13 Oct 2008 in Corporate Culture, Corporate Responsibility
The systemic erosion of ethics and responsibility in business and individual decision-making has brought the world economy to a virtual standstill. Algorithmic risk management designed to ignore real world problems, short-term profit driven decisions, extremist free market fundamentalism, and shareholder primacy at the expense of other stakeholders, have divorced business leadership from standards of good faith, wise stewardship and care for the public interest.
Trust the essential element of credit-based market transactions has become a rare commodity. Indulgence in the race-to-the-bottom, profit-at-all-costs, instant gratification mentality of the entitlement culture, can no longer be cloaked in terms of capitalism and the free market. The blame for where we are can be shared by everyone in government and industry who acted only in their immediate self-interest and in apparent belief that the bubble would never burst. Is it any wonder that a recent Washington Post story was headlined, The End of American Capitalism?
Almost 40 years ago, Milton Friedman, the 20th century’s leading free market economist wrote an article for The New York Times Magazine headlined: "The Social Responsibility of Business Is to Increase Its Profits." The late Nobel laureate in economics pilloried capitalists who claimed that "business is not concerned 'merely' with profit but also with promoting desirable 'social' ends and wrote that such people are "preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades." Later, in a 1991 lecture entitled "Economic Freedom, Human Freedom, Political Freedom" given in honor of Adam Smith, Friedman said, "We…are all moved by the same incentive: to promote our own self-interest…You know, there is one thing you can trust everybody to do. You can trust everybody to put his interest above yours. You only benefit if the other party also benefits. There is no way in which you can satisfy your needs at the expense of somebody else."
Unfortunately, in the short term Friedman was wrong. Too many have satisfied their short-term self interest at the expense of almost everybody else. The end result is that the future of our world is at stake.
This is the moment of truth for free market capitalism. Now we must reconcile Adam Smith's lesser known work, The Theory of Moral Sentiments, with the commercial society he outlined in the Wealth of Nations to achieve his vision of the ethical character of an ideal future society. In Adam Smith’s Utopia, the world's social components are completely harmonious with each other so prosperity can be sustained.
I only wish Friedman were alive to help us to develop the new models of sustainable capitalism grounded in ethics and responsibility for the future of the world.
GLM
