Daily I receive emails, often from Nigeria, offering financial partnerships and lots of easy money. You likely receive them too. The themes vary, from estates left unclaimed to widows needing assistance from corrupt government bureaucrats, but usually they boil down to a pledge that huge sums will be deposited in my bank account if I merely divulge my account numbers. Why do we delete these emails? Because we don’t believe the information is true and we don’t trust the “business partners.”
What do we do when the entire economy becomes a Nigerian email scam? This is essentially what has happened to us in the global economic crisis. People, investors, and banks have lost trust because they don’t believe economic players are telling the truth, and so they are unwilling to do business with them. Banks stopped lending, individuals stopped buying investments, due to a loss of trust and truth across the global market.
For most of us, our eyes glaze over at talk of the causes of the current economic crisis. Complex derivatives, subprime mortgages, overleveraging of corporations, inflated rating systems, dark markets—the terms and practices are convoluted and opaque. Pope Benedict XVI’s summary of the problem is not. The pope’s recent encyclical, “Caritas in Veritate,” offers ethical standards for the global economy. Economies need truth and trust to work. Absent those they do not work. We have to put people before profits. When we don’t the whole enterprise comes tumbling down. As the pope notes, “Without truth, without trust and love for what is true, there is no social conscience and responsibility, and social action ends up serving private interests and the logic of power, resulting in social fragmentation, especially in a globalized society at difficult times like the present…I would like to remind everyone, especially governments engaged in boosting the world’s economic and social assets, that the primary capital to be safeguarded and valued is man, the human person in his or her integrity.”
We cannot blame only Bernie Madoff, Nigerian scam artists or a few unscrupulous individuals for the recession. The lying, lack of full transparency and insufficient attention to love of neighbor, the common good and justice was widespread. Individuals, banks, investment companies, insurance companies and major corporations lied (even to themselves) or were not fully transparent or were misled about how much income and debt they had, what their assets and liabilities were worth, how much risk they were exposed to and were exposing others to, and how much risk and debt they could afford. When the deceptions (and lack of full transparency) became apparent, trust disappeared and so did the market. Credit froze and people pulled their money out of banks and investments because they didn’t know who was telling the truth and who to trust anymore; good businesses and business people suffered along with the unscrupulous ones. When the markets died so did people; the poor and most vulnerable around the world suffer the most as they lose jobs, food, homes and health. One hundred million more people now go hungry than when this crisis began. Charities lost their investments and donations dried up precisely when more people need their services.
Benedict’s encyclical cuts to the heart of the matter, literally, to the lack of heart, of love and care for others. The current global economic meltdown is not primarily an economic or a technical failure but a moral failure, an absence of truth, trust, love, justice and the common good. No one is left off the hook in Benedict’s analysis: individuals, companies, civil society, governments, international institutions all have important roles to play in restoring ethical behavior. Ethical failures to prioritize human life lead to a host of linked and preventable tragedies, including abortion, food scarcity, unemployment, poverty and environmental damage.
Benedict teaches that profit should not be the only goal of commerce. Love, truth, trust, the common good and justice apply to the market and to corporate behavior, just as they do to our personal behavior. Critics and commentators question this position as unrealistic. What corporations will ever subscribe to that? Can corporate culture and capitalism ever be weaned from short term profits that carry long term costs for others?
The current economic meltdown focuses these questions in a new way. How realistic is it to continue the status quo? Unregulated capitalism without attention to the common good is not working. Ask the unemployed all over the world, or the many countries that experienced violent food riots in the last year. Benedict notes that while globalization has increased wealth for many, it has also dramatically increased “the scandal of glaring inequalities,” and our sad indifference to the plight of the poor among us and around the world. “Globalization, a priori, is neither good or bad. It will be what people make of it.” Benedict commands us instead to make a more just and sustainable world by sharing the world’s environmental and other resources, as these are God’s gifts to all, not just the most rich or powerful. Failure to do so is not just immoral, it is impractical and unsustainable, causing resource wars, food riots and violence against institutions seen as unjust or incapable of addressing basic human needs.
Making corporations and corporate culture more accountable to social justice concerns is not impossible or unrealistic. We have centuries of experience, and a host of tools available for doing so. One tool is law, at the national and international levels. Before government regulation, the minimum wage was zero. It was called slavery, and it existed legally for millennia, coinciding with capitalist and other economic forms. Slavery is now illegal everywhere (but still practiced, as Benedict notes, in the form of human trafficking). Child labor, pollution so bad that the Ohio River caught fire and Lake Erie died—law and law enforcement have outlawed these practices and made impressive gains for social justice, and are still needed to protect the most vulnerable from the most rapacious citizens, to establish minimal levels of just behavior. The reputed government/market divide is false. Markets work best when regulated by law. The question is not whether we need law or government or regulation. Capitalism needs functioning government and laws; without these there is expensive uncertainty, not the needed protection of property rights and contracts, protection of human, worker and environmental rights to have a productive, healthy work force, the ability to get goods to market, and a stable business environment with a level playing field among companies who play by the rules and know what they are.
Global economic activity brings opportunities for social justice; changes in law or corporate behavior in some countries can yield global dividends. In 1969, there were 7,000 multinational corporations (MNCs). By 2008, there were 79,000 multinational parent corporations with 790,000 foreign affiliates worldwide. Today, the top 100 MNCs are estimated to have assets amounting to 9.239 trillion dollars with over 15 million employees. This rise in private, nonstate power across the globe can be met with actions by law, corporations and civil society to better protect human life and the common good. Laws and ethical corporate practices do not automatically “trickle down” to areas of the world with poorer legal and human protections. But because it is more costly for corporations to obey varying laws and practices, they often will tool themselves to meet more strenuous laws in more lucrative markets (California’s environmental standards, for example), with benefits for others in markets with lesser standards.
Beyond law, there are many other tools for making economic behavior better aligned with the values Benedict proposes. Many corporations have brands to protect, and these can be powerful incentives to adopt more socially responsible practices, particularly when consumers, civil society groups including religious organizations, pressure corporations for more socially responsible practices under the light of media attention. Nike CEO acknowledged that Nike has become more responsive to social justice concerns about child labor, environmental and worker safety conditions because “The brand is sacred.” Companies who spend billions of dollars in branding and advertising have considerable investments to protect. Cadbury and Mars committed to buying more fair trade cocoa to protect their brands from links to slavery and child labor in cocoa fields of the Ivory Coast. Companies like McDonald’s did not suddenly “get religion” when they stopped using Styrofoam packaging. Consumer activism and brand protection brought dolphin-free tuna to your table.
Corporations must answer to corporate boards, who can be persuaded at a minimum of the importance of truth telling, as board members themselves can be liable for fraudulent activities undertaken during their tenure. Social justice concerns can be pressed through consumer, media and shareholder activism. For example, the Interfaith Center on Corporate Responsibility, a coalition of 275 religious investors from the Catholic, Jewish and Protestant communities with a combined investment total of over $110 billion, promotes socially responsible investing. TIAA-CREF, the largest private pension fund in the United States, negotiates directly with companies regarding their corporate social responsibility (CSR) records. The U.S. Jesuit Conference has been negotiating with Occidental Petroleum, accused of questionable human rights practices in Colombia. As a result of this shareholder activism, Occidental has agreed to write and implement a corporate code of conduct. Shareholder activism does not produce quick results. Daniel Rosan of the Interfaith Center compares it to the effect of water on stone, a slow reshaping that can produce great effects over time. Media attention to corporate shortcomings spurs MNC attention. Companies engage not only in immediate damage control within a targeted company but also in longer-range policy change across companies as MNC leaders learn lessons from the crises of other companies.
Companies realize the financial benefits of CSR in attracting consumers and investors, protecting their brand from negative public and media attention, and product positioning. Over the past decade numerous CSR standards and monitoring groups have been created to help audit and certify companies’ CSR practices.
CSR activism and media attention have brought greater corporate attention to the “triple bottom line” of people, planet and profits, in goods and service companies; the current economic crisis may help extend CSR and brand protection concerns to the banking and financial services industries. AIG is the poster child for the practicality of Benedict’s arguments: moral failures (insufficient truth telling, transparency, concern for the common good) led to economic failures for the world as well as the AIG company, with incalculable damage to the company’s brand as well as bottom line. Notice the changes in corporate marketing since the crash: advertising now focuses on stability, trust, honesty, getting back to business basics. Maybe corporations are wasting billions of dollars on advertising, maybe they are still lying; it wouldn’t be the first time that Madison Avenue types have stumbled. Or maybe they are coming to appreciate some of what Benedict is saying: that trust and truth must be re-established for people to ever have faith in their companies and brands and return to do business with them. As Benedict notes, “the economy needs [a people centered] ethics to function correctly.” Without moral norms, the global economy ground to a halt; to restore it, ethics must be restored first, for people to more easily discern the difference between honest businesses and the economic equivalents of Nigerian email scams.