Business, Ethics and Economics IP Prof. Robert Marks A/Prof. Damian Grace

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?

What is ethics? Let’s 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 doesn’t 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?

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.

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.

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.

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.

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.

Perfect Competition The theoretically fair set of conditions for maximising benefits for buyers and sellers: 1.Many buyers and sellers, none dominant. 2.All can freely enter and leave the market. 3.Each has perfect knowledge of prices, quantities and quality of goods traded. 4.Goods are so similar that identities of buyers and sellers are indifferent. 5.All costs and benefits of trading are assumed by participants in the market. 6.Those buying and selling are utility maximisers. 7.There is no external regulation of cost, quantity or quality of goods traded.

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.

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.

Other aspects of ethics apart from consequences PrincipleCharacterCulture The good life. Is everything a matter of ethics?

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?

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?

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?

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 competitor’s office. Is it morally permissible for you to use this information to your firm’s advantage?

Is Ethics subjective and relative? Everyone disagrees about ethics. It’s 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?

Isn’t 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

What is involved in ethical justification? Being accountable in terms of  the law  professional codes  employer’s values statements  common morality  informed ethical judgment (conscience)

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’.

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)

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. Are not attached to roles but to human agency.

Deontology Classic phrases for deontology are:  “respect for persons”;  “the ends don’t 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.

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”.

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.

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.

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).

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

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”.

How does ethics extend to organisations? 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?

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

Consider Friedman’s 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?

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 Friedman’s position?

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.

If business is contractual or legal does ethics really matter? Reasons that it does: 1.Higher levels of professional and public responsibility and accountability. 2.People accept common values, even if their priorities differ. 3.Ethical arguments are still trumps. 4.Ethical justifications are standardly demanded. 5.‘No one’ accepts ethical defeat.

“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, it’s trouble CON: attractive (looks good on letterhead), but... too simple – can be “dangerously simple” mighty poor reason for behaving ethically! probably just plain false

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?

Ethical excellence in business See Bayer’s article and his example of the Johnson & Johnson Tylenol case. Consider also Masterfoods withdrawal of Snickers and Mars bars.

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.

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

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?

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.

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?