Chapter Three:

Systems Thinking to Understand

The Morality of Free Enterprise Capitalist Markets
This Chapter focuses on systems thinking as a new, powerful and specialized tool and technique for
understanding the subtle operations of the free enterprise capitalist market system and its ethics and morality.
Everything in the world of planets and the universe is a system with definite inputs, processes, and outputs,
each of these parts composed of subjects, objects, properties and events (SOPE). In general a systems subjects
and objects interact with another to create properties and events. Such creations of causes and effects are rarely
unidirectional and linear, but most often non-linear, circular, spiral, dynamic and multidirectional. Hence they can
absorb and explain complexity, risk, uncertainty and ambiguity of the market systems. From a systems viewpoint we
study the free enterprise capitalist system (FECS) as a dynamic, interconnected organic system and not as a discrete
or compartmentalized into disaggregate parts. Systems-thinking calls for a shift of our mind set from seeing just parts
to seeing the whole reality in its structured dynamic unity. Systems-thinking demands a sensibility to see subtle
interconnectedness that gives FECS its living and unique character. Moreover, it mandates that we see ourselves as
active participators or partners of FECS and not mere cogs in its wheels or as factors of its production processes.
Systems-thinking seeks to identify the structures that underlie complex situations in FECS that bring about high
versus low leveraged changes. A system is strengthened and reinforced by feedback of reciprocal exchanges that makes
the system alive, transparent, human and humanizing. We also explore some system Laws that help us to understand
patterned behavior among systems and their component parts. Above all, systems-thinking provides a dynamic
framework to understand, unfold, assess and predict the inner spirit of ethics, morals and cosmic spirituality within
the FECS.

Case 3.1: Ethics of Major Political Interventions on Capitalism:

RBIs Recent Stance on Curbing Indian Rupee Volatility
Most of the time, economic policy making is about tinkering at the edges. Politicians argue vehemently about
modest changes to interest rate (e.g., repo rates), taxes (e.g., income taxes, capital gains taxes) or spending
(government or consumer spending). In what could be RBI Governor D. Subbaraos last monetary policy review
(his five-year term of office ended on September 5, 2013), the Reserve Bank of India (RBI) on Tuesday (July 30,
2013) maintained the status quo on repo rate and cash reserve ratio (CRR). [CRR is the portion of deposits that
banks have to keep with RBI in cash; Repo rates are those at which RBI lends to large commercial banks)]. Both
liquidity tightening measures seemed to be effective during the last two weeks of July in controlling rupee
depreciation. But the rupee tanked on July 30, 2013 it opened 59.66 and closed 60.49 - 1.8% weaker in a day.
After cutting the key policy rate 75 basis points (bps) over three straight policy reviews, RBI kept it unchanged
in June. [Repo has been cut 125 bps from 8.50 (April 2, 2012) to 7.25 (July 30, 2013); the last repo rate cut by
25 bps was in May 2013; the RBI cut CRR by 75 bps from 4.75 (April 2, 2012) to 4.00 (July 30, 2013); source:
Bloomberg]. More cuts on repo rates are not expected this financial year, opine economy and trade analysts at
CRISIL (Hindustan Times, July 31, 2013, p. 8]. Consequently, inflation may surge above 5%, and growth may
slow down from 5.7 to 5.5 percent.
The rupee has been sustaining a steady fall against the US dollar since Indian Independence, and especially,
since April 2013. The rupee has fallen 19% since April 12, 2013. On July 8, 2013 the rupee hit an all-time low
of Rs 61.21 per US dollar, and on August 1, 2013, despite all bail-out attempts by the Reserve Bank of India
(RBI), it came almost close to it again at Rs. 61.17 a dollar. Anand Mahindra, Chairman of the Mahindra and
Mahindra Group, tweeted on Wednesday (July 31, 2013) about the rupees continuous fall in spite of several
steps taken by the RBI and the Government. This is skydiving without a parachute. A signal that an unsterilized
band aid is not the solution, he tweeted. Its 1991 (the great economic crisis) redux, and the enduring remedy
is more reform, across ministries, and incentivization of manufacturing and exports. Choking (of) liquidity is a
death wish he added. Rahul Bajaj, Chairman of Bajaj Auto, argued that encouraging foreign direct investments
(FDI) and Foreign Institutional Investors (FIIs) are temporary measures, to be done for their own sake and not
only to bridge the capital account deficit (CAD). The rupee finally closed at 60.40 a dollar on Wednesday, July
31, 2013.

A falling rupee will stoke inflation, especially in the backdrop of Indias increasing imports of oil and oil
products, and the depletion of foreign reserves in India. The rapid depreciation of the exchange rate impacts the
balance sheets of banks, corporations, and households. The volatility of the rupee hurts everyone, including trade
and industry. A weak rupee is the symptom and not the cause of our problems. Our CAD needs to be bridged.
To increase export of manufactured goods, the government needs to take policy measures that are politically
difficult and will take time to yield results, added Rahul Bajaj (HT, August 1, 2013, p. Companies 3).
FIIs have dumped both Indian stocks and bonds in July 2013, worrying that the US Federal Reserve would
roll back its massive bond buying program later this year and yields would remain elevated. FIIs have been net
sellers at around Rs 18,400 crore across both equities and the debt markets. The July 2013 outflow of foreign
money from the debt market was higher at Rs 12,000 crore compared to the equities market (Rs 6,000 crore).
Brokers and analysts say that the weak rupee outlook in the wake of the US Feds third round of bond buying
(QE3) known as the Quantitative Easing, coupled with uncertain Indian economic prospects are prompting FIIs
to cut exposure to India (HT, Tuesday, July 30, 2013, The Smart Investor, p. 1).
The auto industry is disappointed with RBIs decision not to cut rates (HT, July 31, 2013, p. 8). The RBI kept
the policy rates unchanged at Tuesdays (July 30) monetary policy review, providing no window of opportunity
for banks to ease interest rates on vehicle loans. Car sales in India have been declining for eight straight months
in June 2013 weighed down by costly loan rates, expensive fuel, increased vehicle prices and general inflation.
The first three months of FY 14 saw a fall of 10% in car sales at 434,551 units compared to the corresponding
quarter last year. The fall in sales of medium and heavy trucks has been even more significant at 18% during the
same quarter, thereby pushing value of discount offered to all-time-highs. Tata Motors which has a 62% market
share of the medium and heavy commercial vehicles (MHCV) segment reported a fall of 11% in sales during
April-June period. The auto industry has sought a stimulus package similar to the one given in 2008 when the
government proactively cut excise duties twice within a month. This led to the revival of demand across all the
segments.

Dr. Raghuram Rajan assumed charge as the 23rd Governor of the Reserve Bank of India on September 4,
2013. Prior to this, he was the Chief Economic Advisor, Ministry of Finance, Government of India, and the Eric
J. Gleacher Distinguished Service Professor of Finance at the University of Chicagos Booth School of
Management. Between 2003 and 2006, Dr. Rajan was the Chief Economist and Director of Research at the
International Monetary Fund.

References:
India Inc. Goes on a Dollar Hunt, Business Standard, Kolkata, Friday, August 2, 2013, p.1, 8;
Indian Inc. jittery on Rs Economy, Business Standard, Kolkata, Thursday, August 1, 2013, p.3;
Subbarao Spooks Markets in his Last Policy Review, Business Standard, Kolkata, Wednesday, July 31, 2013, p.1, 16;
Bankers Ask RBI for Relaxation, Business Standard, Kolkata, Wednesday, July 31, 2013, p.8;
More Cuts in Repo not expected this Financial year, Business Standard, Kolkata, Wednesday, July 31, 2013, p.8;
FIIs Pull out of Stocks, Debt on July, The Smart Investor: Business Standard, Kolkata, Tuesday, July 30, 2013, p.1, 6.
Mackey, John and Raj Sisodia (2014), Conscious Capitalism: Liberating the Heroic Spirit of Business, Boston, MA: Harvard Business
Review Press.
Rajan, Raghuram G. and Luigi Zingales (2003/2014), Saving Capitalism from the Capitalists: Unleashing the Power of Financial
Markets to Create Wealth and Spread Opportunity, Harper-Collins Publishers, New Delhi: India.

Questions:
1.

2.

Identify at least ten major market factors (e.g., CAD, CRR, inflation) that affect rupee volatility
positively or negatively. Prioritize them in terms of their teleological impact on the largest group
of stakeholders. Hence, which factors should RBI tackle first from a teleological ethics viewpoint,
and why?
Prioritize them in terms of their deontological impact on the largest group of stakeholders. Hence,
which factors should RBI tackle first from a deontological ethics point of view, and why?

3.
4.
5.
6.
7.

8.

Prioritize them in terms of their distributive justice impact on the largest group of stakeholders.
Hence, which factors should RBI tackle first from a distributive justice ethics perspective, and
why?
Fourthly, prioritize them in terms of their corrective justice impact on the largest group of
stakeholders. Hence, which factors should RBI tackle first from a corrective justice ethics
consideration, and why?
Do you discern conflicts in the priorities suggested by findings under (1), (2), (3) and (4), and how
will you deal with them?
Discuss the ethicality (e.g., based on teleology, distributive and corrective justice theories) of the
tough RBI stand on liquidity squeeze in order to control the rupee volatility, even at the expense of
its negative effects on some sectors of the economy.
Discuss the efficiency, legality, ethicality and morality of too many government interventions (e.g.,
RBI policy rates, tax policy, excise duty, import duty, export quota, import limits, and numerous
other license requirements) in the Indian economy, thus expanding scope for political and
corporate corruption, fraud and bribery.
Rupee and liquidity instability affects all industries, especially the banks, FIIs and FDI in India,
and because of the latter, several industries are experiencing failure (e.g. auto, housing,
construction, foreign tourism) that depend upon bank loans. In this context, argue which stance
is more ethical and moral: government interventions versus free market determinations.

Introduction:
Amerigo Vespucci, a sixteenth-century Spanish royal court-appointed pilot major, was the first
atlas maker of the world; he based his work on notes, charts and artifacts, books and portfolios of
hundreds of sailors before him. In Seville, Spain, Vespucci hung a giant wall chart where navigators
sailing into port traced their discoveries and planned adventures. Vespuccis efforts were recognized;
for a time he was credited with discovering the Americas, and the Western Hemisphere still bears his
name. However, the more significant atlas maker of his time was Gerardus Mercator, a Flemish
mathematician, who drew the first map of the world on a grid of uniform north-south, east-west
parallels, thus creating a medium for systematically placing the then known continents, oceans and
islands of the world. Even though Mercators framework was unabashedly Europe-centric (he placed
almost two-thirds of the world above the equator), yet subsequent cartographers have gradually
assembled all major round the globe journeys on one global map that we have today. Systemsthinking is a similar road-mapping the world of humans, human behavior, organizational behavior and
social cultures, history and humanity. Systems-thinking is a simple and systematic way to organize the
diverse tales of explorers of organizational change into a coherent whole (Senge et al.1999: 4).
We already introduced some systems thinking concepts in Chapter One (pp. 9-16). Let us recall a
few salient points (see Corporate Exercise 1.3, pp.12-13). System thinking is a discipline for seeing
wholes. It is a framework for seeing interrelationships rather than linear cause-effect chains and
things, for seeing processes and patterns of change rather than static snapshots. Systems-thinking is a
sensibility for the subtle interconnectedness that gives living systems their unique character. It is a
discipline for seeing structures that underlie complex situations, and for discerning high from low
leverage change. It is a shift of mind from seeing parts to seeing wholes, from reacting to the present to
creating the future, from seeing ourselves as helpless reactors to changing reality to seeing ourselves as
active participants in shaping that reality. The unhealthiness of our world today is in direct proportion
to our inability to see it as a whole (Senge 2006: 68).
Hence, applied to the capitalist system that we seek to understand, we can raise many questions
based on systems-thinking. For instance:

How do we see the Free Enterprise Capitalist System (FECS) as a whole, with circular cause-effect
relationships rather than linear, discreet, static snapshot cause-to-effect unidirectional transactions?

How do we see FECS as a whole dynamic organic system and not compartmentalize it into its parts: how do
we shift our mind set from seeing just parts to seeing the whole reality in its structured dynamic unity?
How do we develop a sensibility to see subtle interconnectedness that gives FECS its living and unique
character?
How do we see ourselves as active participators or partners of FECS and not mere cogs in its wheels?
How to identify the structures that underlie complex situations in FECS that bring about high versus low
leveraged changes?

The same is true of our bodies, our jobs, our families, our organizations and neighborhoods, our
industries and markets they are dynamic processes; they are dynamic systems. Often order emerges
from chaos, stability from turbulent environments, meaning from confusion, and unity from diversity
(Senge et al. 1994: 96-97). The essence of the discipline of systems thinking lies in the shift of mind
along two dimensions (Senge 2006: 73):
Seeing interrelationships rather than linear cause-effect chains in reality;
Seeing processes and patterns of change rather than static snapshots of reality.

Reality is made up of circles of interdependencies and structures of systems, but we see reality
linearly, in straight lines. One of the reasons for fragmentation in our thinking stems from our
language. Language shapes perception. What we see (i.e., our perception) depends on what we are
prepared or trained to see. Western languages with their subject-verb-object structure are biased
toward a linear view of reality. By contrast, many Eastern languages (e.g., Japanese, Chinese) do not
build up from subject-verb-object sequences. If we want to see system-wide interrelationships, we
need a language made up of circles, that is, a language of interrelationships. A language of
interrelationships is critical in facing and understanding dynamically complex problems and issues and
strategic choices in business. Individuals, teams and organizations must see beyond events into forces
that shape events and change.
The art of systems thinking is in seeing through complexity to the underlying structures generating
change. Systems thinking does not ignore complexity; on the contrary, it organizes complexity into a
coherent story that empowers us to detect and distinguish between causes and effects of problems,
their separation in space and time, and how we can remedy them in enduring ways. The greatest
benefit of systems thinking is to distinguish between high-leverage from low-leverage changes in
highly complex situations.
The increasing complexity of todays world leads many managers to assume that they lack
information to act effectively. The problem is not lack of information, but too much of it. Information
overload adds unnecessary complexity (Senge 1990/2006: 128). Systems-thinking enables us to sift
what is important and what is not important in the world of information explosion that we confront
every day. By using the systems archetypes, we can learn how to structure mountains of information
and relevant variables into a coherent picture of the forces that play.

The Market Problem as a System at Unrest

A problem is a system at unrest (Ackoff and Emery 1972). For instance, a business system at
unrest implies that any or all of the following four components are dysfunctional or non-coordinating:
Subjects (e.g., people, employees, executives, and suppliers),
Objects (e.g., products, services, machinery and equipment, patents, cash and inventory);
Properties (e.g., skills, talents, quality, R&D, technology, logistics, promotions, service, market
research, and complaints feedback) or
4

 Events (e.g., new product development, new product announcements, best quality awards, press
release, peak progress, peak market share, peak profits, peak losses, peak stock prices, peak
market evaluation, peak brand equity, and the like).

Any system is composed of subjects, objects, properties and events (SOPE). An economy is a
market system with an environment. All products and services offered in that market economy are
systems. A business corporation or organization that offers such products and services is a system. A
market that absorbs these products and services is a social or economic system. Any of these systems
could be at unrest at a given time. That is, there are economic, market, business and environmental
problems. Governments, politics, laws and legislatures, economy, culture, religion, civilization,
historical eras and epochs are systems in the world. When they are at unrest, there are problems. A
business system at unrest, accordingly, may be unclear in its vision and mission, its goals and
objectives, its policies and procedures, in its strategies and tactics, and, hence, fails to realize expected
goals and objectives. This is a business problem.
In systems thinking, the word structure (derived from the Latin word struere = to build) is the
pattern of interrelationships among key components of the system. The interrelationships are not only
organizational such as strategic decision-making processes, hierarchies and process-flows, product
quality and control, but also includes human components such as attitudes, perceptions and emotions,
beliefs, convictions and meanings, social relationship and bonding, ethnic groups and cultures. Not
all structures are visible or conscious; they are built from choices people and organizations make over
time, consciously or unconsciously.

Corporate Ethics Exercise 3.1

In understanding the distinctive features and benefits of systems thinking, how will you internalize, organize and
implement the following in your corporation?
a)
b)
c)
d)
e)
f)

g)

h)

Systems-thinking is a discipline for seeing wholes. It is a framework for seeing interrelationships rather than
linear cause-effect chains and things, for seeing processes and patterns of change rather than static snapshots.
Systems-thinking is a sensibility for the subtle interconnectedness that gives living systems their unique character.
It is a discipline for seeing the structures that underlie complex situations, and for discerning high from low
leverage change.
It is a shift of mind from seeing parts to seeing wholes, from reacting to the present to creating the future, from
seeing ourselves as helpless reactors to changing reality to seeing ourselves as active participants in shaping that
reality.
More specifically, systems-thinking is a way of thinking about, and a language for describing and understanding,
the forces and interrelationships that shape the behavior of systems. The discipline helps us to see how to change
systems more effectively, and to act more in tune with the larger processes of the natural and economic world.
Systems-thinking is a fundamental shift from linear thinking to circular thinking, from seeing things as static
structures or objects to viewing them as processes. A tree is not an object, but an expression of process, such as
photosynthesis, which connect the sun and the earth. A human being is not just a subject, but also a dynamic
process of inhaling and exhaling, metabolism and anabolism, growth and renewal.
The art of systems thinking lies in seeing through complexity to the underlying structures generating change.
Systems-thinking does not ignore complexity; on the contrary, it organizes complexity into a coherent story that
empowers us to detect and distinguish between causes and effects of problems, their separation in space and time,
and how we can remedy them in enduring ways.
The greatest benefit of systems thinking is to distinguish between high-leverage from low-leverage changes in
highly complex situations.

Free Enterprise Capitalism as a

System of Subjects, Objects, Properties and Events

Table 3.1 applies systems thinking concepts of subjects, objects, properties and events (SOPE) to
the Free Enterprise Capital System (FECS) as a Corporate Morality System. It lists some of the major
systems under each element of SOPE. According to systems thinking, everything there is (was and
will be) could be included under subjects, objects, properties and events. This is a fairly exhaustive
set, but not necessarily mutually exclusive. For instance, researchers, doctors, supervisors and
managers sometimes treat subjects as objects of exploration or performance appraisal; some properties
(e.g., reputation, certification, graduation, and excellence) are also events (e.g., awards, recognition,
company registration, foundations, regulation, liberalization, privatization, and tax-havens) become
eventually properties.
Following the distinction of conceptual versus operational definitions, Table 3.1 classifies SOPE
into operational systems that serve as a background, context and challenge for understanding corporate
morality in the free enterprise capitalist system (FECS). The FECS affects all stakeholder systems
such as customers and employees, suppliers and distributors, creditors and banks, media and local
communities, employers and management, governments and legislators.
Stakeholders are those in the environment of a system whom the company impacts and, in turn,
gets impacted and affected (Freeman 1984). We identify major systems for brevity and simplicity.
Each company could make its specific lists of SOPE conceptual and operational moral systems.
Corporate morality includes all four elements of subjects, objects, properties and events.

Table 3.1: SOPE Structure of FECS Corporate Morality

SOPE

Operationally Defined, Lived

Corporate Morality Systems

The Structure of Corporate Morality as

Pattern of Interrelationships among Key
Components (SOPE) of the System.

Subjects

Humans as moral & intelligent employees

Humans as moral owners and employers
Humans as moral customers & brand
communities
Humans as moral governments with law &
order
Humans as moral business entities or
corporations

The structure of corporate morality as the

feelings, emotions, attitudes, perceptions, beliefs,
meanings, social relationships and cultures of its
people as moral and intelligent employees, moral
owners and employers, moral customers and
brand communities, moral governments, and
business entities and corporations

Objects

Water, oil, gas and energy supply systems;

Ecological and sustainability systems
Real estate, housing & furniture market
systems;
Affordable and accessible transportation
systems;
Socially uplifting architecture and
infrastructure;
Affordable, safe and secure transportation to
all;
Moral producer, supplier and distribution
systems.
Moral home, upbringing & conscience
formation;
Character formation, leadership training
systems;
Affordable medical coverage and insurance for
all; Humanizing work, wages, & buying power
for all; Economic growth and social progress
for all;
Cultural diversity promoting unity among all;

The structure of corporate morality as: the

internal and external environment of the firm;
as controllable and uncontrollable variables in
relation to its tangibles of land, property,
buildings, utilities, transportation, suppliers,
creditors, distributors, vendors, retailers,
customers, and local communities.

Propertie
s

The intangible structure of corporate morality in

terms of its strategic decision-making processes,
policies, corporate conscience, character and
personality, customs, conventions and covenants,
ethos and mores, hierarchies and work process
flows, product quality and control, distribution
and marketing systems.
Uncontrollable environmental variables include
properties such as competition, globalization,

Moral money and capital market systems;

Financial institutions and stock markets
Anniversaries, jubilees, & landmark
celebrations;
Technological progress and human betterment;
Humanizing creations, innovations & ventures;
Human colonization, democracies and
civilization.

Events

deregulation, privatization, nationalization, trade

liberalization, digitization, e-learning, emarketing, e-commerce, e-business, and e-waste
systems.
The structure corporate morality in terms of its
tangibles and intangibles (mentioned above) that
identify, define, characterize, classify and
celebrate its landmark achievements,
recognitions, awards, progression or regression,
anniversaries and jubilees.

Corporate deliberation, choices, decisions, strategies and implementations affect company

stakeholders as subjects, objects, properties and events. Under subjects a company should include all
its major stakeholders such as customers, employees, shareholders, suppliers, distributors and vendors,
banks and creditors, governments and media, local and global communities, and even competition.
Under objects, the corporation should include all basic elements such as earth, air, water and fire
(energy) which it uses like scarce resources in the form of property, buildings, extraction, production,
distribution and consumption and, accordingly, take moral responsibility and accountability (e.g.,
conservation, renewal, ecology, sustainability) for them. The SOPE systems-framework provides a
holistic view of and challenge for corporate morality.
Table 3.1 characterizes the structure of corporate ethics and morality. That is, following systems
thinking, we assume that the structure of corporate morality is a pattern of interrelationships related to
the key components (SOPE) of the system. For instance, as subjects in a corporation, the structure of
corporate morality is constituted of feelings, emotions, attitudes, perceptions, beliefs, meanings,
social relationships and cultures of its people as moral and intelligent employees, moral owners and
employers, moral customers and brand communities, moral governments, and business entities and
corporations. As objects in a corporation, the structure of corporate morality is constituted of internal
and external environment of the firm as controllable and uncontrollable variables in relation to its
tangibles of land, property, buildings, utilities, transportation, suppliers, creditors, distributors,
vendors, retailers, customers, and local communities.

Table 3.2: A Framework of Interrelationships for Identifying the

Structure of Corporate Morality
Corporatio
n
SOPE

Constituents of Corporate
Morality

Key Subjects

Chairman and Board of Directors

CEO or MD or CMD or CXO
VPs of major corporate functions
Key managers and supervisors
Key skilled employees
Key staff and supporting

Key Objects

Key land and location resources;

Key building and workspace
resources;
Key utilities and IT infrastructure;
Key sustainable competitive
resources;
Key products, brands and services
Core skills and competencies;

Key

Structure of Corporate Morality:

SOPE Interrelationships
Boardroom attitudes and mindsets
CEOs short-term and long-term goals;
VP perceptions, attitudes, beliefs on goals;
Managerial perceptions, attitudes and beliefs;
Key skilled employee hopes, fears, anxieties;
Key staff perceptions, attitudes & beliefs of corporate
goals.
Appreciation and conservation of land resources;
Appreciation and conservation of workspaces;
Appreciation and conservation of infrastructure;
Appreciation and conservation of materials;
Design, development and appreciation of companys key
products, brands and services
Self-involvement in building core competencies;

Properties

Key Events

Core patents and technologies;

Key networking connections;
Key company hierarchies;
Key company reporting structures;
Key company codes of conduct,
regulations and ordinances;
Core company moral and ethical
values and beliefs;
Key branch or division
foundations;
Key new product announcements;
Key new market entries;
Key anniversaries, milestones,
certifications and awards.

Joint ownership of patents and intellectual properties;

Building company and brand communities;
Resistance to or acceptance of company hierarchies;
Rejection to or abidance of reporting structures;
Compliance or non-compliance of company regulations,
codes of conduct, and ordinances.
Adherence to core company values and beliefs.
Positive versus negative attitude toward companys major
events like Foundation Day, new product announcements,
new market entries, new joint ventures, new mergers and
acquisitions, new landmarks and milestones, and
excellence awards and recognitions.

Hence, corporate executives should periodically identify and characterize the structure of
specific Corporate Morality as suggested in Table 3.2. Every system has an environment, either
internal (elements within the system that you cannot control) or external (elements outside the system
that you cannot control). If and when you control these elements they become part of your system. In
this sense, a problem is a system at unrest (Ackoff and Emery 1972). The unrest that causes and
defines the problem is, in turn, caused by the internal or external environments beyond our control, but
still controlling us and our organization.

The Great Economic Divide

According to Joseph Stiglitz, Chief Economist at the World Bank until January 2000, and winner
of Nobel Prize for Economics in 2001, the best-selling author of Globalization and its Discontents,
The Roaring Nineties, Making Globalization Work, and The Price of Inequality, the great divide
between the rich and the poor, both within nations and across nations, is widening as never before. In
his latest work, The Great Divide (2015), Stiglitz argues that inequality is a conscious choice of the
developed world. From Ronald Regan Era policies to the Great Recession and its long aftermath,
Stiglitz exposes the processes and irresponsible policies (e.g., deregulation, tax cuts for the rich, and
the corruption of the political process) that are causing the current divide between the rich and the
poor. Instead, he advocates real solutions such as increasing taxes on the corporations and the wealthy,
investing in education, science and infrastructure, helping homeowners instead of bailing out banks,
and doing more to restore the economy to full employment. Capitalism might be the best economic
system that humans have created, but no one ever said it would create stability or equality. The world
is now facing a liquidity problem, a solvency problem, and a macroeconomic problem. At this time,
says Stiglitz (2015: 65-67), the world needs a five-step comprehensive approach:
1.

2.

3.
4.

Recapitalize banks: With all the losses of the past 30 years, banks have insufficient equity. Banks may not be
able to raise equity from the markets; they need governments to provide equity. Governments must
recapitalize banks by providing new money to make up for the losses they incurred on their bad loans and
badly discounted bonds. Of course, this is hard on the tax payers.
Stem the Tide of Foreclosures: We need to help people stay in their homes by converting the mortgageinterest and property-tax deductions into cashable tax credit. We must reform bankruptcy laws to allow
expedited restructuring that would bring down the value of the mortgage when the price of the house is
below that of the mortgage.
Pass a Stimulus that Works: Investments in infrastructure and technology will stimulate the economy in the
short run and enhance growth in the long run. Hurricane Katrina and the collapse of the bridge in
Minneapolis were grim reminders for Americans how decrepit the infrastructure has become.
Restore Confidence through Regulatory Reform: Underlying our current problems are the bad decisions of
banks and regulatory failures. They must be addressed if confidence in our financial system is to be restored.
Corporate governance structures that lead to flawed incentive structures designed to generously reward
CEOs should be changed and so should many of the incentive systems themselves.

5.

Create an Effective Multilateral Agency: As the global economy gets more interconnected, we need better
global oversight. As foreign governments provided better blanket guarantees for their deposits, money
started to move to safer havens. Now, as the world emerges from the Cold War and the Great Financial Crisis
of 2008, it will need to construct a new global economic order for the 21st century, and that will include a new
global multilateral regulatory agency.

Case 3.1 is an illustration of Joseph Stiglitzs five-Pont solution to an ailing economy.

The Structure of FECS Problems

In other words, every problem is constituted of two sets or vectors of variables: a) controllable
variables, say vector , and b) uncontrollable variables, say vector . That is, problem P = f(, ).
Problem arises when dominates . The problem in corporate ethics and corporate morality is
basically a system at unrest. Operationally lived and experienced corporate ethics and morality is to
identify variables in that dominate specific variables in , and find an economic, legal, ethical and
moral solution to optimize performance despite this dominance. The problem of FECS during its
October 2008 financial crisis can be defined, characterized and formulated as P = f( , ). Problem
arises when (e.g., investment banks, institutional investors, money markets, stock exchanges)
dominate (small shareholders, household investors, small farmers or entrepreneurs that need loans
for working capital or cash).

Corporate Ethics Exercise 3.2

Based on Chapter 2, choose the following financial institutions that purported to resolve the financial crises that
occurred after the First World War till our times and analyze under each institution the set of controllable
variables () and uncontrollable variables () given a reference point (such as USAs versus the of the rest;
Europes versus the of the rest), and investigate which of could have dominated which of to resolve the
crisis better, and why?
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Cross-Border Flows of Capital

The Gold Standard
World War I Economics Restoration
The Stock Market Crash of October 1929
Unbridled Monopolistic Markets
The United Nations Organization (UNO)
The World Bank of Reconstruction and Development (WBRD)
The International Monetary Fund (IMF)
The European Union (EU)
The Crumbling Berlin Wall
11. The Group of Seven (G7) Countries

For instance, if your environment is predominantly your competition whom you cannot
dominate or control, and if the uncontrollable variables in competitive environment (e.g., y1 = price,
y2= quality, y3= distribution, and y4 = advertising) are dominating or negatively influencing your
corresponding variables in (e.g., x1 = price, x2= quality, x3= distribution, and x4 = advertising), then a
specific problem arises. Solution alternatives are a) either to optimize despite or because of , b) or
seek dominance over by merger or acquisition, c) or seek to dominate a specific y i (i = 1, 2, 3, 4), or
d) divest this business, or e) ignore and create your own market (Kim and Mauborgne 2005), or f)
change your market, and so on. Each solution that you choose should be legal, ethical, moral,
spiritual, and hence, economically optimizing. This is the essence of corporate ethics or corporate
morality in action.

A system without an environment does not exist in our universe. An environment of a system is
itself a system whose contents, that is, subjects, objects, properties and events (SOPE) impact a given
system, but the latter cannot impact or control the system that impacts it. If a system can control its
environment, then that part of the environment becomes a part of that system. For instance, if
competitors, new government regulations, new globalization challenges or new technologies impact
and control the firm, and the firm, in turn, cannot control them, they form the firms environment. But
if you decide to buy or merge with a given competitor, then the merged or acquired system is no more
an uncontrollable competing variable, but becomes part of your system.
There are various ways or levels of thinking in complex situations. Some are disabled to think;
their thinking is inactive or passive - the object of their inactive thinking are everyday events
they either ignore them or leave them unexplained. The next most common level of thinking is
reactive, whereby most people react to everyday events. This is an event explanation that
addresses questions such as who did, what, when, and to whom? Some anticipate events in
proactive thinking and offer futuristic explanation. Some think together their thinking is
interactive or team thinking, and the outcome of such thinking is consensual explanation of
events. The next higher level of thinking is responsive whereby you search for patterns of
behavior among everyday events, and thus derive pattern explanation. Presumably, the highest level
of thinking is generative whereby we search, research, analyze and explain underlying causes of
patterns of behavior (Senge 2006: 52).

Systems Thinking and Process Mapping

Process mapping and systems thinking are distinct but complementary. Process diagrams show a
flow or sequence of activities. The labels are verbs, tasks or steps. The arrows show a flow or
sequence and chronology. A change in one element does not necessarily change other elements they
are sequential not causal. For instance, D follows C, C follows B and B follows A. A, B or C do not
cause D. Analogously, moon follows the earth, the earth follows the sun, the sun follows the Milky
Galaxy, and the Milky Galaxy follows its constellation one does not cause the other (Senge et al
1990: 184-85)
A linear sequence will be: A B C D.
A circular sequence could be:
A.

A affects B affects C affects D affects A or A B C D

A causal-loop diagram from system dynamics represents cause-and-effect relationships. The

labels on systems diagrams represent variables (not actions), usually nouns or noun phrases. Changing
any variable will produce change in all the variables in the loop. For example: production quantity
affects product quality that in turn affects product price which in turn affects product sales and which
in turn affects production quantity. Each stage could involve ethics and morals; in which case the
morality of quantity production affects the morality of product quality which in turn affects the ethics
of product pricing, and so on.
Fast cycle time is process mapping; it is specifically about improving the speed of performance in
an organization, not by moving faster, but by redesigning your work. Fast cycle time must combine
with TQM or quality improvement, new relationships with suppliers, high-performance teams, and
redesigning work flow as a system. Each method or systems component should reinforce each other in
a virtuous cycle.

10

The Concept of Feedback

An important concept in systems thinking is feedback. The term means a much broader concept
than the positive or negative feedback we receive from our customers, colleagues or bosses. In
systems thinking, feedback means any reciprocal flow of influence. Feedback, in this sense, is the
foundation of reality. The key to seeing reality systemically is seeing circles of influence rather than
straight lines. Every circle tells a story. By tracing the flows of influence, we can see patterns that
repeat themselves, time after time, making situations better or worse. The practice of systems thinking
starts with understanding feedback that shows how actions can reinforce or counteract (balance)
each other. Systems-thinking recognizes structures or patterns of change that recur again and again.
It enables us to simplify life by helping us to see the deeper moral patterns lying behind the events and
the details of ordinary life and reality.
Figure 3.1 represents the traditional linear sequence of causal-effect influence. In contrast, in
systems-thinking, feedback is an axiom that states, every influence is both cause and effect. Nothing is
ever influenced in just one direction. Reality exists in structures, and structures cause behavior.
Figure 3.1 captures this phenomenon. Seeing only individual actions and missing the structure
underlying our actions, is the root of our linear thinking and moral powerlessness in understanding
complex systems.
If you include the blue dotted line as part of Figure 3.1, then it also becomes circular - outputs
becoming inputs to another system or to the same system in reverse gear.

Figure 3.1: The Traditional Linear Influence of Cause and Effect in

Non-Systemic Thinking
Concomitants

Antecedents

Causes

Figure 3.2: The Reciprocal Influence of Cause and

Effect in Systems Analysis

11

Effects

Cause

Effect

Local and domestic problems have international and global antecedents, concomitants,
determinants and consequences.

Antecedents are factors and events that precede but influence the problem at hand.
Concomitants are factors and events that accompany and influence the problem at hand.
Determinants are factors and events that cause (necessary and sufficient conditions to) the
problem.
Consequences are effects and outcomes that are causally connected to the problem or its selected
solution.

A problem correctly identified and well formulated is half solved (John Dewey). To solve a
problem, you have to get ahead of it and change the determinants for its occurring. Formulating a
problem carefully can help you identify the reasons it is occurring. A linear solution is good enough for
simple and structured problems. We need circular (or non-linear) systems solutions to understand and
resolve unstructured or wicked Problems. Dynamic complexity implies many complex effects
(Senge 2006: 71):

The same action has dramatically different effects in the short run and the long run;
The same action has one set of consequences locally and a very different set of consequences in
another part of the system;
Obvious interventions produce non-obvious consequences.

Conventional linear methods such as forecasting, planning and analysis are ill-equipped to deal
with dynamic complexity. Insights into causes and possible cures require seeing interrelationships
between various actors and variables and at various times and contexts. A poignant example of
destructive linear thinking was the USA-USSR arms race. Each one perceived the other as a threat for
some forty years, and accordingly, piled up nuclear arms. Each party independently estimated each
ones arms buildup, assessed the additional threat, and build further arms to neutralize the threat. The
process became circular each ones reactive strategy causing counter-acting strategy. The long-term
result of each partys effort to be more secure was a heightened insecurity for all and an escalation
dynamic a combined nuclear stockpile 10,000 times the total firepower of World War II (Senge
1990: 71-72). The current USA-Al Qaeda confrontation is a replication of the USA-USSR arms race.
The only difference is vengeance and violence each one attacks the other in defense and offense.
The 9/11 attacks of 2000 and the current anti-terrorist USA-led wars on Iraq, Afghanistan and Pakistan
are instances of violence and counter-violence. Both sides respond to perceived threats, and their
actions create more threats, and hence, escalate offensive response that results in heightened danger
and insecurity for everyone. A linear view of defense and offence will not enable us to escape the
illogic and tragedy of reciprocal war. Linear thinking has no hope of a solution; each one keeps
blaming the other and builds-up defenses against the other. A real solution is to seek collective blame
and guilt, and initiate negotiations and abide by agreed upon reductions in nuclear arsenal; that is, run
the vicious cycle of arms race and escalation in reverse.

12

The current mess of financial market collapse of October 2008 and the financial crisis that
followed are effects of previous causes. Nothing happens randomly. One could identify the following
factors that led to the current financial crisis:
Ingenious financial instruments (e.g., derivatives, bond options, hedge funds, and the Ponzi scheme)
created by human ingenuity;
Various financial bi-products that we have created to sell debt or spread risk (e.g., risk insurance, debt
securitization, collateralized debt organization (CDO), default credit swaps (DCS), and the like), and
thus, presumably, to offer better credit conditions, and, accordingly, the
Various lending rates that we have devised (e.g., constant tampering with the Federal Reserve Bank
rates, almost zero percent Treasury bills, lowering prime interest rates, sub-prime mortgage rates, zero
collateral easy home mortgage credit, and adjustable rate mortgages (ARMs)) are all causes that
conspire together to create the
Various effects the blasting mortgage homeowner markets, the real estate and housing price boom,
seeking large dream homes that one could not afford, credit payment default, mortgage payment
defaults, housing price collapse, home foreclosure, personal bankruptcies, and investment banks
bankruptcies a mega financial mess.

Our state, federal, and global level bailout plans are only quick-fix temporary solutions in this
regard. The causes are still left unidentified, unregulated and unaccountable (Stiglitz 2015: 1-69). The
effects are just the tip of the iceberg of an array of unintended consequences.
Using the cause-effect circular thinking represented in Figure 3.2, Figure 3.3 illustrates a systemsanalysis of the current financial market crisis. We also anthropomorphize actions, making us, humans
as the center of all actions, and worse, the center of the universe. From the systems perspective, the
human actor is part of the feedback process, not standing apart from it. We are part of nature, not
separate from nature or standing apart from it. This represents a profound shift in awareness. It
enables us to see how we are continually both influenced by and influencing our reality. This shift of
awareness is fundamental to ecology, sustainability and global climate change unless we see
ourselves as part of the nature that surrounds us, not separate from it, we will not feel responsible to
the harm that we do to nature by our wasteful habits (Senge 1990: 78).

Figure 3.3: A Circular Cause-Effect Systems Analysis of the Current Financial Crisis

Easy Lending Rates Consumer & Investment Market Crisis

Unregulated
Financial
Bi-products

Unregulated Financial Instruments

13

The Reinforcing and Balancing Feedback Processes

There are two distinct types of feedback processes or building blocks of systems language:

Reinforcing feedback loop: these are amplifying processes that constitute the engine of growth. In
any growth or decline situation, reinforcing feedback is at work.
Balancing feedback loop: these are stabilizing processes whenever there is goal-oriented behavior.
The goal can be any desired target such as higher market share, plant shutdown, costcontainment, massive layoffs. Nature loves balance, and has built in balancing-mechanisms.

Reinforcing loops generate exponential growth or collapse, in which the growth or collapse
continues at an ever increasing rate. For instance, if you add $100 a year to your piggy bank, it grows
linearly and steadily to $4,000 at the end of forty years. Whereas, if you invested each year $100 in a
7% interest yielding CD without withdrawing the interest, it could exponentially grow to more than
$40,000 in forty years. In all reinforcing processes, as in a bank account, a small change builds on
itself. High birth rates lead to higher birth rates; industrial growth begets more industrial growth;
higher debts to higher debts; high deficits lead to higher deficits; high crime generates higher crime.
Reinforcing loops can be positive or negative, constructive or destructive, exponentially rising or
collapsing, a virtuous or vicious cycle.
There can be a number of elements in a reinforcing loop all in a circle, all propelling each
others growth. More could be added or deleted. By definition, a reinforcing loop is incomplete.
Often it may have balancing elements built within the loop. For instance, start at the top right of the
circle and proceed clockwise with each of the following connected reinforcing elements (Senge 2006):

Your teams agenda is full.

The fuller the agenda, the less time people have to explore issues in depth.
This scatters the teams level of focus.
The more scattered the focus, the lower the level of shared understanding, and the more
superficial the treatment of problems.
Thus, decisions made are not momentous and do not stick.
Therefore, problems arise adding to the teams agenda.
Over time, as the team moves around the cycle, more and more problems pile up.
And your teams agenda is overfull again.

In an organizational context, a common reinforcing feedback is when managers influence their

subordinates by their prior expectations about them. For instance, if a manager sees high potential in
Jack, a subordinate, and accordingly gives him much attention to develop that potential, Jack may
actually fulfill the managers expectation and turn out to be a great leader, and the manager may feel
reinforced in his original appraisal of Jack. Conversely, if a manager labels Jane as a low-potential
subject, and consequently, pays less attention to her, she may actually turn out to be ineffective, and
the manager may feel reinforced in his belief. The psychologist Robert Merton (1968) called this
phenomenon as the self-fulfilling prophecy. It is also known as the Pygmalion effect. i
Pygmalion effect often occurs in schools when teachers pre-label students as first track or second
track or third track, and treat them accordingly; the students are victimized by such classifications and
labeling, and often, and possibly because of this negative tag, persist in their learning disabilities.
Pygmalion effect often occurs in corporations and institutions when people scout talent and earmark
certain individuals for higher administrative tasks. In reinforcing feedback processes such as the

14

Pygmalion effect, a small change builds on itself, amplifies itself, and produces more movement in the
same direction. These are vicious cycles.
There are virtuous cycles, however, reinforcing feedback processes that reinforce in desired
directions. For instance, physical exercise can lead to a reinforcing spiral you exercise more, you
feel better, you eat better, you work better, and all these, in turn, spur you to keep exercising regularly.
The growth of any new product involves positive reinforcing spirals a word-of-mouth by satisfied
customers can snowball and produce a positive spiral chain effect among potential customers.
Conversely, a defective product can generate the chain in the opposite direction. Similarly, the
extinction of corporations or certain rare species, ecological damage, gas crisis, financial crisis, and the
like are vicious cycles of negative reinforcing feedback processes, unless counteracted in time by
balancing feedback.
The human body has thousands of balancing mechanisms whereby it maintains homeostasis, an
ability to maintain conditions for survival in a changing environment. Mechanisms such as eating
when hungry, drinking when thirsty, resting when tired, keeping warm in cold temperatures, keeping
cool in warmer climates, are all balancing self-correcting processes. Besides these externally fed
mechanisms, our human body has thousands of internal mechanisms by which it maintains desired
level of body temperature, oxygen level, blood sugar, and cardiovascular rhythm to maintain blood
pressure and heartbeat, and neuromuscular mechanisms to maintain neural balance, and the like.
The balancing mechanisms often maintain the status quo, and hence, go unnoticed. In general,
balancing loops are more difficult to see than reinforcing loops because it often seems that nothing is
happening. The balancing processes, however, can generate surprising and problematic behavior if
they go long undetected. Most human sicknesses and diseases, and eventually death, are problems of
undetected strained balancing loops.

Systemic Laws for Systems-Thinking

Peter Senge and his associates (Senge 1990/2006: 57-67; Senge et al. 1994; 1999; 2000) enunciate
some basic laws of the fifth discipline that can help us in understanding the origins of problems,
their underlying structures and behaviors, and their systemic solutions. A first law, in this regard is:

Law 1: Todays Problems come from Yesterdays Solutions.

That is, the causes of our problems are immediate we merely need to look at our own solutions
to other problems in the past. This law is particularly true when yesterdays solutions are a) shortterm, b) quick-fix, and c) patchwork or band aid resolutions of a problem that is ill-defined.

Corporate Ethics Exercise 3.3:

Apply Law on to the following mini-cases:
a) A well-established firm finds its current quarters sales are off sharply a problem. The cause: the highly successful
rebate program last quarter allured many customers to buy last quarter than this quarter.
b) A new manager cuts down high inventory levels to solve the high carrying cost problem. Sales people now, however,
are spending more time responding to angry customers who are still either waiting for shipments or for the brands
they want.
c) Police cracking down on drugs in downtown New York arrested narcotics on Thirtieth Street. The addicts have now
transferred the crime center to the Fortieth Street.
d) Federal officials intercepted a large shipment of narcotics. This, in turn, reduced the drug supply, drove up the price,
and generated more crime by addicts desperate to maintain their habit.

15

In each case, solutions merely shift problems from one part of the system to another. They often
go undetected because those who solved the first problem are different from those who inherit the
solution a new problem.
No forecasting model predicted the impact of the current economic and financial crisis of
September 2008, and its consequences continue to surprise businesses, economists and academics even
in late 2012. The crisis was compounded by the risk-management models of the banks, which
increased their exposure to risk instead of limiting it and rendered the global economic system more
fragile than ever. Low probability but high impact events, called Black Swan events, are increasingly
dominating the business environment. Because of the Internet and globalization, the world has
become a complex and vulnerable system, composed of a tangled web of relationships and other
interdependent factors. Complexity not only increases the incidence of Black Swan events but also
makes forecasting even ordinary events impossible. Companies that ignore Black Swan events will
likely go under. Instead of perpetuating the illusion that we can anticipate or predict the future, risk
management should try to reduce the impact of the threats we do not understand (Taleb, Goldstein, and
Spitznagel 2009: 78-79).
Jay Forrester called systems-thinking the new dismal science, because it points out the
vulnerabilities, limited understandings, and fallibilities of the past, and the assurance that todays
thinking will be the source of tomorrows problems (cited in Senge et al. 1994: 93). But finally,
things do get better. People bring formerly undiscussable problems to the surface; they also realize
that their old ways of thinking have anchored and trapped them with current problems.

Law 2: Harder you push, harder the system pushes back.

This is the second law. Consider another source-pattern of problems (Senge 1990/2006: 58-59):

In the 1960s, there were massive federal programs to build low-income housing and improve job
skills in decrepit inner cities in the U. S. Despite this great welfare program, these cities were
worse off in the 1970s. Why? One reason was that low-income people from other cities and rural
areas migrated to these high-welfare cities, thus overcrowding them and the job training programs
were swamped with applicants. The citys tax base began to erode obviously, being overcrowded
with welfare recipients.
The developed countries have great programs that subsidize or assist food and agricultural
programs of the developing countries. More food, however, reduces deaths due to malnutrition,
that, in turn, causes higher net population growth, and eventually more malnutrition.
In the mid-1980s, in order to correct the U. S. trade imbalance the federal government let the
dollar depreciate. Foreign guerilla competitors, however, let the prices of their goods fall in
parallel, thus compensating or neutralizing the value of the depreciated dollar.

Corporate Ethics Exercise 3.4:

Apply Law 2 to the following cases. What do you learn, and why?

A marketing manager finds that one of his products suddenly starts to lose its marketattractiveness. He compensates by aggressive marketing lowers the price, spends more on
advertising, offers rebates that temporarily brings back the customers. But the costs of aggressive
marketing reduce resources for improving quality inspection, speeding delivery, and honoring product
warranties and guarantees. In the long run, the more fervently the company markets its products and
services, the more customers it loses!

16

We often act in ways to reduce the impact of Black Swan (low probability-high-impact) events in
our life (e.g., house fire, earthquake, fatal accident). It is impossible to predict Black Swan events;
hence, we readily buy insurance for houses, healthcare, cars, and other catastrophic events), only to
find that the insurances premiums accumulate quickly to make us broke. We buy insurances to hedge
our risk; but hereby we increase our vulnerability to cash flow crisis, if not insolvency. This is what
happened with the recent house mortgage crisis (Taleb, Goldstein and Spitznagel 2009).

Under each case, there is a well-intentioned intervention that calls forth responses from the system
that, in turn, offsets the benefits of the intervention. In systems thinking, this phenomenon is called the
compensating feedback. Compensating feedback is not confined only to larger systems but occurs
in smaller or personal systems. Consider the following (Senge 1990; 2006: 59):

Jack quits smoking only to find he is gaining weight, and suffers so much loss in self-image that he
takes up to smoking again to relieve the stress. He is back to square one, but possibly in worse
condition than before.
A protective mother who wants so much for her young son to get along with his schoolmates that
she repeatedly steps in to resolve problems, ending up with a child that never learns to settle
differences by himself.
Jane is an enthusiastic newcomer so eager to be liked that she never responds to subtle criticisms
of her work and ends up embittered and labeled a difficult person to work with.

Senge (1990: 59) concludes: Pushing harder, whether through an increasingly aggressive
intervention or through increasingly stressful withholding of natural instincts, is exhausting. Yet, as
individuals and organizations, we not only get drawn into compensating feedback, we often glorify the
suffering that ensues. When our initial efforts fail to produce lasting improvements, we push harder.
We hope that hard work will overcome all obstacles, all the while blinding ourselves to how we are
contributing to the obstacles ourselves.

Law 3: Behavior grows better before it grows worse.

This is the third law in systems thinking. Low-leverage investments and solutions actually work,
but mostly in the short term. Consider the following problems:

New housing developments mushroom. New houses are built. But low and behold, the
connecting roads get congested, water supply is overstrained, sewerage buckles up, electricity runs
in short supply, trash collection gets delayed, children need to be bussed to far away schools,
groceries and gas stations are too far, police stations are over-tasked, and emergency hospitals are
tens of miles away! The new housing subdivisions and developments were great additions to the
township, but soon they cause unintended consequences that become wicked problems.

More homework supplements and reinforces classroom work and study. Hence, teachers load
children with homework 25 math problems to learn a procedure; 50 multiple-choice questions to
learn a concept; reading 50 pages of the textbook and answering 10 questions in preparation for
the next class, and so on. The class is structured, the teacher is satisfied, the school principal is
positive, and the parents feel they are getting their moneys worth. Everybody thinks that if the
student does not have enough homework every night, the student is not learning and the teacher is
not doing a good job. More is better. Everybody believes that more homework means better
mastery of the subject. Soon the child is bored, the overseeing parent is overtaxed, and the
teacher that must grade all these repetitive homework assignments is overworked. The children
cannot use home time for creative reading, writing and designing; the over-demanding homework
keeps them from learning new stuff. The kids get bad grades on their homework that eventually
pile-up to pull the semester grade down. The parents are disappointed. The child is frustrated
with the final low grade. The back-to-basics homework overload strategy has busted (See Senge et
17

al. 2000: 181-184).

Law 4: The Easy Way Out usually Leads Back In

This fourth law of systems thinking is very much connected with all three previous laws. We all
find comfort applying familiar solutions to complex or unfamiliar problems, sticking to what we know
best. If solutions were easy to find to these problems, they would already have been found. In
complex human systems, there are always many short-term strategies to make things look better. Only
eventually the compensating feedback comes back to haunt you.
A typical short-term solution feels wonderful when it first cures the symptoms. You feel the
improvement; you think the problem has gone away. It may be a year or two later, however, when the
problem recurs with vengeance. The initial cure can be worse than the disease. Pushing harder and
harder on familiar solutions, while fundamental problems persist or worsen, is a reliable indicator of
non-systemic thinking (Senge 1990/2006: 61).
In all these tragic and frightful sequences, all four laws of the Fifth Discipline were playing out:
Todays problems come from yesterdays solutions; the harder you push, the harder the system pushes
back; behavior gets better before it gets worse; and the easy way out usually leads back in all are
compensating feedback mechanisms. We overestimate our abilities and underestimate what can go
wrong. The biggest risk lies within us it is our hubris or arrogance. The ancients considered hubris
the greatest defect, and the gods punished it mercilessly. Thus, Achilles and Agamemnon died as a
price of their arrogance; Xerxes failed because of his conceit when he attacked Greece; many generals
have died throughout history for not recognizing their limits. Any corporation that does not recognize
its Achilles heel is fated to die because of it (Taleb, Goldstein and Spitznagel 2009: 81).

Corporate Ethics Exercise 3.5:

Apply Systems Law 4 and consider the following easy way out sequences and their corresponding backfiring
sequences:
a) Global financial crisis entered a potentially new phase when many credit markets stopped working normally
during September-October of 2008, and as investors around the world moved their money into the ultra safe
investments like Treasury Bills (Bajaj 2008). This in turn, sent the yield on one-month treasury bills from 1.507 a
week earlier to 0.259 percent, down by almost 83 percent within the space of three business days. That is, during
September 15-17, 2008, the yield on short-term Treasury bills plummeted from 1.507 percent to 0.259 percent as
nervous investors scrambled for financial safety. During the same three-day period, borrowing costs for banks
and companies escalated from 2.50% to 3.03%, fueling the credit crisis. The NYSE was down on Monday
(September 15, 2008) by 4.4%, rebounded a little (+1.3%) on the news that the Fed agreed to help AIG, and
tumbled again on the following Wednesday by 4.1% as the federal government bailout failed to stem runaway
fears (New York Times, Thursday, September 18, 2008, A1).

b) Meanwhile, Secretary of the Treasury, Henry Paulson, in conjunction with Fed Chairman, was desperately trying
to bail out the financial market in crisis. A former CEO of Goldman Sachs, Paulson accepted this job in 2006
with trepidation. With a lame-duck President and a Democrat-dominated Congress that was reluctant to take
risks during these election months, Paulson seized the initiative. Earlier in 2008, he had brokered the
compromise between Congress and the White House producing a $168 billion economic stimulus package. He was
a point man for the rescue of Bear Stearns in March 2008. He laid out a blue print to modernize regulation of the
financial markets. Early September 2008, he bailed out Fannie May and Freddie Mac, each one by $100 billion.

Psychologists distinguish between acts of commission and those of omission. Although their
economic impact is the same in economic terms (e.g., a dollar not lost is a dollar earned), yet risk
managers do not treat them equally. They place a greater emphasis on earning profits than they do on
18

avoiding losses. Risk managers do not like to invest and thereby conserve value. However, a company
can be also successful by preventing losses while its rivals fail, and it can then grab market share from
them. In chess, grand masters focus on avoiding errors; rookies try to win. Suppose you had not
invested in stocks during the last two years but kept your money in low-interest paying banks, when
everyone else investing in stocks lost capital by 40%. Not losing half your retirement is undoubtedly a
victory (Taleb, Goldstein and Spitznagel 2009: 80). Good hindsight can be a good foresight.

Law 5: The Cure can be worse than the Disease.

This law follows from all the first four laws. The fifth law is also a compensating feedback
mechanism. Senges fifth law of systems thinking states that Often, the easy, familiar and short-term
solution is not only ineffective, it could be addictive and dangerous. Consider the following cases in
Corporate Ethics Exercise 3.6:
In each of these cases, the phenomenon of short-term improvements leads to long-term
dependency the short-term cure worse than the originating disease. Systems-thinking calls this
malady, Shifting the burden to the intervener. The intervener may be federal assistance to cities, the
elderly, the unemployed, the disabled, food relief agencies, public schools and other welfare programs.
All help a host system on a short-term basis, only to leave the helping and host systems fundamentally
weaker than before and more in need of help. Long-term solutions, on the other hand, strengthen the
ability of the system to be self-sufficient and shoulder its own burdens. ii

Corporate Ethics Exercise 3.6:

Apply Systems Law 5, and consider how in the following the cure was worse than the disease:
a) Social drinking starts often as a solution to the problem of low-self esteem or work-related stress. Gradually, the cure
becomes worse than the disease; among its other problems it makes self-esteem and stress even worse than before.
b) Government welfare, subsidy, unemployment compensation, and disability programs are great, but they foster
increasing addictive dependencies on public welfare resources and lessen abilities of local people to solve their own
problems.
c) In business, we shift the burden of internal problems to consultants who make the company dependent upon them
instead of training the client managers to solve problems on their own.
d) In cities, we shift the burden from diverse local communities to low-income uniform mono-ethnic housing projects.
e) We take away extended families, and shift the burden for care of the aged to nursing homes.
f) We shift the burden of doing simple math from our knowledge of arithmetic to a dependency on pocket calculators.
g) We shift the art and challenge of writing, composing, spelling, grammar, and research-based writing to computerbased search engines, spell-checks and grammar checks.
h) The Cold War shifted responsibility for peace from negotiation to armaments, thereby strengthening the military and
related industries, nuclear proliferation, biochemical weapons, and, now, the problem of nuclear disarmament.

Next, consider the dreadful consequences of the financial markets crisis and the quick-solutions
the cure was worse than the disease!

Consequently, the cost of borrowing soared for many companies, and global financial investment
companies, like Goldman Sachs and Morgan Stanley, that declared themselves relatively strong a
week ago, came under assault by waves of selling during the last two weeks of September 2008.
Less than a week thereafter, both Morgan Stanley and Goldman Sachs who almost faced
bankruptcy requested the federal government for a change of status from investment banks (that
served as securities brokers and under SEC vigilance) to mainline commercial banks (that can do
loans and deposits like any other commercial bank but come under more federal regulatory
control).

19

The financial services industry has posted losses close to $800 billion since July 2007. Giant
financial companies are experiencing deep trouble. Table 5.1presents market-capitalization
performance statistics of 17 mega U. S. financial firms. Together, they had a marketcapitalization total of over $1.6 trillion on October 9, 2007. It quickly eroded within a year,
however, to a total of $865.6 billion by September 12, 2008, a total loss of $791.72 billion (47.8%),
or an average of $46.6 billion per company.

Ripple effects of the collapse of these financial giants have been felt all over Europe, Japan and
the Asian financial markets. While Congress initially turned down a $700 billion bailout deal
hurriedly packaged by the Treasury Secretary and the Reserve Bank Chairman, a follow-up deal
was crafted by the Senate House and soon voted in. The bailout plan bailed out some of the
largest surviving financial companies of the world (e.g., Citi-Group, Bank of America, Goldman
Sachs); the trickle down effects of this bail out, however, are highly dubious and questionable. In
short, the entire financial word is experiencing a distress situation and needs a massive global
turnaround even now in the closing months of 2012.

Another current illustration of Law 5: While most of the economy suffered during the current
recession, candy sales were up. Krafts recent $16.7 billion offer to buy Cadbury, the British chocolate
maker, is another sign of the appeal of candy and comfort foods during these hard times. Mars bought
the gum maker Wrigley for $23 billion this was another bright spot in a market shy of deals during
the recession. Cadburys shares jumped by 40% since Krafts offer. Candy sales were up by 3.5% in
the past year. During hard times people eat more candy. Hershey thrived during the Great Depression,
and the 1930s gave us an array of new sweets, including Tootsie Pops, Snickers, and Mars bars (See
Fortune, October 26, 2009, p.14). Consumption of sweets during recession causes obesity and
elevated cholesterol levels. The cure to recession could be worse than the disease.

Law 6: Faster is Slower.

Like the first five laws, this law also is a compensating feedback mechanism. For most
Americans, in general, and business technocrats, in particular, the best rate of growth is fast, faster and
fastest. Together with this illusion are other parallel illusions: bigger is better; taller the better; more
is desirable; sooner the better; faster the more efficient; the more pleasurable the more awesome; the
less risky the better, and the more I get the better it is. iii
Hence, we love gigantic corporations, massive cities, sky-reaching massive structures, larger
GDPs and annual incomes, instant and immediate gratification, sensuous and sensational products,
exotic theaters, restaurants and sports arenas, high-protection comprehensive insurances on life and
limb and everything we do and possess, and massive accumulation of wealth. Unfortunately, in the
long-run, all these illusions slow us down:

Corporate Ethics Exercise 3.7:

Apply Systems Law 6: Faster is Slower, and consider how in the following cases speed slowed
down the process:
a)
b)
c)
d)

Gigantic corporations are soon weighed down by massive bureaucratic hierarchies;

Massive cities are congested in traffic, dwelling places, transportation, recreation parks and other public
spaces;
Sky-topping massive structures have killed migratory birds, slowed down elevators, and experienced storm
and wind shakes;
Larger and faster growing GDPs and household incomes have caused meltdown and slowing mechanisms
such as overheated economies, wage-inflation, price-inflation, higher interest rates, dollar devaluation and
foreign currency appreciation, and increasing trade deficit, federal deficit, and foreign debt;

20

e)
f)
g)
h)

Instant and immediate gratification have slowed us down via obesity and disease, and slowed progress via
degraded ecology and ecosystems;
Sensuous and sensational media, products, theaters, restaurants and sports arenas have killed simplicity of
life and frugality, and eventually slowed us down by our exotic, extravagant and conspicuous life-styles;
High-protection comprehensive insurances on almost everything we do and possess have slowed us down by
overshot premiums, decreased disposable incomes, and the current financial market crisis;
Lastly, our massive accumulation of wealth, personal, national and global, has, unwittingly, increased
consumer, merchant and corporate fraud and tax evasions, and considerably slowed us down by our
increased preoccupation for deregulation, privacy, safety and security.

Yet, virtually all natural systems (e.g., animals, ecosystems, forests) have intrinsic optimal rates of
growth that are neither fast nor slow. When growth becomes excessive, as in cancer, the system itself
will seek to compensate by slowing down. The current stories of shaky gigantic corporations (e.g.,
Wal-Mart, GM, Ford, Chrysler, Toyota, Wal-Mart, Northwest-KLM-Delta, Bear Stearns, AIG,
Washington Mutual, Fannie May, Freddie Mac, Merrill Lynch, Citi-Group, Goldman Sachs and
Morgan Stanley) are basically problems of overgrowth and faster growth. They are all slowing down,
seeking government bailouts, or Chapter 11 Bankruptcy Protection, or just declare bankrupt.
With such complex systems, you cannot drum up easy quick-solutions (such as the current federal
bailout or economic stimulus plans) with long-term positive outcomes. This realization is one of the
sore discouragements of our century. Systems thinking is both more challenging and more promising
than our natural ways of dealing with these problems (Senge 2006: 62-63).

Law 7: Cause and Effect are not closely related in Time or Space
Delays between cause and effects are normal since cause and effect are not closely related in time
and space this is the fundamental characteristic of complex systems, human or organizational.
Effects are the obvious symptoms (e.g., declining sales, eroding profits, worker malaise or turnover,
absenteeism, or under-productivity) that indicate there are problems. Causes, on the other hand, are
the interaction of the underlying system that is most responsible for generating the symptoms (Senge
1990: 63). If you recognize the symptoms in time and do something about it, you can bring about
appropriate change to stop the symptoms. Here lies the difficulty symptoms do not appear soon after
the causes. Cause and effect are not close in time and space.
We look for immediate effects from causes. Hence, if there is a problem on the manufacturing
line, we look for a cause in manufacturing. When sales people cannot meet targets, we think the
problem is with the sales force and devise new incentives. If there is inadequate housing, we build
more houses. If there is poverty, we increase welfare. iv

Corporate Ethics Exercise 3.8:

Apply Law 7: Cause and Effect are not closely related in Time or Space. Use also Figure 3.3 and
ethically analyze the following statements:
a)

The ingenious unexamined and unregulated financial instruments (e.g., derivatives, bond options, hedge funds,
and the Ponzi scheme) were introduced 20 years ago and more; their social externalities are experienced even
now.

b)

Various financial bi-products that sell debt or spread risk [e.g., risk insurance, debt securitization, collateralized
debt organization (CDO)] were created synchronously with the financial instruments, and some of them
(especially, debt securitization) belong to the early 1970s; the credit default swaps (CDS) are a major concoction

21

of the last decade or so.

c)

Various unconventional lending rates (e.g., constant tampering with the Federal Funds rates) were primarily
during Alan Greenspans tenure as chairman of the Federal Reserve from August 11, 1987 to January 31, 2006,
during which decade there were two bubbles, in stocks and then in real estate, almost zero percent Treasury bills,
lowering prime interest rates, sub-prime mortgage rates, and zero collateral easy home mortgage credit
(Fleckenstein 2008).

d)

The easy credit conditions encouraged middle- and low-income classes to buy homes that they could not normally
afford, and mortgage companies like Countrywide, Fannie May and Freddie, who controlled close to 67% of the
mortgage market in the U.S., harvested great profits. Most of the investment banks that provided the money
(e.g., Merrill Lynch, Lehman Brothers, Morgan Stanley, and Goldman Sachs) experienced their best years in
2006. The housing market skyrocketed, and massive dream homes mushroomed all along the map of contiguous
United States.

e)

The effects: the mortgage bubble burst in the beginning of 2008 the overpriced and overheated housing market
began to decline, mortgage homeowners began paying premiums of houses that had lost 20 to 40 percent of their
original value, and hence, millions of them chose to foreclose. Credit payment defaults, mortgage payment
defaults, accompanied by recession and loss of jobs went beyond home foreclosures to mounting debts and
personal bankruptcies. More than ten million homes went under foreclosure by the end of 2008. Most major
investment banks on Wall Street either faced or opted bankruptcies a mega financial mess that primarily
happened during 2008.

Law 8: Small Changes can produce big Results but the areas of higher Leverage are
often the less obvious.
In systems thinking, we do not look for leverage near the symptoms of the problem we need to
go upstream and back-stream in time and space to ferret out the root cause. Often, the most effective
action is the subtlest. Sometimes it is best to do nothing, letting the system make its own correction or
guide the action. Other times, the highest leverage is found in a completely unexpected source. For
instance, Cray Supercomputer Company found its highest leverage for supercomputer applications not
within the supercomputer industry, but in aeronautical engineering and movie animation (Disney
World) projects that need supercomputers (Senge et al. 1994: 92)
There is a fundamental mismatch between the nature of reality in complex systems and our
predominant ways of thinking about that reality. The root of our difficulties is neither recalcitrant
problems nor evil adversaries, but ourselves. The first step in correcting that mismatch is to let go the
notion that cause and effect are close in time (Senge 1990: 63).
Small well-focused actions that take place at the right place and the right time can sometimes
produce significant, enduring improvements in systems thinking we call this principle as leverage.
Tackling a difficult problem is often a matter of seeing where the high leverage lies a small strategic
change that produces lasting and significant improvements.
High-leverage changes, however, are usually not obvious, as effects are separated from causes in
time and space (Law 7). There are no simple rules to find high-leverage changes. Learning to see
underlying structures and processes (rather than events) is a good starting point. In the section that
follows we will examine systems archetypes that may enable us to identify and capitalize on high-low
leverage points.

Law 9: You can have your cake and eat it too but not at once.
Most of our so called problematic dilemmas are not real dilemmas; they are products of static
thinking; they are effects of snapshot thinking rather than process thinking. The classical dilemmas
22

such as cost-containment versus revenue generation, low costs versus high quality products, earning
gains versus avoiding losses, centralization versus decentralization, global versus local control, happy
committed employees versus competitive labor costs, individualization versus standardization,
individual one-on-one training versus team training, and the like, are by-products of static thinking.
These dilemmas imply either-or choices only at a static, fixed point snapshot view of reality. But
when we view reality dynamically as a continuous flow, and study the processes involved, then the
either-or choices become both choices, but at different times.

Corporate Ethics Exercise 3.9:

Apply Laws 8 and 9 to the following, and seek for better ethical analysis:
For instance, for over a century American manufacturing engineers believed that they had to choose low cost and
high quality, but not both. The basic argument was that higher quality implies higher technology, better materials,
more time to assemble, more start-up costs, more expensive parts and components, and more expensive and
continuous quality controls. Systems or process thinking that looks at the whole system enables us to have both low
cost and high quality, both have cake and eat it, though in different times, ways and sequences. High-quality basic
improvements in materials and work processes eventually should eliminate re-work, recall, reduce quality inspectors,
reduce customer complaints, lower warranty and guarantee costs, lower promotions costs such as rebates and free
samples, and increase customer loyalty each of which more than makes up for the higher costs of higher quality
processes. This is precisely what Toyota has been doing for the last fifty years in its famous TPS Toyota Production
System.

Investing time and money to develop new skills and methods of assembly, including new methods
for involving everyone on the assembly line for improving quality may involve short-term high upfront costs. Nevertheless, they produce immense cost-saving dividends in the long-run.

Law 10: Dividing an Elephant in half does not produce two Elephants
Most of our institutions and organizations suffer from man-made boundaries that impede
organizational learning and effectiveness. For instance, businesses comfortably divide business
functions into manufacturing or production, accounting and financing, marketing and human resources
management. Correspondingly, most MBA programs teach these business functions as separate
disciplines. Each one may see a business problem clearly from the narrow perspective of ones
discipline, but not see how the policies and strategies of their solutions impact and interact with other
departments or disciplines. This is like several blind men examining different parts of the elephants
independently and arriving at different definitions or descriptions of the elephant. Consequently,
because of these parochial boundaries, businesses fail to see the whole picture of systems and
processes, and the century-old MBA program is still struggling to study and teach integrated business
management. Systems thinking does not imply that no business functions or business discipline
should be studied in isolation; occasionally, it may be advantageous to do so. But by and large, we
must examine, explore and analyze the entire business system and the entire discipline of business
management, emphasizing on the interactive effects of various functions and disciplines.

Corporate Ethics Exercise 3.10:

Apply Systems Law 10: Dividing an Elephant in half does not produce two Elephants, and seek to ethically
analyze and understand the following phenomena:
a)
b)
c)

Living systems and organisms have integrity, and their character and quality depend upon the whole.
Organizations, institutions such as schools and homes, should be viewed as living organisms with different parts
constantly interacting to produce whole effects.
If we systematically do so, then we should be better poised to resolve some age-old social problems such as school
crime and violence, increasing high school dropout rates, family dysfunctions and divorce, street gangs and crime,
crowded prisons, entrenched poverty, structured injustices, and income inequality, obesity and healthcare

23

d)
e)

problems.
Ghetto areas today such as Harlem in New York and Roxbury in Boston were originally upper-class suburbs.
Corporations buy businesses to harvest them rather than reinvest in them to strengthen them. This is what
Cerberus did with Chrysler, and the latter is experiencing financial crisis again. This is boundary thinking; it is,
often, exploitative thinking.

Law 11: There is no blame

This law follows from most of the previous ten laws. We tend to finger point at others for the
problems we face such as the competition, regulation, taxes, erratic marketplace, labor unions, legacy
issues, and, now, outsourcing and globalization. At a deep level, there is no difference between the
inside and the outside of the business, the inner sanctum and the outer forum, as most of these are
created by artificial boundaries we impose upon ourselves, our thinking, disciplines and departments,
our corporations and institutions.
Boundaries are symptoms of linear thinking. Hence we ask linear questions such as: who was
responsible for the arms race? Who perpetrated 9/11? Who was the terrorist group behind the Bali
massacre? Who master-minded the November 26, 2008 attack on Mumbai? Who caused the 2008
Wall Street meltdown? Who propelled the 2007-2009 global recessions? We ask linear, one-waycausation questions, and we expect linear, one-way causation answers.
If we think in feedback circles, however, then we must remember the axiom, every influence is
both cause and effect. Every incident mentioned above, from this perspective, is a chain of causes and
effects. We ignore some, and over-emphasize others; that is, we search for scapegoats, and this
generates problems in thinking and problems in understanding solutions.
Thus, the feedback issue complicates the ethical issue of responsibility. In the USSR/USA arms
race, we asked, who was responsible? In the USA and global war on terrorism, we continue to ask,
who is responsible? In our linear analysis of current events we ask, who is responsible for the current
financial market crisis? Who is responsible for the current healthcare distribution crisis in the United
States? Who caused the Southeast Michigan domestic auto crisis? Who is responsible for the current
home mortgage crisis? From a linear viewpoint (see Figures 3.1, 3.2, and 3.3), we place responsibility
flatly on the other side or out side. That is, we search for scapegoats. These are problems and
limitations of our linear thinking, linear analysis and assessment, and linear judgments. At a deep
level, however, there is no difference between blame and guilt, as both arise from linear perceptions.
From the linear view, we are always looking for someone or something that must be responsible.

Corporate Ethics Exercise 3.11:

Apply Systems Law 11: There is no blame, and try to exonerate Chine from being blamed for USAs
current malaise and stagnation:
a)
b)
c)
d)
e)
f)

Most recently we have been blaming the Chinese money markets for our current financial market and housing
crisis (Lindler 2008).
China, the worlds third largest economy, did get herself beaten up in the recent downturn, but has recovered
faster than any other country.
Its GDP was growing 7.9% in the third quarter of 2009.
Moreover, given the leadership in Beijing, there is a very conscious transformation of the Chinese economy.
Besides investing in America, Australia, and Europe, China is also changing its focus of its investments from raw
materials to finished goods. Its buying power and shopping spree are increasing exponentially (Fortune, October
26, 2009, p. 12).
Far from blaming China for our recession, we should be grateful for its reverse foreign direct investments in the
USA.

24

Systems-thinking shows that there is no outside; that we and the causes of our problems are part of
a single system. The cure or solution lies in the relationship we build with the outside or the enemy.
Hence, a corollary: Everyone shares responsibility for problems generated by a system. This axiom
does not imply that everyone involved exerts equal leverage in changing the system. Some may share
responsibility (i.e., blame or guilt) more, some less (Senge 1990/2006: 78).

Applying Systems Laws to Explain the Free Enterprise Capitalist System

We restate some important principles in synthetic systems thinking: What we assert about a public
system renewal such as the Free Enterprise Capitalist System (FECS) can, mutatis mutandis, be
applied to a corporation, with the CEO as the principal and cardinal (pivotal) systems thinker.

In systems thinking, feedback is an axiom that states, every influence is both cause and effect.
Nothing is ever influenced in just one direction. Reality exists in structures, and structures cause
behavior.
The bottom line of systems thinking is the concept of leverage the capacity to see where actions
and changes in structures can bring about the most significant and most enduring improvements.
Leverage looks for underlying structures such as limits to growth (archetype 1) and shifting the
burden (archetype 2), that is, looks for reinforcing and balancing processes that underlie
symptomatic changes.
In case of a business failure, a good systems thinker first unravels symptomatic solutions or
shifting the burden events or policies. In shifting the burden structure, the first thing a systems
thinker looks for is what might be weakening the fundamental response.
Leverage lies in the balancing loop, not the reinforcing loop. To change the behavior of the system,
you must identify and change the limiting factor (Senge 1990: 101; 2006: 100). This may require
analysis, decisions and strategies you have not yet considered, choices you never noticed, or
difficult changes in rewards or norms.
Strategic thinking also addresses core organizational dilemmas such as centralization versus
decentralization, command and control versus distributed power and authority, mission and
identity versus diversification, productivity versus creativity, revenue generation versus cost
containment, and the like. Good strategic thinking brings such dilemmas to the surface, and uses
them to catalyze imagination and innovation (Senge et al. 1994: 16-17). Systems thinking can
empower good strategic thinking.

In conclusion, one could apply systems thinking to revitalizing any failing organization. Most of
us agree that the corporate world in general, and India in particular, need revitalization and growth.
Our basic question then is: what can revitalize the world and India in particular? What are the best
points of greatest leverage? That is, how can we systematically stimulate growth, expansion and
prosperity in the corporate world despite national recessionary threats?
A. Positively and externally, some basic questions in this regard are:

How can we attract both domestic and foreign investment into corporate and political India in the near future?
Alternatively, how can we effectively attract venture capitalists, private equity firms, and domestic and foreign
investors to invest into the corporate and political India revitalization project? That is, what is the differentiating
strategy of corporate and political India for attracting investments into it? A nations talent pool is not only the
ones it trains, but what talent it can attract, develop and retain from domestic and foreign sources.
What tax havens, subsidies and other stimulants can the federal, state and city governments induce into the
corporate and political India for rapid and sustained growth in the coming decades?
Further, what is the quality of inter-organizational trust (e.g., between state/local governments of corporate and
political India and investor corporations) that will make such investments into corporate and political India safe
and secure for the future?

25

How can key influential groups such as major school networks, community colleges and universities, labor
unions, consumer advocacy groups, non-governmental organizations (NGOs), EPA and environmental watchdogs,
main line churches, synagogues, mosques and temples collaborate to eradicate corruption in India and thus
attract, retain and develop human and non-human investments into corporate and political India?

B. Conversely, that is negatively and externally, some basic questions are:

What can stop corporate and political India from its present malaise of apathy, stagnancy and stalling?
How can we stop the drain of talent, energy and investment from corporate and political India?
How can we stop and hold back, objectively and effectively, corporations, establishments, and venture capital
institutions from abandoning corporate and political India and migrating into other more lucrative neighboring
countries?

C. Positively and internally, some basic questions are:

What creativity, innovation and innovativeness programs and projects do to corporate and political India need to
revitalize corporate and political India from within? What we need are not default strategies and incremental
innovations, but radical innovations that change our mind-set of complacency to game-changing innovations that
will alter the fundamentals or lead us toward a more desired future.
What entrepreneurial and intra-preneurial talent can be identified, developed and retained for catapulting
corporate and political India into an exponential and rapid growth path?
What corporate, organizational and cultural change agents must we cultivate in transforming corporate and
political India as a sustainable and competitively strong corporate community?

D. Negatively but internally, some basic questions are:

What is failing corporate and political India and its defining corporations and government institutions?
What are the major symptoms of corporate and institutional stalling, stagnancy, sickness, downturn, decline,
distress, and insolvency crises that are gripping and choking corporate and political India today?
How can we diagnose and control these symptoms so that we can turnaround corporate and political India and
get it on the track of renaissance and vitality?

Systematic research into (d) and (C) should indicate at least partial answers to the basic questions
raised under (B) and (A). That is, research in (D) should lead us to (C) that is, turnaround
management of corporate and political India should spur corporate and political India transformation
management. For instance, Table 3.4 explores the three objectives under (C) in relation to the laws
of systems-thinking.

Table 3.4: Corporate Strategies to Revitalize FECS as Derived from the

Laws of Systems Thinking
System
s
Thinki
ng
Laws

Law
Statement

Todays
Problems come
from yesterdays
Solutions.

Corporate Strategies that Transform FECS:

Radical innovations and
game-changing
breakthroughs that will
transform FECS

Entrepreneurial talent that can

be identified, developed and
retained for catapulting FECS
into an exponential growth path
Yesterdays entrepreneurial
talent should not create
problems for FECSs present
and future.

Harder you
push, harder the
system pushes
back.

Yesterdays product
solutions should not
create problems for
FECSs today or
hereafter.
Desist from pushing
your past innovations
into FECSs future lest
they backfire.

Organizational and cultural

change agents that transform
FECS into a sustainable and
competitively strong corporate
community
Yesterdays organizational
routines and best practices
should not create problems for
FECS of tomorrow.

Desist from pushing your

entrepreneurial mental models
into FECSs future without
reexamining them.

Desist from pushing your

organizational routines and best
practices into FECSs future lest
they backfire.

Behavior grows

Radical innovations

Entrepreneurial talent should

Radical innovations should

26

better before it
grows worse.

Faster is Slower

Cause and effect

are not closely
related in Time
or Space.
Small Changes
can produce big
Results

should sustain FECS as

a viable community in
the long-term.
Avoid easy innovations
that backfire to
endanger FECSs future.
Avoid easy product
innovations that lead to
addictive and dangerous
behaviors in FECS
Do not promote faster
and heavier
consumption of your
innovative products
Prevent effects of your
innovations on FECS
that you cannot control
in time and space
Innovate products that
generate high-leverage
to all FECS stakeholders

You can have

your cake and eat
it too but not at
once.

Offer low-cost but highquality innovative

products that stimulate
the FECS economy

10

Dividing an
Elephant in half
does not produce
two Elephants

Offer holistic innovative

product solutions that
keep FECS united
despite diverse cultures

11

There is no
blame

Given innovation
responsibilities 1-10,
share praise/blame with
all FECS people

4
5

The Easy Way

Out usually
Leads back in
The cure can be
worse than the
disease.

sustain FECS as a viable

community in the long-term.

sustain FECS as a viable

community in the long-term.

Avoid easy entrepreneurial

solutions that backfire to
endanger FECSs future
Avoid entrepreneurial solutions
that lead to addictive and
dangerous consequences for
FECS
Do not always measure
entrepreneurial success by
faster and larger productivity
rates.
Prevent effects of your
entrepreneurship on FECS that
you cannot control in time and
space.
Entrepreneurs should innovate
products that generate highleverage to all FECS
stakeholders
Entrepreneurship should
generate low-cost but highquality innovative products
that stimulate the FECS
economy
Entrepreneurship should
generate holistic innovative
product solutions that keep
FECS united despite diverse
cultures
Given entrepreneurship
responsibilities 1-10, share
praise/blame with all FECS
people

Give up old organizational

routines that backfire to
endanger FECSs future
Avoid old organizational
routines and practices that lead
to addictive and dangerous
FECS behaviors
Do not foster organizational
changes that cause speedier and
heavier consumption of your
local resources.
Prevent effects of your
organizational changes on FECS
that you cannot control in time
and space
All organizational changes
should generate high-leverage to
all FECS stakeholders
Organizational changes should
generate low-cost/ high-quality
innovations that stimulate the
FECS economy
Organizational changes should
stimulate holistic innovations
that keep FECS united despite
diverse cultures
Given organizational change
responsibilities 1-10, share
praise/blame with all FECS
people

Table 3.4 provides an initial canvas and framework for FECS revitalization based on systems
thinking. Most of us agree that the global markets in general, and the free enterprise capitalist system
(FECS) in particular, need revitalization and growth. Our basic question then is: what can revitalize
FECS in particular? What are the best points of greatest leverage? That is, how can we systematically
stimulate growth, expansion and prosperity in FECS despite national and global recessionary threats?
A. Positively and externally, some basic questions in this regard are:

How can we attract both domestic and foreign investment into FECS in the near future?
Alternatively, how can we effectively attract venture capitalists, private equity firms, and
domestic and foreign investors to invest into the FECS revitalization project? That is, what is the
differentiating strategy of FECS for attracting investments into it? A nations talent pool is not
only the ones it trains, but what talent it can attract, develop and retain from domestic and foreign
sources.
What tax havens, subsidies and other stimulants can the federal, state and city governments
induce into the FECS for rapid and sustained growth in the coming decades?
Further, what is the quality of inter-organizational trust (e.g., between state/local
governments of FECS and investor corporations) that will make such investments into FECS safe
and secure for the future?
How can key influential groups such as major school networks, community colleges and
universities, labor unions, consumer advocacy groups, non-governmental organizations (NGOs),
EPA and environmental watchdogs, main line Churches, Synagogues, Mosques and Temples
collaborate to attract, retain and develop human and non-human investments into FECS?
27

B. Conversely, that is negatively and externally, some basic questions are:

What can stop FECS from its present malaise of apathy, stagnancy and stalling?
How can we stop the drain of talent, energy and investment from FECS?
How can we stop and hold back, objectively and effectively, corporations, establishments, and venture
capital institutions from abandoning FECS and migrating into other more lucrative neighboring
states?

C. Positively and internally, some basic questions are:

What creativity, innovation and innovativeness programs and projects does FECS need to revitalize
FECS from within? What we need are not default strategies and incremental innovations, but radical
innovations that change our mind-set of complacency to game-changing innovations that will alter the
fundamentals or lead us toward a more desired future.
What entrepreneurial and intrapreneurial talent can be identified, developed and retained for
catapulting FECS into an exponential and rapid growth path?
What corporate, organizational and cultural change agents must we cultivate in transforming FECS
as a sustainable and competitively strong corporate community?

D. Negatively but internally, some basic questions are:

What is failing FECS and its defining corporations and government institutions?
What are the major symptoms of corporate and institutional stalling, stagnancy, sickness, downturn,
decline, distress, and insolvency crises that are gripping and choking FECS, in general, and Detroit, in
particular?
How can we diagnose and control these symptoms so that we can turnaround FECS and get it on the
track of renaissance and vitality?

Systematic research into D and C should indicate at least partial answers to the basic questions
raised under B and A. That is, research in D should lead us to C that is, FECS turnaround
management should spur FECS transformation management.
Looking at the ongoing financial crisis, it is important to realize that the subprime-mortgage crisis
in the USA was only a trigger. Even without the crisis in the housing market, the system would
probably have collapsed sooner or later. Since the 1980s, structural problems have been gnawing away
at the global financial system, rendering it very unstable and fragile. The system turned a blind eye to
inherent risks and promoted irresponsible, short-term and speculative behavior. It produced a high
degree of moral myopia and selective blindness. The system not only fostered irresponsible behavior
but also dazzled people so they would not realize the likely consequences or anticipate the looming
catastrophe. In classical tragedies the heros fall is always preceded by his or her inability to grasp the
ambiguity of what is happening or the fragility of their predicament. Moral myopia and hubris always
come before catastrophe (Bouckaert 2015:17). v
In systems thinking we view the whole cosmos as one system of which the planet earth is an
integral part, with humans and non-human systems considered as inherently embedded within the
larger cosmic system. Hence, every system is connected with every other system; that is, everything
has an effect on everything else and is affected, in turn, by every other system. According to the Gaia
theory (Lovelock 1979, 2006), the planet is a dynamic system and collection of living and non-living
elements that continuously interact with each other within a series of highly complex self-regulatory
mechanisms that, given certain parameters, support life. Such self-regulatory mechanisms which
28

include evolution, natural selection, weather patterns, natural extinction and rebirth patterns in the
composition of the planets water, air, land and energy ecosystems, form the core of contemporary
understanding of sustainability, ecology and science (Valero-Silva 2015: 264).
Most systems have owners. They are dynamic mental constructs that behave as if they have
some purpose (Ackoff and Emery 1972). Thus, organizations such as corporations, joint ventures,
strategic alliances, subsidiaries, corporate spinoffs, divestitures, mergers and acquisitions are systems.
In this sense, philosophies, theologies, ideologies, cultures, religions, schools, colleges and
universities, ethical and moral theories, economic and political theories, laws and ordinances are
systems with definite purpose and destination. They reflect the views and value systems of their
owners. At a broader level, all products and brands, industries and markets, countries and continents,
planets, stars, galaxies and constellations, and the cosmos are systems. A system, from this viewpoint,
is a group of components (e.g., elements, parts, components and relationships) linked in an organized
manner. The components are affected by being included in the system, and are changed if they leave it
or forced to leave it (e.g., fish die when drawn out of water; animals change their behavior when caged
in zoos; workers and their families suffer when displaced, and the like).
Systems have inputs, process and outputs, with the inputs being churned into outputs through
specific processes. Most systems interact with their environment to produce properties that may often
be beyond the contribution of inputs. These are emerging systems that explain evolutions, extinction
and rebirth. Hence, the whole may be greater than the sum of its parts. Life is an emerging system
that cannot be explained just by its component parts. The environment can support life, vitality,
opportunity, growth and development far beyond the scope of its parts or inputs.
Thus, systems exhibit feedback mechanisms (Beer 1985). That is, information about the
outcomes is fed back to the system at the inputs or process levels so that the system learns and
improves from and adapts to the outcomes. Feedback can be both positive (reinforcing, life giving)
and negative (extinguishing or diminishing). Most biological processes (e.g., body temperature, blood
pressure, oxygen level controls, recycling) thrive on positive feedback (e.g., biological thermostats that
control body heat), and die on negative feedback (e.g., industry toxic waste of solid, liquid or gas,
biodegradable or non-biodegradable effusions). Human systems thrive on positive feedback (e.g.,
motivation, satisfaction, trusting relationships, loyalty, leadership, reputation, recognition) and
diminish on negative feedback (e.g., mistrust, misunderstanding, discouragement, denunciation,
blackmailing, slavery, colonization, suppression, religious intolerance, and persecution).

A Systems View for Resolving Capitalist Problems

Capitalism when used responsibly has produced positive effects such as creativity, imagination,
intuition, discovery, invention, innovation, venture, entrepreneurship, statistical quality control (SQL),
Six Sigma quality, total quality management (TQM), just-in-time (JIT) inventory systems, human
resources development (HRD) systems, lean management movements, fair trade, healthy competition,
buyer-seller transparency, recycling, slow or delayed consumption, greening, forestation, reducing
carbon footprints, and other friendly ecosystems. Capitalisms negative effects include promoting
consumerism, overconsumption, conspicuous consumption, wasteful or wanton consumption,
immediate gratification, forced product obsolescence, throw-away cultures, forced buyer-seller
information asymmetry, opaque and confusing financial products, deforestation, pollution, global
warming, unlimited growth ideology, economic development without social progress, and global
poverty, disease, inequality and structured forms of injustice.
Corporate Ethics Exercise 3.12:
29

How could you have used the following fundamental principles of Systems Thinking to detect and avert the
September-October 2008 Financial Crisis?
a)
b)
c)
d)

e)

f)

Systems-thinking is more than a powerful problem-solving tool; it is a powerful language, augmenting and
changing the ordinary ways we think and talk about complex issues and problems. It is a dynamic language for
describing how to achieve fruitful change in organizations.
You cannot practice systems-thinking as an individual you need many perspectives from different crossfunctional disciplines (e.g., sociology, Institutional or Organizational Psychology, Mathematics, Statistics and
Economics) to bear upon complex problems and issues.
Systems thinking by its very nature points out to and thrives on interdependencies and the need for collaboration
it is a collective and collaborative team discipline.
Without learning about the industry, the business, its specific vision and mission, as well as their own tasks,
employees cannot make the contributions of which they are capable. This requires dramatic learning efforts,
both for the employees who must learn to act in the interest of the whole enterprise, and for the senior managers
who must learn how to extend mastery and self-determination throughout the organization (Senge et al. 1994: 11).
Systems thinking can enable this process.
We fragment the complex world in order to understand it. This makes complex tasks and subjects more
manageable. If we just admire the broken pieces, however, our vision remains fragmented, each of us mistaking
the piece for the whole (as did the blind men trying to define the elephant). If we reassemble and reorganize the
pieces, however, we see connections, interactions and interrelationships between parts and components we have
never seen before nor registered, and eventually see a larger whole, and understand reality around us better. This
is systems thinking.
Systems-thinking helps us to destroy our illusion that the world is created of separate and unrelated forces. When
we do this, our homes, our schools, our universities, our organizations, our institutions and we ourselves truly
become learning organizations.

Capitalism as Boundary Thinking

The abuse of capitalism and its financial crises are caused by reductionist or compartmentalized
view of the world. If basically capitalism seeks to maximize short-term profits using capital (money)
and resources (land, labor, minerals, water, energy) as isolated tradable and exploitable commodities
while combating competition, with little or no regard to nature, ecosystem, and natures resources, then
it spells disaster. Capitalism then smacks of boundary thinking wherein one defines and maintains
artificial boundaries between various components of the system, mostly to devour them in isolation
without any regard for other intended or unintended consequences. Financial crises, fraud, corruption,
bribery, money laundering, embezzlement, racketeering and deception are all symptoms or short-term
deleterious effects of boundary or non-systemic thinking. The promotion of an uncontrolled risktaking culture (reinforced by the generous payment of enormous short-term bonuses) that produces
great financial returns in the short term, but large-scale bankruptcies in the long term (e.g., Barings
Bank in 1995; Enron in 2001, Lehman Brothers and Merrill Lynch in 2008), is also boundary shortterm thinking at the expense of large costs to the rest of the planet. The global financial crisis of 2008
was man-made, a result of narrow, short-term boundary thinking.

Corporate Ethics Exercise 3.13:

Capitalism as we live and understand today smacks of boundary thinking wherein we define and maintain
artificial boundaries between various components of the system, mostly to devour them in isolation without any
regard for other intended or unintended consequences. If so, comment on the following propositions:
a)
b)
c)

The abuse of capitalism and its financial crises are caused by reductionist or compartmentalized view of the
world.
If basically capitalism seeks to maximize short-term profits using capital (money) and resources (land, labor,
minerals, water, energy) as isolated tradable and exploitable commodities while combating competition, with little
or no regard to nature, ecosystem, and natures resources, then it spells disaster.
Financial crises, fraud, corruption, bribery, money laundering, embezzlement, racketeering and deception are all

30

d)

e)

symptoms or short-term deleterious effects of boundary or non-systemic thinking.

The promotion of an uncontrolled risk-taking culture (reinforced by the generous payment of enormous shortterm bonuses) that produces great financial returns in the short term, but large-scale bankruptcies in the long
term (e.g., Barings Bank in 1995; Enron in 2001, Lehman Brothers and Merrill Lynch in 2008), is also boundary
short-term thinking at the expense of large costs to the rest of the planet.
The global financial crisis of 2008 was man-made, a result of narrow, short-term boundary thinking.

Corporate Executive Exercise 3.14

We need a shift from anthropocentric to eco-centric approaches to nature. Ideas about the relationship between
man and nature have taken four distinct schools (Proops1989): a) Undisturbed Nature; b) Man as part of Nature;
c) Man as creator and center of Nature, and d) Creative, self-sustaining Nature (Gaia). Each view generates a
different management and ethical perspective that we outline in Table 3.3 (Hofsra 2015).
a)
b)
c)
d)

Is undisturbed nature the best sustainable policy for your corporation, why and with what corporate
consequences?
Is man as part of nature the best sustainable policy for your corporation, why and with what social and global
consequences?
Is man as creator and center of nature the best sustainable policy for your corporation, why and with what
cosmic consequences?
Is creative self-sustaining nature the best sustainable policy for your corporation, why and with what human
consequences?

When the company as a whole, with its various subsidiary, departmental, divisional, or subdivisional heads, define their own interests, formulate their own short-term profit-maximization
strategies, and strive for their own specific success agenda, with no regard to conserve, develop, and
enhance nature, the planet, and the cosmos, and their resources, this is the pinnacle of boundary
thinking that inevitably spells local, regional and cosmic disaster. Even by placing a boundary around
the planet, according to the Gaia theory, human activities could destroy the planets self-regulatory
mechanisms, thus making the planet more and more uninhabitable. Such examples include carbon and
global warming emissions (Berners-Lee 2010), nuclear waste, misuse of pesticides (Carson 1962),
overuse of antibiotics, deforestation, overfishing and uncontrolled population growth (Fisher et al.
2013).
The corporate world is not the sole cause of ecological degradation. Routine activities of
households, communities, schools, colleges, B-schools, universities, fraternities, charities,
governments, and other non-profit organizations contribute, in different scales, to the same overall
cosmic damage. Systems-thinking focuses on totalities or wholes when trying to understand and
respond to the challenges of capitalism. Corporate ethics, individual ethics, family ethics, social
ethics, and institutional ethics can be positive feedback systems that heal, bind, and unite to build
human solidarity. Meanwhile, we need a shift from anthropocentric to eco-centric approaches to
nature. Ideas about the relationship between man and nature have taken four distinct schools
(Proops1989): a) Undisturbed Nature; b) Man as part of Nature; c) Man as creator and center of
Nature, and d) Creative, self-sustaining Nature (Gaia). Each view generates a different management
and ethical perspective that we outline in Table 3.5 (Hofsra 2015).

Table 3.5: Different Schools of Nature Management based on

Different Views of Natures Relationship with Humans
Dimensions
of Nature
Managemen

Predominant Theory of Nature Management

Stewardship
Management:

Partnership
Management:
31

Eco-centric
Capitalism: Develop

Anthropocentri
c Capitalism:

Revere Nature

t
Concept of Nature
and Humans

Undisturbed Nature:
Conserve it

Human Role and

Responsibility
toward Nature

Leave nature
undisturbed and
virginal: Humans are
Natures stewards
Nature has purpose
and destiny
independent of
humans: Enable and
unravel it.
Economic growth
should follow natures
growth

Role of Business
Management

Economic Growth
Theory

Partner Nature

Nature

Exploit Nature

Creative, self-sustaining
Nature (Gaia): Empower
it
Creatively enable Nature
to self-sustain: humans
are partners with Nature

Humans as Part of Nature:

Develop each other

Humans as Subduing
Nature: Manage
Nature
Live dependently on
Nature and exploit it
for human use.

Cultivate economic
growth in partnership
with Nature

Shift from a focus on profit

to a focus on value, and
from competition to
cooperation

Unlimited growth is
possible: Nature was
made for it.

We should encourage
Earth-sustaining forms
of economic growth and
discourage Earthdegrading forms

We should encourage
environmentally beneficial
forms of economic growth
and
discourage environmentally harmful forms
We have a moral duty to
develop nature, and thus
develop ourselves

The potential for

economic growth is
essentially unlimited

Live interdependently with

Nature; Nature and humans
can co-create happiness

Ethical Theory

We have a moral
responsibility to be
caring stewards of the
earth

We are part of and

totally dependent on
Nature, and Nature
exists for all species

Moral Principle

Kants Principle of
Universalizability:
Treat nature with
respect that all
mankind would
mandate and live by.
Resources of Nature
are fixed and
programmed for its
own development

Kants Principle of
Reversibility: Treat
nature with due respect
such as you would want
the rest of mankind to
treat you with.
Resources are limited,
should not be wasted,
and are not all for us

The Golden Rule: Treat

nature as you would like
you to be treated.

Our success depends

upon how we let nature
be itself, mostly for its
own benefit.

Our success depends on

learning how Nature
sustains
itself and integrating
such lessons from
Nature into the ways
we think and act

Our success depends on

how well we develop
Earths life-support systems
for our benefit and for the
rest of Nature

Theory of
Resource

Theory of Success

We will probably not run

out of resources, but in any
case they should not be
wasted

We are separate from

the rest of Nature and
can manage nature to
meet our increasing
needs and wants
Aristotles Principle
of Eudemonia: Treat
all nature and
mankind therein for
maximizing genuine
happiness of all.
Because of our
ingenuity and
technology we
presume we will not
run out of resources
Our success depends
on how well we
manage Earths lifesupport systems,
mostly for our benefit

Corporate Ethics Exercise 3.15:

The tax subsidies that make borrowing or losing irresistible have biased the economy in a woeful direction. The
world is mired in debt today owing to tax breaks that cause tax deficits. Global debt stands at 286% of GDP
today. In this connection, discuss the following consequences of tax breaks:
a) They have created a financial system that is prone to crises and biased against productive investment;
they have reduced economic growth and worsened inequality.
b) The tax-subsidy is a dangerous flaw at the heart of the world economy a great man-made distortion
that needs to be fixed (see The Great Distortion: Subsidies that make Borrowing Irresistible need to
be phased out, The Economist, May 16, 2015, p. 7).
c) Today, tax breaks for debt are embedded in all world economies and viewed as the natural order of
things. But so has chronic indebtedness among nations [See Ending the Debt Addiction: A Senseless
Subsidy, The Economist, May 16, 2015, pp. 15-18].

Our knowledge of Nature is still in its infancy, or is entirely lacking, argues

Hofsra (2015: 162). The concept of dualism between man and Nature is
ubiquitous to Western thought and has made it possible for humans to consider
32

Nature as an objective reality. This way, nature can be studied as an object, or a

commodity; a mode of thinking that has been incorporated into current economic
models. According to Prigogine, the endeavor of modern man to understand
Nature has been based on the idea of control (Prigogine 1996).
Western materialism has managed nature and gradually raised human
beings out of nature and made them the dominant planetary species based on
their anthropocentric worldview. Todays Western high-consumption societies are
detached from nature. The consequence of having an exclusively anthropocentric
worldview is the emergence of a growth-oriented, globalized economy.
Consumption-based and greed-driven human lifestyles are resulting in overuse of
the resources of the planet and pollution of the environment to an ever greater
extent. The consequences of these dismal global processes are deforestation, soil
degradation, loss of biodiversity, the extinction of species, resource depletion and
climate change, and other environmental problems(Kovacs 2015: 57).
Our education system thrives on several myths, argued David Orr (1990). One of them is that
with enough knowledge and technology we can manage planet Earth. "Managing the planet" has a nice
a ring to it. It appeals to our fascination with digital readouts, computers, buttons and dials. But the
complexity of Earth and its life systems can never be safely managed. The ecology of the top inch of
topsoil is still largely unknown, as is its relationship to the larger systems of the biosphere. What might
be managed is us: human desires, economies, politics, and communities. It makes far better sense to
reshape ourselves to fit a finite planet than to attempt to reshape the planet to fit our infinite wants.

Max Webers Ethics of Capitalism

Formalized by Max Weber (1925/1958), the Protestant Ethic refers to the set of beliefs and, more
specifically, to the set of binding social rules that argue a secular asceticism the methodical,
rational subjection of human impulse and desire to an unknown Gods will through continuous,
systematic and dedicated work in a worldly calling. Highly prevalent among Calvinists and Puritan
merchants, the Protestant ethic believed that the community must always come first and that
individuals had to bend their wills to the common good and communitys needs. Hence, the Protestant
ethic spelt a constant conflict between individualism and communalism, between individual pursuit of
wealth and status versus common good. Under such tensions, doctrines and doctrinal quarrels were
less important than moral probation how one proves ones worth to other people. The enduring
significance of the Protestant ethic was due to the way it linked the probation of self, work in the
world, and eternal salvation (Jackson 1987: 8). One served God not necessarily by prayer and
almsgiving, but by faithfully, continually, and unremittingly performing ones duty to worldly work.
This rational and systematic pursuit of a worldly vocation, when it was crowned with economic
success, proved the doctrine and necessity of common good before individual good, social primacy
over individual primacy. The individuals had to self-convince that they had proved themselves to God
and man and attained salvation.
This powerful intellectual instruction, the ethic of ceaseless work combined with ceaseless
renunciation of the fruits of ones toil, provided both the economic and moral foundations for modern
capitalism. This secular asceticism became a powerful salvific tool to the large upward-moving
middle class self-made industrialists, merchants, farmers, and enterprising artisans. This pragmatic
bourgeois ethic of self-reliance, hard work, frugality, and rational planning became a social myth and
an empowering ideology that purified and justified ones attention to the world, ones accumulation of
wealth, and a rational justification of the social inequities that inevitably followed such accumulation.
33

In mainstream emerging urban America of the late nineteenth and early twentieth centuries, the
Protestant ethics had secularized into a strong work ethic that resulted in rugged individualism and a
success ethic of capitalism. Frugality was soon forgotten for commercialization of leisure and the
sanctification of conspicuous consumption in varying degrees became the norm.
However, with millions of immigrants flooding the nation, with the emergence of governments
and laws, with the miniaturization of the agricultural farm sectors and the urbanization of mainline
America, with the advent of mass production and mass distribution systems accompanied by the
emergence of large corporations with the hierarchization and bureaucratization of management and the
emergence of the salaried employees, the old Protestant ethic has virtually disappeared to what it is
today.

The Contradictions of Capitalism

In his book, The Cultural Contradictions of Capitalism, Daniel Bell (1973) states his central thesis
that capitalism has some inherent cultural contradictions. For instance, capitalism emphasizes and
glorifies accumulation of wealth or capital as an end in itself and not as a means for higher ends such as
civilization and virtue. Capitalism fosters individualism since much of capitalist accumulation is for
individualist ends, with very little geared for social and collective betterment. Hence, the very culture
that capitalism creates can sometimes backfire, leading to its eventual destruction (Bell 1973, 1976).
Galbraith (1976) agrees with Bells (1973) thesis and further expands it. Others feel that capitalist
business, which is the groundwork for American business, seems to be inherently immoral - this is
because its task presupposes the legitimacy of the private pursuit of at least economic self-interest, and
this pursuit may be immoral or may lead to immorality (Machan and Uyl 1987). If business ethics is
understood as a science of socio-economic values, and a science for identifying what business executives
ought to do and ought not to do in promoting common socio-economic good, then capitalism that is ex
professo fueled by private self-interest may be geared to do the opposite (Bell 1973; Galbraith 1956,
1958).
Obviously, capitalism-fed corporate greed can also dominate executive thinking. Several theories
explaining or justifying market inequities and injustices have been suggested. For instance,
Machiavellianism believes that "might is right" and thus, one grabs the largest share one can get
regardless of inputs and efforts (Christie and Geis 1970). Niccolo Machiavelli (1469 1527) was an
Italian (Florentine) statesman and political theorist. Based on his writings, Calhoon (1969: 211) defined
a Machiavellian executive as one who "employs aggressive, manipulative, exploiting and devious moves
in order to achieve personal and organizational objectives."
Darwinian Justice or Spencer's Social Darwinism (Hofstadter 1955) advocates natural selection by
"survival of the fittest" corporations. The philosophy of Justified-self-interest distributes goods
proportional to what the distributor wants - self before others; particularly, distributor's needs come first
when goods are scarce. The theory of the bigger the better control proclaims that larger sales and
revenues yield larger market shares and profits, which in turn generate better scale economies, optimal
size, expansion opportunities, increased market power and control (Schumacher 1973).
Capitalist business can be a corrupting influence on social life and values. By commercializing
everything from Christmas to the professions, businesses can have immoral influence (Jung 1983).
Advertising and marketing creates trivial, frivolous and extravagant needs in peoples that would never
have risen without media influences; allegedly, media advertising siphons off scarce consumer resources
that could have been better spent on other real needs (Galbraith 1976).

34

Thus, if a capitalist system by its very nature institutionalizes selfishness as a virtue (Rand 1964) and
exploits opportunities to advance corporate goals and personal wealth, then the business executive who
works within that capitalist system could get unwittingly caught up in this race, be fired by and
committed to its ideology, and propelled to work hard, especially when rewards are ultimately
conditioned on and determined by higher levels of profitability (Molander 1980). In particular, big
business corporations controlled by a self-perpetuating, irresponsible power-elite are charged with the
exercise of concentrated economic and political power contrary to the public interest (Jacoby 1973).
In a competitive free market economy, the presence of myriad financial institutions and the
decisions of thousands of small or big business participants, create the free markets, determine the
prices, determine revenue sharing, market sharing, profit sharing, and wealth sharing. The invisible
hand of the markets and the visible hand of the governments can both shape capitalism, and if done
well, can save the world from chronic indebtedness that perpetuates poverty and can save the world
from depressions, recessions and wars. But often, under the guise of obtaining welfare and security for
the marginalized, the bureaucrats and incumbent politicians also obtain security and kickbacks for
themselves by regulating and repressing the free markets. The final victim is the free market and the
poor who look for better opportunity (Rajan and Zingales 2014: 293).
In our times, humanity is experiencing a turning point in history never experienced before. Rapid
and cumulative advances in science and technology have moved us from a stable and predictable agroeconomy to an unpredictable manufacturing economy, followed by a service economy, then
knowledge economy, then information technology (IT) economy, currently catapulted into an
entertainment and electronic games economy, until now we are quickly forced to accept a healthcare,
sustainability and ecology economy. Transition into each economy has been enabled by digitization
and globalization of production factors such as money, materials, manpower, communication and
opportunity. Global productivity, trade and wealth have been increasing exponentially, but so are
unemployment and underemployment, injustice and inequality, hunger and malnutrition, poverty and
disease, terrorism and genocide, violence and wars.
Despite increasing buying power and improved lifestyles, by and large, we are gripped by fear and
frustration, exploitation and oppression, fraud and corruption, a culture of exclusion and
discrimination, death and destruction, with terrible damage to human rights and dignity. All these are
effects of free enterprise capitalism, unbridled greed and avarice, black money and white money, tax
evasion and money laundering. More than two-thirds of the world population is impoverished and
marginalized, excluded and disenfranchised. The other third part of the world has been desensitized
and rendered progressively incapable of feeling compassion at the outcry of the poor, and a
globalization of exclusion and indifference has developed. The culture of prosperity had deadened us.
Stark poverty, destitution and squalor of the third part of globe fail to move us. This is social violence.
This is rejection of God and morality, of ethics and humanism. This is capitalism at its worst. This is
the result of the absolute autonomy of the marketplace and financial speculation.
Meanwhile, the world of the poor and the marginalized is getting to a point of felt oppression,
suppression and frustration that it is seeking to get its outcry herd and responded. Several social
activists, NGOs and other advocacy and supportive groups are empowering them to voice their
concerns in groups and unions. Often, driven by sheer desperation, some groups may be forced to
have recourse to violence, social violence, retribution, and even revolution. The world of the rich is
quick to denounce the marginalized and accuse them of and suppress their violence. But recourse to
arms and weapons will not be able to silence the long excluded, deprived and impoverished masses.
Until exclusion and inequality in our society and between peoples are reversed, said Pope Francis
(Evangelii Gaudium (2014), # 59), it will be impossible to eliminate violence. When more than twothirds of the global population that is marginalized is forced to be on the fringes, no political program
35

of law enforcement, oppression, suppression or imprisonment will be able to achieve global peace,
harmony and solidarity.
What could we expect some seven years after the 2008 financial crisis, say in 2016 and 2017?
The federal government had plans to stimulate the U.S. economy by a near $1 trillion stimulus
package disbursed over two years (2009-2010) since the country fell into recession since December
2007. So far, the majority of federal effort has been focused on stabilizing the volatile financial
markets for preventing a market free fall and potential depression similar to the 1930s. Currently,
besides federal bailouts of the major banks, the Capitol Hill is offering seemingly attractive incentives
to the consumers by way of tax credits for home buyers, cash for gas clunkers (CARS), and federal
rebate checks. It is estimated that the monetary sum of USA government intervention over the twelve
months of October 2008 September 2009 would have clearly exceeded all government interventions
over the past two hundred plus years of American history (including the Louisiana Purchase)!
All these efforts, however, represent quick-fixes of stopping the bleeding. By most accounts,
economic policy makers think that the short term stop-the bleeding efforts of governmental
interventions have been fairly successful. Presumably, with such incentives, the U.S. markets,
(industrial, commercial and residential), might actually start to lead the world out of the downturn in
the third quarter of 2009 or by the first quarter of 2010. Nevertheless, the continued high rate of
unemployment and underemployment, lack of GDP growth, impending inflation fears, continuing
deterioration of the U.S. housing market, de-leveraging of investment and commercial banks (i.e., the
winnowing down of their troubled balance sheets), and the struggles of the domestic auto industry and
massive layoffs almost everywhere, made the market outcomes of 2009-2012 very low and economic
outlook for 2013-2014 nothing better. The government, with the collaboration of business and
household communities, must seek longer term sustainable measures than those adopted in 2008-2012.
The IMF (International Monetary Fund) forecasted that the overall world output in 2009-2010 will
grow only 2.2 percent (IMF defines a global recession as growth below 3 percent), and the predicted
outcomes have been realized. Consumer confidence in the U.S. and Europe has fallen to record lows.
Philippe Gijsels, senior equity strategist at Fortis Global Markets in Brussels, predicted that 2009 will
be a big shakeout year, a year of financial Darwinism, where the weak get weaker and the strong get
stronger. People with cash and balance sheet strength will be able to do what they want. In the long
run, consolidation will help to create the conditions for the next bull market as capital is redirected to
its most efficient uses. According to Mr. Gijsels, the world market could stabilize by late 2009 if there
was clear evidence that the current financial crisis was ending and there were signs that the U.S.
housing market crash was nearing an end (Jolly 2009). But nothing has been recorded yet in terms of
financial market stabilization.
Despite financial crisis, economic recession, market turbulence and economic market chaos, some
companies will always do better than others. Their secret is not divestiture, diversification, risk-taking
or market withdrawal, but vision, creativity, imagination, innovation and forward thinking. Jim
Collins and his colleague, Morten Hansen, have proved this stunning result in their latest book, Great
by Choice (2011), a massive research study that spanned over nine years of the 2000s. Creativity and
innovation management will always be an ongoing solution to all our economic, market, political and
social crises.
The USA financial services industry is the largest and most sophisticated in the world. Yet the
October 2008 crisis made it clear that the financial system is riddled with perilous gaps (or overlaps) in
its regulatory structure. Reform means smarter financial regulation, not over-regulation. October
2009, 2010, 2011 were three successive anniversaries of the financial crisis of October 2008. That was
the time for moral reflection and fair reckoning. What have we learnt one year, two years and even
36

seven years after the crisis triggered deep, worldwide recession? What have we learnt from our
mistakes now that we are heading to the seventh anniversary month coming October 2015? Have the
financial markets stabilized, despite federal bail outs? Is market and global sustainability better since
the crisis of October 2008? Table 3.6 suggests some corrective approaches.
During his summer of 2009 visit to the Wall Street analysts nearing the anniversary of the death of
Lehman Brothers and the near death of the rest of the Wall Street, President Obama pointed out that
many of the fundamental weaknesses in the financial market and regulatory structure continue
unabated because of a lack of transparency, the very factor that triggered the crisis in the first place.
But Obama is not pressing hard enough for reform and financial market restructure; he seems to stand
on the sidelines allowing vested interests to frame the debate and reform he sparks. Meanwhile, the
Wall Street has not changed its game: derivatives, derivatives of derivatives, fancy trading schemes,
and high-risk bets. The business model remains the same. The giant banks are more comfortable
taking even greater risks, knowing for sure that the government will use our taxes to bail them out
when in trouble.
It is true, a year after the crisis, the markets rallied somewhat; for instance, the stocks indices were
up 50% from their March 2009 lows, consumer confidence was on the rise, housing prices were
getting stabilized, and financial institutions were paying back their TARP funds. Possibly, responding
to President Obamas visit to the Wall Street in summer of 2009, the Securities Exchange Commission
(SEC) and the Commodities Futures Trading Commission (CFTC) held preliminary talks on
harmonizing the regulation of equities and derivatives. Both pose systemic risks that must be
addressed. Particularly, the derivatives market is incredibly complex, murky and non-transparent with
so many transactions taking place on opaque over-the-counter markets rather than open, regulated
exchanges or clearinghouses with transparent reporting. Earlier in 2009, Secretary Geithner proposed
bringing certain standardized derivatives out of the shadows and trading them in the open just as we do
equities. Unfortunately, that idea got stalled in Congress (Niederauer 2009).
The mega bailout of Wall Street has accomplished little. Perhaps, it backfired. The pay packages
of top bank executives and traders have been skyrocketing and guaranteed, no matter how they
perform. Goldman Sachs, in particular, posted in the second quarter of 2009 its fattest quarterly profit
in its 140-year history, and earmarked $11.4 billion to compensate its top executives and traders,
averaging about $770,000 per employee, just about what they earned at height of boom. Citigroup,
bailed out by $45 billion from American taxpayers, has told the White House it needs to pay its
twenty-five top executives an average of $10 million each this year, and award its best trader $100
million!

Table 3.5: Regulatory Financial Framework for

Market Stabilization versus Market Sustainability
Dimension

Definition

Time frame
Domain

Induced Market Stabilization

Post crisis situation of calm;
A brief spell of quiet after economic and
financial turmoil;
A respite after market turbulence.
A market state temporally freed from free fall or
disruption via expensive government-based
bailouts..
Short-term, quick-fix, and temporary
Mostly local; Wall Street and the financial
institutions. Government bailout systems. This

37

Natural Market Sustainability

via:
A market state that prevents crisis;
A market state that protects from crisis;
A market state that has just procedures for
preventing and protecting from crisis.
A market that can effectively sustain itself with
fairness and equity without government
interventions or de-regulation.
Long-term, self-governed control over market
inputs, processes and outputs
Globalization: Should be global in a globalized
world; financial stability should follow from

is a silo (non-systems) approach.

The taxpayer
financed bail out
Solution

The public

The consumers

Legislation

A quick-fix symptomatic solution;

A stop-the-bleeding emergency care;
It is a hit-and-miss tactical solution
Is skeptical about market stabilization. After 8
years of financial crisis, market stabilization is
still not certain, especially in housing, and
derivatives.
The public (e.g., investors, consumers) have lost
confidence in the Wall Street and the financial
institutions as also in the governments.
Market turbulence has hurt the ordinary
consumer under various forms of joblessness,
underemployment, home foreclosure, asset
depletion or currency depreciation, personal
insolvency and bankruptcy.
Can market stabilization counteract and
compensate consumer damage?
Market stabilization can be legislated; but it is
best done through self-regulation.
SEC is ineffective; it is prone to corruption;
FINRA, CFTC, FDIC, need to be beefed up
and enforcing;
Make financial market exchanges transparent;

Resolution

Reduce buyer-seller information asymmetry;

Regulate speculative markets such as
derivatives, hedge funds, and private equity
funds.
Predict, monitor, control market behavior in
order to prevent future financial crisis.

Resolution
Outcomes

Continuous market stabilization

product/goods global markets stability; the latter

should follow from continuous creative destruction
or creative innovations.
Non-political interventions: Government bailouts
are ineffective in sustaining markets for the longterm; we need solutions that can stabilize the
markets over a long period (e.g., at least 6-8
quarters).
Market-Demand: The public (demand side) should
feel compelled to contribute to the market
sustainability process by supply side substantial
adjustments in terms of transparency, fraudprevention, information asymmetry reduction, and
fair procedures for market exchanges
Enhanced consumer confidence: Market
sustainability implies a long-term confidence of the
public and consumer in the markets in general, and
financial markets in particular. Market
sustainability should imply full employment, steady
wealth accumulation, persistent and consistent
innovation, regular job retraining and
reengineering, and cultural stability.
Market sustainability cannot be legislated. It is a
desired outcome of government/business
cooperation, persistent creative innovation and
continuous growth in GDP.
Consumer Finance Protection Agency should
ensure:
Distributive justice fair distribution of market
opportunity;
Corrective justice periodic correction of abuses
and frauds;
Retributive justice punishment of the wrong doers;
Compensatory justice restoring the wronged and
damaged to their original status
Protective justice protect all people from financial
harm;
Preventive justice prevent all people from financial
harm;
Procedural justice set up transparent and fair
procedures for ensuring distributive, corrective,
protective, preventive and procedural justice.
A step further Beneficent justice do good to all
the public and consumers by win-win exchanges
Prolonged market sustainability

Hence, the public (e.g., investors, consumers) have yet to restore their confidence in the financial
institutions. Until we fix underlying problems in our financial system, Wall Street will remain
skeptical and the economy will have a much tougher road to full recovery. Hence, we need a
regulatory system that does not allow cracks in relation to old and new financial products, and in
regulated and unregulated areas (Niederauer 2009). We need regulatory reform and market structure
reform that bring about both short-term market stabilization and long-term market sustainability. Table
3.6 is a preliminary sketch in this regard.
During 2008-2009, the fed had taken some regulatory steps, but mostly to avoid catastrophe. We
need to modernize our outdated and opaque financial market regulatory structure. We a need a
structure, regulatory or self-regulatory, and a renewal focus on the essential tasks of building a
stronger, more durable, more stable, more sustainable, more transparent, more innovative and a more
just system that the rest of the world will be proud of and glad to follow. Short term fiscal or
regulatory measures should not be detrimental to long-term market sustainability.
38

Concluding Remarks
Most organizational change initiatives have failed despite concentrated efforts around great themes
such as TQM, Six Sigma, scenario planning, role playing, reengineering business processes, process
redesign, mergers and acquisitions, corporate strategic alliances, and the like. Two independent studies
in the early 1990s (Arthur D. Little; McKinsey & Co.; see The Economist, April 18, 1992) claim that
over 70% of organizations that introduced heroic new efforts towards organizational change, failed in
bringing about long-term improvements in organizational learning. John Kotter, the guru of
organizational change management at the Harvard Business School, studied the transformational
efforts of over 100 top management-driven corporations and came to the same conclusion (Kotter
1995: 59). The source of the failures to change cannot be remedied by expert advice from consultants,
or by hiring highly talented and committed managers. The sources lie in our most basic ways of
thinking. If these do not change, then any additional input by way of experts and consultants will end
up producing the same fundamentally unproductive organizations. The reason is lack of systemsthinking: the initial effort creates some short-term, local and peripheral changes, but the lack of lasting
systemic momentum fails to realize long-term high-potential goals of the organization (Senge et al.
1999: 6-7).
David Orr (1991) warns that we mistakenly believe that having won the cold war the triumph of
capitalism over communism is complete. Communism failed because it produced too little at too high
a cost. But capitalism has also failed because it produces too much, shares too little, also at too high a
cost to our children and grandchildren. Communism failed as an ascetic morality. Capitalism failed
because it destroyed morality altogether. This is not the happy world that any number of feckless
advertisers and politicians describe. We have built a world of sybaritic wealth for a few and Calcuttan
poverty for a growing underclass. The fact is that we live in a disintegrating culture. In the words of
Ron Miller, editor of Holistic Review: "Our culture does not nourish that which is best or noblest in the
human spirit. It does not cultivate vision, imagination, or aesthetic or spiritual sensitivity. It does not
encourage gentleness, generosity, caring, or compassion. Increasingly in the late 20th Century, the
economic-technocratic-statist worldview has become a monstrous destroyer of what is loving and lifeaffirming in the human soul," (cited by Orr (1990)].

39

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i Pygmalion is a character in Greek and Roman mythology, who believed so strongly in the beauty of the statue he had carved that it
came to life. George Bernard Shaw wrote a play, The Pygmalion Effect (which later became My Fair Lady) to describe a similar
phenomenon.

ii According to Harry Gunnison Brown (1944:87), under the original Agricultural Adjustment Act, passed in 1933, owners of farms
were paid a bounty or subsidy by the federal government to take land out of use. One result was that not a few landlords-especially
owners of plantations in the South-found it desirable to dismiss or discharge a considerable proportion of their tenants and laborers. The
workers thus deprived of employment on the plantations and farms had then, in a period marked by widespread unemployment, to seek
other jobs. The purpose of the law was to hold up and even to raise appreciably the prices of agricultural products by limiting their supply.
This is the method of privately established monopoly, too, and it is no more desirable or defensible when practiced by government than
when practiced by individuals or by private companies. Since some manufacturers may have had a degree of monopolistic control and
may have been able to restrict output and hold up prices, and since wheat farmers have been unable thus to establish monopoly by
themselves, therefore the government should aid them to restrict the out-put of wheat so as to hold up wheat prices. The result may, of
course, be a benefit to certain wheat growers, but life is thereby made harder than before for those persons who, not being in any
privileged group themselves, must now contribute to a new privileged group just because they have previously had to contribute to an old
one. This is a good illustration of System Laws 1, 3, 4 and 5.

iii Brown, Harry Gunnison (1944) continues: a new Agricultural Adjustment Act (1938) was instituted, the first one having been
declared unconstitutional by the Supreme Court. But the amended Act worked not by paying subsidies for taking land completely out of
use-applies the principle of limiting output for the purpose of holding up or raising prices. Subsidies are now paid for the planting of "soil
restoring" and "soil maintaining" crops. This is somewhat as if owners of houses were paid subsidies for "restoring" their roofs by putting
on new shingles and "maintaining" their walls by painting them! But the newer Act also makes provision for "quotas" to apply to the
growers of wheat, corn, cotton, rice and tobacco. Those who pro-duce and sell more than the quotas allotted to them are penalized by a
heavy tax,-in effect, a fine. This, certainly, is supply-limiting legislation. Thus, there is, in the Act of 1938, a sharp limitation of the
amount of a particular crop-when quota limitations are voted-which can be produced in a county or state on land not recently used to grow
that crop. For example, not more than three per cent of the county acreage allotment for wheat may be apportioned to farms on which
wheat has not been planted during one or more of the three previous marketing years. In the case of cotton, not more than two per cent of
a state's acreage allotment may be apportioned to farms which were not used for cotton production during at least one of the three
preceding calendar years. In the case of rice, the prohibition is against persons rather than particular pieces of land. Here the Act provided
that not more than three per cent of the acreage allotted to any state shall be apportioned "among persons who for the first time in the past
five years are producing rice on the basis of the applicable standards of apportionment" and that no such person shall be allowed more
than seventy-five per cent of the acreage in rice he could have if this were not the first time in five years he was so producing. It can easily
be seen that, when such a limited quota for all those per-sons who have not produced rice for five years has been asked for and allotted, an
American citizen whose application was a little later would not have the liberty to produce rice at all for that year. As regards wheat and
cotton, an American citizen desiring to produce one or the other of these and buying or hiring a piece of land for the purpose, might find
that he was not free to produce the crop on that land because the particular piece of land had not been so used in recent years and because
the acreage allowed for such land was all allotted. Thus, will our ultimate economic system be one in which every person is told in what
industries he may engage and what occupations he must perforce forego? Is this a free enterprise capitalist market system? As systems
Law 6 states: Faster is slower. Or as Law 5 states: the cure can be worse than the disease. Or as Law 4 states: The easy way out usually
leads back in.

iv Brown, Harry Gunnison (1944) continues: The question whether to establish a quota in any year is determined by the Secretary of
Agriculture, with the proviso that the quota will not go into effect if opposed in a secret ballot by more than one-third of the farmers
affected. This arrangement has been euphemistically described as "the democratic way." But to describe it thus is really a travesty on the
word "democratic." Consumers do not vote on the matter. Millers (or other processors) do not vote on it. Would-be farm laborers for
whom such quotas may mean no farm jobs do not vote on it. If such a system of deciding that there shall be a monopolistic limitation of
output is "democratic" then it would be "the democratic way" for the various gasoline companies to decide, by secret ballot, whether to
limit the output of gasoline and for the owners and operators of coal mines to decide in like manner whether to limit the output-and thus
raise the price of coal. Has it really become "democratic" nowadays to shut out from decision on such matters millions of consumers
whose economic interests are acutely affected by the decisions reached? As systems Law 7 states: Cause and effect are not closely
related in time or space. The effects of Agricultural Adjustment Act (1933 and 1938) were not fully generating yet. The subsequent rush
of many thousands-not to say millions-of workers into war industries (fuelled by World Wars I and II) previously unfamiliar to them
offers an illustration of mobility on a vast scale. And in case the critics attempt to escape the logically inevitable conclusion by referring
to this mobility as resulting from "abnormal" (i.e., war) conditions, then they should be required to note the migration from country to
city between 1922 and 1930. During these eight years an average of about two million persons a year left the farms for the cities while an
average of well over a million a year moved in the reverse direction, leaving a net movement from the farms of about two-thirds of a
million annually. Certainly, when there is such mobility as this, it is ridiculous to assume that the great majority of farmers cannot even
change from one crop to another! As systems Law 8 states: small changes can produce big results!

v The modern idea of system was first presented by Churchman (1968) and von Bartalanffy (1969), and further developed and applied by
several philosophers and scientists and scholars such as Carson (1962), Ackoff and Emery (1972), Capra (1982, 1997), Senge (1990,
2006), and Bradbury (2005).