Economic activity based on division of labour is a societal process designed to satisfy the human need to preserve and sustain the quality of life. It seems to lie in the nature of things that a rational social form of economic activity must be oriented towards the service of life if it is to be meaningful. Consequently, in the words of Alfred Müller-Armack, man must indeed have a central place in the inherent logic of the economic system.

All well and good! In the practice and the theory of the modern market economy, however, we more and more frequently encounter what is called the inherent logic of the economy as a strangely anonymous and coercive logic. It occasionally contradicts our intuitions and governing ideas about the good life and just ways of living together in a well-ordered society of free and equal citizens. This logic condemns some people to unemployment and subjects others who are still on the labour market to increasingly hard pressure to perform at work. In this way it incessantly improves ‘productivity’ or what we regard as productivity, yet it still fails to provide everyone with what is minimally necessary for a life worthy of a human being at a national, let alone at a global, level.

Apart from economic determinism, according to which economic ethics seems systematically impossible (supposed Sachzwänge), there is a second, no less common objection that this endeavour is not only impossible but also systematically unnecessary and superfluous. Economic ethics is then passed off as being even damaging and dangerous, as it approaches in a moralizing fashion complex relationships which are best coordinated or should even be exclusively coordinated by the market itself. The anonymous functional logic of the competitive system is not then perceived as the problem but, on the contrary, as the solution of (almost) all ethical problems in society. The market itself is regarded as the best ‘guarantor’ that everything is in the best of order from an ethical point of view. If only it is allowed to function, the market mechanism seems to be the great harmonizer, reconciling the conflicting interests of society of its own accord. Adam Smith was the first to put his finger on this function of competition as a (partial) substitute for normative social integration in a famous statement still enormously popular among ‘liberal’ economists and economic practitioners:

In view of the understanding of ethics explicated above, modern economic ethics can be and has to be fundamentally developed as a rational ethics of economic activity. The basic systematic problem of modern economic ethics will be elaborated under this central idea and set off against two other approaches which have hitherto dominated the discussion.

At first sight it seems reasonable to conceive of economic ethics as ‘applied’ ethics for the areas of life and society in which the economy operates (Section 3.1). A closer look reveals, however, that such an understanding of economic ethics is inadequate. It is subject to the systematic misapprehension that ‘the economic sphere’ is an area still untouched by ethics into which morality must first be introduced and, what is more, as a complement or corrective which is external to the ‘value free’ inherent logic of the economy. This approach systematically ignores the fact that the inherent logic of the (market) economy, the extremely powerful economic rationality, itself implicitly or explicitly always claims a normative validity which inevitably comes into conflict with ethical rationality. Every conception of rationality has a normative significance, as it determines how people ought to act rationally. The position economic ethics as ‘applied’ ethics would like to fill is consequently already occupied; two competing normative logics are opposed to each other, whose relationship requires clarification.

The economic understanding of rationality is defined and cultivated paradigmatically in economic theory.

Economic activity means the creation of value. As is the case with all the technical terms of modern economics, the customary understanding of this widely used concept in business administration and (political) economics is now restricted to systemic functional relationships. Accordingly we are dealing with a purely quantitative factor, namely a monetarily evaluated net economic performance, i.e. value added, achieved in the market by means of work or service offered in return for payment, which effectively remains to a corporation, a branch or an entire national economy (in exchange with other national economies) after the deduction of costs which are also determined by the market. But the calculatory concept betrays its original ethical-qualitative meaning in the human life-context: the question of the value of economic activity in regard to the quality of life. In the final phase of the pre-modern (and that means here pre-systemic) cameralistic economy the relationship of economic activity to life values was still a matter of course. In 1835, for example, the ‘Kameralistische Encyclopädie’ offers the following definition:

Meaning must be understood as a fundamental category of human existence. Man is a being in search of meaning, and what is more, he possesses a ‘will to meaning’ founded on his essential freedom of action and the consequent possibility and necessity of intentional (deliberate) self-determination. We can, therefore, speak of an ‘apriori of meaning orientation on the basis of the teleological nature of man’ as a part of the universal conditio humana. Without a meaning context human life is impossible. Meaning fills human existence with significance by directing our existence towards what is essential in life, namely what we wish for in life as a whole. The truly strong motives which determine our strivings and aspirations in life are rooted in our teleological meaning structures. What we wish to make of our lives, what we expect from life, whether we are satisfied with what we achieve so that we ‘feel good’ about our lives or not depends on them.

In the first chapter we adopted a phenomenological approach (i.e. from the meaning perspective of a participant in a familiar lifeworld practice) in order to work out the humanist core of the rational moral principle from the normative logic of interpersonal relations, independently, at this stage, of certain ‘schools’ of ethics. With this step alone, of course, we have not achieved a complete rational foundation of the moral principle. In the history of ethics the moral principle has also often been more intuitively grasped than rationally well-grounded; a number of developmental steps were necessary until, finally, in most recent times, modern philosophical ethics developed the categorial means for a convincing, strictly reflective explication of the moral point of view that can be regarded as a sufficient rational foundation.

In order to understand this reflective explication or justification of the moral point of view it is useful to trace briefly the most important intellectual and philosophical historical stages leading to it. It is basically possible to distinguish two elementary lines of development. Along the one line an increasing differentiation between ethical and strategic reciprocity takes place permitting a purification of rational ethics from aspects of interpersonal reciprocity that are external to morality. Along the other line there is a progressive generalization of the reciprocity principle from the concrete reciprocity of two opposites (alter and ego) to the abstract principle of universalization. Both lines of development are inextricably intertwined in the various interpretations of the moral point of view.

From its beginnings economic activity has been a social event. The cooperative process of creating value based on division of labour and the interpersonal distribution of the goods produced has always been the focal point of social conflict. The same is true for the side-effects of the accompanying production of ‘ungoods’ or evils (such as, for example, environmental pollution). Decisions on conflicting claims can, in principle, be taken in two ways: either in accordance with the principle of power (‘might is right’) or in accordance with the moral principle. A third way, involving neither power nor morals, such as the advocates of economism believe they have found with the harmonistic fiction of a pure market solution, does not exist. As we have seen, the approach of the latter is only an ideologically disguised variant of the power principle, in which the status quo of vested rights is from the beginning ‘methodologically’ excluded from all critical questioning of the justice of claims. In contrast, the moral principle subjects the regulation of conflicting claims and interests to the requirements of justice.

Regardless of the way it is defined in particular cases, the concept of justice takes up the issue of the quality of interpersonal or social relationships in the light of the moral rights of all persons – a category already introduced, which we will clarify more precisely in what follows. A rather more specific meaning must be attributed to the concept of legitimacy.

‘The business of business is business’ is a well-known rhetorical formula. Business people should concern themselves with their business and nothing else, as this is also the best way of serving the public interest. The formula suggests that good business management is characterized purely and simply by a strict observance of the commercial criteria of success on the market. Richard De George calls this ‘the myth of amoral business’. According to this myth business people do not need to preoccupy themselves explicitly with ethical questions in regard to their activities, since these are amoral (i.e. free of morals and not immoral) matters which cannot be adequately judged from a moral point of view.

However, the formula does contain implicitly an idea of corporate ethics in regard to the socially correct function and the legitimacy of business activities. It states that the ‘business of business’ consists in selling goods and services of all kinds at a profit. Ultimately business is neither an aesthetic, charitable nor political affair, but simply business. The standard by which good business is measured is the achieved or achievable net profit, no more no less. Thus the maximization of profit seems to be the natural goal and the constitutive principle of ‘free entrepreneurship’. According to the myth of amoral business it is precisely the strict observance of the so-called profit principle by the entrepreneur which ensures that the private economy serves the general interests of society in the best possible way.

Morality is a specifically human phenomenon about which everyone has intuitive preconceptions resulting from his own practical experience of life. Consequently, what is at issue in questions of morality and ethics can at first best be understood through its elementary significance for the personal and social life of man. We will begin with the determination of the moral disposition of man and its fundamental cultural-anthropological conditions (Section 1.1) and with the basic concepts of ‘morality’ and ‘ethos’ (Section 1.2). The basic concerns of modern philosophical ethics can then be elucidated from a cultural-historical perspective (Section 1.3). This is followed by an attempt to explicate the humanistic core of the universal moral principle, whose justification is the central issue of modern ethics (Section 1.4). From this vantage point it will then be possible to understand the developmental stages of moral consciousness, which every individual goes through in his progress towards becoming a (modern) person capable of moral judgement (Section 1.5).

The moral disposition as part of the conditio humana

It is one of the fundamental ‘conditions for the possibility of human existence’ and an indispensable aspect of the conditio humana that man – and that means in principle every single person – is a being whose behaviour, in contrast to that of other life forms, is not determined by the laws of nature. To a substantial degree it takes the form of deliberate action.

Michael Wallerstein's untimely death in January 2006 spurred us to compile this volume of Wallerstein's writings. The support that we received in this endeavor propelled the volume forward in record time. We thank Lewis Bateman, Scott Parris, and Kimberly Twist at Cambridge University Press, as well as the editor of this series, Margaret Levi, all of whom did much to make this project a reality. We also thank the anonymous reviewers of the manuscript for their speedy and helpful comments on the volume.

Finally, we are grateful for the support we have received from the entire Wallerstein family: Michael's parents, Bob and Judy; his sisters, Nina and Amy; his wife, Liz; and his children, Jonah and Hannah. This volume is dedicated to Michael's memory, but we hope that it will also offer some degree of comfort to the living.

Michael Wallerstein's tragic death at the age of fifty-four deprived the world of one of its leading political economists. For twenty-five years Wallerstein had been in the forefront of rigorous analysis of the political economy of contemporary industrial societies. His research on relations between labor and capital, on labor organization, and on inequality and redistribution framed and advanced the study of central problems in modern politics and economics. This volume brings together Wallerstein's principal contributions, in the hope that their joint impact will demonstrate the scale of Wallerstein's achievement and advance the values that guided his life work.

Michael Wallerstein and Modern Political Economy

The modern study of political economy is quite recent. Forty years ago the term was barely used, and it was rare for scholars in the mainstream of the social sciences to study the interaction of political and economic forces. There were, to be sure, some scholars in the Marxist tradition, and others in the newer tradition of public choice theory, who analyzed aspects of the relationship between the economic and political systems. But there was no generally accepted field of political economy, and there was virtually no interaction between the two disciplines best suited to study it, political science and economics.

Today political economy is one of the most dynamic fields of investigation in both economics and political science, with a plethora of conferences and journals and handbooks of its own, displaying some of the biggest names in the social sciences.

The evidence presented in the previous chapter established that economic voting in the world's advanced democracies is both pervasive and variable. The goal of the rest of this book is to identify the political and economic contexts that explain that variation. To do so, we develop a contextual theory of rational retrospective economic voting that points to specific kinds of political and economic institutions as the likely sources of cross-national and temporal variation in economic voting. However, before we make the effort to develop that theory and test its implications, we need first to establish that the variation in our estimates of economic voting described in the last chapter cannot be explained away as an artifact of the empirical methods we have employed to generate them. Three general methodological issues are of concern here: the choice of statistical models, measurement decisions, and model specification. We begin with an explanation of the two main statistical methods we use to conduct the empirical analysis in this and subsequent chapters. We then proceed to analyze our data to determine whether our estimated variation in the economic vote is an artifact of our particular statistical models, measurement choices, or specification decisions.

Two Methods for Exploring the Sources of Contextual Variation in the Economic Vote

In this section, we introduce two general empirical methodologies for testing hypotheses about the impact of contextual variables on individual-level behavioral relationships: The first is a one-stage approach in which the individual-level data from multiple contexts (in our case, voter-preference surveys) are pooled and the impact of context is estimated simultaneously with the individual behavioral relationships of interest.

It is virtually a universal belief among politicians, political commentators, and even voters that elections are referenda on the economy. Politicians fill their speeches with economic rhetoric; political commentators generate endless streams of economic analysis, and high-paid consultants base their statistical predictions on little else. The extent and depth of this belief is revealed most starkly when it appears to have been violated. When incumbents win despite a bad economy or lose despite a good one, we observe in the postelection hand-wringing a concerted search for ad hoc explanations that preserve the more fundamental belief that the economy matters. Perhaps voters' perceptions of the “real” economy were distorted; foreign policy issues may have overshadowed its effects; or, maybe, ineffective campaign strategies undermined the expected economic vote. Ultimately, however, in most elections, the economy is thought to be determinate.

Popular beliefs, of course, are not social science laws and exceptions to economic determinism are easy to find, even if they are often explained away as idiosyncratic. More generally, the systematic empirical work on economic voting, conducted in most of the advanced democracies over the last thirty years, reveals not a universal law of economic voting but, rather, a conditional one. Economic voting is very likely widespread and often important; but, its magnitude and nature across elections is almost certainly variable (Duch, 2001; Lewis-Beck and Stegmaier, 2000, 2006). There are limits, however, to the guidance the extant empirical literature can give us.