Home page Here is my old LBS exercise - Ethics and Professional Standards of Business class term paper, written in 1998. Minor alteration has made (some grammar and syntax have been corrected, some have not) and Scandinavian example is has became irrelevant since that time. I think the subject is even more important now in 2011, than more than 10 years ago, so would like to share it and to discuss if possible. (Russian)

Uncertainty: Act of God or Human Pollution?

The very new experience of mine in business school includes lots of academic readings for every course. And what is really striking is that almost all of them begin with preamble about such an attribute of the contemporary business reality as uncertainty, more specifically growing uncertainty. What is more - all authors seem to accept the fact that this growing uncertainty is a given and inevitable fact of human life. Authors' message to readers is "see, the uncertainty is growing, and you better read it and learn how to avoid being wounded".

Such an implicit statement means that uncertainty is rather something bad or dangerous, than good or pleasurable. I am inclined to agree with this appraisal, further one can come to conclusion that uncertainty is a big disadvantage for the risk-averse people and communities, and presents more opportunities for risky part of human population, namely entrepreneurs.

Here a big ethical question is rising: Is it ethical to exploit this advantage, especially in the communities, where people don't get used to uncertainty. The question is especially important, because exploitation of such an advantage accelerates the growth of uncertainty and, therefore, puts people in such communities in an even worse position.

One may doubt that the mentioned problem is ethical at all. Indeed, the exploiting of uncertainty and advantages, given to the entrepreneurial part of the population, is a perfectly accepted practice, and even more, the way progress is made. Well, slavery in USA was considered as accepted practice, and even good for progress long ago. Later it became a big ethical issue.

In the field of ethics there are many dilemmas to think of, and yet here is one more - "uncertainty pollution". It is increasingly important in our small, rapidly technologically developing world.

By the way, I have intentionally avoided mentioning business in the previous sentences, and referred to people, because the way people live, not the way firms do - the ultimate point of focus of the ethics and this paper. Besides, as we know from the Milton Friedman paper there is no social responsibility for business apart from making profit. So, trying to postpone the discussion of this claim and avoid criticism from this side at the beginning, I would embark on considering interactions between business and communities, from a simple humanistic point of view.

Thus, except the entrepreneurial minority of the people, uncertainty is recognised to pose more and more threats for humans. Indeed, there are hardly bearable level of stress, less time spent with family, less contact with nature, less exposure to the culture, goods which last less and less, quality substituted by mass plastic tinsel - this is an incomplete list of the consequences of the growing uncertainty.

Of course as earthquakes provide some companies with new orders and revenues, uncertainty provides opportunities for some people. But nonetheless, earthquakes are not considered as gifts from nature, so too uncertainty. But the big question is - whether uncertainty is inevitable and unmanageable as earthquakes or is rather something created by human beings themselves and can be hopefully managed by them?

Basically, the way of augmenting is very simple:

" Suppose the uncertainty is bad for human being,

" Then it is bad to stimulate and multiply it.

" Therefore, we should manage it in order to control it or maybe to reverse the trend of its growth.

" If it is manageable, then those firms and individuals, which contribute to it, act against human beings and are not ethical.

Here the simple parallel will help us look at this question - it is a global waste and pollution problem. We don't consider firms' or individuals' contribution to it as their internal affairs, but it wasn't long ago when some firms thought that they could go anywhere and pollute as much as they needed for their bottom-lines.

The situation was quite close to the current situation with "uncertainty pollution". Things looked uncontrollable and our planet seemed to be doomed to become a big garbage bin. But somehow human beings had recognised the threat and acted accordingly, and today the problem if not solved, then is under control.

No one firm can put its ultimate profit goals before community interests in this respect. Not long ago it was ethical issue - today it is criminal one. But are human beings themselves less important than nature? So, why do we tolerate "uncertainty pollution", which like neutron bomb will selectively hurt men and women?

This is general formulation of the essay subject, let's now consider the way of argument closer.

Is uncertainty good for human beings? To consider this question let us try do describe what do we mean using the word "uncertainty". In business papers and popular articles in the press this word implies quite different things. In finance for example, this is different possible future cash flow, in the business strategy it is fundamentally unknown future interaction between Porter's five forces, more generally in business and for managers it is increasing pressure of competition, for employees it is impossibility to be sure in their jobs (even provided their best efforts and good skills) and so on and so forth.

It is clear that all these types of uncertainty are closely interlinked and interdependent. But they act with different time lags and with different impacts on their subjects. Thus, reasonable amount of uncertainty is good for business, because it provides a space for improvements and elimination of "unhealthy" (unwanted and inefficient) businesses. But even small amount of uncertainty can destroy wellbeing of risk-averse people.

It is perfectly correct to ask - why should we keep unhealthy business alive, whereas, it is absolutely unacceptable to ask the same question about people. And here is the difference between business' and human's lives and, therefore, uncertainty is not as good for human being as for business.

So, basically there is a dilemma. On the one hand, business provides employees with means for living and increases human wellbeing (provided that it is not only maximising the shareholder value, but also through taxes is serving the community and it is environmentally concerned), it is maximising technological progress (which is conventionally considered to be good for human population). On the other hand it is destroying human wellbeing through uncertainty pollution. So what level of uncertainty will be eventually good for people?

One approach to tackle this dilemma is to consider standards of living. This is very tricky subject. Economists seem to have clear point of view. They measure country's standard of living with output per capita. In our macroeconomic lectures, however, output per capita (PPP adjusted) was regarded as a shortcut to measure standard of living and Andrew Scott in his papers complained that it is particularly difficult to find relevant measures for welfare and happiness of individuals and to reconcile them with ones of society.

There is "more balances" definition of standard of living, given in the Dictionary of Finance and Investment Terms - "degree of prosperity in nation, as measured by income level, quality of housing and food, medical care, educational opportunities, transportation, communications, and other measures". This is somewhat more close to my feeling about what is standard of life, especially considering London example (with good MBA-income one doesn't have very impressive quality of housing, food, medical care, etc).

This is personal perspective, which is very important when we are talking about business ethics, because the most often way to "refute" any ethical argument is to average the picture and show the overall usefulness of the business, even though "well, some individuals are not particularly happy…"

In Stalin's USSR there was an official propaganda expression - "When forest is cut, the splinters fly". The close British equivalent is "you cannot make an omelette without breaking eggs". While Stalin considered those flown splinters or broken eggs (people) as perfectly accepted downside of the communism building, in the free society, it is not acceptable and "happiness" or welfare of individuals is the absolute measure of its success.

I measure my standard of living with number of hours spent with pleasure. It is not economic measure, of course, but it is not hard to come up with something more measurable, and this will employ uncertainty as a measure of negative business impact on individuals.

Thus, the new refined shortcut for standard of living is output per capita (for countries) or income level (for individuals) minus uncertainty multiplied by the coefficient, which reflects uncertainty tolerance in different societies or of different people .

This negative element in the standard of living shortcut was hardly noticeable decades ago, but is now becoming significant, so if the curve of standard of living (as a function of business development or technological progress) was unconditionally growing before, now is levelling off or perhaps has already been reversed.

It is just like in mentioned above example with growing business along with growing environmental pollution. At some stage this pollution was negligible small, but then it had threatened to overcome any advantages of business development and technological progress. The solution was simple - problem just required attention and businesses became more environmental concerned.

The same with uncertainty - it is like environmental pollution potentially devastating for human being if not managed by firms and societies. That is why I call it "uncertainty pollution".

Unfortunately, looking into subject deeper, one can see that the uncertainty pollution is much worse than environmental pollution, because they obey different rules of their life now. Environmental pollution is basically a "grey box" with negative or balancing feedback loop (means the more pollution - the more criticism and rebuff, and consequently, the less pollution next period), and this process of environmental pollution is rather stable. The uncertainty pollution is a "black box" with positive or reinforcing feedback loop (means the more uncertainty - the more competition -the much more uncertainty next period), and therefore, the process of uncertainty pollution is rather explosive process. The distinguishing feature of any explosive process is that it is controllable only on early stages of its development.

There is an argument made by Milton Freeman in his paper , which was skipped for the moment at the beginning of this paper. Basically, it boils down to the notion that as soon as corporation pays taxes and complies with all regulations, there is no such thing like social responsibility for it. Social responsibility is the Government Issue.

Well, it is almost true in ideal, perfect world. In that world, there are perfect regulations, everybody complies with those regulations. Firms breaking the law are detected immediately, and the effect of their "bad" activities is reversible. Unfortunately, this is rather uncertain picture of the remote future than circumstances of the present life.

Regulation is not perfect and allows firms to avoid taxes and to pollute. Firms can easily hide cases of breaking the law, and if caught the consequences of their illegal activities are not reversible (think about Chernobyl nuclear power satiation and space-shuttle "Challenger" tragedies, oil tanker and chemical factories catastrophes). There is generally big lag or delay between action and reaction from Government side, besides the corruption and short-term populism of governments are attributes of the present world as well. Therefore it is sensible to say that business itself must be responsible for the good impact on the community around.

So far we have found that uncertainty is not necessarily good for human beings and without proper attention to it can become uncontrollable, and that business perhaps is responsible for uncertainty pollution.

Is growing uncertainty controllable? Before answer this question it is worth reminding that there is no needs and no means to eliminated uncertainty altogether. Zero uncertainty or complete certainty is death. Very close example of it is Soviet socialism, where everything was deadly certain and dull.

As we stressed it the reasonable amount of uncertainty is needed for progress, the problem is how to stabilise this level? Do we have examples of such stabilisation? It looks we do. To see them it is enough to look how life is organised in the Scandinavian countries. People in those countries are reasonably sure in the future, firms are profitable, governments are efficient. It seems like people, business and governments there have consensus about life stile and its supremacy over all other considerations.

So what does it mean to control uncertainty? In our simple "black box" model, that means to add negative feedback loops and to cut positive one. The first is about people awareness and pressure on firms vastly polluting with uncertainty. Here the role of Government regulations is the key. The second is about ethical behaviour of firms (main sources of uncertainty) in the market place, especially in the new markets.

The major tools for uncertainty stabilisation are awareness and regulations, because they will provide the system with currently absent negative feedback, thus converting explosive process into selfregulating one.

It is know that there are at lest roughly two types of community exist: competition oriented and co-operation oriented. People form first one love to compete and be first at everything, they can sacrifice their life styles for being known as a winner, another prefers to co-operate and to spent spare hours with family, nature and don't give a dime for the "glory".

So let them both be. Let competitive communities to compete and co-operative communities to co-operate. The diversity is foundation of the life. The bad thing if one type of community exterminates another.

From the game theory we know ("Hawks and doves") that hawks (competitive) community and doves (co-operative) community can be in perfect balance themselves (leaving apart). But when hawks are "injected" into doves' community, they get unbeatable competitive advantage and soon doves either disappear or turn into hawks themselves.

Imagine the village where people haven't had wars for hundreds years, they have forgotten how to use bludgeons and they clearly prefer to work, to sleep, to eat, to love etc. without those bludgeons. But suddenly, another tribe has arrived with the only language of bludgeons. And they are good at that. And surely the strongest will win. So what options do the village people have? To die or to fight, forgetting the all their peaceful manners and customs, debasing and devaluating their history.

Barbarians at the gate! Therefore, to protect societies less tolerant and more vulnerable to uncertainty, the mechanisms to cut on uncertainty export have to be built.

But while we don't yet have those tools, businesses should find the ways to cut on uncertainty pollution by themselves. It worth mentioning, that the firms who will adapt responsible approach in this respect first could effectively use it in their marketing and communicating strategy and there is a big market for new businesses selling uncertainty short!

So what are "uncertainty pollution" activities, which ethical businesses could cut on?

One big visible trend in manufacturing for example is mass production of cheap short-lasting products. The main "uncertainty-properties" of these products is low quality, and short span of their lives.

First it is bad not only for the person who use it, but for the whole society itself, because mass production of those products forces people to get use to it (it is cheaper!), which forms demand. On the supply side, employees straggle to decrease price of widgets they produce, and consequently lower margins - competition intensifies, and eventually wages are lowered, thus greatly increasing uncertainty in this society - the vicious circle.

Second it is bad because man and women need more and more often change or upgrading their things, which leads to less emotional stability and stress.

Thus, producing long-lasting quality products can be considered as ethical behaviour in respect of uncertainty fighting, whereas making this world addicted to the chip stuff of low quality is evilly unethical.

Another example is from professional service firm field. It is increasingly becoming habitual on PSF presentations or interviews to face implicit or explicit messages, that employees in their firm must put firm's interests first and their families second. Those firms which send that messages or alike are examples of unethical behaviour from many points of view. With our environmental pollution example, it is something like saying - we are going to build a plant near your lake, here are the taxes, but don't tell us about the lake pollution, because it is not important for our bottom-line.

One can say that the lakes don't have freedom of choice and, therefore, must be protected, whereas people have their right to accept or reject the offer from such a professional service firm. From standalone point of view it is correct and that is why "lake case" is criminal one, and "PSF case" is not.

But with "uncertainty approach", this "PSF case" is ethical one because everything that compromise life-stile for bottom-line leads to uncertainty pollution as we saw before. Besides the freedom of choice is literary abstraction rather than reality in the world of professional service firms.

Summarising, I must say said that this paper doesn't pretend to fully investigate the issue of uncertainty pollution, which is like iceberg gives only small its part to observe. It is rather warning that there is something ahead to draw attention on, with some fragmental description of its properties without studying it "under water".

Uncertainty pollution as an aspect of business ethics needs scrutiny. It is too important from my point of view to not notice it. We saw that uncertainty pollution, something not very pleasurable and potentially very dangerous, is not the act of God, but the result of human negligence.

Political, educational and free media aspects of uncertainty pollutions hasn't be raised here and discussed yet. With lots parallels and conclusions relevant to our 'humanitarian' wars period of history, new part of the 'uncertainty pollutions' paper is asking to be written.

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