Capitalisn’t: When the Profit Motive Kills

Anand Giridharadas: If you run a business school, and you’re getting the sense that hundreds of people your school educated did and said nothing to stop the financial crisis, which hurt millions and millions and millions of people—many permanently—at some point, you’ve got to say, “This is our product.”

Bethany: I’m Bethany McLean.

Phil Donahue: Did you ever have a moment of doubt about capitalism and whether greed’s a good idea?

Luigi: And I’m Luigi Zingales.

Bernie Sanders: We have socialism for the very rich, rugged individualism for the poor.

Bethany: And this is Capitalisn’t, a podcast about what is working in capitalism.

Milton Friedman: First of all, tell me, is there some society you know that doesn’t run on greed?

Luigi: And, most importantly, what isn’t?

Warren Buffett: We ought to do better by the people that get left behind. I don’t think we should kill the capitalist system in the process.

Bethany: In early February, the news broke that McKinsey, the powerful consultant to blue-chip corporations and governments around the world, had agreed to pay $573 million to settle investigations into its role in helping Purdue, the maker of OxyContin, sell—and we mean, sell—opioids.

Speaker 8: A rare moment in which the firm is being held publicly accountable for its work with clients.

Bethany: The details are pretty gruesome. In 2009, McKinsey told Purdue the tactics it was recommending could increase sales of OxyContin by as much as $400 million annually. McKinsey worked with Purdue executives in finding ways to “counter the emotional messages from mothers with teenagers who had overdosed on the drug.” Then, in 2017, McKinsey suggested giving distributors a rebate for every OxyContin overdose attributable to pills they sold.

Speaker 9: Under the terms of the agreement, McKinsey will not admit to any wrongdoing but will agree to court-ordered restrictions on some of its work.

Bethany: Luigi and I had been wondering for a while what the role of institutions, from business schools to modern-day finishing schools for the wealthy, places like McKinsey, but not limited to McKinsey, Goldman Sachs and many others are, in fact, places where you learn the language of profit maximization but not any accompanying moral framework.

Luigi: To discuss this thorny issue, we thought there was nobody better than Anand Giridharadas. He’s the author of the famous book Winners Take All and publisher of an online column, The.Ink, and he worked at McKinsey in his youth. So, it is with great pleasure that we welcome you here, Anand.

Many people have followed the investigation against Purdue Pharma for pushing opioids too aggressively. Most people probably don’t know, even if it was reported in the New York Times, that McKinsey was actually involved in the process. In fact, they found a report that was teaching Purdue how to do that most effectively.

Anand Giridharadas: It was a terrifying and very depressing glimpse into McKinsey taking on this client, whose problem was, how do you preserve growth when your product is killing people, and regulators are coming for you? If you read the emails, look at the PowerPoints, it’s very clear that’s the frame of the problem. People are dying, regulators are closing in, how do you protect growth? To watch McKinsey then answer that question, “Well, you could stave off the regulators this way, or you could figure out how to do this,” treating a moral crisis as a tactical challenge, it’s very, very sad, but also profoundly emblematic.

Bethany: Back up to your decision to go there, and when it was that your disillusionment began to set in.

Anand Giridharadas: I was there about a year, so when I was 21. It was not a particularly profound decision. It was, I guess, a mercenary thing on both of our parts. I wanted to be a writer, but as you know, it’s just very hard to navigate your way into journalism right after graduation, because there just aren’t the same entry-level paths. And I got some advice from one of my mentors at the time, who said, “Don’t be one of these people who hangs around as a freelancer for 10 years trying to do one piece a year and inch your way in. Go away, go far out to the world.” And I thought about India, because my family had come from India, and I thought it’d be the perfect betrayal of my parents’ hard work in establishing a life in America for me to just reverse their entire journey.

At some point I was just like, “I need a job to get me to India.” And I was thinking, I had studied the history of political thought, which is the least useful and most useful major, so who is going to hire someone who studied the history of political thought in Europe and the United States and send them to India? And then it occurred to me, McKinsey & Company. So, I applied to the local Mumbai office of McKinsey. They had no problem with my being a history major who didn’t really know much about business. And as soon as I got there, I realized it was a disaster. My disillusionment started on day one, when I was sent to advise a pharmaceutical company on leadership development. And I was like, “But I don’t know anything about pharmaceuticals or leadership development.” They’re like, “That’s not a problem. You can just figure it out and look on the internet and tell us what you think the answer is.”

I did that work, but I was pretty sure, and I can assure you today, that what I came up with was surely wrong. And yet it’s the advice that the client got, it’s the system the company implemented, it is the system that was used to then evaluate 40 or 50 leaders of that company. And their lives were then rearranged and promoted and not promoted and fired and whatever, based on my made-up, bullshit guesswork about what the qualities of leaders are. And I started looking for a job as soon as I got there. And, very luckily, I managed to get a job at the New York Times, staying in Mumbai, about a year after I moved to India.

Luigi: Well, you must be the only guy who got a job at McKinsey as a second option, because most college students are killing to get that at the end of their senior year. So, you must be very talented to obtain it as a second option, but—

Anand Giridharadas: Just on that, I think it’s very interesting, and I try to write about this in one chapter of my book, that this is partly because these firms have done something very brilliant in understanding the psychology of young people today on campus and understanding their idealism, their desire for business to be more than business. And they have invented this entire cathedral of a story about how what they do is not really business. It’s really about pro bono work and it’s really about advising public policy. And it’s extraordinary to watch them pitch this on these campuses. And it plays right into these students’ palms, and then the students graduate, and they go to these firms, and they realize, “This is actually still just a place where you take the cost of a tire manufacturer’s income statement.” And so, it has resulted in the dramatic misallocation of some of the most well-trained minds in our society.

Luigi: But actually, as a business professor, I feel that there is some value in making sure that you count the cost of tires. And even if McKinsey has a terrible reputation for being the cause of a lot of layoffs, I don’t blame them for that, because making profits is not a crime while conforming to the basic rules of society, and here I quote Milton Friedman. That is fine with me. What really upsets me is that it seems that McKinsey is violating the basic rules of any society, in the sense that, in any society, “You shall not kill,” is rule number one. And McKinsey does not seem to follow this basic principle in doing business.

Anand Giridharadas: Well, you’re right that that was not a deal-breaker for them. And I wondered how long before a University of Chicago-related podcast would get to a Milton Friedman quote, so I’m glad we hit that milestone. I think there’s less of a distinction between the two points you made than you realized. The reality is, if you look at the way in which the opioid crisis killed people, it is a direct, malicious, forthright set of choices by various actors that predictably, reliably, foreseeably killed very large numbers of people.

But if you are to step back and look at what a lot of the management-consulting firms and Wall Street banks, through the different mechanisms, not of advice, but of pressure and ownership and private-equity firms and buyouts and various other things, if you could make an employee a contractor, do it. If you could break a union or avoid a union, do it. Create a double Dutch with an Irish sandwich tax maneuver, do it. If you could move money offshore, if you could rig public policy in Washington, if you could get antitrust regulators to stop enforcing antitrust, if you could get the SEC to stop worrying about insider trading in your particular case or all cases, do it.

When you then look at those willful choices, they didn’t directly result in the kinds of things that you see with the opioid crisis. But over time, I think it’s inarguable that the instability, the inequity, the poverty, hunger, the lack of resources that that has caused over time in this country is certainly on the same scale. One of the things that I try to do in Winners Take All was not just have this be me saying what I think but talk to people within this world.

And I talked to Michael Porter from Harvard Business School, who is very open about the fact that the revolution of managerial thinking that he was very much a part of overshot. The effort to have tax efficiency became theft from the commons. The desire to not have too much regulation became impunity from monopolies. And the desire to have more dynamic, flexible workforces became having no responsibility for anybody who works for you. It just went too far. And it’s not me saying that alone; it’s Harvard Business School’s Professor Michael Porter saying that.

Luigi: The problem, unfortunately, it’s not just limited to McKinsey, it’s not only limited to other consulting firms. I think it is, as you describe, a general problem. And honestly, we as business schools have a role. You already mentioned Michael Porter. Several years ago I wrote a piece for Bloomberg saying, “Do business schools incubate criminals?” What is your view of the role of business schools in this education?

Anand Giridharadas: It’s a good question. There are the easy criminal cases and there’s criminal systems. And, in a way, criminal systems, when it comes to business, hurt way more people than individual criminals. The person who does insider trading hears something at a party and then makes a phone call. We go hard after that kind of thing, sometimes. Often, we don’t even go hard after that. But—

Luigi: If he’s a senator, we let him go.

Anand Giridharadas: Right. Exactly. But that’s what we think about when we think about a crime. How do you think about the crime of running a company like Amazon and just totally avoiding unionization and thwarting it at every turn? It’s certainly legal, but it very much grows out of the teaching of business schools. I think there’s formal doctrine, and then there’s a more intangible point. In the formal doctrines, a lot of the education, as I understand it, is a CEO-eye view of how you deal with a microeconomic business challenge. And if you read Harvard Business School cases, often just any kind of external reality that a wise person, a person who calls himself a leader, would consider, it’s just absent from the material.

A lot of the framework’s core competency . . . When you actually look at what they amount to in implementation are very socially destructive, but that element is just almost never discussed in the original books, almost never discussed in the classrooms. I’ve sat in these classrooms and I’ve watched discussions that so clearly ought to be discussions about what people’s lives would become like if such a thing were to be implemented, and that discussion is not there.

Which leads to a second, more intangible, maybe slightly offensive one, but I’m going to be real about it. I’m often struck when I talk to people very trained in a business mind at the very limited and specific nature of their intelligence and understanding of the world. A lot of people who run businesses are very, very smart, but it’s often a very tailored intelligence. But their confidence about the transferability of that intelligence to all domains is infinite. And you get them talking about other domains, public education or healthcare, or how to do messaging in politics or whatever it is, and the confidence is the same, but the insight collapses. Some of this stuff is not built on malice so much as obtuseness. A lot of businesspeople are honestly just not that smart about society.

When you then walk into the area of public education and you suddenly have thoughts, you’re unfortunately, in that situation, not very smart, but you are very influential because you’re bringing resources to bear. And I think that problem is a very real one. You do not see public-school teachers who succeed at teaching in a public school say, “You know what, I’m going to walk over to Motorola and just advise a division there about how to restructure.” That never happens. You don’t see people who drive racecars professionally win a race and walk over to Apple and say, “You know what? I think you should do your sales strategy slightly differently at the Apple store.” But somehow, if people have a modest amount of success in business, they have no compunction about manspreading over various domains in which their expertise is, frankly, limited.

Luigi: We distinguish between selection and treatment in the sense that it might be that people who have a particular kind of intelligence prefer to enter business, because it’s more suitable for that kind of intelligence. It might be that we fail in providing them a broader education. You brought up cases. Actually, the Stigler Center that sponsored this podcast, which is a small center at Chicago, is trying to produce different kinds of cases that do exactly what you are describing, which is trying to bring up a question from a broader perspective. Because I was with some colleagues at different universities, and we said, how many cases from Harvard do we have about corruption, heavy lobbying, twisting the rules and all that stuff? And the answer is, basically, zero. My view is we undereducate the sensibility of people on this topic.

Anand Giridharadas: I think both can be true. I think it’s certainly true that there’s a selection issue of who wants to go to business school, and that once people get there, there is a whole set of possibilities for how you could educate people to be stewards of resources on the world stage, which is essentially what the challenge is. And that the way that has evolved is just very narrow in particular and avoids certain things, as you just suggested, but also, I would say, more broadly provides a default lens for how to think about a problem that is fundamentally about the elimination of context.

In other words, most people look at a complex problem and recognize there’s a lot of things going on in the problem. And a lot of business thinking is about isolating variables, eliminating a lot of the noise and the complexity, and getting to the one thing that will change all the other things, and the 80/20 rule and all of that stuff. That complexity reduction, it’s very useful for certain things. It’s very useful if you are arriving at that tire company and you’ve only got three days to figure out what the best mechanism to make a little bit of a difference is. But when you’re looking at something like education, it’s just not that kind of problem. And if you don’t know how to think in that other way, but you are given some kind of elevated position of leadership, it becomes a very dangerous imbalance for everybody.

Luigi: In this period, if you were to give one piece of advice to business-school professors like me, of what you should teach differently or what you should do differently to help this transformation, what would it be?

Anand Giridharadas: I think the whole question of whether a business school should exist as a separate entity from other academic disciplines is a worthy question. Should it be integrated with policy schools and law? I understand that there are unique frameworks you want to learn in business, but teaching those frameworks in the absence of so much other thinking is very problematic. I every year drop in on one of your rival business schools, a very prestigious school, and I’m struck every year by, one, how brilliant these kids are. And, two, by honestly, how narrow they are. And they strike me as narrower than virtually any other group of people I speak to.

And I mean that very seriously. They’re very clearly high IQ, very clearly, but it’s actually, I realize each time I speak to them that their ability to hold multiple truths and complexity and understand macro and micro and society and second-order effects of things is honestly, it’s just very, very low. And if you are being trained to end up in positions where you employ a hundred thousand people, that’s very, very dangerous.

So, I’m not sure if business education should continue to be siloed away from thinking about human disciplines. Maybe a very large chunk of the curriculum should not be about business. Maybe half the curriculum should be sociology and history and politics and law. Maybe the basic suppositions upon which the case method, for those who follow the case method, works, maybe those should be re-examined. Maybe the view, the bird’s eye view, the CEO’s-eye view that defines the case method is just the wrong view. I don’t know. Maybe I’m wrong here. Are there Harvard Business School cases written from the vantage point of a laborer? A warehouse worker? An Uber driver? Why not? Is it impossible to write a Harvard Business School case from the vantage point of an Uber driver deciding whether to join the lawsuit in California?

I think this is going to require some imagination, because if I was in one of these positions, I would feel embarrassed that not once, not twice, but seemingly on the scale of thousands of people, I was continuing to churn out people who, when unleashed on society and given power, show sociopathic instincts on an extraordinary scale. And maybe they were born sociopaths or maybe they picked up some more in business school. It doesn’t matter. It goes to the question of your article about criminals, but that’s very disturbing if you got . . . I have children. If I hear that my child hit someone once in school, I’m very disturbed by that. I’m going to do something about that.

So, if you run a business school and you’re getting the sense that hundreds of people your school educated did and said anything to stop the financial crisis, which hurt millions and millions and millions of people—many permanently—at some point, you’ve got to say, “This is our product. This is not people failing to grasp what our product is. This is not people failing to hear the lessons. This must be the lesson.”

If I found out as a writer that there was some cult following of my book and people read it and then went to go do terrible things, if it’s one person, I can excuse myself. If it’s three people, I can excuse myself. If 50 people read my book and all go commit the same crime, it’s me. The problem is me. And I think business schools need to have that moment.

Luigi: And if they are 8,000 and they storm Capitol Hill?

Anand Giridharadas: Oh, my gosh!

Bethany: You can also see, I think back to your earlier point, how that way of thinking can lead to precisely what happened with McKinsey and Purdue, because you can put aside the moral qualms if you’re trained in a way of thinking that is, simply solve this problem. Then it becomes easier and easier to put aside the factors that should be central. I was thinking about that, since Luigi introduced Friedman, I have to introduce Thomas Piketty, because I was thinking about the quote that you’ve said inspired you, which was his quote that rising inequality relied perhaps primarily on the effectiveness of the apparatus of justification. And I was thinking as you talked that maybe that apparatus is about building something, but it’s also about subtracting out or ignoring other things. Does that make sense?

Anand Giridharadas: Yeah, I think that’s right. And that was such an aha moment for me, because it’s this example of a thing that I love where writers often leave breadcrumbs for other writers to do the kind of writing they don’t want to do, but they want someone else to pick up on. Scholars do this all the time. And I felt he was leaving breadcrumbs where he was saying, “I’m describing to you some fundamental laws of economic physics, where if the rate of return on capital is going to continue to exceed the growth rate, these inequality trends are going to grow,” but whether or not that is sustainable depends on public policy, and whether or not public policy changes depends on this apparatus of justification, as he called it. And I just realized in that moment, my subject was going to be the apparatus of justification; the way in which, as you say, certain stories are told and certain stories are subtracted from the narrative in order to keep the whole system going.

One example of each, I think an example of a story that was very much promoted by what I call Market World in the book, to keep this whole party going, was that the people who, in many ways, live at the top of our economic distribution, who are the wealthiest, most powerful people—the people, in many ways, most responsible for rigging systems against most people—that those same people are the most capable, gifted solvers of the problems they’re still working to cause. That is an idea that very much had to be articulated and invented and pushed to have any credence at all. And it was successful.

In terms of an example of something that’s subtracted, you will probably not hear a Ted Talk anytime soon about a wealth tax, in part because people pay thousands of dollars to sit in the seats at Ted. And so, a lot of what happens in Market World is that you promote the kind of ideas about change that are change that doesn’t change anything for those on top, and you sideline or ignore the kinds of ideas about change that actually involve the powerful having to give something up or redistributions of wealth and power that are involuntary.

Bethany: On the note of change that doesn’t change anything, how do you feel about the Business Roundtable’s move towards stakeholder capitalism? And I’m not framing that question in a way that gives away my opinion or anything, but I’d love to hear your thoughts on it.

Anand Giridharadas: It’s such a fascinating story. The Business Roundtable thought it made history basically declaring that, “Oops, sorry. The purpose of business is not what we’ve been saying all along, which is just to create value for shareholders. The purpose of business is actually to help all stakeholders. We now recognize that we were wrong. We’ve seen the error of our ways, we were blind, but now we see, and now we recognize that it’s all about stakeholders.” Basically, corporate America had declared a New Year’s resolution, and anybody familiar with implementation rates on New Year’s resolutions should have been slightly more skeptical about what was involved.

The New York Times calls me to give my thoughts on this, and I ended up providing the kicker quote, the final quote in the article, saying, “Look, this is voluntary corporate virtue, and there’s no record of voluntary corporate virtue changing anything. And the way to change this stuff is to change the law. And if they want to lobby to change the law to protect stakeholder interests, they’re welcome to do so. That’d be fantastic. Absent to that, this is New Year’s resolutions.”

Jamie Dimon emails me. So, I call Jamie Dimon. To his credit, he never went off the record, so we were on the record the whole half an hour we were on the phone. I pushed him. I said, “Jamie, you put out the statement, why don’t you actually now advocate for this to become the law? There’s a bunch of proposals, the Accountable Capitalism Act, various other things that would make this the law. If you really believe this, fantastic, terrific news.”

“Well, we can’t do that. The law is complicated. We don’t want to disturb the law.” I said, “Well, Jamie, why don’t you kick people out of your Business Roundtable if you know their business practices violate the standards you just promulgated?”

“Well, we’re not a police force, Anand. We can’t operate like a police force.”

“OK. Why don’t you actually start lobbying for policies to reflect this?”

“Well, it’s not really what we do.”

“Well, Jamie, there’s people who are in this group of CEOs who’ve signed the statement, who you and I know today from public reporting treat their workers terribly, bust their unions, do wage theft, whatever.”

“Well, I know those CEOs. I know them personally. They’re really good guys. And I think in America, a lot of people just don’t like to work.”

That’s what Jamie Dimon said: a lot of people in America just don’t like to work.

So, I take their statement as I think it was, which is a New Year’s resolution that they haven’t really lived up to. There were two studies that grew out of it, one that was affiliated with them, one that was external. The one that was affiliated with them found that signing the statement made no meaningful difference to how companies actually operated in the subsequent year, the year of COVID, when there were many opportunities to be kind to people or not.

The other study that they were not involved with found that signing the statement actually made companies behave worse. Signing the statement predicted worse behavior in 2020 toward employees and communities than not signing the statement. And that study is a really fascinating one that we ought to think about, because it suggests, in effect, what the authors called moral licensing, where some of these performative gestures of do-gooding actually buy you space to do more harm than you otherwise would have been able to do if you didn’t get to do this big song and dance.

Bethany: Part of the apparatus of justification. Go ahead, Luigi. Sorry.

Luigi: On this line, if I understood your book correctly, and that’s the part I really like, what you’re saying is, look, corporate charity is a great activity. However, it might be used strategically or, de facto, as a way to distract from more important fixes that may actually solve the problem in a more radical way. Maybe I didn’t do this justice, but am I interpreting this correctly?

Anand Giridharadas: Yeah, I think that’s right. I think this kind of elite do-gooding is not the way to fix things, but I would just add one wrinkle, which is sometimes it’s not just that it’s not enough. In some cases, the world would be better off without these rich people or companies doing this philanthropic song and dance. There is a social consequence that sometimes results in harm on a much greater scale.

I’ll give you a simple example. Look at Mark Zuckerberg. If Mark Zuckerberg didn’t have some of the moral glow that he purchases by donating $300 million to election security and supporting undocumented folks through the FWD.us group and various other things and the hospital in San Francisco and pledging to give 99 percent of his equity away. If he didn’t do all of that—that stuff has bought him so much good press despite the fact that he’s literally Mark Zuckerberg.

Imagine his reputation absent any of that, that the odds of an antitrust case happening earlier go up significantly. The odds of being regulated for pumping disinformation into the American bloodstream go up significantly. People’s reputations end up having a huge bearing on what the society does about what they do. Letitia James, a New York state attorney general, argued very convincingly in her civil complaint against the Sacklers and Purdue that the use of art-museum donations by the Sacklers created a smoke screen that allowed the Sacklers to go on killing New Yorkers longer than they would have otherwise been able to if people didn’t associate them with being the prestigious arts family.

And so, in certain cases—it’s not all cases, to be sure, but in certain cases—we might actually go so far as to say that that million dollars marginally would be better spent for the public’s purposes on a yacht, because then we would at least see these people clearly for who they are. And when they instead bribe society at large through this elite do-gooding, they actually stave off justice on a much greater scale.

Luigi: I don’t know whether I can push your argument further, but let me try, at least in some margin, because I see companies tremendously involved in being politically correct, in being concerned about racial equality. McKinsey is running webinars on how to address racial inequality in any meaningful way. And in no way do I want to say these are not important things, as poverty’s extremely important and donating to poverty is very important, but my concern is that a lot of the activities that companies do in this realm is a way to cover up for the fact that they are helping Purdue, they are doing all the other stuff. What do you think of that?

Anand Giridharadas: Yeah, that’s correct. The critique I make in the book has multiple levels. So, there’s firstly the problem of straightforward reputation laundering. A lot of these companies and individuals use philanthropy to wipe off the stink of what they have just been doing in the marketplace. But there’s further problems beyond that. When you have folks who are making enormous gifts to public education, let’s say like Bill Gates, even if you think issue number one does not apply, one has to ask the question, what entitles private citizen Bill Gates to have any more say about the nature of public education in the United States than you or me or anybody else? You get one vote every couple of years. We’re not supposed to actually have more votes than the one vote. And when you get to spend a billion dollars on education in America and try to push Common Core through, you’re getting millions of votes and you’re not elected. And we had a whole revolution to try to eliminate that kind of unelected power over people’s lives.

And then you have this broader issue of public opinion towards a plutocratic class. A lot of Americans—and I report around the country, travel around talking to folks—I can’t tell you how many people I’ve met who make $25,000 or $50,000 a year who live in this world in which they think billionaires are good people who are creating opportunities for people like them to also become billionaires one day. Well, that is a very successful idea to implant in people if you’re a billionaire, but it’s complete bullshit. And that idea in the culture is very much upheld and maintained by a lot of this elite do-gooding. And it comes up in lay conversation. People will say, “Well, he gave so much to universities or he gave this to that. Doesn’t Bill Gates do so much in Africa?” People have a very casual sense of it, but somewhere in their mind, it’s like, it’s OK that we have this system with all its inequities, because these people are helping, they’re doing something.

And that, in a way, is the most interesting and important effect. It’s what I think about and call collective bribery. If one person wants one concrete concession in the state of New York and pays someone half a million dollars in a suitcase to get that concrete concession, it’s a big deal. That person may go to jail for a long time. It’s a big problem. But when you have an entire class of people spending billions of dollars a year with a quite conscious project to stave off things like a wealth tax, stave off things like Medicare for All, and very much using their giving in interviews on CNBC as the justification for why we should not do those other things, that kind of collective bribery goes unexamined. It was my project in the book to try to examine that.

Bethany: How do you stop it from going too far in the sense that people long for simple rules to live by, and the rule of, if it makes money, then it’s good, became a very appealing, simple clarity in a world that often seems really complicated? How do you make it not overshoot, and how do you get people to embrace complexity?

Anand Giridharadas: Well, the very small, tiny area where I would overlap with Milton Friedman’s view of the world is, I actually don’t think the job of companies is to worry about all these social things. And I think part of where we’ve gone so backwards is requiring companies to be the arbiters of whether people are going to live or die because they get pneumonia. In most civilized societies, those decisions are actually made by the society. What I think a lot of Americans don’t understand is that that’s actually very liberating for businesspeople. When healthcare is a thing that the society provides, you, as someone trying to make your restaurant chain work, are not torn between whether you can pay for your kid’s college education and whether your server is going to possibly die of pneumonia.

I have friends, European friends, who work in business, work in private equity, work in big corporations in Europe, who look at our system in the United States and say, “Businesspeople must be so stressed out in the United States, making these judge-and-jury decisions about people’s lives and dignity all the time.” Let’s have social responsibility become the province of the society.

Luigi: Bethany, last episode, we had Matt Stoller and now we have Anand. They’re both young, smart, intellectual, and they seem to characterize all business as criminal. Now, I find it funny because both you, Bethany, and I, in our youth—we’re still young—but in our youth, we were critical of business, we were criticized because we’re too critical of business. Now, I feel myself at the opposite end of the spectrum, saying, “Look, definitely there is criminal business or criminal activities in business, but you don’t want to paint everything with the same brush. It’s dangerous. And it’s not very constructive.” I fear that not having recognized the famous bad apples, now the entire basket has become rotten, at least in the eyes of most. What do you think?

Bethany: Well, let me back up to the first part. I’ve actually often said that the reason business done badly or business done wrong upsets me so much is that I am a believer in business. I think business has enormous power to do good by creating products that make the world a better place, by creating jobs for people. It’s—

Luigi: By creating vaccines that work.

Bethany: By creating vaccines. It’s business and often a profit motive that moves the world forward. And if you look at other systems that have been tried around the world, you can point to flaws with how all of them are implemented, but the outcomes sure aren’t better. But I think, in my view, you have to divide business into three categories. And maybe we could think of other ones, but the three categories are business done right. And then there’s criminal business, business that actually breaks laws. And then there’s business that, now thanks to our lovely producer, Matt, I’ve learned the word that’s used in gaming, which is cheesing, which is cheating without actually breaking the rules, which is a way of using and manipulating the rules in order to maximize your profits.

And I think a lot of the practices that both Matt and Anand are describing fall into the category of cheesing, as in the case of McKinsey, caring only about the profits and utterly ignoring the human cost and the morality of the situation. So, the problem is the underlying morality of corporations. And I think, in my view, an overly simplistic focus on profit maximization that trickles all the way down to the individual level, where you know at a place like McKinsey or a place like Goldman Sachs or any of these big firms, even big law firms, if you’re not bringing in money, if you’re not delivering profits to the firm, your place there isn’t going to last for long.

Luigi: But now you seem more like Anand and Matt than I thought.

Bethany: I guess I am a little more cynical than I perhaps had thought that I was. But you know what’s interesting is that in the wake of the Enron crisis back in 2001, there was a lot of talk about reforming business-school curriculums to focus more on ethics. And a lot did. I’ve sat in on a lot of ethics classes at a lot of business schools, and they’re done really well. And yet it hasn’t seemed to make a difference. And I think that all that teaching on ethics is running headlong into corporate culture, which has become more and more focused on profit maximization over the years. And as the opportunity set has seemed to shrink, and the gap between those who make a lot, a lot, a lot of money, and those who just make a lot of money has widened dramatically, there’s all the more emphasis on being at the very top of the food chain.

And so, I think even as we’ve taught ethics more and more in business schools, the actual practices inside the upper echelons of the places in corporate America where you can get really, really rich, have become more and more short-term and more and more profit-oriented in nature. I wonder if all the teaching matters in the face of the amazing power of corporate culture to get us to subsume our identities to what the corporation says is important.

Luigi: I think that, actually, the way that ethics is taught in business school is the wrong way, because it’s a little bit like confession for the Catholic church. You do it once a week or once a month, and that allows you to be a sinner the rest of the week. The moment you put ethics in special classes, you’re already saying that it’s not something that permeates your entire curriculum. And my approach has been that I raise moral issues in class while teaching finance. If you limit this to a class in ethics, but the marketing professor, the finance professor, does not say what he or she feels is wrong, it is basically time wasted. So, those norms should come from the people teaching the subject.

Bethany: We just need to clone you, Luigi, and all the world’s problems would be solved.

I’m teasing. But now you’re the one who is sounding like Anand, because just as he views the charity work that the very wealthy do as a way of effectively placating the masses, such that they don’t have to change the underlying business practices that allow for profit maximization, and then you just give a little bit of the profits you’ve made away, in an attempt to placate those who are hurt or offended by the way you do business, your analogy is essentially that business-school ethics classes are the same thing. They placate the demand for ethics training, but what they really allow for is the continuation of business as usual.

Luigi: I don’t mind, because I love that point by Anand. I think he’s absolutely right. And I was raised Catholic, so I blame my own folks, but at least a confession gives you more license to sin the rest of the week. If you’re a Protestant, you cannot give that up. And so, you are struggling with a sense of guilt. In the Catholic religion, you get rid of it with a nice confession, then you move on. And I think that that’s a problem.

Bethany: I’ve never heard somebody make Catholicism sound appealing before, but geez, maybe I should go back to my Irish Catholic roots.

Luigi: Let’s go back for a second to the McKinsey story, because first of all, I’m not a lawyer, of course, but I’m not so sure that there was nothing criminal in that. If I’m a prosecutor, I don’t want to take on McKinsey, they’re too powerful, they’re going to fight me forever. And they probably are going to still fight when I am out of a job, and they eventually win. So, I take half a billion in proceeds and move on.

Bethany: That’s even more cynical than I am, actually. I don’t think that’s less cynical. I think that’s more cynical.

Luigi: I don’t know. But among the options presented to their client, Purdue was going to McKinsey because, basically, the market was saturated, the regulators were coming after them, they also had a hard time selling more drugs because the pharmacies were reluctant because they saw the overdoses. And so, in their presentation that went on record, what they suggested, one of the hypotheses Anand has not pursued, but it’s one of their policies they considered, is to pay pharmacies a kind of bonus of compensation for every overdose patient that they develop.

Bethany: Gruesome.

Luigi: I don’t think that you need to be an ethicist to realize that this is wrong. And I don’t know, I’m not a lawyer, and if this is legal, I think the law is wrong, but I think that this is basic. So, the fact that this is entertained as an option suggests that there is some major moral failure.

Bethany: I think it raises an interesting question about closeness and distance. And some of what I think has gone wrong in the business world is that a lot of the people implementing certain strategies never have to touch the people who are affected by the strategies they’re implementing. And that’s a huge change over the last 50 years, for sure, over the last century. And so, it’s interesting that the pharmacies, CVS, refused to implement that plan, because CVS has to deal with parents in communities coming into their stores and saying, “My child overdosed.” And so, CVS said, “No, we’re not doing that,” because they’re closer to the ground. And I think the further away you get from the ground, the more likely you are to have problems, because the more likely it is that this problem of how you sell more opioids becomes this abstract question that is completely separated from the human lives. And I think that is a fundamental problem of big business that’s only getting bigger and more global, is the lack of ability to see the people you’re touching as people.

I think one place where you and I might disagree, where I disagree with Anand, is this idea that we need a system that relieves individuals from the burden of trying to figure out moral consequences. I think that’s part of being human, and it’s part of being human in your personal life as well as in your work life, is that you don’t get to ignore the moral consequences. I think the problem is we don’t think about them enough.

Maybe I could argue that that’s not the responsibility of lower-level people at a company. I mean, it’s always all of our responsibility, but it’s not their responsibility to implement that. But, for sure, people in the highest echelons of our world should not be relieved of that burden. That is what they should be doing. That’s what they’re getting paid for. Part of what I think has gone wrong is that we’ve paid people just to maximize profits, and they haven’t had to do that. They haven’t had to take into account other factors. Life is complicated. It should be complicated.

Luigi: You’re right, but it’s very complex. If the government decides to open up investment in China, and I am an entrepreneur that decides to build a factory in China and import into the United States, should I be morally blamed because I reduce the workforce in the United States? Now, personally, I don’t think so, because you are playing by the rules of the game, and they opened up investment in China, they’re basically telling you, “Invest in China.” So, are you wrong to do something that is clearly an activity, per se, legal, like invest in China? This might have some consequences, but that’s what, in a sense, policymakers should take into consideration. You should not be individually saying, “You shouldn’t do it because of this.” Because at that point, you’re paralyzed, you cannot make any decision, because any decision can have some consequences.

Bethany: That is the tension between my view that people need to take responsibility for their own actions and the effects of it, and this broader view that we need a set of policies and laws that limit what people can do in all of our interest. You’re exactly right, if that is permitted, and some companies do it, and you choose not to because you don’t think it’s moral, then you’re going to get punished in all sorts of ways. You are going to, chances are, have a higher cost of goods. Your profits are going to be lower. The market is going to say, “Huh, I don’t know that I want to invest in your stock.” You may get an activist investor involved who says, “I’m going to fire this management team and put another in place who will go and do this business in China.” That argument can start to cut very close to the vest, or very much across the line, in my view.

I remember talking to someone in the wake of the financial crisis, a guy who had worked on Wall Street, and I said, “Why did everybody on Wall Street do this? Why didn’t people walk away and say, ‘I see what’s happening. We’re taking mortgages made to people who can’t pay them back. And we’re packaging them up into securities and selling them to clueless investors, who need the money, by the way, to fund their governments, their pensions, their whatever, and they’re going to get screwed, but I’m getting mine, so I don’t care.’” And he looked at me and he said, “Well, think about the tradeoffs. You have this seat on Wall Street where you can make millions of dollars. And if you keep your seat and don’t say anything, you make your millions of dollars, and if it all goes to hell in a handbasket, chances are they don’t come after you. It may not even be illegal. If you give up your seat and you walk away, all you’ve done is give up the chance to make millions of dollars.”

So, I don’t like letting people too free from the concept of individual responsibility, either. Although I hear you, the argument, the example I just gave, could cut the other way, which is that it was possible within the system. So, of course, that’s what people are going to do.

Luigi: But there’s a simple first step. And the first simple step is at least to punish the most egregious cases, because if you don’t punish the most egregious cases, I think that you lose credibility. And then people who think that every kind of business is criminal and that the entire system should be redone are going to win the day.

Bethany: Right. I agree with you on that. I think, with the benefit of over a decade of hindsight, it’s really clear that the failure of the government to do a Pecora type of investigation post the financial crisis, where at least people were called to account publicly, even if their actions didn’t violate criminal laws, per se, was a big mistake just because of the widespread cynicism it created in our society.

So, what do you think we do about all this?

Luigi: There is an important role that business schools should play. I don’t want to do an infomercial, but I think that in my own small world, the Stigler Center is trying to promote a broader multidisciplinary education, and it is trying to even write cases that pose some of these moral dilemmas. And while they’re not necessarily written from the point of view of the Amazon worker that is fired, they are written emphasizing that there are tradeoffs, and tradeoffs that have some moral consequences. And what do you do when you’re confronted with them? I think that that’s a question that should be asked and discussed, not just in ethics class, but in every day’s class. That’s the first step we should make it in that direction.

Bethany: I think we need to fix what I’ve taken to calling the shadow justice system that exists for big corporations. And maybe even perhaps start limiting the ability of corporations to buy their way out of problems, because in the end, corporations are made up of people. And if the corporation did something, then people did something. And if the people did something because the corporation told them to do it, then that’s the corporation’s problem. And I get ever since the US government put Arthur Andersen out of business, there has been a great fear about putting a major employer out of business for the actions of a few people. I totally understand that there’s a huge, huge tension there, but at the same time, allowing corporations to strike these shadowy deals where nothing about what happened is transparent.

I remember reading some of the settlements in the wake of the financial crisis with the big banks and the Justice Department. You literally couldn’t tell from reading the settlement, did somebody do something wrong, or is the government extorting the big banks to get them to pay billions? I couldn’t tell. And there’s a problem when you have episodes like that that tear the country apart and destroy people’s lives. And you can’t even tell with the investigations after the fact or the legal settlements after the fact who was at fault and what happened. And so, I think a smarter legal mind than mine needs to start figuring out what we do about the shadow justice system that has grown up that has become the way big corporations are served whatever kind of justice they’re served.

Luigi: I completely agree, because the moment you start punishing somebody, then people learn and they change. In a company I was on the board of, a CEO told me, until I fire somebody because they violated a memo I sent, nobody believes my memo. I think that, unfortunately, that’s the case. And the law, if it’s not applied within corporations, they consider themselves outside of the law. Also, all that gaming that you say, I don’t know what it’s called, cheesing or being on the borderline, et cetera, but it’s very much driven by the fact that you get away with that. If you get punished when you violate it by an epsilon, then you stay a good margin inside the law because it’s too painful. So, I think that there is a lot of value in punishment, actually.