Can An Economy Ever be Moral?

Another Moral Economy Column
By Christopher Lind
February 2011

If I said Big Business can never be moral, would you agree with me? Why is that? In general, people are pretty cynical about commercial relationships. The bigger the business, the more cynical people are. With size, all relationships become more impersonal. You don’t know the owner and they don’t know you, your family or your community. “Buyer beware” is the dominant motto and you better be very careful if you want to protect yourself against the predatory practices of … (shall we make a list?) … oil companies, used car salesmen, cell phone companies, banks etc.

When I ask people what can be done to make the economy more moral, they typically respond with ideas for personal reform. Banks should have Codes of Ethics so employees are forced to be honest. Oil companies should have training programs for their executives so employees don’t lie, and so on.

These are good responses as far as they go, but that isn’t far. You see, I actually think big business can be moral but all of us are caught up in social systems that are far larger and more influential than our personal relationships. Strong personal ethics are necessary for a moral economy but they are not sufficient. A moral economy also requires a social ethic. What goes into a social ethic? There are many principles but one of them would be mercy.

Bankruptcy is an example of the principle of mercy applied to modern economies. Bankruptcy is a declaration that the commercial enterprise is broken and cannot be fixed. So, the principle of mercy is applied. The remaining assets are divided among the creditors according to certain criteria and the enterprise is over. The parties are now free to restart this or another enterprise. This principle of mercy applies both to personal bankruptcy and to corporate bankruptcy.

Sometimes bankruptcy is thought to contradict the principle of responsibility. We all agree that in general, people who borrow money should pay it back, whether they are individual homeowners or big corporations. In practice though, the larger the corporation the more likely it is to be rescued by governments. This is especially so if the corporation is so interconnected to other corporations that its failure threatens the whole lot.

In the United States pressure is building to address the contradiction as virtually bankrupt companies like the insurance giant AIG, and formerly bankrupt corporations like GM, pay out million dollar executive bonuses while homeowners continue to be foreclosed, because banks refuse to renegotiate mortgages. In this case mercy is being applied to investors and responsibility forced on homeowners. Some people argue that the contradiction should be resolved by forcing the same punishment on investors as on homeowners. I take the opposite view. Mercy is a powerful principle and should be available to investors and homeowners, farmers and students alike. It is a reflection of one of the oldest and widely supported moral rules known to humanity – the Golden Rule. Do unto others, as you would have them do unto you.

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• This column is published in The Western Producer, Canada's largest agricultural newspaper

So You Want To Be A Moral Billionaire?

“Do you know any billionaires who are moral?” He looked like he could play nose guard for the Hamilton Tiger Cats but he was actually a commerce student at the Mississaugua campus of the University of Toronto. We had just finished an interfaith seminar on the economic crisis.

“What you’re really asking is whether it is possible to be both rich and ethical”, I replied.

“Yeah. That’s right.” My mind was immediately flooded with images of people I knew who had become rich through indifference to the welfare of others but I knew that’s not what the student wanted to hear. He wanted a role model – someone he could look up to and hold onto. I told him the story of Bob Stollery.

Bob was an engineer who led a management buyout of Poole Construction Limited in 1977 when all the management consultants told him he was crazy to do so. He then proceeded to build up the renamed PCL Ltd. Into the largest construction company in Canada and one of the 10 largest in North America. Among it’s other high profile projects it is currently in charge of rebuilding and expanding the Pearson International Airport in Toronto without ever shutting it down.

Having transformed the company Bob proceeded to sell off his ownership stake over time through an employee share ownership plan. As part of his personal succession planning he put his wealth into a family foundation as a way of teaching his children how to be philanthropists.

After the destruction of 9/11 I said to him in passing “Oh, you must be pretty busy now, bidding on all those construction projects in New York City.” “No, not busy at all” he replied. “Why not?” “Well, we decided a long time ago that there was too much corruption in the building industry in the American north-east. If we entered that market, it would change the culture of our company. So we decided we just wouldn’t go there.” I almost fell over. This man had built his company into one of the largest construction companies in North America without competing in what must surely be one of the largest single markets – and on moral grounds. I thought Bob would be a great role model for the aspiring Islamic billionaire before me.

It was a good and necessary answer but it was also an insufficient answer. The students in the seminar knew there was a connection between the failure of our economic system and the failure of our morality but they kept wanting to interpret the problem as a failure of personal morality. If only we had had honest moral people in charge, instead of liars and thieves, (they seemed to be thinking) we wouldn’t have gotten into this mess. Well, actually, I don’t think that’s true.

There is a difference between personal morality and social ethics. Personal morality has to do with the decisions made by individuals and social ethics has to do with the cultures of organizations and the behaviour of corporate and social systems. Many of these thoughtful and upstanding students will be hired by Canada’s banks and they should have prosperous careers in front of them. However, if shareholders continue to judge bank performance only by the rise in share price each quarter, the CEO will be forced to ratchet up the pressure on each division to increase profit. Eventually that trickles down to the 30 year old loans officer who is pressured to shift a farmer into a variable rate loan or increase the interest rate on a line of credit to a small business owner. When increased profit is the only criteria by which we judge all of economic life, social ethics disappears and only personal morality remains.

A parallel took place in the 1970s and 1980s during the debate about the ethics of lending money to the apartheid South African Government. Canadian banks were heavily implicated in this activity and the South African government was using some of the money to re-equip its military and police force. The first reaction of Canadian banks was to say information on its lending activity was private and it would be unethical of them to divulge this information. The second line of defense was to say it would be unethical of them to pass moral judgment on how the money was to be used. They were lending to a sovereign government with a good credit rating and that’s where the conversation should stop. The public pressure increased and eventually the Canadian banks stopped supporting the apartheid regime. More interesting for our purposes were the unofficial reports from bank insiders. They indicated that pressure from the public changed the debate around the boardroom table. Conversations about ethics were now happening for the first time and the cultures of the banks as organizations were changing.

Our current economic crisis has been precipitated by reckless and unethical behaviour in the investment banking sector (Lehman Brothers, Bear Stearns etc.) and by the shadow banking sector – insurance companies like AIG operating as if they were investment banks. This behaviour could only succeed if good people were kept silent on a continuing basis. They can be silenced by organizational cultures that reward deceit and punish truth telling.

Bob Stollery is a good role model not just because he was rich and moral at the same time. He is also a role model because he understood that corporations generate and maintain cultures that can promote ethical or unethical behaviour and these cultures are more powerful than any one individual.

Among his many gifts to the community, he was instrumental in building the Stollery Children’s Hospital in his hometown of Edmonton, Alberta. Bob Stollery died in 2007.

Posted 13 March 2009 . For additional reading on the moral economy, visit www.christopherlind.ca The Moral Economy Column by Christopher Lind is published in The Western Producer, Canada's largest agricultural newspaper. Your comments are invited on this blog.