The Volkswagen scandal is perplexing. For a rather small benefit per car, the company took enormous risks if caught. Penalties are said to be in the neighborhood of $18 billion without the cost of recall and repairs. The CEO resigned; sales and the stock have plummeted; the reputation has been tarnished; the image of Germany as efficient and non-corrupt has been damaged. (If a similar incident had happened to an auto maker in France or Italy, would there be such reverberations?)
Inquiries will certainly try to determine who was responsible. How many people knew about the electronic change in measuring emission control? Who gave the specific orders to implant the device to change the readings? It is difficult to imagine that the device was installed in over 11 million cars without many people knowing. Why were there no whistle-blowers? Did those in-the-know think they could get away with this? Did they realize the consequences to the company, industry and country if caught?
These questions remind me of a most memorable interview the night-time television host Jay Leno gave the movie star Hugh Grant in July 1995. Grant had been arrested two weeks before with a prostitute on Sunset Boulevard in Hollywood. At the time, his girlfriend was the fashion-model Elizabeth Hurley. Leno asked the obvious question right away. “OK, question number one: What the hell were you thinking?”
Grant did not take the easy way out. "It's not easy explaining,” he replied. “People have given me tons of ideas on this one, from 'I was under a lot of pressure, I was lonely, I fell down the stairs when I was a kid' . . . but I think it would just be bollocks to say anything like that."
His simple answer was: “You know in life what’s a good thing to do and a bad thing to do. I did a bad thing.”
I would like to ask the people at Volkswagen: What the hell were you thinking? The obvious answer would be that they weren’t thinking, but that’s not realistic. I am sure they were thinking about cutting costs, making profit, increasing stock value and rising to number one in sales in the car industry. In other words, they were caught up in a vortex of financial logic and not one of values or good or bad things to do.
Given that logic, however, what they did still intrigues me. If the object was to make money, the risk they took by cutting costs surely outweighed the dangers of being caught. In other words, even if we accept that the object of a company is to make money, their investment in cheating on emissions control was not worth the risk of getting caught. Any cost-benefit analysis would have shown that.
Major scandals abound these days. Large banks continue to be caught and pay billions in fines. CEO’s are fired; some even go to jail. Investors like Madoff finally get caught. The numbers involved are staggering to the average citizen. Have the banks calculated that they are too big to fail? Have they thought that even if they are caught the fines they will pay will be worth the risk? For Volkswagen, it will be interesting to see if they are too big to fail, if the German government will have to bail them out. Did Madoff calculate that even if he got caught the years he spent living the high life were worth the risk?
A deeper investigation of Volkswagen would try to find out who knew what and when. The famous question in the Watergate scandal of the early 1970s was asked by Senator Howard Baker about President Nixon "What did the President know and when did he know it?” For the moment, the CEO of Volkswagen has left, but is that enough?
Many analysts have attributed recent scandals to inherent contradictions in capitalism. Others have pointed to deregulation initiated by Margaret Thatcher and Ronald Reagan. I would prefer to use the language of Hugh Grant which is outside the logic of politics and economics: “You know in life what’s a good thing to do and a bad thing to do. I did a bad thing.” The problem is to be assured that we all agree on what is “a good thing to do and a bad thing to do.” That assurance is definitely outside a cost-benefit analysis.