The A.SK Social Science Award

— A prize for revolutionaries?

Address by Werner Abelshauser at the A.SK Award Ceremony November 18 2011

The leading daily in Germany, the Frankfurter Allgemeine, called the 2007 A.SK Social Science Award a “prize for revolutionaries” and suggested that the donors wanted to reinvent capitalism. It summarized the Foundation’s purpose as promoting revolutionary thinking in order to prevent revolutions. In recent years that assessment has been cast in a new light by experience with dangerously smoldering crisis that is still on the verge of flaring up from the financial markets and engulfing capitalism altogether. It positions the donors among the select few to whom the condition of our economic system at that time was the problem, not the solution. Where did the donors come by their farsightedness? And to which solution should the Foundation contribute?

In order to understand things about the donors, allow me to take some of their biographical background and weave it together with their scientific views. It might well surprise you that I want to begin with what we have just heard. Musical highlights like these have accompanied the A.SK Social Science Award ceremony since 2007. In fact, it was the donors started this tradition. Shu Kai Chan in particular insisted from the outset that music, that songs from the opera and operetta, should be granted at least as much space in the award ceremony as academic speeches receive. He has pursued this love of music ever since 1937, when he studied in Vienna and found himself captivated by the exotic sound of the central European necropolises of the Holy Roman Empire. As a student of economics, the 16- to 20-year-old Shu Kai must have had similar feelings while he studied “in the Empire,” in Berlin, Leipzig, Frankfurt, and Marburg. He was confronted there with two schools of economic thought that at root were diametrically opposed but that had one element in common: the idea of social capitalism.

On the one hand there were the social conservatives of the Historical School of economics. They believed that public social policy (not to be confused with the welfare state) was the correct answer to the growing significance of human capital, and they saw the cultivation and accumulation of this human capital as a state responsibility that was in keeping with modern times. Another characteristic of the social conservatives was their groundedness in economic practice. The active participation of experts from business and academics was expected to equip the government with the measure of good governance so urgently needed in the new, postindustrial era. In terms of dogma, the Historical School had already lost its academic dispute with the neoliberal Vienna School by the time Shu Kai Chan was studying in Berlin. Its once dominant perspective had been superseded in the world. In Germany, however, the scholars of the Historical School still occupied the university chairs, and it was utterly impossible to avoid them in the lecture halls. Today, their ideas and approaches, though not their methods, are undergoing a renaissance in the guise of institutional economics, a field that emerged in the United States and that has swept academia for the past 20 years.

The other direction of economics that Shu Kai Chan came to know while studying in Germany was “ordoliberalism.” Its proponents observed the market failure in the global economic crisis and drew from it conclusions for a new role of the state. Later, these reformist liberals largely shaped the ideology underpinning the economic policy adopted by the Federal Republic of Germany. The ordoliberalism of the 1930s was nothing other than social market economics before its time. Competition was expected to provide for the social components of the economy. But it was to be competition bounded by government policies setting the overall context in which business was conducted. If the markets failed in a crisis, then one could resort to “liberal” state intervention to achieve the desired results. In essence, then, the approach of the social conservative and that of ordoliberalism both underscored a new role of the state and simultaneously raised the standards of what could be expected from the state in terms of good governance.

After the war forced the young student from Canton to return home, he wrote a long manuscript about his encounter with these two schools of thought in the gristmill of German economic science. He completed the manuscript as a young lecturer at the University of Chungking, and in 2002, more than 60 years later, he published it in New York under the title Social Capitalism. It was a year when financial market capitalism was planting its flag throughout the world. The call for social capitalism was not “in.” The book’s pivotal sentences sounded surprisingly critical for an author who was a confirmed capitalist: “Concentrated capitalization and intensive enterprise do not lead to an economy which offers justice to all.” And:

“Although we are now in the middle of a high technology industrial revolution , and our economy is based on expanding international trade, we still retain obsolete economic and political ideas. We still cling to outdated production notions. We must find a new economic system, whereby everyone is provided a chance to fully engage and participate in productive activities to generate more wealth. How can we achieve the participation of all individuals in production? This is the subject of our study and we shall call it ‘Social Capitalism’.”

He closed tersely by stating: “We need a revolution.”

This conclusion was more apt than ever when Mr. and Mrs. Chan created the A.SK Foundation in 2006. At the peak of the boom in financial market capitalism, the donors of the A.SK Social Science Award summarized the problem and the possible solution to as follows, and I quote:

“The rapid progress of economic and technological development is rendering economic systems like capitalism, socialism, and communism obsolete. Worse yet, this progress has not benefited most people. They continue to live in poverty. If we were to find a new political philosophy and a new economic system, we could enhance the well-being of people and resolve many problems in the world at the same time. The A.SK prize is intended to help achieve that goal.”

Today, in the fifth year of the Foundation’s work and with the experience of the persistent predicament in the capital markets, such phrases sound much more obvious and therefore far less dramatic than they did before the onset of the crisis. The donors were already pretty much aware of what they were talking about. They both knew the capitalist system very well, Angela Chan through her long years of experience directing a top-of-the line retail chain in Hong Kong with subsidiaries in Australia and the United States, and Shu Kai through his speculative dealings in real estate, stocks, and currencies. He knows the stock market inside out and is a successful entrepreneur in cities as far flung as Hong Kong and São Paolo. His farsighted appraisal of the situation hit the mark as early as 2007.

Today, the capitalist system is creating more incentives for speculation than for investment. Whoever has the capital to buy expensive properties and houses is making big profits. The consequence is rising prices. The rest of the people cannot afford their own homes; they live impoverished. Ought we really want a system like that?

He deplores a system of increasing financialization that in his opinion has stood on the shaky ground of soaring debt rates as well as financially and mathematically specious leveraging: “A big part of private spending is financed not from income, but on credit asset.” It was from that insight that e derived the foundation’s mission: “to explore the possibilities for more direct links of the financial sector to the national production of goods and services in order to prevent monetary instabilities and speculative deformations.”

as an entrepreneur, Shu Kai Chan also knows that improvement in the system does not come solely from having individuals change their behavior: “As a businessman, I have never thought in societal categories. It is always about one thing: you look for something reasonably priced that promises profit, and you buy it.” The foundation’s first mission statement reads in part: “New problems could be solved only by a new system.” To Shu Kai Chang the problem of capitalism is not with freedom of enterprise or the free market. “Rather it is with capital and profits concentrated in small groups.” The government should solve the distributional problem by establishing the appropriate framework for the economy.

“Since the economy is based on capital, government should use its financial resources to provide loans to help qualified citizens to directly engage in production. There should be a law that all enterprises must be divided into different categories of work and profit sharing and profit bonuses given to workers.”

Combined with land reforms, says Shu Kai Chan, this approach can raise productivity, create more jobs, and distribute prosperity fairly: “Income must come by work. Not by charity.”

The foundation has just as tirelessly championed reforms of govern that are intended to strengthen the participation of “groups” in the Hegelian sense, that is, of the civil society linking the individual and the state. The model of the business-coordinated market economy would thereby be able to acquire a counterpart in the field of governance. This context especially brings to mind the idea of strengthening the role of nongovernmental organizations in order to keep the government apparatus from becoming bloated and remote from sovereign control. New forms of organization such as multigovernment and self-ruling democraties ought not be tabooed. In short, the idea behind the foundation is to promote scientific research on the basic preconditions of good governance. Many of the proposals that the donors make for this very area are reminiscent of the institutional economics of the Historical School with which Shu Kai Chan became so familiar on his journey through German universities. It would be stimulating today to seek possible solutions in the New Institutional Economics. Incidentally, whoever believes that reform of government is a problem faced only in developing countries should consider the issue raised right here in Germany by Article 21 of the Federal Republic’s written constitution, the Basic Law. Sentence 1 of the article reads “Political parties shall participate in the formation of the political will of the people.”)

Understood in this way, the Frankfurter Allgemeine Zeitung is not so wrong in asserting that the foundation has the paradoxical mission of facilitating revolutionary rethinking in order to prevent revolutions—especially if one means the practical scientific thinking that the prize is intended to stimulate. As we have heard, the semantics of revolution are by no means something unfamiliar to the founders. Nevertheless, they are not concerned with revolution in the actual sense. The Bastille of industrial society was stormed long ago. What is needed instead are new ideas for achieving more justice in business and politics and for ensuring their humane application in the postindustrial age. That is the purpose of the A.SK Social Science Award, one worth striving to live up to again tomorrow and every day.