On the Pope’s criticism of today’s economic thinking

Last week the Pope published his text “Evangelii Gaudium”, in which he is giving different inputs for reorienting the Catholic Church. Although I am not Catholic, I was interested in his statements about the challenges of today’s world and especially in his criticism of our current economy.

In quite a positive way, he recognizes the improvement the economic system brought to “people’s welfare in areas such as healthcare, education and communication”. Yet he blames this economy of “exclusion and inequality”. He thus asks critically, “how can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses two points?” And he continues: “Today everything comes under the law of competition and the survival of the fittest, where the powerful feed upon the powerless.”

I was especially amazed by his criticism of issues that have also been discussed by the stakeholder theory for the past few years. One example is his critique of the free market. 

However, he makes no specific suggestions as to how extreme competitiveness could be limited. In contrast, the stakeholder theory proposes, for example, to focus more on the potential of cooperation among stakeholders, based on the resource based view of strategy, instead of pure competition: Through the cooperative pooling of resources, innovative solutions to issues, products and processes can be found, according to the stakeholder theory, which a single stakeholder who considers others only as competitors could not find. It would have been interesting to learn whether the Pope could in addition to this instrumental perspective on cooperation also offer a normative view, in his case based on the Catholic faith.

The same could be said about his criticism of the concept of human beings that prevails in economy. Certainly, many economists would agree with the Pope’s analysis that “the denial of the primacy of the human person” predominating classic economic theory is questionable or wrong. A growing number of publications are increasingly critical of the basic concepts of economic theory, in particular of the hypothesis of human self-interest. In this sense, the Pope states, “the socioeconomic system is unjust at its root.”

This criticism also calls for the question of which normative concept could form an adequate basis for a more realistic image of human nature. The Pope refers only summarily to the need for ethics: “Ethics – a non-ideological ethics – could make it possible to bring about balance and more human social order.” One can assume that he refers to Catholic social ethics. One can add here that there are also ethical approaches not tied to a specific denomination or religion, which are therefore also acceptable to non-Catholics.

Our reflections on stakeholder theory refer to a humanistic approach based on Kant. This approach considers human beings always as ends, not means, also in economic interactions. In this view, the different values, norms, interests and capabilities have to always be considered and taken into account in economic and business activities. Such a general humanistic approach not only addresses believers of a particular denomination, but its non-denominational claim makes it a fundamental norm also for economic activity.

Edwin Rühli

Critical thinking

I recently taught a class in scientific research. One of the exercises included giving constructive feedback, pointing out that talking about strengths instead of just weaknesses can help people improve as well as negative points can help to make progress. Even though I had heard and spoken these rules a dozen times, it hit me, that I was really bad in seeing the good elements, especially in research. I am not generally a negative person, so I thought about where this was coming from. I then realized that in my entire studies in psychology I hardly ever learned to see the positive aspects. The goal was to learn to think critically. The usual task was to read a paper and then list all the shortcomings. The fact that someone was actually able to publish this writing, giving it a high quality stamp and that it probably was important for the progression of knowledge in that area somehow got lost in all the criticism. Further the point was to find a little gap that could be filled with new research, based on the shortcomings of others. My perception was that it was about finding mistakes and not doing them ourselves. Whenever I tried writing something myself, I got stuck immediately, because I couldn’t finish a thought before the alarm bells of inner criticism went off.

In business strategy class I can remember learning to deconstruct a market situation and look at shortcomings or gaps and then use this gap as a competitive advantage. Deconstructing some topic into its parts with analytical thinking is very important and of course it has to be thought in schools and universities. But creative thinking, “constructing thinking” was not trained. If we want to solve long lasting societal, environmental and business problems, it is not enough to deconstruct the situation and look at gaps. Analytical thinking can help us find the problems, but creative thinking can help us solve them. So we need creative thinking for innovative solutions. We need to see the positive aspects of what has been done, honor those and build on them. This does not only address education, it also addresses business. If we can train and attain this creative and positive mindset, we can also start to see more win-win situations in daily business life.

Watch Ken Robinson talk on a facet of this topic: (http://www.ted.com/talks/ken_robinson_says_schools_kill_creativity.html)

Vanessa McSorley

In search for positive narratives of leadership

Within the context of our new research project “Towards positive narratives of leadership”, we have recently been in contact with numerous professional colleagues, leaders in firms and public enterprises. In this process we have seen that a large number of managers are looking for new paths for reliable and sustainably successful leadership behavior, after the many years of crisis as well as market and management failure. They don’t believe that yesterday’s mindset can solve the problems of tomorrow.

For many leaders the negative headlines have clouded the view of positive role models. However a positive role model is just what we were able to witness at the beginning of the New Year: hardly anyone believed in the end that the US would be able to negotiate the fiscal cliff. Thanks to their joint positive effort, Biden and McConnell managed to find a solution. Clearly what we need most are positive narratives for leaders that they are able to develop mutual solutions.

What do we mean by “positive narratives for leadership”? Five ideas come to mind:
First, it means that the firm is not understood as a selfish fighter against all other individuals or institutions in markets as well as in society, trying to reap profit from others by every legal and not so legal means. The firm is not outside but part of society, for which it must have positive regard and from which it must accept limitations and regulations. In a positive perspective, firms are required to act as economic and societal institutions. Thereby not only the leaders in firms are challenged but also those in society.

Second, leaders have to be aware that in a global and knowledge intensive society, the interactions with highly qualified and indispensable stakeholders are the key to superior value creation. These stakeholders are always human beings and have to be accepted and treated as such. They have to be accepted with their distinct knowledge, experience, values etc. All stakeholders, not only selected managers or shareholders, deserve respect and trust in providing firm specific engagement.

Third, short term profit maximization has to be replaced by the principle of economic and social value creation with and for stakeholders. This includes that contributing stakeholders get a fair share of the value created. The one-sided consideration of selected investors or managers in value distribution has to be avoided.

Fourth, the firm is always part of a complex and dynamic network of contributors and not the dominator. This embeddedness in a stakeholder network opens opportunities for mutual stimulation and positive developments for both the firm and the stakeholders.

Fifth, we also have to take a fresh look at competition. Gaining and maintaining a monopolistic competitive advantage towards others is not part of a positive mindset. The real values created for all relevant stakeholders must be transparent so that customers, investors, ranking agencies etc. can decide which firm creates the most value in an economic and social dimension.

It is a fascinating but also an urgently needed requirement to search for positive narratives of leadership that can serve as role models for leaders.

Sybille Sachs

Discretionary Morality in a Competitive World?

In the heady days of younger years I thought and felt strongly that I could chart my own path through this world of ours without compromising what I intrinsically believed to be “right” or “wrong”. As you might expect, this belief turned out to be rooted more in naiveté than reality, and latest upon entering the corporate world did reality bite back. Let me give you one particularly illustrative example.

In charge of developing the overseas markets for a US manufacturer in the apparel industry, I was evaluating potential business partners in numerous countries to distribute, install and service our products. Due to the high labor costs in the US or Western Europe, the fabrication of clothing was rapidly shifting to areas of the world in which labor was still affordable enough so as to allow a reasonable profit margin in an increasingly competitive industry. A country of interest was then for us Tunisia, which promised to have the right mix of low labor costs with a reasonably reliable legal framework so as to make doing business there a relatively low risk venture.

I had singled out two companies in Tunisia which seemed promising business partners. The first was a start-up led by an enthusiastic and eager young woman having just returned from Canada where she had done her studies in the design and production of apparel. The latter was a large manufacturing company from the Netherlands which had been established in the Tunisian market for the better part of three decades. Meeting first with the young woman entrepreneur (in a male-dominated society!), I was immediately invited to her home to share a dinner with the entire family. It not only turned out that her business “headquarters” was the house’s basement, but that the entire family was poised to participate – as deeply vested stakeholders – in the venture. The mother, working at a local bank, was to be in charge of finances, the brother in sales, the father figured as the presidential formal “figure head” of the company (important in a patriarchic society), and the young, female entrepreneur was the effective Chief Executive Officer.

The following day I met with the director of the Dutch company and was shown around an expansive manufacturing plant which included several hundred workers busily hunched over sewing machines, churning out mounds of pants. He outlined for me the various sales channels they had throughout the country, and I was shown a well-equipped repair shop for technical support. In as much as servicing a sophisticated technical product as was ours is at least as important as just selling it, I was duly reassured.

That night at the hotel, however, the moral dilemma which I faced struck me with full poignancy. From a business perspective, the choice was as simple as could be: the established Dutch company disposed of vastly more resources, experience and connections to make our market entry in Tunisia a profitable and smooth one. By contrast, the small start-up lacked all of these crucial elements necessary for fast and profitable market development.

From a sustainable, human perspective, however, the choice was also as simple as could be: the established Dutch company lacked the heart-felt enthusiasm and commitment of the small venture and could readily do well without the benefit of adding our product to their already extensive product mix. But giving it our business would do little to nothing for developing the sprouting, indigenous economy in this area, and most of the profits would be ciphered off to the Netherlands. If I gave this business opportunity to the small start-up, however, I would be able to nurture the local, grass-roots economy, transferring not only financial resources to the locals, but also valuable know-how, so as to provide for the emancipation not only of the local economy from the dominance of the wealthy West, but, in this particular case, also of women in a still conservative, patriarchic Muslim society.

It was, however, equally apparent that it would be nothing but impossible (and virtual professional suicide) to justify going with the small start-up from a business point of view: I already pictured myself explaining my decision to my boss, the company’s CEO  - and then, following the food-chain upwards – him to the board of directors and the investors: “well, I know that we are rapidly losing market share in this highly competitive industry and our sales are imploding, but take a look at how much grass-roots, sustainable nurturing we are able to do in poor countries, taking heed of all the involved stakeholders!”

In essence, I was damned if I do, and damned if I did not. So what was the solution, and how would you choose if you were faced with such a decision?

For me, the solution was to leave the business world for the academic one, where I hoped to at least find an intellectual microcosm where I could align what I believed in with what I worked on and actually practiced. Moral of the story: I capitulated not by becoming entrenched in a system that was profoundly out of sync with what I believed to be “right”, but by stepping out of – or, if you like – fleeing a system I felt I simply could not change from the inside out. But capitulating will certainly will not change matters for the better…

The above account raises many questions about to what extent leaders should – and in a certain manner are even at a liberty to – live by what they believe is “right” or “wrong”. It also raises many questions about our social and economic system as a whole. In particular, how can leaders walk the moral high ground in an increasingly competitive, globalized world that so often punishes those who seek a more long-term perspective?

We shall take a closer look at this in a subsequent post. Stay tuned.

Manuel Heer Dawson