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What's Wrong with Business
and Are You Part of the Problem?

Something has gone terribly wrong with our economy and with how we think about and practice business - and it didn't just start with September 11 or the business scandals of the past several months. What is wrong now actually started going wrong decades ago.

The Free Enterprise System

When Adam Smith, the eighteenth century Scottish political economist and philosopher, published his treatise THE WEALTH OF NATIONS in 1776, he established economics as a field and birthed the doctrine of free enterprise - the structure on which the American economy was built and largely still operates. The cornerstone of this doctrine is what Smith refers to as "the invisible hand" of self-interest - the "constant and uninterrupted effort of every man to better his condition." (Smith, The Wealth of Nations, 1776)

Smith viewed this drive of the individual to better his/her condition as strong enough to overcome enormous obstacles and pervasive enough to provide for the good of the entire larger society. He proposed that the good of the whole is best served when individuals are free to serve their own interests. "By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it." (Smith, The Wealth of Nations, 1776)

In other words, when we are looking after our interest and working to better our situation through the accumulation of wealth and creature comforts, the best interest of the public is served as sort of a by-product. Our individual production and consumption, whatever form it takes and to whatever degree, driven by our self-interest, is the best way to make sure the economy provides for all of us.

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages.

...by directing that industry in such a manner as its produce may be of greatest value, he intends only his own gain, and he is in this...led by an invisible hand to promote an end (sic. public good) which was not part of his intention."

From The Wealth of Nations, 1776

As long as this cornerstone of self-interest is laid with the other tenants of Smith's economic philosophy by people regulated by his moral philosophy, it serves really well as western culture certainly exemplifies. However, Smith's economy is not driven by unbridled self-interest. He presents an economy in which self-interest is restrained by market and a morality in which self-interest is restrained by conscience. However, without these restraints, the basic principles of Smith's doctrine - free trade, consumers before producers, market competition, deregulation, and non-political influence - can be applied in ways that do not serve the best interest of the whole of society.

What's the Problem?

It is doubtful that Smith could have imagined 230 years ago the world of the 21st century. When the restraints of market and conscience begin to break down, a huge potential for destruction exists in competitively serving only self-interest. His time seems to have been one in which even the most selfish individuals could still do good in spite of their intentions to the contrary and in which equity for those carrying the greatest burden of work was reasonable and logical. Neither of these is necessarily the case today.

The rich... consume little more than the poor, and in spite of their natural selfishness and rapacity, though them mean only their own conveniency... they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessities of life which would have been made had the earth been divided into equal portions... and thus without intending it, without knowing it, advance the interest of the society.

From The Theory of Moral Sentiments, 1759

Servants, labourers, and workmen of different kinds, make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. ... It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labours as to be themselves tolerably well fed, clothed, and lodged.

From The Wealth of Nations, 1776

Smith likely would have found the recent activities of some executives and managers at Enron, AT&T, Author Anderson, World Com, Sun-Micro Systems, Tyco, Gateway, Global Crossing, and Cisco, just to mention a few, a bit hard to believe or even baffling. The legal, ethical, societal, and even common sense "givens" Smith suggests work to keep things in balance and to prevent the destruction of the common good certainly seem not necessarily to be givens in the economy of the 21st century.

...the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men.

...every system which endeavours, either, by extraordinary encouragements, to draw towards a particular species of industry a greater share of the capital of society than what would naturally go to it; or, by extraordinary restraints, to force from a particular species of industry some share of the capital... is in reality subversive of the great purpose which it means to promote. It retards... the progress of society toward real wealth and greatness....

From The Wealth of Nations, 1776

Is Philip Anschutz at Qwest Communication who cashed in his stock for $2.26 billion just before the stock's value dropped over 75% worried about having bitten the hands that feed him? Surely he realizes (as Smith would say) that by undermining the good of consumers, shareholders, company members, and the greater economic good of the country, he has not served his own long-term interest very well. With his immediate self-interest having been served to the tune of $2.26 billion, he probably is not very concerned about his long-term interest and his actions tell us volumes about his concern for the long-term good of others.

Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.

From The Wealth of Nations, 1776

Man was made for action, and to promote by the exertion of his faculties such changes in the external circumstances both of himself and others, as may seem most favourable to the happiness of all.

From The Theory of Moral Sentiments, 1759

How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.

From The Theory of Moral Sentiments, 1759

What Do We Do?

The competitive free enterprise strategies proposed by Smith work if they are operating within the entire context he proposes. Unfortunately, this is not the case. Since the "givens" or restraints required to keep things in balance are no longer "givens," perhaps it is time to make some adjustments. Perhaps the competitive free enterprise strategies espoused by Adam Smith need to be adjusted to the more collaborative strategies espoused by John Nash.

Does beating out the other guy really serve the best interest of all when doing so means making products in a foreign country with the sweat of children and workers paid pennies a day? Does beating out the other guy at all cost really serve the best interest of all when doing so means that the elderly will be unable to afford electricity? Does beating out the other at all cost really serve the best interest of all when the labor of dozens of years is rewarded with no retirement? The best interest of all is far better served when we understand that the best way to improve ourselves is to also consider what would most improve others.

The "unintended by-products" of self-interest unrestrained by market or conscience or even in some cases by law cannot be trusted to attend to the good of the whole. And this is not just true in corporate offices, hall of government, and world trade meetings. Our freedom and individual choice to better ourselves is only meaningful to the extent that it does not take freedom and choice away from others. Otherwise, freedom does not exist for any of us.

Philip Anschutz and others like him involved in recent Wall Street scandals form just the visible tip of a very large iceberg that has been growing for years and continues to grow. However, the 98% of the iceberg that is submerged is not just made of those who do enough harm to get their names in the national news. It is made up of all of us - each one of us who tries to better him/ her self at the expense of others.

Are you part of what's wrong with business? We cannot stand by and point a finger of blame at those who do large scale harm without pointing a finger at ourselves. When we competitively pursue our self-interest without collaboratively considering the interest of others in whatever way big or small that we do so, we are contributing to the problem, to the creation of a society that is every man for himself and an economy where the wealth and improvement of some is built on the decline of others. If we want things to change with the tip of the iceberg, we have to be willing to change ourselves.

Are You Part of the Problem?

You be the judge.

1. Have you won a promotion by directly or indirectly undermining the value of others?
2. Have you tried to make yourself look good by making someone else look bad?
3. Have you taken credit for something that others really accomplished?
4. Have you taken sole credit for something that you helped accomplish?
5. Have you taken advantage of others to gain position, money, or good will?
6. Have you failed to acknowledge the contributions of others when you were rewarded for an effort?
7. Have you done unethical or illegal acts to avoid trouble, unpopularity or job loss?
8. Have you turned a blind eye and deaf ear to unethical or illegal acts to avoid trouble, unpopularity or job loss?
9. Have you taken a full day's wage for less than a full day's work?
10. Have you exaggerated or falsified your abilities in order to get a job, a raise, or a position?
11. Have you taken unfair advantage of the benefits of one employer just to better your own cause with the next?
12. As a stockholder, is your evaluation of the companies in which you invest based solely on reported financial figures or New York Stock Exchange appraisal?
13. Are you more interested in what you can get from your employer than in what you can give?
14. Do you believe that you have to take advantage of others before they take advantage of you?
15. Have you charged more for goods, services, or knowledge than they were worth?
16. Have you paid less for goods, services, or knowledge than they were worth?
17. Have you allowed others to have no work so that you might continue to work?
18. Have you used the good will of other people to help you get to where you wanted to be without much reciprocity?
19. Have you bailed out of a bad situation leaving others in a worse situation by your having done so?
20. Have you lied about your behaviors in order to protect yourself or your interest?
21. Have you lied about the behaviors of others in order to protect or promote yourself?
22. Have you given less than good service to consumers of your work because you didn't fear any negative consequences from your employer?
23. Do you work harder to please your boss or employer than to please your customers?
24. Do you do things that are not in the best interest of your customers to look after the interest of your boss or because your boss requires it?
25. Do you do things that are in the best interest of your customer when you know that what your customer is doing is not in the best interest of the whole?
26. Do you get resources for you or your area by "under the counter" means?
27. Do you fight for resources for your area that are really more needed elsewhere in the organization?
28. Do you work to justify the continued existence of projects or positions that you know are no longer needed or no longer serve their purpose?
29. Do you consume the goods or services of organizations that have gained a market advantage through unethical or illegal means?
30. Do you patronize organizations whose competitive business practices do not demonstrate a concern for the good of the whole?
31. Have you sought government help or pulled political strings (however small) to gain an advantage over your competitors?
32. Have you accepted a job for which you did not fairly compete?

What is your verdict?

Questions? Comments? We would love to hear from you.
Drop us a line at info@lazarusconsulting.com .