Two Forms of Cultural Bias:

Specific Individualism vs. Diffuse Corporate Responsibility

What national cultures do best is also a clue to their flaws. Every cultural value can be taken too far, can be lauded to excess. Our weaknesses are on the far side of our much vaunted strengths. The USA and the UK are the world's largest centres of finance and banking. Wall Street and the City of London are the hubs of global finance. It is almost certainly not a coincidence that these two national cultures are among the most individualist in the world and the most specific, both traits being crucial to finance. By specific or specificity we mean preferring the analysis of phenomena into discrete, codified units, preferable numbers representing money and capable of mathematical expression. "It does not count" such people say if they cannot enumerate it and codify it. This is a culture of bullet points, check lists, detached objectivity and head-hunters. Other cultures are more concerned with diffuse qualities, human relations for example, that have no clear boundaries nor do pattern variables and design configurations.

When specificity mingles with individualism we see the clear emergence of Anglo-American banking culture. The emphasis is always about the precise amount of money accruing to identifiable individuals, typically those in the most powerful positions. The point is less to serve a diffuse organisation and community of bankers, like say - Lehman Brothers, than to enrich by specific bonuses the private individuals connected to such organisations.

Britain and the USA were the first cultures to industrialise and have both gone a long way to pioneer capitalism and to define economic rationality. Companies are even conceived to be individuals legally with the same rights. The pursuit of profit and private self-interest is not a moral choice but a scientific fact generalised to all mankind engaged in commerce. It is at the heart of all economic calculation. There is no viable alternative. Adam Smith specifically mocked those who claimed to serve the public interest. The concept was too diffuse, too vague and too broad and communitarian to be of any use.

In the late Seventies it was briefly mooted by the Business Round Table that a company existed to serve all its stakeholders, e.g. employees, customers, the community as well as shareholders. At that time Japan had made serious inroads into America's business leadership. With the coming of the Reagan-Thatcher "supply-side" revolution all such vagueness and wishy-washy inclusion was swept aside. The Business round Table reverted to orthodoxy. Business had but one constant purpose to maximise the specific returns of individual shareholders. Anything else was too ambiguous to be workable, too controversial to be calculated. Let everyone fight for what s/he wanted. Mrs Thatcher even doubted publicly the existence of "society". We were nothing but a collection of individuals-on-the make. It was not realised that such excess could be dangerous. Even a British Labour government praised "light touch" regulation and removed any obstacle to private aggrandizement. Both the City and Wall Street sought to attract financiers of every stripe to their counting houses. It was lower-taxes-than-thou.

Are individualism and specificity somehow wrong? Not at all. Banking could not be well conducted without them. Individual votes cast by an electorate are the basis of democracy as are specific human rights. What is potentially mistaken to the point of catastrophe is individualism that subordinates the organisation and the community, and specificity that overrides diffuse relationships which take responsibility for others. There are essential qualities that cannot be counted which we ignore at our peril. When something goes wrong there is a tendency for us all to cling more tenaciously to cultural beliefs. At times of stress to which the financial system is very prone, our dominant values become rigid and stereotyped and predatory.

The collapse of Lehman Brothers showed clearly how individuals can ransack the organisation and the community to which they owe their wealth. Powerful individuals had arranged to be paid million dollar bonuses whatever might befall their company and however egregious their mismanagement might prove to be. When the company crashed the administrators and eventual buyers had to honour the company's contractual obligations which its leaders had awarded to themselves. The individualism of the few took priority over the welfare of the many, even the individual interests of shareholders. When they know the company is dying individuals-in-power will strip it of its remaining assets and appropriate these, taking that wealth with them into comfortable retirement.

Arguably the current crisis started with an ultra-individualism that puts consuming above producing. Mortgage payments on houses, still deductible from taxes in the USA, are the places where consumers accumulate their possessions. Production has generally required coordinated, collective activity, while consuming is done on one's own for personal satisfaction in the privacy of one's home. There are ominous signs that individualist countries now owe an ever mounting debt burden to more communitarian, production oriented cultures like China, India and much of Asia, that Western governments are bailing out not the poor but the organisations the wealthy have neglected.

The diagram below shows what has been happening under the sudden stress of a business contraction. Lehman Brothers in its demise has hugely enriched its own top managers, who wrote these gains into their own contracts so as to have first claim on any assets. The value of individualism is represented by the raised edge of the graph. The value of obligation the company (communitarian) is represented by the depressed edge. When you force the first up and the second down a cusp appears in the centre of the upper surface. Even as the leaders collect their bonuses on the edge of the precipice the company is failing, collapsing into the valley beneath. One may reasonably ask how people who know they cannot lose money and will become millionaires in all and any circumstances behave in the regard to the risks encountered. This issue is considered in our next briefing (please come back tomorrow!).