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Vlad Taltos
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How Investing Turns Nice People Into Psychopaths


http://www.theatlantic.com/business/archive/2012/04/how-inve...


This article discusses one of the fallacies of the Free Market Capitalism theology.

Corporations are not people and neither are "shareholders".
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Bojan Ramadanovic
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Golly wrote:
How Investing Turns Nice People Into Psychopaths


http://www.theatlantic.com/business/archive/2012/04/how-inve...


This article discusses one of the fallacies of the Free Market Capitalism theology.

Corporations are not people and neither are "shareholders".


I do not see where you find "shareholders are not people" in that article.

That aside, I believe that author significantly confuses "pro-sociality" with pure altruism. People behaving "pro-socially" at a wedding reception are doing so in a social context in which they interact with people they are likely to meet again multiple times in their lives and from whom they can reasonably expect good will and even assistance in the future.

No matter how sub-conciously, wedding guests are being nice to others not for the sake of being nice to others but because they are making a mid-to-long term investment in their own future well-being.

Most of the experimental confirmations of "pro-social" behaviour are similar instances where conscious or sub-conscious expectation of the ability of the counter party to reciprocate tempers the immediate selfish impulse.

Investment of money into an anonymous, large, collective enterprise lacks any sort of anticipation-of-reciprocity that would trigger "pro-social" behavior and is therefore logically much more akin to used-car purchase (example author uses for the common selfish interaction) then to a wedding reception.

It has been known for quite a long time that the human "niceness" diminishes with anonymity and distance. A decent chap will likely invest large amounts of time, effort and money, to the point of possibly putting their own life at risk, to save a next-door neighbours house and family from a fire, flood or a like disaster but will at best send a small check to Red Cross to deal with a similar or more significant disaster on the other side of the world.

As a consequence, relying on human niceness (or "pro-social behaviour") to ensure desirable outcomes of the systems which are of necessity large and non-local is at best unreliable and at worst outright dangerous.

This is why behavior of corporations (and other entities larger then a personal social group) need to be circumscribed, not by vaguely defined moral norms but by strict, clear and enforceable laws.

If a "corporation" cheats, kills or steals - its controlling minds need to be sanctioned legally first and foremost.

Reason why "shareholder value" philosophy is extremely important is that it addresses the other significant problem associated with corporations - that of "agency" or the ability of the controllers of the corporation to utilize it for their own purposes and against the purpose of its ostensible owners.

If a CEO is given a simple instruction like "maximize profits while acting within the law" then their performance can be measured and attempt at subversion can be easily spotted. The woolier the instructions to managers - easier it is for them to utilize the corporation towards personal goals thus subverting the interests of the owners.

Even at its best "Corporate Social Responsibility" ends up with a strong element of ego-feeding monument building (with someone else's money) on part of CEOs and at its worst it is a very convenient cover for outright embezzlement and corruption.

The legal fiction of corporate personhood (whose main practical purpose is to enable corporations to be sued) makes it easy to forget that corporation is nothing more or less then a tool - tool for generating profits.

It is as ridiculous to call corporation psychopathic as it is to call a train engine psychopathic - despite the fact that train has one singular abiding function - of getting itself and its contents from place A to place B. If a train kills someone while performing its function this killing is not in any way morally or (more importantly) legally, justified by the "train was just doing its job" argument any more then the corporation killing someone in pursuit of profits is.
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bramadan wrote:
It is as ridiculous to call corporation psychopathic as it is to call a train engine psychopathic - despite the fact that train has one singular abiding function - of getting itself and its contents from place A to place B. If a train kills someone while performing its function this killing is not in any way morally or (more importantly) legally, justified by the "train was just doing its job" argument any more then the corporation killing someone in pursuit of profits is.


You should be very careful what you mean by corporation here though.

For example, the legal entity called a corporation obviously cannot be held morally justifiable for anything. If nothing else, it doesn't really exist.

At the other extreme, you have the people that work under the umbrella of the term corporation. It's not unreasonable or even unusual to refer to all the people working under a specific legal fiction as the corporation. In this sense of the word, it's not at all ridiculous to say the corporation is acting psychopathic.

Legal terms exist for things like family, church, charity or club as well. But people also use these words to refer to the groups of people associated with the legal entity.

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Bojan Ramadanovic
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Dolphinandrew wrote:
bramadan wrote:
It is as ridiculous to call corporation psychopathic as it is to call a train engine psychopathic - despite the fact that train has one singular abiding function - of getting itself and its contents from place A to place B. If a train kills someone while performing its function this killing is not in any way morally or (more importantly) legally, justified by the "train was just doing its job" argument any more then the corporation killing someone in pursuit of profits is.


You should be very careful what you mean by corporation here though.

For example, the legal entity called a corporation obviously cannot be held morally justifiable for anything. If nothing else, it doesn't really exist.

At the other extreme, you have the people that work under the umbrella of the term corporation. It's not unreasonable or even unusual to refer to all the people working under a specific legal fiction as the corporation. In this sense of the word, it's not at all ridiculous to say the corporation is acting psychopathic.

Legal terms exist for things like family, church, charity or club as well. But people also use these words to refer to the groups of people associated with the legal entity.



Sure, but I do not think anyone claims that people who work for corporations are generally psychopaths - any more then people who work for partnerships, family firms, government or are self-employed.

People personify the corporation - artificial legal entity - and give *it* pseudo-human traits including psychopathy.

To return to my train analogy, if we personify a train engine this entity is definitively mono-maniac/psychopath. It single-mindedly pursues a single goal of arriving at the series of stations in fixed order on a fixed schedule without any regard to plethora of needs and desires of others.

On the other hand engineer driving the train may well have thousand personal goals that are more or less related to the operation of the train. There is no reason at all to believe that he is a psychopath regardless of the fact that in executing his job he acts with a degree of single-mindedness.

Despite this - it would be quite disastrous if we instructed the engineer that he should operate the train in accordance to his sense of right and wrong and try and fulfill personal and societal goals other then those inherent in the functioning of the train. Engineer with such instructions may well stop the train to pick hitch-hikers, take route which they feel would be, or should be, more pleasing to their passengers, stop by a house of their buddy for dinner, help pull an overturned car from a ditch ...

All of this would certainly make train appear less psychopathic and more "humane", and may even genuinely help specific individuals in some specific ways, but would at the same time entirely ruin the original purpose of having the train in the first place and would be flagrant abuse of the resources which went into the construction of the said train.

That said, we expect that the engineer will keep an eye on the tracks and make sure that his train does not run anyone over even if that means deviating in minor way from the single-minded pursuit of assigned goals of the train.

We can argue - and probably even agree - as to whether restrictions on ways in which corporations are allowed to pursue their goals are sufficient in their current form and whether the controllers of corporations are sufficiently well motivated/monitored in whether or not they abide by those restrictions. Those are useful discussions.

Useless discussion is one where we personify a tool and then accuse it of psychopathy because it is used for the purpose for which it is devised (or worse, consider people using the tool psychopaths because they use the tool for a specific purpose as their job).
 
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bramadan wrote:
Despite this - it would be quite disastrous if we instructed the engineer that he should operate the train in accordance to his sense of right and wrong and try and fulfill personal and societal goals other then those inherent in the functioning of the train. Engineer with such instructions may well stop the train to pick hitch-hikers, take route which they feel would be, or should be, more pleasing to their passengers, stop by a house of their buddy for dinner, help pull an overturned car from a ditch ...



I don't know. The whole point should surely be that operating the train (and hence earning money, for example) should be largely in accordance with the engineer's personal and societal goals. It's just the train company can manage how the engineer is able to meet those goals by setting reward (money) and punishment (being fired) appropriately.

When we are discussing the morality of people acting on behalf of a corporation, moral points such as 'if X doesn't do this, they will be unable to feed their family next month' are relevant to the moral question. But not to the point that they overrule everything else.

For example, if the engineer's bosses said that the engineer should run over people whenever possible, the engineer still bears some responsibility if they carry out that instruction.



bramadan wrote:
Useless discussion is one where we personify a tool and then accuse it of psychopathy because it is used for the purpose for which it is devised (or worse, consider people using the tool psychopaths because they use the tool for a specific purpose as their job).


Sure, but I don't think people are generally personifying the tool in this way. When people say that Greedcorp is acting like a psychopath, they generally mean those in control of/working for Greedcorp are acting like psychopaths.

It's not the legal use of the word corporation, but it's not an unusual one.
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Roger
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bramadan wrote:
As a consequence, relying on human niceness (or "pro-social behaviour") to ensure desirable outcomes of the systems which are of necessity large and non-local is at best unreliable and at worst outright dangerous.

Yes, as you say, this is why you need strict, clear and enforceable laws. By implication it is also why you need functional mechanisms that prevent economic power being able to exercise disproportionate influence on the political process and effectively craft these laws. This is currently a major gap that doesn't look like ever being filled, inevitably adding to the danger inherent in concentrated financial power.

Also, agreeing that large-scale and anonymous entities aren't a natural match for human pro-social instincts and behaviours, there's a second conclusion that can be reached: If these entities are too big to act humanly, and routinely subvert the political processes, there are good reasons to want them to be smaller. Systems that strengthen - or at least avoid undermining - the competitive position of local and small-scale operation have very real social benefits even at the cost of economies of scale.
 
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Bojan Ramadanovic
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hsquid wrote:
bramadan wrote:
As a consequence, relying on human niceness (or "pro-social behaviour") to ensure desirable outcomes of the systems which are of necessity large and non-local is at best unreliable and at worst outright dangerous.

Yes, as you say, this is why you need strict, clear and enforceable laws. By implication it is also why you need functional mechanisms that prevent economic power being able to exercise disproportionate influence on the political process and effectively craft these laws. This is currently a major gap that doesn't look like ever being filled, inevitably adding to the danger inherent in concentrated financial power.


Alternatively, one can restrict the size of the state and with it the "prize" to be had for all the special-interest groups who can capture it.

Simple, overarching laws against killing, cheating and stealing are relatively easy to pass - even in the face of strong lobbies. It is big, complicated laws with tons of exceptions, subsidies and special cases that are most easily subverted.
If you want money (mostly) out of politics, make your state smaller, simpler, streamlined and therefore transparent.

Quote:

Also, agreeing that large-scale and anonymous entities aren't a natural match for human pro-social instincts and behaviours, there's a second conclusion that can be reached: If these entities are too big to act humanly, and routinely subvert the political processes, there are good reasons to want them to be smaller. Systems that strengthen - or at least avoid undermining - the competitive position of local and small-scale operation have very real social benefits even at the cost of economies of scale.


Problem is - economies of scale are gigantic. Scale at which people act "morally" is a village - couple hundred to a thousand people or so at most. To build an economy around those sort of units you would have to go pre-industrial at least, possibly even pre-intensive agriculture.
Buying locally grown raspberries in a local mom-and-pop store is all fine and good but is meaningless as an act of "localism" if the raspberry grower used fertilizer developed in USA and made in UK, if the truck delivering them to the shop was built in Germany with parts from Poland if you preserve them in a Dutch fridge and eat them with the sugar grown in Caribbean.

Given that we need economies of scale to maintain civilization as we know it our best effort should be put into finding mechanisms to control those large scale enterprises and there, I suggest, law is much better then vague moral suasion.
 
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Bojan Ramadanovic
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Dolphinandrew wrote:

bramadan wrote:
Useless discussion is one where we personify a tool and then accuse it of psychopathy because it is used for the purpose for which it is devised (or worse, consider people using the tool psychopaths because they use the tool for a specific purpose as their job).


Sure, but I don't think people are generally personifying the tool in this way. When people say that Greedcorp is acting like a psychopath, they generally mean those in control of/working for Greedcorp are acting like psychopaths.

It's not the legal use of the word corporation, but it's not an unusual one.


I do not think that is how people think of it - but - if it does, then what is the problem with corporations specifically ?

Why is an employee of a corporation more likely to act as a psychopath then an employee of a partnership or a government employee ?

If the problem here is the old "power corrupts" then why focus on a specific form of ownership which is actually one of the best available at dispersing and limiting power of any given individual.

 
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My major criticism of the way corporations are handled is that it's difficult to communicate any directive other than "make as much money as you legally can" when investing. As a result, I think we see situations where corporate officers engage in legal (or questionably legal) but unethical behavior because they feel a legal obligation to their investors to do so, even where those investors would want the company to behave more ethically. The way corporations and the law are structured, to communicate any message/guidance but "make as much money as possible" is difficult for the average investor.
 
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bramadan wrote:
I do not think that is how people think of it - but - if it does, then what is the problem with corporations specifically ?

Why is an employee of a corporation more likely to act as a psychopath then an employee of a partnership or a government employee ?

If the problem here is the old "power corrupts" then why focus on a specific form of ownership which is actually one of the best available at dispersing and limiting power of any given individual.


I think most of the time people are just using corporation as short hand for 'large business'. It not technically accurate, but I think it's generally clear enough.

I'm not sure they are that great at dispersing and limiting power. I think they are great at giving that appearance, but I don't think there are many CEOs from large publicly traded businesses that have, in practice, significantly less power than one still in private hands. Perhaps in some companies where the stockholders take an active interest in something other than money, this is the case, but I don't think this is very common.

In a corporation, the board basically have an excuse for doing what they want (the shareholders want it!), where a privately owned company might have to own their moral decisions a little more.

But I think all this misses the point. I think there are few people that would ever argue that the fundamental idea of a corporation is somehow flawed. They are noting that the way corporations (or the people that run them if you prefer) seem to be operating at the moment in the real world is causing some real and huge problems.

It's not some abstract issue with some legal gadget, or a vague idea of power corrupting (which I generally think is too simple). It's going 'look at what they bastards are doing now'.
 
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Bojan, I really appreciate your informed opinions and I agree with much of what you write so I feel strange to be quibbling. But there are important things that I think you are missing/oversimplifying so...

bramadan wrote:
Alternatively, one can restrict the size of the state and with it the "prize" to be had for all the special-interest groups who can capture it.

I'm not quite sure what you mean here. The "prize" we are talking about is not the financial prize of controlling tax dollars, but the prize of controlling regulation. And since a political system can always create, modify or repeal regulation, the size of the "prize" won't change, unless you actually reduce its ability to create regulation in the first place.

bramadan wrote:
Simple, overarching laws against killing, cheating and stealing are relatively easy to pass - even in the face of strong lobbies. It is big, complicated laws with tons of exceptions, subsidies and special cases that are most easily subverted.
If you want money (mostly) out of politics, make your state smaller, simpler, streamlined and therefore transparent.


I agree with these as objectives, but I think you're mixing cause and effect. One of the reasons that laws are so arcane, complex and full of exceptions, and there is so little transparency, is because that situation benefits the powerful actors. It's not just bad luck that so many ugly messes can be hidden inside complex state structures and regulations that's what those with financial and political power intend it to do.

Nor am I so sure that it really is easy to have laws against killing, cheating and stealing - or even defining them - when the killing or cheating is done in a large-scale or statistical way. Environmental control is ultimately about protecting life, economic and aesthetic welfare, and this is exceptionally difficult to balance or to firewall from economic interests. We have multiple examples of financial deception happening at enormous scales and deciding exactly what is "stealing" depends very much on complex judgements of honest and transparent use of information, which have often been exceedingly slippery to prosecute.

bramadan wrote:
Problem is - economies of scale are gigantic. Scale at which people act "morally" is a village - couple hundred to a thousand people or so at most. To build an economy around those sort of units you would have to go pre-industrial at least, possibly even pre-intensive agriculture.
Buying locally grown raspberries in a local mom-and-pop store is all fine and good but is meaningless as an act of "localism" if the raspberry grower used fertilizer developed in USA and made in UK, if the truck delivering them to the shop was built in Germany with parts from Poland if you preserve them in a Dutch fridge and eat them with the sugar grown in Caribbean.


Fair point, but I would say this is not so clear cut. I used to live in Switzerland where bought my fruit, vegetables and milk from a local farm I walked to that had a honesty system - open to anyone who went past, not just people they recognised. This was possible because of the general sense of social control and importance of reputation in an entire country.
Sure, they didn't have some of the economies of scale of a enormous agribusiness, but they sure saved a lot of money by not paying transport, distributors or even to have a person on the desk selling the product. Trust is an enormous economy too.
Admittedly, airplanes and iPads can't be built this way, so the argument isn't that everything needs to be local and trust-based, but that we should look for structures that support and foster this type of attitude to the extent possible.

Similarly, moral behaviour can easily act on scales bigger than a village. I can go to Ukraine and I'll still help someone who collapses on the side of the road. BGG has a yearly secret santa with almost no accountability. Human instincts are evolved for small contexts, but you don't need a small context to trigger them - you just need to simulate certain aspects of one.

bramadan wrote:
Given that we need economies of scale to maintain civilization as we know it our best effort should be put into finding mechanisms to control those large scale enterprises and there, I suggest, law is much better then vague moral suasion.


I agree that there needs to be serious effort put into appropriate, clear and transparent regulation. But I don't see this as an either/or proposition with using moral suasion as well - both at a personal and a corporate level. The weakness of the law is that it never covers all the cases it needs to - and in attempting to do so, it becomes complex, impenetrable and unpredictable. It is because we strive for simple and clearly justifiable laws that there will always be a gap between what makes sense to regulate and forbid, and what just makes you an arsehole if you do it. Think of the thread now on bullying - people may have free speech to say certain things, but that doesn't mean there is no "moral"/"niceness" issue if they do. Collective action (unions, corporations, tribe, nation, family) doesn't give a free pass in this respect.

Now maybe the campaigns for corporate social responsibility have complicated the agency issue, and made it harder for CEOs to be held to account by their boards. This I can empathise with. But the reason that moral force is needed is because the regulatory model has proven to be so insufficient in important cases (Bhopal, Niger Delta, Oil industry regulation, Enron, Lehman bros./AIG, Blackwater...). To argue that hugely powerful organisations should be held in check by nothing other than the letter of simplified/streamlined laws is to propose a cure that is worse than the disease.
 
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