September 18, 2020 - 8:00am
The full extent of corporate failure at Boeing over the 737 Max has been revealed this week. The congressional investigation into the crashes is damning, finding “cost-cutting… that jeopardised the safety of the flying public”, “regulatory capture” and a “culture of concealment” leading to the deaths of 346 people in two separate crashes.
The dry procedural language used in the report stood out to me, in part because I have been reading an economics classic by E.F Schumacher, Small is Beautiful. While official documents condemn “troubling mismanagement misjudgements”, and Boeing admits “mistakes were made”, it is left to the bereaved families to use words which for most of us come closest to an accurate summation: “I lost my dad to greed, corruption and lack of human decency.”
Schumacher, an eminent German-British statistician and economist, is similarly hard-hitting in his use of moral language. Coming to his 1973 classic, knowing its long legacy in economic thinking, but not the text itself, this is startling. Most of us are more used to conversations about business, economics and the right ordering of society being conducted in that familiar, distanced legalese. Proposals are rationalised and systematised, carefully avoiding any whiff of emotion or judgement.
Not so Schumacher:
He continues:
I cannot remember the last time I heard an economist or business theorist use the words wisdom, greed or envy. Why are they so nervous about using moral rather than technical language to condemn actions that so clearly violate moral codes? Clearly perceived “moralising” attracts accusations of hypocrisy, and finger-pointing at individuals is rarely edifying.
I think it goes deeper though. “Profit-maximisation” (another thing Boeing is accused of) is so baked into our assumptions of good business in an economy premised on eternal growth that we never stop to ask if it has become another way of saying greed, a deadly sin dressed up in a pin-stripe suit.
Schumacher was not anti-business, in fact arguing that right-sized, local businesses could help build a better world. Developments such as the B Corp movement and interest in Environmental Social Corporate Governance (ESG) investing are arguably part of his legacy. But he wasn’t afraid, and neither should we be, of calling greed by its name when he saw it.
Elizabeth Oldfield is the former head of Theos. Her writing has appeared in the FT, Prospect and The Times. Her Twitter handle is @esoldfield
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SubscribeIt has been obvious for some time that the 737 Max revealed Boeing to be utterly devoid of all morality. In that sense, Boeing embodies the rot that is deep within all major corporations and government entities across the West.
What utter Occupy drivel. I only did an undergrad Economics degree but even I can see that. You don’t need an Adam Smith primer on his invisible hand to see the rats scurrying over your argument. I can’t speak to the misconduct of the Boeing Board (as I’m not a yank) but any properly structured AND regulated corporation must be left free to pursue it’s one and only duty to its shareholders: profit.
As an example: why are there no state banks left in Australia thesedays do you think? They ALL went bust after draining the public treasuries for decades. As an auditor I examined some files from one, and even as a kid just a couple of years out of University I could see their entire business model was corrupt and led to the most egregious cronyism and politically motivated nepotism and ridiculously sloppy lending practices. It stank to high heaven. How do you think banks make money? Legalied theft or some such rot? No: good and moral people work thoughtfully and hard providing a service critical to modern life.
And if your government creates dysfunction trying to achieve a social goal then you end up with the absurdity of Fanny Mae and Freddie Mac, derivative valuations wildly unhinged from reality, lies, theft and grifters reaming good taxpaying citizens.
I was never obliged to read Schumacher and his steady state drivel: I have the Dean of my old school to thank for that I suppose. May he rest in well deserved peace.
I rather think that one of the things that went wrong at Boeing was precisely that the board did attempt to do what they thought their shareholders wanted, namely to maximise profit. But to maximise it in the short-term, by cashing in the capital of the company: its intellectual capital in terms of the experience and expertise of its workforce. One if not the only cause of the disaster was that the company did not fully understand the effects of what it was doing.
But you talk about the one and only “duty” of a company. That’s talking about the company as a moral agent. If it’s a moral agent, then why is that its only duty? Its shareholders are increasingly likely to be other companies such as financial institutions. What are their moral duties? It seems as if there’s a feedback loop in which every corporation behaves as if its only corporate duty is to maximise profit, with no link back to people and what they want and need.
But, more worryingly, what if corporations are not moral agents?
Sorry Richard I didn’t make myself clear mate: I’m overtired and I was writing legalistically. I meant “fiduciary duty”. I think I understand your point a bit and agree that human beings are moral agents not “legal persons” like corporations. But that is a key part of diversification theory, as I understand it. Individual moral agents should be left to exercise their rights as their own values motivate them.
If the board are incompetents or act contrary to shareholders interests: whether those be financial or environmental or social or what-have you, then sell their stock and get away from the firm. And if they piss off enough shareholders (whether they be real humans or corporations) then sack them!
I’ve never worked for a firm that knowingly broke the law: pissing off the government and poor political visuals are a sure-fire way to destroy shareholder value.
But now I’ve gone and shot my mouth off I will have to get one of my flyboy buddies to explain to me just what shenanigans Boeing have been up to. Corporate regulation stateside is a bit of a bugbear of mine: before the GFC I once did a brief stint with Bear Stearns dealing with some Basel capital adequacy reporting and I saw things that made me worry a bit, so as a moral agent I acted. And left.
Also: don’t worry about the feedback loop you postulate. Corporations aren’t moral agents and trying to shoehorn them into behaving as such ends up with fiascos like Fanny & Freddy. If the government wants to achieve a social goal: enabling black people to get an equity stake in their homes then the legislators should have the cojones to be up front about it. Sell it to the electorate and then fund the scheme appropriately so that the market (or the electorate) can discipline the scheme and it’s spruikers before subsidised, low-doc loans drive good business from the market and entirely corrupt the price discovery mechanisms.
Richard: the little bits and pieces I’ve picked up by osmosis from the mainstream media seem to support what you’re getting at about neglecting to cultivate and nurture the valuable skills if their people that is true, but I’m not so worried about that aspect: it was merely a matter of lack of competence. We have a useful legal doctrine down under whereby board members are deemed to have a level of competence suitable and appropriate to their august position (whether remunerated or not). They are thereby denied the defence that “I didn’t understand what I was doing”. Try pulling that kind of 1980s stunt in an Australian courtroom thesedays and you better have your bags packed and a big fat wad of cash stuffed up your rectum to pay off Bubba when he starts to take an interest in your welfare.
What I think is much more worrying was a cultural problem to do with deceitfulness and disregard of unwelcome advice offered by highly experienced test pilots and so forth. I don’t know if this crossed over into criminal malfeasance but if it did well then drag the bastards into court and let the chips fall where they may.
I distrust the yank legal system in many ways but hell: hundreds of people died. Those bastards can’t be allowed to get away with it! America needs, no we ALL need to see those b*****d’s hides strung out on the fence to dry. I can’t afford to fly better than cattle class for my personal holidays. But maybe Coronavirus will kill off all the budget carriers anyway?
And now I’ve had a quick scan of Wikipedia I see Schumacher was a boss at the Coal Board, believed in Peak Oil and all the rest of that claptrap. The Coal Board??? Now there was something to be proud of! I remember as a kid watching Medieval-style battles on TV between striking miners and bobbies on horse and thinking: this is Britain? Is this the font of civility and liberty as I’d been taught as a child?
I loved reading that his mentor Keynes stole, verbatim, from his first paper of note. That really is a priceless illustration of the kind of charlatans he kept company with.
So you discount Schumacher’s views because he was a victim of plagiarism, and because the British coal industry collapsed acrimoniously 15 years after he left the Coal Board?
Perhaps it’s because he believed that oil is a finite resource? Interesting to hear an argument for there being infinite amounts of oil in the ground …
Sorry mate I’ve never posted in an online forum like this before. Are we Ok to have a private discussion like this or should we take this off line and use email?
OK fair point: that was a cheap shot about being the victim of someone else’s plagiarism of his probably very clever work. It was good enough for the Poms to rehabilitate him so he must’ve had something to offer: econometrics was never my strong suit. And that he worked against his own fatherland to defeat that wretched little clown with the outrageous moustache does carry considerable weight in my mind.
I agree with you that oil quite likely isn’t a physically infinite resource but I think you are conflating that geological fact with economics: which are quite separate and distinct things to my mind. A category error I feel, however I may well be wrong. Again.
The first thing they taught me on my first day as a bumpkin hayseed at University was that all economic value is a function of scarcity. Both absolute and relative. But with regard to oil for instance we shouldn’t talk about it’s absolute availability as captured by proven reserve figures and so forth but rather what it is economically feasible to dredge up out of the ground and refine to feed into our relatively economical cars theseadays. I’ve forgotten what little physics and chemistry I learned at school so I am wary of holding myself out as an expert in such matters but long before Hugo Chavez ran his country into the ground I read an accounting article which pretty accurately predicted that was what would happen, how it would happen (and even the timeframe I think). Something to do with the relative viscosity of much of the oil they’d been cursed with and the lack of ongoing maintenance spending engaged in by the bureaucratic bunglers who were running the newly nationalised assets. Basically treating them as a short term cash cow and running them into the ground to pay for his all his vanity projects: do you remember back in the day when they were providing medical training and medical doctors as a form of aggressive soft-power to demonstrate the manifest superiority of their system to all their neighbours? Historical materialism, the tide of history and suchlike nonsense.
A dictator who appoints his personal psychiatrist to his executive cabinet mightn’t perhaps be playing with a full deck you know what I mean?
But getting back to relative scarcity: never underestimate the ingenuity of human culture is my watchword. We seem to be infinitely adaptable: consider how oil shale fracking has shaken up the oil industry in the states. Again I know little of it but the headlines. We no longer drive the gas guzzling behemoths our grandparents thought were so groovey etc etc. So: both demand and supply are not immutable in a changing technological/cultural landscape. It is all a matter of timescale do you see?
So yeah I will join you in being surprised “¦. I thought such End Times theorising about the population bomb and Peak Oil and suchlike Malthusian silliness had been so utterly debunked by people’s lived experience since OPEC tried to screw us in the 70s and unleashed the wickedness of a stagflation that I hope and expect never to see again in my lifetime. We have adults at the controls usually thesedays.
A friend was saying to me earlier today: she wouldn’t take our PMs job for love nor money. He probably works like a slave, can’t even trust his own colleagues after dark, the media will use any skerrick of dirt to malign him, his blood pressure must be off the scale and all the time he has to appear calm, collected and reasonable when he knows a good portion of the country hate his guts and would like nothing better than to watch him get hit by a bus. He must be made of sterner stuff than I methinks. And twice as smart.
Regarding oil, as is often stated “the Stone Age didn’t end because we ran out of stones”
It ended because a better alternative came along.
It will be the same with oil and gas, they will be repacked with better alternatives, EVs, renewable energy etc.
Yeah John Cole you may well be right: I don’t think so but hey I’m just a know-nothing office worker. I don’t know Jack about technology, electric vehicles and so forth. But I tell you what: I know a shyster when I see one and when that vermin Elon Musk cast the aspersion “Paedo” at the selfless English expatriate gentleman who volunteered and rescued those boys (after a toughened Thai navy seal died trying to do the same) from that cave in Thailand I reckon he showed his true colours. We have a word for people like him where I come from: houso. Doesn’t matter how much lucre he’s got in the bank, or how many Facebook friends he has, the gutter that is his mind will never be clean.
What I am looking forward to seeing emerge is the new transport technology over the next couple of decades: affordable jet backpacks would be so cool! Even I could pickup chicks if I had one.
Elon Musk is not vermin. He is a paedo guy. And he argued in court that this is not defamation, and I guess he’s right, so by estoppel he can’t sue me for pointing it out.
A good point! but nonetheless oil is a finite resource: in terms of known exploitable reserves.
Sorry Richard I’ve never posted in an online forum like this before. Are we Ok to have a private discussion like this or should we take this off line and use email?
OK fair point: that was a cheap shot about being the victim of someone else’s plagiarism of his probably very clever work. It was good enough for the Poms to rehabilitate him so he must’ve had something to offer: econometrics was never my strong suit. And that he worked against his own fatherland to defeat that wretched little clown with the outrageous moustache does carry considerable weight in my mind.
I agree with you that oil quite likely isn’t a physically infinite resource but I think you are conflating that geological fact with economics: which are quite separate and distinct things to my mind. A category error I feel, however I may well be very wrong. Again.
The first thing they taught me on my first day as a bumpkin hayseed at University was that all economic value is a function of scarcity. Both absolute and relative. But with regard to oil for instance we shouldn’t talk about it’s absolute availability as captured by proven reserve figures and so forth but rather what it is economically feasible to dredge up out of the ground and refine to feed into our relatively economical cars theseadays. I’ve forgotten what little physics and chemistry I learned at school so I am wary of holding myself out as an expert in such matters but long before Hugo Chavez ran his country into the ground I read an accounting article which pretty accurately predicted that was what would happen, how it would happen (and even the timeframe I think). Something to do with the relative viscosity of much of the oil they’d been cursed with and the lack of ongoing maintenance spending engaged in by the bureaucratic bunglers who were running the newly nationalised assets. Basically treating them as a short term cash cow and running them into the ground to pay for his all his vanity projects: do you remember back in the day when they were providing medical training and medical doctors as a form of aggressive softpower to demonstrate the manifest superiority of their system to all their neighbours? Historical materialism, manifest destiny, the tide of history and suchlike nonsense.
A dictator who appoints his personal psychiatrist to his executive cabinet mightn’t perhaps be playing with a full deck you know what I mean?
But getting back to relative scarcity: never underestimate the ingenuity of human culture is my watchword. We seem to be infinitely adaptable: consider how oil shale fracking has shaken up the oil industry in the states. Again I know little of it but the headlines. We no longer drive the gas guzzling behemoths our grandparents thought were so groovey etc etc. So: both demand and supply are not immutable in a changing technological/cultural landscape. It is all a matter of timescale do you see?
So yeah I will join you in being surprised “¦. I thought such End Times theorising about the population bomb and Peak Oil and suchlike Malthusian silliness had been so utterly debunked by people’s lived experience since OPEC tried to screw us in the 70s and unleashed the wickedness of a stagflation that I hope and expect never to see again in my lifetime. We have adults at the controls usually thesedays.
A friend was saying to me earlier today: she wouldn’t take our PMs job for love nor money. He probably works like a slave, can’t even trust his own colleagues after dark, the media will use any skerrick of dirt to malign him, his blood pressure must be off the scale and all the time he has to appear calm, collected and reasonable when he knows a good portion of the country hate his guts and would like nothing better than to watch him get hit by a bus. He must be made of sterner stuff than I methinks. And twice as smart.
Tom you sound thoroughly unhinged. You need to calm down rather than subject us all to your triggered off loading.
Instead why don’t you rationally explain why the sole duty of a business is to make profit. This will also need to include why the business shouldn’t pay tax (if profit is the sole duty), why it has no duties towards ecological and environmental sustainability, why it has no duties towards democratic decisions and the law and why it has no duties towards the wider society in which the business is embedded in.
Lastly, how can you comment on steady state or Schumacher if you are not familiar with these writings.
P. S Malthusian/Erlichian principles still apply, it just depends if the capacity and the productivity of the system can be technologically expended or not.
“Unhinged” is not a helpful word. Tom has already explained that he is not accustomed to discussions here. I think we’re all in agreement that the level of exploitable oil reserves depends on the cost of exploitation and the costs of obtaining that energy any other way.
The rudiments of civilised discussion are the same anywhere, and are predicated upon reasoned argument and courtesy. “Tom” comes across as unhinged, or a non- bona fide identity, or both.
Thanks for your help with the civics class, darling Cyril. I’ll have to take a Bex powder and go have a little lay down. But I promise to keep my hands outside the counterpane just like they teach the A.J.s
He comes across as non bona-fide because he is too industrious to master brevity.
Richard, thanks for your support. It was unlooked for but appreciated.
Marks for fair play
Steve, you are probably right in some of what you say but it appears you’ve not read the broken up “argument” I tried and obviously failed to propound.
So I will try rehash my points with reference to your post:
1)The ad hominem “unhinged” and “triggered” needs no further comment?
2)The sole purpose of a corporation as represented by the Board of Directors is defined as a matter of law to be to return a profit to the shareholders as part of the fiduciary duty owed to them. Without reference to whether that is short term or long term profits: the law is agnostic on this point. It is left up to the discretion of individual investors to adjust their personal portfolio of assets and liabilities to match their personal private goals (and ethical imperatives too perhaps) which was really my main point I believe.
3)I don’t follow your point as to why a corporation shouldn’t pay tax? In all the jurisdictions I’ve worked in of course a corporation is obliged to pay tax on their profits. I think you may be a confused by the distinction between “revenue” and “profit”: an easy mistake to make if it isn’t your day-to-day concern but a corporation could for instance earn large revenues yet pay no tax for many long established and sound legal reasons going back over a couple hundred years of case law. Like for instance: carried forward tax losses from prior years.
OK now after a 2nd look I think what you may mean is that the payment of the tax isn’t a duty in the legalistic sense that I meant it: no it is a statutory legal obligation, written down in black letter law. Jeez I hope some lawyer isn’t going to read this and rip my poorly remembered, long ago legal training to shreds.
4)Of course a corporation is obliged to follow the law: as I wrote before I’ve never worked for one for which that wasn’t an absolutely critical concern. But as Richard and I tried to untangle: we agreed that corporations are not moral actors capable of conceiving duties and acting upon them. My main point was that trying to import things like “ecological and environmental sustainability” concerns into the accounting systems for corporations designed to track profit has often and nearly always in the long run been proved to have quite alarming and dysfunctional outcomes something along the lines of “the law of unintended consequences” which I’ve seen mentioned by one of the authors at this website I think. In my experience of complex accounting systems for large corporations the goal of certainty of valuation of assets and liabilities is paramount but nowhere near as simply achieved as many people assume. You won’t have to take me on trust on that point: consider derivative financial products which everyone knows can be extremely difficult to get an accurate fix on, depending on the underlying physical asset they relate to but there can be a plethora of other factors affecting the calculation. Which is what gave us IMHO the GFC fiasco when Western governments around the world eventually proclaimed that key banks and insurers “were too big to fail” and so contrary to the orthodox economic theory of “moral hazard” whereby they should’ve let them fail to punish the shareholders who allowed and demanded that the boards running these firms
behaved in the unscrupulous and often outright illegal manner. But no they insisted on bailing them out at colossal expense to the little guy: John Taxpayer. This subject matter is still an arena for fierce debate and study.
My point being that if an individual investor decides that Environmental sustainability is very important in their scheme of life values then it is best to allow them to search out those corporations that as well as aiming to make a profit will also provide ancillary reporting about such matters “¦ what they are doing for the environment or what have you. But to conflate hard accounting numbers with soft feelgood data risks harming the integrity of the accounting data and producing often quite perverse incentives which will be acted upon by self-interested actors within those firms: here is the “greed” that the Occupy Wall Street people were so up in arms about. But I put it to you: rational self-interest among economic actors is so axiomatic that without that as a starting point you will have to throw out the Wealth of Nations and start all over again.
This is why many firms about 30 years ago started to introduce “balanced scorecards” to marry accounting data with the other stuff to enhance the decision making utility of their internal reporting. So for instance I would guess a place like Boeing had many, many KPIs with regard to safety and testing of their airframes and their instrumentation.
5)Sorry I was being unduly flippant when I wrote I’ve not read Schumacher though it is the truth. He was relegated to the “soft stream” of the department where I studied as an undergrad so I knew of his work by reputation only and also because a one of my mates studied bits and pieces of his work in that stream of “mickey mouse” subjects. But the idea of “steady state economics” is insiders code for a kind of antigrowth lunacy rarely met with outside the halls of academe. It is usually the refuge of unscrupulous shysters who’ve rarely, if ever, worked outside of their ivory tower. Not people like Thomas Sowell who I’m currently reading at the moment. If you are a yank you may’ve heard of him?
6)Now when you write of Erlich I’ll have to agree to part company with you there: but you touch on a very important point to do with productivity. Consider when he made his alarming predictions in the late 1960s about mass starvation in the 1970s and 1980s: I don’t know about you but I didn’t notice too many people starving where I was living in those times nor did I see it on TV. Nor did I notice a big upswing in armed conflicts caused by displaced people on the move in search of sustenance. Why? I’m not a development economist but I’d hazard a guess that it had something to do with the “Green revolution”: better targeting of development assistance to third world countries and our old standby Glyphosate enabling the starving millions which had been a fixture of human society for millennia to start to be able to feed themselves adequately. I put it to you: a great step forward for mankind surely? And directly contra to the projections produced by the deeply flawed statistical modelling of Erlich’s agenda-driven polemic. Hence my notice of the “productivity” you alluded to.
Sorry if I’ve been unclear and too prolix but as you can probably see: I’m new to this game of posting my unwelcome opinions on the internet. But I hope through the exchange of ideas with people who I don’t know and will never meet I might learn a thing or two. Even if all I learn is that I’m wrong: I’d still count that as a victory. Embarrassing perhaps, but I’d much rather know that I’m full of shit than only suspect it.
Don’t pick on the noobs. Especially when they are being polite, but are deluded enough not to be Marxists.