THREE CARDINAL VIRTUES OF BUSINESS
By Michael Novak
Indeed, besides the earth, man’s principal resource is man himself. His intelligence enables him to discover the earth’s productive potential and the many different ways in which human needs can be satisfied. It is his disciplined work in close collaboration with others that makes it possible the creation of ever more extensive working communities which can be relied upon to transform man’s natural and human environments. Important virtues are involved in this process, such as diligence, industriousness, prudence in undertaking reasonable risks, reliability and fidelity in interpersonal relationships, as well as courage in carrying out decisions which are difficult and painful but necessary both for the overall working of a business and in meeting possible setbacks.
– Pope John Paul II
When a person who has never been in business before decides to risk his life savings on an idea that he is sure will work, some of his associates, perhaps his spouse and his brother or sister, and even an adviser or two, will tell him he is going to lose his shirt. “If it could be done,“ one of them will say “somebody would have done it.“ Some persons nevertheless have the sell confidence and the courage to plough ahead. They think that others are misdiagnosing reality and overlooking certain factors. In addition, the entrepreneur is pretty sure he can form a good team of associates and that all of them together can get the job done. Somehow Pope John Paul II understands this, and in the first half of this chapter I will often be paraphrasing points he made in Centesimus Annus.
When my friend Phil Merrill decided the time for setting off on his own was now or never, he was a young and lower level government worker, married, with two kids. He thought he would make a good publisher; he was looking for a newspaper or magazine to buy It had to be cheap, because he didn’t have much money When an opportunity came up to buy at small paper in Annapolis, Maryland, he decided to go for it. He had to mortgage his house to the hilt for the down payment, and even then needed to borrow from friends who did not have much to lend. While basically supportive, his wife, Ellie, remembers being pretty worried about the whole deal. There would be a lot of problems at the new paper—moving in on an old family enterprise, dealing with existing staff and trying to make changes with no capital to spare. At that time, a lot of small newspapers were failing, killed off by both television and large regional papers with special local editions.
Looking at such examples and many others, I have tried to discern the sorts of habits an entrepreneur needs in order to succeed. There are many necessary habits, but three seem central. Simply to succeed in business—even if for no higher motive than success—these three virtues are essential. I call them cardinal virtues in the same sense that the ancient Greeks and Romans spoke of the four cardinal virtues of a happy human life: they are like hinges on which success—in life and in business—swings.
Success in living a happy life is a larger project than success in business, and nearly everybody in business wants to achieve both. But they are not quite the same thing, and here I concentrate on the three virtues especially central to success in business. (An inquisitive reader could draw out parallels between the two sets of cardinal virtues.)
The three cardinal virtues of business are creativity, building community, and practical realism. Obviously each of these good habits requires the support of other good habits. Creativity, for example, needs courage, hard work, and persistence. Building community requires honesty generosity and a spirit of justice. And realism implies a capacity to listen, pay attention, stay alert, and take a broad view as well as a capacity for self-criticism and self-correction.
All these are virtues necessary for workers all down the line, not only in the glamorous positions. They satisfy a human need for personal commitment and excellence.
THE VIRTUE OF CREATIVITY
The ultimate resource in economic development is people. It is people, not capital or raw materials, that develop an economy The greatest need in the underdeveloped countries is people who can do the new organizing job, the job of building an effective organization of skilled and trained people exercising judgment and making responsible decisions.
– Peter E. Drucker
Most of us first learned to think about the ethic of capitalism from Max Weber’s The Protestant Ethic and the Spirit of Capitalism (1904). It was Weber’s great achievement to bring to consciousness the fact that cultural forces are essential to the definition of capitalism; capitalism is not a system solely about things but about the human spirit. Nonetheless, there is some question whether Max Weber actually caught the spirit of capitalism in his sights. I think he scored a near-miss. He thought the essence of capitalism is calculation, a strictly cost-conscious analysis of means in relation to ends. He saw in it the growth of bureaucracy like a rushing locomotive that would confine human spontaneity to “iron rails.“ He seemed to have in mind the huge industrial enterprises of the turn of the century and he expressed some dread of the advancing locomotive.
In all this, he missed something much closer to the heart of the matter: discovery invention, serendipity surprise—what my colleague Rocco Buttiglione of the International Academy of Philosophy in Lichtenstein (and now chairman of Italy’s new party Christian Democrats United) calls the “Don Quixote factor.“
At the very heart of capitalism, as Friedrich Hayek, Joseph Schumpeter, and the American Israel Kirzner have shown, is the creative habit of enterprise. Enterprise is, in its first moment, the inclination to notice, the habit of discerning, the tendency to discover what other people don’t yet see. It is also the capacity to act on insight, so as to bring into reality things not before seen. It is the ability to foresee both the needs of others and the combinations of productive factors most adapted to satisfying those needs. This habit of intellect constitutes an important source of wealth in modern society. Organizing such a productive effort, planning its duration in time, making sure that it corresponds in a positive way to the demands it must satisfy and taking the necessary risks: all this has been a source of new wealth in the past 200 years. In this way the role of initiative and entrepreneurial ability have become increasingly decisive.
Many critics seem never to have imagined the sheer fun and creative pleasure involved in bringing a new business to birth. Such creativity has the stamp of a distinctive personality all over it. In the pleasure it affords its creator, it rivals, in its way artistic creativity. To verify this, visit a business in the presence of its builder.
It is quite possible that no actress was ever so pleased with her standing-ovation performance as an entrepreneur is with what she has built. Note, too, that a rapidly increasing proportion of entrepreneurs worldwide is female; enterprise is a vocation made to order for newcomers into markets.
In precapitalist centuries, the chief form of wealth was land. For thousands of years, the natural fruitfulness of the earth was the primary factor of wealth; work and invention were bent to the increase of this fruitfulness. Under capitalism, the newcomer among economic systems, enterprise turned work in new directions. Enterprise itself—invention and discovery and new ideas—became the most dynamic source of wealth the world had ever known.
In brief, the new system linked work more and more with knowledge. And this is the crucial switch. This is the point missed by some (like Marx) who hold to the labor theory of value. It is not so much labor, in the sense of physical labor, that adds value, but working smart—adding enterprise and invention to everything one does. Work becomes ever more fruitful and productive to the extent that people become more knowledgeable of the productive potentialities of the earth and more profoundly cognizant of the needs of those for whom their work is done. The cause of wealth is knowledge. This cause lies in the human mind.
“What is the cause of the wealth of nations?” This is the question that Adam Smith was the first to raise in 1776; Pope Leo XIII alluded to it in Rerum Novarum in 1891. Pope John Paul II, a hundred years later, had his own crisp reply:
In our time, in particular, there exists another form of ownership which is becoming no less important than land: the possession of know-how, technology and skill. The wealth of the industrialized nations is based much more on this kind of ownership than on natural resources.
The chief cause of wealth is intellectual capital. Since the wealth of nations is based much more on intellectual property and know-how than on natural resources, some nations that are very wealthy in natural resources (such as Brazil) may remain poor, while other nations that have virtually no natural resources (like Japan) can become among the richest in the world.
Whereas at one time the decisive factor of production was the land and later capital—understood (in Marx’s sense) as ownership of the means of production—today the decisive factor is increasingly human knowledge, especially scientific knowledge. Yet enterprise depends also on a capacity for interrelated and compact organization, and on an ability to perceive the needs of others and to satisfy them. These are exactly the factors in which Japan is preeminent: scientific knowledge, a capacity for organization, and ability to perceive the needs of others and to satisfy them. Through these factors, the Japanese, whose country is extremely poor in natural resources, have made themselves economically preeminent among the nations.
Of course, natural resources are still important. But if human beings do not see their value and figure out ways to bring them into universal use, natural resources may lie fallow forever undiscovered and unused. Oil lay beneath the sands of Arabia for thousands of years, unused, regarded as a nuisance, until human beings developed the piston engine and learned how to convert crude oil into gasoline. It is human beings who made useless crude into a “natural resource.”
For this reason, inanimate things are not the deepest, best, or most inexhaustible resources. The human mind is, as Julian Simon puts it, the “ultimate resource.“ It is not the things of that set limits to the wealth of the world. On this question over twenty years ago the Club of Rome, drastically exaggerating the scarcity of material resources, made an elementary mistake. Many of the things of this earth are useful at some times and not at other times—whale oil is a good example—depending on the value the human mind sees in them. In this sense, the mind of human beings is the primary source of wealth. And no wonder: it participates from afar in the source of all knowledge, the Creator. Sharing in God’s creativity so to speak, the principal resource of humans is their own inventiveness. Their intelligence enables them to discover the earth’s productive potential, but also the many different ways in which human needs can be satisfied.
Pope John Paul II sees three ways in which human knowledge is a source of wealth. First is the ability to foresee both the needs of others and the combinations of productive factors most adapted to satisfying those needs. Second, many goods cannot be adequately produced through the work of an isolated individual; they require the cooperation of many people working toward a common goal. Thus, a second kind of knowledge entails knowing how to organize the large-scale community necessary to produce even so simple an object as a pencil.
It does not ordinarily occur to theologians, but it is a matter of everyday experience to businesspeople, that even so simple an object as a pencil is made up of elements of graphite, wood, metal, rubber, and lacquer (to mention only the most visible, and to leave aside others that only specialists know about), which come from vastly separated parts of this earth. The knowledge and skills needed to prepare each one of these separate elements for the precise role they will play in the pencil represent a huge body of scientific and practical knowledge, which is almost certainly not present in the mind of any one individual. On the contrary it is widely dispersed among researchers, managers, and workers in factories and workplaces in different parts of the world. All of these factors of production—materials, knowledge, and skilled workers—must be brought together before anyone holds a pencil.
So far, we have seen two kinds of knowledge at work in human economic creativity: accurate insight into the needs of others and practical knowledge concerning how to organize a worldwide productive effort. But there is also a third kind: the painstaking effort to discover the earth’s productive potential. Consider briefly several discoveries whose diffusion has done so much to change the world since 1980: the invention of fiber optics, which in so many places are replacing copper (and thus contributing to the difficulties of Chile’s copper industry); thr invention of the word processor and electronic processes in general (which are doing so much to shift the basis of industry from mechanical to electronic technologies); the use of satellites and electronic impulses to link the entire world in a single, instantaneous communications network; and many medical breakthroughs, including genetic medicine. Such breathtaking discoveries are the fruit of the principal human resource: creative intelligence.
It is no accident that a capitalist economy grew up first in the part of the world deeply influenced by Judaism and Christianity Millions of people over many centuries learned from Judaism and Christianity not to regard the earth as a realm merely to accept, never to investigate or experiment with; but, rather, as a place in which to exercise human powers of inquiry creativity and invention.
The philosopher Alfred North Whitehead once remarked that the rise of modern science was inconceivable apart from the habits human beings learned during long centuries of tutelage under Judaism and Christianity. Judaism and Christianity taught humans that the whole world and everything in it are intelligible, because all things—even contingent and seemingly accidental events—spring from the mind of an all-knowing Creator. This teaching had great consequences in the practical order.
Man the discoverer is made in the image of God. To be creative, to cooperate in bringing creation itself to its perfection is an important element of the human vocation. This belief that each human being is imago Dei—made in the image of God—was bound to lead, in an evolutionary and experimental way to the development of an economic system whose first premise is that the principal cause of wealth is human creativity.
THE VIRTUE OF BUILDING COMMUNITY
It is becoming clearer every day that one person’s work is naturally interrelated with the work of others. More than ever, work is work with others and work for others. Nearly all work is a matter of doing something for someone else. The community involved in even the humblest work is often the whole world.
From its very beginnings, the modern business economy was designed to become an international system, concerned with raising the “wealth of nations,“ all nations, in a systematic, social way It was by no means focused solely on the wealth of particular individuals.
As the system touches more and more peoples of the world, the distinctive modern fact is that people work with each other, sharing in a community of work that embraces ever—widening circles. Pencils and autos and thousands of other goods are produced from elements widely scattered around the globe. Indeed, most goods today cannot be produced through the work of an isolated individual. Virtually all require the cooperation of many people working toward a common goal, even while few of them see the whole picture, only their own small corner of it.
Today it takes disciplined work in close collaboration with others to make possible the creation of ever more extensive working communities, which transform natural and human environments.
In a word, businesspeople are constantly on all sides, involved in building community. Immediately at hand, in their own firm, they must build a community of work. A great deal depends on the level of creativity teamwork, and high morale a firm’s leaders can inspire.
Next, for its practical operations the firm depends on a larger community of suppliers and customers, bankers and government officials, transport systems and the rule of law.
In the third place—as we saw in the example of the pencil—modern products are constituted by components from every part of the planet. The modern business system expresses the interdependence of the whole human race.
In all three ways, business is a community activity. Capitalism is not solely about the individual. It is about a creative form of community.
Indeed, in its internal composition, the business firm is primarily a community of persons who in various ways are trying to satisfy their basic needs and to form such businesses at the service of the whole society.
Since the business organization must be understood primarily as a community moreover, profitability is not the only indicator of its condition. It is possible for the financial accounts to be in order and yet for the people who make up the firm’s most valuable asset to be oppressed and their dignity grievously offended. This is morally inadmissible. And since such outcomes would eventually have negative repercussions on the firm’s economic efficiency most firms spend considerable energy trying to make the work environment as pleasant as they can, consistent with the discipline imposed by their essential tasks.
In brief, the institution that is capitalism’s main contribution to the human race is not individualism; it is the private business corporation, independent of the state. The main thing to notice about this invention is that it generates a new and important form of human community—one of whose main social purposes is to create new wealth beyond the wealth that I existed before it came into being. Even the pope notes with approval this aspect of profit: “When a firm makes a profit, this means that productive factors have been properly employed and corresponding human needs have been duly satisfied.“
When, through the exercise of knowledge, the business firm uses the productive factors of the earth properly and discerns and satisfies human needs, it is at the service of the whole of society. The economic and the ethical point of a business corporation is to serve others. In its own down-to-earth way the business firm represents a partial but important form of human community.
In fact, Pope John Paul II went to daring lengths in asserting that the modern business process “throws practical light on a truth about the person which Christianity has constantly affirmed.” That truth is this: the Creator made the human person to work in community and to cooperate freely with other persons, for the sake of other persons.
This creative community is the greatest transformative power of the condition of the poor on earth. From the bottom up, the business system seeks out persons of talent, initiative, and enterprise who want to better their condition and that of their localities.
The modern business process also instills—and require—the practice of a number of other virtues, among them diligence, industriousness, prudence in undertaking reasonable is risks, reliability and fidelity in interpersonal relationships.
Especially in its leaders, business also requires courage in carrying out decisions that are difficult and painful, but necessary in meeting setbacks.
These ordinary kitchen-variety virtues should be seen in the context of the basic goodness of creation as it springs from the hands of the Creator. These virtues are not negative, repressive, or ascetic—or at least not primarily so—for they entail invention, serendipity surprise, and the sort of romance that leads many to risk their shirts. And they are virtues necessary to sustain new forms of community even an international community embracing all the peoples of the earth.
THE VIRTUE OF PRACTICAL REALISM
The third cardinal virtue of business is related to the classical cardinal virtue of practical wisdom, never met a businessman who did not pride himself on being realistic. Even the romantic ones among them (entrepreneurs tend to have broad romantic streaks) are willing to bet their fortunes on being in closer touch with reality than others.
Many of the most innovative have worked their way up from the skunk works and the back rooms, where they have paid their dues by getting their hands dirty and facing day-to-day frustrations. In fact, it is often their strong sense of how the world really works, from the bottom up, that gives them confidence that their new ideas—no matter how unrealistic others may think them—are in touch with reality and that it is others who are living by illusions.
In academic circles today realism is regarded as outmoded. There is only opinion: yours, mine, and those of billions of others. There are only “perceptions.” Who knows whose perceptions are “true”?
People in business cannot afford to think like that. They are betting their careers (and, sometimes, life savings) on being in touch with reality It is not that they think that getting things right is easy They pride themselves on their common sense. They know a lot about chance, luck, contingency and serendipity. They are happy to seize insights wherever they find them. They are always paying attention, looking out for surprises. A failure to be in touch with reality can bring them to ruin.
Whereas philosophers can afford to hold that we are never in touch with reality but only with “perceptions,” people in business have bitter experiences to teach them the palpable difference between perceptions and reality.
A story illustrating that difference appeared in the magazine of the Naval Institute and was given wide circulation by Stephen R. Covey whose book The Seven Habits of Highly Effective People in effect examines seven virtues of the modern city.
One night in a heavy fog, as the commander of a naval vessel is peering left and right with his glasses trying to penetrate the gloom, his attention is called to a light dead ahead.
“Course?” he barks.
“Steady coming on.”
The commander ordered a signal flashed to the oncoming ship to change course by 20 degrees.
The other party soon flashed back: “Advisable you change course immediately by 20 degrees.“
Angry now the commander ordered another flash. “I am an admiral and this is a battleship. Immediately change course.“
Back flashed the reply: “This is Seaman Second Class Jones, and I’m on a lighthouse. Advisable to change course.”
The battleship changed course.
Both parties in this encounter had perceptions. But reality and common sense broke through subjective illusions, through rank and power and appearance, and made a rocklike point about reality. A lighthouse is a lighthouse. In business, it is necessary to keep adjusting perceptions to the contours of reality—and to be on the lookout for mistaken impressions—all the time.
“Five brains are better than one,“ Paul Oreffice, retired chairman of Dow likes to recall. “Brainstorming with different guys brings into play different experiences. Warning signs show up. If they don’t and you hit a rock, you better get different guys.“ Executive officers are paid for getting reality right and getting things done.
This doesn’t mean that people in business have a wide-angle lens, letting them see everything they need to see. They will be the first to tell you how often things go wrong. They have got to keep their eyes open. “There are a million ways to screw up,“ Oreffice will tell you. “And we can’t afford any of them.”
On the debit side, the virtue of realism in business is more narrow-gauged than the classical virtue of practical wisdom. The object on which the classical virtue focuses is the whole reality of a person’s life. Its radical questions are: „What sort of person do I wish to become by the time I die? How ought I to live? What steps should I take today?“ A person in business may be practicing that classical virtue when thinking about her calling: “How will this calling help me to become the kind oil person I want to become?”
Most of the time, though, in the economic part of his life, sticking to his professional list, a businessman’s focus is on the good of the firm. What are our priorities? What should we do today? Who’s watching out for problem A? Who’s covering B? How will we surprise the competition next year?
Business is oriented to action. (Even patents are not given for ideas alone but for “ideas reduced to practice.”) Action requires goals. Getting to goals requires strategies. Strategies require tactics. Each must suit the available personnel and other resources. The need for practical realism at every step is obvious.
Acquiring the many habits of mind and will necessary to accomplish such tasks, long range and short range, takes a singleminded concentration of talent, energy and application. It tests a person.
At the end of the day there is always the lighthouse test. Did we escape the rocks? Did we bring the ship into port safely, mission accomplished?
Because life is full of contingencies and surprises, good luck and bad luck, and hazards of timing, professionals who must deal with multiple contingencies every day and for whom even one big mistake can destroy an entire career, tend to have profound respect for little things. “The devil is in the details.” Watchfulness is their daily attitude; it has to be.
Because their state of life is subject to great hazards, professional warriors, athletes, and entrepreneurs have a lot in common. They tend to be unusually aware of how many facets of reality are not under their control, how dependent they are on such factors, and the great difference between being smiled on—or frowned on—by Providence.
One of the inscriptions on the seal of the United States is Annuit coeptis (“He smiles on our undertakings“). The author of The Federalist No. 37 saw this hand of Providence at work often in our history especially in its vulnerable condition during the Revolution:
The real wonder is that so many difficulties should have been surmounted, and surmounted with a unanimity almost as unprecedented as it must have been unexpected. It is impossible for any man of candor to reflect on this circumstance without partaking of the astonishment. It is impossible for the man of pious reflection not to perceive in it a finger of that Almighty hand which has been so frequently and signally extended to our relief in the critical stages of the revolution.
It should not be surprising that in this commercial republic, prayers for the protection of Divine Providence (and of thanksgiving) have always seemed realistic and fitting. Those whose efforts to better the human community mark them as creators, made in the image of their Creator, develop a mental habit in which prayer seems to accord with the natural law itself—and even with the law of grace. Many lands have a patriotic hymn that captures this feeling. Here is our own version:
God shed His grace on thee!
It should hardly be surprising, then, that many persons in business will tell you that they feel extraordinarily blessed. Even unbidden, they will tell you how much they owe to this nation’s system, to their colleagues, to their firm—and to Providence itself. Most of their blessings came from sources beyond their own efforts. They did their part. They gave their talents, used them to the full. But their fundamental attitude is that they have been given far more than they put in.
For this, they are grateful. “Acknowledging and adoring an overruling Providence,“ the phrase that Thomas Jefferson used in his First Inaugural, seems entirely within the bounds of the realism they admire.
AND DON’T FORGET THE FUN OF IT!
In Pope John Paul II business leaders have at last found an ecclesiastical leader who sees clearly what moves them, speaks of that spirit affirmatively and sets great challenges in front of them. His encyclical Centesimus Annus or The Hundredth Year (1991) sets out a huge agenda. It offers no grounds for complacency It does what no other religious document has done before: grasps the interiority of the life of business, the excitement of it, the idealism of it, the challenge of it. Men and women of business enjoy creating something that did not exist before.
Further, there is nothing business leaders like better than challenges. So it would be surprising if men and women of business are not stimulated by the pope’s words to become more creative than ever and to lead the way to the revolution in the world’s economy that the pope envisages.
Business ethics means a great deal more than obeying the civil law and not violating the moral law It means imagining and creating a new sort of world based on the principles of individual creativity community realism, and the other virtues of enterprise. It means respecting the right of the poor to their own personal economic initiative and their own creativity. It means fashioning a culture worthy of free women and free men—to the benefit of the poor and to the greater glory of God.
In this light, business ethics means meeting the responsibilities of corporations and small businesses. Some of these responsibilities may not seem like “ethics” at all. They are simply the behaviors necessary to make a business succeed. But that’s the point. Quite internal to business are significant moral hurdles that need to be jumped—before you even come to the ethical requirements imposed on business from outside in, by the standards of religious convictions, moral principles, an adequate humanism, and human rights.
Often business ethicists do not notice these internal moral imperatives. But if they would inspect cultures in which these internal responsibilities are not respected (such as Russia in the 1990s)—in which the murderous law of the jungle prevails—they might see that internalized virtues and practices, even if silent and kept tacit, are crucially important.