I am a self-proclaimed capitalist. While that sentence may not make me popular in the state of California, I freely admit that I am a follower of the ideals of Adam Smith. Smith is famous for coining the economics term “the invisible hand” that is featured in every high school economics textbook in America. He believed in the self-regulatory nature of markets, and shunned governmental interference in the economy. Up until 2008, many individuals agreed with the notion that markets should be free of government rule and left to operate on their own. With the series of unfortunate events that ensued in 2008 (downfall of Lehman Bros, bailout of AIG, etc…), the theory that has shaped Western civilization for hundreds of years is being called into question. Can the players in free market economies act in their own self-interest while still benefiting stakeholders? Does capitalism pave the way for fraud and unethical behavior? If so, how much government regulation is appropriate? While I do not think my twenty one years of life experience can fully answer these questions, I want to discuss possible solutions to the growing lack of confidence that people have regarding capitalism and big business.
One solution to this problem is to rid of capitalism altogether and implement an economic system that is completely regulated and monitored by the government. However, that is not a viable option because those types of economies have been historically proven to be unsuccessful (Russia, for example). Therefore, if the problem is not caused by the principles of the economic theory, it must be created by the users of it--capitalists.
According to a survey administered by McKinsey, there is a trust gap that exists between consumers and corporations that continues to grow over time. The survey, given in 2007, discovered that “68% of executives say that large corporations make a generally or somewhat positive contribution to the public good. Yet only 48% of consumers agree”. It is safe to assume that the societal contributions made by Bernie Madoff and the executives of most investment banks have only widened the gap over the past three years. However, it is wrong to blame the system itself and not the users of the system. Consumers are associating unethical behavior with corporations, rather than the individuals that run them. A blog post entitled “To Understand the Lack of Business Ethics Look to Education” captures this notion when the author states, “When people point the finger at companies such as Enron and Arthur Anderson, the unethical behavior was not caused by the organization, but rather these individuals were already unethical”. I am certain that the credit crisis was not a weakness of capitalism, but a signal about the types of individuals who run big business in America.
Although executives of corporations have a fiduciary duty to serve in the best interest of their shareholders, the Jeff Skilling-type executives consider themselves exempt from such duties. Since I am a huge advocate for education as a means of bringing about change, I believe the problem lies in the lack of education about ethics in schools. Out of all the high school curriculum and undergraduate work I completed as an accounting major, I was never required to take a course in ethics. The cheating that I witnessed or heard about was commonplace, but was rarely reprimanded. So how can we expect business executives to follow the rules when ethics is not something that is emphasized or valued in education?
I am in no way making excuses for people like Bernie Madoff—I think all humans agree that he deserves to rot in jail for all of eternity. I am merely highlighting the need for ethics in education to try to extinguish the root of the problem. Statistics prove that it is not only the “slacker-type” students that are cheaters growing up; it is the students who have immense pressure to succeed. A professor at Stanford University conducted research in this area and found that “Nationally, 75 percent of all high school students cheat. But the ones who cheat more are the ones who have the most to lose, which is the honors and AP (advanced placement) students. Eighty percent of honors and AP students cheat on a regular basis… It's the kids with a 4.6 grade-point average who are under so much pressure to keep their grades up and get into the best colleges. They're the ones who are smart enough to figure out how to cheat without getting caught." Once students learn they can get away with unethical behavior in school, we all know it is a slippery slope when one enters the corporate world.
The only way to mitigate this problem is to teach ethics in schools. Most students are aware of what is considered right and wrong, but there is a large gray area that remains untouched long after schooling is over. This gray area is filled with actions that are not illegal but still not considered morally sound, like when companies use legal practices of earnings management in their financials to mislead investors. It is this particular gray area that the crooks on Wall Street manipulate and abuse, causing citizens to mistakenly blame capitalism as the villain. Schools need to incorporate courses that simulate ethical dilemmas and teach strategies to find ethical solutions when the answer is not clearly evident. While undergraduate and graduate business schools emphasize leadership in their curriculum, they fail to integrate ethics as a component of leadership. This fatal flaw causes students entering the working world to disassociate being a good leader and acting ethically, when in reality the two go hand in hand.
Therefore, the only way to restore faith in the markets is to change the character of those who control the markets. Rather than personifying greed and exploitation, big business in America should represent what capitalism encourages; an economic system free of governmental control that welcomes entrepreneurial spirit and rewards hard work. And this can only be created by educating the next generation of movers and shakers on the importance of ethical behavior in the workplace. This will not be a change that will occur immediately, but schools need to assume the responsibility of nurturing leaders and start to incorporate values and principles of ethical behavior into academia.
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