Ethical Business Ethics: Thankfully, Mr. Conard, It's Not Just About ...

Despite economists' fondness for complicated equations and computer models, economics is not a true, hard science. And even most economists will admit that.

Which is why you can end up with completely different world-views, each backed by its own set of economists-with-equations.

On one side are the Horatio Alger stories of boys who, through sheer grit, determination, smarts, and courage, lifted themselves out of the mires of poverty to great personal success. Call it the "Bootstraps Tribe".

On the other side are those, like Elizabeth Warren, current candidate for US Senator for Massachusetts, who believes that there is "nobody in this country who got rich on his own." Call this the "Hanging Together Tribe". (I'm playing with a quote attributed to Ben Franklin, at the time of the signing of the Declaration of Independence: "We must all hang together, or assuredly we shall all hang separately.")

I wrote about these two positions just a few days ago, after reading an AlterNet review of a new book, The Self-Made Myth: And the Truth About How Government Helps Individuals and Businesses Succeed.

The other perspective just got a lengthy write-up in this Sunday's New York Times Magazine, in which author Adam Davidson interviews retired Bain Capital executive Edward Conard (full article, here). Conard has just written a book himself, to be published next month by Portfolio: Unintended Consequences: Why Everything You?ve Been Told About the Economy Is Wrong.

Conard makes a strong case for why inequality is good (more investors making investments in improvements that make all our lives better). The value of investment to society at large is, of course, one with which most economists would agree. As Davidson notes,

Dean Baker, a prominent progressive economist with the Center for Economic and Policy Research, says that most economists believe society often benefits from investments by the wealthy. Baker estimates the ratio is 5 to 1, meaning that for every dollar an investor earns, the public receives the equivalent of $5 of value. The Google founder Sergey Brin might be very rich, but the world is far richer than he is because of Google.?

Conard considers the 5-to-1 ratio too low, and makes a case for 20-to-1. In other words, "we should all appreciate the vast wealth of others more, because we?re benefiting, proportionally, from it."

And it's not just the investors behind products like laptop computers or services like Google who benefit society as a whole -- it's the investment banks and other financial institutions who make the system more efficient. Conard apparently doesn't agree that complex instruments like credit-default swaps were key elements in the 2008 financial crisis: they were "fundamentally sound" and "served a market need for the world's most sophisticated investors."

I could go on and on, but you should read the article for yourself (I haven't read the book; unlike Davidson, I can't get pre-publication copies, but I do intend to once it's out. I think I'll wait, however, until my library has it -- I don't think Mr. Conard needs my royalty payment....).

In any event: my biggest problem with Conard's position, at least as articulated in the Times article, is that he seems to believe that it's all about the money. In other words, if you can't monetize it, it doesn't have value. So Wall Street needs those outsize salaries because otherwise smart, talented people might go off and do something dumb, like be art-history majors (his choice of pejorative, not mine).

Like Conard, I went to business school in the mid-'80s (me, Kellogg / Northwestern; him, Harvard), so I recognize a lot of the jargon. And there's value to some of it. Capital markets are incredibly efficient.

The problem is, they're not perfectly efficient. Davidson notes, "Nearly every economist I spoke with said that Conard has too much faith in the market?s ability to reward only those who create real value."

Moreover, markets don't know how to account for things that aren't monetized (for example, a housewife's or househusband's contributions). They don't know how to correct for rent-seeking -- Davidson does ask Conard about rent-seeking (the idea that people, or companies, get rich because of their power or access to power, rather than their ideas), and he poo-poos its presence in our economy.

And I found Conard's coldly logical approach to everything (including choosing a wife!) chilling. I can't be sure that he's not right, at least on some points, but his world is not one I would ever choose to live in. And I wouldn't even wish my worst enemy there:

There's no place for levity, for warmth, for non-cost-effective rumination in Conard's world. As Davidson writes, "The world Conard describes too often feels grim and soulless, one in which art and romance and the?nonremunerative satisfactions of a simpler life are invisible." Davidson quotes Conard:

God didn?t create the universe so that talented people would be happy. It?s not beautiful. It?s hard work. It?s responsibility and deadlines, working till 11 o?clock at night when you want to watch your baby and be with your wife. It?s not serenity and beauty.

I'm not one to say exactly why God created the universe. But I think that God created us to flourish. In the words of early Church father Iranaeus, "The glory of God is a human being fully alive."

Conard doesn't seem to understand that some people aren't motivated just by money, that some people would flourish most completely in professions that would give them time to create something new and valuable (art-history scholarship! painting! theology! dance!) that won't be wildly remunerated. And by concentrating so much wealth in the hands of a few, I fear he's condemning the poor to endless poverty, and helping the middle-class slide back into poverty. His wealth may improve society as a whole -- but does it do anything for the individual struggling to get by?

I can't help contrasting Conard's concentrate-the-wealth formula with the spread-it-around generosity of the Self-Made Myth's perspective. I'll close with a quote from a foreword to that book, written by an attorney (Conard doesn't like them much -- smart but not risk-takers), named Bill Gates, Sr.:

As an attorney for almost 50 years, I worked closely with entrepreneurs and saw how their business enterprises are boosted by government efforts to create a stable and positive business environment. I also had a front-row seat for the creation and the growth of my son's business (Microsoft), and I observed the many ways our country's publicly supported infrastructure, tax laws, government-funded research, education, patent protection, and so forth helped the company grow.... [If] you had plunked Bill down in some developing country, even with all of his intelligence, creativity, and hard work, the company would have gone nowhere. Being born in this country is the ingredient that most reliably determines whether a person has the opportunity to become wealthy.

Conard would say that "[t]echnology and global competition have made it more important than ever that the United States remain the world?s most productive, risk-taking, success-rewarding society." Like many conservatives, he underestimates the importance of governmental infrastructure (trust in the rule of law; fairness in the marketplace, guaranteed by enforced regulations; roads, rails, airports, and the rest). Would Bill Gates Jr. really have been able to make Microsoft the powerhouse it is today if he'd been born in, say, Zaire?

I expect that Conard also underestimates the "step up" he had by growing up white, male, and middle-class, with parents who encouraged his educational attainments. Not to mention a little bit of luck.

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