The case for sacrifice in business and democracy

Why giving something up can be the smartest thing a leader can do.

This month, early returns seemed to give Spencer Pratt a place in the November runoff in the Democratic primary race for Los Angeles mayor. As the counting continued, however, it became clear that Pratt had not received enough votes to advance. Now, Pratt and some observers, including Donald Trump, Elon Musk, and House Speaker Mike Johnson, are having trouble accepting the result. Call it (yet another) teachable moment in the elements of good democratic citizenry.

It can certainly be painful when an election doesn’t go the way you want, but your willingness to accept it — to sacrifice your individual preference, in other words — is fundamental to the survival of democracy.

Any democratic activity worth its name requires participants to make painful choices and sacrifices in the selection and pursuit of collective goals. Such sacrifice naturally involves accepting occasional defeat, forfeiting something valuable, making difficult compromises, and, in the end, putting collective needs above individual self-interest.

In the world of politics, sometimes the stakes are so high that sacrificing one’s aspirations and preferences is a bridge too far. Even our own Constitution seemed too great a sacrifice to some in 1787: Only 39 of the 55 delegates to the Constitutional Convention in Philadelphia signed it. Several states even considered declaring their own independence from the Union.

More typically, however, the divisions between voting parties are not so threatening to democratic projects. A recurring example of sacrifice in our political economy is voters accepting election defeat without violent pushback after a hard-fought presidential or congressional race — with the notable exception of the U.S. capital attack on Jan. 6, 2021.

The acceptance of election results is a classic sacrificial act by citizens who individually prefer a vastly different election outcome, yet see value in accepting majority preferences as they are revealed in the political process. The value preserved by such sacrifice is a shared sense of the legitimacy of elections, which is of course central to the survival of democracy.

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In more administrative contexts, another example of sacrifice is compromise in the ubiquitous budgeting process that takes place in both the public and private sectors. Whether it’s congressional budgeting or the development of corporate operating and capital budgets, there are always trade-offs and sacrifices to be made — and winners and losers revealed — in a world of limited resources.

This is because, in the world of politics and business, perfect bargains can rarely be achieved. Additionally, there is no perfect contract that can protect participants in a joint activity from all adverse contingencies.

In the absence of such perfect contracts, preserving the possibility of productive mutual engagement requires a willingness to honor those who sacrificed something of value in the engagement process by reciprocating such sacrifice in the future. In legal and financial contexts, such reciprocity is known as “making someone whole” — or compensating for damages incurred.

It is such reciprocity that builds the trust necessary to develop stable relationships among cooperating parties with conflicting interests. In the absence of trust — in the absence of faith that parties to an agreement will uphold their end of an agreed-upon bargain — no political or business deal will ever be made, and no collaborations will ever endure.

In this sense, trust is one of the most important, albeit invisible foundations of both capitalism and democracy.

Consider, for example, the challenge of starting a new business venture. Entrepreneurial startups typically involve the assembly of specialized skills and resources, a highly creative activity that cannot succeed without cooperation and mutual trust. These participants include but also extend far beyond the suppliers of capital. Indeed, funders are rarely the sole group that provide specialized inputs to corporate production that make new enterprises successful. Competent executives, scientists and other technical personnel, rank-and-file employees, even members of local communities make essential contributions, compromises, and concessions to help new ventures launch successfully.

It’s impossible to write contracts that specify all the ways that participants need to cooperate for new ventures to begin generating expected benefits. That means that startups, and indeed business of all ages, need to rely on norms of trust and mutuality in coordinating essential activities — in return of course for such contractually unguaranteed, contingent rewards as supplemental compensation, promotions, dividends, and so on.

Not that trust and norms of reciprocity and sacrifice for mutual benefit are easy to build or maintain. Since capitalism (like democracy) involves competition between actors who seek to extract the greatest benefits possible for their various constituencies, there are inevitably many incentives to pursue a wide range of self-serving, anti-competitive, and community-fractioning activities in pursuing this goal.

And this, of course, is where sacrifice plays a vital role.

In a contentious world, where democratic governance requires negotiation and compromise, progress toward espoused goals can only happen where there is a willingness by members of the enterprise to sacrifice some of their current wants rather than blocking any progress at all — with the hope and expectation that their sacrifice will be reciprocated in the future.

No saints required

Unfortunately, embodying the principle of sacrifice in everyday life is a burden that many in the world of business are loath to carry. In this world, where maximizing the wealth position of investors has been canonized as the principal responsibility of corporate managers and boards of directors, the notion of sacrifice can seem totally irrelevant.

Why, we might reasonably ask, should we — as entrepreneurs, corporate executives, and other appointed agents for the suppliers of risk capital — concede an economic return today when the chances of recouping it later are unknown and thus not included in any return on investment calculation?

Why should we trust that others won’t take advantage of us?

The only way out of this mind-block is to accept the proposition that one’s self-interest is typically best served in today’s political economy by recognizing and accommodating the interests of other parties to an economic or political exchange — by making intelligent sacrifices when called for.

Political philosopher Danielle Allen provides strong grounding for this idea. Allen argues that a healthy democracy requires a shared belief that the survival and health of the collective directly benefits the individual. And so participants in the democracy have a rational, self-interested reason to recognize and protect the interests of others and to ensure the health of the collective community.

This is because, Allen notes, in the absence of such an attitude, people will withdraw from the system when they think it is unfair. They will actively resist cooperation if they believe others are free riding on the benefits stemming from their sacrifices. (Herein lies the root of many past rebellions and social upheavals.)

For Allen, this concept of self-interest — referred to as “equitable self-interest” — should not be confused with the notion of “enlightened self-interest.” Pursuing equitable self-interest does not involve becoming a saint. Rather, it involves realizing tangible benefits from defining one’s self-interest as including support for collective interests and benefits and working with others to make individual sacrifice and cooperation worthwhile.

Commonly cited, worthwhile examples from everyday life include:

• Paying taxes for public goods.

• Accepting political compromise because maintaining trust and stability benefits everyone.

• Paying employees fair wages and earning less profits in the short term to ensure employee loyalty and social trust.

• Accepting new rules and regulations in business that could have a negative effect on short-term corporate profits but will also have the positive effect of increasing financial transparency and facilitating the efficient allocation of capital throughout the economy.

• Paying the costs of environmental protection because protecting shared resources benefits future communities, including oneself, one’s family, and one’s businesses.

In each of these examples, sacrifice is the mind-set that enables policies and practices that serve the long-term, shared interests of businesses, their managers, and society at large.

Allen is, of course, not the first philosopher to advocate this mindset. The Bible references various kinds of individual sacrifice that serve the common good while also strengthening one’s covenant with God. An interesting example of this exchange is the so-called “Law of Gleaning,” a mandate found in Leviticus, the third book of the Old Testament.

The Law of Gleaming forbids farmers from harvesting their fields all the way to the edges. It also prohibits farmers from picking up produce that falls to the ground during a harvest. Together, these give-ups require property owners to sacrifice maximum agricultural yield and current profits so that the poor, widows, and others in their community can gather leftover food with dignity through their own labor. In effect, this sacrificial system institutionalizes a welfare system for marginalized people.

Although gleaning is no longer required for Christians, the sacrificial system provides an example of how those controlling productive resources willingly sacrifice maximal individual returns for a flourishing community. It also has been seen to provide a foundational blueprint for how imperfect people can atone for less-than-holy behavior.

Another famous exemplar of sacrifice: George Washington, who voluntarily surrendered power at the end of the Revolutionary War and again during his second term as president. Horatio Greenough’s 1840 statue depicts him here as the Roman general Cincinnatus, who also abdicated power willingly. Photo via the Smithsonian American Art Museum.

The free-rider problem

As worthwhile as all this might sound, a practical question remains: How can business leaders seeing the wisdom of sacrifice avoid being destroyed by competitors who do not follow the same script? Won’t shareholder-value maximizers who decide to keep their cash flows “intact” and ready to be deployed be better able to reinvest financial resources in their business than more circumspect firms?

These are real questions about real risks — reflecting what is often called the free-rider problem.

Free riders in this instance are public corporations who pursue short-term value maximization, while taking advantage — without any penalties — of more resource-constrained competitors who choose to invest in public goods as well as future private gains. In such a situation where such free-riders are given “free passes” to pursue narrow self-interests in the form of extreme shareholder wealth maximization, one possible result is the transfer of financial wealth from the less competitive but more community-engaged firms to the more competitive but less community-engaged firms.

Under these conditions, the short-term wealth maximizers win, and the more socially engaged, longer-term-value maximizing firms — and society — lose out.

This outcome is certainly possible unless firms — and especially public corporations — pursuing equitable self-interest and practical reciprocity manage to sustain sufficient returns to attract and reinvest resources in the business at a rate comparable to that of the less socially committed free rider. This condition can only be satisfied when such firms continue to work at creating real long-term economic value while at the same time integrating the principles of ethical self-interest and reciprocity into their business.

In other words, mitigating the risk posed by free riders takes what it has always taken to achieve competitive advantage under conditions of unevenly distributed resources across industry players: An ability to work smarter, faster, harder, and more economically than one’s competitors.

Short-term concessions to value maximization are fine, but only if long-term prospects for financial and social sustainability are maintained (and effectively communicated to a firm’s relevant publics). There is a flood of research evidence from the past 20 years showing that in response to various ESG-type aspirations and regulations such enhanced performance across a wide spectrum of industries can be achieved.

Making the case

That said, no business executive (or elected official, for that matter) can be expected to embrace the principles of purposeful sacrifice, equitable self-interest, and reciprocity in their daily affairs without a supportive ethical culture, or what American Catholic philosopher Michael Novick identifies as the “moral ecology” of business.

Such cultural support is unlikely to occur on its own without a broad social mandate. In the absence of such a mandate, it is unreasonable to expect that economic actors will voluntarily ignore long-embedded financial incentives (such as executive bonuses tied to their companies’ stock price) that reward the pursuit of narrowly defined self-interest.

But how does such an ethical culture develop? And how is it sustained?

There are several possible ways of doing so:

• By proclamation, where norms, values, and preferences are spread via autocratic fiat and enforced by state power, such as under the Third Reich.

• By revolution, where values are reprioritized via popular uprising and the power of the polis, as in the American and French revolutions and in various revolutionary theocratic republics today.

• By legislation, where values are legitimized, diffused, and enforced via democratic legislative action and legal compliance, such as in the U.S. with civil rights, social security, health care, voting rights, and competition policy.

• And by moral suasion via evangelism and social movements.

There is certainly overlap among these categories (e.g. moral suasion as a precursor to legislation). Yet they do suggest a conceptually differentiated set of activities based on the source of power driving changes in social norms, values, and preferences. Socialization of moral values via proclamation requires the police power of the state to implement, which is totally unacceptable in the U.S. context and, in any case, a sign of the kind of moral degradation we are trying to avoid. Revolution, apart from its incalculable social costs, is not (I think) called for in our current economic and political circumstance. Legislation, unless nested in a strong compliance culture and broadly united polis, inevitably leads to the gaming of congressional rule-writing and subsequent rule-following or loophole-exploiting.

This leaves moral suasion — in this case, unrelenting persuasion — as our best pathway for rethinking what norms and values could best guide our unique form of democratic capitalism going forward. This requires evangelists, like readers of The Renovator and forward-thinking business leaders, to make the case for informed sacrifice in business and politics.

For those of us in the business community, this is our most pressing task today.