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Ethical Standards And Innovation: Too Much Of A Good Thing?- Vision Of Professor Anokhin

Author : Professor Sergey Anokhin

Ethical Standards and Innovation: Too Much of a Good Thing?

Ethics in the Context of Business

Although historically business activities were seen by many as inherently unethical, and people engaged in business opportunity pursuit were characterized as self-interest seeking with guile, last decades have seen the advent of morally charged categories such as corporate social responsibility and, later, social entrepreneurship. It appears that the momentum is shifting in favor of ‘doing well by doing good,’ and that consumers are willing to build lasting relationships with firms that honor fair trade, contribute to social causes, and pursue missions with societal implications – that is, try to do the ‘right thing.’

Yet, while all this is encouraging, we know very little about how ethical standards in a given society may affect business activity. Business opportunities often require dealing with multiple parties, and as sensitive information about opportunities is revealed, their ethical stance assumes great importance. Ethical standards, according to Entrepreneurship Professor Sergey Anokhin from Kent State University, can be thought of as the likelihood that one party to a negotiation will not exploit the vulnerabilities revealed by another party. If ethical standards are high, the entrepreneur may accurately estimate the course of action needed to see the opportunity to fruition, and there is no need to account for the likelihood of breaching the trust. If ethical standards are low, charting a course of action becomes a task of impossible difficulty, which is likely to suppress all opportunity-based entrepreneurship leaving only necessity-based endeavors going. So, on the surface, says Dr. Anokhin, it appears that high ethical standards are most conducive to opportunity seeking.

The Dark Side of High Ethical Standards.

Yet, high ethical standards have an unexpected dark side. While they are certainly conducive to relatively mundane opportunity pursuit, when the opportunity identified by the entrepreneur is of a superior kind – the grand innovative opportunity – ethical standards become a major setback. The stunt pulled off by Mark Zuckerberg on the Winklevoss twins, as portrayed in “The Social Network” movie, would not have been possible had all parties maintained the tightest ethical standards. When the upside of a business opportunity is excessively high, the ethically charged entrepreneur will face internal conflicts seeing that the other parties to the exchange are underpaid and thus ‘exploited.’ The entrepreneur, then, will seek to redress the balance by equalizing the upside for all the parties involved.

Such kind of equalization, suggests Sergey Anokhin, while commendable, is problematic when dealing with innovative opportunities. Innovations are highly uncertain and require substantial investment. If the upside is ‘equalized’ by the ethics-driven entrepreneur, there may not be enough capital left to funnel into the opportunity in case of troubles, which may lead to business failure. In other words, societies with high ethical standards my be less likely to sustain high levels of innovative activities because individuals and companies pursuing those may equalize themselves out of the funds necessary to sustain new technology development. If true, it means that there is a ‘golden mean’ to ethical standards that maximizes the amount of innovation a country might sustain.

International evidence

To study the dark side of high ethical standards and the existence of the golden mean with respect to ethics, Professor Anokhin and Professor Acar from Kent State University analyzed innovative processes in 64 countries over a 7-year period. Just as expected, they found that too much as well as too little ethics is detrimental for innovative activity, and that there exists the golden mean with respect to ethical standards that maximizes innovation. The figure below plots the relationship between ethical standards and innovative activities across the analyzed countries.

So, how do countries rank with respect to their ethical standards?  Dr. Anokhin has calculated his estimates, and there are some surprises, as seen in the figure below.  Of particular interest is the leading position of many Eastern European countries like Lithuania, Estonia, and Latvia on this ranking. This helps understand why the transition they undertook following the fall of the Soviet Union is taking so long – their high ethical standards may be seen as an impediment on the way to technological development.

What it all means

It is essential to recognize that ethical standards may affect innovative processes in unexpected ways, says Professor Anokhin. Policy initiatives aimed at promoting innovation should take this into account. It may be that for highly ethical countries to develop economically, the smarter strategy may be supporting the pursuit of more mundane, trivial opportunities, and not necessarily grand innovation. While less exciting, this may be a more productive course of action, and a rational and responsible policy maker may be wise to consider this option.

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Professor Anokhin

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Submitted : 2018-01-08    Word Count : 780    Times Viewed: 17699