Men, Markets and Morality By Dave Thompson
I am a defender of free market economics. In fact, I am a downright strident apologist for free market economics. I detest almost everything about planned economies, whether controlled by far right governments or leftist governments. Virtually every experiment with a planned economy has failed. Notable exceptions can be found in the Scandinavian countries, if one is willing to place low value on freedom, wealth creation and world influence.
That being said, intellectual honesty requires exploration of capitalism’s shortcomings, or more accurately shortcomings of those who fancy themselves capitalists. By now I suppose you expect a discussion of Enron, WorldCom, or some other company with former executives who can be found in one prison or another. No, I am going to discuss a company that is emblematic of a much larger problem.
Last week, following intense negotiations, American Airlines executives won significant concessions from its employees. Some employees accepted a 23% pay cut. Let us put this in context. In my home state of Minnesota, as with most states in the nation, we face a significant deficit due to excessive government spending. Some weeks ago, a few senators floated a proposal to freeze wages of state employees for two years. No cuts were proposed, just no raises. Employees and their public employee unions became apoplectic. The point I am making is that an agreement to take a 23% pay decrease is a huge sacrifice.
I have a source within American Airlines who tells me that during negotiations the leaders of the corporation talked a lot about concern for the airline and the need for shared sacrifice. You know, one for all and all for one; win one for the Gipper, all that stuff. On the same day the union signed a temporary agreement, the company approved massive retention bonuses for its executives. This bonus structure was not dependent upon performance of the individual executive or the company. Following an outcry from employees, union leaders and most likely others, the company reversed itself and retracted the bonus plan.
Unfortunately, the American Airlines example is not an aberration in corporate America. Northwest Airlines, based in Minneapolis / St. Paul, did much the same thing a few weeks earlier. If find it particularly egregious when airlines do this because they are operating partially on taxpayer money as a result of the post-September 11, 2001 government bailout.
Why am I more concerned about American and Northwest than I am about Enron and WorldCom? There are two reasons. First, the alleged criminal activity engaged in by Ken Lay and Bernie Ebbers is not broadly accepted by the culture. It is still recognized as a transgression of the law and a violation of moral principles. Second, those who break the law can be prosecuted and punished, if convicted.
So, what do we do about executives who misrepresent intentions during negotiations and line their own pockets while carefully making sure they don’t violate SEC regulations? Most would say, “We have to make a law against it.” However, it is impossible to legislate against all forms of indecency. Besides, often times when government is the cure, the cure ends up being worse than the disease.
The fact is that we cannot legislate our way to a moral society. While all laws are based upon moral precepts, not all moral precepts can be effectively legislated or litigated. Most of the great economic philosophers were also learned in ethics and religion. They recognized that no matter how effective the economic system, it cannot facilitate efficient distribution of scarce goods and services in the absence of moral restraint. Those devoid of moral restraint have abused every economic and political system known to man. The problem is not capitalism, the problem is capitalists. The fact is that America needs fewer executives that went to business school and a few more that went to Sunday school.
Editor's note: The Dave Thompson Show can be heard locally on KSTP-AM 1500, every Saturday and Sunday from noon until 3:00 PM
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