Archive for July 24th, 2010

The Scrooge Factor. Meanness In America.

Saturday, July 24th, 2010

From a recent study by three economics students; Sreedhari Desai of Harvard, Arthur Brief of the University of Utah and Jennifer George of Rice University.  The title is “When Executives Rake in Millions:  Meanness in Organizations.”

“The topic of executive compensation has received tremendous attention over the years from both the research community and popular media. In this paper, we examine a heretofore ignored consequence of rising executive compensation. Specifically, we claim that higher income inequality between executives and ordinary workers results in executives perceiving themselves as being all-powerful and this perception of power leads them to maltreat rank and file workers. We present findings from two studies – an archival study and a laboratory experiment – that show that increasing executive compensation results in executives behaving meanly toward those lower down the hierarchy. We discuss the implications of our findings for organizations and offer some solutions to the problem.”

Beezer here.  This basic concern is a long considered one in economics and the related considerations of ethics and morality.  Even the great Adam Smith wrote about this.

From economist Maxine Udall (girl economist) blog, the following.

Adam Smith wrote about the influence of prevailing custom and fashion on moral sentiments in Theory of Moral Sentiments.

The different situations of different ages and countries are apt, in the same manner, to give different characters to the generality of those who live in them, and their sentiments concerning the particular degree of each quality, that is either blamable or praise-worthy, vary, according to that degree which is usual in their own country, and in their own times. 

Nowadays, most of us would object to what appears to be cultural or ethnic stereotyping in some of what Smith wrote. I am unable to say to what extent Smith’s views reflected then existing national and cultural heterogeneity that will have no doubt been rendered by economic development more homogeneous over time. Smith was a sound thinker and critical observer, which causes me to attribute his generalizations about different nationalities somewhat to Scots-Anglo ethnocentrism and somewhat to possible real national differences. Nevertheless, his main point seems valid: that what is “either blamable or praiseworthy” varies “according to that degree which is usual” in our own country and own times, that our moral sentiments and behavior are shaped to some extent by the culture in which we dwell.

Smith goes on to discuss “customary characters” of professions and stages of life, conjecturing that they are shaped by the moral sentiments that accompany and promote the duties of a given profession or of a specific stage in the life cycle. Thus, some professions and life stages are more reticent or staid than others. But, while Smith sees custom in the form of social and professional norms reinforcing good moral sentiments and behavior, he also sees it as something that can erode the same.

It is not therefore in the general style of conduct or behaviour that custom authorises the widest departure from what is the natural propriety of action. With regard to particular usages, its influence is often much more destructive of good morals, and it is capable of establishing, as lawful and blameless, particular actions, which shock the plainest principles of right and wrong.

His point being that just as self-interest can prevent us seeing impropriety and injustice, so too can culture and custom. A slave holder in the antebellum US South had self-interested reasons for believing slavery to be morally acceptable. A poor white worker whose wages were depressed by the availability of slave labor might still find slavery acceptable and worth fighting to preserve because the norms and customs of his culture find no impropriety in slavery.”

Beezer again.  An earlier Beezernotes post  highlighted the work of behavioural scientist Sam Bowles of the Santa Fe Institute.  Bowles has concentrated his study on the causes and effects of inequality in general and income disparity in particular.  From that article:

“At any rate Bowles deserves attention.  And he’s getting it.  His is an interesting story that begins at Harvard with a meeting he and other academics had with the late Martin Luther King Jr.   King was all about social justice, of course.  He came to Harvard seeking economic input that might help his social agenda.  Bowles soon realized his economic training was of little help.  And he wondered why that was so.   

And thus Bowles’ career was sent in one specific direction.  Interestingly, it was his study of primitive hunter gatherer societies that became an early clue as to what might be wrong.  “Inequality breeds conflict, and conflict breeds wasted resources,” Bowles argues……And inequality is sticky…  If you’re born into the bottom 10 percent of incomes, your chances of becoming a member of the top 10% is 1.3%.  For 99 out of 100 in this group, the “rags to riches” story is truly a myth.  And this poverty persists through generations.  It’s a tough problem and one that Bowles (and his students) are making a serious effort at understanding.”

Again from Maxine Udall:

“The conclusion seems self-evident. There is more at stake here than our economy. We must, as a nation, decide whether we want to continue on the path we have been on since roughly 1980. Do we want to continue to reward disproportionately a small fraction of the population that (based on recent performance) seems better at misallocating financial, physical, and human capital through speculative endeavors? Do we want to continue the trickle down of meanness? Shall we live in a society in which trust and fellow feeling are lost, replaced by mindless (not rational, not productive) winner-take-all competition that favors one group disproportionately? If the answers to these questions are all “yes,” then the social fabric may already be torn beyond repair and I fear we are about to learn firsthand how empires crumble.”

Beezer once again.  Obviously the problem has been discussed for quite a while.  Smith published his Moral  Sentiments in 1759 and  Charles Dicken’s character Ebenezer Scrooge appeared in ‘A Christmas Carol’  in 1843.  Two and a half centuries later, income disparity once again rears its ugly head.  And once again, thoughtful folks should be considering the potential impacts. 

Consider, as just one example, the phenomenon of one group of labor (non union normally) being angry at the higher pay received by another labor group (normally unionized), but apparently having little irritation over CEO pay that’s 100 or more times the average pay of other employees of the same company.   Is it come to the point where the CEO pay has become acceptable, but living wages for labor has not? 

 Beezer has witnessed this firsthand.  A citizen is angry because unions get better pay and benefits than they do.  I ask, “Do the unions determine your pay?”   “Of course not,” is the truthful reply.  “Then who does determine your pay?” I ask.  “My boss does,” is the truthful reply.  Then I suggest you be angry with your boss.  Either that or you form a union to negotiate better pay,” is my response.

Of course the underlying problem this angry citizen faces is that it’s government policy to treat private sector employees as commodities.  They receive little or no consideration in our laws.  So while CEO pay skyrockets to unheard of levels, labor does not receive it’s fair share of the profits of the corporation.

We are no longer a nation that believes in being ‘our brother’s keeper’ but one that believes instead in being ‘our brothers competitor.’  This will not end well.

Once again, thanks to economist’s view for opening up this line of reasoning.




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