Business, Ethics and Economics IP

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Business, Ethics and Economics IP

• Prof. Robert Marks
• A/Prof. Damian Grace

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The point of this course 3 skills

1. Ethical recognition. This is probably more of a
   problem than malice.
2. Analysis. Why is this an ethical question? How
   should I address it?
3. Justification. How could I explain my decision in
   terms of principles, norms, procedures, outcomes?

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What is ethics?

• Lets look at what some big names thought
• Ethics is the way things are done around here.
• Aristotle
• Lots of norms and conventions are not ethical.
• Ethics is treating other people as you would be
  treated.
• Confucius, St Paul, Kant
• Again, this doesnt have to apply only to ethical
  matters.
• Ethics is doing whatever brings the best results.
• Bentham, Mill, Singer
• Is just anything that brings good results ethical?

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Results are integral to ethics

• Ethics is about consequences even if it is not
  only about consequences.
• If there were no significance to consequences,
  ethics would matter little. It is because ethics
  guides conduct that it matters.
• It is also because of this that ethics links with
  economics.

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Ethics and economics

• Economics developed as a separate discipline in
  18th Century. Closely related to ethics. Adam
  Smith and David Hume were philosophers who
  specialised in ethics.
• But economics studies what is the case -
  including unintended consequences - in making
  recommendations, while ethics studies what should
  be the case given the way things are.

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Ethical boundaries

• Economics can indicate the boundaries of ethics
  by modeling human rationality - as in game theory
  - show the limits of resources - human and
  natural - and show how unintended consequences
  can thwart the best intentions.
• Economics maps regularities in human behaviour
  that limit ethical desiderata. Conversely ethics
  can show the limits of economic desiderata.

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Justice in market economies.

• Goods and services are allocated fairly and
  without distortion, partiality, fraud or
  coercion.
• Applies to fair procedures rather than end
  states.
• Implies a large degree of freedom- private
  ownership competition - with government
  intervening only to correct market anomalies.

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Greed, self-interest and the invisible hand

• In US movie, Wall Street, Gordon Gekko says
  Greed is good. But greed is an excessive desire
  to acquire. By definition a vice.
• Self-interest basic to survival, maintenance,
  flourishing. Not a vice not to be confused with
  selfishness.
• Rational self-interest productive of wealth and
  not contrary to concern for others or ethics.
  Adam Smith and the invisible hand.

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Perfect Competition

• The theoretically fair set of conditions for
  maximising benefits for buyers and sellers
• Many buyers and sellers, none dominant.
• All can freely enter and leave the market.
• Each has perfect knowledge of prices, quantities
  and quality of goods traded.
• Goods are so similar that identities of buyers
  and sellers are indifferent.
• All costs and benefits of trading are assumed by
  participants in the market.
• Those buying and selling are utility maximisers.
• There is no external regulation of cost, quantity
  or quality of goods traded.

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Why is this ethical?

• It does not exploit either buyer or seller.
• It respects autonomy and consent (rights).
• It distributes resources in the most efficient
  and effective manner and thereby avoids waste or
  want through over or under-production.
• Encourages wealth production and this allows a
  greater range of human needs to be met and human
  life to flourish.

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Problems with practising the theory

• Pre-dates the era of the modern corporation -
  originally a response to mercantilism and
  monopoly privilege. Special interests still have
  power eg. the US military-industrial complex
  identified by President Eisenhower.
• Restricting knowledge in a market gives a
  competitive advantage.
• Restricting competition allows stronger profits.
• Globalisation allows corporations to play off
  governments - economies - against each other.

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Other aspects of ethics apart from consequences

• Principle
• Character
• Culture
• The good life.
• Is everything a matter of ethics?

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Identifying ethics

• Some issues are matters for ethics. Such matters
  are either ethical or unethical.
• Some matters are neither. They are non-ethical.
• How can you tell? What is an ethical opinion?

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Problems and dilemmas

• Consider the dilemmas you submitted.
• How are these cases dilemmas rather than
  problems? Are not a number of them about the
  difficulty of taking hard decisions rather than
  there being no morally clear choice between right
  and wrong?

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Problems

• Problems have correct solutions
• What is the capital city of Chile?
• What happens when you combine sodium and
  chlorine?
• You are offered 10,000 to guarantee a
  successful tender. Should you accept it?
• A young woman has a flat tyre 30km outside
  Goulburn. Should you stop and help her?

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Dilemmas

• Dilemmas are dilemmas precisely because there is
  no correct solution even though you do not have
  the option to do nothing.
• You could retrench 6 employees or ask all 20
  staff to take a pay cut.
• You inadvertently overhear sensitive and
  confidential information while in a competitors
  office. Is it morally permissible for you to use
  this information to your firms advantage?

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Is Ethics subjective and relative?

• Everyone disagrees about ethics. Its like
  religion, so who is to say what is right?
• Ethics is relative to your culture, so it is
  offensive to impose your values on to someone
  else.
• Is this so? Do we not share values?

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Isnt ethics just about following rules?

• Rules are essential because they allow for
  predictability, the definition of roles and
  responsibilities, and the definition of
  boundaries.
• But
• Human conduct cannot be reduced to rules
• Rules date
• Rules cannot cover all contingencies
• Rules must be tempered by judgment

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What is involved in ethical justification?

• Being accountable in terms of
• the law
• professional codes
• employers values statements
• common morality
• informed ethical judgment (conscience)

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An ethical opinion is

• Not just self-interested
• Has regard for others
• Could apply to anybody - reversible
• Takes account of context
• Overrides other considerations
• Has to be lived with.

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But what principles should steer ethical judgment?

• Two accounts of ethical judgment
• 1. Acts are intrinsically right or wrong. Ethical
  requirements are expressed in duties deontology
  (Kant)
• 2. Right and wrong means producing a surplus of
  good over evil consequences - consequentialism,
  eg. utilitarianism (Mill)

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These are modern views about ethics

• These views of ethics are not about character but
  about acts.
• They are universalist - apply to all without
  discrimination.
• Are not attached to roles but to human agency.

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Deontology

• Classic phrases for deontology are
• respect for persons
• the ends dont justify the means.
• This theory holds the worth of persons to be
  infinite - cannot be traded off for other
  benefits eg. trialing drugs on a minority group
  because the majority will gain.

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Varieties of Consequentialism

• Egoism (everybody should follow their own
  conception of their good)
• Epicureanism (follow the greatest true pleasure)
  
• Utilitarianism The classic phrase still widely
  used to sum up utilitarianism is the greatest
  happiness for the greatest number.

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Deficiencies of these theories

• Rules and absolute prohibitions work at the
  margins of conduct, eg. Do not torture do not
  kill the innocent. Most conduct is not at the
  extreme. Difficult to implement.
• Consequences need some ranking principle beside
  quantity to distinguish what is important and
  inviolable from what is tradable a theory of
  good.

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An ancient theory

• Virtue and character
• There is a human nature that can be perfected and
  it is perfected by the acquisition of the
  virtues. These can be learned from masters.
• Not a theory of wrong or corruption or failure
  but of vices - eg. cowardice, miserliness,
  ugliness, stupidity. Often foreign to modern
  ways of thinking and to egalitarianism and
  principle-based ethics.

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Virtue Ethics ethics as excellence

• Focuses on character or human virtue stresses
  the achievement of excellence in human
  activities.
• Can be seen as a kind of middle way
• Holds that virtues are intrinsically good and
  perfect human nature (ie. has elements of both
  deontology and consequentialism).

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Virtues and Management Ethics

• Management excellence ranks among the perfecting
  human virtues.
• All social virtues built on friendship, but
  professional virtues include
• High practice standards
• Trustworthiness and honesty
• Integrity
• Compassion

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So why be ethical? Three answers

• Because it is your rational duty
• Because this will increase the sum of good in
  the world.
• Because that is the most fitting (excellent) way
  to be a person.

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How does ethics extend to organisations?

• Should I bring my personal beliefs into my
  organisation?Should not an employer determine
  standards of behaviour for all employees?Should
  not governments set minimum public expectations
  of business?

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Why Ethics for Business?

• Managers are hired because of knowledge and
  skills, not their qualifications in ethics. Why
  is social responsibility a managers concern?
• Is it not undemocratic for business
  professionals or other individuals to decide
  social issues under the cover of ethics?
• Milton Friedman

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Consider Friedmans argument

• Does it contravene democracy for a business to
  implement socially responsible policies?
• Is it unjust to workers, consumers and the State
  for businesses to use corporate funds for
  social purposes?

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Does the contractual approach to justice
over-ride other considerations?

• What is so special about business?
• Should business abstain from lobbying in its own
  interests?
• Should business abstain from supporting its
  employees community special causes?
• What issues are at stake in Friedmans position?

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Law and ethics a model

• Law is the floor, ethics the ceiling.
• Ethics is a higher standard, but without law is
  unlikely to be effective.
• Ethics and law are complementary they cannot
  substitute for each other.

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If business is contractual or legal does ethics
really matter?

• Reasons that it does
• Higher levels of professional and public
  responsibility and accountability.
• People accept common values, even if their
  priorities differ.
• Ethical arguments are still trumps.
• Ethical justifications are standardly demanded.
• No one accepts ethical defeat.

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Good ethics is good business
PRO

• reputation ? and so, more business
• can be a differentiator for an organisation
• keep the regulators away
• unethical can be illegal ? if you get caught,
  its trouble

CON
attractive (looks good on letterhead), but ...

• too simple can be dangerously simple
• mighty poor reason for behaving ethically!
• probably just plain false

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Good practical reasons for behaving ethically

• provides stability to the marketplace
• encourages repeat business
• good risk management
• adds to the quality of life
• other reasons?

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Ethical excellence in business

• See Bayers article and his example of the
  Johnson Johnson Tylenol case.
• Consider also Masterfoods withdrawal of Snickers
  and Mars bars.

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Stakeholder theory

• Stakeholders are any interest group that is
  affected by or can affect a business.
• Stakeholders have varying claims upon a business,
  but need to be ranked and taken seriously
  according to priority.
• Broadens the notion of ownership beyond
  stockholders.
• Cautions about need to consider unintended
  consequences and effects on third parties.

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Can we name these goods?

• Life - health, security
• Friendship - friends, community
• Freedom - personal, political, economic
• Knowledge - many forms
• Aesthetics - art, nature
• Play - spontaneous, organised
• Religion - cosmic reference points
• John Finnis

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Ethics and business

• What goods are fundamental in business?
• What values do we need to protect them?
• What structures should encourage and protect
  those values?
• What role does an individual have in safeguarding
  those values in an organisation?
• What role does business have in protecting those
  values in society?

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Ethics costs

• Not always good for the bottom line.
• Triple bottom line to account for this.
• Business is responsible for social and economic
  goods and sometimes it costs money and other
  resources to protect these.
• Merck case.
• Once more about excellence.

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Do we have to choose an ethical theory? How could
we?

• In an ethical position (whichever theory)
• Look at whether fundamental goods are protected
  and supported
• Look at human flourishing. Are any goods basic to
  human well-being deliberately compromised?