Economists and business councils have been telling us for years that we must improve our productivity if we want to be more prosperous but, so far, they’ve had little success. Surely, there’s something else we could try?
As we’ll see, it’s something for Treasurer Jim Chalmers to ponder as he puts the finishing touches to next Tuesday’s budget.
Economists have many strengths, but they don’t win many prizes for thinking outside the box. Productivity is the obvious way to increase our prosperity but, despite all the admonition, for years it’s been hard to achieve, both here and in the other rich economies. It’s clear there’s a lot economists don’t know about how productivity is improved.
So, is there nothing else we could do to improve the way the economy works and the satisfaction it brings us? Of course there is – particularly when you remember this isn’t just about dollars and cents. Don’t you think life would be better if we could do all our earning and spending in an economy that generated less angst?
I’m indebted to Dr Simon Longstaff of the Ethics Centre for reminding me that behaving more ethically would be a good way to get better results from the economy.
Huh? How does that work? Let me tell you.
Ethics is a set of beliefs about the right way for people and organisations to behave, particularly in their relations with other people. Often, the right thing for us to do in particular circumstances is obvious.
It’s obvious, for example, that we should (almost) always obey the law. It’s just that obeying the law isn’t always convenient or inexpensive. And sometimes when our own interests are top of mind, it’s hard to see what’s obvious to everyone else.
In any case, because differing groups of people have differing beliefs and motives and objectives, ethical dilemmas – deciding what’s the right thing to do in all the circumstances – are common, particularly in business. That’s why we have a new profession of ethicists offering advice to organisations, of which Longstaff is the most prominent.
But what’s that got to do with the economy?
Well, let’s be clear. The only reason we should need to do the right thing is that it’s the right thing to do. And the only reward we should expect is being able to sleep well at night in the knowledge that we’re treating people justly, often at some cost to ourselves.
However, as Deloitte Access Economics has demonstrated in a report for the Ethics Centre, there is a strong “business case” for behaving ethically. A case that makes sense not just for individuals and businesses, but also for the treasurers and Treasuries responsible for improving the way the economy’s working.
The case rests on an obvious, but often forgotten truth: market economies rely on a high degree of trust. Trust between buyers and sellers. Trust that you’re not selling me a dud. Trust that your cheque won’t bounce.
Trust that you’ll let me return it if there’s a problem. Trust that you’ll honour your promise to service the thing for the next X years. Trust that you won’t pinch someone else’s bag from the airport carousel. Trust that you’ll repay the money I lent you.
Trust that if I let you check yourself out at my supermarket, you won’t slip in a few things you didn’t ring up. Trust that if I work for you, you’ll treat me fairly. Trust that the law will back me up if you do the wrong thing.
Point is, the more confident we are that we can trust each other – trust the businesses we deal with – the more smoothly and cheaply the economy runs and the more business gets done. When we have to spend a lot of money on security and making sure we’re not ripped off, the costs mount up, and we end up not doing all the transactions we could.
So, how do we get more trust into the economy? How do workers, employers and businesses get themselves a good reputation? By always behaving ethically. (I could say this also applies to politicians, but that would be pushing it.)
Research by Access Economics finds evidence that fewer unethical decisions lead to better mental and physical health for individuals. And evidence that unethical behaviour leads to poorer financial outcomes for business. And evidence that ethical behaviour results in higher wages.
But Access also reminds us of the evidence that our ethical standards could be a lot higher than they are. The World Values Survey finds that only a bit over half of Australians think most people can be trusted. The Governance Institute finds that, on a scale running from minus 100 to plus 100, Australia ranks at plus 45, or “somewhat ethical”.
Then there’s the string of royal commissions finding unethical or even illegal behaviour in institutional responses to child abuse, misconduct in the banking industry, and aged care. And that’s before we get to the epidemic of “wage theft” that so many otherwise respectable big businesses have had to admit to – all of it purely accidental, apparently.
OK, OK, we could do a lot better, with that producing tangible economic benefits. But how? Well, one approach would be for economists and econocrats to switch their sermonising from productivity to ethical behaviour.
Perhaps not. What would help is for ethical questions to get a lot more of our attention. As sociologists understand, but most economists don’t, businesses – like the rest of us – tend to want to do what others are doing. If we’re all being ethical, I don’t want to be seen as uninterested in ethical behaviour.
If we could give ethics a higher profile, we’d probably get more of it. If expert advice on ethical problems was more readily available, more would be asked for. If there were more training and meetings and conferences on the topic, more decisions would be examined for their ethical implications.
Longstaff’s Ethics Centre has a proposal to improve our “ethical infrastructure” by teaming up with the universities of Sydney and NSW to establish an Australian Institute of Applied Ethics, which would be open to receiving requests from governments and the private sector to report on major ethical questions facing the nation. It would be a bit like the Productivity Commission or the Australian Law Reform Commission, but it would not be a government body.
It would also contribute to education, training and leadership development, building the practical skills of good decision-making on ethical issues in the private and public sectors.
Copying the pattern used to establish the hugely successful Melbourne-based Grattan Institute, the proposal is for the federal government to contribute $30 million towards a $40 million one-off endowment. The new institute would be funded from the earnings on this endowment, plus earnings from providing education, training and other services.
We’ll learn on budget night whether Chalmers and his boss are acting on this sensible idea for achieving a better economy, or whether they will be content with more platitudes on the need for greater productivity.