Finding the Honor in Business with James Otteson

Honorable Business book coverHow can business help society overall? This ethical conundrum has taken root in our recent 2019 Charles G. Koch Outstanding IHS Alum Award recipient, Professor James Otteson’s book, Honorable Business: A Framework for Business in a Just and Humane Society.

We spoke with Professor Otteson on the themes of his new book, the challenges facing the business world at large, and how the basis for his latest book came to fruition.

Q: Can you summarize for us the themes and topics in your latest book, Honorable Business?

Professor Otteson:
Honorable Business begins with the question of why businesses and businesspeople are often asked and expected to “give back” to their communities or societies. Notice that they are not asked to give, but to give back. But typically, when someone is told he needs to give something back, it means he stole something or took something that did not belong to him. Is that what people believe about business—that what it has, it stole?

I suggest that if businesses or businesspeople in fact need to give back—as it were, to atone for the sin of engaging in business—then our proper response should not be to ask them to give back but rather to prohibit it altogether. We do not say to the thief, for example, that it is all right to keep stealing as long as he gives some of his loot to charity; we tell him to stop stealing.

If we are going to engage in business, then, let alone dedicate our lives to it or teach it in business schools, there should be some way of engaging in it that is valuable in itself—not just by giving back. There must, that is, be such a thing as “honorable business.”

In my book, I argue that there is indeed such a thing as honorable business; I define what it is, and I contrast it with dishonorable business. I offer a Code of Business Ethics that helps distinguish the two, and I argue that honorable business provides value and does not require atonement. Indeed, properly understood, honorable business might even be a moral calling.

Q: What inspired you to work on this book?

Professor Otteson:
What I noticed in teaching in a business school is that while students get good technical training in the functional areas of business—finance, accounting, marketing, etc.—what they often do not get is an opportunity to ask the “big questions.”

For example, should we have a market economy? What is the purpose of a firm in a market economy? What purpose, other than getting a job or making money, might business serve? There is nothing wrong with wanting to get a job and to make money, but those are not particularly inspiring goals.

A more inspiring goal would be to contribute to a just and humane society. I think there is a way that honorable business can contribute to a just and humane society, and I wrote the book to lay out what that way is—and to give students an opportunity to consider the role they, as future honorable businesspeople, might play in creating genuine value not only for themselves but for others as well.

Q: What do you see as the greatest in “creating value for all parties” when it comes to business?

Professor Otteson:
This is a hard one because there are many challenges. Perhaps two central challenges are avoiding opportunism and cronyism. Opportunism is engaging in behavior that would benefit oneself at others’ expense when one knows one would not get caught or when the harm to others is so small as to be negligible or even imperceptible.

If I take a ream of paper home from the office for my personal use, I would benefit, but who would notice and who would be harmed? Similarly, if I or my firm would benefit from special legal protections (subsidies for losses, protective tariffs, protections from competition, occupational licenses, etc.), such cronyism can be hard to resist—especially when other firms are engaging in it and when politicians and regulators are all too happy to provide me these benefits.

Yet both opportunism and cronyism undermine the trust and the institutions that are required for overall prosperity. For a society to enjoy the benefits of increasing overall prosperity, we have to internalize a code of personal behavior that rejects such behavior as a matter of principle, not on the basis of a cost–benefit analysis. As crucial and even necessary as that is, it is very difficult to do.

Q: In your book, you draw a lot from Adam Smith’s moral philosophy and political economy. Can you summarize for us how those ideas have played a role in business in the past? And how you view those ideas affecting the future of business later on?

Professor Otteson:
Smith wanted to understand why some places were getting wealthy while others were not. What he discovered from his empirical observations was that the countries gaining in wealth engaged in trade with other countries; allowed their citizens to own private property and start business ventures; gave their citizens wide scope of liberty and authority to determine for themselves how to allocate their time, talent, and treasure; and had governments that did little else beyond protecting citizens’ lives, property, and voluntary contracts and agreements.

The connection to business is that if citizens’ lives, property, and voluntary agreements are protected, they will begin all on their own to find ways to cooperate, exchange, transact, partner, trade, and produce that will lead to mutual benefit and increasing overall prosperity. In other words, in the right institutional framework, business will emerge on its own, and people will seek out innovative and entrepreneurial ways to improve their own situations while at the same time improving others’ situations.

People might be self-interested, but under such institutions, they will seek to serve their own interests by serving those of others. Business—or, at least, honorable business—is, then, the path to mutual betterment. And the spectacular increase in overall prosperity the world has seen since Smith’s Wealth of Nations was published in 1776 suggests that Smith was right.

. . .

Professor Otteson is a renowned economist and serves as the Thomas W. Smith Presidential Chair in Business Ethics at Wake Forest University. To learn more about his 20-year history with IHS, read our interview with Professor Otteson on the blog section of our website, here.

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