The High Price of Low Ethics: How Corruption Imperils American Entrepreneurship and Democracy

Article excerpt

Corporate corruption threatens democracy and endangers the advancement of entrepreneurship as one of the fundamental traits of economic life in the United States. In this article, Carl J. Schramm proposes zero tolerance for unethical business behavior. Compared with war or medicine, business ethics seem relatively simple. Honor contracts. Treat customers fairly. Be truthful about the condition of a commodity. Be transparent to investors. This is just to say, there is a high price to pay for low ethics.

Interest in corporate corruption is a phenomenon that repeats with remarkable predictability. The age of Enron, Tyco, and Worldcom, along with the whispers of accounting irregularities in a host of companies long respected for their honesty, has loosed the hounds of business criticism. Past scandals have left us with volumes of reflective commentary that suggest little more than that bad people do bad things in bad periods. The lesson from the past is that corruption in business comes in waves.

We are in the midst of just such a moment. Critics are coming together. They have essayed. They have indicted. Predictably, they have determined that new rules will set things straight. The Sarbanes-Oxley Act has passed. Business leaders are chastened; the recalcitrant are being prosecuted. Going forward, firms and their leaders will operate at an improved level of ethical consciousness imposed from outside by government. Government triumphs as the source of the superordinate ethical standard. The little guy has been protected into the foreseeable future.

There is much in this drama that is wrong and needs careful review. Many performances of this play point to bad endings every time. The predictable roles of the actors get us safely through to the end, but no uncomfortable lesson has been placed before us as good plays are supposed to do. Like a well-remembered drawing-room diversion, it is as simple as the bad guys being upbraided by the good. The policy steps now being taken are supposed to deny us another revival--corporate corruption will finally leave the repertoire of social drama. If history teaches us anything, however, and if we are lucky, the next round of scandals is no more than five years away. This, of course, presumes that we are close to the end of the Enron saga.

This article considers the phenomenon of corporate corruption from several different perspectives. Using seven postulates, it concludes that this is a crisis that reaches beyond the big-business venue in which, at first glance, it appears to play. Because it affects our nation's entrepreneurial activity, it connects to the rootstock of postindustrial capitalism, which is the basis of modern democracy.

Criticism of corporate behavior that does not seek to be practical is itself a cynical business. The traditional "ethical perspective," always dusted off at moments like this, is often nothing more than a respectable cover for corporate bashing.

We know several things about ethical scrutiny of the corporation. First, the interest that ethicists show in business looks like a sine curve. Peaks in ethical interest lag episodes of corporate corruption. Today's talk itself is a lagging indicator of public interest in the honesty of business people. Second, many respected thinkers believe that an ongoing and wide discourse on business ethics is by its nature irrelevant and a waste of time. Markets are driven by self-gain; it is healthy for participants to push markets to their limits. Occasional moments of overheated avarice in which the rules get broken will happen, and these bad moments are more than offset by the expansion of wealth and human well-being that results in periods of growth and seeming ethical equilibrium. Third, it is hard and costly to attempt to prevent market abuses that appear to be lapses in personal ethics. More laws and regulations make each successive wave seem more scandalous because the last episode of widespread ethical breach is still fresh in memory. …