One of the best definitions of economics is as “the science of original sin”. By using that term I reveal my Judeo/Christian heritage, but I would not be surprised if a concept similar to “original sin” exists in most of the major religions of the word. The concept of some basic disorder in human beings captures the concept of scarcity which is core to any definition of economics. Although in no way do I deny resource limits, much of scarcity is facilitated by narcissism, unlimited desire or greed for both money and power, as well as the limited abilities and frailty of the human race that undergird demand and supply leading to opportunities for individuals, groups, institutions and nations to exploit each other. Economists have long argued that only the market system can harness legitimate economic drive and temper human excesses. The current economic and financial crisis once again seems to demonstrate that this religious doctrine for some is actuality nonsense, or at best, it takes place over a long cycle that incurs great pain and suffering, especially for the poor and marginalized among us. This essay is in no may meant to be condemnation of economics, economic activity, nor of our economic institutions, especially capitalism; rather, it is an attempt to suggest that the core of our current crisis is that our economic institutions and those responsible for governance of them, have lost touch with the end, the why, the purpose, the telos of economic activity. This short essay seeks to clarify causality and suggests that as we seek to improve the system, the Caux Principles provide a powerful philosophy and set of guides for the role of business.
Dr. Thomas A. Bausch
Most of us have been taught a fundamentally false, confusing, and dysfunctional lesson about the economic institution called the business firm (corporation or other). That is, we have been taught that the final end or purpose, the telos of economic institutions is profit. Here, as does Aristotle, I use the concept of final cause or telos, as the purpose, the good or the end of something, in this case the business firm. I suggest that the final end of our economic systems, and of the institutions in these systems, is, at a minimum, to convert our limited resources into the goods and services that facilitate the development of the human person. But this end is too limiting, for the human person is much more than an economic being, and the economy exists for the person, not the person for the economy. The work or resources of a person may often serve as a means to an economic good, but the person must always be the end of economic activity. The full development or actualization or “becoming of who he or she has the potential to be” is the profound end of economic activity and institutions. This is recognized by Caux when we use the term “human dignity” referring “to the sacredness or value of each person as an end, not simply as a means to the fulfillment of others’ purposes or even majority prescription”. Unfortunately, the neo-classical model of the firm identifies it with only those persons called the stockholders. Some thinkers coming out of a labor theory of value identify the firm only with the employees, some consumer advocates identify the firm only with the customers, and so on. Rather, the firm is an organization for the common good. Tragically, in many failed organizations involved in recent scandals, such as Enron, AIG, various banks and investment houses, the firm became identified primarily not even with stockholders, but with the narrow ends of narcissistic management.
The concept of the firm, however, if it is to reflect the reality of the human person that is to be served as the end, must also encompass the truth that the human person is social and can only thrive in community. The concept of community is incompatible to the Ayn Rand thinking of many in the business community and the self-serving actions that led to economic turmoil. Community and social has long been recognized by CAUX through its ethical ideal of “Kyosi”. This means “living and working together for the common good, enabling cooperation and mutual prosperity to coexist with healthy and fair competition.”
Profit, return on capital, wages, executive compensation, enjoyment of the good or service produced by the firm, a healthy community and, therefore, the re-election of a public official are all good. They are the motivating ends or causation which entice the efficient causes of economic activity, that is, the agents who bring it about, to be involved. The motivating ends can take many forms such as just or fair compensation or return, rewards for a job well done, promotion, or innate satisfaction of some sort.
A consideration of causation in its various forms as articulated by Aristotle leads to a consideration of the role of business schools. The events of the last two years have caused academics in business schools to once again drift into the phase of their collective psychic cycle of questioning their value and values as well as where they have gone wrong in preparing women and men to be leaders in business. This doubt is for good reason in the context of what Aristotle identified as formal causation. The formal cause according to Aristotle is the idea existing in the first place as exemplar in the mind of the agent. It is an intrinsic and determining cause. It is formal causation that could and should form motivating and efficient causation to be consistent with, driven by, authentic final causation. The truth is that most of higher education for business is driven by agency and financial theories of the firm, considering only self advancement as an economic person, at best teaching a philosophy that explains why TS Eliot wrote “To do the right thing for the wrong reason is the ultimate treason.” That is, to steal from the material of Tom Lehrer, “You will do well by doing good”. Until, of course, the budding young executive can do better by doing evil.
As Sumantra Ghoshal has noted, the problems in our business schools go to the core of what we do and who we are. This core is the scientific model we use for most of our research:
“..over the past 50 years business school research has increasingly adopted the “scientific” model – an approach Hayek described as the pretense of knowledge. This pretense had demanded theorizing based on partialization of analysis, the exclusion of any role for human intentionality or choice and the use of sharp assumptions and deductive reasoning. Since morality, or ethics is inseparable from human intentionality, a precondition for making business studies a science has been the denial of any moral or ethical considerations in our theories and, therefore, in our prescriptions for management practice.”
Our business schools do a most competent service in preparing MBA’s to analyze financial, marketing, human resource and other issues and in the context of this model to be most rational thinkers. (And if b schools did not do this, they would be failures. This essay is not an either/or but a both/and argument.) With Milton Friedman and others we ignore or even deny questions of purpose and values. Assumptions on such matters become unimportant as long as the internal logic of our models is impeccable. For the most part the courses we do teach in business ethics, corporate social responsibility, corporate citizenship and such areas do not touch on ends, purpose and intentionality. Intentionality is a concept developed by the Canadian, Bernard Lonergan forty years ago, reopened by Ghoshal, in a business strategy context, in the past decade, and has now been explored in depth in a recent dissertation at Australian Catholic University. Intentionality as used by these authors refers to the acts which link subject and object. “Intentionality analysis reveals the variety and pattern of conscious activities involved in thinking, and by extension, in knowing and acting.” It is to be distinguished from “intention”, which generally refers to the object of a decision, and usually found within the explanation and reasons given for actions that accompany the decision. Intentionality analysis is very consistent with the logic of the best strategy work by scholars like Henry Mintzberg and James Quinn. It is very consistent with the work on learning organizations of Peter Senge and others. It could provide much of the work in business ethics a solid philosophical or first principle foundation and provide the needed link between first principles and action. It can provide a strategic framework in the context of the definition of strategy as “a pattern of decisions of actions”.
Intentionality also provides a concept to move beyond stakeholder theory and to appropriately tie the concept of stakeholders to the authentic purpose of economic activity and the firm and its governance. The problem with arguing that the firm exists for the common good is that it is too easy to drift into a mindset of “Although I cannot stand individuals, people, I love humanity!” This mindset possibly manifests itself in large bureaucratic organizations be they business, education, church, government or anything else. Intentionality is an analysis requiring the decision maker to recognize that each set of stakeholder is a subject with very definite particularities as they strive to become themselves as my stockholder, customer, employee, competitor and so on. When a decision maker in an economic institution understands that marketing to the bottom of the pyramid is an opportunity for the development of the consumer as a person, that job design is a function of knowing your employees as a mother knows her children, uncovering potential even they do not know they have, and a stockholder as a widow being provided security so that she can grow as a wisdom figure in her family and community, then the common good will be achieved through the person. Then we as a society will be serious about curbing the narcissistic behavior of a Bernie Madoff. Then the various ends will be in an alignment envisioned in the Caux Principles.