Greg Smith’s recent Op-Ed piece in The New York Times, “Why I Am Leaving Goldman Sachs,” makes several interesting points. But central to his explanation is his contention that Goldman Sachs’ culture has disintegrated to one almost exclusively concerned with earning more money for the firm and implicitly for its leaders.
Smith contrasts the past with the present:
Culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients.
The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long.
It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief. . . .
I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. . . . The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.
Two significant issues raised by Smith’s Op-Ed are the importance of culture and the ethics of capitalism.
The first can be dealt with briefly. Having written extensively on the importance of culture in my An Age of Progress?: Clashing Twentieth-Century Global Forces (Anthem World History), I merely wish to reiterate here how important cultures and subcultures are. Not only do nations have their own unique cultures, but so too do big firms like Goldman Sachs. And we are all greatly influenced, more so than most of us think, by the cultures and subcultures that surround us.
The second issue deserves more attention here. To begin with, let us define capitalism as an economic system in which means of production — such as land, labor and machinery — are privately owned by individuals and businesses that produce and exchange goods and services primarily to earn a profit.
Conservative economist Milton Friedman once wrote, “The social responsibility of business is to increase its profits.” And sociologist Daniel Bell in his The Cultural Contradictions Of Capitalism: 20th Anniversary Edition stressed that the rise of mass consumption led to the abandonment of capitalism’s earlier emphasis on hard work, savings, and frugality, that “in its products and in its advertisements, the corporation promotes pleasure, instant joy, relaxing, and letting go,” and that this situation left “capitalism with no moral or transcendental ethic.”
Thus, capitalism itself was merely an economic system, basically amoral and providing no overall philosophy of the public good, no adequate answers for how to deal with such problems as major economic inequality, unsafe working conditions, unfair business practices, pollution, public health, slum housing, or the abuse of child labor. Its moral ambiguity led reformers and governments in the twentieth century to attempt to supplement it by providing a more encompassing philosophy of the common good.
In the United States this reform movement led to the birth of Progressivism and the Progressive Era from 1890 to 1914. Although some Progressives were socialists, most reformers did not wish to overthrow capitalism but to constrain and supplement it in order to insure that it served the public good. The same could be said several decades later for Franklin Roosevelt’s New Deal.
Despite such attempts to restrain capitalism so that it served the common good, greedy capitalist excesses continued periodically to appear. In the 1980s such excesses were depicted in the 1987 film Wall Street. In it Michael Douglas’s character, Gordon Gekko, in his greed-is-good speech proclaimed: “Greed, in all of its forms — greed for life, for money, for love, knowledge—has marked the upward surge of mankind.”
In March 2009 President Obama’s chief economic adviser, Larry Summers, described the origins of the Great Recession which had begun the previous year:
“An abundance of greed and an absence of fear on Wall Street led some to make purchases — not based on the real value of assets, but on the faith that there would be another who would pay more for those assets. At the same time, the government turned a blind eye to these practices and their potential consequences for the economy as a whole. This is how a bubble is born. And in these moments, greed begets greed. The bubble grows. . . . In the past few years, we’ve seen too much greed.”
That previous December, president-elect Obama decried the surge of greed that had helped bring about the Great Recession and declared a need for a more ethical business approach: “Everybody from CEOs to shareholders to investors are going to have to be asking themselves, not only is this profitable, not only whether this will boost my bonus but is it right; does it conform to some higher standards, in terms of how we operate?”
Now, in March 2012, Greg Smith claims that Goldman Sachs ignores such higher standards: “I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them.”
The central question then remains: Can the main goal of capitalism — making a profit — be subordinated to seeking the common good? Or must such an economic system subvert it? True, the system does offer powerful temptations to overemphasize short-term profits and forget other values that are not capitalist ones, but should be part of our essential humanity. But there is nothing intrinsic about capitalism that necessitates that every capitalist corporation promote or encourage a culture of greed. The term “fair profit” is not an oxymoron. Neither is “business ethics.”A business can emphasize making a “fair profit” without encouraging greed and other vices.
Three experiences during the past year have encouraged my belief. The first was participating in a conference last September in Antwerp on “Responsibility in Economics and Business: The Legacy of E. F. Schumacher (1911-1977).” The second and third were reading two books, one Leading with Wisdom: Spiritual-Based Leadership in Business published by the same people who put on the conference, and the other Practical Wisdom co-written by a psychologist and a political scientist.
The conference organizers, the European SPES (Spirituality in Economics and Society) Forum, and the co-hosts, the Center for Ethics, University of Antwerp, and the Business Ethics Center, Corvinus University Budapest, emphasized the importance of business ethics. One of the speakers, as I mentioned in an earlier piece in LA Progressive, was Philip Bruce, CEO of the Scott Bader Company. This organization, centered in England but with branches in other countries, attempts to remain true to the vision of its founder more than a half century ago. In the 1950s and 1960s, he had transformed his employees into partners who mandated that pay levels should “not vary, as between the lowest paid and the highest paid, irrespective of age, sex, function or experience, beyond a range of 1:7, before tax.”
In reviewing the book Leading with Wisdom, I mentioned that one of the essays in it (all encouraging business ethics) quoted a partner/director of a large Latin American enterprise who said: “Though being profitable is necessary for our development, success for the companies is not simply success in the traditional financial sense, but is tied to the principle of selfless service. As to our earnings, our aim is to use 25 percent of our profits for paying taxes, 25 percent for re-investment, 25 percent for us, and to give away 25 percent in donations.”
In a review of Practical Wisdom I wrote that “the authors clearly believe that doctors, lawyers, teachers, and even bankers, should aim first at public service, not making money. Just as importantly, administrators, organizations (like the AMA or NEA) and educational institutions that organize and prepare professionals should help inculcate such an ethic into their professions. Hospital administrators, for example, should attempt to create a culture at their hospitals that puts patient care, not profit, first.”
The authors also contrast such institutions as the Mayo Clinic, the soul of which is the “cultural philosophy of doing the best for the patient” with the expensive medical care at Doctors Hospital in McAllen, Texas, where doctors placed more emphasis on profits.
The authors also quote a former dean of Harvard Law School, who wrote, “The term [profession] refers to a group . . . pursuing a learned art as a common calling in the spirit of public service—no less a public service because it may incidentally be a means of livelihood. Pursuit of the learned art in the spirit of a public service is the primary purpose”
Fine, one might say for doctors and lawyers, whom we label professionals. But how about bankers and hedge fund managers? Are they not supposed to emphasize making money? According to Practical Wisdom’s authors, “the norm for bankers was never just moneymaking. . . . The norm for a ‘good banker’ throughout most of the twentieth century was in fact someone who was trustworthy and who served the community, who was responsible to clients.
This reminds us of Greg Smith’s Op-Ed comment about the Goldman Sachs’ culture which once included “doing right by our clients” not “just . . . making money.”
Call me an optimist, but I think that Smith, the European SPES Forum, Practical Wisdom’s authors, and Obama are correct in thinking that CEOs, hedge fund managers, investors, and other capitalists are capable of “asking themselves, not only is this profitable, not only whether this will boost my bonus but is it right; does it conform to some higher standards, in terms of how we operate?”
Thus, the capitalist cultures of corporations and other capitalist institutions can become more humane. Whether they will or not is another question.