Summary of JOIE Article by Armin W. Schulz, Department of Philosophy, University of Kansas . The full article is available on the JOIE website
Consider a corporation and its (sole current) employee / owner. It may be in the corporation’s interest to make high-quality products that last a long time, as this leads customers to stick with the company the next time they are in the relevant market, which in turn increases the medium- to long-term longevity of the corporation. Assume further, though, that it is in the employees’ interest to make cheaper products that break more often: the employee’s time horizon is shorter than that of the corporation: they will not be an employee / owner when customers are likely to be back in the relevant market, and building high-quality product is more costly for the employee.
On the face of at least, we here seem to be faced with a conflict of interest (COI). COI are of course a familiar and central concern at the heart of economics. However, what is puzzling about cases like the one of the corporation above is that they involve at least some non-individualist social entities. The issue is not that different individuals disagree with each other; rather, the issue is that the individuals disagree with an entity—a firm or social institution, say—as a whole; in what follows, such entities are called “non-individualist social entities” (NISE). With NISE, it is not so easy to see what their interests could be—hence, it is not so easy to see how they could disagree with an individual.
Now, this may be the right conclusion to draw: perhaps the appearance of the existence of COI involving NISE is just that—an appearance. The above may look like a COI, but it really is not one. Or it may be a COI, but it might be understandable as a COI between different individuals after all. However, in turns out this conclusion is unwarranted: there is a compelling way to make sense of NISE interests.
To do this, we need to appeal to the function of the NISE: what this entity is for. This is a good place to start looking for these interests, as a social entity’s purpose sets out, in some sense at least, what it would be good for the entity (whether individual or not) to be or do. The entity’s purpose describes what it ought to be or do—and being and doing what it ought to be or do is, in this general way, in its interest.
In turn, this function of a NISE can be spelled out well using the theory of Presentist Social Functionalism (PSF). At the heart of PSF is the idea that feature F of social entity E makes for (part of) the function of E to the extent that E’s having F now supports the fact that tokens of E will continue to exist from now on into the near future. This is a dynamic, non-historical account that expresses why we should become more confident that tokens of E will continue to exist from now on.
With PSF in the background, we can go on to characterize the interest of a (non-individualist) social entity as (a) the preservation of those features Fi of E that make it more likely that E will survive or reproduce in the current socio-cultural environment, or (b) the abandonment of those features Gi of E that make it less likely that E will survive or reproduce in the current sociocultural environment. Importantly, this account allows for a genuinely non-individualistic account of the interest of a NISE. The features F that increase the expected reproductive or survival success of E need not be reducible to or derivable from features of individual members of E. They can be genuine features of E: how easily it spreads in the culture, say, how resilient it is to change, or how deeply embedded it is in the society in question.
In this way, we can make sense of the kind of COI previous accounts have overlooked. In particular, we can now see why cases like that of the corporation above really are COI. This is no longer mysterious, but simply a function of the fact that what would be helpful for the corporation to persist – high quality products – does not match what is in the employee’s interest: quickly made products. In these cases, it is not that the employee needs to disagree with any particular other employee about this: they are in conflict with the firm as a whole. All the employees, managers, and owners may be happy for the firm not to persist much past the present. However, the firm, itself, has the opposite interest. This thus allows us to extent familiar analyses of COI – like game theoretic analyses of the principal / agent problem – to these cases, and thus expands the reach of these theoretical tools.
Importantly, this framework also gives an answer to the question of when a COI involving a NISE may be occurring in a given situation. In general, a collective should be seen to have interests of its own—and thus to be a potential party to a conflict of interest—when it faces its own, separate cultural evolutionary pressures in the present environment. Concretely, three key predictors of when this is more likely to occur are that (1) the time horizon of the collective is different from that of the individual (employees are not affected by the fate of the corporation 5 years from, now, as they are about to retire – but the firm itself clearly is affected by this), and (2) the collective comprises non-actually existing individuals (the firm, as an entity, is more than its owners and employees now: it also comprises all the potential future employees and owners it might have), (3) the collective operates by means of culturally inherited behavioral routines / institutions (the firm is more than just whatever actions the employees take: it has a culture with routines and traditions that employees work within).
In short: with the framework of PSF in the background, situations like the above of the corporation and the owner / employee can now be seen as involving a genuine COI. Importantly also, this can be done in a “naturalized” manner: institutional interests are not some mysterious entity, but grounded in a well-established cultural evolutionary process. In turn, this allows us to grasp important theoretical and empirical phenomena that we would otherwise miss – like that of the corporation butting heads with its own employees and owners.