If Something is Good for Business, Can it Also Be Ethical?

" Hard-headed though businessmen are supposed to be, they are all too often perplexed and embarrassed by a very basic question. Having struggled to present their ethical credentials, having proudly shown how they have treated their employees fairly, and their customers honestly, and their waste products responsibly, businessmen are nonetheless frequently stumped when the question is posed: if what the business has done is good for the business, can it really be ethical? They shuffle about, and examine their shoes, and fall silent, unable to rebut the implied accusation that because the business has benefited, it and its good acts are somehow less moral.

But such moral diffidence is quite unnecessary. The answer to the question is simply, emphatically, Yes: if it's good for the business, it certainly can be ethical."

Elaine Sternberg, Just Business: Business Ethics in Action

August 2008 Meeting

The Bastiat Society invites you to our next meeting on Wednesday evening, August 6th.

We are delighted to have Ashley Landess, President of the South Carolina Policy Council join us as our speaker. She will provide insight into state tax dollar spending on economic development as well as the dangers associated with the state meddling in free markets.

Please feel free to invite a friend or two for an evening of hors d'oeuvres and stimulating dialogue.

As usual, we will host a reception at 5 pm, and our program will begin at 6 pm.

Please R.S.V.P to megan.rock@imagingarts.com

About our speaker:

Ashley Landess was born in Spartanburg, S.C. She has also lived in Dallas, Washington, D.C. and Chicago. She has a journalism degree from the University of North Texas. Her twenty-year career in communications includes a public policy background as well as consulting work for private businesses and charitable organizations.

She is president of the South Carolina Policy Council, a non-partisan public policy research organization located in Columbia. She has been at the Council since 1998, and previously served as its Vice President for Public Affairs. Ms. Landess has served on the SC Lottery Commission since 2003, when she was appointed by then-House Speaker David Wilkins. Landess is on the Executive Committee of the Commission, and chairs its advertising and marketing committee.

She was also appointed by Governor Sanford in 2005 to chair the School District Consolidation, which was legislatively charged with analyzing the cost savings from consolidation. Landess also served as a member of the Governor's Health Care Task Force in 2003.

Landess writes opinion columns on issues such as education reform, tax policy and government transparency, and those columns are published in dailies and weeklies across the state. Landess has appeared on statewide television and radio and delivered expert testimony on several issues. She is a member of St. John's Episcopal Church in Columbia

Prosperity and Freedom

Prosperity begins with freedom. But what is freedom?

Freedom is a process, not a result. It is a process that taps all the knowledge scattered among the human race, knowledge that is impossible to collect in time or in one place. Freedom utilizes more knowledge than any one person could ever gather and manage. On a large scale, everything freedom produces is indirect, unpredictable, and sometimes even unpleasant. That is why it is so difficult to "manage" a free society. It is endlessly adaptable and endlessly creative.

At the same time, freedom must have commonly accepted rules of behavior in order to get anything done. These rules evolve in the culture, where they are drawn from human nature. Secondarily, they are expressed in legislation and regulation, which codify the evolving norms of behavior.

Understanding the nature of freedom makes it possible to understand prosperity, whether we are talking about individual wealth, the wealth of a successful company, or national wealth. Unless it is accumulated by force or fraud, wealth must be earned in a free society. That means dealing with an environment that is constantly evolving and with knowledge that is rarely complete. The image of the confident entrepreneur who never makes a mistake or is haunted by doubt is about as accurate as belief in a god-king.

Individual liberty, private property rights, and free trade do not guarantee a utopia. But they do make it possible to efficiently utilize all the knowledge that humans discover, and do so morally, without violence or theft.

Freedom is a process that does not guarantee prosperity; it make prosperity possible. But what form and shape that prosperity might take is anyone's guess, an adventure into one new world after another.

Arson and Politics

Thomas Sowell, a senior fellow at the Hoover Institution, writes in one of his recent columns, "We don’t look to arsonists to help put out fires but we do look to politicians to help solve financial crises that they played a major role in creating."

Politics had a leading role in creating the current housing crisis, says Sowell. Consider the following:

1. Political pressure forced lenders to loan money to unqualified borrowers.
2. Land use regulations forced up the price of housing, leading borrowers to seek "creative financing."
3. The Federal Reserve pushed interest rates to historic lows, encouraging even more borrowing, bigger loans, and more "creative financing."

Sowell says the housing crisis is more political failure than market failure. But that won't slow don't the political rush for action. "The last thing politicians can do in an election year is nothing. So we can look for all sorts of “solutions” by politicians of both parties. Like most political solutions, these are likely to make matters worse."

The Quotable Frédéric Bastiat

"...we must wait until we have learned by experience -- perhaps cruel experience -- to trust in the state a little less and in mankind a little more."

Say What?

Although there is more than enough evidence that every business person should be skeptical about the academic push to teach business ethics, I offer as Exhibit A. the following paragraph from an article entitled "The Ethics of Governance," by Josef Wieland.

Wieland is the director of the German Business Ethics Network's Centre for Business Ethics. I challenge anyone to read this paragraph through and make any sense of it the first time.

"The elements of governance ethics are the moral resources and behavioral constraints and extensions deriving from organizational rules and values as well as their communication in and via cooperation projects. Accordingly, it is not the notion of action, but of governance which is its point of relfexion. Governance structures are sets or matrices of communicated formal and informal rules and value that constitute the cooperative actor as constraints and furnish him or her with explicit and implicit rules of the game for contractual and organizational relations for the realisation of specific transactions."

Alan Greenspan, in Congressional testimony, could not have said it any better. The only thing more painful than trying to digest such a mass of words must have been the labor required to get it out.

Here is what Wieland is trying to say. "The written rules of ethical behavior in organizations can help promote ethical conduct."

Free at Last!

Good news, Mr. Average American! As of July 16th, you stopped working to pay your taxes and started working for yourself, according to Americans for Tax Reform.

For 2008, the average taxpayer worked for the government the first 197 days of the year, four days longer than last year.

Free at last, free at last!

Source: Americans for Tax Reform, http://www.atf.org/

The Waffle Humpers are Coming!

In his inimitable style, Stephen Colbert comments on international trade and transnational ownership of a vital American industry.

Trust and Wealth

Trust is essential for trade. No trust, no trade, no society, no business, no wealth. You could say trust is the very basis of a prosperous society.

But what is the basis for trust? Why do we trust some people and not others? How do we deal with breaches of trust?

It turns out trust may have a neurochemical basis. An article in Scientific American discusses the possibility that oxytocin, "a hormone recognized for its role in social attachment and facilitation of social interactions, is also important in the formation of trust."

The higher the levels of oxytocin in the brain, the more likely an individual is to trust another person. This could explain why some people trust everyone, indiscriminately, while other people trust no one. It may not be a part of their behavior they can easily control.

Stakeholder Theory Mistakes

Those who lobby for the stakeholder theory of the corporation believe that it is possible for a corporation to ignore its unhappy customers, compromise its accounting standards, produce faulty products, pollute its environment, ignore its competition, and still create value for its shareholders.

They claim this rather remarkable feat is possible under the shareholder theory of the corporation, which elevates shareholder value over the values of all other groups (i.e., "stakeholders") affected by the corporation.

In their attack on the primacy of shareholders, the advocates of the stakeholder theory make three serious errors, mistakes that doom their entire argument. These errors concern the difference between short term and long term shareholder value; the difference between monopolies and competitive corporations; and the reliability of prices.

Is it truly possible to create shareholder value by ignoring unhappy customers, etc? Yes, such an outcome may be possible, but only for a little while. It is impossible to create long term shareholder value with such behaviors, because customers, accountants, employees, communities, and investors all have other choices.

Such an outcome is far more likely -- almost guaranteed -- in situations where people are forcibly deprived of other choices. But we don't call those situations markets. We call them monopolies, and monopolies exist only with the collusion of the state. Only the state has the power to limit competition, set prices, and compel non-shareholders to create value for shareholders.

But such value is not earned; it is extracted from one group for the benefit of another. Governments that create monopolies may create the appearance of a market economy, but in reality those "markets" are centrally planned.

Examine the heart of a planned economy, and you may find the form and substance of a corporation, but you will not find competition. This is the critical distinction that stakeholder theory glosses over. All corporations are not created equal. The more a corporation is protected from competition, the more likely it is to be a mechanism for involuntary wealth transfer, not voluntary wealth creation.

Prices matter as much as competition. Ultimately, shareholder value is just another price. Like all prices, it is sensitive to dynamically changing factors in a complex web of action. Just as the price of any good captures the varied interests of producers, manufacturers, distributors, wholesalers, retailers, and customers, long term shareholder value captures the varied interests of customers, employees, suppliers, communities, shareholders, and even competitors, and it does this better than any other measure of corporate responsibility.

Denying that the purpose of a corporation is to increase long term shareholder value is nothing less than an attack on the reliability of the price system itself. Stakeholder theory elevates other forms of value over the value contained in prices, especially that price we call shareholder value. It is a theory of business that has more in common with price control than with profit and loss.

You Are What You Drive

From the Economist, a review of Cars for Comrades, a survey of the auto industry in the old USSR.

THEY were the butt of jokes in the West. (“How do you double a Lada’s value? Fill up the tank”). Inside the Soviet Union, however, the quantity and quality of the cars it produced epitomised both the system’s failure and the capitalist world’s advantage....

The Lada was an obsolete Fiat, produced at the Togliatti factory south-east of Moscow: bought new, it required extensive repair in order to become roadworthy. Soon after that it would start rusting. Getting it serviced was a nightmarish process involving long waits, the use of personal favours, and unpleasant discoveries (light-fingered mechanics would steal scarce items such as the wing mirrors or windscreen wipers).

Campaign Econ

"Campaign Econ says the American economy is a certain way because Americans think it is. Campaign Econ competes with real economics and often wins..."

Amity Shlaes, in The Washington Post

Aggression or Cooperation

"We start with the biological observation that no individual could survive in a world of scarce resources without a strong measure of self-interest, one that includes at the very least his own family and close associates. That self-interest can manifest itself in one of two ways when dealing with strangers; through either aggression or cooperation."

Richard Epstein, "Coercion vs. Consent," Reason, Vol. 35, No. 10, pp. 40-50.

Banned!

Every law, tax, rule, or regulation of the state is ultimately enforced at the point of a gun. This reality is often ignored by progressives and communitarians, who believe in the positive goodness of coercive state action.

Markets, on the other hand, rely on voluntary behavior. In a market, we don't call coercion a good thing. We call it theft, and we use the state to punish thieves.

Therein lies the difference between the two groups. The first believes it should use the power of the state to improve people's lives, even if it has to act against people's preferences. The second believes it should only use the power of the state to punish those who use force or fraud to get what they want.

Slavery and Tariffs

In The Law, published in 1850, Frédéric Bastiat praised the United States as the nation that had most successfully developed the law as a means of protecting private property from those who would plunder it. He noted only two exceptions: slavery and tariffs.

He wrote,"But even in the United States, there are two issues—and only two—that have always endangered the public peace....What are these two issues? They are slavery and tariffs. These are the only two issues where, contrary to the general spirit of the republic of the United States, law has assumed the character of a plunderer."

Bastiat was prescient. Those were the very issues that would drench the country in blood and nearly tear the United States apart a little more than ten years later in the Civil War.

The Civil War settled the question of slavery. The question of tariffs remains, as dangerous to the public peace as ever.

The Genius of Adam Smith

On July 4th, outside St. Giles' Cathedral in Edinburgh, Professor Vernon Smith of George Mason University unveiled a statue of the Scottish intellectual known as "the father of economics," Adam Smith.

National Post (Canada) columnist Peter Foster noted the occasion by writing that Adam Smith has at long last received the memorial he deserves. All too often demonized as the "father of capitalism" and the exploitation the working class, Foster says Smith "was very much concerned with improving the lot of ordinary people."

Foster wrote, "In The Wealth of Nations, [Smith] pointed to the remarkable social -- and international -- benefits of self-interested interaction through trade and the division of labour. He noted that participants appeared to be guided by an "Invisible Hand" to produce a good that was "no part of their intention." This truism has been the centrepiece of attacks on the capitalist system as motivated by "greed" and "selfishness" and thus morally indefensible. But the merely obvious observation that Smith's famous "butcher, brewer and baker" are serving us primarily in their own interests in no way detracts from the value of that service, nor implies that they are rendered heartless by their business dealings."

While we are reflecting on Adam Smith's legacy, it may be helpful to listen to P.J. O'Rourke's summary of his experiences and insights while reading every word (and there are a lot of them) of The Wealth of Nations.

No Choice is No Fun

Who says television can't deal with serious issues in just sixty seconds?

Too many people assumed this vintage 1980s Wendy's ad was a harsh criticism of Russian women. It should be viewed as a humorous take on what happens to the human spirit when it is not free to choose.

As the announcer says, "Having no choice is no fun."

The New Establishment

From The Economist, evidence that the Old Left has become the New Establishment.

Apparently, the ineradicable youthful urge to rebel against the establishment is moving more and more students toward the Conservative party.

What do young people in the United Kingdom want? Fiscal prudence, low taxes, and secure private property rights have taken the place of drugs, sex and rock and roll.

The Spirit of Rebellion

Although it doesn't capture the eloquence of the original, the lyrics of the 1984 glam rock anthem We're Not Gonna Take It by Twisted Sister capture the spirit of the Declaration of Independence.

At its heart, the Declaration was nothing less than flipping the most powerful monarch in the world the bird.

It might help to think of this cultural reference across the centuries as Thomas Jefferson with makeup, a guitar, and a backup band. Considering the male fashions of the 18th century, that wouldn't be too far off the mark.

You may never think of American history the same way again.

We're Not Gonna Take It (Lyrics)

Oh we're not gonna take it
No, we ain't gonna take it
Oh we're not gonna take it anymore

We've got the right to choose it
There ain't no way we'll lose it
This is our life, this is our song

We'll fight the powers that be just
Don't pick our destiny 'cause
You don't know us, you don't belong

{Refrain}

Oh you're so condescending
Your gall is never ending
We don't want nothin', not a thing from you

Your life is trite and jaded
Boring and confiscated
If that's your best, your best won't do

We're right, we're free, we'll fight, you'll see

For additional shock value, here's the video. Imagine King George III in the role of the father, and you'll see the parallels.

Start a Revolution!

The Declaration of Independence is one of those documents everyone talks about and nobody reads. In the spirit of the 4th of July, I once again offer the meaning of the original document expressed in modern idiom.

Date: July 4, 1776

To: Posterity

CC: Government

From: Second Continental Congress, Philadelphia

Subject: "We're Not Going to Take it, Anymore"

God knows, sometimes a man has to stand on his own two feet. We think that time is now. Let us explain what we're about to do and why. We know you'll understand.

Who do you think should run your God-given life? You, or the government? The answer is as plain as the nose on your face: you should. The government is here to protect your life, not to run it. When it tries to run your life, you have the right to say no. If it gets really pushy, you have the right to tell it to drop dead. Of course, you shouldn't cause big trouble for nothing. It's best to put up with most of the crap in the world. It's not a perfect world and never will be. But when a government keeps insisting that it owns your life and all your stuff too, you have the right to start a revolution.

Well, we're starting one, right here, right now. Here's why. If this list doesn't convince you, nothing will:

1. The government is ignoring its duty to protect us.
2. The government won't allow us to handle all the business that it ignores.
3. The government won't allow us the right to vote on our laws and our taxes.
4. The government has made it difficult for us to protest.
5. The government has stripped all power from any of us who disagree.
6. Power to the people! But until we get this mess straightened out, the government is inviting all kinds of trouble, and we're the ones who are going to have to deal with it.
7. The government refuses to let us live where we want to.
8. The government refuses to let us peacefully settle our own disputes in our own courts.
9. The government insists on treating our judges like its puppets.
10. The government is growing too big, too fast, and it cost too much.
11. We are occupied by the government's army.
12. The government keeps us quiet at the point of a gun.
13. No matter what we say, the government keeps trying to run our lives. For example:
a. There are a lot of soldiers with guns around here
b. These soldiers are killing people, and nobody does a thing.
c. The government won't let us trade with the rest of the world. We can't earn a living.
d. We have to pay taxes, but don't have any say in which ones or how much.
e. Kangaroo courts.
f. Kangaroo justice.
g. The government intimidates innocent people.
h. The government makes up its own rules.
i. The government usurps the power of the people.
j. The government kills innocent people.
k.The government kills more innocent people, and destroys their property.
l. The government kills even more innocent people.
m. The government takes innocent people captive, and forces them to kill other innocent people or be killed.
n. The government encourages Indians to kill innocent people.

It's not our fault that it has come down to this. God knows we've tried to get along. But the government insists on treating us like slaves.

The rest of the civilized world isn't listening to us. We've warned them about what's going on. We've asked for their help, begged for it, really. But they have ignored us, even though we speak the same language and share many family ties. Now we have no choice. Reluctantly, we are forced to call them our friends if they don't fight us, and our enemies if they do.

That's the way we see it. Who are we? We represent the United States of America. We ask the Big Guy upstairs to help us do the right thing for the right reasons. Power to the people! The old government is finished. It doesn't matter anymore. If we want a war, we'll decide that, no one else. If we want peace, we'll decide that, too. It's our business if we want to trade and make money.

As of right now, it's our country. We hope like hell we're right and this thing works.

Sincerely,

[Sign Here]

Communist Humor

On the eve of another celebration of the independence of the United States, it might be educational and fun to consider what life has been like in those places and times where human freedom has not been given the respect it deserves. Any place, for example, that has suffered the cruel joke of communism.

Under communism, life became a grim struggle against a state that was, in turns, malevolent or indifferent. How grim? Consider these jokes from Hammer & Tickle, a collection of humor from behind the Iron Curtain by Ben Lewis.

Some of these jokes would have earned you a trip to a police station; others, a jail term; others would have cost you your life.

“How do you deal with mice in the Kremlin?” “Put up a sign saying ‘collective farm’. Then half the mice will starve and the others will run away.”

“Who built the White Sea canal [Stalin’s single most murderous slave-labour project]?” “The left bank was built by those who told the jokes, and the right bank by those who listened.”

"A flock of sheep approaches the Finnish border in a panic, pleading to be allowed entry. “Beria [Stalin’s secret police chief] has ordered the arrest of all elephants,” they explain. “But you’re not elephants,” reply the Finnish border guards in puzzlement. “Yes, but try explaining that to Beria.”"

Stalin appears to Vladimir Putin in a dream and says: “I have two bits of advice for you: kill your opponents and paint the Kremlin blue.” Putin asks, “Why blue?”