January 16, 2010
James Kwak has an interesting post Design or Incompetence? in which he discusses the ways banks are delaying and obstructing customer efforts to get benefits the banks have offered. In addition the banks are misrepresenting their own actions and obligations. As the title suggests he wonders whether this behavior is due to design or incompetence, and ultimately concludes (after some discussion of the internal institutional issues) that it doesn’t matter because it is a systemic consequence of the banks’ incentives.
As in my previous post on “Lying or Stupid?”, I’d say this analysis is interesting and sometimes useful but that we should start by saying the institutions involved are untrustworthy which is true either way, and often we don’t need to look into the finer distinctions. Debating the details usually just gives these bad actors ways to muddy the water.
More generally, we need to develop social sanctions — applied by governments, broad condemnation, boycott, and/or whatever else will work — to “adjust the incentives” of these bad actors so they either become trustworthy or are replaced by organizations that are trustworthy. These social sanctions worked with apartheid and to some extent with third world sweatshops, we can at least imagine them working with respect to untrustworthiness.
Right now unfortunately there are many who argue that not only should corporations ignore this sort of issue, but even further that it would be immoral for them to take such considerations into account. Furthermore the general perception is that we can’t expect corporations to care about morality, as Roger Lowenstein discusses. I’ve been chewing on this issue in the comments to a couple of interesting posts by Timothy Lee and plan to summarize my resulting thoughts here soon. The good news from that discussion is that even some committed free market folks such as Timothy agree that we need to have corporations put moral obligations such as trustworthiness above profits. Now we need rough consensus on that…