Polanyi

There has been both agreement and disagreement regarding Polanyi's argument that science is like a market.  There is one dissimilarity and one similarity I wish to emphasize.

First, as has been pointed out there is no "profit motive" in scientific discovery.  There can't be, since there is no supply and demand and hence no prices.  This does not mean there is no self-interest (there is).  Rather, as Polanyi himself points out, the specific institutional framework for the transmission of knowledge and information is what differs.

How then are they the same?  What Polanyi is trying to bring out is first that both are feedback mechanisms and second the nature of the feedback mechanism. Both science and markets depend upon feedback.  This feedback must be in the form of other individuals (or decision centers) that are free to decide for themselves what feedback they will give.  In this respect, the argument is similar to arguments concerning the benefit of free speech.  We allow people to speak freely because this is the best way to uncover the truth.  It is in the process of arguing that the truth comes out.  Polanyi adds to this argument that there must be a framework for this feedback.  In science it is universities and journals.  In markets it will be the institutions that give rise to prices.  These institutions are what transform the cacophony of everyone talking at once into useful information.  Otherwise it is just noise.

Furthermore, we sort of see in Polanyi what will be explicit in Adam Smith: The larger the feedback framework the more useful it is.  This is why the Ghemawat video is so important.  Many assume that the market loop is already at a maximum (the globe) when it turns out that most markets fall far short of global feedback.

The underlying assumption here is that larger loops are better.  It is not until we read Smith and Hayek in week three, though, that we get specific arguments as to why larger loops are better in the market.

Introduction to Business and Society

This course reflects my research, and conviction, that business is so much more than what people usually think it is.  Business is society.  To be sure, it is not all of society.  However, much like it's sister course Business Ethics, the title itself seems to suggest there are two separate spheres or entities and that the purpose of this course is to see how they interact.  Journalists and debaters know that the first step in an argument is framing and I believe the very title of this course misleadingly frames the issue.

With "Business and Society"the course becomes an exercise in reconciliation, compromise, and even forced submission.  After all, the popular argument goes, society is greater than business and business should be made to serve society's ends.  Society determines the rules and business must obey.  To do otherwise would be to turn things on their head.  More sinisterly, allowing business to dominate society is allowing the rich few to dictate the lives and misery of everyone else.  So the course, under this view, becomes one of how society may tame and contain this potential monster of selfish profit maximization.

Rules are necessary.  Rules are an important part of society and we can study which rules make for the best society.  I would be more inclined to talk about the Rules of Society rather than Rules and Society.  Just because we can talk about them separately does not mean they actually exist separately.  The same goes for business.  There is no business outside of society and I would be willing to defend the proposition that there is no society without business.  On the latter proposition there are points I would definitely lose, but hopefully an honest opponent will come to realize how much of society is commerce and how much commerce is society.

This, then, is the object of the course.  To realize how much the terms business and society actually overlap.  To do this we will engage in a broad set of readings that will include literature, philosophy, science, history, economics, and business.  Think about it, all of these disciplines both study and mirror society.  They themselves are societies.  If business is society we should expect to see business mirrored in each and for each to capture some aspect of society that is business.

This is what I ask you to look for in the first set of readings.  How does literature, philosophy, and science relate to the practice of business.  Then watch the videos that are themselves about business, but notice how directly they relate to, and draw on, the non business literature you have just read.  Finally, read Adam Smith and begin to reflect that the division of labor cannot exist without society and how extensively society itself depends upon the division of labor.  To what extent could we say that society is the division of labor?

To this task we now turn.

What started this course

After teaching business ethics for many years I began to realize that a person's view of business affects their view of business ethics just as much as their view on ethics.  The thought struck me as I was watching the film Goodfellas.  In this clip between 24 and 42, the narrator explains how the mob boss can take out loans he has no intention of repaying, using a legitimate business as collateral. This is how you buy a 200 dollar case of booze on credit and sell it for 100 dollars and keep the cash.  At 41 the narrator tells us this is pure profit.

Nonsense.  Profit is a value adding activity that takes place through trading.  What this clip is describing is no more profit than mugging an old lady and claiming the quarter you got was pure profit.  It does, however, indicate that criminal activity likes to pose as business activity because, in some way, the language of business provides some sort of moral defense e.g. "don't blame me, I'm just doing business".  This lead me to want to investigate more of what business is and, very importantly, what business is not.  The beginning thought that led to this course.

http://www.youtube.com/watch?v=ZPtjyqgZAUk&feature=related

Competition and War

The phrase " Business is all about doing what must be done to get ahead." is quite common.  The thing to remember that "competition" is a large category.  War is one type of activity that falls within the category "competition".  Business competition also falls within this group.  The underlying question, then, is do these two types of competition overlap.  Perhaps, for a very very tiny slice of certain business they do.  Here I am thinking of the business of being a mercenary or some types of security firms.

even here, though, violence is part of the business, but it is not how even these endeavors compete with other mercenaries or security firms.  Getting hired means competing on price and qualiy - the overwhelming majority of business activity is like this.  Thus, it is not doing "anything" one must do to get ahead.  Killing a competitor is murder, not business. Only certain types of competitive actions are actually business.  The key in this clas is to figure out what type of acctions count as business and what do not.

Bill

Capitalism Vs. Mercantilism

There is a difference between capitalism and mercantilism. Capitalism is where competition occurs in the marketplace over the production and trading of goods and services. Mercantilism occurs in the political arena over who gets political favors. Eminent domaining people's property is not capitalism, even if the confiscated land is then given to a business concern. That is mercantilism. For two excellent examples of mercantilist activity see this USA Today article: Chinese peasants feel bullied over land grabs; and this Institute for Justice video: Inner-City Kids, Boxing Gym Fight Back.

Basic Beliefs: Non Aggression Pt. 1

All of our authors agree that government laws, edicts, and orders are ultimately backed by physical force. It is the job of the police, courts, and prisons to exercise this force against any and all violators. This is, in fact, the purpose of government: To force people do things they would otherwise not do. THE question for political theory is what can the government legitimately force people to do?

For Ayn Rand force is only justified in defense of a person’s rights to life, property, and contract. Notice, this is a point about when individuals may legitimately use force against other individuals. First and foremost it is a point about how individuals should act using their own minds and bodies.

However, defense (and offense) need not be purely individual affairs. Smart individuals either persuade allies or buy them. For Rand, now, the question centers on how third parties function in the defense of rights. Most agree that third parties can intervene to protect someone else, even if they were not initially in danger of having their own rights violated. What distinguishes her from mainstream political thought is that this legitimacy does not change when individuals band together in the form of government.

Metaphysically, and morally, governments are collections of individuals and possess no additional rights over and above the individuals who constitute it. It is this that separates Rand from both the political Left and Right. People seem to easily distinguish her from the left and clearly note that her theory prohibits any sort of state sponsored Social Justice. She thoroughly rejects any market regulations based on “Equality” or Fairness”. Similarly, who gets hired, and for how much, is solely the business of the negotiating parties. Oddly, though, those on the left can’t quite seem to distinguish her from the right.

The political Right clearly knows she is not one of them. For Rand, drugs, pornography, and gambling may be individually irrational, but they are protected by the same rights as the printers of Bibles. Her views on women and leadership as well as the propriety of sexual relations places her well outside the bounds of many religious/traditionalist conservatives.

However, what absolutely places her outside the circle of conservative philosophy is her belief that these rights are grounded in the nature of the individual. This actually places her far closer to liberal theory in that the individual is not morally bound by tradition, family, religion, or country. Of course, she also places herself outside of liberal camps by adding “society” to the list of entities that have no proper authority.

Her notion of proper authority is completely grounded in her conception of individual rights. Non aggression is a conclusion of her theory of rights. While Atlas Shrugged obviously focuses on the non aggression principle and how illegitimate government can violate individual rights, the real story is about how and why individuals possess certain rights. The deeper story of Atlas Shrugged is about the nature of the individual.

At this point then we now have two levels of Atlas Shrugged. The first level concerns the nature of individual rights. The second concerns the efficacy, and legitimacy, of government action. To understand her theory, think about why these are two different levels and how exactly they relate.

Villains of Atlas Shrugged: Part 1

From time to time the observation and/or complaint arises that the characters in Atlas Shrugged are “unrealistic”. While Rand purposefully distills character types to provide a clear picture of their logic, it is worth noting that often her distillations hit rather close to the “real world”. The following is a brief annotated list of real world politicos and business ne’er-do-wells that easily could be characters in her novels.

Dennis Kozlowski: Former CEO of Tyco International now serving time for treating the company as a personal piggy bank. For an overview of his case see this article. His two most famous excesses were a $6,000 dollar shower curtain and a personal party in Sardinia with an ice sculpture that urinated vodka. See both under lifestyles in the Wikipedia article here.

For more on his expensive shower curtain see this article.

For more onn the infamous party he threw see this article.

This, in fact, is a villain from Atlas Shrugged: Gerald Starnes, Jr., Director of Production, at the Twentieth Century Motor Company. After his father died Jr. treated the company as his own piggy bank. He even had a shower installed in his office complete with an expensive glass door with a mermaid cut into it.

Hugo Chavez and Venezuela:

Hugo Chavez nationalized the oil industry in Venezuela. The nationalization itself looks like a mirror image of the San Sebastian Mines. Furthermore, oil production in Venezuela has declined by about 700,000 barrels a year. On Chavez’s mismanagement of the economy see this article.

Finally, Chavez’s slogan “Motherland, socialism or death” (taken from Castro), could have been the slogan of a number of countries in Atlas Shrugged or even the Twentieth Century Motor Company.

Fedex vs. UPS:

Instead of competing in the market, these two companies are now competing to saddle each other with more onerous regulations. See this article. This is exactly the kind of behavior that was exhibited by James Taggert and Orren Boyle against both Dan Conway (Anti-Dog-Eat-Dog resolution against Phoenix Durango Railroad) and the cap on the amount of Rearden Metal that Hank Rearden is allowed to fill for any one customer.

Enron:

Here is a story of business fraud. It is also a story involving that nexus of government and business Rand worries so much about. See this article in Reason Magazine. FYI Brian Doherty writes for Reason although he did not write this article.

What I find particularly interesting here is what investors and analysts did not know. From the article: “Wall Street analysts admit to never really understanding how Enron made its money. "Enron's discussion of its finances reads like something written in German, translated to Chinese and back to English by way of Polish," cracked Forbes.com. Analysts didn't care, so long as the stock price stayed high. But when the bubble started to deflate, they started asking questions.:”

After reading this go back and read Francisco’s comments about the investors in the San Sebastion Mines. The story is frighteningly the same. One can also hear Keynes in the background talking about ignorant people. People often do not do the work it takes to invest wisely. Rand is not being unfair in her portrayals of this type of investor. They exist all around us.