Spirit and Story Archive
Welcome to Spirit and Story, where you can find the latest thoughts and reflections by CLAL faculty and associates on the contours of our contemporary spiritual journeys.
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Enronomics, Spirituality and Financial Regulation
By Robert Rabinowitz
Enronomics 101: The Enron Business
Model. First, take a sound business. Then tie top executives’ remuneration to
unsustainable levels of profit and growth. Next,
exploit all possible conflicts of interest to ensure that nobody blows the whistle on the
tricks used to maintain the appearance of success. Offer
auditors consulting contracts to make them more compliant.
Distribute corporate largesse to politicians in return for relaxed
regulation. Offer sweet private deals to the
bankers who underwrite your share offerings and advise clients on investment strategies. And so the list goes on.
Conflicts of interest are part and
parcel of every financial scandal because of the central role that our economic system
assigns to the pursuit of self-interest. A
truism of economics is that the best way in which one can serve the common good is through
dogged pursuit of one’s own self-interest. This
idea was beautifully summarized by Adam Smith (1723-1790) who observed that “[i]t is
not from benevolence of the butcher, the brewer, or the baker that we expect our dinner,
but from their regard to their own interest...[Man is] led by an invisible hand to promote
an end which was no part his intention.…”
The problem arises, as we are
beginning to see in the Enron case, when the pursuit of self-interest gets out of control,
when people take undue advantage of each other beyond the limits prescribed by society as
acceptable. Within the boundaries of what is
acceptable, to pursue one’s self-interest is called striking a deal. Beyond those boundaries, the pursuit of
self-interest harms others in an illegitimate way. It
also undermines the long-term health of markets as people become more cautious about being
cheated out of their capital by unscrupulous speculators and crooks.
But there is also a spiritual
dimension to this conflict of interests. From
a spiritual perspective, the opposite of Smith’s conception of economic motivation is
actually true. One cannot attain life’s
true joys through pursuit of self-interest but only through service to others. True joy comes to a person who can quiet the
constant clamoring of the acquisitive drive within her – in Judaism the yetzer – for more “stuff.” The stuff that the yetzer seeks – more power, more money and
higher social status – does not actually bring the fulfillment for which the rational
agent of economic theory yearns. This does
not mean that money, power and status are of necessity spiritually detrimental, although,
in light of their power to corrupt, they certainly need to be handled with care. As Jacob Needleman succinctly explains,
“Personal gain is not excluded from a spiritual life.
On the contrary. But the aim of
personal gain is clearly defined: one gains something in order to give. This is the essence not only of human life, but
of existence itself” (Money and the Meaning of
Life, Doubleday 1991, p.280).
Traditionally, many Jewish thinkers
have acknowledged that self-centered concerns about our own material well-being are in
conflict with our deeper spiritual goals. Nevertheless,
they have recognized that such concerns are thoroughly proper and deserving of respect. Recognizing that what is locked out by the door
can often fly in through the window, the rabbis recommend accommodating the yetzer’s urges in a way that minimizes the
harm they can cause and maximizes their personal and social benefit. This perspective is best exemplified in the
oft-cited rabbinic statement that “were it not for the yetzer hara (the evil urge), a man would not build
a house, take a wife, beget children, or engage in commerce” (Midrash Genesis Rabbah
9:7). A successful life, from this
perspective, is the result of constant, ongoing, disciplined vigilance to ensure that the
material and social goods necessary for a life of dignity do not become ends in
themselves, that the yetzer does not distract us
from life’s true goods.
In this light, institutions such as
the Securities and Exchanges Commission or the Public Oversight Board and rules against
insider trading do not simply protect society at large from economic conflicts of
interest. We might also think of them as part
of society’s spiritual apparatus that ensures that individuals can direct their yetzer effectively in the pursuit of self-interest
without being corrupted by it. They can also
serve to protect business people from excessive pursuit of self-interest at the expense of
their own spiritual good. From this
perspective, the list of people hurt by the Enron scandal goes beyond Enron’s
employees, shareholders and creditors to include the executives at Enron and Andersen who
caused the scandal. While they profited
greatly in material terms (even if many of them are bound to lose their wealth as the
inquiry continues), that wealth was almost surely gained at the expense of their true
spiritual well-being. As Jesus put it,
“[w]hat profiteth a man if he gain the world and lose his soul?” (Mark 8:36).
What would it look like if financial
regulations and our major institutions were designed to serve our spiritual as well as
material welfare? Spiritual concerns rarely
if ever have a place in the contemporary discussion of economic issues, perhaps because
religious concerns are perceived as at best irrelevant to economic and financial policy or
because of a justified fear of the intrusion of religion into civic life. And yet, it seems to me that this is an area in
which religious traditions could make a significant contribution to the public policy
debate, without compromising basic freedoms or harming the basis of our common prosperity.
The rabbis, heeding the admonition of
the biblical prophets, interpreted the Torah’s injunction not to “put a
stumbling block before the blind” (Leviticus 19:14) in metaphorical as well as
literal terms. One should not knowingly place
people in situations, the rabbis declared, in which they are tempted to compromise their
moral and spiritual integrity. Though
integrity is in essence a personal matter, each of us has a responsibility to protect our
friends, colleagues, neighbors from unnecessary temptation.
What then is society’s responsibility not to put a stumbling block in
front of the blind?
In the last two decades, there has
been increasing emphasis on self-regulation in many financial areas. But, given everything we know about human nature,
can we honestly expect people not to enrich themselves illicitly if they believe that
there is little or no chance that they will be held publicly accountable? In drawing up legislation, shouldn’t we also
be taking into account the spiritual well-being of corporate employees? After all, our society has judged that their
pursuit of self-interest serves the common good. But
should we not seek to ensure that they do not serve the common good at the expense of
their souls?
As the Enron scandal develops and
unfolds it is clear that more and more people and institutions are being implicated. It would seem that at least part of the remedy
lies in removing current regulatory “stumbling blocks” that tempt people to put
their material self-interest and their yetzer
before the common good and their own spiritual well-being.
Policy remedies would include greater transparency and public
accountability, regulations forbidding financial institutions from engaging in businesses
which lead to clear conflicts of interest, and rules safeguarding the impartiality of
members of regulatory bodies. The Enron
debacle not only necessitates action to restore confidence in markets and financial
professions. It also creates an opportunity
to create a healthier and more prosperous society by crafting economic policies that
recognize and accommodate the inevitable tensions between material wealth and spiritual
well-being.
To read additional articles by Robert Rabinowitz,
click here.
