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Ethical ways of doing business


For love not money

David Cameron has talked about ‘moral capitalism’ but Pope Benedict XVI is streets ahead with his concept of ‘gift and gratuity’ – an idea which has been taken up by radical economists

Among of the most intriguing concepts in Pope Benedict’s encyclical Caritas in Veritate is the idea of “gift and gratuity” in the modern economy. Specifically, the Pope says, “the logic of gift as an expression of fraternity can and must find [its] place within normal economic activity”, and “economic, social and political development, if it is to be authentically human, needs to make room for the principle of gratuitousness as an expression of fraternity”.

This idea of “gift and gratuity” in the capitalist system makes no sense to most business people. In fact, the modern market economy functions on the basis of the “logic of equivalence” in exchange and not on the logic of gift. In other words, the idea of “owt for nowt” fills a modern Anglo-Saxon model capitalist with horror. However, in these times, when we are looking for a “better version of capitalism”, the Pope’s intriguing idea of “gift and gratuity” could be a breakthrough concept. But we need to find a way to put this concept into operation.

The current economic crisis has led to much soul-searching on what is meant by a “good business”. Politicians, church leaders and management gurus all have opinions on what has gone wrong with modern capitalism and how it should be fixed, with most thinkers, such as Dominic Barton, the global head of McKinsey, who has written extensively on this, pointing to flaws in the current model of market capitalism. Barton identifies three specific flaws. He points to the tyranny of short-termism, the need to serve shareholders only as opposed to stakeholders, and the lack of effectiveness of many corporate boards.

Beyond what Barton identifies, many commentators also believe that financial markets have more endemic failings. Experts say that trading in some of the key financial instruments in the major capital markets are rigged to favour the large investment banks and hedge-fund operators and in some cases, there are significant allegations of insider trading.

So can the economy of “gift and gratuity”

help to address these flaws in market-based capitalism? My view is “partially”, but even this would be significant progress from where we are today. And how does this concept manifest itself ? In fact there are examples from the last 20 years where at least some partial manifestation of the economy of “gift and gratuity” has become good business practice. Primary among these examples is that of fair trade, invented by a Catholic priest, Frans van der Hoff, which has now become a global force for progressive development (sadly, the Catholic Church does little to promote the key role that one of its priests played in the origins of this movement). The key idea of fair trade is justice. Fair trade guarantees a “fair” price to the producer so that he or she can live, work and grow. It also encourages socialisation, by the creation of cooperatives that bring together small producers.

Another example of “gift and gratuity” at work from the last 30 years is microcredit, the development of which earned the Bangladeshi economist Professor Muhammad Yunus the Nobel Peace Prize. Microcredit enables the poor to access credit without paying usurious rates. There are several more recent examples of business models based on “gift and gratuity” that have come about through the internet. Google’s core business model – searching the internet – is entirely free of charge. Google makes its money by advertising and sponsored links but keeps its core service free. Another example is that of Skype, which has revolutionised telecommunications by enabling free computerto-computer phone calls for both personal and business users. It makes its money by offering ancillary telecommunication services for which it charges a fee but again its core service is free. This internet-based example illustrates an interesting phenomenon around “gift and gratuity”, which is how mass free collaboration is reinventing the way businesses communicate, create value and compete in the new global marketplace. Don Tapscott and Anthony Williams in Wikinomics: how mass collaboration changes everything illustrate how ordinary people and firms are linking up and sharing ideas freely to drive innovation and success.

Perhaps the most intriguing example of such open access involves a small Torontobased gold-mining firm, Goldcorp Inc., whose chief executive, Rob McEwan, asked the world via the internet to save his ailing company. Goldcorp was considering stopping operations at its 50-year-old mine at Red Lake, Ontario. Without substantial new gold deposits, the mine seemed destined for closure, and Goldcorp was likely to go down with it. McEwan’s idea was to freely share that most precious and carefully guarded resource of any mining company, its geological data, by posting it on the internet and asking for help to find more gold. As an encouragement, McEwan put up some Can$575,000 (£365,000) in prize money, and in March 2000 launched the “Goldcorp Challenge”. News of the contest spread quickly around the internet, and more than 1,000 virtual prospectors from 50 countries got busy crunching the data. Within weeks, submissions from around the world came flooding in from geologists around the world. Other professionals also got involved, including graduate students, consultants, mathematicians and military officers. The results were successful and Goldcorp discovered a further eight million ounces of gold.

Beyond the internet, the economy of “gift and gratuity” has found many influential backers, including “premier league” management thinkers Michael Porter and Rosabeth Moss Kanter, both from the Harvard Business School, though they couch the concept in the lexicon of management. Both are strong believers in market capitalism and feel that the economic system is the only realistic and pragmatic way to improve the condition of

4 | THE TABLET | 28 January 2012 humanity. But, they say, it needs reform.

Porter is the Bishop William Lawrence University Professor at Harvard Business School and is a world authority on company strategy and the competitiveness of nations and regions. His work is recognised by many governments, corporations and academic circles globally. His breakthrough idea is the concept of creating shared value, which he says is about enhancing the bottom line while solving some of society’s difficult problems. Porter says companies have failed to grasp the importance of the broader issues of the societies in which they operate and he wants businesses to be more focused in solving problems, such as better health provision, improved nutrition, help for the ageing, greater financial security and less environmental damage. Those companies that can, says Porter, should provide products and services to lower income and disadvantaged consumers. In this area he cites new technologies such as low-priced mobile phones that provide banking services for the poor in Third World countries.

An example of this is Thomson Reuters in India, which provides information on weather and crop pricing to rural farmers who earn on average of just US$2,000 per year. For a fee of US$5 a quarter, it provides weather and crop-pricing information and agriculture advice on their mobile phones. The service reaches an estimated two million farmers and has helped them to increase their income significantly while proving to be a profitable business in its own right for Thomson Reuters.

Porter also points to what he calls redefining the value chain of a business to be less environmentally damaging. He cites by way of example Coca-Cola, which has already reduced worldwide water consumption by 9 per cent and is on the way towards a 20 per cent water-reduction goal by this year. Such new practices are good for the environment and enhance the bottom line, he says.

Meanwhile, Rosabeth Moss Kanter’s vision is closer to Pope Benedict’s than Michael Porter’s. For her, most great companies are vehicles for investing in the needs of people and of society. She describes how they use three principles of “institutional logic” to alter leadership and corporate behaviour. They are having a common purpose (such as conceiving the firm as a social institution); a longer-term view (that can justify short-term financial sacrifices to achieve a wider corporate purpose that will endure over time); and emotional engagement (transmission of institutional values that can stimulate motivation and propel self-regulation or peer regulation). Moss Kanter cites many examples of such institutional logic, including the global Indian conglomerate Tata. Tata companies, which in Britain employ nearly 42,000 people in brands such as Tetley Tea, Tata Steel (formerly Corus), Jaguar and Land Rover, have always believed in returning wealth to the society they serve. Two-thirds of the equity of Tata’s holding company is held by philanthropic trusts that have contributed to national insti-

(Continued on page 12.)


‘The only truth that really matters is the truth that is freely chosen’

In Vienna, capital of Austria, Cardinal Christoph Schönborn talks about the need for freedom in the Church. In the Diocese of Toowoomba, Australia, the local bishop has been deposed from office for exercising too much freedom. It cannot be supposed that the Austrian cardinal was referring to the Australian bishop – they are about as far apart culturally as they are geographically – but it is still instructive to put the two cases together.

Cardinal Schönborn has been facing a rebellion from some of his own clergy, and the issues they have been raising are not entirely different from those that have plunged Bishop Bill Morris into hot water in the Queensland outback. Both the Austrian Priests’ Initiative and Bishop Morris have spoken in favour of the ordination of women, for instance; both say they want the law of celibacy in the Western Catholic Church relaxed.

The immediate issue is not whether to ordain women or married men as priests, which is not going to happen tomorrow no matter how many Austrians or Australians want it to, but whether they should be allowed simply to say so. One can only assume, unless his words have been utterly misreported, that Cardinal Schönborn thinks they should.

“Freedom is the best starting point for the convincing, believing and strong Church of the future, which will look quite different from the Church we have known up to now,” he said. It meant a painful goodbye to the Church of his childhood, “but reality leaves us no other choice”. So what he is foreseeing and predicting is not the present Church plus “freedom” as an add-on extra, but a transformed Church that “does” freedom rather than just allows it.

I sense that this is more radical than perhaps even the cardinal himself realises. “The wind bloweth where it listeth,” as the King James Bible memorably puts it, which has always been taken to mean that the Holy Spirit cannot be constrained but goes wherever it likes, to do whatever it wants to do.

In this theory, a Church open to the Holy Spirit will not necessarily know where it is going, though it will be full of people arguing that it should turn this way or that. Through the influence of the Spirit, the mind of the Church will gradually emerge, and through the influence of the Spirit, people will know it when they see it. The role of the Magisterium in such a case is to step in at that point and confirm the faith already arrived at.

The management theory behind the Counter-Reformation Church – which in many respects the post-Vatican II Church still resembles – is not freedom but control and obedience. The Counter-Reformation Church is a top-down model of authority, like an absolute monarchy or an army, where dissent, far from being a possible channel for the Holy Spirit, is akin to treason or mutiny. One could defend that view or attack it, but one could not deny that it is seriously at odds with the culture in which we live. Maybe that culture has placed freedom on too high a pedestal, so that personal autonomy has been elevated to a solitary good regardless of its impact on the common good. But the crucial point Cardinal Schönborn appears to be making is that the lack of freedom is an enemy of truth, not its best defence. The only truth that really matters is the truth that is freely chosen.

This is in line with what the Church since Vatican II has been saying about other religions – that there should be no coercion, in or out. The coercion that still survives in Catholicism is largely confined to priests and bishops, or lay people in some official church activity such as education. But those are the key people in forming the mind of the Church. In that sense, the reason the rest of us are free is because it doesn’t really matter what we think.

Bishops are the most coerced, as Bishop Morris has found (and the rest of them know in their bones). Yet the consensus among bishops is ultimately what the authority of the Church’s Magisterium rests upon, if I correctly read Lumen Gentium 25. It is supposed to be where we turn if we want the guidance of the Holy Spirit. But what if the bishops’ opinions aren’t their own but imposed from the top – on pain of whatever? What if bishops are only selected from those who are known to share (or are prepared to submit to) a pre-existing centrally imposed consensus? Then we would have a problem. Indeed, we would then need to ask ourselves – have we locked out the Holy Spirit?

28 January 2012 | THE TABLET | 5