Is being ethical in business a patriotic duty?

The most recent posting in this blog  briefly discussed how democracy and capitalism both require a widely shared sense of fair play to succeed.  Most of us are generally familiar – through news stories from home and abroad – with how this works in the political realm.  But given the rough-and-tumble origins of capitalism, is it really the case in the world of economics as well?

In a recent paper “Corporate Scandals and Household Stock Market Participation,” Mariassunta Gianetti and Tracy Yue Wang look at the issue of how scandals affect the appetite of households for buying/holding stock – a topic which is clearly relevant to the success of a capitalist economy. They report on research they conducted which found not only “unambiguous evidence that household stock market participation decreases … following corporate scandals in the state where the household resides,” but also that “households decrease their stock holdings in … non-fraudulent” – as well as fraudulent – firms.   Additionally, “[a]ll households [in a state where a fraud was committed,] not only the ones holding the stocks of fraudulent firms, decrease their equity holdings.” These findings certainly help make the case that unethical and illegal business dealings undermine the trust in capital markets that our economy needs to prosper.

As for the ethics-related connection between trust in business and in government, that would, I think, be hard to show by data of the sort reviewed in this paper – or perhaps any other kind of data (although I’m not a social scientist and so this last point is just  a guess).  But where, due to the nature of an issue, finding relevant data is inherently impossible, one can justifiably rely on common sense perceptions, particularly those articulated by thoughtful and experienced individuals on an issue.

One such person is German Chancellor Angela Merkel, who famously said in a speech to business leaders in 2008: “’Every irresponsible colleague in your circles endangers the basis of our liberal society…’”   Well put, and indeed, perhaps by appealing to a notion of patriotism that features ethicality the Chancellor has suggested what a deeper approach to business ethics might look like  – or at least include.  (For further reading on the promise of promoting ethical behavior through appealing to our broader allegiances, see the article by Jon Haidt and his colleagues on “Homo duplex” briefly discussed and linked to here.)

The connection between business ethics and patriotism is not new –  here, for instance, is a recent piece from Rwanda on the issue – though considerably more seems to have been written on the ethics of patriotism than the patriotism of ethics. But, in my view, it is an idea whose time has come, given how unprecedentedly important our trust-related needs now are – some of which are discussed in this earlier post on the “two conflicts of the apocalypse.”

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