Moral Capitalism: Reconciling Private Interest with the Public Good

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Shows how to ensure that capitalism promotes progress and equality rather than enriching the few at the expense of many Based on principles developed by the Caux Round Table, an international network of senior business executives from such companies as 3M, Canon, NEC, Bankers Trust, Shell, Prudential, and dozens of other companies Provides practical guidelines for corporate social responsibility through the Caux Round Table's Seven General Principles for Business The world is drifting without a clear plan for its economic development. Communism is dead, but in the wake of Enron and similar scandals, many see capitalism as amoral and too easily abused. A blueprint for progress is needed and Moral Capitalism provides one. Moral Capitalism is based on principles developed by the Caux Round Table, an extraordinary international network of top business executives who believe that business can-and must-weigh both profit and principle. Caux Round Table's global chair, Stephen Young, argues that the ethical standards inherent in capitalism have been compromised by cultural values inimical to capitalism's essentially egalitarian, rational spirit, and distorted by the short-sighted dog-eat-dog doctrines of social Darwinism into what he calls brute capitalism. He demonstrates how the Caux Round Table's Seven General Principles for Business can serve as a blueprint for a new moral capitalism, and explores in detail how, if guided by these principles, capitalism is really the only system with the potential to reduce global poverty and tyranny and address the needs and aspirations of individuals, societies, and nations.

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1 Is a Moral Capitalism Possible?

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The mind of the superior man is conversant with righteousness; the mind of the mean man is conversant with gain.

—Confucius, The Analects, Bk. IV, Chpt XVI

As there is a degree of depravity in mankind which requires a certain degree of circumspection and distrust, so there are other qualities in human nature which justify a certain portion of esteem and confidence.

—Federalist No. 55, Friday, February 15, 1788

THIS BOOK AFFIRMS that moral capitalism is possible. First, in Chapters 1 through 5, it justifies faith in moral capitalism; then, in chapters 6 through 12, it provides a practical guide for those who want to achieve moral capitalism in their business pursuits and professional undertakings. Finally, in a concluding chapter, it discusses how, in these times, we can cultivate leadership sufficient to build a moral capitalism.

Seeking market profit through business and the professions is honorable and worthy. Based on the ideas and principles set forth in these chapters, I believe that each of us can indeed go to work every day for any business, great or small, feeling genuinely happy and proud of our career commitment.

 

2 The Many Varieties of Capitalism

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It was God who created the heavens and the earth. He has sent down water from the sky with which He brings forth fruits for your sustenance. He has subdued the ships which by His leave sail the ocean in your service. He has subdued the rivers for your benefit, and subdued for you the sun and the moon, which steadfastly pursue their courses. And he has subdued for you the night and the day. Of everything you have asked for he has given you some. If you reckon up Gods favors, you could not count them.

—The Holy Koran, Surah Abraham, 14:30

The Great Tao is universal like a flood.
How can it be turned to the right or to the left?
All creatures depend on it,
And it denies nothing to anyone.
It does its work,
But it makes no claims for itself
.

—Tao Te Ching, No. 34

NATIONAL ECONOMIES MARCH to the beats of different drummers. Doing business in Japan differs from doing business in China. Corporate laws and forms of corporate finance are different in the United States than in Germany, France, and most of the European Union nations. Values, therefore, do make a difference to business. National economies like those of the Chinese and the Japanese, with deep and intense cultural foundations, construct patterns of business practice and legal regulation consistent with core principles of their national cultures.

 

3 Brute Capitalism: Survival of the Fittest

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Greed is good. Greed is right. Greed works. Greed cuts through, clarifies, and captures the essence of the evolutionary spirit.

—Gordon Gekko
 (played by Michael Douglas) in the movie Wall Street

Veni, vidi, vici.

—Julius Caesar,
as reported by Suetonius in The Twelve Caesars
1

It will not be denied that power is of an encroaching nature, and that it ought to be effectively restrained from passing the limits assigned to it.

—The Federalist No. 48, Feb 1, 1788

THE VALUES WE CHOOSE TO LIVE BY have some say in determining our fates. Chinese, Japanese, and Mexican cultural priorities, to name only three autonomous value sets, bring about three shades of capitalism. A fourth variety of capitalism, which many assert to be the highest and best form of capitalism, replaces cultural norms with individual self-interest as the highest good.

This libertarian form of capitalism does not seek to apply moral character in business, leaving very open the probability that the powers of market capitalism will be abused by those who hold such power in their hands. A more brutish market environment then emerges to torment the weak, the trusting, and those in great need.

 

4 Moral Capitalism: Using Private Interest for the Public Good

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he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest he frequently promotes that of society more effectually than when he really intends to promote it.

—Adam Smith, The Wealth of Nations 1

Where there is no vision, the people perish.

—Proverbs 29:18

THE ARGUMENT FOR MORAL CAPITALISM has two parts. First, as Adam Smith asserted in An Inquiry into the Nature and Causes of the Wealth of Nations, free markets have an inherent tendency to bring about a convergence of virtue and interest. In other words, the logic of self-interest considered upon the whole when applied to business over time leads to betterment for the individual as well as for society. Second, moral capitalism is advanced and accelerated by a sense of service, a fiduciarylike sensitivity to others.

The German philosopher Hegel concluded that private property was necessary for morals. Without seizing hold of some touchable part of the cosmos, no person could fully bring his or her values into being.2 In Hegels terms, to objectify a subjective intent, to move from mental states to physical being, to incarnate value into the evolution of the world, something tangible had to be transformed according to the dictates of our own will. Only speaking of our intentions would not always fully bring our personhood into palpable being for others to take into account and accord us the dignity we seek. People have a need, Hegel assumed, to leave their mark on the world. That happens only once some part of the world is appropriated as being especially ours, to the exclusion of control by others. Ownership of things—a right to private property—therefore, has an important place in the theory of morals in that ownership of property enhances the living presence of our dignity.

 

5 Moral Capitalism and Poverty: Must the Poor Be With Us Always?

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When my pockets were full of money, all my friends were standing round;
Now when my pockets are all empty, not a friend on earth can be found.

—Ramblers Blues, American folk ballad

Plate sin with gold, and the strong lance of justice hurtless breaks; Arm it in rags, a pigmys straw does pierce it.

—King Lear, act 4, scene 4, William Shakespeare

MARKET CAPITALISM AND THE PRIVATE PROPERTY it uses to create an endless flow of wealth bring great benefits. But, within national economies and in the world at large, not everyone shares in this wealth. Consider the facts on global poverty even after a decade of dramatic economic growth, during which time private sector market activity created the controversial phenomenon known as globalization.1 Communism committed suicide, and free markets were finally recognized as the economic system that best produces goods and services.2

One billion people in the world are doing well, mostly in the European Union, the United States, Japan, Canada, Australia, Singapore, Hong Kong, Korea, and in a few other countries. The face value of stock market capitalization in these wealthy countries rose from roughly some $9 trillion in 1990 to some $35 trillion before the market downturn of 2000. These stock markets hold more than 95 percent of the worlds equity capital. By the end of the decade, on the other hand, half of all our humans—three billion people—live on less than three US dollars a day. Another two billion people are poor but live in countries that are making some economic progress.

 

6 The Caux Round Table: Advocate for Moral Capitalism

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Give just weight and full measure.

—The Holy Koran, Surah Cattle, 6:149

What Heaven has conferred is called the Nature; an accordance with this Nature is called the path of Duty; the regulation of this path is called Instruction.

—The Doctrine of the Mean, Chap. 1

MORAL CAPITALISM WILL NOT HAPPEN by the grace of God. Responsibility for the good rests on our shoulders.

Ideals and values, if they are important enough, can effect social action. Mind imposes itself on the world through will. As pointed out in Chapter 2 on Chinese, Japanese, and Mexican national capitalisms, some ideals or principles are so important to different cultures that they function like the axle around which all the spokes of economic action turn. Since moral capitalism cannot arise of its own will, people must be encouraged to adopt its axial principles and use them to turn the wheels of enterprise. Committing moral capitalism requires acts of culture. With this understanding, the Caux Round Table Principles for Business were published in 1994 to improve global business culture.

 

7 Customers: The Moral Compass for Capitalism

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Treating people with respect will gain one
wide acceptance and improve the business
.

—Second Business Principle, Tao Zhu Gong,
Assistant to the Emperor of Yue,
500 B.C.E.

I have wished a bird would fly away,
And not sing by my house all day;
Have clapped my hands at him from the door
When it seemed as if I could bear no more.
The fault must partly have been in me.
The bird was not to blame for his key.
And of course there must be something wrong
In wanting to silence any song
.

—Robert Frost, A Minor Bird

CUSTOMERS ARE ALWAYS THE HEART of market capitalism. A business without customers is only somebodys fantasy of how to make a living. The valuation of every business turns on its expected income stream, not its projected costs. Buyers, not sellers, keep a market going forward.

Markets move goods and services where supply and demand curves intersect. The demand curve set by consumer preferences—the elasticity of their needs and wants—drives capitalism.

And, the infamous logic of markets always forcing costs of production down is equally driven by consumers. All else being equal, consumers will buy where a supply curve intersects their demand curve at a lower price point. The high probability of such behavior occurring again and again in cultures all around the world reflects the motivational power of consumer self-interest, a universal aspect of the human condition. Consumers, rather than owners, are the cause of downsizing, layoffs, and other measures to cut production costs. Consumers are not in the business of subsidizing either workers or owners by buying at prices higher than necessary.

 

8 Employees: Parts for a Machine or Moral Agents?

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Comradeship and trust will emerge naturally
when discipline and high standards are enforced
.

—Eleventh Business Principle, Tao Zhu Gong,
Assistant to the Emperor of Yue, 500 B.C.E.

We few, we happy few, we band of brothers.

—William Shakespeare, King Henry V, act IV, scene III

GIVEN NEARLY TWO HUNDRED YEARS of worker agitation over wages and working conditions, of high-profile political antagonism between labor and capital, employees are the most volatile stakeholder constituency for a corporation. We have been conditioned to think of labor relations in business and in industry as naturally adversarial, rooted in the most objectionable practice of brute capitalism—the sacrifice of worker interests on the altar of profit. As a result of this history, asking labor and management to work closely together can often be counterproductive.

Management-worker relations have been conceptualized in a long debate as a zero-sum competition for money: what one side gets, the other must lose. So, wringing more profits out of the business for its owners demands lowering wages for its workers.

 

9 Owners and Investors: Exploiters or Potential Victims?

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Coat-check girl: Goodness, what beautiful diamonds! Mae West: Honey, goodness had nothing to do with it.

—from the movie, Night After Night

In making judgments, the Early Kings were perfect, because they made moral principles the starting point of all their undertakings and the root of everything that was beneficial. This Principle, however, is something that persons of mediocre intellect never grasp. Not grasping it, they lack awareness, and lacking awareness, they pursue profit. But while they pursue profit, it is absolutely impossible for them to be certain of attaining it.

—The Annals of Lu Bu Wei, p. 570

IN SECTION 3 OF THE CRT PRINCIPLES FOR BUSINESS, the next stakeholder constituency supporting every business (after consideration of its customers and employees) is its investors—its owners and creditors. If customers provide a moral compass for capitalism, then those who finance private ventures to produce what consumers desire are those who turn value preferences into material achievements, creating wealth in the process.

 

10 Suppliers: Friends or Foes?

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Haggling over every ounce in purchasing
may not reduce ones cost of capital
.

—Ninth Business Principle, Tao Zhu Gong,
Assistant to the Emperor of Yue, 500 B.C.E.

SUPPLIERS ARE A STAKEHOLDER CONSTITUENCY more relevant to the success of manufacturers than other businesses, although all firms rely to some extent on the products and services of other businesses to support their ability to serve their customers. Suppliers intensively support the manufacturing process; their quality shapes the quality of the final product that a business sells to its customers, while suppliers prices impact the cost of manufacturing that product. Yet for all businesses, suppliers of inputs and of services can add to or detract from commercial success. Retail stores, for example, are highly dependent on relationships with the suppliers of the goods they sell. Expensive restaurants rely heavily on quality provisions for customer satisfaction and above-cost pricing.

The company must decide whether to adopt an adversarial or an accommodating stance toward suppliers. The Caux Round Table recommends that the company-supplier relationship be one of mutual dependency, not a series of one-off, buyer-beware transactions. The CRT Principles accordingly advocate that businesses build relations with suppliers out of an awareness of this mutuality. And mutuality, of course, is always a premise for moral conduct.

 

11 Competitors: Repealing the Law of the Jungle

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People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

—Adam Smith, Wealth of Nations 1

CONSUMERS PROVIDE THE COMPASS for capitalism, employees do the work, owners make the arrangements, and suppliers feed the machinery of business, but competition hones business decision making, always driving our attention toward the needs of others. When competitive pressures ease, we can more easily impose our arbitrary will on the markets of capitalism. Competitive markets—for customers, investors, employees, supplies, innovations, reputation, etc.—force accountability on business managers by weeding out poor performance. In this competitive markets perform a moral function; they keep people on their toes and always facing the music.

As argued in Chapter 6 under Caux Round Table General Principle No. 5 on Support for Multilateral Trade, moral capitalism presumes a right of competition. The expression of personhood and personal dignity through use of property permits competitive efforts to better ones condition. Competition opens doors for more robust individuality across society, without regard for restraints imposed by the status quo. Competition cumulates the various impacts people can have on the world around them; it is property in motion changing the way we live.

 

12 Community: Enhancing Social Capital

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As for those that have faith and do good works, God will bestow on them their rewards and enrich them from his own abundance.

—The Holy Koran, Surah Women at 4:173

there is no truth more thoroughly established than that there exists in the economy and course of nature an indissoluble union between virtue and happiness; between duty and advantage;

—G. Washington, April 30, 1789

TO ARGUE THAT COMMUNITY IS A STAKEHOLDER for a business is to reject out of hand the selfish temptations of brute capitalism. The Caux Round Table presumes that business lives within a civic order, not in a jungle where competition must be vicious, where its results may well prove to be solitary, poor, nasty, brutish, and short, and where the cash nexus stands in for fiduciary responsibilities.

Immutable relationships of mutual dependency and advantage bind business and society together. Business serves society with wealth creation, and society advances business by enhancing social capital.

Business has power in society; its decisions affect the lives of many. Power necessitates accountability, for without concern for consequences, bad masters will easily put power to bad uses. Power abused calls forth mistrust and raises fears over dependency status. Power abused undermines civil order. As long as capital is powerful, therefore, the moral sense of humanity requires that business be accountable for the ways in which it creates wealth.

 

13 Principled Business Leadership: Stepping up to the Challenge of Moral Capitalism

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To see what is right and not do it is want of courage.

—Confucius, The Analects, Bk. II, Chap. XXIV, 2

The difficult we do at once; the impossible takes a little longer.

—U.S. Seabees, Pacific Theater, 1942–1945

Things fall apart; the center cannot hold;
Mere anarchy is loosed upon the world,
The blood dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?

—W. B. Yeats, The Second Coming

We have met the enemy and he is us.

—Pogo

THE PROBLEMS MANY PEOPLE ASSOCIATE with capitalism are not really caused by market rationality; rather, the systems shortcomings arise from how markets are used, or more precisely, how market power is abused. Whether brute capitalism or moral capitalism prevails turns on decisions made by people in business: which values will they live by?

Principles and dreams share a common impotence—neither has power on its own to alter reality. It takes people to put principles to work. Putting ideals and values into action is the task of leadership, regardless of the position one holds in a business hierarchy. Without principled business leadership, therefore, moral capitalism will be benched for the duration of history.

 

Appendix I

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Published in 1994

 

The Caux Round Table believes that the world business community should play an important role in improving economic and social conditions. As a statement of aspirations, this document aims to express a world standard against which business behavior can be measured. We seek to begin a process that identifies shared values, reconciles differing values, and thereby develops a shared perspective on business behavior acceptable to and honored by all.

These principles are rooted in two basic ethical ideals: kyosei and human dignity. The Japanese concept of kyosei means living and working together for the common good, enabling cooperation and mutual prosperity to coexist with healthy and fair competition. Human dignity refers to the sacredness or value of each person as an end, not simply as a mean to the fulfillment of others purposes or even majority prescription.

The General Principles in Section 2 seek to clarify the spirit of kyosei and human dignity, while the specific Stakeholder Principles in Section 3 are concerned with their practical application.

 

Appendix II

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1. Public power is held in trust for the community.

Power brings responsibility; power is a necessary moral circumstance in that it binds the actions of one to the welfare of others.

Therefore, the power given by public office is held in trust for the benefit of the community and its citizens. Officials are custodians only of the powers they hold; they have no personal entitlement to office or the prerogatives thereof.

Holders of public office are accountable for their conduct while in office; they are subject to removal for malfeasance, misfeasance, or abuse of office. The burden of proof that no malfeasance, misfeasance, or abuse of office has occurred lies with the office holder.

The state is the servant and agent of higher ends; it is subordinate to society. Public power is to be exercised within a framework of moral responsibility for the welfare of others. Governments that abuse their trust shall lose their authority and may be removed from office.

1. Discourse ethics should guide application of public power.

 

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