Justice is an ancient concept. We often think of the term as synonymous with law or lawfulness. But a broader sense of the word is closer to fairness. Behavioral finance studies indicate people have an inherent sense of justice or fairness. This view of human nature clashes with the classical economic view of “homo economicus”.
Aristotle’s definition of justice is still widely accepted today. He says justice consists in treating equals equally and unequals unequally but in proportion to their relevant differences. Justice, in other words, is giving each person her due. Aristotle distinguishes two types of justice: distributive justice and corrective justice. We may add three other kinds of justice: compensatory, commutative, and procedural.
Distributive justice concerns the distribution of benefits and burdens by the state, so that everyone receives their due. The great debate is over what is considered fair distribution. Should the strong, the rich, the powerful receive a larger proportion of benefits? Or should everyone be treated equally?
Compensatory justice requires compensating someone for a past injustice or making good some harm suffered in the past. People should be fairly compensated for their injuries by those who have injured them. This kind of justice may be and often is given through monetary compensation.
Retributive justice or corrective justice seeks to balance an injustice by correcting the situation. It is punitive because it is the punishment due to someone who breaks the law or has committed harm to others. Retributive justice embodies the idea that an offense may ‘cry out’ for punishment, and that the moral order is out of balance until this is administered.[i] It appeals to the notion of “just dessert”.
Procedural justice concerns fair decision procedures, practices, or agreements. Processes must be fair and unbias to ensure fair treatment.
Commutative justice belongs in the sphere of transactions and is most relevant to finance and business. This form is most commonly associated with business and financial transactions because it refers to fairness in exchange of goods or services. Sellers are expected to set fair prices for their goods and not gouge the customer. Therefore, there must first be full informational disclosure to both buyer and seller. Each must enter into the transaction freely and not be coerced. Additionally, buyer and seller should see some benefit from the transaction.[ii]
After the financial crisis 2008: justice so far
When we ask if justice has been served on the most egregious perpetrators of the financial crisis, we find the answer by checking if these individuals or institutions have received the applicable forms of justice. In the case of the financial crisis, individuals were responsible for wrecking banks, engaging in fraudulent transactions, and for sheer incompetence.
According to the Economist, after the financial crisis, no senior banker in Britain has faced criminal charges relating to the failure of his institution. In America, the Federal Deposit Insurance Corporation has filed lawsuits against officers and directors of failed financial institutions. However, prosecutors have brought few criminal charges against high-profile bankers.
Many feel justice has not been done. John Kay writes in the Financial Times, “The financial crisis left a few individuals responsible for it very rich while its consequences made millions not responsible for it much poorer.” Banks have paid fines and settled charges brought against them. Often, these settlements do not require the institutions to admit wrongdoing. Some may simply view these fines and settlement charges as a cost of doing business and not a consequence of moral failure.
Fines and settlements have been large:
HSBC – $1.92 billion to settle charges of money laundering with the US Department of Justice.
Standard Chartered Bank – $667 million for money laundering and violating US sanctions
Barclays – $920 billion for rigging electricity rates, and manipulating LIBOR
RBS – $564 million for manipulating LIBOR
UBS – $1.5 billion for the manipulation of LIBOR
JPMorgan – $571 for mortgage servicing activities and misleading disclosures to investors about mortgage related risks and exposures
Goldman Sachs – $550 million for misleading investors on a CDO deal
Yet, the amounts are relatively small compared to the revenues of these institutions and to the bonuses paid out to their employees.
Has justice been served?
Compensatory Justice: Yes, sort of.
Banks have paid out large amounts in compensatory justice to the government for the harm done by them to others in society. However, the amounts paid are easily retrieved from the banks’ massive revenues. For example, Goldman Sachs made $8.4 billion in profit in 2010, the year it paid out its $550 million in fines to the SEC (in the settlement, the bank did not need to admit guilt).
Distributive Justice: No, not really.
The rewards and burdens of the financial crisis were not fairly distributed. Top executives of banks received tens of millions in compensation for their acts in the lead up to the financial crisis. Some of these acts contributed to the crisis. But, as John Kay says, millions of people were made poorer.
Retributive or Corrective Justice: No, hardly.
After the financial crisis, no financial executives in Britain and only a handful in the US were punished for breaking laws or causing harm to others. Without corrective justice there is little to deter people from committing the same acts in the future. Many feel “just desserts” were not served. John Rawls did point out that the stability of a society depends on the extent the members of the society feel they are treated justly.