Moral Suasion

Updated on April 17, 2024
Article byShrestha Ghosal
Edited byShrestha Ghosal
Reviewed byDheeraj Vaidya, CFA, FRM

Moral Suasion Meaning

Moral suasion is a strategy where authoritative bodies implement non-coercive approach to make appeals to moral and ethical considerations in order to influence the behavior of an individual or entity. Instead of using stringent rules, regulations, and threats, this method resorts to verbally persuasive techniques to promote favorable behavior.

Moral Suasion

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In a financial context, the central bank employs this technique to advise and convince financial institutions to comply with the policies and principles. It promotes a culture of ethical practices and moral values rather than using force. It is especially beneficial for situations where resorting to power will not yield desirable results.

Key Takeaways

  • Moral suasion is a strategy that relies on pleading to moral or ethical principles instead of enforcing strict laws, issuing threats, or using force. The technique often involves verbal pleas and persuasive actions.
  • This is an approach that the central bank frequently employs in the financial system. They appeal to financial organizations to follow standards and principles that are morally and ethically acceptable.
  • This strategy plays a significant role in creating a culture of shared values and objectives. However, it is a lenient method that may not always produce the desired results.

Moral Suasion Explained

Moral suasion is a technique of using non-coercive methods to encourage or discourage a particular behavior by individuals or organizations. It focuses on appealing to ethical or moral values instead of using force as a method. The strategy generally relies on verbal appeals and persuasive acts rather than implementing strict rules, threats, or coercion.

In the financial landscape, moral suasion is a common practice for central banks to resort to. They make appeals to financial institutions based on moral and ethical considerations to adhere to principles and policies. It is also known as the “jawboning” method as it relies on verbal talks rather than physical or financial force.

This approach is instrumental in encouraging an environment of shared values and common goals. However, it is a lenient method that may not always yield the desired outcomes. They may have to be applied along with other quantitative and selective methods for effective results.

Features

The features of moral suasion in business include the following:

  • One significant feature of the concept of moral suasion is it is not coercive. It does not depend on force or external pressures. It functions through ethics and moral values.
  • It emphasizes moral and ethical principles. The approach uses persuasive messages that highlight the moral consequences of specific behaviors and decisions.
  • The strategy operates on communication strategies. It seeks cooperation from the individuals and entities involved.
  • The approach includes a lot of verbal appeals through meetings, discussions, and other methods.

Examples

Let us go through the following moral suasion examples to understand this approach:

Example #1

Suppose Rose Cosmetics is an organization that aims to work on the absenteeism of its employees. However, instead of resorting to strict rules and policies, the company decided to involve ethical appeals to its employees. The management held meetings and discussions that emphasized the importance of the contribution of the employees to the organization. They decided to conduct workshops to make the employees aware of the adverse effects of absenteeism and suggested practices that would enhance their productivity. This is a moral suasion example.

Example #2

In May 2023, the shareholders of Chevron and ExxonMobil, the two renowned oil and gas companies, voted to adopt sustainable climate practices in their yearly agenda. The climate activists are aiming to coerce companies to reduce their carbon emissions and investments in fossil fuels. They demand that corporations invest trillions of dollars in renewable energy instead. The activists have increased their appeals to businesses, retirement funds, and asset managers through financial power, as well as through moral and ethical considerations. This is another moral suasion example.

Implementations

The implementation of the concept of moral suasion can be done in the following ways:

  • Authorities must clearly articulate the moral and ethical values that highlight the desired behavior. It involves transparently communicating why specific actions are aligned with the values, which promotes a sense of collective responsibility.
  • Developing persuasive and engaging messages that resonate with the target audience helps. Governing institutions must customize the communication to appeal to the moral compass of individuals. They must emphasize the positive impact of adopting the desired behavior on both personal and societal levels.
  • The authorities may establish mechanisms for feedback and continuous improvement. They must regularly assess the effectiveness of the strategy and gather insights from the target audience. They may also conduct surprise inspections to ensure compliance.

Benefits

Some benefits of moral suasion in business are:

  • This method is effective for credit control. Central banks use this strategy as a tool to guide financial institutions to adhere to credit policies.
  • The strategy is instrumental in minimizing risks. Compliance with the regulations helps banks avert financial risks from bad debts.
  • It is a beneficial tool for situations when other monetary policy instruments fail to yield the desired results.
  • This approach fosters a culture of inclusivity and enhances economic growth and prosperity.

Limitations

The limitations of moral suasion are as follows:

  • Individuals or groups may have diverse moral perspectives. This diversity makes it challenging to develop a universal strategy.
  • Moral values are often subjective and can vary across cultures. What is deemed morally acceptable in one culture may be viewed differently in another. Thus, it may not be successful in every culture or country.
  • It lacks strict enforcement mechanisms. There are no tangible consequences for non-compliance. It may result in individuals ignoring moral appeals if they do not see immediate or substantial consequences.
  • It may be less effective if used solely. Generally, it must be used along with other monetary policy instruments to ensure compliance.

Frequently Asked Questions (FAQs)

When did moral suasion begin?

This concept in economic and monetary dates back to the 19th century. Its early usage can be traced to discussions surrounding banking and financial stability during the period. It gained prominence as a tool central banks employed to influence the behavior of financial institutions, particularly in times of crisis.

How does moral suasion affect the money supply?

This strategy can impact the money supply indirectly by influencing the behavior of financial institutions, especially in relation to lending and investment practices. Central banks may employ it to encourage responsible lending, discourage excessive risk-taking, and promote adherence to monetary policy goals. Consequently, financial institutions may adjust their lending criteria or investment strategies, which would impact the overall supply of money in the economy.

What does no moral suasion mean?

“No moral suasion” indicates the absence of efforts to influence behavior through appeals to moral or ethical considerations. It suggests a lack of attempts by authorities to guide financial institutions or economic factors through persuasion rather than formal regulations. Without this approach, policymakers may rely more on explicit measures, including interest rate adjustments or regulatory mandates, to shape behavior.

This article has been a guide to Moral Suasion and its meaning. Here, we explain its examples, features, benefits, limitations, and implementation. You may also find some useful articles here –

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