Robert J. Shiller: 2015 Undergraduate Commencement Speech

Robert J. Shiller, Keynote Speaker, 2015 Undergraduate Commencement

Business and the Good Society

President Herbst, members of the board of Trustees, honored platform guests, friends and families – and, degree candidates.

I am honored to have the opportunity to address you here today on this wonderful occasion.

Those of you who are graduating must feel great satisfaction to have made this achievement, and your family and friends must feel proud of you.

I would like to use this opportunity to reflect on the next stages in your lives, when you have the opportunity to use what you have learned to provide for yourselves and your family, and also to achieve the things that we look to the business world to accomplish for all of us.

The title of my talk is “business and the good society.” I chose this title, aware that it may seem an oxymoron to some, to emphasize that business ought to be, and is indeed, part of the good society. But business has always attracted some scorn, for the very fact of its devotion to profits is seen as evidence of lack of concern for people. “People over Profits” has been a leftist slogan for over a half century, ever since the Great Depression of the 1930s. Modern economic theory takes profits as a measure of success in delivering useful products, not as a measure of failure, but many see a focus on profits as a sign of misdirection.

After the financial crisis that led to the massive failures and government bailouts of big financial institutions in 2008, a crisis still affecting us today, there has returned much more skepticism of business than ever since the Great Depression 1929-41. Then, the public frustration with the massive unemployment of the Great Depression brought in what historian Harvey Klehr called “The Heyday of American Communism.” At that time public anger against business led to widespread support for radical movements in the United States. The financial crisis after 2008 brought in high unemployment again, and with it Occupy Wall Street in 2011, a protest that used the word “occupy,” a word with overtones of aggression. Though the protests were peaceful, they revealed a new resurgence of public feeling of distance between business and the good society.

What does good society mean? The term goes back well into the 19th century. There was a parallel term, “high society.” High society people were the rich and famous. The “good society” people were more commonplace, but in a real sense, better. Good society seemed to refer to nice people, people who cared about others, people with clean homes, well trained children, loyal citizens.

Walter Lippman, a great public intellectual of his day, and free-market advocate, wrote a book in 1936 entitled The Good Society. He said that the defining characteristic of the good society is that people adhere to the Golden Rule: “do unto others as you would have them do unto you.” That is a quote from Jesus, in Luke 6:31. But Lippman, who happened himself to be Jewish, said that the Golden Rule is not only Christian. In fact, the notion is clearly embodied in both Jewish and Muslim religions. He argued that something like it can be found in Hindu, Buddhist and Confucian religion. In fact, Lippman argued, the Golden Rule is a principle that is independently discovered by mature people everywhere as they go through their lives. Successful human society is built on a common feeling of cooperation and friendship, as embodied in the Golden Rule. And Lippman thought that a successful life in business did not have to violate the golden rule.

In her 2010 book The Economics of Integrity, Anna Bernasek documented how much business relies on people’s innate sense of decency towards each other. Her first example is the supply of milk. We generally take it for granted that our milk supply is safe and wholesome. But why is it so? Is it because of an intense desire of the managers of the milk company to make millions in profits by supplying better milk than competitors? Is it because of continual government inspection and severe penalties for milk providers who contaminate milk? Neither are the primary reasons, she argues. Rather it is because each employee who participates in producing or handling milk just knows that “somebody will be drinking this” and so out of a sense of personal integrity, is careful with it. They don’t have to be told, they do not need incentives or threats of punishment.

Her second example is an ATM machine. We take it for granted that you can go to one of those machines, insert your card and out comes money. It seems so mechanically perfect – as if there can be no errors. But, in fact, it still relies on people: there are many human steps behind the scenes that affect the integrity of your bank account, steps that could easily produce errors or theft. Once again, your real protection is the sense of decency and the good society.

Your Business School is associated with many good society activities. It is home to the Connecticut Small Business Development Center.  It is co-located with various UConn campuses around the state and with numerous chambers of commerce around the state.  The SBDC also has a virtual counseling program for entrepreneurs that is located in libraries around the state.

The University of Connecticut Business School has had multiple programs in the last year that link business with topics such as Human Rights, Corporate Social Responsibility and the Environment.  There is a joint appointment between the School of Business and the Institute for Human Rights.  UConn students recently created a Net Impact chapter here. UConn, and your class, have demonstrated a commitment to the Good Society.

There is of course another side to human nature, a selfish side. We are all concerned with promoting ourselves and our own families. These feelings may conflict with our feelings for all of society. But most surely, it is the interactions of these two kinds of feelings that make the free market system work as well as it does.

History describes much experimentation with economic systems and has found that a market system that operates on the profit motive, has distinct advantages. The truly communist Soviet Union and Red China are gone, and now even in those places, there are for-profit corporations and stock markets.

I think that, in going forward with your lives, you, the graduates of a business program, will have to navigate a complex economic system that seems to sometimes place you in a nasty competition, that does not feel friendly at all; that seems “dog-eat-dog” rather than “good society.”

The problem that designers of economic systems inevitably face is that, despite a substantial goodwill that normal people feel for others, this goodwill does not yield good results unless it is formalized in economic organizations. And there has to be effective competition, which means that organizations sometimes have to fail. This struggle will be an overriding fact of life for people graduating here today.

Business management means forming and maintaining organizations, be they C Corps or LLCs or partnerships or whatever. The for-profit form now includes something explicitly idealistic , the benefit corporations or B-Corps on which the UConn Business School had a recent conference after the 2014 Connecticut Benefit Corporation Act. Whatever legal form these enterprises take, the profit motive should help them to solve real problems and provide these solutions on a long-term basis.

A fundamental part of business management is finance. This is the most criticized part of the business world since the 2008 crisis. People think of financiers as chasing money, exclusively concerned with paper profits. Including banking as part of finance, we also note that the 1930s term bankster, which sounds like gangster, has again been used to describe bankers.

But, in my view, finance ought not to be considered as fundamentally about dollars and cents, numbers and statistics. When the objectives are kept clear, we see that finance refers to the financing of important human activities. It means setting up contractual relationships that enable activities to proceed and allow people to achieve for themselves and for others. Finance helps align those selfish motives with public purposes.

This then brings us to the next phase in your lives, and I am sure it will be for many or most of you, as business managers. You should regard this as a noble profession, for your success as a business manager ought to be regarded as a success in helping people meet their goals, their own personal goals.

In a free society everyone sets their own goals; there is no central authority defining what these goals may be. We may get our individual goals from our own sense of purpose, from our religion, or from our sense of humanity and creativity. When one embraces the Golden Rule in business, the goals of others become indirectly one’s own goals.

Profits are one scorecard of success in helping people achieve their own goals. Profits themselves are measured in dollars, an abstract and seemingly ethically-neutral quantity. But, the profits do measure managerial success, by a manager who does not presume what his customers should want. The manager gives them what they will buy. Of course, profits are not themselves inspiring, not in a sense of passion, but they are a scorecard for business efficiency.

And yet profits are not the only measure of the success of a manager. For success is still defined by our sense of community, and even in a staunch free-market system, business managers will have their compunctions. Business managers organize themselves with chambers of commerce (such as the Middlesex County Chamber of Commerce whose president is UConn Trustee Larry McHugh) or better business bureaus (such as the Connecticut Better Business Bureau whose Chairman is UConn graduate Drew Crandall) to prevent dishonest competition from creating a race to the bottom, and to encourage a basic sense of community in all business dealings. Such behavior has always been a characteristic of successful market economies.

In saying farewell to you, the graduates of 2015 about to leave for real world careers, I would like to wish you success on the profit scorecard, but also on a community scorecard, on your sense of participation as a citizen, and as a contributing member of the good society.