Category: Commentary

With the outbreak of the coronavirus (COVID-19) only a few months old, we already have been taught important lessons about the human condition and our post-modern world from the responses provoked by this mostly inert variety of RNA.

The virus’s RNA genome is less than 30,000 genetic “letters” long (ours is over 3 billion.) The infected cell in our body reads the COVID-19 RNA and begins making proteins that will keep the immune system at bay and help assemble new copies of the virus. Keeping the virus away from our cells is job #1 these days.

First, we have learned that capitalism is necessary for human well-being. Much of the panic we see around the world and the major fall in the nominal prices of financial securities reflect our need for transactions, for wealth creation. We know that governments can’t provide the cash flow and jobs which markets for goods and services do. The loss of cash deflates economics and cannibalizes wealth.

A market failure on this scale can’t be replaced with government expenditures. Governments get their money from taxes and fees, in other words, from capitalist enterprise or from making more paper bills and notes (including lines of credit), one way or another. For sustainable well-being, the private sector is necessary. Markets need to be nourished so they can flourish and so fund the common good.

To reject capitalism out of hand as unneeded or hopelessly unjust is destructively foolish. Socialism can’t replicate all the good which free markets do for us.

Secondly, COVID-19 has revealed just how much we depend on each other. The virus spreads from person to person. COVID-19, therefore, teaches that we need ethics or morality. We need people to be responsible and have a care for others. Social Darwinism, where we can be all on our own in a struggle for survival without taking regard of others, is another destructive foolishness.

The first moral imperative brought to the fore by COVID-19 is taking personal responsibility for not becoming an agent of the contagion. The focus of moral responsibility, in the first place, is on individuals and in the second place, on institutions.

The third lesson concerns risk – what risks should be taken, either to live normally or to stop the virus in its tracks? How much prevention is reasonable in imposing hardships on populations and how much is inadvisable or unnecessary? The perception of risk is very high, exacerbating risk aversion and contributing to fear and refusal to enter the public square, triggering economic contraction.

Risk management, predicting the future and acting according to foresight, avoiding harms and losses is key to ethical conduct. Ethics is the study of how to manage risks to others and to what has value in our lives. But the data I have read is confusing in its implications for what is prudent in seeking to prevent the spread of COVID-19.

For example, what is the reasonable worry as to numbers likely to be infected by or succumb to the virus? In the U.S., during this past flu season, some 34 million persons came down with the flu and 34,200 of them died from the infection. The number of us who may host COVID-19 seems at present to be very low in comparison. Even in China, where the contagion has now peaked, the number of symptomatic individuals was just over 80,000.

Other “epidemics” related to our consumption and lifestyles kill many Americans annually, but do not trigger serious public risk prevention measures: there were 38,800 traffic deaths in 2019, 69,027 deaths from opioids in 2018 and 78,069 deaths from alcohol in 2017.

Fourth, we have learned that the threat of contagion is real. Without using the precautionary principle in taking preventive measures, COVID-19 could go “viral.” Our human family now is global; what happens anywhere can have an impact everywhere. Nations are still important; ethnic heritages are manifold with each one having a claim to recognition and respect. Yet, all are intertwined by economics first and then by transportation and especially information flows and cultural diffusions. COVID-19 reveals to us that we really do live in a world community and that there will be no going back to the days of intra-group autonomy, isolation and self-reliance.

Populists, nationalists and chauvinists may regret this multi-culturalization of humanity and the expansion of production, sales, business and finance to every part of every country and they may pine for ancient days of ancestral glory and pre-eminence in homelands, but there is no remedy for their regret and their sense of loss.

Fifth, angst and worry about the trajectory of COVID-19 in infecting us have grown and spread as a contagion all to itself, a psycho-social turbulence which is disrupting lives, events, communities and economies. The ease with which fear arose and spread, its power to precipitate such a determined rush to safety and the reasons prompting the susceptibility of so many to the dynamics of fear deserve study in their own rights.

Is the fear phenomenon we are living with a result of social media, where emotions and exaggerations can quickly grab our attention and excite our imaginations to think the worst? Or has globalization done something to our resilience in convincing us of our marginality, impotence and vulnerability in that we no longer trust leaders and communities?

Is not our modern sensibility of the good life one that calls on governments to protect us against harm and danger? With COVID-19, does the demand for taking responsibility for our own health and fortune – wash your hands for 20 seconds many times a day and clean surfaces before you touch them – run counter to this premise of globalization that well-designed institutions will make all things better?

Does COVID-19 also indirectly call into question the competence of the elites who manage our global institutions such that we are afraid that they will fail us? Are our institutions that well-designed to begin with? Who can we trust to protect us?

We look to institutions, but they turn the work of protection back over to us and demand accountability from each person, family and business. Must we really trust others to do their part willingly and well? Unnerving, yes?

COVID-19 threatens us directly, going around, slipping under and jumping over our institutions, out of sight of our professionals and experts. We doubt our capacity for self-protection and that leads us towards fear. We become acutely aware of our status as victim.

Fear is one of the most corrosive and destructive human states of mind. Its impact on our decisions is rarely benign or constructive.

One function of morals is to gird us for success in our battles against the dark side. Moral courage is not an oxymoron. With courage, we can be more moral and with morality, we can more easily find the courage to act.

President John F. Kennedy ended his inaugural address with these words:

“With a good conscience our only sure reward, with history the final judge of our deeds, let us go forth to lead the land we love, asking His blessing and His help, but knowing that here on earth God’s work must truly be our own.”

On reflection, I would suggest that virtue (morality and ethics in action) imposes on us a first order duty to embrace and engage with reality whenever we make or recommend decisions. Holding up standards is one part of moral conduct, but it is insufficient action when we seek to have others support our thinking or to effect events.

Virtue’s engagement with reality is not a best practice only; it is a higher calling: a duty.

Morality and ethics, if divorced from consideration of reality, can’t bring virtue to life.

Virtue and reality are a pair – a duality. They relate one with the other through dialogue. And through dialectic – positing a thesis, contrasting that with an antithesis and ending up with a considered judgment – a synthesis.

The contemporary German philosopher, Jurgen Habermas, posited that we humans live simultaneously in two very different realms of what, to us, appear to be realities. One is the realm of normativity – ideas, ideals, words, concepts, mental constructions, spaced only in our heads and resonating selfishly with our psyche. The other reality is the realm of facticity – the realm of time and space and all of the material cosmos which takes up space and exists through time.

By being present in both realms at once, we can transition from one reality to the other, from the internal to the external and from the external to the internal. We can take inner realities from normativity and apply them through effort to facticity. We can also take experiences in the realm of facticity and use them to modify what we have in the realm of normativity.

A rather superficial example I use of how facticity can change our normative reality is the first experience of a child with a lit candle. Fascinated by the flame, the child touches it with a finger. Being burned, the child learns and so comes to understand mentally that touching a flame has a hurtful consequence. The child has mediated between facticity and normativity, changing normativity to align better with facticity.

Our creaturely facility is to serve as a feedback loop between normativity and facticity. In Christian terms, we can be “in” the world (facticity) and yet still not be wholly “of” the world (normativity). As Jesus said, “Man does not live by bread alone.”

We are most helped when living in and between both normativity and facticity by choosing a course of moderation, a middle way between opposing states of experience. This, of course, was the advice given by Aristotle, by the Buddha in his first sermon and by the Chinese text, The Doctrine of the Mean. It is also the guidance we receive in Qur’an, which is to keep the balance (Mizan).

If there is no mediation between normativity and facticity, then we become too immersed in one or the other. If we live mostly in normativity, we become subjective, solipsistic. Narcissism and hubris take over. We succumb to illusions and delusions. What we then seek to impose on others or on the world most likely runs contrary to what “is.”

In normativity, we build our own idols, investing too much of our personal authenticity in false gods, whatever we might choose them to be. We may overvalue having power over others, accumulating money, even the importance of the self. Here, in our personal realm of normativity is where ideologies and tyrannies, large and small, originate.

None of this leads us to virtue.

Papal encyclicals call this state of mind “anthropocentric,” making idols of ourselves and what we create to our own order.

The reality of facticity is not intuitively evident, nor is it self-evident. People differ in their perceptions, their measurements, their calculations. Yet, facticity is not social constructs. There is something to reality more transcendent than ideas we form in our own minds. What transcends social or personal constructs is factuality, like a flame on a candle.

But it is normativity that assists us in discovering what is reliably factual, what we can name and what we can process as being “out there.”

Virtue thrives where constructs mesh constructively with factuality and the constructs sustain themselves over time without our insisting and demanding that they are “so” in the realm of facticity. I think this is what the Buddha had in mind when he described the Dharma.

In a democracy, the role of government is to serve the people, not just the rich and powerful or the dictates of a close-minded ideology. Throughout the relatively recent development of democratic societies, the consequence of governments neglecting or ignoring this imperative has invariably resulted in negative – and sometimes tragic – consequences.

An early textbook example of this phenomenon was the Irish Potato Famine.

This year marks the 170th anniversary of the end of this terrible chapter in history. The famine kicked off with the failure of the Irish potato crop in the fall of 1846. A fungus that began in the Americas quickly spread worldwide. When potatoes were harvested, they immediately turned into an inedible mush. The fungus caused dietary problems in many places, but nowhere were the effects more devastating than in Ireland.

Why? Because historians estimate that in the western – and poorest – region of Ireland, the average male farmer or day laborer consumed more than ten pounds of potatoes every day. Mixed with buttermilk, this combination – much like beans and corn in the new world – provided the nutrients necessary for a healthy, if monotonous, diet.

The first ten months of the crop failure caused widespread hunger, but not a massive wave of deaths. England’s Tory government ordered shipments of corn from across the Atlantic to be distributed to the Irish free of charge. Unfortunately, that government fell and was replaced by Britain’s first liberal coalition. In those days, “liberal” meant two things: first, the extension of voting rights and secondly, the imperative that government not interfere in the dynamics of the “free market.”

The new prime minister called for a halt to the free distribution of corn to the Irish peasantry. The food was sold – at a discount – to grain merchants and the Irish assigned make-work jobs whose wages were to be used to buy corn. Unfortunately, the government did not foresee that, in the face of widespread hunger, the price of food would become increasingly inflated, while the wages for Irish laborers remained fixed.

The outcome? The “wages” were not sufficient to cover the cost of nutrition. By 1850, more than half the people of Ireland had either died of starvation – thousands of them expiring on the site of the so-called “famine roads” that were supposed to weave the country together – or fled to other countries.

As was said of Hurricane Katrina, a natural disaster was turned into a man-made catastrophe by government ineptitude.

In 2018, before Boeing encountered flaws with its 737 Max 8 aircraft in design and software to compensate for design shortcomings, Magni Asset Management, using a Caux Round Table (CRT) proprietary assessment methodology, assessed Boeing for governance. The assessment gave Boeing lower scores for risk management of customers and employees and a higher score for attending to shareholders.

The 737 Max 8 debacle happened at the interface between Boeing and its customers and employees. As a result of its performance, Boeing has suffered massive losses in cash flow, net worth and reputation.

Those losses might very well have been reduced or prevented if the company had paid more attention to governance of stakeholder risk management.

The link to the Magni analysis can be found here.

The value of Boeing as a company was determined by its stakeholder relationships, which can be assessed and improved with CRT metrics.

In my last consideration of morality and ethics, I supposed that being good presumes an engagement with reality and not just with principle and abstractions. Then, I saw a report that for the first nine months of 2019, Airbnb experienced losses, in other words, no profit. This development caught the attention of many who were open to buying Airbnb stock once it was sold to the public. Now, however, warned by the fact of the company making losses and not profits, there are questions about how much a share of Airbnb might be worth in a public offering.

Now, for 200 years, profit has been touted as evidence of inherent immorality in capitalism. Capitalism, with its private property, cash nexus and the rights of owners to net profits, has been criticized by moralists from Christians like Charles Dickens to Karl Marx as misguided and an abuse of human potential. Because of profit, capitalism is said to draw out the worst in people; that it is sin institutionalized; that one can’t serve both mammon and God and since profit sits at the feet of mammon, to choose capitalism is to reject God.

And yet, as we see in the Airbnb case, profit ties our aspirations to reality. It is the reality principle operating to check the pleasure principle, to use Freudian terms. Where there is no profit, there is a mismatch in reality between supply and demand. Simply put, losses reveal that there is insufficient demand for the company’s goods or services at the price needed by the company to remain a going concern. Losses are not sustainable over time.

Profit links Airbnb to others. Thus, it functions as a moral presence in the working of the mind, directing our attention to the needs and situations of others. Lack of profit causes us to question Airbnb’s ability to relate to the needs of others.

I would then suggest that anything which works to ground our self-centered romanticism or hubristic self-conceits externally in relationships with others, who are an important reality, is both a public and a private good. It is morality in action.

Two recent articles about pollution and global warming triggered a thought which had been a latent reflection arising from reading Cicero’s writing on duties (De Officis) where he seems to be descriptive about morality and ethics rather than prescriptive, though it is clear he advises choosing some behaviors and values over others.

Nevertheless, one of his notable assertions is that the honestum and the utile in reality are interdependent. What is virtuous and authentically good when shown in public leads to prudent and efficacious consequences and what is of real utility in life tends to have an affinity with virtue and goodness.

My college education largely posed a conflict between morality – deontology, like Kant’s categorical imperative – and reality – utilitarian calculation of benefits and enjoyments, following Bentham and John Stuart Mill. We were told to take sides – either the moral and impractical or the practical, though it might be immoral on occasion.

But if reality is part of morality and ethics, then the decision as to what to do is either more simple – just follow the facts – or more complicated – figure out what the facts are when much is poorly known or unknown.

Since it is said that we live in a “post-truth” age, taking reality and facts as our guideposts seems foolish and a throwback to past imperfections.

One article I just read described how certain California communities and firefighters are preparing for the coming dry months and forest fires. They have moved beyond a Greta Thunberg moment when looming catastrophe overwhelms judgment and, immobilized, we resort to emotion and denunciation. They are rather learning from reality how these fires start and spread. They are clearing dry brush and grass from the forest understory; planting rows of trees as firebreaks where fierce winds will blow; and telling homeowners not to put flammable plantings near houses.

I consider their behavior to be ethical and admirable.

Next fall, we will learn how successful these intentional efforts will have been.

In another commentary, the author, John Tierney, broke ranks intellectually with many who see the moral course of action as prohibiting the use of plastic bags. His sense of reality is that plastic bags are not the problem many say they are and, in fact, have advantages for sanitation and sustainability.

He asserts as fact – as a reality check – that most of the plastic in the Pacific Ocean does not come from more wealthy consumers, but from ships and from Asia “as mismanaged waste.”

His take on reality leads him to make certain policy recommendations. Those recommendations would seem to deserve the status of being ethical or moral, as they are designed to reduce harm.

One of the ethical principles we proposed for NGOs and other civil society organizations is to take care – to be guided by reality when trying to be moral. The principle of care is:

“A Civil Society Institution (CSI) will recognize that its policies and activities are a legitimate subject of public comment and analysis. It is, therefore, willing to engage in reasoned discourse regarding its mission and objectives, values, principles, governance, actions and means used to achieve its objectives. When engaging in advocacy, a CSI will always, in good faith, present accurate facts and truthful information. When planning its actions or executing its policies, a CSI will demonstrate enlightened care and concern for those whose interests will be affected by its contemplated actions. In case a CSI inflicts damage upon a government, international organization, corporation, or other party, it will be accountable for its actions.”

Our recent round tables exploring modernization of balance sheets and valuation methodology have produced consensus that intangibles can be valuable assets of a company.

In support of this conclusion, I just read two reports in the Wall Street Journal.

One was that the stock of Morgan Stanley, Bank of America and Citigroup trade at levels still below their market valuation in 2007, before the 2008 collapse of credit markets.

Badly wounded by the 2008 crisis, Morgan Stanley and Bank of America switched business models to lessen their dependency on trading and investment banking revenue and bring in wealth management clients. Those changes in their business model – an intangible aspect of governance – did lead to increases in their stock prices. An analyst’s comment was that “some people” still put a discount on their valuation, given their line of business.

Another comment by John D. Stoll pointed out that the valuation of Peloton, a maker of exercise bikes, depended on its being able to bill itself as a “tech” company because it includes an internet feature on its stationary bikes. The company – like Uber and WeWork – sought a tech aspect to its goods which would differentiate it from the competition when “tech” companies are given higher multiples on earnings by market speculators. Thus, the intellectual property, along with access to its creators and maintainers of a program for internet access to others also using the bikes has important value for Peloton.

I have found it very helpful and persuasive to remark on when reality aligns with the guidance or perhaps even teachings implicit in our Principles for Business. My justification for doing so is that such coincidence is not by chance, but show the principles congruent with reality.

There are three recent stories which provide such congruence.

First, John Stumpf, former Chairman and CEO of Wells Fargo, was banned from working in the banking industry and fined $17.5 million by the American Comptroller of the Currency for his role in creating fake accounts a few years ago. Stumpf agreed to the ban and payment of the fine in a settlement with the Comptroller.

The alignment of reality with our principles is that not taking reasonable care of stakeholders and acting without integrity lead to losses. To enhance profitability, it is necessary to manage stakeholder relationships with due care, follow the letter of the law and then go beyond that to establish trust.

Secondly, Boeing just incurred its first annual loss since 1997. In 2018, the company reported profits of $10.46 billion. In 2019, the company reported a loss of $636 million. That drop in profits was a big hit to its shareholders. Boeing also just reported that the costs associated with its 737 Max 8 aircraft have passed $19 billion, another hit to shareholder’s equity. The cause of these losses was failure to design and build a sufficiently safe 737 Max 8 aircraft. This constituted a failure to provide customers and their customers with a quality product. As a consequence, Boeing lost money. Profit followed on customer experience.

Thirdly, Goldman Sachs has given its shareholders an unprecedented look inside the company to reveal its plan for making profits going forward. For the first time ever, the company set financial targets for itself and previewed new business models to enhance profitability. The bank will offer new consumer products like checking accounts and financial management, as does its competitors JPMorgan Chase and Bank of America. Since the collapse of credit markets in 2008, Goldman’s stock has not been as highly valued as the stocks of those competitors.

In taking care of its shareholders, Goldman proposes to satisfy new customers. In its repositioning, Goldman is seeking to better manage its relationship with two stakeholder constituencies – customers who might or might not buy its services and investors who might or might not buy its shares.

The relevant principle is:

PRINCIPLE 1 – RESPECT STAKEHOLDERS BEYOND SHAREHOLDERS

• A responsible business acknowledges its duty to contribute value to society through the wealth and employment it creates and the products and services it provides to consumers.
• A responsible business maintains its economic health and viability not just for shareholders, but also for other stakeholders.
• A responsible business respects the interests of and acts with honesty and fairness towards its customers, employees, suppliers, competitors and the broader community.

Today is Brexit. The withdrawal of the United Kingdom from the European Union is historic. One way of thinking about its implications is to revert to history and culture: the Anglo-Saxons were never meant to be part of the continent. Over the centuries, they built on the fusion of Norman and Saxon cultures something unique, shaped by a unique legal system – the common law – and later by a Protestant sense of ministry – capitalism in the economy and constitutionalism in politics and governance.

Shakespeare famously put it thus: “This royal throne of kings, this sceptered isle, This earth of majesty, this seat of Mars, This other Eden, demi-paradise, This fortress built by Nature for herself Against infection and the hand of war, This happy breed of men, this little world, This precious stone set in the silver sea, Which serves it in the office of a wall Or as a moat defensive to a house, Against the envy of less happier lands,–This blessed plot, this earth, this realm, this England.”

The motivation for Brexit expressed by its proponents is a kind of ethnic exceptionalism – the economic advantages of union were not enough to offset resentment at subordination to a micro-managing, regulatory authority in Brussels. Napoleonic civil law procedures and bureaucratic norms did not wear well with common law values and traditions.

The Caux Round Table for Moral Capitalism’s Principles for Business and Principles for Government give value to internationalism and participation in global markets in order to provide value for customers, employees, investors and citizens. We would, therefore, advise the government of Boris Johnson to implement such principles from its new position of full sovereign autonomy.

Stepping back and looking at the big picture, Brexit should cause us to think about large dynamics in human civilization – what are the inter-dependencies among the economy, culture, politics and social structure? The complexities of these inter-relationships have attracted great minds – Adam Smith, David Ricardo, John Stuart Mill, Karl Marx, Emile Durkheim, Max Weber, Antonio Gramsci, Keynes, Hayek and countless contemporary historians, sociologists, anthropologists, economists and political scientists.

What we can say with certainty is that each sector influences the others. A declining economy has political, social and cultural effects. A dysfunctional culture will lead to corrupt politics and lower economic growth. Social conflict will detract from just government and economic well-being. Totalitarian government will adversely impact culture and constrain economic innovation and efficiency.

The United Kingdom going forward will need to carefully balance its exceptional culture and political traditions with sound economic policy as part of a global civilization.