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10THE QUESTION YOU WOULD HAVE ME CONSIDER IS NOT ONLY HOW A STATE, BUT HOW A LUXURIOUS STATE IS CREATED; AND POSSIBLY THERE IS NO HARM IN THIS, FOR IN SUCH A STATE WE SHALL BE MORE LIKELY TO SEE HOW JUSTICE AND INJUSTICE ORIGINATE. IN MY OPINION THE TRUE AND HEALTHY STATE IS ONE [IN WHICH PEOPLE LIVE SIMPLY AND VIRTUOUSLY WITH FAMILY AND FRIENDS]. BUT IF YOU WISH TO SEE A STATE AT FEVER-HEAT, I HAVE NO OBJECTION.
As the fever heat of the 1990s came to a frigid end, corporate employees and shareholders awoke with a terrible case of the chills, wondering what on earth had happened to their investments, savings, and jobs. But not everyone suffered equally; in fact, a few prominent boomers made out all right:
Gary Winnick, ex-chairman of Global Crossing, made $500 million while his shareholders lost $30 billion.
Henry Silverman, CEO of Cendant, received a 41 percent increase in salary while the value of the company’s stock was falling 47 percent.
Gary Wendt, former Conseco CEO, earned some $30 million plus a $17 million pension while the value of the company’s stock plunged by some $25 billion.
Linda Wachner, ex-CEO of Warnaco, made over $70 million while her shareholders lost $2 billion from the stock’s market high.
Larry Ellison received $100 million in stocks and options while shareholders watched the value of Oracle drop by some $150 billion.
And yours truly got sucked up in all the hype and legerdemain, embarrassing myself by writing a 2000 article praising Enron’s enlightened leadership! If only I had paid attention to Aristotle, who, it turns out, has useful things to say about the justice of the distribution of wealth among entrepreneurs, investors, managers, and employees that a business produces. As I now better appreciate, that issue isn’t just the concern of executives and financiers. In our society, most of us are capitalists to one extent or another: If we have private retirement benefits—that would include most full-time teachers, professors, union members, and those who work for Starbucks and Wal-Mart—we are indirect owners of corporations. And even some of us who don’t think of ourselves as capitalists occasionally play the role directly. For example, I have been on the board of directors of a small company since it began trading its shares on the NASDQ exchange in the mid-1990s, and that has given me object lessons in the ethical issues Aristotle explores with regard to distributive justice.
When our little company went public, the first question we faced was the degree to which the various participants—those whose contributions were, variously, financial, entrepreneurial, and managerial—should benefit from the initial sale of our stock. We tried to answer the question without the help of Aristotle, but, in hindsight, I wish we had had the benefit of his guidance. For example, in deciding what is a just distribution of stock among investors and entrepreneurs, Aristotle’s golden mean is a useful albeit limited tool. It is limited, he says, because, “Justice is a kind of mean, but not in the same way as the other virtues: it relates to an intermediate amount, while injustice relates to the extremes.” Graphically, here is what he seems to be saying:
| DEFECT | VIRTUE | EXCESS |
 |
||
| INJUSTICE | JUSTICE | INJUSTICE |
Though we can understand how there is injustice (excess) involved in taking too much of something, it is less clear what Aristotle has in mind by the moral defect of taking too little. Aristotle doesn’t elaborate on the point, so “it’s a puzzlement,” as Yul Brynner used to say. But we can try to make sense out of it by relating it to the ethics of the distribution of wealth created by a successful start-up company. After all, injustice most often arises in the distribution of goods after a windfall, as Plato observes.
Many entrepreneurs argue that it is unfair when venture capitalists (VCs) make off with the lion’s share of stock in an Initial Public Offering (IPO). They believe it is more just for the person who creates the idea for a business, and those who execute the idea, to be the primary beneficiaries of the wealth created by a start-up. VCs retort that, in fact, they deserve more shares because they take most of the financial risk, while the entrepreneur doesn’t have as much “skin in the game.” Although this debate feels like a modern one, in his Ethics, the protocapitalist Aristotle addresses the relationship between merit, contribution, and money in business transactions and the relative degrees to which ideas, performance, effort, and capital should be rewarded. The bad news is that he concludes there is no universal principle we can apply to determine who deserves how much. Still, he believes fair-minded people can reason together to derive a set of general, flexible guidelines that are useful in practice and rigorous enough to withstand logical and ethical challenge.
To begin such an analysis, Aristotle posits that a just share of rewards—a fair share of shares in an IPO—falls near the middle between too much and too little, but he says there is no formula for identifying exactly where that point is found. In essence, there is no rule concerning how many shares of stock should go to investors, how many to entrepreneurs, and how many to managers and employees. So where is distributive justice to be found on the ethical continuum? Like all questions relating to the exercise of virtue, businesspeople must discover, at least in its details and particulars, the golden mean for their own organizations. But Aristotle offers a few hints to aid in such deliberations. First, he says justice is related to equality, hence an unjust act results from an unequal sharing of some good. However, although equality before the law means sameness, equality in the distribution of material and psychic rewards means something else.
We can understand this by analogy to his comments on the distribution of political power. Aristotle disagrees with Athenian democrats who believe all free men in the polis are entitled to be equal participants in the city’s governance. Instead, he argues that those who haven’t bothered to educate themselves aren’t entitled to be leaders of their community. On the other side, Athens’s oligarchs argue that, because the rich contribute more to society in taxes and wealth creation, they should have an unequal share of power. Although Aristotle agrees with them that equality among unequals is unjust, he nonetheless insists that citizens can make important contributions to society besides and in addition to the creation of wealth. Some virtuous, yet relatively poor, citizens contribute time, effort, ideas, and even their lives in battle; so Aristotle reasons that they are entitled to a fair share of respect and honor; in particular, they earn the right to participate in politics every bit as much as those who contribute large sums for the construction of public buildings. Aristotle thus differs with both egalitarians and aristocrats: He believes everyone must earn the privilege of participation through virtuous behavior.
He applies similar reasoning to the allocation of business profits. When it comes to dividing the wealth produced by partnerships, Aristotle observes that each partner typically claims he deserves the bigger portion. In trying to figure out which party actually deserves the lion’s share, he says when fraud, violence, and other legal or moral malfeasance is involved, the scales of justice should be tipped in favor of the injured party to rectify the wrong. But that’s an easy call. Justice is much harder to determine when there is a binding contract. For example, suppose you and I agree to divide, fifty/fifty, both the work effort involved in, and then the spoils produced by, a new enterprise, but I subsequently end up doing 90 percent of the work. Isn’t it then fair to allow me to renegotiate a higher percentage of the returns? Anticipating Milton Friedman, Aristotle argues that all business transactions should be voluntary and informed. Under such circumstances, no one enters into a contract that gives him an unfair division of returns; only a fool freely trades a pound of gold for a pound of straw. Yet sometimes we are fools, or we are fooled. After the fact, when I realize I have freely made a bad bargain, Aristotle seems to say I am stuck with it. Yet, he adds that you, realizing I have made an error, act virtuously if you rectify my mistake.
In particular, he says there is inherent injustice in any exchange of desperation, as when a thirsty person on a desert willingly contracts himself into slavery for a jug of water. And because motivation is what counts to the Ancient, even people who simply try to get the better of others by outbargaining them, as opposed to providing them value for money, commit acts of injustice. He concludes: A virtuous person tries to make sure every party to a transaction receives a fair share.
Nonetheless, it is prudent to negotiate a good contract up front. When an entrepreneur strikes a deal with VCs, the first issue to be resolved is the relative shares of the action to be allocated among capital, entrepreneurs, management, and labor. In determining those amounts, Aristotle is a capitalist: He believes markets set the right value for most resources. And when capital is in demand, it is more costly than when it is not, so the entrepreneur is going to have to pay the going rate for the capital she raises. Yet, although there is a capital market, there is no idea market, per se. So how does one equate the market-determined value of money (the input of the VCs) with the subjective value of an idea (the input of the entrepreneur)? Aristotle answers that the return to each should be “in accordance with proportion and not equality.” All parties are entitled to a return proportionate to their contributions, which must be determined by an understanding of the true value of those contributions, but, in every circumstance, “injustice lies at the extremes.”
In assessing the value of those relative contributions, Aristotle recognizes not all activities are of equal worth. He believes food (the product of the farmer) is “nobler” than money (the product of the banker) because food is “necessary, natural, limited, and the means to a higher end.” In contrast, making money is “unnecessary, unnatural, unlimited, and an end to itself” and, consequently, less virtuous. Aristotle’s out-of-date thinking is at least more sophisticated than Marx’s and Adam Smith’s “labor theory of value” because he sees a product’s worth as a combination of its labor input, market demand, quality, and especially its social utility. In sum, Aristotle agrees with the entrepreneur: Her ideas have greater social utility than the money of bankers because ideas can directly create wealth, solve problems, and lead to the happiness of the community. Investors of money are not as meritorious as inventors of ideas because money is merely an instrument and not a good in itself; money supports the brainwork of entrepreneurs, not vice versa. Needless to say, investors disagree, especially with Aristotle’s barter-era notion that money is unnecessary; but the issue here is measuring relative contribution, not demeaning the role of capital. VCs might also argue that they add value in other ways besides money, for example, counseling the entrepreneur, recruiting seasoned management, and providing governance advice.
Taking all the above into account, Aristotle might well call it unfair when VCs take the lion’s share of an IPO, leaving relatively little for the founder and those who were involved in helping her start the company. But before coming to that conclusion, he, as usual, asks a series of tough questions, including:
To what extent was the original idea the founder’s?
To what extent did the founder organize the company and contribute seed-money and sweat equity?
To what extent was the work of leadership, management, and especially technical and professional problem-solving done by the entrepreneur or others? What share of equity are those others receiving, and how was that determined?
Aristotle has no preconceived ideas about answers to such questions. His point in raising them is to ensure that rewards are divvied up legitimately based on deliberations about justice and proportionate contribution. Recent experience in American business indicates that such ethical deliberation is rare. Typically, founding parties to a start-up use distributive principles designed to reward themselves alone. Not all stakeholders (employees, for example) in a start-up have a voice in establishing those principles, and those who do have a voice often employ the unfair leverage involved in exchanges of desperation, such as when VCs enter the picture at a time when a young company faces threats to its survival and they are, thus, able to exact returns far in excess of market rates. Therefore, it is appropriate to ask if justice plays a role in such calculations. If the distributive criteria used are simply power and leverage, Aristotle concludes the process is unfair.
Applying Aristotle’s ethical tests in hindsight to the way we distributed shares in the 1990s’ IPO of our own little company, I am relieved to say we did rough justice by our various stakeholders. However, I would be a lot more comfortable with the outcome had we conducted an ethical analysis in a more rigorous and conscious manner. We did the right thing but almost unconsciously, so it would be hard to claim we acted virtuously.
In light of recent corporate scandals, it is dismaying to find many executives still concerned that they might be getting less than their fair share of the wealth produced by the companies they manage. To them, the measure of what they are entitled to is the amount other executives in comparable companies earn. As often noted, this has little to do with performance or with relative contribution within the organization. Instead, it has everything to do with power and leverage.
The data on executive compensation have become depressingly familiar. In 1970, average total compensation (in 1998 dollars) for the CEO of a Fortune 100 corporation was $1.3 million, which was 39 times that of the average worker’s salary ($32,522) at the time. In 1999, average compensation for top-tier CEOs was $37.5 million, almost a thousand times that of ordinary workers ($35,864). If we look at the entire Fortune list, CEOs currently take home over $10.8 million per year, on average, in real terms some 20 times more than in 1981 and some 400 times what their front-line workers earn. During the 1990s, the pay of those CEOs increased by 571 percent, while the average worker’s salary grew by 37 percent (in unadjusted dollars). No matter how one cuts the figures, even moderately well paid CEOs of large corporations make about as much in a day as their workers make in a year. Even if the point of reference is the more modest salaries of CEOs of midsized American companies, the average for them was some 34 times that of industrial workers (the comparable ratios were 13:1 in Germany and 11:1 in Japan). In evaluating this data, keep in mind the $35,864 earned by the average American worker is exactly that, an average, which includes the astronomical salaries of CEOs, sports figures, and Hollywood celebs on the high end and the take-home of $5.15 per hour minimum-wage earners on the low end, who, if employed full time, make about $9,888 per year, before taxes.
Averages also conceal extreme behavior, such as Kmart’s Charles Conway drawing down some $23 million during his 2-year reign as CEO, during which time some 22,000 of his employees were terminated with zero severance pay. In 2001, while Wal-Mart’s CEO, H. Lee Scott, was receiving something like $17 million in compensation, many of his lowest-paid hourly employees were suing the company because they claimed they were forced to punch out at the end of their 8-hour day, then made to continue working overtime without additional compensation. These are egregious examples; nonetheless, few American executives appear to apply the same standards of justice they demand and expect for themselves to compensation issues relating to their subordinates. In 2002, employees of Hershey Foods went on strike after the share of health insurance premiums they bore was raised at a time when the company’s sales and profits were up. The workers thought this hefty increase was particularly unfair because it occurred the year after the company’s new CEO earned $4.7 million in salary and was awarded stock options that might be worth more than $10 million in the near future. Assuming Hershey’s CEO was entitled to what he earned, the Aristotelian question is, Was he virtuous in reducing the benefits of those who earned far less?
The Ancient says it’s a sign of fairness and virtue when a person is willing to take less than the share a contract permits her to take. By definition, one never takes less than one’s fair share when one does so voluntarily. Thus, there would be no question of Hershey’s CEO receiving less than his fair share if he were to voluntarily choose to absorb some of the costs of the increase in his employees’ insurance premiums. Likewise, top executives in general would suffer no injustice if they were to choose to grant some of their stock options to others in their organizations who have none. On the other hand, by Aristotelian reckoning, if executives arbitrarily take away the options of less-powerful and lower-compensated employees, the possibility of injustice arises because they are doing something to weaker parties that may not be for their sake or good. In any event, there seems to be inherent injustice across the board in corporate America in the distribution of stock options, 75 percent of which go to CEOs, 15 percent to the next 50 highest-compensated executives, and only 10 percent to all other employees in the typical company.
Harder to reckon is what is just and fair. But it is not impossible to do so. For example, Disney’s board compensated its CEO, Michael Eisner, with $285 million between 1996 and 2004. We can’t pretend to have all the data required to decide how much Eisner deserves, but, thanks to Aristotle, we have a question that a virtuous member of the Disney board’s compensation committee might ask in making that decision: Is the CEO’s proportionate contribution to the organization 10 (100, 1,000) times greater than that of a cartoon animator at our Burbank studios or the operator of the Space Mountain ride at Disneyland? Although asking such a question is practically unheard of in the boardrooms of giant companies, a few small- and medium-sized companies have done so and gone on to establish ratios as low as 20:1 between the compensation of their highest-paid executive and average worker. That may sound unrealistic, but when you run the numbers it makes some sense. If the average worker makes $20 an hour, the CEO in even a “low-paying” company can make a million dollars. This ratio is “unrealistic” only because the current ratio in Fortune 500 companies approaches 500:1.
Deliberation about the just ratio between the highest- and lowest-paid person in an organization is a good way for corporate boards and executives to begin including ethical analysis in their compensation discussions. Alas, I sincerely doubt the Disney board has ever examined the ethics of its pay policies in this way. They certainly were logically inconsistent in applying the policies they had: During good times, they had accepted Eisner’s argument that he was entitled to a fat paycheck based on the enormous amount of wealth he had created for shareholders; however, during the recent lean years, they didn’t then ask Eisner to pay the shareholders back for the wealth they lost. Disney is probably not much different from most large American corporations in using distributive compensation processes reflective more of employees’ relative power than on objective and ethical analyses of their relative contributions. And it is hard to do such a just and objective analysis. I sit on the compensation committee of our small company’s board, and we spend considerable effort trying to define relative justice, much as Aristotle would have us do. Nonetheless, I regret we too often let realpolitik drive out principle: We are far more responsive to the need to create equity for the company’s top executives than we are to questions of fairness for people down the line.
As Aristotle would be the first to recognize, employees must be paid market wages. However, it is untrue that markets determine the compensation of executives. In many cases, this particular market is rigged: The widespread use of compensation surveys allows executives to continually ratchet up their salaries. At the other end of the salary scale, board members understand that a company would price itself out of business if it paid its clerks as much as it pays its managers, so they tend to skip over the issue of relative justice for lower-level workers, leaving the market to determine that. But the market doesn’t work in quite the same way for workers as it does for top managers and skilled professionals. Because jobs are offered to lower-level workers on a take-it-or-leave-it basis, their conditions of employment often amount to exchanges of desperation. In contrast, professionals and managers may have other employment opportunities and, as a result, some bargaining power. Granted, that’s the way of the world, and corporate executives and board members can’t be expected to repeal the laws of economics. However, they are not without power to increase opportunities for even first-line employees to raise their own standards of living. For example, boards can distribute stock and stock options more broadly. Although the late Sam Walton couldn’t pay his Wal-Mart service workers much more than the minimum wage, he had the moral imagination to cut them into the upside by making them equity owners. CEOs and boards tend to forget there are a number of well-tested methods for objectively and fairly linking rewards to relative contribution: profit sharing, gain sharing, ESOPs, and the like, all of which are consistent with the rules of the market.
Especially when times are bad and hard choices have to be made, top executives often protect their fair share while cutting training budgets, decreasing employee benefits, and reneging on obligations to pension funds. During the 2001–2003 recession, many American executives dealt with the problem of declining revenues by terminating large numbers of employees, then giving themselves big raises as rewards for their skill in reducing labor costs. As Aristotle notes, leaders will not pay attention to these injustices until and unless they are as concerned with what is good for others as they are with what is good for themselves. Sadly, in most corporate boardrooms, it is considered uncivil to raise issues of distributive justice, especially when these issues are unrelated to what is fair for investors, executives, and directors themselves. It is hard to imagine the board of a Fortune 500 company engaging in the Aristotelian exercise of imagining themselves in the place of those in their company, in some cases the majority, who work for $35,000 a year and less. Yet it might be useful for board members and executives, some of whom spend multiples more on their second cars than their average employee makes in a year, to ask themselves what it would be like to live on the salary of an entry-level worker: What little luxuries would they have to forgo if they were making do on $35,000, before taxes? If that exercise is asking too much, they might ask if it is indeed true that their CEO is the only qualified person in the world willing to do the job for $X million and options?
By beginning their deliberations about compensation from the perspective of trying to create a nonarbitrary relationship between contributions and rewards, not only would directors serve the cause of relative justice, they might even begin to create a more virtuous and productive sense of community among workers, managers, and owners. Here are three examples of contemporary Aristotelian business leadership to illustrate how this can happen:
In 2000, Massachusetts businessman Charlie Butcher shared the proceeds of the sale of his company, to the tune of $18 million, with all 325 of his employees. He cut them into the deal proportionate to the length of their employment, giving a $55,000 check, on average, to each worker. (In contrast, and at about the same time, when Chrysler was acquired by Daimler Benz, Chrysler shareholders and executives got fat checks, but hourly workers got nothing except reduced job security.) Over the length of his long stewardship of the company, it appears Butcher had aimed to create a model work environment for employees, offering them high starting salaries, flexible workweeks, and the opportunity to switch jobs to find a personally fulfilling one. Finally, Butcher sold the company to S.C. Johnson & Co., even though he had higher offers from other companies, because the family-owned Johnson organization promised to continue the employee-friendly culture and job security he had created.
In late 1996, two Taiwan-born, high-tech entrepreneurs, David Sun and John Tu, sold the Silicon Valley business they founded, Kingston Technology, to a Japanese bank for $1.5 billion. Part of the deal was that Sun and Tu would continue to run the business and reinvest a half-billion from the sale in the company to fund future growth. That was unusual, but what truly was surprising about the deal was that Sun and Tu divided $100 million of the remaining windfall, 10 percent of the sale, among their 523 employees. Significantly, Sun and Tu had been sharing 10 percent of the company’s profits with employees all along. They also practiced a highly egalitarian and participative form of management in which all employees had a chance to contribute their full talents to the company. Why did they behave in such an unusually virtuous manner? “The issue is really not money,” Tu told the New York Times, “it’s how you respect people and how you treat them. It’s all about trust, isn’t it?” The story didn’t end there. In 1998, just when the Japanese bank was due to make its last $333 million payment to Sun and Tu, there was more surprising news: The two asked the bank to forgo the payment because Kingston Technology had underperformed during the previous year. The deal was then restructured, and the postponed final payment was linked to performance measures. Why this Aristotelian display of fairness toward all stakeholders? Tu explained that profits follow in the long term when a company behaves ethically toward its partners, vendors, customers, and employees. Besides, he added, “How much money do you need?”
Hourly workers spend nearly every cent they earn to pay for food and clothing, to cover their rent or mortgage, and to send their kids to college. Those needs are unremitting and constant. That’s why Aaron Feuerstein, CEO of Malden Mills, kept paying weekly checks to his workers, out of his pocket, when his factory burned down in 1995 and there was no work to do for months while it was being rebuilt. Feuerstein saw the ethical difference between meeting needs and wants and between the wealth he had in excess of what he needed and the much smaller margin between his employees’ savings and their bankruptcy. So Feuerstein paid until it hurt, transferring most of his accumulated wealth to his employees until they could start to earn their own keep again. Sadly, for unrelated reasons, the company ultimately filed for bankruptcy in 2001. As Aristotle said, even virtuous people need good luck.
Aristotle doesn’t provide a single, clear principle for the just distribution of enterprise-created wealth, nor would it be possible for anyone to formulate such a monolithic rule. He admits it’s harder to distribute wealth than it is to make it. Nonetheless, here are some Aristotelian guidelines in the form of questions virtuous leaders need to ask themselves:
Am I taking more in my share of rewards than my contributions warrant?
Does the distribution of goods in the organization preserve the happiness of the community, or does it have a negative effect on morale or the ability of others to achieve the good?
Would everyone in the organization enter into the employment contract under the current terms if they truly had other choices?
Would we come to a different principle of allocation if all of the parties concerned were represented at the table?
Again, the only hard and fast principle of distributive justice is that fairness is most likely to arise out of a process of rational and moral deliberation among friends and equals. Prescriptively, all Aristotle says is that virtue and wisdom will certainly elude leaders who fail to engage in rigorous ethical analysis of their actions. In my own case, I have resolved to raise these ethical questions in the many business roles I play as writer, teacher, consultant, investor, and board member, no matter how weak my standing may be to do so, and no matter how unpopular it makes me.
Unlike many contemporary Americans, Aristotle is comfortable with the language of ethics: He speaks clearly about right and wrong, virtue and vice, should and shouldn’t. He advocates the virtues of duty, responsibility, accountability, prudence, and magnanimous action. He salutes the character traits of moral courage and excellence. He makes no bones about the requirement for leaders to put the interests of their followers above their own and for all of us to contribute unselfishly to the welfare of our communities. In recent times, those on the left have shied away from such language, preferring the less judgmental guise of moral relativism. And those on the right have claimed that questions of morality, while appropriate in religious and family life, have no place in the pragmatic worlds of business and politics (instead, markets should be the ultimate judge of our public actions). To both, one can only reply Enron, WorldCom, Tyco, Global Crossing, and Arthur Andersen.
Aristotle understands what we in America conveniently chose to forget in the heady 1990s: Free societies cannot function effectively without a strong ethical foundation. Ancient Athens was no welfare state. There was no social security, no public assistance, and no free schooling. But there were many poor and needy citizens. Thus, if an old person fell on hard times, and a poor but promising child needed schooling, it was expected they would be taken care of by “friends.” Such friendship was not based on dependency or utility; instead, it was predicated on the value of respect for others and the concomitant virtue of generosity. Or so it should be, according to Aristotle. If the state did not provide for the needy, then it stood to reason the wealthy had to—and, in return, they would neither get, nor deserve, special praise for fulfilling their responsibility to their community. Aristotle could not imagine a society with a market economy that did not also have an inherent commitment to social ethics and philanthropy.
In contrast, “communist ethics” is an oxymoron (as is “fascist ethics”). In authoritarian societies, there is no charity and no need for personal or social responsibility. A virtuous citizen in an authoritarian Marxist state is simply one who obeys the law. Those who visited the former Soviet Union (or China before Deng’s reforms) will recall never having to count their change at the market. Shop clerks in communist countries could be depended upon to follow the rules and do what the state said was right. In fact, there were rules for everything and severe punishment for those who broke them. There also was no social expectation that anyone would ever go beyond what was required by the law. Making an “extra effort” by helping a stranger or making a donation to a worthy social cause was viewed as crazy as making an extra effort on the job.
Since the fall of communism and the subsequent rise of market economies in formerly Stalinist and Maoist countries, the once unheard of behavioral problems of corruption, cheating, stealing, price gouging, and tax evasion have become common if not chronic. That’s because there is no social expectation of, nor enculturation to, ethical norms of behavior. New laws have helped, but they have been insufficient. The conclusion to be drawn is that people have to be taught the professional, personal, and social merits of virtue. That’s why new business schools in formerly communist countries spend so much time dealing with ethics, a subject that had been totally foreign to the curriculum of communist universities. And as state welfare and guaranteed employment systems have crumbled, people in formerly Marxist societies are now being forced, for the first time, to consider a role for philanthropy. (Things are even worse in the developing world, where private enterprise exists side by side with poverty and human degradation. Ethics and social responsibility simply are not on the agenda in Chad, Cambodia, and Colombia.)
Curiously, in the 1990s, ethics and social responsibility disappeared from the agenda of many American corporations, business schools, and society in general. Too many influential Americans during that era came to understand freedom to mean they owed nothing to society, as we noted with regard to community leadership. They called for drastic reductions in federal, state, and local taxes and for cutting back government programs and regulations. What they didn’t do was to increase their support of charity or take responsibility for ethical and moral self-regulation of their economic enterprises. But we cannot have it both ways, as the numerous corporate scandals in the early part of the new millennium demonstrated.
Over 2,000 years ago, Aristotle argued that a strong ethical foundation was a requirement for an open society. In fact, history has shown that no advanced society can avoid trade-offs between these two alternatives: private enterprise/ethics/philanthropy/individual responsibility on the one hand, and socialism/regulation/state welfare/social entitlements on the other. The first leads to freedom and progress, the latter to tyranny and a low standard of living. Something close to that trade-off was first described in 1900 by the Social Darwinist Yale professor, William Graham Sumner, but his philosophical heirs today act as if society needs neither regulation nor self-imposed ethical discipline. Aristotle understood otherwise. His teacher, Plato, had opted for a controlled society in which paternalistic guardians would make all the political and moral decisions for a dependent populace, who would then be free to spend all their time making and spending money. In contrast, Aristotle advocated a freer society, but he warned that such a society would function only for as long as, and to the extent that, its citizens engaged in moral deliberation and then chose to pursue the path to virtue. The Athenians did not heed Aristotle’s advice, and, as Edith Hamilton explains, the consequences were dire.
In the end, more than they wanted freedom, they wanted security. They wanted a comfortable life and they lost it all—security, comfort and freedom. When the Athenians finally wanted not to give to society, but for society to give to them, when the freedom they wished for most was the freedom from responsibility, then Athenians ceased to be free.
For the sake of our cherished freedoms, we should not make the same mistake as the Athenians.