Learning Ethics from a Carbon Isotope - II

Verbose Ethics

Such examples like De Beers, often should raise questions about the corporate practices globally. If one sees every corporation through the lens of ethics, one finds a majority of them carrying a blot or two on their sugar-coated claims of corporate ethics. Corporations have, it seems, acquired a habit of lying to consumers and this habit is growing into a pathological condition as this errant habit goes unchecked, sometimes even aided, by the sovereigns.

It takes sheer insensitivity to let the environment be harmed by equipping millions of your automobiles with software designed to cheat pollution tests; it takes sheer shamelessness to brand your plastic water bottles with claims that you return more water to the ecosystem than you actually consume and go on destroying natural water reserves near human settlements; it takes "big, hairy audacity" to go on eschewing compliance requirements repeatedly and let millions of barrels of oil cripple the aquatic ecosystem and stay completely silent about it. This is just a miniscule sample of the many unethical and insensitive activities that corporates engage in order to enhance their shareholders' wealth. A common stance to inclusion of ethics and corporate responsibility into the business conduct is the Jobsesque "listen to what others say, do what you want to anyway" (of course the context is inappropriate here but it describes them perfectly). Corporates have repeatedly ignored the advice of ethicists and carried on blindly in the pursuit of economic prosperity at the expense of societal prosperity. Obedience to law is fairly pervasive in the corporate world. Unfortunately, what is not understood by the business professionals is the ethical framework behind those laws. Such an understanding would be like an ethical compass in grey territories and enable a more ethical decision making in them. Fundamentally, a laws is just an instrument of the sovereign to impose ethical conduct on its subjects. It therefore follows, that incorporating ethics into business activities would enable managers from diverting their attention from maintaining legal compliances and putting them in something constructive. When ethics gets embedded in an organization's culture, a majority of the legal compliances will be automatically met which translates into reduced legal overheads in the long run, even though it might come with a cost in the short term.

It is not their fault when managers choose to ignore the non-financial impacts of their business. The actual culpability rests with the society, with our education and with our obsession with numeration. Anything which does not translate into higher RoE or market capitalization, is often viewed as wasteful and merely a "good-to-have" activity. Rising shareholder activism has been successful partially through the introduction of CSR, triple bottom line etc. but many (perceived to be) ethical organizations all that ethical conduct means is issuing paragraphs of blank words printed on beautifully laid out reports with nothing tangible to show. This trend is giving rise to what I call "Verbose ethics" (full of words, bereft of action). For example, the CSR obligation in the Companies Act, 2013 is often met with furrowed brows in many boardrooms; many choose to fulfil this responsibility by making lump sum donations to shady NGOs, which sometimes are siphoned back into the organization it originated from. Their share of words than the share of actions is more making their ethical practice a "verbose" one. Partly the reason verbose ethics is so predominant is because academic institutions have largely chosen to ignore it. The study of ethics and its importance in our vicissitudes should be embedded in students' minds before they enter into the corporate world. Some of them would rise to be at the helm of multi-national businesses and wield significant power over their stakeholders. These  CEOs and MDs, being smart people, would hardly face any difficulties in deciding their marketing strategies or WACCs, they are relatively objective decisions. Erudition in ethics, or a lack of it, then would be the deciding factor in what course of action his/her business takes. In order to sensitize the future managers about ethics, organizational theory needs to strengthen the concept of societal wealth maximization as one of the organizations' central goals. Societal value should be given as much importance as Shareholder value. Only when the corporates are motivated to shun the dogmatic monotheism of shareholder's value and also focus on "societal value", will their verbosity be put into action.

Societal Value

Societal value is an indicator of the extent of sustainability an organization generates for the society at large. Since its explanation and refinement would require a dedicated discussion, I will try to summarize it here., It can be measured through the impact the organization has on institutional and environmental sustainability. Institutional sustainability would entail reinforcement of ethical practices in and around its areas of influence; for instance, the practice of giving bribes can be seen as eroding to the national institutional strength (a bribe given once increases the chances of a bribe being expected the second time also thereby perpetuating this practice in the long run); making good quality education available to the remote population can help build institutional value (by improving literacy and skill in the labour force); paying a more rational wage to labour will help build this strength (by making labour economically more independent). This focus on Institutional sustainability is essential to instill a greater sense of responsibility among professionals, regarding the effects their business might have on such social institutions. A business enterprise, by default, contributes towards institutional building via creating employment, enhancing commerce and solving a societal problem innovatively. However, this framework of societal value also includes an organization's contribution over and above these "fundamental duties". Environmental sustainability, is already understood. It is the contribution a corporate makes towards not harming the environment from its operations or making active efforts of improving it.

However, one major difficulty with societal value is that of immeasurability. How can an organization's contribution towards building institutional sustainability be evaluated? This area needs more research to arrive at a fairly solid framework for measuring them. Till such a model is developed, managers can use proxy KPIs to be able to fairly estimate the positive societal impact of their organization. For instance, number of whistleblowing incidents reported.

This is a personal account of how I see the corporate ecosystem through the lens of ethics and the more I scrutinize them, the more troubled I become with the fact that I, along with millions of other MBA graduates, are going to enter into this arena without a proper understanding of their ethical responsibilities towards the society and therefore would be more probable to turn a blind eye towards morality and ethical conduct.

Learning Ethics from a Carbon Isotope

De Beers used to be a monopoly. Through the formation of cartels it successfully established control both on the demand (Diamond Syndicate) and the supply side (De Beers). Before its tussles with the U.S. Anti-Trust laws, it effectively controlled 80% of the diamond industry!! Nothing so shocking here. What I was fascinated with, was a statement from my Strategy professor that De Beers has successfully pulled the biggest marketing coup in human history.

Which it really is. Think about it. How do you attribute a certain value to diamonds? Typically, any product derives its value from the extent to which it fulfills a particular need. While industrial diamonds won't give you a hard time in estimation of value as it can be derived from some operational benefit it provides, e.g. fine cutting and trimming; but how does a consumer derive value through the personal possession of a diamond? Is diamond needed by people in the first place? Was it ever needed? I find none. Unlike diamonds, gold picked up in importance quite early (owing to better availability) and time only impressed it harder on our zeitgeist; our part of the world promoted it to the status of a ritualistic necessity while others gradually brought it into the economic system thereby ensuring a perpetuity for its significance. Diamond, however, got left behind. How, then, did diamond become so valuable? One factor is its rarity which provides it its ornamental value (we shall ignore the industrial usage of diamonds). This value was justified before the 19th century's Industrial Revolution as its extraction was difficult. But the technological advancements begotten by the revolution made their extraction much easier. In a typical scenario, such a boom is followed by mushrooming of small entrepreneurs sprawled over the terrain, each fighting his own way to prosperity and this whole process ending with a reasonably sized miners controlling the resource supply in the region at the least. However, diamonds were steered into a detour by an Englishman named Cecil Rhodes.

An critique of the De Beers and commercial diamond industry

Cecil Rhodes knew that the then emerging diamond supply explosion in South Africa would be corrosive to the mineral. He therefore successfully attempted a consolidation and cartelization of the demand and supply sides of diamonds through the formation of De Beers and Diamond Syndicate. This control over virtually the complete market for a commodity, made it a monopoly. The artificial scarcity of diamonds coupled with the much famed marketing, converted what is technically a carbon isotope into an eternal symbol of love, enabling it to reap higher revenues. The point here is, was De Beers justified in creating a market out of thin air? Diamonds don't have a necessity in our lives, yet we spend extravagantly on them. Was it ethical of De Beers to lie to its consumers and generate wealth?

Rights of Man

If my first contention is clear by now, I would argue that from a purely philosophical perspective, it is unethical for any corporate body to use its consumers as means to meet its ends of fattening its bottom line and increasing shareholder value. Corporations carry a fiduciary responsibility towards its stakeholders (consumers always being predominant) of helping them meet their ends. It is under this implied covenant ("social contract", if I may call it) that law provides a corporation its legitimacy. Any organization designed as an end in itself has no claim over legal protection and is liable for the violation of the rights of man, derived from Kantian ethics. Therefore, such autotelic arrangements as De Beers have no ethical claim over their existence. De Beers has created an illusion among its consumers that diamonds are rare, effectively a misrepresentation about its product's value. 

Diamond is a natural resource. De Beers, through establishing a tight grip over its production and supply chain, effectively secured a patent over diamonds (as roughly any diamond being traded anywhere was De Beers' which brought all the "royalties" to it alone); I have argued why it is unethical to patent a natural resource in a previous post here. (http://here-i-lie.blogspot.in/2013/04/philosophical-musings-and-ruminations_30.html)

Are diamonds a necessity?

All said and done, De Beers can still be vindicated from such allegations if diamonds are shown to actually be a necessity and not a luxury i.e. it has a "reasonable" need in human lives. I mention reasonability owing to the fact that some of our needs are not actually needs, but wants; e.g. a drug addict would want his/her narcotic so bad that he/she is led into believing that it is a need rather. Minding this caveat, it is prima facie evident that diamonds don't have a necessity in our lives except for industrial purposes. Although, some might argue that diamonds are on the path which gold took centuries ago and that diamonds are gradually acquiring the status of a necessity; e.g. since diamonds have been closely associated to relationships, diamonds have become, if not pure but symbolic necessity, that it acts like a totem for your love, it is also eternal and supposedly induces this eternity in your love. Could it not be done with another gemstone, say, a ruby? Can't its red colour signify the flame of your passion? Also, relative to human longevity, a ruby is as eternal as a diamond. But the other three precious stones viz. emerald, sapphire and ruby failed to attract the human fascination and therefore were sent to the nosebleed seats. My point being, that maybe, just maybe, humanity needed one precious thing in its social evolution, that fortune went to gold; we don't need another stone to waste our resources on. Diamonds, therefore, are a luxury.

Although it can be argued that over the course of time, luxuries gradually become necessities. Imagine air travel!! Ceiling fans were found only in palaces once. New solutions to humanity's problems are often valued more than older solutions and their social status gradually subsides. A similar course could be envisaged to claim that diamonds too are on a course to becoming a necessity and will find a haven of needs in our minds someday to unload their actual value, if they carry any. To this, I would respond that other products derive value essentially because they address a particular human need. When a solution is introduced in the market, its discoverer/inventor is morally justified in reaping the fruits of his labour as a reward for his contribution to humanity's progress. Diamonds repeatedly fail this test. They never addressed any human issue in the first place!! A counter-argument can be put forward that the diamond industry supports millions of livelihoods and if the perceived value of diamonds is undermined, the livelihood of, say, diamond miners of Angola will be adversely affected. And what about those who already own diamonds? Regarding these issues, I don't have any concrete solutions to; for the marginal miners working for De Beers it can be insulated from damage by maintaining the same wage levels and  the current owners can maybe compensated for the decreased value in a phased and proportionate manner. These solutions would need money, which can be sourced by completely liquidating De Beers. The diamond industry needs a reset and this fantastical proposition is that reset.

Ferrari and a broken window

De Beers was never justified in creating this illusion of preciousness for diamonds and reaping profits out of it. By doing this, De Beers has constantly eaten into the consumers' disposable incomes and "earned" money for diminishing the consumer surplus; quite contradictory to its economic duty of augmenting the consumer surplus. One stock argument against this contention could be that many organizations earn their revenues solely from luxury products e.g. Ferrari; the argument here can be extended to all such organizations and the legitimacy of their returns stands to be questioned.

While it is true that many organizations levy premiums for their luxury products; what ethical validation does, say, Ferrari have that makes them charge inordinately for their automobiles when what its products essentially address is our need for transportation, just like another automobile. I contend that they are not violating general ethics through their actions. Because, Ferrari cars are nothing more than an option in the whole global automobile market. You, as a potential car owner, have a myriad of options to choose from. Ferrari never erects barriers to prevent you from exploring other cars. I can, as a thought experiment, evaluate Maruti 800 and a Ferrari, and make my choice independently. Therefore, it can be argued that firstly, unlike De Beers' diamonds, Ferrari's products fulfil a need and have a legitimate value. Secondly, Ferrari doesn't control the global output of cars; it can only influence the production of its plants not Rolls Royce's. In this respect, Ferrari, by acting in the economic environment is increasing competition which, ceteris paribus, rationalizes the industrial price point in due course of time. De Beers, by acting as a monopoly, has an absolute control on the diamond's price; with no market forces to decide the price in a fair manner, De Beers' position proves detrimental to the consumer surplus in the economy. These arguments impart legitimacy to both Ferrari's products and its existence, which De Beers clearly fails to have any claim on.

One last argument against the validity of commercial diamond industry is the "Broken Window Fallacy" conceived by the French economist, Frederic Bastiat. Broken Window Fallacy states that just because breaking a glass window pane would provide a commercial opportunity to a carpenter, it would be ultimately harmful to the society if the carpenter decides to go on breaking windows repeatedly to earn money by then repairing them; because every such activity (of destruction) has an opportunity cost (of the broken glass).  Such an activity would hinder the commercial activities of the carpenter's victims, the money that would go in reparation could have been used in something constructive, the carpenter could have helped a genuinely needy customer, the list can go on. There is a reason countries don't wage wars to boost their economic activity, it is because "broken glasses" are never beneficial for society.  With no need to address in the first place, diamonds consume huge amount of resources till they end up with a consumer. Aren't these resources an opportunity cost to other industries who could've used these resources for better purposes?Diamonds then are "broken glasses"; De Beers the unscrupulous "carpenter".

Philosophical Musings and Ruminations - Is Nothing better than Something?

One rather good metaphysical question is “why is there something rather than nothing?” An interesting question in the realm of value is “is it better to be nothing rather than something?” That is, is it better “not to have been born, not to exist, to be nothing?”

Addressing the question does require sorting out the measure of value that should be used to decide whether it is better to not exist or to exist. One stock approach is to use the crude currencies of pleasure and pain. A somewhat more refined approach is to calculate in terms of happiness and unhappiness. Or one could simply go generic and use the vague categories of positive value and negative value.

What also must be determined are the rules of the decision. For the individual, a sensible approach would be the theory of ethical egoism—that what a person should do is what maximizes the positive value for him. On this view, it would be better if the person did not exist if his existence would generate more negative than positive value for him. It would be better if the person did exist if his existence would generate more positive than negative value for him.

To make an argument in favour of never existing being better than existing, one likely approach is to make use of the classic problem of evil as laid out by David Hume. When discussing this matter, Hume contends that everyone believes that life is miserable and he lays out an impressive catalogue of pains and evils. While he considers that pain is less frequent than pleasure, he notes that even if this is true, pain “is infinitely more violent and durable.” As such, Hume makes a rather good case that the negative value of existence outweighs its positive value.

If it is true that the negative value outweighs the positive value, and better is measured in terms of maximizing value, then it would thus seem to be better to have never existed. After all, existence will result (if Hume is right) in more pain than pleasure. In contrast, non-existence will have no pain (and no pleasure) for a total of zero. Doing the value math, since zero is greater than a negative value, never existing is better than existing.

There does seem to be something a bit odd about this sort of calculation. After all, if the person does not exist, then his pleasure and pain would not balance to zero. Rather it would seem that this sum would be an undefined value. It cannot be better for a person that she not exist since there would (obviously) not be anyone for the nonexistence to be better for.

This can be countered by saying that this is but a semantic trick—the nonexistence would be better than the existence because of the relative balance of pleasure and pain. There is also another approach—to broaden the calculation from the individual to the world.

In this case, the question would not be whether it would be better for the individual to exist or not, but whether or not a world with the individual would be better than a world without the individual. If a consequentialist approach is assumed, it is assumed that pain and pleasure are the measure of value and it is assumed that the pain outweighs the pleasure in every life, then the world would be better if a person never existed. This is because the absence of an individual would reduce the overall pain. Given these assumptions, a world with no humans at all would be a better world. This could be extended to its logical conclusion: if the suffering outweighs the pleasures in the case of all beings (Hume did argue that the suffering of all creatures exceeds their enjoyments), then it would be better that no feeling creatures existed at all. At this point, one might as well do away with existence altogether and have nothing. Thus, while it might not be known why there is something rather than nothing, this argument would seem to show that it would be better to have nothing rather than something.

Of course, this reasoning rests on many assumptions that can be easily challenged. It can be argued that the measure of value is not to be done solely in terms of pleasures and pains—that is, even if life resulted in more pain than pleasure, the overall positive value could be greater than the negative value. For example, the creation of art and the development of knowledge could provide value that outweighs the pain. It could also be argued that the consequentialist approach is in error—that estimating the worth of life is not just a matter of tallying up the negative and positive. There are, after all, many other moral theories regarding the value of existence. It is also possible to dispute the claim that pain exceeds pleasure (or that unhappiness exceeds happiness).

One could also take a long view—even if pain outweighs pleasure now, humans seem to be making a better world and advancing technology. As such, it is easy to imagine that a better world lies ahead and it depends on our existence. That is, if one looks beyond the pleasure and pain of one’s own life and considers the future of humanity, the overall balance could very well be that the positive outweighs the negative. As such, it would be better for a person to exist—assuming that she has a role in the causal chain leading to that ultimate result.One rather good metaphysical question is “why is there something rather than nothing?” An interesting question in the realm of value is “is it better to be nothing rather than something?” That is, is it better “not to have been born, not to exist, to be nothing?”

Addressing the question does require sorting out the measure of value that should be used to decide whether it is better to not exist or to exist. One stock approach is to use the crude currencies of pleasure and pain. A somewhat more refined approach is to calculate in terms of happiness and unhappiness. Or one could simply go generic and use the vague categories of positive value and negative value. What also must be determined are the rules of the decision. For the individual, a sensible approach would be the theory of ethical egoism—that what a person should do is what maximizes the positive value for him. On this view, it would be better if the person did not exist if his existence would generate more negative than positive value for his. It would be better if the person did exist if his existence would generate more positive than negative value for him.

To make an argument in favour of never existing being better than existing, one likely approach is to make use of the classic problem of evil as laid out by David Hume. When discussing this matter, Hume contends that everyone believes that life is miserable and he lays out an impressive catalogue of pains and evils. While he considers that pain is less frequent than pleasure, he notes that even if this is true, pain “is infinitely more violent and durable.” As such, Hume makes a rather good case that the negative value of existence outweighs its positive value.

If it is true that the negative value outweighs the positive value, and better is measured in terms of maximizing value, then it would thus seem to be better to have never existed. After all, existence will result (if Hume is right) in more pain than pleasure. In contrast, non-existence will have no pain (and no pleasure) for a total of zero. Doing the value math, since zero is greater than a negative value, never existing is better than existing.

There does seem to be something a bit odd about this sort of calculation. After all, if the person does not exist, then his pleasure and pain would not balance to zero. Rather it would seem that this sum would be an undefined value. It cannot be better for a person that she not exist since there would (obviously) not be anyone for the nonexistence to be better for.

This can be countered by saying that this is but a semantic trick—the nonexistence would be better than the existence because of the relative balance of pleasure and pain. There is also another approach—to broaden the calculation from the individual to the world.

In this case, the question would not be whether it would be better for the individual to exist or not, but whether or not a world with the individual would be better than a world without the individual. If a consequentialist approach is assumed, it is assumed that pain and pleasure are the measure of value and it is assumed that the pain outweighs the pleasure in every life, then the world would be better if a person never existed. This is because the absence of an individual would reduce the overall pain. Given these assumptions, a world with no humans at all would be a better world. This could be extended to its logical conclusion: if the suffering outweighs the pleasures in the case of all beings (Hume did argue that the suffering of all creatures exceeds their enjoyments), then it would be better that no feeling creatures existed at all. At this point, one might as well do away with existence altogether and have nothing. Thus, while it might not be known why there is something rather than nothing, this argument would seem to show that it would be better to have nothing rather than something.

Of course, this reasoning rests on many assumptions that can be easily challenged. It can be argued that the measure of value is not to be done solely in terms of pleasures and pains—that is, even if life resulted in more pain than pleasure, the overall positive value could be greater than the negative value. For example, the creation of art and the development of knowledge could provide value that outweighs the pain. It could also be argued that the consequentialist approach is in error—that estimating the worth of life is not just a matter of tallying up the negative and positive. There are, after all, many other moral theories regarding the value of existence. It is also possible to dispute the claim that pain exceeds pleasure (or that unhappiness exceeds happiness).

One could also take a long view—even if pain outweighs pleasure now, humans seem to be making a better world and advancing technology. As such, it is easy to imagine that a better world lies ahead and it depends on our existence. That is, if one looks beyond the pleasure and pain of one’s own life and considers the future of humanity, the overall balance could very well be that the positive outweighs the negative. As such, it would be better for a person to exist—assuming that she has a role in the causal chain leading to that ultimate result.