Robert Skidelsky speaks: How and how not to do economics

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Ethics and economics

Business schools help create a culture where the profit justifies the means

Business students learn accounting techniques, but not ethical decision-making. This is why corporate scandals persist writes Berend van der Kolk in The Guardian

 

‘When I hear about the complex transfer pricing schemes at companies such as Amazon and Starbucks, I start wondering whether the accountants knew they were avoiding tax.’ Photograph: Mike Blake/Reuters


As a university teacher of accounting, I see the world through a particular lens. When I read about the sales scandal at Wells Fargo, I can’t help but think about the people who naively designed the incentive schemes that triggered this type of unethical behaviour. When I hear about the complex transfer pricing schemes at companies such as Amazon and Starbucks that enable them to avoid tax, I start wondering which accounting techniques they used. In short, I see the strong connection between unethical business practices and accounting techniques.

One reason why these problems persist is that the textbooks used in most elementary management accounting courses ignore this connection. They tend to focus on the technical aspects of accounting – understanding the formulas, definitions, mechanics and calculations – while ignoring its ethical aspects. The ethical dimension is usually nothing more than an add-on in an isolated chapter, introduction paragraph, or in a separate course on business ethics. This makes ethics an afterthought detached from the topics it is intended to reflect on.

Take the example of transfer pricing – the practice of setting a price for a good or service delivered by one part of an organisation to another. When these units are located in different tax regions, the chosen transfer price affects the amount of tax that has to be paid. Various accounting textbooks discuss the technical aspects of transfer pricing, framed with questions such as “how can multinationals minimise their taxes payable?”. The ethics of whether it’s fair to avoid paying taxes – like how many developing companies are harmed by tax-avoiding multinationals - are rarely discussed.

This may lead students to believe that business decisions are only technical, and bear no ethical implications. In fact, business decisions almost always bear ethical implications: they may deteriorate work conditions elsewhere in the supply chain, create a profit-justifies-the-means culture or increase inequality on a global level.

We need to see a much stronger integration of ethical considerations into business education. This is how managers make real-life business decisions. This could be achieved through a discussion on the techniques and ethics of transfer pricing in one and the same accounting class, using a case that highlights both aspects. Business education should also challenge its own underlying assumptions about human behaviour, and bring in other disciplines such as the humanities to help students think critically about business practices that are taken for granted.

Of course it’s important that business students acquire technical skills, and universities shouldn’t be paternalising students by dictating what is and isn’t ethical. Instead, a more critical and integrated debate about the moral implications of financial instruments, accounting techniques and new technologies should play a central role in business education.

In the film Jurassic Park, Dr Ian Malcolm says: “Scientists were so preoccupied with whether or not they could, they didn’t stop to think if they should.” I would like us – business educators, but also students, managers and accountants – to not make that same mistake. Let’s take that step back every once in a while to reflect on the ethics of the technics.

Why we inject cricket with a greater moral purpose

Suresh Menon in The Hindu

We pour into sport our highest emotions and our greatest passions because that is a way of rescuing it from meaninglessness


It is facile to say that Indians do not understand the concept of “conflict of interest”. We have had in a parliamentary panel on anti-tobacco legislation an MP known as the “beedi king of Maharashtra”. Vijay Mallya, of Kingfisher Airlines, served on the parliamentary panel on civil aviation.

It is not that we don’t understand the concept — we merely turn a blind eye to it, arguing that parliamentary panels, for instance, need “experts” in the field. Our faith in the integrity of our businessmen and politicians is touching.

Why therefore should we make such a big deal about conflicts of interest in cricket?


Undermining the spirit

The simple answer, of course, is that just because it is condoned elsewhere, it does not follow that cricket should too. It is ethically wrong, even if sometimes it is legal, as in the case of Rahul Dravid and others who are given a ten-month contract with the BCCI so they can then sign a two-month contract with an IPL team. Contracts with in-built loopholes are a testimony to the nudge-nudge, wink-wink style of the BCCI’s functioning. They go against the spirit of the game.

Many greats have played the dual game, but that doesn’t make it right. In 1956, as selector, Don Bradman picked the Australian team to England. He then wrote on the series for the Daily Mail. “He set an unusual precedent,” wrote his biographer Irving Rosenwater subtly.

In a clear-headed letter following his resignation from the Committee of Administrators, Ramachandra Guha makes a forceful point: “The BCCI management is too much in awe of the superstars to question their violation of norms and procedures. For their part, BCCI office-bearers like to enjoy discretionary powers, so that the coaches or commentators they favour are indebted to them and do not ever question their own mistakes or malpractices.”


Guha’s indictment of the system

Guha’s letter indicts the system, and if the BCCI (or the CoA, which sometimes looks and acts like the BCCI in different clothes) has the interests of the game at heart, then it will have to be acted upon. It has brought into focus another aspect of cricket corruption — the ethical one. It has taken a fan of cricket — and not just a fan of cricketers, which is what most Indians are — to point out the anomalies.

Guha has made the sensible suggestion that conflicts of interest which exist from the highest level to the lowest are best dealt with at the top, saying, “This would have a ripple effect downwards.”

So why cricket? Why should the sport — which is believed to mirror society — answer to a higher morality than other fields of human endeavour?

To understand this, one must acknowledge the essential nature of sport. It is artificial, it is in the large sense meaningless, it is “something that does not matter but is performed as if it did,” to quote Simon Barnes.

The very artificiality of sport gives us the right to inject it with a greater moral purpose than, say, business or politics. Even politicians who are otherwise known to be shady are expected to be honest on the sports field. Bill Clinton might have cheated on his wife, but had he cheated on a golf course, there would have been no redemption.

Being artificial means sport is not of the real world; the sharp practices of the real world should not be allowed to seep into sport. Thus sport cannot be a mere reflection of society, but has to belong to a higher realm, a fantasy world where everything is perfect. Or should aim to be.


Aspire for perfection

The argument here is not that cricket is perfect, but that it ought to aspire towards perfection, both on and off the field. The process is important even if the product sometimes disappoints.

We pour into sport our highest emotions and our greatest passions because that is a way of rescuing it from meaninglessness. It is relevant because our emotions make it relevant — and it gives us an opportunity to coat the essential artificiality of the activity with the reality of our most positive feelings.

Cricket is full of contradictions. Administrators who should be preserving its status as a touchstone of goodness cheat and lie, and live for the bottom line. Players who understand its place in society and owe everything to it, compromise for the extra dollar. It is a sickening win-win situation: the BCCI keeps the players happy in return for their silence.

One or the other group has to ensure they are guardians of the sport. In India, it was finally the Supreme Court which took upon itself that role because neither officials nor players had the inclination.

Guha’s letter has raised some fundamental questions. Not just about the BCCI or the CoA. But about our relationship with cricket. And how much we are willing to ignore uncomfortable truths so long as a Kohli scores a hundred or an Ashwin claims five wickets. Passion should be made of sterner stuff.

The dilemmas of trying to live ethically

Eva Wiseman in The Guardian


My friend and I bought the same book on Amazon, and it changed us, but in quite different ways. The book was Eating Animals by Jonathan Safran Foer, an examination of the gruesome way poultry and cattle are slaughtered to produce cheap meat for people like me. A quarter of the way through I closed it, tucked it on to the shelf – I knew that if I continued to read I would no longer be able to enjoy roast chicken, or Peking duck, or oily lardons knotted in spaghetti. I knew I’d have to be a better person; I’d have to live a slightly less lovely life. I stopped reading. While it opened my eyes to my failings and limits, Becca, who finished the book, became a vegetarian.

As I read about the ethical problems with Airbnb, Uber and every other smiling company that makes our lives easier, I am under no illusions about my own goodness. I believe it is almost impossible to live ethically as a human being. There is no way for humans to inhabit the world, is there, without spoiling something crucial. We are massive ruiners. If we want to stay clean and warm, and if we want to have a laugh, it is highly likely somebody or something will feel the negative effects of our basic joy. And when we do act ethically, isn’t the main gain simply a “sense of wellbeing”, perhaps the most vanilla of the senses? However hard we try, there will be something we get wrong. Since giving up meat, Becca brushes off regular questions from local bores about things like the carbon footprint of her salad, yet on she crunches, trying.

Here are some of the ways in which I am dreadful. Regardless of the books I buy, whether on meat eating or true crime, I continue to buy them from sites that avoid tax and treat their workers like machines, because they arrive so promptly and because they cost 10p plus postage. I pay that 10p on a phone built under slave-like conditions with materials the profits of which may or may not have funded a genocide. More: our flat is on the market for wild and pretend money, which means I am becoming part of the problem crippling my beloved, disgusting city. I even arranged flowers on our kitchen table with the quiet thought that potential buyers might pay even more for a place that smells of sweetpeas. I am scum. Worse, when I see people trying to be better – when I have lunch with Becca, with her peanut noodles and fishless fingers – I feel a silent judgment. It comes from inside me; she doesn’t care what I eat. It’s me. I feel bad about the route my sandwich filling took to get to my plate, and sitting with her reminds me of that, so I will be tempted to try and undermine her choice by asking about the leather of her shoes. Scum. But I guilt-barter. We each have a certain moral budget, and I choose to spend mine on meat and Amazon. I choose my thing.

When you stare straight into the horrors of the modern world, they can blind you. There’s a moment before I click to buy the 10p book when I begin to add up the wrongs I’ve committed that day, that hour. The long shower, with the exfoliator that kills fish, the bottle of water I bought on the way to work. The £7 dress, the potentially trafficked manicure, the leftover lunch I threw away, the lights I left on, the heating in May. And I vow to be better, soon, as payback. My attempts, however, like signing an online petition, barely touch the sides of my shittiness. It is impossible to live ethically.

But how bad should we feel, really? Surely the responsibility shouldn’t all be ours. Products and services should not come to market if there is any chance they have passed through the hands of a slave. It doesn’t sound like too much to ask. And shouldn’t there be an equivalent to the nutritional facts on tins, a label with quantities of evil? We’d be able to budget more effectively – an Amazon Prime here, a speak-up-when-an-acquaintance-makes-a-racist-joke there. That’s how I’m learning to live. A charity bake sale, an Uber home. A meat-free day, but wearing a really cheap T-shirt.
Putting down that book has made me look at how much I choose not to see. It’s no revolutionary realisation, but as we find increasingly meaningless ways to balance our ethical chequebooks, I am embracing my limits. As long as we try not to be the complete worst and accept our scumminess, then there is little point in asking how to be good. The answer, surely, is to try and simply be good enough.

The Economist's Concubine

Robert Skidelsky in Project Syndicate


In recent decades, economics has been colonizing the study of human activities hitherto considered exempt from formal calculus. What critics call “economics imperialism” has given rise to an economics of love, of art, of music, of language, of literature, and of much else.

The unifying idea underlying this extension of economics is that whatever people do, whether it is making love or making widgets, they aim to achieve the best results at the least cost. These benefits and costs can be reduced to money. So people are always looking for the best financial return on their transactions.

This is contrary to the popular separation of activities in which it is right (and rational) to count the cost, and those in which people do not (and should not) count the cost. To say that affairs of the heart are subject to cold calculation is, say the critics, to miss the point. But cold-hearted calculation, reply the economists, is exactly the point.

The pioneer of the economic approach to love was the Nobel laureate Gary Becker, who spent most of his career at the University of Chicago (where else?). In his seminal paper, “A Theory of Marriage,” published in 1973, Becker argued that selecting a partner is its own kind of market, and marriages occur only when both partners gain. It’s a very sophisticated theory, relying on the complementary nature of male and female work, but which tends to treat love as a cost-reducing mechanism.

More recently, economists such as Columbia University’s Lena Edlund and University of Marburg’s Evelyn Korn, as well as Marina Della Giusta of Reading University, Maria Laura di Tommaso of the University of Turin, and Steiner Strøm of the University of Oslo, have applied the same approach to prostitution. Here, the economic approach might seem to work better, given that money is, admittedly, the only relevant currency. Edlund and Korn treat wives and prostitutes as substitutes. A third alternative, working in a regular job, is ruled out by assumption.

According to the data, prostitutes make a lot more money than women working in ordinary jobs. So the question is: why is there such a high premium for such low skills?

On the demand side is the randy male, often in transit, who weighs the benefits of going with prostitutes against the costs of getting caught. On the supply side the prostitute will require higher earnings to compensate for her higher risk of disease, violence, and blighted marriage prospects. “If marriage is a source of income for women,” write Edlund and Korn “then the prostitute has to be compensated for foregone marriage market opportunities.” So the premium reflects the opportunity cost to the prostitute of performing sex work.

There is a ready answer to the question of why competition does not drive down sex workers’ rewards. They have a “reservation wage”: If they are offered less, they will choose a less risky line of work.

What warrant does the state have to interfere with the contracts that are struck within this market of willing buyers and sellers? Why not decriminalize the market altogether, as many sex workers want? Like all markets, the sex market needs regulation, particularly to protect the health and safety of its workers. And, as in all markets, criminal activity, including violence, is already illegal.

But on the other side, there is a strong movement to ban buying sex altogether. The so-called Sex Buyer Law, criminalizing the purchase, though not the sale, of sexual services has been implemented in Sweden, Norway, Iceland, and Northern Ireland. The enforced reduction of demand is expected to reduce supply, without the need to criminalize the supplier. There is some evidence that it has had the intended effect. (Though supporters of the so-called Nordic System ignore the effect of criminalizing the purchase of sex on the earnings of those who supply it, or would have supplied it.)

The movement to ban buying sex has been strengthened by the growth of international trafficking in women (as well as drugs). This may be counted as a cost of globalization, especially when it involves an influx into the West from countries where attitudes toward women are very different.

But the proposed remedy is too extreme. The premise of the Sex Buyer Law is that prostitution is always involuntary for women – that it is an organic form of violence against women and girls. But I see no reason to believe this. The key question concerns the definition of the word “voluntary.”

True, some prostitutes are enslaved, and the men who use their services should be prosecuted. But there are already laws on the books against the use of slave labor. I would guess that most prostitutes have chosen their work reluctantly, under pressure of need, not involuntarily. If men who use their services are criminalized, then so should people who use the services of supermarket checkout employees, call-center workers, and so on.

Then there are some prostitutes (a minority, to be sure) who claim to enjoy their work. And, of course, there are male prostitutes, gay and straight, who are typically ignored by feminist critics of prostitution. In short, the view of human nature of those who seek to ban the purchase of sex is as constricted as that of the economists. As St. Augustine put it, “If you do away with harlots, the world will be convulsed with lust.”

Ultimately, all arguments against prostitution based on notions of inequality and coercion are superficial. There is, of course, a strong ethical argument against prostitution. But unless we are prepared to engage with that – and our liberal civilization is not – the best we can do is to regulate the trade.

The Indian way, No way

by Dinesh Thakur in The Hindu

The national culture of unquestioned obedience to authority along with an acceptance of shoddiness must not be used as an excuse to overlook violations of corporate ethics, says the Ranbaxy whistle-blower

During my tenure at Ranbaxy, I was surprised by the unchallenged conformity to the poor decisions of senior leadership. Ranbaxy was my first Indian employer following my tenure at two different American corporations. Reflecting on this experience from cultural and comparative perspectives highlights the organizational peril of such behaviour.

It is in our culture to respect authority. We are taught from childhood to listen and obey our elders. We grow up with the notion that our managers, the function heads and business heads within our respective organisations, know more than anyone else. Hierarchy is revered, authority is seldom questioned. Those who dare to ask questions are renegades.

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Asking questions

My investigation into the discrepancies between Ranbaxy’s records and the data filed with regulatory agencies in 2004 showed me how wide the questionable behaviour was within the organisation. It was systematic. It had penetrated the DNA of the organisation.

I often asked myself how was it that smart, well-intentioned people tolerated systematic fraudulent behaviour? This question led me to the Milgram Experiment, which was conducted by the Yale University psychologist, Stanley Milgram, in 1961. In the 1971 paper summarising its results, he stated:

Ordinary people, simply doing their jobs, and without any particular hostility on their part, can become agents in a terrible destructive process. Moreover, even when the destructive effects of their work become patently clear, and they are asked to carry out actions incompatible with fundamental standards of morality, relatively few people have the resources needed to resist authority.

Why is this important? In my view, as much as we value and respect our traditions, it is imperative that we not lose sight that being a “renegade” — a nonconformist — is acceptable when motivated by honourable intentions. It is acceptable to think that managers possess neither omniscience nor omnipotence. Our colleagues who are at the lowest rung of the corporate ladder sometimes know more than we do about an issue. It is important to encourage them to question authority, even if we find it uncomfortable and disconcerting.

The other aspect of my search for answers led me to introspection. What kind of society have we become? D.G. Shah, the secretary general of the Indian Pharmaceutical Alliance, recently penned an elegant op-ed that called out our culture for tolerating corruption, even with needs as basic as drinking water, personal hygiene, food and medicine. Why is it that we have come to accept poor governance, corruption, incompetence and entitlement as facts of life?

Compromise

I think it has a lot to do with how we lead our daily lives. Despite an exhaustive search, I have not been able to find proper translation for the concept of jugaad. It seems to exist only within our society. While Wikipedia describes it as a term applied to a creative or innovative idea providing a quick, alternative way of solving or fixing a problem, I think it misses two important aspects that I have experienced during my tenure working in India. First, there is an implicit understanding that because the solution needs to be quick and creative, it is acceptable to make a compromise on the quality of what is produced. Second, because we focus on making “it” work just-in-time, we never think of making the solution last. That leads to poor quality.

Not 100 per cent

The other pervasive attitude is the notion of chalta-hai. It is very hard to describe this attitude to someone who has not experienced life in India, but to those of us who have lived here, we know what it is. We have come to accept that if it is 80 per cent good, works 80 per cent of the time, and does 80 per cent of what it needs to do, it is acceptable. This attitude manifests itself in almost every facet of common life in India.

Clearly, we are now beginning to see the results of our approach with jugaad and our attitude with chalta-hai. They are not pleasant. Recent events hold a mirror to our face and ask us whether we like what we see. I certainly don’t.

As Jayson Blair, the disgraced former reporter at The New York Times, said, “Rarely are our choices in life presented as a major dramatic question. One step at a time, [they come as] minor choices, that may not even seem related to the ultimate outcome. Once that fear [of getting caught] disappears with the minor choices, it is easier to cross that big ethical line.”

It is not the big ethical line that we need to worry about. Rather, we need to worry about all the thousands of little situations we are presented with in our daily lives, to which the easy answer seems to be jugaad or the attitude of chalta-hai.

Unless we develop an attitude of “do it right the first time” and inculcate this expectation into our daily life, we will continue to see the same image in the mirror every time an event like the one on May 13 holds it up to our face.

Oxford University won't take funding from tobacco companies. But Shell's OK

If scholars don't take an ethical stance against corporate money, where's the moral check on power?

• 
• • George Monbiot
  • The Guardian, Tuesday 14 May 2013

Those in the strongest position to challenge climate change are instead lending it their ‘moral prestige'. Illustration by Daniel Pudles

In 1927 the French philosopher Julien Benda published a piercing attack on the intellectuals of his day. They should, he argued in La Trahison des Clercs (the treason of the scholars), act as a check on popular passions. Civilisation, he claimed, is possible only if intellectuals stand in opposition to the demands of political "realism" by upholding universal principles. "Thanks to the scholars," he said, "humanity did evil for two thousand years, but honoured good." Europe might have been lying in the gutter, but it was looking at the stars.

But those ideals, Benda argued, had been lost. Europe was now lying in the gutter, looking into the gutter. The "immense majority" of intellectuals, artists and clergy had joined "the chorus of hatreds": nationalism, racism, the worship of power and war. In doing so, they justified and magnified political passions. Across Europe, scholars on both the left and the right had become "ready to support in their own countries the most flagrant injustices", to abandon universal principles in favour of national exceptionalism and to proclaim "the supreme morality of violence". He quoted the French anarcho-syndicalist Georges Sorel, who eulogised "the superb blond beast wandering in search of prey and carnage".

The result of this intellectual support for domination, Benda argued, was that there was now no moral check on the pursuit of self-interest. Rather than forming a bulwark against popular delusions, Europe's thinkers turned them into doctrines. With remarkable foresight, Benda predicted that this would lead inexorably to "the greatest and most perfect war ever seen in the world". This war would be genocidal in intent, and would not be stopped by any treaties or institutions. In 1927, these were bold claims.

I'm not suggesting an equivalence between those times and these. I'm summarising Benda to highlight a general principle: the need for a disinterested class of intellectuals which acts as a counterweight to prevailing mores. Racism, nationalism and war are only three of the many hazards to which society is exposed if that challenge should fail: if, that is, most scholars side with the soldiers or the sellers.

Today the dominant forces have changed. Now the weak state, not the strong state, is fetishised by those in power, who insist that its functions be devolved to "the market", meaning corporations and the very rich. Economic growth and the forces that drive it, whether they enhance or harm people's lives, are venerated. And too many scholars seem prepared to support the new dispensation.

Two weeks ago I castigated the new chief scientist, Sir Mark Walport, for misinforming the public about risk, making unscientific and emotionally manipulative claims and indulging in scaremongering and wild exaggeration in defence of the government's position. Since then I have seen his first speech in his new role and realised that the problem runs deeper than I thought.

Speaking at the Centre for Science and Policy at Cambridge University, Walport maintained that scientific advisers had five main functions, and the first of these was "ensuring that scientific knowledge translates to economic growth". No statement could more clearly reveal what Benda called the "assimilation" of the intellectual. As if to drive the point home, the press release summarising his speech revealed that the centre is sponsored, among others, by BAE Systems, BP and Lloyd's.

Last week, two days before CO₂ concentrations in the atmosphere reached 400 parts per million, Oxford University opened a new geoscience laboratory named after its sponsor, Shell. Among its roles is helping to find and develop new sources of fossil fuel.

This is one of many such collaborations. Last year, for instance, BP announced that it will spend £60m on research at Manchester University partly to help it drill deeper for oil. In the United States and Canada, universities go further: David Lynch, dean of engineering at the University of Alberta, appears in advertisements by the Canadian Association of Petroleum Producers, whose purpose is to justify and normalise tar sands extraction.

As the campaign group People and Planet points out, universities help provide fossil fuel corporations not only with expertise but also with a "social licence to operate". Climate change is one of the great moral issues of our age, but the scholars in the strongest position to challenge the industry responsible are, instead, lending it what Benda calls their "moral prestige". Neoliberal economists, imperialist historians, war-mongering philosophers, pliable chief scientists, compromised energy researchers: all are propelling us into the arms of power.

In 1998, the vice-chancellors of the UK's universities decided that they would no longer take money for cancer research from tobacco firms. Over the past few days I have asked the Shell professor of earth sciences at Oxford, the university itself and the umbrella bodyUniversities UK to explain the ethical difference between taking tobacco money for cancer research and taking fossil fuel money for energy research. None of these great heads, despite my repeated attempts to engage them, were prepared even to attempt an answer.

So perhaps this is where hope lies: unlike Benda's scholars, these people have not yet developed a justifying ideology which permits them to excuse or glorify the compromises they have made with power. Perhaps we have not yet abandoned the redeeming hypocrisy of what Benda called "honouring good".

We need a revolution in how our companies are owned and run

The second of this series on a new capitalism calls for a culture dedicated to long-term, ethical goals

• 
• • Will Hutton
  • The Observer, Sunday 30 September 2012

Rolls Royce: almost our last remaining great industrial company. Photograph: Simon Stuart-Miller/guardian.co.uk

Twenty years ago, Britain's greatest industrial companies were ICI and GEC. A third, Rolls-Royce, secured from hostile takeover by a government golden share, had a board that was boringly committed to research and development and to investing in its business. ICI and GEC, under colossal pressure from footloose shareholders to deliver high short-term profits, tried to wheel and deal their way to success. Neither now exists. Rolls Royce, free from concerns about hourly movements in its share price, has gone on to be almost our last remaining great industrial company.

Britain, as the Kay review on the equity markets reported, has far too few Rolls-Royces. Instead the report identified a lengthening list of companies – Marks and Spencer, Royal Bank of Scotland, BP, GlaxoSmithKline, Lloyds and now BAE – which have made grave strategic errors, taken ethical short cuts or launched ill-judged takeovers, hoping to benefit their uncommitted tourist shareholders. Their competitors in other countries, with different ownership structures and incentives, have survived and prospered.

It is an unreported crisis of ownership that goes to the heart of our current ills. Over the last decade, a fifth of quoted companies have evaporated from the London Stock Exchange, the largest cull in our history. Virtually no new risk capital is sought from the stock market or being offered across the spectrum of companies. A share is now held for an average of seven months. Britain has no indigenous quoted company in the fields of car, chemical or building materials. They are all owned overseas, with design and research and development travelling abroad as well.

The stock market has descended into a casino, served by a vast industry of intermediaries – agents, trustees, investment managers, registrars and advisers of all sorts – who have grown fat from opaque fees. It has become a transmission mechanism for highly short-term expectations of profit driven into the boardroom. Directors' pay has been linked to share price performance, offering them the prospect of stunning fortunes. As a result, R&D is consistently undervalued.

British companies are now hoarding some £800bn in cash, cash they would rather use buying back their own shares than committing to investment. We have allowed a madhouse to develop. An important reason why Britain is at the bottom of the league table for investment and innovation is the way our companies are owned or, rather, notowned.

It is a crisis of commitment. Too few shareholders are committed to the companies they allegedly "own". They consider their shares either casino chips to be traded in the immediate future or as no more than a contract offering the opportunity of dividends in certain industries and countries; this requires no engagement in how those profits and dividends are generated. British law and corporate governance rules demand the narrowest interpretation of investors' and directors' duties: to maximise short-term profits while having minimal associated responsibilities.

The company is conceived as nothing more than a network of short-term contracts. Any shareholder – from a transient day trader to a long-term investor – has the same standing in law. American directors' ability to defend their company from hostile takeover or German directors having to live – horrors – with trade union representatives on their supervisory boards are seen as obstacles to enterprise that Britain must not go near. But companies and wealth generation, as Professor Colin Mayer argues in his important forthcoming book Firm Commitment, are about co-creation, sharing risk and long-term trust relationships: Britain's refusal to embrace these core truths is toxic. Companies were originally invented as legal structures to enable groups of investors to come together, committing to share risk around a shared goal and so make profit for themselves, but delivering wider economic and social benefits in the process. Incorporation was understood to be associated with obligations: a company had to declare its purpose before earning a licence to trade. There existed a mutual deal between society and company.

No game-changing improvement in British investment and innovation is possible without a return to engagement, stewardship and commitment. Limited liability should not be a charter to do what you like. It must be conditional on a core business purpose, along with the creation of trustees to guard it. Directors' obligations should be legally redefined to deliver on this purpose. What's more, every shareholder should be required to vote, with voting strength, as Mayer argues, increasing for the number of years the share is held.

To solve the problem that individual shareholders – even savings institutions – do not have sufficient muscle nor sufficient incentive to engage with managements, voting rights could be aggregated and given to new mutuals. These would support directors in delivering their corporate purpose, a proposal made by the Ownership Commission I chaired. Companies would become trust companies, with a stewardship code. The priority in takeovers would be the best future for the business, not the ambition to please the last hedge fund to take a short-term position.

Stakeholders should also have a voice in how the company is run. In Germany, a company's bankers and its employee representatives have seats on the supervisory board. Why not copy success rather than continue with our failed system? The Kay review's proposals to stop quarterly profit reporting, while a useful first step, do not address the core of the problem. The company has become a dysfunctional organisational construct that needs root-and-branch reform.

As part of the reform, Britain also needs more co-operatives, more employee-owned companies and more family-owned firms. It needs to be more attentive to which foreign companies own our assets and for what purpose. It is an ownership revolution to match the revolution in finance proposed last week. Together with an innovation revolution – see next week – the British economy could at last begin to deliver its promise.

Beware of Corporate Psychopaths

Brian Basham in The Independent

Thursday, 29 December 2011

Outlook Over the years I've met my fair share of monsters – rogue individuals, for the most part. But as regulation in the UK and the US has loosened its restraints, the monsters have proliferated.

In a paper recently published in the Journal of Business Ethics entitled "The Corporate Psychopaths: Theory of the Global Financial Crisis", Clive R Boddy identifies these people as psychopaths.

"They are," he says, "simply the 1 per cent of people who have no conscience or empathy." And he argues: "Psychopaths, rising to key senior positions within modern financial corporations, where they are able to influence the moral climate of the whole organisation and yield considerable power, have largely caused the [banking] crisis'.

And Mr Boddy is not alone. In Jon Ronson's widely acclaimed book The Psychopath Test, Professor Robert Hare told the author: "I should have spent some time inside the Stock Exchange as well. Serial killer psychopaths ruin families. Corporate and political and religious psychopaths ruin economies. They ruin societies."

Cut to a pleasantly warm evening in Bahrain. My companion, a senior UK investment banker and I, are discussing the most successful banking types we know and what makes them tick. I argue that they often conform to the characteristics displayed by social psychopaths. To my surprise, my friend agrees.

He then makes an astonishing confession: "At one major investment bank for which I worked, we used psychometric testing to recruit social psychopaths because their characteristics exactly suited them to senior corporate finance roles."

Here was one of the biggest investment banks in the world seeking psychopaths as recruits.
Mr Ronson spoke to scores of psychologists about their understanding of the damage that psychopaths could do to society. None of those psychologists could have imagined, I'm sure, the existence of a bank that used the science of spotting them as a recruiting mechanism.

I've never met Dick Fuld, the former CEO of Lehman Brothers and the architect of its downfall, but I've seen him on video and it's terrifying. He snarled to Lehman staff that he wanted to "rip out their [his competitors] hearts and eat them before they died". So how did someone like Mr Fuld get to the top of Lehman? You don't need to see the video to conclude he was weird; you could take a little more time and read a 2,200-page report by Anton Valukas, the Chicago-based lawyer hired by a US court to investigate Lehman's failure. Mr Valukas revealed systemic chicanery within the bank; he described management failures and a destructive, internal culture of reckless risk-taking worthy of any psychopath.

So why wasn't Mr Fuld spotted and stopped? I've concluded it's the good old question of nature and nurture but with a new interpretation. As I see it, in its search for never-ending growth, the financial services sector has actively sought out monsters with natures like Mr Fuld and nurtured them with bonuses and praise.

We all understand that sometimes businesses have to be cut back to ensure their survival, and where those cuts should fall is as relevant to a company as it is, today, to the UK economy; should it bear down upon the rich or the poor?

Making those cuts doesn't make psychopaths of the cutters, but the financial sector's lack of remorse for the pain it encourages people to inflict is purely psychopathic. Surely the action of cutting should be a matter for sorrow and regret? People's lives are damaged, even destroyed. However, that's not how the financial sector sees it.

Take Sir Fred Goodwin of RBS, for example. Before he racked up a corporate loss of £24.1bn, the highest in UK history, he was idolised by the City. In recognition of his work in ruthlessly cutting costs at Clydesdale Bank he got the nickname "Fred the Shred", and he played that for all it was worth. He was later described as "a corporate Attila", a title of which any psychopath would be proud.

Mr Ronson reports: "Justice departments and parole boards all over the world have accepted Hare's contention that psychopaths are quite simply incurable and everyone should concentrate their energies instead on learning how to root them out."

But, far from being rooted out, they are still in place and often in positions of even greater power.
As Mr Boddy warns: "The very same corporate psychopaths, who probably caused the crisis by their self-seeking greed and avarice, are now advising governments on how to get out of the crisis. Further, if the corporate psychopaths theory of the global financial crisis is correct, then we are now far from the end of the crisis. Indeed, it is only the end of the beginning."

I became familiar with psychopaths early in life. They were the hard men who terrorised south-east London when I was growing up. People like "Mad" Frankie Fraser and the Richardson brothers. They were what we used to call "red haze" men, and they were frightening because they attacked with neither fear, mercy nor remorse.

Regarding Messrs Hare, Ronson, Boddy and others, I've realised that some psychopaths "forge careers in corporations. The group is called Corporate Psychopaths". They are polished and plausible, but that doesn't make them any less dangerous.

In attempting to understand the complexities of what went wrong in the years leading to 2008, I've developed a rule: "In an unregulated world, the least-principled people rise to the top." And there are none who are less principled than corporate psychopaths.

Brian Basham is a veteran City PR man, entrepreneur and journalist

Good Minus God

By LOUISE M. ANTONY

The Stone is a forum for contemporary philosophers on issues both timely and timeless.

Tags:

Atheism, Ethics, God, morality, Philosophy, religion and belief

I was heartened to learn recently that atheists are no longer the most reviled group in the United States: according to the political scientists Robert Putnam and David Campbell, we’ve been overtaken by the Tea Party.  But even as I was high-fiving my fellow apostates (“We’re number two!  We’re number two!”), I was wondering anew: why do so many people dislike atheists?

Atheism does not entail that anything goes. Quite the opposite.

I gather that many people believe that atheism implies nihilism — that rejecting God means rejecting morality.  A person who denies God, they reason, must be, if not actively evil, at least indifferent to considerations of right and wrong.  After all, doesn’t the dictionary list “wicked” as a synonym for “godless?”  And isn’t it true, as Dostoevsky said, that “if God is dead, everything is permitted”?
Well, actually — no, it’s not.  (And for the record, Dostoevsky never said it was.)   Atheism does not entail that anything goes.

Admittedly, some atheists are nihilists.  (Unfortunately, they’re the ones who get the most press.)  But such atheists’ repudiation of morality stems more from an antecedent cynicism about ethics than from any philosophical view about the divine.  According to these nihilistic atheists, “morality” is just part of a fairy tale we tell each other in order to keep our innate, bestial selfishness (mostly) under control.  Belief in objective “oughts” and “ought nots,” they say, must fall away once we realize that there is no universal enforcer to dish out rewards and punishments in the afterlife.  We’re left with pure self-interest, more or less enlightened.

This is a Hobbesian view: in the state of nature “[t]he notions of right and wrong, justice and injustice have no place.  Where there is no common power, there is no law: where no law, no injustice.”  But no atheist has to agree with this account of morality, and lots of us do not.  We “moralistic atheists” do not see right and wrong as artifacts of a divine protection racket.  Rather, we find moral value to be immanent in the natural world, arising from the vulnerabilities of sentient beings and from the capacities of rational beings to recognize and to respond to those vulnerabilities and capacities in others.

 

Leif Parsons

This view of the basis of morality is hardly incompatible with religious belief.  Indeed, anyone who believes that God made human beings in His image believes something like this — that there is a moral dimension of things, and that it is in our ability to apprehend it that we resemble the divine.  Accordingly, many theists, like many atheists, believe that moral value is inherent in morally valuable things.  Things don’t become morally valuable because God prefers them; God prefers them because they are morally valuable. At least this is what I was taught as a girl, growing up Catholic: that we could see that God was good because of the things He commands us to do.  If helping the poor were not a good thing on its own, it wouldn’t be much to God’s credit that He makes charity a duty.

It may surprise some people to learn that theists ever take this position, but it shouldn’t.  This position is not only consistent with belief in God, it is, I contend, a more pious position than its opposite.  It is only if morality is independent of God that we can make moral sense out of religious worship.  It is only if morality is independent of God that any person can have a moral basis for adhering to God’s commands.
Let me explain why.  First let’s take a cold hard look at the consequences of pinning morality to the existence of God.  Consider the following moral judgments — judgments that seem to me to be obviously true:
•            It is wrong to drive people from their homes or to kill them because you want their land.
•            It is wrong to enslave people.
•            It is wrong to torture prisoners of war.
•            Anyone who witnesses genocide, or enslavement, or torture, is morally required
to try to stop it.

To say that morality depends on the existence of God is to say that none of these specific moral judgments is true unless God exists.  That seems to me to be a remarkable claim.  If God turned out not to exist — then slavery would be O.K.?  There’d be nothing wrong with torture?  The pain of another human being would mean nothing?

Think now about our personal relations — how we love our parents, our children, our life partners, our friends.  To say that the moral worth of these individuals depends on the existence of God is to say that these people are, in themselves, worth nothing — that the concern we feel for their well being has no more ethical significance than the concern some people feel for their boats or their cars.  It is to say that the historical connections we value, the traits of character and personality that we love — all count for nothing in themselves.  Other people warrant our concern only because they are valued by someone else — in this case, God.  (Imagine telling a child: “You are not inherently lovable.  I love you only because I love your father, and it is my duty to love anything he loves.”)

What could make anyone think such things?  Ironically, I think the answer is: the same picture of morality that lies behind atheistic nihilism.  It’s the view that the only kind of “obligation” there could possibly be is the kind that is disciplined by promise of reward or threat of punishment.  Such a view cannot find or comprehend any value inherent in the nature of things, value that could warrant particular attitudes and behavior on the part of anyone who can apprehend it.  For someone who thinks that another being’s pain is not in itself a reason to give aid, or that the welfare of a loved one is not on its own enough to justify sacrifice, it is only the Divine Sovereign that stands between us and — as Hobbes put it — the war of “all against all.”

This will seem a harsh judgment on the many theists who subscribe to what is called Divine Command Theory — the view that what is morally good is constituted by what God commands.  Defenders of D.C.T. will say that their theory explains a variety of things about morality that non-theistic accounts of moral value cannot, and that it should be preferred for that reason.  For example, they will say that atheists cannot explain the objectivity of morality — how there could be moral truths that are independent of any human being’s attitudes, will or knowledge, and how moral truths could hold universally.  It is true that D.C.T. would explain these things.  If God exists, then He exists independently of human beings and their attitudes, and so His commands do, too.  If we didn’t invent God, then we didn’t invent His commands, and hence didn’t invent morality.  We can be ignorant of God’s will, and hence mistaken about what is morally good.  Because God is omnipresent, His commands apply to all people at all times and in all places.

Whatever the gods love — bingo! — that’s pious. But what if they change their minds?

That’s all fine.  It would follow from D.C.T. that moral facts are objective.  The problem is that it wouldn’t follow that they are moral.  Commands issued by a tyrant would have all the same features.  For D.C.T. to explain morality, it must also explain what makes God good.

The problem I’m pointing to is an ancient one, discussed by Plato.  In his dialogue “Euthyphro,” the eponymous character tries to explain his conception of piety to Socrates: “the pious acts,” Euthyphro says, are those which are loved by the gods.”  But Socrates finds this definition ambiguous, and asks Euthyphro: “are the pious acts pious because they are loved by the gods, or are the pious acts loved by the gods because they are pious?”

What’s the difference?  Well, if the first reading is correct, then it’s the gods’ loving those particular acts that makes them count as pious acts, that grounds their piousness.   “Pious,” on this alternative, is just shorthand for “something the gods love.”  Whatever the gods happen to love — bingo! — that’s pious.  If the gods change their preferences on a whim — and they did, if Homer knew his stuff — then the things that are pious change right along with them.  In contrast, on the second reading, pious acts are presumed to have a distinctive, substantive property in common, a property in virtue of which the gods love them, a property that explains why the gods love them.

Translated into contemporary terms, the question Socrates is asking is this: are morally good actions morally good simply in virtue of God’s favoring them?  Or does God favor them because they are — independently of His favoring them — morally good?  D.C.T. picks the first option; it says that it’s the mere fact that God favors them that makes morally good things morally good.

Theories that endorse the second option — let’s call any such theory a “Divine Independence Theory” (D.I.T.) — contend, on the contrary, that the goodness of an action is a feature that is independent of, and antecedent to God’s willing it.  God could have commanded either this action or its opposite, but in fact, He commands only the good one.

Both D.C.T. and D.I.T. entail a perfect correspondence between the class of actions God commands and the class of actions that are good (or rather, they do so on the assumption that God is perfectly benevolent).  The two theories differ, however, on what accounts for this congruence.  D.C.T. says that it is God’s command that explains why the good acts are “good” — it becomes true merely by definition that God commands “good” actions.  “Goodness,” on this view, becomes an empty honorific, with no independent content.  To say that God chooses the good is like saying that the Prime Meridian is at zero degrees longitude, or that in baseball, three strikes makes an out.  D.I.T., on the other hand, says that it is a substantive property of the acts — their goodness — that explains why God commanded them. Indeed, it says that God’s goodness consists in His choosing all and only the good.  D.I.T. presumes that we have an independent grasp of moral goodness, and that it is because of that that we can properly appreciate the goodness of God.

D.C.T. is arguably even more radical and bizarre than the Hobbesian nihilism I discussed earlier.  On the nihilistic view, there is no pretense that a sovereign’s power would generate moral obligation — the view is rather that “morality” is an illusion.  But D.C.T. insists both that there is such a thing as moral goodness, and that it is defined by what God commands. This makes for really appalling consequences, from an intuitive, moral point of view.  D.C.T. entails that anything at all could be “good” or “right” or “wrong.”  If God were to command you to eat your children, then it would be “right” to eat your children.  The consequences are also appalling from a religious point of view.  If all “moral” means is “commanded by God,” then we cannot have what we would otherwise have thought of as moral reasons for obeying Him.  We might have prudential reasons for doing so, self-interested reasons for doing so.  God is extremely powerful, and so can make us suffer if we disobey Him, but the same can be said of tyrants, and we have no moral obligation (speaking now in ordinary terms) to obey tyrants.  (We might even have a moral obligation to disobey tyrants.)  The same goes for worshipping God.  We might find it in our interest to flatter or placate such a powerful person, but there could be no way in which God was deserving of praise or tribute.

This is the sense in which I think that it is a more pious position to hold that morality is independent of the existence of God. If the term “good” is not just an empty epithet that we attach to the Creator, who or whatever that turns out to be, then it must be that the facts about what is good are independent of the other facts about God.  If “good” is to have normative force, it must be something that we can understand independently of what is commanded by a powerful omnipresent being.

So what about atheism?  What I think all this means is that the capacity to be moved by the moral dimension of things has nothing to do with one’s theological beliefs.  The most reliable allies in any moral struggle will be those who respond to the ethically significant aspects of life, whether or not they conceive these things in religious terms.  You do not lose morality by giving up God; neither do you necessarily find it by finding Him.
I want to close by conceding that there are things one loses in giving up God, and they are not insignificant.  Most importantly, you lose the guarantee of redemption.  Suppose that you do something morally terrible, something for which you cannot make amends, something, perhaps, for which no human being could ever be expected to forgive you.  I imagine that the promise made by many religions, that God will forgive you if you are truly sorry, is a thought would that bring enormous comfort and relief.  You cannot have that if you are an atheist.  In consequence, you must live your life, and make your choices with the knowledge that every choice you make contributes, in one way or another, to the only value your life can have.

Some people think that if atheism were true, human choices would be insignificant.  I think just the opposite — they would become surpassingly important.


Louise M. Antony teaches philosophy at the University of Massachusetts Amherst. She writes on a variety of philosophical topics, including knowledge gender, the mind and, most recently, the philosophy of religion. She is the editor of the 2007 book “Philosophers Without Gods,” a collection of essays by atheist philosophers.