The Economics of Values-Based Organisations

An Introduction

Luigino Bruni, Alessandra Smerilli

• Publisher: Taylor & Francis
• Year: 2014
• Print ISBN: 9780415723350
• eBook ISBN: 9781317703594
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book looks at the governance of values-based organizations (VBOs), which are organizations with a mission and identity based on ideals. Examples of VBOs include non-profit organizations, charities, NGOs, environmental, educational or cultural organizations, and social enterprises. The main objective of any VBO is to evolve and grow without losing its identity, which its survival is linked to in the medium and long terms.

The focus of this book is the study of the relational and motivational dynamics during identity crisis, using critical mass models and Hirschman's "exit and voice" framework.

This book analyses the dynamics that arise in VBOs when the quality of the ideal deteriorates. On the basis of Hirschman's "exit and voice" model, it analyses the factors that lead the best members – the intrinsically motivated ones who care most about the mission and ideals of the organization – to leave if their voice is ignored. We show that the possible cumulative effects caused by the "exit" of intrinsically motivated members can lead the organization to a process of deterioration.

This book offers an analysis of these phenomena, which are usually studied in sociology or political science, by using an economic approach and the language of evolutionary game theory. By combining sociological politics and economics as a theoretical tool, we create a fresh approach to explore crises in organizations.

1 Market and human relations

Our age is carrying out a process of real liquidation not only in the business world but in the one of ideas as well. The price of each thing is so vile that I wonder if there will be someone ready to pay.

(S. Kierkegaard)

Market and civilization

We start our journey adopting a perspective of economy and of the market inspired by the tradition known as Civil Economy. Such a broad subject could seem to be a useless digression in a study, as the present one, whose main arguments concern VBOs. We believe, instead, that before we start a book on ideals and economic life, it is necessary to face some basic questions that will serve as a background to our whole study: is the existence of VBOs, that is of actors open to dimensions different from sole self-interest, just a remnant of the past? Or could the “normal,” “ordinary” market and economy host behaviors moved by motivations different from the ones considered to be normal in economics (such as self-interests, instrumentality, etc.)? In other words: in what conditions can a VBO be seen as an integral part of a post-modern and globalized economy? Is it just an anomaly, an exception?

In order to answer this question, we find it useful to make a brief incursion into the history of economic thought.

Political Economy as a systematic and autonomous reflection based on the assumption that only self-interests and administration of justice were necessary for the achievement of the “common good” (the Wealth of the Nations) was founded in eighteenth century Europe. The leading theorist of this vision was the Scottish philosopher and economist Adam Smith. In the same period as Smith’s work, in Naples Antonio Genovesi¹ and some other philosophers, jurists and reformers were theorizing the market (which, as a matter of fact, did not exist in that time) in a different way, according to a humanist and Christian philosophical approach based on concepts such as reciprocity and “mutual assistance.” According to Genovesi, as well as the modern tradition of Civil Economy founded by him, the market represents a field whose fundamental law is reciprocity, just as it is in the rest of the life in common, and in which it is possible to pursue the common good, thus, the good of all.

By concentrating on mutual assistance and advantage, the Civil Economy invited us to look at the market (and at civil society in general) as a broad space in which it was possible to grasp the opportunities of exchange in order to obtain an overall benefit (among which the main and most important benefit consisted in the creation of markets and institutions that would replace the feudal ones).²

If we were to consider the market in this way, it would be easier to understand what kind of connection exists between self-interest and common good, since in this case the intention of the individual is oriented simultaneously to his/her personal advantage and to one of the others involved in the market exchange. Indeed, according to the classical vision of Smith and of Political Economy, the only virtues “required” by the individual are prudence, industriousness and illuminated sense of his/her self-interest—virtues typical of the prudent man (to use Smith’s expression) which make him understand, on the basis of his own experience and those of others, that shortsighted opportunism is not profitable in the long run. As the “invisible hand” metaphor tells us with extreme clarity, common good is the indirect and not intentional result of the actions of numerous individuals seeking their own profit: it represents a kind of laic providence that guides private intentions, aimed to self-interest, towards the common good and this happens regardless of the awareness of the individuals who, in this way, unconsciously become collaborators to the overall wealth (Bruni 2012a).

People act in order to satisfy their own interests in the best possible way but, as a result of some kind of deception of the reason, these private interests produce effects that were neither predicted, nor desired by the agents who providentially generate common good as it is evident in this passage of “The Wealth of Nations”:

A revolution of the greatest importance to the public happiness was in this manner brought about by two different orders of people who had not the least intention to serve the public. To gratify the most childish vanity was the sole motive of the great proprietors. The merchants and artificers, much less ridiculous, acted merely from a view to their own interest, and in pursuit of their own pedlar principle of turning a penny wherever a penny was to be got. Neither of them had either knowledge or foresight of that great revolution which the folly of the one, and the industry of the other, was gradually bringing about.

(1976, pp. 389–90)

In the past as in the present, in Civil Economy’s tradition there is a different type of relationship between private intentions and common good: there is a direct link between the intentions of the single agents and the effects of their actions. There is no need to “reverse intentions” or to create a tension between the two levels (private and public) of good (something that reminds us of Mandeville’s “private vices and public virtues”), since individuals intend and seek the common good intentionally.

Here we find the roots of reciprocity and fraternity seen as a market paradigm, one typical assumption in Illuminist Naples: the market has a moral content (and morality implies directly the specific role of intentions) and such moral sense has to be encouraged, interiorized and made explicit in those societies which function well.

Civil Economy

The tradition of the so-called Civil Economy that flourishes in the eighteenth century in Italy (Naples, Milan, Tuscany and Venice) should be interpreted as the modern expression of the civil tradition started during the Middle Ages in the Benedictine Abbeys, in the studia of the Franciscans and of the Dominicans and in the great age of the Tuscan civil humanism, afterwards. According to Genovesi, as well as the first humanists, civil life is not simply not contradicting good life, but is even seen as the space in which both private and public happiness can be fully obtained as a result of the good and fair laws, commerce and the civil institutions in which human beings exercise their sociality: “even if the companionship can sometimes produce/cause some bad results, at the same time it is also the one who insures the life and the goods: something which pleasures are unknown to the humans in nature” (Genovesi 1973[1766], p. 37).

In Genovesi’s vision economic relationships in the market are those characterized by “mutual assistance.” They are not, thus, impersonal and anonymous. Indeed, market is itself seen as an expression of the general law of civil society which is reciprocity. This fact appears with particular evidence in his analysis of the trust or of “public trust,” that we would call today “social capital” (Bruni and Sugden 2000) that is at the center of his lectures of Civil Economy and of the whole reformatting program of Naples.

According to the view of Civil Economy, development, markets and the entire economic life represent a question of fides, of trust. One of its basic concepts is, indeed, the “public trust” which is seen by Genovesi and the Civil Economy tradition as the real pre-condition of economic development: “confidence is the soul of commerce … without it all the parts that build up its structure would collapse by themselves” (Filangieri 2003[1780], p. 93).

If it is true that the development of markets brings with itself civil and economic development, in the Neapolitan vision it is even more urgent to underline that the cultivation of public trust is the pre-condition to every economic and civil progress: “nothing is more useful to one big and fast circulation than the public trust” (Lezioni, II, cap.10, 1). It is important, then, what Genovesi specifies in the footnote: “The word fides means a rope that links and unifies. Thus, the public trust is the bond of families in a companionship life.”

Reciprocity is a crucial category in Genovesi’s and Civil Economy’s vision in regard to the market. In his analysis of public trust he systematically links the concept of trust with the ones of reciprocal confidence, mutual assistance and friendship maintaining that they are all essential for the economic and civil development of society.³

Even if from a different perspective (at least in some sense) if compared to the one of Civil Economy, the interest in the issue of reciprocity is re-emerging today. The dimension of genuine reciprocity present in a reciprocal behavior is measured in models of the so called, strong reciprocity, through the willingness to support the sacrifice of “material” benefits in order to reward or punish the other party at one’s own expense. We do not want to deny that the act of rewarding or punishing others also has a civil function (we can think here of those who, at their own risk, scold someone for throwing rubbish on the street), but at the same time we would like to stress that reciprocity represents a relationship and not a sum of preferences or of behaviors of single individuals. We should note that such theories of reciprocity are still essentially individualistic, even though individual preferences according to them could be of an altruistic or pro-social kind.

One of the consequences of such an approach is that reciprocity is interpreted as a “gift exchange”: the only one to be seen as pure and genuine reciprocity, while other forms of exchange of contracts, markets and “normal” economy are defined as “bad” reciprocity, since they are self-interested and non-altruistic. A great part of Communitarian thought today goes in this direction,⁴ referring to Aristotle’s vision which is considered to be the father of such tradition (Bruni 2010). It is a pity that, as a matter of fact, Aristotle did not see things like that: according to him, reciprocity, the antipeponthos, was in the Nicomachean Ethics the “social bond,” the one that holds together the polis, a reciprocity that in his vision goes from the market to the philia. Also the Latin word reciprocitate etymologically derives from rectus+procus+cum: what comes and goes, leaves and comes back mutually. Much more than a “gift exchange” which is, of course, one form of reciprocity but not the only one. Most of all, the gift should not be seen on a theoretical as well as practical level in opposition to reciprocity (where you give and you receive) and to various kinds of economic reciprocities (that exist in enterprises, contracts and markets), because in this way we would not just lose our ability to understand some important civil phenomena, but we would also confine good reciprocity to an extremely narrow field of civil and economic life; we could think here, among many different experiences, of the Fair Trade, the Economy of Communion, the Micro-finance and Microcredit in which people get help in order to get out of various poverty and exclusion traps not in the form of unconditional gifts, but with the use of contracts (even though spurred on by gratuity in the sense that we are going to give it in this book). We believe that only one multidimensional reciprocity that goes from gift exchange to contracts and rules, which is one and many at the same time, could be really sustainable and authentically human also inside the organizations, VBOs included (Bruni 2008).

Social sciences today urge one non-dichotomous way of thinking in order to get a better understanding of both of the realities, which we come across in the theory whose driving forces are more complex than the profit, and of the market and of civil life which turn out to be one not authentically human experience when they do not let reciprocity and gratuity penetrate them in the long run. Of course, a gift is not equivalent to a contract: however, both of them could be forms of good reciprocity (as they could both turn out to be forms of bad reciprocity when the contract hides exploitation of the fragile one and the gift-munus (obligation) disguises relationships of power and dependence).

An historical and religious element that has chiefly contributed to the rise of the dichotomy gift-market was the “trauma” caused by the act of selling and granting indulgences that played the leading (although not the only) role in the Protestant (Lutheran) Reformation. In front of a church that was pretending to sell even God’s grace (charis, gratuity, gift)⁵ and to use money for reducing or eliminating years of purgatory, and that had instituted a whole system of penances that it was possible to exchange for money, the protestant world was built on the sound distinction or separation between market and gratuity—an application of the Lutheran (Saint Augustinian) “Doctrine of the two reigns.” During the economic activity, business is business, and only in a second stage, which is clearly distinguished by the first one, it is possible to donate part of the fruits of business in the form of donations, foundations, philanthropy. This is the model of “philanthropic capitalism” inspired by the Protestantism which is typical in North-American culture—the one in which was born and developed the official tradition of modern economic science. Bill Gates, for example, as an individual makes philanthropy through his foundations and Microsoft as an institution makes business. In the Middle Ages the relationship between gift and market was far more complex: it would be enough to think about the Franciscan order which formed the first systematic economic reflection on as well as the first cooperative banks (Monti di Pietà) (Bruni-Smerilli 2008).

Medieval humanism represented a weaving of saints and merchants, monks and labor, economy and cities. Even though their paths and theological motivations were different, the catholic reaction to the Reformation, the so-called Counter-Reformation, in regard to the relationship between economy and gift led to a result similar to the protestant one. In the seventeenth and eighteenth centuries, Europe became the scene of a process of re-feudalization, of return-to-land and blood nobility and, consequently, of reinforced defiance of the economic and civil life: to such aspects is related also to Mediterranean Europe’s different economic history, its backwardness and its potential not still expressed.

Market and cooperation: U.S. and Europe compared

The division of labor in markets and in society at large is a great unintentional and implicit cooperation; the division of labor inside the company, however, is the strong sense of cooperation, a joint voluntary action. The Anglo-Saxon, protestant type of capitalism has given rise to a dichotomous model, a new edition of the Lutheran (and Augustinian) Two Kingdoms Doctrine. In the markets there is implicit cooperation, which is “weak” and non-intentional; in the company and in organizations in general we find explicit cooperation instead, which is strong and purposeful—two types of cooperation, two “cities” that are profoundly and naturally different from each other. This cooperation, however, is not the only possible type in the markets. The European, and particularly the Latin version of cooperation in the markets was different, because its cultural and religious matrix was...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• Introduction
• 1 Market and human relations
• 2 Care and the market
• 3 The art of gratuity
• 4 When vocation matters
• 5 Facing crises
• 6 All equal, all different
• 7 The nature of voice
• 8 Semantics of the relationships within a VBO: organizations as networks
• 9 Conclusion: Vulnerability as a human paradigm
• Appendix 1: Cooperation and diversity
• Appendix 2: Mathematical appendix
• References
• Index