Capitalism in Crisis

The free-enterprise version of capitalism is facing a variety of ethical challenges that could radically change the shape of the global capitalist system in future. In Latin America globalization has stumbled; a decade of reforms based on the ‘Washington consensus’ are being blamed for exacerbating rather than reliving already chronic poverty, and in many cases severely worsening the general financial health of many Latin American nations. According to the United Nations: The number of Latin Americans living in extreme poverty grew from 48 million to 57 million during the 1990s. Currencies have collapsed, debts are mounting and many free market institutions are rapidly losing their legitimacy and support.

“Economic stability was planned at the expense of social justice…(and) we wound up without either of them."

Brazilian President Luiz Inacio da Silva.

Even relatively successful ‘emerging’ nations such as China are facing ethical crises. In China there is growing dismay at the lack of progress on working conditions, urban sprawl and basic human rights; domestic issues which could severely disrupt the present business-friendly environment in the world’s most populous nation.

The situation is really no better in the developed West. Here the public face of capitalism is corrupt and deceitful. WorldCom, Enron, and Andersen have become negative icons: their management, poster boys of corporate duplicity. As far as the public are concerned, the idea of management ethics has become an oxymoron1. And the damage is more widespread than most people thought: the misconduct being uncovered in investment banking and mutual funds seems to have elevated ‘insider’ greed to Olympian levels. The depth and broad acceptance of corrupt practices in the financial services industry continues to feed conspiracy theorist’s worst suspicions; that a broad systemic corruption runs from the boardrooms of corporate America through to the very heart of the capitalist world. This is no passing fancy; the Attorney General of New York in particular is using every legal means to bring the guilty to justice. His biggest problem …there’s too many important people and vital financial institutions involved to prosecute everyone without (potentially) doing irreversible damage to the capitalist system itself.

What are the consequences of all these critical failures and ethical misconduct? While senior management and their legal teams strenuously deny all responsibility, politicians and regulators across the globe are moving in to fill the growing vacuum; slowly re-regulating the market economy. The present ethical crisis needs to be resolved before the global growth can be expected to improve significantly, driving profits and investment to more appropriate levels. The stakes are high, for the way in which this ethical crisis is resolved will shape the face of global business in future. Will an acceptable morality emerge in global development? Will capital continue to enjoy its traditional freedom of action - the full run of its ‘animal spirits’ -, as Maynard Keynes described them2? Or is global capitalism going to be subjected to an ever-growing host of bureaucratic constraints? The next steps taken in this arena could dramatically influence the future of liberal capitalism. Its no exaggeration to suggest that without meaningful reforms the very existence of a self-regulating individualism is imperilled.

Why do Ethics matter to Capitalism?

Ethics are a body of moral understanding that help us evaluate the rightness (or ‘goodness’) of human conduct. Morals and ethics play an important role in sustaining the quality of our inter-relationships both on a personal basis and between groups. It is increasingly clear, given the troubles in corporate American, the ‘gangster’ capitalism that has emerged in post Soviet Russia (among others), and the on going corruption in developing nations that ethics are much more than a side issue in capitalism; ethics are vital to economic growth and development, providing vital behavioral underpinning to free market institutions in a civil economy. Ironically, it is informal (largely voluntary) ethics that are more effective in delivering that appropriate behavior than the formal authority of civil and/or criminal law.

Corruption, intimidation, violence and mistrust emerge and grow in ethical vacuums; all are harmful to trade and growth. Although strong laws are important in regulating behaviour and ensuring - among other things - that violence is constrained and contractual obligations are met etc., laws are a particularly inefficient means of ensuring positive behaviour.

Law itself is a derivative function; at its best a codification of society’s underlying values and ethical standards. What laws do provide are two differing kinds of disincentives. One, a deterrent effect, where a law has been broken in the course of commercial activity, fines and/or incarceration of individuals acts as a warning to others. Secondly, the law offers the potential for a corrective remedy after the fact. Where a contractual obligation has been abridged or a commercial crime committed legal recourse allows for society’s standards to be upheld. However, legal remedies by their very nature are slow and unpredictable. Market driven economies and all their principal institutions: contracts, market institutions of all kinds, regulatory agencies, corporations, banks and other financial institutions, depend at a minimum upon individuals (corporations) being trustworthy, civil and meeting agreed obligations in the normal course of business activity. Attempting to enforce correct behaviour after the fact is prohibitive in both cost and time. Apart from the general waste, if unethical behaviour becomes the norm it soon leads to a breakdown in the presumption of trust, which reduces risk-taking, leading eventually to economic decline.

What are Ethics?

Although there are a wide variety of ethical theories and culturally specific traditions in ethics, the ethical context for present day business practices has grown out of the Western tradition. Western ethical philosophy distinguishes three aspects to any action that an ethical value can be attributable to: (1) Motives, (2) Means and (3) Ends or Consequences of action. In other words, ethical value can be attributed to the motives or originating logic behind a given course of action, the means by which an action is undertaken and ultimately the ends or consequences of actions. These motives, means and consequences can all independently be assigned ethical value and in many cases can be judged quite differently.

For instance, consider the investment Microsoft made a few years ago in its archrival and competitor Apple Computers. The motivation or intentions behind the investment might simply have been prudent, Apple representing a sound financial investment for Microsoft. On the other hand the motivations may have been self-serving, to insure the survival of a weak competitor thus preserving the (potentially false) notion that Microsoft operates in a highly competitive environment with rivals that threaten its market share. Clearly we would judge these motivations differently from an ethical standpoint. The means in this case, an investment in Apple Corporation, was freely undertaken by Microsoft and welcomed by a financially struggling Apple. In this case the means are legal and ethical. The consequences, a computer industry that is perhaps less competitive, maybe less free from monopolistic practices is at issue both ethically and legally, particularly given the anti-trust actions directed against Microsoft by successive governments in the United States and Europe. In this particular case ethical certainty is difficult to pin down, however it demonstrates the differences that can exist between ethics and law. The law is focused primarily (but not exclusively) on means. Attempting to answer the question: did a given action contravene the law? Clearly in this case no laws were broken. Ethics on the other hand are more complex, involving independent judgement at all three levels - motivations, means and consequences, and a balanced judgment. As a consequence, ethical judgements are often more subjective, less clear-cut, than laws.

In the battle between law and ethics, what’s technically legal normally prevails over more rigorous and wide ranging ethical standards. Given that recent ethical failures have led to substantial investment losses, collapsing businesses and in some cases prison terms for senior executives, it is perhaps prudent to examine the link between sustainable growth and ethics in business. Where do we begin such a quest? Good question! Most business schools consider Business Ethics as a form of ‘Applied’ Ethics. In other words it’s a matter of enforcing standards. The assumption behind this position is the belief that ethical theory in regard to business is generally accepted, that there exists commonly agreed principles. It would be prudent, perhaps, just as a precaution against unwarranted assumptions, to begin with a review of a few of the more relevant ethical ‘theories’ in the western tradition as they apply to capitalism.

Ethical Theories as they Relate to Business

People in business, like all other individuals in society are required to make decisions, to take actions that affect both themselves and others. The principals that underlie decisions, that justify actions are motivated by various factors: some individuals are commanded by God to follow certain pre-ordained standards; others are motivated by a sense of duty, or by their conscience informed by either an overall sense of justice and/or the basic rights of others. Some are ego centric, motivated selfishly, a ‘what’s in it for me’ perspective, while some consider their self oriented actions through a lens of leading the ‘virtuous’ life. All these motivations are legitimate and not surprisingly have highly developed ethical theories that support them. Some ethical theories have had a more direct impact on capitalism and present day business practices than others. Surprisingly one of the most pervasive influences on modern management practices are the works of Ayn Rand, a novelist whose ethical theories are, to say the least, non-conformist.

Ayn Rand and Objectivism

Atlas Shrugged, Ayn Rand’s most famous novel, centres on the epic struggle between the heroic, economically productive members of society and the unproductive bureaucratic parasites that Rand classifies as looters. Looters (soft hearted liberals) have, in their noble quest for equality and justice, destroyed the productive heart of capitalism. In Atlas Shrugged the producer class withdraw their services, leaving society to its own (inadequate) devices. Under the leadership of hero John Galt, these giants of enterprise create a utopia in the wilderness, while the rest of the world descends into chaos.

Ayn Rand’s fiction has enjoyed enormous popularity, but Rand was (is) much more than a novelist; her fiction draws its inspiration from a potent, if somewhat radical, ethical source. Ayn Rand is famous (infamous to many) for developing the philosophy of Objectivism. It is an ethical theory rooted in the individual with a profound belief in life-on-earth as an end in itself. Rational individualism is its central focus. According to Ayn Rand: “Man — every man — is an end in himself, not the means to the ends of others. He must exist for his own sake, neither sacrificing himself to others nor sacrificing others to himself.

In ethical terms Objectivism clearly biases consequences over intentions or means, however it does not judge the ‘goodness’ of actions based upon the ultimate effects on others, but solely on the basis of the consequences to the individual (or corporation) in question. For Ayn Rand, and follow travelers like former UK Prime Minister Margaret Thatcher, society doesn’t really exist; nations are simply a collection of individuals, who have no moral responsibility to one another. In Objectivism, acts of Christian charity, indeed any and all actions to help those less fortunate than oneself, are considered wrongheaded and largely counterproductive

Although the ethical theories of Ayn Rand are almost universally criticized in the professional world of philosophy, on the Street3 and in the Boardroom it’s a different matter. Here the influences of Objectivism have enormous traction. Even now, more than 20 years after her death in 1982 her undiluted ‘egoism’ with its heroic ‘producers’ and moral certainty rings true with many. Indeed in the face of widespread criticism of modern business practices today, many business leaders are returning to Ayn Rand and the philosophy of Objectivism for reinforcement of their behaviour. According to USA Today, following the Enron crisis: The Atlas Society, devoted to Atlas Shrugged, The Fountainhead and other fiction by Ayn Rand, saw Web site visits suddenly double to 23,000 a month… after holding steady for years at 10,000 to 12,000. Traffic started creeping up in January and February as the Enron scandal blossomed. The Objectivist Center, which focuses on the philosophy spawned by the books, saw user visits rise 159% to 78,397 in August 2002 from 30,247 in August 2001.

Although popular in management circles, Objectivism’s lack of social conscience puts it at odds with most established ethical theories and – ironically - with many of the more important developments in capitalism historically. Many of the most profound moments in American capitalism have been characterized by acts of generosity and cooperation: the spontaneously ‘barn raising’ tradition that developed among strangers in the pioneering west is a prime example, as was Henry Ford’s doubling and redoubling of factory wages in the early 20th century. Indeed Henry Ford’s acts of generosity - strongly opposed by many Ford shareholders and the Wall Street Journal - are credited with almost single-handedly creating the modern ‘consumer’ society in the United States, and – not unrelated - establishing a mass market for Ford automobiles.

Despite many objections, the philosophy of Ayn Rand remains (implicitly or explicitly) one of the most powerful forces in business ethics. Objectivism’s intense focus on the ‘producer’ class, and its limited definition of ‘self’ informs and justifies much of the self-centredness and lack of concern for social consequences that characterize modern business practices.

The Kantian Tradition

Rand is by no means the whole story in ethics; there are other influences and ethical theories that relate to directly to capitalism. Many philosophers talk of "the ethic of virtue" which is an ethical standard concentrating on means and to a lesser extent motives. These ethical priorities are often linked with the works of German philosopher Immanuel Kant (1724 – 1804). The Kantian tradition focuses on virtue and can be summarized by the statement: "we must not commit an unethical act, even as a means of doing good".

The primary emphasis in Kant is on ‘duty’ and the importance of leading a virtuous life. Even in situations where the motives are sound and the consequences good, Kant finds fault with unjust means. Extreme Kantian’s would go so far as to condemn as unethical, for instance, an individual during World War II who lied to the Gestapo about harbouring a family of Jews in the basement. For Kant, lying – the means - is clearly wrong. This despite the fact that horrific consequences would ensue; for Kant individual responsibility for not committing an unethical act overrides the consequences for the acts of others, however horrible.

Possibly Kant’s most important contribution to business ethics is his categorical imperative: “Act only on the maxim by which you can at the same time will that it should become a universal law.” Consider the issue of deliberate misrepresentation in business. Many people in business, who are otherwise respectable, feel that because business is competitive and focused on individual ‘self interest’ they are free to deliberately mislead partners, investors or customers; some do it on a regular basis. What would Kant have to say about this proposition? Kant would, no doubt, construct a general principle (maxim) based on the premise of the original action. In this specific case the maxim would be: ‘it is morally permissible to make statements to others knowing that they are untrue’. Clearly this action fails Kant’s categorical imperative, for if this maxim became general practice the system of trust upon which the economy depends would breakdown, and we would all be the poorer for it. In other words the maxim does not support a universal law.

Kant’s categorical imperative and virtuous logic set very high standards in ethics, and while Kantian logic informs much of the theory of business ethics (its spirit is seen clearly in codes of conduct, ethical rules etc.) its impact on management practices has been slight. Indeed its impracticality is one of the reasons that such a vast gulf separates the professionals in business ethics from the management suite.

Utilitarianism

There is another more pragmatic perspective in the Western ethical tradition, which we could call the "ethic of consequences". This consequential school of ethics is most frequently associated with Utilitarianism, an ethical philosophy that concentrates on the ends, valuing an act on the basis of the ultimate ‘good’ that may be done. This tradition grew out of English liberalism in the 19th century. Its early proponents included Jeremy Bentham (1748- 1832) and John Stuart Mill (1806- 1873), both of whom played significant roles in the development of Utilitarianism and Classical Liberalism.

According to Mill, the basic principle of utilitarianism can be described in the following way: Actions are right to the degree that they tend to promote the greatest good for the greatest number. Unlike the more demanding Kantian system, Utilitarianism places less emphasis on motives or means, placing greater weight on the ultimate consequences of action. Utilitarianism focuses on achieving desirable ends or consequences for the individual’s involved, while establishing virtue on the basis of maximizing "the greatest good".

Historically, Utilitarianism with its pragmatism has always been more closely aligned with capitalism and business practices than the Kantian tradition. While it is not always true that the ‘ends justify the means’ there is a strong sense in business that profitable companies are good companies, and, until scandal breaks, investors, regulators and the public generally turn a blind eye to the conduct that generated those profits. What clearly distinguishes modern day business practice from Utilitarianism is Utilitarianism’s insistence on a universal aspect of moral responsibility. After all, acts are valued in Utilitarianism on the basis of delivering the greatest good for the greatest number. This is clearly at odds with normal business practices, which concentrates almost exclusively on the ‘greatest good’ for investors, i.e. the bottom line. Ironically the larger issue of social responsibility for business, inherent in the philosophy of Utilitarianism, has been removed from ethical consideration in western capitalism by the workings of capitalism’s founding myth: Adam Smith’s famous ‘hidden hand’.

Classical Liberalism

The theory of capitalism and business practices owe a great debt to the classical liberals, most importantly Adam Smith, David Ricardo, and Thomas Malthus. These early liberal thinkers were responsible for providing the ideological underpinning for capitalism in the late 18th and early 19th centuries. Smith in particular saw that an autonomous propertied class of entrepreneurs freed from the restraints of monarchical power would vastly increase the national wealth (as well as their own wealth). Smith, the acknowledged founder of economics, is famous for his principal thesis that private ownership should be as free as possible from interference by governments – by which he meant the Kings - who until that time controlled all national property as if it were their own personal property.

On the question of social responsibility opinions vary among early liberals, but Adam Smith in The Wealth of Nations (1776) proposed one of the most popular solutions to the problem. Capitalists, he recommended, should be left alone to follow their own interests. The unrestricted employment of their property would then be guided by a ‘hidden hand’ that would inevitably result in the greatest public good.

“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” Adam Smith

This doctrine put forward in Adam Smith’s classic treatise on capitalism, clearly pleased the new entrepreneurial class who naturally made the assumption that the ‘hidden hand’ absolved them from larger questions of social responsibility. According to Smith capitalism was self-correcting; business need only concern itself with making a profit.

Smith’s Theory of Moral Sentiments

But in understanding Adam Smith’s position clearly its important to remember that the great man wrote another, earlier, book on the subject of moral responsibility: Theory of Moral Sentiments (1759). In this we have a slightly different, and more fully developed idea of ethical responsibility. In the Theory of Moral Sentiments Smith examined the question of moral behaviour in general. He was able to absolve the ‘business’ itself or any particular ‘person in business’ from any special class of moral responsibility because he believed that individuals as social beings were ethical in their own right.

Smith believed that three factors, prudence, justice and benevolence govern an individual’s economic motivations. Prudence for Smith is relatively straightforward; it’s simply self-interest by another name. Everyone, he realized, whether prince or peasant has this sort of motivation. A ‘sense of justice’ is more complex, for Adam Smith it implies that rational individuals obey the law, and more importantly can be depended upon to obey the law most of the time. Benevolence is where Smith gets more controversial and where he departs clearly from Objectivism. For in Smith benevolence implies some sort of interest in people to do the ‘right’ thing even in the absence of specific law. Smith felt that social forces and an individual’s moral goodness were powerful enough that people could be trusted to behave ethically most of the time.

Smith’s ideas demonstrate a strong belief in the concept of individual social responsibility. For Adam Smith, integrity was a crucial ingredient in the effective operation of a free market capitalist system. We might say that the ‘hidden hand’ for Smith is really personal morality. It is the consistency with which individuals ‘do the right thing’, in essence self-regulate their own behaviour, that creates the general freedom of action in the capitalist system. It is also clear from the example of post Soviet Russia - among others - that the absence of self regulation leads not to freedom, but to anarchy and eventually to government intervention (or regulation) in the economy.

Ethical Standards in the Modern World

Much has changed in the nearly two and a half centuries since Adam Smith first postulated his concept of capitalism’s ‘hidden hand’. Over the course of those turbulent centuries, history has not been kind to ethical standards in general, nor the concept of moral certainty in particular. Indeed the 20th century - the most violent in history - has brought in its wake enormous forces that have either eroded, or destroyed outright many of western society’s traditional values and ethical principles. World War I with its appalling violence and slaughter staggered the West, fatally undermining its sense of moral superiority. In the decades to follow, the few moral principles that remained were simply overwhelmed by the violence and inhumanity that accompanied the rise of fascism and communism.

The challenge to traditional Western ethics, as complex and devastating as it has been, has a parallel in the world of science. Early in the 20th century Einstein's 'Theory of Relativity' was presented to the world; its impact was immediate and revolutionary. Despite the obvious scientific genius of Einstein’s work, the ‘Theory of Relativity’, by driving a stake through the heart of Newtonian physics, completely undermined the bedrock certainty of western science. From this point forward modern science has had to adjust to the fact that although the, so-called, "laws" of Newtonian physics have local applicability, they do not represent anything like the universal truths imagined previously.

Western capitalism, like Einstein’s universe is dynamic, its internal forces provide a continuous challenge to traditional values and ethics, which must constantly evolve in order to maintain legitimacy in a dynamic world. The very fact of this dynamism has led many to despair, to fear that Western society is spinning out of control, hurtling toward the abyss of moral relativism. But as in science, the fact of dynamics requires a reinvestigation of the deep principals, so that a continuity or logical progression can reveal itself in the apparent chaos of change.

Society does exist; it is the alignment of individuals’ lives; the unity of purpose that defines a ‘people’. Ethics are vital to the health and ongoing unity of that common purpose. So while it may be theoretically true as many modernists suggest that all moral arguments are relative and in the ultimate sense subjective, it is practically true that each political culture creates a human space where moral arguments have a relative and qualified application. Therefore in the same sense that Newtonian physics is still useful and applicable in the everyday practical sense, so it is with ethical principles. Society by definition creates a human 'moral-space’ within which ethical principles have a ‘relative objectivity'.

In other words even in the dynamic modern world, ethical arguments ARE applicable, but with qualifications. One of the most obvious qualifications in ethics is the need to accommodate social and political dynamism, the progression of society through its various stages of growth. If ethical arguments are to remain legitimate they must move with the tides of history. We live in a changing world, there’s little doubt of that, but what impact do technological, political and other large-scale changes in human systems have upon ethics in general and business practices in particular? In order to answer these questions it would be prudent to investigate more thoroughly the sources of ethical truth and the nature of change.

What are the Sources of Ethics?

Anthony Ashley Cooper, Earl of Shaftesbury (1671-1713) speculated that human beings have a faculty of moral perception that is analogous to sensory perception. “Just as our external senses detect qualities in external objects, such as colours and shapes, so too does our moral faculty detect good and bad moral qualities in people and actions.”4 David Hume (1711-1776) argues that some virtuous character traits are instinctive or natural, such as benevolence, and others are acquired or artificial, such as justice.5 Like Adam Smith, Hume and Lord Shaftesbury operate in an older ‘moral sense’ tradition, believing that right behavior is innate to some degree. But it’s clear from recent ethical crises that important elements of our ethical restraint are ‘learned’, acquired in context and in some sense deeply dependent upon the maintenance of the social environment for their ongoing relevance.

Some have suggested that the ethical crisis in capitalism dovetails with rapid globalization, de-regulation of financial markets and more generally the broad secularization of (Western) society. In one sense these arguments are true, the explosion in opportunities that has come about through de-regulation of the financial services industry and globalization of business has radically changed the environment, challenging the older systems of professional accountability. The aristocratic ‘Gentlemen’s Code’ that used to govern and rigidly regulate standards of behavior in London’s financial district has simply been overwhelmed by deregulation, the loss of fixed commissions and vastly increased competition. On the other side of the coin, optimists point out that, given the massive growth in capitalism, statistically we’re probably behaving no worse today than we ever have been.

Others however, look more deeply and darkly at the problem. Conservative philosopher Leo Strauss (1899 – 1973) attributes the decline in morality to ‘modernism’ itself. According to the Strauss, America was the first wholly modern society. This fact, he believed, sealed the fate of American morality. Straussians of all sorts today see the decline of public morality as the inevitable culmination of the fatally flawed ideology of liberty and equality.

What did Strauss have to say about the sources of moral goodness? Well, starting from the premise that reason and revelation couldn’t logically refute one another, Strauss, following a rather convoluted philosophical journey, came to the conclusion that religion was a great necessity for ordinary men. Like many conservatives throughout the ages, Strauss believes that ethics are ‘learned’, attributing the decline in morality and business ethics to the diminishing influence of religious belief in Western society.

Christian Morality as the Source of Capitalist Ethics

Does the Christian belief system morally support capitalism? Considering that Jesus of Nazareth physically threw moneychangers out of the Temple, its not surprising that the Christian moral tradition in respect to capitalism is strong on principle… but somewhat contradictory.

Jesus of Nazareth

There are parables in the Gospels that provide insights into Jesus’ opinions on trade and capitalism. Consider the resounding criticism of ‘mammon’ in Matthew 6:19-21;24:

Lay not up for yourselves treasures upon earth, where moth and rust doth corrupt, and where thieves break through and steal: But lay up for yourselves treasures in heaven, where neither moth nor rust doth corrupt, and where thieves do not break through nor steal: For where your treasure is, there will your heart be also.

No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. Ye cannot serve God and mammon.

There are however other, more favourable references to trade in the Gospels. Templeton Prize winner Freeman Dyson, a well-known physicist maintains that when an angry Jesus drove the merchants and moneychangers6 out of the Temple he was not expressing an opposition to capitalism per se. He was simply objecting to economic activities being carried on inside a place of Holy worship.

In Matthew 25:14-30, the parable of the talents, Jesus praises the servant who used his master's talents growing and multiplying them, while condemning a servant who buried his talents in the ground. Jesus said little about commerce directly, however he was, like his father Joseph, a builder by trade and no doubt utilized his God given talents for many years. Where he seemed to draw a hard line on commerce was at the Temple door. The Temple was sacred, and clearly trade and commerce did not belong in a place of worship.

The virtues that Jesus ‘the moral teacher’ brings to modern capitalism tend to lie in the qualities of moral goodness, as an expression of God’s grace. In his lifetime Jesus of Nazareth provided a model of moral goodness for his followers through his commitment to (1) charity, helping the poor; (2) inclusion, bringing strangers and outsiders into his circle, into God’s grace and (3) mercy, Jesus’ unique compassion and forgiveness. These virtues, although some distance from the modern ethic of capitalism, are (distantly) reflected in the general openness of free markets in the capitalist system and to some extent in the tradition of charitable foundations. The tradition of charitable foundations, often established by successful business people owes its inner logic to a Christian’s moral duty to help the poor and the dispossessed. However in many cases the establishment of such a foundation takes on a form of absolution, a desire by successful people to do ‘good’ with resources that perhaps were acquired with means that did not meet Jesus’ high standards of moral conduct.

The Roman Catholic Church

The Roman Catholic Church, on the other hand, took a harder line on capitalism. The Church as an institution has tended to consider trade (i.e. capitalism) as ‘worldly’ and therefore not entirely compatible with its moral teachings. In the Middle Ages political authority was delicately, and often explosively balanced between lay kings and the hierarchy of the Church. Despite this balance there was an essential unity between Church doctrine and Civil law. St Augustine, one of the medieval Church’s most important doctrinal sources, opposed capitalism believing that ‘trade’ turned men from the search for God. As a consequence, ‘trade’ - considered unworthy by the Church - was discouraged for many centuries.

When commercial capitalism began to re-emerge in Western life in the late medieval period, the Church sought to control markets through a variety of means, most importantly in this were the medieval law of ‘Just Price’ and the condemnation of ‘Usury’.

The law of Just Price allowed the Church authorities to set prices for goods on an ethical basis. The determination of prices included some consideration of the costs of production but was essentially designed to prevent enrichment through trade. The second means the medieval Church used to control capitalism was the condemnation of ‘Usury’. Lending money for profit was considered a sin for Christians of the day (as indeed it is in present day Islam). However the effect of this prohibition was largely unnecessary in the general case due to the absence of a developed money economy at the time, with its subsequent lack of opportunities for capital.

Therefore, during the period where the Church was most dominant in Western life, capitalism lay dormant constrained by a moral code that distrusted individual commercial initiative and all the worldly implications that it embodied.

Protestantism

Max Weber, in his famous work The Protestant Ethic and the Spirit of Capitalism (1904) articulated a theory suggesting that the rise of Protestantism provided a moral force for capitalist growth through the development of a unique Protestant ‘work ethic’. According to Weber: " The span of human life is infinitely short and precious to make sure of one's own election.  Loss of time through sociability, idle talk, luxury, even more sleep than is necessary for health. . . is worthy of absolute moral condemnation. . . .[Time] is infinitely valuable because every hour lost is lost to labour for the glory of God. 

"The religious valuation of restless, continuous, systematic work in a worldly calling, as the highest means of asceticism, and at the same time the surest and most evident proof of rebirth and genuine faith, must have been the most powerful conceivable lever for the expansion of . . . the spirit of capitalism."

In Weber’s view the spirit of capitalism was born of Calvinist notions of ‘the elect’, which, although rooted in a very ‘otherworldly’ Christian perspective, had the somewhat ironic effect of motivating Protestants to work hard and to value ‘worldly’ achievement - quite different from traditional Roman Catholic asceticism.

Despite this lineage, present day Protestantism can be quite critical of modern business practices. According to modern Protestant moralists, “The modern for-profit corporation can accomplish great good within human society. Chief among these goods is the ability to pull people from poverty, provide them with a livable wage, and provide meaningful work.” The relevance of capitalism in the Protestant ethic today is largely social: strengthening the family, encouraging community life and civic engagement. In Protestantism, Christian moral standards focus not on profits for the corporation, but capitalism’s role in advancing the glory of God and in supporting the Christian community, “To the extent that the corporation lives up to these ideals, then the corporation is a valuable human organization for participating in the overall good of God's creation.”

‘Worldly’ Sources of Capitalist Ethics

Truth be told, Christianity and capitalism have not historically (and do not today) have a definitive philosophical symmetry. The very ‘individualistic’ nature of capitalism tends to conflict or directly contradict Christian moral teachings. Historically the Church and ‘trade’ have had a difficult and often times antagonistic relationship. To find a truer ethical source for modern capitalism we must look beyond Christian morality, to more worldly sources of ethics. (add Hannah here)

Friedrich A. Hayek, one of the 20th century’s most controversial economists, proposed one alternative source. Hayek’s central arguments lay out the fundamental relationship, as he saw it, between private ownership of real or several properties and the ethics that are vital for the development of extended orders (i.e. capitalism). Hayek strongly believed that capitalism was supported by an ethical foundation, and that these ethics, centring in the individual, were the consequence of the ownership of property.

To Hayek, private ownership where it is common, spontaneous generates its own value 'systems' or networks. Individuals who have value through their ownership of property develop bonds of mutual interest, rooted in protecting that value. They will act collectively, and often unconsciously, to safeguard their mutual interest, to minimise their increasing vulnerability, through the generation of system values and laws, which reinforce the rights, privileges and duties of private ownership of property. For Hayek the ethical networks are generated automatically, indeed they were "an evolved morality ... that created and sustains the extended order".7

The abuses of ownership were well recognized by Hayek; they were accounted for through the maintenance of open competition and law. What was required to ensure freedom was not the "common and concrete ends" of centralized authority but an adherence to "abstract rules that preclude arbitrary or discriminatory coercion by or of other people". The role of government then involves preserving the integrity of these abstract rules through the rule of law.

Ethics and the Sense of Social Justice

Hayekian ethics clearly places the source of ethics in a non-religious worldly context. Unlike Objectivism however, Hayek sees the ethics of capitalism as a collective phenomena, emerging from a spontaneous value networking and mutuality founded in self-interest, based largely if not exclusively, in the mutual ownership of material possessions. But Hayek’s theory of capitalist ethics raises serious questions. Surely ethics are rooted in something more than material interests? In maintaining this ‘materialist’ position Hayek is subject to the same kind of criticism that is often levelled at Karl Marx. History has demonstrated clearly the inadequacies, indeed the danger, of this pure materialism. Humanity is more than the sum of its material parts; in this sense both Marx and Hayek seem to underestimate the complex nature of human existence.

Another criticism of Hayekian ethics revolves around the question of social justice and equality. The ‘insiders’ - those for whom the value networking applies in the Hayekian sense - are the owners of property. What does this mean for the rest, who many not have ownership sufficient to warrant inclusion in this elite club? This pragmatic source of ethics faces the utilitarian challenge: how to square the notion of an ethical elite (whose value networking and mutual interests support and protect one another) with a duty of serving society as a whole, the ‘greatest good’?

This issue bring us into the realm of social justice. Ethical value – what is ‘good’ or ‘right’ - ultimately is measured against society’s prevailing sense of what is ‘just’. Is it ‘just’ that a few families of noble lineage should own all the property and wealth in society? Well in feudal society, which was stable and orderly in Western culture for over 1000 years… apparently it was. It wasn’t that long ago in many Western nations that a small minority of industrialists comfortably dominated western society. They felt, and society largely agreed, that their interests were (and should be) the only interests of importance in society. Today such disparities are difficult if not impossible to accept. Such massive changes in society’s overall sense of what is ‘just’ make it clear that the sense of social justice itself changes – evolves - over time. Clearly, if ethical values and standards must conform to a dynamic sense of social justice, any discussion of ethics, if it is to be meaningful must deal with and accommodate the process of change.

In order to properly understand the nature and origins of ethics we need first to answer the questions raised by change: What is progress? What is the mechanism through which change has operated? Finally what are the ethical and moral consequences of this dynamic process?

The West: A Continuum of Change

The movement of Western political culture from the poverty and despotism of the past to the remarkably democratic and prosperous circumstances of today has few parallels in history. Western civilization has occasioned this massive transformation through a broad liberation in the human condition. The slow and torturous accent of Western society began shortly after the first millennium, after it had reached its nadir in the centuries immediately following the disintegration of the Roman Empire. Throughout the intervening centuries the West has been slowly transforming its character, progressively liberating itself from the pervasive influence of medieval restraint. The forces of change have revolutionized Western life and impacted greatly upon powerful political, religious and economic institutions.

The enormous and pervasive structure of the medieval Roman Church has, over the centuries, been transcended, its power and spiritual authority dispersed. The Protestant Reformation was the first such attack on the spiritual monopoly of the Universal Church, but since that original revolution the ‘National’ Protestant churches themselves have seen their own local religious monopolies challenged by an explosive growth in independent religious organizations of all faiths and – more recently – a proliferation of individual spiritual movements.

Politically, the vast power of ‘divine’ hereditary monarchs has fallen, as the political power base expanded gradually over the centuries through various intermediate stages, from aristocratic and monarchical absolutism, through various limited forms of bourgeois (often military dominated) democracies to the populist open democracies that are the norm in Western societies today.

Economically there has been a parallel development in the evolution of Western capitalism; over the centuries there has been a massive expansion in property and wealth, and a wholesale widening in the estate of property ownership, which has undermined the once formidable power of the aristocracy and, more recently, the producers of the industrial age. As a consequence the numbers of people involved in the exchange process has compounded, this has led to a natural expansion in the scale of the market place and an ever-increasing role for market forces and competition in the economy. Parallel changes have also occurred socially, in the general movement away from rigid hierarchical social divisions, to more egalitarian democratic societies.

These institutional changes, with an ever-greater individual involvement and empowerment, define the notion of ‘progress’ in the Western cultural context. Behind these institutional reforms lies the Western concepts of what is ‘just’, which have become progressively more egalitarian, more 'democratic' over the centuries. This evolution in the sense of social justice not only points a positive direction for change, but also establishes a practical means of measuring political and social progress. The eternal conflict in Western life lies in what Hume described as the gulf between what ‘is’ and what ‘ought to be’. For what is perceived to be 'just' at a given point in history may expose injustices in existing power relationships; relationships that may have been defined and legitimized in the past under much different circumstances. As these social changes have worked their way through Western life they have driven a great levelling in society, through a gradual empowerment of the individual: in the process they have consigned some of humanities most powerful institutions (aristocracy, absolute monarchy, communism) to the ‘dustbin’ of history.

Ethical Architecture: The Consequences of Change

The question is, how do vague ethical principals and something as ethereal as an evolving ‘sense’ of social justice impact the practical world? We all know that a sense of ‘injustice’ can influence individuals, or motivate social movements but other than that what practical impact do they have? The answer: they set wheels in motion challenging the legitimacy of institutions as well as the structures of power and ownership in society. Ethical sensibilities are transformed from mind to matter through ownership. Indeed ownership is what converts a web of vague ethical sensibilities into a practical ethical architecture in society, something that has a tangible impact on the principal power relationships - the allocation of social resources – as they exist in the real world.

In each instance historically, progressive institutional reforms have widened the proportion and level of individual involvement in society. This is true not only in the economic sense (observed in the vast increases in home and business ownership etc) but can also be seen in the religious, political and social context.

At the religious level, the right to determine beliefs and opinions has been the source of great controversy in history; driving wedges between families, communities and nations throughout the world. In the past the right to an individual’s opinions and fundamental religious beliefs rested with powerful institutions, not the individual. The right to interpret Scripture (or the Koran or other Holy texts for that matter), to make determinations on fundamental religious beliefs and to voice opinions was once a monopoly enjoyed exclusively by the Clergy. In the Christian religion this right has historically belonged to the upper echelons of the Church hierarchy, principally the Pope in Rome. After the Reformation this religious monopoly passed from the European-wide Catholic Church to a variety of National churches governed by lay Kings – such as England’s Henry VIII. (Who could be vastly more tyrannical than distant Popes) More recently even these national monopolies have been superseded, as state religions pass into obscurity. In a sense spiritual ‘sovereignty’ has passed from distant Religious institutions to the individual and with it true liberty of conscience. Today, it possible to say that an open market in spiritual choices exists, and in many places the right to choose now rests with the individual. The freedom to choose is greatly valued by many, but more importantly, to have these individual choices respected by others in society is empowering. It constitutes a form of ownership: ownership of conscience. These massive changes in spiritual authority have had enormous value and, not surprisingly, ethical implications.

In the same sense political changes over the centuries have greatly empowered individuals. It is accepted by many that political enfranchisement empowers; the vote provides participating individuals with a form of political capital. With the vote, an individual’s interests matter in the overall calculus of decision-making. In this sense political enfranchisement can be considered a form of ownership: ownership of (a portion of) the exercise of sovereignty. Taken together, these qualities of ownership in the political, spiritual and material realm, coupled with similar qualities of ownership in social standing that have emerged in a democratizing society, represent a multi-dimensional matrix of ownership and value accruing in the individual.

By employing an expanded version of the Hayekian logic, this matrix of ‘ownership’ where it is mutually enjoyed creates a spontaneous value networking. Its possible to see in the process of Western evolution a spontaneously generated value networking, which - evolving over time - generates a complex ethical architecture providing the practical system-values and ethical sensibilities that underpin Western liberal institutions. The majority in society may not control the same dollar amount of material assets as the wealthy, but in advanced Western societies the vast majority remain networked into societies ethical architecture through home ownership, or ownership of business interests, as well as their personal ‘ownership’ of political enfranchisement, religious autonomy and a wide variety of other non-material forms of social property.

It is the ethical networking, a function of this mutual ownership, which lays the foundation for a 'civil' society. Civil society emerges at the point where individuals have real choice in: where they work and live, and in the formation of their fundamental beliefs and opinions, a quality of ownership we refer to as religious and intellectual freedom. It is the ethical networking, which is generated from the common interests and vulnerability of the ownership of these many and varied properties that provides the standards of mutual respect and tolerance supporting religious and intellectual diversity.

Ethical Space: A Voluntary Code of No Trespassing

The values and sensibilities that underpin society give substance to market institutions through their power to regulate individual behaviour, they do so by establishing ‘ethical space’ for individuals. Capitalism is defined by the principle of private property ownership. It’s commonly appreciated that ownership of property creates ‘space’ for individuals. No trespassing zones in respect to property serve to limit the interference of others in the individual enjoyment of property. This is ‘ethical space’ in the realm of real property. It’s a relatively straightforward matter for business people and home owners to have respect for, and sympathize with, other people’s physical property – apart from obeying the law, individuals in such circumstances people are socialized by society and their own interests to respect the property rights of others in order to insure the security and privacy of their own property. In civil society we don’t rely on private armies to protect our homes and businesses we enjoy our privacy from the generalized standards of behaviour, the system values that emerge from the mutual ownership of property. The practice of not trespassing on others’ property only really works if it is in the largest part voluntary, an accepted practice that is born in mutual interest and respect. Civil order breaks down when such rights need to be imposed by force of arms. This respect for the property rights of others is manifest in the ‘space’ property owners voluntarily create for one another.

In a larger sense the estate of ownership in society will define ‘ethical space’, the zone of non-interference in all forms of social property. The entitlement to ‘freedom of speech’ is rooted in the ethical space we collectively create for each other in the property of conscience. In that sense intolerance of religious choices is a form of trespassing, a violation of individual religious property rights. The same is true politically. Our ownership of the vote creates a political space for each enfranchised citizen. Violations of that space through underhanded lobbying efforts or bribery represents a form of trespassing, a violation of each individuals citizens political property rights. In healthy civil societies this space is well protected by social values and ethical sensibilities, it defines the ‘freedom’s of an individual in a modern liberty. The debasement of such values and sensibilities, the erosion of ethical space, is a warning sign of ethical decline, of an unravelling of the fabric of liberty.

The Modern World

There are massive forces impacting on society that are demanding change of one sort or another. In the course of 50 years or so Ecology and environmental concerns long considered irrelevant to most businesses have moved from trivial side issues to the ‘front burner’. Minorities of all kinds have successfully challenged long-standing institutional biases, at home and in the workplace. Sexual politics has had a dramatic impact on roles and relationships in the workplace. Gays have come ‘out of the closet’ demanding not simply tolerance of their lifestyle choices, but full unfettered equality and social legitimacy. The western family has been revolutionized by the changing role of woman, changing legal and social attitudes toward ‘children’s rights’, abortion and marriage and, not least, the increasing demands of unfettered consumerism. Not to be forgotten, the modern corporation has transformed itself beyond recognition, becoming less ‘national’, less hierarchical and far less protective and paternalistic.

Evolving Standards, Rising Expectations

It is important to remember that the same forces of history that gave birth to private property ownership and market capitalism are presently at work expanding the estate of ownership in modern society in all directions. The 20th century has been characterized by a wholesale elevation of the interests of women, visible minorities, the handicapped and other historical ‘underdogs’ in society. To many, these changes are undermining capitalism, eroding the moral fibre of a once ‘perfect’ capital system. Critics of modernism often suggest that ‘special interests’, ‘women’s libbers’, civil libertarians, ‘activist’ justices and others have captured the political agenda and are foisting unpopular and unwarranted reforms on society.

But this conspiracy theory does not stand the test of history. The reforms and changes that have made such an impact on business in the 20th century represent an extension of social property rights; the crisis of modernity revolves around the assumption of ownership in various properties, with all the re-distribution of powers, privileges and responsibilities that this transformative process necessarily entails. Changes of this nature are altering the balance of power in society, challenging traditional ways of doing things and contributed to the ongoing evolution of those values and sensibilities that constitute capitalisms’ dynamic ethical architecture. There is nothing new in this; indeed it is a historical pattern that has been repeating itself for centuries.

Modern Business Culture

The cold realities of business today do not happily accommodate the rising expectations or the newly attendant social responsibilities of the modern age. One of the governing myths of our modern business logic is that ‘Nice Guy’s Finish Last’. Business culture has built up an enduring myth that profits are maximized most effectively in the zero-sum game of cutthroat capitalism. This popular business myth is founded upon the notion that each corporation is (and ideally should be) isolated, competing for survival against every other corporation in a war-like hostile commercial environment.

Cutthroat capitalism creates an environment where a small group of perceived insiders (management and their principal financial backers) are engaged in constant struggle with a larger group of perceived outsiders (the public, the company’s own employees, most of its stockholders, supply chain partners, company bankers, as well as the SEC or other regulatory bodies). The bankers and brokers who worked so closely with Enron to disguise its debts, deceiving the public about the true financial health of the company were top professionals. The question is, why did they do it? From reported accounts it’s clear that the ‘ends’ (lucrative banking fees and personal bonuses) justified the ‘means’ however unethical or illegal. Collectively (compulsively some would say) otherwise responsible individuals abandoned all notions of fiduciary duty to customers, associates, shareholders, employees and any and all pension holders of those unfortunate companies. As bad as the Enron situation was, subsequent events in the mutual fund industry have demonstrated that it was not an isolated incident; nor was it in any way atypical. Indeed such behavior appears to be a widespread, if somewhat extreme, consequence of the culture of business, as practiced in the late 20th, early 21st century.

Ethics in business is more than ‘doing the right thing at the right time’ in a global economy it’s also about understanding the limits of moral responsibility. The insiders in all these major transgressions did have an ethic, often a very highly developed sense of right and wrong. However this ethic was very narrowly focused to the tribal associations they developed in the business jungle. Their behavior clearly demonstrates that - like aboriginal tribesmen – they supported and protected one another, based no doubt on common values, perspectives and a sense of mutual interdependence. What was, and still remains so shocking about these incidences is the treatment of perceived outsiders. Regardless of the fiduciary responsibilities inherent in their professions, outsiders simply didn’t enter into the equation; they were clearly beyond the scope of moral responsibility. Before we can effectively comment on modern business ethics we need to address the issue of tribalism, and the competing - expansionary - demands of morality in the modern world.

Ethical Boundaries

The issue of insiders and outsiders in ethics is a question of boundaries, boundaries that all humans place around their groupings, defining the limits of their ethical responsibility. Historically, the ethical boundaries that were strongest were those of the tribe. Tribes grew out of family groupings, larger ‘kinship’ associations that were needed to ensure the subsistence and survival of human beings in a dangerous world. These tribal associations were until quite recently (anthropologically) the principal associations in the human condition. Tribes are characterized by shared values and interdependency, from which developed humanity’s internal ethical systems. Tribal limits defined the ‘insiders’ – those to whom tribal members have an ethical responsibility. According to John H, St John, 8Nature seems to be a mindless struggle for existence… Nature was not allowed within the boundaries of the tribal compound. Here is the place ethics were born. While warfare demands fierce and dedicated hostility to other tribes, it promotes increased socialization within the tribe itself. This is where love was born, and sharing, and compassion.

Those outside the tribe are, by definition, beyond the limits of care; they are fair game. Given the narrow and exceedingly sharp boundaries inherent in tribal ethics, inter-tribal wars were (and remain) common and once begun the violence often descends rapidly into conditions where anything goes.

The history of human civilization has been characterized by an ongoing expansion in the scale of our principal identity groups – call them nations if you will. There has been a parallel extension of the ethical boundaries at each stage of national development as greater and greater numbers of individuals are welcomed within the boundaries of care that define the group. Deepak Chopra the famous author and philosopher pointedly referenced this in his assumption that “Nationalism is nothing more than a form of tribalism”, indeed ethically a nation is the tribe writ large. The difference is a matter of scale, and the fact that nations sever the direct kinship link between the individual and his principal identity groupings.

As western society has evolved from small-scale tribal associations to city-states, to kingdoms to nation states and now multi-ethnic, multi-national states the boundaries of ethical responsibility and the need for cooperation have grown proportionately. Capitalism has created enormous economic efficiencies through harnessing this spirit of cooperation to build large-scale divisions of labour and specializations of function. As the nation has grown the boundaries of ethical responsibility have, by necessity, become much more complex and orders of magnitude greater than those of a traditional kinship-based tribal associations. In this sense the nation survives as a stable unity through the ability of individuals to cooperate at a greater level and on a larger scale. Indeed higher orders of cooperation are required at each stage in a nation’s development to maintain the value commonality that supports it.

But whatever the scale of magnitude, the dynamics of insiders and outsiders remains disturbing unaffected by the passing of time or the scale of the principal identity groupings. There remain well-defined boundaries between insiders and outsiders at all stages of social evolution. Consider the violent interactions between cities in the classical age of Greece and the warring kingdoms in the medieval life in Europe. Little seems to have change in the movement to nations, except that the scale of international conflicts in the modern age grows ever more violent as the level of destructive force becomes more and more powerful and unacceptable.

Societies that embrace capitalism are also subject to additional forces that require still higher ‘internal’ orders of human cooperation. In additional to an expanding scale of the nation, capitalism through its propensity to widen the estate of ownership (politically and economically) necessarily demands that more individuals and a greater proportion of society be included into the ‘governing’ elite – itself an internal ethical boundary.

Powerful elites do not readily or voluntarily concede their governing power. And while it is clear that capitalism’s evolution has not been without violence and abuse, it has moved periodically to higher orders of cooperation. The Reform Acts of the 1830’s in Great Britain effectively dethroned the reigning monarch and hereditary aristocracy while greatly empowering the much more numerous middle classes. A similar expansion in the cooperative order occurred early in the 20th century with the enfranchisement of workingmen and women. Each of these situations vastly increased the ‘interests’ that matter economically and politically, requiring broader social agreement, and much greater participation at the highest level. Only cooperation makes this possible; only ‘higher’ orders of cooperation can unleash and sustain the extended orders that typify modern capitalist growth.

Naturally, given its long history, tribal ethics are familiar to humans, and in all large multi-ethnic nations individuals or groups who are unable or unwilling to value bridge into the larger ethical architecture of society fall back into older patterns; hence the emergence in modern society of ethnic street gangs. Street gangs demonstrate a clear tendency to tribal ethics with narrowly defined hard-edged ethical boundaries. Not surprisingly such behaviour encourages inter-gang violence that tends to extremes. As such street gangs can be said to be operating at lower - more traditional - orders of cooperation.

What is ‘right’ and what is ‘just’ is learned, and it necessarily evolves to re-enforce the standards of social behaviour and trust necessary for millions and millions of individuals to voluntarily and actively engage in wide ranging divisions of labour and specializations of function. And this is the real threat of the decidedly unethical (indeed criminal) activity of the ‘Enron’ culture; its narrow ethical boundaries and ‘tribal’ behaviour became a threat to societies’ higher orders of cooperation, threatening its ethical architecture. Left unchecked such behaviour could begin to unravel the very value systems and ethical sensibilities that support corporate growth and wealth.

Appendix #1: The Ethics of Competition

Aristotle: ‘A man who owns nothing has nothing to share or be generous with. If you own nothing there is no ability or incentive to cooperate’

The reality of ever-greater cooperation does not contradict the need or importance of competition in the capitalist system. One of the common fallacies of the modern world is that cooperation is incompatible with, or indeed the opposite of competition. In many ways competition in the business sense is only possible through sophisticated mutual agreement. Put another way, the quality of market competition is configured by the degree of cooperation between the competing parties.

Competition is integral to capitalism; it is a natural consequence of the existence of individualized ownership. It is the means by which varying interests, founded in the rights of ownership, are tested and proven in the market. Competition in this sense facilitates change, properly balanced competition allows assets and ideas to be tested to resolution fairly, equitably. Competition gives the new and better a level playing field upon which to supplant the old. For competition to be effective it is true, there must be a meaningful loss on one part and a meaningful gain on the other. Without the concept of loss, success, competitive edge loses its significance. The important concept in an evolving ethical order is the degree of losses that are suffered in this game. Cooperation and the evolution in capitalist ethics help configure the character and degree of competition and the potential losses in capitalism.

The nature of competition can vary greatly. Where there are no agreed rules - no mutually agreed ethical limits - human competition quickly descends into a life and death struggle. To give an extreme case, consider competition against a Colombian drug gang or the Mafia. In both these cases economic competition is conducted in an ethical vacuum, as such there are no socially agreed limits on the use of force. In such circumstances competition is rare due to its extreme seriousness; competitors become the hunter or the hunted – there’s no middle ground in a winner takes all struggle.

The relationship of competition to ownership rests in the value networking and sense of interdependence that emerges from mutual ownership. In the absence of this mutuality, competition can become unbalanced and destructive. Consider the prospect of competition between a feudal lord and his penniless dependent serf. The imbalance is most obvious in wealth and stature, ownership and entitlement are united in the former and violently absence in the latter. In this admittedly extreme situation there is no ethical basis for equality, and therefore no basis for meaningful competition. In reality competition between such violently divergent parties is socially discouraged simply because the outcome is a forgone conclusion.

Before business competition can even begin there needs to be an initial act of cooperation. The agreement to have rules, to limit or mitigate an individual’s loss is an act of cooperation. As society moves to ‘higher orders’ of cooperation in capitalism more limits are agreed which encourages greater - if somewhat less vicious - competition. A degree of competition is important, and as humans, the less we have to lose the more likely we are to compete. There must be gain/loss enough to be meaningful, but generally the greater the degree of mutual respect, the greater the interdependence, the more benefits we achieve from competition.

As capitalism evolves ethical standards change, forcing changes in business behavior. Society sees the benefits of this in increased growth, while securities law, corporate law; business practices evolve to reflect the increasing interdependence of the participants.

Appendix #2: Doing the Right Thing

Society will act to defend the sources of its wealth and prosperity. Unacceptable behavior by business is not something that can be ignored; it will invite a defensive reaction. Media baron Lord Black discovered this to his shame recently in Delaware. Delaware is the registered home of many of America’s publicly traded companies, because as a State it is noted for its consistent defence of business interests, its limitation of director’s liability and its staunch defence of majority shareholders rights. Vice-chancellor Leo Strine of Delaware's Chancery Court departed significantly from Delaware history in blocking Lord Black's attempt to exercise his enshrined rights as a majority shareholder. In doing so the judge was highly critical of Lord Black’s behavior, saying he "breached his fiduciary and contractual duties persistently and seriously." Ethics matter, and as major banks, brokerage houses and business leaders are discovering to their dismay powerful political and legal institutions will impose sanctions and regulations in the absence of enlightened self-regulation.

Corporate Responsibility

Enlightened self-regulation, how’s a business leader supposed to balance the drive for profit with something as nebulous as this. Clearly acceptable business practices must take into account rising ethical standards; discriminating against women, minorities, the handicapped and homosexuals is, in the present state, considered a form of trespassing, a violation of newly acquired social property rights. Beyond these obvious and generally accepted new rights, Business leaders today, because they employ some of societies most valuable assets, have got to take the lead in widening the ethical boundaries. This means behaving ethically even in the absence of legal obligation. For example, many business leaders today take advantage of offshore tax havens for corporate tax advantage and for personal tax planning purposes. While such behavior is presently legal and accepted, the ethical bar is rising and in the not too distant future expect society to react violently against practices that undermine the sources of wealth and prosperity.

But business is also about cooperation; in deed many see the end of traditional dog eat dog competition being replaced by ‘coopetition’, a more cooperative competition model.

Appendix #3: How Does Economic Change Impact Business Ethics? (unfinished)

What has changed in the new economy? Almost everything. The changing value proposition in the knowledge economy is spawning a revolution in business ethics. The Internet always did have its own homespun ethics and those ethics were frankly dismissed by old style management. Not so anymore, they are, in part, becoming the rules of the game. Hard-shelled billiard balls are out. B2B supply chain management not only provides huge efficiencies and significant bottom line improvements, but its deep integration allows partners to see into and through other organizations. As a consequence management are often privy to their partners internal strengths and weaknesses, trade secrets, unique know-how, market positioning, key personnel and other valuable corporate assets. Modern business ethics, which value the network relationship, place new limits on the self-interested use of this information. Rising customer expectations and speed-to-market demands are giving rise to deeply integrated eBC’s (e-business communities) which allow highly networked partners to move together at e-speed. Trust is now a critical value, without it companies may be deliberately excluded from profitable e-business opportunities.

Perhaps the most profound ethical changes in the new economy are going on internally. In the new economy, where knowledge, not equipment, drives profits, employees can no longer be considered ‘outsiders’, they are the source of competitive advantage. Successful companies in the new economy have ‘inclusive’ corporate cultures. The traditional command and control model of management is rapidly being replaced by de-centralized teams of empowered individuals motivated by their ownership in the corporation. These ‘silicon valley’ type organizations are designed to unleash the innovative power of their employees, to translate ideas to market opportunities at e-speed. Successful leadership today is much more motivational and much less authoritative.

1 Quoting the "National Business Ethics Survey, 2003" developed by the Ethics Resource Centre (www.ethics.org), Mr Frank Vogl, in the Financial Times, London: US workplace ethics on an upward curve suggested that “While there remain many problems, the data show a clear improvement in the perceptions of American employees about the ethical environment in which they work.” “…ethics in the American workplace are improving significantly just as ethics at the helm of corporations are deteriorating”.

2 “Thus if the animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but a mathematical expectation, enterprise will fade and die." Keynes, J., 1936, General Theory of Employment, Interest and Money, New York: Harcourt Brace 1936, pp. 161).

3 The Street: a euphemism for Wall Street and the global financial services industry

4 http://plato.stanford.edu/entries/shaftesbury/

5 http://plato.stanford.edu/entries/hume/#Moral

6 Gospel of St. Matthew

7    F.A Hayak, p 70

8 The Abolitionist: Nature of the Beast