This blog relies on my brief training as an Economics undergrad student at UT Austin in the early ’90s. So please bear with me as I try to recall and articulate a point, albeit quite clumsily, I am sure.
There have been three giants of the modern western worldview that guide our current morality and ethics regarding business and economic theory. We have all heard of them, although we hardly know enough about either. Their names are Aristotle, Thomas Aquinas, and Adam Smith. It is essential to keep in mind that between their writings were several ages; Aristotle died in 322BC, Thomas Aquinas died in 1274, and Adam Smith died in 1790. A dramatic change occurred at the economic level during those times – and of course, their writings were partly influenced by what surrounded them. As a rough broad stroke, Aristotle lived during the Greek Hellenistic period, Aquinas observed the European Christian monarchies, and Adam Smith started to see the budding of a global economy.
For Aristotle, it was clear that the mere pursuit of wealth was never the goal of economic activity as its primary purpose was the common good based on moral considerations. His thoughts relied heavily on justice as the bedrock on which to stand any theory of economics. For Aquinas, merely justice was not enough as central to his writings was the idea of the Golden Rule. A spirit of charity was to become a central tenet of the social norm and implemented with moral probation wherever the legal mechanisms fell short of allocating adequate justice. That brings us to the most recent of our three influencers – Adam Smith – whose work I studied in the most amount of detail with my college economics professors at UT Austin. Adam Smith did indeed advocate for the deregulation of commerce systems – however, his ideas were rooted in the existing framework of the normative conditions that existed in his time, as explained earlier. In the Smithsonian worldview, strict laws of justice had to be in place to root out exploitative behavior (as per Aristotle), and social mores had to be sound so people would be morally obliged towards proper roles of behavior (as per Aquinas). Only then did Smith propose to entrust the goods and services to a ‘free market.’
So, in summary, all three of them had placed ethics at the center of their business and economic theories. Moral thinking guided the strategic goals of the business world, and for over two millennia, an ethical evaluation of business decisions provided its central terms of reference and never relegated as an afterthought. The contrast with the world today should be glaring to any reader.
Fast forward to today’s business world; unfortunately, ethics and morality enter the business equation only as an afterthought – if at all. Even during my MBA studies, we did receive some training in ethics and CSR, but it was clearly an add-on to the mainstream instruction – and often ran counter to the values taught therein. Moral and ethical thinking is often dismissed as unscientific and only enters at the end, after the entire picture of the financial world has been drawn up. No surprise then that the current world of business and economics often views ethics as either irrelevant or worse, contrary to their primary goals and objectives of ‘meeting shareholder expectations’ or their laser focus on meeting the ‘bottom line.’ How did this come about, and how do we get out of this mode of thinking?
We see today that corporations are built for profit maximization and bereft of moral agency. We seem to have transitioned from a glorious history that emphasized qualitative ends to one that seems more interested in a merely quantitative analysis of economics. This self-imposed and restricted worldview appears to have come about in the late 19th century when economists aligned themselves more with mathematics and relegated social sciences to the back burner. Moreover, the entire field of economics got reinvented as an exercise in utility and self-interest driven by a material cause. Instead of asking what would be suitable for all people, we instead started asking what benefited the individual. Instead of focusing on the common good, we focused instead on what people ought to value. Self-interest came to be seen as the primary driver of human action. Economics thus began to replace the moral concern of ‘better’ versus ‘worse’ with a mathematically driven calculus of ‘more’ versus ‘less.
Another economist, Carl Menger (died 1921), has most recently completed the transition of economics from supporting subjective to supporting objective values and claim that it was an exact science. Today, the field of economics no longer aims to gauge the value of a good or service based on its social function or moral quality but rather on how individuals priced an additional unit of it. In short, objective virtues were turned into subjective values, and to this day, economists by and large shun qualitative judgments in favor of using quantitative terms.
Unfortunately, carrying math models into business is inherently problematic since the market is based on living people and not lifeless matter that is the domain of science. To pretend otherwise is an exercise in futility. The business world, after all, is not a material but rather a social and cultural construct and does not follow any fixed laws like the material world follows the laws of physics. Human decision-making happens both using technical calculus as well as driven by moral reasoning. The ethical failures that contributed to the economic crises of 2008 are an unfortunate reminder that new business school instruction leads to the disintegration of the moral fiber of the management class.
It seems that business schools are taking a first step at returning to a more humanistic view of the world that translates to more nuanced management styles. In management circles, what seems en vogue is a shift to taking values more into consideration when making business decisions in an approach that resonates more with their consumers. Terms like integrity, sincerity, and uprightness are being re-introduced to the business lingua franca as a way of hugging the tree of ethics and morality. However, the current approach still attempts to work on the principles of material sciences as it tries to convince CEOs that ‘keeping your word’ leads to maximizing shareholder value. While it is a step in the right direction, this new trend by the business world of instituting CSR programs and the like is still a form of posturing and a flimsy veneer on the profit-maximizing edict they are beholden to. As we all know, when the rubber hits the road, external shareholders may not take kindly to such an approach if it impinges on bottom-line profitability, and subsequent managers can reverse the course of any such business resulting in an incoherent corporate culture.
It would be better, of course, if businesses today prioritized specific values over others. As enough businesses take this approach, it may form a tipping point of a normative stance where we all agree on specific values to run our business lives as a society. As cultures evolve, the normative moral stances make particular values prevail over others. If, together as a business community, we make a concerted effort to value the common good over individual benefit, we can perhaps return to the Aristotelian principles that we’re founded on and that we seem to have wavered away from in recent times.
At inoBrix, our focus on yielding community benefit is not an afterthought or posturing for maximizing profitability. On the contrary, we sincerely aim to value the common good and follow the Golden Rule.