Earnings and Ethics Investing: What is Moral?

A Response from Europe

By Rudi Neumann

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After the end of WWII, the democratic countries of Europe largely developed a system of governmental responsibility for the well-being of their citizens. In our country, Austria, and in a very similar fashion elsewhere, we have chosen to pay higher taxes, in order to provide the entire population with free education, medical services, and sufficiently high state pensions to prevent poverty. This decision removes a great deal of responsibility from business and financial institutions to act socially responsible.

European lawmakers impose very stringent environmental laws on businesses and citizens, putting European at a competitive disadvantage in comparison with the US whose regulations appear very lenient. The use of energy is also heavily taxed in Europe. So is the consumption of cigarettes and alcohol. The regulatory effect of these government measures makes it attractive for businesses to invest in environmentally safe, energy efficient plants and buildings. In this way, “social responsibility” is also achieved.

Mutual funds in the US are used as a means for making money, in many instances representing life savings and retirement provisions. The goal for this investing is to achieve higher returns than on a simple savings account. But the fact that US businesses and citizens are taxed less than European counterparts leaves them with more money to invest—and to worry about. Much more!

By contrast, mutual funds in Europe are sometimes in danger of dying from attrition. Europeans do not have to save and invest to pay for future medical bills, retirement plans, and children’s education. They save instead for the additional good things in life (or to supplement their retirement pensions), knowing that the basic necessities will be covered by their government.

Nevertheless, the government-funded welfare state is having a difficult time providing these services right now, primarily because medical bills are soaring—as everywhere—and people live much longer to enjoy their state pensions. So right now the governments of Europe must put a cap on the level of services that they can provide, and leave it to the individual to provide anything additional. So, we expect to see more US-style investment of corporations and individuals in the years to come.

But here is the “catch-22”: there is too much money afloat in the US looking for profitable investment, and now even Europe joins this financial merry-go-round. A corporation or financial institution strives to maximize profits. The individual favors the investment, of course, which gives him or her the highest yield. But higher profits are often achieved by reducing labor costs (cutting jobs), cutting social benefits, and looking at business areas and practices which are not strictly ethical or socially responsible. Our global economy thus undergoes a reckless and ruthless shift of production to low-wage geographic areas with lenient regulations. So, by careless investing, individuals ultimately hurt themselves!

Socially responsible investing and a “tamed” globalization will be the main challenges in the future, I predict, in order to provide everyone with the necessities of life and to avoid civil unrest, revolutions, conflicts over resources, and an outright global civil war.

Rudi Neumann, a European industrialist, was born in 1946 in Vienna. He earned a degree in electronics from the Technical University of Vienna, Austria, and then became the sales manager and owner of a family-founded business. Also a former venture partner with Christos Papoutsy, he now deals with electronics production equipment, materials and services in Central and East Europe.