The Ethics of Political Economy: a Roundtable discussion

%image_alt%Educating for democracy: paideia in an age of uncertainty / [edited by] Alan M. Olson, David M. Steiner, Irina S. Tuuli. p. cm. Includes bibliographical references. Published in the United States of America by Rowman & Littlefield Publishers, Inc., 2004.

Alexander Ageev

In reading a recent issue of the Harvard Business Review, one of the most respectable business journals in the world, I found that we might rename it the Paideia Business Review, because one of the main topics discussed within its pages concerns the social responsibility of businesses, which is also the major content of the concept of paideia. It means that the ideal of paideia is in the air. For example, big stock option grants don’t put managers and owners in the same boat but instead create means by which executives can sometimes maximize their profits at the owners’ expense. Isn’t this a problem of paideia in a very deep and very sensitive manner?

I agree with the deep, theoretical position expressed by Professor Post, but we should see not only the bright side of the problem of social responsibility of businesses, but dark sides as well. I would like to represent a dark side of the problem of trust. Talking about trust, confidence, and its resources, which are so important in modern society, we have to discuss the foundation of these processes. We should diagnose all concepts on social assets and social responsibility in the context of war, war for and against the responsibility in the business world. We should add another very important section to the social capital, which Professor Post was talking about: the capital of trust and confidence, which is based not only on intellectual rationality, but also originated in faith, represented by religions and experienced as religious insights.

Civil evolution is nothing but the realization of the potentials of trust incorporated into social wealth. Civilization differs from barbarism by the development of trust and confidence as a foundation of relationships in a society, by the expansion of rights and personal freedoms to broader social groups, by the growing conformity of common values and ideals. Trust and confidence are social “glue,” the “immunity” of civilization against viruses of destruction, and the basis of personal and social responsibility. We are responsible for confidence in ourselves by parents and children, friends, colleagues, partners, heroes of the past, and ideals of the future. We either justify this confidence by our behavior or we do not.

The potentials of trust in modern civilizations have been historically developed on the basis of the cult of faith, represented in world religious value systems. World religions have nourished social, business, political, scientific, and educational achievements by the energy of God’s love, trust, and confidence. Actually, all world religions could be reduced to the formula “God is love,” and this is a source of all various demonstrations of social responsibility. The great civilizations are the realization of this confidence, regardless of the concrete historical forms of the cult of faith in a process of socialization—an idea justified theoretically by Plato, Hegel, Kant, Weber, Toynbee, and Jung, among others.

The virus of social irresponsibility is, in essence, the social and spiritual AIDS of our time. Even our discussion of paideia in business and education, which is focused on problems of social responsibility of business and politics, is the result and consequence of the increasing credibility gap in our societies caused by the virus of social irresponsibility. This virus has many manifestations, but its genetic formula is “egotistical success by all and any means” out of sense of duty, responsibility, and/or public interests and solidarity. The formula “success by any means” is a formula of supreme egotism and absolutization of individual status that totally disparages both the higher religious verities and the laws of social life. The principle “success at any price,” in essence, is the virus, which has struck all vital structures of modern societies including religious institutions. Earlier objectives became targets and, as Hamlet noticed, “O, ’tis most sweet, when in one line two crafts directly meet.”

There are times, when the victory, “one for all,” is necessary, and when we are ready to “pay any price.” There are situations of compelling and necessary defense; therefore, if “everything is permissible in the war, I can permit myself (Maria Stuart). But there are also “dirty,” “nasty” times, when irresponsibility and lawlessness permit dishonest games. That life is similar to a game is not the issue. The issue is that games without rules, which are focused on a dramatic outcome for the rival, start to determine the atmosphere of our whole life, plunging it into chronic and chaotic uncertainty.

The main problem of contemporary civilization is not only in the increasing quantity and scale of natural and man-caused threats. The problem also is not the diminishing level of comprehension upon which our elites and authorities understand the national and global challenges, not to mention their willingness, ability, and desire to act. The problem is that sawing the cracked branch, upon which society somehow remains, has become an extremely profitable business of a few against the all.

The immunity of civil society to social illnesses can be defined by the degree of social and moral responsibility by its citizens, their trust in each other and in the state, the purity and honesty of a game. Giving in to the principle “success at any price” can dramatize social crisis even further and can lead to an irrepairable civil degeneration; civilization can change from one based on beliefs and responsibility to one based on cynicism and irresponsibility with the pointed and pervasive terror of a few against all. The nucleus of a business leader’s and policymaker’s services is not only in decisions and actions for the sake of efficiency, but also in ethical measures that promote justice, honesty, reasonable sufficiency, and charity. Any hierarchy of responsibility and power should be built with higher values in mind. Otherwise authority and business will degenerate into manipulation for the sake of tactical and narrow group interests.

Carriers of the virus of “success at any price” are met today everywhere. Traces of this epidemic are clearly observable not only in terrorists, but also in respectable business leaders. The whole world is full of such examples with Russia sadly included: Enron and MMM, Arthur Andersen and the Russian government declaring the default in the August 1998, MacDonnell Douglas with MD-11 and nuclear tests. A recent issue of the Harvard Business Review sharply criticized the Machiavellian type of businessmen, represented by the likes of Donald Trump, Ivan Boesky, or J. R. Evving, and their attempt to maximize the profit of executives at the owner’s expense. Russia provides the glaring example of undermining national and international trust in Russian authorities and businessmen. Fears of foreign investors are determined and justified by the absence of trust and confidence in the Russian players, confidence in the stability of rules, and security from tricky improvisations. Even Nikolai Gogol has drawn a personage for whom “to live with an intricacy, with an art to deceive everyone and not to be fooled in return, is the real task and purpose.” But this problem is not only Russian. Deficiency of responsibility is the global epidemic of social and spiritual AIDS. Social indifference to the proper methods of success leads to lawlessness, down to the principle “anything and everything is permissible.”

But the situation is even more serious. The concepts in modern business are literally packed with a vocabulary borrowed from the strategic and operative military arts. The use of cunning and deception to prevail over the competitor by any means including the application of restrictive business practices and unfair competition—all of this transforms business into a battlefield. War has become the prevailing economic, informational, and psychological category. The one who is able to use these tools, as emphasized in one of the Chinese treatises on the subject, “can instantly transform the ordered world into a chaos or to order the chaotic world; can cause thunder-clap in a clear sky, can transform poverty into treasures, can turn contempt in respect and a hopeless situation into advantageous. The human life is a struggle … and … each person stands on a front line.”

In the cutthroat wrestling of irresponsible hypercompetition, victory belongs not to the best player, but to the most dishonest, devious, cruel, insincere, and reckless one. The methods and properties of modern hypercompetition are “manipulation of price, information, speed, the market’s reaction to signals, the fabrication of compelled (surplus) expenses, consciously obstructing the best quality and price offers to access the market, forming false expectations in the participants of a market game and triggering economic chaos, and applying the wide scale suppression of methods toward competitors.”

These properties are based  upon  egoistical,  socially  irresponsible  behaviors.   Ultimately,  hyper-competitive behavior aims the steady gathering of super profit by individual players due to the controlled damage to the market principles and their functions. A typical (“normal”) market strategy is centered on the achievement of the competitive advantages due to the development of manufacturing competence and by selling the best goods and services. But hypercompetitive strategies are focused on achieving and holding all the competitive advantages through an egoistical manipulation of an entire spectrum of factors that influence supply and demand and ultimately the consumer’s choice by channeling it in a direction favorable to hypercompetitive player.

Strictly speaking, there is nothing new in a hypercompetitive style of economic behavior. Without little effort, its sources can be found in the ancient myth of Hermes, in Chinese stratagems, and modern martial arts. Competitive interaction is nothing but a game with specific rules and features. According to E. Bern, games have two attributes: the latent motives (the presence of “hidden motive” and “insincerity”), and the presence of an award. Games could be classified not only as successful, effective, favorable, or unexpected, but also as disputed, dramatic, dishonest, and unfair. The equivalent of the notion of a game is the concept of stratagems in thinking and behavior. Stratagems present such an algorithm of actions, which includes traps and/or cunning for an opponent, a blend of strategic skills and ability to design latent traps. The classical set in the Chinese Art of War includes 36 stratagems. More than just providing advice on how to win, the stratagems can also be viewed as proverbs of wisdom, observations regarding the way life runs whether we are at war or not. Here are some examples of stratagems: a figurehead (to kill by a borrowed knife); an opponent’s tiring (wait at ease for the enemy); a carrion-crow (empty city ploy); an illusionist or magician (create something out of nothing); a camouflage of a true way (deceive the sky to cross the sea); the Janis head (hide a blade behind a smile); and the Phoenix (raise a corpse from the dead). In modern English, the term stratagem designates military operation or trick, cunning or dodge, intrigue intended to lead into an error or have one’s competitor over the barrel.

In the concept of military cunning, the one who wins is the one who not only searches to find new ways and means of smuggle, but who is also capable of hiding them by confusing opponents on the presence and development of these means and ways. This allows one to overtake an unaware competitor, to stun and compel him to enter into a fight unprepared, to paralyze his will and to deprive him with an opportunity to show resistance, to create more favorable conditions for victory with the minimal efforts, means, and time. In a wider conceptual plan, we deal with the strategy of indirect actions as they becoming a basis for strategic planning both in the military-political arena and in business. We are facing such a way of strategic thinking and action that leads to an organizational transition into a qualitatively new state and which presupposes a gain of competitive advantage by disguising (through secretly equipped stratagems) the damage and chaotization of the existing market space through an egoistical manipulation of its participants, competitors, consumers, and state authorities with the sole objective of maximizing profits and benefits.

Obviously, only heavyweight players are capable of changing the rules of a market game. It is also reasonable to take into consideration a conspiracy factor. Being offstage and outside of a zone of a possible backstroke, it is easier and safer to change conditions in a field of a business battle. However, the appearance of an increasing number of competitors with new rules in the market space will make the position of players more vulnerable, and the competition will be beneficial to the one who can stay put for the longest period of time using substantial financial sources. The specific financial aspect of a hypercompetitive strategy is closely connected with the illegal withdrawal of financial resources from taxes, creditors, and “outside” shareholders. The main struggle for control over a corporation usually starts right here, in a narrow and unseen (for the uninitiated) sphere of corporate finances. Such a struggle will always have some of the attributes of criminality. In Russia during the 90s, only three norms of corporate ethics were formulated: (1) to avoid, whenever possible, obvious criminal methods in a settlement of economic conflicts (such as, a physical violence toward competitors); (2) in corporate conflicts, do not offend a personality of an entrepreneur publicly (in particular, the real owners); and (3) do not submit a judicial claim abroad. The most powerful incentive to obey the given informal convention is the unwillingness to put to the test a counterpunch in case of a violation of these principles. However, infringements are frequent.

Permanent or short-term strategic pressure requires a series of actions, which are intended to block, embarrass, and/or confuse a competitor, to force him to take impulsive and premature steps, and to make mistakes. In general, this hypercompetitive style could be compared with a missile, which as a multiple divided warhead includes both valid explosive shells and a set of moulages. Its distractive maneuvers could be carried out at different commodity and geographical markets with long-term echelon preparation in time. Today’s leaders carry out a huge responsibility for the nondistribution of the pathogenic virus of hypercompetition—this weapon of mass destruction, attacking the very substance of social nucleus, the basis of social solidarity and existence.

The success of any paideia-based cooperation is defined by the ability of the parties to unite their efforts in the achievement of a common task. This is not success by any means, not a triumph of egoism, but harmony, a fortunate combination of the plusses and minuses of all players. Real victory could be reached by a voluntary consideration of the preferences and interests of other participants, and by the coordination of individual strategies and their synchronization toward a common goal. This truth, in fact, was recently awarded the Nobel Prize in Economics. The winner was John Nash, whose discovery can be compared with the contribution of Newton, Copernicus, and Einstein in natural sciences.

John Nash denied Adam Smith’s classical postulate that the “invisible hand” of the market, which forces an individual to pursue one’s egoistical goals, at the same time increases well-being of society as a whole. Discrepancies in this thesis with reality have challenged theoretical minds for over 250 years. Solutions were sought after in more and more abstract charts, which were practically isolated from real life and based on a set of conditional assumptions (about perfection of the market, rationality of behavior, etc.), or in the eclectics of Utilitarianism. Since the time of Adam Smith, the numerous external effects of management have been revealed, many diverse concepts of the social benefits have been developed, a rich collection of wide-ranging motivation in economic behavior has been gathered, and transformations of the “invisible hand” into a “visible or invisible fist” have been comprehended. But the key problem remains: the enmity and the thirst of success in business, based primarily on egoistical aspirations, that has led to the crash of human destinies, the collapse of organizations, the exhaustion of resources, the degradation of the environment, and the breakdown of social systems. As is now clear, the splash of narrow-egotistic liberalism, which happened in the 90s around the globe, has been gradually replaced by “rooted in social-market economy” motifs and the motivations of social responsibility.

The essence of John Nash’s discovery consists in the proof, by formal mathematical methods, of the extremely simple and very ancient moral attitude and justification applied to the daily business practice and to the negotiation procedure on any levels including the international one. In particular, to achieve stability in a social group, which is essentially a complex system, it is necessary for every individual and each player to have a desire to accomplish a self-oriented goal, bearing in mind the interaction with other players and requirements of the well-being of the entire system. The authority of the Nobel Prize Committee has recently confirmed the critical requirement to the rules of command games: that only by matching one’s own behavior with the interests of other players, it is possible to achieve the optimal distribution of a prize among all parties not only inside a team, but also among competitors. Competitiveness, thus, can quite effectively mean partnership.

The Old Testament history of the erection of the Tower of Babel gives a clear illustration of the consequences of this rule’s infringement. The plan to construct a city and a tower up to heaven was offered by the successors of one of Noah’s sons, the Hamites, whose ark has rescued mankind from the destruction. However, the plan originated on the desire of becoming famous and free from submission to the descendents of Shem and Japheth. The result of this disgraceful enterprise is well known. The builders started speaking in different languages, did not understand each other, terminated their contractual obligations, and walked away to the different areas of the world. The kinship of humanity has been gradually forgotten. The “command game has failed,” as an observer might say today; or as Jesus put it, “Every kingdom divided against itself is laid waste, and no city or house divided against itself will stand.”

* * * * *

I want to pick up the point of state-business interaction with examples from Russia. In Russian business practice, and in the practices of many thousands of companies, social responsibility is guided by business associations and by the state. The key questions regarding the social responsibility of companies are: How should companies be responsible, to whom (within the different categories of stakeholders), and why, for what reason? The social policy of the state should provide a proper framework for businesses to be in a balance with the governmental course of action. But in Russia, the state itself is socially irresponsible. Therefore, I think Russia should be added to the list of key global challenges, as Katherine mentioned, due to the high level of social misery and poverty. More than 60 percent of the population is living under the survival level, even though 10 percent of the population lives on the gold standard.

The value of responsibility is a foundation for the social performance of businesses. Every system has its own level of social responsibility or, in other words, its level of salutariness.

The sum of all the benefits and qualities of a business is in its products, services, and relationships with labor, social freedom, human rights, and the environment minus the sum of all its harm to all stakeholders throughout the lifetime of the performance of the business. Systems in which this level is lower than one unit will be necessarily regarded unbeneficial, irresponsible. Therefore, the social responsibility of business is not an amorphous concept that cannot be taken into a consideration in business behavior, but quite a measurable category, which can be expressed by the structural formula:


The calculation of the level of social responsibility of a system can be done using the rational, analytical approach and/or by employing instinctive, intuitive perception. The intuitive approach can be integral or through components by way of the influence of a business nature, and its effect on the body, soul, and/or spirit of people.

Thus, social responsibility can be a factor of real competitive advantage. Socially responsible business systems are characterized by their focus on customers; they have a high level of reliance and duration, and are simple and inexpensive. They produce minimal damage to nature; they protect from any damaging use, increase faith, and, in general, neutralize the energy of harm understood as evil. Interestingly enough, the assessment of this good-evil generating system can be measured by the Ten Commandments, namely, how a company increases or diminishes the energy of evil through its operations by not lying, stealing, and so on. In fact, the advantage constructed on deceit is as meaningless as a house built on sand. As the Bible says, all secrets inevitably become obvious. But society itself should formulate requirements for businesses, and transfer these requirements into a normative status in the form of laws, codes of corporate honor, and/or criteria for rating estimation. It is necessary to formulate viable game rules for everyone who has entered in the field of business and political activity, which the social authority could force enterprises to follow. As it is marked in the social doctrine of the Russian Orthodox Church, namely, “following the higher laws of a life is an obligation. . . . Deviation from them will inevitably result in damage and death.”

Under this context, special attention should be paid to the increased religious movement in Russian society. The church has the highest level of trust among Russian people. More than 60 percent of the Russian people trust the church, and only 11 percent of the population (14% by a different measurement) does not trust the church as a social institution. The trust to other social institutions (e.g., government, police, security, legal systems) is much lower, even negative. Sixty percent of Russian people see themselves as believers, 27 percent do not believe in God, and only 4 percent are convinced atheists. Sixty five percent of Russian people celebrate Easter, which is the third most popular holiday, after New Year’s (89 percent) and their own birthday (78 percent). This information shows that the Russian Orthodox Church continues to be the moral leader of contemporary Russian society. For practical purposes, this means that some religious representatives should also be among the group of experts providing assessments of the social responsibility of businesses. If a social institution is trustworthy, it should participate in the generation and generalization of criteria for communal assessments.

In conclusion, I would like to make one final observation. The development of socially responsible systems, which are organically related to the task of increasing the humane immunity of modern civilizations, can be understood as a result of a thousand-year-long progress. In the history of civilization, we can find only three principle social roles in business and social life: reapers, warriors, and landlords (modern business people). When business becomes a battlefield for wars—economic, psychological, environmental, etc.—we see fundamental changes in the very nature of business. As a field of war, it attracts warriors and reapers, but there is no room left for landlords anymore. The direction of business evolution has changed; business has become a magnet for the values of other social groups. For warriors, the basic value is honor and responsibility; for reapers, the basic value is truth. The freedom of entrepreneurship and profits as the basic value of landlords should be integrated with the essential values of honor and truth, which together can be identified as the foundation of paideia in business. Paideia as a concept and a paradigm is now like a child facing dangerous realities in the adult world, who forgot the tender truth of innocence and happiness that are the criteria of the highest level of being. Facing a contemporary anthropological crisis, the question of paideia in business has been taken to the extreme as a question of life and death. Thus business has no other choice—whether to die, or to become warriors and reapers of truth and honor, whom society can trust.