. In traditional civilization, the market held (and still holds in some parts of the globe) a limited territory, although important, in civil life.  
icon ABCDEconomy - M as in Market

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On all other days, the principle regulating institution for production and allocation of resources wasn´t a market based on prices and money. This role was mainly carried out by self-production and redistribution of wealth.

This non market economy gave way to the market economy, a process which immediately underwent strong accceleration in the last two centuries, when the market became the main institution for allocating resources in the society. The system of prices is that which is most "visible" of the market mechanism, and is also that which guarantees that resources are produced and distributed. Without this mechanism, the decision of what to produce and how much is extremely complex.

Today, the market economy is transforming itself into a market society: what is the difference? In an economy where markets exist but which is not a market economy, the market is an institution that in certain moments and places supports other institutions, like the family, the clan, the Church, the court, the State.

These other institutions are those which primarily guarantee economic, and civil, life. With the arrival of the market economy, the market takes the central role of the economic sphere, but the other institutions (family, community...) continue to remain central in the other spheres and circles of social life.

When, instead, we move into a market society, the economy mechanisms (prices, contracts...) are managed not only the economy but the entire civil life, which begins to be viewed as a series of contracts, of interests, and of mutually advantagous exchanges.

Without a market economy, freedom and equality are not guaranteed, as geriarchial and fuedal systems take the upper hand. When, however, we give life to a market society, it´s fraternity that gets neglected, as there are citizens in the society which are not reached by contracts, because they are not bearers of income (stakeholders) but only bearers of needs (needholders).

And without fraternity, not even equality and freedom (great conquests of the market economy) are able to fully develop and flourish into good life.  (...continues)

Next week, the fourth word: BANK

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ABCDEconomy by Luigino Bruni

From market economy to market society

Published in the weekly Vita, 20 February 2009

Luigino Bruni´s Dictionary continues: a guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. Last week we talked about "Profit".

The word MARKET holds in itself a plurality of meanings. Originally, market was the physical place where exchanges took place: the Greek agora, the Roman forum, the Medieval square, the fairs. In traditional civilization, the market held (and still holds in some parts of the globe) a limited territory, although important, in civil life.  
icon ABCDEconomy - M as in Market

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ABCDEconomy "M" as in "Market"

ABCDEconomy by Luigino Bruni From market economy to market society Published in the weekly Vita, 20 February 2009 Luigino Bruni´s Dictionary continues: a guide to rereading the key words of economic behavior, after breaking down the myths and bursting a few bubbles. Last week we talked about "Profit...
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ABCDEconomy by Luigino Bruni

Blessed be profit (if it´s not the goal)

Published in the weekly Vita of February 13, 2009 

Luigino Bruni´s dictionary continues: a guide to re-reading key words in economic behavior, after breaking down the myths and bursting a few bubbles. Last week, ABCDEconomy began with the word "Happiness".

The nature of profit was always at the center of classic economic theory. For Smith, profit was the compensation of capital; for Marx, it was exploitation; and in the 1900s, for Schumpeter, it was the award for innovation. There is no longer today any trace of these ancient debates in economy handbooks. In fact, if we open them up, we read about the "goal" of business in the first pages - the maximization of profit - profit is considered self-evident, expected, undiscussed. Profit became, therefore, the goal of an entrepreneur´s action under various constraints (unions, ethics, taxes, etc.). 

ABCDEconomy - P as in Profit

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Then, in some (actually, few) of these manuals, we read (often in the footnotes) that other "non-profit" businesses exist which have other goals, different than profit. I am convinced that such a vision, typical of the United States tradition, and distant from the Italian one and in a certain sense from the European tradition, is one of the most astray, dangerous and mistaken of current economic thought. 

Economy books from a few decades ago affirmed that if profit was someone´s goal, he was not an entrepreneur at all but something else: a speculator. It is the speculator that carries out certain instrumental economy activity with the goal of making a profit. For such a person, producing shoes, tomatoes, violins or books is all irrelevant. What´s important is that they bring in money. Instead, (as Luigi Einaudi among others said) an entrepreneur´s goal is not profit, but a project, a business.

For the entrepreneur, profit is essentially a sign that the business, its project, is growing well. In fact, profit is only the tip of the iceberg of wealth or of the added value created by an entrepreneur. Goods, services and jobs are co-essential components of the wealth produced by a business. Profit then, and good economic theory still says so, tends to cancel itself out if the market functions well. Of course, businesses that do not produce wealth or added value do not contribute to the common good. But, I repeat, profit is too little to be the goal of a business, because it is not enough to make it worth it spending one´s life on such a project.  

And when profit truly becomes the goal, it is the whole economy and society that is impoverished, as all economic activity becomes just an instrument without intrinsic value. I am convinced that an economy and an economic system that view the business as a machine for producing wealth tend to stunt the growth of common living because they reduce the space of human passion, of life (if one remembers that the economy is life). History has taught us that civilizations advance when entrepreneurs prevail over speculators, and they regress when the opposite happens. Is this what the current crisis is perhaps telling us?

Next week, the third word: MARKET

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ABCDEconomy by Luigino Bruni

Blessed be profit (if it´s not the goal)

Published in the weekly Vita of February 13, 2009 

Luigino Bruni´s dictionary continues: a guide to re-reading key words in economic behavior, after breaking down the myths and bursting a few bubbles. Last week, ABCDEconomy began with the word "Happiness".

The nature of profit was always at the center of classic economic theory. For Smith, profit was the compensation of capital; for Marx, it was exploitation; and in the 1900s, for Schumpeter, it was the award for innovation. There is no longer today any trace of these ancient debates in economy handbooks. In fact, if we open them up, we read about the "goal" of business in the first pages - the maximization of profit - profit is considered self-evident, expected, undiscussed. Profit became, therefore, the goal of an entrepreneur´s action under various constraints (unions, ethics, taxes, etc.). 

ABCDEconomy - P as in Profit

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ABCDEconomy - "P" as in "Profit"

ABCDEconomy by Luigino Bruni Blessed be profit (if it´s not the goal) Published in the weekly Vita of February 13, 2009  Luigino Bruni´s dictionary continues: a guide to re-reading key words in economic behavior, after breaking down the myths and bursting a few bubbles. Last week, ABCDEcon...