by Paul Collier
There is already a precedent for this in the United States through the new category of Public Interest Companies. These are companies with a dual mandate: commercial interest and public interest, both of which the board must take into account. This is the right idea, but, as it is, Public Interest Companies will never amount to more than a small sliver of the corporate sector. Indeed, their very existence inadvertently emphasizes that all other firms are not to be run in the public interest. The current vintage of Public Interest Companies should more properly be seen as a pilot. By studying the behaviour of these companies, the idea can be refined to the point at which a revised mandate can safely be rolled out across the corporate sector.
Policing the public interest
Every regulation can be subverted by clever box-ticking; every tax can be reduced by clever accounting; every mandate can be fudged by motivated reasoning. The only defence against such actions is an all-seeing police force. This does not mean the prying paternalist state: it means ordinary people in their role as citizens.
Once a society has enough citizens who understand the proper purpose of companies, and have accepted it as a norm, we ourselves become the anchors of good corporate behaviour. Our responses to good and bad conduct become an instance of the gentle pressure of esteem and shame, the system that maintains the vast network of reciprocal obligations characterizing all successful societies. This gentle policing role does not require everybody to be part of it: there is a critical mass of participants above which the risks arising from corporate misconduct become too high to entertain. In any large company, many people will inevitably be in the know on important decisions. Only a few of them need to behave morally in order to force decent behaviour. Usually, if a few people point out that public interest is in danger of being sacrificed, nobody will want to take the exposed position that the public interest doesn’t matter. In rare instances, even one brave person will be sufficient – the whistleblower. All firms have a large pool of decent people who would be willing to take on a new identity alongside their existing identities; they would feel proud to become guardians of the public interest. At the height of the banking boom, one of the largest investment banks decided to create a small unit for promoting social enterprise. Working in the unit would mean forfeiting the bonuses that were supposedly motivating the high-octane corporate culture, and the management wondered whether any of its staff would be willing to transfer into it. The four new posts were duly circulated within the company: one thousand staff applied. There is no shortage of well-motivated people working purposively in large corporations.
Encouraging your firm to have a decent sense of purpose is your contribution to society, but continuing to work for one which lacks purpose is personally soul-destroying. As we will see in the next chapter, well-being does not come from financial success. If you are working for a firm which lacks social purpose and you have no realistic prospect of altering it, then – if practicable – change your job. I have been blessed with some exceptionally talented nephews, but the one whom I currently most admire was working as a car salesman. His company wanted the usual tricks of the trade, akin to the Goldman Sachs leaked emails in which clients were referred to as ‘muppets’. A young man with an acute sense of ethical purpose, he quit for a job that offered less money but provided more opportunity to help its customers. He tells me he is much happier.
These new identities, norms and narratives would make our society better and our lives more satisfying, but they must first be built. No single firm can do this. At a trivial level, were a firm to ask its staff to keep the firm focused on the public interest it would probably be greeted as just a new piece of PR. But a deeper answer is that the corporate culture prevailing in one company largely reflects that prevailing in others. Some societies manage to establish cultures of good corporate behaviour. Perhaps it was because Japan had a stronger culture of worker–firm co-operation than America that Toyota was able to adopt the American idea of trusting the workers on the assembly line to self-police the quality of their cars. Similarly, post-war German industrial relations policy was heavily influenced by what the British Trades Union Congress proposed would be a better way of conducting them than the confrontational British practice of the pre-war era. Post-war Germany got the industrial relations that British trades unions had learned from the failings of the British system. The aftermath of defeat broke the vested interests and enabled Germany to do the policy reset, whereas in Britain victory enabled them to remain entrenched.11
Rebuilding the reciprocal obligations of corporate behaviour is a massive public good that must be accomplished by government. Chapter 2 gave an outline of how new obligations can be built. We need to build a critical mass of ethical citizens. Ethical citizens are people who understand the purpose of companies and the vital contribution they can make to society; they recognize the norms implied by this purpose; and encourage businesses to meet those obligations through the twin pressures of esteem and disapproval.
Citizens are routinely fed so much well-meaning chatter by government that people have become habituated to dismissing it, so a necessary start is to re-establish credibility. We have already met the solution to the conundrum of how a suspicious audience can be convinced – signalling. To recap, a signal is something that reveals your true type to the suspicious audience. How does it work? Nobel Laureate Michael Spence saw that the only way was through an action that, were you the type that your audience suspects, would be prohibitively costly. Almost certainly, this will be an action that, even though you are not the rogue they fear, will be unpleasantly costly for you. You need to find an action that for you is a bearable cost of winning trust, whereas for the rogue it would be unbearable. Armed with this insight, what can a government do in the present situation?
Recall that citizens are currently contemptuous of firms, generally regarding them as greedy, corrupt and exploitative. This dominant narrative has to be changed, but if your first utterance is that firms are pretty useful for society many people will switch off. There are dramatic things you can do. Many people are rightly outraged that no banking executive went to gaol as a result of conduct during the financial crisis. This is because the behaviour that caused the crisis was not deliberately intended to ruin the company, but reckless. When a motorist kills someone through recklessness, we have a classification for it – manslaughter – which distinguishes it from the crime of murder, which is killing with intent. We need the equivalent crime for all systemically important companies: bankslaughter. The knowledge that, even once retired with a golden parachute, a former CEO could be dragged off the golf course and held responsible for past mistakes would likely concentrate the minds of those in positions of responsibility.
Once you have demonstrated some spine, you can move on to present a national strategy in simple terms. Perhaps start with the purpose of firms, to benefit society in ways that are sustainable and restore rising living standards. Explain why many firms have deviated from this purpose. Explain the government policies that will try to correct this state of affairs, and – most crucially – explain their limitations. Then invite people across society to take on this new role as ethical citizens. Like all successful narratives, change cannot be achieved overnight. It requires a sustained and consistent message across many different mouthpieces of government and, like all narratives, it can be fatally undermined by actions that are inconsistent with the words. But across most Western societies, the political leaders of 1945–70 governments succeeded in building many new reciprocal obligations. Although those narratives were not specifically about firms, they probably helped to account for the predominance of the ethical firm. Remember: back then CEOs paid themselves only twenty times what they paid their workers. They now pay themselves 231 times what they pay their workers: the ethical firm has given way to the vampire squid. Times have changed; they need to change back again.
5
The Ethical Family
The family is the most potent of al
l the entities that lift us beyond the individual. Husband and wife publicly bind themselves to reciprocal obligations. Sentiment also binds parents to their children. Parents care for their children, and often, many years later, children care for their parents, but the potential for reciprocity is seldom asserted as a right. While care received in old age is welcome, the care provided to the child is given unconditionally, rather than being framed as a deal. Yet offspring often see reciprocity as an obligation. A wonderful old Yorkshire joke exploits this little gap between an obligation and a right. A son’s ethical inadequacy is revealed: ‘Mother, you’ve worked hard for me all your life, now . . . go out and work for thy self.’ The web of obligations can extend far beyond spouses and children. In ancient societies family obligations extended to what now seem very distant relatives, such as seventh cousins.
Even families are networks; in the typical three-generation nuclear family, the parents in the middle generation form the hub, though often they will be recirculating narratives handed down from earlier generations. The basic formula for generating moral norms from narratives is even more evident at the level of the family than in states and firms. Families are natural units for creating a sense of belonging because we are reared in them from our earliest moments. Physical proximity is reinforced through stories of belonging: they attach each new generation to the family, creating a ‘we’. Tales of obligation point out duties; other stories link our actions to consequences. Like all families, mine abounds in these stories, peopled by heroes and black sheep. It’s fun to recall them, placing each in its category: belonging, obligation and enlightened self-interest.
As in all networked groups, these narratives get juggled around until they form a compatible package, a belief system. The biological underpinnings of the family leave plenty of scope for rival belief systems to coexist, but as of 1945 one belief system was almost universal across Western societies: here I will call it the ethical family. By this I do not mean to imply that it is the only belief system that is ethical: it is indeed strikingly different to the values of many families today. I am simply putting a label to the ethical structure that was very widespread in families for a long period.
In the ethical family of 1945, the married couple forming the middle generation accepted mutual obligations towards both other generations, children and parents. This often implied a considerable burden, but since each person would pass through all three generations it was accepted as the phase of responsibility. The structure was a powerfully stable belief system: a shared identity defining the domain for a norm of discriminating reciprocity, supported by enlightened self-interest. The shared identity of belonging to the family was easy to establish since it was a daily lived reality, the domain of ‘mutual regard’. The norms of reciprocal commitments were natural extensions of sentiments of affection. And the norms could be reinforced by a sense of purpose: if enough people complied, long-term material benefits for everyone followed – ‘enlightened self-interest’.
As of 1945, almost everyone belonged to such a family. Yet, over the following decades, this changed profoundly. Across Western societies people began to shed obligations to their families. The divorce rate exploded, peaking in the USA around 1980 and a little later in the UK. But as the new divides between the educated and the less educated opened, the difference became stark.
Shocks destabilized the long-powerful belief system of the ethical family; as the ethical family faded it compounded social divergence – and that divergence had some ugly consequences.
SHOCKS AT THE TOP
The first shock to the norms of the ethical family was technological. The birth-control pill offered young women control over their lives: sex could be separated from its previous consequence of conception. This eased the process of finding a compatible partner; temporary sexual relationships became less risky, and so the old and fraught ‘wrangle for a ring’ gave way to a vastly more reliable search process of cohabitation prior to marriage. In the astute lines of Larkin, ‘Sexual intercourse began / In nineteen sixty-three’.
The liberation started with technology-aided sex, but soon went far beyond it. A profound intellectual shock liberated individuals from the constraints of many stultifying norms of the ethical family. Obligations to family gave way to new obligations to self: the obligation of self-fulfilment through personal achievement. Laws were changed to make divorce easier. An indication of the changes underlying easier divorce was that it was made blame-free: there was no longer a guilty party.
Unsurprisingly, the intellectual shock originated in the university campus and so primarily affected the new class of the highly educated. It challenged the notion of the ethical family at its foundation, that esteem came from meeting obligations. In place of the family, the new ethics put the self; in place of esteem from meeting obligations, the new ethics put esteem from self-fulfilment. The variant that appealed to women was feminism; the variant that appealed to men was Playboy. Actions that had previously been conceptualized as temptations to be resisted became reconceived as moments of self-realization to be grasped. In many families of the new class, one or other partner of a couple discovered that to fulfil themselves required a divorce.
As men and women adjusted to these new norms, the nature of elite marriage changed, aided by a further shock: the vast expansion of universities. This equalized the numbers of educated men and women and provided a further vast improvement in match-making. Women and men learned how to find partners with whom they would be compatible (something that has continued with the enhanced match-making of online dating). This was soon supplemented by the legalization of abortion, a second line of defence behind contraception. The previous norms of the middle-generation couple, of gender hierarchy and mutual obligations to the other generations, were replaced in most educated households by mutual encouragement to self-fulfilment through personal achievement.1
Cohabitation and assortative mating turned the educated into well-matched couples, and so divorce rates declined. High-achieving parents aspired to pass their success on to their offspring, and so the gender hierarchy that had reflected the gender imbalance in education gave way to mutual parental hothousing.
When I was a child I got no help with homework: no parental coaching or monitoring; no private tutors. My parents were in no position, either academically or financially, to do so. But fortunately for me, even elite children got little extra-school help when I was in school, so I could compete. Yet as an elite parent, I find myself teaching science to Alex, aged eleven, while my wife teaches him Latin, and we also pay for a tutor. All the other children in his class are similarly helped. There has been a radical shift in norms. The former system would probably have persisted had it not been hit by another shock, the vast growth of the middle class, and a corresponding increase in the intensity of competition for the top slots in university education. My own university, Oxford, takes a significantly smaller proportion of the British population as undergraduate students than it did in the 1960s; it has globalized its intake, which in practice usually means the children of foreign elites. Yet with the expansion of the British middle class, far more families want their children to go there. Once some parents started to give their children an advantage by hothousing them, others had to match them or see their children’s opportunities further deteriorate: the old norms were shocked beyond the range of circumstances in which they were stable, and imploded. In consequence, child-rearing among the educated class became more time-consuming, and so couples cut back on the number of children they had, reducing family size.2 Trophy wives gave way to trophy children: reader, I reared one.*
The new self-fulfilment of the educated class was a genuine increase in well-being for many of its participants, albeit that the epidemic of divorce left casualties. We all know of them: salient for me, a wife who lost access to her son as a result of being abandoned by her husband for fulfilment with another woman, and a husband who lost access to his daughter as a result of being abandoned by his wif
e for fulfilment with another man. Those who prioritized their own fulfilment doubtless conjured exonerating narratives. However, even after the rate of divorce abated, it left its mark on social norms. For those educated people who remained single, for whatever reason, the ethical family norm of no children prior to a stable relationship was rendered void: if self-fulfilment required a child, so be it, at least in Western societies. In this respect, Japan parted company with other developed countries. There the pressure to rear trophy children was far fiercer than in Western societies. As a result, single-parenting could not compete with double-parenting, and so educated single Japanese women tended to keep pets in preference to rearing children of whom they might not be proud.3
The new hothousing of the younger generation had no counterpart vis-à-vis the older generation. In the ethical family, the old were commonly cared for within or alongside the household of the middle generation. My widowed grandmother lived next door to one of her children; my widowed grandfather lived with two of his children. I grew up with an elderly uncle in the next bedroom. Such household structures can still be found within some communities, but they are no longer common. Not only were the parents of educated couples less likely to be living with their offspring, whereas previously they may have been receiving some financial support from them, they were now far more likely to be providing it. In part, this reflected the increased affluence of the educated retired, but this was reinforced by a new inter-generational co-operation between grandparents and parents in the common objective of rearing a successful third generation. In consequence, the narrative of purposeful enlightened self-interest that had reinforced the norms of reciprocal obligations in the ethical family ceased to be true: meeting obligations to children no longer corresponded to equivalent obligations of adult offspring towards aged parents.