Studies on Firms, Markets and Networks
Chapter 1: The Economics of Ethical Leadership
1.1 INTRODUCTION This book seeks to analyse the phenomena of entrepreneurship and leadership from an integrated social science perspective. A key element of this perspective is that decision-making is framed by ethical considerations. Ethical commitments constrain the pursuit of narrow self-interest by creating emotional obligations to wider social interests. This introductory chapter examines the relationship between ethics and economic performance. It shows that leadership has an important intermediating role in this relationship. A leader is a person who specializes in promoting a system of values. These values are shared within the group to which the leader belongs. Values can affect the economic performance of the group, and this chapter examines how the mechanism works. Not all ethical systems improve economic performance, of course. An ethical system must have instrumental value in order to achieve this. This instrumental value is the prerogative of functionally-useful moral values which reduce transactions costs within a group. The clearest example of this instrumental value is the way that an ethic of honesty engineers a climate of trust and so reduces the cost of trade. Ethical leadership is not the exclusive prerogative of priests or philosophers. Business leaders and political leaders can also engage in ethical leadership. Indeed, they have a strong incentive to do so, because they can extract rewards from the economic surplus that leadership affords. Improved economic performance generally leads to higher proﬁts, and higher tax revenues too, and thereby advances the interests both of business and politics. Business and political interests...
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