Today, I spoke to Anna Bernasek, who is the author of The Economics of Integrity, and has written for The New York Times, The Washington Post, and other national media. In this interview, Anna talks about the economics of integrity, why integrity isn’t just a personal issue, and more.
What are the economics of integrity?
I like to think of it as the sweet spot of the economy. Start with these two statements which we tend to accept: Following your own self interest benefits everyone (Adam Smith). Acting with integrity benefits everyone (conventional morality). The conventional view is that these two statements are mutually exclusive.
The truth is there is a place where those statements intersect. That place is the economics of integrity and it’s the sweet spot of our economy. When acting with integrity is in our self interest we get a double payoff: economic growth and societal benefits. This opportunity often exists in the short run but it’s always there in the long run. The only way to create lasting wealth is to act with integrity. Therefore the economics of integrity is all about the link between integrity and wealth creation. It’s a very different view of what actually drives economic activity and wealth creation.
Why do you say integrity isn’t merely a personal issue?
Conventionally we tend to think of integrity as a moral issue, entirely up to the individual. But integrity has an economic value. It’s our most valuable economic asset and it underpins all of our commercial dealings. To understand why, you need to see integrity as a relationship of trust. On one side of a transaction is someone acting with integrity, say a seller. On the other side is someone who buys into the integrity of the seller, who essentially trusts the seller enough to buy the product.
Once you have a relationship of integrity and trust you have an asset that produces economic value. Integrity benefits everyone, the buyer and the seller. That means it’s a shared asset that makes us wealthy. So integrity isn’t just a personal issue, it’s a collective issue. It’s not just about private morality but good economics. In fact, it’s our greatest opportunity today to generate wealth and drive the economy forward.
If integrity is so valuable, why aren’t more people proactively protecting it and investing in it?
That’s an excellent question. I think there are two reasons. First, in the world of business we typically believe that if you act with integrity you probably won’t get ahead. My hope with this book, my talks and writing, is to show people that’s just not true. The only way to generate long term wealth is to act with integrity. And in fact, this isn’t my theory. This is actually the way our market economy works. Second, we have moved from focusing on the long term to focusing on the short term. That has increased pressure in the economy to look for short term cheating opportunities. Part of what people need to think about with integrity is building lasting wealth. If you’re just in it to make as much money as you can, as fast as you can, and hang everything else, chances are you’re not thinking about integrity.
How can companies leverage integrity to succeed in business?
It amounts to building trust with your stakeholders: customers, employers, shareholders and community. All companies are building trust to some extent; they have to in order to sell. But the successful companies are actually thinking long and hard about their relationships and how they can make them stronger. A good place to start is to ask yourself whether you can offer customers a satisfaction guarantee. If you can’t, you need to think long and hard about why it’s ok for customers not to be satisfied with your product or service.
What happened to the brands of the big banking executives in the financial crisis? Is it hard to trust them now?
From the public’s point of view, I think the big banking executives have shown that they’re morally bankrupt and untrustworthy. To take trillions of dollars of taxpayer’s money and not be humble or feel any responsibility to the public is quite simply incredible. As far as the bank’s customers are concerned, I’d think the ones that did badly on the advice of the banks would feel hesitant to trust them. And as far bank employees are concerned I don’t think they’ve ever felt much trust.
Bankers are in it for the money and their aim is to make as much money as they can while it lasts. Most investment bankers know there’s a time when their banking career will probably be up. So all in all I think it is hard to trust the top guys. The question for their business is whether they have enough clients who weathered the financial panic ok and still trust the products and services enough. It seems like the answer is yes.
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Anna Bernasek‘s writing about finance and the economy has appeared in The New York Times, The Washington Post, the International Herald Tribune, Fortune, TIME, The Huffington Post, Australia’s Sydney Morning Herald newspaper and the Australian Financial Review. She has commented on economics as a guest on broadcast media including CNN, CNBC, public television and National Public Radio. Her first book, The Economics of Integrity, was published in February 2010 by Harper Collins. She has been interviewed by publications such as TIME, US News & World Report, The Wall Street Journal, Harvard Business Review and by radio networks and bloggers across the United States, Europe and Australia. She has also presented her work at conferences including the annual meeting of the Business Council, The Harper Studio/Vanity Fair ReSet Business Forum, the Corporate Responsibility Officers Association summit and the NRC Focus seminar in Amsterdam.
