Values Make History

This week is the 75th anniversary of the Allied landing in Normandy, France and the 30th anniversary of the repression of the Tiananmen manifestation in China. Both events teach us the same lesson: at the root of human behavior are values.

Yes, interests also drive our actions but interests are values too. What we prefer is of value to us. More importantly, when national politics and war are concerned, the value of legitimacy takes on special importance: is it legitimate for us to follow our interest, to defend it against others, to enjoy it?

On what grounds are our interests so deserving that we can seek them even at the expense of others? That is a question of right and wrong, the ethics of living in community with others. What is right is legitimate. Legitimacy reveals what is within our right to do. Legitimacy is about core values.

For the Allies in World War II, the German Reich was an aggressor and military action against it was legitimate, so legitimate that the great expense in blood and treasure necessary to defeat that German government and its army was easily accepted as very worthwhile.

In the case of aggressive war, international law is accepted by nations as the test of legitimacy. What international law will sanction is legitimate and cannot be opposed with force. Aggressive war was outlawed by the 1928 Kellogg-Briand Pact.

The bloodshed in Tiananmen Square in 1989 came as a result of political conflict among Chinese over the legitimacy of the state. Protestors and the Chinese Communist Party leaders did not agree on the terms of legitimacy for a government in China. The Party believed its values should govern Chinese; the protestors wanted the Chinese state to be legitimated by some open political process and not imposed by the Party alone. It was a conflict of values.

The question we are left with is: what right does violence have in creating legitimacy for values?

The Greek historian Thucydides recorded an Athenian perspective on this: “The strong do what they will; the weak what they must.”

I align with the Allies of World War II and those gathered in Tiananmen Square: legitimacy imposed by violence has no claim to our allegiance. We must insist, even to the point of violence, on the rule of law and ethics as the basis for state power.

In my legal history course, we read the exhortation of Henry de Bracton in his commentaries on English law of 1235: “Not under man but under God and the law.”

What is a Company Really Worth to Society?

Stock market prices are often taken as the gospel truth, until they are not. Today’s price of any stock – bought through a stock exchange, over-the-counter or in a private sale – bears no necessary correlation to the stock’s price tomorrow or two weeks from now.

So why have we built a mighty fortress of global finance on possible falsehoods? The first asset bubble and crash of stock valuations was the tulip mania of 1637, right at the start of capitalism in its birthplace in Holland. Our market valuations are no more “true” today, nearly 400 years later.

Just ask those who bought the stock of Uber or Lyft when those companies listed their shares for public trading. The initial offering price immediately dropped as the market followed the preferences of buyers.

The May 28th edition of the Wall Street Journal carried a story that the price volatility of stocks has become such that judiciously picking individual stocks will bring more profit than “throwing money into index-tracking funds.” Stock pickers make their own valuations of shares company by company, competing to be more perspicacious about future prices than other market buyers and sellers.

After the collapse of credit markets in 2008, I was educated in price theory by Suppiah Dhanabalan, then Chairman of DBS Bank in Singapore. Reflecting on the bubble and collapse of prices on securities tied to American sub-prime mortgages, Dhana said “prices are only nominal.”

Nominal – in name only; in appearance but not in essence.

So, to some extent, the essence of financial markets is speculation on appearances, on what others think is the “right” price. And as we have seen since 1637, people have different ideas about what the “right” price of a stock should be. The fact that a market reflects one price today has no bearing on what people will think the “right” price of that security will be in the future.

Consider: what is the right price for a share of Tesla stock?

On May 24th, Tesla stock closed at $190.63, down 42% for 2019, a loss of $30 billion in market value. Tesla’s shares now have a negative return over the past 5 years. Two analysts predicted the stock would fall lower, to $36 per share.

The reality of Tesla is that it has spent $10 billion since 2011 on running its operations and has only made a profit in 4 quarters. It has funded its going concern costs with infusions of capital from trusting investors. What will happen to its share price when investors no longer believe that the company will be profitable someday?

Consider Uber. The company raised $8.6 billion between December 2015 and October 2018 at an average cost to investors of $48.77 a share. Uber shares now trade about $40 a share.

Other companies which went public but now see their stock trading at prices lower than what investors paid in private placements before the public listings are Snap, Dropbox and business software maker Cloudera.

Lyft’s stock price is higher than what early investors paid in private offerings but it is down 19% from its March 2019 public offering.

Why the gap between hope and reality?

With Uber and Lyft, “There is no profitability within sight even with binoculars and that’s been a tough pill for investors to swallow,” said Daniel Ives with Wedbush Securities. “It’s a totally different ballgame trying to get public investors around the valuations,” he added.

Uber lost $3.7 billion in the 12 months through March.

Since 2014, startups Tencent Music, Meituan Dianping, iQIYI, Sea, Pinduoduo, Uber, Snap, WeWork, Lyft, Spotify, Pinterest and Dropbox have cumulatively lost nearly $47 billion.

In the San Francisco Bay Area, there are 88 startups each valued at more than $1 billion.

The Economist magazine looked at the financials of 10 such highly priced startups, finding that while their sales have doubled since 2017, operating margins average a minus 30%. So, the more they sell, the more they lose.

How do you put a “true” value on such companies?

If we can’t accurately price a company, how then can it be managed for optimal advantage to its owners, customers, employees and society?

Shouldn’t We Align the Norms of Capitalism with the “Better Angels” of Our Human Nature?

Over the Memorial Day weekend here in the U.S., I read over a book of some past distinction which I had long overlooked. It is Karl Polanyi’s The Great Transformation. Writing in the middle of World War II, Polanyi credits market capitalism with changing human civilization through economic growth but at a cost which he considered to be too high.

His thesis, not unlike that of modern business ethicists from Kantian, Christian and socialist standpoints, is that the new, transforming, capitalist economy was divorced from society and humane values. He wrote: “If industrialism is not to extinguish the race, it must be subordinated to the requirements of man’s nature. The true criticism of market society is not that it was based on economics – in a sense every and any society must be based on it – but that its economy was based on self-interest.”

Echoing Karl Marx, Polanyi reacted very negatively to the power of markets to subject work and labor to price, not dignity. With the rise of capitalism, he said, the market had replaced community with an atomistic and individualistic form of social organization.

The fault of capitalism, according to Polanyi, was to allow an economic sphere within society to become the source of moral law and political obligation.

I was struck by this insight as the premise of the Caux Round Table for Moral Capitalism is that morality – the ethics of good stewardship – can be the source of rational action in the economic sphere. That is why we call our understanding of markets “moral” capitalism.

I also learned from Polanyi, to my surprise, that the intellectual origin of the proposition that, by a law of nature – that of the animal kingdom, self-interest and survival of the strong were the necessary drivers of capitalist success was the thinking of one Joseph Townsend who in 1786 wrote a paper on poverty wherein he described the survival of the fittest between goats and dogs on the island of Fernandez in the Pacific ocean off the coast of Chile. The story was myth. Nevertheless, according to Polanyi, Townsend’s inference that animal social justice is also the driver of human economic behavior was later picked up by Malthus, Herbert Spencer and Charles Darwin to form the a-moral basis of an absolutist capitalism free from regulation and social control.

The important point to note is that to Townsend and Spencer, a law of nature peculiar to animals was assumed to apply as well to our species of mammals.

If, to the contrary, we humans have a moral sense, then there is no necessary prohibition of our applying that human standard of judgment to economics, permitting society and the state to engage with market forces and the self-regarding temptations they engender.

Is Modernity Now History?

I was teaching in Bangkok recently and there was witness to gridlock in Thai politics where an election did not produce a majority political coalition. Then, I was in Australia just before the election which confirmed a very split electorate there as well. Now, we have election results in India which gave victory to the intensely Hindu communal vision of Narendra Modi.

Globally, we seem to have entered some new era of tension and standoff between very divergent political cultures. On one side is an internationalist mindset comfortable with globalization. On the other side is what has been framed as populist nationalism opposed to global institutions and arrangements.

Global internationalism seems the natural result of modernization – industrialization, the rise of middle classes, global supply chains, rational/legal bureaucracies and highly educated elites. Populist nationalism privileges national communities over internationalism and cosmopolitan tolerance of others.

Perhaps we should reconsider the once sacrosanct assumption that modernization will inevitably replace traditional cultures, values and behaviors?

We should then consider what role the Caux Round Table for Moral Capitalism’s principles for business, government, civil society and ownership of wealth might play in the interface between universalistic standards fit for globalism and the more parochial concerns of populist nationalism.

I thought of how the once very prominent thinking of Harvard sociologist Talcott Parsons, a student of Max Weber, might explain our dilemma of transition from modernity to some newer form of global community.

A review of Parson’s concept of “pattern variables” of social action is here for your consideration.

Moral Capitalism Scientifically Validated

It was most reassuring to read recently Michael Tomasello’s book Becoming Human for its recitation of many observations and experiments on the moral development of young apes and young people. Tomasello makes a case for the unique humanness of our species arising from a moral sense which each of us learns as children.

Actually, that case was advanced by Mencius in China centuries ago.

If, as Herbert Spencer asserted in 1851, we humans have no moral sense, then any thought of running capitalism along ethical lines would be foolish. Since Tomasello now provides more research evidence that our moral sense is real, then the effort to shape norms and practices for moral capitalism is not a fool’s errand.

I include here a precis of Tomasello’s argument.

I hope you find it persuasive.


The other day, on a whim, I wondered what William Blackstone wrote about joint-stock companies. Blackstone wrote his thorough and erudite Commentaries on the laws of England between 1765 and 1769. His presentation of English common law as a coherent system of justice resting on natural law dynamics inherent in human nature solidified the intellectual framework for constitutional democracy under the rule of law ideal, a great boon to humankind as we have seen over the last 250 years.

Somewhat to my surprise, I did not find any reference to joint-stock companies in his index.

But I did find a reference to “partnerships.” Turning to page 437 in Volume 3 in my copy of his Commentaries, I made (to me at least) an exciting discovery overlooked all these years of legal study.

Blackstone commented on partnerships – a form of business enterprise with shared ownership and responsibilities – in his chapter on the courts of equity. In addition to partnerships, it turns out he put most activities in what we would consider business or capitalism under the jurisdiction of courts of equity and not courts of law.

Equity, he said, had jurisdiction of all matters where an accounting is required: partnerships, personal assets, debts, estate gifts and bequests, distribution of the residue of holdings, of deposits of goods for security, holders of goods on behalf of others, “factors” or wholesalers and agents.

Courts of Equity also had jurisdiction of cases of “security” where money was lent on the pledge of property as a security for re-payment, such as a mortgage. The pledge on oath created a moral obligation to perform. Thus, the basis for modern finance was put under the supervision of equity.

Any property put in trust for management by a trustee of some kind – a corporate director for example – was also under the jurisdiction of equity.

He wrote “It would be endless to point out all the several avenues in human affairs and in this commercial age, which lead to or end in accounts.”

Now, contracts, both express and implied, so necessary for finance and commerce were under the jurisdiction of courts of law unless some fraud or misrepresentation or other malfeasance was the cause of the dispute over performance by one party or the other to a contract. Then, the aggrieved party could move the litigation to a court of equity.

For centuries, the English lived under and argued their disputes with each other in two different systems of court procedure. One was law and the other equity. To oversimplify, law was based on rules allocating rights and powers, while equity was based on good morals to prevent abuse of powers given by the law. The combined system, we could say, attempted to integrate law with morals.

In the U.S. today, there is no longer such a distinction between two kinds of courts or two different procedures. In 1938, the federal courts combined law and equity in one system of procedure. Equitable doctrines can be applied by any court if relevant to the case before it. Thus, for decades, American law schools have not taught separate courses on equity and only a few have courses on English legal history.

But there is support for the Caux Round Table for Moral Capitalism’s mission of promoting moral capitalism in Blackstone’s discussion of equity.

Intuitive resistance to both the ideal and the practicality of moral capitalism arises from marginalization of the moral sense as a factor in human affairs. Giving up on the moral sense condemns capitalism to a brutish form of competition. With a conviction more in keeping with Herbert Spencer’s social darwinism and its modern progeny, the agency problem, many think of business as purely immediate selfish exploitation of opportunity without regard for good faith, proportionality, stakeholders or long-term consequences.

Law would be enough for such enterprise. There is no need for equity.

Moral capitalism, however, requires equity. Moral capitalism posits that “moral” factors not only should be applied in business but that doing so can predictably lead to better outcomes.

Blackstone’s commentary demonstrates that in his time, moral factors (equity) were required as a part of doing business in a “commercial” society. His presentation of the laws of England is proof that moral capitalism has a claim to legitimacy before the law.

Is the CRT a New Republic of Letters?

I am often asked “What is the Caux Round Table for Moral Capitalism (CRT)?” I don’t really have a ready answer. Usually, to make it short, I say something like: “We advocate principled business leadership” or “We are a global network of individuals who seek to promote goodwill and develop good ideas for a better, more moral, capitalism.”

But calling the CRT an advocacy network doesn’t quite reveal how we go about our work or how we’ve evolved. We are not an academic body. We are not a foundation. We do not lobby, per se, in politics. We are in the public domain open to everyone. We trade in ideas. We bring people together for discussion, reflection and intellectual development. We do best when insights are put on the table.

Recently, on a whim, I picked up a book with the title The Republic of Letters. It was originally written in French by Marc Fumaroli and gives us a history of the evolution of an advocacy network which started the Renaissance and then provided momentum for the Enlightenment.

The so-called “Republic” defined itself by the practice of reading and discussing written texts. The Republic was anywhere such reading and discussion took place. It was a transnational cultural territory inhabited by vibrant minds engaging one another with ideas drawn from reading and circulated by spoken or written word.

It was self-consciously animated as being different from the “Republic of Christians” seeking to recover classic thought of Greece and Rome, especially the polymorphous discourse of rhetoric (Aristotle, Cicero, and Quintilian) as a basis for intellectual community and the pursuit of knowledge and truth.

Rhetoric is about persuasion, not compulsion, in thought and faith. It presumes the worth of the audience and seeks their understanding and assent. It is fundamentally pluralistic and democratic.

But in the wrong hands or stimulated by the wrong ideas, rhetoric can easily sink into sophistry and demagogy. Only the character of the speaker can forestall that degradation of discourse.

Rhetoric requires ethics to keep it away from the dark side of human desiring. Quintilian defined excellence in oratory as “A good man speaking well.” Such a persuader needed to be educated but first, had to be good. In that same way of leading others, the Republic of Letters was a psycho-social sphere promoting personal excellence.

Where the Republic of Christians was religious and circled around the exclusive truth of Christian scripture, the Republic of Letters was secular and saw itself freely open to principles of natural law.

The original Republic of Letters – Res Publica Litteraria – was stimulated by Petrarch (1304-1374) due to his “contagious passion for unearthing and reconstructing the scattered and buried treasures of the classical humanitas (the value and potency of being human) and its urbanitas (urbane sophistication).”

Later, Erasmus was its chair. One of his compatriots in the Republic called it “That ocean of antiquity which by natural law is common to all.”

Later, another member called it “This society of savants, fully occupied with cultivating, promoting and propagating the sciences and the arts, which is dispersed across all regions of this universe.”

The Republic had no law, no structure, no budget, no governance and no imposed authority. It saw itself as someplace outside the controversies between Roman Catholics and Protestants as to scripture, authority to speak for God and other asserted certainties.

It described itself as a society of minds with no citizenship subject to the strictures of any particular religion or state, a pedagogical and erudite province of culture – existing in books and in the minds of those who read them. Perhaps something like a chivalrous, semi monastic religious order of thinkers.

The Republic of Letters was a network of volunteers only. Its territory was the mind. Its governance was by letters and discussion groups. It had no power to coerce. It could only invite participation. Many names of such Republicans discussed in Fumaroli’s book were new to me and many were Italian, especially from Venice.

But such a Republic made our world better.

Could it be that the CRT is a nascent, new Republic of Letters?

The Way to Wealth in the Opinion of Benjamin Franklin

In 1757, the American businessman Benjamin Franklin wrote a small pamphlet which he called The Way to Wealth. It was widely read and its maxims were assiduously followed.

Franklin thought of wealth as an asset, not as making a profit today but maybe tomorrow. Today, the Caux Round Table for Moral Capitalism seeks to draw attention to assets as the engines of market capitalism, including intangible assets such as personal character and social capital.

Wealth was capital for Franklin, that which made income possible. Thus, to enjoy lots of income in the future required first building up assets and sustaining their value. The most important assets for him were personal, readily at hand for every right-minded person.

His advice was:

1) Avoid bad habits: idleness; sloth; pride; folly; for God helps those who help themselves; want of care does us more damage than want of knowledge; a little neglect may breed great mischief

2) Be industrious day in and day out: many words won’t fill a bushel; do not squander time for that’s the stuff life is made of; the sleeping fox catches no poultry; there will be sleeping enough in the grave; lost time is never found again; one day is worth two tomorrows; early to bed and early to rise makes a man healthy, wealthy and wise; he that lives upon hope will die fasting; there are no gains without pains; diligence is the mother of good luck; little strokes fell great oaks; keep your nose to the grindstone

3) Our wealth is ourselves: trusting too much to others’ care is the ruin of many; he that by the plough would thrive, himself must either hold or drive; if you would have a faithful servant and one that you like, serve yourself

4) Keep what we have: get what you can and what you get, hold; be frugal; for age and want, save while you may for no morning sun lasts a whole day; a penny saved is a penny earned; think of saving as well as getting; a small leak will sink a great ship; fools make feasts, wise men eat them; silks and satins, scarlet and velvets, put out the kitchen fire; when the well’s dry, they know the worth of water; a ploughman on his legs is higher than a gentleman on his knees

For Franklin then, the way to wealth must run through character, an intangible capital of great value.