Suppose you are driving
on the Washington D.C. beltway with a sick kid, trying to get him to the
hospital. Just a poor minimum wage
worker, like thousands of others, you feel you don’t have the money to move
over into the express lane, available only by paying a substantial toll, so you’re
just trying to get by the miserable traffic jam that’s always there in the
regular lanes, hoping your kid won’t get much sicker in the meanwhile. A lane over, a Mafia Godfather, fresh from
bumping off one of his counterparts, is celebrating by heading for the casino
to throw around the big money he just got from a drug deal; impatient with the
jam, he shifts over to the express lane and proceeds smoothly on his way; cost
is not even a thought. Though it’s a
somewhat silly caricature of beltway traffic, the ethical issues are obvious,
but they don’t count. The beltway
market, for that’s what is, does not deal with ethics, only with supply and
demand and who has the money to purchase its goods. The market does not make any choices either
between present or future generations.
Or does it? The fact that future
generations cannot “vote” by purchasing or abstaining from purchasing means
automatically that the market does not directly consider their needs. There are no discounts for sick infants. Nor can the market consider its own future. It is only a mechanism for exchange of goods;
if it is to be run into the ground by its own success or by its failure to
adapt to change, that is beyond its choice. It is an interesting contradiction that
General Accounting Principles require individual businesses to act as though
they are continuing entities but laissez faire capitalism, in which the
invisible hand of the market heals all wounds, contains no bandages for the
market’s own injuries.
That failure to
consider its own need for survival, its sustainability, has begun to dawn on some
observant CEOs. An interesting article
in the Atlantic Monthly reports that
some CEOs have recognized that society itself furnishes a “license to trade”, a
legitimization of business practices, that is revocable, and that license is
getting frayed by the current excesses of the market. To appreciate that, think of two extremes: first, the social and legal prohibitions on
sale of body parts. In pure laissez faire
capitalism, if you want to sell your kidney for food to feed your children,
feel free to do so; there’s a market for it.
But it is prohibited. Second, the
corner lemonade stands run by neighborhood children in the summertime. The stands probably violate all sorts of
zoning, child labor and health laws. But
if some grumpy neighbor were to object, almost certainly the laws would simply
be modified to accommodate the stands; society approves of them. Society
“licenses” certain things and bars others, for reasons outside the market. The
CEOs are banding their companies together in different non-market ways, such as
mutual assistance in disasters, like pioneer “family” to make life happier and
easier and more ethical for all. They
recognize that if the market itself becomes unethical, society will intrude to
enforce its rules through increased regulation.
But the CEOs’ concerns
speak to only the market’s ethical wounds.
Future generations still have no “vote”, and the market still resists
change more than it accommodates to it.
The basic market model envisions businesses seeking immediate profits in
a stable environment. The goal of the market
is the production of products beneficial to society. That was the culture in which Adam Smith’s The Wealth of Nations was
embedded. But the 21st century is presenting climate change,
globalization and rapid technology change as givens in a new environment which
current markets cannot effectively manage.
With immediate profits as the accepted goal, only new technologies, such
as cell phones, where there is no entrenchment are able to rapidly “arrive.” Governmental basic research and development,
green technology, businesses oriented to taking long term advantage by battling
climate change and long term projects like infrastructure upgrade, which
require cooperative action between markets and government, must battle for
their existence with the entrenched industries and their lobbyists.
A fundamental problem
is that focus on immediate profit, which promotes avoidance of dealing with
externalities. Producing products for
the benefit of society, a given for Adam Smith, is no longer necessarily the
goal. The libertarian doctrine that corporations
must focus entirely on maximizing profit to shareholders, popular since the
1980s, combined with the focus on executive bonuses based on short term results,
results in eliminating the brakes on excesses, emphasizes financial
manipulation over production and minimizes the corporation’s contribution to
sustaining the society in which it is embedded.
Just as we have begun
focusing on sustainable agriculture, we must begin focusing on a sustainable
business environment. Our market model
is broken. Changing accounting rules to
discourage focus on bonuses based on short term profits, as advocated by some
economists, is a start. But business
models must also give more credit for dealing with “externalities.” In other countries, businesses join with
government in cooperative long-term projects to develop new industries, but
that is not popular here because of a bias against long-term budget commitments
and outdated fears of “socialism”; organized “industrial planning” by
government needs promotion. More Business
tax credits are needed which would profit businesses long term by encouraging research
and long-term development. That lemonade stand could increase its business long
term by investing in a shade against the sun to increase the enjoyment of its
customers. It is only fair that America
invest in infrastructure and green technology for the long-term benefit of its
citizens; our competitors, China, Germany and the rest, are doing it already.
No comments:
Post a Comment