Values in Business

Systems of Values in Business

In the so-called Enlightenment Era, an era which is slowly receding in influence, but has no doubt still many firm adherents, only rational knowledge such as the type science provides can impart reliable, accurate information. Only what we can measure is important. Values are subjective, valid only for the person concerned, not for all people, and to this category religion has obviously been relegated. Systems of knowledge such as economics have been seen as free of values, based on rational analysis alone.

Today, however, we realise that all sciences, especially the human sciences, are underlain by a platform of values, and that economics is also replete with assumptions and beliefs, even by virtue of what it implicitly excludes. The ideologies, the “ISMs” were also finally seen as based on many beliefs, having tried to use scientific techniques to persuade everyone that they were indeed superior and universally valid.  Religion had been described as the “opiate of the masses”, whilst today the ism’s are described as the “opiate of the intellectuals” (Marxism, capitalism, communism, capitalism, etc). The intellectuals have had to admit that their constructions were also highly subjective, that they were far from free of values, and that they were guilty of false intellectualism.

Free Market

The Free Market has survived what the Pontifical Council for Culture happily describe as the “spectacular collapse of intellectual atheistic Marxism-Lenism” (1999, Towards a pastoral approach to culture, 7). It soldiers on, and there are even some who believe that the trans-national corporations have more power than the nation states, and that the power vacuum left by the collapse of communism has been taken up by these mega corporations. Catholic Social Teachings have never had anything positive to say about Marxism or communism, apart from the fact that given the huge disparities in wealth, it is not surprising that these ideologies have had such appeal. Some idea of those living in poverty is given in the following table.

The distribution of those living on less than 1$ per day is as follows:

HOT Money

It has been estimated that the accumulated amount of investment funds (money looking for homes to earn returns for insurance funds, pension funds, portfolio investments, savings, unit trusts) is over 20 times the values of world gross domestic product, and over 28 times the value of world trade of goods and services.

It is not surprising that interest rates, share and bond prices and currencies are so volatile, as they attempt to adjust to rapidly changing perceptions of investors. Small stock exchanges and small economies are literally overwhelmed by sharp powerful movements of “hot” money. Currencies can plummet, as has happened in several countries, including South Africa. There is a lot of “overshooting”, when prices of currencies, for example, fall well below their fundamental values as determined by the real economy.

Perceptions of short-term investors become reality by their own actions. Instantaneous communications enable money to be moved out rapidly, causing currency collapses and immense economic and social hardships. Relatively new financial instruments such as derivatives increase the volatility of the prices of assets, currencies and interest rates. Today the value of derivatives traded is many times the value of USA gross domestic product.  It is clear that this “hot money” trading caused huge damage as panic resulted in indiscriminate selling in recent months. Rumours were acted upon without real information, causing even sound companies to see their share prices collapse. The fall in property prices, which was the security for the loans made to buy property, also fuelled the general panic.

The Value of Exit

Financial markets, once governed largely by the underlying, real economic factors, now react immediately to perceptions of good or bad news, and they are overwhelmed by “fickle” investors, who value exit, the ability to withdraw funds at a moment’s notice, through a vast network of computer trading screens. There is no commitment, no consideration of the effect of withdrawal, or exit, from a particular market. If South Africa is a small part of huge USA investment funds, it is badly affected as US investors liquidate what to them is a small portion of their investments but to South Africa is very significant.

Mobility, flexibility, liquidity, rapid exit are highly valued. Values such as stability concern about effects of exit, come up against aggressive fund managers who seldom look beyond the next few quarters. There is no sense of the common good, of how actions affect others. There is no regard for a holistic view of economic development. There is a fetish for liquidity, which encourages short-term positions and speculative agendas.

One well-known international investor executed bear sales on a small country’s currency a number of years ago, causing a sharp decline in the value of the currency. This action would be justified by the market precept of freedom, of seeking to optimise returns, doing what many would regard as a   purely financial reaction, but with no regard for the real effect of this on millions of people in the country concerned, which suffered adversely from the depreciation of the currency.

Anything Goes, as long as it is legal

This is the essence of the Free Market, any action is valid as long as it is legal, or its illegality can be hidden in ingenious financial concoctions, which obscure their true purpose. I have even read an article by a scholar of the science of economics, which makes a case for insider trading, finding “logical” reasons to go against the spirit of the law, and thereby to ignore plain honesty. I have heard one of the chief executives of a soft porn magazine insist that religion and politics do not mix, perhaps in an effort to assuage their conscience. Retail stores were also quick to stock these magazines on their shelves, simply to make more money, whilst criticism is labelled as being old-fashioned, or out of touch with society’s adult world. Some readers may find fault with this particular illustration, but the point is, if a person can get away with something, even though it is questionable to others, it will be done, as all is fair in business, as if this realm is open to be exploited to the fullest.

Some observers believe that the rise in the oil price to a high of around $147 per barrel, was to a significant degree caused by speculative trading in the futures markets, where oil is purchased never for actual delivery, but for short term trading purposes. We must agree that the futures markets enable oil suppliers to sell forward their oil even before production, which enables them to plan and to reduce risks. However, before the big sell off in financial assets and commodities, it was estimated that the oil price, at a peak of $ 147 per barrel, should have been closer to $80 per barrel without the speculative element in the price. Food prices rose globally, and there were even food riots in some countries. The USA Treasury warned speculators that it would introduce legislation to curb the speculative element in trading. It is indeed alarming that food security can be directly attributed to short-term speculation in commodities.

Now that the oil price is around $50 per barrel, will food producers reduce their prices to reflect this decline in the cost of food production? To a fair extent, the drop in the oil price in South Africa is offset by the Rand depreciation, but if the retail price of petrol can drop, so could food prices. What, decrease prices? Is it a case of “Oils well that ends well”?! No one today can say that the world of economics is value neutral. The question of food availability is not a function of neutral, purely economic forces, it is affected by value-laden decisions made by people typically far from the reality of poverty, to the detriment of real people with real needs, who really are not sure of where their next meal is coming from.