Economies,Ethics and Integrity in Business

‘Too much dazzle, Asil’, The Economist, October 27, 1990,p.127; ‘Making demands‘, The Economist, May 8, 1993, p.7; ‘What next?’, The Economist, May 8, 1993, p.100.

‘Shell game’, The Economist, September 23, 1989, p. 115–6 and ‘Antennae raised’, The Economist, October 14, 1989,p. 125.

For the history of the Maxwell case and the details of the losses see: ‘You'll just have to trust me’: The Big Lie - Inside Maxwell's empire…’, Financial Times, June 13, 1992,p.1.; ‘The Big Lie-Inside Maxwell's Empire: ‘Tell the Queen I'm busy‘…’, Financial Times, June 15, 1992, p.7; ‘The Big Lie - Inside Maxwell's Empire: Arise, King of Bulgaria…’, Financial Times, June 16 1992,p.9; ‘The Big Lie - Inside Maxwell's Empire: Devil take the hindmost…’,Financial Times, June 17 1992, p.7; ‘The Big Lie - Inside Maxwell's Empire: Sins of the father…’,Financial Times, June 18 1992, p.1; ‘Maxwell's Death - The First Anniversary: Private empire consumed Pounds 1.7 bn’, Financial Times, November 5, 1992, p. 12.

‘Virgin's honour remains intact:..’,Financial Times, January 12 1993,p.17.

‘Behind closed doors’, The Economist, July 13, 1991, pp.14–15; ‘The many facades of BCCI‘, The Economist, July 13, 1991, pp. 93–94; ‘Questions’, The Economist, August 22 1992,p.70; ‘The judge lays it on the governor‘, The Economist, October 24, 1992, p.114; ‘Larceny on a grand scale’, The Economist, February 20, 1993, p.118.

Mahoney Jack edits the journal, Business Ethics - A European Review, published by Blackwells.

For example, Jacobsen, R. , ‘Economic Efficiency and the Quality of Life’, Journal of Business Ethics, Vol.10, No. 3, 1991, pp. 201–209.

See the section on County NatWest (P. 6 f). National Westminister Bank undertook a lengthy education process prior to introducing its code of ethics.

Leviticus 19:35–36, Deuteronomy 13–16, Proverbs 17:26 and Isaiah 59:4.

Proverbs 23:23.

Exodus 18:21, Nehemiah 7:2 and Titus 1:8.

For example: Job (Job 2:3), David (1 Chronicles 29: 16–17) and Solomon (1 Kings 9: 4–5).

For example: Daniel (Daniel 2:46–49) and Joseph (Genesis 41: 41–45).

Psalms 11:7, 41:12,97:11, Proverbs 3:32,21:29,2 Peter 2:9, and Luke 16: 10–12.

Proverbs 3:32, 16:13 and 25:13.

Proverbs 10:9, 11:3, 13:6.

Romans 3:12.

For example the bad Kings of Israel and Judah in the Old Testament.

Romans 7: 21–25.

Job 27:6, Proverbs 29:10, Titus 2: 12–13.

John 3: 19–21.

An example of the former might be ‘sex outside marriage' and of the latter ‘Jesus' claim to be God’.

Matthew 6:13, 2 Timothy 2:22 and 1 Corinthians 10:32.

Some economists might argue that all the financial losses referred to in this paper are not economic losses but transfers from honest to dishonest parties and as such do not indicate the waste of real economic resources. To some extent this is true, but from the point of view of economic welfare the financial losses do indicate very undesirable economic phenomena.

‘Taming the overmighty boss: The Cadbury report…’, Financial Times, December 2, 1992,p.20.

For the Blue Arrow / County NatWest story see: ‘The buck stops where?’, The Economist, March 7, 1992, pp. 23 24, 26.

‘The high price of banking error’, Financial Times, July 26, 1989,p.20.

‘County pays compensation’, Financial Times, June 2, 1990,p.2.

‘Damning’, The Economist, July 22, 1989,p.82.

‘Everyone's a loser’, The Economist, February 22, 1992,p.95.

‘Tricky in the City’, The Economist, August 1, 1992,p.74.

‘Statement by the Chairman’, National Westminster Bank Annual Report and Accounts, 1989,p.7.

See ‘NatWest publishes its principles’, Financial Times,May26, 1993,p.15.

‘It's Good Business - The NatWest Group Code of Conduct’, National Westminster Bank, 1993,p.8.

See Marris, R. and Mueller, D.C. , ‘The corporation, competition, and the invisible hand’, Journal of Economic Literature, Vol. 18, No. 1, 1980, pp. 32–63, and Williamson, O.E. , ‘The Modern Corporation: Origin, Evolution, Attributes’, Journal of Economic Literature, Vol. 19, No. 4, 1981, pp. 1537–1568.

Klein B. and Leffler K.B . ‘The Role of Market Forces in Assuring Contractual Performance’, Journal of Political Economy, Vol.89, No. 4, 1981,pp. 615–641.

Schmalensee R. ‘A Model of Advertising and Product Quality’, Journal of Political Economy, Vol.86, No. 3, 1978, pp. 485–503.

Von Weizsacker, C.C. , Barriers to Entry: A Theoretical Treatment, Berlin: Springer-Verlag, 1980.

A recent example is the effect on Nestle of revelations of doubtful selling techniques of baby food to mothers in Africa ( Williams, O. ‘Who cast the first stone?’, Harvard Business Review, Vol. 84, No. 5, pp. 151–160.).

Firms may also exist to exploit monopoly power. The ethics of monopoly power are not considered here, the existence of prolonged monopoly may be in the public interest ( Schumpeter, J. ,The theory of economic development: An enquiry into profits, capital, credit, interest and the business cycle, Cambridge: Harvard University Press, 1934).

Coase R.H. ‘The Nature of the Firm’, Economica, Vol. 4, 1937, pp. 386–405.

Williamson O.E. op cit.

The firm can be viewed as allowing the team organisation of production (see Alchian, A.A. and Demsetz H. , ‘Production, Information Costs and Economic Organisation’, American Economic Review, Vol. 62, No. 5, 1972, pp. 777–795).

Simon H.A. ‘Organisations and Markets’, Journal of Economic Perspectives, Vol. 5, No. 2, 1991, pp. 25–44.

Ryan L.V. ‘Ethics Codes in British Companies’, Business Ethics, Vol. 3, No. 1, 1994, pp. 54–64, finds no evidence that codes lead to better performance in the The Economist's 1992 survey of Britain's most admired companies. He concludes that ethical commitment is only demonstrated by action: thus the process of education which goes along with the introduction of a code is more important than the code itself.

See ‘World Economic Outlook’, October 1994, Washington D.C.: IMF, 1994, ‘World Economic Outlook’, October 1995, Washington D.C.: IMF, 1995 and ‘OECD Economic Surveys - The Russian Federation’, September 1995, Paris: OECD, 1995.

Easterley W. and Vieira da Cunha, P. , ‘Financing the storm - Macroeconomic Crisis in Russia, 1992–93’, World Bank Policy Research Working Paper WPS1240, 1994.

Gray C.W. and Hanson R.J. ‘Corporate Governance in Central and Eastern Europe - Lessons from Advanced Market Economies’, World Bank Working Paper Series WPS1182, 1993; Van Wijnbergen, S. , ‘Enterprise Reform in Eastern Europe’, World Bank Policy Research Working Paper WPS1068, 1993.

‘More Crime than Punishment’, The Economist, July 9, 1994, pp.19–22. Russian Government statistics suggest that 40,000 businesses (or 40–55 per cent of the total) are under the direct or indirect control of the Mafia (Government Press Conference, January 1994). These figures are unreliable but do highlight the magnitude of the problem.

‘Rake's progress into the clasp of Russia's Mafia’, The Guardian,May9, 1994,p.9.

‘Rotten to the core?’, The Economist, August 7, 1993, pp. 39–40.

‘Management: A change of propaganda - Impoverished Russians…’, Financial Times, August 27, 1992,p.11.

See Warner, M. , Denenzhkina, E. and Campbell A. , ‘How Russian Managers Learn’, Journal of General Management, Vol. 19, No. 4, 1994, pp. 69–88.

See for example, Dunfee, T.W. , ‘Business Ethics in the New Russia: A Report’, Business Ethics, Vol.3, No. 1, 1994, pp. 1–3, on the situation in Russia. Also see ‘Slow food’, The Economist, February 3, 1990, pp. 84–85, on the time and cost of setting up a McDonald's restaurant in Moscow.

An example of a dishonest strategy might be ‘tell a lie about delivery dates/quality of product' against an honest strategy of ‘tell the truth about delivery dates/quality of product’.

The name is attributed to A.W. Tucker. For an excellent discussion of the ethical applications of the Prisoners' Dilemma see Cramton, P.C. and Dees, J.G. ‘Promoting Honesty in Negotiation: An Exercise in Practical Ethics’, Business Ethics Quarterly, Vol.3, No. 4, 1993, pp. 359–394.

In this version of the model the probability of any period being the last one plays the same role as the rate of discount in the infinitely repeated model.

Within an organisation this might amount to the manager offering to be honest with a colleague, punishing if honesty is not reciprocated. Note that there is a certain vulnerability (the colleague might cheat) for the leader in being like this - in Biblical terms this is Christ-like behaviour.

We note that one of the underlying assumptions in the Prisoners Dilemma is that individuals have the ability to evaluate strategies rationally. Carter, J.R. and Irons, M.D. , ‘Are Economists Different and If So Why?’, Journal of Economic Perspectives, Vol. 5, No. 2, 1991, pp. 171–177, find that economics students act more rationally (selfishly) than non-economics students. This raises the interesting question of whether more complete knowledge of the game increases the temptation to be dishonest. Lattimore, R., ‘Is it rational to be rational?‘, Economic Notes, Vol. 21, No.3, 1992,pp.395–417, finds that while the economics students are more rational they actually do less well in the long run if they play against non-economists. Simon, H.A., ‘Altruism and Economics’,American Economic Review Papers and Proceedings, Vol.83, No. 2, 1993, pp. 156–161, demonstrates that in conditions of bounded rationality (limited ability) the intelligent altruist can be more biologically successful than the selfish in repeated games.

Milgrom P. and Roberts J. ‘Predation, reputation, and entry deterrence’, Journal of Economic Theory, Vol. 27, No. 2, 1982, pp. 280–312.

The model here is consistent with Jesus' reluctance to reveal his true identity to the Jews until he was ready to face the inevitable consequences for a Jew claiming divinity. Jesus never lied about who he was, he merely maintained a sufficient degree of uncertainty in the minds of those who would ultimately plot to kill him until the time he chose for his ‘hour' to come.

‘Whistleblower's cautionary tale’, Financial Times, January 19, 1994,p.9.