Trading Ethics: Auditing the Market
Zadek, Simon, Journal of Economic Issues
Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their shareholders as possible. --Friedman, 1962
... songs, not things, are the principal medium of exchange. Trading in 'things' is the secondary consequence of trading in song. --B. Chatwin, 1987
A critical perspective emerging from the "Earth Summit" at Rio concerned the nonsustainability of the current pattern of trade. Links between "environmental trade," such as in pollutants, and trade in goods and services were stressed. Equity, seen as a prerequisite to long-term survival, requires that the terms of trade take greater account of human and environmental needs.
Those who argued this viewpoint spoke against the inequitable dimensions of such trade agreements as Maastricht, GATT, and NAFTA Today, however, all of these exist. The industrial world has failed, at least at this broad legislative level, to directly address the matters of equity raised at Rio and elsewhere. Such shortfalls should not, however, minimize the value of other initiatives to establish a trading ethic based on acceptable human rights and environmental needs. Ignoring these developments undermines the insight they offer for the wider debate. It is necessary, in particular, for evolving forms of economic theory to be based on an understanding and integration of these new approaches to trade and ethics.
Poverty of Economics
Economics leaves little room to explore the complex texture of ethical behavior. Few practitioners deviate qualitatively from the subject's tidy approach to ethics, which Sen dubs the paradigm of "ethical egoism" [Sen 1978]. Recent work has maintained a lively debate about the treatment of ethics in economics [Burgenmeier 1992!. However, there remains a dearth of analysis supporting alternatives to the main thrust of economics.
The treatment of ethics within economic theory has become divorced from the ethics of economic research and of business [Rothchild 1992]. This in turn divorces practice from theory. Recent developments in business ethics, for example, offer a rich source of data on the manner in which complex values influence market behavior [Adams et al. 1992]. These developments, however, have not impacted on the discourse on ethics and economic theory. Theoretical work in other disciplines, similarly, has been shunned by economists. Anthropological literature on "reciprocity," work on the social psychology of economic behavior, and the sociological and philosophical literature on needs and entitlements generally remain marginal to mainstream economic discourse. This paper seeks to overcome these shortfalls in the process of evolution of economic theory by offering perspectives from both practice and theory.
Social Auditing: The Principle
Social auditing is the process of defining, observing, and reporting measures of the ethical behavior and social impact of an organization in relation to its aims and those of its "stakeholders." Stakeholders are people who can affect, or who are affected by the activities of the organization or by the set of events under consideration [Zadek and Evans 1993].
Critique of economic behavior predates the industrial revolution and arguably can be traced to early philosophical texts. More recently, an extensive applied literature has emerged examining the social consequences of particular commercial ventures [Gray et al. 1987!. Social auditing is, however, different from such previous work.
1. It is comparable to a statutory financial audit in that it involves external verification, publication of findings, and is repeated annually. 2. It takes a comprehensive, inclusive view of the scope of market relationships to be accounted for in the social audit. 3. Assessment criteria are chosen by stakeholders on the basis of their own agendas and values. …