Technology & Moral Development

PHIL 305 (CSUN)
Final Assignment: Technology & Moral Development
This project will give students the opportunity to evaluate how science and technology impact
moral development within business and public policy. [SLO 2]. In particular, it will ask
students to consider how science and technology influences our responsiveness to ethical
reasons.
Ch. 9 and 10 of our textbook discusses the conditions for moral accountability. These
conditions include (A) an emotional sensitivity to the existence of moral issues; (B) an
intellectual and often emotional responsiveness to ethical reasons (these vary according to
which ethical theory is adopted; see below); (C) an intellectual ability to make competent
ethical decisions; and – at times – D) causal responsibility. (see pp. 164-65 for context)
Much of “moral development” entails a cultivation of (B) – one’s intellectual and emotional
responsiveness to ethical reasons. The more one develops morally, the more responsive one
becomes to ethical reasons. This project will ask students to consider how our use of
technology influences this responsiveness.
As an aid to guide your understanding, I provided the table below highlighting some of the
“ethical reasons” which a moral agent is expected to respond to according to the theory he or
she adopts:
Thus, this project will ask you to consider how our use of technology influences the skills/
capacities in the far right column.
Ethical theory Ethical Reasons What ‘Responsiveness’ Entails
Virtue Ethics
[Ch. 7] virtues (stable character traits that
contribute to the ‘flourishing’ of the
moral agent or society as a whole)
developing and acting habitually from
virtues; applying virtue ethics “rules of
action”
Care Ethics [Ch. 8] positive partial relationships and
domestic virtues
being sensitive to and taking
responsibility for special relationships
Principle-Based abstract principles (see below) understanding which general principle to
apply to which particular circumstance
Duties [Ch. 5] prima facie and absolute duties
(e.g., the categorical imperative)
understanding and prioritizing duties;
fulfilling them regardless of outcomes
Rights [Ch. 5] rights and correlative duties respecting one’s rights and encouraging
the fulfillment of their correlative duties
Justice [Ch. 6] instances of justice (equality of
opportunity, welfare, resources)
recognizing the demands of justice and
employing principles appropriately
Utilitarianism
[Ch. 4] aggregate net utility/welfare
(pleasure, preference-satisfaction)
anticipating consequences, calculating
net welfare (of actions or policies), and
acting accordingly
Ethical pluralism all of the above all of the above
1
PHIL 305 (CSUN)
Directions and Prompts:
Preparation
1. Construct a hypothetical business-person with a position in a hypothetical business: you
can choose a position similar to one you’ve personally had (cashier, server, supervisor,
manager, intern, etc.); you can choose a position discussed in our book (in an example
given within the chapter or in a case study at the end); you can choose a position recently
discussed in the media (excluding positions in politics and humanitarian work); or you can
use your imagination and choose a position from any level of any kind of business
(including sole-proprietor or independent contractor). Make sure you choose a position in
which you can envision encounters with moral dilemmas.
2. Take stock of different ways that technology influences how business is carried out in this
position. Today, every job should be influenced by technology. Make sure to also include
inappropriate use of technology (for example, the misuse of smartphones or computers for
non-work-related purposes).
3. Decide on three ethical theories from the table above (excluding ‘ethical pluralism’) and
isolate three circumstances (one per theory) in which technology influences the
responsiveness of your business-person to ethical reasons. These ways should be illustrated
by having your business-person confront a hypothetical ethical dilemma like the ones
discussed in our case studies. Of course, the influences of technology can be positive or
negative – that is, positively or negatively influencing our capacity to respond appropriately
to ethical reasons (again, see the table above)
Writing your Paper
4. Technical Criteria: 1000-1500 words (~4-6 pages), double-spaced, normal formatting
5. Introduction Paragraph: Your thesis is a response to this question “Does modern-day
technology, overall, have a positive or negative influence on our moral development (i.e.,
our responsiveness to ethical reasons) within business?” Mention why or why not by briefly
mentioning the three circumstances that you will discuss in your body…
6. Body Paragraphs: In your body, elaborate on the three circumstances in which technology
influences the moral development of your business person by providing one distinct
paragraph for each point that you want to make (the ‘point’ will be summarized in the topic
sentence of each paragraph before providing further evidence). Make sure you define
important terms and provide examples when necessary.
7. For each circumstance in which technology influences our moral development, briefly
propose at least one policy (imposed by the business to its employees or by the
government to its constituents) intended to provide or preserve a healthy relationship
between technology and moral development in business.
8. Concluding Paragraph: In your conclusion, restate the thesis and emphasize that your
paper provided good evidence for your thesis. Don’t add any new information, just remind
the reader of the points that you’ve already made and why they support your thesis.
2
PHIL 305 (CSUN)
Final Assignment Checklist / Rubric
Introduction
State your thesis explicitly as a response to this question: “Does modern-day
technology, overall, have a positive or negative influence on our moral development (i.e.,
our responsiveness to ethical reasons) within business?” [10 %] Body
Briefly present your hypothetical business-person with a position in a hypothetical business
and define any relevant terms or concepts [5 %] Present three circumstances in which technology influences the moral development of your
business-person (a.k.a. the moral agent) and evaluate them:
Each circumstance uses a distinct ethical theory [10 %] Each circumstance defines relevant terms and concepts according to our reading
(any quotations or paraphrases are properly cited) [10 %] Each circumstance highlights the way technology hampers or helps the moral agent
to respond to the relevant ethical reasons [10 %] Each circumstance clearly demonstrates that technology has a positive or negative
influence on the agent’s moral development (by having a positive or negative
influence on his or her responsiveness to ethical reasons) [5 %] For each circumstance, briefly propose a policy or program at the corporate level or
governmental level that would helps the moral agent to respond to ethical reasons according
to the corresponding ethical theory [10 %] Conclusion
In your conclusion, restate the thesis and emphasize that your paper provided good
evidence for your thesis [10 %] Technical Criteria
1000-1500 words (4-6 pages), double-spaced, normal font and margins, properly cited
according to a standard citation style [15 %] The paper in general is neat and well-organized (i.e., if a paragraph becomes too unwieldy,
please break it up so that each paragraph is dedicated to one point that you’re trying to
make; feel free to use section headings) [15 %] 3

 

 

 

An Interactive Introduction
BBUUSSIINNEESSSS
EETTHHIICCSS
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BBUUSSIINNEESSSS EETTHHIICCSS
“Business Ethics: An Interactive Introduction is a fascinating and valuable work.
Kernohan incorporates economic insights (including behavioral decision
theory) to a degree rare in business ethics texts, and ends each chapter with a
useful case study. In sum, this is an outstanding text.”
GARY J A M E S JASON
California State University, Fullerton
“The interactive component of the text is a great way to engage students and
help them apply ethical concepts to solve real business dilemmas.”
GWENDOLYN WHITFIELD
University of North Carolina Asheville
Business Ethics: An Interactive Introduction connects the academic to the
practical, extracting the basic elements of rigorous philosophical ethics
into a format that can be understood and applied in the business world.
Concepts such as utility, duty, and sustainability are given practical value
and connected to examples and methods familiar to business people. Classical
ethical theories are surveyed, as are modern perspectives on justice, equality,
and the environment. Where possible, quantitative examples and methods are
used to show that ethics need not be subjective or vague.
Kernohan provides an overview of the basic tools of ethical decision-making
and shows how each can be used to resolve moral problems in business environments.
Readers are then invited to apply those tools by completing a series of
online exercises, receiving immediate objective feedback on their success. The
book and its accompanying exercises thus work in concert, o ering a unique
opportunity for interactive learning.
ANDREW KERNOHAN is Adjunct Professor of Philosophy at Dalhousie
University and author of Environmental Ethics: An Interactive Introduction
(Broadview Press, 2012).
broadview press
www.broadviewpress.com
 ----
BBUUSSIINNEESSSS EETTHHIICCSS
ISBN 978-1-55481-150-2
BUSINESS
ETHICS

broadview press
BBUUSSIINNEESSSS
EETTHHIICCSS
AAANNNDDDRRREEEWW KKKEEERRRNNNOOOHHHAAANNN
An Interactive Introduction
BROADVIEW PRESS — www.broadviewpress.com
Peterborough, Ontario, Canada
Founded in 1985, Broadview Press remains a wholly independent publishing house. Broadview’s focus is
on academic publishing; our titles are accessible to university and college students as well as scholars and
general readers. With over 600 titles in print, Broadview has become a leading international publisher in
the humanities, with world-wide distribution. Broadview is committed to environmentally responsible
publishing and fair business practices.
The interior of this book is printed on 100% recycled paper.
© 2015 Andrew Kernohan
All rights reserved. No part of this book may be reproduced, kept in an information storage and retrieval
system, or transmitted in any form or by any means, electronic or mechanical, including photocopying,
recording, or otherwise, except as expressly permitted by the applicable copyright laws or through written
permission from the publisher.
Library and Archives Canada Cataloguing in Publication
Kernohan, Andrew, author
Business ethics : an interactive introduction / Andrew Kernohan.
Includes bibliographical references and index.
ISBN 978-1-55481-150-2 (paperback)
1. Business ethics. I. Title.
HF5387.K47 2015 174′.4 C2015-905065-0
Broadview Press handles its own distribution in North America
PO Box 1243, Peterborough, Ontario K9J 7H5, Canada
555 Riverwalk Parkway, Tonawanda, NY 14150, USA
Tel: (705) 743-8990; Fax: (705) 743-8353
email: customerservice@broadviewpress.com
Distribution is handled by Eurospan Group in the UK, Europe, Central Asia, Middle East, Africa,
India, Southeast Asia, Central America, South America, and the Caribbean. Distribution is handled by
Footprint Books in Australia and New Zealand.
Broadview Press acknowledges the financial support of the Government of Canada through the
Canada Book Fund for our publishing activities.
Edited by Robert M. Martin
Book design by Michel Vrana
Interior typesetting by Jennifer Blais
PRINTED IN CANADA
CONTENTS
Acknowledgements VII
Introduction for the Reader IX
Introduction for the Instructor XI
Chapter 1: Ethical Decisions in Business 1
Chapter 2: The Nature of Ethical Reasoning 19
Chapter 3: Self-Interest and the Dilemmas of Cooperation 37
Chapter 4: Calculating Consequences and Utilitarian Reasoning 53
Chapter 5: Motivations, Duties, and Rights 73
Chapter 6: Fairness and Distributive Justice 89
Chapter 7: Virtue Ethics and Community Membership 109
Chapter 8: Feminism, Equality, and Care Ethics 129
Chapter 9: Moral Accountability 147
Chapter 10: Respecting Autonomy and Privacy 163
Chapter 11: Free Enterprise and Global Justice 183
Chapter 12: Sustainability and the Environment 207
Glossary 229
Bibliography 239
Index 241

vii
ACKNOWLEDGEMENTS
Though no students were killed or injured during the writing of this book, many did
suffer through earlier versions of the material. I would like to thank students in my
business ethics courses at St. Mary’s University and Dalhousie University for their
patience with the book’s development.
Aaron Panych, then an Online Instructional Designer at Dalhousie University’s
Centre for Learning and Teaching, gave me enormous help in online implementation of
this material. I wish that I had taken more of his advice. However, our collaboration
indirectly shaped the design of this textbook.
My friend Chris McKinnon of Trent University gave me valuable feedback on
some of the book’s content about which I did not feel confident.
Stephen Latta, Philosophy Editor at Broadview Press, closely read the whole
manuscript, offered many valuable suggestions on the content, and forced me to make
extensive revisions. Our work together may have slowed production of the book, but it
was well worth it in terms of decreased mistakes and increased clarity.
Bob Martin did the final edit of the manuscript for Broadview Press, and helped
make the book much easier to read. I take full responsibility for all remaining errors.
My partner, Anne MacLellan, gave me continuous support during the long process
of creating the book. Our two cats, Otis and Minou, kept me company through many
hours at the keyboard.
I would like to thank all these people for their help and to dedicate this book to my
mother, Mollie Kernohan, and to my sister, Ann Kernohan, who, by taking on caring
for my mother, gave me time for writing.

ix
INTRODUCTION
FOR THE READER
I imagine you, my reader, as an ethical person. You are kind to animals, you are honest
with your employer, you give to charity, you try to reduce your consumption of fossil
fuels, and you are horrified at human rights violations around the world. If you are not
already such a person, then this book is not going to turn you into one. Given, however,
that you are already morally competent, this book will help you become more so. This
book will help you think about complicated ethical decisions. You learned many of your
ethical principles as a child, and the rest you internalized, with some critical reflection,
as you grew into an adult. These gut reactions and rules of thumb are adequate for
quickly making most of life’s decisions. Yet sometimes the situation is trickier, and you
have to think carefully about what you should do. Then knowledge of ethical theory
starts to be useful.
This book offers you a conceptual toolkit that will help you better integrate ethical
considerations into your business decisions. It will increase your competence in recognizing
ethically problematic situations and in thinking through difficult ethical decisions.
It does not offer a decision-making algorithm. It offers neither a professional code of
ethics for managers, nor a manual for implementing Corporate Social Responsibility
in your business. It is not a comprehensive discussion of all the ethical issues that may
arise in the world of business. Instead, the book offers a set of ethical approaches that
philosophers have formulated over many centuries of reflection. Taken together, these
approaches will give you insight into making difficult decisions.
Applying abstract ethical theory to specific, ethically problematic, cases is a highlevel
intellectual task. It is not a skill that can be acquired simply through reading about
it. Becoming competent at applying ethical concepts to business decisions requires not
just passively listening to a lecture and reading a textbook, but also active engagement
with both theory and cases. You have to practice on relatively simple case studies before
moving on to the complexities of real business life.
This book offers you a solid grounding in all the various ethical concepts and theories.
I assume that you are in a business program, that you know some economics, and
that you are not terrified by numerical examples. I find numerical models illuminating, so,
wherever appropriate, I have constructed tables and charts to illustrate the ethical theory.
What is really important, though, is that you learn how to apply theory to ethically
problematic situations. The book offers you a graduated course in applying ethical
theory to practice cases. Each chapter ends with a case study involving the material in
the chapter. Before you attack the case study, however, I recommend that you work
through each chapter’s multiple-choice questions, available either on the book’s website
or on your institution’s learning management system. There are two types of questions.
x
INTRODUCTION FOR THE READER
One type asks you to recall and apply the concepts covered in the chapter. The other type
primes you for the case study by helping you to identify the ethical issues that the case
study raises. When you have finished these exercises, you will be ready for the case study.
Together, the twelve case studies cover many important issues such as insider
trading, whistle-blowing, preferential hiring, executive compensation, environmental
pollution, and so on, that are the standard content of a business ethics course. Here,
however, you will yourself work out the ethical issues involved rather than merely
reading someone else’s analysis. Active engagement with both theory and practice will
increase your competence at ethical reasoning and decision-making. This increased
ethical competence, together with your skills at accounting, marketing, finance,
human resource management, and so on, will help you become an excellent manager
or administrator.
xi
INTRODUCTION FOR
THE INSTRUCTOR
The methodology of this book is pluralistic. I believe that applied ethics is best done by
taking a variety of ethical approaches—rights, consequences, virtue, care, justice, and
so on—and using them to reveal the ethically salient features of problematic situations.
Having done their ethical due diligence, decision-makers will reach a better informed
and better reasoned decision than they would have before they studied ethical theory.
I planned the book around the problem of teaching ethics either fully or partially
online. Teaching theoretical ethics is perhaps best confined to in-person seminars, but
teaching applied ethics, where the goal is to apply ethics to cases, is more amenable
to online methods. The textbook supports a highly structured approach to applying
ethical theory. The book allows for twelve modules. Each module contains a chapter of
theory, supporting lectures, multiple-choice homework to consolidate understanding of
the ethical theory, a case study that involves aspects of this theory, and multiple-choice
homework that helps the student apply the theory to the case study.
You will, of course, use this book in class as you think best, but it may be helpful
to you to hear how I use it. For a regular class, I offer a lecture and an in-class discussion
of the case that is based on small groups and the Case Analysis Worksheet
available on the book’s website. For an online class, I offer recorded lectures and a discussion
session using the university’s online meeting software. For both types of class,
I use the university learning management system to refer students to the book’s student
website for their homework, and then add weekly quizzes and tri-weekly review tests
based on random selections of the homework questions. I find that all students, particularly
online students, respond to incentives for engaging in the course material, so the
course’s computerized gradebook becomes quite extensive.
Every week, I require a post to the class discussion forum on the relevant case.
I suggest that students approach their post as if they were doing the writing sample on
the GRE or the GMAT. They are to do the case study homework, conceptualize the case,
write for thirty minutes, take some time to edit their work, and then post. Students
learn from each other’s posts. I also require students to submit the posts as assignments,
so that the posts can be checked for originality. A good rubric facilitates marking their
work. Weekly assignments help keep students engaged with the material.
The instructor’s website for this book contains material that you may find useful:
• PowerPoint slides of the tables and figures in the book that you can
incorporate into lectures.
xii
INTRODUCTION FOR THE INSTRUCTOR
• All the multiple-choice questions in machine readable format so that
you can incorporate them into online assessments or print them for
paper assessments.
• The same multiple-choice questions as above, in an interactive format
that students can use directly on the website; if you would like
students to have access to the book’s many interactive resources but
do not wish to upload the questions into a Learning Management
System, you can simply provide the instructor companion site URL and
passcode to your students for them to utilize on their own time (please
contact customerservice@broadviewpress.com if you require the URL
and passcode).
• Links to YouTube videos of the author’s lectures on the book, all
divided into short chunks that you can link into online courses.
As you can see, I am enthusiastic about the use of online methods in both fully
online and blended university courses. I suspect you share some of this enthusiasm,
since otherwise you would not be using this textbook. I hope that you find this book a
useful support to your teaching.
1
Chapter 1
ETHICAL DECISIONS
IN BUSINESS
How do we analyze an ethically problematic situation?
What sorts of ethical considerations are relevant to the case?
Whose interests should we consider?
Ethics is unavoidable. Some people think that business is simply a game played according
to the rules of property and contract law. They think only of how to acquire as
much income and wealth for themselves as they can. Nevertheless, they are acting on
an unspoken ethical claim. They are implicitly claiming that it is ethically permissible to
think only of their own advantage when transacting business. This claim, whether they
like it or not, is an ethical judgment. Their judgment that everything legally permissible
is ethically permissible depends on a background ethical theory for which they owe us
an explanation.
In previous generations, people often believed that business transactions were
immoral. Up until the seventeenth century, Europeans generally viewed lending money
for interest as usury and viewed making a profit on a business transaction as avaricious.
The view of entrepreneurs as heroes has developed only in the last couple of centuries.
Each of these views—that business is a game, that business is immoral, or that business
is heroic—is an ethical judgment grounded in a particular ethical theory. This is the
macro-ethics of business.
Ethics permeates all the details of our commercial lives. Businesspeople are continually
faced with decisions about how to treat their employees and how to compensate
them, whether to be loyal to their suppliers, how much information to give to
their consumers, what details to put into financial reports to investors and creditors,
how much pollution they should allow their operations to create, and what arrangements
they should make with their international partners. This is the micro-ethics
of business.
Ethical theories provide a framework for thinking about ethical decisions, but
they do not provide an ethical code of conduct covering all decisions that might ever
arise. In this matter, ethical theory is similar to economic theory. Economic theory does
not tell a businessperson how best to make a profit in each individual transaction. It
provides, instead, a useful theoretical framework for thinking about commercial problems.
Knowing some economic theory helps a business decision-maker to pay attention
2
Chapter 1
to opportunity costs, to ignore sunk costs, to think about people’s incentives, and so
on. Similarly, knowing some ethical theory helps the decision-maker to attend to and
weigh all the ethical considerations that are relevant to a decision.
There is no recipe for making good ethical decisions, but we can identify some
components of the ethical decision-making process. These components include:
1. Recognizing that an ethical decision is required
2. Deciding who is morally accountable for the decision
3. Identifying whose interests must be considered
4. Identifying the relevant types of ethical reasoning
5. Categorizing this ethical reasoning according to the ethical theories
being assumed
6. Reflecting critically on the strengths and weaknesses of these
ethical reasons
7. Distinguishing the ethically relevant facts of the case
8. Considering the alternatives
9. Making the decision
As we shall see, ethical theory informs each of these components. Making a good ethical
decision is not like solving an economics problem. It is part of analyzing a business
case. In solving an economics problem, we move step by step from the information
given to a determinate solution. In analyzing a business case, we bring together a variety
of considerations from cost accounting, marketing, production management, and so
on, to recommend a decision about how the firm should proceed. Likewise, in making
an ethical business decision, we consider alternative courses of action in the context of
various different ethical theories, and put these ethical considerations together with
strategic management considerations to decide on the best course of action.
Recognizing an Ethical Decision
Whenever we consider what we ought to do, what we should do, what it is our duty
to do, whether we would be a bad person if we did something, whether something is
right or wrong, or whether the results of a decision will be fair to all concerned, then
we are making an ethical decision. Ethical decisions signal themselves by the presence
of code words such as “ought,” “should,” “good,” “duty,” or “fair.” These code words,
however, can sometimes mislead. Suppose Amy asks herself, “Should I propose to the
cost-cutting committee that our firm outsource the production of a popular clothing
item to an offshore contractor operating in a lower wage environment?” Here Amy may
be thinking strategically rather than morally. Amy’s concern may be whether this is a
good strategy for her company in terms of making higher profits, or her concern may
be whether this is a good strategy for herself in terms of obtaining a year-end bonus.
The use of code word, “should,” in her question is not an ethical use in this context. In
making an ethical decision, Amy should not confine herself to consideration only of her
firm and herself. A fully ethical decision would consider the impact of outsourcing on
3
Ethical Dec isions in Business
the present employees of the firm, the fairness of paying lower wages in a developing
country, the potential for human rights abuses in sweatshops, and so on.
Ethical judgments typically arise in situations that involve (1) a moral agent (which
could be a person, organization, or corporation) (2) making and implementing a decision
that (3) results in consequences for others. Figure 1.1 shows schematically a typical
situation to which an ethical judgment applies.
A moral agent is an entity to whom we are prepared to assign praise or blame, who
can understand moral principles, who can respond to moral reasons, and whom we hold
morally accountable. Adult human beings are typically moral agents. A large question in
business ethics is whether an organization, a corporation, or a government department
possesses moral agency, and whether we can hold them morally accountable.
Deciding Who Is Morally Accountable
Once we have decided whether a person or organization is generally capable of being
morally accountable, a second question arises. We must determine which person or
organization is morally accountable for the particular results of doing a particular
action, and the degree to which he, she, or it is accountable. If the company proceeds on
Amy’s suggestion to hire an overseas contractor, and a worker injures herself because of
the contractor’s poor safety precautions, is Amy accountable, is her company accountable,
or is it only the contractor who is morally accountable? An agent is morally
accountable for an action and its consequences if we are prepared to praise or blame
her for her freely made decision and for its results.
For example, let us add some details to Amy’s situation. The company’s stockholders
are dissatisfied with the company’s returns. The Board of Directors tells the CEO that profits
must improve. The CEO tells the VP in charge of production to cut costs, but does not
say how. The VP convenes a cost-cutting committee to make a recommendation. Amy proposes
using an offshore contractor. The committee recommends this to the VP. The company
signs a contract with an offshore firm. The offshore firm takes few safety precautions
in its factories. A factory worker loses her fingers because the production line is moving
too quickly. Who is morally accountable for the factory worker’s injuries? Is it the supervisor
overseas who raised the speed of the line? Is it the CEO who ordered the cost cutting?
Figure 1.1: Components of a Typical Ethical Judgment: A person or
organization implements a decision that produces various consequences.
(1)
Ag ent
(2)
Decision
(3)
Results
4
Chapter 1
Is it the committee that recommended moving production offshore? Alternatively, is it
Amy who suggested employing an overseas contractor? Is everyone in this diffuse chain
of control fully morally accountable? Is everyone partially accountable? Is the chain so
diffuse that no one is morally accountable? We will return to these questions later.
Identifying Whose Interests Must Be Considered
It is a truism that our actions have consequences for others. It is, however, a difficult
problem in ethics to determine which others we must consider when we are making an
ethical decision. We will call this the issue of moral standing. A person, organization,
or nonhuman entity has moral standing if we must consider his, her, or its interests in
making an ethical decision. One view is that Amy has an obligation to consider only the
interests of the owners of the firm. This is a version of the so-called shareholder view of
moral standing in business ethics. (Friedman, 1970)
Another view is that Amy also has an obligation to consider the interests of
the firm’s employees, suppliers, customers, and members of the community in which
the firm is located. This is the so-called stakeholder view of moral standing, which
is associated with the doctrine of corporate social responsibility. (Freeman and Evan,
1990) The stakeholder view gives a more complete picture of moral standing than the
shareholder view, but it nonetheless fails to include some important groups that are
affected by the actions of businesses. A still wider view is that Amy has an obligation
to consider the interests of people in distant countries, of future generations, and of
animals and the environment. This comprehensive view of moral standing brings up
issues of globalization, sustainability, and the environment. (Goodpaster, 2010) Figure
1.4 represents this view schematically.
Figure 1.2: Shareholder View of Moral Standing:
The view that only company owners have moral standing in business
decisions, and that the only ethical obligations of managers
are to promote the interests of the owners.
Decisionmaker
Owners
5
Ethical Dec isions in Business
Figure 1.3: Stakeholder View of Moral Standing:
The view that various stakeholders have moral standing in ethical decisions
in business, and have interests that a manager must consider.
Owners
Employees
Customers Suppliers
Decisionmaker
Local
community
Figure 1.4: Comprehensive View of Moral Standing:
Schematic representation of all those who might be affected by a business
decision, and whose interests should be considered by managers.
Owners
Employees
Suppliers
Posterity Customers
Environment
Self
Decisionmaker
Global
community
Local
community
6
Chapter 1
This widest view requires that we carefully consider all those whose interests our business
decisions will affect.
Identifying Relevant Ethical Reasoning
We can use the components of an ethical situation to classify the different sorts of ethical
theories that are possible. As shown schematically in Figure 1.5, a situation requiring an
ethical judgment typically comprises a decision-maker with a certain character making
a decision according to certain principles that leads to results that affect the interests of
others. Ethical reasoning can focus either on the character of the agent, on the principles
that the agent follows in making the decision, or on the net benefits of the results of the
decision. When Amy is deciding whether to propose moving production offshore, she
has to decide issues such as whether she wants to be the sort of person who will go to
any length to make more money, or whether moving production offshore may violate
principles of human rights, or whether new jobs in a developing country will benefit its
workers. An identity-based approach to ethical reasoning focuses on what sort of person
(organization) the agent (organization) is becoming, on whether she (it) is virtuous and
has a good character. A principle-based approach to ethical reasoning looks at the decision-
maker’s motivations. It assesses the decision as right or wrong according to what
ethical principles the agent follows, or does not follow, when she makes her decision.
The agent might worry whether her decision stems from a desire for revenge or some
other nasty motive, or if it is a principled decision that complies with her duties, shows
respect for human rights, and is fair to all concerned. A consequence-based approach
to ethical reasoning focuses on the results or outcomes of the action, and maximizes net
benefits to all concerned.
If Amy considers whether she wants to be the sort of person who will do anything to
make more money, then she is wondering if she will become avaricious. Avarice is a
Figure 1.5: Schematic Diagram Showing Three Broad Approaches
to Ethical Theory: Identity-based theories look at the sort of
person the agent is. Principle-based approaches look at the principles
that the agent follows in her decision. Consequentialist theories judge
the decision according to the net benefits of its outcomes.
Decisionmaker
Identitybased
Consequencebased
Decision Results
Principlebased
7
Ethical Dec isions in Business
vice of character, so her consideration is character or identity-based. She is wondering
what sort of person she may become. If Amy considers whether her decision will lead
to human rights abuses in the Special Economic Zone where offshore production will
take place, then she is considering whether the principle of respecting human rights
should motivate her decision. Similarly, if Amy worries whether it is fair to take jobs
from members of the local community and give the jobs to people overseas, she is again
wondering about the principles that should motivate her decision. When Amy weighs
the cost and benefits of offshore production (lost jobs in the local community, new jobs
in the developing country, poor pay and bad working conditions in the developing country,
and so on), then she is taking a consequence-based ethical approach to her decision.
Ethical theory enables us to observe the different sorts of ethical considerations
that go into a decision. When we pass a beam of white light through a prism, the prism
breaks the white light down into its component colours: red, orange, yellow, green,
blue, and purple. The optical prism is a useful metaphor for the role of ethical theory.
(Crane and Matten, 2004:104)
Figure 1.6 illustrates the prism metaphor for Amy’s decision whether to propose moving
production offshore. Looking at her decision according to different approaches to
ethical theory divides her decision into character-based considerations (for example,
acquiring the vice of avarice), principle-based considerations (for example, respecting
human rights), and consequence-based considerations (for example, the net benefits to
people in both her local community and the developing country).
Categorizing Ethical Reasoning According to Ethical Theory
We can make the metaphorical prism of ethical theory into a more precise observational
tool by making exact distinctions between different types of ethical theory. We will
begin here with a survey of the principal types of ethical theory. In later chapters we
Figure 1.6: An ethical decision passes through the “prism” of ethical theory to
reveal the different sorts of ethical considerations relevant to the decision.
Ethical
Theory
Ethical
Decision
Virtue/vice
considerations
Human rights
considerations
Net benefit
considerations
8
Chapter 1
will discuss these types of ethical theory in much more detail, and further distinguish
them into subtypes. To repeat, what follows is a brief, preliminary survey. Further chapters
will cover the theories in more detail and make them more understandable.
1. Identity-Based Ethical Theories
The identity-based approach to ethical reasoning leads to ethical theories that assess
the sort of person the moral agent has become. A virtue ethics holds that persons and
organizations ought to cultivate a virtuous or morally excellent character. A virtue is a
stable character trait with positive moral significance. Examples are courage, generosity,
benevolence, and fairness. A vice is a stable character trait with negative moral significance.
Examples are avarice, cowardice, dishonesty, and sleaziness. A virtue ethics holds
that both persons and organizations ought to cultivate a morally excellent character.
If we understand the identity-based approach more widely so that it encompasses
the nature of the agent, then we can think of a feminist ethics of care within this
framework. Some feminist ethicists argue that the biological nature, upbringing, and
education of women gives women a perspective on ethical decisions that is different
from the dominant perspective of men. A feminist care ethics is concerned with establishing
and preserving harmonious social relationships and with caring for others. This
contrasts with traditional ethics, mostly developed by men, that tends to be concerned
with following principles and calculating net benefits. A feminist care ethics, like a virtue
ethics, emphasizes the role of discussion, wisdom, and judgment in ethical decisions
and downplays the role of principles and calculations.
2. Principle-Based Ethical Theories
The principle-based approach to ethical reasoning says that each agent should be
motivated by ethical principles when making a decision, and not be concerned with
the consequences of the decision. There are several different types of principle-based
ethical theories.
In duty-based theories of ethics, the agent should follow the principle of doing his
or her duty, regardless of the consequences. An example is the set of duties imposed by
the ten commandments in the Jewish and Christian Bibles. These are mostly negative
duties, of the form, “Thou shalt not….”
In rights-based theories, the moral principles that agents should follow in their
decisions involve respecting the moral rights of others. Respecting the moral rights of
others may include respecting their freedom to do as they wish without coercing them
into doing otherwise, respecting their autonomous choices without trying to manipulate
them, or respecting their private property rights to use things that they own in ways
that they choose.
In justice-based theories, the moral principles that agents should follow in their
decisions involve treating others fairly. Treating others fairly requires treating everyone
in the same way unless there are morally relevant reasons for treating them differently.
Justice may require, for example, that businesses install access ramps for people with
9
Ethical Dec isions in Business
disabilities. Doing so treats some customers differently, but the different treatment is
not morally arbitrary. Because some customers have disabilities that make using stairs
impossible, there is a morally relevant reason for providing special ramps.
3. Consequence-Based Ethical Theories
In consequence-based approaches to ethical reasoning, what matters is that the outcome
should be as good as possible. To use a cliché, the end justifies the means, when
the end is the best end possible. The goodness of the end can be measured in several
ways, each giving rise to a different type of consequentialist theory. If we value the
outcome of the decision as a good state of the world, then we have an objective form
of consequentialism. Objective consequentialism requires agents to make those decisions
which lead to the best consequences from a point of view that is independent
of the psychological states of individual people. For example, someone might claim
that the international prestige of her nation is a good thing whether or not it makes
citizens happier, and that maximizing her nation’s international prestige should be a
goal of ethical decision-making.
Objective consequentialism contrasts with forms of utilitarianism, which judge the
goodness of outcomes purely in terms of the positive and negative psychological states
that they bring about. Utilitarianism requires agents to make those decisions which
maximize positive mental states in both themselves and others. The original developers
of utilitarianism thought that ethical decisions should aim at producing the maximum
amount of human happiness, which they equated with pleasure and the absence of
pain. Modern versions often talk of ethical decisions aiming to bring about the greatest
amount of satisfied preferences. Modern economics is a descendent of utilitarian thinking.
Economists have shown that markets in perfect competition are optimal for satisfying
people’s preferences. We will later look at the efficient market justification for the
capitalist system and consider issues of market failure, where the assumptions of perfect
competition break down and markets do not deliver maximum preference satisfaction.
Another type of consequence-based ethical theory is ethical egoism. Ethical egoism
is the ethical theory that agents ought always to maximize only their own self-interest.
Ethical egoists believe that they should strive for results that maximize their own happiness,
pleasure, or preference satisfaction. Ethical egoism is an ethical theory and not
a psychological theory. It is not the empirical theory, sometimes accepted in economic
theory, that rational agents always do make choices that maximize the satisfaction of
their own preferences. It is the ethical theory that moral agents always should make
choices that maximize satisfaction of their own preferences.
We have now developed a preliminary theoretical framework into which we can put
many of the considerations that come up in making an ethical decision. This theoretical
framework will help us to think about the ethical decisions that we must make. We can
also use it as a sort of checklist that will help prevent us from neglecting any important
ethical considerations. Table 1.1 displays this preliminary theoretical framework. The
table has a column for each group whose interests the decision and its implementation
will affect. The table has a row for each of the various types of ethical theory that we have
10
Chapter 1
just discussed. In succeeding chapters, we will look at distinctions between ethical theories
that will make the framework more complicated. The table does not display issues of
moral agency and moral accountability, which we will leave aside for the moment.
To see how this framework works, let us go back to Amy’s decision whether to
propose moving production offshore. Here are some of the considerations that we
have discussed:
A. Amy realizes that if the company implements her proposal, then she
will receive a handsome year-end bonus. From the point of view of
ethical egoism, this is an ethical consideration because putting forward
the proposal will maximize Amy’s self-interest. We can classify
this consideration as falling under the theory of ethical egoism and
affecting the interests of Amy herself. Therefore, we can put an “A” in
the cell where the row representing ethical egoism intersects with the
column that acknowledges the moral standing of the self.
B. Amy worries whether in putting forward the proposal, and thinking
only of her own gain, she is becoming greedy and avaricious. This
virtue ethic consideration again affects her self. Therefore, we can
put a “B” in the cell where the virtue ethics row intersects the column
representing moral standing of the self.
C. Knowing that human rights abuses often occur in Special Economic
Zones, Amy worries that implementation of her proposal will fail to
respect the rights of overseas workers. These overseas workers will be
working for contractors and not for her company. Therefore, we can
put a “C” at the intersection of rights and a concern for members of
the global community.
Figure 1.7: A preliminary taxonomy of ethical theories classified
according to the different types of ethical reasoning involved.
Ethical reasoning
Identity-based
Virtue ethics
Care ethics
Principle-based
Duties
Rights
Justice
Consequencebased
Objective
Utilitarian
Ethical egoism
11
Ethical Dec isions in Business
D. Amy knows that if her firm implements her proposal, then it will
fire many of its present employees. This will have a very bad effect
on the local community. This is a utilitarian consideration affecting
the interests of employees and members of the local community.
Therefore, we can put a “D” at both the intersection of utilitarianism
and employees and the intersection of utilitarianism and community.
E. Amy also knows that the overseas contractor will pay the women
sewing the clothing in a developing country much less than her
company is paying its present employees for doing the same work. This
is a justice consideration affecting her firm’s present employees and
the new workers overseas. Therefore, we can put an “E” where justice
considerations intersect with employees and with people overseas.
We can also see how to use this theoretical framework as a checklist to help us find
other relevant ethical considerations. Here are some examples:
F. Amy should think of her duties to the owners of the firm. By taking on
her role as a manager, Amy acquired a duty to benefit the interests of
the owners. This role includes doing what she can to lower the firm’s
Self
Owners
Employees
Suppliers
Customers
Community
Globe
Posterity
Environment
Identity
Virtue Ethics B G
Care Ethics
Principle
Duties F
Rights C
Justice E E
Consequence
Objective
Utilitarian D D
Ethical Egoism A
Table 1.1: A theoretical framework for thinking about ethical decisions showing
whose interests we should consider and which ethical theories we should apply.
12
Chapter 1
costs and maximize profits. We should put an “F” in the duties to the
owner’s cell of the table.
G. Amy should think of the firm’s suppliers. Moving production offshore
will mean not renewing contracts with suppliers. Should the firm be
loyal to its long-time suppliers? Loyalty is a virtue, and here it affects
the interests of the suppliers, so we should put a “G” in that cell.
Using this theoretical framework as a checklist, we could discover other relevant
considerations, but we will leave that as an exercise for the reader. The case of Amy’s
decision is becoming very complicated. Some ethical considerations point toward Amy
making the proposal, and some count against it. What we need now is some way for
looking at the strengths and weaknesses of these ethical reasons so that Amy may judge
what she should do.
Reflecting Critically on Ethical Reasons
This taxonomy of ethical theories is a preliminary one that we will make more detailed
in suceeding chapters. In applied ethics, which is what we are doing here, we use a
knowledge of ethical theories in order to understand all the ethical reasons that are relevant
to a decision. Academic ethics is different. Academic ethicists will typically make a
career out of defending one particular ethical theory against all objections, and of pointing
out the weaknesses of all competing theories. In applying ethics to business issues,
we will, however, adopt a pluralist attitude to ethical reasoning, using many different
theories in order not to miss any important ethical considerations relevant to a decision.
The arguments of academic ethics are still useful to us. Academic ethics has compiled
a great deal of information about the strengths and weaknesses of each ethical
theory. Often the motivation for one type of ethical theory is the discovery of weaknesses
in another. We can often see the weaknesses of one type of ethical theory from
the perspective of another type. For example, rights-based theories reveal a common
weakness of utilitarian theories. Suppose, as a thought experiment, that the greatest
happiness of humankind could be achieved if a few people became the slaves of all the
others. The unhappiness of the slaves, we will suppose, is greatly offset by the increased
happiness of the majority. Taking the perspective of human rights, however, we can see
that there is something morally wrong with making some people into slaves, no matter
how much happiness it produces. Business decisions do not typically turn on issues of
slavery. Instead, the general point is that when we apply utilitarian considerations, we
should always look for problems with rights abuses. A knowledge of the intellectual
interactions between ethical theories will help us see the strengths and weaknesses of
ethical considerations when they are applied to particular cases. Her college course
in business ethics will remind Amy to investigate problems of human rights abuses in
Special Economic Zones when she is doing a cost-benefit analysis of the decision to
relocate production offshore.
13
Ethical Dec isions in Business
When we finish analyzing a problematic decision from the perspectives of different
ethical theories, we will frequently find that ethical considerations conflict with
one another. For example Amy’s duty to promote the interest of the shareholders by
proposing going offshore will conflict with her obligation to promote the welfare of
local empolyees and suppliers. The best that anyone can do in situations where ethical
considerations conflict is to clarify carefully what is at stake and then reflect critically
on what is the best overall decision. We have no clear recipe for making such a decision.
However, only if we have clearly understood all the relevant ethical considerations will
we make the best possible decision.
Distinguishing Ethically Relevant Facts
The facts are the facts. There are, however, a huge number of facts about the world,
and knowing which ones are relevant to the case at hand can be tricky. This is analogous
to the Frame Problem that computer scientists ran into when they tried to create
artificial intelligence. A big problem with programming a computer to perform like
a human being is that the computer faces too much information. Humans intuitively
know which facts are relevant to decisions about the task at hand; computers do not.
Without this intuitive knowledge, the computer is forced to investigate each and every
fact in its memory to see if it is relevant to the task. Is the distance from the Earth to the
Moon relevant? Is the mass of the electron a relevant factor? Without some guidance
to what sort of facts are relevant, the computer will become bogged down in checking
the relevance of everything. Tasks that are easy for humans become computationally
impossible for an artificial intelligence.
In a similar way, the ethical decision-maker is confronted with too many facts,
and must somehow decide what facts about the case are ethically salient. A knowledge
of ethical theory is useful here. Different types of ethical theories require different
types of information. Virtue ethics requires information about the character of the
decision-maker. Rights-based theories require information about potential abuse, coercion,
and manipulation. Metaphorically, we can reverse the earlier prism metaphor, and
think of ethical theory as a sort of optical filter through which we can examine the case.
The coating on the lens will filter out the facts of the case that are not morally relevant,
and enable us to see more clearly the facts that are ethically salient.
Her knowledge of various ethical theories will enable Amy to see what facts she
should examine. Virtue ethics will make her think about what sort of character traits
she is displaying. Human rights considerations will make her think about problems of
worker abuse overseas. Utilitarianism gets her to look at the various costs and benefits
of the decision to all those concerned, present employees, the local community, customers,
and new workers in a developing country. Justice considerations get her to look at
how the benefits and burdens of the decision will be distributed among these different
groups of people. In general, ethical theory helps us to see the sorts of facts which are
relevant for ethical decisions.
14
Chapter 1
Considering Alternatives
Knowledge of ethical theories also helps us to discover alternative decisions that we
should consider. Just as there is a problem of finding the ethically relevant facts, so too
there is a problem of finding a manageable number of ethically salient alternatives. The
space of alternative decisions is always vast, but most choices are morally irrelevant and
we should rule them out. Again, ethical theory provides a filter. The number of ethically
permissible possible choices is much smaller than the total number of possible choices.
For example, justice considerations rule out potential choices that are flagrantly unjust.
At the same time, justice considerations should also lead us to search for alternatives
that are fairer to all concerned. Amy and her company, for example, could look at ways
of compensating the company’s present employees when the company moves their jobs
offshore. Perhaps the company could offer them retraining, or positions in a newly
expanded warehousing and distribution centre.
It is important to remember that staying with the status quo, or business as usual,
is also an ethical decision. We can usually make the status quo better, fairer, or more
respectful of human rights. We cannot avoid making ethical decisions by just doing
business as usual.
Making an Ethical Decision
Making an ethical decision would be easier for us if we were committed to just one
ethical theory. If we were ethical egoists, for example, then we should consider only
our own interests, and we would neglect the interests of others except as those interests
impact our strategic game plan. If we were libertarians, people who believe only in
moral rights of liberty, property, and contract, then we could rule out considerations of
maximizing net benefits or distributing benefits fairly. Nevertheless, we cannot avoid
ethical theory by announcing our commitment to what we regard as the one, correct
theory. We must be able to justify our theory, say why it is better than competing theories,
and show how it avoids the apparent weaknesses that other theories point out in it.
Figure 1.8: The coated “lens” of ethical theory filters out the
irrelevant facts and reveals the ethically salient facts.
Character of decision-maker
Prior problems of worker abuse
Costs and benefits of project
Distribution of benefits
Filter
Lens
of
Ethical
Theory
Decision to
produce
oshore
15
Ethical Dec isions in Business
Those of us who are not committed to one favourite theory will have to weigh
competing considerations pointed to by the whole plurality of ethical theories. This will
not be easy, and few cases will have one obvious best answer. Knowledge of applied ethics
will help us weed out ethically inferior alternative decisions. Knowledge of applied
ethics will also help us to weigh the competing considerations in terms of their wellknown
strengths and weaknesses. This process may leave us with a range of options
that, from an ethical point of view, are all equally good. Then we can use strategic
business considerations to narrow the range of options down further. Sometimes we
may face a range of options that are all bad ones, and we may be unable to decide
between them. Then we face an ethical dilemma. Applied ethics will help us make better
ethical decisions in business, but it will not tell us what to do in every case.
Summary
1. Our first task is to recognize when an ethical decision is required
regarding a business issue.
2. Our next task is to decide which person or organization is morally
accountable for the decision.
3. Then we identify whose (or what’s) interests must be considered. We
must determine who or what has moral standing in the case.
4. We must think about which ethical considerations are relevant to the
case. Ethical considerations are either character-based, principle-based,
or consequence-based. Ethical theory is a sort of prism which refracts
an ethical decision into its component considerations.
5. We classify these ethical considerations according to the ethical
theories that they assume. Virtue ethics and care ethics use a characterbased
approach. The principle-based approach appeals to either duties,
rights, or theories of justice. A consequence-based approach tries to
maximize either objective values or the happiness of everyone. The
latter variant is utilitarianism. Another variant is ethical egoism, where
the agent considers only her own self-interest.
6. The strengths of one type of ethical theory complement the weaknesses
of others. We can use our knowledge of ethical theory to critically
reflect on the ethical considerations relevant to a decision.
7. Knowledge of ethical theory also functions as a filter that helps us to
distinguish those facts that are ethically relevant to the case from the
huge number of facts that are irrelevant.
8. As in all decision-making, we must brainstorm the alternatives,
including business as usual. Again ethical theory helps us to look only
at the ethically relevant alternatives.
9. Ultimately we must make an ethical decision. To do this we must weigh
the alternatives, reject those that are ethically inferior, and leave a
selection of options that are ethically acceptable.
16
Chapter 1
ONLINE LEARNING RESOURCES
You will find a collection of learning resources associated with this chapter on the
book’s website: http://sites.broadviewpress.com/businessethics/. Working through this
material will help you understand and remember important concepts that we have
discussed, and will help you apply them to issues in business ethics.
Study Questions
Answering the following questions will help you to understand the ethical theory in this
chapter and will help you to create a set of review notes on the textbook.
1. Illustrate the difference between moral standing and
moral accountability.
2. Describe the difference between identity-based ethical reasoning and
principle-based ethical reasoning.
3. Describe the difference between principle-based ethical reasoning and
consequence-based ethical reasoning.
4. Describe the difference between utilitarian ethical reasoning and
rights-based ethical reasoning.
Decision Questions
The whole point of learning ethical theory is to understand and ask questions like the
following when you are analyzing an ethically problematic situation or case.
• Whose interests will the decision affect?
• Should we consider the owners of the business?
• Should we consider employees, suppliers, customers, and the
local community?
• Should we consider the global community, posterity, or
the environment?
• Which facts are most relevant from an ethical point of view?
• Does our analysis of the ethical situation lead us to require more
information about the case?
• After our analysis of the ethical situation, can we see alternative
decisions that we should consider?
• Which of the alternative decisions is the best from a business point
of view?
17
Ethical Dec isions in Business
Case Study
Analyze this case study using the ethical theory that you have learned so far. You will
find a collection of learning materials applying to the case on the book’s website: http://
sites.broadviewpress.com/businessethics/. These materials will help you in your analysis.
Should Amy Go Offshore?
Amy Johnson graduated two years ago from the business program at a well-known
local university. Immediately after her graduation, the Seinfeld Textile Corporation in
Truro hired her as a junior manager in the production department. Her boss is the Vice
President for production, Tom Harris. She is mostly happy in her new job, but feels that
her pay should be higher. She and her partner have recently become engaged to be married,
and they would like to be able to buy a house. Amy would like to do a good job
helping ST become more profitable and she would like very much to get a good year-end
bonus and a promotion as soon as possible.
Amy is from Truro and knows many of the people who work at Seinfeld Textiles.
She has made friends at the company, both with some of the managers and with some
of the workers. She does find the other managers to be rather competitive, particularly
the older and more senior ones. She worries about the demands of her work, about the
sort of person she must become to compete in the company, and the effect of her time
commitment to the company on her relationship.
The stockholders of Seinfeld Textiles are dissatisfied with the company’s returns.
The Board of Directors has told the CEO that profits must improve. The CEO has told
the VP in charge of production, Tom Harris, to cut costs, but has not said how. Tom
has convened a cost-cutting committee to make a recommendation. Amy has thought
about this problem and is wondering to herself, “Should I propose to the cost-cutting
committee that our firm outsource the production of our most popular clothing item to
an offshore contractor operating in a lower wage environment?”
From her research, she has identified a particular operator in Bangladesh, the
Chittagong Clothing Company, which can do this sort of work well and cheaply. Amy
also knows that this company, CCC, has had complaints against it for how it treats its
workers, who are mostly young women. She knows that it pays its garment workers
reasonably well by Bangladesh standards, but realizes that these wages are far less
than they are in Truro. She has also found indications that CCC is rather lax about
the safety standards in its factories. CCC’s factories are often shoddily constructed,
and its supervisors often pressure its employees to work faster than is safe. However,
Bangladesh sorely needs the new jobs that this contract will bring.
Amy realizes that if the company implements her proposal, and the strategy works,
then she will receive a handsome year-end bonus and possibly a promotion. Amy knows
that if her firm implements her proposal, then it will fire many of its present employees.
This will take jobs from members of the local community and give the jobs to
people overseas. Amy also knows that CCC will pay the women sewing the clothing in
a developing country much less than ST is paying its present employees for doing the
18
Chapter 1
same work. As well, moving production offshore will mean that ST will not renew contracts
with its present suppliers.
Should Amy recommend that ST contract with CCC in Bangladesh to produce clothing?
19
Chapter 2
THE NATURE
OF ETHICAL
REASONING
How can we identify ethical reasons?
Are any of these ethical reasons relative to cultural membership?
How do we balance conflicting ethical reasons?
When we make decisions, we make judgments about what is the best thing to do, and we
make these judgments for reasons. Here it is important that the word “reasons” be in the
plural. If we think about almost any decision we have ever made, then we can find reasons
pointing both one way and the other. Some reasons are stronger than others are, and
sometimes one reason may have overriding importance. Nevertheless, we usually judge
what is best and decide what to do, not for one reason, but according to the balance of
many reasons.
For example, suppose that Ben is in a situation where he could easily steal $500
from the holiday-bonus fund at work. He may just act impulsively, but if he thinks before
he acts, then he will find reasons both pointing toward taking his opportunity and pointing
against doing so: He feels that he is underpaid. He needs the $500 to buy holiday
gifts for his children. Someone might catch him, and then he will lose his job. His
employer recently passed him over for a promotion, and he would like revenge. Someone
will miss the money, and there will be an atmosphere of suspicion in his department
for some months after people notice the loss. And so on. How these reasons balance
out will affect his judgment about how to act. If he is a competent decision-maker, then
he will consider all of them.
This list of reasons is far from complete, because so far Ben has not considered
important ethical reasons that bear on his decision: He should not be the sort of person
who is dishonest and disloyal to his fellow employees. He should not poison the
work relationships in his department. He should keep the promise of good service to his
employer that was implicit in his employment contract. He should respect the property
rights of the company that employs him. It is unfair that he receive the $500 instead of
everyone receiving holiday bonuses. The happiness he brings to his children will not
outweigh the happiness that he takes from the children of the other employees. From the
20
Chapter 2
point of view of ethical reasoning, this is a simple decision; all of these are reasons
against taking the money. The only ethical theory that might support taking the $500
is ethical egoism, which would tell Ben always to act in his own self-interest. But ethical
egoism, as we shall see in the next chapter, has many weaknesses. The balance
of ethical reasons is thoroughly against the judgment that Ben should take the money.
Furthermore, the ethical reasons apparently outweigh all Ben’s selfish and strategic reasons.
Unfortunately, not all ethical decision-making is this uncomplicated.
This discussion has assumed that ethical reasons apply universally in all contexts.
Perhaps this assumption is wrong. Suppose that Ben’s company has a dog-eat-dog corporate
culture. All the people working there, from the CEO to the typists, share a view
that life is “every man for himself,” and that “he who dies with the most toys wins.”
People expect each other to lie, cheat, and even steal when they can get away with it.
The prevailing ethical climate of the firm is that of ethical egoism. Within this corporate
culture, would it not be permissible for Ben to take the $500 from the bonus fund?
Some people believe that what is right or wrong is relative to the culture in which
people make decisions. In many hunter-gatherer societies, for example, cultural norms
require clan members to share the proceeds of their work with the whole clan, whereas
in a capitalist society, this is not morally required at all. The ethical climate we have
just imagined in Ben’s company is rather extreme. However, there is still a question
whether the business community has a distinct ethical culture. Should we hold business
people to ethical standards at work that are different from the ethical standards we
would expect of them at home or in the wider community? This is part of the general
question of whether ethical standards are relative to one’s culture. Ethical relativism
is the metaethical view that the truth or falsity of ethical judgments is relative to the
traditional practices of a cultural group. It contrasts with the view that ethical judgments
are universal and apply to everyone no matter what their cultural membership.
Philosophers call these views “metaethical” because they are views about the nature of
ethical reasoning. They are not themselves ethical judgments. Ethical relativism does
not tell us what ethical judgment we should make; instead, it purports to tell us something
about what an ethical judgment means.
In this chapter, we will look at some properties of ethical reasoning and at the
implications of these properties for the nature of ethics. We will look at the strengths
and weaknesses of the notion that ethical judgments and ethical reasons are relative to
Figure 2.1: Usually, more than one reason contributes to our
judgment of what is best and to our decision about how to act.
Reason #1
Reason #2
Reason #3
Judgment Decision
21
The Nature of Ethical Reasoning
membership in a culture. Then we will look in more detail at how to apply the whole
plurality of ethical theories to making an ethical judgment.
Two Important Properties of Ethical Reasons
In English, the word “reason” is ambiguous. A reason can be a motivation for acting
in a certain way, or a reason can be a justification for believing one thing rather than
another. Ethical reasons, unlike many other reasons, embrace this ambiguity, and have
both of these properties simultaneously. Ethical reasons are action-guiding because they
motivate us to act in ways that we think are morally right, or at least ethically permissible,
and to refrain from morally wrong actions. Ethical reasons tell us something about
the attitudes of the person who holds them and about the effect the person intends to
have on the actions of others by expressing them. At the same time, ethical reasons
are agreement-seeking because we offer them as justifications to others for acting in a
certain way. They are reasons about which there can be argument and debate. When
we offer ethical reasons, our goal is to get others to agree with us about which ethical
reasons are important, and about what they should do.
We gained an intuitive understanding of these properties of ethical reasons when
we were children. We came to understand that when our mothers told us that some
action was wrong that she meant for us to stop doing it. In other words, she meant for
her ethical judgment to guide our action. At the same time, we came to understand
that her ethical judgments had justifications, that we could sometimes argue with her
about those justifications, and that she sought our agreement with her judgments.
Descriptive and scientific reasons are agreement-seeking, but not action-guiding.
When someone asserts that the climate is changing because human beings are burning
fossil fuels, she is asserting something about which there is controversy and debate. She
can justify her claim by pointing to scientific evidence about atmospheric carbon dioxide
concentrations and to scientific theories about how the greenhouse effect works. Such
scientific evidence alone does not provide her with motivation to act in any way. She can
easily believe that burning fossil fuel causes climate change without being motivated to
buy a bicycle or become an environmental activist. Scientific reasons are motivationally
inert; by themselves, they do not provide reasons for action.
In contrast, people’s wants and desires are action-guiding, but are not agreement-
seeking. When Keith asserts that he prefers chocolate ice cream, he does not
expect that everyone else will agree with him. He will not seek to get others who prefer
vanilla to agree with him. His desire for chocolate ice cream, however, will guide his
actions. When confronted with a choice of flavours in the ice cream parlour, he will
choose chocolate, but he does not care if others do not.
Ethical judgments and the reasons we have for making them both guide action
and seek the agreement of others. They move us to action, but at the same time, we care
about the agreement of others. When we say that an action is wrong, we would like
others to agree with us and to stop doing this ethically wrong action. When we make
ethical judgments and give ethical reasons, we intend that these reasons apply not only
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to our own actions, but also to the actions of others. We want others to agree with this
so that they will do the right thing.
These two abstract properties of ethical reasons, that they are both action-guiding
and agreement-seeking, have important consequences. We will see that, because ethical
reasons are action-guiding, they cannot be directly derived from purely descriptive scientific
reasons. We will see that, because ethical reasons are action-guiding, they cannot
require people to perform actions that they are unable to perform. As well, we will see
that, because ethical reasons are agreement-seeking, they apply to everyone. No individual
can expect everyone else to agree that she alone is somehow special and exempt
from obeying a moral principle.
The “Is/Ought” Gap
Because ethical judgments have action-guiding force and factual or scientific statements
do not, then we cannot logically derive ethical judgments from scientific judgments.
There is a logical gap between statements about how the world is and statements
about how the world ought to be. Philosophers refer to this important conclusion as
the “is/ought” gap, the fact/value distinction, and the naturalistic fallacy. The “is/ought”
gap means that we cannot derive an ethical conclusion from an argument consisting of
purely scientific or factual premises.
The first philosopher to draw attention to the “is/ought” gap was the
eighteenth-century Scottish philosopher, David Hume. He wrote the following passage
about the work of other philosophers of his time.
In every system of morality, which I have hitherto met with, I have always
remarked, that the author proceeds for some time in the ordinary way
of reasoning, and establishes the being of a God, or makes observations
concerning human affairs; when of a sudden I am surprized to find, that
instead of the usual copulations of propositions, is, and is not, I meet
with no proposition that is not connected with an ought, or an ought
not. This change is imperceptible; but is, however, of the last [i.e., the
greatest] consequence. For as this ought, or ought not, expresses some
new relation or affirmation, it is necessary that it should be observed and
explained; and at the same time that a reason should be given, for what
seems altogether inconceivable, how this new relation can be a deduction
from others, which are entirely different from it. But as authors do not
commonly use this precaution, I shall presume to recommend it to the
readers; and am persuaded, that this small attention would subvert all the
vulgar systems of morality … (Hume 1740: Book III, Part I, Sect. I)
Hume points out the fallacy of reasoning directly from scientific facts to ethical judgments.
His advice will lead us to chop off the ethical conclusion of an argument from its
purely factual premises. Hence, philosophers sometimes referred to the “is/ought” gap
as Hume’s Guillotine.
23
The Nature of Ethical Reasoning
For example, some people believe that business is, as a matter of fact, a ruthless
and competitive game played according to a certain set of rules differing from those of
ordinary life. Without committing a logical fallacy, such people cannot conclude simply
from this description of the facts that business ought to be a ruthless and competitive
game played according to a certain set of rules differing from those of ordinary life. To
argue this way would be to neglect the logical distinction between facts and values and
the logical gap between “is” and “ought.”
The “is/ought” gap entails that any argument in favour of an ethical judgment
must contain at least one ethical premise. In other words, at least one of the reasons
for an ethical decision must be an ethical reason. For example, suppose it is the case
that a firm can reduce its emissions of greenhouse gasses by using Carbon Capture and
Sequestration (CCS) technology. This fact is not enough, by itself, to entail that the firm
ought to install CCS. For the reason Hume pointed out, the following argument is invalid:
1, CCS will reduce emissions.
2, Therefore, the firm ought to install CCS.
The firm needs an additional ethical reason, such as the ethical principle that, in order
to maximize the welfare of future generations, firms ought to reduce greenhouse gas
emissions. The following revised argument is valid:
1*. For the sake of future generations, all
firms ought to reduce emissions.
2*. CCS will reduce emissions.
3*. Therefore, the firm ought to install CCS.
Then the firm will have an ethical reason why it ought to install CCS. Identifying and
analyzing such implicit ethical principles is the role of business ethics.
“Ought” Implies “Can”
A second important implication of the action-guiding nature of ethical judgments is
that we are not ethically required to do an action if we are unable to perform it. Ethical
judgments guide us to perform certain actions, and if we physically cannot perform
any of those actions, then we are not obliged to do them. It is a necessary condition
of being ethically obliged to perform an action that we are actually able to perform
that action. For example, we are not ethically obliged to bring about world peace all
by ourselves because it is not something that any one person like us is able to do. The
metaethical principle that “ought” implies “can” means that a person cannot be morally
obligated to perform an action or bring about a consequence if he or she is unable to
do so. Even to save the world, we cannot be ethically obligated to walk across water or
to fly unaided over a mountain.
To put the point less dramatically, ethical obligations can be demanding but not
too demanding. The judgment that we should do everything we can to eradicate world
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Chapter 2
poverty implies that we should give money to charity. It does not imply that we should
give everything we own to charity and thereby make ourselves destitute and worse off
than the people that we are trying to help. The latter implication is too demanding; it is
not something that we can do.
For example, though there is a strong ethical reason why a firm should install
Carbon Capture and Sequestration technology, suppose the firm cannot afford to do so.
If the cost of CCS is too demanding, then the firm cannot install CCS. If the firm cannot
install CCS, then there is no overall ethical reason that it ought to install CCS. Since
“ought” implies “can,” we will not hold the firm morally accountable for not installing
CCS. The principle that “ought” implies “can” is important when we think about holding
people morally accountable for their decisions. For example, if someone acts under
the threat of physical violence, then we may say she cannot do otherwise. If she cannot
do otherwise, then we should excuse her from moral accountability for what she did,
and blame those who threatened her instead.
We must be careful, however, when we apply the “ought” implies “can” principle.
Just because something is an inconvenience does not mean that it is too demanding. If
one of us were able to eradicate world poverty by getting up from in front of the television
and pressing a button on the wall, then we would not think it too demanding to say
that he or she was obliged to do so. If government regulations changed, so that all firms
were obliged to install CCS, allowed to pass the additional costs on to their customers,
and provided with government financing, then installing CCS would be inconvenient,
but no longer overly demanding. As it is, installing CCS is not merely inconvenient; it is
quite demanding for some firms. The question is: is it too demanding?
Ethical Relativism: Strengths
Ethical relativism claims that what is right or wrong depends on a person’s cultural
membership. According to ethical relativism, we should not expect that the members
of a different culture will have the same moral standards that we do. Nor should we
expect that we can get them to agree to our moral standards. If there are ethical disagreements
between different cultures, and if there seems no way to resolve these disagreements
in a rational way, then it seems that we should abandon the principle that
ethical judgments are always agreement-seeking.
Much of the motivation for adopting a relativist stance in ethics comes from the
study of radically different cultures. Cultural anthropologists have shown that cultures
differ drastically regarding the duties of members to their kin, on what members of the
culture may eat and how they should eat it, on how and with whom people may have
sexual relations, and on how people should worship a god or gods. Cultures also differ
drastically in what they judge to be ethically permissible behaviour. Some cultures practice
polygamy, some countenance the killing of family members to preserve the family’s
honour, and some cultures regularly mutilate the genitals of young girls. In the face of
widespread cross-cultural disagreements regarding ethical judgments, and in the absence
of any method of resolving these ethical disagreements in a rational way, it may appear
that ethical relativism is the appropriate philosophical theory of ethics.
25
The Nature of Ethical Reasoning
Ethical relativism appears attractive because it seems to epitomize toleration
for other cultures. In its imperial past, the English-speaking world had little respect
for the cultures that it colonized. Colonizers mostly assumed that their moral beliefs
were far superior to those of the aboriginal peoples whom they had conquered.
Anthropologists, such as Margaret Mead, reacted against this cultural imperialism
by formulating the doctrine of cultural relativism. The ethical beliefs of aboriginal
people were just as true for the aboriginal people as the ethical beliefs of the anthropologists
were for the anthropologists. Cultural relativism seemed the proper way to
show respect for other cultures, and ethical relativism provided a philosophical justification
for cross-cultural tolerance.
Ethical Relativism: Weaknesses
1. Cultural Diversity: Ethical relativism apparently follows from the
fact of cultural diversity. However, this argument conflicts with Hume’s
Guillotine. Suppose it is the case that members of another culture do
accept a particular morally repugnant practice. We cannot argue from this
premise to the conclusion that it ought to be the case that members of the
other culture accept this morally repugnant practice. To argue like that
would be to cross the “is/ought” gap without a supporting ethical principle.
We should remind ourselves that the respect and toleration of others
does not require uncritical acceptance of their beliefs. Proper respect for
others requires an engagement with their views. We have to take their
views seriously, and not simply dismiss them as true-for-them but not truefor-
us. We show respect for others only when we take their arguments
seriously. We do not take the arguments of members of another culture
seriously when we simply label their arguments as true for people in that
culture but not true for members of our culture. Ethical relativism can be
a disguise for intellectual laziness, and can actually show disrespect for the
views and arguments of members of other cultures.
There are limitations to the idea that tolerating and respecting other
cultures implies that we should become ethical relativists. Some practices
that are customary in other cultures are just too ghastly to tolerate. The
killing of a young woman by her father and brothers in order to preserve
the family honour is just wrong. Honour killing is wrong both for us and
for members of that other culture. We are more certain of the wrongness
of honour killing than we are of the truth of ethical relativism. If ethical
relativism implies that honour killing is ethically permissible in the other
culture, then ethical relativism must be false.
2. Intolerant Cultures: We should also note that toleration is not a virtue
in all cultures. Members of extremely fundamentalist religious cultures, for
example, are not at all tolerant of the different ethical beliefs of members
of other cultures. Intolerant cultures hold that tolerating and respecting
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Chapter 2
the customs and practices of members of other cultures is a vice, not a virtue.
In such cultures, the toleration is not a virtue, and so toleration gives
people no reason to be ethical relativists. To members of an intolerant
culture, the diverse ethical beliefs of other cultures will simply be false, not
true for members of those other cultures.
3. Cultural Conservatism: Ethical relativism apparently defines what is
right or wrong according to the accepted practices of the culture of which
someone is a member. Therefore, ethical relativism implies that if any
member of the culture disagrees with the accepted practices of her culture,
then her dissenting view is false, by definition. If the accepted practices of
a culture define what is right and wrong for its members, then how can
people criticize their own culture’s ethical practices? How can a member
of an honour-killing culture criticize this accepted practice without
contradicting herself? Ethical relativism potentially leads to a very strong
cultural conservatism that makes critical reflection or cultural reform ethically
impossible. This position is incompatible with ethics in general. The
essence of ethics is to think critically about our accepted moral practices.
Ethics, as practiced by philosophers, does not merely describe the ethos of
a culture and the mores of its members. It subjects accepted cultural practices
to critical reflection.
4. Cultural Homogeneity: Ethical relativism apparently assumes that the
ethical beliefs and practices of a culture are homogeneous. This is unlikely
to be the case. In any honour-killing culture, doubtlessly many members of
the culture do not accept the practice. If cultures are internally diverse in
their ethical beliefs, then how do we determine which of these ethical beliefs
defines what is right and wrong for members of the culture? If we are to say
that what is right or wrong is relative to cultural membership, then we need
a way to determine which of a culture’s ethical beliefs are authoritative for
members of each culture. It is unlikely that we will be able to do so.
5. Multiculturalism: Ethical relativism does not tell people what to do
when they are simultaneously members of different cultures with conflicting
ethical practices. In multicultural societies, people are often members
of different cultures at the same time, and have no particular cultural
membership that is morally authoritative for them. For example, imagine
a businessperson of mixed Sikh and German descent, a citizen of
Hong Kong, but educated in an English public school with an MBA from
Harvard, and married to a Thai. She does not have any one cultural membership
that is always authoritative for her. There is likely no answer as to
which ethical principles she should follow.
There is a temptation at this point for a cultural ethical relativist to
argue instead for individual ethical relativism. Individual ethical relativism
27
The Nature of Ethical Reasoning
is the metaethical view that the truth or falsity of ethical judgments is relative,
not to the culture of the speaker, but to the individual speaker himself.
On this view, a speaker could claim that an action is right for him, even
if it is wrong for everyone else. However, it is next to impossible to justify
such a view. A cultural ethical relativist can point to the fact that the culture
of which she is a member generally believes that her action is morally
right. This cultural fact carries some rhetorical force that gives others some
justification, albeit weak, for accepting her relativism. The individual ethical
relativist, however, can only point to the fact that he believes that his
action is morally right. His individual belief carries little rhetorical force.
His mere assertion gives no justification whatsoever to others for accepting
his relativism.
6. Ethical Disagreement: There is much genuine ethical disagreement in
the world. Reasonable people can disagree on the morality of abortion,
assisted suicide, eating animals, or imposing a carbon tax. Ethics is
agreement-seeking, but not always agreement-finding. Sometimes people
disagree because they have different beliefs about the facts of the case,
sometimes because they hold different ethical theories, sometimes because
they place different weights on the same ethical considerations, and
sometimes because they come from different cultural backgrounds. The
idea that ethics is agreement-seeking implies that we should not just
accept moral disagreements uncritically, but should instead try to resolve
disagreements by carefully clarifying the issues in dispute and discussing
these issues respectfully.
Ethical disagreement between cultures may not be as rampant as
ethical relativists assume. We should be careful not to assume that ethical
disagreement about a particular case implies ethical disagreement
at a deep level. The disagreement may be about the facts of the case, not
the ethical principles involved. Consider the attempt by members of the
Spanish Inquisition to use torture and execution to stamp out heresy
during the Counter Reformation in the sixteenth century. We cannot
immediately infer that they had radically different ethical beliefs from
our own, and that we believe in promoting human welfare whereas the
inquisitors did not. The inquisitors had particular factual beliefs that
are uncommon today. They believed in an afterlife that included eternal
hell for heretics who did not repent, and they believed that coerced
repentance was a way for heretics to avoid this hell. The inquisitors
probably believed in the importance of human welfare, where avoiding
hellish torment in the eternal afterlife easily outweighed some days of
pain in this life. We can interpret the inquisitors as holding similar principles
regarding human welfare as we do, but differing in their application
of these principles because of their different beliefs about the facts
of the world.
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Chapter 2
This point about ethical relativism is relevant when we think about the differing
ethical behaviour of people in their workplace and at their homes. People who are
ruthless competitors in the business world are often loving spouses and parents when
at home. Do these businesspeople need to be ethical relativists to justify this disconnection
between their ways of acting? Do they need to say to themselves that a particular
way of acting is right-at-work and wrong-at-home? For example, the ethical obligation
to make full disclosure is different for a salesperson at work and at home. At work, she
would never tell a potential customer that an equivalent product was available across the
street at a lower price. At home, however, she would always tell her domestic partner
where to get the product most cheaply. Is this because full disclosure is wrong-at-work
and right-at-home? An alternative explanation is that the salesperson faces additional,
but different, ethical demands in the two aspects of her life. At work, she has an obligation
to promote the interests of her employer that she must balance against the interests
of her potential customer. At home, she has an obligation to promote the interests of her
domestic partner that she does not have at work. It is much more likely that the salesperson
holds the same ethical principles about honesty and the requirements of disclosure
at both work and at home, but that she decides how to act based on balancing other
ethical considerations with the requirements of honest disclosure. There is no reason to
suppose that people in the business community should have different ethical standards
than everyone else; they just face different ethical constraints because of the complexity
of the decision that they must make.
Ethical relativism suggests, but does not entail, that when we are visiting in a
culture with different moral standards from our own, then we should adopt the moral
standards of that culture. The old adage, “When in Rome, do as the Romans do,”
exemplifies this thought. This thought suggests, for example, that it is ethically permissible
for businesspeople to pay bribes when doing business in a bribe-paying culture.
This last suggestion actually does not follow from relativism because people do
not become members of a different culture simply by visiting it. An American does not
become a Roman simply by visiting Rome. If the ethical standards of a businessperson’s
own culture forbid corruption and bribery, and if she does not become a member
of the bribe-paying culture by making a business trip to visit it, then she is still bound
by the norms of her own culture not to pay bribes during her visit.
The role of cultural background in ethical decision-making is important for
another reason. Some cultural backgrounds can supply powerful, but invisible, ethical
conceptual frameworks to the thinking of their members. For example, someone raised
in a fundamentalist, religious framework will bring an authoritative code of right and
wrong to his ethical decisions that he has never examined critically. This ethical code
may seem so natural and normal that he never sees reason to question it. His fundamentalist
ethical code may thus be effectively invisible to him, and it may not be possible
for him to think otherwise. Suppose now that his fundamentalist ethical code is false.
Since “ought” implies “can,” and he cannot decide otherwise, the question arises of
whether we should hold him morally accountable for his decision. In some cases, it
may be possible for cultural membership to lead to ethical brainwashing and loss of
moral accountability.
29
The Nature of Ethical Reasoning
Figure 2.2 summarizes the conclusions that we have drawn from the simple, but
abstract, notion that ethical judgments are both action-guiding and agreement-seeking.
We have concluded that the motivating aspect of ethical judgments means that
there is a logical gap between facts about the world and ethical judgments about
the world. Crossing the gap requires reasoning based on ethical theory. We also concluded
that people must sometimes do ethically demanding actions, but not actions that
are too demanding or practically impossible. Finally, we saw that the agreement-seeking
aspect of ethical reasons made it difficult to justify believing in ethical relativism.
Ethical Pluralism
As we have seen before, people usually do not make a decision for just one reason. They
consider, weigh, and balance many different reasons when deciding what to do. The
same is true in ethical decision-making. We should not make an ethical decision without
considering all the relevant ethical reasons. We should decide what to do by weighing
the strengths and weaknesses of these reasons and then adjudicating among them.
There are many different sorts of ethical reasons. We started to classify them in
the previous chapter. Some types of ethical reasons pertain to the identity and character
of the decision-maker. Some types pertain to the motivation of the decision-maker
and the principles that she follows. Other types pertain to judging the consequences of
implementing the decision. All of these types of ethical reasons can provide reasons for
or against a particular decision. Each of these general approaches to an ethical decision
further subdivides into different ethical theories, as shown in Figure 2.3, which we saw
before in the previous chapter.
These ethical theories are ways of systematizing ethical reasons that philosophers
have developed over the many centuries during which philosophers have been thinking
about ethical problems. Philosophers formulated each type of ethical theory in response
to weaknesses that they discovered in other theories. In academic philosophy, philosophers
generally hold that one of these theories is better than all the others, and then
spend their careers thinking of ways to avoid its weaknesses and defending it against
Figure 2.2: The consequences of ethical judgments being
both action-guiding and agreement-seeking.
Ethical judgments
Action-guiding
“is/ought” gap
“ought” implies “can”
Agreement-seeking
Univerality
“No” to ethical
relativism
Chapter 2
30
proponents of other theories. In applied philosophy, we will avoid focussing on just one
theory and instead use all of these theories to get a complete picture of the ethical issues
facing a decision-maker. We can make use of the discoveries made in the course of academic
debates to help us assess the strengths and weaknesses of the different theories
and to adjudicate between the ethical reasons for and against a particular decision.
Ethical pluralism is the view that we should make ethical decisions by considering
and weighing the (often-conflicting) ethical reasons that follow from all ethical
theories, and then judging how to proceed. It contrasts with the ethical monism of an
academic philosopher who, for example, thinks that we should make all ethical decisions
by applying just one particular theory such as utilitarianism. Ethical pluralism gives us
a picture of ethical decision-making in which different ethical theories give the decision-
maker ethical reasons of varying strengths that point for and against a final judgment
of “Yes, do it,” or “No, don’t do it.” By reflecting critically on the strengths and
weaknesses of these reasons, weighing them, and balancing them, the decision-maker
can decide what to do.
Unfortunately, philosophy does not provide a recipe for how exactly to balance the
various ethical reasons affecting the decision. Making a final judgment is a high-level
skill analogous to the skill shown by a judge balancing the evidence and arguments
presented in a courtroom trial.
A useful comparison is to the way a large business makes a decision about, for
example, launching a new product. The Chief Executive Officer is responsible for making
the decision, but the CEO does not make it alone. The CEO solicits advice from
other high-level managers. The Vice President of Research and Development advises
on the technical feasibility of the product. The VP Production advises on how to produce
it. The VP Marketing advises whether the product will sell and on what price to
ask for it. The VP Finance gives advice on the potential new product’s likely effect on
the profitability of the firm. It would be foolish of the CEO to fail to solicit or to ignore
Figure 2.3: A taxonomy of ethical reasoning showing some of the different ethical
theories that philosophers have developed to systematize ethical reasoning.
Ethical reasoning
Identity-based
Virtue ethics
Care ethics
Motivation-based
Duties
Rights
Justice
Consequencebased
Objective
Utilitarian
Ethical egoism
31
The Nature of Ethical Reasoning
this advice. The advice of the different managers may be more or less favourable to
launching the product. The CEO must weigh all this advice and make the final decision
regarding the new product. The CEO has no recipe or algorithm for making the decision.
The CEO must use his best judgment. Nevertheless, this decision will be a better
one for the CEO having listened to the advice of all the various experts.
The analogous picture of ethical pluralist decision-making is to imagine the Chief
Ethics Officer calling a meeting of representatives of all ethical theories and hearing
their advice. Each representative looks at the situation from the point of view of her ethical
theory and gives reasons for and against potential decisions. The “CEO” weighs the
reasons advanced from each point of view, and makes a judgment about the best action
to take. Again, the “CEO” has no fixed decision procedure to follow, no algorithm that
will give the best answer in every case. Instead, the “CEO” must use experience and
judgment to make a decision. The decision will be a better one because of the input
from all the various ethical approaches.
If we apply this picture of ethical decision-making to the case of Ben, the potential
office thief, then we should cast Ben in the role of Chief Ethics Officer. His VP Virtue Ethics
will point out that an honest person will not steal from his office. His VP Care Ethics will
advise him not to poison the work relationships within his department. His VP Rights
will advise that his employers have a right to expect good service and respect for their
property. His VP Justice will advise Ben that he would justly deserve punishment for his
theft and that taking the money is unfair to his coworkers. His VP Utilitarianism will point
out that the loss of happiness to the children of the other employees will outweigh the
increased happiness of his children. Only the VP Egoism will advise taking the money, but
then only if the risk that his employer will find out is low enough. The balance of ethical
reasons is clearly against the “CEO,” Ben, deciding to steal the money.
Figure 2.4: The decision-maker must balance ethical reasons for and against
that are from various ethical theories and of different strengths.
Utilitarianism
Egoism
Rights
Justice
Care Ethics
Virtue Ethics
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Chapter 2
In the world of business, ethical decision-making should happen in tandem with
commercial decision-making. The overall, final decision should incorporate both ethical
and strategic considerations. Business decisions should be informed not only by considerations
of finance, marketing, production, and human resources, but also by considerations
of welfare, justice, human rights, and corporate character.
We should notice that this picture of ethical decision-making is ethical pluralist,
not ethical relativist. Ethical pluralism does not say that the decision is the right one
relative to one ethical theory, the wrong one relative to another, and that the disagreement
has no rational resolution. It does not say, for example, that a decision may be
right according to utilitarianism and wrong according to virtue ethics, and that we can
never resolve the issue. Instead, ethical pluralism says that, though there is no explicit
decision procedure or algorithm for making a final judgment, we can nonetheless make
such a judgment, and it will be a better one for having considered the situation from all
ethical points of view. The various ethical considerations sometimes conflict with one
another. Nevertheless, we can claim that the particular ethical decision that we make is
a better one than the alternatives. Furthermore, the claim that it is a better decision
is universally true, not just true relative to some particular ethical theory.
Summary
1. Generally, we consider not just one reason, but many reasons, when we
make either strategic or ethical decisions.
2. Like preferences and desires, but unlike factual beliefs, ethical reasons
motivate us to behave in certain ways. Like factual beliefs, but unlike
preferences and desires, ethical reasons require justification and argument.
Ethical reasons are both action-guiding and agreement-seeking.
3. Because ethical reasons are action-guiding and factual beliefs are not,
we cannot justify an ethical judgment based on purely factual reasons.
Figure 2.5: The chief ethics officer (“CEO”) makes a decision
after hearing from all divisions of ethical theory.
Ethics
Conference
Table
“CEO”
VP
Justice
VP
Egoism
VP
Virtue Ethics
VP
Rights
VP
Utilitarianism
VP
Care Ethics
33
The Nature of Ethical Reasoning
There is a logical gap between assertions of how the world is and
assertions of how the world ought to be. An ethical judgment requires
at least one ethical reason.
4. Because ethical reasons guide our actions, they must not require that
we perform actions that we are unable to do. Ethical reasons may be
demanding, but not overly demanding.
5. People are attracted to the ethical relativism, the view that all
judgments of right and wrong are relative to a person’s cultural
membership, because they think that ethical relativism expresses
toleration of cultural diversity.
6. By making it too easy to agree to disagree, ethical relativism fails to
do justice to the agreement-seeking aspect of ethical judgments. It
encourages a sort of intellectual laziness that leads people not to allow
members of other cultures to challenge their own moral views and
not to respect their own moral principles. We can often explain cases
of ethical disagreement between cultures as cases of different factual
beliefs or as situations requiring a different balance between competing
ethical considerations.
7. In applied ethics, ethical theories are useful ways of summarizing and
systematizing ethical reasoning. Ethical pluralism applies the points
of view of all types of ethical theories to get a complete analysis of an
ethical decision. Even though there is no universal recipe for making a
final decision, ethical pluralism is not the same as ethical relativism.
ONLINE LEARNING RESOURCES
You will find a collection of learning resources associated with this chapter on the
book’s website: http://sites.broadviewpress.com/businessethics/. Working through this
material will help you understand and remember important concepts that we have
discussed, and will help you apply them to issues in business ethics.
Study Questions
Answering the following questions will help you to understand the ethical theory in this
chapter and will help you to create a set of review notes on the textbook.
1. Construct an example where someone makes a decision for many
reasons, both strategic and ethical.
2. Suppose that businesses do show a ruthless disregard for the interests
of their customers. Why is this not an argument that it is ethically
permissible for businesses to gouge their customers?
3. Karl Marx summarized his theory of justice as, “From each according
to his ability, to each according to his needs.” How might this conflict
with metaethical principles?
34
Chapter 2
4. Why is toleration of cultural diversity not a strong argument for ethical
relativism?
5. How can a businessperson avoid concluding that some actions are
morally right towards customers, but morally wrong towards friends?
6. Suppose that Meghan is considering deflecting blame for a fiasco
at work by telling her boss lies about a co-worker. Perform a simple
ethical pluralist analysis of Meghan’s decision.
Decision Questions
The whole point of learning ethical theory is to understand and ask questions like the
following when you are analyzing an ethically problematic situation or case.
• Have we been careful to distinguish factual, strategic, and
ethical considerations?
• Are any ethical considerations overly demanding?
• Have we paid proper respect to different cultural backgrounds?
• Do any ethical considerations conflict?
• Can we resolve the conflict?
• On the balance of ethical reasons, are any of the alternative decisions
ruled out?
• Do we face a situation where all decisions are ethically wrong?
• Do we have several possible decisions that are roughly equal, but better
than the other alternatives?
• Is there just one decision that, on the balance of reasons, is best from
an ethical point of view?
Case Study
Analyze this case study using the ethical theory that you have learned so far. You will
find a collection of learning materials applying to the case on the book’s website: http://
sites.broadviewpress.com/businessethics/. These materials will help you in your analysis.
Should Ben Take the Bonus Fund?
Ben Freeman has worked for three years with Jane Smith, Marc Dupré, Susie Wong,
and Jim Dexter at the Provincial Power Corporation. He feels that PPC underpays
him. His boss, Mary Jenks, recently passed him over for a promotion, and he would
like revenge.
Ben is from a background that expected everyone to look out for him or herself.
Ben’s neighbours always locked their doors. Local people thought that anyone who did
not lock up carefully was stupid and deserved to have their possessions stolen. Ben’s
parents were both from the neighbourhood, and brought up Ben to take care of himself
first, and to take advantage of any opportunity for acquiring a little extra money.
35
The Nature of Ethical Reasoning
The Provincial Power Corporation has a dog-eat-dog corporate culture. All the
people working there, from the CEO to the typists, share a view that life is “every man
for himself,” and that “she who dies with the most toys wins.” People expect each other
to lie, cheat, and even steal when they can get away with it. The prevailing corporate
culture is one of rampant self-interest.
Ben plays poker with some other men in a room above the local flower shop. He
knows that that the people who organize the game are rather shady. Recently, he has
gone behind and borrowed $500 from the game-organizers. He cannot borrow the
money anywhere because he has reached the limit on his bank-overdraft. He knows that
the ruthless characters who loaned him the money will hurt him if he does not pay his
debt very soon.
Every holiday season, Ben’s department collects a holiday-bonus fund by allowing
department members to pay $5 to wear blue jeans to work on Fridays. Just before the
holidays, everyone puts his or her name in a hat, and the boss gives the money to
the department member whose name she draws. Ben is in a situation where he could
easily steal $500 from this bonus fund. $500 is just enough to pay off his gambling debt.
He may just act impulsively, but if he thinks before he acts, then he will find reasons
both pointing toward taking his opportunity and pointing against doing so: He needs
the $500 to stop the gangsters from hurting him. Someone might catch him, and then
he will lose his job. On the other hand, he thinks that he can make everyone think
that Susie took the money. When Jane, Mary, Marc, Susie, and Jim notice the loss and
make inquiries, there will be an atmosphere of suspicion in his department for some
months afterwards.
Should Ben take the money? Your moral gut reaction will tell you what Ben should
do. Here, however, you should analyze Ben’s situation as a way of practicing ethical
analysis. Look at whose interests Ben’s decision will effect, and find as many relevant
ethical considerations as you can, both for and against him taking the money.
After you have done that, consider the interesting question of whether we should
hold Ben morally accountable if he decides to take the money. Does either his cultural
background or the threat from the gangsters imply that he cannot do otherwise than
steal the money?

37
Chapter 3
SELF-INTEREST
AND THE
DILEMMAS OF
COOPERATION
Is self-interest our only motivation?
Should we always act only in our own self-interest?
What happens when purely self-interested people try to cooperate?
Popular culture often portrays high-powered businesspeople as ruthless, greedy egoists
pursuing only their boundless self-interest. The model of rational choice used in economics
reinforces this popular conception. Economic models assume that consumers
and producers are rational maximizers of their own interests. This economic model
of human beings as self-interested maximizers often leaks into people’s ethical decision-
making. Luckily, it is an only an abstraction. Both our common-sense knowledge
of human psychology, and the experiments of behavioural economists, confirm that this
model of human beings is over-simplified.
Doubtlessly there are infinitely acquisitive business tycoons, but their acquisitiveness
is usually constrained by the rules of the game. Most do not steal from others in
an outright fashion. Though they may skirt the edges of property law, they usually stay
within its bounds. Though they may deal sharply with others, they mostly keep the contracts
that they have made.
Self-interest is often more than a narrow concern for one’s own welfare. People
often have a sense of themselves as more than just the self within their skin. For example,
even a very selfish person may work for the good not just of himself, but of his family too,
seeing them, as it were, as extensions of himself. A person’s narrow self-interest consists
of an interest only in the welfare of that person’s own ego and body. A person’s broad
self-interest includes the interests of other people and things with which the person psychologically
identifies. Examples of broad self-interest include parents’ identification
with their children, business owners’ identification with their companies, and employees’
identification with their careers.
38
Chapter 3
In this chapter, we will study the role of self-interest in ethics, by examining three
abstract “games” that have been studied in game theory. The Ultimatum Game shows
that people often do not behave as pure egoists. The well-known Prisoner’s Dilemma
Game and the lesser-known Centipede Game demonstrate that, paradoxically, a society of
extreme egoists will not be in the best interest of its members. This will lead to an explanation
of why egoists will be better off if they set up some enforceable rules of cooperation.
From an ethical point of view, it is fortunate that human beings are not extreme
egoists. Compulsive extreme egoists are able to act only in pursuit of self-interest. Ethics,
however, will sometimes demand that people set aside their self-interest in order to
respect the rights or promote the welfare of others. If it were psychologically impossible
for people to overcome their self-interest, then asking people to respect property rights
or keep contractual promises would be too demanding. Since “ought” implies “can,”
these ethical judgments could not guide people’s decisions and actions.
In the absence of overriding ethical reasons to the contrary, it is certainly ethically
permissible that people may act for reasons of self-interest. Self-interest should be a consideration
in ethical decision-making. Nevertheless, it is important to understand what
limitations people face in the pursuit of their own interests.
Psychological and Ethical Egoism
Two types of theory stress the role of self-interest in ethics. Psychological egoism
is the scientific theory that people always do act to maximize to their self-interest.
Psychological egoism is a scientific theory, and scientific experiments can, in principle,
confirm or disconfirm it. It underlies the view of producer and consumer behaviour in
models of positive economics, and is the view that the new field of behavioural economics
calls into question. On the other hand, ethical egoism is the ethical theory that
people always ought to act to maximize their self-interest. Ethical egoism does not say
that people always do act so as to maximize their self-interest, rather it says that people
always should behave so as to maximize their self-interest.
Ethical egoism is a consequence-based ethical theory holding that only the self
has moral standing. Decision-makers should consider only their own interests when
they make ethical decisions. It is an extreme form of egoism. Figure 3.1 locates ethical
egoism in our classification scheme for ethical reasoning.
Figure 3.1: Ethical egoism as a form of consequentialist ethical reasoning.
Ethical reasoning
Identity-based
Principle-based
Consequencebased
Objective
Utilitarian
Ethical egoism
39
Self-Interest and the Dilemmas of Cooperat ion
It is important to note that ethical egoism is not the same as ethical relativism. The
two theories operate at different levels of abstraction. Ethical relativism is a metaethical
theory about the nature of ethical reasoning. Ethical egoism is an applied ethical theory
about how people should behave. Ethical relativism says that right and wrong are relative
to cultural membership, and many cultures are not ethical egoist.
Psychological egoism is an empirical theory about human nature. If psychological
egoism were scientifically true, then people could not act except in their own self-interest.
No other ethical theory but ethical egoism would work. Luckily, the evidence does
not support psychological egoism. We can think of examples from common experience.
For example, most people will leave a tip for the staff at an out-of-town restaurant that
they will never visit again. They may do it because of habit or because of generosity,
but they do not do it because it is in their own self-interest. Rationally maximizing
self-interest, a psychological egoist would reason that because she is never coming back
to the restaurant and because the meal is over and a tip cannot change the quality of the
service, then the rational thing for her to do is to keep her money to spend on something
else. People do not always rationally maximize their own self-interest.
The field of behavioural economics has the goal of testing the behavioural assumptions
of economic theory. Psychological egoism is one of these behavioural assumptions.
One empirical test of the assumption that people always maximize their self-interest is a
test of how people play the Ultimatum Game. The rules of the Ultimatum Game are as
follows: The game has two players and a referee. First, the Referee passes some amount
of money, for example $10, to Player 1. Player 1 must then issue an ultimatum to Player
2 by offering Player 2 some amount between $1 and $10. If Player 2 accepts the ultimatum,
then Player 2 keeps the offer and Player 1 keeps the balance. However, if Player 2
rejects the ultimatum, then the Referee takes back all the money and both players get
nothing. For example, Player 1 might offer $3 to Player 2. If Player 2 accepts the ultimatum,
then Player 2 gets to keep $3 and Player 1 gets to keep $7. If Player 2 rejects the
offer, then neither player gets anything. The game is played just this one time.
The Ultimatum Game appears trivial, but the results are enlightening. Most people,
if they imagine themselves in the role of Player 1, would probably offer $5 or a
50/50 split. Most people, if they imagine themselves in the role of Player 2 would probably
reject anything but a roughly 50/50 offer because they would consider a lopsided
offer to be unfair. Indeed, this is what usually happens when scientists do experiments
on the Ultimatum Game. Nevertheless, it is not what the empirical theory of psychological
egoism predicts.
If Player 1 is a true psychological egoist, and if Player 1 thinks that Player 2 is also
a psychological egoist, then Player 1 will think: “2 is a psychological egoist, so 2 will
accept a $1 offer, since $1 is more than $0.” Therefore, Player 1 will offer only $1. If
Player 2 actually is a psychological egoist, then Player 2 will accept the $1 offer since $1
is greater than $0. So psychological egoism predicts that Player 1 will offer the minimum
amount that the rules permit, and that Player 2 will accept this offer. Empirical studies,
however, show that players mostly offer an approximately even split, and players mostly
reject offers less than an approximately even split. Perhaps ultimatum-issuing players
feel ashamed to offer less than what seems fair, and ultimatum-receiving players feel
40
Chapter 3
indignant at unfair offers and punish the other players, even at some cost to themselves.
Such experiments disconfirm psychological egoism, and show that other forms of ethical
theory are psychologically possible.
Arguments for and against Ethical Egoism
It is not easy to think of strong arguments in favour of ethical egoism. Someone might
be tempted to argue that ethical egoism is true because psychological egoism is true.
Since it is the case that people act only to promote their self-interest, then it ought to be
the case that people act only to promote their self-interest. However, such an argument
is invalid because it ignores the “is/ought” gap.
Another justification of ethical egoism might argue from the premise that “ought”
implies “can” and from the premise that people can only act to promote their self-interest,
to the conclusion that no ethical theory other than ethical egoism can be true.
However, the second premise of this argument is a restatement of psychological egoism,
and we have seen that it is unlikely that this premise is a true one.
By definition, ethical egoists ought only to act in ways that promote their own
interests. Also by definition, someone has moral standing if, and only if, people ought
to consider their interests when they make ethical decisions. In other words, each
ethical egoist must claim that he, and only he, has moral standing. How is an ethical
egoist to justify this claim? We usually make claims to moral standing by pointing
to some ethically relevant feature of individuals that justifies why those individuals’
interests deserve ethical consideration. For example, an animal welfare advocate will
point to the ability of animals to suffer pain and argue that the interests of animals in
avoiding suffering deserve moral consideration just as do the interests of human beings.
An ethical egoist would have to point to some feature of himself that explains why he
has moral standing while others did not. It would have to be some feature that was
both unique to him and relevant to the question of moral standing. However, there is
no such feature. Any feature that picked out the ethical egoist uniquely, such as his
passport number, is going to be morally arbitrary and irrelevant to the question of
moral standing.
Ethical judgments, as we have seen, are fundamentally agreement-seeking. It is
quite unlikely, however, that an ethical egoist could ever obtain the agreement of others
that his interests, and his interests alone, deserve moral consideration. Ethical egoists
might seek agreement in the sense of trying to convince others that ethical egoism is the
right ethical theory; so, for example, Fred might try to convince Sally that she should
look after only her own benefit. But real ethical egoists would not spread the word like
this, because others’ benefits will sometimes be their losses. Therefore, ethical egoism
violates the agreement-seeking rule for ethical views.
Egoism and Cooperation
The biggest problem for purely self-interested egoists is that they have difficulty
cooperating. We can begin to see this difficulty by examining the paradox of egoism.
41
Self-Interest and the Dilemmas of Cooperat ion
The paradox of egoism says that there exist states of affairs greatly in the self-interest of
ethical egoists that these same ethical egoists cannot achieve because they ought always
to act selfishly. Important relationships, like friendship, are greatly in the self-interest
of everyone, including ethical egoists. However, personal relationships such as friendship
or marriage are not available to people who only act to maximize their own interests.
Friendship requires that people sometimes put the interests of their friends ahead
of their own. Extreme ethical egoists, however, ought to betray their friends whenever
such betrayal is in their own interest. Thus, extreme ethical egoists cannot have friends
and so cannot maximize good consequences for themselves. Extreme ethical egoism is
self-defeating because extreme egoists cannot cooperate.
More generally, cooperation dilemmas arise in situations where two or more egoists
can maximize their self-interest by cooperating, but will be lead to cheat in order to
promote their own interests. Extreme ethical egoists ought to cheat to maximize their
self-interest. Extreme psychological egoists will cheat to maximize their self-interest. So
both will cheat instead of cooperate in such situations.
We can illustrate the self-defeating cheating of ethical egoists using the tools of
elementary game theory. Consider the following little game. There are two players, Don
and Eve, and a referee. The referee places two piles of money, one containing $4, and
the other $1, in front of Don. Don has two choices. One, he can stop the game, take the
larger pile of money and give the smaller pile to Eve. Two, he can pass both piles to Eve,
and the referee will double the money in each pile so that Eve has $8 and $2 in front of
her. Now Eve faces a similar choice. She can stop the game and keep the larger pile, or
pass both piles, which the referee will again double, to Don. The game keeps going until
either player stops it. The game raises three questions: What is the best way to play this
game? How will normal people play this game? How will ethical egoists who believe
each other to be ethical egoists play this game?
We can more easily answer that last question if we draw the choice nodes of the
game as shown in Figure 3.2. Each circle represents a choice node for Don or Eve. Each
arrow represents an option to Stop and take the larger pile or to pass the choice to
the other player. The boxes show the payoffs to each player. Game theorists call this the
Centipede Game because they usually draw it with one hundred choice nodes. Our simplified
version is a five-stage Centipede Game. If the players pass through all five stages,
then the final payoff is $50 each.
Figure 3.2: A five-stage Centipede game.
Pass Pass Pass Pass Pass
D=4
E=1
D=2
E=8
D= 16
E=4
D=8
E=32
D=64
E= 16
D=50
D E D E D E=50
Stop Stop Stop Stop Stop
42
Chapter 3
If we use Figure 3.2 and reason backwards from the end of the game, then we
can see what will happen. Suppose that Don and Eve are both ethical egoists, and that
they each know that the other is an ethical egoist. At the fifth and last stage of the
game, Don will stop the game and take the pile of $64 because the $64 that he gets by
stopping is larger than the $50 he would get by passing. At the fourth and second-last
stage of the game, Eve will know that Don will stop at stage five, so she will stop the
game to get $32 rather than the $16 she knows she will get if she passes and allows Don
to stop at the final stage. Knowing this, Don will stop at the third stage rather than let
Eve stop at the fourth. And so on back to the first stage of the game. What this adds
up to is that Don will choose to stop the game at the first decision node. The solution
to the Centipede Game is that Don and Eve, if they are ethical egoists who maximize
their self-interest at every decision and who believe each other to be ethical egoists, will
stop the game at the first stage, where Don will get $4 and Eve will get $1. However, if
they could only have reached stage four, they would have both been better off, and
if they could have played the game to the end, then they would have received $50 each.
Both players make the cleverest choices that they can at each stage of the game, but the
result is that they both do less well than they could have if they did not reason as egoists.
In a full one-hundred-stage centipede game, where the end is not in sight, regular
people, such as college students, will generally assume the trustworthiness of the other
player, and cooperate by passing the piles of money back and forth. They will continue
until the piles become big enough that they start to wonder whether the other player
will be tempted to stop the game. At this point, they will stop the game themselves
and take the payoff. In a shorter game, like the five-stage game above, they will likely
behave as they would in the ultimatum game, with both aiming at an even split of $50
each. Two expert game players, such as highly rational, super competitive, professional
chess players, will generally see the backward induction immediately, and will stop the
game at the first move. The interesting point is that regular, unsuspicious, and dependable
people will usually receive higher payoffs than will expert game players because
they will allow the game to continue longer. Regular, reasonably altruistic, and moderately
cooperative people will do better in the Centipede Game than will selfish egoists
who believe that others are also selfish egoists.
The Prisoner’s Dilemma
A more familiar game, the Prisoner’s Dilemma Game, also demonstrates the cooperation
dilemma for extreme egoists, and shows how more enlightened egoists might work
their way around such dilemmas. Suppose that Fred and Gina are two extreme ethical
egoists who work together on a project for their boss. Their boss has set up the following
incentive structure for them: They each get a $2,000 bonus if they each claim to
have done an equal share of the work. If one of them claims to have done most of the
work and the other claims to have done an equal share, then the one who claims to
have done most of the work gets a bonus of $3,000, and the other gets no bonus at all.
If both employees claim to have done most of the work, then they each get a reduced
bonus of $1,000. Fred and Gina promise one another that they will tell their boss that
43
Self-Interest and the Dilemmas of Cooperat ion
they each did an equal share of the work. Their boss, who is pleased with the project,
interviews each of them separately in their individual offices, and asks each of them
who did the work. Should Fred and Gina, who are extreme ethical egoists, keep their
promises to one another and say that they shared the work equally?
We can see better what should happen if we represent their strategic choices in a
payoff matrix as in Figure 3.3.
A payoff matrix for a game is a table that shows each player’s payoff for every possible
combination of strategies. In this case, the game has two players, Fred and Gina, who
each have a choice of two strategies, either to keep their promise to the other player
about what to tell the boss, or to break that promise. We represent Fred’s two strategies
as the two rows of the table, and Gina’s two strategies as the two columns of the table.
This gives four possible outcomes that we represent by the four cells of the table. Each
of these cells shows the payoffs to Fred and Gina for a particular combination of strategies.
We show Fred on the left side of the payoff matrix, so we show Fred’s payoffs in
the lower left of each cell. We show Gina on the upper side of the payoff matrix, so we
show Gina’s payoffs in the upper right of each cell. For example, if Fred keeps his promise
and Gina breaks hers, then their payoffs are in the upper right cell (UR) of the payoff
matrix. Fred will receive a $0 bonus and Gina will receive a $3,000 bonus. The payoffs
in the matrix correspond to the payoffs given in the verbal description of the situation.
In order to see what will happen, we have to reason carefully through the options
facing each player. Let us look at Gina’s reasoning. First, what should Gina do if she
thinks that Fred will keep his promise? We must consult the first row of the table. If
Gina keeps her promise then her payoff in the Upper Left cell (UL) will be $2,000. If she
breaks her promise, then her payoff in cell UR will be $3,000. Her payoff for breaking
her promise is higher than her payoff for keeping it. Figure 3.4 shows the $3,000 payoff
in bold. Therefore, Gina will reason that if Fred keeps his promise, then she should
Figure 3.3: A payoff matrix for Fred and Gina who can
each either keep or break their promises.
Gina
Keep promise Break promise
Fred
Keep promise
$2,000
UL
$2,000
$3,000
UR
$0
Break promise
$0
LL
$3,000
$1,000
LR
$1,000
44
Chapter 3
break hers. Second, what should Gina do if Fred breaks his promise? Her payoff of
$1,000 in cell LR for breaking her promise is higher than her payoff of $0 in cell LL for
keeping it. Therefore, Gina will reason that if Fred breaks his promise, then she should
also break hers. Gina will now reason that no matter what Fred does, she should break
her promise. Gina will see that she has a dominant strategy. A dominant strategy in
game theory is a strategy that yields a higher payoff regardless of the strategy chosen
by the other player. Figure 3.4 shows her dominant strategy in bold letters. Second, let
us look at Fred’s reasoning. Figure 3.4 shows that no matter which strategy Gina plays,
Fred’s payoff (also in bold letters) will be higher if he breaks his promise. Therefore,
Fred too has a dominant strategy, shown in bold letters, which is to break his promise.
If Fred and Gina, reasoning as egoists, both break their promises, then they will
receive the payoffs of $1,000 shown in cell LR. Their dilemma is that this outcome is not
the one that would maximize their self-interest. They would both be better off with the
outcome shown in cell UL, where they each get $2,000. They can obtain this outcome
if they both keep their promises, but, as we have seen, reasoning as self-interest maximizing
egoists, they cannot reach this better outcome. In the language of economics,
the outcome of their game is not Pareto efficient. A distribution of payoffs is Pareto
efficient if no change is possible that will increase the payoff to one player without
decreasing the payoff to another. In this case, a change from the outcome in LR to the
outcome in ul will increase the payoffs to both players. By playing their dominant
strategies, the two egoists arrive at a Pareto inefficient outcome. (We should notice that
the payoffs in cells Ll and uR are also Pareto efficient, because any change will result in
a pay-off loss for one or the other of the two players. For example, a change from uR,
where Gina gets $3,000 and Fred gets $0, to any other outcome will result in a smaller
payoff for Gina. A Pareto efficient outcome is not always a fair outcome.)
Figure 3.4: This payoff matrix shows Fred and Gina’s best responses
bolded. Their dominant strategies are also bolded. The payoffs
from both playing their dominant strategies are in cell LR.
Gina
Keep promise Break promise
Fred
Keep promise
$2,000
UL
$2,000
$3,000
UR
$0
Break promise
$0
LL
$3,000
$1,000
LR
$1,000
45
Self-Interest and the Dilemmas of Cooperat ion
A game is a Prisoner’s Dilemma Game when both players have dominant strategies
that, when played, result in an outcome with payoffs smaller than if each had played
another strategy. It gets this name from a strategy sometimes employed by the police
to get two criminal accomplices to inform on one another. Like the Centipede Game it
shows that ethical egoists, doing what they should, or psychological egoists doing what
they do, will be unable to achieve the benefits of cooperation.
The Benefits of Cooperation
Cooperation is more important to businesses in a market economy than people often
realize. People often think that it is competition between business firms that generates
economic goods and services. Competition between firms is important in keeping down
the prices of goods, but it is not what produces the goods. The main mechanisms behind
the huge productivity of modern economies are the mechanisms of cooperation and organization
that allow for gains from specialization and the division of labour. If people
were too ruled by their own narrow interests to be able to cooperate, they would not
be able to specialize in different tasks and divide the labour in ways that vastly increase
productivity. A famous passage from Adam Smith describes the gains from specialization
and the division of labour between ten employees in an eighteenth-century pin factory.
To take an example … the trade of the pin-maker; a workman not educated
to this business … nor acquainted with the use of the machinery
employed … could scarce, perhaps, with his utmost industry, make one pin
in a day, and certainly could not make twenty…. One man draws out the
wire, another straights it, a third cuts it, a fourth points it, a fifth grinds
it at the top for receiving the head; to make the head requires two or three
distinct operations; to put it on, is a peculiar business, to whiten the pins
is another; it is even a trade by itself to put them into the paper; and the
important business of making a pin is, in this manner, divided into about
eighteen distinct operations … I have seen a small manufactory of this
kind where ten men only were employed, and where … they could, when
they exerted themselves, make among them about twelve pounds of pins
in a day. There are in a pound upwards of four thousand pins of a middling
size. Those ten persons, therefore, could make among them upwards
of forty-eight thousand pins in a day. Each person, therefore, making a
tenth part of forty-eight thousand pins, might be considered as making
four thousand eight hundred pins in a day. (Adam Smith, The Wealth of
Nations, 1776, I.1.3)
By specializing in work that they have learned to do quickly, by using specialized
machinery, and by organizing and dividing the tasks required in pin manufacture, the
workers cooperate in the factory to produce 4,800 times as many pins per worker as they
could produce working alone. A major role of business managers is to organize production
to take advantage of specialization and the division of labour.
46
Chapter 3
We can better see how cooperation increases productivity in the small, abstract
model of the Pin Factory shown in Table 3.1. Here there are only two workers, Jack
and Jill, and only two stages in the pin production process. In this model, Jack is
better at producing the heads for pins than he is at producing the points. He can produce
9 pinheads per hour of work, but only 1 point. Jill’s skills are complementary.
She can produce 9 points per hour of work, but only 1 pinhead. Working alone each
can produce only 9 complete pins in a day. Jack, for example will have to work for
1 hour to produce 9 pinheads and then 9 more hours to produce 9 points in order to
produce 9 complete pins. For simplicity, we will assume that the pins take no time
to assemble from the parts. If Jack and Jill work alone, then they will produce 18
complete pins.
On the other hand, if Jack and Jill are able to cooperate, then Jack will specialize
in what he does best and make 90 pinheads. Jill will specialize in what she does best
and make 90 pinpoints. By dividing the labour of making pins, Jack and Jill can vastly
increase their productivity and produce 90 complete pins. No more effort is involved
for either of them. They achieve this productivity gain, not by working any harder, but
by organizing their work differently. This raises two questions: One, how do we create
cooperation between egoists? Two, how should we distribute the gains from cooperation,
that is, the profits from the extra 72 pins? We will look at the first question now
and reserve the second for later chapters.
Creating Cooperation
Arguably, most of the goods that people enjoy in a modern economy are the results
of specialization and the division of labour. Even the sophisticated technology that
people enjoy can only come about because some talented people specialize in inventing
new things while other people specialize in producing their food. Only a colossally
complex system of cooperation between workers in the energy industry is able to discover,
develop, and distribute the energy that runs cars, homes, and factories. Without
the ability to cooperate, human beings would not flourish. In the seventeenth century,
Table 3.1: Model Pin Factory: When Jack and Jill specialize in the production that
they each do best, they can create cooperatively many more pins in a 10-hour day.
Jack Jill
Heads Points Heads Points
Productivity per hour 9 1 1 9
Solitary pin production in a 10-hour day 9 9
Total solitary pin production in a 10-hour day 18
Specialized part production in a 10-hour day 90 0 0 90
Total cooperative pin production in a 10-hour day 90
47
Self-Interest and the Dilemmas of Cooperat ion
the English philosopher Thomas Hobbes realized that extreme ethical egoists would
always cheat on one another, and that life for a society of ethical egoists would be, in his
words, “nasty, brutish, and short.”
Whatsoever therefore is consequent to a time of Warre, where every man
is Enemy to every man; the same is consequent to the time, wherein men
live without other security, than what their own strength, and their own
invention shall furnish them withall. In such condition, there is no place
for Industry; because the fruit thereof is uncertain; and consequently no
Culture of the Earth; no Navigation, nor use of the commodities that may
be imported by Sea; no commodious Building; no Instruments of moving,
and removing such things as require much force; no Knowledge of the face
of the Earth; no account of Time; no Arts; no Letters; no Society; and
which is worst of all, continuall feare, and danger of violent death;
And the life of man, solitary, poore, nasty, brutish, and short.
(Hobbes, 1651, Chapter 13)
He proposed that enlightened ethical egoists should establish a government with the
coercive power to punish cheating. State punishment would then give cheating a lower
payoff than cooperating, and would make all the warring egoists better off.
We can see how this works if we develop the situation between Fred and Gina.
Suppose that instead of making mutual promises, Fred and Gina sign legally binding
contracts with state-enforced penalties for breach of contract. Suppose that if either
party fails to fulfil the contract, then the party is liable to a $2,000 fine. We can represent
the new situation of Fred and Gina in the payoff matrix of Figure 3.5. Now they
each have two potential strategies consisting of either fulfilling their contract or breaching
it. If they breach the contract, then the $2,000 fine will reduce their payoffs as shown.
Figure 3.5: Fred and Gina face a $2,000 penalty for breach of contract resulting
an a pareto efficient outcome. Best responses and dominant strategies are bolded.
Gina
Fulfil contract Breach contract
Fred
Fulfil contract
$2,000
UL
$2,000
$3,000-$2,000=$1,000
UR
$0
Breach contract
$0
LL
$1,000=$3,000-$2,000
$1,000-$2,000= -$1,000
LR
-$1,000=$1,000-$2,000
48
Chapter 3
Now Gina will reason that if Fred were to fulfil his side of the contract, then she should
fulfil her side because the payoff of $2,000 for fulfilment is higher than the sum of her
bonus for claiming to have done all the work less the fine she would have to pay for
breach of legal contract. She will also reason that if Fred breaches the contract, then
she should still fulfil her side because the $0 she will get for fulfilment is still better
than the new loss of $1,000 she will face for breach of contract. She will see that her
best response to whatever Fred does is to fulfil the contract and that this is her dominant
strategy. Similarly, Fred has a dominant strategy, which is to fulfil his side of the
contract. When both play their dominant strategies, the outcome will be the payoffs in
cell UL. This outcome is Pareto efficient because changing to any other outcome will
result in a lower payoff for one or other of the players.
A contractarian ethical theory is a theory claiming that ethics consists in an
enforced contract among ethical egoists designed to prevent dilemmas of cooperation,
such as the Prisoner’s Dilemma situation. State enforcement of contracts and property
rights constrains the freedom of ethical egoists to pursue their self-interest as they see fit,
but it allows for a system of specialization and the division of labour that will make egoists
who obey the new rules of the game better off. For example, in a society of egoists
who obey the rules of property and contract law, Adam Smith’s invisible hand will make
the whole society better off. By accepting rules of the game, egoists can avoid the war of
all against all that Hobbes envisioned, and reap the benefits of cooperation.
Nevertheless, egoists will endeavour to break the rules of the game whenever doing
so is in their own interest. Ethical egoists will do so because they think they should;
psychological egoists will do so because it is their nature. Ethical egoists think they are
obliged to cheat if they can. Psychological egoists will cheat if they can. Consequently,
society will require legal enforcement of the rules of the game. There will need to be
legal coercion of cheaters such as damage suits, fines, and prison time. This will require
a large legal apparatus of police, lawyers, and judges. If cheating is widespread, then
this legal apparatus will become expensive. The enforcement costs for preventing the
theft of property and the transaction costs of using lawyers and the courts to enforce
contracts will become huge.
Internal enforcement would be less expensive. A society of people who were able
to punish themselves for breaking the rules of the game would be economically more
efficient than one where a judicial system of punishment had to be funded by the tax
system. People who were capable of self-punishment for rule-infractions—people who
experienced feelings of guilt and shame when they took advantage of others—could
cooperate more efficiently than could egoists who felt no remorse whenever they cheated.
People who would regularly mete out informal punishment even at some cost to themselves—
people who are outraged at cheating and indignant when they see advantage
being taken—could also cooperate more efficiently than could egoists who were always
calculating the costs and benefits to themselves of informally punishing others. People
who had learned virtues of trust and trustworthiness could cooperate more efficiently
than could people who had learned only to be selfish. In other words, a society of people
who had internalized the rules of the game, learned a set of moral virtues, and cultivated
a set of moral emotions such as guilt, shame, indignation, and outrage, would be more
49
Self-Interest and the Dilemmas of Cooperat ion
productive than a society of people who only functioned through calculations of self-interest.
Paradoxically, ethical egoists who committed themselves to other ethical theories,
and thereby ceased to be ethical egoists, might find doing so in their self-interest.
Despite all the foregoing problems with the pursuit of our own interests, self-interest
should still be a consideration in ethical decision-making. Ethical egoism is correct
to identify self-interest as an important part of moral decision-making, but it is wrong to
suggest that self-interest is the only concern. However, we must remember its dilemmas,
and pay attention to other ethical considerations that often outweigh or override
self-interest.
Now that we have looked at the bigger picture of how the various ethical theories
can work together to advise us in our business decision-making, we will examine each
theory in greater detail. Each of the next few chapters is devoted to one of the major
ethical theories—first we will take a closer look at utilitarianism, then rights-based
ethics, justice, virtue ethics, and care ethics.
Summary
1. Psychological egoism is the empirical theory that people always do
act to maximize the satisfaction of their own interests. Ethical egoism
is the ethical theory that people always ought to act to maximize the
satisfaction of their own interests.
2. Psychological egoism is a basic assumption of economics, but
behavioural economics experiments, such as the Ultimatum Game,
suggest that it is not a good description of human nature.
3. Ethical egoism is difficult to justify. The single-minded pursuit of selfinterest,
when others are doing the same, can often be self-defeating.
For example, two highly rational maximizers of self-interest will do
less well playing the Centipede Game than will two average, trusting
people who have the emotional makeup required for cooperation.
4. Another example of the dilemmas facing extreme egoists is the
Prisoner’s Dilemma Game. Here, both players have dominant strategies
based on self-interest that, when played, result in an outcome with
payoffs smaller than if each had played another strategy based on
cooperative considerations. Achieving Pareto efficiency requires
constraining extreme egoism.
5. Most of the wealth of modern economies arises from people
cooperating with one another and organizing production according to
principles of specialization and division of labour.
6. Societies can create cooperation between egoists by coercively
enforcing the rules of the game, rules such as laws regarding property
and contracts. However, if people internalize the rules of the game as
ethical obligations, then they can achieve cooperation more efficiently.
7. Self-interest is still an important consideration in ethical decisionmaking,
but other ethical considerations often outweigh it.
50
Chapter 3
ONLINE LEARNING RESOURCES
You will find a collection of learning resources associated with this chapter on the
book’s website: http://sites.broadviewpress.com/businessethics/. Working through this
material will help you understand and remember important concepts that we have
discussed, and will help you apply them to issues in business ethics.
Study Questions
Answering the following questions will help you to understand the ethical theory in this
chapter and will help you to create a set of review notes on the textbook.
1. Explain the difference between ethical and psychological egoism.
2. Why is psychological egoism not an accurate model of
human behaviour?
3. Describe a situation in which extreme egoists will be unable to achieve
the benefits of cooperation.
4. Why is it so important that human beings be able to engage in
cooperative production through specialization and the division
of labour?
5. How can a society create cooperation between its self-interested
members by enforcing the rules of the game?
6. How can a society of ethical people be more efficient than a society of
extreme egoists?
Decision Questions
The whole point of learning ethical theory is to understand and ask questions like the
following when you are analyzing an ethically problematic situation or case.
• Should the decision depend only on self-interest?
• Which decision is in the decision-maker’s self-interest?
• Should we also consider family, friends, community, or more?
• Should we think of others as psychological egoists?
• Will the decision-maker’s strategic decision involve a prisoner’s
dilemma situation?
• Would a decision to maximize self-interest lead to vice, injustice, utility
loss, or rights violations?
• Would a decision to maximize self-interest lead to problems
with cooperation?
51
Self-Interest and the Dilemmas of Cooperat ion
Case Study
Analyze this case study using the ethical theory that you have learned so far. You will
find a collection of learning materials applying to the case on the book’s website: http://
sites.broadviewpress.com/businessethics/. These materials will help you in your analysis.
What Should Carol Do about Workplace Safety?
Carol Walters is a production manager for World Auto Parts, a large manufacturer of
transmission components for cars and trucks. Transmission parts production is a very
competitive sector. If WAP’s production cost were to rise, then WAP’s two main competitors
would rapidly take over WAP’s markets.
WAP has the advantage of a loyal and experienced workforce who have nearly all
been with WAP for over ten years. WAP is not unionized, but it does pay well. One reason
that the employees stay with WAP is that there are no other jobs available in the local area.
Technology, however, has not stood still. Most of the machinery that was up-todate
ten years ago has gone obsolete, and WAP has replaced many of the machines
on which employees originally worked. One such machine is the Sterling Gear Press
Mark IV, with which WAP recently replaced the slower Mark III model. This new
machine is the mainstay of gear production in the factory, and many employees now
run it. WAP has installed the new Mark IV on the factory floor beside the older Mark III
machines. Both of WAP’s competitors have also upgraded to the new Mark IV machine
in the same way.
Carol and another production manager, Phil Thomas, have recently noticed that the
injury rate on the new machines is higher than the injury rate on the old machines. There
appears to be a defect in the design of the safety cover of the Mark IV. The new design
causes workers who use the machine to strain their backs and left arms. Because the new
machine is so much faster than the old version, production has gone up. The savings to
WAP have outweighed the cost of downtime and time off for injured workers taking sick
leave. WAP gives sick pay at 60% of regular wages, and only for 10 days per year.
The situation does not violate local Occupational Safety and Health regulations.
Still, it is in Carol’s interest to fix the problem because, as a production manager, she
will likely end up being blamed by senior management. Carol and Phil discuss how WAP
could do something about the situation. They believe that if they both independently
talk to their boss, Joan Ross who is the VP of production at WAP, then Joan will believe
them that there is a workplace-safety problem. Joan could order them to inform the
operators of the new machines about the problem. Joan could also order the machine
operators to slow down and be more careful. Alternatively, Joan could order the operators
to resume using the Mark III machines, which still sit beside the new models. Any
of Joan’s possible responses will put WAP at a competitive disadvantage, unless Joan can
convince both of WAP’s competitors to do the same. Even if WAP’s competitors verbally
agree to follow one of these workplace-safety strategies, Joan would not be certain that
she could trust them actually to implement the strategy.
52
Chapter 3
Complicating the situation is the issue that Carol and Phil are competing for a promotion
to Senior Supervisor. In the past, Carol has not always kept her word to Phil, or
done her share of work on group projects. She does not think Phil trusts her. If Phil and
she independently tell Joan about the safety problem, then Joan may do something,
and Carol will still be in competition for the promotion. However, if one of them does
not follow through and tell Joan, then Joan will likely do nothing about the safety issue,
and Joan will likely not promote the seeming naysayer and troublemaker who did bring
up the safety issue. If neither tells Joan, then nothing will happen and the competition for
promotion will continue.
Analyze the ethical issues in the situation facing Carol, paying particular attention
to any cooperation dilemmas. Should Carol tell Joan about the workplace-safety issue?
53
Chapter 4
CALCULATING
CONSEQUENCES
AND UTILITARIAN
REASONING
Is causing maximum happiness for everyone
the way to make ethical decisions?
How can we measure and compare people’s happiness?
What should we do when maximizing happiness leads to injustice?
Self-interested people make decisions by looking at their options, calculating the consequences
of each option, judging which option will contribute the most to their welfare,
and choosing that option. Purely business-minded corporate managers, who look out
only for the interests of their company, make business decisions by estimating the financial
costs and benefits of alternative projects. They discount these costs and benefits
to the present, and then decide on the project that offers the highest present value of
net benefits to their company. Socially responsible corporate managers make ethical
decisions by reasoning in a similar way, except that they consider the costs and benefits
to their customers, employees, suppliers, and community as well. In doing so, they are
implicitly assuming some form of the utilitarian ethical theory.
According to utilitarianism, the best decision is the one that causes the maximum
amount of utility for all those whose interests it affects. Utility is a philosophical term
of art that the originator of utilitarianism, the eighteenth-century English legal theorist,
Jeremy Bentham, defined as follows.
By utility is meant that property in any object, whereby it tends to produce
benefit, advantage, pleasure, good, or happiness, (all this in the present
case comes to the same thing) or (what comes again to the same thing) to
prevent the happening of mischief, pain, evil, or unhappiness to the party
whose interest is considered…. (Bentham, 1789, Chapter I, Paragraph 4)
54
Chapter 4
In its original formulation, utilitarianism claimed that people should promote those
states of affairs that produced the best balance of pleasure over pain for everyone.
In a society that assumed the interests of aristocrats were more important than
were those of everyone else, Bentham’s utilitarianism was a radical doctrine. It treated
everyone’s interests as having equal importance in formulating public policy. Each
was to count for one, and none was to count for more than one. In the hands of the
economists who followed Adam Smith it led to the idea that the business activity under
conditions of perfect competition is ethically justified because it maximizes overall
welfare. Utilitarianism also promised a universal algorithm for making ethical decisions.
If scientists could only find some way of comparing and measuring people’s
pleasures and pains, then utilitarianism suggested a recipe for ethical decision-making
resembling the method of financial cost-benefit analysis: For each option, sum the
pains and pleasures of everyone, and choose the option likely to cause the best balance
of pleasure over pain.
Unfortunately, what works for individual, self-interested decision-makers, is difficult
to implement for decisions concerning more than one individual. Firstly, single
individuals can easily compare one pleasure to another and determine which one is more
intense, but scientists have not found a way to make this comparison between different
people. Without a way of measuring degrees of pain and pleasure across individuals, it is
impossible to sum and maximize net pleasure. Secondly, when individuals trade off their
own pain for their own pleasure to maximize happiness within their own lives, issues
of fairness do not arise. On the other hand, when a utilitarian decision-maker trades off
the pain of one person for the pleasure of another in order to maximize the sum total of
happiness, significant issues of fairness do arise.
In this chapter, we will look in more detail at the problems of measuring human
welfare, and at the issues of distributive justice and respect for individual rights that
occur when utilitarians add up welfare across many individuals. We will also look at
the utilitarian response both to these issues, and to the sheer complexity of the calculations
that people must make in their ethical decision-making. This utilitarian response
is to apply the theory indirectly, at the level of policy formulation, rather than directly
to each case. Indirect utilitarianism justifies the implementation of policies, such as
the following of rules or the inculcation of virtues, rather than the performing of a net
benefit calculation. The justification is that people will create maximum happiness by
implementing these policies rather than becoming mired in a detailed calculation of
costs and benefits every time they must make an ethical decision.
Calculating Consequences
Bentham defined utility as the property of an object whereby it tends to produce welfare
or happiness, which he took to be synonymous with pleasure. Bentham took “utility”
as another word for “usefulness.” Modern-day economists and philosophers think of
utility as an abstract measure of the welfare that people get from consuming something
as a product or service. They think of it as an amount of pleasure or satisfaction, rather
than as a property. To a utilitarian, then, a decision is the right one if, and only if,
55
Calculat ing Consequences and Utilitar ian Reasoning
1. it causes
2. the maximum
3. aggregate amount of
4. utility.
Component (1) makes the decision procedure consequentialist. Component (4) makes it
subjective or psychological. Component (3) says to add up or sum the utilities of everyone
whose interests are affected. Component (2) tells how to make the decision: Pick the
option that causes maximum total utility.
Suppose that we have some way of measuring a person’s net utility with a value in
utiles. In the table below, if Hal is an ethical egoist, then Hal will decide on option A
because under option A he will maximize his own welfare score at 30 utiles.
If Hal is an altruist (that is, someone who maximizes positive mental states in others
with little consideration of his own interests), then he will decide on option B because
the combined welfare scores of the other two, Ira and Jan, is highest for option B
(25 + 40 = 65). If Hal is a utilitarian, then he will decide on option C because the
aggregated welfare score for everyone, including himself, is at a maximum for option C.
Figure 4.1 represents Hal’s utilitarian reasoning.
Hal’s decision Hal Ira Jan Aggregate Maximize?
A 30 15 20 30+15+20=65 No
B 10 25 40 10+25+40=75 No
C 25 20 35 25+20+35=80 Yes
Table 4.1: A table of welfare scores (utility) for Hal’s three options.
Figure 4.1: Utilitarian Hal chooses the option, shown
in grey, which maximizes utility.
Hal
Decision A Causes 30+15+20=65
Decision B Causes 10+25+40=75
Decision C Causes 25+20+35=80
56
Chapter 4
Experience-Based Utilitarianism
Utilitarians differ in what they think utility is. Proponents of experience-based utilitarianism
believe, like Bentham, that utility consists in receiving pleasure and avoiding
pain. Proponents of preference-based utilitarianism believe that welfare consists in having
preferences satisfied, where a preference is a person’s choice among all the states of
affairs that a person might want or desire. Cost-benefit utilitarianism assumes a particular
way of measuring intensity of preferences: willingness to pay.
Experiences are mental sensations of pleasure or pain, or of other feelings of enjoyment
or suffering. They are action-guiding in that people mostly seek to find pleasure
and avoid pain. For Bentham, pain and pleasure are also ethical. The first sentence of
his important 1789 book, An Introduction to the Principles of Morals and Legislation,
goes as follows.
Nature has placed mankind under the governance of two sovereign masters,
pain and pleasure. It is for them alone to point out what we ought to
do, as well as to determine what we shall do. (Bentham, 1789, Chapter I,
Paragraph 1)
Pain and pleasure govern what it is that we do as well as what it ought to be that we do.
Experience-based utilitarianism bases itself on the ethical importance of feeling pleasure
and avoiding pain. Even though we cannot argue from the fact that people avoid
pain to the ethical value that people ought to avoid creating pain, the ethical value of
avoiding pain is still an ethical intuition that most people share. Similarly, the fact that
people seek pleasure does not entail that people should create pleasure, but the ethical
value of pleasure is still a widely shared fundamental ethical intuition.
According to experience-based utilitarianism, the ethical value of the consequences
of a decision resides totally in the mental experiences that it brings about. An
agent’s decision brings about a state of affairs in the world, and this state of affairs
normally causes pleasurable or painful experiences. This is the picture Bentham had in
mind when he wrote of utility as the property of an object that tends to produce pain or
pleasure. Figure 4.2 shows this situation.
One problem is that we can imagine creating any mental experience in a
non-standard fashion. Sensations are purely internal to the mind and do not depend
Figure 4.2: Ethically valuable mental experiences brought about by a
state of the world that standardly brings about such experiences.
Agent’s
Decision Causes Causes Mental
Experiences
State of
the World
57
Calculat ing Consequences and Utilitar ian Reasoning
on what happens in the external world. For example, amputees frequently report
pain in phantom limbs, even though the real limb is no longer there. We can design
thought-experiments to suggest that sensations, feelings, and experiences are not the
only things with ethical value. Philosophers test conceptual claims, such as the claim
that pleasurable experience is all that is valuable, with thought experiments, just as
scientists test empirical claims with scientific experiments. One such thought experiment
is the Experience Machine, invented by the twentieth-century American philosopher
Robert Nozick.
Imagine a machine that could give you any experience (or sequence of
experiences) you might desire. When connected to this experience machine,
you have the experience of writing a great poem or bringing about world
peace or loving someone and being loved in return. You can experience
the felt pleasures of these things, how they feel “from the inside.” You
can program your experience for tomorrow, or this week, or this year, or
even for the rest of your life. If your imagination is impoverished, you can
use the library of suggestions extracted from biographies and enhanced
by novelists and psychologists. You can live your fondest dreams “from
the inside.” Would you choose to do this for the rest of your life? If not,
why not? (Nozick, 1989, pp. 104–05)
If we would not choose to hook ourselves up to the experience machine, then we do not
really believe that only pleasurable experience has ethical value. We do not value pleasurable
experience if it comes about in a non-standard way. We also value the existence
of the state of affairs that normally brings about each pleasurable experience.
Nozick’s example suggests that what has ethical value for people is not just the
experience, but also the state of affairs that brings about the experience. What one values
is not only the mere feeling of writing a great poem, but also the fact that one really
has written a great poem. In Bentham’s terminology, what really matters to people is
the existence of both the object that tends to bring about pleasure and the pleasure itself.
Nozick’s experience-machine example suggests that people want both an experience in
their internal, mental world and a state of affairs in the external, real world.
Preference-Based Utilitarianism
Experience-based utilitarianism aims at producing pleasurable experiences directly.
Preference-based utilitarianism, on the other hand, aims instead at producing actual
states of affairs that people want. By giving people the states of affairs that they want,
utilitarians hope thereby also to make them happy. Most people prefer a state of affairs
in which their friends love them. They do not want the fake love of pretend friends; they
want the real love of real friends. Utilitarians also think that people want the love of
their friends because loving their friends and being loved in return will make them happy.
Contemporary utilitarianism, and the economic thinking that it underlies, has
concentrated on satisfying people’s preferences. Preference satisfaction depends on the
58
Chapter 4
external world being a certain way, and preference satisfaction requires that we change
the external world to fit our preferences.
People always have many future states of affairs that they want to have come
about. Because their resources are finite, they cannot generally satisfy all of their
wants and desires. They have to choose the wants that they can afford to satisfy. For
example, at the corner store, a child may want both a chocolate bar and a bottle of
soda pop, but having only one dollar in her wallet, she must choose which one of those
treats she prefers.
Figure 4.3 represents the stages of preference satisfaction. A person starts with a
set of states of affairs, A to E, that he wants because he thinks they will bring him pleasure.
Unfortunately, he can bring about only one of these states of affairs. Of the five
possible states of affairs, he chooses D, which is the one that he thinks will cause him
the most pleasurable experience. He prefers D and acts to bring about D. State of affairs
D satisfies his preference, and gives him a certain mental experience. If he has chosen
wisely, then his preferred state of affairs will bring him a more pleasurable experience
than will any of his alternatives.
The problem with using preference satisfaction to ground utilitarianism is that
people do not always prefer wisely. We have all had the experience of wanting something,
but finding that when we get it, it does not bring us any pleasure. For example,
someone orders a slice of pepperoni pizza because she prefers it to the mushroom pizza
and she anticipates the pleasure it will bring her. Unbeknownst to her the pepperoni
has gone off, and the pizza tastes disgusting. We often do not have enough information
Desires for
A, B, C, D, E
Experience caused
by preference for D
being satisfied
Preference for D
Action to get D
State of the world D
Figure 4.3: The stages of preference satisfaction.
59
Calculat ing Consequences and Utilitar ian Reasoning
to predict accurately the experience that we will have when our preference is satisfied.
We get what we want, but it does not make us happy.
To make matters worse, it turns out that we do not prefer badly just because we
lack information. Experiments in behavioural economics show that people systematically
fail to predict the duration and intensity of experiences.
Behavioural economists have noticed mechanisms that systematically cause people
to misjudge the ability of their preferred states of affairs to bring them pleasure and
pain. People form preferences regarding future experiences based on their memories
of past experiences, when such memories are available. Memories of past experiences
are systematically inaccurate. People’s memories are subject to a tendency to neglect
duration in the evaluation of past experiences and to remember, not the overall intensity
of past experiences, but only their maximum intensity and their final intensity.
For example, experimenters asked subjects to hold their hand in cold water for 60
seconds, which caused the subjects mild pain. Then they asked the same subjects to
hold their hands in water for 90 seconds. For the first 60 seconds the water was at the
same temperature as in the previous experiment, and for the last 30 seconds it was
slightly warmer and less painful. The second treatment involved more pain than the
first, because while both included 60 seconds of the same pain, the second contained
another 30 seconds of milder pain. The experimenters then asked the subjects which
treatment they would prefer to have repeated. Wise judges of how future states of
affairs would cause them pain would choose the first treatment because it involved
less overall pain. Yet many subject preferred to repeat the second treatment because
their memories were unable to store the actual duration of the pain, and because they
remembered the intensity of the pain in the final 30 seconds of the treatment better
than they remembered their experience during the rest of the treatment. Contrary to
what made sense to Bentham, and contrary to what makes sense to us from the outside,
subjects preferred pain of longer duration to pain of shorter duration, or more pain
to less pain. Because people store memories of the experiences caused by past states
of affairs in a biased way, they are liable to form preferences about future states of
affairs in ways that systematically misjudge the psychological experiences that they
will cause. People are bad at forecasting what will make them happy. (Kahneman 2011,
Chapter 35; Gilbert 2006, Chapter 10)
Informed Preferences
We noted earlier that our actual preferences are sometimes a bad guide to what will
bring us happiness. We are quite often mistaken in our preferences about how we want
the world to be. Perhaps a better guide to happiness is to follow only the preferences
that we would have if we had true and adequate information about how the resulting
states of affairs would work out for us. The informed preference theory of value holds
that a state of the world is valuable if it would satisfy the preference that someone
would have if she had full information and were reasoning rationally. To return to our
previous example, we would not prefer the pepperoni pizza to the mushroom pizza if
we had full information, that is, if we knew that the pepperoni had gone bad.
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Chapter 4
Sometimes our informed preferences are the same as our actual preferences. This
happens when, in fact, we actually prefer the same state of the world as we would have
preferred if we were fully informed. Quite often, we are right about what will make us
happy. Sometimes, however, we are not, and then our informed preference for mushroom
pizza is different from our actual preference for pepperoni pizza, which unbeknownst
to us is rotten. What will promote our happiness is the mushroom pizza, the
pizza we would have preferred had we known everything. The trouble is, our informed
preference is not an actual preference that we have. Because it is a hypothetical preference
and not an actual preference, we cannot measure its intensity using the techniques
that we have surveyed. A subject will not be willing to pay anything at all to satisfy a
preference that she does not actually have. Therefore, we cannot measure and aggregate
those informed preferences that people do not actually have in the way that utilitarianism
requires. We can only do a cost-benefit analysis over people’s actual preferences, not
over their hypothetical preferences.
Philosophers are also suspicious of using informed preferences in utilitarian calculations
because world history is replete with examples of great harm done in the
name of making people better, or giving them what their rulers think they truly want
instead of what they actually want. Using hypothetical, informed preferences can lead
to a form of objective consequentialism that no longer worries about people’s actual
mental lives.
Measuring Utility: von Neumann-Morgenstern
Utilitarianism also faces the problem of how to measure happiness, net pleasure, or
utility. The utilitarian decision procedure involves summing the welfare of everyone
affected by the decision, and this summing operation is impossible unless we can reliably
measure people’s welfare.
For experience-based utilitarianism, this involves measuring pleasurable and painful
mental experiences. Experience-based utilitarianism treats everyone’s pains and pleasures
equally. When it adds up pains and pleasures it weights the pains of tenant farmers
by the same factor as it weights the pains of landowning aristocrats. The problem, however,
is measuring the intensity of people’s pains and pleasures. Scientists do not have a
pleasure-meter, a device which, when attached to someone’s head, will tell the scientist
the intensity of the subject’s pleasures or pains. People can be asked to rank the intensity
of a pain on a subjective scale of 0 for no pain to 10 for the most pain they can imagine.
Nevertheless, we cannot know that the scales are comparable between the two individuals.
For example, a peasant might rank the pain of his blisters at 5 while the Lady of the
Manor might rank the pain of a prick from her embroidery needle at 7. Is what the Lady
thinks as a 10 the same as what the peasant thinks of as a 10? We do not, and cannot,
know. Yet, if we cannot compare the intensity of experiences between people, then we
cannot measure utility in a way that would allow us to sum it up for different people.
Preference-based utilitarianism fares better in this regard. We can ask people what
their preferences are. We can also observe the choices that people make, and from
their choices, we can infer their preferences. We can observe that someone prefers A
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Calculat ing Consequences and Utilitar ian Reasoning
to B or that she is indifferent between B and C. This gives us an ordinal measure of
utility, in which we can say that one outcome has more utility than another outcome,
but in which we cannot say how much more utility the first outcome has than does the
second outcome. We can then construct the science of microeconomics based on these
observations. We can use these observations to create the whole apparatus of indifference
curves and demand curves, and even define a notion of Pareto efficiency that can
do duty as a maximization principle.
Once we have an ordinal measure of utility, there are two procedures for constructing
a cardinal measure that will tell us how much more utility one outcome
has over another. One procedure is the von Neumann-Morgenstern method from
game theory. Another procedure is the willingness-to-pay method used in economic
cost-benefit analyses.
Briefly, the von Neumann-Morgenstern method involves assigning a utility of 0 to
the worst possible outcome that we can imagine and a utility of 100 to the best possible
outcome that we can imagine. The experimenter then offers the subject a series of
gambles, each of which gives a different percentage chance of winning the best outcome.
To measure the utility of a particular outcome to the subject, the experimenter asks the
subject to say where he would be indifferent between the outcome happening or receiving
the gamble as a lottery ticket. For example, suppose the outcome in question is a
promotion at work, and that table 4.2 shows the subject’s responses.
The subject prefers the promotion to gambles with a 50% or less chance of winning the
best possible outcome, and prefers the gamble to the promotion for gambles with a 70%
or more chance of winning the best outcome. He is indifferent between the promotion
and a 60% chance of winning the best possible outcome, and this is a cardinal measure
of the utility of the promotion to him. In principle, the von Neumann-Morgenstern
method allows us to measure the intensity of someone’s preference for an outcome.
Measuring Utility: Willingness to Pay
Another way of measuring utility uses the amount of money someone is willing to pay
for a commodity as a measure of the intensity of her preference for it. Willingness to
pay is the maximum amount of money that someone would be willing to exchange
for an economic good. It is important to see that what someone is willing to pay
is not necessarily the market price. The market price for a commodity is set both
by what people in general are willing to pay for an additional item of that type and by
what other people are willing to accept for giving up the item. When a market price
Percentage chance of best outcome 10% 20% 30% 40% 50% 60% 70% 80% 90%
Prefers promotion to gamble Yes Yes Yes Yes Yes = No No No
Table 4.2: The utility of a promotion is measured by the point where
the subject is indifferent between the promotion and the gamble.
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exists for a commodity, no one will be willing to pay more for the commodity than
the actual market price. Though most people would be willing to pay a great deal of
money for a bottle of water in the middle of the desert, in the city, they will not pay
more for the same bottle than the asking price at the nearest corner-store. What someone
is willing to pay for an item is not its market price, but the person’s reservation
price. The reservation price is the maximum amount of money that someone would be
willing to exchange for a commodity in the absence of a defined market price for that
commodity. For example, someone’s reservation price for a unique artwork is the most
that she would pay for it at art auction. Willingness to pay has several severe problems
as a measure of utility.
Willingness to pay is measured by reservation prices. Even though market prices
are easy for economists to measure, reservation prices are not. Canny negotiators are
very coy about revealing what is the maximum they would pay for an item. No sensible
homebuyer offers $300,000 for a house and, at the same time, announces that the most
she would be willing to pay for the house is $400,000. People conceal their reservation
prices, and may even be deceptive and misleading about them as part of a negotiation
strategy. People bluff about their willingness to pay. Consequently, even though someone’s
willingness to pay looks like it is a transparent measure of their preference intensity
in currency units, in practice, it is actually very difficult to discover.
Willingness to pay is also affected by ability to pay. If a billionaire and a worker
are both at an auction bidding on a rare coin, the reservation price of the billionaire will
be far higher than the reservation price of the worker. This is not an indication that the
billionaire desires the rare coin more intensely than the worker does. All it means is that
the billionaire has more money than the worker has. We can only use willingness to pay
to compare preference intensities among people with the same income and wealth. Since
income and wealth vary widely across the population, willingness to pay will be a bad
measure of preference intensity. Furthermore, if we do use willingness to pay as a measure
of preference intensity, we will end up weighting the preferences of well-off people
more highly than we weight the interests of low-income people. A billionaire with the
same preference intensity as a worker will nonetheless be willing to pay (because able to
pay) more to satisfy that preference than will the worker. This is unfair and contrary
to a major attraction of utilitarianism, its equal consideration of interests, as in the
slogan, “Each to count for one, and none to count for more than one.”
Economic Utilitarianism
Economists use willingness to pay as a measure of utility when they do cost-benefit
analyses. Economists are careful to distinguish when they are doing positive economics
from when they are doing normative economics. Positive economics is a science that
creates models describing the behaviour of economic markets and participants in those
markets. Normative economics uses economic science to make policy decisions. It tells
decision-makers what policies they ought to implement based on an economic analysis
of the policy alternatives.
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Calculat ing Consequences and Utilitar ian Reasoning
Decision-makers use willingness to pay as a measure of utility when they do a
cost-benefit analysis (CBA). A positive cost-benefit analysis is an economic technique
that measures the financial costs and benefits of different policy options according to
people’s willingness to pay for them, calculates the total net benefits of each policy, and
uses the results as a factual input to a policy decision. A normative cost-benefit analysis
is a decision-making technique that measures the financial costs and benefits of different
policy options according to people’s willingness to pay for them, calculates the total
net benefits of each policy, and uses the results to justify a policy decision ethically. It is
important not to confuse these two interpretations of a CBA. What starts off as a factual
inquiry can easily become an ethical decision-making criterion. When this happens, the
results of the initial inquiry become an ethical decision without anyone noticing.
Table 4.3 shows the results of a simple CBA. For each person and each alternative,
the analyst calculates the benefits and costs and subtracts to find the net benefit. For
example, if Kira’s benefit under alternative A is $450 and her cost is $300, then her net
benefit will be $150 as shown in the top left cell of the table.
For each alternative, the bottom row shows the sum of the net benefits for all the three
people. Alternative C maximizes net benefits, and is the one that a normative CBA tells
us to choose. Someone might object that alternative B is fairer because it leads to everyone
getting the same net benefits, but a normative CBA ignores fairness and looks only
to maximizing net benefits.
If the analyst does not know for sure what will be the outcomes of an alternative,
then the analyst can calculate an expected value for the alternative by multiplying the
net benefits of each possible outcome by the probability that it will occur. For example,
if some alternative has a 30% chance of producing an outcome with a net benefit
of $1000 and a 70% chance of producing a net benefit of $100, then its expected net
benefit will be (.3 x $1000 + .7 x $100) = $370. If the outcome produced by an alternative
will not happen until some time in the future, then the analyst can discount the
net benefit of the future outcome and compare its present value to the present value of
the outcomes of the alternatives. For example if an alternative will produce an outcome
with a net benefit of $110 in one year’s time, and the rate of return for projects of a
Alternative A Alternative B Alternative C
Kira $150 $150 $100
Mike $200 $150 $100
Nadia $250 $150 $500
Aggregate: $600 $450 $700
Table 4.3: A CBA will sum the net benefits of each alternative, and
decide on the alternative with the highest total net benefits.
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similar risk is 10%, then the present value of the net benefit of this outcome will be
$100. Positive cost-benefit analysis is a sophisticated and elegant economic technique.
Clearly a positive CBA is on the “is” side of the “is/ought” gap, whereas a normative
CBA is on the “ought” side. Proponents of normative CBA as an ethical decision-
making technique can bridge this gap using an ethical theory as a premise. This
ethical theory will be a form of utilitarian reasoning that uses people’s willingness to
pay (WTP) for outcomes to measure the intensity of their preferences for these outcomes.
The following argument is logically invalid.
1. Alternative Q is the one that maximizes net benefits, as measured
by WTP.
2. Therefore, we ought to implement alternative Q.
The ethical (“ought”) conclusion does not follow from the factual (“is”) premise.
However, if we supplement the argument with a utilitarian ethical premise, then it
becomes logically valid. The following argument is valid.
0. Whatever alternative causes maximum net benefits, as measured by
WTP, is the one we ought to implement.
1. Alternative Q is the one that maximizes net benefits, as measured
by WTP.
2. Therefore, we ought to implement alternative Q.
The argument is logically valid, but whether it is a sound argument depends on whether
the ethical premise is true or not. If the ethical premise is false, then, despite the argument’s
logical validity, the argument lends no support to its ethical conclusion, the
decision to implement alternative Q.
The missing premise that we added to the above argument, Clause 0, is a statement
of economic utilitarianism. Economic utilitarianism is a form of preference-satisfaction
utilitarianism where we measure the utility of a good or service to each person
according to his or her willingness to pay for it. It becomes a utilitarian ethical theory
when we add up the costs and benefits for each person affected by the alternatives, then
add up each person’s total to discover which alternative maximizes the grand total of
financial net benefits for everyone, and then ethically justify our decision on the basis
that our chosen alternative causes maximum aggregate net benefits. One problem with
normative cost-benefit analyses is that decision-makers often apply them only in a limited
context. For example, a cost-benefit analysis done for a firm may be limited just to
the interests of owners and employees. However, economic utilitarianism implies that
all people have moral standing. So any decision-maker using a normative cost-benefit
analysis should be careful to consider the costs and benefits for all parties whom the
decision effects.
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Calculat ing Consequences and Utilitar ian Reasoning
Utilitarianism, Rights, and Justice
Some of the worst difficulties with utilitarianism as an ethical theory arise because of
the way that it adds up, or aggregates, everyone’s interests and maximizes the total
without regard to what happens to the individual human beings over whom it is summing.
The requirement to aggregate interests is implicit in Bentham’s description of the
nature of a community.
The community is a fictitious body, composed of the individual persons
who are considered as constituting as it were its members. The
interest of the community then is, what?—the sum of the interests
of the several members who compose it. (Bentham, 1789, Chapter I,
Paragraph 5)
Aggregating everyone’s interests can lead to the violation of individual human rights,
unfair distributions of welfare, and demands for people to behave in utility maximizing
ways that are contrary to being a virtuous person. We have already seen an example of
unfairness above, when a cost-benefit analysis favoured a maximizing distribution to
an equitable distribution.
Our imaginations can provide more examples. It might be the case that we could
maximize happiness in our society if we were to make members of a minority group
into the slaves of the majority. The increased happiness of the majority group might
outweigh the sufferings of the minority group, and the aggregate happiness would be
at a maximum. If this were so, then utilitarianism would tell us to implement this
slave-holding society. This conclusion is awful. All our ethical intuitions are against
slavery. Drawing on other ethical approaches, we can articulate these contrary intuitions:
Slavery violates the human rights of the slaves. Slavery violates the principle of
the moral equality of persons; it unjustly subjugates some individual to others for morally
arbitrary reasons. Slavery creates the exact opposite of the relationships that people
should have to one another.
Another stock example of the problems that aggregation creates for utilitarianism
is the case of the transplant surgeon. In the transplant ward of a hospital, two patients
each need a kidney, two patients each need a lung, and one patient needs a heart. All
five patients will die if they do not receive these transplants. Another patient is admitted
to the hospital with a broken leg, but also with two healthy kidneys, two healthy
lungs, and a healthy heart. The surgeon could save the first five patients by removing
the healthy organs from the sixth one. She could satisfy the preferences of five people to
continue living by frustrating the preference to live of only one person. Utilitarianism
would approve this trade-off, but other ethical approaches would not. According to
the rights approach, the surgeon would be violating the sixth patient’s right to life.
According to the justice approach, she would be treating the sixth patient unfairly,
imposing a giant burden on him for the morally arbitrary reason that he happened
to break his leg at the wrong time and place. According to the care ethics approach,
the surgeon is undermining the sort of caring and trusting relationship that should
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Chapter 4
exist between doctor and patient. According to the virtue approach, the surgeon is
murderous and callous. Because it aggregates welfare without concern for individuals,
utilitarian reasoning can violate our most basic moral intuitions as summarized in other
ethical approaches.
Indirect Utilitarianism
As an ethical decision-making technique, utilitarianism suffers from two further difficulties.
Firstly, applying utilitarian reasoning to every case is cumbersome, time-consuming,
and expensive. This is apparent in the business technique of using cost-benefit
analyses to decide on investment opportunities or to perform environmental impact
studies. Such decisions are not simple ones, require a great deal of staff time, and are
expensive if the organization hires outside consultants. Utilitarian reasoning is similarly
demanding for individuals. Each time she makes an ethical decision, an individual
must determine which people each of her alternatives will affect, predict the net welfare
change of each affected person, decide on probabilities of outcomes, calculate the
aggregate net welfare for each alternative, and finally pick the one that maximizes net
welfare. This very complicated deliberation will be hugely demanding on the cognitive
abilities of decision-makers. Because “ought” requires “can,” if a direct utilitarian
decision-making procedure is overly demanding on decision-makers, then it cannot be
morally required.
Secondly, utilitarian decision-making is likely to neglect tiny consequences
that, though insignificant by themselves, accumulate into important welfare effects.
A stock example is the lawn-crossing problem. One person walking on the grass in
a park will have no significant effect on the grass, or on anyone’s enjoyment of the
lawn. The growth of grass will soon fix any damage. Each person, when reasoning
in a direct utilitarian way about what to do, will legitimately decide to walk on the
grass. Nevertheless, many people walking on the grass over a short time period will
destroy the grass and ruin everyone’s enjoyment of the lawn. Another example is the
effect of driving gas-guzzling automobiles on climate change. One person driving a
gas-guzzler will have no effect on the climate, but millions of people doing so may have
catastrophic consequences.
One solution to both of these problems is to say that we should not apply utilitarian
reasoning to individual decisions and acts, but instead should use utilitarian reasoning
to justify rules and policies, that if generally followed, would maximize overall
happiness. It is clear that if people follow the rule, “Keep off the grass,” then everyone
will enjoy the lawn more than they would if people must make a decision whether to
cross on every individual occasion.
We can extend this line of thought further to reduce, perhaps, some of the rights,
justice, and character-based difficulties brought about by utilitarian reasoning’s commitment
to aggregation. Why stop with using utilitarian reasoning to justify rules? Why
not use it to justify a whole suite of policies, including rules, human rights, principles of
justice, and character education that, when implemented will maximize utility? Direct
utilitarianism treats utilitarian reasoning as a decision procedure and judges each case
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Calculat ing Consequences and Utilitar ian Reasoning
according to a calculation of the utilities it causes. Indirect utilitarianism treats utilitarian
reasoning as a justification procedure, and advocates obedience to rules, respect
for rights, inculcation of virtues, and the creation of whatever policies are necessary to
produce maximum aggregate utility. Instead of using utilitarian reasoning to decide
what to do in each case, we should use utilitarian reasoning to determine a system of
policies, rights, mechanisms of distributive justice, and methods of instilling virtue. The
system is morally justified because the whole system maximizes utility.
For example, Adam Smith’s famous metaphor of the invisible hand is an indirect
utilitarian argument for people to behave as self-interested egoists. While Smith did not
think that people were truly egoists, he did think that people generally behaved that
way in commercial transactions.
It is not from the benevolence of the butcher, the brewer, or the baker
that we expect our diner, but from their regard of their own interest. We
address ourselves not to their humanity, but to their self-love, and never
talk to them of our necessities, but of their advantage. (Adam Smith,
The Wealth of Nations, 1776)
Nevertheless, Smith claimed that if people did behave as egoists, then this would promote
the welfare of everyone in the economy.
[B]y directing that industry in such a manner as its produce may be of the
greatest value, he intends only his own gain, and he is in this, as in many
other cases, led by an invisible hand to promote an end which was no part
of his intention…. By pursuing his own interest he frequently promotes
that of the society more effectually than when he really intends to promote it.
(Book IV, Chapter II, Paragraph 2.9)
In a market economy, a metaphorical invisible hand would lead egoists, looking out
only for their own interests, to advance the aggregate interests of society as a whole.
This is a forerunner of the economic argument that a free-market economy, under conditions
of perfect competition, will maximally satisfy the preference of all participants.
In this argument, indirect utilitarianism, which claims that we should promote everyone’s
interest, is the real justification for pursuing self-interest.
Employing utilitarianism indirectly may avoid the difficulty of the transplant surgeon
case. Indirect utilitarian reasoning would likely justify assigning hospital patients a
right to life, as well as educating surgeons in the Hippocratic Oath, “First, do no harm.”
These policies are justified because otherwise no one would use hospitals out of fear that
a utilitarian calculation might cost them their lives. Indirect utilitarianism may have less
luck with the slavery case. The slavery case incorporated the assumption that a system
in which one class of people had no self-ownership rights, and another class of people
had property rights in people in the first class, was the system that maximized aggregate
utility. The system of slavery, by hypothesis, is the system that utilitarian reasoning justifies.
Another system that assigns everyone full human rights will create less happiness.
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Without changing the assumptions of the example, indirect utilitarian reasoning still
conflicts with our considered moral opinions about this particular example.
Summary
1. Utilitarian reasoning appears to be a very attractive ethical decisionmaking
procedure. It says to maximize happiness, and happiness is
widely agreed to be good. It treats everyone’s interests equally, and it
has a recipe that promises a decision in every case.
2. The recipe for utilitarian ethical reasoning says we ought to (1) cause
(2) maximum (3) aggregate (4) utility. Our ability to apply the recipe
depends on our ability to measure utility.
3. One major problem for utilitarian reasoning is seeing how to measure
utility or happiness.
4. If we think of utility as being mental experiences such as pain and
pleasure, then we will have trouble comparing the intensity of
experiences between people. We will also reach the unattractive
conclusion that we could lead the best possible lives in a virtual world.
5. It is likely better to think of utility as satisfied preferences for real
states of the world. We can attempt to measure the intensity of people’s
preferences by comparing them to gambles or asking how much people
will be willing to pay to satisfy them. Unfortunately, people are often
bad judges of whether having their preferences satisfied will actually
make them happy.
6. Utilitarian reasoning could try to avoid this problem by satisfying only
informed preferences, but informed preferences are hypothetical and
therefore not measurable.
7. When we do a financial cost-benefit analysis, we must be careful
to distinguish between employing it as a source of information and
employing it as a normative method of making an ethical decision.
Willingness to pay is very problematic as a measure of utility because it
is determined by people’s financial resources or ability to pay.
8. A second major problem for cost-benefit or utilitarian reasoning is
seeing how to aggregate, or add up, utility without violating human
rights, distributing benefits unfairly, encouraging vice, and destroying
human relationships. If we apply utilitarian reasoning, then we must
always be alert for these sorts of problems.
9. A third problem for utilitarian reasoning is that finite human beings
will be unable to perform all the required calculations of consequences.
10. A fourth problem for utilitarian reasoning is dealing with accumulative
consequences such as harmful pollution brought about by many
harmless individual acts.
11. To avoid some of these problems, it is likely better to use utilitarian
reasoning to justify policies rather than to make individual decisions.
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Calculat ing Consequences and Utilitar ian Reasoning
Indirect utilitarian reasoning may recommend policies such as
respecting rights and treating people fairly because doing so will, on
balance, cause maximum utility. It can also recommend following rules,
which finite human beings can follow instead of performing complex
calculations, and which will prevent accumulative harms by prohibiting
some individually harmless acts.
ONLINE LEARNING RESOURCES
You will find a collection of learning resources associated with this chapter on the
book’s website: http://sites.broadviewpress.com/businessethics/. Working through this
material will help you understand and remember important concepts that we have
discussed, and will help you apply them to issues in business ethics.
Study Questions
Answering the following questions will help you to understand the ethical theory in this
chapter and will help you to create a set of review notes on the textbook.
1. Describe the utilitarian algorithm for ethical decision-making.
2. How does utilitarian reasoning treat everyone’s interests equally?
3. Describe how satisfying people’s preferences can sometimes not make
them happy.
4. What is a big problem with using people’s informed preferences in
utilitarian reasoning?
5. Distinguish carefully between a positive and a normative costbenefit
analysis.
6. Explain why willingness to pay has problems as a measure of the
intensity of preferences.
7. Describe how utilitarian reasoning can lead to injustice and rights
violations for individuals.
8. Why is it likely better to apply utilitarian reasoning indirectly, as
a justification for policies, rather than as a case-by-case decisionmaking
method?
Decision Questions
The whole point of learning ethical theory is to understand and ask questions like the
following when you are analyzing an ethically problematic situation or case.
• Should we consider everyone’s suffering and enjoyment?
• Should we consider everyone’s wants, desires, and choices?
• Is willingness to pay a good measure of the strength of
people’s preferences?
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• Can we measure the strength of pleasures or preferences?
• Can we see how to maximize net utility?
• Can we measure the strength of these preferences?
• Should we perform a cost-benefit analysis of the alternative decisions?
• Is there a policy that we could follow that will maximize well-being?
• Should the relevant organization write a good policy to cover
this decision?
• Should we follow a rights-based or virtue-based policy in order to
maximize well-being?
• If people had full information, would they have different preferences?
• If we aggregated only informed preferences, would this change
our decision?
• Would the decision to maximize aggregate utility lead to rights
violations or unjust distributions?
• Would the decision to follow a utility-maximizing rule be overly harsh
and authoritarian?
Case Study
Analyze this case study using the ethical theory that you have learned so far. You will
find a collection of learning materials applying to the case on the book’s website: http://
sites.broadviewpress.com/businessethics/. These materials will help you in your analysis.
Should Dan Blow the Whistle?
Dan Goldberg works as a cost accountant in the New York City headquarters of the
Pear Tree Plastic Corporation. He had a degree from a well-known business school, and
his credentials and experience made him a very desirable employee. His main task is
to examine and assess the production cost figures for the various plastic factories the
PTP has in North America. Dan is not happy with the corporate ethos of PTP, which
he thinks focuses only on the bottom line and the related goal of creating value for
shareholders. His boss, Sheila Dunsworth, PTP’s vice-president for production, is part
of the problem. It seems she will go to almost any lengths to have her department look
good to the CEO and board of directors. In the past, she has questioned Dan’s judgment
regarding the assignment of costs, and ordered him to show production cost figures in
a more positive light.
Recently, Dan examined the production cost figures for PTP’s factory in
Thornbrook, Ontario. Sheila has always pointed to the Thornbrook factory as an example
for PTP’s other factories to emulate. PTP recently awarded a bonus to the boss of the
Thornbrook factory for his excellent performance. Dan noticed that the Thornbrook
factory’s costs for disposal of a mercury compound used in the manufacturing process
were way below the figures for other PTP factories. It was this cost saving, more than
any other factor, which contributed to the factory’s success. He also noticed that the
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Calculat ing Consequences and Utilitar ian Reasoning
Thornbrook plant spent much less on the catalytic compound used in the factory’s
smokestack scrubbers than did any other of PTP’s plants.
Shocked, Dan realized what was going on. The Thornbrook plant was running
without its scrubbers working to remove the mercury compound properly. Dan looked on
Google maps and saw that the plant was located right in the centre of Thornbrook. The
PTP plant was exposing ten thousand local residents to a high risk of mercury poisoning.
Luckily, Thornbrook is way out in the middle of nowhere, so the emissions were
affecting no one else. Over time, however, the mercury emissions would likely end up in
the rivers, with negative implications for the health of the fish in the nearby water system.
PTP Co. is the only major employer in Thornbrook, and most of the residents either work
at the plant, or provide services for people who do. If the plant were to close, the workers
would have to leave, as would the teachers, nurses, and shopkeepers. No one would want
to buy their houses, which would then be worth almost nothing.
Dan’s first thought was to tell Sheila. His second thought was that Sheila would
not want to hear about the problem. She would just give the Thornbrook assignment to
one of the other cost analysts who was more of a team player than Dan was, and PTP
would do nothing about the problem. His third thought was to threaten to resign unless
Sheila ordered the Thornbrook plant to use its scrubbers, but that threat would likely
not sway Sheila. Dan’s fourth thought was to tip off the environmental authorities in
Ontario. He could do this anonymously, but an anonymous letter would not have the
same impact that a signed letter would.
What should Dan do?

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Chapter 5
MOTIVATIONS,
DUTIES, AND
RIGHTS
Do we have moral duties, and what are they?
How should we respect the rights of others?
How do ethical obligations arise from promises and legal contracts?
We live our domestic lives within a web of ethical duties. Some of these duties are
openly discussed and agreed to, such as keeping a promise or doing our share of the
housework. Other duties are taken for granted, such as duties to our family members
or to our friends. Still other duties are legal ones, such as our duty to drive only on the
correct side of the road or our duty not to steal from other people.
We also live our business lives, within a web of ethical duties. When we go to work,
we still have all the duties that we have in everyday life, and we have a host of new ones
as well. Our everyday duties do not go away when we enter the business world. Instead,
we take on additional explicit duties, such as keeping promises to coworkers, additional
implicit duties, such as meeting the legitimate expectations of our local community, and
additional legal duties, often embodied in legal contracts with employers, customers,
and suppliers.
Legal contracts involve both law and ethics. A legal contract is a legally enforceable
pair of promises: an offer and an acceptance. Because both an offer and an acceptance
are promises, they can also give rise to ethical duties, the ethical duties to keep these
promises. We can see this more clearly when the legal and ethical duties are different. In
the case of a business contract that is legally enforceable yet somehow unfair or immoral,
the parties to such a contract might have legal duties to one another, but they would not
have ethical duties.
A modern business corporation is not a tangible thing like a factory building, but
is rather an intangible nexus of contracts and other legal interests. A business corporation
is the centre, or focus, of an interconnected network of contracts between owners,
employees, suppliers, customers, the government, and the local community. Contracts
depend on promises, and duties to keep promises are ethical duties. One of the tasks of
business ethics is to assess contracts for unfairness and other ethical defects.
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Our basic liberties depend on our basic moral rights. Our freedom to lead our
lives as we ourselves judge best depends on our moral right to lead our lives without the
interference of other people. Our liberties impose duties on everyone else not to interfere
with our lives. However, these liberties have limits. We have no moral right to lead
our lives in such a way that we caused harm to other people. This is a formulation of
the Harm Principle. The Harm Principle puts limits on the freedom of action of both
individuals and businesses. Peoples often think of business as a sort of game played
according to a set of rules. Sometimes the rules of this game permit activities that are
harmful to other members of society. In such cases, these rules need evaluation according
to the ethical standards implicit in the Harm Principle.
There are different views regarding our principles and duties. One view is that our
duties are the commands of God. Divine command theories of ethics hold that the commands
of God create people’s duties. Examples are the Ten Commandments given to
Moses by the God of the Hebrews or the Golden Rule in the Christian New Testament.
In what follows, though, we will look at secular theories of principles, duties, and
rights. A second view is that we should simply list our duties according to our considered
intuitions about the obligations that we have. These are our prima facie duties,
duties that we have, but which can be overridden by stronger obligations. A third view
is that our ethical duties are requirements of reason. Immanuel Kant thought that we
have a duty not to do an action unless we can consistently claim that everyone can have
a duty to do that action. A fourth view is that our ethical duties arise because other
people have moral rights. A right is a justified claim by one person that other persons
owe duties to her. A fifth view is that our duties arise from principles of justice. Justice
is the requirement that we treat all persons fairly. We will look at the topic of justice in
the next chapter and discuss duties, rights, and the harm principle in this one.
Motivation and Ethical Reasoning
Ethical reasoning can evaluate (1) the consequences of a decision, (2) the motivation
of the decision-maker, or (3) the character of the decision-maker. We have looked at
self-interested and utilitarian ethical reasoning that evaluates the consequences of
decisions. In this chapter, we will focus on motivation-based ethical reasoning. It is
Ethical reasoning
Identity-based
Principle-based
Consequencebased
Prima facie duties
Kantian duties
Rights Harm principle
Justice
Figure 5.1: Shows a conceptual map of the types of principle-based
ethical reasoning that we will look at in this chapter and the next.
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Mot ivat ions, Duties, and Rights
perfectly possible for people to produce good consequences for the wrong reasons, and
for the best of intentions to result in bad outcomes. Ethical reasoning that emphasizes
motivations and intentions will praise actions done according to good principles, even
if the actions have bad consequences.
The motivation-based approach to ethical reasoning evaluates decisions according
to the ethical principles that motivate the decision-maker. Motivation by ethical
principles often consists in the decision-maker fulfilling her ethical duties, regardless
of the expected consequences of her decision. An ethical duty is an ethical obligation
that generally overrides considerations of maximizing good consequences or of personal
virtue. Duties are overriding ethical obligations that agents have to act in certain ways.
In ordinary English, however, we refer to almost any ethical obligation as a duty. For
example, we sometimes call the ethical obligation to make everyone happy a “duty,”
and we sometimes say that the person who wishes to exemplify the virtue of honesty
has a “duty” to tell the truth to other people. In what follows, however, our primary
interest will be in duties as principles that are justified independently of their role in
creating happiness or exemplifying virtue.
The German philosopher Immanuel Kant (1724–1804) thought that the consequences
of an action did not matter. He thought that only the motivation of the moral
agent matters in the ethical evaluation of an action. He believed a person’s action,
which might appear to be right according to self-interested or utilitarian reasoning, was
actually right only if the person acted for the right reason. It was not enough for Kant
that an action conformed to a person’s duty; what was important was that the person
performed the action because it was his duty to act that way. He gave the following
example of a merchant who does not overcharge his customers.
For example, it is in fact in accordance with duty that a dealer should not
overcharge an inexperienced customer, and wherever there is much business
the prudent merchant does not do so, having fixed a price for everyone, so
that a child may buy of him as cheaply as any other. Thus the customer is
honestly served. But this is far from sufficient to justify the belief that the
merchant has behaved in this way from duty and principles of honesty.
His own advantage required this behavior; … (Kant, 1959, p. 13)
Even though the shopkeeper does the right thing, which is not to overcharge the child,
if he does it for the wrong reason, such as for the sake of his reputation, his action has
no moral worth. Only if the shopkeeper does not overcharge the child because he is
motivated by his duty not to overcharge anyone, is his action morally right.
Suppose a business owner gives to charity because she thinks it would be good
PR in her community. Even though this donation helped many people, Kant would not
think that her action had moral worth. Kant would think that her self-interested motivation
was morally worthless. By contrast, a utilitarian would judge her action morally
good because it had such good consequences. Kant is concerned with the principles that
motivate people, not with the results of their actions. For Kant, only people who act out
of a sense of ethical duty can do morally right actions.
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Prima Facie Duties
One way to discover our ethical duties is to consult our considered moral judgments
regarding our moral obligations. This will result in a list of duties that, on the face of
it, are morally binding on us, but which other, more powerful, obligations may override.
Absolute duties are over-riding obligations that people have no matter what happens.
Prima facie duties are ethical obligations that people have, but which may yield to
stronger obligations.
The early twentieth-century English philosopher, W.D. Ross, suggested such a list
of prima facie duties. (Ross, 2002, p. 21) He thought this list of duties met our considered
intuitions about the ethical obligations that we have. His list included seven prima
facie duties. The duty of beneficence is the duty to benefit others. The duty of fidelity is
the duty to keep promises. The duty of gratitude is the duty to be thankful for benefits
received from others and to reciprocate if possible. The duty of justice is the duty to
treat others fairly, reasonably, and impartially. The duty of non-maleficence is the duty
to avoid harming others as much as possible. The duty of reparation is the duty to compensate
others if we harm them unavoidably. The duty of self-improvement is our duty
to be the best that we can be.
Ross’s list of prima facie duties could form the basis for making ethical decisions
in business. Prima facie duties provide us with a checklist of ethical considerations
with which to examine a problematic case in the world of business. To make a decision
in a case where prima facie duties conflict with one another, we then must determine
our overall duty by seeing which prima facie duties are stronger and which prima facie
duties get overridden. However, we can get a deeper understanding of the types of
ethical reasoning at play in decision-making if we use our similar framework of ethical
pluralism.
Kantian Duties
Kant formulated an important theory of ethical duties that is still influential today in
business ethics. (Bowie, 1999) Kant distinguished between two types of moral principles,
hypothetical and categorical imperatives. A hypothetical imperative is a strategic principle
that will help someone get what he wants. A hypothetical imperative is a useful strategy
that we can usually formulate in a conditional form. For example, the hypothetical
imperative, “If you want people to trust you, then don’t tell lies,” is a useful strategy, but
not a moral principle. A categorical imperative, on the other hand, is a moral principle of
action that does not depend on anyone’s wants or desires. A categorical imperative is an
absolute duty, such as, “Don’t tell lies,” rather than a strategic principle.
Kant had a theory of absolute ethical duties. He thought that all absolute ethical
duties stemmed from one main principle, the Categorical Imperative, “Act only
according to that maxim by which you can at the same time will that it should become
a universal law.” (Kant, 1959, p. 39) Kant applies the Categorical Imperative to an illustrative
business case, that of a man who
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… finds himself forced by need to borrow money. He well knows that he will
not be able to repay it, but he also sees that nothing will be loaned him if he
does not firmly promise to repay it at a certain time. (Kant, 1959, p. 40)
According to Kant’s Categorical Imperative, this man should notice that he is following a
universal principle that says anyone who needs money can make promises he cannot keep.
Then he should notice that it makes no sense for this principle to be a universal moral law.
For the universality of a law which says that anyone who believes himself
to be in need could promise what he pleased with the intention of not fulfilling
it would make the promise itself and the end to be accomplished by
it impossible; no one would believe what was promised to him but would
only laugh at any such assertion as vain pretense. (Kant, 1959, p. 40)
Because this principle, the moral law that people may make false promises to obtain
loans, is self-defeating when we universalize it, the man has a duty not to act on the
principle. That is, he has a duty not to make a false promise to obtain a loan. We cannot
hold that people have no duty to repay loans, because if everyone had no duty to
repay loans, then the entire financial, banking, and credit system would fail to function.
Likewise, business people cannot adopt the universal principle of always lying
during negotiations because, if they did, business negotiations would become impossible.
Similarly, we have a duty to respect other people’s property because we cannot
universalize the maxim that it is ethically permissible for us to steal. If we were to hold
that it is permissible for anyone to steal, then the basis of the whole institution of private
property would collapse.
Kant’s theory tells us our ethical duties by asking us to universalize what we think
are our duties and see if this leads to some sort of contradiction. Kant’s Categorical
Imperative looks like rule utilitarianism, but it is not the same. When a rule utilitarian
tries to justify a duty, she tries to show that if everyone adheres to the rule, then the consequences
will be better overall according to some measure of happiness. When Kant
tries to justify a duty, he tries to show that if everyone follows this duty, then the overall
consequences will be inconsistent with preserving the institution within which the duty
has a place. For example, the duty not to repay loans is, if universalized, inconsistent
with preserving the institution of money lending within which the idea of a loan makes
sense. He does not need to argue, as the rule utilitarian would, that credit and money
lending lead to greater happiness. Kant’s view of duties is principle-based rather than
consequence-based. Kant endeavours to find principles that are rational in the sense
of being universal moral principles that everyone can follow. He is not concerned with
producing happy consequences.
The weakness of the Kantian view of duties is that it creates implausible ethical
duties in extreme cases. Consider the philosophically famous case of the Truth-teller and
the Axe Murderer. Kant’s Categorical Imperative tells us that we have an absolute duty
to tell the truth. The duty to lie whenever it is convenient to do so is not universalizable,
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because if everyone were to lie when convenient, then conversation, which depends on
people being able to believe other people, would be impossible. Suppose that an Axe
Murderer comes to the door of a house looking for his intended victim who is hiding
in the attic. He asks the person who answers the door if his intended victim is at home.
According to Kant, the person who answers the door has an absolute duty to be a truthteller
and not lie to the Axe Murderer. However, Kant’s duty-based theory just seems
wrong in this extreme case whereas utilitarian ethical reasoning clearly works better.
Lying has much better consequences than does truth telling. Virtue-based ethical reasoning
also works better in this case. The Truth-teller appears to suffer from the vices
of being overly rigid and inflexible regarding her actions. Kant’s Categorical Imperative
provides an instructive first pass at discovering our duties, but we must still weigh it
against other sorts of ethical reasons.
Rights and Duties
People should be motivated not only to act in accordance with their duties but also to
respect the rights of others. Rights and duties relate in the following way. A moral right
is a morally justified claim on others. The possession by one person of a moral right creates
a duty in others to respect that right, a duty that correlates to that right. If Miguel
has a right that Lori does Φ, then Lori has a correlative duty to do Φ that she owes to
Miguel. It also follows that if Lori owes Miguel a duty to do Φ, then Miguel has a right
that Lori do Φ.
The simplest type of right to understand is the sort of specific right created by a
contract between two people. A specific right is one whose correlative duty only falls
on a determinate person or group. If Miguel loans $100 to Lori for 30 days, then the
loan contract will give Miguel the right to claim $100 from Lori in 30 days, and impose
a correlative duty on Lori to repay the $100 at that time. Only Miguel has this right,
and only Lori has the correlative duty to repay Miguel. No other people besides Lori
have the duty to repay Miguel. On the other hand, a general right is a right whose
correlative duty falls on everyone. Like everyone, Miguel has a general right to his life.
His right is a general one because everyone, not just Lori, has a correlative duty not to
kill Miguel, a duty that everyone owes to him because his life is ethically so important.
Specific rights and duties may arise voluntarily when people make promises and
enter into contracts. Specific rights and duties may also arise involuntarily through
Miguel has a
right that
Lori do .
Lori has a
correlative
duty to do .
Owed to
Figure 5.2: Miguel’s right against Lori means that Lori
has a correlative duty that she owes to Miguel.
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people’s friendships, and family and community memberships. General moral rights
are sometimes derivatively justified by non-rights-based ethical theories such as indirect
utilitarianism or theories of justice. General moral rights are sometimes justified as
natural rights either because they protect people’s autonomous choices or because they
protect people’s crucial interests.
We use the concept of a right in both ethics and law. Moral rights are rights that
are justified by moral theories. Some moral rights are also legal rights, such as Miguel’s
right that Lori repay his loan or Miguel’s right to life. Legal rights are legally enforceable
rights. Some moral rights may not be legal rights because they are not legally
enforceable under the laws of the applicable legal jurisdiction. For example, if Miguel
promises to mow Lori’s lawn on the weekend, Lori’s moral right that Miguel do what
he said he would do will not be a promise that Lori can enforce in the courts.
Rights can be either positive or negative. A positive right imposes a duty on others
to assist the right bearer in some way. Some examples are the right to disaster relief, the
right to an education, the right to unemployment insurance payments, and, in many
countries, the right to medical care. One problem with the notion of a positive right
is deciding on whom the correlative duties fall. For example, we must determine who
has the duty to satisfy the right to an education. We would usually say that the positive
right to an education imposes a duty on the state to provide an education for everyone,
and that the state must find a fair way to spread the cost of providing education across
all its citizens.
A negative right imposes a duty on everyone else not to interfere with the right
holder’s activities. It gives the right bearer a liberty or freedom from the interference of
others. Examples include the right to life, which protects each person by imposing a duty
on everyone else not to kill him or her, and freedom of expression or freedom of association,
which give people freedom from the interference of the government. The existence
of negative moral rights is less controversial than the existence of positive rights, because
it is easier to see who has the relevant correlative duties. People often suppose that negative
rights, like the right to personal security, are on a stronger ethical footing than
positive rights, like the right to welfare. However, it is worth noting that a negative right,
such as the right to personal security, requires enforcement. The enforcement of the negative
right to personal security imposes a duty on others to assist the person whose security
is in jeopardy. The enforcement of negative rights requires positive rights, and raises
the question of determining who bears the correlative duties. We would usually say that
the positive right to the enforcement of a negative right to personal security imposes a
duty on the state to protect its citizens, and that the state must find a fair way to spread
the cost of protecting personal security across all its citizens.
Negative rights, freedoms, and liberties protect people from interference by others,
but rights and freedoms have limits. The Harm Principle that John Stuart Mill first
formulated in his book, On Liberty (1859), sets these limits.
… the sole end for which mankind are warranted, individually or collectively,
in interfering with the liberty of action of any of their number, is
self-protection. That the only purpose for which power can be rightfully
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exercised over any member of a civilised community, against his will, is to
prevent harm to others. His own good, either physical or moral, is not a
sufficient warrant. (Mill, 1859, p. 18)
The Harm Principle says that people (or the government) may interfere with people’s
freedom, liberty, or exercise of their rights only in order to prevent harm to others. For
example, people have a negative right to freedom of movement. This freedom is not
absolute or unlimited but may be limited to prevent people from hurting others; so it
does not extend to my right to drive my car on the wrong side of the road.
In the law, the criminal law and tort law prevent harmful conduct by legitimately
limiting people’s liberties. Criminal law aims to punish harmful conduct. Tort law
aims to compensate the victims of harmful conduct. Generally, someone who does
harm is liable to paying compensation to her victim if her action is faulty and causes
the harm to the victim. She is at fault if she owed the victim a duty of care not to
harm him and if she broke this duty. She caused the harm to the victim if, but for
her actions, there would be no harm to the victim. However, cause and fault are not
always required for liability. For example, the law will sometimes hold an employer
vicariously liable for harms caused by her employee, even though the employer did not
herself cause the harm.
Contractual Rights and Promises
Contractual rights and property rights are common types of rights in the business world.
In this section we will examine the structure of contractual rights. We all occupy nodes
in a network of legal contracts. For example, we enter into a sales contract whenever
we shop and the sales clerk hands us our groceries in return for our credit card number.
In the business world, this network of legal contracts becomes much larger. Businesses
work through production and exchange, and contracts govern all of this. This new network
of business contracts adds to our network of personal contracts, but it does not
replace the old one, just as going to work does not absolve us from paying our personal
credit card bills.
It is important to understand the structure of legal contracts. A legal contract is
composed of two legally enforceable promises. The first party makes an offer, which is
a legally enforceable promise to supply some good or service, X, in return for fulfilment
of some condition, Y. The second party indicates acceptance, which is a legally enforceable
promise to fulfil condition Y. A legal contract consists in a legally enforceable offer
plus a legally enforceable acceptance. Legal contracts create two specific, legal rights.
These rights are legal rights because they are right enforceable by the legal system, and
they are specific rights because they affect only the parties to the contract. The first
party now has a specific legal right that the second party fulfil condition Y, and the
second party has a specific legal right that the first party supply good or service X. For
example, a contract between Lori and Miguel might start with Lori offering to loan
Miguel $100 on condition that Miguel repay her $110 in one year’s time. The contract
comes into existence when Miguel accepts by promising to repay Lori.
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A promise is a pledge to someone to supply some good or service. An ethically permissible
promise creates a moral duty and a moral right. The promisor has a moral duty
that he owes to the promisee to fulfil his promise. The promisee has a right against the
promisor that the promisor fulfil his promise. Since forming a contract involves an offer
and an acceptance between two parties, and since offers and acceptances are promises,
forming a contract is an ethical action as well as a legal action. Of course, many ethically
binding promises are not legally binding, so not all promises create legal contracts.
On the other hand, all legal contracts involve promises that we must evaluate from an
ethical perspective. If an offer and acceptance are both ethically permissible, then the
contract creates two specific, moral rights. Contracts that are not ethically permissible
are either morally void or immoral. For example, a contract where one party deceives
the other into acceptance will be both legally and morally void. A promise induced by
deception is not an ethically binding promise, which means that the contract is not
ethically binding. Likewise, a promise to commit murder would not only be morally
void, but also immoral.
Promises have an ethical dimension. We can see this by applying the framework
of ethical pluralism to our obligation to keep promises. As we have just seen, Kant
would argue that we have a duty to keep promises because if we tried to make the principle
of not keeping promises into a universal principle, then we will destroy the whole
institution of promising. To fail to keep a promise, is to deceive another person and
undermines their ability to make authentic and autonomous choices. Persons concerned
only with their own self-interest might still keep promises in order to avoid prisoner’s
dilemma type situations. From the perspective of virtue ethics, we should keep promises
because we should develop an honest, truthful character. Promises are involved in
building good, trusting relationships and therefore we should keep promises according
to a feminist ethics of care. Indirect utilitarians argue that if everyone kept their promises,
then everyone would be better off than if people did not. Direct utilitarians, on the
other hand, recommend keeping promises only if the net benefits of keeping the promise
outweigh the net benefits of breaking it.
Because business contracts involve promises, and promises are subject to ethical
valuation, then business ethics must examine business contracts critically. Business contracts
can be unconscionable if one party benefits unreasonably at the expense of the
Lori
Oer: Promise to supply X on condition Y
Acceptance: Promise to fulfil condition Y
Miguel
Figure 5.3: A contract between Lori and Miguel consists of two
promises. Lori offers to supply $100 (X) on condition (Y) that Miguel
repays her $110 one year later. Miguel accepts by promising to fulfil
the condition (Y) that he will repay Lori $110 one year later.
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other, or if one party exercises undue influence over the other. Business contracts can
also be unfair if there are unreasonably large differences in bargaining power between
the parties or if there is a situation of asymmetric information, where one party takes
advantage of having information that the other party does not. Business contracts can
also be immoral if they involve promises to perform wrongful actions, such as stealing.
Joint stock corporations have the legal capacity to make contracts, but must make
them through their agents. An agent is a person whom a second party, the principal,
authorizes to make contracts between the principal and third parties. For example, a
storeowner may authorize her sales staff to enter her store into sales contracts with
customers. The officers of a joint stock corporation can bring the corporation, which
is a legal person but not an actual person, into contractual relations with suppliers,
customers, and employees. An incorporated business is not a tangible thing, like a factory,
nor is it a human person. It is an intangible thing, a nexus of contracts and other
legal interests.
Agents may make contracts that are binding on their principals, but not just any
contracts. Agents owe their principals fiduciary duties—that is, duties to act for the
benefit of their principals and to put the interests of their principals ahead of the interests
of themselves and others. People usually create agency relationships by contract.
For example, a principal might contract with an agent to sell the principal’s goods
on consignment. Agency relationships can also arise within a contract of employment.
Some employees are also their employer’s agents and some are not. The CEO can enter
into contracts with suppliers on behalf of the corporation that employs her, whereas
the janitor cannot. An agency relationship may sometimes exist without any explicit
contract. This happens when third parties might reasonably expect that a putative agent
can make contracts binding on the principal, and where the principal has not explicitly
repudiated this relationship. For example, third parties may reasonably expect that two
married people are able to make contracts on behalf of one another.
Another familiar contract is the contract of employment. Employment contracts
can be very complete when they explicitly include all details of the offer and the conditions
of acceptance. Employment contracts can also be incomplete, with many details of
the contract left unspecified. Government regulations will partially govern the content
of an employment contract. In law, the employee owes a duty of loyalty to the employer.
This duty of loyalty is not the virtue, or character trait, of loyalty. Instead, it is a legal
term meant to indicate a legal duty that includes both the duty to obey the employer and
the duty not to harm the employer’s interests. As in other contracts, mutual promises
create specific moral, as well as legal, rights between employer and the employee.
Property Rights
The other major type of moral rights that emerge in business transactions are property
rights. Property rights are general moral and legal rights, not specific contractual rights,
because they involve everyone owing duties to the property owner. These duties are
mostly duties not to interfere with the owner possessing, managing, and benefiting from
her property, so property rights are mostly negative rights.
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When we think of owning personal property, like a toothbrush, ownership appears
to be a very simple concept. However, the concept of ownership is actually very complex
and abstract. We can own not only tangible objects like toothbrushes, cars, houses, and
factories, but also intangibles such as stock in a company or even contracts. People can
buy and sell many contracts in the same way that they can buy and sell machinery and
factories. For example, a lender can sell a loan contract to a debt collector. Purchasing
contracts, customer contracts, and employment contracts can transfer the new owners
when the old original contractors sell their business.
Ownership is also complex because there is not such thing as a unitary private
property right. Ownership of a tangible or intangible thing consists in a bundle
of rights and liabilities. In simple cases, such as ownership of a lawnmower, all of these
rights and liabilities go together in what appears to be a single property right of the
lawnmower owner. The lawnmower owner has the right to manage how the mower
is used, and to receive any income that he earns from using it to mow other people’s
lawns. Yet, in many important cases, different parties split the bundle of rights between
themselves. For example, in ownership by a trust, the beneficiary of the trust has the
right to receive the income generated by the trust assets, but the trustee has the right to
manage these assets.
The legal scholar, A.M. Honoré, identified eleven types of rights and liabilities
in the bundle that would constitute full, unshared ownership of a tangible or
intangible thing. (Honoré, 1961, pp. 107–47) We shall list the components of this bundle
of rights and liabilities to give a sense of just how complicated ownership really is.
# Legal Rights or Liabilities
1 Rights to possess
2 Rights to use
3 Rights to manage
4 Rights to the income
5 Rights to the capital
6 Rights to security
7 Rights to bequest
8 Rights to absence of term
9 Liabilities under tort law
10 Liabilities to execution for debt
11 Rights to residue after termination
Table 5.1: Components of the bundle of rights and
liabilities that is full, unshared ownership.
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The first components of the bundle are rights to possess or be in physical control of
a thing. Second are rights to use and enjoy the thing. Third are rights to manage the thing,
to decide whom will use the thing, and how, and when. Fourth are rights to receive any
income, such as rent or profit, which the thing generates. Fifth are rights to the capital,
which include the right to consume, destroy, or sell the thing. Sixth are rights to security,
which are rights not to have others take away or expropriate the thing. Seventh are
rights to bequeath the thing to someone else after death. Eighth are rights to the absence
of term, which include rights of an owner, as opposed to a renter, not to have the other
rights cease at any particular date. Ninth are liabilities under tort law to compensate
victims of the harmful use of the thing. Tenth are liabilities of the owner to lose the other
rights if the legal system seizes some rights in the thing for repayment of the owner’s
debts. Eleventh are residuary rights always to receive back any temporarily transferred
rights such as, for example, the right to recover possession when a lease expires.
The most common form of business organization, the joint-stock company, is an
important example of the complexity and divisibility of ownership. A stockholder does
not own any tangible things like machinery or warehouses. Instead, she has a marketable
right to an intangible, a share of only some components of the whole bundle of
rights and liabilities over the tangible and intangible assets of the company. She does
not have the right to possess, use, or sell any of the company’s assets. Her management
rights are limited to a vote at the company’s annual general meeting. She has a right to
a defined share of any income the company may generate. In addition, the law limits
her liability for the debts of the company to the value of her stock. The managers of the
corporation hold the other components of the bundle of rights over the company’s assets.
Managers buy and sell the assets of the company and decide how to employ the assets of
the company in the interests of the stockholders and other stakeholders.
Property rights are moral rights that need ethical justifications. Philosophers have
offered a plurality of ethical justifications. Some, such as the eighteenth-century English
philosopher, John Locke, argue that property rights are natural rights initially acquired
through labour on the un-owned world. Indirect economic utilitarianism justifies a
system of property rights by the success of the capitalist economic system in delivering
maximum overall prosperity and welfare. Various theories of justice distribute property
rights according to criteria of fairness and equal treatment. We will look at some of
these theories of justice in the next chapter.
We now have a better view of the moral network which businesspeople inhabit.
Overlaying their personal moral network of family, friendship, and community obligations
is another network of contracts and ownership rights. Specific rights and duties
regarding owners, customers, suppliers, governments, and other employees have an ethical
foundation in the explicit promises that ground contracts. Specific duties also have
an ethical foundation in the implicit expectations of owners, suppliers, governments,
the local community, and other employees that arise from a person’s role in the firm.
General rights regarding the assets of owners, customers, suppliers, governments, the
local community, and other employees have an ethical foundation in the just distribution
of bundles of property rights. The ethical aspect of the world of business can be
extremely complex.
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Summary
1. The ethical assessment of a business decision requires examining the
motivations of the decision-makers as well as the consequences of the
decision and the character of the decision-maker. Someone can make
a decision with good consequences for bad reasons, or a decision with
bad consequences for good reasons.
2. Good ethical motivations include applying moral principles, fulfilling
ethical duties, respecting moral rights, and treating others fairly.
3. Kant thought that all rational agents have a duty not to perform an
action if the universal moral principle that everyone may perform
the action is self-defeating. For example, we have a duty not to break
promises because if it were ethically permissible for everyone to break
promises, then the whole activity of promising would be undermined
and would cease to exist.
4. Someone’s moral right always correlates with a duty owed to him by
either some specific person, or by everyone in general.
5. A positive right imposes a duty on others to provide aid, while a
negative right imposes a duty on others not to interfere.
6. The harm principle, which is a general obligation not to harm others,
puts limits on the extent of people’s negative rights.
7. Contractual rights are specific rights that are created by two interrelated
promises: an offer and an acceptance. Most business transactions involve
contracts, and contracts involve the ethical duties of promise keeping.
8. Ownership is not a unitary right. Instead, it involves a bundle of
rights and liabilities in either tangible or intangible things. Different
components of the bundle may belong to different persons, as in the
separation of management and stockholding in business corporations.
ONLINE LEARNING RESOURCES
You will find a collection of learning resources associated with this chapter on the
book’s website: http://sites.broadviewpress.com/businessethics/. Working through this
material will help you understand and remember important concepts that we have
discussed, and will help you apply them to issues in business ethics.
Study Questions
Answering the following questions will help you to understand the ethical theory in this
chapter and will help you to create a set of review notes on the textbook.
1. Give an example of a decision with good consequences, but made for
bad reasons. Give an example of a decision with bad consequences, but
made for good reasons.
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Chapter 5
2. How could Kant use the Categorical Imperative to argue that we have
reciprocal duties to help our friends?
3. What is the conceptual relationship between rights and duties?
4. Why are property rights negative general rights while rights to the
enforcement of property rights are positive general rights?
5. Someone cries “Fire!” in a crowded cinema that is not on fire. Why is
punishing her not an infringement of her freedom of expression?
6. S&S Builders contract to renovate Ann’s house next month in return
for $50,000.00 plus tax. What is the offer promise? What is the
acceptance promise? What are the specific contractual rights that come
into existence at the time of acceptance?
7. Explain what it means to say that ownership is a bundle of rights
and liabilities.
Decision Questions
The whole point of learning ethical theory is to understand and ask questions like the
following when you are analyzing an ethically problematic situation or case.
• What are the decision-maker’s motives?
• Are the decision-maker’s motives in accordance with justified
ethical principles?
• What duties should the decision-maker fulfil?
• Can everyone consistently fulfil these duties?
• Is the decision-maker treating anyone as a means rather than an end?
• Does the decision-maker have any correlative duties arising from the
general rights of others?
• Does the decision-maker have any general rights that others
must respect?
• Does an obligation not to harm others limit the decision-maker’s
liberty of action?
• Does the decision-maker have any correlative duties arising from the
specific rights of others?
• Do any promises arise from contracts involving offers and acceptances?
• Are these legal contracts ethically free and fair?
• Do any promises arise from customary expectations and practices?
• Would the decision to respect rights lead to unjust distributions or to
utility reductions?
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Mot ivat ions, Duties, and Rights
Case Study
Analyze this case study using the ethical theory that you have learned so far. You will
find a collection of learning materials applying to the case on the book’s website: http://
sites.broadviewpress.com/businessethics/. These materials will help you in your analysis.
Should Eve Reveal Trade Secrets?
Two months ago, Eve Duplessis left her job as an information technology professional
at Banana Co. to take a similar, but better paying, job at Orange Co. Both Banana and
Orange are huge corporations producing wireless mobile devices for consumers around
the world. Her employment contract with Orange obliges her to use all her skills and
knowledge in the service of improving Orange’s products. Her employment contract
at Banana contained a clause obliging her not to reveal any of Banana’s commercial
information, processes, and techniques to anyone else for one year after the end of her
contract with Banana.
Banana treated Eve very well, and she has many friends who still work there. Some
days she regrets her move to Orange, despite the higher salary, because the tenor of the
workplace at Orange is more competitive and less cooperative than it was at Banana,
and managers at Orange seem to have little empathy for their subordinates. She is finding
it difficult to make friends at Orange, even among the members of her project team.
Orange has assigned Eve to a project that is developing a more efficient way for
Orange’s devices to connect to the correct signal from a cellular network. As Eve gets up
to speed on the project, she realizes that engineers at Banana had solved a similar problem
by applying the Kalashnikova algorithm to the signal selection. The Kalashnikova
algorithm is in the public domain, but the technique of using it to speed up cellular
connections took a large team of engineers at Banana half a year to develop.
Eve also realizes that she could significantly contribute to her project at Orange
if she were to point out to her development team how to use the Kalashnikova algorithm
in its new design. Making this contribution would be a big boost to her career
at Orange, and put her in line for promotion to team leader next year. She would not
have to reveal that she learned the technique at Banana Co. because Orange engineers
have been unable to reverse engineer the Banana design.
Both Banana and Orange have gigantic and expensive legal teams who are in
continuous legal battle with one another. The two legal teams try to protect the intellectual
property of their respective firms from what they deem to be the other firm’s
infringements. Eve does not think that making this suggestion to her team will get her
in any legal trouble, but she would have lots of legal backup if it did. She also doubts
that Banana will be able to reverse engineer Orange’s solution to discover that Orange
uses the technique, let alone when Orange started using it, or that she, Eve, was the one
who suggested using it.
What should Eve do?

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Chapter 6
FAIRNESS AND
DISTRIBUTIVE
JUSTICE
How should we treat people in order to treat them fairly?
What does an ethically justifiable distribution of income look like?
When does justice require us to respect people’s property rights?
In 2012, the average CEO of a corporation listed on the S&P 500 index received a total
compensation of about 12 million dollars, which was 354 times as much as the yearly
salary of an average US worker. (AFL-CIO, 2013) This 354:1 ratio rose from a ratio of
only 42:1 in 1980. (Institute for Policy Studies, 2012) Table 6.1 shows the situation in
other countries around the world.
Is this situation fair? Arguments about the fairness of executive compensation are
the concerns of distributive justice. Principles of distributive justice are ways of treating
people as moral equals. Treating people as moral equals, however, does not mean
Country Stock index Average CEO
compensation
Average worker
compensation
Pay ratio
CEO:worker
USA S&P 500 $12,259,894 $34,645 354:1
Canada TSX 60 $8,704,118 $42,253 206:1
Australia ASX 100 $4,183,419 $44,983 93:1
UK FTSE 100 $3,758,412 $44,743 84:1
Japan Nikkei 225 $2,354,581 $35,143 67:1
Norway OBX $2,551,420 $43,990 58:1
Table 6.1: CEO-to-worker pay ratios in selected countries 2012. (AFL-CIO, 2013)
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Chapter 6
treating everyone the same. Sometimes there are good moral reasons why some people
should have more than others have.
Some argue that CEOs of large corporations deserve higher compensation relative
to workers because of their higher productivity; the CEO makes a much larger contribution
to the firm’s output than does the worker. Because everyone has an equal opportunity
to compete for CEO positions, the system gives equal treatment to both those
who become CEOs and those who become workers. As we shall see, however, there are
problems measuring individual contributions to corporate output.
Others base their argument on the moral justification of the free-market. The
free-market system is fair because it respects everyone’s property rights equally. Very
able individuals own their talents and their time, and they are entitled to sell their talents
and time for whatever other people are willing to pay for them. If the pay of those who
become CEOs is higher than the pay of those who work on the shop floor, then this is fair.
As we shall see, however, there are problems with this Libertarian theory of ownership.
Others offer a utilitarian argument, claiming that the free-market system is the
most efficient way to produce and distribute goods and services, and that maximizing
the production of goods and services will maximize human welfare. Even though the
free-market offers higher compensation to those who become CEOs than to those who
become workers, the market still maximizes total human welfare. Because a utilitarian
argument weights everyone’s interests by the same factor, it considers everyone’s interests
equally. As we shall see, however, there is another way of thinking about utilitarian
justice that argues for equal compensation for everyone.
Yet others might offer an argument based, surprisingly, on the idea that everyone
should have an equal share of society’s resources. They would argue that giving incentives
to the talented to work extra hard will increase the total amount of goods and
services produced by the economy. Because there will be more economic goods to go
round, even the least well off will be better off than they would have been if everyone
had received a strictly equal share. This argument still treats everyone as moral equals
in the distribution of resources, even though it does not treat everyone in the same way.
However, this argument only works if there is some system of redistributive taxation in
place that ensures the least well off do benefit.
In this chapter, we will examine these sorts of arguments about justice. Ethical reasoning
about distributive justice is very complex. We will survey some of the approaches
and issues that are relevant to business decision-making.
The Moral Equality of Persons
We treat people fairly by not favouring one person over another for arbitrary reasons.
Business firms treat customers, suppliers, owners, and employees fairly by giving them
equal treatment. Justice requires that we treat people as moral equals, yet justice does
not require that we treat everyone exactly the same way. What moral equality requires
is that governments, business firms, and individuals do not treat people differently
based on morally arbitrary features. Race, sex, age, religious preference, sexual orientation,
and family background are morally arbitrary features of people. At the most basic
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Fairness and Distributive Justice
level, justice requires that we not favour one person over another based on such features.
Paradigm examples of injustice include aristocratic societies, where positions in society
go to those who are born to privileged parents, and caste societies, where people are
born into their positions in society and coerced into staying there for religious reasons.
On the other hand, treating people as equals requires that we also recognize morally
relevant differences between people. Society treats disabled people equally by treating
them differently when it gives disabled people reserved, convenient parking spaces.
Businesses reward workers who put in more effort. Society allows only women to take
pregnancy leave, and requires that high earners pay income tax at a higher rate than
low earners do. Justice is not as simple as treating everyone in the same way.
Ethics commonly deals with three types of justice. Corrective or retributive
justice ensures that society holds people accountable for harming others or violating
their rights. Compensatory justice ensures that people who infringe the rights of others
without consent fairly recompense those who they harm. Distributive justice ensures
that society allocates benefits and burdens in a way that treats people as moral equals. A
theory of distributive justice does not actually take physical economic goods or services
and pass them around. Rather it justifies a particular system of legal rights regarding
economic goods and services. Distributive justice criticizes or justifies schemes of property
rights, such as the legal rights to possess or sell economic goods and productive
resources. This chapter will focus on theories of distributive justice.
Distributive justice involves treating people as moral equals when assigning property
rights to economic goods and services. However, different theories of distributive
justice interpret the moral equality of persons in different ways. One theoretical
approach understands moral equality as requiring no more than giving everyone an
equal opportunity to compete for ownership of resources. A second approach, the libertarian
view, understands moral equality as requiring equal respect for the natural rights
of persons to acquire and exchange private property. A third approach, based on a utilitarian
concern for human welfare, understands moral equality as requiring giving equal
consideration to the welfare interests of every person. A fourth approach understands
moral equality as requiring that we employ a principle of equality in directly assigning
property rights in resources. Figure 6.2 gives a conceptual map of the various theoretical
approaches to treating people as moral equals, and shows the issues of distributive
justice to which each approach gives rise.
Ethical Theories
Identity-based
Principle-based
Consequencebased
Duties
Rights
Justice
Retributive
Compensatory
Distributive
Figure 6.1: A conceptual map locating the different types of justice.
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Chapter 6
Equality of Opportunity: Fairness
Equality of opportunity says that a distribution is just if, and only if, it assigns positions
in society according to morally relevant criteria such as ability or merit and not according
to morally arbitrary criteria such as race or gender.
However, there are several different conceptions of the nature of equality of opportunity.
Formal equality of opportunity requires that there be no legal impediment to a
person with certain talents competing for a position that requires those talents. People
should get the position they deserve based on ability and past performance, and no
organization should deny them these positions because of their race or gender. Business
decisions often employ this conception of equality regarding employees, suppliers, and
customers.
From the point of view of the moral equality of persons, the weakness of formal
equality of opportunity is that morally irrelevant factors often determine people’s talents.
People’s family background, their luck in the genetic lottery for intellectual ability,
and their receipt of a good education often determine the talents with which they compete
for positions. Factors that are arbitrary from a moral point of view often determine
people’s abilities, their willingness to exert an effort, and their productivity in society.
Even though formal, legal considerations do not block them from the opportunity to
obtain positions, their level of talent does. If morally arbitrary factors, such as the
social class from which they come, determine their level of talent, then the distribution
of positions will still be unjust.
Fair equality of opportunity tries to rectify this weakness of formal equality of
opportunity by requiring that society make a special effort to provide high quality
Distributive justice
Equality of opportunity
Equal respect for rights
Equal consideration of
interests
Formal
Fair
Structural
Strict equality
Rawl’s di
erence principle
Initial equality
Libertarianism
Utilitarian justice
Equality of welfare
Equality of resources
Figure 6.2: A conceptual map of the various approaches to treating people as
moral equals, and the issues of distributive justice that these approaches raise.
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Fairness and Distributive Justice
education to those who would otherwise receive a poor education. Fair equality of
opportunity requires both that there be formal equality of opportunity and that society
provide a uniform quality of education for all to give everyone a fair chance to acquire
the skills needed to compete for social positions. Unfortunately, it is difficult for education
to compensate for bad luck in the genetic lottery for innate abilities. Fair equality is
also not something that a single business firm can easily implement; it is something that
only the whole society can create.
Feminists have pointed out that, even under conditions of fair equality of opportunity,
there may still be structural inequality of opportunity. One example of the structural
inequality of opportunity is that many positions in business and government are
not really positions that people responsible for the care of small children can fill. Even
if there are no legal impediments to a caregiver applying for the position, and even if
these potential applicants are well trained and educated, the nature of the position
and the demands it makes on the occupant’s time, may mean that caregivers cannot fill
the position.
Structural equality of opportunity requires that organizations design positions in
such a way that persons doing the necessary work of society, such as those responsible
for the care of young children, can still fill those positions. Structural equality of
opportunity is something that businesses can implement in the design of jobs and in the
provision of services such as daycare.
Equality of Opportunity: Measuring Contribution
Equality of opportunity in its various forms is not yet a theory of distributive justice. It
removes various types of impediments to people applying for positions, but it does not
say anything about what is the appropriate compensation for various positions. How
should organizations distribute benefits to positions? The usual answer is that compensation
should correspond to marginal productivity, or the marginal contribution that a
person in this position makes to the firm. The CEO arguably makes a larger contribution
to the profitability of a firm than does the janitor, and so her compensation should be
correspondingly larger.
The problem with using marginal productivity to determine compensation is that
we cannot easily measure marginal productivity, and when we can it will often appear
unfair as a gauge to compensation. In the modern world, production is seldom carried
out by a solitary artisan, but is instead the joint product of many people working
together. It is through specialization and the division of labour that large firms are able
to achieve high levels of productivity. Adam Smith pointed this out in his example of the
pin factory, and all introductory economics textbooks reiterate Smith’s point. As we saw
in an earlier chapter, Smith claimed that a solitary pin maker could scarcely produce 20
pins a day, but that 10 specialists working together in a factory setting could produce
around 48,000 pins per day. (Adam Smith, The Wealth of Nations, 1776, I.1.3) The
increased productivity of the factory arose from specialization, and the organized division
of labour. However, there is no obvious way to attribute the increased productivity
to the individual workers.
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Chapter 6
Nor does marginal productivity reasoning work in a model where just two workers
cooperate. Together, as we saw, Jack and Jill produce 90 pins per day. Without Jill,
Jack can produce only 9 pins per day. Jill’s additional contribution to the factory
appears to be 81 pins. (90 – 9 = 81) Therefore, if we distribute ownership of the pins
according to marginal contribution, then Jill should receive 81 pins. On the other hand,
without Jack, Jill can produce only 9 pins per day. Therefore, if we distribute ownership
of the pins according to marginal contribution, then Jack should receive 81 pins.
Unfortunately, their total entitlements, which are 81 + 81 = 162 pins, exceed their total
production of 90 pins. This will not work. In joint production, marginal contributions
are likely to exceed the total production of the firm.
Economists would think about marginal contribution financially, as the marginal
revenue generated by the employee minus any marginal costs, other than salary, of adding
the employee. Because of the law of diminishing marginal returns, in the short term,
with a fixed supply of other factors of production besides labour, a firm’s marginal revenue
from an additional employee will decrease as it adds new employees. At the same
time, the supply curve for the labour market will ensure that the marginal cost of each
additional employee will gradually rise.
For employees all doing the same work, the situation for a small firm will look like
the model in Figure 6.3. The marginal contribution of each employee is the difference
between MR, the marginal revenue generated by the worker, and MC, the marginal
cost other than salary of employing the worker. A firm seeking to maximize profit
will keep adding employees until the additional cost of employing a worker (MC)
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
1 2 3 4 5 6 7
Marginal contribution
# of employees
Employee Marginal Weekly Contribution
MR
MC
Figure 6.3: Weekly marginal contribution of additional employees in a firm.
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Fairness and Distributive Justice
exceeds the additional revenue (MR) she generates. In this example, the firm will hire
6 workers.
This marginal financial contribution method of determining the appropriate
level of compensation for positions also has a major weakness. By hypothesis, all
of the workers are doing the same work, yet the method attributes to the employee
designated as employee #1, perhaps the first one hired, marginal contribution of
$900 – $150 = $750, and attributes to the employee designated as #2 a marginal contribution
of $800 – $200 = $600, and so on. Compensation for identical work will be
different, and will depend on the order in which the employees are hired. Paying people
different wages based on the order in which they are hired is arbitrary from a moral
point of view. It results in unequal pay for equal work. This would be unacceptable to
the employees, and goes against our intuitions regarding distributive justice.
These models show how difficult it is to measure the contribution of a worker or a
CEO to the total output of the firm. Yet if we do not have a plausible way of measuring
contribution, then it appears that we need further arguments for why it is fair for a CEO
to receive 354 times the compensation of the average worker.
Equal Respect for Rights: Libertarianism
Libertarianism holds that a distribution of rights and responsibilities is just if, and only
if, it respects people’s natural rights to self-ownership. Libertarian political theory
attempts to justify a system of unrestricted private property rights by tracking property
rights back to a natural feature of human beings, their capacity for autonomous choice.
The moral rights that protect the capacity for autonomy are the negative rights of
self-ownership. Self-owners are the opposite of slaves. Self-owners have the maximum
possible liberty compatible with other people having the same. In particular, self-owners
have the right to manage and sell their own labour.
A libertarian system of property rights entails a minimally regulated, free enterprise
economic system. A libertarian argument for justifying a system of private property
rights and a free market economy goes as follows: All people have a natural right of
self-ownership to their own labour. When people labour on things that are un-owned,
they come to own them, so long as they leave enough of the un-owned things for others.
Therefore, people have a natural right to things acquired in this way. Their property
rights in these things include the right to give, sell, or trade them with others. Therefore,
people have a natural right to any property that they have acquired either by initial
acquisition or by just transfer from others.
The premise in this argument regarding the initial acquisition of property comes
from the influential writings of the seventeenth-century English philosopher, John
Locke (1632–1704). He formulated his theory in the following passage.
Though the earth, and all inferior creatures, be common to all men, yet
every man has a property in his own person: this no body has any right to
but himself. The labour of his body, and the work of his hands, we may
say, are properly his. Whatsoever then he removes out of the state that
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Chapter 6
nature hath provided, and left it in, he hath mixed his labour with, and
joined to it something that is his own, and thereby makes it his property.
It being by him removed from the common state nature hath placed it in,
it hath by this labour something annexed to it, that excludes the common
right of other men: for this labour being the unquestionable property of
the labourer, no man but he can have a right to what that is once joined
to, at least where there is enough, and as good, left in common for others.
(Locke, 1689, Chapter 2, Section 27)
The notion of mixing self-owned labour with un-owned nature to create a privately
owned economic good is a weak metaphor. Someone who pours his can of beer in the
ocean and thereby mixes something he owns with something that is un-owned, does not
gain ownership of the ocean. (Nozick, 1974, pp. 174–75) One libertarian response is to
shift focus from the mixing metaphor to the idea of adding value. The new argument
instead claims that, by her labour, the initial appropriator adds value to natural objects
and thereby deserves to own these modified natural objects. The argument then makes
the factual claim that, because of the productive efficiency of property-based economic
systems, some of this value will accrue to those who missed the initial appropriation,
leaving them better off than they would have been in a state of un-owned nature. Thus,
the value added approach satisfies the requirement that enough, and as good, be left
in common.
Nozick’s reconstruction of Locke’s argument goes like this: All people have equal
natural rights of self-ownership to their labour. People who add value to something
un-owned, thereby come to own it, as long as this process leaves others at least as well
off as they were before this initial acquisition. Therefore, people have a natural right to
their initially acquired property. This property right includes the right to give, sell, or
trade with others. Therefore, people have a natural right to any property that they have
acquired either by initial acquisition or by just transfer from others. Property rights are
distributed justly only when they are acquired in these two ways. Libertarian justice
gives equal respect to everyone’s rights to their own labour and to their private property.
However, it justifies an unrestricted capitalist economic system in which some people
can receive large incomes while others have very little.
It seems to follow from libertarianism that the CEO of a large firm, who owns her
talents and skills, is justified in receiving from her company whatever compensation she
can negotiate with the company’s board of directors. The company freely contracts with
her for her services and she is entitled to charge what the market will bear. However,
her compensation is fair and just only if the company’s ownership of the resources
that it transfers to her is fair and just. Libertarianism is a historical theory of justice, so
it requires tracking down the title to each piece of private property to see if its present
owner acquired it through a series of fair transactions from a fair act of initial acquisition
centuries ago. For example, Locke’s model for initial acquisition was the European
appropriation of North America in the seventeenth century. Most land titles in North
America will track to theft from Native Americans and most land titles in Europe will
track to acts of conquest.
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Fairness and Distributive Justice
Therefore, in order to justify huge levels of executive compensation, the libertarian
must trace how the company’s shareholders acquired their assets either by adding value
to something un-owned or by freely contracting with someone who did so. This is a
daunting task. It is especially daunting because, as Adam Smith pointed out, the source
of most value added is specialization and the division of labour, not individual labour.
Attributing value added to the labour of a particular individual is mostly impossible.
Yet, if libertarianism is to justify huge disparities in compensation, then it must be able
to justify long chains of individual acquisition and transfer.
Equal Consideration of Interests
Utilitarianism is the ethical theory that people and organizations should bring the best
consequences judged in terms of the sorts of mental states that they bring about in others.
Having positive mental states, like pleasure or preference satisfaction, is always in a person’s
interest. Utilitarianism implicitly treats people as moral equals because it considers
everyone’s interests equally. For example, it does not weight the interests of men higher
than the interests of women when it comes to maximizing human welfare. Its implicit
theory of equality is equal consideration of interests. Equal consideration of interests
holds that a distribution is just if, and only if, it assigns the same weight to everyone’s
interests in the aggregation of interests for purposes of utilitarian maximization.
Equal consideration of interests, however, does not imply any sort of equal distribution
of resources. We have seen before the potential conflict between the maximizing
concerns of direct utilitarianism and the fairness concerns of distributive justice. For
the direct utilitarian, if an action that leads to the impoverishment of a minority happens
to create the most happiness, then it is the action that a person should perform.
Indirect utilitarianism does not try to maximize welfare in each decision, but
instead advocates whatever policies are necessary to produce maximum aggregate
utility, including obedience to rules, respect for rights, or a system of distributive
justice. It turns out that indirect utilitarianism has the potential to imply a theory of
distributive justice in which everyone receives an equal income. An indirect utilitarian
theory of justice claims that equal consideration of interests will lead to equality of
resources because of the diminishing marginal utility of income.
Financial income is an all-purpose economic resource that people can use to purchase
the goods and services that satisfy their preferences and bring them well-being.
Utility is an abstract measure of people’s well-being. The total utility of a group of
economic goods or services is the sum of all the utility produced by the consumption
of those goods or services. The marginal utility of an economic good or service is the
additional utility gained through the consumption of one additional unit of that good
or service. In economics, the law of diminishing marginal utility states that as the consumption
of a given economic good increases, the marginal utility produced by the
consumption of one additional unit of the good tends to decrease. For example, as
someone consumes more and more candies, the total pleasure or utility that she receives
from each candy will rise, but at a diminishing rate. Table 6.2 shows a simple model of
this situation.
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Chapter 6
We can see the same information if we graph this person’s total utility as a function of
her candy consumption.
In general, poorer people get more satisfaction out of an extra dollar than do rich people.
Therefore, we can maximize satisfaction by redistributing dollars from the rich to the
poor. An indirect utilitarian can argue that, because it maximizes total utility, equal
weighting of everyone’s utilities, together with the diminishing marginal utility of
income, leads to an equal distribution.
For example, suppose that we have 4 candies to distribute between Ann and Bob.
Both Ann and Bob get the same utility from each candy, and both of their utility schedules
are the one in Table 6.2 and graphed in Figure 6.4. Suppose we distribute 3 candies
to Ann and 1 candy to Bob. From Table 6.2, we can see that Ann will get 6 utiles
from her 3 candies and Bob will get 3 utiles from his 1 candy. The aggregate utility for
everyone in this simple model will be 6 + 3 = 9 utiles. This is the case in the second line
of Table 6.3.
# of candies 0 1 2 3 4
Total Utility (TU) in utiles 0 3 5 6 6
Marginal Utility (MU) in utiles +3 +2 +1 +0
Table 6.2: Diminishing marginal utility of candy consumption.
0
1
2
3
4
5
6
7
0 1 2 3 4
Total utility vs. Number of candies
Total utility
Figure 6.4: Graph showing the diminishing marginal utility of candy consumption
with total utility on the vertical axis and number of candies on the horizontal
axis. Each additional candy brings the person less and less utility.
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Fairness and Distributive Justice
Looking through Table 6.3, we can see that an equal distribution of 2 candies to each
of Ann and Bob maximizes the total aggregate utility. We could predict this from
the declining marginal utility of resources and incomes. Anything but an equal distribution
will give one person more candy than the other has. The person who has
less candies will receive more utility through the return to an equal distribution than
will the person who has more candies will lose in the process. For example, the utility
that the poorer person gains from moving from 1 candy to 2 candies will be greater
than the utility that the richer loses in moving from 3 candies to 2 candies.
The indirect utilitarian argument for equal distributive shares assumes that all parties
get the same utility from resources. The argument breaks down if one party gets
more utility from income or other resources than other parties do. Suppose in our model
that Bob gets 3 times more utility from a candy than Ann does. For example, if 1 candy
gives Ann 3 utiles, then 1 candy will give Bob 9 utiles. Table 6.4 shows what happens.
Ann’s # Bob’s # Ann’s TU Bob’s TU Aggregate utility
4 0 6 0 6 + 0 = 6
3 1 6 3 6 + 3 = 9
2 2 5 5 5 + 5 = 10
1 3 3 6 3 + 6 = 9
0 4 0 6 0 + 6 = 6
Table 6.3: When Bob and Ann get the same utility from each candy,
an equal distribution of candies will maximize aggregate utility.
Ann’s # Bob’s # Ann’s TU Bob’s TU Aggregate utility
4 0 6 3 x 0 = 0 6 + 0 = 6
3 1 6 3 x 3 = 9 6 + 9 = 15
2 2 5 5 x 5 = 15 5 + 15 = 20
1 3 3 3 x 6 = 18 3+ 18 = 21
0 4 0 3 x 6 = 18 0 + 18 = 18
Table 6.4: When Bob gets 3 times more utility from a candy than Ann does,
an equal distribution of candies no longer maximizes aggregate utility.
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Utility is maximized in the model in Table 6.4 when Ann gets 1 candy and Bob gets
3 candies. We can maximize utility by giving more candies to Bob, who is more efficient
at turning candies into pleasure. An equal distribution of candies no longer maximizes
aggregate utility. An indirect utilitarian theory of distributive justice would imply the
value of equality if everyone turned resources into welfare in the same way. Because this
assumption is implausible, the indirect utilitarian theory of distributive justice is not a
viable theory for those who think that equality is very important.
A utilitarian could defend high levels of executive compensation by trying to
establish that high executive compensation leads to economic efficiency and thus higher
happiness for all. Even if such an economic fact could be established, this utilitarian
consideration would have to be balanced against distributive justice considerations.
Equality of Welfare
Interpreting the equal consideration of interests in the indirect utilitarian way is unsatisfactory.
Another way to consider everyone’s welfare interests equally is to argue that
everyone should get an equal level of happiness or preference satisfaction. Equality of
welfare holds that a distribution of property rights in resources is just if, and only if,
it results in everyone having the same level of welfare. Equality of welfare is different
from indirect utilitarian justice because it says nothing about maximizing total welfare.
It does not say just that we should weight everyone’s welfare interests equally in a utilitarian
calculation. Instead, it makes the stronger claim that we should satisfy everyone’s
welfare interests to the same degree. Equality of welfare would not supply any obvious
ethical justification for high levels of executive compensation.
Equality of welfare is not an attractive theory either. It has not had many defenders,
though we might read the communist slogan, “From each according to his abilities,
to each according to his needs,” as a call for equality of welfare. It is, however, interesting
to survey the problems with equality of welfare, because plausible theories of
distributive justice must avoid these problems.
One problem with equality of welfare as a theory of distributive justice is that
amounts of welfare are very difficult to measure and compare between people. We
looked at welfare measurement problems in our discussion of utilitarianism. One suggestion
was to use willingness to pay, or how much income a person was willing to give
up to buy some good or service, as a measure of the intensity of a person’s preference
for an economic resource. If we assume a person’s welfare increase is proportional to
the strength of the preference satisfied, then we get a measure of welfare. This suggests
that we should distribute income equally to ensure equal welfare. The problem, as we
just saw in our discussion of indirect utilitarian justice, is that people convert resources,
such as increased income, into welfare at different rates. Therefore, we have no assurance
that equality of income will lead to equality of welfare.
A second problem with equality of welfare as a distributional principle is the problem
of expensive tastes. Some people acquire tastes for expensive items, such as champagne,
and get no pleasure from inexpensive substitutes like beer. Other people enjoy
inexpensive items like beer, and never acquire a taste for expensive substitutes such as
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fine wines. Does this mean that to equalize welfare we should devote extra resources
to satisfying people’s expensive tastes? It seems intuitively unjust that people should
be entitled to more of society’s resources because they have acquired expensive tastes.
It seems more plausible to hold people responsible for their tastes and to ask them to
moderate their consumption of champagne, even if this distribution gives champagne
drinkers less welfare than it does to beer drinkers.
A third problem with equality of welfare is the problem of levelling down. In the
face of a situation of inequality of welfare, there are two ways to proceed. The first is
to raise the welfare level of the worse off, and the second is to lower the welfare level of
the better off. From the point of view or equality of welfare, both situations are equally
good. Equality of welfare appears to imply that we should reduce everyone to the same
level of preference satisfaction if that is the only way to achieve equality of welfare.
In Table 6.5, equality of welfare appears to say that the first distribution is better than
the second distribution because all three people receive the same welfare. However,
if the only choice is between these two distributions, then most people’s intuitions
favour the unequal distribution, in which everyone is better off than in the equal distribution.
The idea of levelling down people’s welfare, just for the sake of equality, conflicts
with the considered moral judgments of most people.
A fourth problem with equality of welfare is that it would tend to diminish personal
responsibility. If people receive resources that would bring them happiness, or
they waste or squander these resources, then the theory of equality of welfare requires
that they should receive more resources in order to raise their welfare level back to
equality. Equality of welfare fails to hold people accountable for using resources wisely.
It also totally disconnects the activities of production and consumption. Since equality
of resources guarantees a certain level of welfare, it provides no incentive for people
to contribute to the production of the resources whose consumption create this level
of welfare.
Equality of Resources and the Difference Principle
A large problem with thinking of distributive justice as the equal consideration of welfare
interests was that such theories could not properly take into account expensive
tastes and unjust preferences that others have less. One way to avoid these problems
is to think of distributive justice as assigning resources instead of welfare to people.
# Distribution Ron Sal Tom
1 Equality of welfare (utiles) 60 60 60
2 Inequality of welfare (utiles) 65 70 75
Table 6.5: Levelling down of welfare.
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How people then use their fair share of resources would be up to them; if they want to
buy champagne infrequently instead of buying beer frequently, then that is their business.
The simplest version of equality of resources would just give everyone an equal
share of income or an equal share of economic goods and services. Strict equality of
resources holds that a distribution of property rights in resources is just if, and only if,
it results in everyone having the same amount of resources.
Strict equality of resources solves measurement and comparison problem because
it just assigns everyone the same income to buy whatever resources they wish to have.
It solves the expensive tastes problem because people with champagne tastes cannot
demand more than an equal share of resources to satisfy their expensive tastes. It holds
people responsible for forming only preferences that are affordable with their fair share.
Unfortunately, simple or strict equality is still vulnerable to the problem of levelling
down to achieve equality. Even if everyone would be better-off in a society with an
unequal distribution of resources, strict equality of resources tells us that a distribution
in which everyone gets the same share would be fairer, which is counterintuitive. Nor
does it hold people responsible for contributing to the production of goods and services;
even beach bums will still receive their equal share of income.
In what is perhaps the most influential modern account of distributive justice, the
American philosopher, John Rawls (1921–2002), proposed a way to avoid some of these
problems. He set out his general conception of justice in his 1971 book, A Theory of Justice.
All social primary goods—liberty and opportunity, income and wealth,
and the bases of self-respect—are to be distributed equally unless an
unequal distribution of any or all of these goods is to the advantage of the
least favored. (Rawls, 1971, p. 301)
He called his principle, in which an unequal distribution of resources is fair so long as
it betters the position of the least well-off, the “difference principle.” The difference
principle says a distribution of rights and responsibilities is just if, and only if, everyone
receives the same resources unless an unequal distribution results in the least well-off
receiving more than in the strictly equal distribution. Plainly, an unequal distribution
of liberties or of opportunities to compete fairly for positions does nothing to benefit
the least favoured, so the difference principle will give everyone the same basic liberties
and opportunities. However, it will not give everyone the same resources; there will be
differences in how it distributes income and wealth.
# Ron Sal Tom Total
1 Utilitarian $1100 $1100 $3000 $5200
2 Strict equality of resources $1000 $1000 $1000 $3000
3 Difference Principle $1200 $1300 $1500 $4000
Table 6.6: Utilitarianism, strict equality, and the difference principle.
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Table 6.6 shows the differences between utilitarianism, strict equality, and the difference
principle. Utilitarianism would require distribution #1 because it maximizes utility
as measured by total financial resources of $5200. Strict equality of resources would
require distribution #2 because it gives everyone the same share of resources, even though
everyone would be better off in either of the other distributions. Rawls’s difference principle
would require distribution #3 because the least favoured person, Ron, would better
off than in either of the other two distributions. Tom would do worse in #3 than he
would in #1, but that does not matter to the difference principle, which focuses only on
the position of the least favoured person.
Rawls’s difference principle avoids many of the problems of other theories. It
avoids the measurement and comparison problem by distributing easily measured
resources like income and wealth. It avoids problems of expensive tastes and unjust
preferences by distributing resources and not welfare. It avoids the levelling down
objection because it permits inequalities of resources whenever doing so benefits the
least favoured members of society. It partially avoids problems of diminished personal
responsibility because it offers people incentives to contribute more to the production
of goods and services. If someone’s extra effort and productivity enlarges the total
quantity of goods and services available for distribution, and if businesses must pay
executives more than they do janitors to get executives to contribute more, then the
difference principle will give them incentives in the form of larger shares. If offering
people a production incentive leads to a larger economic pie, and thereby permits the
least favoured to receive a larger slice, then the difference principle will endorse this.
The difference principle will require a progressive tax system that permits only the level
of income inequality necessary to help the least advantaged, and no more.
Some people object that Rawls’s difference principle diminishes personal responsibility.
It appears not to hold people responsible for their choices. For example, an
able-bodied person could choose to become a beach bum, contribute nothing to the
productive activities of society, and still receive the minimum income and wealth distributed
by the difference principle. This goes against the considered moral judgment of
many people who believe that people should have to take more personal responsibility
for their lives than the difference principle requires.
A possible alternative is a starting-gate theory of equality of resources. Instead of
continually transferring resources to those who squander them or who choose not to
cooperate in productive activities, the theory of initial equality of resources would ensure
only that people had the same starting point in life. Initial equality of resources says that
a distribution of rights and responsibilities is just if, and only if, it is the result of people’s
free choices after everyone starts life with strictly equal distribution of resources.
This suggestion would, for example, justify a heavy inheritance tax. The problem
with this suggestion is that how a person’s life turns out is only partly dependent on
the choices they make with their initial resources. Sometimes how things go will also
depend on brute luck. Recessions may cause investments to go bad, changing technology
may make skills and training redundant, or poor health may lead to financial ruin. A
theory of justice that holds people responsible under these conditions may be guilty of
moral arbitrariness.
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There are many different interpretations of what it means to treat people as moral
equals, and thus many different considerations that weigh for and against levels of
income inequality. Each interpretation has its strengths and weaknesses in facing
problems of moral arbitrariness, measuring contributions, measuring welfare, dealing
with expensive or unjust preferences, avoiding levelling down, and allocating personal
responsibility. Decision-makers must bear in mind these sorts of considerations when
they are struggling to make fair and just decisions.
Summary
1. Decision-makers must treat people fairly, which means treating
everyone as moral equals.
2. Treating people as moral equals does not mean treating them all the
same. Justice permits treating people differently, as long as it is not for
morally arbitrary reasons like their race or gender.
3. Decision-makers must pay attention to three types of justice:
retributive, compensatory, and distributive. Issues of distributive justice
can become very complex.
4. The moral equality of persons requires giving everyone an equal
opportunity to compete for economic resources. Equality of
opportunity, though, may mean more than just removing legal
impediments based on race or gender. It may also mean compensating
for skill deficiencies caused by factors beyond a person’s control and for
fixing structural barriers such as lack of childcare facilities.
5. Equality of opportunity to compete for positions leaves open the
question of determining fair compensation for positions. Matching
compensation to marginal contribution is difficult because of the
complex way in which specialized positions divide labour in a firm.
6. The moral equality of persons requires equal respect for their selfownership
rights. Some people argue that self-ownership leads
to unrestricted private property rights and to free exchange in a
capitalist market system. However, it is difficult to account for the
initial acquisition of idealized property rights, and the history of
actual, present-day property rights includes conquest, theft, and
unconscionable contracts.
7. The moral equality of persons requires equal consideration of their
welfare interests. However, weighting everyone’s interests equally in
a utilitarian calculation creates an unattractive theory of distributive
justice. It implies unfair distributions because people have very
different ways of converting resources into welfare.
8. As a theory of justice, the equal satisfaction of welfare interests has
difficulty with the interpersonal comparison of preferences, with
discounting unfairly expensive tastes, and with avoiding the reduction
of everyone’s welfare to the lowest level in the name of equality.
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9. Understanding distributive justice as equalizing resources rather than
equalizing welfare avoids the problem of expensive, champagne tastes.
However, strict equality of resources still cannot avoid the problems of
levelling down for the sake of equality and of failing to require people
to take personal responsibility for their productive contributions.
10. Rawls’s difference principle calls for strict equality of resources unless
an unequal distribution benefits the least well-off in society. The
difference principle avoids the levelling down objection, and uses
incentives to increase people’s productive contributions.
11. However, the difference principle still gives a minimum income to
beach bums who choose not to contribute to society, and gives no extra
shares to people who, for reasons of brute bad luck, require more than
a minimum share of resources to lead a comfortable life.
ONLINE LEARNING RESOURCES
You will find a collection of learning resources associated with this chapter on the
book’s website: http://sites.broadviewpress.com/businessethics/. Working through this
material will help you understand and remember important concepts that we have
discussed, and will help you apply them to issues in business ethics.
Study Questions
Answering the following questions will help you to understand the ethical theory in this
chapter and will help you to create a set of review notes on the textbook.
1. Why does the moral equality of persons sometimes require that people
be treated differently by just institutions?
2. Why does the same reasoning that leads to formal equality of
opportunity apparently also lead to fair and to structural equality of
opportunity?
3. Why is it difficult to determine the marginal contribution of each
worker in Adam Smith’s pin factory?
4. How does equal respect for self-ownership rights account for the initial
acquisition of property rights in things?
5. What are the difficulties with the libertarian account of the initial
acquisition of property rights in things?
6. How can utilitarianism claim to give equal consideration to everyone’s
welfare interests?
7. How can an indirect utilitarian theory of justice claim to entail an
equal distribution of resources?
8. What goes wrong with the indirect utilitarian argument for an equal
distribution of resources?
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9. What are the problems with equality of welfare as a theory of
distributive justice?
10. What are the problems of strict equality of resources as a theory of
distributive justice?
11. How does Rawls’s difference principle answer the problem of expensive
tastes, the problem of levelling down for the sake of achieving equality,
and the problem of taking personal responsibility?
12. What are the problems with Rawls’s difference principle as a way of
treating everyone as moral equals?
Decision Questions
The whole point of learning ethical theory is to understand and ask questions like the
following when you are analyzing an ethically problematic situation or case.
• Will the decision treat everyone with equal moral respect
and consideration?
• Will the decision treat people differently for morally arbitrary reasons?
• Does anyone deserve praise or blame in the case?
• Should anyone receive reward or punishment?
• Does anyone deserve compensation for a harm, rights violation,
or injustice?
• Will the decision distribute benefits and burdens fairly?
• Does the decision promote equality of opportunity?
• Does the decision respect property rights and contracts?
• Does the decision help the least advantaged?
• Would a decision to promote distributive justice lead to entitlement loss
or to overall utility loss?
Case Study
Analyze this case study using the ethical theory that you have learned so far. You will
find a collection of learning materials applying to the case on the book’s website: http://
sites.broadviewpress.com/businessethics/. These materials will help you in your analysis.
How Should Faruq Vote on the Salary of the New CEO?
Faruq Habib is a board member of the Foundation for International Development in the
Americas (FIDA). FIDA is a very large, international, non-profit, non-government organization
that funds local development groups in Central and South America. It raises
these funds by seeking donations in Europe and North America. In his day job, Faruq
is a human resources professional employed by a large multinational in Toronto. He
has always been committed to international development work. Seven years ago, when
he had just graduated from university, he spent two years working in Honduras with a
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Peace-Corps-like organization called Professional Service Overseas. When FIDA asked
him to join its board last year, Faruq felt much honoured, since FIDA is a well-respected
organization that could have its pick of senior professionals and public figures for its
board. His employers were also pleased, and have been very accommodating regarding
the time-commitments of his FIDA work.
FIDA does not work directly with people, but instead funds the work of local,
Spanish-, and Portuguese-speaking groups that provide aid to and that do advocacy
work on behalf of local people. Poor people in these countries often ask for very little
because years of poverty have severely lowered their expectations. FIDA’s work has been
very successful raising local standards of living, which people much appreciate after the
fact. Unfortunately, local government officials and local agri-businesses do not always
approve of FIDA’s activities.
FIDA is in the process of hiring a new chief executive officer. The search committee
has recommended Joan Rockingham, who is an almost ideal candidate. Joan has a
tremendous record of accomplishment in raising funds for international development
organizations. She has told the search committee that she thinks she can raise donations
to FIDA by $5,000,000.
Joan comes from a very well to do family, went to an expensive prep school, and
then to Ivy League universities for her philosophy degree and for her MBA. Her study of
political philosophy led her to reject living on her family’s money, and to go into international
development work. Nevertheless, she grew up with, and she still enjoys, all the
finer things in life. Her family connections have always helped her with fund-raising.
The only problem with Joan’s candidacy is that her asking salary is triple that of
the outgoing executive director. FIDA is a global justice organization, and as such has a
generally accepted, but unwritten, policy that the salary of the highest-paid member of
the organization cannot be higher than three times the salary of the lowest paid members
of the organization. Joan’s asking salary is nine times the salary of the cleaning
staff. The next best candidate, who is asking for the same salary as the previous CEO, is
very competent and will be able to keep FIDA’s work going at its current level.
Should Faruq vote to hire Joan?

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VIRTUE ETHICS
AND COMMUNITY
MEMBERSHIP
Why is it important to avoid vices and cultivate virtues?
How do ethical obligations relate to community membership?
Why should the corporate character of business
organizations be so significant?
Vices are stable character traits with negative moral significance, while virtues are stable
character traits with positive moral significance. Virtues are forms of moral excellence.
Managers of businesses and other organizations aspire to excellence. The character
traits of excellent managers include decisiveness, innovativeness, leadership, independence,
openness, reliability, congeniality, charisma, reasonableness, shrewdness,
resourcefulness, and persistence. A manager’s excellence in these traits will help her
flourish in her organization, and will help her organization flourish in its dealings with
the rest of the world. These character traits are useful to the organization and to the
manager herself, but they carry little moral significance.
Other character traits of excellent managers carry more moral significance. The
moral excellences of good managers also include honesty, loyalty, trustworthiness, courage,
fairness, temperance, generosity, tolerance, and sensitivity. A manager without these
virtues will not flourish in her organization, and will not help her organization contribute
to the flourishing of society as a whole. For example, those managers in the financial
industry whose recklessness, greed, and dishonesty contributed to the financial crisis
and recession of 2008 did not exhibit moral excellence. Neither their firms nor the world
economy flourished as a result.
There is no sharp distinction between excellences with little moral significance
and the excellences with more moral significance that are virtues. Fairness and honesty
obviously carry high levels of positive moral significance whereas shrewdness and persistence
carry less. Virtues tend to foster social cooperation in almost every interpersonal
situation, whereas non-moral excellences and skills tend to be more self-centred
and less universal.
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Our excellences and virtues are part of who we are. They are character traits
that help determine our identity. Acting virtuously, we prove what type of person we
are. We confirm ourselves to be honest, trustworthy, and fair. Acting contrary to virtue,
we demonstrate our vices. We confirm ourselves to be dishonest, untrustworthy,
or unjust.
Virtues and vices are not conscious mental states like pain or pleasure, nor are
they mental processes, such as rational calculations or applications of ethical principles.
They are skills, traits, or dispositions. Because they are dispositions, we can talk
meaningfully and non-metaphorically about the virtues of nation states, societies, communities,
and corporations. A just society is disposed to respect the rights of its citizens
and distribute benefits and burdens in a way that is fair. We can assess a business organization
based on whether it is disposed to treat its customers honestly, its employees
fairly, its owners with respect, and its suppliers with loyalty. Therefore, we can talk
meaningfully about corporate character. A corporation can be just or unjust, for example,
depending on how it is organized.
We can seek out the organizational features of a firm that affect its corporate
character. Does it have a code of ethics, and are the actions of employees monitored
for compliance with this code? Does it have properly implemented conflict of interest
policies? Does it have an incentive system that discourages reckless behaviour?
Does it provide ethics training for its employees? What is the ethical climate of the
organization, and what is the example set by its leadership? Organizational features
like these will determine the moral excellence of the firm. Decision-makers within
the firm need to ensure the proper implementation and enforcement of policies that
dispose the firm to treat stakeholders well and to cooperate and contribute to the
wider society.
Our membership in a wider community affects our particular obligations. Our
institutional roles and our community memberships give rise to prima facie moral
obligations that we must balance with calculations of utility, respect for rights, and
concern for distributive justice. Corporations, too, are members of communities.
Decision-makers within corporations must take into account corporate obligations
that arise through community membership. Virtue ethics gives us a picture of ethical
decision-making in business that is richer than the legalistic framework of simply fulfilling
contracts.
Virtue Ethics and Human Flourishing
When we make an ethical decision, we consider three broad types of ethical reasoning.
One, we consider the likely consequences of our decision and assess these consequences
in terms of their contribution to total welfare. Two, we consider the motivation behind
our decision, concentrating on the principles of justice and respect for rights that we
are applying and following. Three, we consider what sort of person we become when
we make such decisions. What would a person of good character, a virtuous person, a
morally excellent businessperson, decide to do in this situation? Figure 7.1 shows how
virtue ethics fits into a conceptual map of ethical theories.
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Virtue Ethics and Community Membership
The virtues appear in applied ethics in two different ways. One way understands the
virtues as basic to ethical theory. Another way understands the virtues as serving
the purposes of other principle- or consequence-based ethical theories. Derivative virtues
are character traits that are justified because they help an agent fulfil the requirements
of some other type of ethical theory. An obvious example of this is indirect
utilitarianism. Direct utilitarianism requires us to perform a full cost-benefit analysis
of the utilities of the consequences of each decision that we make. Indirect utilitarianism
claims that this sort of calculation is beyond the finite intellectual capacities of
decision-makers. Instead, it requires that people use rules of thumb, respect basic rights,
and acquire virtues such as benevolence that will bring about the best consequences.
Here, the requirement to be virtuous is derived from consequentialist ethical reasoning.
Similarly rights-based ethical theories call for virtues of thoughtfulness, carefulness,
and self-discipline and justice-based ethical theories call for a sense of fairness.
Figure 7.2 shows these two different ways of using the virtues in ethics. In this chapter,
we will consider the virtues as basic to ethics.
A virtue is a stable character trait with positive moral significance. Virtues enable
human beings and organizations to flourish in cooperation with others who have similar
or complementary traits. Understanding virtue requires understanding the notions of character
traits, human flourishing, and social cooperation that are important in virtue ethics.
Character traits are not mental states like a pleasurable experience or a desire for
ice cream. Instead, they are enduring dispositions to behave in certain ways in appropriate
circumstances. They are habits that we acquire through upbringing, education,
Ethical Theories
Identity-based
Principle-based
Consequencebased
Community
membership
Care ethics
Virtue ethics
Figure 7.1: Conceptual map showing virtue ethics as an identity-based ethical theory.
Derivative
Basic
Virtues
Indirect
utilitarian
Justice
Rights
Virtue ethics
e.g. Fairness
e.g. Carefulness
e.g. Benevolence
Figure 7.2: Virtues are basic to virtue theory, but can also be justified
by other consequentialist and principle-based ethical theories.
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self-discipline, and practice. To be virtuous, it is not enough to perform just one good
action. One donation to charity is not enough to make a person generous. Nor is a strategy
of acting well for personal gain an indication of virtue. Adopting honesty as the best
policy does not make a person honest. Generous people are disposed to repeatedly share
with the needy and honest people want to tell the truth, even when it is inconvenient or
worse to do so.
People are perfectly virtuous if it is second nature for them do the right thing.
Perfect virtue involves a form of moral perception; perfectly virtuous people “see”
what they should do. They do the right thing intuitively. In this, they are like
skilled drivers who naturally make the right decisions in dangerous circumstances,
or skilled hockey players who instantly make the best play.
To follow a virtue ethics rule of action is to emulate how a virtuous person would act
in a problematic situation. People who are not perfectly virtuous, which is most of us, can
reason by imagining what someone whose moral excellence we admire—mothers, friends,
bosses, business heroes, or religious leaders—would do in the situation that we face.
Virtue also requires practical wisdom. Moral perceptiveness, the ability to
“see” the relevant ethical issues in a situation, and moral competence, the ability to “see”
what to do in response to these ethical issues are forms of wisdom that are not readily
reduced to calculations of consequences or applications of principle. Wisdom is
also involved in the understanding of the various virtues and vices. A virtue is the
mean between two vices, as courage is the mean between cowardice and recklessness.
For example, it is generous for a business to make a reasonable donation to a charitable
cause. However a disposition towards offering too little would be greedy, while a
disposition towards offering too much might be imprudent. An honest business selling
a product should be frank about the qualities of that product and its manufacturing.
However to say too little would be dishonest, while to say too much might entail the
disclosure of trade secrets. The boundaries between virtue and vice are not easy to
determine, and may be different for different roles in society. We must learn a certain
skill in applying virtue concepts. Doing so will give us a conceptual vocabulary for
thinking about ethical decisions that is much richer than simple divisions into right and
wrong, good and bad, or just and unjust.
Vice Virtue Vice
Dishonesty
Timidity
Greed
Meanness
Unfairness
Honesty
Courage
Moderation
Generosity
Justice
Over-disclosure
Recklessness
Self-sacrifice
Excessiveness
Rigidness
Table 7.1: A virtue is the mean between two vices: some examples of
the rich conceptual vocabulary available within virtue ethics.
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Virtue Ethics and Community Membership
The notion of human flourishing as understood in virtue ethics is very different
from the notion of happiness as understood by utilitarians. Virtue ethics understands
flourishing as objective happiness, a form of happiness that an objective observer of a
person’s life could assess. Utilitarianism understands happiness as subjective happiness,
as pleasurable experiences and satisfied desires that only the person who has them can
assess. We can assess flourishing from the outside, but we can only assess subjective
happiness from the inside. Only the person enjoying a beautiful sunset can judge how
much pleasure seeing the sunset gives her. However, an external observer can judge
the meaningfulness of a person’s life and say whether the person is exhibiting good
character, living his life well and flourishing or not. In the jargon of ethics, the theory
of objective happiness in virtue ethics is eudemonism, and contrasts with the hedonism
that is the theory of subjective happiness in utilitarian thinking.
The virtues do not cause human flourishing; they partially constitute it. The relationship
between virtue and objective happiness is NOT the relationship shown in Figure 7.3.
Instead, we can better capture the relationship of virtue and flourishing in the enclosed
circles of Figure 7.4. Having a good character is part of what it is to lead an objectively
good life. Virtue ethics breaks down the opposition between ethics and self-interest
by understanding a happy life as constituted by a combination of good character and
good circumstances.
Virtue ethics Utilitarianism
Objective happiness
Human flourishing
Meaningful life
Life well-lived
Eudemonism
Subjective happiness
Pleasurable experiences
Satisfied preferences
Financial resources
Hedonism
Table 7.2: Concepts of happiness in virtue ethics and utilitarianism.
Virtues Cause Objective
Happiness
Figure 7.3: The virtues do not cause human flourishing.
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The good circumstances required for a flourishing life include both natural and social
circumstances. Virtues, which are character traits that enable people to cooperate for
mutual advantage in society, are also required to create and sustain good social circumstances.
A society where people are generally honest, trustworthy, and supportive will
prosper and sustain the social conditions required for the flourishing of its members.
The virtues have less effect on the natural conditions of a flourishing life. No amount
of virtue or moral excellence will protect a person from cancer or heart disease. Good
health is, in part, a matter of good luck. However, living in a well-developed society
that can provide good health care to its members is a matter of social cooperation,
which, in turn, depends on members of the society having the necessary cooperative
virtues. In virtue ethics, a happy life is a good life, lived with virtues such as integrity,
self-respect, and honesty. These virtues also contribute to the maintenance of happy
social circumstances and to the flourishing of everyone in society.
Virtue and Social Cooperation
Some of the ancient virtue theorists, the Stoics, thought that all that is necessary for a
life well lived is to be perfectly virtuous. Circumstances do not matter; even a life of
extreme privation is a flourishing life so long as it exemplifies the virtues. Others of the
ancient virtue theorists, the Aristotelians, thought that circumstances do matter and
even a life that exemplified all the virtues could be a bad one in unfortunate circumstances.
Here, we will follow the Aristotelians, and examine how the virtues contribute
to creating and sustaining the circumstances in which people flourish. Two sorts of
social circumstances are relevant to the flourishing. The first are social conditions: the
preservation and development of the social practices, institutions, and communities that
honour and reward people’s virtues. The second are material conditions: the provision
of those things, such as education, healthcare, insurance, and economic goods and
Good
Character
Flourishing
Life
Good
Circumstances
Figure 7.4: A combination of virtue and good circumstances
creates a flourishing and objectively happy life.
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services, which enable people’s lives to flourish. We will examine some examples of the
latter type of social circumstances.
People who live in a community that inculcates certain virtues will avoid the
dilemmas of cooperation that afflict people motivated only by unenlightened self-interest.
For example, in the Prisoner’s Dilemma Game, two rational actors, motivated
only by unenlightened self-interest, will each find that their best strategy is to cheat,
no matter whether the other actor cheats or cooperates. The outcome of a prisoner’s
dilemma situation will be a less than optimal payoff for both players. However, people
who live in communities that inculcate and sustain virtues of fidelity, trustworthiness,
and reciprocity will achieve Pareto optimal outcomes. They can trust one another to
keep their promises, and can rely on cooperative behaviour from each other. Virtues are
permanent character traits; people do not suddenly behave out of character, so virtuous
people can predict one another’s behaviour accurately. As virtuous people who know
each other to be virtuous, they will dare to take the cooperative strategy and flourish.
Similarly, players of the Centipede Game who unthinkingly trust one another will make
out better than will hyper-rational economists and chess grandmasters who reason by
backwards induction to the least optimal payoff.
If Adam Smith’s example of specialization and the division of labour in the pin
factory generalizes to the productive capacity of society as a whole, then members of
a society who can cooperate easily and cheaply will flourish. The material conditions
of their lives will be much better than will the material conditions of a society whose
members do not have the cooperative virtues—but that is not the ultimate aim that
justifies things for the virtue theorists. Good material conditions are justified because
they encourage virtue and allow flourishing. We can illustrate this with another sort of
game, a co-ordination or assurance game called the Stag Hunt Game. Suppose that Jack
and Jill can produce pins either individually or by cooperating. Jack and Jill have complementary
excellences in producing pin parts. Jack has a talent for producing pinheads
whereas Jill has a talent for producing pinpoints.
Jack Jill
Heads Points Heads Points
Productivity per hour 9 1 1 9
Individual pin production in 10 hours 9 9
Total individual pin production 18
Cooperative part production in 10 hours 90 0 0 90
Total cooperative pin production 90
Equal division of cooperative production 45 45
Table 7.3: Abstract model of a pin factory showing
the gains from cooperative production.
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If Jack and Jill produce pins individually, then they can produce only 9 pins each per
day. However, if they are able to coordinate their production by specializing in producing
the pin parts that they produce most efficiently, then they can produce 90 pins per
day. If they can then agree on a fair way of dividing the gains from cooperation, then
they will each be better off. Cooperative production thus faces two problems. The first
is the problem of coordinating specialized production. The second is the problem of
dividing the gains from cooperation.
The problem of coordination arises because if Jack, say, specializes and produces
90 pinheads while Jill works individually and produces 9 complete pins, then Jack will
be left with 90 useless pinheads. Jack will have nothing and Jill will have less than
she could have had. Each producer has to have confidence that the other producer will
specialize and produce jointly. Each producer faces the risk that the other producer
will not cooperate, and that he or she will be worse off if he or she goes ahead and specializes.
We can represent this situation as a Stag Hunt Game. [The original version of
the game involved hunters choosing whether to hunt a large deer cooperatively or to hunt
a small rabbit individually.] If Jack and Jill both accept the risk of specializing and divide the gains equally, then
they can achieve the large payoffs in the upper left cell. If both refuse to take the risk
of specializing, then they will get the small payoffs in the lower right cell. If one specializes
and the other does not, then the one who specializes will get nothing, while
the one who produces individually will get only a small payoff. Clearly both are better
off if they both specialize, but if one specializes and the other does not, then they risk
getting nothing. By producing individually, they can avoid the risk of getting nothing by
accepting a small payoff. Both UL and LR are equilibriums in the game, since in UL or LR
neither Jack nor Jill will have any incentive to change his or her strategy. The problem
for Jack and Jill is to make sure that they settle in optimal equilibrium UL and not in
Jill
Specialize Self-Sucient
Jack
Specialize
45
UL
45
UR
0
Self-
Sucient
0
9
9
LL
9
LR
9
Figure 7.5: Social cooperation in the pin factory represented as a coordination game.
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Virtue Ethics and Community Membership
sub-optimal equilibrium LR. If Jack and Jill can see one another and can easily verify
that the other one is specializing, then they can easily solve this coordination problem.
However, if they cannot easily verify and enforce cooperation, then they face a risk
when they specialize.
Virtues are often character traits that enable human beings and organizations
to flourish in cooperation with others who have similar or complementary traits. If
both Jack and Jill possess the virtues of fidelity in keeping promises, trustworthiness in
keeping agreements, courage in accepting the risks of cooperation, and honesty in their
negotiations, and if they know one another to have these virtues, then they can much
reduce the risks of specialization. A community that teaches and sustains cooperative
virtues will flourish in a way that a mere collection of self-interested individuals will not.
Someone sceptical about virtue ethics might respond to this argument by pointing
out another way of ensuring social cooperation in the face of defection and risk. Legal
contracts can ensure cooperation. If Jack and Jill sign legal contracts with one another to
supply complementary pin parts, contracts that specify adequate penalties for non-compliance,
then they can reduce the risks of specialization and achieve the optimal equilibrium.
One problem with this way of achieving social cooperation is that it is costly.
Negotiating a complex legal contract that endeavours to cover every eventuality
is expensive. If anything goes wrong with the deal, then enforcing such a contract is
also expensive. Lawyers charge very high fees. The fees involved in creating and enforcing
agreements are transaction costs. These are the expenses of reaching and enforcing
an agreement between negotiating parties. They include the costs of researching information
about the situation, negotiating the agreement, and legally enforcing the agreement.
Transaction costs introduce inefficiencies into economic cooperation.
A society that inculcates and sustains virtues of fidelity, trustworthiness, courage,
and honesty in its members can have economic cooperation more efficiently than can a
litigious society. Similarly, societies whose members do not steal, murder, or harm one
another out of virtue is much less expensive to police than are societies whose members
merely fear the law. A community whose members internalize and practice the
character traits that sustain economic and social cooperation, is more efficient than a
collection of atomistic individuals who are continually calculating the costs and benefits
of non-cooperative or criminal activity.
Having overcome the risks of specialization and the division of labour, Jack and
Jill still face the problem of dividing the gains from cooperation. Working alone, they
make 9 pins each; working together, they jointly make 90 pins. How should they divide
the 72 pins that are the gains from cooperation? If Jack gets 10 pins, and Jill gets 80
pins, both parties are better off than they would be working alone, but this division
is patently unfair. Unfair divisions can lead to resentment and anger and to the breakdown
of cooperation. To reach a fair division, Jack and Jill need a sense of justice, a disposition
to propose and accept fair divisions of the gains of cooperation. The results of
the behavioural economics experiment that we looked at earlier, the Ultimatum Game,
suggest that people do have a sense of justice and believe others to have such a sense as
well. Proposers in the Ultimatum Game will typically offer an equal division of rewards,
and Deciders will typically punish what they see as an unfair division by refusing such
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an offer, even at some cost to themselves. The virtues of honesty, trustworthiness, and
courage create social cooperation, and the virtue of justice sustains it.
Of course, villains can still free ride on the virtues of others. Widespread exercise
of the virtues of moderation, truthfulness, fidelity, trustworthiness, and courage
is required to realize the gains from social cooperation, but universal exercise of these
virtues is not. One person without these traits may seize for himself an unfair share
of the material gains from cooperation without compromising the general prevalence of
cooperative behaviour. An important virtue in these circumstances is the widespread
courage to call attention to and discourage, such greedy, dishonest, unfaithful, untrustworthy,
and reckless behaviour.
Social Practices and Community Membership
Virtue ethics differs from the other ethical theories that we have examined in its emphasis
on the social context of an individual’s life. Ethical egoism begins from the notion
of isolated individuals whose rational pursuit of their own self-interest creates dilemmas
with social cooperation. Utilitarianism also begins from the notion of individuals
who make decisions that maximize the subjective, internal, mental experiences of other
isolated individuals. Kantian rights theory, too, begins from the idea of the autonomous
choices and crucial subjective interests of isolated individuals who need rights to
protect them from the interference of others. Theories of distributive justice concern
themselves with the distribution of goods and services that people consume in isolation.
Virtue ethics, on the other hand, begins from the notions of individuals who are already
cooperating in a society and of individuals whose flourishing depends on their ability
to work well with other members of their community. The virtues are character traits
that enable community members to work together effectively.
Not every society or community enables the flourishing of its members. We can
imagine a nasty society, whose members are impoverished and oppressed, and in which
people must be dishonest and untrustworthy in order to survive. Such a society encourages
the vices. The virtues have their role in creating and maintaining a prosperous and
just society that rewards and honours the virtues that sustain it.
Each social practice has its different skills, but all communities and social practices
require virtues of honesty, fidelity, and so on for members and practitioners to flourish.
The virtues relate intimately to communities and the social practices of their members.
Virtues are skills in making ethical decisions that children learn within communities.
Communities provide moral education in virtue. Adults may ultimately modify or reject
the virtues that they learn as children, but childhood moral training provides the foundation
for adult moral excellence. Communities sustain the virtues that they teach by
honouring and sometimes rewarding virtue and by despising and punishing vice.
At the same time, the virtues inculcated by a community sustain the forms of
social cooperation that make the community work. The relationship between virtue
and community is reciprocal, as shown in Figure 7.6. The virtues enable social cooperation
and therefore the existence of communities, while communities simultaneously
inculcate, reward, and enable the practice of the various virtues.
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Virtue Ethics and Community Membership
The gains from cooperation are twofold. In virtue ethics, a flourishing human life
requires both economic goods and services and the exercise of the virtues. A good
life requires a good set of social circumstances and the possession of a good character.
Social cooperation provides community members with economic gains, as illustrated
by Adam Smith’s pin factory. This is one type of gain from social cooperation. Social
cooperation also creates the type of community in which members can exercise the
virtues whose possession is part of what it is to flourish and lead a good life. This is
another type of gain from social cooperation, and is a gain that is internal to the cooperation
itself.
Because of the intimate, mutually supportive relationship of virtue to community,
virtuous people acquire obligations simply through their membership in a community.
(Sandel, 2009) The influential contemporary virtue theorist Alasdair MacIntyre wrote:
… we all approach our own circumstances as bearers of a particular social
identity. I am someone’s son or daughter, someone else’s cousin or uncle;
I am a citizen of this or that city, a member of this or that guild of profession;
I belong to this clan, that tribe, this nation. Hence what is good for
me has to be the good for one who inhabits these roles. As such, I inherit
from the past of my family, my city, my tribe, my nation, a variety of debts,
inheritances, rightful expectations and obligations. These constitute the
given of my life, my moral starting point. This is in part what gives my life
its own moral particularity. (MacIntyre, 1981, p. 220)
For example, we have particular, specific obligations to members of our families that we
did not initially choose. We were born or adopted into these obligations. These are not
general obligations, owed to everyone, that arise from utilitarian obligations to promote
the general welfare, and they are not general duties to respect the rights of others. Nor
Social
cooperation
Sustains COMMUNITY
VIRTUE
Figure 7.6: A community teaches virtue to its members and enables them
to exercise these virtues, while at the same time, the exercise of virtues
of honesty, fidelity, and justice by community members sustains the
social cooperation required for the existence of the community.
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are they the specific obligations that people take on by voluntarily signing contracts
with one another. Instead, the obligations of community membership are non-voluntary,
specific obligations that people have because of their membership in a mutually sustaining
family, community, or society. Virtuous people acknowledge obligations of loyalty
and solidarity to fellow community members, and virtuous communities acknowledge
similar obligations to the larger communities of which they are a part.
The obligations of community membership are not always overriding obligations. For
example, we should not promote a family member over a more deserving employee, to
do so would be nepotism. Nevertheless, the fact that the relative is a family member
is still an ethical consideration in our decision. It is just that other ethical considerations
such as fairness and employee rights outweigh our ethical obligations of family
membership. However, it is difficult to think of any business situations in which either
community or family membership trumps justice and fairness. The special obligations
of loyalty and solidarity to our “tribe” spoken of by MacIntyre above might prompt a
white Scottish factory owner to hire fellow white Scots rather than black people. This is
simple racism, and it should not be an ethical consideration in business at all.
Corporate Character
Virtues and vices are dispositions, not mental experiences like pains and pleasures, and
so it makes sense for us to ascribe virtues and vices to organizations and business corporations.
Societies, organizations, and corporations can have deep-seated dispositions
to behave in certain ways. Societies can be fair or unfair, benevolent or malevolent,
generous or stingy. Business corporations can also be fair to, honest with, respectful
of, loyal to, trustworthy regarding employees, customers, and suppliers. Business firms
have a corporate character that should exhibit these virtues.
Corporate character is determined by the way that individual corporations are
organized. Many factors contribute to the implementation and maintenance of a good
corporate character:
1. Competent ethical decision-making by management
2. Leadership setting a good example for all of the
organization’s members
Obligations to all people Obligations to specific people
Non-voluntary Liberties and human rights Community membership
Voluntary N/A Contractual rights
Table 7.4: The obligations of community membership, unlike
contractual obligations, are not obligations that we ever agreed to,
yet are still obligations that we owe to particular people.
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3. An ethically meaningful Mission Statement
4. Corresponding good corporate governance
5. An explicit Code of Ethics
6. Effective monitoring of compliance with that Code of Ethics
7. Effective ethics training for decision-makers
8. Well-written and well-monitored Conflict of Interest policies
9. Individual accountability within the organization for decisions
10. The existence of a good ethical “climate” (implicit code of ethics)
within the organization
11. The expectation and acceptance of only virtuous practices within
the organization
12. Incentive structures for employees that encourage moral excellence in
decision-making
The techniques of creating good corporate character are different from the techniques
of educating virtuous children, but they are no less important.
Virtue ethics cares about corporate character for many reasons. Organizations
inculcate character traits in their members. They reward certain character traits and
inhibit others. People identify with their work, and thus with the organization that
employs them. Their careers become part of their self-concept. Corporate character
becomes, in part, their character. The nature of human flourishing within a corporation
depends on the interpretation of virtue within that organization, which, in turn,
depends on its corporate character.
We can now see the implication of this abstract discussion of virtue and community
for business ethics. Businesses and other organizations have a dual role: On the one hand,
business corporations, non-governmental organizations, and government departments
are themselves communities. In the modern world, they are hugely important communities
in many people’s lives. Most people spend a large part of their adult lives working
for organizations and corporations. For most people, their workplace is an essential
venue for the exercise of their virtues. The exercise of virtue by employees simultaneously
enables efficient cooperation in the workplace. As employees of a business corporation,
and thus members of an economic community, workers acquire non-voluntary
obligations of loyalty and trustworthiness that go beyond their employment contracts.
Similarly, a virtuous business corporation acquires obligations of loyalty, honesty, and
fairness to its employees that also go beyond their employment contracts.
On the other hand, business corporations and other organizations are themselves
members of larger communities. Businesses must have virtuous character traits in order
for social cooperation to take place efficiently in society as a whole. A market society
in which business corporations generally deceive, manipulate, cheat, steal, and bully
will not be a flourishing society, any more than a business corporation whose employees
generally deceive, manipulate, cheat, steal, and bully will be a flourishing business.
In the virtue ethics approach, businesses owe non-voluntary obligations of loyalty, fairness,
generosity, and so on, to other members of their wider community, such as suppliers,
customers, physical communities, and local governments.
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For example, suppose a factory that has operated in a small American town for
many years decides to lower production costs by moving its production to China. It is
difficult to understand the ethical considerations against this decision without understanding
the non-voluntary ethical obligations of a virtuous business to the wider community
of which it is a member. From an economic utilitarian perspective, the business
has raised global welfare by lowering costs in a free-market. From a principle-based
perspective, the corporation has respected the human rights of all members of its community,
and has fulfilled all its contracts with its local employees and suppliers. We
can even interpret Rawls’s difference principle of distributive justice as endorsing the
decision because it will benefit Chinese workers, who are less advantaged than are
American workers. Nevertheless, we still suspect that there are ethical considerations
against this decision. The factory management has failed to consider unwritten obligations
of loyalty and solidarity owed to other members of the small American community
of which it is a member. A virtuous business would accept the existence of these
obligations of reciprocity resulting from a shared history, and management would at
least consider these obligations in making its decision. In the ethical pluralist decision-
making framework, these obligations of community membership will not always
outweigh other ethical reasons, such as utilitarian, rights-based, and justice-based ones.
Nonetheless, they are legitimate ethical reasons and management ought to weigh them
in its decision regarding the fate of the factory.
Weaknesses of Virtue Ethics
One problem with the virtue ethics approach is the great diversity of character traits
that different communities have praised as virtues. Homer praised the ferocity,
reckless courage, and exaggerated sense of personal honour of Bronze Age warriors
in the siege of Troy. Aristotle praised the speeches and public service of those
who contributed to Athenian democracy, while not just accepting, but justifying,
the ownership of slaves and the oppression of women. The New Testament
of the Christian bible stresses the virtues of faith, hope, charity, and meekness.
The Victorians stressed the virtues of chastity, while condoning rampant hypocrisy.
Virtues and vices are relative to community standards, and the standards of some
communities are highly questionable.
This raises the question of whether virtue ethics is a form of cultural relativism.
Different communities, with different cultures, teach, praise, and reward different virtues.
Further, even when communities value the same virtues, they may have different
interpretations of what it means to have that virtue. Therefore, it seems that virtue is
relative to culture. Someone might defend virtue ethics against the charge of cultural relativism
by pointing out that cultures teach virtues to foster social cooperation, and the
circumstances in which people are trying to cooperate differ. For example, in the barbaric
times of the Trojan War, a community needed to teach the warrior virtues to defend
itself against outside aggression and so enable internal cooperation. Deciding whether
all virtues have the same purpose—fostering social cooperation in society—in diverse
historical circumstances would require extensive empirical investigation.
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Some forms of virtue ethics may imply cultural conservatism as well as cultural
relativism. Virtues are a character trait, which are dispositions to behave and not conscious
decisions. Someone who is perfectly virtuous simply does the right thing automatically,
without critical reflection. If virtues are merely unreflective dispositions to
behave that a community inculcates and sustains, then it is difficult to see how community
members can have the intellectual resources to take any sort of critical perspective
on the virtues that they exercise automatically. If community standards are less
than perfect, then how can community members reform their community from within?
Reform of a community’s standards from within is only possible if the community also
inculcates the intellectual virtues required for critical reflection on those standards. A
community needs to educate its members in the skills of critical thinking, the traits of
scepticism, and the intellectual abilities of discussion and debate. Only a critical, sceptical
community with an open forum for deliberation about the nature of virtue can
develop and change from within.
The principal critics of virtue ethics and its communitarian background have been
liberal philosophers such as Locke, Kant, Mill, and Rawls. They have worried that the
creation of virtuous community members is incompatible with the values of liberty
and autonomy. Locke’s individuals in the state of nature were their own masters. They
had self-ownership and pre-social rights to private property that allowed them to live
their lives as they chose to do instead of as their community wished them to do. Kant
conceived of people as fundamentally autonomous and able to live by principles that
they reasoned out for themselves. Mill’s harm principle forbade society to interfere with
people for their own good or to make them into better, more virtuous citizens, and
railed against the way social pressure made people conform to community standards.
Rawls stressed people’s basic rights to be free of interference from the wider society
and the necessity of giving people a fair share of the resources that they would require
to lead their lives according to their own conception of a good life, not the prevalent
conception in their community. Liberals worry that communities of virtue will brainwash
members into a common conception of the good life. Liberals also worry that
communitarians will too readily sacrifice the rights of individuals for the good of the
community. For example, Hitler’s fascists in the 1930s and 1940s sacrificed the human
rights of Jews and other minority groups in the cause of creating an ethnically pure
German community. The idea that community membership can be a source of ethical
obligations must be tempered with the idea that respect for rights and justice will frequently
override community obligations.
Critics of virtue ethics worry, too, about the vagueness of character traits as
guides to ethical action. Other approaches appear to give guidance that is more precise.
Bentham offers the goal of the greatest happiness, Kant offers the categorical imperative,
and Rawls offers the difference principle. Virtue ethics offers no such principles.
The closest thing it can offer is the virtue ethics rule of action, which is to emulate the
actions of a virtuous person, still imprecisely defined. On closer inspection, however,
other ethical approaches are also vague in their implementation. For example, applying
Bentham’s greatest happiness principle requires sensitivity to the experiences of others
and learned insight into what will happen to people’s experiences in response to various
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courses of action. If utilitarianism requires people to develop the character traits of
benevolence, sensitivity, and causal insight in order to work, then utilitarianism cannot
be any more precise than are those virtues of benevolence, sensitivity, and insight. If the
other ethical approaches each require their various derivative virtues in order to work,
then none of them can be any more precise than is virtue ethics itself.
In virtue ethics, being virtuous is part of what it is to flourish. A critic of virtue
ethics might suggest that virtue ethics thus leads to narcissism and self-indulgence. If
people only do the right thing in pursuit of personal virtue and their own flourishing,
then how can this be an admirable motivation? This criticism of virtue ethics misses its
target. Virtuous people are not goal oriented; they do not think of how to achieve the
goal of being virtuous, they are simply disposed to act automatically in a virtuous way.
Nor, as we saw above, are virtuous people virtuous because being virtuous causes them
to flourish. The relation between virtue and flourishing in virtue ethics is not casual
but constitutive.
Finally, virtue ethics faces the problem of multiple community memberships.
What virtues people should have depends on which communities they are members of.
Different communities often require different interpretations of the virtues. People are
simultaneously members of different communities. Therefore, people often face the problem
of integrating incompatible character traits. For example, the type of honesty that
a salesperson requires in her job may differ considerably from the type of honesty that is
appropriate in her family life. As a salesperson, she may be disposed to disclose as much
positive and as little negative information as she can legitimately get away with, whereas
as a someone’s life partner, she may be disposed to disclose as much information as
possible, positive or negative. Balancing work and home life is a problem that everyone
faces. Unless virtues, as acquired character traits, are responsive to situations, it would
be impossible for people to acquire them. However, when they conflict, for example
when New Testament virtues conflict with business virtues for a Christian executive, it
may be difficult to integrate the two interpretations without considerable rationalization.
Summary
1. Virtues are moral excellences, which are skills and character traits that
enable human beings and organizations to flourish in cooperation with
others having similar traits. Our virtues are parts of our identity as
individuals. Virtues are usually the mean between two vices.
2. Virtues constitute, but do not cause, human flourishing. Flourishing
individuals lead meaningful, well-lived lives that an objective observer
would judge to be happy.
3. A flourishing human life requires both a good character (virtues) and
good material circumstances.
4. Good material circumstances are largely the product of cooperative
rather than individual production, as in Adam Smith’s pin factory.
5. People with the virtues of moderation, honesty, fidelity,
trustworthiness, and courage can finesse difficulties with cooperation
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such as those illustrated by the Prisoner’s Dilemma and the Stag Hunt
Game. People with a sense of justice will be able to agree on the fair
division of the gains from cooperation.
6. Furthermore, a virtuous community can avoid some transaction costs
that arise in a society using only a network of contracts and property
rights to organize itself.
7. People learn and exercise virtue in communities. By providing the
opportunity for their members to exercise virtue, communities enable
people to flourish and lead good lives. At the same time, the exercise of
various virtues by community members enables the social cooperation
that sustains the community.
8. As members of families and communities, virtuous people acquire
obligations to specific others that are not voluntary in the way that
contractual obligations are voluntary. These include obligations of
loyalty and solidarity to other family and community members, and
obligations to the community as a whole.
9. Because virtues are traits and dispositions to behaviour, and not mental
states, we can meaningfully ascribe virtues and vices to business
corporations and other organizations. Managers can implement
good corporate character through how they govern and organize
their organization.
10. Ethical reasoning based on virtue ethics must be careful to avoid
cultural relativism, cultural conservatism, the maintenance of
unhealthy community standards, paternalism, the suppression of
autonomous thought, and too great a split between the demands of the
multiple communities of which one person may be a member.
ONLINE LEARNING RESOURCES
You will find a collection of learning resources associated with this chapter on the
book’s website: http://sites.broadviewpress.com/businessethics/. Working through this
material will help you understand and remember important concepts that we have
discussed, and will help you apply them to issues in business ethics.
Study Questions
Answering the following questions will help you to understand the ethical theory in this
chapter and will help you to create a set of review notes on the textbook.
1. Write down a list of vices that are common in the workplace.
2. Explain the difference between happiness in utilitarianism and
happiness in virtue ethics.
3. Explain the importance of social cooperation in human life.
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4. How can a community that inculcates virtue in its members avoid the
dilemmas of cooperation?
5. Why is cooperation less costly in a community that fosters virtue than
in a group of people who rely on contracts and property rights?
6. Describe the circular relationship whereby virtue sustains community
and community sustains virtue.
7. How do virtuous people and organizations acquire non-contractual
obligations to specific others simply through belonging to a
community?
8. Describe an example of an obligation of community membership that
is not based on a contract, respect for a right, or maximizing overall
welfare.
9. Explain the notion of corporate character.
10. Why does a community that teaches and maintains virtue run the risk
of not protecting rights to liberty and autonomous choice.
Decision Questions
The whole point of learning ethical theory is to understand and ask questions like the
following when you are analyzing an ethically problematic situation or case.
• What character traits should the decision-maker strive to exhibit in
the decision?
• Should the decision-maker exhibit certain virtues, such as honesty,
courage, etc.?
• Should the decision-maker avoid vices, such as sleaziness, timidity, etc.?
• How can the decision contribute to making the community or
organization flourish?
• Does the character of the organization help cooperation in a
market society?
• Does the organization have traits that prevent any parties
from flourishing?
• Does the organization need to change its structure?
• Would a decision to promote virtue lead to rights violations or
utility reductions?
Case Study
Analyze this case study using the ethical theory that you have learned so far. You will
find a collection of learning materials applying to the case on the book’s website: http://
sites.broadviewpress.com/businessethics/. These materials will help you in your analysis.
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Should Gillian Trade on Her Inside Knowledge?
Gillian Lee is the senior administrative assistant to Jerry Adams, the vice-president of
operations for Global Potash Enterprises. GPE is staking its future on its purchase of a
mineral concession in northern Saskatchewan. The GPE stock price has been very volatile
recently as investors await the publication of a geologist’s report on the size of a
potash deposit on GPE’s concession. Right now investor opinion is optimistic, and GPE
stock price is at a 52-week high. The geology report is due out in two days, but Jerry has
already received a preliminary copy, and Gillian saw it on his desk. Not only did she see
the report, she took a moment to glance inside it. The report is very bad news. There is
not enough potash in the ground to make mining worthwhile, and GPE is in trouble. Its
stock price is likely to collapse when investors see the report. Also GPE will have to make
significant staff layoffs. Gillian is happy at GPE and Jerry has been a great boss, but she
sees that she will be let go or asked to work for a secretary’s salary.
Ever since GPE gambled on this potash concession, Gillian has been fantasizing
about what she might do. One of her tentative plans involves betting against the stock
price of GPE by secretly buying put options on GPE stock. She knows the penalties for
insider trading are severe, that securities regulators are very diligent at discovering perpetrators,
and that suspicion will fall on Jerry and those around him because of Jerry’s
position as VP. However, she has a second cousin, Patrick Lee, in Hong Kong who
buys and sells securities. She thinks that if she goes to an Internet cafe, sets up a new
webmail account, emails her cousin Sally Wong, and asks Sally to ask Patrick verbally
to buy her 50,000 put options on GPE stock, then securities regulators will never know
what she did. Her credit is good with Patrick, and she can trust Sally and him as family
members. Exercising those put options will not make her hugely wealthy, but it will
enable her to fund an MBA and get a new and better job.
Though she has dreamed up this plan, and she does not think that regulators will
notice, she is still worried. She is an administrative assistant, not an officer of the firm.
Yet, she feels an obligation to her firm’s stockholders to further their interests, and an
obligation to Jerry not to take advantage of his trust. She has always been loyal and
honest at work. She has many friends at GPE, and enjoys being a member of the GPE
community. She does not feel much obligation to the speculators who will be selling
her the put options, even though she will perhaps be deceiving them. Because she is
not an officer, insider activity reports would not reveal her trades to the market. Her
relatively small transaction will have little effect on GPE’s final share price, or put any
stockholder at an unfair disadvantage. GPE has paid both for the concession and for the
geology report.
Should Gillian put her plan into action?

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FEMINISM,
EQUALITY, AND
CARE ETHICS
Are there considerations of justice that apply especially to women?
Is there a distinctly feminist ethics of care?
What special responsibilities does a care ethic create?
We have seen how important specialization and the division of labour are to business
prosperity. A market society can cost-effectively implement these forms of social cooperation
by educating its citizens in such character traits as honesty and trustworthiness.
These traits enable human beings to flourish in cooperation with other people who
have similar or complementary character traits. However, specialization and the division
of labour occur not only in business life, but also in family life. Men and women
divide the labour of raising children. In market societies, up until the 1970s, men specialized
in the business of providing economic resources for the family, while women
specialized in the care of children. Men and women often developed different skills and
character traits, traits that were necessary to their different roles in the family. Until
recently, most market societies taught men the character traits of assertiveness, competitiveness,
and strategic rationality that brought success in the public world of business,
and taught women the character traits of caring, nurturing, and taking responsibility for
the health of relationships that brought success in the domestic world of raising children.
This scheme of specialization and division of labour within the family may have
been efficient, but it was frequently not fair. We can see this unfairness in the following
caricature of a 1950’s family. Ron and Sally are married with children. Ron is a
hard-driving executive. He is hard working, honest, and trustworthy, but also ambitious,
competitive, and tough. He plays by the rules of the game, but he plays only to
win, and consequently has no friends at work. Sally married Ron straight out of high
school. She is a wonderful stay-at-home mother, caring and nurturing, yet firm when
necessary. She has lots of friends, and by sharing them with Ron, she provides him with
a pleasant social life. Because Ron earns a lot of money, he controls the family finances
and decides what they can afford. When Sally looked into finding part-time work, she
found that she had no marketable skills, and that the available low-skill jobs offered
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only hours that conflicted with the needs of her children. Outside of the family circle,
such as at the bank or at the car dealer, she finds that her social status depends on her
role as Mrs. Ron, and not on her own domestic accomplishments. Ron and Sally are
both very happy with their lives.
Creating the division of domestic labour without continuous coercive interventions
required training men and women in different, gendered character traits. Men such as
Ron were educated in the public virtues that are useful in the world of business, whereas
women were educated in the domestic virtues that are useful in the world of the family.
Training and preserving domestic virtues frequently involved keeping women out of the
public world. Societies often denied young women, such as Sally, the opportunity to
work in the public sphere. Sometimes this denial was enforced by law, sometimes by
social opinion, sometimes by failing to provide women the necessary education, and
sometimes by structuring the world of work to be hostile to those caring for dependent
children. Society frequently denied equality of opportunity to women.
In this chapter, we will examine issues of gender equality and justice in the business
world, and consider how best to resolve obstacles that hinder those goals. We will
then consider another ethical theory, Care Ethics, which has emerged from the work of
contemporary feminist philosophers.
Equality of Opportunity for Women
Equality of opportunity says that a distribution is just only if it assigns positions in the
workplace according to morally relevant criteria such as skill, and not according to
morally arbitrary criteria such as race, gender, or sexual orientation. As we have seen,
there are several interpretations of equality of opportunity.
Formal equality of opportunity requires men and women to have equal legal rights,
so that that there are no legal impediments to any person competing for positions or
promotions. The only issue should be whether applicants have the requisite skills. On
this view, competition for positions should be gender neutral, and there should be equal
pay for work of equal value.
Fair equality of opportunity goes further. It requires both that there be formal equality
of opportunity, and that society give everyone a fair chance to acquire the skills needed
to compete for positions and promotions in the workplace. A society that offered equal
educational resources to both men and women would satisfy this principle.
There may be cases where affirmative action and positive discrimination in favour
of women is acceptable within formal and fair equality of opportunity. Sometimes
being a woman is a necessary part of a job specification. Nursing homes for elderly
women might hire only female attendants because of the modesty requirements of their
patients. Business schools with largely male faculties might discriminate in favour of
hiring new female professors because they believe that female professors provide role
models for female business students.
Achieving full equality of opportunity for women may, however, require more
than better resources or preferential hiring. Let us suppose that, in a society that educates
everyone equally, a firm that practices equality of opportunity ends up with an
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organization chart such as the one in Figure 8.1. What could have gone wrong? The
nine women in the chart have most of the subordinate, lower paid jobs as sales and
administrative staff, whereas the nine men have most of the higher paid, managerial
jobs. Perhaps there is a structural reason for this situation.
It may be that the implicit specifications for the various positions systematically
impede women. The managerial positions may require long hours and frequent travel, so
that an implicit requirement of the positions is that the manager be free of responsibility
for the care of young children. Traditionally, most of the responsibility for the care of
children has fallen on women, and this is still often the case. So many women do not
meet this implicit requirement, and do not apply for the positions. The design of the managerial
jobs is, by itself, a barrier to the participation of women. Because of the structure
of the workplace, women do not have an equal opportunity to become managers.
Structural equality of opportunity requires that organizations design positions
in such a way that women can fill those positions. In this example, businesses can
implement structural equality of opportunity through the design of jobs and in the provision
of services such as daycare. Other examples of structural inequalities of opportunity
arise because of the different physiques of men and women. Typically, women
are shorter and lighter than men are. Therefore, a job that specifies a minimum height
or weight may create a barrier to the participation of women, even though it does not
specifically require that all applicants be male. Such specifications are often not intentionally
sexist; they may arise because of the size of the equipment used on the job.
Fred
VP Sales
Mike
Manager USA
Judy
Sales
Karen
Sales
Paula
Secretary
Lucy
Manager CDN
Rita
Sales
Steve
Secretary
Jon
Manager UK
Val
Sales
Gina
Sales
Don
VP HR
Chad
Manager
Nancy
Secretary
. . .
Andy
CFO
Tom
Accountant
Eve
Bookkeeper
. . .
Bob
CEO
Figure 8.1: What is wrong with this organization chart?
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For example, firefighting equipment is quite heavy and requires that firefighters have
a certain size and strength, which excludes most women from becoming firefighters.
However, the nature of firefighting may not have determined the weight of firefighting
equipment. The people who, in the past, designed firefighting equipment may have
expected men to be using it, and designed it to suit typical male physical capabilities.
Lighter equipment might be equally efficient at fighting fires and more suitable to the
capabilities of both men and women.
Structural barriers to equal opportunities for women were not necessarily the
product of intentional sexism, or of an explicit patriarchal plot to keep women in subordinate
positions. Instead, the historical construction of job specifications often reflected
traditional expectations about the roles of men and women. Historically, job specifications
arose within a cultural framework that saw it as natural and normal for men to
perform managerial and firefighting jobs and for women to work in the home.
Job specifications and job circumstances reflect a social reality, not a natural reality.
Therefore, human intervention can change them. Justice requires that firms perceive
the existence of morally arbitrary barriers to the participation of women and act to
remove those barriers. They can do so by redesigning equipment, providing daycare,
creating flexible work hours, and so on. Structural equality of opportunity for women
requires attention to these details.
Domestic Justice
In the past, the division of family labour has required that men and women have different
dispositions, attitudes, and character traits. Typically, they began to learn these
traits when they were children, taught by their family. Boys learned the competitive
team-sport traits that enabled them to thrive in the world of business, whereas girls
learned the nurturing traits that enabled them to care for the next generation of children.
Stereotypically, boys have learned to compete with one another while obeying
the rules of a game, and girls have learned to play with dolls in imitation of childcare.
As well, both boys and girls learned a sense of justice. The sense of justice learned
by boys and girls inside an old-fashioned family was not necessarily in accord with the
moral equality of persons. Among subsistence farmers, in an economy without money,
the amount of labour performed by men and women was approximately equal. Since
neither men nor women received any remuneration, their work had an equal financial
value of zero for both. In a developed market economy, however, the business of men
traditionally created financial resources for men, whereas the domestic duties of women
went unpaid. Men, like Ron, were paid, and this gave them control over the financial
resources of the family. Furthermore, in the conceptual framework of a market economy,
people understood the value of work to be how much others were willing to pay
for it. Consequently, a market economy placed a high value on the traditional work of
men and no value on the traditional work of women, like Sally.
Therefore, the sense of justice that children acquired within an old-fashioned family
was liable to be incorrect in at least two ways. Children learned, first, that men
should control financial resources, and, second, that women’s domestic work was of
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less value than was men’s public work. Women often learned to adapt their preferences
to what they received under this conventional distribution of financial resources and to
be content with their domestic lives. Women also learned that their domestic skills of
caring and nurturing others were of less value than the competitive skills of men, and
that their intuitive ethical reasoning and emotional partiality had no place in the public
world. Moral education within the traditional family severely failed the cause of women’s
equality.
Democratic societies, even ones with an egalitarian bent, have been loath to
attempt reform of moral education within the family. Democratic societies are committed
to the moral equality of persons, and this means they are committed to a right
to privacy that permits people to lead their own lives very largely without interference
from the government. Democratic societies have taken this right to privacy to imply
that the government should not interfere in family life, unless doing so is necessary to
prevent harm to others. The right to privacy appears to imply that the state should not
interfere in the moral education of children within the family.
Democratic societies do have a vital interest, however, in the moral education of
children. We have seen that state coercion is an inefficient way of enforcing commercial
cooperation; it is much more efficient if citizens learn and internalize the character
traits of honesty, trustworthiness, and so on, that make business transactions work
without state intrusion. A similar point holds for state enforcement of the basic tenet of
a democratic society, the moral equality of persons. A democratic society should distribute
rights, liberties, and economic resources equally. It should not discriminate based
on morally arbitrary factors such as sex, race, and sexual orientation. A democratic
society will be much more efficient and far less intrusive if its citizens have a basic sense
of justice that respects this moral equality. Citizens acquire their basic sense of justice
as children within their family. If children, such as those of Ron and Sally, learn that,
contrary to the principle of moral equality, gender is an appropriate way to distribute
resources, family labour, and the value of work, then they will not learn the sense of
justice required to support a democratic society.
This distinction between private and public life has created a dilemma for democratic
societies. On the one hand, their commitment to a right to privacy and the
harm principle commits them to staying out of moral education within the family. On
the other hand, they require that children learn within their families that discrimination
based on gender is unjust in order for a democratic society to function effectively.
Democratic societies cannot both respect the privacy of the family and inculcate a sense
of justice if the predominant conceptual framework of the society normalizes the subordination
of women.
The Oppression of Women
We have found democratic societies caught in a dilemma regarding the equal moral
status of women. To resolve this dilemma, feminist ethics emphasizes the role everyone
should play in understanding and contesting the patriarchal cultural framework
that makes the subordination of women’s interests seem natural and legitimate.
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Understanding this cultural framework requires that we understand the nature and
sources of power and oppression.
Following the economist, J.K. Galbraith, we can distinguish three forms of power.
(Galbraith, 1983, pp. 5–6) Coercive power is the ability to dominate through force or
the threat of force. A thief who robs at gunpoint exercises illegitimate coercive power
over a shopkeeper. A police officer who arrests the thief exercises legitimate coercive
power over the thief. Economic power is the ability to dominate through economic
incentive or economic threat. A wealthy North American business owner who bribes
a poorly paid Asian official exercises economic power over the official. Conditioned
power is the ability to dominate through internalized beliefs and attitudes. Subordinates
see their unquestioned submission as natural, and the dominant understand their dominance
as ordinary and normal. Galbraith describes the conditioned power exercised by
men over women as follows.
However, it will be evident on brief thought that male power and female
submission have relied much more completely on the belief since ancient
times that such submission is the natural order of things…. But only a
part of the subordination of women was achieved by explicit instruction—
explicit conditioning. Much and almost certainly more was (and
is) achieved by the simple acceptance of what the community and culture
have long thought right and virtuous…. This is implicit conditioning, a
powerful force. Overall, this conditioned submission proceeded from
belief, belief that masculine will was preferable to undue assertion of their
own and the counterpart belief by men that they were entitled by their sex
or associated physical and mental qualities to dominate….. There is proof
of this power of belief in the nature of the modern effort at emancipation—
the women’s movement…. a major part of the effort has been the challenge
to belief—the belief that submission and subservience are normal, virtuous,
and otherwise appropriate. (Galbraith, 1983, pp. 25–26)
This sort of power enables Ron to subordinate Sally’s interests to his own. In their
old-fashioned family relationship, both Ron and Sally see an objectively unjust distribution
of resources as subjectively fair and natural.
Collective cultural oppression underpins the individual exercise of ideological
power. In the case of coercive power, an individual feature of a thief, his possession of a
gun, causes the thief’s coercive power over the shopkeeper. No individual feature of Ron
causes his ideological power over Sally. Rather, Ron’s dominance has the same cause as
Sally’s submission. They both share an oppressive cultural framework that legitimizes
Ron’s domination and Sally’s subordination. Oppression is the exercise of power by
means of the structure of a group, a community, or a society as a whole. Oppression has
an accumulative structure. One instance of whatever it is that creates oppression is not
enough by itself to oppress anyone; oppression requires the general prevalence of that
which creates it. For example, structural inequality of opportunity becomes oppressive
to women only when it becomes general. By itself, one fire department in a large city
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that uses overly large firefighting equipment may not oppress women. However, if all
fire departments, police departments, and ambulance departments employ equipment
designed for the physiques of men, then this society oppresses women by excluding them
from whole classes of employment.
Marilyn Frye suggested that oppression is metaphorically like a cage. (Frye, 1983,
pp. 4–5) Each instance of discrimination is like a bar of the cage. Though it may be an
obstacle to someone, each bar is not itself oppressive. Oppression is like the cage itself,
a framework of obstacles that collectively exercises power over women’s lives by making
certain activities almost impossible for them. The framework of obstacles that creates
oppression can be intellectual as well as physical. Societies and cultures have conceptual
frameworks that they construct through the shared beliefs of all members of the society.
A conceptual framework is a mutually supporting, seldom questioned, and resilient set
of fundamental assumptions about the world, about human nature, and about ethical
values, that affects how people think and act in the world. People employ the assumptions
of their conceptual framework in their reasoning without reflecting on or even
noticing these assumptions. It is difficult for us to see the conceptual framework of our
own culture because we live our lives inside it. It is easier to see how conceptual structures
change over time. The best known example of a changing conceptual structure is
the scientific revolution in which Copernicus’ view of the solar system orbiting around
the Sun replaced the ancient Ptolemaic view of the Sun, Moon, and planets rotating
around the Earth.
It is possible for a society’s conceptual framework to be oppressive. An oppressive
conceptual framework is a conceptual framework that makes relationships of domination
and subordination seem normal, natural, and unquestionable. Again, it is easier for
us to see the oppressive nature of the conceptual frameworks of other, distant people
than it is for us to see our own. Consider the conceptual structure of Ancient Greece as
Aristotle described it in the fourth century BCE.
And it is clear that the rule of the soul over the body, and of the mind and
the rational element over the passionate, is natural and expedient; whereas
the equality of the two or the rule of the inferior is always hurtful. The
same holds good of animals in relation to men; for tame animals have a
better nature than wild, and all tame animals are better off when they are
ruled by man; for then they are preserved. Again, the male is by nature
superior, and the female inferior; and the one rules, and the other is ruled;
this principle, of necessity, extends to all mankind. Where then there is
such a difference as that between soul and body, or between men and
animals … the lower sort are by nature slaves, and it is better for them as
for all inferiors that they should be under the rule of a master. (Aristotle,
350 BCE, Politics, Book I, Part V)
Athens of the fourth century BCE was a patriarchal, slave-owning society that was also
humanity’s first attempt at democracy. It was a democracy, however, that recognized
the moral equality of male citizens while accepting the moral inferiority of women and
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foreign slaves. The Athenian conceptual framework contained a logic of domination
that made for unthinking acceptance of the moral inferiority of women seem natural
and normal.
A logic of domination is a structure of argumentation that justifies relationships of
domination and subordination within an oppressive conceptual framework. (Warren,
1990, pp. 127–28) We can see this logic of domination at work in the passage from
Aristotle. Aristotle represents men as having minds with a predominately rational rather
than a passionate element, and animals, slaves, and women as lacking this rational element.
It seems natural and expedient to Aristotle that those lacking the rational element
are not morally equal to those who possess it, and that the latter should rule the former.
We can reconstruct Aristotle’s thinking in the following structure of argumentation:
1. Men have the characteristic of rationality and women do not.
2. Whoever is rational is morally superior to whoever is not.
3. Therefore, men are morally superior to women.
4. Whoever is morally superior is justified in dominating whoever is
morally inferior.
5. Therefore, men are justified in dominating women.
Fortunately, people seldom explicitly defend a patriarchal logic of domination such as
Aristotle’s. Yet people often implicitly assume that women are more intuitive, emotional,
and partial in their decision-making than men are, and that men are more calculating,
principled, dispassionate, and impartial in their decision-making than women are. This
can have a tendency to make people think that men are therefore better decision-makers,
and that men should generally hold positions of power. Such thinking can seem
natural and normal within the conceptual structure of our society. However, when we
see where such thinking can lead, then we should guard against uncritically accepting
or promoting it.
Care Ethics
To what extent gender-associated differences are genetically based is often a matter of
debate. Nevertheless, it’s clear that the efficient raising of the next generation of children
historically brought about a gender-based specialization and division of labour
within the family. Men specialized in the skills, character traits, and attitudes required
in the workplace (the public virtues) while women specialized in the complementary
skills, character traits, and attitudes required in the home (the domestic virtues). Their
families, their schools, their colleges, and the expectations of their society as a whole
educated and conditioned boys and girls in these different virtues. In recent times, feminists
have contested this conditioning, and families, schools, colleges, and social expectations.
The result is the beginnings of a society with a fairer division of labour.
Still, an oppressive conceptual framework may remain. It contains a logic that is
reminiscent of the logic of domination that Aristotle assumed. The logic runs like this:
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1. Men’s ethical reasoning tends to be principled, dispassionate,
and impartial.
2. Women’s ethical reasoning tends to be intuitive, emotional, and partial.
3. Ethical decision-making should be principled, dispassionate,
and impartial.
4. Therefore, there is no place for women’s style of ethical reasoning in
ethical-decision making.
As we have seen, the cost-benefit calculations of utilitarianism, the emphasis on respecting
rights and principles of justice in deontology, and even the emphasis on virtues of
fairness, courage, and honesty in virtue ethics suggest that ethical decision-making is
principled, dispassionate, and impartial.
However, there is considerable evidence that women’s moral development and
women’s decision-making in matters of morality is different from that of men and from
that of traditional ethical theory. In her ground-breaking study of women’s moral development,
In a Different Voice, Carol Gilligan argued that women have a different conception
of moral decision-making.
In this conception, the moral problem arises from conflicting responsibilities
rather than from competing rights and requires for its resolution a
mode of thinking that is contextual and narrative rather than formal and
abstract. This conception of morality as concerned with the activity of care
centres moral development around the understanding of responsibility and
relationships, just as the conception of morality as fairness ties moral development
to the understanding of rights and rules. (Gilligan, 1982, p. 19)
Some critics have objected that this position enshrines the “female essence” that feminism
so often has seen as the basis of oppression, exclusion, and inequality. But some
feminists have embraced this difference, and have argued instead that a female-associated
ethics of care ought to be encouraged. A care ethic incorporates caring for less
powerful others and nurturing important relationships into ethical decision-making.
There is some controversy whether care ethics should replace traditional, rule-governed
ethics or whether it should supplement it. In keeping with our ethically pluralist
approach, we shall adopt the latter approach and investigate how considerations drawn
from care ethics can help us make better decisions in ethical matters.
In recent times, feminist thought and political action have changed the conceptual
framework of contemporary culture. The deeply held assumptions behind the old-fashioned
family no longer seem natural and normal to everyone. It is now more common
for fathers to be involved in the lives of their children, and for mothers to work outside
the home in important, well-paid public positions. Consequently, the domestic style of
ethical reasoning, traditionally associated with women but increasingly learned by men,
is spreading from the home to the workplace. Employing the reasoning of care ethics in
public life is becoming increasingly both common and acceptable.
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Care ethics is an ethics based in the special relationships, like that of mother and
child, which people have to one another and in the relationship skills and emotional
traits that make such attachments possible. It is an identity-based feminism, which
affirms that historically there have been differences between men and women’s ethical
reasoning, and argues that these create an alternative feminist standpoint in ethics.
Childbearing, motherhood, and care for dependents give women a special perspective
on ethical decision-making. Care ethics recognizes that these relationships are relationships
of unequal power, but insists that they should not give rise to subordination. Care
ethics makes a more radical claim than liberal feminism makes. Liberal feminism is
justice-based. It claims that the interests and rights of women should receive the same
consideration as the interests and rights of men. Gender is usually morally irrelevant,
and justice should be mostly gender neutral. The exceptions involve ensuring structural
equality of opportunity to enable motherhood and the care for dependents. Care ethics,
however, suggests that the justice-based approach to ethical reasoning requires supplementation
by ethical reasoning based on relationships and responsibilities.
We cannot formulate care ethics in simple principles such as, “Act always to
produce the maximum human happiness,” or “Act only according to a maxim that
you can will to be a universal law.” In this respect, care ethics is like virtue ethics. It
emphasizes the teaching and learning of ethical skills, traits of character, and emotional
responses that are required to nurture human relationships. Relationship to others is
vital to a human life. Human beings can neither grow nor thrive in the absence of relationships
to others. Creating and sustaining such relationships requires skill, attention,
and the appropriate attitudes and dispositions. A care ethics that brings these traits into
the workplace will include at least three components:
1. An emphasis on moral perception
2. An emphasis on relationships and responsibilities
3. An emphasis on partial and particularistic moral reasoning
We can illustrate these components of the ethics of care with an extended example.
Tina and Vera are sales staff in a toy store. Managers have caught both of them
stealing merchandise. Tina is newly hired. She lives with her well-off partner and has
no children. She has had many sales jobs in the past. She does not get along well with
her fellow employees and is often grumpy with customers. She has stolen a toy to sell
at a weekend flea market in order to supplement her pay, which she feels is very poor.
Vera is a long-term employee, who is helpful to all. She is a single mother living in
low-income housing. Short of money because of a temporary crisis, she has stolen a toy
for her child’s birthday present. She intends to pay for the toy with her next paycheque.
First, the care ethics emphasis on moral perception suggests that decision-makers
should learn and cultivate sensitivity to the needs of others and to the nature of the relationships
between people. This means developing a nuanced sensitivity to the individual
particularity of real people, not just an abstract understanding of the common humanity
of human beings. The practitioner of care ethics will perceive the emotional needs
and hurts of the persons he is considering and not simply treat them as autonomous,
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rational, utility maximizers. He will examine the whole context of the ethical situation
and not create only a simple model of the situation that abstracts from its details so that
it readily falls under some principle or other. He will discern the contextual differences
between ethical situations rather than look only for the similarities that will enable
him to apply abstract ethical principles to the case. The practitioner of care ethics will
cultivate the virtues of moral sensitivity and discernment.
At our hypothetical toy store, a stereotypical Fair-Minded Manager will abstract
from the details of the lives of Tina and Vera and from her relationship to the two clerks.
She will see both women as competent adults who have made the bad choice to steal
from the store. She will thus be disposed to punish them equally. On the other hand, a
Caring Manager will attend to the different characters of Tina and Vera. Tina’s character
is problematic whereas, except in this particular situation, Vera is loyal, cooperative,
and dependable. A Caring Manager will pay attention to the different contexts of the
two women’s lives. He will notice that Vera has a tough time financially and has big
responsibilities at home, whereas he will see that Tina is much better off financially and
has few domestic responsibilities. He will also pay attention to the different relationships
that the two women have to the business and to himself. He will thus be disposed to see
their cases differently. This does not mean that he will automatically fire Tina and let
Vera off with a warning. His reasoning must also take into account considerations such
as fairness, respect for rights, and his particular duties to the toy store’s owners. The
difference is that the Caring Manager, but not the Fair-Minded Manager, will perceive
and thus be able to take into account the significant differences between Tina and Vera.
Second, the care ethics emphasis on relationships and responsibilities will incorporate
an ethical concern for responsibilities to particular others and a concern for the
quality of relationships with others. Practitioners of care ethics will be disposed to care
for the quality of their relationships to others and to care for the relationships between
others. They will see life is about cooperation and reciprocity, not about conflict and
competition, therefore they will focus on strengthening that sustains social cooperation
rather than on respecting rights, applying principles of justice, or calculating how to
maximize happiness.
In the toy-store case, the Fair-Minded Manager will take Tina and Vera to be fully
responsible for their own decisions. She will take no responsibility for either of them.
She will regard her long-term relationship to Vera as a source of partiality that is an
impediment to her ethical reasoning. The Caring Manager will recognize his different
relationships to Tina and Vera, and of each of their relationships to the firm. He will
consider the long-term relationship of reciprocity and cooperation that he and the firm
have had with Vera. He will take some, though not full, responsibility for Vera’s life
and the quality of Vera’s relationship to the firm and its customers. He will take the firm
to have more responsibilities to its long-term employees such as Vera than to its newly
hired employees such as Tina. He will incorporate his different responsibilities to the
two clerks into his ethical reasoning along with his other ethical concerns regarding
fairness, theft, and happiness. Again, this does not mean that he will automatically fire
Tina and merely warn Vera, but it does mean that he will be disposed to consider his
differing responsibilities to the two women in his ethical judgment.
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Third, the care ethics emphasis on particularistic moral reasoning means that
practitioners of the ethics of care will not mechanically dismiss their perception of, and
care for, different relationships to different people because such relationships detract
from the impartiality of their ethical reasoning. The act of promising gives promisors
special obligations to their promisees. Shared community membership gives virtuous
people special obligations to fellow community members. These ethical obligations
exist, even though they do not override all other considerations in ethical reasoning.
Similarly, caring relationships give practitioners of the ethics of care special obligations
to particular others. This results in partiality of concern, which caring people
must balance against other ethical considerations. Care ethics requires the cultivation
and application of the virtues of both caring and wisdom. Balancing care for special
relationships against other ethical reasons requires ethical judgment that is more than
just the application of principles, the calculation of utilities, or even the cultivation of
virtues of fairness and impartiality.
In the toy store case, the Fair-Minded Manager sees Tina and Vera only as people
who have made wrong choices. She believes in treating like cases alike and in applying
principles of impartial justice. She understands stealing as an infringement of the firm’s
property rights, no matter who does it. The Caring Manager sees the cases of Tina
and Vera differently. They have different characters, their stealing arises in different
contexts, and he and his firm have different relationships to the two women. He is more
concerned about his and his firm’s strong relationship to Vera than he is about their
weak relationship to Tina. He takes on some responsibility for Vera, and is less worried
about impartiality and property rights than is the Fair-Minded Manager. Rather than
trying to be impartial and fair, he tries to be wise and caring in his decision about how
to treat the two women, and to seek solutions to the ethical problem that accommodate
his responsibility to care.
Standard ethics Care ethics
abstract principles
common humanity
competition & conflict
atomistic individuals
justice
rights and duties
calculation of consequences
context & partiality
particular individuals
cooperation & reciprocity
relationships
caring
responsibilities
wisdom
Table 8.1: Comparison of the different emphases of
conventional ethics and the ethics of care.
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Feminism, Equa lity, and Care Ethics
Concerns Regarding Care Ethics
We have several reasons for being worried about justifying care ethics. If we understand
care ethics as an intended replacement for all other forms of ethics, then these constitute
strong objections to a care ethic. If we understand a care ethic, however, as giving
us important ethical reasons that we must weigh along with reasons drawn from other
ethical perspectives, then these considerations tell us that care ethics has limitations,
and not that care ethics is false.
Firstly, standard ethical theories make a virtue of their impartiality. Standard theories
are universal in scope and apply their recommendations to everyone equally. It is
the very essence of justice that just decisions treat everyone the same unless there are
morally relevant grounds for treating them differently. Yet, as we have seen, the ethics
of care abandons total impartiality. Consider, for example, Tina’s moral outrage at
having been punished more severely than Vera, given that both of them were guilty of
exactly the same stealing. She would say that it’s unjust, and so would her union, and
they would both be right.
Care ethics reminds us that special relationships sometimes provide morally relevant
grounds for being partial in our decisions. Consider a case where a woman sees
two children drowning in a pool. She does not have time to save them both. One of
them is her son and the other is unknown to her. She decides to save her son. Her special
relationship to her son and her special responsibilities for her son give her morally
relevant reasons for deciding to save him rather than the unknown child. The ethics of
care calls our attention to important and morally relevant considerations. On the other
hand, it is important for a care ethic to avoid nepotism. In the business world, special
relationships based on family and friendship can conflict with treating others as moral
equals in the distribution of positions and rewards. Balancing care against justice is a
difficult task requiring experience and wisdom.
Secondly, it is difficult to see how to extend an ethic of care to poor people in distant
countries (or to people in future generations) with whom we have no relationships.
It is easier for ethical theories based on universal and impartial moral consideration to
look after the interests of distant or future people than it is for ethical theories based on
special relationships to particular people. This objection applies most strongly to the
idea that a feminist ethic of care should replace standard ethics. The objection applies
only weakly to the idea that a care ethics provides us with reasons to care for special
people, reasons that we must balance against other impartial reasons of fairness and
respect for human rights generally. As well, a defender of care ethics can point to the
lack of success of impartial moral theory in actually promoting the interests of distant
and future others. Abstract principles of justice seem unable to guide the actions of real
people, whose motivations tend to be concrete and specific. Perhaps the task of global
ethics is to create special relationships between nearby people and faraway people in
need. For example, the non-governmental organization, Plan International (Foster
Parent Plan), raises aid for international development projects through a system of child
sponsorship. Though Plan International actually spends aid money on global justice
and community development, this system allows donors to correspond with a particular
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sponsored child in a community that Plan is aiding, and to form a relationship with him
or her. People, who would not give development aid for abstract reasons of justice, do
give aid because of these particular relationships.
Thirdly, it is difficult for an ethic of care to define just how much care we should
give to others. A caretaker must care both for others and for herself. How much care is
appropriate for others and how much for her? The justice-based approach offers a ready
solution; a caregiver is entitled to a fair share, just as others are. An alternative is to
interpret an ethic of care as parallel to a virtue ethic. A virtue is often a mean between
two vices. For example, courage is the mean between cowardice and recklessness.
In virtue ethics, we require practical wisdom to determine when courage becomes foolish
recklessness on one side, and when courage becomes weak fearfulness on the other.
Similarly, care is the mean between selfishness and self-sacrifice.
The practitioner of care ethics requires practical wisdom as well as a sense of justice to
determine the boundaries between care and selfishness and between care and self-sacrifice.
Summary
1. Historically, families involved specialization and the division of family
labour between men, who acquired the public virtues of business life,
and women, who acquired the domestic virtues of family life.
2. One consequence of this division of family labour was structural
inequality of opportunity in the workplace. When women joined the
workforce, they often found that implicit job specifications included
having men’s physiques or having men’s traditional freedom from
responsibility for the care of dependent others.
3. In old-fashioned families, men worked for pay outside the home, and
women worked for no pay inside the home. This division of labour
created a situation in which men controlled the family’s financial
resources and in which society valued men’s public work more highly
than it did women’s domestic work. Children learned that this was a
natural and normal state of affairs, and, as a result, traditional families
did not teach a gender-neutral sense of justice.
Figure 8.3: Care is the mean between selfishness and self-sacrifice.
Selfishness Care Self-sacrifice
Figure 8.2: Courage is the mean between cowardice and recklessness.
Cowardice Courage Recklessness
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Feminism, Equa lity, and Care Ethics
4. Democratic states, which need their citizens to learn to treat each
other as moral equals, did not try to change this situation because they
respected a right to family privacy.
5. Conditioned power, which is the ability to dominate through
internalized beliefs and attitudes, enabled the subordination of women
to men. Historically, both men and women accepted an oppressive
conceptual framework whose unquestioned assumptions legitimized
male domination. Feminists have effectively criticized the naturalness
and normalness of these assumptions, and the patriarchal conceptual
framework is losing its hold on people.
6. Whether through upbringing or biology, women appear to have a
different way of approaching ethical decisions than do men. A feminist
ethics of care seeks to bring the different ethical perspective of women
out of the domestic sphere and into the public sphere of paid work.
7. Care ethics emphasizes perceiving the needs of people involved in a
problematic business situation. It emphasizes the decision-maker’s
responsibilities to the people involved and to the relationships between
them. It emphasizes the importance of attending to particular people
and to special relationships in our ethical reasoning.
8. A care ethics that seeks to replace conventional morality will have
difficulties with using impartial reasoning when it is called for, with
responsibilities to distant others or to unborn generations, and
with balancing caring for others against self-sacrifice.
9. An ethic of care that adds to, rather than replaces, conventional
ethical approaches to problematic business situations can work around
these difficulties.
ONLINE LEARNING RESOURCES
You will find a collection of learning resources associated with this chapter on the
book’s website: http://sites.broadviewpress.com/businessethics/. Working through this
material will help you understand and remember important concepts that we have
discussed, and will help you apply them to issues in business ethics.
Study Questions
Answering the following questions will help you to understand the ethical theory in this
chapter and will help you to create a set of review notes on the textbook.
1. Why did men and women historically acquire different skills and
character traits?
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2. Why, even when laws became gender-neutral and women became well
educated, did women still face structural inequality of opportunity in
the workplace?
3. Why did women in old-fashioned families face inequality in financial
resources and in the value put on their work?
4. Why does the traditional family pose a dilemma for a democratic state?
5. Describe a patriarchal conceptual framework and explain why it is
oppressive to women.
6. How does the feminist ethic of care differ from a liberal feminist
emphasis on equal rights for women in solving problems in
the workplace?
7. Describe three important components of applying care ethics to the
world of business.
8. Why would a care ethic that sought totally to replace standard,
universalizing, and impartial ethics have difficulty accounting for our
responsibilities to future generations?
Decision Questions
The whole point of learning ethical theory is to understand and ask questions like the
following when you are analyzing an ethically problematic situation or case.
• Is sexual or racial harassment involved?
• Are there institutional barriers to women, or parents of small
children, etc.?
• Is affirmative action permitted or obligatory?
• For which individuals should the decision-maker show special care?
• Should the decision-maker pay particular attention to anyone’s
emotional needs?
• Which relationships should the decision-maker help to flourish?
• Would enhancing these relationships give the decision-maker
special responsibilities?
• Would a decision to care for special relationships lead to partiality
and unfairness?
Case Study
Analyze this case study using the ethical theory that you have learned so far. You will
find a collection of learning materials applying to the case on the book’s website: http://
sites.broadviewpress.com/businessethics/. These materials will help you in your analysis.
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Feminism, Equa lity, and Care Ethics
Harry and Preferential Hiring
Professor Harold (Harry) Jenkins has just become Dean of the Faculty of Management
at Eastern University. At just 35 years of age, Harry is the youngest Dean in EU history.
EU has approximately 2,000 students majoring in management studies and another 200
doing their MBAs. The EU management faculty has 50 professors and 20 support staff,
with the following gender breakdown.
Men Women
Professors 45 5
Support staff 2 18
Students 1,000 1,200
The EU teaching faculty is a good one. Its members are very competitive and do
a lot of excellent research. University support for instructional development and a system
of student and peer evaluation help ensure that faculty members are committed to
teaching excellence. The faculty, staff, and students are on a first name basis.
The EU management faculty has received permission from the EU Board of
Governors to hire a new assistant professor of finance. The search committee has recommended
two names to Harry. One is a young woman, Dr. Anna Orsini, who received
her PhD five years ago and has since been teaching part-time while she raised two small
children. The other is a young man, Dr. Jon Schmidt, who spent five years working on
Wall St. before recently completing his PhD. Both appear to be good teachers, but Jon
has significant work-experience, and several publications, whereas Anna has published
just one article based on the research in her thesis, and no relevant work-experience. As
the Dean, Harry must make the final decision regarding whom to hire.
Harry thought that Jon would fit right in to the culture of the management faculty.
He would make a fine colleague, would engage with other faculty members on their
research, and provide a model to students of how to manage a busy and successful
career. Harry thought that Anna would not fit so readily into the present culture of
the department, but would instead challenge it. She would contribute to changing the
department into a more caring, more cooperative, and less competitive workplace. She
would also provide a good role model for the many female students in the department,
and would be a supportive colleague for the five other female professors. Hiring Anna
would show a commitment by EU Management Studies to nurturing the potential excellence
of women as well as men.
Would it be ethical for Harry to hire Anna?

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MORAL
ACCOUNTABILITY
How can we determine causal responsibility
for the outcome of a decision?
Whom should we hold morally accountable
for their motivations or characters?
Can a whole organization be morally accountable for a decision?
When we analyze a business decision from an ethical point of view, often the most difficult
problem is determining who or what is morally accountable for the decision and
its consequences. This chapter will give a sense of just how difficult this question is,
and will survey some of the ethical considerations that go into answering it.
Let us recall the imaginary case of Amy from Chapter 1. Amy works for a company
where the stockholders are dissatisfied with the company’s returns. The Board of
Directors tells the CEO that profits must improve. The CEO tells the VP in charge of production
to cut costs, but does not say how. The VP convenes a cost-cutting committee
to make a recommendation. Amy proposes to the cost-cutting committee that her firm
outsource the production of a popular clothing item to an offshore contractor operating
in a lower wage environment. The committee recommends this to the VP. The company
signs a contract with an offshore firm.
Suppose, first, that this arrangement becomes very profitable for Amy’s company.
At the end of the year, the board of directors decides to give handsome bonuses to the
executives who are responsible for the new arrangement. The CEO has to decide how to
distribute this bonus fund. Should he give it all to Amy? Should he give some to the VP
who convened the cost-cutting committee? Should he reward the whole committee for its
decision? Should he include the members of the committee who voted against the idea?
Should he pay a bonus to the contractor, or to the overseas workers, or even to himself
for leading such a great team? This is both an economic and an ethical decision. The
CEO will be concerned to create incentives for good management decisions, to build team
cooperation, and to make everyone feel properly rewarded. However, the correct decision
is not obvious, and it will require skill and good judgment on the part of the CEO.
Now suppose disaster happens. To cope with the increased production, the overseas
contractor adds a shoddily built extra floor to the factory building. The building
collapses while people are working inside, and hundreds of garment workers die in
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the rubble. Who is morally accountable for the factory workers’ injuries? Is it the factory
owner, who built the unsafe factory? Is it the CEO, who ordered the cost cutting? Is
it the committee, which recommended moving production offshore? Is it Amy, who suggested
employing an overseas contractor? Is everyone in this diffuse chain of causation
fully morally accountable? Is everyone partially accountable and many people must
share accountability? Is the chain so diffuse that no one is morally accountable? Does
it make sense to say that Amy’s company, a legal fiction and a nexus of legal contracts,
can be morally accountable? An agent is morally accountable for an action and its
consequences if we should praise or blame her for her freely made decision and for its
results. Who is morally accountable in this case?
We are going to find that different ethical theories give different sorts of answers
to these questions. Like moral judgments generally, judgments about moral accountability
are complex and difficult. Luckily, we can use the same sorts of ethical considerations
that we use in decision-making to help us look at the ethical reasoning involved
in assigning moral responsibility for the outcomes of decisions. We do not have to study
new ethical theories; we just have to apply the ones we already know to these new sets
of questions.
The “Is/Ought” Gap
Chapter 2 showed that we should not base our ethical judgments solely on factual judgments
because ethical judgments have action-guiding force and factual judgments do
not. There is a logical gap between statements about how the world is and statements
about how the world should be. Philosophers refer to this important conclusion as
the “is/ought” gap or as the fact/value distinction. The existence of the “is/ought” gap
means that we cannot derive an ethical conclusion from an argument consisting of
purely factual premises.
To say that someone is morally accountable for the outcome of her decision is
to make a value judgment. It is a value judgment because it says that we should either
praise or blame her for her decision, that we should either admire or scorn her for her
character, or that we should either reward or punish her for the result of her decision.
These are not factual judgments; they are ethical judgments.
To say, however, that someone is causally responsible for an outcome is to make
a factual judgment. It is a factual judgment because it says that some action that he
intended to perform and then did perform caused the outcome to happen. It is a factual
judgment because to see if it is true, we need to investigate his mental state, his
physical behaviour, and the existence of a causal connection between his action and
the outcome.
Because of the “is/ought” gap, to say of someone that he is causally responsible
for an outcome is not to say that he is morally accountable for the outcome. His
causal responsibility is a factual judgment, whereas his moral accountability is a value
judgment. To move from causal responsibility to moral accountability, we require an
additional premise taken from ethical theory. One ethical theory that connects causal
responsibility and moral accountability is the theory of retributive justice. According to
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principles of retributive justice, society ought to punish a person for an action if he
intended his action to cause a particular harm to others and his action actually did
cause this harm. The criminal law mirrors the moral theory of retributive justice. In
most legal systems, there are two requirements for a person to be guilty of certain
crimes: he was the cause of the harm (in legal Latin, actus reus—the “guilty act”) and
if he understood that he was causing harm and that this was wrong (mens rea—the
“guilty mind”). To secure a conviction and get the defendant punished, the prosecution
must prove that both of these conditions were present in the alleged crime.
The retributive-justice-plus-causal-responsibility model of moral responsibility is
prevalent in our culture. People often defend their actions by arguing either that they
did not intend a bad result or that we cannot prove that their actions caused the bad
result, and then consider it unfair if we blame them for their actions. For example, Amy
might easily argue that she has no responsibility for the factory collapse because she
only intended to increase company profits, or because her role in the decision was so
small that it did not cause the unsafe building to collapse.
Nevertheless, retributive justice is not the only approach to ethics or to moral
accountability. Virtue ethics would hold Amy accountable for the character traits that
she displayed in her actions. Was she either stupid or willfully ignorant in not knowing
of the safety risks in overseas factories? Knowing these risks, was she careless or
reckless in advising offshore production? Ethical theories that appraise the motives of
decision-makers might also hold Amy accountable. Was she thinking only of her yearly
bonus, and did greed motivate her in her recommendation? Did she disregard principles
of respect for human rights or of the fair distribution of risk? There are reasons for
holding people morally accountable other than the combination of retributive justice
and causal responsibility.
As well, the notion of causal responsibility is not as precise as we might initially
assume. The determination of causality is a scientific operation; science is precise and
objective, and so we might expect determination of causal responsibility to be precise
and objective also. Yet, when we examine the determination of causal responsibility in
more detail, we find that the notion of one condition being the cause of another is not
as simple as we would wish. In the next section we will look at the scientific notion of
causal responsibility in some detail in order to show the difficulties that arise in determining
causal responsibility in business contexts.
Causal Responsibility
The determination of causal responsibility is important to the determination of moral
accountability for two reasons. The first reason is prediction. In advance of a decision,
a moral agent needs knowledge of cause and effect in order to predict the results of her
decision. The decision maker needs to know something about what will happen when
she chooses this course of action or that one. For example, she has to know the effect
of deciding to ship a product at one time rather than another in order to know whether
the shipment will fulfil her contractual obligations (promises) or not. The second reason
is retrospective. Some ethical considerations, particularly considerations of retributive
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and compensatory justice, require that, after the decision, we know the cause in order to
assign moral accountability (praise and blame) to the correct agent.
There are several main theories of what it is to be the causal condition of an outcome.
The first is a theory that the cause of an outcome is a necessary condition for the
outcome. One condition is a necessary condition for a second if the first state of affairs is
required for the production of the second one. For example, the presence of oxygen
is necessary for fire. However, a necessary condition may not be enough to produce
the second condition, because the presence of further conditions may also be required.
Oxygen alone is not enough to produce fire. To say that X is necessary for Y is to say
that whenever Y occurs, X had to have been present. In legal reasoning, this is called
the “but for” test for causation. To test whether X is a necessary condition for Y, we ask:
but for X (that is, without X), would Y have occurred? If the answer is yes, then X is not
a necessary condition for Y. If the answer is no, then X is a necessary condition for Y.
Oxygen is necessary for fire: but for (without) the presence of oxygen, the fire would not
have occurred.
The view that a causally responsible condition for an effect is a necessary condition
for the effect has several weaknesses. One problem with the necessary condition
test is the existence of causal chains. We often can see a chain of conditions all of which
are necessary for the effect to happen. Members of the chain are all causal conditions of
the outcome, and we need a reason for picking one of them. Amy’s situation is like this:
One, investors are unhappy. Two, the board directs the CEO. Three, the CEO instructs
the VP. Four, Amy makes her suggestion to the committee. Five, a contact is signed.
Six, the owner orders a new factory floor. Seven, the work is shoddy. Finally, a disaster
happens. All seven of these conditions are necessary for that disaster. But for any of
them, there would have been no disaster.
Legal reasoning would probably focus on the role of the overseas factory owner
because he is the last person in the causal chain whose decision could have prevented
the disaster. However, legal reasoning might also pass legal responsibility further up the
chain if someone else had made their decision while foreseeing that the overseas factory
would have significant safety issues. A similar issue would arise in assigning moral
accountability. If we could reasonably expect Amy, or other decision-makers in Amy’s
company, to have investigated the risk of such safety issues, then we should hold her or
them accountable for the disaster, at least in some part.
Another problem with relying solely on a necessary condition analysis of causal
responsibility is the frequent existence of other factors that would have brought about
the consequence anyway. Suppose, in our original example of overseas production, that
if Amy had not suggested outsourcing, then her colleague, Ben would have immediately
done so. It would no longer be the case that, but for Amy’s suggestion, the disaster
would not have occurred. So in this case, Amy’s suggestion is not a necessary condition
for the disaster. But she may be considered morally accountable for it anyway.
A second theory of causal responsibility is the view that a cause is a sufficient condition
for an effect. A sufficient condition is a condition that is enough to bring about
the effect even if it is not required to bring about the effect. Whenever the sufficient
condition is present, the causal outcome is also present. We can show that X is not
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Moral Accountab ility
sufficient for Y by producing a case where the X is present and Y is absent. This notion
of causal responsibility works for the situation described in the last paragraph. Either
Amy or Ben’s action would be sufficient, by itself, to cause the committee to consider
an outsourcing strategy.
The main problem with assigning responsibility by the action that is a sufficient
condition is that it is very rare that one person’s action is sufficient all by itself. Actions
are sufficient to bring about a result only given the proper combination of other background
conditions. So, for example, throwing a switch is sufficient for lighting a light
bulb assuming that the light bulb is not burned out, that the power is on, that the circuit
connecting the switch and the bulb is not interrupted, and so on. When we count doing
X as sufficient for Y, and thus that the person who did X is responsible for Y, it is almost
always the case that doing X is sufficient for Y given a large number of other actions by
other people. And that makes it hard to sort out who is really morally responsible. In
our example, Amy’s action is sufficient to cause the committee to consider outsourcing,
but that’s true only because of the background conditions: the committee has already
decided to follow Amy’s recommendation; the CEO has established the corporate structure
to make this chain of decisions possible, and so on.
More particularly, the theory that causal conditions are sufficient conditions does
not work in cases of joint production involving specialization and the division of labour.
Suppose that, instead of producing pins, Jack and Jill are in the business of cooperatively
producing a useful and valuable chemical, C. The formula for production of
chemical C is this:
1 litre of chemical A + 1 litre of chemical B → 1 litre of product C + 1 litre of pollutant D
Jack is better at producing chemical A and so he specializes in producing A,
whereas Jill is more efficient at producing chemical B and specializes in producing B.
Together they produce valuable chemical C by reacting together chemicals A and B.
Jack Jill
A B A B
Productivity per hour (litres) 9 1 1 9
Assume Jack and Jill each work a 10-hour day.
Self-sufficient production of pollutant D 9 9
Total self-sufficient production of pollutant D 18
Specialized production of chemicals A and B 90 0 0 90
Total joint production of pollutant D 90
Table 9.1: Model of a chemical factory producing pollutant D.
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Unfortunately, chemical D is produced as a by-product of this chemical reaction, and
chemical D makes people sick. In low doses, chemical D is harmless, but when production
of chemical D passes a threshold of 20 litres per day, it becomes a harmful
pollutant. Table 9.1 shows a model of the chemical factory. Working independently and
self-sufficiently, Jack and Jill will produce 18 litres per day of chemical D, which is not
a harmful amount. Working together, in a joint production model where they specialize
and divide their labour, they will produce 90 litres of pollutant D per day, which is a
harmful amount.
We can see that neither the work of Jack nor the work of Jill is enough to produce
a harmful amount of pollutant D. The work of neither Jack nor Jill is a sufficient
condition for the pollution, so neither Jack nor Jill is causally responsible for the pollution.
If causal accountability grounds our appraisal of moral accountability, and we
interpret causal conditions as sufficient conditions, then we can hold morally accountable
neither Jack nor Jill for the harms of pollution. In a sufficient-condition model of
causal responsibility, members of most organizations that employ specialization, the
division of labour, and joint production (which includes most business firms) would
evade accountability for their contributions to harmful corporate behaviour.
A third suggestion for the nature of causal responsibility is that a causal condition
is a NESS condition, a Necessary Element in a Set of Sufficient conditions. The NESS
condition theory will assign causal responsibility to both Jack and Jill. Jack’s specialized
work and Jill’s specialized work will together form a set of jointly sufficient conditions
for the production of 90 litres per day of pollutant D, an amount that is over the threshold
of harm. The work of each of them is a necessary element in this set of sufficient condition.
Without Jack’s contribution, the factory would not produce 90 litres of pollutant
D, and without Jill’s contribution, the factory would not produce 90 litres of pollutant D.
Therefore, the work of both is a necessary element in a set of sufficient conditions.
Unfortunately, we can find a typical business situation where the NESS theory does
not properly account for causal responsibility. The NESS theory breaks down for committee
decisions. Suppose the cost-cutting committee in our extended example has 7
members, and that all of whose members must vote. The motion that Amy puts forward
to recommend overseas production passes by 5 votes to 2 votes. Amy, of course votes in
favour of the motion. The 5 votes in favour of the motion are jointly sufficient for the
motion to pass. If Amy were to have voted differently, or if she later changed her vote,
the motion would still have passed by 4 votes to 3 votes. Amy’s vote is not a necessary
element in the set of votes sufficient for passing the motion. Therefore, Amy is not causally
responsible for the motion’s passing. Amy’s vote is not a necessary condition of the
motion passing, because passage of the motion is over-determined; the motion would
pass anyway, no matter how she voted. Amy’s vote is not sufficient for passage of the
motion because her vote would not be enough by itself to pass it. Had the vote been 4 to
3, Amy’s vote would have been a NESS condition of passing the motion because her vote
would have been necessary, along with 3 other votes, to its passage. However, Amy’s
vote is not a NESS condition because the motion passes 5 votes to 2. Apparently, in a
case where the motion passes by two or more votes, causal responsibility for disasters
can evaporate in a committee meeting.
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Moral Accountab ility
To further complicate these issues, we should notice that omissions can also be
causal factors. A person can decide to actively do something, and this can obviously
become a causal factor. Importantly, though, a person can passively decide to do
nothing, and this too can become a causal factor. For example, in the Amy example,
perhaps the factory owner did not actively decide to order shoddy construction, but
simply omitted to get the advice of competent engineers before building another
floor. The factory owner’s omission is still a potential causal factor in the building
collapse.
There are two lessons to draw from this catalogue of problems for theories of
causal responsibility. The first lesson is that, though the notion of causation is a scientific
notion, it is not clearly defined and easy to apply. The second lesson is that there is
no clear connection between causal responsibility and moral accountability. Thinking
about the causal responsibility of decision-makers for outcomes is often useful in thinking
about moral accountability, but moral accountability is an ethical notion, not a
scientific one.
Legal Responsibility
Legal systems have developed most of the theories of causal responsibility that we
have surveyed in their search for ways to determine legal responsibility. Criminal law
attempts to stop, deter, and penalize rights violations by justly punishing violators for
Motion passes by
5 votes to 2 votes.
Eve
no
Don
yes
Amy
yes
Gil
yes
Fay
yes
Ben
yes
Cam
no
Figure 9.1: Committee passes motion by a 5 to 2 vote:
Amy’s vote makes no difference to the outcome.
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their crimes. As a form of retributive justice, it aims to punish those who, with a guilty
mind, cause harm to others. The law of torts in civil law aims to ensure that the reckless
or careless compensate their victims for the damages that they cause to them or
their property. Generally, judges will award compensation if the plaintiff shows that
the defendant had a duty of care regarding the defendant or her property, and that the
defendant caused the damage to the victim or her property.
Though notions of legal responsibility and moral accountability influence one
another, they are not the same notion. There are cases where someone might be
legally responsible but not morally accountable. One example is vicarious liability. An
employer is legally responsible under tort law for wrongs committed by an employee
who is on the job. However, unless the employer orders the employee to commit the
wrong or is careless in some way, we would neither hold the employer morally accountable
for the wrong, nor absolve the employee of accountability. Vicarious liability is
a policy that enables victims to recover damages from someone who is likely more
able to pay the damages. Vicarious liability also makes it possible to hold corporations
legally responsible for damages, since corporations can only act vicariously through
their officers, managers, and employees. Another example is the legal concept of “deep
pockets.” When several agents are causally responsible for damages, the law may order
the wealthier agent to pay all the damages. All of the agents may be morally accountable
for the harms that they caused, but, for policy reasons, the law may hold only the
wealthy individual legally responsible for compensating the victim.
Even though legal responsibility and moral accountability are not the same concept,
the concept of legal responsibility has influenced the concept of moral accountability in
two misleading ways.
First, the idea from criminal law and retributive justice that we must prove that
someone’s guilty mind caused the harm sometimes misleads us into thinking that we
are only morally accountable for the harm if we both intended and were successful in
causing it. We have seen some of the difficulties involved in assigning causal responsibility.
In the next section, we shall see that it is not always necessary to prove causal
responsibility in order to hold someone morally accountable.
Second, the law of torts aims to make the victim whole again, which means that
once the victim is fully compensated nothing more is owed by the perpetrators to the
victim. For example, if the total damages were $10,000, then once the victim receives
the $10,000, then the perpetrator has fulfilled his legal responsibility and no one is liable
to pay any more money. This idea from tort law may mislead us into thinking that there
is only so much moral accountability to go around, and once we show someone to be
blameworthy, then we have finished. Moral accountability, however, is not a conserved
quantity in the way that damages are. For example, just because we find that the owner
of the collapsed factory is morally accountable for his decision to build unsafely, it may
still be the case that Amy’s company is also morally accountable for not anticipating
the disastrous consequences, or that Amy is herself blameworthy for not considering the
risks of the strategy that she promoted. We will discuss below how holding a corporation
morally accountable for the result of its actions does not preclude also holding its officers
and employees accountable for their decisions.
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Ethical Approaches to Moral Accountability
We have seen that it is very difficult to determine causal responsibility for an outcome.
As well, we have seen that determining moral accountability involves a value judgment,
and thus, implicitly, reasons drawn from an ethical theory. Rather than search for an
elusive determination of causal responsibility, we can instead examine decision-makers
and their decisions from the perspective of each of the ethical theories that we have
studied. Different theories will often conflict in their assignment of moral accountability.
Consequently, we must weigh these various reasons to arrive at one overall
judgment of moral accountability. If we cannot come to an overall judgment of moral
accountability, then we must content ourselves with irreducibly plural judgments.
An example of an irreducibly plural judgment of moral accountability might have
occurred if the offshore production strategy had ended in success rather than disaster.
In that case, the CEO might have judged to herself, “I should blame Amy for her
self-interested motives, and despise her for the greedy character she has shown, but I
should reward her for her plan because her initiative has caused greater profits for the
company.” Here the CEO has a motive-based reason for blaming Amy, a character-based
reason for despising her, and a consequence-based reason for rewarding her. Even if we
fail to come to an overall judgment of moral accountability, this should not prevent us
from paying attention to our partial judgments.
Figure 9.2 reviews the main types of ethical theories and ethical reasoning that
philosophers have identified. Identity-based reasoning holds moral agents accountable
for the sort of person that they are. It recommends that we morally praise those who are
virtuous in their behaviour or caring and wise in their relationships. If we are virtuous
in our own behaviour, we are entitled to be proud of ourselves. It recommends that we
morally blame those who show themselves to have vices such as envy, greed, sloth, and
so on, or who are uncaring in their relationships with others. If we are ourselves vicious
or uncaring, then we should feel ashamed. Virtue ethics claims that we are morally
praiseworthy if we exhibit good character, and blameworthy if we exhibit bad character.
Ethical reasoning
Identity-based
Virtue ethics
Feminist ethics of care
Motivation-based
Duties
Rights
Justice
Consequencebased
Objective
Utilitarian
Ethical egoism
Retributive
Compensatory
Distributive
Figure 9.2: Review of the main forms of ethical reasoning.
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Motivation-based reasoning looks first to a moral agent’s personal reasons for
her decisions. If she thinks only of her own gain and is reckless of the rights of others,
then we should blame her for her behaviour. If her reasoning is based on principles, if
she tries her best to respect the rights of others and to fulfil her duties to them, then
we should praise her for her efforts, even if she is unsuccessful. If we ourselves make
decision with the wrong motives, then we should feel guilty about what we have done.
In order to assign moral accountability in retributive justice, we must find that an
agent caused the outcome and intended or planned to cause that outcome. This gives
us an ethical reason to punish the agent for a negative outcome or to reward him for a
positive one. Similarly, in order to require that one agent pay compensation to another,
we must find that the first agent is causally responsible for the harm to the second, and
that the first agent failed to fulfil a duty that the first agent had to respect the property
rights of the second. Retributive justice and compensatory justice reasoning look to
considerations similar to those in legal reasoning.
As we have seen in the chapter on justice, historical theories of distributive justice,
such as libertarian theories or contribution-based merit theories, require a determination
of causal responsibility to determine fair shares. In business contexts, however,
determinations of causal responsibility are not always possible. Consider again
the example of the pin factory. The work of neither Jack nor Jill is sufficient for the
increased output after specialization and the division of labour. On this account, neither
is causally responsible for the gains from cooperation. The work of both Jack and
Jill is necessary to achieve the gains from cooperation. In addition, the work of each
is a necessary element in a set of sufficient conditions for the gains from cooperation.
On the latter of these two accounts, both Jack and Jill are causally responsible for all
of the gain. Therefore, none of these disputed causal facts is useful in telling us how to
distribute the gains from cooperation in a fair and just manner.
Non-historical theories of distributive justice, however, do not require assessments
of causal responsibility. These theories will use other, non-causal moral principles, such
as Rawls’s difference principle, to determine legitimate expectations and fair shares.
These theories are impervious to difficulties in assigning causal responsibility.
Causal responsibility plays a role in consequence-based reasoning about moral
accountability. When an agent is making a decision, utilitarian ethical theory requires
the decision-maker to predict the causal consequences of her decision. Amy, for example,
should consider everyone’s welfare, including offshore workers, in her decision to
promote out-sourcing the company’s clothing line.
Corporate Accountability
Business firms are often large organizations with complex ownership structures and
complex decision-making procedures. Should we hold business corporations morally
accountable for their actions? Joint stock corporations are certainly legally accountable
for the consequences of their actions; for example, people can sue them for compensation
for damages that they cause. If we think that moral accountability requires causal
responsibility, and that causal responsibility requires that an agent’s psychological state,
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the agent’s intention, must cause the outcome, then we will be inclined to say, “No.”
Business corporations have a legal personality, but not a psychological personality.
Unlike people, business corporations do not literally have intentions or other psychological
states. Reductionism regarding corporate moral accountability is the theory that
only individuals within a corporation can be morally accountable but the corporation
as a whole cannot be morally accountable.
However, if we use a committee as a simple model of corporate decision-making,
then we can see that reducing a committee decision to the decisions of individual committee
members can be hugely difficult. When motions pass by more than two votes,
then no member’s vote is causally responsible for the committee decision on any of the
views of causal responsibility that we have discussed. In the above example of a 5 to
2 vote, Ben’s yes-vote and Cam’s no-vote are neither necessary nor sufficient for the
motion to pass, nor are their votes a NESS condition of the motion passing. Each is in
no way causally responsible for the motion’s passage. The same is true of all members
of the committee. Individual moral accountability appears simply to evaporate in committee
decision-making. We cannot reduce accountability for the committee decision to
the causal responsibility of its members.
The opposing view to reductionism about corporate moral accountability is holism.
Holism regarding corporate moral accountability is the theory that the corporation
as a whole is morally accountable for its decisions and for actions of its agents and
employees. The holistic view would be false if all ethical reasoning was purely motivebased.
Motives are psychological states such as intentions, corporations do not have
psychological states, and thus it would make no sense for corporations to be morally
accountable. However, there are other forms of ethical reasoning.
In the chapter on virtue ethics, we looked at the notion of corporate character.
Corporate character presumes that a corporation has non-mental dispositions to behave,
which can be judged as virtuous or vicious, and which are determined by its ethical code,
its compliance mechanisms, its ethical climate, its governance, and its incentive structures.
From a utilitarian point of view, we can hold corporations accountable for whether their
behaviour promotes overall human welfare. From a rights-based point of view, we can
notice that corporations enter into legal contracts with employees, suppliers, and consumers.
Legal contacts are composed of promises of offer and acceptance. If we think that we
are morally accountable for keeping our promises to corporations, then we should equally
think that corporations are morally accountable for keeping their promises to us. For
example, if we are morally accountable for our promises to pay our mobile phone bills
to telecommunications companies, then, presumably, telecommunications companies are
morally accountable for keeping their promises to provide us with services.
As we have seen, there are many forms of ethical reasoning. Some forms of ethical
reasoning give us good reasons to hold business corporations morally accountable, and
some give us reason not to do so. If we weigh these reasons and decide that a business
corporation is morally accountable for its decision and the outcome, then does that
mean that board members, managers, and employees of the corporation are not morally
accountable? Does moral accountability stop at the corporate level, or can we also hold
individual members of the corporation morally accountable too?
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Legal principles of tort law and vicarious responsibility can mislead us on this
question. If someone sues a corporation for damages and the court orders the corporation
to pay compensation of one million dollars, then the corporation is responsible
for paying the one million dollars, and its personnel are not. The corporation is vicariously
liable for the actions of its employees doing corporation business. Board members,
managers, and employees are not legally responsible for coming up with additional
compensation. The one million dollars is full compensation for the damages, and if the
company is liable to pay it all, then others are not required to pay more.
Even if a corporation is legally responsible and pays all the required compensation,
individuals within the corporation may still be morally accountable. The analogy
between legal responsibility for paying compensation for damages and moral accountability
does not hold. Just because a corporation as a whole is morally accountable, it
does not follow that individuals within the corporation are not morally accountable. All
individuals within the decision-making structure are still responsible for their motives
and character, and how they express these in the decision-making process. Perhaps we
can hold none of the individuals causally responsible for the outcome of the corporate
decision, just as we can hold none of the committee members in the example above
causally responsible for the committee’s decision. Nevertheless, all individuals in the
firm are potentially complicit in the corporate decision. All must consider their role in
the decision and the sort of character and motivations that they display. In our ethical
reasoning, we should hold agents inside organizations morally accountable for their
characters and motivations even if we cannot hold them causally responsible for corporate
decisions and their outcomes.
In complicated organizations such as business firms, it is often difficult either to
determine causal responsibility or to assign moral accountability. We have seen examined
a plurality of theories of moral accountability that corresponds to the plurality of
theories of ethics generally. Additionally, in some cases where we would normally hold
people morally accountability, we may decide to excuse them because they could not
have done otherwise. In the next chapter, we will examine such excusing conditions,
and then suggest a rough flow chart that will help us navigate the complicated issue of
moral accountability in business organizations.
Summary
1. An agent is morally accountable for a decision if we should praise or
blame the agent for the decision and its results.
2. Value judgments about moral accountability are more than just facts
about causal responsibility. Sometimes moral accountability requires
causal responsibility, as in retributive justice, and sometimes it does not,
as in judgments about character or motive.
3. Facts about causal responsibility are not as precise as most facts of
science. Some people think causal conditions are necessary conditions,
but these “but for” conditions have difficulty with over-determination.
Some think they are sufficient conditions, but these have difficulties
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with situations of joint production that are analogous to Adam Smith’s
pin factory. Some think they are NESS conditions, but these have
difficulty attributing causal responsibility for committee decisions.
4. The analogy between moral accountability and legal responsibility
breaks down in case of vicarious responsibility and deep pockets.
Unlike compensation, accountability is not limited in size.
5. Different forms of ethical reasoning give different reasons for holding
agents morally accountable. These reasons include the decision-maker’s
character, motives, duties, special responsibilities, causal role, and the
welfare consequences of possible assignments of accountability.
6. Some philosophers think that business organizations, such as jointstock
companies, cannot be morally accountable because they do not
have mental lives. Corporate accountability reduces without remainder
to the accountability of individuals within the organization.
7. Other philosophers think that there are good ethical reasons for
holding corporations morally as well as legally responsible for the
results of their decisions. For example, we can talk meaningfully
of corporate character. Just because the corporation is morally
accountable, it does not mean that individuals within the corporation
are not also morally accountable for their decisions and actions.
ONLINE LEARNING RESOURCES
You will find a collection of learning resources associated with this chapter on the
book’s website: http://sites.broadviewpress.com/businessethics/. Working through this
material will help you understand and remember important concepts that we have
discussed, and will help you apply them to issues in business ethics.
Study Questions
Answering the following questions will help you to understand the ethical theory in this
chapter and will help you to create a set of review notes on the textbook.
1. Explain why retributive justice requires determining causal
responsibility for an outcome whereas judging that someone is
dishonest does not.
2. Explain why the possible existence of other factors that would have
brought about the consequence anyway creates a difficulty for the
theory that causal conditions are necessary conditions.
3. Explain why the possibility of joint production creates a difficulty for
the theory that causal conditions are sufficient conditions.
4. Explain why the possibility that a committee decision may pass by
2 votes creates a difficulty for the theory that causal conditions are
Necessary Elements of a Set of Sufficient conditions.
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5. Why can we hold a decision-maker accountable for her motives even if
we cannot show her to be causally responsible for a bad outcome?
6. Can we hold both corporations and their managers to be morally
accountable for the same morally wrong action? Why, or why not?
Decision Questions
The whole point of learning ethical theory is to understand and ask questions like the
following when you are analyzing an ethically problematic situation or case.
• What are the likely causal consequences of the decision-maker’s
alternative decisions?
• Is the decision a necessary condition for the outcome?
• Is the decision a sufficient condition for the outcome?
• Is the decision a necessary element in a set of sufficient conditions for
the outcome?
• Does a committee structure block the assignment of causal
responsibility to individuals?
• What do the various ethical theories say about the decision-maker’s
accountability?
• Should we hold the decision-maker accountable for the character traits
she displays?
• Should we hold the decision-maker accountable for the motivation
behind his decision?
• Does anyone share moral accountability with the decision-maker?
• Is an organization solely or partially morally accountable for
the outcome?
• Should we hold individuals morally accountable as well as the
organization?
Case Study
Analyze this case study using the ethical theory that you have learned so far. You will
find a collection of learning materials applying to the case on the book’s website: http://
sites.broadviewpress.com/businessethics/. These materials will help you in your analysis.
Should Isabella Encourage Deception?
Isabella Lopez is the northern area sales manager for Kudos Kitchen and Recreation,
a large retailer of household appliances and consumer electronics with stores across
North America. Kudos is losing market share to online retailers, such as Nile, and
needs to extract more profit from the sales that it does make. One advantage that Kudos
has over Nile is the personal contact between Kudos’ sales staff and Kudos’ costumers.
Personal contact allows the Kudos sales staff to sell more extended warranties than Nile
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is able to sell online. Extended warranties are an important profit centre for Kudos, as
they are for other appliance and electronics retailers.
Yesterday, Isabella’s boss and Kudos VP of sales, Roger MacDonald, circulated an
email to his five area managers asking their opinions on a new sales policy regarding
extended warranties. The new policy would aim to increase extended warranty sales by
allowing store managers to raise the commission on extended warranty sales for high
performing salespeople. The standard is 15%. The new policy would allow store managers
to raise the rate to 20% for any warranty sales over $2,000 per month. Kudos
would also allow store managers to reveal each salesperson’s warranty sales at monthly
sales meetings and to terminate any sales staff who failed to sell at least $1,000 worth
of extended warranties for two months in succession. Roger’s hope is that this new
policy will increase the incentives for sales staff to sell extended warranties and thereby
help Kudos’ bottom line.
Isabella worries about the effect of this policy on the interaction between sales staff
and customers. Three-year extended warranties are highly profitable because appliances
and electronics are most likely either to break down from manufacturing defects soon
after purchase, or to break down from wear and tear toward the ends of their designed
life. The probability of a payout on a three-year extended warranty is low because the
manufacturer’s warranty covers the first year, and most products are designed to last
longer than three years. In order to sell extended warranties, sales staff must avoid
telling customers the return rate for the second and third year of a product’s life, and
must get customers to focus on horror stories regarding the very few products that customers
actually do return. Isabella’s worry is that Kudos’ store managers may use the
new policy to increase their staff’s usage of hard-sell practices.
Roger has asked for opinions from his area managers, and their views often sway
his decision. Isabella is almost certain that West, Central, and South will get behind the
policy suggestion, but that East will criticize it. She is worried about the consequences
of the new sales policy, but she also wants Kudos to be profitable and for Roger to see
her as a team player.
What should Isabella say to Roger?

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RESPECTING
AUTONOMY
AND PRIVACY
Should we consider business corporations to be moral agents?
What are the main threats to autonomous decision-making?
Why is respecting privacy important?
We have seen that a person, or perhaps a business corporation, is morally accountable
if we should praise or blame the agent for the outcome of the agent’s freely made decision.
In the last chapter, we saw some problems with determining causal responsibility
for outcomes. In this chapter, we will consider some problems with concluding that an
agent’s decision is a freely made decision.
Suppose that her boss orders Nancy, the firm’s IT specialist, to spy on the other
employees’ use of social media outside of work. Nancy does not think this is right, but
does it because she fears being replaced. Is Nancy morally accountable for her decision
to spy? The answer will depend on whether we think her decision was morally autonomous.
Moral autonomy is the capacity to govern oneself according to one’s own ethical
reasoning. Agents’ decisions are morally autonomous when they apply to themselves
(“auto” in Latin) the moral law (“nomos”). We shall start from the default position
that agents’ decisions are usually morally autonomous, and then ask what sorts of conditions
interfere with their autonomy. In a more extreme example, suppose that one
person puts a gun to a second person’s head, and coerces him into making a particular
decision. Here it is obvious that the second person’s decision is not morally autonomous,
and that we should not hold him morally accountable for his decision. Should we similarly
excuse Nancy from moral accountability?
Now consider the effects of Nancy and her boss’ spying on the other employees.
Suddenly there are repercussions at work for their activities outside of work. Realizing
that their boss is spying on them, many employees change their private behaviour and
become less open with their friends on social media. Does the firm’s spying wrongfully
interfere with their personal lives? This brings up an ethical concept similar to, but not
the same as, moral autonomy: personal autonomy. Personal autonomy is the capacity
to make authentic decisions about one’s own life. It is the ability to choose freely one’s
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conception of the good life, to pursue this conception, and to either endorse or change
one’s choices. Modern societies hold the values of personal autonomy and personal
freedom in high esteem, but this is a new historical development. Pre-modern communities
stressed the values of following tradition and obedience to authority. Pre-modern
conceptual frameworks provided few intellectual resources for community members
to reflect critically on how to lead their own lives. Here we shall look at a plurality of
ethical reasons both for and against the importance of the personal autonomy that our
modern culture so values.
The firm’s spying also raises another important value of modern society, one that
is under threat from the increasing power of computer technology. This value is privacy.
Informational privacy is the condition of being able to control access by others to
information about oneself. Governments and internet technology firms are becoming
increasingly adept at finding out information about individuals, and increasingly willing
to use this power for security or commercial purposes. Most of us dislike others
infringing our personal privacy. However, it is not obvious why others should have an
ethical obligation not to seek out personal information about us. Once again, we will
apply our ethically pluralist methodology to look at the various ethical reasons both in
favour of and against informational privacy. Given that everyone knows that information
on social media is public, do Nancy and her firm violate the informational privacy
rights of the other employees?
Corporate Moral Agency
We may be able to hold Nancy and her boss accountable for their spying because they
are moral agents, but can we hold their firm accountable in any way? What sort of
entities can have moral autonomy and be held morally accountable for their decisions?
We know that most adult human beings can be morally autonomous, but what about
business corporations? Are business corporations moral agents? Being a moral agent is a
precondition for being held morally accountable. As we defined it earlier, a moral agent
is an entity to which we are prepared to assign praise or blame, which can respond to
moral reasons, and which we are prepared to hold morally accountable. To possess
moral agency, an entity ideally should have certain capacities. These include moral sensitivity,
responsiveness to ethical reasons, and decision-making abilities. An interference
with people’s moral autonomy can be an interference with their moral agency because it
interferes with their capacity to respond to ethical reasons and to make ethical decisions
based on those reasons.
To be sensitive to the existence of moral issues, an ideal moral agent requires a
range of emotional capacities. The agent needs empathy, the ability to understand the
feelings of a whole range of other people. The agent also needs sympathy for other
people, which is the capacity to have an interest in reducing their pain and suffering or
promoting their well-being. The agent must be disposed to feel guilt or shame at her
own moral transgressions, and to feel anger or indignation at the transgressions of others.
She must be sensitive to praise and blame, so that she can feel morally accountable
for her actions.
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To be responsive to ethical reasons, an ideal moral agent must have a range of intellectual
and emotional capacities that vary with the type of ethical reasoning involved.
To apply consequentialist reasoning, an agent must be able to make rough calculations
of the aggregate net welfare benefits of different decisions. To apply principle-based
reasoning, such as respect for rights and a regard for justice, an agent must be able to
apply abstract principles to particular cases. To apply character-based reasoning, an
agent must be able to cultivate virtues, avoid vices, and become sensitive to and take
responsibility for her relationships with others.
To make competent ethical decisions, an ideal moral agent needs an understanding
of ethical concepts, an understanding of cause and effect relationships, an ability to
make plans, and an ability to form and carry out intentions.
Most adult human beings possess, or should possess, the capacities required for
moral agency. Most children have the emotional repertoire necessary for moral sensitivity,
but lack the reasoning and decision-making abilities required for full moral agency.
Infants and comatose human beings have none of these capacities. Some very complex
animals may have rudimentary capacities for moral sensitivity, but no animals have
ethical reasoning and decision-making abilities.
Many important decisions in the world of business are made, not by individual
adult humans, but by business firms, corporations, non-government organizations,
municipalities, and state governments. Such organizations are not individual human
beings with mental lives, but are the creations of a legal system. They do not literally
have the psychological capacities, such as the emotions of guilt and shame or the ability
to reason ethically, that moral agency requires. Yet we are inclined to praise or blame
them for their decisions, and to hold them morally accountable. How is this possible?
One way to understand corporate agency is through the notion of vicarious psychological
capacities. A business corporation is a legal “personality,” a nexus of legal
contracts and property interests, not a brick-and-mortar factory or office building. As
such, it can act in the world only through its employees and its legal agents who are
human beings. The business corporation, as principal, signs contracts only through its
appointed agents. In law, it is vicariously responsible for the actions of its employees on
company business. It can only delegate; it cannot act directly.
By analogy, we can understand the moral sensitivity of a company as vicarious
sensitivity. The directors, managers, and employees of the corporation all have psychological
responses, such as shame or empathy, to situations requiring ethical decisions,
and they can bring this sensitivity to the decision-making process within the company.
Similarly, we can understand the responsiveness to ethical reasons of the company as
vicarious rationality. The officers and employees of the company have the intellectual
capacities to understand the necessary ethical reasoning. If we understand the output
of corporate decision-making as vicarious action through the officers and employees of
the company, then we should also understand the input to corporate decision-making
as the vicarious moral sensitivity and vicarious ethical rationality of its officers and
employees as well.
The final decision-making in a large organization may be a collective and holistic
process rather than a simple individual decision. In a small sole proprietorship, where
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the owner is the operator, the decision-making process may involve only that person’s
psychological deliberations. However, in a large joint-stock company, the decision-making
process may be a highly organized and regulated process that is more analogous to
a committee decision. The role of deliberation and decision by individuals may be much
harder to define. Just as it was difficult to pick out the causal role of individual members
in motions passed in committee, it will be difficult to determine the causal role of
officers, managers, and employees in corporate decisions. Table 10.1 summarizes the
role of the psychological, vicarious, and holistic capacities of moral agents in several
types of organizations.
Even if we conclude that organizations such as business corporations are capable
of a form of moral agency, we should not forget that a determination of corporate
moral accountability does not block a determination of the moral accountability of
individual directors, officers, and employees. Legal responsibility, in terms of full compensation
to the plaintiffs in a tort action, may stop when the corporation pays the
full amount, but moral accountability does not. Even if the causal role of individuals
in a corporate decision is unclear, individuals within the corporation are still morally
accountable for their motives and for the moral character that they have displayed in
the decision process.
Interferences with Autonomy
Philosophers have worried extensively over whether a freely made decision is even possible.
This is the metaphysical problem of free will. Science tells us that every event in
the world is causally determined. All decisions made by agents are events in the world.
Therefore, all decisions are causally determined. If a decision is causally determined,
then it is not a freely made decision. Therefore, no decision is a freely made decision.
Solving this metaphysical problem is beyond the scope of our interests in business ethics.
We will assume for the purposes of this chapter that, in the absence of external
Governance Moral
sensitivity
Responsiveness to
ethical reasons Decision-making ability
Owner/operator ü
(Psychological)
ü
(Psychological)
ü
(Psychological)
Committee ü
(Vicarious)
ü
(Vicarious)
ü
(Holistic)
Corporation ü
(Vicarious)
ü
(Vicarious)
ü
(Holistic)
Table 10.1: The moral agency of organizations.
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interference, most of our decisions are made freely. We are normally autonomous, both
personally and morally. This leaves the problem of what constitutes an interference with
an agent’s personal or moral autonomy.
Moral autonomy is the capacity to govern oneself according one’s own ethical
reasoning. An interference with people’s moral autonomy is an interference with their
moral agency because it interferes with their capacity to respond to ethical reasons
and to make ethical decisions based on those reasons. Because “ought” implies “can,”
when her boss interferes with Nancy’s moral autonomy such that the boss’s interference
prevents Nancy from making the morally correct decision, then Nancy is not morally
accountable for her decision and its outcome. Interferences with moral autonomy can
reduce or excuse someone’s moral accountability. Some threats to moral autonomy
potentially excuse agents from moral accountability.
Personal autonomy is the capacity to make authentic decisions about one’s own
life. It is the ability to choose freely how one lives one’s life. The very same sorts of
conditions that can undermine moral autonomy also undermine personal autonomy.
In what follows, we will consider some of the factors that can interfere with autonomy,
both moral and personal.
A first potential interference with autonomy is the threat of coercion. If a coercive
threat is severe enough, then it overwhelms the victim’s moral sensitivity, responsiveness
to ethical reasons, and decision-making capacity. For example, if a gangster threatens
the family of an office administrator unless she steals the petty cash for him, then we
should not hold the administrator morally accountable for her decision to hand over the
cash. A coercive threat that interferes with autonomy is a perpetrator’s morally unjustified
declaration of the intent to cause harm to the victim. For example, if a supervisor
says to an employee, “Mow my lawn at home, or I will fire you at work,” then this
would be a morally unjustified threat that would interfere with the employee’s ability
to make a decision. Coercive threats are only potential excusing conditions because we
still must decide whether the threat is severe enough, relative to the importance of the
decision, to say that it excuses the victim from moral accountability.
A second threat to autonomy is lying or deception. A lie is a linguistic communication
which the perpetrator believes to be untrue and with which the perpetrator intends
to deceive his victim. Deception is a non-linguistic action or omission that the perpetrator
intentionally uses to cause her victim to believe something false. Both lying and
deception interfere with their victim’s capacity to make authentic, informed decisions.
They interfere with their victim’s ability to reason properly. Perpetrators use both to
defraud victims. Fraud is obtaining a benefit from a victim by lying or deception. Lying,
deception, and fraud can sometimes occur in marketing, where a salesperson may be
tempted to give false information to a customer in order to make a sale. Deception can
undermine personal autonomy. For example, suppose a salesperson deceitfully implies
to a customer that an insurance policy will cover all medical expenses, when, in fact,
many exclusionary clauses are buried in the fine print. Based on this false information,
the customer purchases the insurance and the customer’s life may go badly. Deception
can also undermine moral autonomy. For example, suppose a salesperson deceitfully
tells a customer that some product creates no pollution, when in fact it does. Based on
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this false information, the customer may decide to purchase the device. If the customer
thinks that contributing to pollution is wrong, then the salesperson has interfered with
the customer’s moral autonomy.
A third threat to autonomous decision-making involves failure to disclose information.
Proper reasoning requires possession of all the information that is relevant
to the decision. If a perpetrator intentionally fails to disclose information to which
the decision-maker is entitled, then the perpetrator compromises the victim’s ability
to perform sound ethical reasoning and to make good decisions. Lack of information,
or possession of false information, interferes with decision-making. Morally
unjustified non-disclosure of information by others also interferes with autonomous
decision-making. However, we are not always entitled to information. Potential perpetrators
should weigh their obligation to disclose information to others against their
own right to informational privacy. For example, salespeople may be obligated to
disclose fully the specifications of their products to potential customers, but they may
not be obligated to disclose private information about their firms’ costs of production.
In such cases, people must make difficult judgments. Is a salesperson ethically
required to disclose to a potential customer that another cheaper product the company
sells is just as good?
A fourth threat to autonomous decision-making is a situation involving conflict
of interest. Conflicts of interest occur when the self-interest of professionals, managers,
agents, and board members differ from the interests of their clients, customers, principals,
or organizations. Conflicts of interest occur even if members of the first group
actually fulfil their obligations to the members of the second. For example, a financial
adviser, who also sells mutual funds on commission, has a conflict of interest with her
client even if the mutual fund that she recommends to her client, and for which she
receives a commission, is in fact the best fund for that client. She is still in a conflict of
interest situation, even when she gives the correct advice. She can mitigate this conflict
of interest by disclosing her own interest in selling the fund to her client. One problem
with this situation is that her personal interests in having the client buy a certain fund
may distort her financial judgment. A second problem is that non-disclosure of her
personal interest violates the trust required in the relationship of financial adviser to
client. A third problem is that conflicts of interest can undermine the autonomy of decision-
makers. Why is this?
Conflicts of interest usually arise because of asymmetric information. Because
our society is so complex, specialization and the division of labour is the norm with
regard to information as well as with regard to production. By cooperating in the
discovery and management of information, we can process much more information
together that we can alone. Hence, people characteristically depend on others for
information in their decision-making process. For example, a CEO cannot know everything
relevant to a management decision, such as choosing an ethical supplier, and so
must depend on information and advice from the company lawyer, the financial officer,
the sales manager, etc. Lawyers, accountants, and sales managers are all authorities in
their specialized areas. Nevertheless, the CEO must still determine how much credence
to give to the advice of each of them. To make an autonomous judgment, the CEO must
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assess their expertise and their judgment. In assessing their advice, the CEO also needs
to be certain of their motivations. Is their advice sound or is it shaded by self-interest?
It is relevant to the CEO’s reliance on the advice of the financial officer for the CEO to
know that the financial officer is a large shareholder in one of the suppliers under consideration.
For the CEO to make a truly autonomous decision, the CEO needs both to
know the information provided by the financial officer and to know that the financial
officer’s information is reliable. To know that the financial officer’s information is
reliable, the CEO needs to know either that it is free of conflict of interest or, at least,
to know that a conflict of interest exists so that the CEO can critically scrutinize the
financial officer’s advice. Conflict of interest situations like this one undermine the
autonomy of the CEO, not by affecting the truth of the information on which the CEO
makes the decision, but by affecting the reliability of the information on which the
CEO makes the decision.
A fifth threat to someone’s autonomy is lack of competence in decision-making.
Cognitive impairments and emotional disorders compromise people’s decision-making
abilities. For example, people with severe ADHD often make impulsive decisions that
they later regret. We often condemn certain types of advertising to children because
children’s decision-making skills have not yet developed well enough for them to make
autonomous choices. Lack of competence can also come from lack of training. People
sometimes say that everything that they have ever learned about right and wrong, they
learned at their mothers’ knees. A morally problematic childhood or adolescence can
also compromise peoples’ decision-making competence.
A sixth threat to autonomous decision-making is someone’s immersion in an
oppressive conceptual framework. As we have seen, an oppressive conceptual framework
is a widely shared set of strongly held and resilient beliefs about the world, values,
and human nature that makes relationships of domination and subordination seem
normal, natural, and unquestionable. Because unjust relationships seem so normal, natural,
and unquestionable, an oppressive conceptual framework makes if difficult, if
not impossible, for people to understand that certain options are unjust or otherwise
immoral. Contesting an oppressive conceptual framework involves a collective, ideological,
and political process such as the activities of the civil rights movement, the feminist
movement, the LGBT movement, and the animal rights movement.
A seventh threat to autonomy is emotional manipulation. Just as lies, deception,
non-disclosure, and conflicts of interest can affect the cognitive component of peoples’
decision-making, so too can manipulation affect the emotional component. By inducing
the emotion of fear, a credible, though unenforceable, coercive threat, for example, can
manipulate and even overwhelm a person’s decision-making. Emotional manipulators
can influence other emotions such as their victims’ feelings of pride, shame, guilt, solidarity,
trust, lust. Influencing these emotions will also influence their victims’ decisions
because emotions have cognitive consequences. Emotions focus a decision-maker’s
attention on a particular stimulus, and make it difficult for the decision-maker to attend
to other aspects of the situation. As one familiar saying goes, “Love is blind.” Only
with time and the help of friends or psychotherapists, are people in the grip of strong
emotions, such as lust or romantic love, able to see other options. As another familiar
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saying goes, “Marry in haste, and repent at leisure.” Emotional manipulation, such as
sexual manipulation, can greatly influence decision-making.
Not all attempts to influence emotion, however, are threats to autonomy; many
such efforts are legitimate attempts to persuade a people that, by making them aware of
emotional consequences, actually increase their autonomy. For example, an anti-smoking
ad including a vivid emotionally affecting picture of a dreadful smoking-related
disease may increase people’s understanding and appreciation of the consequences of
their continuing to smoke, and thus increase their ability to make an informed choice.
We must make a difficult distinction between emotional manipulation and legitimate
persuasion. For example, advertising sometimes conveys facts about a product, but is
often an attempt to influence potential customers’ feelings for a product. False advertising
is obviously unethical, but the distinction between emotionally persuasive and
emotionally manipulative advertising is difficult to draw. For example, we might think
about how far insurance advertising may go in playing on people’s fears about unlikely
dangers before we would think that it begins to overwhelm the judgment of average and
reasonable people in its audience.
Moral Autonomy and Moral Accountability
In considering threats to autonomy as potential excusing conditions for moral accountability,
we will face making difficult distinctions. Some threats are so severe that they
obviously excuse their victims from being morally accountable for their decision. Some
attempts at emotional manipulation are so mild that they excuse no one. Making this
distinction will always be a contestable judgment. If Lily threatens to splash Max with
a drop of water, this threat will not excuse Max from accountability. Nor if Lily threatens
to splash Max with a second drop of water, will this threat be an excuse for Max.
Yet if Lily credibly threatens Max with a week of water-boarding torture, then this
will excuse Max from accountability. Just because there is a slippery slope between
an innocuous threat and a coercive threat, this does imply that there is no distinction
between innocuous and coercive threats. There is no well-defined point between a full
head of hair and baldness, but that does not imply that no one is ever bald. A contestable
judgment is always required.
Figure 10.1 shows a simple flow chart of the factors that go into assessing a moral
person’s moral accountability. After determining that the person or corporation is a
moral agent, we next have to ask if the agent’s decision was autonomous. We do this by
assessing whether there are any conditions present that interfere severely enough with
the agent’s decision-making to constitute excuses for making the decision. For example,
we might ask if the agent was so misled by someone else that the agent could not be
reasonably expected to decide correctly what to do. Then we proceed, as in the last
chapter to ask about the agent’s causal responsibility, motivation, and character. As we
saw before, determining the causal responsibility of particular individuals within organizations
can often be impossible because of division of labour and decision-making by
committees. Nevertheless, we can still hold individuals morally accountable for their
motivations and their characters.
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Figure 10.1 summarizes our discussion of moral accountability and moral autonomy.
Starting at the top left of the flow chart in Figure 10.1, we should check if the agent,
who has made a wrongful decision, faces any threats to her autonomy that are severe
enough to excuse her from accountability for her decision. For example, if she faces a
credible, severe, and morally unjustified threat that forces her to make the wrongful
decision, then we will not hold her morally accountable. Next, we should determine
whether the agent is causally responsible for the outcome of her freely made decision.
If so, then we should hold her accountable for making amends for her decision as a matter
of compensatory or retributive justice. If not, then we should look to her motivation
for her decision, and to the sort of character that she displays in making her decision. If
necessary, we should blame her for the principles she is violating or the vices that she
is demonstrating.
Not morally accountable
Not morally accountable
NO
YES
YES
Agent’s wrongful
decision
Excusing
conditions?
Causally
responsible?
NO
NO
Bad
motivation?
Bad
character?
Morally accountable
in Retributive
or Compensatory
justice
Morally
accountable in
Identity-based
reasoning
Morally
accountable in
Motivation-based
reasoning
NO YES
YES
Figure 10.1: Simplified flow chart for assessing an agent’s moral accountability.
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Personal Autonomy
The threats to autonomy that we have just discussed are also threats to both moral and
personal autonomy. Moral autonomy is the capacity to govern oneself according to one’s
own ethical reasoning. Personal autonomy, on the other hand, is the capacity to make
authentic decisions about one’s own life. It is the ability to choose freely one’s conception
of the good life, to pursue one’s conception of the good life, and to change this
conception if one no longer endorses it. Contemporary societies with free-market economies
place a high value on personal autonomy and on the rights of individuals to make
choices freely. Traditional societies usually place less value on personal autonomy. Even
those market economies that now place a high value on personal autonomy generally
placed a much lower value on it earlier in their histories. Is the high value that we place
on personal autonomy merely a cultural construct that arose to buttress the development
of capitalism? Alternatively, are there any ethical justifications for our valuation?
We should first observe that the capacity for personal autonomy is very similar to
the capacity for moral autonomy, except that its focus is different. Personal autonomy
focuses on how to lead one’s personal life, whereas moral autonomy focuses on how to
lead one’s life where it intersects with the lives of others. The capacities for reasoning
and decision-making are very similar, only the sensitivity is different. Moral sensitivity
involves interpersonal emotions such as sympathy for others, guilt at harming others,
and anger at others for their transgressions. The sensitivity involved in the capacity
for personal autonomy involves interpersonal emotions such as love and lust, but also
purely personal emotions such as joy and sorrow or enjoyment and suffering. Because
personal autonomy and moral autonomy are so similar, all the threats to moral autonomy
are also threats to personal autonomy. For example, having adequate truthful
information is a requirement of personal autonomy and lying, deception, and unjustified
non-disclosure are threats to personal autonomy as well as moral autonomy.
This similarity between personal and moral autonomy provides one indirect reason
that personal autonomy is ethically important. Moral accountability requires moral
autonomy, and moral autonomy requires the absence of the same threats, such as coercion
and deception, as personal autonomy does. Thus, we cannot protect moral autonomy
without, at the same time, protecting personal autonomy.
In this text, we have adopted a pluralist approach to applied ethics. Instead of
adopting one ethical theory and trying to show how it can explain all moral values, we
have examined proposed moral values from a variety of ethical perspectives. Different
ethical approaches give us different insights into moral value. Our task is then to assess
these various ethical considerations and try to reach a decision of what is best overall.
We can illustrate this process by examining different ethical approaches to the ethical
value of personal autonomy.
We can find reasons for the importance of personal autonomy by surveying the
various forms of ethical reasoning that we have been employing. The character traits
of leading a life that is authentically one’s own and of taking personal responsibility for
one’s life are each personal virtues. Authenticity and personal responsibility both require
personal autonomy. We would hardly call a woman’s life authentic if she lives it under
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the control of an abusive partner who continually threatens her. Nor, in such a situation,
would we say that she is able to take personal responsibility for her life. Freedom from
the threat of coercion, and personal autonomy generally, are necessary for people to
exhibit the personal virtues of authenticity and personal responsibility. On the other
side of the argument, however, virtue ethics stresses the importance of community membership
and the moral virtues that enable people to cooperate in communities. Moral
virtues such as loyalty and dependability require that people make commitments to their
communities that they do not lightly revise. Personal autonomy requires that people can
always revise their commitments, whereas virtues that enable people to cooperate in
communities require that people be steadfast in their commitments. Therefore, the fact
that cooperation is required in order to live well in communities may give us a reason to
limit the extent of personal autonomy.
Feminist ethical considerations also point in two directions regarding the value
of personal autonomy. On the one hand, justice-based feminist concerns about the
domination of women by men, normalized by a patriarchal conceptual framework, are
reasons for promoting personal autonomy. On the other hand, an ethics of care emphasizes
the importance of personal relationships in people’s lives. The strong commitments
that people make to one another in order to create these relationships are not commitments
that people should easily revise. It is possible, for example, for a son to repudiate
his mother, but it does not happen easily, and it carries a great ethical cost to both
mother and son. The commitments involved in relationships impose limitations on the
value of being able to revise a plan of life freely.
Ethical approach Reasons for importance of personal autonomy
Identity-based
Virtue ethics
PRO: Authenticity and personal responsibility are virtues that
require personal autonomy
CON: ignores community commitments
Feminist ethics PRO: Counter to ideological oppression
CON: ignores relationships
Motivation-based
Kantian duties Respect for persons implies respect for their autonomy
Rights
Kantian theory of rights: Autonomous, informed consent is
foundational
Special rights: Contracts require autonomous consent
Consequence-based
Experience-based utilitarianism None
Preference-based utilitarianism Preference for autonomy
Anti-paternalism—people make own best choices
Economic utilitarianism Model of rational maximizing agent includes autonomy
Informed-preference Rational deliberation requires good information
Table 10.2: Ethical pluralism and personal autonomy.
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In the Kantian tradition, the fact that people are autonomous is an ethical reason
for us to respect them. Kant’s notion of autonomy may have been what we are
calling moral autonomy, the capacity to apply universal principles to one’s decisions.
Nevertheless, Kant’s writings also began an ethical approach that saw both moral and
personal autonomy as foundational values that give us reason to respect autonomous
agents. The Kantian theory of natural rights depends on the power of the right-holder
either to insist that others follow their correlative duties, or not to insist that they do,
according to the right-holder’s choice on the matter. This theory, however, only makes
sense if we presume that the right-holder’s choice is informed and is not subject to coercion.
People can have moral rights over personal matters only if their choices on these
matters are autonomous. For example, patients undergoing surgical interventions, which
outside the hospital would be grievous bodily harms, must give informed consent to
these medical procedures. Procedures on human beings without the capacity for personal
autonomy, such as children, require the informed consent of their guardians. The
Kantian theory of moral rights requires that others may infringe our rights only with our
autonomous consent. The special rights that people acquire in the formation of contracts
do require personal autonomy. Contracts formed under the threat of coercion are void,
and contracts formed through deception are fraudulent. The formation of contracts presumes
that no one compromises the personal autonomy of the parties.
Experience-based utilitarianism provides no direct reason for valuing personal
autonomy. The obligation of a utilitarian of this type is to maximize the balance of
pleasurable experience over painful experience. If maximizing net pleasure requires
giving people happy-syrup in their drinking water without their knowledge or consent,
then so be it. Pleasure, with or without autonomous choice, is what is ethically valuable.
Preference-based utilitarianism, on the other hand, does give an indirect reason in
favour of personal autonomy. This reason stems from the empirical claim that people
generally have the best information about their wishes and desires. People are therefore
in the best position to make choices about which outcomes they will most enjoy. As
we have seen, people are fallible and do not always prefer the outcomes that they will
enjoy most. Yet, people are more likely to be correct in their choices about how to lead
their own lives than a paternalistic government, for example, would be. Consequently,
powerful actors, such as the government, should not try to exert undue influence over
the choices that people make as they form their preferences and conceptions of the good
life. Maximizing preference satisfaction requires personal autonomy and the absence of
paternalistic interventions.
Economic utilitarianism depends on a model of economic actors as rational decision-
makers who are concerned to maximize their own interests. According to this
model, by maximizing their self-interest within the rules of the market, economic actors
will maximize the total economic welfare created by the market economy. This model
presupposes the autonomy of economic actors. The system must prevent firms from
coercing, deceiving, or manipulating information to economic actors as they make
their self-interested decisions. If a market manipulator gives consumers false information,
then they will often make decisions that do not lead to maximum aggregate economic
welfare.
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Weighing these ethical considerations, we get a case for the overall ethical value of
personal autonomy. The caveats are the necessity of allowing for the responsibilities created
by community membership and personal relationships. These considerations count
against the easy revision of certain community and relationship commitments, though
they still support their revision under oppressive or abusive circumstances. Experiencebased
utilitarian considerations support a disregard for personal autonomy, but we have
seen in an earlier chapter that this form of utilitarianism is not a hugely plausible ethical
theory. The interest theory of rights is compatible with the value of autonomy provided
we can find support for a crucial interest in personal autonomy in other ethical theories.
As the survey above shows, we can find considerable support for the ethical importance
of personal autonomy.
One way to protect and promote a crucial interest in personal autonomy is to
say that people have a moral right to personal autonomy. A moral right is a morally
justified claim on others that imposes a correlative duty on them. A negative right is
a general moral right that others not interfere with the right-holder. One type of right
is a liberty right, or a liberty to do the actions that a person wishes to do. Someone’s
negative liberty is the right that others not interfere with her actions. Personal autonomy
is concerned, not with actions, but with the decision-making, that precedes action.
Correspondingly, someone’s negative autonomy right is the right that others not interfere
with his decision-making. Just as there can be positive moral rights to assistance as
well as negative moral rights to non-interference, someone can have a positive autonomy
right, which is the right that others assist her with her decision-making.
Privacy
Physical privacy is a person’s condition when she is free from intrusion by other people.
It is the condition of being let alone to do one’s “own thing.” In general, peoples’ private
property rights and their political liberties protect their physical privacy. For example,
people can exclude others from their homes, and people’s homes are not subject to
unreasonable searching by the police.
It is important to interpret physical privacy as referring to the privacy of individuals
rather than of families. Feminist thinkers have criticized the notion of family or
domestic privacy because, in the past, it has served to prevent the state from intruding
into family life to protect women and children. If the state is supposed to let families
alone in their domestic life, then the state is not justified in intruding into family life
to stop abusive relationships. However, if the state is supposed to enforce the rights
of each individual to be let alone in how she lives her life, then the state is justified in
making intrusions into family life to protect individuals from abuse. At the same time,
however, feminists tend to trust mothers’ caring relationships to their family more
than they trust the ministrations of the patriarchal state.
Informational privacy is a person’s condition of being able to control access by
others to information about himself. Traditional threats to informational privacy
include factors such as the nosiness and scrutiny of family, neighbours, businesses
and the police. Contemporary threats to informational privacy include the collection
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of information on the Internet, which facilitates selective advertising and creates the
potential for fraud. The Internet also facilitates the illicit sharing of financial records,
trade secrets, and health records, leading to diminished control over who accesses these
records and increased potential for fraud. Modern technology is also beginning to
enable the collection and sharing of a person’s genetic information. Disclosure of a person’s
genetic information, for example, would change the balance of bargaining power
when he went to purchase affordable health insurance.
Informational privacy has connections to personal autonomy. On the one hand, the
informational privacy of other people is in tension with the full information about them
that we require for autonomous choice. As we have seen, one way to interfere with someone
else’s autonomy of choice is to fail to disclose to her information that she requires
to make an informed choice. Sometimes the information that one person requires for a
decision is also information that another person legitimately believes is a trade secret.
On the other hand, privacy regarding a person’s own information is a requirement
for autonomy. When he formulated his Harm Principle of 1859, John Stuart Mill proposed
that the only legitimate reason for the government to intrude on the liberties and
private actions of its citizens is to prevent harm to other people. At the same time, Mill
also warned against the power of social pressure.
Protection, therefore against the tyranny of the magistrate is not enough:
there needs protection also against the tyranny of society to impose, by
other means than civil penalties, its own ideas and practices as rules of
conduct on those who dissent from them; to fetter the development, and if
possible, prevent the formation, of any individuality not in harmony with
its ways, and compel all characters to fashion themselves upon the model
of its own. (Mill, 1859, p. 8)
According to Mill, social pressure can “enslave the soul” of an individual and bring her
attitudes into conformity with the norms of the surrounding culture. This sort of social
pressure is a threat to personal autonomy because it “compels all characters to fashion
themselves upon the model of its own.”
Informational privacy is an efficient defence against the sort of cultural oppression
that Mill saw in Victorian English society. If people are able to control the access of
other members of society to information about themselves, then they can reduce the
social pressure on them to conform. If, because of the strong enforcement of individuals’
informational privacy, society collectively is unable to access information about its
members, then society will not be able to scorn or ostracize them. If others do not know
that an individual thinks in ways not in conformity with social norms, then others will
be much less likely to pressure them into conformity. Freedom from the scrutiny of others
is required for personal autonomy and full freedom of conscience.
Care ethics is concerned with the ethical value of various types of relationships.
We control the types of relationships that we have through our behaviour toward each
other, our feelings about each other, and the intimacy of the knowledge that we reveal
to each other. We have professional feelings toward our bosses, behave toward them
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in business-like ways, and reveal only a defined amount of information to them. We
have affectionate feelings toward our spouses, behave toward them in loving ways, and
reveal much more information to them than we do to our bosses. Control over what
we reveal to other people is an important part of our ability to determine the nature
of our relationships with them. (Rachels, 1975) A good example of controlling relationships
through control of information is the use of privacy settings on social media
sites. If we are unable to keep information about ourselves private, then we will be
unable to control the types of relationships that we have with people. Employers who
use the Internet to discover information about employees that is not appropriate to the
employer/employee relationship unilaterally change the employment relationship, and
thereby damage their healthy relationships with employees.
Self-ownership rights imply control of personal information that is not common
knowledge. Self-ownership rights include control of access to personal and
commercial information. People can have property rights in valuable commercial
information such as production techniques, financial records, intellectual property,
and trade secrets.
Economic utilitarianism, however, suggests a consideration against consumer and
commercial privacy. The economic utilitarian argument in favour of a market economy
is that, under conditions of perfect competition, a free market will maximize
the aggregate financial value of the goods and services available to all participants
in the economy. The requirements of perfect competition include conditions such as
the absence of monopoly. The requirements also include all economic actors having
full information since, without full information, actors will make inefficient choices.
Consequently, the conditions that make markets efficient are in tension with the value
of informational privacy. For example, the phenomenon of insider trading involves
managers appropriating private commercial information belonging to the owners of a
company and using this information to trade on the stock market for their own gain.
On the one hand, this seems like the theft of information. On the other hand, however,
traders pay close attention to the buying and selling of stocks by officers of companies,
which quickly gives them fuller information about the company. This violation of informational
privacy thus leads to a quick dissemination of information about the company
that the stock traders need to make accurate pricing decisions. Not protecting private
commercial information can make the market more efficient.
We must weigh the reasons for and against protecting informational privacy in
each particular context. Only then can we decide on an appropriate degree of privacy
to protect.
Summary
1. Moral agency is the capacity for moral accountability. It requires
sensitivity to moral situations, responsiveness to moral reasons, and the
ability to make decisions.
2. Most adult human beings are moral agents. Through their officers and
employees, complex business corporations possess vicarious moral
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sensitivity and responsiveness. Corporations employ highly organized
holistic decision-making.
3. Even though business corporations have a form of moral agency and
are morally accountable for their decisions, this does not block us
from also holding their shareholders, directors, officers, and managers
accountable for their character flaws, motivations, and inputs to
corporate decisions.
4. Moral autonomy is the capacity to govern oneself according one’s own
ethical reasoning.
5. Personal autonomy is the capacity to decide how to live one’s own
life and to revise one’s life choices when one chooses to do so.
Personal autonomy is subject to the same potential interferences as is
moral autonomy.
6. Coercive threats, deception, failure to disclose information, conflicts
of interest, decision-making incompetence, oppressive conceptual
frameworks, and emotional manipulation can diminish people’s
capacity for autonomy. Severe cases of any of these conditions will
excuse people from moral accountability for their decisions.
7. Modern market economies place a high value on personal autonomy
because their economic justification presupposes that individual
economic actors always make decisions that are in their own rational
self-interest. Liberal democracies value personal autonomy because
people are less likely to make mistakes about how to lead their lives
than is a paternalistic government.
8. Sustaining community membership and personal relationships requires
that people do not readily revise their commitments, and both can be at
odds with an overvaluation of personal autonomy.
9. Informational privacy requires that people be able to control access
by others to information about themselves. Informational privacy is
an efficient defence against social pressure to conform. People need
to control intimate information about themselves in order to have
different types of personal relationships.
10. Self-ownership requires informational privacy because information is a
financially valuable asset. However, market efficiency requires perfect
competition, and perfect competition requires that consumers and
producers always have full information.
ONLINE LEARNING RESOURCES
You will find a collection of learning resources associated with this chapter on the
book’s website: http://sites.broadviewpress.com/businessethics/. Working through this
material will help you understand and remember important concepts that we have
discussed, and will help you apply them to issues in business ethics.
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Study Questions
Answering the following questions will help you to understand the ethical theory in this
chapter and will help you to create a set of review notes on the textbook.
1. How could someone argue that we should hold business corporations
morally accountable for their decisions?
2. If we hold a corporation morally accountable for its decisions, then
why can we also hold its managers morally accountable?
3. When one person threatens a second person, how can this excuse the
second person from moral accountability? Give an example.
4. When one person deceives a second person, how can this excuse the
second person from moral accountability? Give an example.
5. When one person fails to disclose information to a second person, how
can this diminish the personal autonomy of the second person?
6. What is the importance of personal autonomy to modern market
societies, in comparison to traditional societies?
7. Why will a care ethics be suspicious regarding the over-valuation of
personal autonomy?
8. Why is the potential effect of social pressure on personal
autonomy an ethical consideration in favour of the ethical value of
informational privacy?
9. Describe an economic utilitarian consideration against the ethical value
of complete informational privacy.
10. Why are rights to informational privacy, which are based on selfownership
considerations, in tension with the conditions of perfect
competition and market efficiency?
Decision Questions
The whole point of learning ethical theory is to understand and ask questions like the
following when you are analyzing an ethically problematic situation or case.
• Can the decision-maker freely decide what to do?
• Is the decision-maker an autonomous moral agent?
• Is an organization involved as a moral agent?
• Are there any conditions present that excuse the decision-maker from
morally accountability?
• Is anyone coercing the decision-maker?
• Is anyone lying to or deceiving the decision-maker?
• Is anyone manipulating the decision-maker?
• Is anyone in a conflict of interest?
• Is anyone withholding information from the decision-maker?
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• Does the decision-maker have all the information that we can
reasonably expect her to obtain?
• Will the decision interfere with anyone’s personal autonomy?
• Does the decision properly respect everyone’s privacy?
Case Study
Analyze this case study using the ethical theory that you have learned so far. You will
find a collection of learning materials applying to the case on the book’s website: http://
sites.broadviewpress.com/businessethics/. These materials will help you in your analysis.
Should Jake Embed the Spyware?
Jake Markos is a very clever young man. He graduated summa cum laude in computer
science from a prestigious west coast institute of technology, and has never encountered
a computer-programming task that he could not handle easily. Jake’s problem is that he
is unbearably shy. He does not like meeting new people or even looking people in the
eye. Though he is attracted to women, he has never felt comfortable talking to them
or trying to get to know them better. After graduation, many companies courted him.
He accepted a job as the programmer at ALAC Marketing where he could work mostly
on his own. He likes his job because it is challenging enough to be absorbing, and he
dreads ever going through the process of finding another one.
Jake’s boss is Nathan Brook. Nathan well understands Jake’s skills and vulnerabilities.
One day, the Diabetes Foundation asks ALAC to construct a tool for its website
that would survey Diabetes Foundation donors on the directions that the Foundation
should take in its support for new research. As part of its corporate social responsibility
mandate, ALAC does work for the Diabetes Foundation at cost. ALAC also has a highly
profitable contract to market an expensive new drug, Circulex, for a large pharmaceuticals
company. Circulex aids blood circulation in the legs, and will be useful to diabetics
who have circulation problems in their extremities. Nathan realizes that the Diabetes
Foundation donor list includes many well-off people with diabetes, just the sort of
potential customers to whom the pharmaceutical company wishes to market Circulex.
The next day, Nathan visits Jake’s workroom in the basement of the ALAC building.
He suggests to Jake, purely orally of course, that Jake embed a bit of extra code
in the survey tool that Jake is constructing for the Foundation. This code would transfer
the email addresses, though not the passwords, of Foundation donors to Jake’s computer.
Nathan’s intent is to use these email addresses to market Circulex. Nathan justifies this
idea by pointing out that ALAC’s work for the Diabetes Foundation is non-profit and that
the survey tool does not explicitly promise anonymity to the donors who take it. He further
suggests that unless Jake complies, Jake will have to look for work elsewhere. Jake
is visibly reluctant and upset.
The following day, Nathan sends his assistant manager, Maia Harrick, to see Jake.
Maia is about Jake’s age and is both very attractive and very ambitious. After reminding
Maia that her performance review is coming up soon, Nathan indicates to Maia
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that she should get Jake to add the spyware to the survey tool by any means possible.
Maia knows very well how to use her good looks to get what she wants. She pays a lot
of attention to Jake, pretends interest in the intricacies of hiding spyware in otherwise
legitimate software, and acts as if she is impressed at his skill. On leaving, Maia implies
that she will visit Jake often to see how the project is going.
What should Jake do? Will Jake be morally accountable for his decision?

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FREE ENTERPRISE
AND GLOBAL
JUSTICE
Is the capitalist system ethically defensible?
In a perfectly competitive market, is self-interest our only obligation?
Will international free trade lead to global
development or to global injustice?
Is the free-enterprise system a good thing? All business activity takes place in the wider
context of a market economy. In this chapter we will examine the ethical justifications
for a market economy and the capitalist system. We will be concerned mostly with the
tension between the efficiency of the free-enterprise system and the requirements of fairness
and distributive justice. We will consider this tension first in our domestic economy
and then in the global economy.
To begin with, we will examine four intellectual foundations for capitalism and
the world of business. The first claims that the free-enterprise system is a set of rules
that will allow self-interested agents to avoid Pareto-inefficient outcomes. The second
claims that the free-enterprise system respects human rights to private property and
freedom of exchange. The third claims that the free-enterprise system, under certain
conditions, maximizes human welfare. The fourth claims that, when combined with
redistributive taxation, the free-enterprise system can be a fair system that maximizes
the welfare of the least well off. We have already surveyed these justifications in the
chapter on justice.
A market economy is a system of laws, enforced by the state, that constitute the
rules of doing business. These rules include criminal and property laws, which define
and defend economic assets. The rules include tort laws, which make people liable to
compensate others for infringements of property rights. As well, the rules include contract
law, which is concerned with the formation and enforcement of contracts between
market participants.
Adam Smith suggested that we should encourage butchers, brewers, and bakers
to pursue their own interests according to the rules of cooperation embodied in the
market because an “invisible hand” would lead them to promote the interest of society.
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Suppose that we understand the interest of society as being the sum of the welfare of
all members of society, and suppose that we understand human welfare as something
that economists can compare between people and measure in dollar terms. If we make
these assumptions, then Smith appears to have anticipated the fundamental theorem of
welfare economics, which says that a free-market economy, under conditions of perfect
competition, will maximize the welfare of its members.
Many people believe that the only obligation of people in the world of business
is to obey its legal rules. If Adam Smith is correct, then economic utilitarian reasoning
justifies this belief. A corollary is that the spread of the free-market through free trade
around the globe is also a good thing. It is important, therefore, to understand the limitations
of the economic utilitarian argument. We will critically examine this argument’s
financial theory of value, important situations—market failures—where the argument’s
assumptions break down, and its implications for domestic and global justice.
Contractarian Justification
Before turning to the economic utilitarian justification for a market economy, we will
review the contractarian and libertarian justifications. A contractarian ethic is the view
that ethics is an enforced contract among ethical egoists designed to prevent dilemmas
of cooperation such as prisoner’s dilemma situations. This view suggests that the
free-enterprise system is a set of laws that will allow self-interested agents to achieve
Pareto-efficient outcomes. An outcome is Pareto-efficient if no other outcome is possible
that makes at least one person better off and no person worse off.
We can see how this works if we imagine a state of nature before market rules are
established. Two hunters must decide whether to trade or fight over their catch. Suppose
that Gog has caught a deer, but that he would rather have a wild boar. Gog would
get twice as much satisfaction from consuming a wild boar than from consuming a
deer, but would get the most satisfaction from consuming both. Conversely, Magog has
caught a wild boar, but he prefers to have a deer. Magog would get 1 unit of satisfaction
from a wild boar, 2 from a deer, or 3 from having both.
Gog and Magog meet in the woods, and each must decide whether to trade with
the other hunter or to fight and steal the other’s catch. The best outcome for each is a
Figure 11.1: A conceptual map of ethical justifications for the free-enterprise system.
Ethical
approach
Identity-based
Principle-based
Consequencebased
Ethical egoism Contractarian
Indirect utilitarianism Economic utilitarian
Libertarian
Egalitarian
Natural rights
Justice
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surprise attack and a successful theft. However, if the other hunter is ready to attack
back, then each will leave with what he caught. The payoff matrix for units of satisfaction
is as in Figure 11.2. If Gog thinks that Magog expects to trade, then his best
strategy is a surprise attack to steal Magog’s wild boar, gaining him 3 utiles instead of
2. If Gog thinks that Magog plans to attack him, then his best strategy is to fight back
because 1 utile is better than 0. By similar reasoning, Magog has a dominant strategy,
which is also to fight. Therefore, the two hunters will both fight, and they will end up in
the lower right cell. This is a Pareto inefficient outcome because the top left, trade-trade,
outcome is better for both. They face a prisoner’s dilemma.
Now suppose that a local chieftain, who understands the prisoner’s dilemma,
allows Gog and Magog to join her tribe if they wish. This chieftain has established the
rules of a market by enforcing property rights and contracts in her tribe. She does this
by penalizing any hunter who fights or steals with a fine. The new situation is shown in
Figure 11.3 where any payoff that involves fighting is penalized by 2 units of satisfaction.
We can now see that Gog will trade no matter what he thinks Magog will do because
2 > (3 – 2) and 0 > (1 – 2). Similarly, Magog will also trade no matter what he thinks Gog
will do, and the two hunters will reach equilibrium in the top left cell with 2 units of
satisfaction each. Trade-trade is a Pareto-optimal solution because no other outcome is
Gog
Trade Fight
Magog
Trade 2
2
√ 3
0
Fight 0
3 √
√ 1
1 √
Figure 11.2: Unregulated choices between trading and fighting.
Gog
Trade Fight
Magog
Trade √ 2
2 √
3-2=1
0 √
Fight √ 0
3-2=1
1-2=-1
1-2=-1
Figure 11.3: Regulated exchange that imposes a fine of 2 units for stealing or fighting.
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possible that makes either one of the hunters better off without making the other worse
off. In fact, all the other cells of the table involve both hunters being worse off. Within the
rules of the market, self-interest will lead the hunters to a Pareto-efficient outcome.
Calling economic markets “free enterprise” or “the free market” can be somewhat
misleading. In the state of nature, Gog and Magog are completely free of any regulation.
When Gog and Magog join the tribe, the chieftain starts to regulate their behaviour by
market rules, which are a form of government regulation. The dispute between defenders
of free enterprise and their egalitarian critics is a dispute over what type of regulation is
legitimate, not over the existence of government regulation per se. From the premise that
Pareto efficient outcomes are the best outcomes, defenders argue that the state should
only impose those laws that make the market function. From the premise that Pareto
efficient outcomes should be tempered by fairness, egalitarian critics argue for more
extensive government regulation and redistribution.
Rights-Based Libertarian Justification
As we saw in the chapter on justice, a libertarian justification of a minimally regulated,
free enterprise economic system follows the history of contract and property rights back
to the negative rights of self-ownership. Self-ownership is the opposite of slavery because
self-owners have the right to manage and sell their own labour. John Locke argued
that, in the state of nature, anyone who has “mixed his labour with” an un-owned
thing comes to own that thing fairly, as long as he or she leaves “enough, and as good”
for others. He concludes that initial appropriators have a natural right to property that
they fairly acquire in this way. Their property rights include the right to give, sell, or
trade this property with others. Therefore, later people have a natural right to any property
that they have acquired through a history of fair exchanges that began with fair
initial acquisition.
Libertarians such as Robert Nozick have modified Locke’s argument to justify
unbridled capital accumulation beyond the point at which there is as much and as good
left for everyone. By her labour, the initial appropriator adds value to natural objects
and thus Nozick claims that she comes to own these modified natural objects. His argument
then assumes that, because of the productive efficiency of free-market systems,
some of this value will accrue to those who missed the initial appropriation, leaving
them better off than they would have been in a state of un-owned nature. Therefore,
capitalism satisfies the requirement that enough, and as good, be left in common when
we understand “enough, and as good” in this value-added approach. In the chapter on
justice, we looked at some problems with the libertarian justification for a free-market
economy, so we will not review them here.
Indirect Economic Utilitarian Justification
In the chapter on consequentialism, we saw that there are two types of utilitarianism.
Direct utilitarianism treats utilitarianism as a moral decision procedure that we
must employ for each action that we undertake. It advocates evaluating each possible
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action that we might perform according to a calculation of the utilities of its outcomes.
Indirect utilitarianism treats utilitarianism not as a decision procedure for actions, but
as a moral standard for the application of the tools of non-utilitarian ethical theories. It
advocates obedience to rules, respect for rights, inculcation of virtues, or even self-interested
behaviour if that is what is required to produce maximum aggregate utility.
An indirect utilitarian justification argues that the free-market system, a system
within which everyone pursues his or her own self-interest, will produce the maximum
aggregate preference-satisfaction for everyone. This is an indirect utilitarian justification
because it asks everyone to use an ethical-egoist decision procedure, rather than a
direct utilitarian decision procedure. This is Adam Smith’s point about the self-interested
butchers, brewers, and bakers creating a market economy that makes everyone maximally
well off, even though maximizing the overall welfare did not guide their decisions.
Because this ethical justification is an economic utilitarian one, we will quickly
review what this means. Economic utilitarianism is a form of preference-satisfaction
utilitarianism where we measure the utility of a good or service to someone according
to her willingness to pay for it. Willingness to pay is the maximum amount of money
that someone would be willing to exchange for an economic good or service. Someone’s
willingness to pay (WTP) is always her marginal WTP. Marginal WTP is what she would
pay for one more unit of the commodity. Marginal WTP is seldom equal to the market
price. Production costs affect the market price of a commodity, so demand and supply
together determine market price. Market prices are relatively easy for economists to
measure. The marginal WTP for a commodity is actually the consumer’s reservation
price. A reservation price is the maximum amount of money that a consumer would
be willing to exchange for one more unit of the commodity in the absence of a defined
market price for that commodity. Reservation prices will vary depending on how many
units of the commodity the consumer has already consumed. Reservation prices are
very difficult for economists to measure.
To understand the indirect economic utilitarian justification of the free-market system,
we must review some elementary economics. In our earlier discussion of justice,
we distinguished between total and marginal utility. The total utility of a group of economic
goods or services is the sum of all the benefits produced by the consumption of
those goods or services. The marginal utility (or marginal benefit) of an economic good
or service is the marginal benefit gained through the consumption of one additional
unit of that good or service.
Microeconomics makes an important empirical assumption about marginal
utility. The law of diminishing marginal utility states that as the consumption of a given
economic good increases, the marginal utility produced by the consumption of one
additional unit of the good tends to decrease. People tend to get satiated with consumer
goods. For example, as people consume more and more cookies, they will receive less
and less benefit from each additional cookie and will thus be willing to pay less for it.
Microeconomics makes another important empirical assumption about the marginal
costs of producing goods. The law of increasing marginal cost states that, in the
short-run, the marginal cost of producing each additional item will tend to increase.
This tendency arises because a rational producer will use her cheapest alternative to
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produce the first item, then use her next cheapest alternative to produce the second item,
and so on. For example, a producer will tend to pick the low-hanging fruit on a tree
first, before deciding to incur the additional cost of ladders and mobile cranes. Notice,
however, that the average cost of each additional item may decrease as the fixed costs of
production are spread over more and more items.
We can sketch the indirect economic utilitarian argument by considering the supply
and demand curves in Figure 11.4. First, we will see how self-interested decisions by
market participants will lead to the production and consumption of 2,000 items. Second,
we will show that the production and consumption of this number of items (2,000)
maximizes overall total net benefits for all market participants. We will conclude that
self-interested behaviour within the rules of the market causes maximum total net benefits.
For every possible price of an item available for sale, the demand curve for a market
tells us the quantity of items for which one or more consumers would be willing to pay
that price. This price measures the marginal benefit that each of these willing consumers
would receive if they consumed that item. It is at least one consumer’s reservation price
for buying that item. The demand curve slopes downward to the right to reflect the law
of declining marginal benefits (MB).
For every possible price of an item available for sale, the supply curve tells us the
quantity of items for which one or more producers would be willing to accept that price.
This price measures the marginal cost that each of those willing producers would incur
if they produced one of these items, and is the least amount that these producers would
be willing to accept for that item. The supply curve slopes upward to the right to reflect
the law of increasing marginal costs (MC).
Figure 11.4: Supply (MC) and demand (MB) curves for a large market.
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
0 1000 2000 3000
Price
Quantity of items
Equilibrium price and quantity
MC (supply)
MB (demand)
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The market modelled in Figure 11.4 will be in equilibrium when participants produce
and consume 2,000 items at a price of $3.50. This is the point where supply equals
demand, and the marginal benefit to someone of consuming the last item equals the cost
to someone else of producing it.
This quantity of 2,000 items will be the equilibrium quantity of items that self-interested
participants will produce and consume. If any producer tried to sell a higher
number of items, then this producer’s marginal cost of producing such items would be
higher than any self-interested consumer would be willing to pay for them. Therefore,
it would not be in any producer’s self-interest to produce more items. However, if the
quantity available were less than 2,000, then self-interested consumers would be willing
to pay more for additional items than their marginal cost of production. Therefore,
some self-interested producers would be motivated to supply this demand. The self-interested
behaviour of producers and consumers will result in an equilibrium quantity of
2,000 items at a price of $3.50.
We can also see this equilibrium quantity of 2,000 items will maximize total net
benefits to all market participants. If the quantity were less than 2,000, the marginal
benefit to some consumer of consuming additional items would be more than the marginal
cost to some producer of producing those items, and so producing and consuming
additional items would increase the total net benefit. If the quantity were greater
than 2,000, then the marginal cost to any producer of producing additional items
would be higher than the marginal benefit of consuming them to any consumer, and so
producing and consuming fewer items would increase the total net benefit. When supply
equals demand, the marginal benefit (MB) to some consumer of consuming one more
item equals the marginal cost (MC) to some producer of producing that item. The point
where MB = MC, and demand equals supply, will maximize total aggregate net benefits
at a price of $3.50 with a quantity of 2,000 items produced and consumed.
Therefore, an “invisible hand” will lead market participants, acting purely from
motives of self-interest, to maximize their aggregate utility.
The indirect economic utilitarian justification for the market claims that the self-interested
actions of individual market participants will maximize aggregate net benefits for
all market participants. The claim is utilitarian because it justifies the claims that the right
thing to do is to maximize overall welfare. Utilitarianism is indifferent regarding who
receives the benefits. It is economic utilitarian because it measures the marginal benefits
of commodities by what people are willing to pay to consume them, and it measures marginal
costs by what people are willing to accept for producing them. It is an indirect utilitarian
justification because it does not tell people to be utilitarian in their decision-making,
but instead to be egoists who maximize their own self-interest within the rules of the game.
Assumptions of the Economic Utilitarian Justification
Economists can show generally that, under conditions of perfect competition, self-interested
market participants will maximize their overall welfare as measured in financial
terms. The assumption of perfect competition in economics is like the assumption of
a frictionless plane in physics. Both models make calculations easier, and both make
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false assumptions about the real world. The standard economic assumptions of perfect
competition include the following: There are many buyers and sellers. Market participants
face no barriers to entry and can freely move in and out of the market. No firm
is a monopoly (single seller), or is a monopsony (single buyer), or participates in an oligopoly
(few sellers). Producers receive constant returns to scale (no economies of scale).
Consumers have full information about the market prices of all alternative goods, and
producers have full information about production techniques.
Students of economics tend to regard these deviations from the conditions of perfect
competition as market imperfections rather than market failures. They tend to
think that even if we cannot achieve conditions of perfect competition, the closer we
can bring the market to perfect competition, the closer it will come to maximizing overall
economic welfare. The usual solution to the problem of external benefits illustrates
this reasoning. An external benefit or positive externality is a benefit arising from the
economic activity of an agent for which the market price of the product does not compensate
the agent. For instance, in the absence of patent laws, no one would compensate
inventors for technological discoveries, and the lack of incentives for inventors would
impede overall technological progress. Granting patents to their inventions creates
incentives for inventors, though it also creates monopoly conditions in the marketplace.
Despite the associated monopolies, patent laws plausibly create a second-best scenario
that will come close to maximizing economic welfare.
Nevertheless, tiny market imperfections can also lead to huge market failures that
do not maximize overall financial welfare. The problem of external costs illustrates this
reasoning. An external cost or negative externality is a cost arising from the economic
activity of an agent that is born by others because the market price of the product
does not incorporate this cost. Environmental pollution is a good example; factories
sometimes pollute rivers so that they can avoid paying the costs of the proper disposal
of their effluent. The emission of greenhouse gasses is an example of an apparently tiny
market imperfection that may lead to a catastrophic market failure. Because of our
dependence on fossil fuels, almost all production results in small emissions of carbon
dioxide. Producers externalize the cost of these emissions because there is no market
mechanism for charging them. Each tiny emission is apparently harmless, yet billions
of such emissions can accumulate into atmospheric carbon dioxide levels that will cause
dangerous climate change. Dangerous climate change would be a giant market failure
created by the accumulation of tiny market imperfections.
We will say that conditions, where the assumptions of perfect condition do not
hold and markets are not efficient, are market failures. Another assumption that often
fails to apply is that there are no open-access resources. An open-access resource (a
commons good or a non-excludable good) is a resource from which it is difficult to
exclude other individuals. Examples of open-access resources include fishing and whaling
in international waters and the use of the atmosphere and the oceans as dumping
grounds for pollution. Open-access resources often become over-used. An example is
the cod fishery on the Grand Banks off Newfoundland where unrestricted over-fishing
led to the collapse of the cod stock. We will return to the problems of open-access
resources in the next chapter on sustainability.
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A further assumption of the indirect economic utilitarian justification of free markets
is that there are no public goods. Public goods are open-access goods whose use
by one person does not diminish their availability to others. The police, legal system,
and national defense, which enforce the rules of the market, are all examples of public
goods. It is difficult to exclude any citizens who do not pay their share from access to the
benefits of these systems. A few free-riding citizens will not substantially affect the availability
of these public goods. Consequently, the market will not itself provide police, law
courts, and armed forces, and a market economy will require a coercive taxation system.
We will return to this problem in the next chapter on the environment because solutions
for many environmental problems involve the provision of public goods.
In addition, perfect competition assumes that the market exchanges have no transaction
costs. Transaction costs are the costs of reaching and enforcing an agreement
between negotiating parties. They include the costs of researching information about
the situation, negotiating the agreement, and legally enforcing the agreement. In the real
world, market participants do face many transaction costs, and the assumptions of perfect
competition will fail. One reason the invention of the Internet may have caused economic
growth is that it reduced transaction costs in the market by making it easier and
less costly for willing buyers and willing sellers to find one another. In the next chapter,
we will see how the existence of transaction costs undermines an important argument
for a free-market approach to protecting the environment.
Assumptions Failures of these assumptions
Perfect competition
Few buyers and sellers
Barriers to entry and exit
Monopsony, monopoly, or oligopoly
Increasing returns to scale
No lack of information Prices of alternatives unknown
Informational barriers to market entry
No external benefits Technological discoveries without
intellectual property
No external costs Environmental pollution
No public goods Police and legal system required for market
Solutions to environmental problems
No open-access goods Open access to natural resources
Tragedy of the commons (Chapter 12)
No transaction costs Weaknesses of the Coase Theorem (Chapter 12)
Willingness to pay measures welfare Problems with Cost-Benefit Analysis
Table 11.1: The assumptions of the indirect economic
utilitarian justification of markets.
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Perhaps the biggest assumption of the indirect economic utilitarian justification
for the market is that willingness to pay (WTP) can be used to measure preference-satisfaction.
The economic utilitarian approach assumes that WTP measures the intensity of
preferences and that everything valuable is a commodity that people buy and sell. In our
discussion of WTP in the chapter on utilitarianism, we saw that WTP is not a very good
measure of the intensity of preferences for the following reasons:
1. Because of the law of diminishing marginal utility, a person’s WTP
for a commodity will change depending on her prior consumption of
the commodity.
2. When the market price is known to her and she knows that she can
obtain the commodity from someone at a certain price, then she will
not be willing to pay more than that market price. She will usually be
reluctant to reveal her reservation prices, and may not even be aware of
what they are. In the presence of market prices, WTP is very difficult for
economists to measure.
3. Her WTP is relative to a certain level of income and wealth (ability to
pay). Ability to pay affects willingness to pay. If she were a billionaire
then she would be willing to pay more that she would if she were
a pauper.
4. Her WTP is relative to a certain level of information. Her WTP measures
her actual, uninformed preferences, not the preferences that she would
have if she had full information. For example, not knowing that the
pizza is poisoned, the amount she is willing to pay does not correspond
to the amount this slice will turn out to contribute to her happiness.
5. Her WTP is not invariant, but relative to the prices of other
commodities. Her WTP for one commodity will depend on what else
she could get for her money. If substitutes or alternatives become
available more cheaply, then she may be less willing to pay as much
for the commodity in question. Relative prices vary between different
national markets, and vary over time within any given market.
6. Finally, she is unlikely to have a defined WTP for everything that
she wants. She is unlikely to place a dollar value on her life, integrity,
honesty, or on selling herself into slavery. The biggest problem for
the economic utilitarian approach is the assumption that there is a
common financial measure for what people value.
Liberal Egalitarian Justice
As we have seen in the previous section, there are flaws in the economic utilitarian
justification for the free market. That justification unrealistically assumes the existence
of perfect competition, and inaccurately treats the achievement of an efficient market
equilibrium as the maximization of utility. However, there are also non-utilitarian
objections to this justification, including concerns of justice.
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One general problem with any sort of utilitarian ethical justification is that,
because utilitarianism is concerned only with aggregating and maximizing utility, it pays
no attention to whether the distribution of that utility is fair. For example, the argument
from declining marginal utility to an equal distribution proved to be very weak because
people cannot be assumed to convert economic resources into utility at the same rate.
In the nineteenth and twentieth centuries, socialist and communist egalitarians
advocated centrally planned economies with strict equality of welfare. Their slogan
for economic justice was, “From each according to his abilities, and to each according
to his needs.” One problem with this theory was that centrally planned economies are
not as efficient as decentralized, free-market economies. This has to be so under ideal
conditions, because perfect competition maximizes efficiency. In Table 11.2, the freemarket
distribution in the top row maximizes total resources, but is highly unequal with
Tom doing much better than Ron and Sal. The centrally planed economy in the middle
row results in equality of welfare, but everyone is doing less well because the centrally
planned economy is inefficient. Modern liberal egalitarians claim the best form of egalitarianism
will use the free market to maximize the production of primary goods, but
then redistribute primary goods to the benefit of the least advantaged.
As we have seen, Rawls’s difference principle says that a distribution of rights and
responsibilities is just if, and only if, everyone receives the same resources unless an
unequal distribution results in the least well-off receiving more than in the strictly equal
distribution. This preserves the incentives and efficiencies of the free-market by allowing
some inequalities, and results in the least advantaged being as well off as they can be.
We can see this in the third row of Table 11.2, where the least well off do better than in
either of the other distributions, but with some reduction in the overall aggregate financial
resources available. Liberal egalitarianism also provides an ethical justification for
a free-market economic system, provided we add to it a system of proportional income
tax and a redistributive welfare system.
Global Justice
The same tension between the efficiency and the fairness of the market system occurs at
the global level. A comprehensive view of moral standing requires that we consider the
interests of everyone in the global community when we reflect on these issues.
Table 11.2: Three illustrative distributions of financial resources.
# Theory Ron Sal Tom Total
1 Free-market with no redistribution $1,100 $1,100 $3,000 $5,200
2 Centrally planned equality of welfare $1,000 $1,000 $1,000 $3,000
3 Free-market with redistribution $1,600 $1,700 $1,800 $5,100
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Once upon a time, the world was divided into many local economies, each roughly
self-sufficient in the necessities of life. People specialized, divided the labour, and cooperated
with one another to produce goods efficiently. As transportation technology
improved, people in one market economy specialized in what they did best, and traded
with people in another market economy who specialized in something else. In the contemporary
world, very few national economies are self-sufficient in life’s necessities, let
alone in its luxuries. The global economy has become highly interdependent, with most
countries depending on imports for food, technology, and consumer goods.
Are we ethically obliged to consider the interests of everyone in the global economy,
or do our ethical obligations extend only to participants in our local economy?
Do distant people in other parts of the globe have moral standing? Should we strive for
global justice as well as national justice?
One argument for the moral standing of distant people goes like this. Distant
people have all the same natural features as nearby people. Whatever natural feature is
sufficient for moral standing in ethical theories distant people have it also. Therefore,
distant people must also have moral standing. Just as the ethical egoist cannot point to
some morally relevant personal feature that implies that only he has moral standing, we
cannot point to any morally relevant feature of ourselves that implies that only we local
people have moral standing.
Certainly, distance does not seem to prevent distant people from having moral
standing in our ethical decision-making. Suppose Nora lives near her mother in New
York City. Nora has certain moral obligations to her mother. One day, Nora’s mother
moves to Melbourne, Australia. Do Nora’s moral obligations to her mother disappear
when her mother moves 10,360 miles away? If not, then physical distance does not
affect moral standing.
Virtue ethics, with its emphasis on the character traits that make community cooperation
work well, seems to suggest that we have moral obligations to other members
of our local community that we do not have to outsiders. Nevertheless, a virtuous local
community should itself develop community character traits that enable it to cooperate
at a wider level. It is difficult to see how a local community can fulfil its obligation to
be just and fair at a global level without also developing a sense of global justice in its
individual members.
Furthermore, consequentialist and principle-based ethical reasoning both consider
the interests of everyone in the global community. If free enterprise will maximize
human welfare in the domestic marketplace, then free trade will likely maximize human
welfare in the global marketplace too. If unrestricted, untaxed free enterprise leads
to problems of distributive justice at the domestic level, then free trade will likely lead to
problems of distributive justice at the global level too.
International Free Trade
Many of the utilitarian and distributive justice arguments we have just considered with
respect to domestic free trade apply in similar ways at the international level. Once
upon a time, international relations consisted of one city-state conquering another and
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demanding tribute. The conquest-tribute game is a zero-sum game with huge transaction
costs; what one city-state gained in tribute, the other more than lost. The tradetrade
game, however, is potentially a positive-sum game; because of specialization and
the division of labour, both parties will gain from trade. This realization has led to
improved international relations.
In his 1848 economics textbook, John Stuart Mill pointed out a character-based
reason for encouraging free trade. “It is commerce which is rapidly rendering war
obsolete, by strengthening and multiplying the personal interests which are in natural
opposition to it. And it may be said without exaggeration that the great extent and
rapid increase of international trade … is the great permanent security for the uninterrupted
progress of the ideas, the institutions, and the character of the human race.”
(Mill, 1909, III.17.14) Free trade, and the contact with different people that it facilitates,
has the potential to make people everywhere more peaceful and tolerant, and to help
create a cosmopolitan and multi-cultural global community.
By generalizing the libertarian view of Lock and Nozick, we can also see an argument
based in negative rights in favour of free trade and against protectionism (tariffs
and quotas). The argument begins with the usual libertarian premises that people have
a natural right to own property, and that people have a natural liberty to exchange
their property as they see fit. It first concludes that all government restrictions on free
trade in domestic markets are illegitimate. Then the argument observes that natural
rights are human rights, rights that any human being may claim. Natural rights are
not political rights, such as the right to vote, that only citizens of a country can claim.
Globally, every human being has these natural rights because every human being has
moral standing. Natural rights do not stop at national borders. Therefore, all restrictions
on free trade in international markets are illegitimate. In addition, all quotas,
tariffs, and, border closures are illegitimate. Rectifying income inequalities that result
from free trade is illegitimate as well.
Figure 11.5: Conceptual map of ethical considerations regarding global free trade.
Ethical
Approaches
Identity
Consequences
Principles
Libertarian
free-trade
Negative
rights
Distributive
justice
Historical
rights
violations
Character
and virtue
Economic
utilitarianism
Comparative
advantage
Winners
and losers
Tolerance and
Multiculturalism
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The main weakness of libertarian argument is that it is a historical entitlement view.
The distribution of property rights in the world is just only if it started from fair initial
acquisition. Evidence does not support the view that the history of the current global distribution
of property violated no rights. The current global distribution has its origin in
earlier zero-sum games of conquest and tribute. Earth has a history of violent conquest,
colonization, and expropriation. For example, the Spanish conquest of Mexico in the
sixteenth century brought great wealth to Europe, but killed millions of native Mexicans
through warfare and disease and involved the theft of huge amounts of gold and silver.
Figure 11.5 gives a conceptual map of some ethical considerations for and against
unrestricted free trade. We have discussed virtue ethics and negative rights considerations.
Now we will look at the economic utilitarian argument and the concerns of
distributive justice that it raises.
The Economic Utilitarian Argument for Free Trade
Let us start from the premise that specialization and the division of labour is a positive-
sum game that will produce an increase in aggregate material goods. Then let us
add the premise that trade under conditions of perfect competition maximizes these
aggregate material goods. Suppose that we have two countries producing two goods,
but that each country can produce one of the goods more cheaply than the other country.
We should conclude that if the two countries each specialized in the good that they
produced most efficiently and both freely traded the results, then total production and
consumption of the goods would go up. For example, if Hither has land that is better
suited to the production of corn and Yon has better land for beans, then it makes sense
for Hither to specialize in corn, Yon to specialize in beans, and for Hither and Yon to
have free trade in corn and beans.
In this example, each country has an absolute advantage over the other in the
production of some commodity. One country has an absolute advantage over a second
country in the production of a commodity if, and only if, the first country can produce
that commodity more cheaply than the second country can. Suppose, however, that
one country can produce both goods more cheaply than the other country can. At first
glance, it seems that there will be no benefit to this efficient country to engage in trade.
This first glance would be misleading.
It turns out that both Hither and Yon can profit from free trade even if Hither is
more efficient at producing both corn and beans than Yon is. The nineteenth-century
English economist, David Ricardo formulated the law of comparative advantage, which
says that there exist terms of trade under which two countries will both gain from trade
if they specialize in producing goods in which they have a comparative, not an absolute,
advantage. Both the efficient and the inefficient countries will gain from free trade. For
example, even if the USA can produce both corn and automobiles more cheaply than
can Mexico, Ricardo says that both the USA and Mexico can still gain from trade.
One country has a comparative advantage over a second country in the production of
a commodity if, and only if, the first country can produce that commodity more cheaply
in terms of another commodity than the second country can. Table 11.3 illustrates Yon’s
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comparative advantage in the production of beans. Hither has an absolute advantage
in bean production because it can produce 3 tons per acre to Yon’s 2 tons per acre. Yon
has a comparative advantage, however, in bean production. Yon can produce 2 tons of
beans at the cost of giving up the production of 1 ton of corn. (Students of economics will
recognize this as the opportunity cost of corn in terms of beans.) For Hither to produce
2 tons of beans, Hither would have to give up two-thirds of an acre of corn production,
which would have produced 4 tons of corn. Yon can produce beans more cheaply than
can Hither when costs are measured in terms of forgone corn production.
We can construct a little model that shows how specialization and free trade can
lead to greater overall production of corn and beans. Suppose that yields per acre are
as in Table 11.4, that people need equal amounts of corn and beans for a balanced diet,
and that both countries have 10,000 acres of land.
Hither Yon
Corn Beans Corn Beans
Productive capacity per year on 10,000 acres 60,000 30,000 10,000 20,000
Self-sufficient corn + bean production 20,000 + 20,000 6,666 + 6,666
Total self-sufficient production (beans + corn) 26,666 + 26,666
Yon 100% beans, Hither 5/9 corn, 4/9 beans 33,333 13,333 0 20,000
Total production with free-trade (beans + corn) 33,333 + 33,333
Hither Yon
Corn (tons per acre) 6 1
Beans (tons per acre) 3 2
Absolute advantage in corn √
Absolute advantage in beans √
Comparative advantage in corn √
Comparative advantage in beans √
Table 11.3: Hither has an absolute advantage in both corn
and beans, but Yon has a comparative advantage in beans.
Table 11.4: Gains from trade with comparative advantage.
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Working through the numbers, we can see that if each country has a comparative
advantage in one commodity, and if Yon specializes totally in the production of beans,
then total production after free trade of each commodity will increase from 26,666 tons
to 33,333 tons.
We can see the reason why each country is better off to trade if we imagine their
situations when the terms of trade are one ton of corn for one ton of beans. To produce
beans, Hither can either use an acre of land to produce 3 tons of beans or use that same
acre of land to produce 6 tons of corn, which it can trade with Yon to get 6 tons of
beans. Hither is better off to trade.
To produce corn, Yon can either use one acre of land to produce 1 ton of corn, or
use that land to produce 2 tons of beans, which it can trade with Hither to obtain 2 tons
of corn.
Both countries will be better off if they produce the commodity in which they have a
comparative advantage and engage in trade. The introduction of trade is like the introduction
of a new technology for agricultural production.
The economic utilitarian argument for free international trade is that both countries
will gain overall from free trade in terms of material goods. This will lead to higher
overall supply and lower prices. The argument applies under conditions of both absolute
and comparative advantage. However, the argument says nothing about the fair
distribution of the gains from trade. Nor does the argument say anything about how
comparative advantage is achieved. For example, countries can achieve a comparative
advantage through banning unions, having low labour standards, permitting tax loopholes
for businesses, or having lax environmental standards. International businesses
often take advantage of these loopholes in taxation and accountability by shifting parts
of their operations to different regions. Again, the economic utilitarian argument for
unrestricted free trade says nothing about these issues of global justice.
Figure 11.6: Hither’s potential production per acre with terms of trade = 1:1.
Figure 11.7: Yon’s potential production per acre with terms of trade = 1:1.
Hither Produces
either …
6 tons of
corn
Trades 1:1
with Yon
6 tons of
beans
3 tons of
beans
Yon Produces
either …
1 ton of
corn
Trades 1:1
with Hither
2 tons of
corn
2 tons of
beans
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Winners and Losers in International Trade
In addition to Ricardo’s law of comparative advantage, there is another, lesser-known
economic law regarding international trade, the factor-proportions law. The factor-proportions
law does say something about the distribution of the gains from free trade:
“The owners of a country’s relatively abundant factors will gain from free trade, while
the owners of a country’s relatively scarce factors will lose.” (Krugman and Obstsfeld,
2006, p. 64)
A country’s abundant factor of production is a resource of which the country has
a relatively larger supply than does its trading partner. A country’s scarce factor of production
is a resource of which the country has a relatively smaller supply than does its
trading partner. In the following example, even though Home is a bigger country and
has both more capital and more labour in absolute terms, it has a relatively larger supply
of capital as compared to Away, and a relatively smaller supply of workers.
Here is a sketch of an explanation for the factor-proportions law based on the
argument of Stolper and Samuelson. (1941, pp. 65–66) Suppose that Home and Away
start to trade in clothing and automobiles. Manufacturing automobiles uses a higher
proportion of capital than does manufacturing clothing. Home’s relatively abundant
factor is capital, its relative advantage is in automobiles. Clothing production is labour
intensive and uses 1 unit of capital for each 2 units of labour. The figure below represents
Home using 4 units of capital and 8 units of labour to produce clothing. ($ represents
1 unit of capital and r epresents 1 unit of employed labour.)
[$$$$ ] Automobile production is capital intensive, and uses 1 unit of capital to 1 unit of labour.
The figure below shows Home using 4 units of capital and 4 units of labour to produce
automobiles.
[$$$$ ] Home Away
Capital 100 billion dollars 25 billion dollars
Labour 2 million workers 1 million workers
Ratio of capital to labour $50,000 per worker $25,000 per worker
Ratio of labour to capital 1 worker per $50,000 2 workers per $50,000
Relatively abundant factor Capital Labour
Relatively scarce factor Labour Capital
Table 11.5: Relatively abundant and relatively scarce factors of production.
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We will assume that a country has an advantage in producing goods that are intensive
in the country’s relatively abundant factor. Since Home’s relatively abundant factor is
capital, Home will export automobiles and import clothing.
Therefore, Home will increase automobile production and decrease clothing production.
Decreased clothing production will release labour and capital:
[$$$$ ] → $$$$ &
Decreased clothing production will release more labour (2:1) and less capital than
is required to increase automobiles (1:1). The figure below shows Home using all its
8 units of capital to produce automobiles. Now it only needs 8 units of labour, leaving
4 units of labour unemployed.
[$$$$$$$$ ] &
This will create a surplus of labour and a shortage of capital in Home’s domestic factor
markets. Therefore, in Home, wage rates to labour, its relatively scarce factor, will
fall and returns to capital, its relatively abundant factor, will rise.
Similarly, in Away, returns to its relatively abundant factor, labour, will rise and
returns to its relatively scarce factor, capital, will fall. Generalizing, free trade will
cause owners of relatively abundant factors to be winners in the post-trade income
distribution, and owners of relatively scarce factors to be losers. This is the factor-proportions
law.
Because of the factor-proportions law, free trade is not Pareto efficient. For free
trade to be Pareto efficient, someone must gain, and no one must lose, yet according
to the factor-proportions law, the owners of relatively scarce factors will lose. Stolper
and Samuelson, however, defend international free trade by appealing to another type
of economic efficiency.
… our argument provides no political ammunition for the protectionist. For
if effects on the terms of trade can be disregarded, it has been shown that
the harm which free trade inflicts upon one factor of production is necessarily
less than the gain to the other. Hence, it is always possible to bribe
the suffering factor by subsidy or other redistributive devices so as to leave
all factors better off as a result of trade. (1941, p. 73)
According to Ricardo, free trade will increase the amount of material goods available in
each country, while creating winners and losers inside the country. This larger amount
of material goods available should enable the winners to compensate the losers and still
to have some goods left over for themselves. Free trade passes the compensation test
for economic efficiency. However, there is nothing in economic theory that implies this
potential compensation will actually take place, and this raises questions of distributive
justice.
Distributive Justice in International Trade
Egalitarian theories of justice generally hold that policy decisions should increase the
benefits to the poor and least advantaged. For example, Rawls’s difference principle
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Free Enterprise and Global Justice
says that a distribution of rights and responsibilities is just if, and only if, everyone
receives the same resources unless an unequal distribution results in the least well-off
receiving more than in the strictly equal distribution. However, we do not have to
accept Rawls’s full theory to share the intuition that any policy decision is unfair that
makes the least well-off group in absolute terms even more badly off.
We can illustrate this with two cases. Table 11.6 shows what happens when India
and the USA begin to trade freely in manufactured goods. India’s unskilled labourers are
more badly off than all other groups, so they are the least well-off group in absolute terms.
In this case, unskilled labour is India’s relatively abundant factor, and unskilled Indian
labourers will be winners in this deal. The least advantaged group in absolute terms will
benefit from a free-trade deal. Because of Ricardo’s law, the USA will benefit overall, and
its winners could compensate its losers. If the wealthy winners in the USA fail to compensate
the unskilled labourers who lose out, then this will become a major political issue.
Table 11.7 shows the case of China and Canada beginning to trade freely in
food. The least advantaged group, in absolute terms are Chinese peasants, who we
will assume are worse off than unskilled labourers in Canada, who are in turn worse
off than are Canada’s farmers. Since unskilled labour is relatively abundant in China,
Chinese peasants will be losers.
India USA
Factor unskilled labour capital unskilled labour capital
Relative abundance abundant scarce scarce abundant
Winner/loser winner loser loser winner
Advantage absolutely least relatively most relatively least absolutely most
Table 11.6: Free trade in manufactured goods between India and USA.
China Canada
Factor unskilled labour land unskilled labour land
Relative abundance abundant scarce scarce abundant
Winner/loser winner loser loser winner
Advantage relatively most absolutely least relatively least absolutely most
Table 11.7: Free trade in food between China and Canada.
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In this example, the poorest and least advantaged are losers from free trade in
both countries. Global egalitarian justice would say no to free trade unless the winners
actually will pay compensation to the losers in both countries.
Free trade will generate winners and losers. Often the losers will be the least
advantaged. Free trade also generates a larger economic “pie” to divide among everyone.
The gains from trade make it possible for the winners to compensate the losers when the
losers are the least advantaged. Distributive justice requires that this happen.
Free trade in goods also creates problems of distributive justice because of the differential
mobility of capital and labour. Capital is free to move across national borders.
Labour is not mobile because of immigration laws. When returns to capital fall in Away,
owners of capital can go to other countries for better returns. When wages fall in Home,
workers cannot take their skills to other countries to earn better wages.
Summary
1. A contractarian ethic justifies a market economy by showing that
enforcing its legal rules will enable self-interested participants to
avoid the dilemmas of cooperation.
2. A rights-based, libertarian justification of a market economy
argues that if the economy has arisen historically from fair initial
appropriation and a fair sequence of exchanges, then even an
unequal distribution of income and wealth is justified.
3. An indirect, economic utilitarian justification of a market
economy argues that, under conditions of perfect competition,
the self-interested actions of market participations will lead
to equilibrium in the prices and quantities of goods. This
equilibrium will maximize overall net benefits as measured in
financial terms.
4. The assumptions of this utilitarian justification for a market
economy include no monopolies, no returns to scale, no positive
or negative externalities, no public or open-access goods, no
lack of information, no transaction costs, and no problems with
willingness to pay as a measure of the strength of preferences.
In practice, market failures arise from the violation of
these assumptions.
5. A liberal egalitarian justification of a market economy points out
that we can use market mechanisms to efficiently produce goods
and services, and then use redistributive taxation to better the
condition of the least advantaged members of the market society.
6. Moral standing does not vary with distance, so there is no
morally relevant distinction between local and faraway people.
Therefore, justifications for free trade in domestic markets
should also be arguments in favour of free trade, and against
protectionism, in the international market.
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7. Ricardo’s law of comparative advantage suggests that when
two countries trade freely, the total amount of goods in both
economies will go up, even if one country can produce all goods
more efficiently, in absolute terms, than the other can. This
provides an economic utilitarian justification for free trade.
8. Aggregative utilitarian reasoning often creates distributive justice
problems. The factor-proportions law shows that the abolition of
trade restrictions between two countries will create winners and
losers within each country. Both countries are better off overall
because of free trade, so the winners in each country could
potentially compensate the losers.
9. Global distributive justice requires winners from free trade to
compensate losers whenever the losers are the least advantaged.
ONLINE LEARNING RESOURCES
You will find a collection of learning resources associated with this chapter on the
book’s website: http://sites.broadviewpress.com/businessethics/. Working through this
material will help you understand and remember important concepts that we have
discussed, and will help you apply them to issues in business ethics.
Study Questions
Answering the following questions will help you to understand the ethical theory in this
chapter and will help you to create a set of review notes on the textbook.
1. Summarize in a few sentences the contractarian justification for
the enforcement of free market rules.
2. Why does a libertarian justification for the free enterprise system
permit unrestricted capitalism and ownership of the means of
production by a wealthy few?
3. Condense the indirect economic utilitarian argument justification
for the free-enterprise system into a few sentences.
4. Explain why air pollution is a negative externality and why
unregulated markets create inefficient amounts of pollution.
5. Explain why the enforcement of the legal rules of the market is
a public good, and why the market requires a coercive enforced
system of taxation.
6. Why is liberal egalitarian distributive justice an improvement over
centrally planned egalitarianism?
7. Why should utilitarian and rights-based ethical reasoning
apply globally?
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Chapter 11
8. Why can a rich country that is more efficient than a poor country
in the production of all goods, still gain from trade with the
poor country?
9. Summarize why the start of free trade between two countries will
create winners and losers.
10. What type of clauses would egalitarian global justice require in
all international free-trade agreements?
Decision Questions
The whole point of learning ethical theory is to understand and ask questions like the
following when you are analyzing an ethically problematic situation or case.
• Can a decision be justified because it is in accord with the rules of the
economic market?
• Will the decision contribute to the efficiency of the economic market?
• Will the decision create external costs for nearby, distant, or
future people?
• Would a decision that maximizes aggregate financial resources actually
maximize well-being?
• Will the decision make the distribution of income and wealth less fair?
• Will a decision to engage in international trade make a developing
country better off?
• Will a decision to engage in international trade lower anyone’s welfare
in the developing country?
• Can winners in a trade deal compensate losers for their lost
economic welfare?
Case Study
Analyze this case study using the ethical theory that you have learned so far. You will
find a collection of learning materials applying to the case on the book’s website: http://
sites.broadviewpress.com/businessethics/. These materials will help you in your analysis.
Should Kate Recommend a Sweatshop?
Kate Bond is the CEO of Seinfeld Textiles, which manufactures clothing in a single
factory in Canada. Canada has recently signed a free trade deal with Ismiristan that
removes all barriers to trade on clothing between the two countries. The ST board of
directors is unhappy with the prospective future profitability of the ST clothing factory
in Canada.
Most of the financial value in ST is in its brand, in its reputation for quality clothing,
and in its contracts with retailers. If ST were to sell its brand and its goodwill to
another clothing company, then its owners would receive a good price. Its owners could
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Free Enterprise and Global Justice
then easily find new, more profitable investment opportunities in Canada. Kate thinks
that if ST continues production in Canada, then competitors offering cheaper imported
clothing will probably take away some of ST’s customers.
ST provides well-paid, unionised jobs, and is the biggest employer in its community.
Kate has lived all of her life in that community. Some of her family and many of her
friends work for ST, and her best friend runs the local department store. ST closing its
factory would be a disaster for all of them.
Kate has asked her VP of production to recommend how to cut costs, and his
committee has recommended that ST close the local factory, and contract with a broker
to arrange for the same lines of clothing to be manufactured in garment factories in
Ismiristan, where wages are much lower than in Canada.
Out-sourcing clothing production to garment factories in Ismiristan could be a
financial blessing for the people there. Most of the garment workers in Ismiristan are
young, rural women who come to the cities, stay in dormitories, work long days in the
factories, and send money home to their families. Their wages are very low in absolute
terms, but higher than the wages they would receive in the countryside, if they could
find any work. They are usually very poor and would otherwise have no employment
prospects or sources of income.
Though they do relatively well financially, the garment workers face other problems.
They pay high rents to the companies for their dormitory accommodation, and
they must buy their food at the company store. Managers often order them to work
overtime at straight wages. Supervisors treat them disrespectfully, and sometimes ask
for sexual favours. No laws permit them to form unions. Their culture is patriarchal, so
fathers, brothers, or husbands control the money that they send to their families. Many
of them are young mothers who must go long periods without seeing their children.
If ST were to outsource its clothing production, its employees in Canada would
receive small severance packages, as well as six months of employment insurance from
the government, though at about half of their regular salaries. They would have other
employment opportunities in Canada, though most such opportunities would require
relocating to a different, oil-rich, province, or require a long commute every few weeks
to see their families. Selling their homes would be difficult if ST closed its factory, and
their houses would lose much of their value.
What should Kate recommend to the board?

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SUSTAINABILITY
AND THE
ENVIRONMENT
What are our obligations to future generations and to the environment?
Can an economic approach to the environment be ethical?
How should we think about sustainable development?
In this chapter, we will look at ethical concerns regarding the effect of our market
economy on our planet. To apply ethical reasoning to the market economy, we need
to understand how environmental problems arise from failures of the market system.
Pollution problems are often external cost problems. Resource depletion problems often
arise from the existence of open access resources. Solutions to environmental problems
are often difficult because the solutions involve public goods for which it is hard
to get market participants to pay. Economic thinking can help us develop cost-effective
answers to environmental problems using cost-benefit analysis and market-based
approaches to pollution control. Nevertheless, these economic techniques themselves
raise ethical questions of rights, justice, virtue, moral standing, and the quantification
of sustainable development using financial indicators such as the GDP.
Present-day
natural
resources
Market
economy
Present-day
consumption
More pollution
for future
generations
Less resources for
future generations
Figure 12.1: The market economy as a potentially destructive machine.
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Chapter 12
Economic activity often creates environmental pollution. These external costs fall,
not only on market participants, but also on both the wider global community and
future generations. A less-than-virtuous business disposes of a noxious effluent into
a river, saving itself a little money, but causing problems for anyone who lives downstream.
The river flows across an international boundary, and now the effluent becomes
a problem for the global community. The river remains polluted even after the business
goes bankrupt, leaving an environmental mess for future generations. Greenhouse gasses,
toxic wastes from nuclear reactors, the depletion of non-renewable resources such
as oil, and the exhaustion of underground aquifers, all create global environmental
problems for posterity to solve. If we are not careful, the market economy will become
like a giant machine creating welfare for present people, and problems for future generations:
depleted resources and increased pollution.
These considerations suggest that we should employ a comprehensive theory of
moral standing. When polluting or resource depleting market activities impose external
costs, we should not forget the interests of the global community, posterity, and the
non-human environment.
Owners
Employees
Suppliers
Posterity Customers
Environment
Self
Decisionmaker
Global
community
Local
community
Figure 12.2: Comprehensive moral standing in business ethics.
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Susta inability and the Environment
External Costs
We saw in the last chapter that, according to economic utilitarian thinking, ideal market
economies maximize total human welfare, on the questionable assumption that
total human welfare is equivalent to an efficient market equilibrium. Ideal markets
maximize the total net benefits of producing and consuming goods and services. This
reasoning provided an indirect justification for self-interested maximizing behaviour
within the market. Unfortunately, real market economies are not ideal. For example,
because present markets do not account for the external costs of greenhouse gas production,
the resulting climate change will be a giant market failure.
As well as monopolies, asymmetries of information, and so on, the sources of
market imperfection include transaction costs, open-access resources, public goods, and
external costs. An internal cost is a cost arising from the economic activity of a producer
that is incorporated into the producer’s asking price for the product. For example,
the producer’s cost of labour and the producer’s cost of raw materials are internal costs
for the producer. An external cost or negative externality is a cost arising from the economic
activity of an agent that is born by others because the producer’s asking price for
the product does not incorporate this cost. For example, if the producer can dump his
effluent into a river without cost rather than paying the cost of its proper disposal, then
the producer can externalize the cost of pollution control.
If producers of a good are able to externalize some of their costs of production,
then economic theory predicts that the market will produce too large a quantity of
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
0 100 200 300 400 500 600 700
Marginal benefits or costs
Number of widgets produced
The eect of external costs
MB
MC
MC +
XC
Figure 12.3: Failure to incorporate external costs leads
to inefficient overproduction of widgets.
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Chapter 12
this good at too low a price for true efficiency. In the example in Figure 12.3, widget
producers are able to externalize $2 per widget of their production costs, perhaps by
externalizing the actual costs of their waste products by dumping the waste in a river.
The full marginal social cost of producing widgets is the marginal internal cost to the
producer (MC) plus the marginal external cost born by downstream neighbours (XC).
The full social cost supply curve (MC + XC) will be above the revealed supply curve for
widgets (MC) because if producers were to include the external costs, then they would
ask higher prices. If MB is the demand curve for widgets, then the market equilibrium
between MB and the revealed supply curve, MC, will result in 400 widgets at a price of
$5. If the supply curve incorporated the full social costs, MC + XC, then the result would
be 300 widgets at a price of $6. The latter is the equilibrium that truly maximizes
net benefits.
Failure to take into account the full social costs of the pollution created by widget
production will, from an economic utilitarian point of view, result in the production
of too many widgets (400 instead of 300), and the production of widgets at too low a
price ($5 instead of $6). The net social benefits of a polluting activity should include
the following:
+ Internal benefit to consumer of the polluting activity
– Internal cost to the agent of polluting activity
– External cost to everyone else of polluting activity
= Net social benefit for everyone of the activity
In the previous chapter, we examined the economic utilitarian argument that intends
to show how, under ideal conditions, a free market reaches a maximally efficient
economic solution. However, we can see now that this argument succeeds only if businesses
include all social costs, internal and external, when producing and selling goods.
Therefore, if we are to justify the market economy on economic utilitarian grounds,
we must require that businesses be responsible for all of the costs of the unintended
by-products of their economic activity.
It is important to remember that polluting activities not only impose external costs
on participants in the local market economy, but also impose external costs on faraway
members of the global community and on generations of people not yet born. Perhaps
the majority of the external costs created by pollution will fall on future generations
and on distant people.
Economic Approaches to Protecting the Environment
We can identify three different approaches to protecting the environment within economic
thinking. Market fundamentalism is the view that, whatever the environmental
effect of an economic market based on existing individual property rights, those effects
are ethically permissible. Market fundamentalism is typically grounded in the moral
theory of either libertarianism or contractarianism. Within the libertarian approach,
individuals are free to use their property in any way that does not infringe the rights
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of others. Within the contractarian approach, individuals submit only to such laws as
will prevent dilemmas of cooperation, and do not consider the interests of anyone outside
their social contract. Market fundamentalism sees a minimal role for government
in the protection of the environment. Individuals can sue one another for pollution
damages to their own property, but this is the only protection that the environment
receives. The government is there just to enforce property and tort law, and has no role
in fixing environmental problems.
Free-market environmentalism is the view that the bad environmental effects of
market behaviour are not ethically permissible, but that the best solution to environmental
problems is to privatize the environment properly. The role of the government
is to create those property rights that will generate efficient solutions. The reasoning
behind free-market environmentalism is economic utilitarian. As we will see below, one
justification argues that free-market environmentalism offers a solution to the problems
created by open-access resources, and another justification uses the Coase Theorem to
show that, with fully defined private property rights, the free market will solve pollution
problems by efficiently internalizing external costs.
Environmental economics is an approach that recognizes market failures regarding
the environment and studies how we can take collective action to fix environmental
problems in a cost effective manner. It envisions a much larger role for government than
the other two approaches. Typically, this approach uses the tools of cost-benefit analysis
to find solutions to environmental problems that maximize overall net financial benefits,
which is an obviously economic utilitarian strategy.
We will do an ethical examination of these the latter two economic approaches
in the remainder of the chapter. It is important to consider the fairness issues
Ethical
Approaches
Identity-based
Consequencebased
Principle-based Rights
Ethical Contractarianism
egoism
Economic
utilitarianism
Libertarianism Economic
fundamentalism
Economic
fundamentalism
Free-market
environmentalism
Environmental
economics
Figure 12.4: Conceptual map showing economic
approaches to environmental problems.
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that each raises, and to examine how comprehensive is the view of moral standing that
each presupposes.
The Tragedy of the Commons
Garrett Hardin’s “tragedy of the commons” is a particular type of external cost situation,
which spreads the external costs of any individual participant’s actions over all
the participants in the situation. This gives each participant both a positive net internal
benefit and an incentive for doing the action. Yet the result of similar actions by all
participants is to create such large external costs that all participants are worse off. The
tragedy of the commons is a multi-party cooperation dilemma.
Here is an example. Ten farmers each graze 10 cows on a “commons”—an
unowned pasture. The carrying capacity of the pasture is 100 cows. If the number of
cows on the pasture is 100 or below, the farmers will have revenue of $40 per cow, or
$400 for 10 cows grazed. If the number of cows on the pasture exceeds the carrying
capacity of 100, then, for each extra cow grazed by someone, the revenue will fall by $1
for every cow on the pasture. In other words, if one farmer grazes one more cow, then
she will create a loss of revenue on all 101 cows of $101. Her loss will be $11 on her
11 cows, but she will externalize a loss of $90 onto the other farmers.
We can analyze this situation like we analyze a prisoner’s dilemma. For simplicity,
we will look at it from the perspective of one arbitrary farmer, Farmer X, and then
generalize to the behaviour of all farmers. If the other farmers graze 10 cows each and
Farmer X grazes 10 cows, then she will receive total revenue of $400. This is the payoff
in the upper left cell of Figure 12.5. If the other farmers all continue to graze 10 cows
each and Farmer X grazes 11 cows at $39 each, her revenue will increase to $429. This
is the payoff in the upper right cell.
If the other nine farmers also graze 11 cows each, then this will create a loss of
revenue of $9 per cow. If she grazes only 10 cows, then her payoff will be $310, as
shown in the lower left cell. However, if the other farmers graze 11 cows, and she
Figure 12.5: The tragedy of the commons as a cooperation dilemma.
Farmer X
10 cows 11 cows
Other
Farmers
10 cows
10 x $40 = $400
—
11 x $39 = $429 √
—
11 cows
10 x $31 = $310
—
11 x $30 = $330 √
—
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grazes 11 cows, then despite the lost revenue of $10 per cow, her total payoff will be
$330, as shown in the lower right cell. Therefore, if the other farmers graze 10 cows,
she will be better off to graze 11 cows as well. No matter what the other farmers do,
Farmer X will graze 11 cows. She has a dominant strategy, which is always to graze
one more cow.
Because Farmer X is an arbitrarily chosen farmer, what is true of her is true of all
farmers. Each farmer has a dominant strategy, which is to graze an 11th cow. Therefore,
all farmers will graze an 11th cow. Similarly, all farmers will graze a 12th cow, and so
on, until finally their individual decisions ruin the common pasture and lead to a complete
loss of revenues for all the farmers involved.
Tragedy-of-the-commons situations are common sources of environmental problems.
People overfished the cod in the Grand Banks because every fishing boat had an
internal incentive to keep fishing. People emit too much carbon dioxide because each
polluter has an internal incentive to use the atmosphere as a sink for their emissions. The
external costs of these greenhouse gasses will be born by future generations, not them.
Avoiding tragedy-of-the-commons situations is one justification for free-market
environmentalism. The problem is that the pasture is an open-access resource. The pasture
(or fish stock, or atmosphere) is common property. One solution is to privatize the
common pasture by creating private property rights for the farmers. If each farmer owns
a portion of the pasture for her exclusive use, and which she can sell to others, then she
will have an incentive to preserve the value of her property. She will have no incentive to
overgraze her private pasture. Free-market environmentalism claims that if people have
marketable private property rights in what are currently open-access resources, then
resource depletion would stop.
However, free-market environmentalism raises new ethical questions. How should
we distribute private shares in what was previously common property? Should every
farmer receive an equal share? Should we distribute shares according to historical usage?
Should we distribute shares on a first-come/first-serve basis? Should other, non-farming
people receive shares? Before the imposition of a private property regime, everyone was
at liberty to graze cattle on the pasture. Imposing a private property regime will reduce
people’s liberty. Should we compensate them? If an alternative solution would be to create
a legal authority to regulate grazing on the common pasture in a fair and equitable
manner, then would this be better from an ethical point of view?
The Coase Theorem
Free-market environmentalism has another argument for using marketable private
property rights to deal with the external costs of environmental pollution and resource
depletion. Economists think of externalities as examples of market failure. However,
the Coase Theorem suggests that, under certain circumstances, the market will actually
be able to handle externalities. The Coase Theorem states that if agents can negotiate
the selling of rights to do activities that cause external costs, and do so with perfect
information and no transaction costs, then they can always find solutions to the problems
caused by external costs that maximize total net social benefits. (Coase, 1960)
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The Coase Theorem can provide an indirect economic utilitarian argument for a system
of private property rights regarding the emission of pollution.
We can see the reasoning behind the Coase Theorem by constructing three simple
scenarios. In the first scenario, there are no transferable or marketable property rights
regarding pollution. The ABC Co. builds a chemical factory upriver of Carol’s fishing
spot, and emits noxious effluent that lowers her catch. Table 12.1 summarizes the
payoffs to Carol and to ABC for the two scenarios where ABC chooses either to install
pollution control or not to install it.
In the first scenario, ABC’s pollution lowers Carol’s net benefits from her fishing
spot from $100 to $50. Because ABC’s internal costs are lower when it does not control
its pollution, ABC’s net benefits will be higher, at $130 rather than $100. ABC will use
no pollution control and the total social benefits will be $180. However, if ABC installs
pollution controls, the total net benefit to both parties will be higher at $200. The first
scenario is inefficient.
In the second scenario, Carol has the right to stop anyone from creating pollution
at her fishing spot. Carol can use her right to force ABC to install pollution control
equipment. As shown in Table 12.1, ABC will suffer $30 loss over the first scenario,
while Carol will have a $50 gain. This scenario maximizes the total social benefit at
$200 instead of $180. Giving Carol this property right will create the socially optimal
level of pollution for the two parties.
In the third scenario, ABC owns the right to emit pollution. The surprising result
is that, provided a free market in pollution rights exists, the self-interest of ABC and
Carol will lead them to maximize total social benefits. Table 12.2 shows this scenario
in the third column. Because the right to pollute is marketable, Carol can offer ABC
a side payment of $40 to install and use pollution control. Carol would offer this
deal because her net benefit will rise from $50 without pollution control to $60 with
pollution control ($100 minus the $40 side payment), which is a net benefit to her.
ABC would accept this deal because its net benefit will now be $100 for running with
pollution control plus the $40 side payment, which is higher than $130 for running
with no pollution control. Both ABC and Carol are better off, though Carol is not as
well off as when she owned the right that no one pollutes her fishing spot. The third
Scenario 1
No pollution control
Scenario 2
Pollution control
ABC’s net benefit $130 $100
Carol’s net benefit $50 $100
Total social benefit $180 $200
Table 12.1: Net benefits to ABC and Carol when ABC either
installs or does not install a pollution control system.
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scenario shows that, as long as pollution rights are marketable and there are no transaction
costs, then two rational economic agents will maximizes their net social benefits
at $200.
From the economic utilitarian point of view, that of maximizing the total net economic
benefits of the polluting activity, it does not matter whether society assigns the
property rights to ABC or to Carol. If Carol has the right not to receive pollution, then
the net social benefits will be at a maximum of $200. If ABC has the right to pollute and
this right is marketable, then the net social benefits will also be at a maximum of $200.
Ronald Coase got the Nobel Prize in economics for seeing this.
From the justice-based point of view, however, it seems unfair that Carol would
have to pay to reduce ABC’s pollution of her fishing spot. If we were to suppose that ABC’s
factory was there first, and then Carol came along and started fishing, then it might seem
fair that ABC has the right to pollute, and that Carol should pay to have ABC reduce its
emissions. Yet we have a strong intuition that polluters should pay. This principle derives
from the Harm Principle, the principle that people’s rights do not allow them to harm
others, as ABC’s emissions do to Carol’s fish catch. People who engage in potentially
harmful activities, such as emitting noxious pollution, cannot use the defence that they
were doing the activity before their victim came along. For example, someone who is
shooting arrows at a target cannot use the I-was-here-first defence if they hit someone
else who wanders between them and their target. The Coase Theorem maximizes efficiency
with no regard for pre-existing rights, informed consent to infringement, compensation,
or fairness.
The defence of free-market environmentalism using the Coase Theorem assumes
that parties like Carol can quantify, in financial terms, the value to her of having her
fishing spot ruined. Is value to her just the market value of the reduction in her fish
catch? Is her offer of a side payment to ABC a true measure of the value of the pristine
fishing spot to her? Or is it influenced by her ability to find the cash to pay ABC?
The defence also assumes that parties can negotiate side payments with little or no
costs. The Coase Theorem only works if there are no transaction costs. This assumption
is satisfied only in very simple cases, when there are few parties affected and when
they can communicate easily. However, negotiations become expensive when there are
Table 12.2: net benefits with side payments when pollution rights are marketable.
Scenario 1
No pollution control
Scenario 2
Pollution control
Scenario 3
Pollution control with side payment
ABC’s net
benefit $130 $100 $100 + $40 = $140
Carol’s net
benefit $50 $100 $100 – $40 = $60
Total social
benefit $180 $200 $200
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many recipients of pollution, many polluters, non-point-source pollution, or accumulative
pollutants. When the cause of pollution is difficult to prove, or when there are legal
fees involved, then the Coase Theorem approach does not work. Applying the approach
requires that we identify a direct connection between the rights of one party and the
rights of another. Many cases of environmental pollution involve non-point-source
or accumulative pollution. A rights-based or harm-principle-based approach does not
work correctly in the presence of non-point-source or accumulative harms.
Environmental Economics
Market fundamentalism and free-market economics have the idealistic goal of solving all
environmental problems through the exchange of well-defined property rights in a market
free of government regulation. The approach of environmental economics, however,
is to admit the need for government regulation in solving environmental problems, but
to use the techniques of economics to design cost-effective solutions to these problems.
The principal conceptual tool of environmental economics is the notion of the
socially optimum level of pollution. The socially optimal level of pollution (SOL) is
the point at which people consider the financial cost of reducing pollution by one
increment to outweigh the cost that this increment of pollution will impose on them.
This is an economic utilitarian notion because its point is to maximize net economic
benefits. Environmental economists find the socially optimal level of pollution using
analogues of supply and demand curves to find the socially optimal level of production
and consumption.
$0.00
$1,000.00
$2,000.00
$3,000.00
$4,000.00
$5,000.00
$6,000.00
$7,000.00
0 25 50 75 100
Costs and damages in $
Emissions in tons
Marginal Damages (MD) and
Marginal Abatement Costs (MAC)
MD
MAC
SOL
Figure 12.6: Graph of MAC and MD showing the
Socially Optimal Level of pollution (SOL).
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Environmental economists use the notion of a Marginal Damages curve (MD) to
represent the benefits forgone by failing to clean up pollution, and the notion of a
Marginal Abatement Cost curve (MAC) to represent the incremental costs of preventing
pollution or of cleaning it up. The Marginal Damage (MD) is a measure of the social
costs that each additional increment of pollution imposes on everyone. The Marginal
Abatement Cost (MAC) is a measure of the cost of decreasing pollution by one increment.
Figure 12.6 illustrates the MD and MAC curves. The horizontal axis of the graph
shows level of emissions on an increasing scale. The marginal abatement cost (MAC)
is zero when there is no pollution control. Therefore, the MAC line intersects the horizontal
axis at the level of emissions (75 tons) where no one makes any effort to control
pollution. Marginal abatement costs rise as we reduce emissions from this point of
no control, so the MAC curve slopes upward to the left from there. Marginal damage
increases with emissions, so the MD line slopes upward to the right.
When there is no emission control, at emission levels of 75 tons and above in
Figure 12.6, then there are zero marginal abatement costs, but there are high marginal
damages. As we reduce emissions, marginal damages decrease, but marginal abatement
costs rise. As we reduce emissions and move left on the graph, we can ask, whether the
MD of each incremental reduction in pollution is greater than the MAC of preventing
it. If the MD of decreasing emissions is greater than the increase in MAC, then the net
benefits of the decrease will be positive. The maximal utility net benefits will occur at
the point where MD = MAC. Any greater lowering of emissions will have negative net
benefits because the increased costs of preventing the pollution (MAC) will exceed the
increased costs caused by the pollution (MD). The point where MD = MAC is the socially
optimal (SOL) level of pollution.
The ethical justification behind the normative use of environmental economics to
make policy recommendations is economic utilitarianism. Consequently, the idea of the
socially optimal level (SOL) of pollution approach has all the usual ethical weaknesses
of utilitarian ethical reasoning.
As with reliance on the Coase Theorem, the moral justification of the Socially
Optimal Level of pollution approach relies on the questionable assumption that the
total benefits and costs of pollution can be measured and assigned a monetary value.
And because this approach is grounded in economic utilitarianism, it also fails to
address some of the concerns raised by competing ethical theories. For example, it is
not clear that this approach respects the rights of all those affected by polluting activities,
or that it leads to a just distribution of the burdens and harms caused by pollution.
Other non-utilitarian ethical perspectives would likely lead to very different analyses of
the merits of the SOL approach.
Cost-Benefit Analysis
Environmental problems often originate in external costs, and their solutions often
involve providing public goods. Unfortunately, prices in a market economy cannot
measure the external costs of environmental pollution because producers and consumers
do not consider them in their pricing decisions. Prices in a market economy
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cannot measure the value of public goods because society cannot exclude people from
public goods. If people cannot be excluded from a public good such as a solution to
an air pollution problem, then the benefits of the solution are essentially free to all.
Markets depend on producers being able to exclude consumers from a good unless the
consumers pay for it. A cost-benefit analysis is a technique of environmental economics
where economists measure the costs and benefits of different environmental policies
according to people’s willingness to pay for them. The total net benefits of each policy
are calculated and used either as a factual input to a policy decision, or as an ethical
reason for a policy decision.
Environmental economists use several methods of measuring costs and benefits.
Sometimes they can measure revealed WTP by observing existing market values. For
example, if water pollution causes a decline in the fish catch, then they can calculate the
cost of this from known market prices for fish. When they cannot compute the value
of the consequences of a policy from WTP revealed in existing prices, they can use the
contingent valuation method, which involves a carefully designed survey to measure
expressed WTP. Economists ask people to say how much they would be willing to pay
for some benefit, or how much compensation they would expect for bearing a cost. For
example, if pollution causes increased health risks, then economists could ask people
how much they would pay for insurance against these risks. As well, economists can
measure imputed WTP by looking at similar goods that are different only in respect of
their non-market cost, and using statistical methods to value the non-market cost. For
example, the difference in price of two houses, one in a polluted area and the other not,
will indicate how much homeowners are willing to pay to avoid pollution.
Next, economists add up the costs and benefits for each policy under consideration,
as in the simple example in Table 12.3. If the economists stick to positive economics,
then they will offer the results as inputs to a wider policy making process. If the economists
accept economic utilitarian ethical assumptions and do normative economics, then
they will recommend Plan B over business as usual (BAU), because Plan B has the higher
net benefit.
Economic utilitarian reasoning, like all utilitarian reasoning, has difficulties with
fairness. For example, in Table 12.3, an economic utilitarian policy maker should
choose Plan B. Yet under Plan B, Nancy benefits by +$200, while the burdens fall on
BAU Plan B
Mike $100 $50
Nancy $200 $400
Peter $300 $300
Aggregate: $600 $750
Table 12.3: Example of a simple cost-benefit analysis.
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Mike (-$50). Nancy is a winner under Plan B and Mike is a loser. From the point of
view of distributive justice, this is unfair.
Under Plan B, the total net benefits are larger than under BAU. Therefore, the
potential exists for the winner to compensate the loser, while still gaining from Plan B.
By giving $50 to Mike, Nancy can restore him to his net benefit under business as usual,
and still have an increased net benefit for herself.
Unfortunately, just because the winners can potentially compensate the losers in a
cost-benefit analysis, it does not follow that they actually will compensate them. The
situation is analogous to the creation of winners and losers by free trade, which we
examined in the previous chapter.
Discounting the Future
The market-based methods and cost-benefit analyses of environmental economics
should not forget the interests of future generations. Environmental economics does
consider the interests of posterity, but it does so by discounting future external costs to
present values. Environmental economics uses a discount rate to compare present and
future benefits and costs. The idea is that $100 now is worth more than $100 in one
year. For example, someone could invest $100 now in the stock market with 7% return
and have $107 in one year’s time. This suggests a normative, economic utilitarian decision
rule: Determine the present value (PV) of the future value (FV) of all external costs,
and choose the policy with the lowest PV of total costs.
We all prefer receiving benefits now and paying costs in the future. The reason is
partly psychological; we tend to be impulsive about benefits and procrastinators about
costs. Yet, preferring benefits now and costs in the future is also rational. There is some
risk that we will not be alive to receive future benefits or to pay future costs. If a person
believed that he would be dead in six months, what discount rate could make him
postpone receiving a benefit for a full year, especially one that he could not bequeath
to anyone else? Discount rates are only helpful when we must make a choice within our
individual lives.
Another reason we discount the future is that we expect, through economic
growth, that we will be richer in the future. For example, a student may borrow
BAU Plan B After compensation
Mike’s net benefits $100 $50 $50 + $50 = $100
Nancy’s net benefits $200 $400 $400 – $50 = $350
Peter’s net benefits $300 $300 $300
Total net benefits $600 $750 $750
Table 12.4: Nancy compensates Mike for his loss under Plan B.
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money to buy a copy of Microsoft Excel because the cost will fall on his future self,
who will have a job by year-end and, being richer, will miss the money less. Income,
like every other good thing, has a declining marginal utility. In the future, we will
be better able to afford the high clean-up costs of our polluting activities. Therefore,
we should use a high discount rate for future external costs. One problem with this
argument is that, with potential environmental catastrophes like climate change, it
may be false that growth will continue and that the future will indeed be a lot richer
than the present.
As well, a decision rule that works within one person’s life may not be fair when
we apply it to more than one person. As Keynes said, in the long run, we are all dead.
In the case of greenhouse gas pollution, we will not be alive when the most damage
occurs, and we will not be the ones who pay the clean-up and adaptation costs.
Discounting the future for groups of people over a period in which some of them will
die and new people will be born, is not the same as discounting the future within our
own individual lives.
The choice of a rate at which to discount the interests of posterity is an ethical
choice. Environmental economics prefers to use market discount rates because they
seem to embody no value judgments and are easily determinable by empirical observation.
Nevertheless, one problem with using market interest rates to set future discount
rates is that different markets have different discount rates. Savings accounts,
government bonds, corporate bonds, loans at prime, mortgage loans, and returns on
the stock market all suggest different market interest rates. Insofar as market interest
rates do embody value judgments, at least they are the democratic values of consumer
preferences. However, decisions by individual consumers are all choices within one life.
Further ethical issues arise when we must make decisions involving choices between
different lives, which happen when we make decisions involving a future society whose
members will not be the same as the members of contemporary society.
To see the effect of a choice of discount rate on policy decisions, we will look at
a simplified version of the disagreement between two economists, Nicolas Stern and
William Nordhaus, regarding whether to take action now to prevent climate change.
(Broome, 2008) Both economists assume that climate change will cause one trillion
dollars worth of damage to the planet in 100 years. They agree that the cost, now, to
prevent this damage is 50 billion dollars. The two economists, however, disagree about
the appropriate discount rate: Stern, after an economic and ethical analysis, says 1.4%
while Nordhaus, using market interest rates, says 6%.
The economic utilitarian decision rule says to choose a policy by comparing PV of
future damage with present cost of preventing the damage. The choice of a discount
rate makes a big difference to the policy recommendations of the analysis when we
make decisions affecting the interests of future generations. While they agree on the
future external costs, Stern says to act now, whereas Nordhaus says to delay. From the
ethical point of view, is the Nordhaus conclusion fair? The present generation benefits
from burning fossil fuels while the future generation, which is not composed of the
same people as the present generation, pays the costs. The choice of a small discount
rate for future costs considers the interests of future generations more strongly than
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does a large discount rate. Choosing a discount rate in a cost-benefit analysis requires
considering issues of intergenerational justice.
Sustainable Development and GDP Growth
Considerations regarding intergenerational justice also enter into the definition and measurement
of sustainable development. The Brundtland Report to the United Nations
of 1987 defined sustainable development as development that meets “the needs of the
present without compromising the ability of future generations to meet their own needs.”
(World Commission, 1987) The implications of this definition are ambiguous. Does our
generation maintain stocks of particular resources to meet the needs of future generations?
Alternatively, does our generation have a duty to ensure that the income flow from
whatever stocks of resources are left is sufficient to meet the needs of future generations?
The economist, Robert Solow, suggested that sustainability should refer to flows,
not to stocks. He claimed that “the duty imposed by sustainability is to bequeath to
posterity not any particular thing—with the sort of rare exception I have mentioned
[he mentions Yosemite National Park and the Lincoln Memorial]—but rather to endow
them with whatever it takes to achieve a standard of living at least as good as our own
and to look after their next generation similarly.” (1993, p. 168) It follows, for example,
that we do not have a duty to maintain stocks of fossil fuels at present levels, provided
we bequeath to future generations the expertise to produce at least as much usable
power by other methods. Technological innovation and upward pressure on prices will
make it economically more attractive to use substitutes for scarce natural resources.
Stern Nordhaus
FV of damages $1 trillion $1 trillion
Years in the
future 100 100
Discount rate 1.4% 6%
PV calculation =PV(1.4%,100,0,1000000000000,0) =PV(6%,100,0,1000000000000,0)
PV of future
costs $249 billion (approx.) $3 billion (approx.)
PV of prevention $50 billion $50 billion
Policy Act now! Delay!
Table 12.5: Cost-effectiveness analysis of acting or delaying action
on climate change using the Microsoft Excel formula for PV.
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The usual way that economists measure development is by using the Gross
Domestic Product (GDP). The GDP of an economy is the market value of all final goods
and services produced in a country during a year. GDP is a measure of total market
activity. From the normative perspective of economic utilitarianism, we have a duty
to grow the GDP in order to grow, and thus maximize, the total amount of preference
satisfaction. Economic utilitarianism entails that we should seek GDP growth.
GDP growth has weaknesses both as a measure of increased human welfare and as
an indicator of sustainable development. GDP is an abstract measure of market activity,
not of human welfare. All economic activity adds to GDP, even if it is destructive,
regrettable, or unsustainable. GDP ignores non-market transactions, such as housework,
which add to welfare. GDP ignores income inequalities and the diminishing marginal
utility of income. A highly unequal society will have a lower overall level of
satisfaction than will a more egalitarian society with the same GDP. As well, it will be
less fair. In addition, GDP ignores both human rights abuses and the benefits of living
in a free country.
Nor is GDP growth a very good indicator of sustainable development. Cleaning up
present day pollution will raise GDP while taking resources away from activities that
could contribute to sustainable development. For example, the US GDP actually went
up with the multi-billion dollar costs of the clean up of the Exxon Valdez oil spill in
1989. GDP ignores the future external costs of present day pollution. For example, pollution-
caused health care costs incurred by future people do not reduce GDP. GDP ignores
future resource depletion because it contains no depletion allowance.
A better indicator of sustainable development, such as the Genuine Progress
Indicator, would begin with estimates of personal consumption expenditures. It would
adjust these consumption expenditures for inequalities, and add value of socially productive
non-market activities, such as unpaid childcare. It would then deduct the
present and future costs of undesirable effects such as pollution, crime, etc. It would
then deduct the present and future costs of the degradation and depletion of natural
resources.
GDP growth may appear to be an empirical, value-free indicator of development.
We measure GDP by an internationally agreed procedure, using raw economic data compiled
by economists. Nevertheless, a GDP measurement makes value judgments despite
its appearance of objectivity. It makes value judgments in its choice of what to include
and what to leave out. For example, it chooses to include the present internal costs
of pollution clean up and to exclude the future external costs of pollution mitigation.
Future external costs are hard to estimate and including them requires an explicit value
judgment regarding what discount rate to use. Even so, excluding costs such as the
future external costs of climate change from GDP makes GDP an unfair indicator of
sustainable development.
Inter-Generational Justice and Green Virtues
The moral equality of persons is the basis for social justice and global justice. It is also
the basis for inter-generational justice. Treating people as equals requires that morally
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arbitrary features of people do not determine how we treat them. Time of birth is a
morally arbitrary feature of people. Therefore, inter-generational justice is concerned
with the distribution of benefits and costs between present and future people. It treats
all people, present and future, as equals in the assignment of costs. Of course, in treating
future people as moral equals we will not always treat them in exactly the same
way. For example, in considering the costs of pollution to future generations, we may
still discount future costs to account for people being richer in the future. Nevertheless,
generally an analysis that is sensitive to concerns of intergenerational justice, such as
that of Nicholas Stern, will use lower discount rates for future costs than will a policy,
such as that of William Nordhaus, that is not.
Inter-generational justice may well require that individual people develop green virtues.
Green virtues are character traits that enable people and corporations to cooperate
and flourish in environmentally sustainable societies of people and corporations with
similar dispositions. A flourishing society is a sustainable society, and some character
traits help create an environmentally sustainable society. For example, environmental
sustainability will require that present and future people develop dispositions to reduce
resource consumption and environmental pollution, dispositions to reuse resources, and
dispositions to recycle resources.
Solutions to environmental problems are often public goods. A car-pooling policy
that lowers carbon dioxide emissions will benefit everyone, yet it is impossible to
prevent anyone from enjoying the benefits of slower climate change. Since we cannot
exclude people from the benefits, people will tend to become free riders, accepting the
benefits without contributing to the costs. Free riders will avoid car-pooling whenever it
is inconvenient. In a society where people develop green virtues, the costs of preventing
free-riders and policing the policy will be lower.
Business corporations, too, can have character traits. Corporations can develop
green virtues through the design and implementation of codes of ethics, incentive structures,
and ethical climates. For example, corporate incentive structures that rewarded
managers for reducing greenhouse gas emissions would contribute to the green character
of corporations. Businesses with corporate characters that were disposed to reduce
greenhouse gas emissions would help create a sustainable economy that would not be
subject to the business risks posed by global climate change. Businesses with such green
virtues would not be prone to free-ride on a collective social policy that benefits all
businesses. By developing green virtues, businesses can flourish in an environmentally
sustainable society.
Summary
1. Environmental problems often arise from market failures such as
negative externalities, open-access resources, and the failure to provide
public goods.
2. External costs will fall on local people participating in the market, on
distant people outside the market, on future people not yet able to
participate in the market, and on the non-human environment.
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3. A comprehensive view of moral standing in business ethics reminds us
to consider the interests of the global community, posterity, and the
environment in making ethical decisions.
4. The existence of negative externalities such as pollution will result in
the inefficient production of too many goods at too low a price.
5. Libertarian and contractarian reasoning both suggest market
fundamentalism as an approach to environmental problems,
whereas economic utilitarian reasoning suggests either free-market
environmentalism or an environmental economics approach.
6. Open-access resources lead to tragedy-of-the-commons situations. Freemarket
environmentalism suggests that privatizing all environmental
resources will prevent their over-use. Privatizing the environment,
however, raises questions of fairness and liberty.
7. The Coase Theorem shows that, in the absence of transaction costs,
free-market environmentalism will deal efficiently with external costs.
However, transaction costs are very high in environmental problems
such as non-point-source pollution, and, as usual, this utilitarian
approach raises questions of fairness.
8. Environmental economics aims to produce the socially optimal level
of pollution. This level is not zero. Instead, it balances the benefits of
producing pollution against the costs of preventing it.
9. Environmental economics uses cost-benefit analyses to find ways of
fixing environmental problems with the highest net benefits for all
concerned. Such analyses can generate winners and losers, and thus
problems of distributive and compensatory justice.
10. Cost-benefit analysis consider the interests of future people, but uses
a discount rate for future environmental costs. We have reasons to
discount future costs within our own individual lives, but we also
have ethical reasons not to discount costs for unborn generations.
The choice of a discount rate is an ethical decision; using a high
discount rate for future costs may unfairly privilege the interests of the
present generation.
11. GDP growth has weaknesses both as an indicator of increasing human
welfare, and as an indicator of sustainable development.
12. If both business people and business corporations develop character
traits that dispose them to protecting the environment, then this will
help sustain development for future generations.
ONLINE LEARNING RESOURCES
You will find a collection of learning resources associated with this chapter on the
book’s website: http://sites.broadviewpress.com/businessethics/. Working through this
material will help you understand and remember important concepts that we have
discussed, and will help you apply them to issues in business ethics.
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Study Questions
Answering the following questions will help you to understand the ethical theory in this
chapter and will help you to create a set of review notes on the textbook.
1. What reasoning justifies a comprehensive view of moral standing?
2. Summarize why market forces will result in people producing
an inefficient quantity of commodities whose production creates
external costs.
3. Why would libertarians tend to justify a market-fundamentalist
approach to the external costs of environmental pollution?
4. Explain how we can analyze greenhouse gas emissions as a tragedy-ofthe-
commons situation.
5. Why is the Coase Theorem unlikely to apply to situations involving
non-point-source pollution?
6. Describe a rights-based criticism of using the socially optimal level of
pollution in environmental policy decisions.
7. Explain how the use of a cost-benefit analysis to make a policy decision
might create winners and losers, and thereby generate a problem of
compensatory justice.
8. Discounting future costs within our own lives seems reasonable. What
is the problem with generalizing this procedure to future generations?
9. What are two problems with using GDP as an indicator for the
sustainable development of the environment?
10. How might the development of green virtues by business corporations
help solve the public goods problem often involved in solutions to
environmental problems?
Decision Questions
The whole point of learning ethical theory is to understand and ask questions like the
following when you are analyzing an ethically problematic situation or case.
• Does the decision properly consider the interests of future generations?
• Does the decision properly consider the non-human environment?
• Does the decision assume market fundamentalism, free-market
environmentalism, or environmental economics?
• Why do real-world markets fail to maximize economic well-being?
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• Will the decision create external costs for nearby, distant, or
future people?
• Can the decision maker negotiate fair compensation for external costs?
• Does the decision take unfair advantage of open-access resources?
• Does the decision free-ride on an environmental public good?
• Will the decision result in a socially optimal level of pollution?
• Is a cost-benefit analysis appropriate?
• Does the cost-benefit analysis properly consider issues of fair
compensation and distribution?
• Does the cost-benefit analysis use an ethically appropriate
discount rate?
• Will the decision benignly increase GDP?
• Will the decision contribute to truly sustainable development?
Case Study
Analyze this case study using the ethical theory that you have learned so far. You will
find a collection of learning materials applying to the case on the book’s website: http://
sites.broadviewpress.com/businessethics/. These materials will help you in your analysis.
Should Lars Pollute at Home or Away?
Lars Olsen is the CEO of Electronic Manufacturing Inc. EMI is a large manufacturer of
hi-tech wireless mobile devices. Recently the government of Homeland, where EMI’s
principal factory and all of EMI’s consumers are located, has brought in new environmental
legislation that regulates the disposal of the toxic materials that go into the
manufacture of electronic devices. This regulation makes manufacturers responsible for
the recycling of any electronic devices that contain toxic materials, even after consumers
have purchased the devices. This new policy will be costly for EMI. EMI will have to
charge distributors, and thus consumers, a large, refundable deposit in order to get the
devices back. As well, EMI will now be responsible for the costs of recycling the devices.
Sales will fall, and costs will rise.
EMI has no choice but to comply. Lars’s job is to recommend to the board of
directors of EMI how to lower the costs of recycling. The board will collectively make
the final decision on what to do. Lars knows that, in his recommendation, he should
consider not only the internal costs to EMI, but also the external costs to society of the
considerable pollution caused by the recycling process. The emissions from the recycling
process will cause health problems for the whole country. Because the emissions will
not break down, but instead will accumulate in the national environment, their cleanup
will become a big problem in the future.
Lars sees only two ways to proceed. Firstly, EMI could locate its recycling facility
at its principal factory in Homeland to take advantage of the transport efficiency
of employing back-hauls of recycled devices from distributors. Secondly, EMI could
ship the returned devices to Awayland, a country on the west coast of Africa where
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labour is much cheaper, and contract with a local recycling company there to dispose
of the devices.
Homeland has strong environmental laws and a legal system that makes polluters
pay for the damages that they cause. Its citizens earn high incomes, and any days
that they take off work because of environmental sickness lose them a lot of money.
Healthcare in Homeland is very good, but also very expensive. Capital markets in
Homeland are very efficient and interest rates there are low. The GDP growth rate
in Homeland is also low because its economy is already large and highly developed.
Returns on investment are stable and moderate.
Awayland has environmental laws that are very favourable to polluters. Emissions
are legally permissible and protected unless specifically forbidden by regulation.
Awayland currently has no regulations regarding electronic waste, and is unlikely to
change this policy. Many people are unemployed in Awayland, and average incomes
are very low. Healthcare is inexpensive, but rudimentary. Capital markets in Awayland
have not yet developed, so interest rates are relatively high, as are returns on investment.
Awayland is starting to industrialize, so its GDP is growing quickly.
Which option should Lars recommend to the board?

229
GLOSSARY
One country has an absolute advantage over a second country in the production of a
commodity if, and only if, the first country can produce that commodity more cheaply
than the second country can.
Absolute duties are over-riding obligations that people have no matter what happens.
Ethical reasons are action-guiding because they motivate us to act in ways that we think
are morally right, or at least ethically permissible.
Act utilitarianism uses maximizing utility as a decision procedure for which actions
people should perform.
Ethical reasons are agreement-seeking because we offer them as justifications to others
for acting in a certain way. They are reasons about which there can be argument and
debate, and they have justifications on whose truth or falsity and applicability we want
others to agree.
Altruism requires agents to maximize positive mental states in others with little consideration
for their own interests.
A care ethics is an ethical approach based in the special relationships, like that of
mother and child, which people have to one another, and in the relationship skills and
emotional traits that make such attachments possible.
A categorical imperative, is a moral principle of action that does not depend on anyone’s
wants or desires.
Someone is causally responsible for an outcome if, and only if, some action that he
intended to perform and then did perform caused the outcome to happen.
A character-based approach to ethics focuses on what sort of person or organization the
agent is becoming, on whether he, she, or it is virtuous.
Coercive power is the ability to dominate through force or the threat of force.
A coercive threat that interferes with autonomy is a perpetrator’s morally unjustified
declaration of the intent to cause harm to the victim under certain circumstances.
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GLOSSARY
One country has a comparative advantage over a second country in the production of a
commodity if, and only if, the first country can produce that commodity more cheaply
in terms of another commodity than the second country can.
Compensatory justice ensures that people who infringe the rights of others without
consent fairly recompense those who they harm.
The comprehensive view of moral standing holds that a decision-maker has an obligation
to consider the interests of people in distant countries, of future generations, of
animals, and of the environment, as well as the interests of the firm’s owners, employees,
suppliers, customers, and members of the community in which the firm is located.
A conceptual framework is a mutually supporting, seldom questioned, and resilient set
of fundamental assumptions about the world, about human nature, and about ethical
values, that affects how people think and act in the world.
Conditioned power is the ability to dominate through internalized beliefs and attitudes.
Subordinates see their unquestioned submission as natural, and the dominant understand
their dominance as ordinary and normal.
A consequence-based approach to ethics focuses on the results or outcomes of the
action, and maximizes net benefits to all concerned.
A legal contract is composed of two legally enforceable promises: a conditional offer,
and its acceptance.
A contractarian ethical theory is a theory claiming that ethics consists in an enforced
contract among ethical egoists designed to prevent dilemmas of cooperation, such as
the Prisoner’s Dilemma situation.
If one person has a right that a second person does some act, then the second person has
a correlative duty to do this act that she owes to the first person.
Deception is a non-linguistic action or omission that the perpetrator intentionally uses
to cause her victim to believe something false.
Derivative rights are moral rights that are justified as on the bases of an ethical theory
that is not itself rights-based.
The difference principle says a distribution of rights and responsibilities is just if, and
only if, everyone receives the same resources unless an unequal distribution results in
the least well-off receiving more than in the strictly equal distribution.
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Glossary
Direct utilitarianism treats utilitarian reasoning as a decision procedure and judges each
case according to a calculation of the utilities it causes.
Distributive justice ensures that society allocates benefits and burdens in a way that
treats people as moral equals.
Divine command theories of ethics hold that the commands of God create people’s
duties.
A dominant strategy in game theory is a strategy that yields a higher payoff regardless
of the strategy chosen by the other player.
Duties are overriding ethical obligations that agents have to act in certain ways.
In duty-based theories of ethics, the agent should follow the principle of doing his or
her duty, regardless of the consequences.
Economic power is the ability to dominate through economic incentive or economic
threat.
Economic utilitarianism is a form of preference-satisfaction utilitarianism where we
measure the utility of a good or service to someone according to her willingness to pay
for it.
Equal consideration of interests holds that a distribution is just if, and only if, it assigns
the same weight to everyone’s interests in the aggregation of interests for purposes of
utilitarian maximization.
Equality of opportunity says that a distribution is just if, and only if, it assigns positions
in society according to morally relevant criteria such as ability or merit and not according
to morally arbitrary criteria such as race or gender.
Equality of welfare holds that a distribution of property rights in resources is just if, and
only if, it results in everyone having the same level of welfare.
Ethical egoism is the ethical theory that agents ought always to maximize their own
self-interest.
Ethical pluralism is the view that we should make ethical decisions by considering the
(often-conflicting) ethical reasons that follow from all ethical theories, and then judging
how to proceed.
Ethical relativism is the metaethical view that the truth or falsity of ethical judgments
is relative to the traditional practices of a cultural group.
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GLOSSARY
Ethical theories are ways of systematizing ethical reasons that philosophers have developed
over the many centuries during which philosophers have been thinking about
ethical problems.
Experience-based utilitarianism aims to maximize the positive mental experiences that
an ethical decision brings about.
An external benefit or positive externality is a benefit arising from the economic activity
of an agent for which the market price of the product does not compensate the agent.
An external cost or negative externality is a cost arising from the economic activity of
an agent that is born by others because the market price of the product does not incorporate
this cost.
Fair equality of opportunity requires both that there be formal equality of opportunity
and that society provide a uniform quality of education for all to give everyone a fair
chance to acquire the skills needed to compete for social positions.
Formal equality of opportunity requires that there be no legal impediment to a person
with certain talents competing for a position that requires those talents.
Fraud is obtaining a benefit from a victim by lying or deception.
A general right is a right whose correlative duty falls on everyone.
Green virtues are character traits that enable people and corporations to cooperate
and flourish in environmentally sustainable societies of people and corporations with
similar dispositions.
The harm principle says that people (or the government) may interfere with someone’s
freedom, liberty, or exercise of their rights only in order to prevent harm to others.
A hypothetical imperative is a strategic principle that will help someone get what
he wants.
An identity-based approach to ethical reasoning focuses on what sort of person (organization)
the agent (organization) is becoming, on whether she (it) is virtuous and has
a good character.
An indirect utilitarian theory of justice claims that equal consideration of interests will
lead to equality of resources because of the diminishing marginal utility of income.
233
Glossary
Indirect utilitarianism treats utilitarian reasoning as a justification procedure, and advocates
obedience to rules, respect for rights, inculcation of virtues, and the creation of
whatever policies are necessary to produce maximum aggregate utility.
Informational privacy is the condition of being able to control access by others to information
about oneself.
The informed preference theory of value holds that a state of the world is valuable if it
would satisfy the preference that someone would have if she had full information and
were reasoning rationally.
Initial equality of resources says that a distribution of rights and responsibilities is just if,
and only if, it is the result of people’s free choices after everyone starts life with strictly
equal distribution of resources.
The interest theory of natural rights holds that the inherently valuable natural features
that justify possession of moral rights are the crucial interests of the right-holder.
The “is/ought” gap means that we cannot derive an ethical conclusion from an argument
consisting of purely scientific or factual premises.
In justice-based theories, the moral principles that agents should follow in their decisions
involve treating others as moral equals.
Ricardo’s law of comparative advantage states that there exist terms of trade under which
two countries will both gain from trade if they specialize in producing goods in
which they have a comparative, not an absolute, advantage.
The law of diminishing marginal utility states that as the consumption of a given economic
good increases, the marginal utility produced by the consumption of one additional
unit of the good tends to decrease.
The law of increasing marginal cost states that, in the short-run, the marginal cost of
producing each additional item will tend to increase.
Legal rights are legally enforceable rights.
Libertarianism holds that a distribution of rights and responsibilities is just if, and only
if, it respects people’s natural rights to self-ownership.
A lie is a linguistic communication which the perpetrator believes to be untrue and with
which the perpetrator intends to deceive his victim.
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GLOSSARY
A logic of domination is a structure of argumentation that justifies relationships of domination
and subordination within an oppressive conceptual framework.
Conditions where the assumptions of perfect condition do not hold and markets are not
efficient are market failures.
The marginal utility of an economic good or service is the additional utility gained
through the consumption of one additional unit of that good or service.
An entity has moral agency if it is capable of understanding moral principles, is capable
of responding to moral reasons, and is able to accept praise or blame.
A moral agent is an entity to which we are prepared to assign praise or blame, which
can respond to moral reasons, and which we are prepared to hold morally accountable.
To possess moral agency, an entity must have capacities for moral sensitivity, responsiveness
to ethical reasons, and decision-making abilities.
Moral autonomy is the capacity to govern oneself according one’s own ethical reasoning.
Moral rights are rights that are justified by moral theories.
A person, organization, or nonhuman entity has moral standing if we must consider his,
her, or its interests in making an ethical decision.
An agent is morally accountable for an action and its consequences if, and only if, we
should be prepared to praise or blame her for her freely made decision and for its results.
A person, organization, or nonhuman entity is morally considerable if we must consider
his, her, or its interests in making an ethical decision.
According to the doctrine of natural rights, rights-bearers have rights because they have
certain natural features. These natural features are inherently valuable and thus require
protection by moral rights.
One condition is a necessary condition for a second if the first state of affairs is required
for the production of the second one.
Someone’s negative autonomy right is the right that others not interfere with his decision-
making.
A negative right imposes a duty on everyone else not to interfere with the right holder.
Someone’s negative liberty is the right that others not interfere with her actions.
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Glossary
A NESS condition is a Necessary Element in a Set of Sufficient conditions.
A normative cost-benefit analysis is a decision-making technique that measures the
financial costs and benefits of different policy options according to people’s willingness
to pay for them, calculates the total net benefits of each policy, and uses the results to
justify a policy decision ethically.
Normative economics uses economic science to make policy decisions. It tells decision-
makers what policies they ought to implement based on an economic analysis of
the policy alternatives.
Objective consequentialism requires agents to make those decisions which lead to the
best consequences from a point of view that is independent of the psychological states
of individual people.
An open-access resource (a commons good or a non-excludable resource) is a resource
from which it is difficult to exclude other individuals.
Oppression is the unjust or cruel exercise of power by means of the structure of a group,
a community, or a society as a whole.
An oppressive conceptual framework is a conceptual framework that makes relationships
of domination and subordination seem normal, natural, and unquestionable.
The metaethical principle that “ought” implies “can” means that a person cannot be
morally obligated to perform an action or bring about a consequence if he is unable to
do so.
Ownership of a tangible or intangible thing consists in a bundle of rights and liabilities
regarding that thing.
The paradox of egoism says that there exist states of affairs in the self-interest of ethical
egoists that these same ethical egoists cannot achieve because they ought always to
act selfishly.
An outcome is Pareto-efficient if no other outcome is possible that makes at least one
person better off and no person worse off.
A payoff matrix for a game is a table that shows each player’s payoff for every possible
combination of strategies.
Personal autonomy is the capacity to make authentic decisions about one’s own life. It is
the ability to choose freely one’s conception of the good life, to pursue this conception,
and to either endorse or change one’s choices.
236
GLOSSARY
Physical privacy is a person’s condition when she is free from intrusion by other people.
Someone’s positive autonomy right is the right that others assist her with her decision-
making.
A positive cost-benefit analysis is an economic technique that measures the financial
costs and benefits of different policy options according to people’s willingness to pay
for them, calculates the total net benefits of each policy, and uses the results as a factual
input to a policy decision.
Positive economics is a science that creates models describing the behaviour of economic
markets and participants in those markets.
A positive right imposes a duty on others to assist the right bearer is some way.
Preference-based utilitarianism aims at maximizing the production of states of affairs
that people want.
Prima facie duties are ethical obligations that people have, but which may yield to
stronger obligations.
A principle-based approach to ethical reasoning looks at the decision-maker’s motivations.
It assesses the decision as right or wrong according to what ethical principles the
agent follows, or does not follow, when she makes her decision.
A game is a prisoner’s dilemma game when both players have dominant strategies
that, when played, result in an outcome with payoffs smaller than if each had played
another strategy.
Psychological egoism is the empirical theory that people always do act to maximize to
their self-interest.
Public goods are goods whose use by one person does not diminish their availability to
others, and from the use of which it is difficult to exclude other individuals.
A reservation price is the maximum amount of money that a consumer would be willing
to exchange for one more unit of a commodity in the absence of a defined market price
for that commodity.
Retributive justice ensures that society holds people accountable for harming others or
violating their rights.
A right is a justified claim by one person that other persons owe duties to her.
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Glossary
In rights-based theories, the moral principles that agents should follow in their decisions
involve respecting the moral rights of others.
Rule utilitarianism uses maximizing utility as a standard of rightness for which rules
people should follow.
The shareholder view of moral standing in business ethics holds that a decision-maker
has an obligation to consider only the interests of the owners of the firm.
A specific right is one whose correlative duty only falls on a determinate person or group.
The stakeholder view of moral standing, which is associated with the doctrine of corporate
social responsibility, holds that a decision-maker has an obligation to consider
the interests of the firm’s owners, employees, suppliers, customers, and members of the
community in which the firm is located.
Strict equality of resources holds that a distribution of property rights in resources is
just if, and only if, it results in everyone having the same amount of resources.
Structural equality of opportunity requires that organizations design positions in such a
way that persons doing the necessary work of society, such as those responsible for the
care of young children, can still fill those positions.
A sufficient condition is a condition that is enough to bring about a second condition
even if it is not required to bring about the effect. Whenever the sufficient condition is
present, the second condition is also present.
The total utility of a group of economic goods or services is the sum of all the utility
produced by the consumption of those goods or services.
Transaction costs are the costs of reaching and enforcing an agreement between negotiating
parties. They include the costs of researching information about the situation,
negotiating the agreement, and legally enforcing the agreement.
Utilitarianism requires agents to make those decisions which lead to the best consequences
judged in terms of the sorts of mental states that they bring about in others.
Utility is an abstract measure of the welfare that people get from consuming something
as a product or service.
A vice is a stable character trait with negative moral significance. Examples are avarice,
cowardice, dishonesty, and sleaziness.
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GLOSSARY
A virtue is a stable character trait with positive moral significance. Examples are courage,
generosity, benevolence, and fairness.
A virtue ethics holds that persons and organizations ought to cultivate a virtuous or
morally excellent character.
The will theory of natural rights points to how the holder of a right has the power either
to insist that others follow their correlative duties, or not to insist that they do, according
to the right-holder’s will on the matter.
Willingness to pay is the maximum amount of money that someone would be willing to
exchange for an economic good or service.
239
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The Review of Economic Studies 9(1): 58–73.
Warren, Karen. 1990. “The Power and Promise of Ecological Feminism.”
Environmental Ethics 12: 125–46.
World Commission on Environment and Development. 1987. “Report of the
World Commission on Environment and Development.” 96th plenary
meeting, December 11, 1987. http://www.un.org/documents/ga/res/42/
ares42-187.htm (accessed April 12, 2011).
241
INDEX
absolute advantage, 196–98
abundant factor of production, 199
action-guiding ethical reasons, 21–23, 32
actus reus, 149
added value, 95–96, 186
affirmative action in favour of women, 130
agreement-seeking ethical reasons, 21–22
altruism, 55
applied ethics, 12, 15, 39, 111
pluralist approach to, 172
Aristotle, 122, 135–36
assumptions of perfect competition, 184, 189–90
avarice, 6, 8, 155
benevolence, 8
Bentham, Jeremy, 53–54, 56, 65, 123
An Introduction to the Principles of Morals
and Legislation, 56
Brundtland Report, 221
business contracts. See contracts
business corporations. See corporations
care ethics, 8, 15, 130, 136–41, 176. See also
feminist care ethics
emphasis on relationships and responsibilities,
138–39, 173
increasingly common and acceptable in
public life, 137
limitations, 141
transplant surgeon example, 65
virtues of caring and wisdom, 140–41
Categorical Imperative, 76–78
causal responsibility, 148–56, 158–59, 166
Centipede Game, 38, 41–42, 49, 115
CEOs of large corporations
compensation relative to workers, 89–90,
93, 95–97
character-based ethical considerations, 15, 110,
155. See also virtue ethics
character-based reason for encouraging free
trade, 195
character-based reasoning, 165
character traits, 111, 123, 159. See also
corporate character
climate change, 190, 209
Coase, Ronald, 215
Coase Theorem, 211, 213–16, 224
codes of ethics, 110, 121, 223
coercive power, 134
coercive threat
diminishes capacity for autonomy, 178
freedom from, 172–73
potential excusing conditions, 167
committee decisions, 152, 166
moral accountability, 157
community, 115
Bentham’s description of, 65
reciprocal relationship with virtue, 117–19
community membership
special obligations to fellow community
members, 140
comparative advantage, 196–98
compensation, 215
appropriate compensation for various
positions, 93, 95
CEOs of large corporations, 90, 93, 95–97
compensatory justice, 91, 104, 150, 156, 224
conceptual framework, 135
conceptual structure of Ancient Greece as
Aristotle described it, 135
conditioned power, 134
enabled subordination of women, 143
conflict of interest, 121, 169
threat to autonomous decision-making, 168, 178
conflict of interest policies, 110
consequence-based approach to ethical reasoning,
6–7, 9, 15, 110–11, 155–56, 165
global justice and, 194
contract law, 183
contractarian approach to protecting the
environment, 211
contractarian ethical theory, 48
contractarian justification for a market
economy, 184–86, 202
contractarianism, 210, 224
contracts, 80
agency relationships, 82
dependent on promises, 73, 81
ethical as well as legal action, 81
legal contracts, 73
contractual rights, 80, 85
cooperation, 124–25
benefits of, 45–46
creating cooperation, 46–49
fair division of gains from, 117
importance to businesses in a market
economy, 45
social cooperation, 109, 111, 117–19, 121
cooperation dilemmas, 41–42, 48–49, 212
cooperative production, 116
coordination problem, 116–17
corporate character, 110, 120–22, 125, 157, 159.
See also character traits
corporate incentive structures, 223
242
INDEX
corporate moral accountability, 154, 156–59, 166
corporate moral agency, 164–66
corporations, 73, 120
green virtues, 223
members of larger communities, 110, 121
moral accountability, 154, 157–59, 166, 178
moral agency, 166, 178
need for virtuous character traits, 121
non-voluntary obligations of loyalty, fairness,
generosity to wider community, 121–22
vicarious ethical rationality, 165
vicarious liability, 154
vicarious moral sensitivity, 165
correlative duty, 78
cost-benefit analysis, 54, 60–61, 63–64, 68, 207,
217–19, 224
cost-benefit utilitarianism, 56
courage, 8, 109, 117–18, 124
cowardice, 8
criminal law, 80, 149, 153–54, 183
cultural conservatism, 125
ethical relativism and, 26
cultural diversity, 25
cultural homogeneity, 26
cultural imperialism, 25
cultural oppression, 134
cultural relativism, 122–23, 125
daycare, provision of services such as, 93, 131–32
deception, 167, 172, 178
decision-making incompetence, 169, 178
deep pockets, 154, 159
democratic societies
avoided reform of moral education within the
family, 133, 143
respected right to family privacy, 143, 175
derivative virtues, 111
difference principle, 102–03, 105, 122, 156, 193,
200–01
differential mobility of capital and labour, 202
diminishing marginal utility of income, 222
direct utilitarianism, 66
on keeping promises, 81
maximization concerns of, 97
discount rate, 219–20
discounting the future, 219–20
dishonesty, 8, 109–10, 112, 118
distributive justice, 54, 90–91, 95, 104, 224
aggregative utilitarian reasoning and, 203
coercive taxation system and, 191
difference principle, 102–03, 105, 122, 156,
193, 200–01
fairness concerns of, 89, 97
free-enterprise system and, 183
proportional income tax, 193
theories of, 118
treating people as moral equals, 91
distributive justice in international trade, 194,
200–02
divine command theories, 74
doctrine of corporate social responsibility, 4
domestic justice, 132–33
domestic virtues (women), 136
dominant strategy in game theory, 44
domination, logic of, 136
duties, 2, 12, 15, 78–81, 159
absolute duties, 76
additional duties for business lives, 73
overriding ethical obligations, 75
prima facie duties, 74, 76, 110
principle-based view of, 77
from principles of justice, 74
duty-based theories of ethics, 8
duty of beneficence, 76
duty of care, 154
duty of fidelity, 76
duty of gratitude, 76
duty of justice, 76
duty of non-maleficence, 76
duty of reparation, 76
duty of self-improvement, 76
duty to keep promises, 81
economic approaches to protecting the
environment, 210–11. See also
environmental economics
economic power, 134
economic utilitarian argument for free trade,
196–98
economic utilitarian decision rule, 220
economic utilitarian justification for a market
economy, 177, 189–92
economic utilitarianism, 62–64, 174, 215–17, 224
all people have moral standing, 64
difficulties with fairness, 218
involves seeking GDP growth, 222
limitations, 184
egoism
paradox of, 40–41
psychological egoism, 38–41, 48–49
self-interested egoists, 67
emotional manipulation, 169–70, 178
employment contracts, 83
environmental economics, 211, 216–17, 224
admits need for government regulation, 216
methods of measuring costs and benefits, 218
use of market discount rates, 220
environmental pollution. See pollution
environmental problems
solutions involving provision of public goods,
191, 223
equal consideration of welfare interests, 54,
97, 104
equality of opportunity, 104
fair equality of opportunity, 92–93, 130
formal equality of opportunity, 130
structural equality of opportunity, 131–32
equality of opportunity for women, 130
243
index
equality of resources, 102–03
income inequality, 222
equality of welfare
problem of levelling down, 101–02, 104–05
as theory of distributive justice, 100
ethical decision-making process
components of, 2
role of cultural background in, 28
ethical decisions, 2–3, 14–15
ethical disagreement, 27
ethical duties, 73–75. See also duties
ethical egoism, 9–10, 15, 40–42, 47–49, 118, 184
applied ethical theory about how people
should behave, 39
consequence-based ethical theory, 38
ethical-egoist decision procedure, 187
ethical intuition, 56, 65–66
ethical judgments, 33
agreement-seeking, 40
ethical pluralism, 29–31, 33, 76, 81
ethical reasoning, 6–7, 74, 110
ethical reasons
action-guiding, 21–23, 32
agreement-seeking, 21–22, 27
requiring justification and argument, 32
ethical relativism, 20, 24–25, 28, 39
weaknesses, 25–27
ethically permissible promise, 81
ethics of care. See care ethics
ethics training for employees, 110
eudemonism, 113
excellences, 109–10
executive compensation, 89–90, 93, 95–97
experience-based utilitarianism, 56–57, 60
personal autonomy and, 174–75
Experience Machine, 57
external benefit or positive externality, 190
external costs, 190, 207–10, 217, 223. See also
negative externalities
tragedy of the commons, 212–13, 224
external costs created by pollution
fall on future generations and distant people, 210
extreme egoists, 38, 47
cooperation dilemmas for, 41–43, 49
fact/value distinction. See “is/ought” gap
factor-proportions law, 199–200, 203
failure to disclose information, 168, 178
fair distribution of risk, 149
fair distribution of the gains from trade, 198
fair division of gains from cooperation, 117
fairness, 2, 8, 68, 109, 111, 121–22, 186
free-enterprise system and, 183
privatizing the environment and, 224
when trading off pain of one for pleasure of
another, 54
fairness concerns of distributive justice, 89, 97
family finances controlled by men, 129, 132, 142
family or domestic privacy, 143, 175
feminist care ethics, 8, 137, 143. See also
care ethics
keeping promises, 81
feminist ethical considerations on personal
autonomy, 173
feminist ethics, 133
feminists, 136, 138, 175
criticized patriarchal conceptual framework,
137, 143
on structural inequality of opportunity, 93
fidelity, 115, 117–18, 124
fiduciary duties, 82
financial crisis (2008), 109
flourishing society, 223. See also human
flourishing
formal equality of opportunity, 92, 130
Frame Problem, 13
fraud, 167
free enterprise system, 95
ethical justifications for, 183
and requirements of fairness and distributive
justice, 183
free market economy, 95. See also market
economy
maximizing welfare of members (under
conditions of perfect competition), 184,
189–90
moral justification of, 90
free market environmentalism, 211, 224
privatization proposal, 213
free riders, 191, 223
free trade, 194–96, 198
free will, 166
freedoms, 79, 164
Frye, Marilyn, 135
future generations, 141, 208, 210, 220. See also
intergenerational justice
future people as moral equals, 223
Galbraith, J.K., 134
game theory, 38, 41, 43–44, 61
GDP growth as indicator of sustainable
development, 222, 224
gender-associated differences, 136
gender-based specialization and division of
labour within the family, 136
gendered character traits, 130
general moral rights, 79
general rights, 78
generosity, 8, 109, 121–22
Genuine Progress Indicator, 222
Gilligan, Carol, 137
global community, 208, 210, 224
global distributive justice
winners from free trade must compensate
losers, 202–03
global ethics, 141
global justice, 193–94, 196, 198
globalization, 4
244
INDEX
Golden Rule, 74
good life, 119
government regulation, 24, 82, 186, 216
government regulation and redistribution, 186
government role in protection of the
environment, 211, 216
governments
informational privacy and, 164
greed. See avarice
green virtues, 223
guilt, 48
Hardin, Garrett, 212
Harm Principle, 74, 79–80, 85, 123, 176, 215
hedonism, 113
Hobbes, Thomas, 47–48
holism, 157, 165
honest disclosure, 28
honesty, 109, 117–18, 124
Honoré, A.M., 83
honour killing, 25
human flourishing, 111
within a corporation, 121
need for good character, 124
social circumstances relevant to, 114–15
as understood in virtue ethics, 113
human rights, 6, 10, 12–13, 68, 149, 195
human rights abuses, 7, 12, 222
human rights violations, 65–66
human welfare, problems of measuring, 54
Hume, David, 22–23
Hume’s Guillotine, 22, 25
hypothetical imperative, 76
identity-based approach to ethical reasoning,
6–8, 155
identity-based feminism, 138
In a Different Voice (Gilligan), 137
incentive structures, 121, 223
indignation, 48
indirect economic utilitarian argument
for private property rights regarding
pollution, 214
indirect economic utilitarianism justification for
a market economy, 186–89, 202
indirect utilitarian argument for equal
distributive shares, 99
indirect utilitarian theory of distributive justice, 100
indirect utilitarian theory of justice, 97
indirect utilitarianism, 54, 66–67, 97–98, 111
keeping promises, 81
utilitarian reasoning as justification
procedure, 67–69
individual members of a corporation
moral accountability, 154, 157–59, 166, 178
individual rights, 54, 65. See also rights
informational privacy, 164, 175, 177–78
connections to personal autonomy, 176
informed consent to infringement, 215
informed preference theory of value, 59–60
injustice, paradigm examples of, 91
insider trading, 177
interest theory of rights, 175
intergenerational justice, 221, 223. See also
future generations
internal costs, 209
international businesses, 198
international free trade, 194–96, 198
Internet
informational privacy and, 164, 176
reduced transaction costs in the market, 191
interpersonal comparison of preferences, 104
intolerant cultures
ethical relativism and, 25–26
An Introduction to the Principles of Morals and
Legislation (Bentham), 56
invisible hand, 48, 67, 183, 189
“is/ought” gap, 22–23, 25, 40, 148
joint-stock company, 156
decision-making process, 166
as example of complexity and divisibility of
ownership, 84
just society, 110
justice, 74, 90–91, 104, 110, 117–18, 125,
141, 207
egalitarian theories of, 200
transplant surgeon example, 65
justice-based point of view
on protection of the environment, 215
justice-based theories of ethics, 8, 111
justice considerations, 11, 13, 15
Kant, Immanuel, 85, 123
Categorical Imperative, 76–78
on duty, 74, 81
on motivation of moral agent, 75
Kantian duties, 76–78
weakness of, 77–78
Kantian rights theory, 118
Kantian theory of natural rights, 174
Kantian tradition
personal autonomy in, 174
law of comparative advantage, 196, 199, 201, 203
law of declining marginal benefits, 188
law of diminishing marginal returns, 94
law of diminishing marginal utility, 97, 187, 192
law of increasing marginal cost, 187–88
legal concept of “deep pockets,” 154, 159
legal contracts, 73, 80, 157
social cooperation through, 117
legal reasoning, 156
legal responsibility, 153–54, 159, 166
legal rights, 79, 91
levelling down objection, 101–02, 104–05
liberal egalitarian justification of a market
economy, 192–93, 202
245
index
liberal feminism, 138
libertarian argument for free trade, 195–96
libertarian justice, 96
libertarian system of property rights, 95
libertarian theory of ownership, 90
libertarian view on moral equality of persons, 91
libertarianism, 95, 97, 210, 224
liberty, 74, 79, 224
liberty and autonomy, 123
liberty rights, 175
Locke, John, 84, 95–96, 123, 186, 195
logic of domination, 136
loyalty, 12, 109, 121–22
lying, 167, 172. See also deception
MacIntyre, Alasdair, 119–20
Marginal Abatement Cost (MAC), 217
Marginal Damage (MD), 217
marginal productivity, 93–94
marginal utility of an economic good or service,
97, 187
marginal willingness to pay, 187
market-based approaches to pollution control, 207
market economy, 67. See also free enterprise
system; free market economy
depleted resources from, 208
ethical justifications for, 183
failure to account for external costs of
greenhouse gas, 209
problems for future generations, 208
system of laws enforced by the state (rules of
doing business), 183
market failures, 190, 223
climate change and, 209
market fundamentalism, 224
sees minimal role for government in
protection of the environment, 210–11
market imperfections, 190, 209
market price, 187, 192
material conditions, 114–15
maximizing economic welfare, 190
maximizing net pleasure, 54
maximizing self-interest, 42, 44, 49
maximum aggregate utility, 187, 189
maximum amount of utility, 53
Mead, Margaret, 25
measuring degrees of pain and pleasure across
individuals, 54, 68
measuring utility, 60–62, 68
mens rea, 149
microeconomics, 187
Mill, John Stuart, 123, 176, 195
On Liberty, 79
moderation, virtue of, 118, 124
modern technology
informational privacy and, 176
moral accountability, 3–4, 15, 24, 28, 147–48,
154–55
and causal responsibility, 149–53
interferences with moral autonomy and, 167
“is/ought” gap, 148
value judgments about, 158
moral agency, 3, 8, 164–65
capacity for moral accountability, 177
moral autonomy, 163, 173, 178
and moral accountability, 170–71
moral competence, 112
moral duties. See duties
moral education within traditional family, 132–33
moral emotions, 48
moral equality of persons, 89–92, 104, 133
basis for inter-generational justice, 222
differing interpretations of, 91
domestic justice and, 132
equal moral status of women, 133
future people, 223
special relations and, 141
moral excellence, 112
moral excellences of firms, 110
moral excellences of good managers, 109
moral intuition, 56, 65–66
moral network which business people inhabit, 84
moral perception, 112, 138
moral perceptiveness, 112
moral right to personal autonomy, 175
moral rights, 79, 81, 175
correlation with duty owed, 85
moral standing, 15, 40, 64, 193, 207, 224
comprehensive view of, 4, 208
of distant people, 194, 202
every human has, 195
morally relevant differences between people, 91
motivation-based ethical reasoning, 74–75, 85,
155, 159
on moral accountability, 156
motivation behind decisions, 110
multiculturalism
ethical relativism and, 26–27
natural rights, 79, 84, 195
Kantian theory of natural rights, 174
naturalistic fallacy, 22
necessary condition, 150, 158
Necessary Element in Set of Sufficient
conditions. See NESS condition
negative autonomy right, 175
negative duties, 8
negative externalities, 223–24. See also external
costs
negative liberties, 175
negative rights, 79, 95, 186, 195
nepotism, 141
NESS condition, 152
net benefit calculation, 54
non-disclosure of information, 168
non-excludable good. See open access resources
non-governmental organizations, 121, 141
non-human environment, 208
246
INDEX
non-point-source pollution, 224
Nordhaus, William, 220, 223
normative cost-benefit analysis, 63–64
normative economics, 62
Nozick, Robert, 57, 195
modification of Locke’s argument, 96, 186
obedience to rules, 187
objective consequentialism, 9, 60
obligations of community membership, 120
officers and employees. See individual members
of a corporation
offshore production example, 2–3, 6–7, 10,
17–18, 149–51, 155–56
omissions as causal factors, 153
On Liberty (Mill), 79
open access resources, 190, 207, 209, 211, 213,
223–24. See also tragedy of the commons
oppression of women, 133–36
oppressive conceptual framework, 135–36
diminishes capacity for autonomy, 169, 178
organizational features affecting corporate
character, 110
“ought” implies “can,” 23–24, 28, 38, 66, 167
outrage, 48
ownership, 85
bundle of rights and liabilities, 83–84
libertarian theory of, 90
paradigm examples of injustice, 91
paradox of egoism, 40–41
Pareto efficiency, 115
as maximization principle, 61
Pareto efficient outcomes, 44, 48–49, 184–86
patent laws, 190
paternalism, 125
patriarchal logic of domination, 136
payoff matrix in game theory, 43
perfectly virtuous people, 112
personal autonomy, 163–64, 172–75, 178
deception diminishes capacity for, 167, 172, 178
positive autonomy right, 175
personal freedom, 164
personal property, 83
personal responsibility
Rawls’s difference principle and, 103
physical privacy, 175
Plan International, 141
pluralist approach to applied ethics, 172
pluralist attitude to ethical reasoning, 12
polluters should pay (intuition), 215
pollution, 1, 190, 208, 224
external cost problems, 207, 209–10
socially optimal level of, 216
use of atmosphere and oceans as dumping
grounds for, 190
positive autonomy right, 175
positive cost-benefit analysis, 63–64
positive discrimination in favour of women, 130
positive economics, 62
positive right, 79, 85, 175
posterity. See future generations
practical wisdom, 112
pre-existing rights, 215
preference-based utilitarianism, 56–61
people do not always choose wisely, 58–59
personal autonomy and, 174
prima facie duties, 74, 76, 110
principle-based approach to ethical reasoning, 6,
8, 15, 165, 194
Prisoner’s Dilemma Game, 38, 42–45, 48–49,
115, 125
prisoner’s dilemma situations, 81, 184–85
privacy, 175–77
family or domestic privacy, 175
firm’s spying, 163–64
private property rights. See property rights
privatizing the environment
questions of fairness and liberty, 224
problem of expensive tastes, 100, 104
problem of levelling down, 101–04
property laws, 183
property rights, 80, 83–84, 96, 186
Locke’s model for initial acquisition, 95–96
mostly negative rights, 82
proportional income tax, 193
psychological egoism, 40–41, 48
basic assumption of economics, 49
empirical theory about human nature, 39, 49
scientific theory, 38
public goods, 191, 207, 209, 217–18
failure to provide, 223
as solutions to environmental problems, 191, 223
value of, 218
public virtues (men), 136
purchasing contracts, 83
quantification of sustainable development, 207
rationally maximizing self-interest, 37, 39
Rawls, John, 103, 123
difference principle of distributive justice,
105, 122, 156, 193, 200–01
A Theory of Justice, 102
reciprocity, virtue of, 115
redistribution, 98, 186, 200. See also
distributive justice
redistributive taxation, 90, 183, 202
redistributive welfare system, 193
relative advantage, 199
reservation price, 62, 187, 192
retributive justice, 91, 104, 149, 154, 156, 158
moral accountability in, 156
theory of, 148
retributive-justice-plus-causal-responsibility
model of moral responsibility, 149
Ricardo, David, 196
law of comparative advantage, 199, 201, 203
247
index
rights, 65, 74, 78, 207
contractual rights, 80, 85
limits, 79
moral rights, 79, 81, 85, 175
negative rights, 79, 95, 186, 195
positive autonomy right, 175
positive right, 79, 85, 175
pre-existing rights, 215
respect for, 187
self-ownership rights, 104, 177
rights and duties, 78–80
rights-based libertarian justification of a market
economy, 186, 202
rights-based point of view
corporate character under, 157
rights-based theories of ethics, 8, 12–13, 15, 111
rights of individuals
communitarians and, 123
Ross, W.D.
list of prima facie duties, 76
rule utilitarianism, 77
rules, obedience to, 187
safety risks in overseas factories, 3, 149–50
scarce factor of production, 199
self-interest, 37–39, 49, 81, 189
self-interested behaviour, 187
self-interested egoists, 67
self-interested maximizers, 37, 39
self-ownership, 95, 178, 186
self-ownership rights, 104, 177
sensations, 56
sensitivity, 109, 123–24, 138–39, 165, 167, 172,
177–78
shame, 48
shareholder view of moral standing, 4
sleaziness, 8
Smith, Adam, 45, 54, 93, 97, 115, 119, 124, 159,
184, 187
invisible hand metaphor, 48, 67, 183
social circumstances relevant to flourishing, 114–15
social cooperation, 109, 111, 118, 121
through legal contracts, 117
virtue ethics on, 119
socially optimal level of pollution, 216–17, 224
socially responsible corporate managers
ethical decisions, 53
Solow, Robert, 221
Special Economic Zones, 7, 10, 12
special obligations of loyalty and solidarity to
our “tribe,” 120
special obligations to members of our families, 119
special obligations to particular others, 140–41
special responsibilities, 159
specialization and free trade, 197
specialization and the division of labour, 45–46,
48, 93, 97, 115, 117, 151, 196
determination of causal responsibility not
possible, 156
in family life, 129–30, 142
Stag Hunt Game, 115–16, 125
stakeholder view of moral standing, 4
state interference in moral education of children
within the family, 133
Stern, Nicolas, 220, 223
Stoics, 114
structural inequality of opportunity, 93, 131–32,
134, 142
sufficient condition, 150–51, 156, 158
sustainability, 4
sustainable development, 207, 221–22
sustainable society, 223
temperance, 109
Ten Commandments, 8, 74
A Theory of Justice (Rawls), 102
threats to moral autonomy
as threats to personal autonomy, 172
tolerance, 109
toleration for other cultures, 25
tort law, 80, 84, 154, 158, 166, 183
total utility of a group of economic goods or
services, 97
traditional family
family financial resources controlled by men,
129, 132, 142
moral education in, 132–33
sense of justice not in accord with moral
equality of persons, 132
tragedy of the commons, 224. See also open
access resources
common sources of environmental
problems, 213
external cost, 212
transaction costs, 191, 209, 215
transplant surgeon example, 65, 67
trustworthiness, 109, 115, 117–18, 124
Truth-teller and the Axe Murderer, 77–78
truthfulness, 118
Ultimatum Game, 38–39, 42, 49, 117
unequal pay for equal work, 95
unfair distribution of welfare, 65
universality of a law, 76–77
unjustified non-disclosure
threat to personal autonomy, 172
usury, 1
utilitarian argument on executive compensation, 90
utilitarian ethical premise, 64
utilitarian ethical theory, 53
utilitarian view on moral equality, 91
utilitarianism, 9, 11, 13, 15, 97, 103, 118, 124
aggregative utilitarian reasoning, 203
Bentham’s definition, 53–54
corporate character under, 157
cost-benefit, 56
direct utilitarianism, 66, 81, 97
economic (See economic utilitarianism)
248
INDEX
experience-based, 56–57, 60
indirect (See indirect utilitarianism)
preference-based, 56–61, 174
rule utilitarianism, 77
understanding of happiness, 113
utility
Bentham’s definition, 54, 56
modern-day economists and philosophers on, 54
value added approach, 95–96, 186
vicarious action through officers and employees
of a company, 165
vicarious liability, 154
vicarious moral sensitivity, 165
vicarious responsibility, 158–59
vices, 7–8, 68, 109–10, 118, 122
virtue and community
reciprocal relationship, 117–19
virtue and flourishing
relationship, 113, 124
virtue ethics, 8, 10, 13, 15, 138–39, 149
charge of cultural relativism, 122–23
on corporate character, 121, 157
critics of its communitarian background, 123
cultural conservatism, 123
emphasis on social context, 118
ethical decision-making in business, 110
global justice and, 194
and human flourishing, 110–14
keeping promises, 81
on moral accountability, 155
on personal autonomy, 173
problem of multiple community memberships,
124–25
transplant surgeon example, 66
weaknesses of, 122–24
virtue ethics rule of action, 112
virtues, 8, 65, 110, 207
forms of moral excellence, 109
fostering social cooperation, 109, 118
inculcation of, 187
mean between two vices, 112, 124
moral significance, 111
permanent character traits, 115
relative to community standards, 122
role in creating and maintaining prosperous
and just society, 118
virtues of moral sensitivity and discernment, 139
virtues of nation states, societies, communities,
and corporations, 110
virtuous communities, 125
acknowledge obligations to larger
communities, 120
virtuous people
acknowledge obligations to fellow
community members, 120
von Neumann-Morgenstern method (of
measuring utility), 60–61
willingness to pay, 56, 64, 68, 100, 187, 192, 218
ability to pay and, 62
fairness and, 62
not necessarily the market price, 61
problem as a measure of utility, 62
relative to a certain level of information, 192
relative to level of income, 192
willingness-to-pay method used in economic
cost-benefit analysis, 61
wisdom, 112, 140–41
women
different conception of moral decisionmaking
(Gilligan), 137
positive discrimination in favour of, 130
women, oppression of, 133–36
women’s pregnancy leave, 91
workplace
structural inequality of opportunity in, 142
as venue for exercise of virtues, 121

 

From the Publisher
A name never says it all, but the word “Broadview” expresses a
good deal of the philosophy behind our company. We are open to a
broad range of academic approaches and political viewpoints. We pay
attention to the broad impact book publishing and book printing has
in the wider world; we began using recycled stock more than a decade
ago, and for some years now we have used 100% recycled paper for
most titles. Our publishing program is internationally oriented and
broad-ranging. Our individual titles often appeal to a broad readership
too; many are of interest as much to general readers as to
academics and students.
Founded in 1985, Broadview remains a fully independent
company owned by its shareholders—not an imprint or subsidiary
of a larger multinational.
For the most accurate information on our books (including
information on pricing, editions, and formats) please visit our website
at www.broadviewpress.com. Our print books and ebooks are
also available for sale on our site.
On the Broadview website we also offer several goods that are not
books—among them the Broadview coffee mug, the Broadview beer
stein (inscribed with a line from Geoffrey Chaucer’s Canterbury Tales),
the Broadview fridge magnets (your choice of philosophical or literary),
and a range of T-shirts (made from combinations of hemp, bamboo,
and/or high-quality pima cotton, with no child labor, sweatshop labor,
or environmental degradation involved in their manufacture).
All these goods are available through the “merchandise”
section of the Broadview website. When you buy Broadview
goods you can support other goods too.
broadview press
www.broadviewpress.com
The interior of this book is printed on 100% recycled paper.