In the course of reporting about layoffs and economic downturns since the 1980s, a question continues to nag at me: Just how ethical is it for companies to cut jobs to make money?
Nine times out of 10, I’ve heard the mantra about maximizing profits to shareholders.
This week, I decided to nag Norman E. Bowie, who was traveling to Maine when I reached him by telephone for a short interview. Bowie is the author of “Business Ethics: A Kantian Perspective” and the retired Elmer Andersen Chair of Corporate Responsibility in the Carlson School of Management at the University of Minnesota.
In a nutshell, a Kantian capitalist can do well in addition to doing good. “Kant is best known for defending a version of the ‘respect for persons’ principle, which implies that any business practice that puts money on a par with people is immoral,” Bowie has written.
I’ll offer more of Bowie’s thoughts on philosophy and capitalism in a few paragraphs. In the interest of transparency, let me explain why the question continues to haunt me. I don’t have a Ph.D. in economics or an MBA. I’m just a journalist who has reported about the fallout on workers from land flips and overbuilding, leveraged buyouts, the collapse of the savings and loan industry, the tech bubble, outsourcing, the 9/11 tragedy, and now exotic securities.
Over the years, I’ve stood in a number of unemployment lines and workforce centers with shell-shocked people, asking them about the impact of job loss and what they’ll do next. Oftentimes, they’re about to lose their health insurance because they can’t afford the COBRA premiums. In my profession, I’ve watched a few of my publicly held employers cut jobs and freeze hiring and wages when their double-digit profit margins fell a couple of points during a downturn.
Granted, we’re now in the worst recession in decades, and the national unemployment rate has hit 9.4 percent. Even so, we hear about companies shedding jobs when they’re still making money. We hear a lot about job losses because of greediness on Wall Street. Our tax dollars are bailing out businesses “too big too fail.”
As Bowie and I start the Q&A, I ask if I’m just being naïve in pondering the ethics of layoffs.
“Not at all,” he says. “There’s a lot of research which shows this (cutting people to make money) is not a very good strategy; that, in fact, you cause so many problems in morale that you actually make things — in terms of profit — worse.”
MinnPost: In your work over the years, have you developed a code of ethics for companies to consider before laying people off?
Norman Bowie: I haven’t done codes of ethics. They’re not very effective. The trouble is, there’s a conventional wisdom out there that says “fire people because you can make money,” and those of us who argued the other side — that, on the contrary, you create more problems by doing that — we’re the minority view. So, a company that adopts a code, they’re not going to adopt something that’s the minority view. … People just don’t believe the argument that firing people causes more problems than it’s worth unless you really have to do it because of some kind of economic situation.
MP: I know this is old news, but what are the ethics of moving jobs overseas because it’s cheaper?
NB: Well, that’s a very controversial one. Through our signed treaties, our businesses and governments have endorsed globalization and we’ve endorsed ever-increasing free trade, which does endorse outsourcing. I think the real issue for me is whether companies take unfair advantage of all this by going to tax havens and things like that. The Obama administration, I think, is really trying to walk the good line by being committed to free trade but at the same time evening the playing field. We don’t want to subsidize sending jobs overseas.
MP: How do other nations and their businesses look at the ethics of layoffs?
NB: Certainly, where you have strong unions as in Europe, it’s much harder to lay people off. For an industrial country, I think we have the weakest unions in the world. And of all the industrialized countries, we’re the most anti-union. So, where there are strong unions, it’s much harder to lay people off.
MP: Wouldn’t stronger unions adversely affect our economy?
NB: Some of the richest countries in the world, on a per-capita basis, are Norway, Sweden and Denmark. … For a long time, there was high unemployment in Europe because the benefits were so good and all the rest. But in this downturn, we are worse off. In an absolute sense of per-capital income, the Scandinavian countries are ahead of us. And these are the Scandinavian countries which are the most quote-unquote socialist countries. They’re doing the best on a per-capita basis.
MP: So, it’s a matter of strong unions, not necessarily a matter of a code of ethics?
NB: I don’t think it’s a matter of a code of ethics. It is true that Europe has adopted something called “The Sustainability Theory of Capitalism,” which rests on three pillars: financial success, environmental success and social responsibility. Social responsibility usually means a commitment to human rights. And we’re (the U.S.) finance-based capitalism, which means you want to maximize profits to shareholders. Well, if you think about it — just contrast the two — there’s going to be a greater commitment to stakeholder management and a greater commitment to things like the environment and employees and unions and all that under the European model than the American model.
MP: How long have they had that in Europe?
NB: In the last 10 to 15 years, it has become the official policy of the European Union. The EU says it’s going to have the most-competitive knowledge-based economy in the world, and it’s going to be based on sustainability. And, by the way, they’re convincing the Asians — I’ve done some work in Japan and China — that the sustainability model is better than the American capitalism model. For the first time, our model of capitalism is really under attack in the world. We’re not seen as the smart guys that have got it all right.
MP: Is this a good thing?
NB: Yes, I think it is a good thing. I much prefer the European model on both business grounds and moral grounds or ethical grounds.
MP: Do you think that if we had that in place we would have had all these problems with mortgage-backed securities and other types of greed?
NB: I don’t know. We have this very high-risk culture. What really hurt us a lot was the philosophy of deregulation. We didn’t regulate this stuff, and the regulations we had, we didn’t have the money [to enforce them]. People blame the Securities and Exchange Commission, but they don’t have the personnel to do this stuff, so it’s a combination. We have a political philosophy and a philosophy of capitalism, which helped make all this come to pass. We didn’t have a philosophy of sustainability. But we had a kind of winner-take-all mentality with a lot of greed based on it. We didn’t understand risk very well. We didn’t regulate it very well. It’s very complex.
MP: Do you see light bulbs going on when you’re talking about these things?
NB: The Asians really love it. One time I was talking to a Japanese business group, and one guy came up to me with tears in his eyes and said, “You’re the first American who’s come here and hasn’t told us that we have to maximize profits for stockholders.”
MP: What’s it really going to take to change business as usual?
NB: The truthful answer is I’m not sure. I’m not sure our culture will be able to adapt. I’m pretty pessimistic about our ability to make the changes we need to make. But there’s an administration in Washington that’s trying. I really do applaud them for trying to change. If you watch CNBC and the guys on the financial channels, you see the resistance to this all the time. I just think we have an outmoded philosophy of capitalism that’s deeply embedded in our culture, and it’s very, very hard to change cultures.
MP: If you were in charge, how would you go about it?
NB: I don’t know. That’s why I’m a professor and not in Congress. We need more regulation, that’s for sure. We need to regulate hedge funds. We need to regulate any of these … credit-default swaps. We need to enforce the laws we have, which we haven’t done. We need to strengthen our labor unions and pass laws that do that. We need to convince people that there’s more to life than making a lot of money. But as you can see, all those would involve very big cultural changes in our lives.
Casey Selix, a news editor and staff writer for MinnPost, can be reached at cselix[at]minnpost[dot]com.
To readers: Is the U.S. philosophy of capitalism outmoded? Is it time to adopt “The Sustainability Theory of Capitalism”? Share your thoughts below in Comments.