No such thing as an excess profit, declares one elderly executive

Kindred Strangers
May 23, 1997

Corporation, n. An ingenious device for obtaining individual profit without individual responsibility," wrote Ambrose Bierce, an American, early this century. Now, nearing century's end, British disquiet at corporate lobbying techniques, directors' remuneration and windfall profits suggests many here would accept Bierce's devilish definition; some, indeed, would register a missing political dimension, applying the definition to "House of Commons membership".

Such entangling of business, politics and public perceptions is the theme of David Vogel's book Kindred Strangers, a collection of 12 essays written over the past 20 years. Although most focus on the United States experience, they have wider relevance, some expressly comparing the US with Europe and Japan. Corporate power and its containment - by government and public interest groups, by consumers and by ethics - are exposed to Vogel's historical and comparative scrutiny.

Western business ethics and its importance within the US exist courtesy of Protestantism, argues Vogel. In medieval Catholic theology, money-making of any kind was immoral. Italian merchants, unconstrained by ethics, placed diseased carcasses in competitors' shops to harm their business.

Of course, we might wonder about Vogel's reasoning here. Activities deemed immoral by local mores may yet be conducted with moral regard. Adulterers may maintain honesty within illicit liaisons and act kindly towards deceived spouses; sometimes honour and compassion exist between thieves.

With the Reformation, pursuit of profit became sanctified; diligence and related virtues became viewed as necessary conditions for success. But the ultimate success was reward in the afterlife; and bad behaviour would eventually be punished.

Vogel links this with current secular claims, much in vogue in some circles, that ethics pays, or at least is necessary for payment - any dearth in ethics being punished by consumer complaint and shopping elsewhere.

Of course, many of us believe profit size to be no secure indicator of good corporate behaviour; but no matter, says Vogel, the voguish claims are akin to sermons, strengthening business's moral resolve.

True, some business remains beyond the ethical pale; so the size of ethical funds soars as investors foresee a heaven on earth of virtue grounded in material prosperity. The more such investors increase in number, the more likely such prophecy is to be fulfilled - though passing moral bucks by selling unclean investments, infecting others, while not as bad as diseased carcass planting, is no obvious cleansing of dirty hands. On such concerns, Vogel is silent.

Proposed windfall taxes, share option restrictions, utility regulators' profit formulae - these local concerns also suggest nothing bad about profits per se, but something bad about them in excess. In a New Yorker cartoon, one elderly executive declares: "In all my many years in business, I have yet to see an excess profit."

Vogel implies such executives are blind to what is clear to others, namely, the concept of desert. Many believe some profits undeserved - hence deserving of maximum tax - because they result from no increased effort, but from luck or, in medieval thought, acts of God.

Seeking consistency, we might wonder, although Vogel does not, why windfall losses are not typically thought deserving of compensation and why shareholders differing solely in their shareholdings accept vastly disparate monetary outcomes.

Vogel does note that the public's view might be tailored to material self-interest; home owners reaping windfall gains curiously ignore desert-filled questions. Lottery winners, and winners in the lottery of business, are entitled to windfall prizes, though no more deserving than nonwinning entrants; yet maybe all entrants' risk-taking makes entrants more deserving of wins than nonentrants. There are more issues here than just deserts.

In view of individuals' material self-interest, the fact that consumers should oppose some health and safety regulations designed for their protection may surprise. Vogel documents successful US opposition, for example, to rules forbidding helmetless motorcycling - with painful results in injured heads and squeezed taxpayers' pockets.

Of course, such opposition need not surprise at all, for we are fallible and weak-willed humans, prone to engulfment by pleasures proximate in time, rather than those distantly long-term. Vogel darts between explanations for the opposition's success and for the opposition itself, the latter invoking consumer's high valuation of freedom of choice.

Once values other than narrow material self-interest are recognised, we might question economic models in which individuals act primarily through such interest, models associated with Adam Smith. Assuming the narrow view, Vogel stresses moral unease with the capitalist paradox whereby materially good consequences apparently secure deliverance through only selfish behaviour.

We might add further sources of unease, namely those many people, frequently unsung and invisible, excluded from capitalist prosperity. When Margaret Thatcher, as prime minister, implied a denarius-less Good Samaritan would have been no good at all, the moral drawn was that money-making was virtuous; the moral forgotten was the virtue of compassion and sympathy, virtues recognised, indeed, by Adam Smith, yet often forgotten when summarising him.

People's characters go beyond dispositions to self-interest, and so do corporate characters. Vogel shows how, with lobby groups and consumer boycotts in mind, corporations seek to distinguish themselves through particular commitments to, for example, local projects and minority groups - though whether this exhibits merely enlightened self-interest or wider moral concern is left open.

And what of government? In Britain, recent awareness of chameleons - of those who are resigning ministers one moment, corporate directors soon after; of those who are civil servants one day, arms salesmen the next - show some unhealthy government/ business snuggles, as the Scott report established. By contrast, Vogel claims, US business/government relationships are adversarial.

Vogel calls for the integration of management and political analyses of these issues. His essays provide case studies of interest to students of both management and politics, yet, one doubts their explanatory completeness.

Peter Cave is visiting lecturer in philosophy, City University, and associate lecturer in applied ethics, Open University.

Kindred Strangers: The Uneasy Relationship between Politics and Business in America

Author - David Vogel
ISBN - 0 691 046 3
Publisher - Princeton University Press
Price - £25.00
Pages - 415

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