The Enlightened Capitalists

The Enlightened Capitalists: Cautionary Tales of Business Pioneers Who Tried to Do Well by Doing Good  by James O’Toole

Is it possible for a business to make money without exploiting workers, polluting the environment, dodging taxes (and other social responsibilities), or swindling customers? Well, sure. Probably, anyway. At least for a while, under certain conditions. But it’s not as easy as one might think. And those that try often fail. In this book, a business professor at the University of Southern California profiles some ‘enlightened’ business leaders who have tried, and he explains why so few large corporations have been able to adhere to the enlightened principles of their well-meaning founders.

I’ll try to summarize a few key points that I took away from this below.
*SPOILER ALERT* It all comes down to money.

Every now and then, someone with high ideals will start a business that respects all its stakeholders: owners, workers, customers, the local community, the environment, humanity in general…. It acknowledges its impact on them and its responsibilities to them. That’s an ‘enlightened’ way of looking at business.

But there is another way, a Wall Street way. Many people in the business profession seem to believe that the primary business of any business is to make money. In their eyes, a business has a fiduciary responsibility to maximize profits for its owners/investors. And that’s pretty much its only responsibility. Everything else, such as making better products, providing good service, creating jobs, responsibly discarding industrial waste…, aren’t necessary. A business still might do such things, as long as they don’t lower profits, but it isn’t obligated to. If it can get away with making cheaper products, charging its customers more, cutting its workforce, working them harder, paying its remaining employees less, discarding its trash in the local duck pond, and then selling the dead ducks as a secondary product line, then that’s what it should do. That’s good business. Profit comes before all else.

So, when in the course of events and the passage of time, control of a business passes from its original enlightened founders and into the hands of investors, priorities change. The business that had once been someone’s life’s work, possibly with a goal of making at least one small corner of the world a better place, comes under the control of people who view it as little more than another profit generator. With little or no personal stake in the business, it’s employees, or the surrounding community, the investors demand higher profits. New managers are brought it, managers who share the ‘normal’ business school outlook. With a keen eye and the ethical principles of loan sharks, they review the practices of the newly acquired business and discard those that don’t add to the next quarter’s profits. If the business still can’t generate the level of profits needed, they have no qualms about dismembering it and selling the parts.

The author doesn’t really provide any solutions to this state of affairs. Sadly, it seems to be an unavoidable consequence of free market capitalism. He is writing, as the subtitle states, a collection of cautionary tales to warn current and future entrepreneurs of what to expect if they seek to go public by selling stock to investors. He’s warning them that they have to decide if the ‘soul’ of their company matters more than the money they can get from selling it.

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The Goodness Paradox

The Goodness Paradox: The Strange Relationship Between Virtue and Violence in Human Evolution by Richard W. Wrangham

Humans can be exceptionally kind, compassionate, and cooperative. And they can also be cruel, competitive, and the nastiest SOBs it will ever be your misfortune to meet. Is this a paradox? I used to think so when I was (much) younger, and apparently some people still do. Richard Wrangham, a professor of Biological Anthropology at Harvard, attempts to explain it.

I’ll try to summarize his position here:

The seeming discontinuity in human nature is due to innate aggressive proclivities that evolved over time, not just in humans but in several species. Wrangham distinguishes two types. Reactive aggression is the spur of the moment, lose your temper type of anger, the kind that (after things calm down) we’d probably view as an overreaction to some minor provocation. Proactive aggression is the cold, intentional type, the kind of aggression that takes a bit of advance planning or at least some prior consideration—like deciding you want someone else’s banana and laying a trap for the previous owner in order to relieve him of it. As a subset of this, he identifies coalitionary proactive aggression, which simply means that a bunch of people (or apes or prehumans or whatever) get together, pick a victim, and subject it to a very bad and often final day. From this come wars.

Humans, he says, have self-domesticated by breeding out extreme reactive aggression while breeding in a capacity for proactive aggression. This wasn’t intentional, of course. There were no prehuman eugenicists or alien experimental biologists behind it, although the effect was not unlike when humans intentionally manage breeding in order to domestic animals. (There is some interesting stuff about domestication syndrome that I won’t go into here because it would take a while, and it’s sort of beside the main point, but it is why dogs are cuter and cuddlier than wolves.)

In any population there will be some individuals who are bigger and meaner than others. Depending on the species, the biggest and meanest of them will become the alpha male. (Not being sexists here, but it’s pretty certain that our early ancestors were.) This male scores high on the reactive aggression scale, responding, well, aggressively to others who he instinctively views as challengers and competitors. Also within that population, there will be individuals who are less volatile, less competitive. They have a capacity to cooperate and eventually some of them do. They decide that they don’t like the alpha male getting all the best fruits and females, so they get together to change the situation. The ability of these conspirators to cooperate and tromp on the alpha male signifies lower reactive aggression while, at the same time, demonstrates higher proactive aggression.

Over time, genes for reactive aggression are bred out, while genes that promote cooperative behavior, and hence proactive aggression, are favored. After several thousand generations, individuals with instinctive dispositions for nasty and brutish behaviors are reduced and those who possess a greater capacity for cooperative and scheming behaviors become the norm. This brings us to today and a species that usually gets along well with others but can, at times, excel in cruelty and sadism.
That’s the in-a-nutshell version of the author’s point, as I see it. I’m not sure I totally accept his argument or his definitions, and I’m quite sure that the subject of human competition and cooperation is far more complex than this, but it’s a good start at an explanation.

(I’m tempted to write more about this because it’s a fascinating subject, but I have bills to pay and other mundane things to do today.)

Empty Planet

Empty Planet: The Shock of Global Population Decline by Darrell Bricker and John Ibbitson

Birth rates are falling. In many countries, fewer children are being born than are needed to replace the previous generation. (The replacement rate is 2.1 – each woman, on average, would need to have 2.1 children to maintain a population at its current level.) In some nations, the populations are already falling. In others, the populations are being bolstered through immigration. That seems to be the central point the authors are making in this book. Immigration can offset the declining birthrate of the native population and allow nations to maintain robust and even growing populations and economies. Nations that severely restrict immigration, such as China and Japan, are likely to find themselves in a world of hurt as their populations age and they are left with too few people of working age to support or care for their senior citizens.

That’s all true and fairly obvious. Immigration has long been a proven means of creating and maintaining a vibrant economy, although it takes a special kind of society to embrace it. Those that are especially xenophobic cannot, but nations like the United States and Canada, which are defined as as being nations of immigrants, may do well…at least for a while (unless they screw up by closing their borders).

But immigration is not a long term solution because, as the authors point out, the declining birthrate is a global phenomenon. As societies become more urban, educated, secular, free, gender-equal, affluent, and healthy, they have fewer children. And although there are no guarantees, it seems reasonable to expect that these kinds of societal advances will continue to be achieved by nations around the world. This may take longer than the authors seem to envision. Societal change can be slow. There are even people who cherish traditions that enforce ignorance, superstition, and oppression and are willing to go to extreme measures to preserve them. But these are exceptions, and eventually, and not all that far in the future, the global population seems likely to start falling.

This, of course, has all sorts of implications, both good and bad. Pollution is likely to decrease. The number of fish in the sea is likely to increase. But the world economy may suffer from lack of workers and consumers and, as may all of the old folks who are dependent on them. Innovation may slow because of fewer young minds working on fresh ideas. This book doesn’t go into any detail about the cultural and technological changes that might mitigate such problems, but I can imagine several, which is why the prospect of a declining population wouldn’t bother me even if I were young enough to still be alive to witness it.

All in all, this is highly readable book about an important issue. I recommend it.

It’s Better Than It Looks

It’s Better Than It Looks: Reasons for Optimism in an Age of Fear  by Gregg Easterbrook

From the title, I expected this book to be much like those by Steven Pinker, showing how human life has steadily improved from generation to generation, about how we’ve reduced things like hunger, disease, poverty, crime, and war by implementing the ideas of the Enlightenment. There is some of that in these pages, but Easterbrook isn’t really looking at the broad scope of history here. He is more focused on today, or at least on the last century. His main point is that things today (in general) are far better than politicians, social media, and most news reports might suggest.

Humans, he states, are predisposed by their evolution to suspect threats and be wary of the unknown. Even though most shadows are harmless, treating all as if they are bears hiding in the bushes has survival value because, every once in a while, there really is a bear. Politicians and the media exploit our inherent fears (sometimes intentionally) for their own benefit. His take on how current politicians have done so abound.

This isn’t an objective or scholarly work. There is little statistical data, no graphs, no detailed analysis, and the author freely shares his personal opinions and value judgments (such that Western ideals are moral and that a well regulated market economy is the economic ideal). Despite these differences, he comes to much the same conclusions as Pinker does in The Better Angels of Our Nature: Why Violence Has Declined and in Enlightenment Now: The Case for Reason, Science, Humanism, and Progress. Things aren’t only not bad; they are better than they ever have been. That doesn’t mean we don’t have serious problems. Disease, crime, poverty, and hunger have been reduced, but they haven’t been eliminated. Challenges such as climate change and wealth disparity certainly need to addressed, but history shows that humans are quite good at overcoming challenges. There is every reason to expect that we’ll meet those of today as least as well as we have met those of the past.

Debt: The First 5,000 Years

Some debts are formal and quantifiable, like the ones you take on in our modern world when you buy a house or a car. Some are not, like when you tell someone you owe them one or that you’re in their debt when they do you a favor. The latter kind came first. Before there was money, people did one another favors and built a kind of social credit based on their honor and their reputation. In close knit communities, most exchanges, even for things like eggs and milk, were based on people swapping favors. Everyone carried a social debt and everyone was a social creditor.

Despite popular myths about the origins of money, there never was an economy based on barter. Direct trades of one item for another were uncommon and only needed between people who did not trust one another. The very first economies were based on a kind of communistic cooperation. Competitive economics, the kind in which people selfishly seek gain or attempt to come out ahead in a deal, came later. In large part, it was necessitated by war.

As the title states, this book is a history of debt. But it’s also about money, wealth, poverty, capitalism, and people. But is all comes back to debt because it’s about what we owe to one another. It’s an informative and enlightening read.

Enlightenment Now

Enlightenment Now: The Case for Reason, Science, Humanism, and Progress by Steven Pinker

Since our emergence as a species, we (humans) have faced a great many challenges. We may not be entirely rational creatures, but we are clever, and we are capable of rational thought from time to time, and because of this, humanity has progressed. Our collective ingenuity has been remarkably successful in solving a great many problems, and there is every reason to expect that we will continue to do so.

As with Steven Pinker’s earlier book The Better Angels of our Nature, this one documents human progress. Our lives are far better (on average) than those of our ancestors. Sadly, many people don’t realize this and fail to appreciate how the change in thinking we call the Enlightenment allowed us to successfully combat disease, famine, and poverty.

Sometimes the author’s anger and frustration bleed through in his writing, but I can’t blame him. I often feel the same at how selectively unappreciative people can be for the benefits provided by modern life and of the Enlightened principles that so greatly helped us achieve it. We are safer, smarter, wiser, healthier, better fed, and lead longer lives. War, crime, disease, hunger, and many other ills, some natural and some self-inflicted, are continually in decline. Our ancestors struggled hard to get us to this point. They bravely questioned tradition and prevailing superstitions to understand the world as it really is. In many ways, they succeeded, and they made our lives better. The least we can do is recognize their achievements.

Misbehaving: The Making of Behavioral Economics

Once upon a time, many economists believed that people were rational creatures, at least when it comes to money. Their idealized consumers and investors based their choices on what to buy, what to sell, how much to spend, and how much to save, on objective data and sound reasoning, with the ultimate goal of personal financial gain. When it came to economics, they believed, people were best seen as selfish, money-maximizing algorithms.

Obviously, those economists had never spent much time around real people. But that’s what they thought, and they constructed economic models and public policy recommendations founded on that fundamentally flawed hypothesis. The results have been less than optimal for real people. Unfortunately, other than for stock bubbles, this book doesn’t address those in much detail.

In Misbehaving, behavioral economist Richard Thaler tells us how this paradigm came to be challenged over the last half century. In the 1970s, he was among a small, outsider group that proposed that since economics is a human activity, one must understand humans to properly understand economics. Not an easy task, for sure, but how people actually behave must be factored into the equation. Economics is as much psychology as math. This isn’t a new idea. One of the most influential economists of modern times, John Maynard Keynes, knew it well, but somehow over the years, it had either been forgotten or intentionally ignored. This book does not provide the history of how this came to be or, perhaps more interestingly, why.

Misbehaving provides a brief history of the emergence of behavioral economics as a recognized academic field. It introduces some of the key players, the basic ideas, and the flaws of the paradigm it seeks to displace. It’s presented as if behavioral economics is a new and revolutionary idea. It may be. I’m not an economics insider. The most surprising thing to me is that a revolution is needed. How could anyone have ever seriously considered an economic theory that ignored how people actually behave in the first place? How did they believe it might provide meaningful insights? Surely they must have known that humans are not inherently selfish, that their behavior is not predominately rational, and that they don’t assign value to things purely in terms of how much money they might be traded for. Assumptions to the contrary are not only wrong, they are blindly ignorant of what humans are.