Few today believe that socialist economics is the wave of the future, but most nations still find it difficult to root themselves in capitalism, democracy, and moral purpose. Most have little experience under the rule of law. Most of the countries of the former Soviet Union, most of Asia (emphatically including China), much of the Middle East, and most of Africa lack many of the cultural and political habits and institutions required for a successful capitalist system. What, then, is the proper conduct for United States businesses with respect to such countries? Let us invent a composite, fictional nation called Xandu and perform a case study.
A Test Case: Xandu
Suppose that Kavon (a fictional, new electronics firm) is scouting out the possibility of launching an operation in Xandu. The general rationale for such projects is that “constructive engagement” is the only way in which Xandu will be brought into the circle of democratic, capitalist, and law-governed nations. That rationale has merit, no doubt, but will its premises be realized? What must be done to make sure that they are?
The political system in Xandu is still a narrow, closed, paranoia-feeding system, whose elites remain in power only by maintaining total political and psychological control over their population. These elites are intelligent and have come to see that capitalist methods deliver abundance, whereas socialist methods deliver scarcity.
The Xandunese leaders, however, have studied recent history and found that many societies that first pursued economic growth then awakened demands for political democracy. That was the sequence in such countries as Greece, Portugal, Spain, South Korea, the Philippines, Kenya, Chile, and Argentina. The Xandunese leaders can see that a system of economic liberties generates a desire for political liberties. The social mechanism seems to be as follows: Successful entrepreneurs learn by experience that they are smarter and in closer touch with some realities than political commissars. They resent being badly governed. They begin to demand republican institutions–that is, institutions of representative government.
In the Xandunese diagnosis, therefore, the business corporation is the camel’s nose under the totalitarian tent. The Xandunese know that they need Western corporations, at least for the next twenty years, but they discern the essentially moral character of business and its subversive effect, since the corporation embodies principles of limited government, the rule of law, and high internal ideals of person and community. Through the practices of business corporations, these ideas spread like a “disease,” which Xandu wants to keep in quarantine. The Xandunese need the technical and moral culture of the corporation–the technology, the skills, the methods, the training. They do not want the political culture it gives rise to, however. They hope that by redoubling their efforts at control, they can quarantine liberty within the economic sphere. They want at all costs to prevent the principle of liberty from gradually seeping into the political life of Xandu.
By seven favorite devices, the Xandunese leaders attempt to control the efforts of Kavon and all the other foreign companies now bringing their factories, know-how, and new technologies to Xandu.
Seven Favorite Devices
First, the Xandunese insist that all employees of some new foreign firms be selected and “prepared” by a Xandunese personnel company. This company will be run by the Xandunese National Party, and this Party will insist on having an office on the site of the foreign firm to mediate any labor problems. From that office, it will also maintain strict political control over the work- force.
Second, to the extent that labor unions will be represented within the foreign firm, these will be limited to official Xandunese national unions and will also be used as instruments of political control.
Third, some foreign firms will be required to provide information about the behavior of their employees. For instance, showing signs of religious practice, having children beyond the mandated minimum, or reading certain political materials are matters about which the labor monitors want to be informed.
Fourth, foreign entrepreneurs who own small firms will be obliged to enter into “partnerships” with Xandunese firms owned either by the government or by freelancing officials. From time to time, in fact, a recalcitrant foreign entrepreneur has been arrested, thrown into jail, his assets seized, and communication with the outside world entirely cut off. One such imprisonment has been known to last six years. Larger foreign firms will be expected to turn a blind eye.
Concerning the government, there is no rule of law. Even one or two large firms have been bilked out of large sums–$50 million in one deal, $100 million in another–when Xandunese partners (government officials or their proxies) walked away from losses caused by their own behavior.
Fifth, foreign firms are sometimes expected to accept suppliers assigned to them. Factories in Xandu, unhappily, are very often staffed with slave labor maintained in appalling conditions and forced to toil for years for the sole benefit of the ruling Party elite. To say that standards of nutrition, sanitation, and living quarters in the Xandunese labor camps are primitive is too weak. They are intended to humiliate and to intimidate. Details have been confirmed in texts smuggled out by survivors.
Sixth, Kavon and other high-tech companies will be requested, cajoled, and compelled to share with their counterparts in government firms important secrets of U.S. satellite, missile, metallurgic, or computer technology. Xandunese engineers, scientists, and technicians have learned enormous amounts from their American counterparts, particularly when their own rockets, hired to carry aloft U.S. satellites, blew up and when, to avoid more such heavy expenses, U.S. technicians coached the Xandunese in the details of more advanced rocket technology. The latest Xandunese rockets are now being sold to at least three sworn enemies of the United States.
Seventh, the government of Xandu regards religions of the Creator (such as Judaism, Christianity, and Islam) as threats to its own total power. Because the leadership is obscurely aware that respect for the individual arises from belief in a Creator who transcends the power of governments, the government of Xandu regards personal acts of religious piety as dangers to the regime. It discreetly watches over Xandunese employees of international firms for signs of religious deviation. It especially persecutes Christians.
The Need for Advance Precautions
Under conditions such as these, the mere presence of American firms in Xandu will not necessarily lead to social change for the better. “Constructive engagement” that is complicit in the practices described above can be a delusion. If American businesses blindly, unintelligently, and uncritically collaborate with leaders who implicate them in barbarous practices, they will destroy the reputation of capitalism, democracy, and their own declared moral purposes.
If, on the other hand, fully prepared for techniques such as those listed above and armed with countermeasures and a firm insistence on living up to their own international standards, American firms might well use their bargaining power (Xandu needs their know-how) to creative moral purposes.
A handful of American firms, for instance, are led by evangelical Christians with a strong commitment to following the practice of Jesus by taking their efforts to the whole world, no matter how unsavory the reputation of the regime. Such firms will need to have procedures in place to protect themselves against complicity and scandal, lest they be taken advantage of. So, also, will other firms whose interests are predominantly economic. There may be some firms whose leaders are so cynical that they make it a practice not to raise moral or political questions about potential business activities, yet even they will need to take precautions against the sort of abuses listed above, lest large sums be lost in crooked dealings.
Corrupt government officials are found all around the world. Some firms better than others know how to draw a bright line around the edges of their own dealings and to instruct their agents clearly to live by U.S. company standards. They do not enter negotiations expecting Sunday School, but they are prepared to spot and to avoid abuses in advance.
No doubt, few are the governments that in the full range of their attitudes and practices manifest all the behaviors ascribed above to this fictional country of Xandu, yet even within countries whose record, on the whole, is good, there are rogue operations that need to be checked.
Thus, in planning their operations in Xandu, the executives of Kavon might wish to consult a checklist of all the abuses of sound business ethics that have been reported in various countries. They should certainly prepare defensive tactics. They will need an ongoing capacity to gather accurate information about their business contacts. They will also need to be on guard against contractual provisions for any practices that they would not wish to expose to the world public. They need a set of positive proposals to suggest in the place of those they find objectionable.
The chief justification for encouraging American businesses to invest in foreign societies such as Xandu is to help build up an international civil society. If and when business corporations indulge in activities that injure or destroy civil society, then they commit a fourfold evil: (1) They do things evil in themselves; (2) they distort and damage the internal moral structure of the corporation; (3) they injure the moral reputation of their firm; and (4) they defile the model of the free society to which they swear allegiance, and in whose name they justify constructive engagement in the first place.
Maintaining Moral Self-Respect
By such practices, some companies have injured the moral reputation of capitalism around the world. They have acted as if all they were interested in was their own financial gain. They have allowed observers to infer that they were indifferent to the plight of human beings and to the immoral and oppressive structures of the lawless nations in which they operated.
It is because business organizations are economic organizations rather than political or moral organizations, that they are allowed to function in totalitarian countries, while moral and political institutions are not. Nonetheless, business corporations are not merely economic institutions, for they develop to normal growth and in normal ways only within certain kinds of political regimes, and only in certain kinds of cultural ecology. In this sense, corporations are fragile plants; they grow only in certain kinds of soil. Corporations, therefore, cannot shed their commitment to law, liberty, and moral purpose as snakes shed their skin. Commitments to law, liberty, and moral purpose are part of their inner constitution.
It is therefore crucial for American and other Western firms to maintain their moral self-respect. They must become acutely conscious of their own moral and political identity, determined not to sell themselves as less than they are. Business corporations truly are the avant-garde of free societies. They represent the first wedge of the development of healthy civil societies, the rule of law, and the new birth of activities, associations, and organizations independent of government.
The first practical step for Kavon and other companies is to recognize that some rare nations may for a time, under a certain regime, be so bad that it would be a blunder for any self-respecting firm to collaborate with them. The second practical step is to outline new rules of engagement for our new international era. Such internal rules of behavior, including conditions of immediate dismissal for specified acts of wrongdoing, would guide internal corporate initiatives and practices. The cleaner the ethical principles within the company, the easier decisions are for executives in the field. They know in advance which sorts of behavior will receive moral support from the home office, and which will end in reprimand or dismissal.
Negatively, then, businesses must avoid those activities that injure or destroy the moral structure of civil society. Positively, they must proactively seek out ways–quiet ways–to nurture the political and moral soil that the universal growth of commerce requires. If they fail these responsibilities, they will win disdain from the very foreign tyrants who will welcome them like prostitutes bought and paid for. And they will not deserve to be honored by their fellow citizens back home.
By contrast, when firms fulfill their responsibilities to their own full identity, they strengthen commerce, and commerce is the foundation of a free polity. Commerce is the “commercial” half of “the commercial republic” envisioned by our founders. Commerce multiplies human opportunity and generates economic growth and thus opens upward pathways for the poor. Commerce promotes inventions and discovery. As new talents rise and obsolete technologies die, commerce constantly stirs the circulation of elites. Commerce helps to establish a complex system of checks and balances. Further, commerce makes resources available for projects outside the orbit of state activities and thickens social life while subtracting from the power of the central state. It gives incentives to enterprise and character and inculcates an important range (but not the full range) of moral virtue, especially the virtues necessary for prudent living and the rule of law.
A Highly Moral Profession
To summarize, the success of many new businesses from the bottom upward is crucial to economic growth. The success of these businesses is crucial to the success of democracy, especially where large majorities are poor. All these goods belong not solely to Americans, but to all people on earth. To help set in place the preconditions for the achievement of these great social goods–to help break the chains of worldwide poverty–is the international vocation of American business.
Being a business leader today, then, is a highly moral profession. The bad news is that one can fail at it. The good news is that one can succeed.
