“Markets and Morality”Lecture on 28 October 2014

for MSFin296 class

ALIZA D. RACELIS, PhD

http://www.mceproject.it/en/

The current financial crisis has clear macroeconomic roots, but the dominant view of the firm has made the crisis deeper and more devastating. Over the past few decades, maximizing shareholder value has become the firm’s main objective. Chief executives have been keen on this because their economic incentives have been clearly associated with stock market performance. Unfortunately, this has driven many CEOs to make terrible decisions based on short-termism and greed.

Across Europe and North America the public is angry and distrustful toward banks and their regulators. Deeply flawed ideas about economics and morality have influenced economic policy and business practices to the detriment of the common good. In the United States, the broadly held consensus that Federal agencies should control macroeconomic policy has served to concentrate power and wealth in the hands of a network of people, organizations and ideas that flow between the financial and governmental centers in New York and Washington.

www.nicoletbank.com

“The economic crisis, at its very root, is a cultural and anthropological crisis: we lack a nucleus of deeply socially-oriented values that would regenerate the constructive forces for the future…”

The reigning economism looks for mechanical causes (excessively low interest rates, “herd” behaviour in the real estate and financial bubbles, etc.), yet bad management by people in charge of many institutions affected has been crucial.”

“

  THE OVERALL ARGUMENT THE OVERALL ARGUMENT ABOUT CAPITALISM & MARKETSABOUT CAPITALISM & MARKETS

Markets are a desirable feature of complex economies for two basic reasons:

1) Markets can contribute in significant ways to efficiency and prosperity, and

2) Market exchanges can contribute to individual freedom.  

However: 3) The unregulated free market with minimal government

intervention ends up deeply limiting individual freedom, restricting prosperity and undermining efficiency.

Conclusion: 4) “Recognize that moral values are embodied in economic analysis”

(Clark and Lee, 2011).

“Shareholder wealth maximization” ?!?or focusing on the persons in the organization?

“The idea that the main function of companies is to boost shareholder value rests on a misunderstanding of the nature of the firm. Companies are not owned by shareholders in the way that ordinary goods are owned. They are artificial persons with a distinct legal identity. Companies are not just devices for lowering transaction costs or bundling contracts together. They are devices for getting groups of people—workers and managers as well as investors—to commit themselves to long-term goals.” -Mayer

Magnanimous morality[Duty-based morality]=helping others in ways

that satisfy three characteristics:

• Helping intentionally, • Doing so at a personal

sacrifice, and • Providing the help to

identifiable beneficiaries.

Mundane morality [morality underpinning market process]=obeying the generally acceptedrules or norms of conduct such as:• telling the truth, • honoring your promises and contractual obligations, • respecting the property rightsof others, and • refraining from intentionally harming others.

*public appeal of the former over the latter

• Command over goods and services cannot be left out of the evaluation of human well-being, but income by itself is a radically incomplete measure of human flourishing.

• Such other goods as: • the personal and

social virtues, • the quality of social

relations, and • personal initiative

are equally essential, apart from wealth.”

“…sustainable economic prosperity for all”…

“economic action is not to be regarded as something opposed to society.… Society does not have to protect itself from the market…(…) the market is the economic institution that permits encounter between persons’ (Caritas in Veritate, 34). HOWEVER: ‘Without internal forms of solidarity and mutual trust, the market cannot completely fulfil its proper economic function’ (Caritas in Veritate, 36).

“If we are talking about companies in the proper sense, we should exclude extreme cases of institutions that “earn without serving”, “serve without earning”, or “neither serve nor earn”, and concentrate on those that “earn while serving” or “serve while earning” (Carlos Llano, 2010).

Carlos Llano CifuentesPhD, Universidad de Navarra, President Founder of Instituto Panamericano de Alta Dirección de Empresa (IPADE, Ciudad de México) & Professor “Human Factor”. Professor, Philosophy, Universidad Panamericana.

• Revised model of TBL for sustainable business consisting of five domains, namely: economic, social, ecological, cultural, and ethical…

…which means/involves:• fiduciary duties, • virtue ethics, • stewardship and accountability, • respect for human dignity and human rights, • promoting the common good, etc.

For full article, click HERE.

http://humanisticmanagement.org

“…without neglecting efficiency or profits, human wellbeing should be the first priority of every business.”

Management could be called humanistic when its outlook emphasizes common human needs and is oriented to the development of human virtue, in all its forms, to its fullest extent. This kind of management appears to achieve a higher moral quality.

Humanism in Business

17

Edited by: H. Spitzeck, M. Pirson, W. Amann, S. Khan & E. v. Kimakowitz

A Cambridge University Press Publication

What is the purpose of our economic system? What would a more life-serving economy look like? There are many books about business and society, yet very few of them question the primacy of GDP growth, profit maximization and individual utility maximization. Humanism in Business questions these assumptions and investigates the possibility of creating a human-centered, value-oriented economy based on humanistic principles.

Full Citation: Humanism in Business, Spitzeck, H., Pirson, M., Amann, W., Khan, S., von Kimakowitz, E., (Eds.) (2011). Cambridge: Cambridge University Press

For a link to the book, click HERE.

The Inclusive Wealth Index (IWI) seeks to measure the social value of capital assets of nations beyond manufactured capital. The index is inclusive in the sense that it accounts for other key assets as important components of the productive base of the economy, such as natural capital and human capital.

RIANEEISLER

EPILOGUE

“It is usually said that business is business, and one must reply that business is not business; rather, business is business if it is ethical. And if it is not, then it is not business, but bad business, because economic activities are not autonomous; if they were, then the human being would experience self-alienation: this would be to uproot the very act of doing business and the businessman himself.”

http://www.leonardopoloinstitute.org/works.html