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P H I L O S O P H Y F O R B U S I N E S S ISSN 2043-0736
http://klempner.freeshell.org/businesspathways/
Issue number 21
18th August 2005
CONTENTS
I. 'Philosophy for Business People' by Geoffrey Klempner
II. 'Business Ethics' by Dr Rosamund Thomas
III. The Elgar Companion to Economics and Philosophy reviewed by Andrew Browne
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EDITOR'S NOTE
Following my visit to the Czech Republic to give a paper on Corporate Social
Responsibility at Prague College, I have been invited to participate in a
Summit Conference organized by the Club of Amsterdam which takes place in May
3-5 2006 in Amsterdam, Netherlands. The theme of the conference is, 'Ready to
take risks?' I will be participating in the 'knowledge stream' on Corporate
Governance, as part of a seminar group including a science fiction writer and a
psychologist. The report from the previous summit held in January 2005 runs to
190 pages and makes fascinating reading. More details, including the report in
PDF format and a movie clip from the January conference, can be found online at
http://www.clubofamsterdam.com .
Dr Rosamund Thomas is Director of Centre for Business and Public Sector Ethics,
Cambridge, UK. We are very fortunate in gaining permission to reproduce her
paper, 'Business Ethics' originally given at the European Federation of
Management Consulting Associations (FEACO) International Conference organised
by the Hellenic Association of Management Consulting Firms.
A while ago, a rather heavy volume from Elgar Publishing arrived through the
post, The Elgar Companion to Economics and Philosophy which after some
persuasion Andrew Browne bravely offered to review. I am pleased to say that he
has done an outstanding job. Congratulations are also due to Elgar for gathering
together a valuable and authoritative collection of articles which professional
economists will ignore at their peril.
From now until the end of the year, I am offering free consultations to
professional and business people. More details in my article 'Philosophy for
Business People'.
Geoffrey Klempner
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I. 'PHILOSOPHY FOR BUSINESS PEOPLE' BY GEOFFREY KLEMPNER
Taking the edge is the gamesmanship of business. It is
taking everything you know about others and everything you
have allowed them to know about yourself, and using this
information to load the deck
Mark H. McCormack What They Don't Teach You at Harvard
Business School p. 61
The search for that vital edge has led the modern gladiators of the business
arena to seek out a burgeoning service industry of helpers and gurus. No idea
is too grandiose or fantastical to earn its clique of devoted advocates -- from
emotional intelligence to Sun Tzu's Art of War.
It would be easy for a philosopher to sit on the sidelines and feel superior.
But I gave up that option a long way back. A decade ago when I started the
Pathways to Philosophy distance learning program, like it or not I joined the
ranks of the business profession. I want to succeed and get ahead just as badly
as the next guy.
Looking at my relatively narrow range of skills, I sometimes wonder whether I
have any chance at all of making it to the big time. But I have never thought
of quitting. As Mark McCormack says (p. 72), what matters is not your given
capabilities, limited though these may be, but rather putting what gifts and
abilities you do have to effective use.
I do not suffer from writer's block, that's one bonus I can be grateful for. An
unsympathetic observer might say that my lack of self-criticism shows only too
clearly in the quality of my prose. That's fine by me. Words are just tools for
getting ideas across: one thing that philosophers and business people can agree
on!
Actually, philosophers and business people agree about a lot of things,
although few seem to have realized this.
Nowhere in the academic world is there greater emphasis on combat, on being
resourceful and quick on your feet -- all skills of the successful business
person. You can't be successful in business without developing an exquisite
sense of the difference between appearance and reality -- between ideas that on
the surface look groovy and those that actually work. Above all, as Ben-Ami
Scharfstein observes in his fascinating book, The Philosophers: their lives and
the nature of their thought, what each and every philosopher sets out to do is
persuade.
-- How am I doing? You tell me.
It also helps to have a thick skin, to know your own mind and not be deflected
by the heavy brickbats of criticism. But if you are the sensitive type, don't
worry, there are other, more subtle survival skills you can call upon.
Socrates said, 'Know thyself'. It is great if you feel that you know yourself.
(Better still if you are correct!) Most of us would be happy to be working
towards self-knowledge -- or at least going in the right direction. But why is
this useful to the business person? We have all known or come into contact with
the rhinoceroses of the business world who seem to forge ahead without ever once
questioning themselves or their motives. Wouldn't that be better than to suffer
self-doubt?
This is where I make my case.
If you are not seeking self-knowledge you would not be reading this. (Or, at
least, you would not have got this far.) You want to succeed, to be sure, but
sheer success in monetary terms isn't enough for you. Then what are you looking
for? What can seeking to know yourself in the Socratic sense accomplish?
The first question to ask is, Is there anything worth knowing about the essence
of the 'business person'? Maybe not!
Elsewhere, I have suggested that the philosophy of business is closer to
philosophical anthropology and metaphysics than it is to ethics:
As a professional metaphysician, I am fascinated by the
idea that human beings can belong to more than one world,
or move between worlds. Anthropologists who 'go native' in
order to study their subjects more closely have an inkling
of what I am talking about. We live in the marketplace and
also outside it. We can play the various roles assigned to
us in the game, or we can stand outside our economic
personae and observe ourselves from an ethical point of
view. The only difference between us and the anthropologist
is that, most of the time, we don't realize that we are
doing this.
Geoffrey Klempner 'Ethics and Advertising'
While I like the idea of a 'metaphysics of the business world', this label
doesn't quite seem to fit what I am talking about here. It is too abstract, too
divorced from the nitty gritty of business life. From the point of view of the
metaphysician, all business people are 'the same', all equally exemplifications
of the ontological category, 'player in the business arena'.
By contrast, from the point of view of Socratic self-knowledge, it is the
differences between us as players that is crucial, rather than what we all have
in common.
This is the nub of my argument. What matters, for the self-reflective business
person, is the qualities that differentiate each of us and make us unique. I
don't just mean the specialist skills that we have to offer but what at the end
of the day we are really after.
Knowing yourself, knowing what makes you unique: that is your edge.
And why should this be such a big secret? Let people know exactly who you are,
what they can expect from you. It needn't put you at a disadvantage. Quite the
contrary. There is no more powerful edge than being confident in yourself and
what you are and letting others know this. McCormack would certainly not
disagree with that statement.
I would like to help business people find out more about themselves by
assisting them in the process of Socratic self-inquiry. This is one area where
I think I can put my particular skills to good use.
The motto of my philosophos.org web site says, 'Philosophers should know lots
of things besides philosophy'. Philosophers should be fully prepared and able
to conduct empirical research. And that is what I propose to do.
I want to talk to business people.
If you are a professional or business person, just pick up the telephone or
send me an e-mail. I am making myself available for up to one full day's
consultation. All I ask is my travel expenses. If you like, you can buy me a
drink or a meal. You won't be sorry.
The offer ends on 31st December 2005. After that, my fees are on a sliding
scale. So give me a call now. What have you got to lose?
REFERENCES
Geoffrey Klempner 'Ethics and Advertising' in Philosophy for Business Issue 9,
June 13 2004
http://klempner.freeshell.org/businesspathways/issue9.html
Mark H. McCormack What They Don't Teach You at Harvard Business School. London:
Collins 1984
PhiloSophos Knowledge Base http://philosophos.org
Ben-Ami Scharfstein The Philosophers: their lives and the nature of their
thought. Oxford: Blackwell 1980
(c) Geoffrey Klempner 2005
E-mail: klempner@fastmail.net
Tel: +44 (0)114 255 8631
-=-
II. 'BUSINESS ETHICS' BY DR ROSAMUND THOMAS
Plenary Session: The Social Role of Enterprises
Friday, 22 October 2004
European Federation of Management Consulting Associations (FEACO) International
Conference organised by the Hellenic Association of Management Consulting Firms
(SESMA)
Athens, Greece, 21-22 October 2004
CONTENTS
Introduction: Business Ethics and Competition
1 Business Ethics and Corporate Social Responsibility (CSR)
2 Values, Principles and Codes underlying Business Ethics and Ethics in
Government
3 Competitive Advantages of being Ethical in Business and Government
4 Some Interesting Sectorial Codes of Ethics, and Developments in
Self-Regulation and Ethical Advantages
4.1 The European Advertising Sector
4.2 The International Toy Sector
4.3 The Textiles and Clothing Sector
5 Cases of 'Poor Practices' and Unethical Behaviour
5.1 The UK Supermarket Sector
5.2 The Case of the Italian Company, Parmalat
5.3 Unethical Occurrences in Land Development, Valencia, Spain
6 Conclusions
--
Introduction: Business Ethics and Competition
Competition is the race to excel over a rival in the gaining of an object:
whether that object be an Olympic Gold Medal or a trading market. Competition
in the business and government spheres may involve creating an original design
which is compelling; manufacturing a product of a type, and at a cost and
quality, which is highly marketable; or providing services on time which meet
the customers', or citizens', needs and go that extra length of effort, not
measured solely by the price charged.
Competition is the opportunity for a business company, or a government, to
'benchmark' its brand of excellence, and to give sound reputation to its
country, or to its region or city, as in the case of Greece, and Athens, for
the 2004 Olympic Games. Competition is a long established means of human
survival and progress among individuals and groups, incorporated or
unincorporated, requiring the skills of awareness, stamina, and excellence.
'Competition', then, has in common with 'Business Ethics' a long history and
association with excellence. Business Ethics also has an historic association
with Greece: Aristotle and Plato, ancient Greek philosophers, led the way in
their time with proclamations on Ethics, virtue, happiness, and the importance
of dialogue, which still have relevance for our European 'best practices'
today.[1]
Unfair competition, on the other hand, based on cheating a rival, is neither
worthy of the trophy, nor likely to endure in the long-term. As elsewhere,
unfair, or unethical, competition in business and government is liable to be
exposed and to result in discredit; loss of reputation or brand name; a fall in
share value; bankruptcy; or even criminal charges; as in the cases of WorldCom
and Enron in the United States of America; Parmalat in Italy; and Royal Dutch
Shell: the latter which falsely represented its oil reserves to bolster the
corporation's position vis-a-vis its competitors. Best practices, incorporating
Business Ethics and Government Ethics, are the way forward to achieve a
competitive edge.
In March 2000, the European Council in Lisbon made a special appeal to
companies' sense of social responsibility regarding 'best practices', including
lifelong learning, work organisation, equal opportunities, social inclusion, and
sustainable development.[2] Since then, ten more countries -- the Czech
Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia
and Slovakia -- have acceded to the European Union on 1 May 2004. Mr Jose
Manuel Barroso, the President of the next European Commission, and the former
Portuguese Prime Minister, in August 2004, vowed to keep to the European
Union's declared goal of becoming the world's most competitive economy --
notwithstanding certain competitive problems which exist.[3]
This Paper will discuss further the relationship between Business Ethics,
Government Ethics, and Competition. Beforehand, however, it is necessary to
distinguish between 'Business Ethics' and 'Corporate Social Responsibility'.
1 Business Ethics and Corporate Social Responsibility
'Business Ethics' was promoted, for example, in the United Kingdom during the
first half of the Twentieth Century -- with Quaker companies, such as Cadbury
in Birmingham and Rowntree[4] in York, pioneering model factories for the
manufacture of chocolate. British writers on 'Business Ethics', and
practitioners, regarded the responsibility of a business company to its local,
and the world, community as a key function of 'Business Ethics'.
To a large extent, the 'Business Ethics' movement faltered in Britain, America,
and other countries after the Second World War and either became less overtly
stated as a philosophy, a Code of Ethics, or a set of practices, or became
subservient to quantitative methods, including 'cost benefit analysis' which
emerged during the 1950s and onwards.
'Business Ethics', and 'Ethics in Government', began to resurface following
scandals like Watergate in the United States of America, and others. By the
late 1970s/ 1980s the emphasis focused again on morality, but with the social
commitments of business corporations being a lesser part. Trust, integrity, and
ethical dilemmas were considered to be subjects which could be taught to
business and government leaders, with new courses developing, particularly in
the United States post-Watergate, for young students and for practitioners in
the professional Schools of Business, Public Policy, and so on.
It was nearly a decade later, at the end of the 1990s, when the modern movement
of 'Corporate Social Responsibility' (CSR), particularly in Europe, became
fashionable -- pushed forward by the European Parliament and the European
Commission, as well as Scandinavia, Britain and other countries. In reverse to
'Business Ethics', CSR focuses more on the social, environmental and
sustainability issues, than on morality -- although both the 'Business Ethics'
and the 'CSR' movements have converged to an extent -- with further
responsibilities being added to both, such as anti-corruption practices and
human rights. Today, given the complexity and growth of regional blocks of
nations, like the European Union; the development of globalisation; and the
increase in scientific and technological advances which create new ethical
dilemmas, such as genetically modified (GM) foods, both 'Business Ethics',
emphasising moral values, and 'CSR' focussing on social and environmental
performance, are of prime importance to leadership in companies and
governments, competitiveness and society's well-being.
2 Values, Principles and Codes underlying Business Ethics and Ethics in
Government
Numerous types of values exist ranging from political values, such as
'democracy'; economic values including 'equity'; social values like 'equal
opportunity'; and moral values, such as 'trust', 'integrity', 'honesty',
'truthfulness', 'fairness', and others, which underlie 'Business Ethics' and
Ethics in Government.
Unethical behaviour involves the opposites: 'distrust', 'deception',
'dishonesty', 'lying', 'greed', and so on.
'Best practices' to guide corporate and governmental life must incorporate
positive moral values if Europe is to reach its leading competitive position
and European and global societies are to be sustained with integrity.
A 'Code of Ethics' goes beyond separate values to become a set of principles
that makes a clear statement of what the business corporation, or government,
is willing to do, or not to do, like forbidding staff to take bribes. Many
different Codes of Ethics now exist ranging from those issued by international
bodies, such as the United Nations Global Compact, the Organisation for
Economic Co-operation and Development (OECD) Guidelines for Multinational
Enterprises, and the Principles announced in 1995 in the United Kingdom by the
Committee on Standards in Public Life (then chaired by Lord Nolan), to
individual Codes adopted by European and multinational corporations.
Such Codes of Ethics contain mainly voluntary self-regulated principles, which
have varying degrees of success. This Paper presents some interesting new
developments in sectorial Codes of Ethics (or Conduct), produced by particular
business sectors, such as the advertising sector; the toy sector; the clothing
sector; and so on. Also, I shall illuminate the good and bad effects that they
have on corporate reputation and competitiveness.
First, however, I wish to identify some key advantages of being ethical in
business and government.
3 Competitive Advantages of being Ethical in Business and Government
'Crisis management' in business or government, lurching from one financial
scandal, such as Parmalat in Italy, or environmental disaster, like the
Prestige oil tanker damage in Spain, to another, will not create a competitive
Europe. Rather, ethical behaviour in business and government is needed to
provide a whole number of competitive advantages, which are:
* enhancing corporate or country reputation;
* reducing risks and assisting risk management;
* becoming a 'benchmark' business company, or government, for implementing
best practices;
* attracting 'ethical investment', which is a fast-growing European and
international economic growth field;
* increasing a company's profits, such as the UK Co-operative Group,[5] which
took an early 'ethical' trading position;
* approval by rating agencies and listing, as a company, on new indexes, such
as the FTSE4Good European, and other, indexes;
* employee satisfaction;
* avoiding the cost and embarrassment of being involved in litigation for
unethical, or illegal, corporate behaviour at home or abroad;
* avoiding, at the company's Annual General Meeting, shareholder activism
against Directors' greed, or other corporate abuses, especially when corporate
failure is involved, and risking the subsequent loss of investment funds;
* avoiding fines from health and safety cover-ups, or from cutting corners;
* preventing corruption in obtaining, or awarding, contracts;
* preventing money laundering, tax avoidance, or the misuse of offshore
banking, in line with national, European and international laws and directives.
Management Consultants would do well to promote these, and other, advantages to
their corporate or governmental clients, if Europe is to achieve its competitive
lead by 2010, or even later.
4 Some interesting new Sectorial Codes of Ethics, and Developments in
Self-Regulation and Ethical Awareness
4.1 The European Advertising Sector
A new initiative has been taken by the European Advertising Standards Alliance
(EASA) to launch a Self-Regulation Charter and Best Practice Tool Kits. This
initiative arose from awareness in the European advertising sector that the
existing self-regulation across the enlarged European Union was deemed by some
governments and stakeholders to be inadequate, and that a single pan-European
voice of advertising self-regulation was needed.[6]
The advertising sector's 'Charter of Best Practice' was signed on 25 June 2004
by representatives of the European Association of Communications Agencies, and
European Association of Radio and Television Sales Houses, and others;
witnessed by the Federation of European Direct Marketing; and signed in the
presence of the European Union.[7]
The Charter re-commits to self-regulation across the enlarged European Union
'as the best way to maximise confidence in responsible advertising for
consumers, competitors and society'. The Charter aims to promote 'the highest
ethical standards in all commercial communications' and to safeguard the public
and consumer interests. A Statement of Common Principles and Operating Standards
of Best Practice, incorporating the globally accepted codes of marketing and
advertising practice of the International Chamber of Commerce (ICC), are
embedded in the Charter.
Self-regulation in the European advertising sector recognises that advertising
should comply with a set of ethical rules, namely that 'it should be legal,
decent, honest, truthful and prepared with a sense of social responsibility to
the consumer and society as a whole, with due respect to the rules of fair
competition'. The voluntary self-regulatory rules are applied by
Self-Regulatory Organisations (SROs) set up for the purpose and funded by the
advertising industry itself. This self-regulatory system relies on 'engagement'
with relevant stakeholders. Because societal issues are complex and
inter-related, close collaboration and dialogue with stakeholders is considered
necessary. Plato's idea of dialogue is invoked here!
Accession affected the European advertising sector, as well as other business
sectors. Some advertising markets are new, some developing, and others mature.
It was deemed necessary to ensure the same level of consumer protection
throughout the European Union. Work to develop self-regulatory systems for the
advertising sector has been taking place in the new Member States since 1994,
with systems established in Hungary, the Czech Republic, Slovakia, and
Slovenia. Poland and Lithuania are almost completed, with the other two Baltic
countries not far behind. Setting up a system of self-regulation for the
advertising sector in new Member States requires a significant degree of
'co-operation' between companies which normally compete with one another.
Recent developments in Poland are a good example of how this co-operation can
be achieved.
Scientific and technological advances have created new ethical issues in the
advertising industry at European and international levels. Marketers, today,
have the technology, for example, to target individuals directly on their
mobile phones, or through digital television sets. Consumers have expressed
worries that their mobile phones will be inundated soon with unwanted text
messages. Ethical issues, such as responsible advertising to children, and
unsolicited communications, will be covered in a revised version of the
International Chamber of Commerce's Guidelines on Marketing and Advertising in
the Electronic Interactive Media, due for publication later in 2004.
Food is another area where new ethical issues are arising. Governments and
consumers are concerned about the increase in obesity, and the levels of fat,
salt, and sugar in food products, which can damage health. It is not
surprising, therefore, that leading names in the food industry, such as
Unilever, support the European Advertising Standards Alliance in respect of the
New Charter. Advertising is perceived as playing a role in encouraging unhealthy
diets and lifestyles. Media visibility of the obesity problem is high, as is the
focus on individual food companies. As a result, companies and brands risk to
lose their licence to operate.[8] In fact, we are now seeing a range of foods
carrying announcements of reduced salt and fats from European and international
brands.
Ethical rules, and sanctions that are properly enforced against transgressors,
are as fundamental to the food industry to develop consumer trust, as they are
to the advertising sector as a whole.
4.2 The International Toy Sector
The Code of Business Practices of the International Council of Toy Industries
(ICTI) is not couched explicitly in ethical terms. Rather, the language used is
responsible corporate commitment and action to uphold labour and workplace
standards, including factory health and safety. For example, the Code
stipulates that working hours per week, wages, and overtime pay practices, must
comply with legal standards or, in the absence of law, with humane, safe and
productive working conditions.[9]
The International Council of Toy Industries is an association of associations
committed, on behalf of its member companies, to upholding the principles that
no underage, forced, or prison labour[10] should be employed: that no one is
denied a job because of gender, ethnic origin, religion, affiliation or
association; and that factories comply with laws protecting the environment.
What is interesting about the ICTI Code of Business Practices is its
thoroughness, and the effect it is having on other commercial sectors, causing
them to adopt the same Code, unchanged, except for an Appendix making reference
to the particular characteristics of the other sector. For example, the United
Kingdom Book Publishing Industry found that the existence of a multiplicity of
codes led to confusion and placed increased burdens on suppliers. Accordingly,
it has drawn up a 'Publishers Resolution for Ethical International
Manufacturing Standards' for the printing and publishing industry (Prelims),
using the ICTI International Toy Industry's Code and Standards, with a suitable
Appendix.[11]
Part of the thoroughness of the ICTI Code of Business Practice is its approach
to compliance and auditing. ICTI member companies are required to evaluate
their own facilities, as well as those of their contractors, and to examine all
books and records, and conduct on-site inspections, and request their
contractors to follow the same practices with subcontractors. An annual
statement of compliance with the Code must be signed by an officer of each
manufacturing company or contractor. Contracts for the manufacture of toys have
to provide that a material failure to comply with the Code, or to implement a
corrective action plan on a timely basis, is a breach of contract for which the
contract may be cancelled. The Code has to be posted, or available, for all
employees in the local language.
A methodology exists for evaluating compliance with the Code covering child
labour, forced labour, working hours, wages and compensation, discrimination,
working conditions, and industrial safety. An additional 'model' audit
checklist provides guidelines for detailed investigation.
Competition in global manufacturing is fierce and both the quality of goods,
and the conditions under which they are produced, have to be taken into
account. The UK Financial Times reported in August 2004 that 'China produces
"higher quality goods" than Eastern Europe'.[12] The Financial Times quoted a
German survey[13] which found the level of defects to be worse in East European
plants than those in China, the latter country having made rapid strides in
quality in recent years. The improved performance on quality in China is
attributed to high levels of worker training, plus a management emphasis on
controlling production to minimise defects. Nonetheless, larger discounts are
reported to be given on goods made in China, in the belief that they are
inferior to those made, for example, in the Czech Republic, Slovakia, Hungary
and Poland, where discounts are lower. The survey points out that it makes more
sense to use Eastern Europe as a place to make goods, if the customer region is
Western Europe, than to site operations in China, as many Western European
companies will do.
Ethical lessons to be learned are that both the quality of goods, and the
conditions under which they are made, need to be balanced, in order to achieve
products that consumers will not boycott on moral grounds, and manufacturers
will have audited with a clear conscience.
4.3 The Textiles and Clothing Sector
Retailers in the United Kingdom are reported to be embracing 'the sales
potential of cotton clothing produced to ethically and socially aware
guidelines'.[14]
Selfridges, the London Department Store, has embarked on a mission to convince
the British public that clothing made from organic fibres can be alluring.
'People Tree', the fashionable supplier of organic and ethical clothing, has
entered into an agreement with Selfridges to launch a range of skirts, dresses
and tops made from organic fibres. Earlier this year, Marks and Spencer
introduced a variety of 100% organic cotton clothes and has promised that, by
2010, 5% of cotton in its stores will be organic. The United States of America
and Turkey are the leading cotton producers, with India, Peru, Uganda, Egypt,
Senegal, Tanzania and Israel following.
Organic clothing does not necessarily provide any health benefits to the
wearer, but it gives consumers satisfaction. The World Health Organisation
estimates that around 20,000 people die each year in developing countries as a
result of sprays used on non-organic cotton. Cotton is one of the most
pest-prone crops and approximately one quarter of the world's insecticides are
reported to be poured on cotton fields each year to produce cotton cheaply and
in industrial quantities. Indeed, about 150 grams of pesticide is said to be
used to cultivate the cotton for just one T-shirt! By contrast, organic cotton
must be grown according to world guidelines which prohibit the use of toxic
fertilisers, pesticides, herbicides, and fungicides.
Although the organic clothing market is still in its infancy in the United
Kingdom, as compared with Germany and the United States of America, organic
food sales in the UK have trebled in the past five years. Retailers are
recognising the value of 'being seen to be ethically and socially aware' and
conforming to fair-trade standards.[15]
Again, the textiles and clothing industry is another highly competitive one.
Textile import quotas are due to end this year, and Europe's textiles and
clothing companies fear head-on competition with factories of China and India.
The European Commission is confident that the industry will survive the
competitive onslaught. China is not expected to be able to deliver to the
European market as fast as Turkey, and Europe is believed to have a competitive
edge on creativity, design, research and development, and innovation, even if
costs are higher than in China. For example, the majority of Italian consumers
are expected to continue to aim for quality and the 'Made in Italy' label.[16]
Perhaps, in the consumer-led society of today, it will be ethical and social
awareness which determines the outcome of the competitive race in this and
other industries.
Numerous other ethical and 'best practice' developments have taken place in
other business and industrial sectors, but I wish to turn now to cases of 'poor
practices' and unethical behaviour.
5 Cases of 'Poor Practices' and Unethical Behaviour
5.1 The UK Supermarket Sector
In the United Kingdom, following the Competition Commission's monopoly report
of 2000 on the supply of groceries from multiple stores, four leading
supermarkets (ASDA,[17] Safeway,[18] Sainsbury,[19] and Tesco[20]), each gave a
statutory undertaking to comply with a new 'Supermarkets Code of Practice'. The
Code came into force on 17 March 2002. The first report on how the Code has
been working was published in February 2004 by the UK Office of Fair Trading,
the Government Department committed to monitoring the Code and preparing such
reports annually.[21]
The purpose of the Code is to remedy and prevent the undue exercise of buying
power by supermarkets, which has adverse effects on suppliers, and was found by
the Competition Commission in its 2000 monopoly report to be against the public
interest. The poor practices identified by the Competition Commission include
requests from supermarkets to some of their suppliers for payments, or
discounts, sometimes retrospectively; imposing charges and making changes to
contracts without adequate notice; and the unreasonable transferring of risks
from the main party to the supplier.
After its first review of the Code by means of consultations with relevant
parties, the Office of Fair Trading has decided to take further action by
sending external auditors into the four supermarkets to investigate their
dealings with their suppliers. This 'compliance audit' will focus on those
clauses in the Code where claims of breaches are most frequent -- namely,
payment times (Clause 3); retrospective reductions in price during the period
of a contract (Clause 4); supplier contributions to marketing costs (Clause 5);
lump sum payments as a condition of supply (Clause 9); payments in respect of
consumer complaints (Clauses 19-21); and tying of third party goods/services
(Clause 22).
Although a supplier is encouraged to complain about the supermarkets' alleged
breach of the Code, and a mediation process has been established, suppliers
fear that making a complaint would lose them their contract(s) or cause them to
be blacklisted. The external audit of the four supermarkets, therefore, under
the powers of the Office of Fair Trading, is intended to investigate the
alleged breaches and to establish what is actually happening in practice.
Abuse of power by the supermarkets, if substantiated by the 'compliance audit',
would confirm examples of greed, and other unethical behaviour.
5.2 The Case of the Italian Company, Parmalat
So, what went wrong with Parmalat, the Italian dairy and food company? Rapid
growth since its flotation resulted in the company spanning some 30 countries
from Italy to Brazil, China, and the United States of America. Around 200
Parmalat subsidiaries added to the corporate complexity, as did offshore
activities. The Parmalat founder, and former Chairman and Chief Executive,
Signor Calisto Tanzi, sat on the Parmalat Board with other members of his
family, Stefano Tanzi (his son), and Giovanni Tanzi (his brother). His niece,
Paola Viscounti, had also been a Board member. Non-core businesses, such as the
Parma football team, and travel operations, were part of the empire of the Tanzi
family.[22]
At some point in this complex web of corporate activity, originating from
Italy, a massive fraud is alleged to have been committed.
Calisto Tanzi is reported to have admitted having invented huge cash reserves
and 'faked' revenues.[23] In December 2003, the Parmalat empire collapsed, with
huge debts, no cash, and leaving Italian and foreign investors holding worthless
bonds. Numerous international banks involved in the sales of Parmalat bonds, and
lending to the Parmalat group, are now facing lawsuits implicating them in the
fraud. The banks are alleged to have been aware of Parmalat's precarious
finances, prior to its collapse, but to have continued to finance the company
in exchange for large fees. The banks, Citigroup, UBS, Deutsche Bank, Credit
Suisse First Boston, and Bank of America (which merged recently with Fleet
Boston), as well as Italian banks, are being sued in the commercial courts of
Parma, Italy, and elsewhere in the world, as part of a campaign by Enrico
Bondi, Parmalat's bankruptcy administrator, to recover money for the company's
creditors.[24]
By May 2004, 29 individuals and three institutions (members of the Parmalat
family and executives, advisers, and institutions) were on the prosecutors'
list to be tried over their involvement in the crash of the international
Parmalat group. Since then, others have been added to the list. The charges
include market rigging, or conspiracy to issue false information to investors
about Parmalat's finances.[25]
Parmalat's former auditors, Deloitte Touche and Grant Thornton, have been
accused of fraud, theft, malpractice, and negligence. The accounting firms are
alleged to have helped Parmalat's former management to deceive investors about
the true level of the company's assets and liabilities in the run up to the
collapse in December 2003. A lawsuit brought by Dr Bondi in the United States
of America in August 2004 against the Italian businesses of Deloitte and Grant
Thornton also names the global umbrella organisations, known as Deloitte Touche
Tohmatsu, and Grant Thornton International. The claims allege that the
defendants failed to audit Parmalat properly and, some $10 billion was lost, or
squandered by Parmalat, in many cases with the active participation of the
defendants.[26]
Views differ as to whether Dr Enrico Bondi's $10 billion claim for damages in
the USA will succeed. Nonetheless, it is reported that Deloitte, the principal
auditor of the Parmalat group's accounts from 1999, failed to ask 'even the
most rudimentary questions'.[27]
A restructuring plan for a new renamed Parmalat, based on exchanging
debt-for-equity to meet creditors' needs, as well as the hope of obtaining
damage payments through legal actions, has been put together by Dr Bondi. The
new company is expected to begin trading on the Milan Stock Exchange in 2005/6.
Improved corporate governance has been a requirement placed on the company by
the US Securities and Exchange Commission, following settlement of a civil
action against Parmalat. In addition, the company will offload the non-core
businesses, such as the Parma football team, and travel operations.[28]
Unethical, as well as illegal, allegations abound in the Parmalat case,
including deception, dishonesty, greed and self-interest. But, the damage to
corporate and individual reputations, as a result of this corporate scandal,
demonstrates that being ethical is by far the most profitable and creditable in
the long-run.
5.3 Unethical Occurrences in land development, Valencia, Spain
Ethical behaviour is as important in government as it is in business. This
Spanish case illustrates unethical conduct involving both government and
business.
Alleged abuses of the land laws in the Valencia region of Spain led to a
fact-finding mission to the region by a special committee of the European
Parliament in May 2004.
An association of property owners, many of them foreign and living on the Costa
Blanca in Valencia, took their allegations of corrupt and illegal 'land
grabbing' by local property developers and politicians in the Valencia region
to the European Parliament. Tabled by Mr Charles Svoboda, a Canadian, a
petition was signed seeking a European Parliament investigation into a bizarre
law passed by the semi-autonomous government of Valencia, which allows property
developers to seize privately-owned land, without providing any proper
compensation, and giving only very short notice. Furthermore, the developers
can charge homeowners for the cost of infrastructure, such as water and roads,
in respect of, say, a block of flats the developers decide to construct on
their newly acquired land. Some homeowners in the Valencia region have been
forced to sell their property for a fraction of its market value, or have found
new properties erected unduly close by, bespoiling their views, amenities, and
privacy.
The Report of the Committee on Petitions of the European Parliament, published
on 6 July 2004,[29] following the delegation's visit to Valencia, established
that some 1.5 million properties had been purchased in Spain by families from
other, mainly Northern European, countries in the last 40 years. A very high
proportion of these properties had been bought in the Valencia region. Most
dwellings purchased by foreign owners appear to be bought by persons
approaching retirement age, and 20% of properties became the principal
residence of the owners in a short period of time. Accordingly, the forced land
acquisition, and related powers exercised, in the Valencia region has become a
significant social problem.
The fact-finding mission found that at national level in Spain a Decree was
adopted in 1989 which gave rights to property buyers and placed regional and
local authorities under an obligation to organise their land-use planning
process. The semi-autonomous regional governments are responsible for the
details and application of this type of legislation. The Valencian Parliament
was the first to approve such legislation in 1994, with the LRAU ('La
Reguladora de la Actividad Urbanistica'). Whatever the original intentions of
the Valencian Parliament, the European Parliament report confirms that the
application of the LRAU has led to a serious abuse of the rights of many
thousands of European citizens 'either by design or by deceit'. Their consumer
rights, especially their property rights, have been violated in many
well-documented cases, some of which are cited in the report. Their homes and
their land have been expropriated and, moreover, they have had to pay for the
experience.
The delegation discovered that the property developer -- the 'urbanizator' --
has been a major, and often unscrupulous, beneficiary of the law's application,
as have numerous offshore banking havens. Rumours of political corruption
circulate, as well as links between the urbanizator and the local authorities,
but few rumours have been investigated properly by competent authorities.
During their visit the delegation from the European Parliament met several
hundred persons who have been affected by the abuse of the Valencian land laws.
The local authority often hides behind the 'spurious notion' of 'public benefit'
or 'social interest', which places any development out of reach of any legal
challenge. In Benissa, for example, a very small proportion of social housing
has served as the justification for a massive development plan. The delegation
discussed this matter with the Mayor and concluded that the 'main interest
would appear to be entirely financial'.
A number of outstanding issues requiring classification were identified by the
delegation in its report -- one being the way in which Spain is applying EU law
on public procurement. The award of development contracts is rarely done through
a public tender in this region, as the initiative for development projects comes
from the promoter himself. Another issue is the damaging impact on the
Mediterranean coastal environment. Whole rural communities in Valencia are
losing their identity in the process of development; pine forests are
disappearing; and entire vistas have been removed as apartment buildings have
been built along the coast.
The LRAU is seen as bad law and regional authorities in Spain have said it will
be revised. However, it serves as a 'model' for other regional authorities
looking for new sources of funding who may be tempted to capitalise on its
'immoral benefits'.
The Petitions Committee concluded that whatever else the authorities in
Valencia decide, the comments in their July 2004 report should be taken
seriously, and:
'A moratorium should be decreed on any proposed new land
developments in the Valencia region until the existing
legislation is adapted to conform with European legislation
and the fundamental rights of European citizens to their
property.
Consideration must be given to an appropriate level of
compensation for those people who have already had their
property confiscated or destroyed and been denied due
process.'
Let us hope that Spain now, and other countries, will take a longer-term, and
ethical, perspective on land development, which vetoes cheating and instead
promotes 'best practices'. In fact, a new set of principles has been signed by
more than 20 leading banks in regard to private project finance for large
manufacturing and infrastructure projects. Called the 'Equator Principles',
these provide a common framework to address environmental and social issues
that arise in financing projects where the capital cost is more than US$50
million. The scope of the 'Equator Principles' is global.[30]
The Spanish bank, BBVA, has taken a European lead in adopting the 'Equator
Principles', but it is likely that many of the Valencian, and other Spanish,
land development projects involve less than US$50 million finance -- especially
if local residents have been paying for much of the infrastructure costs!
6 Conclusions
'Business Ethics' and 'Ethics in Government' yield positive benefits in the
medium to long-term, as new evidence from ethical investment firms proves.[31]
However, being ethical is not a 'get rich quick', or 'make a fast buck' method.
It is the route to develop and maintain a good corporate reputation, and avoid
greedy and selfish behaviour.
Many cases of unethical behaviour involve financial gains improperly sought at
the expense of citizens', consumers', or suppliers' interests. Fair competition
requires legal and ethical standards to be upheld.
'Business Ethics' is a topic of multiple aspects: moral values, and how to
inculcate them; codes and how to uphold them; as well as ethical dilemmas. Such
dilemmas require decision-makers in business and government to weigh one
conflicting value against another and reach sound ethical judgements. For
example, the trend by Western companies, like British Telecommunications plc
(BT) and Lloyds TSB Bank, to outsource some of their functions to India and
other developing countries. Such decisions lead, on the one hand, to job losses
in the West, while, on the other hand, employment opportunities are increased in
the developing country and working costs kept lower. Should British American
Tobacco regard China, as it is doing, as an expanding market in which to push
its cigarette sales, when considerable evidence has grown concerning the damage
to health from smoking? Education and training in ethical decision-making is
necessary.
Besides ethical dilemmas facing decision-makers, numerous modern ethical issues
are still evolving, such as the strengths and weaknesses of the global trend of
privatisation. Britain has witnessed, for example, the break-up of its
State-owned British Rail, which has now been partly re-nationalised because of
the serious problems which arose in the fragmented privatised system. Another
issue is the burden upon business corporations of the growth of 'surveys' sent
to them by the ethical investment sector, which seek to establish which
corporations are ethical and responsible. Whistleblowing legislation, or
voluntary formal whistleblowing outlets set up in business or government
organisations that allow employee expressions of dissatisfaction, or unethical
or illegal behaviour is a further issue. These dilemmas and issues need
clarification by management consultants, and others, in their advice to
business corporations and governments.
What is of paramount importance, however, to the foundation of ethics in
business and government is leadership from the top -- example setting and
imbuing the corporation with integrity and excellence. The well-known book
Competitive Advantage[32] by Michael Porter makes not one reference to 'ethics'
in its index. This lack of ethics is outmoded in today's fragile world, shaken
by terrorism, climate change manifestations, poverty, disease and brutal
cruelty in the Sudan, and elsewhere. 'Business Ethics' and 'Ethics in
Government' are needed to contribute to a better European and global society,
but also, in turn, to create a firmer basis to sustain corporate reputation and
well-earned profits.
The US Sarbanes-Oxley Act of 2002, or a European adaptation of it, alone, will
not achieve these goals, without the commitment of business and government
executives to ethics.[33]
Note
The terms 'ethics' and 'morals/morality' often are used interchangeably.
Strictly speaking, ethics differs from morality in that 'conduct may be
described as 'moral' when it is observed as a fact, but, conduct becomes
'ethical' as it rises from fact to ideal'. Rosamund Thomas The British
Philosophy of Administration op.cit. p.141. However, I have not kept here
strictly to this definition.
Footnotes
[1] See Rosamund Thomas The British Philosophy of Administration: A Comparison
of British and American Ideas 1900-1939 (England, Centre for Business and
Public Sector Ethics, 1989 & 1996) p. 116.
[2] See Commission of the European Communities Green Paper: Promoting a
European Framework for Corporate Social Responsibility, July 2001 p. 5.
[3] See Financial Times 20 August 2004.
[4] The Cadbury Company has since merged with Schweppes and the Rowntree
Company is now owned by Nestle of Switzerland.
[5] See 'Ethical Stance pays dividends at Co-Op' UK Daily Express 17 April
2004. This press report refers to the resonance the 'Co-Op' brand has with the
younger generation. 'They like what we stand for, in particular the ethics that
guides us on issues such as Fairtrade, genetically modified (GM) food and the
way we invest their money', a spokesman for the Co-Op is reported to state. 'UK
sales of ethically marketed goods and services are worth nearly 7 billion a
year'.
[6] See Financial Times, Creative Business section, 20 July 2004. Article by
Anthony Simon entitled 'A Responsibility to Act'.
[7] For the Self-Regulation Charter, see the European Advertising Standards
(EASA) Alliance website: http://www.easa-alliance.org.
[8] Op. cit. See article by Anthony Simon and the EASA website.
[9] See International Council of Toy Industries (ICTI) Code of Business
Practices, revised edition, June 2001, and the Council's website:
http://www.toy-icti.org.
[10] The ICTI Code acknowledges that many countries recognise prison labour as
essential to rehabilitation. This provision in the Code 'prohibits the
exportation of prison-made goods to countries that prohibit or restrict the
importation of such goods'.
[11] See the website: http://www.prelims.org and the Proposal for a Uniform
Social Accountability Standard for the UK Book Publishing Industry, being
pioneered by David Proffit of Chrysalis Books Group plc and other UK book
publishers.
[12] Financial Times 23 August 2004.
[13] The research in the German survey is reported to be by Roland Berger, a
Munich-based business consultancy.
[14] See The Times (London) 14 August 2004, report by Anna Shepard and Ingrid
Mansell.
[15] Ibid. The Times 14 August 2004.
[16] See Financial Times 23 July 2004, article 'Europe pins survival hopes on
flair and innovation'.
[17] ASDA Group Limited and ASDA Stores Limited ('ASDA').
[18] Safeway Stores plc ('Safeway').
[19] J. Sainsbury plc ('Sainsbury').
[20] Tesco plc ('Tesco').
[21] Office of Fair Trading The Supermarkets Code of Practice February 2004.
See website: http://www.oft.gov.uk.
[22] See The Times (London) 27 May 2004.
[23] See Financial Times 17 July 2004.
[24] See Financial Times 8 March 2004 and The Times (London) 7 & 12 August 2004.
[25] See The Times (London) 27 May 2004.
[26] See The Times (London) 19 August 2004.
[27] See Financial Times 20 August 2004.
[28] See Financial Times 17 July 2004.
[29] European Parliament (1999-2004) Report of the Committee on Petitions 6
July 2004 Ref: PE346.777.
[30] 'Principled Banking with Equator', report by Neville Horley in Sustainable
Development International Journal Summer 2004.
[31] For example, Britain's first ethical investment fund for private
investors, called 'Stewardship Growth', launched 20 years ago in 1984, has
produced higher returns than a large number of other UK equity growth funds
over the same period. In the year to 31 May 2004 'Stewardship Growth' grew by
24.58% as against 22.2% for the FTSE ALL Share Index. Ethical funds have grown
also from just one fund worth 1.5 million at the end of its first year to more
than 200 funds worth 4.2 billion managed by several different fund management
groups. See News Release 30June 2004, from Friends Provident plc and ISIS Asset
Management plc.
[32] Michael E. Porter Competitive Advantage: Creating and Sustaining Superior
Performance (1985, First Free Press Export edition, 2004).
[33] However, US companies have risen to the top of a global comparison of
corporate governance standards, overtaking the UK and Canada for the first
time. Moreover, a recent study by 'Governance Metrics International' found a
link between share price performance and adherence to corporate governance best
practice. See Financial Times 7 September 2004.
(c) Dr Rosamund Thomas 2004
Dr Rosamund Thomas is Director of Centre for Business and Public Sector Ethics,
Cambridge, UK.
Web site: http://www.ethicscentre.org.
The Centre has launched recently a set of 5 Modules on 'Ethics and
Anti-Corruption' in DVD and Video formats for national and international
businesses, governments and academics. For further details please contact the
Centre at info@ethicscentre.org.
-=-
III. 'THE ELGAR COMPANION TO ECONOMICS AND PHILOSOPHY' REVIEWED BY ANDREW BROWNE
The chasm between economics and the real world
The Financial Times reported on 3rd August 2005, that UK economic growth in
2005 was now estimated to be 1.7% according to the UK Treasury's economic model
as opposed to the 3.4% that had been forecast last November. This may not seem
like news but it is worth considering for a moment. After only nine months it
is clear that the UK growth forecast has been cut by 50%, or, put
mischievously, the Treasury economic model on which so much time and labour has
been expended, which is crucial to the Chancellor's budgetary decisions, has now
been revised with actual data for the first seven months of the year which have
shown the original forecast to be seriously wrong.
This is far from an isolated example. One thing that economic models -- and
there are a competing host at banks, academic institutions and 'think-tanks' --
all share in common is that they are unacceptably inaccurate when used as
forecasts of the future economic reality. This paradox is nagging at the heart
of the discipline of economics today and calling into question the value of
mathematical models in economics. The Elgar Companion to Economics and
Philosophy, edited by three eminent 'theoretical economists', is centred around
trying to use philosophical argument and approaches to understand why economic
theory and reality diverge. It is thus not a book on the outer fringes of
Economics or Philosophy where the borders of both subjects meet, but one
seeking to find a way forward for the former and demonstrating the practical
application of the latter. It is an interesting example of how the tools and
techniques of philosophy can show where things are going wrong.
To put things in context it is worthwhile looking at the context of economics
today. As a potted history: Some time in 1990's, monetarism became entrenched
as the dominant macro-economic ideology based around control of interest rates
to smooth economic cycles. We now accept that the way to control, for example,
the fluctuation of economic cycles is by changes in interest rates and debate
is essentially limited to quantum and the timing of such changes.
At the same time advances in mathematics, in particular Set Theory, and the
exponential growth in computing power had given micro-economics the tools to
produce highly sophisticated computer models inflecting and informing future
economic policy and debate. Grand computer models were adopted by national
governments, economic agencies and universities to forecast how the economy
would react to events but when viewed in retrospect these models all bore one
thing in common -- as noted above their predictions were unacceptably
inaccurate.
The Elgar Companion to Economics and Philosophy brings together 23 papers from
some of the most eminent academic economists reflecting the current state of
research in the area of the methodology of economics. As the editors of this
erudite and authoritative book suggest in their preface, "The closing decades
of the twentieth century saw a dramatic increase in interest in the role of
philosophical ideas in economics" (Page xii) and the editors have sought to
reflect this in three sections -- a grouping which at times appears somewhat
unnecessary. Section One deals with the proper use of economic tools derived
from political philosophy, Section Two on the methodology and 'epistemology' of
economics and Section Three on the social ontology of economics based on
(cognitive) analyses of the way things are in reality.
The papers in Section One tend to cluster around the paradox of economics; why
"the stripped down psychology of the standard model of the economic agent is
too thin to give an adequate account of people's actions" (Page xiii). Sean
Hargreaves Heap, for example, suggests that the economic model ignores such
salient features as self-respect, sympathy, egotism and pride in deciding on
economic factors like consumption or investment. Rational choice is much more
complex than economists have assumed, he argues. Similarly Bruno Frey and
Matthias Benz argue that the standard average human response ("homunculus
economicus") assumed by economists, and implicit in the standard economic model
is at odds with the range of different behaviours that can be observed in
practice.
A number of the papers draw attention to the role of institutions in forming
opinion and influencing economic activity. These may be the more formal
institutions of national Treasury departments, economic advisors, economic
journals etc. or the more informal institutions that inflect public confidence
such as the oft mentioned economic "feel good/ bad factor" that is somehow
communicated throughout the spending public. Geoffrey Hodgson draws attention
to the reciprocal nature of this interaction suggesting that institutions
influence individuals and are also influenced by them in what becomes an
iterative dialogue.
Marc Fleurbaey's paper seeks to identify subjective assumptions inherent in the
standard economic model, drawing attention to the unexamined moral intuitions
and pragmatism when what is needed is more precise criteria for terms like
'social justice' or 'fairness' which are heavily loaded terms meaning all
things to all men.
Section Two focuses on economic methodology drawing its roots in Thomas Kuhn's
The Structure of Scientific Revolutions (1962) and is strongly influenced by a
rejection of the (formalist) ideas of scientific philosopher Karl Popper. At
its heart is the crucial question of whether economic models are
representations of the world or simply tools which we use to interact with the
economic world. The articles in this section are thus necessarily diverse in
the critiques they offer ranging from examinations of the place of ideology in
economics, a feminist approach to economics, constructivist theory, and of
course post-modernism.
In perhaps the most persuasive paper in this section, Marcel Boumans provides
an interesting analysis of the development of scientific and economic
modelling. After a survey of the evolution of models as analogies of reality he
takes direct aim at the "dominant view [in modern economics] that quantitative
expressions of our world are useful and that mathematical representations
constitute... knowledge about economic phenomena" (page 272). After carefully
displaying the weaknesses inherent in such views -- their inherent
retrospective assumptions, their reliance on mathematical formalism in a world
that appears more complex, their idealisation and simplification, and the
implicit need for compromise -- he is led to conclude that "models provide us
with information about the world by virtue of functioning as instruments of
investigation" and hence "it seems not quite correct to say that models
accurately describe physical systems" (Page 278).
Peter Kesing and Arnis Vilks propose a critical analysis of the use of formal
models concluding that "the usefulness of formal economic models cannot be
judged immediately in terms of their accordance with reality" ( Page 295) --
well, economists would say that wouldn't they -- and that "the relation between
formal economic models and economic reality is far from simple" (Page 296).
Indeed the papers in Section Two strike at the fundamental assumptions of
economics, each contributor having their own axe to grind. Taken together it is
hard to avoid the conclusion that economists should just roll up their economic
models and start the whole thing again from scratch, preferably not using
mathematics, since there is much finding of failings and too few constructive
proposals on a way forward.
Section Three focuses on what the editors refer to as "...questions of
ontology, that is, questions regarding existence or being and, in particular,
the nature and structure of the economic realm" (Page xx). The first three
chapters take an approach based around the lessons from 'critical realism'
examining the gap between modern economic theory and socio-economic reality.
Later chapters snipe at economic modelling -- and in particular mathematical
modelling by exploring the assumptions and pre-conditions they presuppose.
Tony Lawson sees philosophy as a key tool for all economists now suggesting
that "philosophy... fulfils what is an urgent need at this juncture" (Page
317). After outlining how and philosophers should act as "under-labourers"
assisting economic theorists rather than competing with them, he gives examples
of how philosophy and economics can interact to the benefit of economics. These
include the use of ontological approaches to reveal flaws in economic deductive
argument, the use of analytical philosophy to provide a more refined and
universally understood economic vocabulary and the use of logical analysis of
economic statements.
Stephen Pratten examines formal models only to conclude that "Formal economic
modelling invariably involves the use of assumptions which, when taken as
descriptive statements, are simply fictions and known to be so." (Page 355).
John Davis offers a revised view of economic behaviour based around seeing
society as a set of groups rather than a heterogeneous whole. He criticises the
view dominant in economics, that behaviour in groups can always be deconstructed
to the behaviour of individuals. His persuasive conclusion is that individuals
"act on we-intentions as well as on I-intentions". (Page 401).
Edward Fullbrook outlines the ideas of "intersubjective reality and
intrasubjective theory" which he feels have been misunderstood and/ or ignored
by modern economists. Using philosophical argument he analyses economic theory
and concludes that economics has disregarded one key aspect of Adam Smith's
principle of division of labour. "Instead of the division of labour accounting
for differences between individuals [as Adam Smith argued], the neo-classicist
[economists] claim that the differences are already there and account for the
kinds of jobs and positions in the work hierarchy." However this conflict with
Smith's theories has gone unrecognised and its implications need accepting
given the central place Adam Smith's ideas still play in economics.
Subsequent papers continue the turkey shoot at economics in general and
economic modelling in particular. Analytical philosophical approaches are
adopted to such subjects as consumers imperfect knowledge, surprise, epistemic
uncertainty, and the creation of value and how this relates to money to
invariably demonstrate that loose use of language has impaired economists
ability to communicate with each other.
At the end of this erudite and thought-provoking book one is left in no doubt
as to why economic theory, economic models and economic reality so rarely
coincide. It paints a picture of economists as at best naive and at worst
corrupt when they fail to recognise the misguided assumptions and foundations
for a number of economic arguments. It demonstrates how philosophy can usefully
be employed in sheep-dogging mainstream economics to understand and overcome its
(many) inadequacies.
(c) Dr. Andrew Browne 2005
E-mail: HemProps@aol.com
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