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Did a ?National Crisis of Character? Get Us Into This Mess?

By Ashby Jones

We can debate endlessly about the cause of the current economic crisis. Too much borrowing. Underregulation. Overegulation. Ineptitude on Wall Street. The slides on this PowerPoint presentation go on and on and on.

But what about this one, as an overarching principle: immorality. Such is a provocative argument recently made by Hofstra law professor Ronald Colombo in a Huffington Post article.

Writes Colombo: Our “current economic woes are, in large part, the repercussions of a national crisis of character.”

He explains:

Free markets, in order to function well, depend upon the virtue of their participants. The distrust engendered by vice raises wasteful transaction and monitoring costs to levels that can paralyze the marketplace. Moreover, vice leads to the phenomenon of “putting profits before people.” . . .

Adam Smith, recognized as the grandfather of the modern market economy, understood the link between markets and morality. Contrary to his common portrayal, he did not believe that a successful economy could arise from the raw, unbridled pursuit of self-interest. Himself a moral philosopher, he maintained that self-interest could fuel a successful economy only if it were narrowed by the constraints of traditional morality. Today, we are witnessing what happens when these constraints are relaxed. . . .

As with the 1929 crash and the Great Depression, today’s financial meltdown has been preceded by a certain relaxation of traditional values. Generations reared upon the amoral precept that “if it feels good, do it” now lead many of our banks and businesses. Applied to economic matters, this precept yields the governing philosophy of many corporate enterprises: “if it’s profitable, do it.”

Okay, so what’s Colombo’s prescription? More regulation? Less regulation? How about, none of the above. He writes:

“A problem that is fundamentally moral in nature counsels in favor of a solution that is fundamentally moral in nature. . . . [But] law can do very little to make people virtuous. Indeed, “coerced virtue” is oxymoronic.”

But Colombo throws out some ideas, including continuing values education in primary and secondary schools; beefing up ethics training of MBA and JD candidates, and recrafting corporate and securities laws to “enhance disclosure of, and shareholder input on, issues of moral concern.”

He concludes:

We need and can enjoy better protection from future corporate corruption [and] fraud . . . [That protection] lies in a more virtuous marketplace. We ought to think seriously about ways in which to bring this about. For when no one is looking , and when no can catch us, or when there is no law to hold us accountable, or no other means of chastisement, the only thing that compels us to do what is right is virtue.

LB Readers, any thoughts? Read one way, Colombo sounds like a Pollyannaish naif. But when we relax our cynicism filter, it all sounds a bit more plausible. Maybe an Ethics 101 refresher, even if it all it does is make us habitually mindful of the Golden Rule, would do some good. What say ye?

Full post as published by Law Blog - WSJ.com on May 14, 2009 (boomark / email).