Ethical Leadership and Global Capitalism

A Guide to Good Practice

Annabel Beerel

• Publisher: Routledge
• Year: 2019
• Print ISBN: 9780367197445
• eBook ISBN: 9780429516320
• Topic: Business
• Subtopic: Business Ethics
• Index: Business

This book is a very practical guide to help managers put their own and their employees' professional values to work. Through real life stories and case studies, the author brings to life and light the ethical challenges that present themselves in corporate and institutional settings.

The reader gets to see that ethics lies not only in the big, dramatic defining moments, but in the everyday behaviors of people as they work together in the service of organizational goals. The text is punctuated with summaries, exercises, and opportunities for reflection where the reader has an opportunity to review their own ethical frameworks and to see how these show up in the daily choices they make. Ideas are provided to help managers coach their employees to strategize around ethical issues, how to communicate their views with clarity and conviction, and how to find support in the organization to tackle difficult issues.

Part 1
The external and internal ethical pressures businesses face

1
Capitalism – the macro environment

Contents

Am I my brother’s keeper?

Questions

Capitalism – the macro-environment

Business ethics and capitalism

Capitalist economics 101

Defining capitalism

The four stages of capitalism

Mercantilism

Classical capitalism

Keynesian stage

Global capitalism

The main ideas and movements that shaped capitalism

Capitalism – the new spirituality

Martin Luther and the Reformation

The Enlightenment

The iron cage

Capitalism and the Jews

The long shadow of usury

Lack of economic and political power

Success

Adam Smith and free markets

Who was Adam Smith?

The idea of self-interest

Smith’s free market principles

Summary of Smith’s free market checks and balances

David Ricardo and the law of comparative advantage

John Locke, property and moral worth

Property means happiness

Milton Friedman and the social responsibility of business

The multi-disciplinary nature of capitalism

Faith and ultimate concern

The early criticisms of capitalism

The ghost of Karl Marx

Capitalists versus the proletariat

Thorstein Veblen and conspicuous consumption

Capitalism and creative destruction

Contemporary criticism of capitalism

Capitalism – the social disruptor

Capitalism – the path to hedonism

The power of finance capital

The dangers of unregulated financial innovation

The curved world of finance

Personal reflections

The Big Bang

MBA aspirations

My word is my bond

Global capitalism gone adrift

The structural inequities caused by private property

Saving capitalism

The Federal Reserve and Goldman Sachs

Growth at all costs

The eighth wonder of the world – the power of compounding

The gap between the ideal and the practice

Some ethical questions posed by capitalism

Executive summary

Questions for reflection

Key terms

The dissolution of the political economy

References

Am I my brother’s keeper?

You are thrilled. You have just been appointed the manager of the sub-prime mortgage division of Carefree Bank & Trust Co. This was a rapid promotion as you have only been with the bank for six months since you graduated from the Wharton MBA program. Boy was that exhilarating but also expensive!

It is July of 2005. The economy appears to be booming. House prices are still soaring after a seemingly never endless three-year upward spiral. You have five people who report to you, and you have budget responsibility for your department. With this promotion, you earn a good salary which will help repay those student loans and help you finance the down payment on your new house you and your fiancée are planning to buy. You are also on a bonus scheme based on the value of sub-prime mortgages you manage to close. If you meet this year’s target, this will bring your own personal remuneration to a delightful $350,000 p.a. Not bad for a rookie mortgage broker! Life is good!

You have been fortunate in that you have a very amenable boss who believes in promoting his staff. He is also demanding in that he wants results in return. That is only fair. You feel especially fortunate in that he has taken a liking to you and is clearly giving you a big break. You are determined you will not let him down as there are many others waiting in the wings to get the break you did. Your future wife is also in financial services and she, too, is ambitious. She is very proud of you and how quickly you seem to be climbing the corporate ladder.

It is Monday morning and your first mortgage customer of the week is sitting opposite you. He is a carpenter who wishes to purchase a new house. He wants a big one as he works out of his home. He needs a large garage to accommodate his carpentry work. He too is excited, as he has identified, what he calls, a beautiful new home in Sudbury, Massachusetts, that fits his needs. The price is $750,000.

You settle down to ask him the usual routine questions. What is his annual income? He claims it is around $40,000 gross. Does he have a lot of debt? He says not much. You then work with him on identifying his expenses and, based on a rough calculation, you figure out that the monthly mortgage if he makes a down payment of $30,000 (that is all he says his mother will lend him), will be about $6,000 per month. You have done some juggling with the numbers to get the best rates. You also tell him that he can choose a variable rate mortgage where he only pays the interest and none of the principal for a period of three years. If he chooses this option, the monthly payment will go down to $2,500 per month. After the three years, the special introduction interest rate will go from the current 3.5% to 23%, plus he will have to begin paying back some of the principal.

You explain very carefully that his mortgage payments in three years will increase to around $10,000 per month. Does he believe that in three years he will earn this kind of money? He nods confidently. He has all kinds of plans to expand his business and to bring in new partners that will radically increase his income. You point out that there will always be another opportunity to refinance if things don’t go exactly as planned. He smiles and asks how soon he can have the money as he does not want to lose the house.

You fill out the appropriate forms and ask him to read them carefully so that he fully understands the implications of his decision. He duly signs with gusto. You know the bank’s underwriters will pass this one, as they have other similar ones, so you feel confident that this is another done deal. You rub your hands with glee as your mental calculator rings up the new total of your bonus. Life really is good.

Questions

• Caveat subscriptor means let the buyer beware. By invoking this principle in the case presented, where the buyer was clearly apprised of his rights and obligations under the mortgage contract, has one fully performed one’s ethical duty?
• When one has made a decision that is defensible by law but not from an ethical stand point, which principle should rule – the law or ethics?
• If you were the mortgage broker in this case, what would you have done?

Capitalism – the macro-environment

Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.

John Maynard Keynes

Business ethics and capitalism

In the introductory chapter, I critiqued the discipline of business ethics and how it has become this fragmented and isolated topic of study. While most textbooks provide many paragraphs on various philosophers, ideas and ethical theories – as do I – what I think is missing, is a discussion of the interconnectedness of the multiplicity of disciplines that have a direct impact on the nature of business ethics. Without attention to this larger vista, one cannot truly understand the various influences, especially global capitalism, on organizational and individual ethical behavior.

In this chapter, I focus on the macrocosm, namely global capitalism, which serves as the key driver for the growing free-market impetus that is transforming ethical and economic behavior across the world. Capitalism, as it is currently practiced, is facing adverse reactions from many corners of the globe. The popular argument that growth is good; capitalism spurs growth and thereby raises the tide for all boats, is now seriously under question.

In this chapter, I provide some insights into how we got here and what that implies for business ethics as well as ethics for you and me.

To really understand capitalism as a system, we need to understand its evolution and founding principles. As we shall see, capitalism does not simply fall under the subject of economics but spans several different domains. With some consideration of these multiple domains, we gain important insights into how we got into our current situation, and maybe how we might get out of it.

Let us begin by clarifying what is meant by the term capitalism and its basic theoretical principles.

Capitalist economics 101

Defining capitalism

Capitalism is a socio-economic system based on private property and the competition of the free market. The capitalist system is also known as the free market system. In a capitalistic system, businesses, or individuals, offer consumers products and services that meet their wants, and the prices are set by free, voluntary agreements to buy and sell.¹

Let us unpack this definition and its underlying assumptions.

Firstly, when we refer to “private property” we mean that the “means of production and distribution” (land, labor, equipment, and money) are owned either by private individuals or corporations. The owners of the means of production and distribution earn profits on their “property,” where profits represent the difference between the cost of production and distribution and the sale of products and services produced and distributed. The accumulated property (means of production and distribution plus the profits earned on their sale) is called “capital” and the owners are called “capitalists.”

The owners of corporations are known as the shareholders (or stockholders). Shareholders exercise a level of control over the organization and receive a share of the profits in return for their investment. Workers by contrast, sell their labor to the corporation for a wage. Labor is thus a commodity like any other.

Secondly, competition in the free market refers to many individuals and businesses operating in markets free from governmental interference and regulation. This rarely happens in practice as we shall discuss later in this chapter.

Capitalist philosophy holds that totally free markets result in the most efficient and socially optimal allocation of resources. Competitive behavior is greatly encouraged as it increases efficiency in markets by keeping prices down and meeting evolving consumer needs.

Thirdly, in a capitalist system producers (sellers) and buyers can enter and leave the market quite freely. Sellers endeavor to meet consumer desires and consumers are free to choose that which they wish to consume. Prices are set based on supply and demand where neither the buyer nor the seller has an absolute power advantage over the other. This implies that there is a level playing field for all participants.

The four stages of capitalism

Mercantilism

The first emergence of a form of capitalism known as mercantilism, can be traced back to the 15th–16th centuries. This was a time when European traders began exploring new worlds which they found to be brimming with cheap and exotic resources. Within no time these lands were annexed to the mother country as foreign colonies who were soon forbidden to trade with any country. The mother country profited significantly by selling their new-found resources to other countries which also helped secure a positive balance of trade. The banks and governments that financed these overseas ventures received shares and profits in return for their investments.

Classical capitalism

The next stage, resembles the capitalism of today. Here entire countries organize on free market principles. This form of capitalism was advocated by Adam Smith (1723–1790), who provided...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Foreword
• Preface
• Acknowledgments
• Introduction
• PART 1 The external and internal ethical pressures businesses face
• PART 2 Ethical strategies and practice guidelines on how to become an ethical leader
• Glossary
• Index