Has business been good?

PEOPLE SOMETIMES JOKE THAT BUSINESS ETHICS is an oxymoron. How did you get drawn into this field?
One important step for me was a trip to India that I took as a Jesuit theology student in the 1970s. I was studying in Lyon, France, and with two classmates I made a trip by car from France through the Middle East to India. We wanted to learn about the development work of missionaries. We visited projects in cities and rural areas, working our way from the Calcutta area down to the south, to Madras. That trip was eye-opening for me and began my concern with poverty.

When I came back from that trip, I proposed to my Jesuit superior that after theology I wanted to go on to study economics. I eventually left the Jesuit order, but I continued to pursue economics. After I received my Ph.D. in economics, the University of Sankt Gallen in Switzerland asked me to start a new center for business ethics.

Before starting my work there in 1982, I made another trip, this time to the United States, to learn how business ethics was being taught here. That helped me back in Switzerland to convince people that business ethics is not really an oxymoron, because, you see, the Americans are doing it. Here are the textbooks and the journals, and here are the experts in the field.

While teaching at Sankt Gallen, I wrote my second Ph.D. on economics and ethics with a clear focus on poverty. I wrote about how to secure a minimum level of existence, first looking at Switzerland, and then internationally.

We don’t usually associate Switzerland with poverty.
Every country, including Switzerland, has a proportion of its population who are poor. My studies showed that—depending on the definition of poverty used—between 5 and 8 percent of the Swiss population were poor. When I published those numbers, it caused quite an uproar. I was accused by a Swiss business publication of publishing unethical statistics. They claimed my numbers were 10 times too high. It was ridiculous.

Poverty in Switzerland may be some-what hidden, but it is very real. I was in-volved with an organization called Aid to All Distress, founded by Father Joseph Wresinski in Paris years ago. They work with poor people in France, and they have groups in Switzerland and other countries as well. So the reality of poverty was no surprise to me because I knew poor people and their difficulties.

There often is an interesting kind of psychological mechanism of excuse at work. When I started talking about poor people in Switzerland, some people said, “Well, Switzerland doesn’t have poverty. If you want to see real poverty, look at India.” And then if I would respond, “Well, I was in India, so let’s talk about poverty in India,” their reaction would be, “Well, India is far away, we have to care about our own people first.”

The reality is: People who really care about poverty at home also care about poverty in other countries and vice versa. That kind of response is just a psychological mechanism people employ to avoid having to deal with either reality.

Do you see that same attitude about poverty in America?
It’s more difficult to hide the fact of poverty in the United States. Walking through the streets of Chicago, it’s harder to ignore. But what is similar is blaming the poor for their poverty. People will say, “Of course, there are poor people. We can see that. But most of them are poor because they are lazy.” People are convinced that everyone could get out of poverty if only they made a real effort. This widespread belief reflects an understanding of poverty that is quite superficial.

It’s very important to get to know poor people. At the University of Notre Dame, every year some of our students participate in an “Urban Plunge” program. They spend a few days at different centers working with homeless or poor people. I’m always impressed by how much those students learn, even with that limited exposure. Things like that help in breaking down prejudices people have about poverty.

Can the Catholic social teaching principle of the preferential option for the poor provide a valuable perspective for businesspeople?
Traditionally businesspeople have cared for poor people through charity and philanthropy—giving money to organizations, causes, and individuals. But particularly within the current context of globalization, it is crucial to look at how companies, within their core activities, can help to overcome poverty. Doing business with the poor is in the enlightened self-interest of companies and can be profitable. And for poor people it can help create wealth and jobs and opportunities so that they can find hope.

How so?
Perhaps the best example is the Grameen Bank in Bangladesh and the microcredit movement it started. I met Muhammad Yunus, its founder, a couple of years ago. He is a professor of economics, and when he started out in 1976, he wanted to help poor people help themselves.

He particularly worked with women in the countryside and in urban slums. He asked poor people what they needed. The first person said 50 cents, another, 70 cents. He found 43 people who together needed a total of $27 to buy maybe a couple of chickens or to rent a bike or to do other small things.

And so Yunus first gave that $27 out of his own pocket. Then he thought about how to find a broader solution, and he asked banks to provide similar loans that would help people generate income. But they said, “We don’t trust poor people. They use the money up to eat. They don’t invest the money for work or to better their situation.” So eventually, in 1983, he started his Grameen Bank, and since then it has disbursed several billion dollars of loans. It claims a 99-percent recovery rate and is owned by its poor borrowers, 95 percent of them women.

The lesson here is that it’s not enough to give a handout, but that we need to set up a system that allows poor people to do business and become self-reliant. It also shows how poor people can create wealth that will help them get out of poverty. In the process they are becoming entrepreneurs, not just recipients of money.

What are the kinds of challenges business ethics deals with?
The basic question for ethics is, what should I do and what should we do wherever we are. In the field of business ethics we talk about three different levels at which people make decisions. At the “micro level,” the focus is on the individual: What are my ethical responsibilities as employee, manager, or employer in my workplace, and as consumer or investor. At the “meso level,” we look at the decision making of companies, unions, and organizations. And finally, the “macro level” includes policy decisions that shape the economic system and order.

What are the ethical challenges for individuals?
One of the most important areas is ethical decisions in our own workplaces. That starts with the basic question of where to seek employment. Should I just go for the highest possible salary, or should I select a company to work for that I can trust? Can I trust my supervisor or my colleagues to do the right thing and to honor it when I do the right thing?

I always tell my students that they should look at the culture and policies of their future employer.

Of course, all Notre Dame grads go to ethical companies, right?
Not all, I’m afraid. Many of our graduates went to the now defunct accounting firm Arthur Andersen.

You mentioned our role as consumers. Today we can buy fair-trade coffee, organic produce, and sweatshop-free clothes. But this kind of conscientious consumer movement still seems to reach only a very small portion of the market.
Those initiatives may still be small, but they are important from a psychological point of view. I was involved in one of those projects in Switzerland, and though its success was limited, through these kinds of efforts people’s awareness is increased. That’s a positive outcome, even if it’s far from sufficient.

Give us an example of the kind of ethical issues average business owners deal with.
I recently had Robert Ouimet, the president and CEO of Holding OCB, a medium-size consulting and food-processing company in Montreal, talk to our students. One of the challenges he discussed was downsizing. As much as you’ll want to prevent that from happening, he said that at times over the past couple of decades his company was forced to lay off employees.

In fact, the last time was early this year when within a couple of weeks the value of the Canadian dollar increased by 20 percent because of the fall of the U.S. dollar. So the food they exported to the U.S. became too expensive, and they had to lay off several mid-level managers.

One unique policy they have at this company is that the manager who does the firing is obliged, after five or six weeks, to have a face-to-face conversation again with the people he or she laid off, to ask how they are coping and what else they can do to help. That requires courage and shows an honest concern for the people. It certainly would be a lot easier, once the decision is made, to get it over with and not deal with these people anymore.

What about the responsibility of businesses as players in the global economy?
Let’s look at the example of Nike, which has been criticized for sweatshop conditions in its factories. In the early ’90s, a student of mine wrote a research paper comparing the practices of Nike and Reebok in Indonesia and their corporate policies and conduct with regard to outsourcing and producing sports shoes.

Well, it turned out that Reebok was doing a relatively decent job, while Nike was not concerned at all. At that time, Nike CEO Phil Knight said in a Harvard Business Review interview that his company’s marketing strategy was to focus on consumers. The kids in the United States wanted to have good shoes that were not too expensive, and they didn’t care about the working conditions, how those shoes were produced.

That approach was a big mistake, and as a result, Nike paid a high price. Now Nike wants to be a leader in providing decent standards for working conditions.

Is that commitment real, or is it just PR to deflect the criticism?
I think it’s more than PR, but there is always an element of that. In principle, I don’t disagree that if a company does something good, it has a right to talk about it. But if it’s only for PR reasons, it won’t be sustainable.

There is a big debate in business ethics today about ethics being considered good for the bottom line. In a way, that’s not wrong. If people are honest, the cost of “controlling” people is lower. If employees are enthusiastic about the policy or mission of their company, that is a strong motivator and can increase profitability. But it cannot be the only reason, or the whole effort will collapse.

Has the recent push for corporate codes of conduct been a promising development?
I do see some progress. Companies today are much more exposed to scrutiny, and nongovernmental organizations are much better organized. That’s a healthy and important development.

Environmental and human-rights groups have made progress. Amnesty International, for instance, has pushed several companies to do more for human rights. They have worked on getting big corporations to integrate ethical standards of human rights into their corporate policies.

Also, the United Nations Global Compact initiative has challenged business leaders to support nine principles in the areas of human rights, labor, and the environment. But they are quite general, and critics have charged that signing the compact does not really involve a great commitment on the part of companies.

What’s your take on the “macro level”—economic policy and the ethics of the economic system?
I think what New York Times columnist Thomas Friedman has said about globalization—that it’s “an international system in the making”—applies to the whole of our economic order. We still have not resolved the question of the right balance between economic growth and wealth creation on the one hand and the distribution of wealth on the other.

In economics people sometimes try to identify two camps—the one concerned with producing wealth and the other with distributing it. But in reality both dimensions are equally important in assessing the performance of an economy, and they are often interrelated.

For example, why do many Latin American countries have low levels of growth? One answer is that in many of them the income inequalities are too big. By contrast, if you look at the so-called “Asian Miracle” countries—Japan, Taiwan, Singapore, South Korea, Hong Kong, Thailand, Indonesia, and Malaysia—their economic success and high growth rates went hand-in-hand with reduction of poverty and of income inequality.

On balance, has the globalization of the economy been a good thing or a bad thing?
Have the poor been getting poorer and the rich richer?It’s really been a mixed bag. By and large, the impact of globalization has been beneficial in East Asia and China but has been problematic in the Middle East, in sub-Saharan Africa, and for the environment.

The rules of economic globalization are clearly biased in favor of rich countries. Farm subsidies, for instance, in the U.S. and in Europe are simply outrageous.

People say the global economy will lead to everyone being treated fairly and equally. But if you look at the reality, this is wishful thinking. Certainly, in paradise we shall all be happy. But we are not in paradise, and we have to look at how globalization is developing now in the real world. In terms of fairness of rules, there is still a lot of work to be done.

Global markets need effective global institutions that work not only to enhance freedom, efficiency, and economic growth but also to promote sustainability and distributive justice, to provide essential public goods, to strengthen fairness in labor markets, and to ensure basic health care and education. The standards of global institutions have to be fair, effective, democratic, and sustainable. That’s not really the case today with the World Bank, the International Monetary Fund, the World Trade Organization, and other global institutions.

As part of the current election campaign, there has been talk about American jobs going overseas. Is outsourcing good or bad?
When you say there are jobs moving out of the country, then you also have to look at how many jobs may be moving into the country. And how is it in the short run and in the long run?

I think there is an argument to be made that in the long run outsourcing is not necessarily bad. But in the short term, if those jobs have to be moved out of the country, there is a moral responsibility both for the companies and for the government to make sure that there is a smooth transition, that people who are losing their jobs can find other jobs.

You don’t think most outsourcing is driven by a “rush to the bottom” so companies can produce the cheapest and with the fewest labor and environmental regulations?
A colleague of mine, Michael Santoro, has written a good book on China, Profits and Principles (Cornell University Press). He says foreign business in China is split in two groups. There are those companies that create high-skilled jobs and are making an important contribution to developing a middle class in China, and then there are those that run sweatshops. You have both. Obviously those with sweatshops have to be changed.

There has been some change, for instance, with the toy company Mattel. They have subsidiaries around the world and now have set up quite high standards for working conditions and respecting human rights. And they are now monitored by an independent agency.

Does the world today have the means to eliminate poverty?
The U.N. Development Program’s initiative “Teams to End Poverty” is built on the premise that today, perhaps for the first time ever, the world has the wealth, technology, and knowledge to end poverty in less than one generation.

I’m very influenced by the Indian-born Harvard economist Amartya Sen. In his book Development as Freedom (Knopf), he offers a framework to assess economic policies. He says that each human being has human dignity and should have five kinds of “real freedoms that people enjoy”: political freedoms, economic facilities, social opportunities like health care and education, transparency guarantees in terms of information, and finally, protective security.

Those criteria are now starting to be used within the World Bank to assess the impact of its loans. So to look at the impact of public policy in terms of those five types of freedoms is not just a lofty idea. It’s measurable and is starting to be incorporated into development reports. It can and should be applied to corporate policies as well.

In a way, today we are much better equipped to eliminate worldwide poverty than we were 30 years ago. But that we are able to do it in principle does not automatically mean that there is also the political will to do what needs to be done. That is still missing. 

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