Week 1 Article review

Vol.:(0123456789)1 3

Journal of Business Ethics (2019) 159:75–88 https://doi.org/10.1007/s10551-017-3761-6

O R I G I N A L PA P E R

The Implicit Morality of the Market and Joseph Heath’s Market Failures Approach to Business Ethics

Marc A. Cohen1,3 · Dean Peterson2

Received: 3 May 2016 / Accepted: 3 December 2017 / Published online: 12 December 2017 © Springer Science+Business Media B.V., part of Springer Nature 2017

Abstract Joseph Heath defends competitive markets and conceptualizes business ethics with reference to Pareto efficiency, which he takes to be the “implicit morality of the market.” His justification for markets is that they generate Pareto efficient outcomes, meaning that markets optimally satisfy consumer preferences. And, for Heath, business ethics is the set of normative con- straints—regulation and beyond-compliance norms—needed to preserve that outcome. The present paper accepts Heath’s claim that the economic justification for markets is ethical, in that satisfying consumer preferences is a good. But, contra Heath, the ethical consideration at work is a consequentialist one; and acknowledging this consequentialism exposes limita- tions of Heath’s “market failures” approach to business ethics. We suggest two limitations, and we expect many will accept our argument that Heath’s conception of business ethics is too narrow. The present paper outlines two broader implications. First, acknowledging that the justification for markets is ethical eliminates the apparent—and false—conflict between pur- portedly amoral economic activity on one hand and ethical considerations on the other; instead, business ethics is a matter of weighing the consequentialist ethical benefit of economic activity and markets against other moral arguments/other ethical considerations. Second, Heath restricts business ethics to the constraints needed to protect the market’s ability to efficiently satisfy consumer preferences, constraints he calls “efficiency imperatives”; this restriction (inadvertently, perhaps) supports the widespread tendency to think that all social problems are economic; and, a business ethics so-conceived diminishes the perceived importance of noneconomic values—this attitude is dangerous.

Keywords Implicit morality of the market · Market failures approach · Consequentialism

Introduction

Joseph Heath’s (2006, 2007, 2014) “market failures” or “Paretian” approach is an important contribution to busi- ness ethics. In the present paper, in the first section, we trace the logic of this approach—which draws on economic theory and emphasizes the benefits of markets, competition, and profit-seeking behavior. Heath emphasizes these benefits in

order to re-orient business ethics: He thinks that too much of the discipline is anticapitalist and antagonistic toward mar- kets, and he emphasizes these benefits to shift our thinking away from this anticapitalist attitude. The present authors are very much sympathetic to this line of thought about the benefits of markets.

Heath argues, further, that market activity must be con- strained by rules; these rules prevent firms from creating or exploiting market failures and, in that way, prevent firms from pursuing business strategies that undermine the social benefits of market-based competition. These rules take the form of regulation and, when government regulation is incomplete or inadequate, beyond-compliance norms also constrain managers’ actions. These regulations and beyond- compliance norms together constitute business ethics on Heath’s approach.

Heath presents this account of markets and defends this set of market constraints with reference to Pareto efficiency, which he takes to be the “implicit morality of the market”

* Marc A. Cohen [email protected]

Dean Peterson [email protected]

1 Department of Management, Seattle University, Seattle, WA, USA

2 Department of Economics, Seattle University, Seattle, WA, USA

3 Department of Philosophy, Seattle University, Seattle, WA, USA

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(2014, p. 173, with reference to McMahon 1981)—and which he takes to be an “irreducible moral principle” (2014, p. 10). Put in those terms, his justification for markets is that they generate Pareto efficient outcomes, meaning that mar- kets optimally satisfy consumer preferences; this is an ethi- cal justification in that satisfying consumer preferences is a good. And, for Heath, the constraints that comprise business ethics are all grounded on, meaning that these constraints are justified with reference to, the same consideration—these constraints protect the market’s ability to optimally satisfy consumer preferences. These constraints are Heath’s “effi- ciency imperatives.”

The present paper accepts Heath’s point, that the justifi- cation of markets is ethical, in that markets Pareto optimize consumer preference satisfaction.

And, the present paper accepts Heath’s claim that we can derive constraints on market activity from that same ethical consideration. But, despite his protests to the contrary, we argue that the ethical consideration at work here is thor- oughly consequentialist. This reference to consequentialism shouldn’t come as a surprise: Heath grounds his approach in economic theory which is itself thoroughly consequential- ist. We present this line of argument in the second section below, and we take this line of argument to support Heath’s project—by clarifying the ethical foundation for the market failures approach. Our focus is on Heath’s work though the same point about consequentialism would also apply in the context of McMahon’s (1981) work, cited above.1

Acknowledging the underlying consequentialism exposes limitations of the market failures approach. Section three discusses two kinds of limitations and Heath’s potential

replies. We expect that many will find Heath’s conception of business ethics to be too narrow once these limitations are made explicit.

Before proceeding we want to outline a pedagogical application of the material here and also provide a brief comment on one broader motivation for the present paper.

First, as noted, in the context of Heath’s work the jus- tification for competitive markets is an ethical one, in that markets best serve the end of satisfying consumer prefer- ences. So, the problem in business ethics is not to provide and defend normative constraints on amoral market activity and/or amoral market mechanisms, or to advocate for the pursuit of certain kinds of social benefit in the context of amoral market activity. Business ethics is not a question of ethics versus markets or ethics versus efficiency. Instead, business ethics concerns competing ethical considerations: on one hand, promoting consumer preference satisfaction and, on the other hand, constraints derived from other nor- mative considerations; one example below involves a deon- tological restriction on market activity needed to protect worker safety, needed to adequately respect workers as per- sons. So, the line of thought pursued in the present paper is essential for our pedagogical work: Acknowledging the ethical justification for markets eliminates the apparent—and false—conflict between market activity/economic considera- tions and ethical considerations, and so eliminates confu- sion in students’ minds about how ethics fits with business disciplines (see Carrithers and Peterson 2006). To be clear, though, this is the present authors’ conception of business ethics as involving competing ethical considerations. Heath defends markets and also grounds business ethics solely on the optimal satisfaction of consumer preferences; for Heath there are no other ethical considerations, so for Heath there is no conflict—or so we argue.

Second, as mentioned, according to Heath’s market fail- ures approach, business ethics is only concerned with pro- moting the efficient satisfaction of consumer preferences; regulation and beyond-compliance norms protect the mar- ket’s ability to optimally satisfy those preferences. How- ever, this conception of business ethics—inadvertently, per- haps—supports, and even justifies, the widespread tendency to think that all social problems are economic. A business ethics so-characterized could also diminish the perceived importance of noneconomic values, the perceived impor- tance of the non-consequentialist, non-efficiency-based con- straints in the form of both regulation and beyond-compli- ance norms—which is precisely what is at stake in much of business ethics. This tendency is referred to as economism, and challenging this economism is one of our central moti- vations in the present paper.2 So, the example just mentioned

1 Heath uses the terms “market failures approach” and “Pare- tian approach” as labels for his conception of business ethics, and throughout this paper we follow Heath and use the two terms as syn- onyms. But there is an important difference between the two terms within economic theory. Pareto optimality or, equivalently, Pareto efficient outcomes are addressed in that part of economic theory concerned with general equilibrium, where the goal is to simultane- ously model all markets for a society; a competitive and complete set of markets optimizes consumer preference satisfaction in the Pareto sense, meaning that no one person can be made better off without harming another. But the concept of market failure, with its emphasis on deadweight loss, is part of partial equilibrium theory, where the focus is on a single market, on a single good or service—and where the market mechanism maximizes the combination of consumer and supplier surplus. This distinction is relevant here because economic theory moves back and forth between concern with optimizing con- sumer preference satisfaction (in general equilibrium theory) and maximizing the combination of consumer and supplier surplus (in partial equilibrium theory). Given a set of standard assumptions, which enable the movement from the partial to the general equilib- rium context, these two approaches are equivalent—and this under- scores and supports our claim that concern with Pareto optimality is fundamentally consequentialist, because optimizing in one context is equivalent to maximizing in another.

2 As noted later in the main text, Heath rejects the conception of the human person used in economic theory (2014, p. 9). Heath says that, in doing so, he rejects economism. But, nevertheless, Heath’s

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makes reference to a deontological requirement to protect worker safety; but for Heath, regulation must be derived from efficiency considerations alone; as a result, from the perspective of the market failures approach, such a regula- tion would be ungrounded; and such regulation would be, according to Heath, “anticapitalist” (2014, p. 200).

So, in short, we take Heath’s work and the market failures approach to hold much promise by making explicit the ethi- cal dimension of the economic justification for markets. But this approach to business ethics is nevertheless dangerous in supporting economism, in business ethics and perhaps more generally. The present paper aims to capture this promise and, at the same time, to close off the danger by acknowledg- ing the limitations.

The section that follows provides a short overview of Heath’s market failures approach, in preparation for our point concerning consequentialism and our argument that the approach is too narrow.

Heath’s Market Failures Approach

Heath’s approach to business ethics begins with the distinc- tion between the obligations managers bear to persons out- side of the firm when involved in market transactions, on one hand and, on the other, and managers’ obligations to those within the firm, when managers are involved in what the economics literature refers to as administered transactions. The distinction is essential, Heath argues, because the two kinds of transactions are governed by different normative logics: “market transactions [with those outside of the firm] are governed by the competitive logic of the market envi- ronment in which the firm operates, whereas administered transactions are subject to the cooperative norms that govern [and make possible] collective action in bureaucracy” (2007, p. 359). Heath’s concern is with market transactions, which permit competitive, “adversarial” behavior that would not be appropriate within the firm, because “the systematic conse- quences of that [competitive, adversarial] behavior within that institution [the market]” are positive (2007, p. 365, our emphasis).3 The “systematic consequences” are the efficient allocation of resources, the efficient production of goods

and services, and the efficient distribution of those goods and services. Heath’s use of the term “adversarial” makes reference to Applbaum (1999); and following Applbaum, Heath puts the point this way: “In the case of competitive behavior, …the consequences of defecting from the coop- erative arrangement constitutes a genuine harm for the other competitors [think of a competitor harmed by price competi- tion], but… the wrongness of this harm is outweighed by the positive externalities generated by competition as a whole…, and thus the action is in its context morally permissible” (2007, p. 365; the “positive externalities” here are the three efficiency outcomes listed above).

Business ethics too often fails to make this distinction, Heath thinks, and as a result business ethics too often applies norms governing cooperative activity to market transactions; doing so precludes competitive behavior (at least theoreti- cally) because competitive behavior, the pursuit of win–loss outcomes, violates those cooperative norms. As a result, business ethics is too often critical of legitimate business activity, business ethics is anticapitalist and antibusiness (Heath 2006, p. 552). Heath puts the point strongly with reference to stakeholder theory: “The fundamental problem with stakeholder theory is that it tries to eliminate the adver- sarialism of the managerial role, rather than merely impos- ing constraints upon it” (2006, p. 552).

Setting aside the question of whether this is a fair charac- terization of stakeholder theory, in contrast, Heath—follow- ing economic theory—emphasizes two particular positive consequences of competitive markets: First, competitive markets insure that “the maximum number of mutually ben- eficial economic exchanges takes place,” eliminating dead- weight loss and, second, “more importantly, a competitive market also gives rise to a set of prices, which provide infor- mation to market participants about the relative scarcity of the resources, goods, services, and skills being exchanged” (2007, p. 364). The first is a reference to Pareto efficient outcomes. Concerning the second, Heath explains: “[T]he market takes people’s invisible preferences regarding both production and consumption and converts them to some- thing that can be observed with the naked eye, viz. prices” (2007, p. 364), and these prices then act as signals making possible rational economic decisions.

These consequences justify competitive behavior in mar- kets and the first, in particular, provides a justification for competitive markets. Heath’s way of describing these conse- quences—with reference to efficiency—obscures the ethical justification for markets, and we will return to this point in the next section.

Here we want to emphasize another of Heath’s points: In order to serve these functions, that is, in order to insure that competitive behavior in markets creates social benefit, “mar- ket competition must be governed by a set of rules, restrict- ing the range of strategies that individuals may employ, in

3 Heath allows that some firms are explicitly organized as markets, at (2007, p. 368), so competitive behavior could also be appropriate within some firms or within some parts of firms.

rationale for state regulatory action and beyond-compliance norms is grounded solely on efficiency concerns—and it seems reasonable to us to worry that, when Heath writes, “‘efficiency imperatives’ are pretty much all there is to business ethics” (2014, p. 174)—this encourages economism in the sense that concerns us, the reduction of social policy to economic concerns.

Footnote 2 (continued)

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order to ensure that it [the market] remains healthy” (2007, p. 364). Without these rules, firms might pursue strategies that undermine the social benefits of the system of compe- tition—firms might exploit market power, take advantage of other market failures, circumvent regulation aimed at preventing market failures, and attempt to gain competitive advantage by lobbying against regulation aimed at prevent- ing market failure. These rules take the form of government regulation and, when regulation is not adequate, managers are also bound by a set of beyond-compliance norms that serve the same function, precluding strategies and actions that cause or exploit market failures. With Heath, we will refer to these regulations and beyond-compliance norms as efficiency imperatives (Heath takes the phrase “efficiency imperatives” from McMahon 1981, p. 258). In short, as Heath puts it, “the strategies that [managers] adopt to obtain profit must be consistent with the greater social good that serves as the ‘purpose’ of the market economy, viz., efficiency in the production and allocation of goods and services. The imperatives outlined above [firms shouldn’t exploit market failure, shouldn’t circumvent regulation, and shouldn’t lobby against regulation aimed at preventing mar- ket failures], represent an attempt to articulate the type of constraints that this sort of consistency imposes” (2007, p. 372).

There are, then, substantive ethical requirements for management embedded in regulation and also in beyond- compliance norms. These regulations and these beyond- compliance norms are derived from the rationale for mar- kets, from the benefits mentioned above. And as a result, as Wayne Norman puts it, “those already committed to [markets] should also embrace a more robust set of ethi- cal obligations for business people” (2014, p. 25)—that is, those committed to markets because of these economic benefits should also be committed to regulation and beyond-compliance norms which are grounded on those same benefits. (Note though that Norman, disagreeing with Heath, allows that there will be further obligations as well.) Heath’s account of business ethics is therefore consistent in form with other approaches that offer moral constraints in the pursuit of profit but, “What distinguishes the market failures approach from other such proposals is the specific account of how these constraints should be derived” (Heath 2006, p. 551). Heath’s approach there- fore provides “conceptual gain” beyond the “mischief” of stakeholder theory (2006, p. 553); business ethics is therefore not “touchy-feely” (2007, p. 372); it is more than a set of unorganized intuitions. And from a practical perspective, this implies that those working in business ethics ought to focus on and encourage firms to respect the institutional framework that prevents market failures. This said, we accept Norman’s (2011) re-appraisal of Heath on these points, which suggests that—as a practical

matter—Heath’s approach might be “unrealistic as a guide to business decision making” (p. 52), though this is not our concern here.

Much of this material is very useful: Heath addresses and corrects the anticapitalist strain that runs through some of business ethics; he appreciates that different norms govern inter- and intra-firm behavior; and he tries to connect ques- tions about the purpose of markets with questions typically addressed in business ethics. But the ethical ground for the market failures approach requires clarification; this need is addressed in the second section, immediately below. And then, in the third section, we address a further point: Once the consequentialist foundation is made explicit, limitations of the market failures approach become clearer. We expect that many will find Heath’s conception of business ethics to be too narrow.

The Ethical Justification for Markets

Heath’s references to market efficiency and his description of the market failures approach as “Paretian” (2014, p. 50) amount to two claims: (i) “What the efficiency principle pro- vides… is an articulation of the ‘point’ of marketplace com- petition” (2014, pp. 198–199)—meaning that the “efficiency principle” provides the ethical justification for markets. And (ii), efficiency is the “implicit morality of the market” (2014, p. 173), meaning that efficiency can serve as the ethical ground for government regulation and for the moral duties attached to managers’ roles.

This section focuses on the first of these claims; the next section will focus on the second claim. In particular, con- cerning the first claim, and as explained in the previous sec- tion, market competition generates Pareto efficient outcomes, meaning the optimal satisfaction of consumer preferences. The reference to deadweight loss in the previous section is equivalently a reference to efficiency in this sense. And, according to Heath, this consequence of market competition provides an ethical justification for competitive markets, in that satisfying consumer preferences is a good. This section argues that, when Heath refers to Pareto efficiency as the justification for markets, he is implicitly, though fundamen- tally, making a consequentialist argument. Then, this section goes on to restate Heath’s market failures approach to busi- ness ethics in these terms: Heath’s “efficiency imperatives” are grounded in a commitment to Pareto efficiency, which is itself a consequentialist consideration. This restatement acknowledges the consequentialism, and so is more accurate with respect to the normative considerations borrowed from economic theory, but it does not change the content of the market failures approach. It is, in this sense, intended as a friendly restatement.

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Three argumentative points follow to show that Heath’s references to Pareto efficiency are fundamentally and only consequentialist.

First, economic theory defines social welfare exclu- sively in terms of consumer preference satisfaction, though economists themselves have long acknowledged that this is a limited conception of social welfare, that there are other notions of welfare and other moral concerns—never intend- ing economic theory, with consumer preference satisfaction taken as the sole end, to serve as a complete account of the good or as a complete ethical system (on this point see Haus- man and McPherson 1996 and Sen 1987). Within economic theory, the point of markets—the reason we want markets and the reason we want competitive markets in particular— is to satisfy consumers’ preferences, and in that way improve social welfare; this is not a controversial characterization of economic thinking even if the point is not always made explicit (see, e.g., Scitovsky 1951). To be sure, economic theory is neutral about particular consumer preferences; that theory is, put another way, neutral with respect to individu- als’ particular tastes; but that neutrality is consistent with the ethical justification for markets in terms of satisfying consumer preferences—whatever those preferences might be. An efficient market produces an outcome that is Pareto optimal with respect to consumer preference satisfaction.4 This concern for consumer preference satisfaction within economic theory, along with the preference for markets as a way to Pareto optimize welfare so-defined, is unambiguously consequentialist (for example, see Sen 1987, p. 39; Hausman and McPherson 1996; Beckerman 2011, pp. 235–236; Zamir and Medina 2010, p. 1). One representative quote: “Welfare economics presupposes a consequentialist moral theory” (Hausman and McPherson 1996, p. 101). Economic theory is often criticized by philosophers and by economists them- selves precisely for being consequentialist (e.g., Robeyns 2011, p. 44). So, when Heath grounds his defense of markets in terms taken from the economists, in terms of efficiency, he inherits this consequentialism. For this reason, when Heath claims that the “efficiency principle” is not consequentialist, he is at odds with the very economic theory he adopts and uses to ground his approach to business ethics.

Second, both philosophers and economists think about consequentialism as the promotion of some outcome. The outcome specified in economic theory is consumer prefer- ence satisfaction. Actions, policies, and institutions are eval- uated on the basis of how well they promote that outcome. But, economic theory assumes that individuals have different utility functions, which rank order product bundles in terms of the amount of satisfaction each bundle produces; and sat- isfaction cannot be measured according to modern economic theory, nor can we compare levels of satisfaction across per- son; so, for these reasons, we cannot calculate an aggregate satisfaction. Consequentialism in modern economic theory therefore relies on optimization rather than maximization, “optimization” in the sense that there are no incremental improvements available, and where there could be more than one optimum. Identifying an outcome as optimal and defending markets in those terms—here with reference to consumer preference satisfaction—is thoroughly conse- quentialist even if it employs the term optimize instead of maximize; the goal is to promote an outcome to its utmost.

Further, a Pareto optimal outcome is defined as one in which no one person can be made better off in terms of preference satisfaction without making another worse off. This condition, without making another worse off, might seem to introduce a non-consequentialist, normative prefer- ence for a certain kind of distribution, which would conflict with our claim that Heath’s references to Pareto optimal outcomes are consequentialist. But this is to misunderstand the not-worse-off condition in a Pareto optimal outcome. To explain, note first, when we say that competitive and com- plete markets produce Pareto optimal outcomes, that does not mean that economists calculate an optimal solution (in the sense of solving a set of equations) and then impose that solution on the market. Instead, individuals’ voluntary transactions in competitive markets generate a Pareto opti- mum. But, economic theory assumes that individuals act to improve their welfare and therefore that no individual would consent to a transaction that made him- or her-self worse off. This is an assumption about consumer rational- ity and, given this assumption, a transaction that made one party worse off could not occur. So, this restriction of Pareto optima to outcomes in which no one can be made better off without making another worse off is required by the assump- tion about consumer rationality, it is not a normative pref- erence regarding distribution within economic theory. The Pareto optimization of preference satisfaction is thoroughly consequentialist.5

4 To be clear, a system of perfectly competitive and complete mar- kets produces a Pareto optimum, which is efficient in three ways: with respect to the allocation of resources, with respect to the production of goods and services, and with respect to the distribution of these goods and services. When markets are not competitive and com- plete, one or more of these efficiency properties does not hold—and that is defined as market failure. Throughout this discussion, econo- mists would note that the Paretian optimum is constrained by existing resources and technology; we use the term ‘optimal’ in this way even though we do not state these constraints or the standard assumptions each time.

5 To explain this point further, and to show that there are no nor- mative considerations about distribution introduced by reference to Pareto optimization, consider the following example—which, contra economic theory, assumes that we can measure welfare, and which assumes that we can compare welfare across persons, can calculate sums, and can maximize aggregate welfare. As a starting point, con- sider an over-simplified market with two persons specified as A:(5,

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Third, Heath at one point describes efficiency as “an irre- ducibly normative principle” and he explains, “one way of thinking about the Pareto standard is to regard it as a general prohibition on waste, since if it is possible to rearrange the allocation of resources in such a way as to improve one per- son’s welfare without worsening anyone else’s, and yet this is not being done, it means that some resources are being wasted under the status quo” (2014, p. 10). This way of put- ting the point could again suggest that efficiency itself has normative status in a deontological sense; this way of putting the point could suggest there are normative considerations at work in addition to the consequentialist one connected with the preference satisfaction derived from goods; one might argue that waste is intrinsically wrong. But within economic theory waste is not bad in a deontological sense, in the same way that, say, philosophers argue that failing to acknowledge human dignity is wrong. Instead, waste is bad because of what is lost, and in this context there is “waste” when consumer preference satisfaction is lower than it could otherwise be. Within economic theory there is no other source of value; there is no sense in which resources

have value other than in being used to create a good that consumers value; trees, for example, only have value if they can be used to create paper, furniture, parks that people will use or appreciate, etc. There is no other way to interpret the prohibition on waste from within economic theory. And this is exactly our point: The economic goal served by markets is the satisfaction of consumer preferences, this end has norma- tive weight, this end does the normative work—and claims about optimizing with respect to this end are a straightfor- ward form of consequentialism with respect to welfare, as the economist defines welfare, in terms of satisfying con- sumer preferences.6

So, in short, Heath is right to argue that the market has an ethical justification, one expressed in terms of Pareto opti- mality, but—contra Heath—that justification is thoroughly consequentialist. Acknowledging the consequentialism here emphasizes the strengths of his approach to thinking about markets and business ethics but it also exposes its limita- tions. We outline the strengths immediately below and also note a potential response on Heath’s part. And then, in the next section, we address limitations.

Categorizing the optimal satisfaction of consumer prefer- ences as consequentialist locates this justification for mar- kets within the space of normative theory. A skeptic could concede that efficiency is an economic good but, at the same time, wonder why efficiency is a normative consideration. In response, we spell out the content of efficiency—“efficiency” means the optimal satisfaction of consumer preferences— and then we categorize optimizing preference satisfaction as a consequentialist consideration. To repeat, this is not intended in any way as a criticism, quite the opposite: mak- ing this clear is essential for theoretical reasons and also for the pedagogical reason we state in the introduction—we are particularly concerned with moving our students beyond thinking about markets as amoral, beyond thinking about economic considerations as opposed to ethical ones. The argument for competitive markets is a consequentialist com- mitment to optimizing consumer preference satisfaction, and in business ethics (on our view) that ethical consideration is to be weighed against other moral arguments and other ethical considerations.

Setting aside the question of alternative or additional moral arguments for the moment, Heath’s approach to

Footnote 5 (continued) 6), where the numbers represent welfare for the two market partici- pants, participant one has welfare of 5, participant two has welfare of 6. Now, consider two possible transactions, one produces outcome B:(4, 16) and another produces outcome C:(7, 8). Say, to get from A to C, the first person sells his or her car to the second; the first person prefers the money, the second person prefers the car, so the transac- tion improves both from a welfare perspective. To get from A to B, the first person could sell the car for less than he or she values it, B pays much less than he or she was willing. A consequentialist con- cerned with maximizing aggregate welfare would prefer outcome B because aggregate welfare (20) is higher than C (15). But, instead, this hypothetical market interaction (with two participants and two possible transactions), produces an outcome that is a Pareto improve- ment, moving from A:(5, 6) to C:(7, 8). This is where it could seem that economic theory is imposing a normative preference against transactions that benefit some at the expense of another, with that normative preference ruling out B:(4,16) in favor of C:(7,8). But, instead, as noted in the main text, economic theory assumes that indi- viduals act to improve their welfare and so only transact when it is in their benefit (this is the assumption about consumer rationality)—so the transaction that generates outcome B:(4,16) could not occur in the market. The condition, without making another worse off, is, for this reason, a product of the rationality assumption, not a normative pref- erence. This example proceeded with a conception of consequentialism con- cerned with maximizing welfare. Introducing the rationality assump- tion doesn’t change or compromise the consequentialism, because maximization subject to that assumption is still thoroughly conse- quentialist. Then, given the assumption in economic theory regarding the inability to measure or to aggregate preference satisfaction, eco- nomic theory requires a further step—optimizing consumer prefer- ence satisfaction in a way that does not require adding across persons. So, we can move from maximizing an outcome to optimizing that outcome, assuming a specific notion of rationality, within the space of consequentialist thinking.

6 Within economic theory, the “no waste” condition is a shorthand for Pareto optimality with respect to production. Production is effi- cient when increased production of any one good is only possible by reducing production of one or more other goods. And production is inefficient when resources are either underutilized or misallocated, or both—where underutilization and/or misallocation results in reduced levels of output, and therefore results in reduced consumer satisfac- tion measured against higher possible levels of consumer satisfaction achieved with more efficient production.

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business ethics makes sense when reformulated in conse- quentialist terms. Markets are justified in consequentialist terms; society should adopt institutions and regulations that preserve the consequentialist benefit of markets; and when regulation is inadequate, we should hold managers account- able to beyond-compliance norms grounded in the same consideration. The actions of managers are judged ethical or unethical based on whether these managers constrain profit-making behavior by observing these regulations and beyond-compliance norms. This is a coherent vision that directly acknowledges the benefits of markets and, at the same time, the need for corresponding government regula- tion and managerial beyond-compliance norms to preserve those benefits. And this reformulation maintains the internal logic of Heath’s position, mentioned above and emphasized in Norman’s work, namely that those committed to markets ought to accept Heath’s market failures approach because both derive from the same premise.

In places, Heath seems to concede the point about the consequentialist ground for the market failures approach or, put another way, he seems to concede that Pareto optimality is a consequentialist principle. For example, he acknowl- edges that the socially desirable outcomes of competitive markets are a “consequence” of the price mechanism (2006, p. 547), and this consequence is consumer preference satis- faction (see 2006, p. 541). He also notes that markets “maxi- mize social welfare” (2014, p. 14). (See also 2014, ch. 7, Sections 3 and 5.)

Nevertheless, Heath would likely protest here. In his (2013) comment, Heath rejects a consequentialist reading of his project and a consequentialist interpretation of his effi- ciency imperatives in particular: “Now of course any action that affects a sufficiently large number of people is unlikely to be literally Pareto-improving. Thus, the Pareto-efficiency criterion is not intended to serve as a direct guide to ethical decision (and thus I am not promoting some sort of welfarist consequentialism). Instead, I have argued that the ideal of Pareto efficiency, combined with a set of empirical claims about the conditions under which marketplace competition generates true scarcity prices, can be used to generate a more specific set of principles to guide the moral reflections of economic actors” (p. 51, our emphasis). In other words, Heath constructs a set of principles from the Pareto ideal; these principles are intended to serve as guides for regulation and for managers’ moral decision-making; and these princi- ples have a deontological character that constrains managers’ profit-seeking behavior. Indeed, Heath explicitly describes his project in these terms, as providing “a set of deontic constraints (or ‘side constraints’) on the set of permissible profit-maximizing strategies” (2006, p. 551). But Heath’s principles derive their moral force from the consequential- ist commitments underlying markets: We justify markets because they promote preference satisfaction, and acting

against Heath’s efficiency imperatives reduces consumer preference satisfaction—consequentialist considerations do the work in both places, justifying markets and also justify- ing regulation and beyond-compliance norms. So, Heath’s principles take on deontological character for managers, they operate in a deontological way, but that is consistent with those principles deriving their normative force from consequentialist considerations.7 Put the other way, the fact that efficiency imperatives function as deontological rules does not show that those imperatives are derived from true deontological concerns. This point, of course, depends on the distinction Rawls (1955) draws between rules that are justified in consequentialist terms even though those rules are applied in a deontological fashion.8

Our point then, in short, is that (i) Heath could allow that the ethical justification for markets—the Pareto efficient satisfaction of consumer preferences—is consequentialist, (ii) derive his efficiency imperatives—both regulation and beyond-compliance norms—from that same justification, and (iii) still describe those efficiency imperatives as func- tioning as deontological principles for managers.

Heath is nevertheless anxious to reject consequential- ism, we think, because of a particular worry. He thinks that acknowledging the consequentialism grounding markets and the consequentialist foundation for his efficiency impera- tives commits him to a reductive conception of persons as only motivated by economic self-interest. Heath notes that his reference to the principle of Pareto efficiency “has the potential to give rise to a number of misunderstandings, particularly among those who see the word ‘efficiency’ and assume that it is merely an instrumental principle, or think that there is some sort of conceptual connection between efficiency and self-interest” (2014, p. 9). But this worry is misplaced. With economic theory, satisfying consumer preferences improves social welfare. But we are not con- necting this line of thought with questions about the pursuit of individual self-interest. So when Heath says, further, “I reject the narrow instrumental conception of rationality at

7 At the same time, Heath allows that managers might not be able to act on these constraints; see his (2004, p. 84), where he allows that market conditions might provide an excuse for abandoning his own constraints. 8 To further emphasize the point about the implicit consequential- ism, note that in his (2013) comment Heath describes his  project as follows: “I put forward a list of these intermediate-level princi- ples [his efficiency imperatives], as  examples of what I had in mind (Heath 2004). Some of these principles would have come as no sur- prise, because they were just the Arrow conditions for perfect compe- tition translated into a deontic [mode] (prohibiting the exploitation of externalities, information asymmetries, and market power)” (p. 51). But, as noted in the main text, even when consequentialist principles are presented as and followed as deontological rules for managers and followed in a deontological way, that is consistent with those rules being derived from consequentialist considerations.

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the heart of utility-maximization theory, while neverthe- less accepting several ‘meso’ level economic theories,” we need to be clear: The present paper specifically concerns Heath’s “meso”-level claim about the normative dimension of a social institution, markets, and we have argued in this section that that normative dimension is—despite Heath’s protests otherwise—fundamentally consequentialist, taking consumer preference satisfaction as the end. Our argument that the efficiency imperatives are consequentialist does not depend on any underlying claim about the nature of indi- vidual persons.

Limitations of the Market Failures Approach

According to Heath, the ethical justification for markets is that markets Pareto optimize consumer preference satisfac- tion, meaning that market systems best satisfy preferences. In the previous section, we argued that this is a consequen- tialist justification, and we reformulated Heath’s market fail- ures approach to business ethics in those terms: for Heath, the regulations and beyond-compliance norms that constitute business ethics are “efficiency imperatives” that derive from this same consequentialist ethical consideration. Acknowl- edging the consequentialism here does not change the sub- stance of Heath’s account, the efficiency imperatives do not change, nothing is lost.

But, Heath claims that his efficiency imperatives are “pretty much all there is to business ethics” (2014, p. 174). The market, Heath claims, “could be governed by a com- mitment to nothing beyond efficiency” (2014, p. 199). The market failures approach “provides a framework for thinking about all of the issues that are traditionally classified under the heading of ‘corporate social responsibility’“(2014, p. 174, our emphasis). So, Heath explicitly commits himself to the narrow position that identifies business ethics only with efficiency imperatives; he does not defend a broader position that a complete, systematic business ethics ought to include efficiency imperatives.

In this section, we outline two limitations of Heath’s approach to business ethics. Acknowledging the consequen- tialism that grounds Heath’s efficiency imperatives helps us understand these limitations, and in that sense acknowledg- ing the consequentialism exposes the narrowness of the market failures approach. Note that here we are only con- cerned with the regulations and beyond-compliance norms that govern competition between firms in the market, which is consistent with Heath’s approach; our claim is that even within this domain the market failures approach is too nar- row. Others might argue that Heath’s approach is too limited because it cannot account for positive obligations on the part of business, such as the ones at stake in talk of corpo- rate social responsibility, corporate citizenship, and/or the

creation of shared value. The present authors are sympa- thetic to that point, but our argument here is more limited: Heath’s approach is too narrow even as an account of the constraints involved.

Before proceeding, though, we want to make it clear that Heath is indeed committed to this narrow conception of business ethics, with government regulation and beyond- compliance norms for managers derived exclusively from efficiency considerations, because we suspect that some take Heath to be proposing and defending the broader position just mentioned—that business ethics ought to include effi- ciency imperatives among other normative considerations— despite Heath’s explicit reference to the narrower position.

To begin with, above we noted Norman’s comment on Heath, that “those already committed to [markets] should also embrace a more robust set of ethical obligations for business people” (2014, p. 25). This is a point about the internal logic of Heath’s approach: Heath takes as a starting point the economic benefit of markets; Heath’s point, on our reading and on Norman’s, is that those committed to markets because of this economic benefit should also be committed to his regulations and beyond-compliance norms—because those are grounded on that same consideration. Put another way, Heath defends the regulations and norms constituting the market failures approach with reference to a premise he thinks actual businesspersons—those who promote markets because of the economic benefit—must accept. Admitting other grounds for regulation and/or beyond-compliance norms would conflict with this logic; it would have Heath relying on premises he cannot be sure his opponents (those who wrongly reject regulation and beyond-compliance norms as antibusiness) would accept.

Could Heath nevertheless include other normative con- siderations and derive regulation and beyond-compliance norms from those other considerations? Heath (2006) endorses the view that managers ought to maximize the interests of stockholders subject to both legal constraints and social obligations—where these constraints and obliga- tions are not derived from general morality but, instead, are derived from, and are intended to preserve, “the conditions that must be satisfied in order for the market economy as a whole to achieve efficiency in the production and alloca- tion of goods and services” (p. 551). In that same paper, Heath presents his market failures approach as an alterna- tive to stakeholder theory, which Heath rejects because it derives regulations and norms for managers from multiple moral considerations—some of which are not connected to efficiency. According to Heath, regulations and/or norms beyond those required by efficiency considerations are “anti- capitalist” (2014, p. 200), presumably because they reduce preference satisfaction. For this reason such norms and principles are unacceptable. If Heath were to include in his approach normative considerations that did not appeal to

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efficiency, that is, if Heath were to suggest that regulations and norms be derived from some combination of efficiency and other normative considerations and/or other moral prin- ciples, then Heath’s own proposal would be subject to the very criticism he directs at stakeholder approaches. If Heath were to adopt that broader position then, by his own stand- ard, his position would be “anticapitalist.” For this reason, Heath must exclude other normative considerations.

To be sure, Heath, Moriarty, and Norman (2010) adopt a broader conception of business ethics as, “the evaluation, justification, or critique of all of the following: market sys- tems; the regulation of markets and firms; the self-regulation of firms; and the activities of businesses or the individuals working for, or interacting with, business” (p. 428). This is a position the present authors very much endorse, admitting a broad range normative considerations. But this position moves in the opposite direction from the essays Heath pub- lishes on his own, and it is not a market failures approach to business ethics.9

One further point here about the way Heath defends his approach to business ethics. All of Heath’s examples of the problems addressed in business ethics are described as mar- ket failures (for example, 2006, p. 551). And, accordingly, he describes government regulation as aimed at correcting market failures (see 2006, p. 548; 2014, p. 7; see also Heath 2004, p. 83). And, he explicitly defends his narrow approach to business ethics, which makes exclusive reference to effi- ciency considerations, with respect to the environment: “if all companies fully internalized all costs, and charged consumers the full price that the production of their goods imposed on society, I believe it would be impossible to make the case for any further ‘social responsibility’ with respect to the environment” (2006, p. 551, our emphasis). We will return to this comment below; here it serves to confirm our reading of Heath as solely concerned with efficiency considerations.

We could go on, but these points should be enough to show that, when we advance our critical points immediately below, we are addressing Heath—not a strawman version of Heath’s position.

As mentioned, this section outlines two limitations of the market failures approach. To see these limitations, consider a distinction drawn by David Colander, between market failures and failures of markets—the latter of which Colander defines as “failures in which the market is doing everything it is supposed to be doing [efficiently allocating resources, producing goods and services, and distributing those goods and services], but society is still unhappy with the result” (2003, p. 83). Markets for kidneys, babies, sex, methamphetamine, and junk food, and perhaps sugar, could all be efficient; we leave the details about these markets to the readers’ imaginations, though see Economist (2014) for some discussion of European markets for sex and drugs. To be sure, if transactions involved information asymmetries, caused externalities, or if market power distorted the out- comes, Heath would have to intervene in these markets to promote efficiency. He would have much to say with respect to these examples if there were inefficiencies. But as long as the markets functioned efficiently, then Heath would have to, and would happily, accept transactions involving those products as part of a Pareto optimal outcome. So, relying on Heath’s business ethics, a manager would happily sell all six products, and this manager might even be ethically bound to do so, as long as he or she could provide these prod- ucts legally and also profitably—respecting regulations and beyond-compliance norms grounded on efficiency consider- ations. The manager is bound to sell these products because, otherwise, the manager reduces efficiency. Similarly, though in a different industry, Sorkin (2015) describes institutional investment in the newly legal marijuana industry, his article is entitled “Ethical questions of investing in pot,” but for Heath, where marijuana is legal there is nothing ethical to discuss, there are no ethical questions for investors, fund managers, and business managers—as long as the marijuana market is efficient.10

We can separate Colander’s examples into two kinds. First, business ethicists might advance broadly consequen- tialist arguments about the harm caused by satisfying con- sumer preferences for methamphetamine, junk food, and perhaps sugar, harm that overrides the good involved in satisfying a consumer preference for those products. Simi- lar arguments could be advanced with respect to legalizing

9 Norman (2014) himself offers an ambiguous alternative. Describ- ing the market failures approach, he writes “Roughly speaking, and allowing for plenty of ongoing disagreement about details and scope, partisans of [the market failures] approach believe… that our ground- ing for a broad range of obligations and rights in business ethics… should be closely related to our most basic justifications for markets and the regulation of markets” (p. 23, Norman’s emphasis). The phrase “broad range” is rough in the sense of imprecise, but Norman does seem to allow space for other normative considerations in busi- ness ethics, beyond efficiency—which seems to expose Norman to the criticisms Heath directs at stakeholder theory. Heath could only describe Norman’s proposal as anticapitalist. And, even though some such obligations and rights in business ethics are derived from the “most basic justification for markets,” it is not at all clear to the pre- sent authors that the important obligations and rights are derived in that way. In our example below, the deontological constraints protect- ing worker safety are not at all related to our basic justification for markets.

10 A recent Seattle Times article (Young 2016) profiled an investor in the newly-legal marijuana industry in Seattle: Seattle’s “Pot King” “didn’t aspire to be an astronaut or ballplayer. ‘I’ve always wanted to be in small business,’ he said. He first made a name for himself, according to a 1997 Wired magazine story, in the phone-sex business where his father was considered a pioneer.”

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marijuana. For Heath, however, business ethics is the set of regulation and beyond-compliance norms needed to insure that consumer preferences are optimally satisfied, whatever those preferences are. Heath himself declares “The customer is always right” (Heath 2015). Other consequentialist ends, say, the promotion of public health, stand outside of his mar- ket failures approach, so Heath cannot derive either govern- ment regulation or beyond-compliance norms for managers from alternative consequences. And to be clear, the details of these examples above don’t matter; in the present context we do not need to determine whether there are (consequential- ist) moral considerations sufficient to justify intervening in any of the markets just mentioned—the point is that Heath cannot acknowledge the normative force of consequentialist considerations tied to ends other than the satisfaction of con- sumer preferences. This is the first limitation of the market failures approach.

The second limitation is the consequentialism itself at work in the market failures approach, which precludes deon- tological constraints on market transactions. Some might argue that markets for kidneys and babies violate deontologi- cal principles, or that sex tours of the Mediterranean staffed by prostitutes (from countries where prostitution is legal) violate a deontological commitment to human dignity—and these principles/this commitment are more important than the particular consumer preferences at stake. Again, with Colander, society could justify intervening in these markets for reasons other than promoting the efficient satisfaction of those preferences. But, the deontological principles involved in markets for kidneys and babies, and the threat to human dignity posed by legal sex tours of the Mediterranean, all stand outside of Heath’s market failures approach—they are not about the efficient satisfaction of consumers. To empha- size, it’s not that Heath might disagree about a particular deontological constraint, as ground for both government regulation and beyond-compliance norms for managers, or that Heath might dispute whether a certain deontological constraint ought to take priority over satisfying consumer preferences; the market failures approach to business ethics simply cannot accommodate any constraint on market activ- ity derived from deontological considerations.

Deontological principles of this sort are at work in the following example, mentioned in the introduction and taken from Mark Sagoff. After Congress passed the Occu- pational Health and Safety Act in 1970, the Secretary of Labor in 1977 set new regulation, which limited worker exposure to benzene to one part per billion, effectively zero. The Secretary of Labor took the OSHA Act to require the very strict standard as a way of respecting the persons involved; worker safety—according to the OSHA Act, Sagoff argues—“should not be treated as a commodity, to be traded at the margin for other commodities” (1981, p. 1291). But the petroleum industry protested, arguing that

the new regulation imposed costs on the industry greater than the benefit to workers, the new regulation was therefore economically inefficient. The US Supreme court eventually ruled in favor of the petroleum industry and required Con- gress to draft different regulation. Sagoff is outraged: The Supreme Court, he argues, missed the point of the original OSHA Act, which deliberately rejected the efficiency cri- terion as applied to worker safety; the institutional mecha- nism was deliberately—purposively—designed not to pro- mote efficiency. So, from an institutional perspective, we as a society chose in this case, and can choose in others, to view humans not merely as means to an end, and for that reason we chose to reject, or at least override, the efficiency imperative in this case. Society introduced a deontological constraint to be put in place before economic outcomes are Pareto optimized. Heath’s approach to business ethics is unable to make sense of this sort of constraint, in the form of regulation or beyond-compliance norms, with reference to efficiency.

Here, one might think that Heath could arrive at the same point, precluding exposure in the benzene example, with ref- erence to insuring that markets generate efficient outcomes. Heath would prohibit the transactions, preventing workers’ exposure to benzene, if those transactions involved informa- tion asymmetries because the workers were not informed of the risk, or if market power enabled a manufacturer to effectively force workers to accept dangerous conditions, or if there were other defects in the market. But, if management disclosed the risks of benzene and paid workers an adequate premium for taking on those risks (adequate as determined by the workers themselves), then Heath would have to, and would happily, accept the outcome as part of a Pareto opti- mal outcome—because the workers voluntarily accepted the risk, they view themselves as improved by their salaries, and consumer preference satisfaction is enhanced. Sagoff’s point, however, is that that economic transaction should not be permitted. Heath, on the other hand, could not allow for any such deontological constraint limiting the pursuit of Pareto efficient outcomes.

The benzene example is not an isolated case. The Obama administration directed OSHA to create restrictions on worker exposure to beryllium, an industrial mineral that kills approximately 100 persons per year; that administration also reduced permissible worker exposure to silica, which could save 700 lives per year; and that administration drafted requirements that businesses report workplace injuries. The Trump administration is delaying action on all three, which observers take to be part of that administration’s attempt at rolling back government regulation in a systematic way (Meier and Ivory, 2017). Critics of the new restrictions argue that the compliance costs to employers, which get passed on to consumers, are not justified by the benefit to employees. This is precisely the line of thought Sagoff challenges. A

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number of businesses worked with the Obama administra- tion and supported the new rules; this business involvement demonstrates concern with worker safety, not grounded on concern with efficiency, and therefore is unintelligible within the market failures approach.

The same logic applies to broader discussions regarding the environment. For Heath, the value of the environment is determined by consumers’ preferences alone. This is made explicit in a passage quoted above: Heath wrote that if prices reflected the full cost of production, meaning that no costs were externalized, then there are no further obligations for business, no further questions for business ethics to address, it would be “impossible” to defend further obligations with respect to the environment (2006, p. 551, our emphasis). Heath points out that, where firms internalize all production costs, the economy produces the “right” amount of pollu- tion (2014, p. 36). And from the perspective of economic theory this is entirely correct, the right amount of pollution is defined exclusively in terms of consumer preferences. But many argue that the environment, like the human person, has value derived from sources other than consumer preferences (see, e.g., Callan and Thomas 2012, chapter seven)—and this value must be protected by deontological constraints on economic activity. So, we might grant Heath the point— for the sake of argument—that questions of preserving the natural order and even questions about the over-consump- tion of resources are not to be addressed by managers, but nevertheless there are questions that many think we should address within business ethics as a discipline, considera- tions beyond consumer preferences—such as the sanctity of nature, intrinsic value associated with species diversity, etc. Here, as before, the point is not that Heath engages in moral argument with environmentalists of this sort and prioritizes efficiency; instead Heath cannot acknowledge their concerns because they are not grounded in efficiency considerations.

Moreover, and a point Sagoff emphasizes, there is a more general question here: when should economic considerations be given the most weight and when should noneconomic considerations override the efficient satisfaction of consumer preferences. The dispute in the benzene example is of this sort—Congress put economic considerations second, the Supreme court denied this priority. But this higher order question is itself not one settled by economic considera- tions; instead, it must be settled by considering multiple, competing moral considerations. Again, Heath’s approach cannot help us here because Heath’s approach only rec- ognizes one moral consideration, efficiency, and Sagoff’s question involves moral considerations other than the effi- cient satisfaction of preference satisfaction. As Sagoff puts it, “The conflict between these two principles is logical or moral, to be resolved by argument or debate. The question whether cost–benefit analysis should play a decisive role in

policymaking is not to be decided by cost–benefit analysis” (1981, p. 1291).11

We have noted that Heath formulates his market fail- ures approach narrowly, as only admitting regulation and norms derived from efficiency considerations. However, later, Heath (2014) acknowledges an additional normative consideration—equality—to be addressed by government regulation and not by firms or managers. This is a signifi- cant change. With that change, perhaps in the same way Heath could address the questions raised in the examples above, such as public health concerns tied to the legalization of marijuana, deontological questions about worker safety, and the like. Perhaps Heath would allow that these concerns provide further normative considerations that could ground additional government regulation in business activity.

But, even if this appeal to government is a plausible way to address questions about equality/distributive justice, in fact we do not think Heath can pursue this strategy to address our criticisms above.

If Heath admitted that normative considerations other than efficiency could be the basis for government regula- tion of markets and market activity, then he faces a choice. On one hand, Heath could also admit that those same nor- mative considerations generate beyond compliance norms for managers when regulation is inadequate. For example, if worker safety is admitted as a fundamental deontologi- cal concern, and as such it provides normative ground for government intervention in markets—then it would equally provide normative ground for managerial beyond-compli- ance norms when necessary. But that prospect would be unacceptable to Heath for two reasons. First, those addi- tional norms would be anticapitalist according to Heath’s own standard, because they go beyond efficiency considera- tions. Second, and related, by admitting beyond-compliance norms for managers derived from other sources, apart from efficiency, Heath’s view would become a version of stake- holder theory, the position he wants most to reject. So, Heath cannot allow managers to be bound by beyond-compliance norms grounded on normative considerations other than efficiency—without giving up his market failures approach.

If, on the other hand, Heath maintained that consid- erations other than efficiency could be addressed by gov- ernment regulation alone, this “division of moral labor”

11 The problem outlined in this section is one component of the more general critique of an efficiency-based notion of ethics from within economics and also directed at economics from the outside. See Hausman and McPherson (1996), chapter six and also Part III more generally—which investigates moral concerns other than welfare, including rights, equality, and justice. And see Sen (1987), which discusses the forces that lead to the “modest” ethical content of wel- fare economics and the means by which the Pareto principle can be enhanced.

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(Heath’s phrase) would preserve Heath’s conception of managerial ethics as limited to efficiency considerations. In our example from Sagoff, Heath would allow that worker safety could serve as deontological ground for gov- ernment regulation; but when government regulation is inadequate, there would be no beyond-compliance norms for firms and managers. This line of thought follows Heath (2014, chapters six and seven), which argues that some normative principles apply at the macro (governmental)- level but not the micro (firm)-level; Heath argues that equality is such a consideration; and on the line of thought considered here, Heath would be treating worker safety in the same way.

But we do not see how Heath could defend this posi- tion, with firms and managers ignoring worker safety as a fundamental normative consideration when government regulation is inadequate. This position conflicts with much normative theorizing and with actual business practice, so the argumentative burden is substantial. Moreover, accord- ing to Heath only one normative consideration is common to both the macrolevel and the microlevel with respect to market activity—efficiency—and this theoretical claim also needs defense. But Heath only appeals to his own intuitions. Heath asserts, “There is something at very least strange about the claim that businesspeople, in their capac- ity as managers of corporations, are morally obliged to act in ways that are fundamentally incompatible with the oper- ations of a market economy” (2014, p. 199). Presumably, Heath thinks such manager or firm activity is “strange” because efficiency is the “implicit morality of the market” and so, on his view, that is the only normative considera- tion at work for firms and/or managers. But, arguing that the ethical justification for markets is the optimal satisfac- tion of consumer preferences, and even allowing that this consideration applies in a particular way in markets, is not to show that there is no other normative consideration for firms and/or managers admitted in markets. Nor would that argument show that efficiency considerations always trump other considerations (if those were admitted).

Heath also asserts, “the Paretian approach to business ethics… is the most that a normative theory can require without becoming anticapitalist” (Heath 2014, p. 200). We have mentioned this passage at points above. But there is no reason to think that a firm or manager prioritizing worker safety over profit-related concerns is anticapitalist: Our conception of business ethics and managerial action, as involving a set of constraints on market transactions to promote social well-being, recognizing deontological constraints tied to human dignity, and the like, is in line with the classical liberal position—which promotes mar- kets, and so embraces capitalism, while at the same time acknowledges other normative considerations.

Conclusion

This paper has argued for two points. First, we noted in sections one and two that satisfying consumer preferences is itself a good, and this consequentialist ethical consid- eration provides a normative justification for competitive markets. Acknowledging this justification for markets is, we think, and with Heath, important in order to counteract the anticapitalist strain in business ethics. And acknowl- edging this ethical ground for the market and for market transactions can shift our thinking in business ethics: We are not concerned with economic (market) considera- tions versus ethical ones, or with ethical constraints on non-ethical economic activity. Instead, business ethics involves the interaction of competing ethical considera- tions: on one hand, the consequentialist good of satisfying consumer preferences and, on the other hand, constraints that could come from a number of sources. To avoid con- fusion, though, this is our conception of business ethics as involving competing ethical considerations; for Heath there are only efficiency considerations and so no conflict- ing normative considerations—or so we have argued.

Second, according to Heath’s approach to business eth- ics, society should adopt institutions and regulations that preserve the consequentialist benefit of markets, and when regulation is inadequate, society should hold firms and managers accountable to beyond-compliance norms for the same reason. We have argued that a business ethics so-conceived is limited. An adequate business ethics, we argue, must include normative considerations beyond the consequentialist optimization of preference satisfaction. Moreover, business ethics on Heath’s approach diminishes the perceived importance of noneconomic values, and so diminishes the importance of constraints on economic activity derived from those values, in the form of both reg- ulation and beyond-compliance norms. And we should be clear, the constraints matter—a point Heath himself notes: “The virtues of competition, such as they are, are associ- ated with the institutional structure (i.e. the set of rules) that constrains the participants’ behavior, and not neces- sarily the intentions of the participants” (2007, p. 363). Realizing these virtues depends on the institutional frame- work that gives form to the market, and this framework we have suggested goes beyond efficiency imperatives. And, to emphasize a point made at the end of the previous sec- tion, nothing about our suggestion is anticapitalist; our suggestion is in fact the classical liberal position.

Finally, and more generally, Heath et  al. (2010) and Norman (2014)—commenting on Heath’s market failures approach—both emphasize the need for “unification” in business ethics, meaning that “there should be a fair degree of consistency or compatibility among the kinds of

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normative concepts and principles used to justify rights, duties, and institutions” surrounding markets, market regu- lation, and beyond-compliance norms (Heath et al. 2010, p. 429). The market failures approach pursues unification in grounding constraints on market activity on the need to protect efficient outcomes in markets and, indeed, Heath’s work is attractive precisely because it offers the prospect of unification. But, given the examples discussed above with reference to Colander and Sagoff, we are skepti- cal about the possibility of unification. Colander’s and Sagoff’s work suggests that business ethics will involve some combination of approaches, with regulation and beyond-compliance norms derived from consequentialist considerations (including but not restricted to preference satisfaction) serving as one component. Other components could be derived from political principles of justice or from moral principles, and still others might be chosen through the electoral process. This is consistent with Nor- man’s (2014) account of the market failures approach as part of a complete business ethics even if it is not unified as that paper and Heath et al. (2010) call for.

The question we face, then, is whether we can expect more than a kind of intuitionism here, more than a collection of fundamental principles with no single standard or prin- ciple that assigns to them priority (this is Rawls’ 1993 con- ception of intuitionism, Section 7, p. 30). In a paper widely used in classrooms, “War and massacre” (1972), Thomas Nagel confronts the same question in a very different con- text. He addresses the conflict between utilitarian and abso- lutist (Kantian) moral principles as they apply to conduct in war—for example, consequentialist considerations might permit attacking civilians but absolutist, Kantian considera- tions would prohibit such an attack. Nagel concludes: “There may exist principles, not yet codified, which would enable us to resolve such dilemmas. But then again there may not. We must face the pessimistic alternative that these two forms of moral intuition are not capable of being brought together into a single, coherent moral system, and that the world can present us with situations in which there is no honorable or moral course for a man to take, no course free of guilt and responsibility for evil. The idea of a moral blind alley is a perfectly intelligible one” (p. 143). This same outcome might be unavoidable in business ethics. Heath, Moriarty, and Norman’s (2010) and Norman’s (2014) desire for unifi- cation might be just that, their own demand, but nothing like a requirement for a satisfactory business ethics.12

Acknowledgments The authors thank the editor and two anonymous referees for very helpful questions, comments, and suggestions. And

we are grateful to our colleague Brian Kelly for many discussions of economic theory.

Compliance with Ethical Standards

Conflict of interest The authors declare that they have no conflict of interest.

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