Ethics, because of its objectivity, is an inherently murky subject. It is at times so theoretical and speculative that it can seem to be almost incompatible with economic theory, a very secular and pragmatic field of study. It is this relationship that Norman Bowie examined in his lecture at Hamilton on April 20, titled "Economics, Friend or Foe of Ethics?" Bowie, formerly a member of Hamilton's Philosophy Department in the 1970s, is the Elmer Anderson Chair in Corporate Responsibility and Strategic Management/Organization at the University of Minnesota.
Bowie opened by saying that it is his wish to "bridge the gap" between the fields of economics and the humanities. Economists are too ready to dismiss ethics as irrelevant to economic theory because ethics cannot be quantified or concretely measured. He set out to debunk several of the main arguments used against the inclusion of ethics in economic study.
The first argument for ethics as a "foe" of economics is what Bowie calls an "adherence to psychological egoism." Psychological egoism is the view that everyone's behavior is motivated by the desire to maximize personal gain. Basically, everyone acts in his or her own self-interest. If this were true, Bowie said, then there would be no such thing as ethics, because everyone's choices would be decided based on potential loss or gain.
He set up a hypothetical situation to serve as an example of why psychological egoism doesn't exist. In the scenario, he would offer a member of the audience, person A, $20. But person A had to give a portion of his money, however big or small, to another member of the audience, person B. The only way that the two could keep the money would be if person B accepted person A's offer. Psychological egoism would say that person B would accept even as little as $1 of the original $20, because both would stand to gain, whereas if he rejected the offer, both would be worse off. But, in reality, studies have shown that person B will reject the offer it gets to be "unfair," leaving both parties with no money at all and proving that people are not always solely motivated by economic self-interest.
Another "foe" that Bowie introduced centered on problems with agency theory, which deals with the relationship between principals (shareholders) and agents (executives, managers, etc.). Those who believe that ethics aren't involved in economics (presupposing that psychological egoism does exist) believe that a CEO of a major corporation will act in his own self-interest at the potential expense of the shareholders. As psychological egoism teaches, this would be an example of rational acting for personal gain. What Bowie doesn't like about this theory is that agency theorists are pessimistic enough to think that executives would take actions that help themselves and hurt shareholders, but not pessimistic enough to think that executives would lie, cheat, or steal to further their own cause even more. As we have seen, especially lately, lying, cheating and stealing happen far too often.
The switch from "foe" to "friend" can be made by seeing a company's ethics as one of its assets. A code of ethics, however, is not enough to make a significant impact for a company in the public eye. The asset specificity (level of variability of an asset which makes it unique) of a company's ethical code is quite low; a code of ethics easy to copy. An ethical climate, however, is much difference. Actual proof of a history of ethical standards among productions, employment, and distribution are good for a company and prove much more convincing than mission statements and codes of ethics.
The bottom line is fairness as an explanatory variable. Overwhelmingly, people have a concept of what is fair and what is not fair, and their economic behavior reflects that. Bowie called back upon his previous example of the $20 offer to audience member. Person B would turn down a potential gain of $1 if he knew person A was getting $19 because, plain and simple, it isn't a fair transaction. People are drawn toward companies that can prove they adhere to a moral standard of behavior.
Bowie closed by reiterating his earlier assertions of building bridges between the humanities and economics. By challenging some of our assumptions of economic patterns and human nature, he said, we can change economics from a foe to a friend of economics.
-- by Patrick Dunn '12
Bowie opened by saying that it is his wish to "bridge the gap" between the fields of economics and the humanities. Economists are too ready to dismiss ethics as irrelevant to economic theory because ethics cannot be quantified or concretely measured. He set out to debunk several of the main arguments used against the inclusion of ethics in economic study.
The first argument for ethics as a "foe" of economics is what Bowie calls an "adherence to psychological egoism." Psychological egoism is the view that everyone's behavior is motivated by the desire to maximize personal gain. Basically, everyone acts in his or her own self-interest. If this were true, Bowie said, then there would be no such thing as ethics, because everyone's choices would be decided based on potential loss or gain.
He set up a hypothetical situation to serve as an example of why psychological egoism doesn't exist. In the scenario, he would offer a member of the audience, person A, $20. But person A had to give a portion of his money, however big or small, to another member of the audience, person B. The only way that the two could keep the money would be if person B accepted person A's offer. Psychological egoism would say that person B would accept even as little as $1 of the original $20, because both would stand to gain, whereas if he rejected the offer, both would be worse off. But, in reality, studies have shown that person B will reject the offer it gets to be "unfair," leaving both parties with no money at all and proving that people are not always solely motivated by economic self-interest.
Another "foe" that Bowie introduced centered on problems with agency theory, which deals with the relationship between principals (shareholders) and agents (executives, managers, etc.). Those who believe that ethics aren't involved in economics (presupposing that psychological egoism does exist) believe that a CEO of a major corporation will act in his own self-interest at the potential expense of the shareholders. As psychological egoism teaches, this would be an example of rational acting for personal gain. What Bowie doesn't like about this theory is that agency theorists are pessimistic enough to think that executives would take actions that help themselves and hurt shareholders, but not pessimistic enough to think that executives would lie, cheat, or steal to further their own cause even more. As we have seen, especially lately, lying, cheating and stealing happen far too often.
The switch from "foe" to "friend" can be made by seeing a company's ethics as one of its assets. A code of ethics, however, is not enough to make a significant impact for a company in the public eye. The asset specificity (level of variability of an asset which makes it unique) of a company's ethical code is quite low; a code of ethics easy to copy. An ethical climate, however, is much difference. Actual proof of a history of ethical standards among productions, employment, and distribution are good for a company and prove much more convincing than mission statements and codes of ethics.
The bottom line is fairness as an explanatory variable. Overwhelmingly, people have a concept of what is fair and what is not fair, and their economic behavior reflects that. Bowie called back upon his previous example of the $20 offer to audience member. Person B would turn down a potential gain of $1 if he knew person A was getting $19 because, plain and simple, it isn't a fair transaction. People are drawn toward companies that can prove they adhere to a moral standard of behavior.
Bowie closed by reiterating his earlier assertions of building bridges between the humanities and economics. By challenging some of our assumptions of economic patterns and human nature, he said, we can change economics from a foe to a friend of economics.
-- by Patrick Dunn '12
