Corporate Capitalism and the Loss of Virtue

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Blairsville, GA. The corporation is a central part of our economy. In fact, some have argued that our economic system is accurately identified as corporate capitalism, for the values and prejudices of the corporate system cast their shadows over the entire structure. If this is the case, is there reason for concern? Could our current troubles be rooted in the inherent weaknesses of corporate capitalism? Although it approaches heresy to touch on this question, it might be worthwhile to consider one aspect of this issue.

The very structure of the corporation reduces the opportunity as well as the inclination for the exercise of virtue. I am not suggesting that virtue is intrinsically incompatible with a corporation, but that they are not natural allies and perhaps they are even in tension with one another. Milton Friedman asserts that “there is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” In other words, business (and Friedman is here speaking primarily of corporations) should be judged exclusively according to economic criteria. That is, heads of corporations should seek to maximize profits while avoiding deception and fraud. But while truth-telling is an important virtue, it is by no means the only one. Furthermore, in classical virtue theory, it was argued that one virtue could not exist without the others. They, in an important sense, depend on each other. In this light, one is left to wonder if insisting only upon honesty is sufficient. This becomes a serious question when the “do not engage in deception and fraud” limitation is juxtaposed with the imperative to “maximize your profits.” The former is somewhat squishy, for there are shades of truth-telling and, as we all know, it doesn’t take much work to rationalize the withholding of information or to emphasize one fact in a way that falsely colors the whole. On the other hand, the maximization of profits is indisputable. It is the “bottom line.” It can be quantified, and given the economist’s prejudice in favor of quantifiable facts, maximizing profits will naturally get the primary attention.

Joseph Schumpeter argued that a corporation could be conceived according to three categories of participants. A corporation is owned by share-holders who hire 1) executives to run the corporation. The share-holders can be divided into 2) the large share-holders and 3) the small share-holders. The large share-holders call the shots. They hire and fire the top executives who answer to the share-holders. The small share-holders—today often these shares are held as part of a mutual fund—have very little power to influence the direction of the corporation. With this dynamic in place consider how the exercise of virtue will compete against the imperative to maximize profits. The executive will presumably lose his job if he fails to maximize profits (or doesn’t secure a government bailout). He will, of course, lose his job if he is convicted of a crime, including deception or fraud. But there is a significant gap between outright crime and moral failure, and consistently ringing up a profit can cover a multitude of sins. In other words, there appears to be what Wilhelm Röpke terms an asymmetry in this relationship, and virtue is on the light side of the scale when weighed against profit.

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