At the Library of Law and Liberty’s site — Stephen Hicks discusses Leonidas Zelmanovitz’s ambitious work in the philosophy of money:
Archive for the ‘Business Ethics’ Category
Interview with Professor Alexei Marcoux, conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.
Hicks: My guest today is Dr. Alexei Marcoux, who spoke at Rockford University on moral partiality in business practice. Dr. Marcoux is a philosopher by training. He teaches in the business administration program at Loyola University in Chicago.
Alexei, in your talk today you were defending moral partiality in business practice, but, as you started you pointed out that most or at least a majority of business ethicists take business ethics to be about impartiality in ethics, and you took Norman Bowie to be your primary foil in the argument today. So, what is impartiality in ethics and why does Bowie think it’s a good idea?
Marcoux: Well, Bowie is just following the general trend in moral philosophy, which is to view ethics as being fundamentally concerned with impartiality. And for many ethicists, they view ethics just as teasing out the implications of impartiality for our actions. What Bowie is arguing — and what I am arguing is actually mistaken — is that impartiality lies at the very core of ethical business practice. And, I think if you actually look at business practice, and if you actually look at the considerations that he offers for why that is so, it actually shows that partiality, loyal service to another, is what is actually at the root of ethical business practice.
Hicks: You also walked through the arguments you constructed from Bowie, and you said he gave three considerations or three arguments on behalf of the impartiality. The first was that business is or should be characterized by arm’s-length transactions. How does that argument work?
Marcoux: What Bowie says is “Look, business should be conducted at arm’s length, and to let personal, that is, the interest of friends or family intrude, is often wrongful in a business environment.” And I am saying that that is true, that is true, but it doesn’t show that impartiality is at the core of ethical business practice. That is, we aren’t under a general duty to bargain at arm’s length. I can go through my whole life giving sweetheart deals to others, buying only from my friends, selling only to my family and so on, and it would be very strange to say that I am acting wrongfully. There is no general duty to engage in arm’s-length transactions, nonetheless, there is a special duty that occurs frequently in business for us to engage in arm’s length transactions. So, the question or the conundrum that needs to be answered is: how can we simultaneously be under no general duty to engage in arm’s-length transactions, but frequently under the special duty to engage in arm’s-length transactions. And the answer is found in agency relations, that is, we are duty-bound to bargain at arm’s length, when we are bargaining not on our account, but on account of others. And in that situation, we bargain at arm’s length as the best way to serve the interests of those others. But what that just shows is that when we are duty-bound to bargain at arm’s length, we are duty-bound to do so as a way of acting loyally, that is to say, partially to our principal. So, the arm’s-length transaction consideration doesn’t show that impartiality is central to business practice. If anything, it shows that partiality is.
Hicks: Right, so we can look at lots of business practice, there are people who go into business with their families, so they hire family members, they might do significant deals with family members or extended family members, friends, suppliers and customers and so forth, so, none of those are arm’s-length transactions that require impartiality. Those are all partiality relationships and so Bowie is insisting that all business transactions not fall into that category is just missing the business facts on the ground.
Marcoux: Well, that’s what he seems to be saying, and I think I said in the talk, if you take what he is saying, you know, as given, you’d have to conclude that all family business is morally suspect, because, a family business is a business in which you hire labor through other than arm’s-length transactions.
Hicks: Another argument that Bowie makes is the idea there are conflicts of interest in business, and the way we solve conflicts of interest is by making oneself impartial — not allowing one’s interests to dictate inappropriately how one should be behaving. So, why don’t conflicts of interests as a phenomenon show that impartiality is important?
Marcoux: Undoubtedly, in the world, there are conflicts of interest that are cases of being, or having an interest in being, partial to some, when we are actually duty-bound to be impartial. Think, for example, of a judge in a competition. If a judge in a competition favors one of the competitors over the others, that judge is acting wrongfully and the wrong is being partial when you are duty-bound to be impartial. But, of course, judging a competition isn’t doing business. Now, in business, there are examples of that too. Government contracting is an example. Government purchasing agent is duty-bound to all who will do business with the government to bargain at arm’s length. The problem is that this is very much the lesser part of business. In any basically capitalist economy the great bulk of transactions are not between the government and private business, or the government and private individuals, but transactions among and between private people. So, conflicts of interest in those cases tend to be cases of agents not faithfully acting loyally towards their principals. In other words, favoring the interests of some when they are duty-bound to favor the interest of others. So, what I am saying is, in the middle 80 percent of cases of conflicts of interest in business, the wrong of a conflict of interest is acting, or having an interest in acting, partially to some, when you are duty-bound to act partially toward others.
Hicks: Because of your agency relationships.
Marcoux: Because of your agency relationship. And so that doesn’t show that impartiality is at the center of ethical business practice.
Hicks: You also mentioned Bowie’s arguments about fiduciary duties and fiduciary obligations. How is that to, on Bowie’s view, provide support for the impartiality view?
Marcoux: Well, that’s what is actually hard to discern. In his book Business Ethics: A Kantian perspective, he treats this all very quickly en route to getting what he wants to say his Kantian business ethics consists of. So, when he observes that to favor family or friends may put a manager in violation of a fiduciary duty, again, that’s true, but how that shows that impartiality is central to business ethics is mysterious, because a fiduciary duty just is a duty of partiality, like the duty of an agent to a principal. So, a fiduciary duty is a duty of partiality and so, if you violated that duty by favoring family or friends, that’s another case of being partial to the interests of some when you are duty-bound to be partial to others. So, Bowie does a great job of identifying the considerations that bear on ethical business practice. I could hardly do better than to say that arm’s-length transactions, conflicts of interest and fiduciary duties reveal the character of ethical business practice. What is not at all clear is why he thinks that those show that at its core ethical business practice is impartial when all of those — when we have duties to avoid violating fiduciary duties, to avoid conflicts of interest and to engage in arm’s-length transactions — we have those as a result of duties of partiality to the others we serve.
Hicks: The subtitle of Bowie’s book is ‘a Kantian Perspective’, and that indicates there are some heavy-duty ethics, theoretical issues at stake here. And the usual foil to Kant in contemporary literature is John Stuart Mill and you do appeal to John Stuart Mill’s utilitarianism as guidance for how to think about these issues of partiality and impartiality. How does Mill come to rescue, so to speak, or at least how does Mill provide guidance on these thorny issues?
Marcoux: Well, the way Mill provides guidance here is through his distinction between fundamental and secondary moral principles. This isn’t really so much a utilitarian versus Kantian distinction. In fact, you can see the two-level structure of morality that Mill talks about in Kantian deontology itself. What I am saying is that the way out of the confusion is to recognize the distinction between fundamental moral principles, which are principles of justification versus secondary moral principles, which are action-guiding principles. I am saying, fundamental moral principles, that is what moral theory is, but applied ethics, of which business ethics is a part, is mostly about identifying action-guiding principles that we can follow. And so, I think the mistake that lies at the root of Bowie’s argument is that — when he says that if the impartiality requirement applies anywhere, it applies in the ethics of business practice — he is taking a fundamental moral principle, a principle of justification, and treating it as if it’s a secondary moral principle, a principle of action guidance.
Hicks: So that is different from saying that the requirements or duties of impartiality are a small subset of normal business practice whereas rules of thumb of partiality are the majority?
Marcoux: Well, I think that the best way to say it is this: the impartiality requirement in ethics is a requirement to reason from an impartial perspective. It’s not a requirement to act impartially. In other words, we can have impartially-derived reasons to act partially. And we do so very often in business, as well as in other walks of life.
Hicks: So the other part of the argument then is a secondary, like that, if you look in the business facts on the ground, partiality is the dominant mode of business practice, the impartiality cases are a subset, secondary case, and that’s a supporting argument.
Marcoux: That’s it, okay, because business is a web of agency relations.
Hicks: I want to make a connection to one of the major debates as characterized in business ethics literature for the last generation or so, and that’s the stockholder-versus-stakeholder debate. I want to ask whether your distinction between the partiality positions on the impartiality tracks onto to that in the following sense: that stakeholder theorists will often say that the way business managers should think about proper action in a business context is to identify all of the stakeholders in the business — there are employees, there are customers, there are investors, there is society at large, and so forth — and that to be moral one should be impartial with respect to the interests of all of the different stakeholders. And the stockholder position, by contrast, says: there are a lot of stakeholders, but nonetheless is morally fine for business managers to be partial primarily to the stockholders’ interests, the others are derivative, secondary interests. So, is the debate between you and Bowie — say, in this case here — also the stockholder-or-stakeholder debate in another form?
Marcoux: Well, the way I would put it is that the stockholder/stakeholder debate is a particular instantiation of the general thing that I am talking about in paper, which is that the stakeholder theory basically is an attempt to take practice, in this case, the management of enterprises, which is governed at law and by custom in partialist terms — that is, managers or firms are to act as fiduciaries for the stockholders — and turn it into an impartialist one. You know, one of the ways I put in the paper is that ethical business practice is less like judging, and more like lawyering. The judge is supposed to be impartial, a lawyer is supposed to zealously represent the interests of his client. So, really, the stakeholder argument is an attempt to fundamentally change business practice. It doesn’t give an ethics of business, it is a new ethics for business. In other words, we want business people to do something else. That’s what the stakeholder theorists are saying.
Hicks: So they, in your judgment, have an idealized conception of what business practice should be.
Hicks: Your argument is that methodologically we should be starting empirically and realistically about how business does operate and work within that framework to figure the moral principles.
Marcoux: Yes, I think only that is applied ethics. What is being done under the guise of stakeholder theory is moral philosophy, under — excuse me, I would say normative political philosophy, under a different name. These people want to design new economic institutions, and that’s fine as normative political philosophy. But, as an attempt to tell business people who work within a given set of institutions, what it is to act ethically within those institutions, I think it’s a failure.
Hicks: If we kick things upstairs to normative ethical theory or normative political philosophy, another debate between egoist and altruist on ethical principles. And one form of altruism, if we take it very strongly, says that one should be selfless in moral considerations. And that means not allowing one’s own personal interest to guide anything that one does. Instead, one should selflessly see oneself as a servant or the needs of other people, the needs of society at large. And that strikes me as pushing in the direction of a strong impartiality, and the egoist position by contrast, says it’s fine to be partial to one’s own interests and that we are all mutually seeking our own self-interests in a market economy. So, is there, then, a tracking between this impartiality/partiality debate as you see in the business ethics literature to the longstanding debate over egoism versus altruism? I do note that, ’just in passing, that Norman Bowie also wrote a strongly critical argument attacking ethical egoism, so I was just wondering if you see the connection there, as well.
Marcoux: I think there is clearly a connection. I mean, the particularly stringent form of altruism that you just laid out would preclude anyone appointing an agent to act on their behalf. Because, if you can’t act on your own behalf, how could you appoint an agent to act on your behalf? And similarly would be hard to be an agent in those circumstances, because, to be an agent would be to be partial to some as opposed to others, whereas the essence of altruism is to serve all. So, an altruistic ethic can’t underwrite things like agency relations or fiduciary duties.
Hicks: Alright, then, once again, if one is — prior to doing business ethics — committed to a strongly altruistic ethic, that would then mean your business ethics has to attempt to be transformative, and not take business practice as is, but rather try to change it into a radically different kind of moral practice.
Marcoux: I think it’s constrained to do that.
Hicks: Do you suspect that that is what Bowie is doing?
Marcoux: Well, I suspect that is what Bowie is doing, I suspect that that is what the mainstream of the field is doing and has been doing since its conception.
Hicks: All right, fair enough. Fascinating material. Thanks for being with us today.
Marcoux: Thank you for having me, Stephen.
[The video interview with Dr. Alexei Marcoux follows.]
Here’s a report (in Spanish) on Professor Hicks’s lecture at Universidad Adolfo Ibáñez in Santiago, Chile, to a group of engineering students and faculty at the invitation of Professor Ruth Murrugarra.
He did a short follow-up interview (in English) with Andrea Millar Bruna, posted here:
AMB: Which are the essential skills for success nowadays?
SH: Most important is an entrepreneurial mindset — that is, being committed to actively seeking interesting challenges and working creatively to meet them. That mindset enables one both to enjoy one’s work and to become good at it.
AMB: What is your vision about Chile related to entrepreneur and ethics.
SH: Chile’s remoteness from major economic sectors and its sometimes dependence upon a few commodities — can be positives but also present challenges for integrating into the world economy. Entrepreneurship is all about meeting challenges. So Chile might think about adapting, say, the Finnish model of education investing in human capital and the high-tech sector, as both Chile and Finland are geographically distant countries with smallish populations and a narrower range of natural resources.
AMB: In your opinion, why are ethics and entrepreneurship so important?
SH: The only way to personal success in one’s business is by having integrity – being committed to doing quality work and following through. People who cheat or engage in hypocrisy may gain in the short-term but they rob themselves of the satisfaction of living with pride. Their “successes” are hollow. Ethics is also especially important for entrepreneurs, not only in their personal quests, but also since as founders they are most influential in establishing the culture of their firms.
Interview conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.
Hicks: I am Stephen Hicks. Our guest today is Professor Terry Noel, who teaches Entrepreneurship and Management at Illinois State. Here today at Rockford College speaking on the theme of the virtuous entrepreneur. Interesting title, but your broader context is the newer entrepreneurial economy that we live in and that you think is accelerating, particularly for younger people. What do you mean by this, new and accelerating entrepreneurial economy?
Noel: Well, I think we’ve seen a change in the last 30 years certainly, in about 1980, we started to see a big shift in the economy from one which was driven largely by Fortune 500 companies. In 1980, we had about one in five people were employed by a Fortune 500 company. Now, a little less than 20 years later, in about 1998, that had dropped to one in fourteen.
Hicks: I have seen that number, yes.
Noel: And so we really became more of a small business and entrepreneurship economy than a large-company economy. Now, since 1998, we’ve had many more changes. The pace of change ha really accelerated, because, if you recall, the Internet was really established as a commercially viable entity only in 1994, in January. When we take that shift that was already happening and then add a radical transformation of how information is handled, and who has access to it, and we start to see a great deal of turmoil in the economy. So, in my view, I think that we will continue, in some cases, to see large companies, but by and large, I think we are going to see an economy where we have more startups dealing with new technological issues, and we are going to see such rapid change that the idea of a large organization staying in place for decades, I think, it’s going to become more rare.
Hicks: And this is going to impact younger people. Fewer of them will be working in organizations that are traditional large corporations. They will be working in smaller organizations, or more entrepreneurial organizations, and many more of them themselves will become entrepreneurs. And so that means a different kind of set of character traits are going to be more important, right, for younger people and this takes us to the virtue part of your talk. Now, before you plunge into entrepreneurial virtues per se, you made a distinction between positive ethics and negative ethics. Say something about that.
Noel: Well, usually when we talk about ethics in the context of business, we are largely talking about refraining from certain types of behaviors. Don’t cook the books, don’t misrepresent your product. Don’t sell things under false pretenses or things that are dangerous.
Hicks: OK, so they’re all don’ts.
And there is nothing wrong with that, it’s just that that’s really only one half of the view of business ethics. I think it’s important also to recognize that there are positive virtues. I would put on the list things like, say, courage, the ability to try something new. If we are going to live in an economy where new ideas and innovation are kind of the mainstay of growth, then it requires people who are willing to take a chance and to do something brave. Ethics is not simply about refraining from doing damage to other people or lying to them in various ways, but actually doing positive and creating value in the world. Then, we need to shift ethics away from simply not doing to a focus on the positive.
Noel: Oh, I think so, absolutely.
Hicks: Right, and then you connected that to the entrepreneurship discussion, because, if we are to be more entrepreneurial, or outright entrepreneurs, then what are the character traits that go into being an entrepreneur or being entrepreneurial? Now, you have mentioned being courageous, being creative, right, and so forth. What other key virtues do you think are critical to success?
Noel: I think the top one I would put at the very top of the list, independence of mind. I think that, in order for someone to succeed as an entrepreneur, he or she has to be willing to trust that his or her convictions are sound. That doesn’t mean you get it right every time, and doesn’t mean being mule-headed about things. It just means having the confidence to think that I am in the minority on this idea, and I am OK with that. And I can survive in that kind of climate. And that is not a virtue that we talk about a lot. Much of virtue it seems to me is founded in a sense on conformity. So, I think independence of mind hits the top of the list.
Hicks: OK, closely related would creativity of mind be, you mentioned that a little earlier.
Noel: I think creativity is with some qualifications. I think creativity is often emphasized in entrepreneurial ventures, and that is good. And because almost, by definition, an entrepreneurial venture is creative in the sense that it kind of disrupts normal routines. But, creativity can be overrated. Very often, successful businesses we know are not those that are necessarily radically creative, but they often put an interesting tweak or twist on an existing idea. So, I think creativity makes a difference, but not for its own sake.
Hicks: This distinction between incremental innovation or incremental creation vs. disruptive innovation and so on.
Noel: And both can be valuable.
Hicks: Fair enough. And then you mentioned courage. So, what else would be high in your list of traits?
Noel: I think resilience, absolutely, has to be near the top of the list. Because, the simple fact of the matter is most entrepreneurs fail, they just fail marvelously. Failure is a virtue, but not if we fail for reasons of being careless, or not doing our homework, not paying attention to reality. But, sometimes we can do our homework, do all the “quote” right things and still fail. I think probably the biggest factor that separates successful entrepreneurs from those that die on the vine is that they just decide they will do it, no matter what. Now, they may have to change their approach to an idea, but they have to be resilient enough to get up, dust themselves off and go at it again.
Hicks: All right, so that’s four so far. Five is a nice rounded number. So, one more.
Noel: You know, I am going to put on the list that I’ve just being thinking about recently. And so, I think compassion. One has to remember what the real root of entrepreneurial activity is. And that is, I want to achieve something for myself, and that is noble motive. It may be to satisfy a drive to create something beautiful or useful, and we can do that, say, as an artist or as a performer, and not really think in a business context. When we are entrepreneurs, though, we are creating a value that can be enjoyed by other people, for which we receive an honest trade in exchange. Value for value exchange. Without some type of compassion, that is, the sense of understanding what other people need and how to make their lives better, it’s very hard to be a successful entrepreneur. So, compassion not in the sense that we usually think of it in just charitable causes and things like that. But being able to understand and empathize with people and how to make their lives better.
Hicks: So, it’s not necessarily understanding what people themselves think they want, or being just doing your market research and being tuned, but being able to understand and feel for how people could live.
Hicks: This being in the 70s or earlier, actually?
Noel: We’d have looked at you, like what? But Steve Jobs recognized what we needed and what the world needed before any of us did. Now, interestingly, and this is why I think there is no contradiction between self-interest and the service of others entrepreneurially, Steve Jobs says a marvelous quote in which he says: “We didn’t create this to everybody else. We created this for us. We wanted to create the neatest computer that had ever been invented.” Now, you think about that. He is saying outright we didn’t do it for everybody else, yet millions benefited. So, I think sometimes we have a convoluted view of what is good for us and what is good for others.
Hicks: The win, win is natural and normal, if you are an entrepreneurial value creator.
Hicks: Not to put words in your mouth.
Noel: No, no. That’s a very good way of putting it, in fact.
Hicks: Now, this list of traits, this takes us to the issue of why some people, and it seems to be a minority, are successful as entrepreneurs, other people fail as entrepreneurs, but a lot of people also just aren’t interested in it or frightened by entrepreneurship. Are entrepreneurs made or are they born? From your talk, I got the impression that you think that they are made, or that at least we can train ourselves to become more entrepreneurial. So, how does one do that?
Noel: Well, I think the first thing we need to remember is we view holding a job for our adult working lives as the norm. When, in reality, that about 100 years ago and before, that was not the norm at all. More than half of people were employed in their own businesses. We had shopkeepers and artisans and so forth. And then, as we learned of the value of large organizations, efficiencies of scale and things like that, we came to have lots of people that found it a better life for themselves to have the predictability and security of a job. There is nothing wrong with that. I think we are probably seeing the end of that era for reasons we talked about a moment ago. And that means that, as we have less of our working lives dictated by an organization, and the goals of management and owners, we have to make up our own minds of what we want to do and the value that we want to create. And that’s a bit different. That’s not a set of virtues about fitting in to the corporate climate, but it’s developing virtues like independence of thought and courage.
Hicks: Does it mean a shift in parenting styles, a shift in education, lower education, higher education?
Noel: Heaven love them, our parents, what do our parents want for us? So we have kids, right, and what we want? We don’t want them to experience all the pain that we experienced. Now, we may say we want you to go out, be adventurous and do these things and be true to yourself. But, in reality, we remember all the lumps and bruises we took, and we think for heaven’s sake, I hope they don’t have to go through that. And I think sometimes, unconsciously, we encourage our kids to be too safe. We encourage them to get a good job with benefits, and then we don’t have to worry that they won’t be able to pay the bills. Instead of teaching them to go out and try micro-businesses, to encourage them to go out and take fifty dollars, invest in something, go resell something, see if you can make some money. Or instead of getting that part-time job while you are going to school and getting paid minimum wage, why don’t you start a micro-business that will support you through college? I think we don’t tend to do that quite enough. So I think parenting does have a lot to do with it.
Hicks: For people who are older adults, and who want to cultivate entrepreneurism in themselves, what kind of advice do you have for them?
Noel: Well, a couple of things. One, as you’ve probably already without realizing it, developed a lot of the virtues that are necessary for being an entrepreneur. Because most people, in their adult working lives, have faced situations where they’ve had to be courageous and maybe even to a certain extent in certain companies innovative. I think the biggest thing, if I were to encourage adult entrepreneurs, say, people that are near retirement age, but they are worried they won’t be able to live well through retirement, is to develop just some fundamental business skills, things that, you know, basic accounting skills, basic marketing skills. I am not talking about going back and getting a college business degree, but just developing those skills. As far as the virtues, I think you just have to take assessment of what your experiences have been like. If you have been in a company that encouraged innovation and risk-taking, it’s probably pretty natural.
Hicks: So, just build on those consciously.
Noel: Build on those. If you’ve been in an environment that has been very staid and very predictable, you set to be honest about that and ask yourself. Are there areas in my life where I have been innovative and being a risk-taker and how can I parlay that into an entrepreneurial venture.
Hicks: All right, so ongoing character training for oneself.
Noel: Exactly, a little step at a time.
Hicks: Whatever age level.
Hicks: Thanks for being with us today.
Noel: Thank you for having me.
[The original interview with Professor Noel follows.]
Interview conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.
Hicks: I am Stephen Hicks, executive director of CEE, and with us today is Dr. William Kline, who is Assistant Professor of Liberal Studies at the University of Illinois in Springfield. Professor Kline is a Philosophy professor, primarily specializing in business ethics, which is why we invited him here to Rockford College to speak to our Business Ethics class earlier this evening.
Now, Professor Kline, in your approach to business ethics you take issue with the usual statement that business ethics is a contradiction in terms or that it’s an oxymoron. Or what we might refer to as the negative approach to business ethics — which is primarily about focusing the Enron and the Bernie Madoff cases — all of the scandal cases, and presenting an unrelenting litany of problems as representative of what business is all about. What is wrong with that approach to business ethics?
Kline: One of the things that struck me is — I was teaching business ethics at the time that Enron happened in Tyco — and everybody wanted to talk about that, everybody asked, “Wow, what about WorldCom?” And you had, just in terms of corporations and not in terms of business overall, on the New York Stock Exchange something like 3,000 enlisted companies and, on the NASDAQ, I believe something on the order of 5,000. And I might be short on that. It might be easily be higher than that. So we are talking about 8,000 business and five did bad things. That’s actually a pretty good record.
So why not talk about the 7,995 good cases that have gone right and what we can learn from that? Rather than, you know, the same old boring story that, well, somebody pilfered the company funds and ran off to some exotic location, which we all know is wrong. I don’t need business ethics to tell me that’s wrong.
Hicks: Is it your point, though, not that we can’t learn from the negative cases just as a doctor can learn from disease cases, but that we have more to learn from the good cases or successful cases?
Kline: I hear what you say, and it’s not that we can’t learn from the negative cases. Of course, you need rules to protect property and contracts. I think there are real issues with what stock ownership entitles you to, and those rules need to be worked out, but they just get overemphasized. Nobody is looking at all of the good that happens through business, and specifically, the individual good when you decide to enter into business or a business person decides to enter into business, how that might be conceived of as morally good.
Hicks: And here your major theme was putting your business life, including the choice to go into business, this approach to business, or choosing this particular business in the context of your life overall, putting an emphasis on the good life in a very Aristotelian sense? Can you say more about that?
Kline: I think, quite frankly, it’s tragic. I’ve had students graduate now. I’ve been teaching long enough. And I’ve had students that have gone into things that they loved and students that have gone into things that they’ve hated. And this notion that, well, here is my business and professional life, and that’s totally separate from my personal life, and totally separated from the good things I do in the world, and it’s its own entity, I don’t find that works that often. The happiest people I met are the people who have incorporated their business life into their broader goals, their broader aspirations, and see it serving a purpose within their lives. And so, yes, that’s how I want to talk about business ethics. And then in the Aristotelian version of it, what we want to talk about is a flourishing life, and that requires taking a holistic approach to one’s life, including business in that.
Hicks: Right, so if you then ask what are the constituent elements of a flourishing life, and then once we articulate what those are, we can then place one’s business activities in the context of that and many of the same things carry over to that. So, if we are then to ask in an Aristotelian sense, updating Aristotle, what is a flourishing life, or what are the major constituent elements here? You had a list of six features, I believe, no that we have time to talk about all of them, but what are we talking about here?
Kline: Yeah, let me just take a few. What we’re talking about is this: in order for us to flourish as beings, we have to recognize both constrains on what we are and what we can’t do but also certain abilities that we possess and that need exercising. As Mill said famously, to be Socrates dissatisfied is better than being a pig satisfied. And quite frankly, I think part of the reason for that is really to live a life of a pig is either exceedingly boring or, if you look at people who’ve lived purely hedonistic lives, is quite self-destructive. So, the question on the Aristotelian line is: given the kind of being I am, how can I do well in the world? Some of the characteristics of a flourishing life that we looked at today were that the flourishing might have to be some sort of standard for flourishing conducts, something that goes beyond my preferences, something that goes beyond my whim, or some sort of guide post to let me know when I am doing better or worse. And one of those objective elements that I pointed out today that we should consider is that there is something fundamental about us in trading. Aristotle said that we are social creatures; Adam Smith said we have a natural propensity to truck and barter. I don’t see why it’s something we should deny. It’s something we should embrace, and it’s a good thing. When we explorers go exploring and they want to make contact with new people, they take stuff to trade.
Kline: It’s far better than just annihilating who you meet. And trading is social. It’s not antisocial, not at all. Once again, Smith points out that economic transactions are a way of communicating, a way of persuading, which I find highly interesting. If one took a Hayekian model, one can say it’s a way to trade information. That’s exactly what I am doing when I am trading price information. I will take this for that much, and you’ll take that for that much. This is a fundamental type of communication.
Hicks: So, in a broader context, the constituent element of a human flourishing life is social?
Hicks: The rich values that we get as social beings interacting with each other, that then carries over to the business world, which is essentially social through trade. And we’re trading lots of things back and forth, and we’re productive individuals trading with each other to mutual benefit. The point that you are making, then, is that business is tapping something deeply social in us.
Kline: Well, absolutely.
Hicks: And, positively, the social is a constituent of a good life.
Kline: Yes, exactly. I mean, people recognize that when they meet at the local club, that they are being social. People will recognize when they meet on Facebook, they are being social. People aren’t as apt to recognize the fact that when you meet to trade, whether it’s in a bazaar or a Walmart, you actually are being social.
Hicks: However, you might not know much about particular people you’re trading with.
Kline: Right, but that’s a good thing too. I don’t need to know everything about somebody to trade. I can productively engage in a fun, social interaction that mutual benefits both of us and I need not worry about what religion you are or what political beliefs you had. How horrible that would be if I had to litmus test everybody on their political views or religious views before I interacted with them.
Hicks: And another element of the social boldness that you mentioned is that business, in its propensity to trade with each other, leads people then to be willing to overlook a lot of the things that they ordinarily wouldn’t overlook in history, like their ethnicity, their race, religion, or gender. So, people in business, to the extent that they engage in this propensity of truck and barter, are more likely to be tolerant and peaceful?
Kline: Tolerant, peaceful, and there are real incentives in the market and in business to not discriminate. There are real incentives to include anybody within your trading or productive enterprise as long as they can in turn trade or be productive with you. I am not saying that answers all questions or solves all problems in humanity, but there is a critique of market systems out there that they are inherently racist or inherently sexist, and that’s simply not true.
Hicks: All right, to go from flourishing in general, if we look at business in particular, in the former you mentioned Aristotle a lot, and now in your methodology in talking about the nature of business you rely on Hume a lot; you are very empirical. What is it that makes business business? It’s one thing to say here is the ethics that we should be applying here, but we also have to understand enterprise in its own place. So, what makes business a distinctive kind of human enterprise?
Kline: I think that the purpose of business is to produce a good or a service for trade. That that’s what makes distinctive. Someone would argue that perhaps the purpose of businesses is to serve a social good. For various reasons, I don’t think that that’s the purpose of a business. That’s the purpose of charities. That might be the purpose of certain political mechanisms. But if you look at what business is, it fundamentally involves trading. It involves using money as a method of calculation for making your decisions. To overlook that is to overlook the nature of business.
Hicks: If the purpose of business is not primarily to produce a social good, then what is the contrast purpose to that? Is business primarily individuals mutually satisfying their individual purposes?
Kline: Business allows you to do that, but I can solve my individual purpose. I can be an artist, I don’t have to trade. I can make my art works. I could be a philosopher. Socrates didn’t trade his thoughts and he had, you know, a life of his own that satisfied his preferences. I really think that saying that you are going into business means that you are accepting a body of rules and goals and obligations that center around this notion that I am going to productively engage with other people on the basis of trade. If I am not trading, if I am just giving you something as a gift, that’s not business. If I am just taking from somebody, that’s theft: that’s not business. Once we engage in this mutual give and take of what’s called trade with goods that we have produced without violating property rights or contract rights, then that’s business.
Hicks: You are also critical of two of the major models that are currently dominant in business ethics discussion: the stakeholder model and what’s sometimes called the stockholder model. And you use Milton Friedman as the major representative of the stockholder model. You’re critical of the idea that business should be defined in terms of a social responsibility to produce profit. What is wrong with that definition or account in your judgment?
Kline: The majority of my business colleagues know the purpose is to make a profit. Well, stop. If one is on the financial services industry where the good or service one provides is actually an optimization of money accounts, whether it through hedge funds, mutual funds, monetary instruments, or derivatives, then that’s true. But that doesn’t mean that it applies to everything. I mean, people get involved in family businesses because they like the business. People start second careers in different businesses just because they’ve always wanted to operate a tiny theater in a small town. I am thinking of Berkeley, West Virginia. There is a small theater that people opened up because they just always wanted to do that. Profit is important; without a profit you go out of business. As I said before, money is a method of making your decision procedures. And profit also allows you to get what you want out of life, so it’s very important. I am not saying it’s not, but I don’t think it’s the purpose of business to gauge how well you’re doing business.
Hicks: Would you put that in the context of a corporation, say, where there’s a division of labor between management and the stockholders? Is there any role for saying that the managers have a fiduciary responsibility to maximize profit for the stockholders? Or is that merely a limited case of business closer to the hedge fund people, for example, you mentioned earlier?
Kline: There is a tendency in business ethics to over corporatize everything so that if you want to talk business ethics we have to talk about either Enron or GM. And, if you look at the business sensitive data, at least half of all businesses are smaller than, I think, five-hundred people, with sizable chunks even in the lower registers. So, the reason I don’t like talking about, you know, fiduciary responsibilities of managers to stockholders isn’t because it isn’t important. It’s because everybody is talking about it, and what I want to talk about is this practice called business. And whether you’re a corporation, a privately-held company, a professional, or whether you’re operating out of your garage or some multi-billion-dollar complex, this is something that has importance to you.
Hicks: So, the profit as the primary purpose model which is sometimes called the stockholder model, you criticize that. But you also equally criticize the stakeholder model. And what was your criticism of the idea that the purpose of business is to satisfy the interest of all relevant stakeholders?
Kline: That is my objection. The purpose of business is to produce a good or service for trade. Once you figure the good or service you want to offer, that you want to be an accountant, that you want to make widgets, etc., and you’re now doing that and making trades, there are multiple decisions one has to make in the means of production, where one wants to locate, who one’s going to hire. And money is the method to make these decisions. What am I going to get if I invest in this? And it’s a multi-attribute decision problem made on the basis of money. That’s the key, as I said, methodology of business. Stockholder thesis says no, if that’s all you are taking into consideration, you actually being immoral. I have to equally consider the interest of all my stakeholders. So, if I make a decision, I have to consider the interests of the community, interests of the workers, the interest of consumers, interest of the suppliers, the interest of…I am probably missing one now. Stockholders, actually count as well. Or the interest of the owners, mighty nice that they count sometimes, huh? And so, I have to balance all their interests. Well, if it’s not going to be with money, then how do I balance it? And it turns out that it’s a political decision process to balance it. So, that notion of business ethics I actually think it’s antithetical to business. It’s political ethics.
Hicks: But rather relying on the narrow stockholder approach or the narrow stakeholder approach as you’re arguing here, we need to think more generically about the nature of business, which can come in many forms and serve many different purposes with different individuals. And so, your definition of business as purpose-driven production of goods and services for the purpose of trade, that’s where we should start. All right, so then, on the positive side of business ethics, you say that this then generates a kind of principled commitment that can come out in an ethos, right, that if you want to decide what it is to be a good business professional or what it is to commit to the best kind of business life, you think of what are the needs of the production part of the business and what are the needs of satisfying the trade, so being committed to productivity and being committed to trade. That’s how we should approach things. And then, equally, towards the end of the discussion you mentioned that this serves as a principle for deciding what is unethical in business. And even if we rule out the clear cases of crime and so on as not being part of business, how does your account of what business is help us deal with cases like discrimination, say, in the workforce or the owner who uses the business as his personal piggy-bank and so on? How does it provide us a guide in the negative cases?
Kline: Okay, let me go back to the positives briefly.
Hicks: Fair enough.
Kline: Well, remember we are looking at us as human beings, and the trading actually touches something within us, something that’s very peaceful, something that’s exciting, something that’s social. That’s important. Business can serve that because trading is a fundamental aspect of business. I’m producing goods and services for trade. So, in general, business is a good thing. Now, I have to decide specifically what I want to do within business. This is a good way to live, but I don’t live a way, there is something specific I have to do. I want to be an accountant or whatever. And so that funnels down. Now I’ve decided to be an accountant, or I’ve decided that I want to make hamburgers, or I have decided I want to sell whatever. Now, I have specific obligations that go along with each of those. If I am going to sell chicken, I have a specific obligation not to kill people with salmonella or kill people with E. coli. I have these specific obligations as I provide this on the market, certain things that I have to do. So it’s very action guiding in a good sense to tell me what ought I focus on that just making a profit doesn’t, right, as I am focusing on these productive activities. Now, to help me on the other side with when I’ve gone wrong, right, so what am I going to do right? Well, I want to focus on the productive side and the trading side, but when I’ve gone wrong I have stepped outside of this. And people will do self-justification all the time. It’s my business, so I can discriminate. Or, it’s my business, so I can hire the secretary to sleep with. Well, that’s precisely just self-justification. And why is it just self-justification? Because you’ve agreed and you’ve broadcast that you’re in business. We have said that this is what business is and now you’re doing entirely opposite. You don’t get to have your cake and eat it too. You are really doing business or you’re not. And if you are using it as your personal piggy-bank, if you are using it as your personal sex-playpen, or if you are using it just to lord it over other people, you are not engaging in business and I think you are violating the telos of it. I think you’re doing something fundamentally wrong. And, by the way, in the process of that, people say, well, you’re violating the goals. But remember what you’re violating. You’re violating this trading, right, so we’ve gone from a trading model to an authoritarian model which doesn’t serve flourishing the way the trading does. You’re not being productive in this sense. You’re actually probably being some sort of, wish I could find a better term, but some sort of leech. You are sucking the productive abilities out of people or the company. You are not engaging in this mutually productive trade anymore. So when I say you violate the goals or the ends of business, there are some very real effects, both on your individual flourishing and on the flourishing of those around you as well.
Hicks: All right, so think of business as a principled calling in the context of a flourishing life, given the kinds of beings that we are. When you then enter into business you’re committing to productivity and trade. Take those seriously, internalize them, and then also externalize them in business and remain true to that. That’s business as a noble cause?
Kline: Yes, and if you don’t want to do that then do something else.
Hicks: Fair enough. Thank you, Professor Kline.
Kline: Thank you.
[The video interview with Dr. Kline follows.]
CSR, Sustainability, Ethics & Governance: Building New Bridges between Business and Society
Editors: Hualiang Lu (Nanjing, China), René Schmidpeter (Cologne, Germany), Nicholas Capaldi (New Orleans, USA), Liangrong Zu, (Turin, Italy)
Publisher: Springer Books
Entrepreneurship’s Relationship to CSR (Prof. Dr. Stephen R.C. Hicks)
This chapter rethinks the start of business ethics. The author agrees that the Corporate Social Responsibility model of business ethics has been a leading paradigm. But the author notices that practitioners usually take large firms as representative of business and address their ethical issues; this, he believes, leads to over-generalizing. But most people do not work in mid-to-large corporations; rather, they are sole proprietors, in a partnership, in a family firm, or in an entrepreneurial venture. Also, every large corporation began as an entrepreneurial venture. Therefore, the author argues that business ethics should begin where business begins. In other words, business ethics begins with entrepreneurship. The author first situates ethics in an entrepreneurial context to identify the core values, virtues, and vices of business. Then he addresses how those ethical issues scale as the business succeeds or fails at growing into large corporation.
Stephen Hicks has a chapter forthcoming in this new volume:
CSR, Sustainability, Ethics & Governance: Building New Bridges between Business and Society
Editors: Hualiang Lu (Nanjing, China), René Schmidpeter (Cologne, Germany), Nicholas Capaldi (New Orleans, USA), Liangrong Zu, (Turin, Italy)
Publisher: Springer Books.
Entrepreneurship’s Relationship to CSR (Prof. Dr. Stephen R.C. Hicks)
This chapter rethinks the start of business ethics. The author agrees that the Corporate Social Responsibility model of business ethics has been a leading paradigm. But the author notices that CSR practitioners usually take large firms as representative of business and address their ethical issues; this, he believes, leads to over-generalizing. But most people do not work in mid-to-large corporations; rather, they are sole proprietors, in a partnership, in a family firm, or in an entrepreneurial venture. Also, every large corporation began as an entrepreneurial venture. Therefore, the author argues that business ethics should begin where business begins. In other words, business ethics begins with entrepreneurship. The author first situates ethics in an entrepreneurial context to identify the core values, virtues, and vices of business. Then he addresses how those ethical issues scale as the business succeeds or fails at growing into large corporation.
[More information forthcoming upon publication.]
Interview conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.
Hicks: Hi. I’m Stephen Hicks. Our guest today is Professor Robert Salvino, who teaches Economics and Entrepreneurship at Coastal Carolina University in South Carolina. He spoke with us today on entrepreneurship and public policy.
One of your initial themes was the importance of entrepreneurship as a driver of the economy. Innovation, business startups, employment, and so forth. And you were pointing out what we actually do know about entrepreneurship. What are the traits that go into entrepreneurial success?
Salvino: Right. When we think about entrepreneurship, we think of a very positive-oriented type of person’s behavior, somebody who is a problem-solver, who sees obstacles and is already thinking about ways to get around those obstacles and accomplish things in spite of barriers that might seem to be very big for the rest of us.
Hicks: Right. And then the question then is: if we want to encourage entrepreneurial behavior, what kind of institutional framework is going to make that happen — or retard it? In your lecture, you made a distinction between a more active approach to public policy, when government is trying to foster entrepreneurship by picking winners and losers, so to speak, and a more indirect approach, where the government sets very general conditions within which entrepreneurship can flourish. What is the difference between these two approaches?
Salvino: An active public policy approach would be literal programs, if you will, that would maybe subsidize start-ups. If you start a small business, there will be credits that will be given to you or job training will be provided, or these types of things, trying to get people to start things. A passive approach to public policy would simply just to allow things to happen. So, have a very favorable business climate in the first place without somebody having to check the regulations and licenses and requirements and see what kind of things they could do. And maybe if you are in this type of industry, you can get better subsidies or things, so, taking that away and letting things just kind of run their course.
Hicks: So the argument there is: you take away particular types of policies, and you create an environment in which entrepreneurship will flourish. Whereas the other is to have that plus particular programs directed to stimulate entrepreneurship. In your talk you also in passing contrasted some regimes around the world that seem actively to discourage entrepreneurship. North Korea is an example. And then the example of cellphones was very striking. What was that?
Salvino: Just a few years ago, Eric Schmidt with Google and, I believe, Josh Cohen went to over to North Korea. They’ve got a book coming out that talks about technology and its role in the spread of prosperity and the changing of oppressive regimes. Just a few years ago, you were not allowed to have a cellphone in North Korea without some sort of authorization. The majority of population did not have a cellphone. Then, they later allowed a million people in a very large country to have a cellphone, but it was a controlled cellphone.
Hicks: If we try to evaluate, then, the two entrepreneurship-friendly approaches, where we assume that entrepreneurship is a good thing and we want to foster it, how do we evaluate whether a more active hands-on government fostering of entrepreneurship works better than a more relaxed government approach?
Here you took us through some history, asking us to look at some of the great entrepreneurial success stories, Google, Apple, AT&T earlier, Standard Oil, and so forth. What is the lesson that we learn from those examples, on your reading?
Salvino: Right. Those companies, those technologies — nobody would ever predicted the emergence of these new industries. Ford Motor Company, you would not have been able to identify a group of people whom might have been more likely to be successful. Try to take a group of people from MIT and put them in a room and say: ‘create the next big thing’. People like Steve Jobs and Bill Gates — nobody would have ever identified them as people likely to create the things that they did.
Hicks: So the argument there is just having a culture in which creative, innovative people can do what they want to do, you’re going to get entrepreneurship. And then on the negative side, you had examples like Solyndra, where active public policy trying to promote certain kinds of entrepreneurship blows up in our faces with a huge price. Stay more with that one.
Salvino: Solyndra was, I believe, awarded about $500 million in subsidies through the federal government because they were in a favored industry working in green technologies. And Solyndra went bankrupt within, I believe, a couple of years of forming. If the company, a start-up, had able to get private investors to back them to the tune of $500 million, it’s very unlikely they would have gone bankrupt in two years. So, the difference is between what went into the development of a company like Solyndra versus a company like Apple.
Hicks: Okay. Are we able to step back and cite statistics and say that here is the more relaxed, entrepreneurial-friendly environment, and in that environment, you get a certain number of entrepreneurial successes — Apple, Google, and so forth — but that we’re also going to have a whole lot of failures?
Hicks: Contrasting that with a government that is more hands-on and tries to pick entrepreneurial winners and losers, they are going to have a lot of failures, but they also have some winners. Are you able to quantify the relative success rate of those two approaches?
Salvino: I haven’t looked at that in my research, but I think if you look at it just from a theoretical perspective and think about resources that are invested in any and each of those, certainly you are going to have many, many failures in the private market with experimentation. But the difference would be the amount of leverage of that investment and the people who suffered as a result of that. If it truly is a market process, the spread of failure is not going to have the negative impact on all of society that something like many Solyndra-type things would.
Hicks: Okay, so we have one 500 million dollar failure that has to be put against then 500 one-million dollar failures, and so forth.
Salvino: Exactly. It is spread throughout the whole system.
Hicks: Now, you also had one particular example of public policy that seemed more indirect, and that was health insurance, where this is not directly intended to have an impact on entrepreneurship or not. But for various other reasons health insurance is a desirable goal, so the government wants to encourage the greater provision of entrepreneurship. But, nonetheless, indirectly it has an impact on entrepreneurship as the example you presented. How does that work?
Salvino: Okay, if we talk of a different types of entrepreneurs, a self-employed individual as one type. So, employer-provided health care as it emerged over time took years and years to grow and become kind of cemented into our culture as an expectation of a good job were good benefits. And so the rate of self-employment just seems to, over the same period of time, been about cut in half. And so, there is a real cost to acquiring health insurance on your own in this independent market versus when you are with a large company. When you are with a large company that provides the benefit, there are direct policies that make it easier for a large company to provide the benefit to the employee. And so there is a hurdle that is created there, whether it was intended or not.
Hicks: Okay, so the way this works then is health insurance is a desirable thing for individuals. Government creates a policy that encourages employers to provide health insurance for employees. That makes employment with a company that’s providing health insurance more attractive than self-employment, so self-employment rates go down.
Salvino: Right. That’s kind of the idea that I have looked at and to see if there is a causal relationship between the two. Certainly, we can see at least anecdotally this idea that we place a very high premium on benefits. There was a survey done a couple of years ago throughout the world asking adolescents what do they want when they become adults. And most of them said they want a good job with good benefits. So this has been cemented into our culture.
Hicks: Okay, then public policy responds to that directly.
Salvino: And public policy responds and, in some cases, has helped propel that idea, that expectation.
Hicks: Scaling out then: your proposal was that we should have the more indirect, passive approach to public policy by creating general conditions within which entrepreneurs are free to innovate and experiment. What are those general conditions that you think work best?
Salvino: So, for example, just a sound monetary system that allows us to make long-term contracts and have an idea or expectation of what interest rates are going to be, what the rate of inflation might be, and how that affect us. Property rights, so that when we go into an organization, we form a corporation, we conduct business, we know that our rights are protected and that there is a judicial system that is going to help us solve disagreements and such things. Contract enforcement is another example of an institution that helps. When contracts are not going to be enforced, individuals, investors, or entrepreneurs may be very leery of forming partnerships with people that they may not know very well.
Hicks: You gave the example of China, part way through, as a very striking example. One of things we’re interested in is wealth creation. And wealth creation certainly is an important value if we are already comfortable. Nonetheless, we would like to be more prosperous and make sure our kids are more prosperous.
But wealth creation is important when we think about poverty and places in the world that are still ridden with poverty. You mentioned China as a very striking example. In the last generation, something happened that has never happened before in human history, namely, half a billion people were lifted out of dire poverty into a basic minimum standard of living. Can you track China’s success in doing so to public policy changes in China? And if so, what do you think those were?
Salvino: Right. If you go to China a generation ago, we think of China as a communist country. And still today people associate China with communist regime. But it is going in a different direction than many developed countries in the world. It is kind of backing down from that and going from a completely communist institution to state capitalism. Maybe it’s state-directed capitalism with capital ownership, but still it’s a step in the opposite direction, towards allowing markets to flourish more than previously had. And if we think about it from the perspective of our country, many American businesses over the past generation have put operations in China. And over the period of a generation it has become easier for these businesses to operate in China, to maintain their own property rights.
An individual came and spoke to a group of business leaders in South Carolina a couple of years ago and talked about an operation when they first went into China. In order to start their company they had to give away majority ownership of this subsidiary in China, so they were very leery to do that. And over the past few years, that went away to where they were not any longer required to give away that type of ownership of their company. And as more companies have been able to go into China, not having to give up certain of those property rights, more companies will go in there and conduct business. So there are jobs created in China by American companies and other companies throughout the world. And over a generation that has been one factor, I would say, that has helped to alleviate some of their problems.
Hicks: So China is moving in the right direction?
Salvino: Right, they are moving in the right direction.
Hicks: Thank you for being with us today. Interesting material.
Salvino: Thank you.
[The original video interview with Dr. Salvino follows.]
University of Illinois, Springfield Professor William Kline’s 14-minute video lecture on “Entrepreneurship and Liberty.” Professor Kline discusses the relationship between liberty and entrepreneurship. He explains how laws, culture, and economic regulation can infringe upon the freedom of entrepreneurs and inhibit their abilities to be innovative. He stresses the importance of economic liberty in particular in providing the right environment for entrepreneurship to flourish.
Professor Kline’s lecture is part of the ongoing Entrepreneurship and Values series, recorded and produced by the Center for Ethics and Entrepreneurship. Other lecturers in the six-part series include Alexei Marcoux, Stephen Hicks, Terry Noel, and Robert Salvino.