Business ethics assignment
Business in Ethical Focus
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Business in Ethical Focus An Anthology
edited by Fritz Allhoff and Anand J. Vaidya
broadview press
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© 2008 Fritz Allhoff and Anand J. Vaidya
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Library and Archives Canada Cataloguing in Publication Business in ethical focus : an anthology / edited by Fritz Allhoff and Anand Vaidya.
Includes bibliographical references. ISBN 978-1-55111-661-7
1. Business ethics. I. Allhoff, Fritz II. Vaidya, Anand HF5387.B883 2008 174’.4 C2008-902637-3
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ContEnts
Preliminaries: Why study Business Ethics? Anand Vaidya and Fritz Allhoff, “Volume Introduction” 11
Foundational Issues 1. Anand Jayprakash Vaidya, “Ill-Founded Criticisms of Business Ethics” 15 2. Amartya Sen, “Does Business Ethics Make Economic Sense?” 20
systems of Moral Evaluation 3. Heather Salazar, “Kantian Business Ethics” 29 4. Rita C. Manning, “Caring as an Ethical Perspective” 35 5. Karin Brown, “Buddhist Ethics” 42 6. Richard M. Glatz, “Aristotelian Virtue Ethics and the Recommendations of Morality” 46 7. David Meeler, “Utilitarianism” 53
Unit 1 Corporate social Responsibility Anand Vaidya, “Corporate Social Responsibility” 63
The Central Debate 8. Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits” 65 9. R. Edward Freeman, “A Stakeholder Theory of the Modern Corporation” 69 10. John Hasnas, “The Normative Theories of Business Ethics: A Guide for the Perplexed” 79 11. George G. Brenkert, “Private Corporations and Public Welfare” 99 12. Joseph Heath, “Business Ethics Without Stakeholders” 110
Globalization and Its Ethical significance 13. Thomas Donaldson, “The Ethics of Risk in the Global Economy” 131 14. Manuel Velasquez, “International Business, Morality, and the Common Good” 143 15. Ian Maitland, “The Great Non-Debate Over International Sweatshops” 154 16. Thomas Donaldson, “Values in Tension: Ethics Away from Home” 170 17. Don Mayer and Anita Cava, “Ethics and the Gender Equality Dilemma for
US Multinationals” 181
Environmental Responsibility 18. Mark Sagoff, “At the Monument to General Meade, or On the Difference Between Beliefs
and Benefits” 189 19. Kristin Shrader-Frechette, “A Defense of Risk-Cost-Benefit Analysis” 214 20. Deborah C. Poff, “Reconciling the Irreconcilable: The Global Economy and the
Environment” 225 21. Tibor R. Machan, “Environmentalism Humanized” 232
Case Study 1: Actions Speak Louder than Words: Rebuilding Malden Mills 246 Case Study 2: Charity Begins at Home: Nepotism 248
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Unit 2 Rights and obligations of Employees and Employers Anand Vaidya, “Rights and Obligations of Employees and Employers” 253
Employment at Will 22. Patricia H. Werhane and Tara J. Radin, “Employment at Will and Due Process” 255 23. Richard A. Epstein, “In Defense of the Contract at Will” 259
Whistleblowing 24. Richard T. De George, “Whistleblowing” 267 25. Robert A. Larmer, “Whistleblowing and Employee Loyalty” 274
Drug testing 26. Joseph DesJardins and Ronald Duska, “Drug Testing in Employment” 279 27. Michael Cranford, “Drug Testing and the Right to Privacy: Arguing the Ethics
of Workplace Drug Testing” 291
safety in the Workplace 28. Anita M. Superson, “The Employer-Employee Relationship and the Right to Know” 302 29. Tibor R. Machan, “Human Rights, Workers’ Rights, and the ‘Right’ to Occupational
Safety” 312
Case Study 3: Lifestyles and Your Livelihood: Getting Fired in America 316 Case Study 4: E-Mail and Privacy: A Novel Approach 318
Unit 3 Justice and Fair Practice Anand Vaidya, “Justice and Fair Practice” 323
Affirmative Action 30. Metro Broadcasting, Inc. v. FCC, 497 U.S. 547 (1990) 324 31. Edwin C. Hettinger, “What Is Wrong with Reverse Discrimination?” 326 32. Louis P. Pojman, “The Moral Status of Affirmative Action” 337
sexual Harassment 33. Edmund Wall, “The Definition of Sexual Harassment” 356 34. Anita M. Superson, “A Feminist Definition of Sexual Harassment” 366 35. Stephen Griffith, “Sexual Harassment and the Rights of the Accused” 380
Bluffing in Business 36. Albert Z. Carr, “Is Business Bluffing Ethical?” 400 37. Thomas Carson, “Second Thoughts about Bluffing” 409 38. Fritz Allhoff, “Business Bluffing Reconsidered” 432
Bribery and Exploitation 39. Bill Shaw, “Foreign Corrupt Practices Act: A Legal and Moral Analysis” 439 40. Jeffrey A. Fadiman, “A Traveler’s Guide to Gifts and Bribes” 447
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Case Study 5: Sexual Harassment in the Workplace 458 Case Study 6: The Ethics of Bluffing: Oracle’s Takeover of PeopleSoft 460
Unit 4 Distributive Justice Fritz Allhoff, “Distributive Justice” 465
Classical Theories of Contracts, Property, and Capitalism 41. Thomas Hobbes, Excerpts from Leviathan 467 42. John Locke, Excerpts from The Second Treatise of Human Government 475 43. Adam Smith, Excerpts from An Inquiry into the Nature and Causes of the Wealth of Nations 483 44. Karl Marx, “Estranged Labor” 490
Contemporary Theories of Distribution and Property 45. John Rawls, Excerpts from A Theory of Justice 498 46. Robert Nozick, Excerpts from Anarchy, State and Utopia 513 47. Kai Nielsen, “A Moral Case for Socialism” 533 48. G.A. Cohen, “Illusions About Private Property and Freedom” 539
Intellectual Property 49. Edwin C. Hettinger, “Justifying Intellectual Property” 550 50. Lynn Sharp Paine, “Trade Secrets and the Justification of Intellectual Property: A Comment on
Hettinger” 564
Case Study 7: Intellectual Property Across National Borders 577 Case Study 8: Copy That, Red Leader: Is File-Sharing Piracy? 579
Unit 5 Advertising, Marketing, and the Consumer Anand Vaidya, “Advertising, Marketing, and the Consumer” 583
truth and Deception in Advertising 51. Tibor R. Machan, “Advertising: The Whole Truth or Only Some of the Truth?” 584 52. John Waide, “The Making of Self and World in Advertising” 592
Creation of Desire in Advertising 53. Roger Crisp, “Persuasive Advertising, Autonomy, and the Creation of Desire” 599 54. Robert L. Arrington, “Advertising and Behavior Control” 605
Is targeting Ethical? 55. Lynn Sharp Paine, “Children as Consumers: An Ethical Evaluation of Children’s Television
Advertising” 615 56. George G. Brenkert, “Marketing to Inner-City Blacks: PowerMaster and Moral
Responsibility” 626
Case Study 9: Nestlé and Advertising: An Ethical Analysis 640 Case Study 10: Children and Targeting: Is it Ethical? 642
sources 645
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PRELIMInARIEs
Why study Business Ethics?
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ANAND VAIDYA and FRITZ ALLHOFF 11
AnAnD VAIDyA and FRItz ALLHoFF
Volume Introduction
The What and Why of Business Ethics
What is business ethics, and why study it? One good way to get an answer to this question is by taking note of what business is, what ethics is, and then tying the two together.
Business as will be understood here is the sum total of the relationships and activities that surround the trading of goods or services for profit. As a cat- egory, business includes everything from the selling of handmade products between two neighboring villages in India to large-scale multinational cor- porations like Nike and Microsoft engaged in global trade. Both the relationships between individuals in- volved in any aspect of business, such as production, distribution, marketing, and selling of goods and services; as well as the relationships between these groups is important to understanding business as a whole. Furthermore, business is, for most people, a central part of their life. It is so, largely, because most people are consumers of commercial goods, and for many it is where they seek employment. However, it is also a place where one has an identity and where creativity is expressed. And it is, ideally at least, an arena in which rewards are distributed on the basis of merit.
Ethics, in its broadest sense, is an investigation into how humans should live. This investigation is not reducible to the claim that any way of living that is legally permissible is a morally permissible way to live. From the perspective of ethics and morality, laws themselves are objects of criticism. Within the confines of a moral investigation, one can inquire as to whether a legal statute is consistent with morality. For example, slavery was once considered to be both morally permissible and legally permissible, later it
was legally permissible but not morally permissible, and now it is neither. In addition to thinking of moral inquiry as distinct from legal inquiry, ethicists divide their discipline into three “branches”: meta- ethics, normative ethics, and applied ethics.
Meta-ethics explores conceptual and founda- tional questions in morality. Some of the questions are the following: Are there moral facts? Is morality objective? How do we come to know moral truths? Are moral claims the kinds of things that can be true or false, or are they simply expressions of emotion? What is the primary object of moral evaluation?
Normative ethics is the study of which principles determine the moral permissibility and impermissi- bility of an action, or, more simply, what constitutes right and wrong. One approach to this, deontol- ogy, holds that morality is constituted by rights and duties, and that those features take priority over the consequences of actions. An alternative approach, consequentialism, maintains that it is only the con- sequences of actions (often measured in terms of pleasure and pain) that determine the moral right- ness of an action. Yet other theories, such as virtue theory, argue that actions are not the central objects of moral evaluation; rather, a person as a whole (and perhaps their character in particular) is the object of moral evaluation.
Applied ethics is the area in which normative ethical theories get applied to specific problems within sufficiently well-defined areas of inquiry in order to give answers to particular questions. In ap- plied ethics, for example, one may ask, “Is it mor- ally permissible to terminate the life of a fetus in the second trimester of pregnancy?” The answer to this question can be given by applying various norma- tive theories to the question. Applied ethics includes such areas as biomedical ethics, computer ethics, and environmental ethics; and, of course, applied ethics is where business ethics is located. In applied eth- ics, one is concerned with the specific ethical issues that arise from the area being investigated. This does not rule out the possibility that there is overlap in
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12 VOLUME INTRODUCTION
applied ethics. Two areas of applied ethics, such as biomedical and business ethics, may share particular questions. In addition, ethicists recognize that often answers to questions within meta-ethics affect pos- sible answers to questions in normative ethics, which subsequently either determine or delimit the possible answers one can have to an applied ethical question. In some sense there is a “top-down” relationship be- tween meta-ethics and applied ethics. Nonetheless, most ethicists recognize that discussions of applied ethics are valuable independently of determining the answers to questions in meta-ethics and normative ethics.
Putting together this understanding of business and ethics we arrive at the following conception of business ethics. Business ethics is the area of inquiry in which normative ethical theories are applied to issues that arise out of the relationships and activ- ities surrounding the production, distribution, mar- keting, and sale of goods and services. The issues that arise in business ethics can be further categorized by either being internal or external.
Internal ethical questions concern relations be- tween those involved in a particular business entity. For example, taking a corporation as a basic kind of business entity, internal ethical questions pertain to the relations between members of the corporation, such as employees and upper management. Exter- nal ethical questions pertain to the ethical questions arising out of the relationships between the corpora- tion and other corporations or entities, such as local communities and consumers. On both the inter- nal side and the external side, questions may arise that overlap with other areas of inquiry. Business is such a large enterprise that it is hard to think that there would be no questions that arise within it that would not be of substantial interest to other areas of applied ethics.
Some of the questions on the internal side re- volve around the rights, responsibilities, and obliga- tions that employees bear to each other and to their employers. Likewise there are questions about what
rights, responsibilities, and obligations employers bear to employees. While employees want to sell their labor for a salary, they also expect that their employer will provide them with a safe work en- vironment. However, we might ask: Is it the employ- er’s obligation to provide an employee with a safe work environment? If so, what moral theory helps us understand why this is the case? Furthermore, in addition to the labor an employee owes their em- ployer in return for the salary they are paid what obligations do they have to their fellow employees. Are they, for example, permitted to harass them, and to impede their ability to perform their work? If not, what moral theory helps us understand why this is the case? And what set of rights, in general, does an employee have when they sell their labor? Does an employer have, for example, a right to information about the employee that is irrelevant to job perform- ance? If not, how is the concept of job relevance to be defined?
On the external side, the central debate has been over whether the sole responsibility of corporate exec- utives, and of corporations in general, is to maximize profit for shareholders. On the external side, corpor- ations bear relations both to the immediate physical and social environment that they are embedded in, and to the future physical and social environment they will create. As a consequence, there are a host of ethical questions about the permissibility of pol- luting in the physical environment, and promoting socially important causes in the social environment. Because corporations are such large entities capable of amassing large sums of wealth and yielding in- credible power in influencing governments, straight- forward ethical questions pertain to them.
In this volume, our goal has been to give as com- prehensive as possible a survey of the breadth and depth of business ethics. In selecting essays, we have aimed at providing historically classic articles as well as contemporary work. The classical articles set up the core issues in each area. Given that so much of business is about innovation in technologies, it is
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ANAND VAIDYA and FRITZ ALLHOFF 13
impossible to give a comprehensive coverage of all the ethical issues that arise from emerging technolo- gies. We feel that a good understanding of basic nor- mative moral theory coupled with an understanding of the core issues in business ethics will prepare the reader for the study of business ethics beyond this anthology. We have provided theoretical work that is essential for understanding business ethics as an applied area of ethical inquiry. In addition, each unit in this volume contains case studies with study ques- tions that can be used to generate fruitful discussion, as well as to inform the reader about events that have or could have happened in the business world.
Finally we are left with the following question: Why study business ethics? The simple answer is
that, if you are like most people, you will at some point enter some sector of the business world. And, if you are like most people, you will discover very quickly that there are significant questions about right and wrong that arise in this walk of life. The issues that this volume discusses can at least provide you with the following: an understanding of the issues one faces in the business world; some theor- etical and practical tools one can use for analyzing ethical issues; and a framework for helping one con- struct an overall moral point of view. It is the hope of the editors of this book that everyone who takes to a serious study of this volume will come away with an appreciation for role of morality within the world of business.
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ANAND JAYPRAKASH VAIDYA 15
FoUnDAtIonAL IssUEs
AnAnD JAyPRAkAsH VAIDyA
Ill-Founded Criticisms of Business Ethics
In the wake of corporate scandals, such as Enron, the average corporate executive today is a lot more knowledgeable about business ethics, and the con- sequences and penalties associated with corruption, than those of the past. However, one still finds a tendency amongst corporate executives to look at business ethics as not a serious area of inquiry, and not that relevant to doing good business. The de- fault view is that business ethics is a laundry list of codes that one must obey in order to avoid penalties, and that to a certain degree can be broken if one is careful. As a challenge, ask the next Wall Street corporate employee you run into what he thinks of business ethics and you will probably find them mak- ing a cynical comment; and even if they do not say it—and only laugh—they probably think business ethics is an oxymoron. Something one only pays lip service to in the pursuit of profit.
The underlying assumption of this line of thought, both domestic and global, is that the concept of eth- ical conduct cannot be appropriately conjoined to the concept of business. Literally the concept of a busi- ness transaction and negotiation is in tension with the concept of ethical conduct. At root the idea may be as simple as the claim that ethics is about a concern for the other at a possible cost to oneself, while busi- ness transactions are about a concern for oneself at a cost to the other. Business, they say, involves wheel- ing, dealing, and getting the better of your opponent; and, so they continue, good wheeling and dealing leaves ethics at the door. Ideas like this are even found in business literature starting as far back as the 1950s.
For example, Albert Z. Carr’s “Is Business Bluffing Ethical,” argues that business is a lot like playing pok- er, and so one should adopt the ethics of poker, which is at odds with ethical codes prescribed by traditional religions, such as Christianity.
Others point out, behind closed doors, that even when they adopt the persona of the so-called “social- ly responsible company” they do so out of the profit motive. Being socially responsible is profitable; if it weren’t companies could not afford to be socially re- sponsible. In order to survive in the marketplace one needs to make a profit; if being socially responsible requires sacrificing profits, then one could expect that their competitors will eventually force them out of the marketplace. The logic of competition puts socially responsible companies at a disadvantage. Competitors who decided not to be socially respon- sible would be able to displace socially responsible ones forcing them to go under.
In order to clear the ground for the study of busi- ness ethics and to open the door to the fruits that may come from studying it, and actually employing an ethical perspective in business an end needs to be put to the idea that “business ethics” is an oxymor- on, a somehow confused idea. In this essay I hope to rid/exonerate business ethics of a couple of different criticisms that go together with the claim that it is an oxymoron. These claims are in some sense the ill- founded ideas that motivate the view that business ethics is an oxymoron that is so common amongst those that have spent little time reflecting on how ethics and morality play a role in business. In section one, I will present the most common complaints about business ethics, and offer rebuttals. In section two, I will offer a diagnosis of the source of the view that business and ethics are incompatible, and show that it rests on a false understanding of what it takes for business to flourish.
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16 FOUNDATIONAL ISSUES
1.
The three most common complaints about business ethics are that it is
• Useless because individuals upon reaching a cer- tain age are incapable of changing the way in which they determine whether an action is mor- ally permissible (i.e., good or bad).
• Indeterminate because ethicists disagree over normative principles (i.e., consequentialism, deontology, virtue ethics) rendering decisive an- swers impossible, which consequently takes the value out of business ethics.
• Beside the point because ethical inquiry is not what is needed, rather individuals behaving eth- ically is what is needed.
Each of these complaints serves as a reason for avoiding business ethics discussions in the corporate world. And each of these can easily be shown to be unfounded.
The claim that business ethics is useless because by the time people enter the business world, roughly in their mid 20s to late 20s, their moral character has been, for the most part, formed for bad or good, rests on bad psychology, as well as bad reasoning.
First, the psychology; in order for it to be true that studying business ethics is useless because a per- son’s moral character is already well formed by the time they enter the workforce, it would addition- ally have to be true that a person’s moral character is static rather than revisable. It may be true that it is harder for one to change how they morally evaluate a situation at an older age than at a younger age, be- cause certain moral habits or evaluative behaviors are more ingrained. And, it is probably true that most of us enter the work force at an age at which we have lots of opinions about what is morally right and wrong. However, it is false to say that it is impos- sible for one to change their moral viewpoint. More importantly, the attitude expressed by the “useless” argument is exactly the attitude that bars one from
really learning from and growing as a process of be- ing part of community discussion about what is right and wrong.
The fact that we can change our moral point of view, and that by listening and discussing things with others we do change our moral point of view leads to the basic idea that business ethics is important be- cause ethical discussion about business matters can help individuals decide what is the right thing to do by being responsive to the reasons considered in a community dialogue.
In addition, it is bad reasoning to think that if people’s moral characters are well formed by the time they enter the workforce, then it is useless to engage in business ethics. For, even if it would be useless to force employees to take business ethics courses in order to change their moral character because they won’t change anyway, we would only have a new problem on another plane.
If it turns out that people’s moral characters are well formed by the time they enter the work force, and we can with a high degree of confidence deter- mine which moral characters have a tendency to produce scandals, won’t we now have to work out all the ethical problems that go along with wheth- er or not we should hire people based on tests that determine their ethical character. If you thought drug-testing was a problem, won’t moral-testing be a problem as well?
While some complain that business ethics is use- less, others complain that the real problem is that business ethics is indeterminate, and therefore value- less. The position they offer is not without initial plausibility. Anyone who has taken a freshman level course in ethics is aware that there are at least three different schools of thought in ethics: consequen- tialism, deontology, and virtue ethics. Each of these major schools of thought has its own criterion as to what constitutes right action or right living (as in the case of virtue ethics).
One brand of consequentialism, act-utilitarian- ism, says that the right action is that action from
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ANAND JAYPRAKASH VAIDYA 17
the set of available actions that maximizes aggre- gate happiness. One brand of deontology, Kantian- ism, says that the right action is that action whose maxim can be universalized without contradiction. A businessman with some knowledge of these two schools can point out that, depending on which eth- ical school I subscribe to, I will get different answers as to the morality of any action I may have to take in the business world. He or she will continue, “What I wanted in the first place was to decide what to do based on what was morally permissible, but it is not possible for me to determine what is morally permis- sible until I know which school of moral thought is correct, and the ethicists have not settled that. Con- sequently, discussions of ethics in business will be indeterminate.” And what is ultimately indetermin- ate, the critic of business ethics will argue is without value. In order to understand this argument and lo- cate the weakness in it, consider it in the following formal presentation.
1. Business ethicists disagree over first principles. 2. If theorists in a field disagree over first principles,
then determinate answers cannot be reached. 3. If determinate answers cannot be reached in
a field of inquiry, then that field of inquiry is without value.
4. Therefore, business ethics is without value.
Interestingly enough, we can formulate the critic’s argument with respect to any realm of inquiry where scholars of the discipline disagree over first princi- ples and/or methodology. Consider the following argument about economics.
1. Economists disagree over first principles. 2. If theorists within a field of inquiry disagree
over first principles, then determinate answers cannot be reached.
3. If determinate answers cannot be reached in a field of inquiry, then that field of inquiry is without value.
4. Therefore, economics is without value.
By looking at the mirror argument with respect to economics we can see the flaw in the critic’s position. Before analyzing the premises we can note that while many in the business world feel comfortable offer- ing the argument about business ethics, they would not feel as comfortable offering the corresponding argument for economics. Those that find themselves comfortable with the former argument, but not the latter put themselves in the following logical dilem- ma: accept the conclusion to both arguments, reject both arguments, or find the disanalogy between the two cases. The solution I find appealing is simply to reject both arguments as unsound because premises (2) and (3) are false.
First, regarding (2), it should be noted that the critic’s use of “indeterminate” betrays an ambiguity. While it is true with respect to the whole discipline of economics that it is indeterminate whether some policy is the best policy to adopt, with respect to a certain first principle within economics it may not be indeterminate which policy is the best policy to adopt, additionally extraneous evidence may lead one to think that other principles are simply irrel- evant. This holds in the case of ethics as well; one who adopts a consequentialist approach like act- utilitarianism, in a great many cases, will agree with one who adopts deontology in determining what the morally correct action is. Additionally, disagreements over first principles do not always make it the case that first principles do not converge in certain cases. While it is true that in letter and spirit consequen- tialism and deontology disagree, both agree about the moral permissibility of certain acts. Regarding (3), it is hard to maintain that the indeterminacy within a discipline over first principles and meth- odology renders the discipline valueless. The main reason why a field of inquiry is not precluded from being valuable in virtue of theoretical disagreements over first principles and methodology is due to the fact that debates about principles and methodologies are themselves valuable in so far as they can lead to clarification, resolution, and innovation.
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18 FOUNDATIONAL ISSUES
Unlike the critic above that thinks that the in- determinacy of ethics renders it valueless, the frus- trated critic of business ethics claims that the real problem is that business ethics is beside the point be- cause we already know how people should act. The problem is getting them to act in that way. Know- ledge and familiarity with moral reasoning is not to the point, rather getting people to behave morally is to the point. The members of Enron knew what they were doing was wrong, and they created a culture in which certain goals led to breaking the rules. What was needed was not more insight into what is wrong, but rather putting into play mechanisms that lead to people behaving morally.
While it is true that in general we would all benefit from everyone behaving morally, the criti- cism of business ethics as beside the point because we already, in general, know how to behave is just false. Ethics is an on-going project; as technology advances and business takes on a new face, new eth- ical questions arise; and the answers to an ethical di- lemma presented by new technology and business practice are not always answered by just looking at what we said in the past in the most relevantly simi- lar case.
But even if it were true that for the most part we know what the morally correct thing to do is in a given situation, it still would not be true that business ethics is beside the point. The underlying assumption required to make that inference is that studying business ethics has no effect on our motiva- tions. What the frustrated business ethics critic wants is for the business community to focus on motivat- ing people, and figuring out how to motivate people to act morally in their business dealings. And with respect to this project he/she sees studying business ethics as beside the point—because it focuses on what is the morally correct action, rather than how, once we have determined what the morally right action is, we are to motivate people.
However, studying business ethics is not neces- sarily motivationally inefficacious. What is import-
ant is how we unpack the idea of “studying.” Sure if studying business ethics just amounts to memor- izing a bunch of codes and passing an exam, it is fair to say that studying it can at best only provide one with knowledge of what codes and principles to obey. While this project is worthy in itself, it does not come close to motivating one to be ethical. But there is another way of understanding the idea of “studying” business ethics. Here the idea is closer to that of one that is involved in the discipline itself, and takes on the role of a contributor. For example, just as going to church can reinforce values, help provide a platform for discussion, and offer guid- ance, studying business ethics can do the same. In fact being part of a business community where one can openly discuss how business should be conduct- ed, and where one’s contributions are taken seriously and reflected upon by others can often open one’s mind to the possibility of change in light of the criti- cism of others.
Those who find that the pressure of the real world corporate environment pushes them away from the moral principles they believed in prior to entering the corporate world may discover that reading about case histories and debating what to do in a particu- lar and common situation extremely insightful. One of the best ways to learn about the consequences of cruelty is to read and discuss the great novels that portray it. Likewise, one of the best ways to under- stand why committing an immoral act in the busi- ness world is not a good idea is by reading about cases, in which individuals committed similar acts and suffered horrible consequences. Reading case histories and discussing them can reinforce values and bring clarity.
Secondly, ethics in general requires healthy de- bate and exchange of ideas. Moral discussions are intolerant to brute disagreement. When a person of- fers an ethical position on a topic, and another dis- agrees, both parties have a prima facie obligation to offer reasons and justifications for their positions. Unlike disputes about what is the best flavor of ice
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ANAND JAYPRAKASH VAIDYA 19
cream, where opponents may disagree with one an- other with no other reason than that they like the particular flavor that they do, the nature of moral discussion requires that reasons be offered. Moral discussions are often about the possibility of harm to others, and most people in most cultures see the ac- tions which have potential to harm others as requir- ing reasons and justifications. Consequently, and as a result of moral engagement, individuals can come to be motivated to act one way rather than another by acquiring new desires and beliefs through moral debate. It is often times noted that one feels most comfortable with an action he/she is about to take when one feels confident in the reasons they have for taking that action. Moral discussions can provide reasons, and confidence in those reasons.
Third, all of us at one time were new to the cor- porate environment and the pressures that arise in it, and most of us looked for guidance, not just from our colleagues and our bosses, but also from some- thing beyond them. One reason we searched for this was that we weren’t always sure that our bosses and colleagues were doing the right thing, morally or economically, or, for that matter, that they were even concerned with the morally right thing to do. Clear- ly, business ethics can provide guidance here, and solace to the lost novice in attempting to weather the stormy oceans of the corporate world. The study of ethics can provide us with a firm grasp of prin- ciples that can be applied in new situations to help us determine for ourselves what the morally right ac- tion is. The ability to reason about ethics can provide us with that sense of independence in thought that allows us to judge for ourselves whether our actions are morally right, and to criticize others.
2.
Let’s go back to the beginning. Where does the idea that business and ethics do not fit together come from? One promising place to look would be at the role of self-interest in economics. There is a famous
passage quoted over and over from Adam Smith’s 1778 Wealth of Nations:
It is not from the benevolence of the butch- er, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love ...
The standard story based on this passage is that the sellers want our money, we want their products, and the exchange benefits us all. As a result there doesn’t seem to be any need for ethics in the ex- change matrix. Rational individuals pursuing their own self-interest are all it takes to get the day-to-day business dealings off the ground. Any imposition of ethical principles would be redundant.
While it is true that Smith paid tribute to self- interest in the passage above, it is a misreading of the passage, pointed out by Amartya Sen, to suggest that it excludes ethics from the matrix of exchange. By locating the specific sense in which self-interest is being celebrated by Smith, Sen claims we can bring out the sense in which ethics is an essential compon- ent of a system of exchange. What Smith was say- ing in paying tribute to self-interest in the passage above is that our motivation for exchange is self-inter- est. We are motivated to come to the marketplace to exchange our goods, not out of love for the other, but in a quite Hobbesian spirit, out of the necessity of self-preservation. The butcher sells his meat, the brewer his beer, and the baker his bread out of the obvious desire to procure money in order to pur- chase the goods he desires. What Smith is not saying is that business can function without ethical princi- ples to guide the exchange. By making a distinction between the motivation for exchange and the features necessary for the flourishing of business we can draw out the appropriate role of self-interest, ethics, and how business ethics makes sense.
Self-interest is, as already noted, our motivation for exchange. However, ethical principles and codes of conduct are what allow for a system of exchange
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to flourish over long periods of time. In order to see the necessity of ethical principles and codes of conduct in the marketplace it will be instructive to look at a point made by Socrates in Book 1 of The Republic.
In discussion with Thrasymachus, Socrates points out that if a group has a common goal and every member of the group acts unjustly, then the attainment of the common goal will be frustrated. His point is made in an attempt to praise justice against Thrasymachus’ diatribe. Thrasymachus has praised the life of injustice and thievery because he understands justice to be a weakness, and injustice to be the power to take advantage of others with im- punity. Socrates has pointed out that even though it is correct that thieves take advantage of others, and at times with impunity, it is not true that they live wholly unjust lives. In fact, Socrates points out, in their dealings with other thieves they obey rules, and have a code of conduct, that allows for their thiev- ery in groups to prosper. Even in modern times Soc- rates’ point is common knowledge. The mafia has their own code of conduct, and individuals within their circle obey a code of conduct out of fear of punishment. If you are convinced that “the ethics of the mafia” is not an oxymoron, then you should equally be convinced that “business ethics” is not an oxymoron.
Socrates’ point connects well with the distinc- tion between the motivation for exchange and those features of a system necessary for its flourishing. Codes of conduct, rules, and guidelines—ethical principles—are all required in order for business to flourish over time. We are motivated by self-inter- est and the necessity of self-preservation to exchange goods, and to set up a system of exchange. However, the process of setting up that system and ensuring that it flourishes over time requires a commitment to ethical investigation and rules. Without ethical prin- ciples and rules the common goal of business—the exchange of goods for the benefit of all—would be frustrated, and less successful.
So, business and ethics do go together; and busi- ness ethics is not useless, valueless because indetermin- ate, or beside the point. Rather, ethics and business are connected in a way that is essential for the very flourishing of business.
BiBliogrAphy Clarence C. Walton, “The State of Business Ethics,”
Enriching Business Ethics (New York: Plenum Press, 1990).
Plato, “Book 1,” Republic, translated by G.M.A. Grube and revised by C.D.C. Reeve (Indian- apolis, Indiana: Hackett Publishing Company, 1992).
Amartya Sen, “Does Business Ethics Make Econom- ic Sense?” Business Ethics Quarterly 3.1 (January 1993). See below, 20–28.
Albert Z. Carr, “Is Business Bluffing Ethical?” Har- vard Business Review (January/February 1968). See below, 400–08.
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AMARtyA sEn1
Does Business Ethics Make Economic sense?
1. Introduction
I begin not with the need for business ethics, but at the other end—the idea that many people have that there is no need for such ethics. That conviction is quite widespread among practitioners of economics, though it is more often taken for granted implicitly rather than asserted explicitly. We have to under- stand better what that conviction rests on, to be able to see its inadequacies. Here, as in many other areas of knowledge, the importance of a claim depends to a great extent on what it denies.
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How did this idea of the redundancy of ethics get launched in economics? The early authors on economic matters, from Aristotle and Kautilya (in ancient Greece and ancient India respectively—the two were contemporaries, as it happens) to medieval practitioners (including Aquinas, Ockham, Mai- monides, and others), to the economists of the early modern age (William Petty, Gregory King, François Quesnay, and others) were all much concerned, in varying degrees, with ethical analysis. In one way or another, they saw economics as a branch of “prac- tical reason,” in which concepts of the good, the right and the obligatory were quite central.
What happened then? As the “official” story goes, all this changed with Adam Smith, who can certain- ly be described—rightly—as the father of modern economics. He made, so it is said, economics scien- tific and hard-headed, and the new economics that emerged, in the nineteenth and twentieth centuries, was all ready to do business, with no ethics to keep it tied to “morals and moralizing.” That view of what happened—with Smith doing the decisive shooting of business and economic ethics—is not only reflect- ed in volumes of professional economic writings, but has even reached the status of getting into the English literature via a limerick by Stephen Leacock, who was both a literary writer and an economist:
Adam, Adam, Adam Smith Listen what I charge you with! Didn’t you say In a class one day That selfishness was bound to pay? Of all doctrines that was the Pith. Wasn’t it, wasn’t it, wasn’t it, Smith?2
The interest in going over this bit of history—or alleged history—does not lie, at least for this confer- ence, in scholastic curiosity. I believe it is important to see how that ethics-less view of economics and business emerged in order to understand what it is that is being missed out. As it happens, that bit of potted history of “who killed business ethics” is al-
together wrong, and it is particularly instructive to understand how that erroneous identification has come about.
2. Exchange, Production and Distribution I get back, then, to Adam Smith. Indeed, he did try to make economics scientific, and to a great ex- tent was successful in this task, within the limits of what was possible then. While that part of the al- leged history is right (Smith certainly did much to enhance the scientific status of economics), what is altogether mistaken is the idea that Smith demon- strated—or believed that he had demonstrated—the redundancy of ethics in economic and business af- fairs. Indeed, quite the contrary. The Professor of Moral Philosophy at the University of Glasgow—for that is what Smith was—was as interested in the im- portance of ethics in behavior as anyone could have been. It is instructive to see how the odd reading of Smith—as a “no-nonsense” sceptic of economic and business ethics—has come about.
Perhaps the most widely quoted remark of Adam Smith is the one about the butcher, the brewer and the baker in The Wealth of Nations: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their re- gard to their own interest. We address ourselves, not to their humanity but to their self-love....”3 The butcher, the brewer and the baker want our money, and we want their products, and the exchange bene- fits us all. There would seem to be no need for any ethics—business or otherwise—in bringing about this betterment of all the parties involved. All that is needed is regard for our own respective interests, and the market is meant to do the rest in bringing about the mutually gainful exchanges.
In modern economics this Smithian tribute to self-interest is cited again and again—indeed with such exclusivity that one is inclined to wonder whether this is the only passage of Smith that is read
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these days. What did Smith really suggest? Smith did argue in this passage that the pursuit of self-interest would do fine to motivate the exchange of commod- ities. But that is a very limited claim, even though it is full of wonderful insights in explaining why it is that we seek exchange and how come exchange can be such a beneficial thing for all. But to understand the limits of what is being claimed here, we have to ask, first: Did Smith think that economic operations and business activities consist only of exchanges of this kind? Second, even in the context of exchange, we have to question: Did Smith think that the re- sult would be just as good if the businesses involved, driven by self-interest, were to try to defraud the consumers, or the consumers in question were to at- tempt to swindle the sellers?
The answers to both these questions are clearly in the negative. The butcher-brewer-baker simpli- city does not carry over to problems of production and distribution (and Smith never said that it did), nor to the problem as to how a system of exchange can flourish institutionally. This is exactly where we begin to see why Smith could have been right in his claim about the motivation for exchange without es- tablishing or trying to establish the redundancy of business or ethics in general (or even in exchange). And this is central to the subject of this conference.
The importance of self-interest pursuit is a help- ful part of understanding many practical problems, for example, the supply problems in the Soviet Union and East Europe. But it is quite unhelpful in explaining the success of, say, Japanese economic performance vis-à-vis West Europe or North Amer- ica (since behavior modes in Japan are often deep- ly influenced by other conventions and pressures). Elsewhere in The Wealth of Nations, Adam Smith considers other problems which call for a more com- plex motivational structure. And in his The Theory of Moral Sentiments, Smith goes extensively into the need to go beyond profit maximization, arguing that “humanity, justice, generosity, and public spirit, are the qualities most useful to others.”4 Adam Smith
was very far from trying to deny the importance of ethics in behavior in general and business behavior in particular.5
Through overlooking everything else that Smith said in his wide-ranging writings and concentrating only on this one butcher-brewer-baker passage, the father of modern economics is too often made to look like an ideologue. He is transformed into a par- tisan exponent of an ethics-free view of life which would have horrified Smith. To adapt a Shakespear- ian aphorism, while some men are born small and some achieve smallness, the unfortunate Adam Smith has had much smallness thrust upon him.
It is important to see how Smith’s wholeness trib- ute to self-interest as a motivation for exchange (best illustrated in the butcher-brewer-baker passage) can co-exist peacefully with Smith’s advocacy of ethical behavior elsewhere. Smith’s concern with ethics was, of course, extremely extensive and by no means con- fined to economic and business matters. But since this is not the occasion to review Smith’s ethical be- liefs, but only to get insights from his combination of economic and ethical expertise to understand bet- ter the exact role of business ethics, we have to point our inquiries in that particular direction.
The butcher-brewer-baker discussion is all about motivation for exchange, but Smith was—as any good economist should be—deeply concerned also with production as well as distribution. And to understand how exchange might itself actually work in practice, it is not adequate to concentrate only on the motiva- tion that makes people seek exchange. It is necessary to look at the behavior patterns that could sustain a flourishing system of mutually profitable exchanges. The positive role of intelligent self-seeking in motiv- ating exchange has to be supplemented by the mo- tivational demands of production and distribution, and the systemic demands on the organization of the economy.
These issues are taken up now, linking the gen- eral discussion with practical problems faced in the contemporary world. In the next three sections I
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discuss in turn (1) the problem of organization (es- pecially that of exchange), (2) the arrangement and performance of production, and (3) the challenge of distribution.
3. Organization and Exchange: Rules and Trust I come back to the butcher-brewer-baker example. The concern of the different parties with their own interests certainly can adequately motivate all of them to take part in the exchange from which each bene- fits. But whether the exchange would operate well would depend also on organizational conditions. This requires institutional development which can take quite some time to work—a lesson that is cur- rently being learned rather painfully in East Europe and the former Soviet Union. That point is now be- ing recognized, even though it was comprehensively ignored in the first flush of enthusiasm in seeking the magic of allegedly automatic market processes.
But what must also be considered now is the extent to which the economic institutions operate on the basis of common behavior patterns, shared trusts, and a mutual confidence in the ethics of the different parties. When Adam Smith pointed to the motivational importance of “regard to their own in- terest,” he did not suggest that this motivation is all that is needed to have a flourishing system of ex- change. If he cannot trust the householder, the baker may have difficulty in proceeding to produce bread to meet orders, or in delivering bread without pre- payment. And the householder may not be certain whether he would be sensible in relying on the de- livery of the ordered bread if the baker is not always altogether reliable. These problems of mutual confi- dence—discussed in a very simple form here—can be incomparably more complex and more critical in extended and multifarious business arrangements.
Mutual confidence in certain rules of behavior is typically implicit rather than explicit—indeed so implicit that its importance can be easily overlooked
in situations in which such confidence is unproblem- atic. But in the context of economic development, across the Third World, and also of institutional reform, now sweeping across what used to be the Second World, these issues of behavioral norms and ethics can be altogether central.
In the Third World there is often also a deep- rooted scepticism of the reliability and moral quality of business behavior. This can be directed both at local businessmen and the commercial people from abroad. The latter may sometimes be particularly galling to well established business firms including well-known multinationals. But the record of some multinationals and their unequal power in dealing with the more vulnerable countries have left grounds for much suspicion, even though such suspicion may be quite misplaced in many cases. Establishing high standards of business ethics is certainly one way of tackling this problem.
There is also, in many Third World countries, a traditional lack of confidence in the moral behav- ior of particular groups of traders, for example mer- chants of food grains. This is a subject on which—in the context of the-then Europe—Adam Smith him- self commented substantially in The Wealth of Na- tions, though he thought these suspicions were by and large unjustified. In fact, the empirical record on this is quite diverse, and particular experiences of grain trade in conditions of scarcity and famine have left many questions to be answered.
This is an issue of extreme seriousness, since it is now becoming increasingly clear that typically the best way of organizing famine prevention and re- lief is to create additional incomes for the destitute (possibly through employment schemes) and then to rely on normal trade to meet (through standard ar- rangements of transport and sales) the resulting food demand.6 The alternative of bureaucratic distribu- tion of food in hastily organized relief camps is often much slower, more wasteful, seriously disruptive of family life and normal economic operations, and more conducive to the spread of epidemic diseases.
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However, giving a crucial role to the grain traders at times of famine threats (as a complement to state- organized employment schemes to generate income) raises difficult issues of trust and trustworthiness, in particular, that the traders will not manipulate the precarious situation in search of unusual profit. The issue of business ethics, thus, becomes an altogether vital part of the arrangement of famine prevention and relief.
The problem can be, to some extent, dealt with by skillful use of the threat of government inter- vention in the market. But the credibility of that threat depends greatly on the size of grain reserves the government itself has. It can work well in some cases (generally it has in India), but not always. Ultimately, much depends on the extent to which the relevant business people can establish exacting standards of behavior, rather than fly off in search of unusual profits to be rapidly extracted from ma- nipulated situations.
I have been discussing problems of organization in exchange, and it would seem to be right to con- clude this particular discussion by noting that the need for business ethics is quite strong even in the field of exchange (despite the near-universal pres- ence of the butcher-brewer-baker motivation of “regard to their own interest”). If we now move on from exchange to production and distribution, the need for business ethics becomes even more forceful and perspicuous. The issue of trust is central to all economic operations. But we now have to consider other problems of interrelation in the process of pro- duction and distribution.
4. Organization of Production: Firms and Public Goods Capitalism has been successful enough in generating output and raising productivity. But the experiences of different countries are quite diverse. The recent experiences of East Asian economies—most notably Japan—raise deep questions about the modelling of
capitalism in traditional economic theory. Japan is often seen—rightly in a particular sense—as a great example of successful capitalism, but it is clear that the motivation patterns that dominate Japanese business have much more content than would be provided by pure profit maximization.
Different commentators have emphasized dis- tinct aspects of Japanese motivational features. Michio Morishima has outlined the special char- acteristics of “Japanese ethos” as emerging from its particular history of rule-based behavior pattern.7 Ronald Dore has seen the influence of “Confu- cian ethics.”8 Recently, Eiko Ikegami has pointed to the importance of the traditional concern with “honor”—a kind of generalization of the Samurai code—as a crucial modifier of business and econom- ic motivation.9
Indeed, there is some truth, oddly enough, even in the puzzlingly witty claim made by The Wall Street Journal that Japan is “the only communist nation that works” (30 January 1989, 1). It is, as one would expect, mainly a remark about the non-profit mo- tivations underlying many economic and business activities in Japan. We have to understand and inter- pret the peculiar fact that the most successful capital- ist nation in the world flourishes economically with a motivation structure that departs firmly—and often explicitly—from the pursuit of self-interest, which is meant to be the bedrock of capitalism.
In fact, Japan does not, by any means, provide the only example of a powerful role of business eth- ics in promoting capitalist success. The productive merits of selfless work and devotion to enterprise have been given much credit for economic achieve- ments in many countries in the world. Indeed, the need of capitalism for a motivational structure more complex than pure profit maximization has been acknowledged in various forms, over a long time, by various social scientists (though typically not by many “mainstream” economists): I have in mind Marx, Weber, Tawney, and others.10 The basic point about the observed success of non-profit motives is
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neither unusual nor new, even though that wealth of historical and conceptual insights is often thorough- ly ignored in professional economics today.
It is useful to try to bring the discussion in line with Adam Smith’s concerns, and also with the gen- eral analytical approaches successfully developed in modern microeconomic theory. In order to under- stand how motives other than self-seeking can have an important role, we have to see the limited reach of the butcher-brewer-baker argument, especially in dealing with what modern economists call “public good.” This becomes particularly relevant because the overall success of a modern enterprise is, in a very real sense, a public good.
But what is a public good? That idea can be best understood by contrasting it with a “private good,” such as a toothbrush or a shirt or an apple, which either you can use or I, but not both. Our respect- ive uses would compete and be exclusive. This is not so with public goods, such as a livable environment or the absence of epidemics. All of us may benefit from breathing fresh air, living in an epidemic-free environment, and so on. When uses of commodities are non-competitive, as in the case of public goods, the rationale of the self-interest-based market mech- anism comes under severe strain. The market system works by putting a price on a commodity and the allocation between consumers is done by the inten- sities of the respective willingness to buy it at the prevailing price. When “equilibrium prices” emerge, they balance demand with supply for each com- modity. In contrast, in the case of public goods, the uses are—largely or entirely—non-competitive, and the system of giving a good to the highest bidder does not have much merit, since one person’s con- sumption does not exclude that of another. Instead, optimum resource allocation would require that the combined benefits be compared with the costs of production, and here the market mechanism, based on profit maximization, functions badly.11
A related problem concerns the allocation of private goods involving strong “externalities,” with
interpersonal interdependences working outside the markets. If the smoke from a factory makes a neighbor’s home dirty and unpleasant, without the neighbor being able to charge the factory owner for the loss she suffers, then that is an “external” rela- tion. The market does not help in this case, since it is not there to allocate the effects—good or bad—that works outside the market.12 Public goods and exter- nalities are related phenomena, and they are both quite common in such fields as public health care, basic education, environmental protection, and so on.
There are two important issues to be addressed in this context, in analysing the organization and per- formance of production. First, there would tend to be some failure in resource allocation when the com- modities produced are public goods or involve strong externalities. This can be taken either (1) as an argu- ment for having publicly owned enterprises, which would be governed by principles other than profit maximization, or (2) as a case for public regulations governing private enterprise, or (3) as establishing a need for the use of non-profit values—particularly of social concern—in private decisions (perhaps because of the goodwill that it might generate). Since public enterprises have not exactly covered themselves with glory in the recent years, and public regulations— while useful—are sometimes quite hard to imple- ment, the third option has become more important in public discussions. It is difficult, in this context, to escape the argument for encouraging business ethics, going well beyond the traditional values of honesty and reliability, and taking on social responsibility as well (for example, in matters of environmental deg- radation and pollution).
The second issue is more complex and less rec- ognized in the literature, but also more interesting. Even in the production of private commodities, there can be an important “public good” aspect in the production process itself. This is because produc- tion itself is typically a joint activity, supervisions are costly and often unfeasible, and each participant
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contributes to the over-all success of the firm in a way that cannot be fully reflected in the private re- wards that he or she gets.
The over-all success of the firm, thus, is really a public good, from which all benefit, to which all contribute, and which is not parcelled out in little boxes of person-specific rewards strictly linked with each person’s respective contribution. And this is pre- cisely where the motives other than narrow self-seek- ing becomes productively important. Even though I do not have the opportunity to pursue the point further here, I do believe that the successes of “Jap- anese ethos,” “Confucian ethics,” “Samurai codes of honor,” etc., can be fruitfully linked to this aspect of the organization of production.
5. The Challenge of Distribution: Values and Incentives I turn now to distribution. It is not hard to see that non-self-seeking motivations can be extremely im- portant for distributional problems in general. In dividing a cake, one person’s gain is another’s loss. At a very obvious level, the contributions that can be made by ethics—business ethics and others—in- clude the amelioration of misery through policies explicitly aimed at such a result. There is an ex- tensive literature on donations, charity, and phil- anthropy in general, and also on the willingness to join in communal activities geared to social im- provement. The connection with ethics is obvious enough in these cases.
What is perhaps more interesting to discuss is the fact that distributional and productional problems very often come mixed together, so that how the cake is divided influences the size of the cake itself. The so-called “incentive problem” is a part of this re- lationship. This too is a much discussed problem,13 but it is important to clarify in the present context that the extent of the conflict between size and dis- tribution depends crucially on the motivational and behavioral assumptions. The incentive problem is
not an immutable feature of production technology. For example, the more narrowly profit-oriented an enterprise is, the more it would, in general, tend to resist looking after the interests of others—workers, associates, consumers. This is an area in which ethics can make a big difference.
The relevance of all this to the question we have been asked to address (“Does business ethics make economic sense?”) does, of course, depend on how “economic sense” is defined. If economic sense in- cludes the achievement of a good society in which one lives, then the distributional improvements can be counted in as parts of sensible outcomes even for business. Visionary industrialists and businesspersons have tended to encourage this line of reasoning.
On the other hand, if “economic sense” is in- terpreted to mean nothing other than achievement of profits and business rewards, then the concerns for others and for distributional equity have to be judged entirely instrumentally—in terms of how they indirectly help to promote profits. That con- nection is not to be scoffed at, since firms that treat its workers well are often very richly rewarded for it. For one thing, the workers are then more reluctant to lose their jobs, since more would be sacrificed if dismissed from this (more lucrative) employment, compared with alternative opportunities. The con- tribution of goodwill to team spirit and thus to pro- ductivity can also be quite plentiful.
We have then an important contrast between two different ways in which good business behavior could make economic sense. One way is to see the improvement of the society in which one lives as a reward in itself; this works directly. The other is to use ultimately a business criterion for improvement, but to take note of the extent to which good business behavior could in its turn lead to favorable business performance; this enlightened self-interest involves an indirect reasoning.
It is often hard to disentangle the two features, but in understanding whether or how business eth- ics make economic sense, we have to take note of
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each feature. If, for example, a business firm pays inadequate attention to the safety of its workers, and this results accidentally in a disastrous tragedy, like the one that happened in Bhopal in India some years ago (though I am not commenting at present on the extent to which Union Carbide was in fact negli- gent there), that event would be harmful both for the firm’s profits and for the general objectives of social well-being in which the firm may be expected to take an interest. The two effects are distinct and separable and should act cumulatively in an overall consequen- tial analysis. Business ethics has to relate to both.
6. A Concluding Remark
I end with a brief recapitulation of some of the points discussed, even though I shall not attempt a real summary. First, the importance of business eth- ics is not contradicted in any way by Adam Smith’s pointer to the fact that our “regards to our own in- terest” provide adequate motivation for exchange (section 2). Smith’s butcher-brewer-baker argument is concerned (1) directly with exchanges only (not production or distribution), and (2) only with the motivational aspect of exchange (not its organization- al and behavioral aspects).
Second, business ethics can be crucially import- ant in economic organization in general and in ex- change operations in particular. This relationship is extensive and fairly ubiquitous, but it is particularly important, at this time, for the development efforts of the Third World and the reorganizational attempts in what used to be the Second World (section 3).
Third, the importance of business ethics in the arrangement and performance of production can be illustrated by the contrasting experiences of different economies, e.g., Japan’s unusual success. The advan- tages of going beyond the pure pursuit of profit can be understood in different ways. To some extent, this question relates to the failure of profit-based mar- ket allocation in dealing with “public goods.” This is relevant in two different ways: (1) the presence of
public goods (and of the related phenomenon of ex- ternalities) in the commodities produced (e.g., en- vironmental connections), and (2) the fact that the success of the firm can itself be fruitfully seen as a public good (section 4).
Finally, distributional problems—broadly de- fined—are particularly related to behavioral ethics. The connections can be both direct and valuational, and also indirect and instrumental. The interrela- tions between the size of the cake and its distribution increase the reach and relevance of ethical behavior, e.g., through the incentive problem (section 5).
Notes A paper presented at the International Con-
ference on the Ethics of Business in a Global Economy, held in Columbus, Ohio, in March 1992.
1 Lamont University Professor, and Profes- sor of Economics and Philosophy, at Harvard University.
2 Stephen Leacock, Hellements of Hickonomics (New York: Dodd, Mead & Co., 1936), p. 75.
3 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776; repub- lished, London: Dent, 1910), vol. I, p. 13.
4 Adam Smith, The Theory of Moral Sentiments (revised edition, 1790; reprinted, Oxford: Clar- endon Press, 1976), p. 189.
5 On this and related matters, see my On Ethics and Economics (Oxford: Blackwell, 1987); Pa- tricia H. Werhane, Adam Smith and His Legacy for Modern Capitalism (New York: Oxford Uni- versity Press, 1991); Emma Rothschild, “Adam Smith and Conservative Economics,” Economic History Review, 45 (1992).
6 On this see Jean Drèze and Amartya Sen, Hun- ger and Public Action (Oxford: Clarendon Press, 1989).
7 Michio Morishima, Why Has Japan “Succeed- ed”? Western Technology and Japanese Ethos (Cam- bridge: Cambridge University Press, 1982).
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8 Ronald Dore, “Goodwill and the Spirit of Mar- ket Capitalism,” British Journal of Sociology, 34 (1983), and Taking Japan Seriously: A Confu- cian Perspective on Leading Economic Issues (Stanford: Stanford University Press, 1987).
9 Eiko Ikegami, “The Logic of Cultural Change: Honor, State-Making, and the Samurai,” mimeographed, Department of Sociology, Yale University, 1991.
10 Karl Marx (with F. Engels), The German Ideol- ogy (1845-46, English translation, New York: International Publishers, 1947); Richard Henry Tawney, Religion and the Rise of Cap- italism (London: Murray, 1926); Max Weber, The Protestant Ethic and the Spirit of Capitalism (London: Allen & Unwin, 1930).
11 The classic treatment of public goods was pro- vided by Paul A. Samuelson, “The Pure Theory of Public Expenditure,” Review of Economics and Statistics, 35 (1954).
12 For a classic treatment of external effects, see A.C. Pigou, The Economics of Welfare (London: Macmillan, 1920). There are many different ways of defining “externalities,” with rather dis- parate bearings on policy issues; on this see the wide-ranging critical work of Andreas Papan- dreou (Jr., I should add to avoid an ambiguity, though I don’t believe he uses that clarifica- tion), Ideas of Externality, to be published by Clarendon Press, Oxford, and Oxford Univer- sity Press, New York.
13 A good general review of the literature can be found in A.B. Atkinson and J.E. Stiglitz, Lec- tures on Public Economics (New York: McGraw- Hill, 1980). On the conceptual and practical importance of the incentive problem and other sources of potential conflict between efficiency and equity, see my Inequality Reexamined (Cambridge, MA: Harvard University Press, 1992), Chapter 9.
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systEMs oF MoRAL EVALUAtIon
HEAtHER sALAzAR
kantian Business Ethics
Imagine that you are the owner of a vitamin and supplement retail store. You must make many deci- sions regarding the purchasing of products that may be helpful, harmful, or ineffective practically-speak- ing. However, even ineffective and harmful supple- ments produce high profit-margins when they are in high-demand. For example, shark-cartilage has been touted as a cure for cancer due to the fact that sharks rarely contract cancer. Even though empirical studies on the impact of taking such supplements demon- strates no positive benefit apart from placebo effects, people who are in search for a cure for cancer often purchase large quantities of shark-cartilage, thus in- creasing the sales of vitamin and supplement retail- ers like you. The ethical question that you face is whether you should buy such products knowing that cancer patients are spending their money and hope for a lost cause as far as shark-cartilage goes.
An even more serious case arises in your ethical decisions regarding the purchasing of products that are actually harmful to people who take them. For ex- ample, Ephedra is an herbal weight-loss supplement that was banned in the US in Feb. 2004 due to a large number of potentially fatal side-effects associated with its misuse, including over 155 reported deaths. But it was re-released in April 2006 because there was no proof of its harmfulness when taken accord- ing to the instructions. You know that if you stock your shelves with Ephedra it will produce incredible profits since it was in extremely high-demand by the millions who are looking desperately for a solution to their obesity. Should you purchase such products and allow the consumer to determine for herself whether
the risk of taking these supplements is worth it? If you purchase the products are you allowing consum- ers their autonomy or are you using desperate people in order to make a profit for yourself? This is obvious- ly a difficult question as are so many of the ethical dilemmas with which we are faced on a daily basis. Ethical theories help to guide people in their search for the correct decision in such complex cases.
The Kantian answer to whether you should pur- chase and sell ineffective and harmful supplements emphasizes, first, allowing and helping people to make rational decisions and, second, having a mo- tivation that comes from what Kant calls the “good will,” which means that your motivation is from duty and is not simply self-seeking. As the retail- er, you can sell the supplements if you can do so while respecting people. One way you could respect people’s autonomy and refrain from being paternal- istic is by empowering people to make rational de- cisions about the supplements that they take. This would include making information available on the effectiveness and dangers of the supplements that you sell and helping people to use the resources that you provide. However, in order to be acting mor- ally, in addition to providing such information, you must be motivated to do so because you know that this is the right thing to do, and not, for example, because you are afraid of creating a bad reputation for yourself. The Kantian principles will allow you to sell ineffective and harmful supplements if you are not deceiving or harming people, or otherwise using them for your own personal gain. When you help people to make the right decisions for them- selves and others, by providing them with the best information that you have, you are respecting people and their ability to make good decisions.
The Kantian approach to business ethics, like Kantian ethics in general, emphasizes acting with re-
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spect toward all autonomous beings. It claims that we all have duties toward one another that depend on our relationships with one another, the most basic and all-pervasive relationship between persons being that of a fellow member of humanity. As mem- bers of humanity, we each have value that stems from our rational and moral capacities and we all ought to act in a way that shows appreciation for that value. It differs from the other standard approaches, most notably rights-based theories and utilitarianism, in various significant ways. Unlike utilitarianism, it does not ask us to maximize any particular value, it in- volves no complex calculations, and it does not treat groups of people as more or less valuable depending on the quantities of individuals or quality of experi- ences among them. Like rights-based approaches, it proposes constraints on actions, giving us rules upon which to act. Duties are unlike rights, however, since although every right possessed by a person creates a respective duty for others to respect that right, some duties on a duty-based approach do not have correl- ate rights. For example, I have a duty to love my sis- ter, but she does not have a right to my love. I have a duty to protect my country, perhaps, but my country does not have the right to use my labor and life in defense of itself.1 Whether one has a duty to some- one else depends not on the other’s rights, as it does on a rights-based theory, but on the rational assess- ment of what is the right thing to do based on the various types of relationship that you have with the person. Morality for Kantians is constituted by how we ought to treat each other as fellow members of humanity, although other duties can arise for other types of relationships. In addition to this, it differs from rights-based approaches and utilitarianism by claiming that it is not only what you do that matters morally, but with what motivation you do it.
The crux of Kant’s ethics resides in his startling claim that the only thing that is intrinsically good, or good-in-itself, is the good will. He says that “There is no possibility for thinking of anything at all in the world, or even out of it, which can be regarded as
good without qualification, except a good will” (MM 393). The will is the rational part of each person, and the good will is rationality which chooses to do what is right for the reason that it is good. This is why all members of humanity, or all rational beings, have value, and this is also the reason why these beings are the only thing of true value. The argument for the claim that the only thing that is good-in-itself is the good will relies on a further claim that it is the only thing that is truly under our control. Our ex- ternal circumstances, like where, when and to whom we are born, is not under our control; so although it may be unfortunate that some, through no fault of their own, are living in absolute poverty with no hope of living happy or long lives, we cannot control these factors. Furthermore, although we can choose actions to better the situations of those who are less fortunate, the results of our actions are not fully under our control since they depend on external cir- cumstances and other people. For example, I might donate money to UNICEF, but the money might never get to the destination to produce the help that is needed, if, for instance, there was a terrible hur- ricane that prevented the truck from delivering it or someone robbed it. The money might get to the needy families but it might not actually help them if they buy food with it and become ill due to contam- inants in the food. These things are not under our control; the only thing that is truly under our con- trol is our choices or our motivation with which we intend to act. Rationality enables me to reflect on the circumstances of others who are in need, and decide on a method of helping them. It allows me to intend to do what is good, but the results of my intentions and actions are not entirely up to me. So according to the Kantian, both the choice of what to do and the motivation are integral to the moral worth of the action. I have enumerated four simple steps for de- termining the moral worth of a choice below: Determining the Right Action and Motivation: 1. Formulate a Maxim-for-Action. 2. Evaluate it as coming from the good will or not.
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a. Ask whether it is the right action. b. Ask whether in willing it, you have the right
motivation. 3. If it comes from the good will, it is good, and
you are good in doing it; it if doesn’t, then see step (4).
4. If it doesn’t come from the Good Will, but is consistent with it, then the action is good, but you are not doing it from the right motive and so you are not praiseworthy.
1. Maxims-for-Action The first step in determining whether you should perform an action is to identify the action. Develop- ing a statement of the action will allow you and others to analyze whether the action is correct or not. Such statements are called maxims-for-action and they involve asserting what you will do and for what purpose you will do it. For example: I will take phil- osophy courses in order to learn how to reason well.
2.1. The Good Will: Right Actions The second step asks you to evaluate the maxim- for-action as coming from the good will or not. The good will is the part of you that is motivated to do what is good for the right reasons so it involves evaluating (a) whether the action is the right action and (b) whether the action is rightly motivated.
For Kant, the right actions to take are those that are rational. This is because the will is the rational part of each of us, and so, if the maxim is rational, it is fit to be willed. Kant thinks that there are various tests that will allow us to see whether a maxim is rational or not, which we can call the Categorical Imperative Tests. The Categorical Imperative is the law of ration- ality that does not depend on our desires, but depends only on pure rationality. When a maxim is tested by the Categorical Imperative, it tells us what maxims (and thus what actions) we can rationally take, those we cannot rationally take, and those that we ration- ally have to take. In other words, it determines per- missible, impermissible, and required actions.
Kant has three formulations of the Categorical Imperative, or what he takes to be the supreme law of pure rationality. These are often called “The For- mula of Universal Law,” “The Formula of Human- ity,” and “The Formula of Autonomy.” According to Kant, all three of these formulations have the same results. In this explanation, I will focus on the first two formulations.
2.1.1. The Formula of Universal Law In order to be rational, one must also be logical, and the most primary logical rule that should be ob- served is to be consistent; anything that is inconsis- tent is illogical and thus irrational and immoral for Kant. Kant’s first formulation, the Formula of Uni- versal Law, uses the rule of consistency to elimin- ate those maxims that are internally inconsistent, or impossible to will if everyone willed them. It states that you ought to “Act only according to that maxim whereby you can at the same time will that it should become a universal law” (Kant, MM 421).
After you have created a maxim, you must uni- versalize it, which means that you must make it a law that everyone act according to the maxim that you have developed for yourself. A universalized maxim involves transforming my maxim “I will use my company’s funds in order to woo prospective cli- ents and gain business for the company,” to a univer- salized maxim which states “Everyone will use their company’s funds in order to woo prospective clients and gain business for the company.”
Once it is universalized, you must check for inconsistencies. Ask yourself whether it is possible for everyone to will the maxim and to achieve their goals. For example, is everyone doing the action consistent with your achieving the purpose of your original maxim? If everyone used their company’s funds to gain new clients, then companies would be investing in and obtaining new business by exert- ing their own resources. It would be possible for all companies to invest and gain new clients, including you. Therefore, the maxim is fit to be willed and it is a permissible action for you to perform.
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Some maxims are inconsistent when universal- ized and thus irrational and impermissible to act on. For example, take the maxim, “I will embezzle my company’s funds in order to obtain extra money rather than invest extra resources into the company.” Once universalized, everyone will be embezzling money from their companies and (1) the companies will not have enough money for people to embezzle and (2) the companies will know that everyone is embezzling money and they will stop people from embezzling money. If the companies do not have enough money for everyone to embezzle, then that defeats the purpose of your maxim, which is to gain money. It is therefore impermissible to act on that maxim. In addition, since the companies will know that you are trying to embezzle money, they will be able to stop you from doing so and punish you for it. This defeats the purpose of your maxim, as well, since they will stop you from embezzling the money. Since there is a contradiction in everyone willing this maxim, it is impermissible to act on it. Alternatively, it is required that you not act on it.
It is easy for people to misunderstand the For- mula of Universal Law and think that the test re- quires that we see whether a good or a bad state of affairs results from the universalized version of the maxim. For example, someone might think that if the company knows that you are embezzling money you will be punished for it, and since you don’t want to be punished, it is not a good maxim to act upon. Although it might be true that you should not act on maxims that will create bad outcomes, this is not what the Formula of Universal Law tests. It tests whether it is possible for everyone to will it and still achieve the purposes of the maxims.
By testing the universalizability of the maxim under scrutiny, the Formula of Universal Law pro- hibits people from making exceptions of themselves. It thus forbids, in general, all actions that rely on others not knowing what you are doing, which is a form of deceit. So stealing and lying are impermis- sible in any circumstance. And this has a tremen- dous impact on business as many of business’s ethical
issues concern just these sorts of problems. For ex- ample, fraud, stock-market schemes, piggyback trading, deception in advertising and accounting, honesty in contracting and in lawsuits, and various forms of the stealing of company resources, includ- ing taking extra time off, office supplies, extravagant spending, and the pumping of monies towards one’s own investments.
2.1.2. The Formula of Humanity The Formula of Humanity is a more intuitive version of the Categorical Imperative and it states to “Act in such a way that you treat humanity, whether in your own person or in the person of another, always at the same time as an end and never simply as a means” (Kant, MM 429). This statement, too, relies on the logical rule of consistency, but its focus is different. Humanity, which is the rational power within indi- viduals, is valuable in-itself, and is the only thing, according to Kant, that is valuable in-itself. Because it is of value, and it is something that not only you possess, but all beings with rationality possess, every- one must respect each others’ rationality. Respecting others’ and your own rationality entails, according to this formulation, never treating it as mere means and always treating it as an end in itself. An end is something that is valuable in-itself and a means is something that is valuable only as a way to get what you want or to achieve an end. So we ought to al- ways treat people’s rationality as being valuable in- itself. Therefore, we should allow people to use their rationality and we should use our own rationality, and we should never circumvent the use of ration- ality in order to get something that we desire, even something that we think of as rational and good.
This formulation, like the Formula of Universal Law, eliminates lying and deceit of any kind. Further- more, it eliminates using ourselves without the con- sent of our rationality and it prohibits our use of other people without the consent of their rationality. This is not the same thing as getting someone’s consent, since a person can give his or her consent without giv-
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ing her rational consent. Giving one’s rational con- sent to something means reflecting on the action and its consequences, and examining whether it is a good thing for one to perform it. So someone might sign a contract for a credit card that charges an exorbitant amount of interest, but being charged this amount of interest is not what a rational person, under most cir- cumstances, would choose. It is therefore impermis- sible and immoral for the person to sign the contract and it is impermissible and immoral for anyone to ask a person to sign such a contract.
In the Formula of Humanity it can also be seen quite clearly that people ought never to be unfair or treat people poorly. So issues in business that deal with inequities among the sexes, genders, races, and ages, and topics that concern the subjugation of in- dividuals in unfair positions of bargaining power and sweatshop-like circumstances are also impermissible and immoral. All actions that are not impermissible, or do not involve the use of a person as a mere means, are permissible.
2.2. The Good Will: Right Motivations After the maxim for action is evaluated as being per- missible, impermissible, or required to act upon, and it passes the test, being either permissible or re- quired to act upon, one must determine whether the motivation for acting on it is good. If the motivation is not good, then acting on it does not come from the Good Will. In order to distinguish the different kinds of motives that one may have in doing an ac- tion, let us first examine three different maxims and then the different motivations that accompany these maxims. Kant uses for this purpose an example that is relevant to businesses of a shopkeeper who treats his customers honestly for three distinct purposes.
Three Maxims in kant’s shopkeeper: 1. I will be honest with my customers in order to
gain their trust and get repeat-business. 2. I will be honest with my customers because I
like them.
3. I will be honest with my customers because that’s the right thing to do.
According to the Formula of Universal Law, it is permissible to treat one’s customers honestly, no matter the purpose, because honesty never makes an exception of oneself. According to the Formula of Humanity, honesty is also good, because deceit in- volves using people by bypassing their rational con- sent. It may seem like the shopkeeper is using his customers in the first maxim that he devises since his purpose in being honest is to make money off of them, but this maxim is not eliminated by the Formula of Humanity as long as the shopkeeper re- spects the rationality of his customers while he in- tends to make a profit.
However, there is a moral difference in these three maxims even though each of them is permis- sible to act upon. These differences are revealed in the purposes within these maxims which correspond to three general types of motivation:
Three types of Motivation: A. Self-Interest (corresponding to (1)) B. Character or Sympathy (corresponding to (2)) C. The Moral Law or Duty (corresponding to (3))
Of these three kinds of motivation, Kant claims that the only good motivation is that which comes from the moral law or duty.
The reason why self-interest is eliminated as be- ing a good motivation, where good is understood as “moral” or “praiseworthy” is fairly clear. Self-in- terested motivation is something that benefits the self by definition, and does not consider others, so it cannot be a moral motivation, or one which aims to benefit humanity in general. In fact, actions that are performed for a person’s self-interest and moral actions are frequently seen as opposed to one an- other since people can maximize their self-interest by harming other people.
The second type of motivation, which comes from character or sympathy, on the other hand, is
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not so obviously lacking goodness. Good people have good characters. They are kind, honest, and charitable. A good person will do good things, so the shopkeeper, if he is good, will be honest because that is the kind of person he is. Isn’t the fact that he is a good person of credit to him? And, furthermore, ought not we all to try to become good people such that we do good just because that is the way we are? Kant’s answer to this is that our characters at birth and throughout our lives are not wholly under our control and so we ought not to be credited for doing actions that naturally arise from our constitutions. Some people are born irritable and have difficulties in their families and environments that exacerbate these genetic tendencies. It is not these people’s fault that they were born with such disadvantages. Like- wise, motivations that come from sympathy have no moral worth for Kant because whether we like or dis- like someone can change from moment to moment, and morality has a more solid foundation than this; unshakeable by our fleeting feelings and desires. If the objection arises that a person with a good charac- ter will have sympathetic reactions to others reliably, then his objection to motivations arising from char- acter will emerge again. Motivations from character and sympathy can help us to act in accordance with the moral law, if they come from a good character, but they are not good in-themselves. Kant concludes that the only motivation that is under our control (and thus capable of being morally praiseworthy) and that will provide an unshakeable ground for morality is that motivation issuing directly from the will to obey the moral law. If we are motivated to do the right thing because it is the right thing, then we are performing actions that are not merely in accord- ance with morality, but are in fact moral.
3. Conclusion
Kantian ethics does not prohibit individuals from seeking their own happiness, which includes pros- perity in business. However, it identifies constraints
on what we should do in the pursuit of our happi- ness or profits that gives equal respect to all ration- al individuals by requiring people to exercise their own rationality and allowing others to exercise their rationality, as well. Treating people as equal, autono- mous agents with goals of their own and being hon- est and honoring the relationships that we have, will produce a community that in which we trust each other and are able to rely on and cooperate with each other more effectively. These results, being the foun- dations of a capitalistic economy, will enable busi- nesses and individuals to prosper as well.
Note 1 It is unclear whether it even makes sense to ask
whether ontological items that are constituted by groups of individuals with no independent existence (or at least no conscious existence) can possess rights.
For FUrther reADiNg Guyer, Paul. (1997). Kant’s Groundwork on the Meta-
physics of Morals: Critical Essays. Lanham, MD: Rowman & Littlefield Publishers, Inc.
Guyer, Paul. (2007). Kant’s Groundwork for the Meta- physics of Morals: A Reader’s Guide. London: Continuum International Publishing Group.
Kant, Immanuel. (2008). Groundwork of the Meta- physics of Morals. Trans. Thomas Kingsmill Ab- bott. Radford, VA: Wilder Publications.
Sedgwick, Sally. (2008). Kant’s Groundwork of the Metaphysics of Morals: An Introduction. Cam- bridge: Cambridge University Press.
Sullivan, Roger J. (1994). An Introduction to Kant’s Ethics. Cambridge: Cambridge University Press.
Wood, Allen W. (2007). Kantian Ethics. Cambridge: Cambridge University Press.
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RItA C. MAnnInG
Caring as an Ethical Perspective
An ethic of care has emerged as a new way to con- ceptualize some deeply held moral intuitions. It pro- vides an important tool for analyzing, discussing, and ultimately shaping moral practice. In what fol- lows, I will briefly describe an ethic of care. I shall then have something to say about how this perspec- tive emerged and about how it differs from other moral orientations.
Care for Others and Fostering Relationships One characteristic of people with integrity is the ability to care for others and to foster good re- lationships. Caring for others is more than hav- ing sympathetic feelings for them; it requires that one take concrete action to look after the needs of others. Caring for others and fostering good rela- tionships go together for two reasons. First, humans are essentially social creatures—we live and work in groups and most of us would be absolutely miser- able if we didn’t have meaningful relationships. So caring about persons means caring about their rela- tionships. Second, we cannot accomplish many of the tasks we need to undertake unless we can foster good relationships. This includes the task of giving care to others.
Let’s start with an example and see how caring works. Doug is concerned with trying to salvage an account and wants to send someone to visit the cli- ent. Kien is the most likely candidate since he has a good working relationship with the client, but he is scheduled to visit another client on a much bigger account. Susan has some experience with this cli- ent and has been known to save accounts in similar situations, so she is Doug’s first choice. Carlos is a
possibility, but he is not as familiar with the product as Susan. Doug recalls that Susan’s father is in the last stages of his battle with congestive heart failure and he wonders whether it would be fair to ask her to go. He calls her into his office and Susan says that her father would probably want her to go. Satisfied, Doug sends Susan on the trip, but the account is lost anyway. Did Doug do the right thing? We can now answer this question by asking whether Doug was sufficiently caring.
Care
Though not all defenders of an ethic of care see care as a virtue, I think this is the most plausible way to understand it. Like other virtues, care is a gen- eral disposition to behave in a particular way. Unlike other virtues, care is what I call a meta-virtue—that is it provides an organizing principle for all the other virtues. If my overall orientation is to be a caring person, then I will be courageous when what I value is at risk; I will be honest because honesty is usu- ally the best way to care for others; I will want to be prudent because I recognize that I must balance the needs of others and my own needs. So the trad- itional virtues of courage, honesty and prudence are organized under the meta-virtue of care.
When Carol Gilligan first described the care orientation, she described it as a typically female moral orientation. However, there is nothing gen- dered about caring; if it is more prevalent in women than in men, it is because women are socially con- ditioned to do much of society’s caring work—they are more likely to be involved with caring for chil- dren and the sick, for example. Care is a basic hu- man capacity and as such it is both possible and important for all of us to be caring persons. De- veloping one’s capacity in giving care requires that we commit to this ideal and that we have practice exercising care. When we truly care about some- one or something, we have certain emotions and motivations. If I see someone in dire need, for ex-
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ample, I will feel compassion and be motivated to do something to respond to the need. Finally, it is not enough to merely have the appropriate emo- tion and motivation; care involves an appropriate response.
Caring is a response to the variety of features of moral situations: need, harm, past promises, role relationships etc. In the case of need, our obliga- tion to respond in an appropriately caring way arises when we are able to respond to need. We can roughly distinguish needs here from desires by describing needs as something that is basic to our survival and minimally decent life as opposed to something that we merely want. Humans need some things for their very survival: food, cloth- ing, shelter, and health care are examples. There are also other things that we need for a minimal- ly decent life: Aristotle cites friendship; Mill cites liberty and Rawls offers self-esteem as a need in this sense. Still, there is no universal, cross-cultural understanding of need. Rather, need is mediated by a number of factors including family, culture, economic class, gender and sexuality, disability and illness. Finally, as we respond to needs, we should recognize the vast differences in power that exist. Sometimes, people are unwilling to express their needs freely because they fear that their needs will not be met. They may even be in such a state of dependence or despair that they are no longer able to identify their needs.
Need is not the only feature of moral situations. Harm, for example, is an important one to consid- er. Most people understand that being the cause of harming someone else creates an obligation to re- spond. But causation is a complex idea. We can be part of the causal story even when we don’t think of ourselves as the primary cause. Suppose, for ex- ample, that you see the person sitting next to you in an exam cheating. Suppose further that this is an exam that is designed to demonstrate competence in a skill crucial for a health care practitioner. Suppose that you simply look the other way and later find
out that a patient was seriously harmed because the practitioners really did not understand the proced- ure they should have followed, and that this proced- ure was the very one they were being tested on when you saw them cheating. Do you have a responsibil- ity here? I would argue that you do, though it’s not always clear what you can do after the fact. At the very least, you now know that you shouldn’t look the other way when you see similar cheating in the future.
There are two other things that mark the moral dimension of a situation that are worth not- ing here—past promising and role responsibility. When we make a promise, we commit ourselves to a certain course of action. An ethic of care doesn’t say that you are always committed to keeping a promise because sometimes doing so can be harm- ful to all concerned, but it does impose a moral obligation to respond. Similarly, being in a particu- lar role, e.g., teacher, comes with a set of general obligations.
We’ve now looked at some of the features of situ- ations that suggest that we have an obligation. In order to see what our obligations are in a particular situation, we need to look at the features of an ethic of care. There are four central ideas here: moral at- tention, sympathetic understanding, relationship awareness, and harmony and accommodation.
Moral Attention
Moral attention is the attention to the situation in all its complexity. When one is morally attentive, one wishes to become aware of all the details that will allow a sympathetic response to the situation. It is not enough to know that this is a case of a par- ticular kind, say a case about lying or cruelty. In or- der to understand what our obligations are, we have to know all the details that might make a difference in our understanding and response to the particular situation at hand.
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Sympathetic Understanding
When I sympathetically understand the situation, I am open to sympathizing and even identifying with the persons in the situation. I try to be aware of what the others in the situation would want me to do, what would most likely be in their best interests, and how they would like me to carry out their wishes and interests and meet their needs. I call this atten- tion to the best interests of others maternalism. It is done in the context of a special sensitivity to the wishes of the other and with an understanding of the other’s interest that is shaped by a deep sympathy and understanding. When it is hard to be sympa- thetic, one may try several strategies—perhaps im- agining others as oneself in an earlier crisis. As one adopts this sympathetic attitude one often becomes aware of what others want and need. Finally, as we respond to others, we look to satisfy their needs in ways that will preserve their sense of competence and dignity while at the same time addressing their needs or even ameliorating their suffering.
Relationship Awareness
There is a special kind of relationship awareness that characterizes caring. A person recognizes that others are in a relationship with him. First there is the most basic relationship, that of fellow creatures. Second there is the immediate relationship of need and abil- ity to fill the need. Finally, one may be in some role relationship with the other that calls for a particular response, such as teacher-student. One is aware of all these relationships as he surveys a situation from the perspective of care. But there is another kind of rela- tionship awareness that is involved as well. One can be aware of the network of relationships that connect humans, and care about preserving and nurturing these relationships. As caring persons think about what to do, they try not to undermine these rela- tionships but rather to nurture and extend the rela- tionships that are supportive of human flourishing.
Accommodation and Harmony
Related to the notion of relationship awareness is accommodation. Often times there are many per- sons involved and how best to help is not obvious. The desire to nurture networks of care requires that one tries to accommodate the needs of all, including oneself. It is not always possible, or wise, to do what everyone thinks they need, but it is often important to do what you think is best while at the same time giving everyone concerned a sense of being involved and considered in the process. When we do this, we have a better chance of preserving harmony. If you do what you think is right without consulting any- one, you risk upsetting the harmony of the group. Of course not all harmony is worth preserving. The oppressive society may be pretty stable and harmoni- ous, but at the price of those at the bottom. An ethic of care would be opposed to this type of superficial harmony since it is dependent on treating some as though they do not deserve the same care as others. Ideally, we should aim for the harmonious society in which all are treated with care.
Let’s return to Doug and see how he might have thought about the situation if he’d been more skill- ful at caring. Doug did not really think about Susan’s situation very carefully. He should have realized that she was very upset about her father’s illness. Since we are all distracted when something this serious is going on in our lives, she was probably also worried that her concern might put her job performance in jeopardy. Doug should not have taken her words at face value because it’s hard to believe that her father really wanted her to go. Perhaps he was just being a good father and trying to put Susan’s needs above his own. Very likely, he was worried about how his illness was affecting her and might have told her to go to give her some time off or to protect her job. Doug also did not give much thought to how well Susan would be able to interact with the client while her father was dying miles away. The result of his action was a lost account and considerable discom-
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fort for Susan. This lack of care on his part probably will affect his relationship with Susan and her effect- iveness in future negotiations. Whenever she has to go visit a client, she will be reminded of that very precious time she lost with her father. Doug should have given more thought to finding other alterna- tives to sending Susan on the trip during this very trying time.
The Care Voice and the Justice Voice
Now that we’ve seen how the care perspective works, let’s turn to a brief history. Carol Gilligan’s pion- eering work, In a Different Voice, was the first sys- tematic attempt to describe the voice of care and to distinguish it from what she called the voice of jus- tice (Gilligan, 1982). Since then, psychologists and philosophers have been busy elucidating the central concepts and testing for various aspects of the two voices.
Gilligan began by responding to the views of Lawrence Kohlberg, who developed a theory about how people reason and develop morally (Kohlberg, 1981). His theory of moral reasoning posited that people reason morally by applying principles to cases, thus yielding judgments about what they ought to do. Moral development, in Kohlberg’s account, is cognitive and proceeds to progressively more general principles, with ideal moral development culminat- ing in principles that are universal and binding on all persons.
Carol Gilligan noted that Kohlberg’s subjects, though culturally diverse, were all male. She began to apply his tests to female subjects of various ages. Her conclusion was that some people, notably fe- males, often used a different reasoning strategy than that described by Kohlberg and that they developed by moving through a different set of stages.
Gilligan theorized that some of her subjects ap- pealed to an ethic of care. This involves a thorough understanding of the context, and a willingness to balance the needs of self and other in a way that pre-
serves both. For Gilligan, moral development was both cognitive and emotional—the growth in the ability to see the situation from the perspective of self and other and to care about one’s self as well as others.
She illustrated the differences in moral reason- ing with two eleven year olds, Jake and Amy. Jake and Amy are both given Kohlberg’s Heinz dilemma to solve. A druggist has invented a drug to combat cancer. Heinz’s wife needs the drug but Heinz does not have the money to buy it and the druggist will not give it to him. The children are asked whether Heinz should steal the drug. Jake quickly answers affirmatively and defends his answer by appealing to the relative importance of life over property. Amy begins by saying that it depends. She points out that all the things that could go wrong if Heinz steals the drug—perhaps he will get caught and go to jail and his wife will be worse off. She suggests instead that Heinz and the druggist should sit down and work it out to everyone’s satisfaction.
Jake fits easily into Kohlberg’s schemata: he im- agines himself in Heinz’s position and applies a prin- ciple that quickly yields an answer. He does not need any more information about Heinz, the druggist, Heinz’s wife, etc. Amy, on the other hand, is virtual- ly impossible to analyze on Kohlberg’s scale because she never states or even implies a principle that will yield an answer. Instead, as she imagines herself in Heinz’s shoes, she sees the complexity of the situa- tion and realizes that its solution requires that Heinz and the druggist and Heinz’s wife recognize their in- volvement in a relationship and that they honor this awareness by working out a solution that will enable them all to survive and, if possible, flourish.
For Jake the solution is cognitive: he merely rea- sons about the situation and can take action on the basis of that reasoning. Amy sees a real solution as necessarily involving growth in moral sensitivity and commitment.
On the basis of such differences in her subjects’ responses, Gilligan posited a moral orientation,
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which she calls the voice of care, in addition to the justice orientation of Kohlberg. I propose an addi- tional way of assessing the usefulness of the two: How does each voice answer two questions: What are moral agents like? What is the moral standing of persons and communities?
The justice voice says that moral agents are or should be 1) isolated, abstract individuals who 2) fol- low abstract rules 3) in a cool and impartial manner. Moral agents are isolated in the sense that they are both independent of others and free to choose what relationship to have with others. The model of inter- action is contractual—an individual as a moral agent chooses to whom s/he will be related and the condi- tions of the relationship. The individuals involved are abstract in the sense that their moral obligations are specified independently of any of the particular facts about them or about the situations they find themselves in. Their moral obligations are spelled out in abstract rules, rules that are general enough to bind similar cases. In following these general rules, individuals must be cool and impartial. This requires unemotionally applying the rules in the same fash- ion regardless of the ties of affection and/or enmity that might call on them to be partial.
The voice of care, on the other hand, under- stands moral agents as 1) embedded in particular so- cial contexts, relationships and personal narratives, who 2) direct their moral attention to real others and 3) are open to sympathetic understanding and iden- tification with those others.
In part because the justice voice conceives moral agency in the way it does, it gives the following an- swer to the question of the moral standing of per- sons and communities. 1) All persons are equally valuable—hence there are no special obligations to particular others. 2) Communities and relationships have no moral standing on their own account.
The care voice, on the other hand, agrees that 1) though all persons are valuable, there are special obligations: those imposed by actual and potential relationships and those imposed by roles. Since it
understands communities as more than mere aggre- gates of individuals and relationships as more than properties of individual persons, it is committed to saying that communities and relationships have moral standing and that they need to be included in our thought and action.
Care, Justice and Self-Understanding
There is an additional way to sort out the differences between the care and justice voice and that is in terms of self-understanding. This was suggested by Nona Lyons, who argued that a particular self-understand- ing, a “distinct way of seeing and being in relation to others,” explains the moral agent’s preference for a particular moral voice (Lyons, 1983). Lyons identi- fies two different self-understandings: what she calls the separate/objective self and the connected self. Persons who fit the separate/objective self model de- scribe themselves in terms of personal characteristics rather than connections to others. Connected selves, on the other hand, describe themselves in terms of connections to others: granddaughter of, friend of, etc. This suggests that the separate/objective self sees oneself as distinct from others in a more profound sense than does the connected self. The separate/ob- jective self might, for example, see oneself as con- nected to others only through voluntary agreements. The separate/objective self might value autonomy more highly than good relationships with others.
Lyons describes further differences. Separate/ob- jective selves recognize moral dilemmas as those that involve a conflict between their principles and some- one else’s desires, needs or demands. Connected selves, on the other hand, identify moral dilemmas as those that involve the breakdown of relationships with others.
Separate/objective selves fear connection and dependence, and hence value autonomy and in- dependence. Connected selves fear separation and abandonment, and hence value connection and responsiveness.
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We can see then how these self-understandings support different moral orientations. Separate selves understand themselves as distinct from others. They conceive moral dilemmas as arising from the con- flict between their moral principles and the needs, demands, desires and principles of others. As such, they must mediate their interaction with others in the voice of justice—in terms of ground rules and procedures that can be accepted by all. This is the only foundation for interaction at all, since ties of affection are not seen as strong enough to provide a basis for interaction, especially in persons who fear connection and dependence. This fear of depend- ence and attachment also explains why they value the objectivity and impartiality that can stand be- tween them and intimates. At the same time, separ- ate/objective selves recognize that interaction with others plays a role in one’s satisfaction, so they value community and relationship insofar as these play a role in individual satisfaction.
Connected selves see themselves in terms of others, so relationship is central to self-identity, rather than seen as voluntary and incidental. The problem of interaction is not then conceived of as how to get others to interact with oneself on terms that would be acceptable to all, but how to protect the ties of affection and connection that are cen- tral to one’s very self-identity. Moral dilemmas arise over how to preserve these ties when they are threat- ened, and these dilemmas are mediated by the voice of care. Since the primary fear is of separation and abandonment, a strong value is placed on commun- ity and relationships.
Care and Other Moral Perspectives
At this point in the discussion of an ethic of care, I want to make a meta-ethical point. I am not con- vinced that in some ethically preferred world, every- one would adopt the same moral theory or the same way of dealing with the moral realities of life. I am certainly not convinced that in this world, everyone
can do so. Rather, I think that each moral theory has insight to offer and sheds light on a different aspect of our moral lives. I also think that each of us has a particular history and moral narrative that limits our ability to adopt new moral perspectives, regardless of how we may evaluate one moral theory against another. Finally, I think that when we try to make moral theories guides to action in the rough and tumble world of complex and difficult choices, we ought to take comfort where and when we can. If one particular moral theory sheds new light on a difficult and novel issue, then we should comb it for every bit of insight we find useful. It is for these reasons that I prefer to speak of moral perspectives rather than moral theories.
It is also important to distinguish between an ethic of care and an ethical approach to care giv- ing. One need not subscribe to an ethic of care as a moral perspective to realize that there are special issues that arise for any of us in our various roles as caregivers. I think that an ethic of care will shed light on a range of issues, certainly including the ethics of care giving, but I am not committed to the view that moral perspectives are necessarily incompatible. They are often complementary. Care and Confucian ethics are similar in some important respects. Ideal Humanness (jen) and propriety (li) play a central role in Confucian ethics. Jen is analogous in some important respects to care, while li, like accommo- dation, reminds us that the good society must value harmony among its members.
I think that an ethic of care provides a corrective to some other ways of thinking about caring for pa- tients. Kantian and utilitarian approaches are often seen as the gold standard in discussions of health care, but they are not quite up to every task. Patient autonomy and patient rights have a distinctly Kant- ian pedigree. We value patient autonomy because we see humans as rational moral agents who ought to be treated as ends in themselves and never merely as means. Patient rights provide the framework for our interactions with these autonomous persons. But if
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we rely exclusively on this perspective, we may lose sight of patients as needing care. When we are sick we may not be up to the task of asserting our rights, and while we may value our autonomy we also value being cared for. Utilitarianism is most useful at the macro-level in discussions of social issues, remind- ing us of problems of cost and allocation. Care re- minds us never to lose sight of actual persons. An example of the preoccupation with the macro-level to the detriment of the person is the strategy for cov- ering illness under Medicare in the US. Illnesses are grouped into diagnostically related groups and a re- imbursement schedule is set for each group. Patients that do well get good care under this approach, while sicker patients are discharged before they are well enough. While it is important to control cost, care reminds us that we must treat each person and each illness individually.
There will be times when a care model appears to be in tension with a moral rights perspective. One obvious example comes from bioethics. The patients’ rights conception of the autonomous, competent patient is quite remote from the care conception of patients as primarily persons in need of maternal as- sistance. Still these models can often work in tandem, and in my opinion ought to be so wedded. Care and rights should be fundamental values. I envision the marriage of justice and care in the following way. First, we must be sensitive to the self-understanding of those entrusted to our care. Second, respecting rights is a moral minimum below which we ought not to fall, but care is the moral ideal. Respecting rights, then, is a minimal moral requirement, but we have not completely discharged our responsibilities until we treat others in a genuinely caring way. There is a further amendment to the rights model that must be made to make this a successful marriage. We should no longer assume that everyone is always capable of asserting and defending their rights in an autonomous way. Rather, we should recognize that sometimes people might be in need of care while temporarily (and in some cases permanently) unable
to assert and defend their rights. In this case, we care for them and see returning them to full autonomy as part of our obligation rather than as an assumption about their present status.
One helpful way to connect moral theories is to notice that they each focus primarily on a different component of our moral experience. Utilitarian- ism and other consequential views invite us to be sensitive to the consequences of our decisions and actions. Kant reminds us of two things. First, our motivation and not just the outcomes of our actions are morally significant. Second, persons have a spe- cial place in the moral hierarchy. Moral rights pro- vide a way of understanding the implications of this special place in the moral hierarchy. Virtue theories focus not just on actions, but on the agents who are responsible for these actions. It directs our attention to the character traits that underlie our actions and our commitments. It also focuses our attention on how concepts of the good life both anchor our views about the good society and grow out of particular societies. An ethic of care adds yet another dimen- sion. It reminds us of the importance of human re- lationships. It places moral value on communities as well as persons and asserts that our actions take place in the context of relationship: our decisions should consider existing relationships and are often carried out via social action. Doing the right thing and liv- ing the morally good life must be understood in the context of trust, reciprocity and concern for others.
Conclusion
An ethic of care is a moral orientation that is sorely needed in our increasingly fractured society. Wheth- er we are managers or teachers or health care provid- ers, an ethic of care provides guidance about how to live our lives. But it is not just a moral philosophy; it has a political dimension as well. If we are to meet our fellow creatures as caring individuals, we must rethink and, when necessary, restructure our institu- tions to make this possible.
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Notes Gilligan, Carol. (1982). In a Different Voice. Cam-
bridge, MA: Harvard University Press, 1982. Kohlberg, Lawrence. (1981). The Philosophy of Moral
Development. New York: Harper & Row. Lyons, Nona. (1983). “Two Perspectives on Self, Re-
lationship, and Morality,” Harvard Educational Review 53 (1983): 125-45.
For FUrther reADiNg Held, Virginia. (1993). Feminist Morality. Chicago:
University of Chicago Press. Holmes, Helen Bequaert, and Purdy, Laura (eds.).
(1992). Feminist Perspectives in Medical Ethics. Bloomington and Indianapolis: Indiana Uni- versity Press.
Kuhse, Helga. (1997). Caring: Nurses, Women and Ethics. Oxford: Blackwell Publishers Ltd.
Larrabee, Mary Jeanne (ed). (1993). An Ethic of Care. New York and London: Routledge Press.
Manning, Rita. (1992). Speaking from the Heart: A Feminist Perspective on Ethics. Lanham, MD: Rowman and Littlefield.
Murdoch, Iris. (1971). The Sovereignty of Good. New York: Schocken Books.
Noddings, Nel. (1984). Caring: a Feminine Approach to Ethics and Moral Education. Berkeley: Uni- versity of California Press.
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kARIn BRoWn
Buddhist Ethics Buddhist philosophy originates with the teachings of the Buddha (566-486 BCE) which are framed by the goal of eliminating suffering. Buddhist eth- ics aims at providing the path to achieving this goal. The teachings of the Buddha were preserved as an oral tradition for 400 hundred years until compiled by monks in the Pali canon around the first century
BCE. (There are many schools of Buddhist thought, but they share the same core teachings.) No separate discourse for Buddhist ethics exists in the ancient sources. Rather, a sophisticated and profound eth- ical theory is found throughout the canon and is inseparable from the rest of the philosophy. Works devoted explicitly to Buddhist ethics are recent, blending material from various sources into a more well-defined moral theory.
The Foundation of the Theory
Buddhist ethics is grounded in a theory of the na- ture of reality. It is logically embedded in Buddhist causality and the concomitant notion of non-sub- stantiality. The presumption is that everything has a cause, that something cannot arise out of nothing, and that all phenomena thus fall under causal law. It follows that everything depends on something, in- deed everything, else. This is known as the principle of dependent origination, and it lies at the heart of Buddhist philosophy.
On a physical level every object obviously de- pends on a variety of causes and conditions. For in- stance, a table is made of wood, which comes from trees, and trees depend on water, earth, and sunlight. The table comes into existence because of the car- penter, who also depends on food, air, water, etc. No element in nature can be conceived of as not con- nected to a myriad of others. We can also under- stand this principle conceptually. That is, this is a table by virtue of our definition of it; at other times the wood may be firewood, a chair, or a bat. No ele- ment or object possesses an intrinsic, independent identity.
The principle of interdependence naturally leads to the conclusion that there is no separate self or soul either. In addition, if everything is subject to causa- tion, then everything is also constantly changing and is impermanent. According to Buddhist philosophy, a person is a combination of five fluctuating aggre- gates (body, sensation, perception, dispositions, and
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consciousness). We cannot claim that any of these constitutes an intransigent self.
The concept of dependency entails significant moral implications. From our dependency and interconnectedness with others, a sense of obliga- tion and concern about the well-being of others fol- lows. Since we are ultimately dependent on every aspect of the universe, ethical consequences follow regarding social philosophy, attitudes towards ani- mals, and environmental ethics. Thus, understand- ing interdependence brings with it respect for nature and all living things.
Further moral implications ensue from the view of “no self.” Without a permanent, fixed self-iden- tity, one is not invested in one’s own ego. Selflessness and other-directed actions follow. That is, without being preoccupied with oneself, a selfless concern for the well being of others becomes possible. Egoism is replaced by the idea that distinction between self and others is an illusion.
The most important manifestation of the Bud- dhist view of causality is the law of karma, which is a natural law. Karma, literally means actions. The principle that every effect has a cause means that actions have consequences for oneself and others. Karmic effects can be twofold, external and inter- nal. One’s actions affect others and accordingly ac- cumulate merit or demerit. Immoral actions, such as killing, stealing, and lying, result in bad karma; good deeds result in good karma. Accepting a belief in reincarnation, people are reborn according to the moral ledger of their actions. The family one is born into, one’s professional life, one’s character, and even one’s physical appearance may manifest past karma. The second aspect of karma is psychological, the way in which karma affects the agent. Here karma is a psychological law, the law of causation applied to mental events. Immoral actions have negative effects because they are embedded in states such as anger, resentment, and violence. Negative thoughts and emotions lead to anxiety, even depression, they cause internal turmoil, and they are in themselves forms
of suffering. By harming others one harms oneself. Positive thoughts and emotions lead to calm and satisfaction. Belief in reincarnation is not necessary for appreciating the psychological aspect of karma.
Karma is also a moral law. Unlike the system of rewards and punishments in monotheistic religions, in Buddhism, without a god, responsibility for one’s destiny lies within oneself. By understanding how character and events come about, we learn to re- direct the course of our lives, as the Buddha outlined in presenting his Four Noble Truths.
Four Noble Truths
The core of Buddhist teachings is expressed in the Buddha’s Four Noble Truths, his first sermon. The Four Noble Truths sketch a moral path. The as- sumption is that all beings wish to avoid suffering and attain happiness. Buddhist ethics begins with the desire to end suffering, and Buddhist concepts of right and wrong follow. The Four Noble Truths provide an analysis of what causes suffering on the one hand and what brings peace and happiness on the other.
The first Noble Truth is the truth of suffering. The point is to identify the nature of suffering as a problem in order to eliminate suffering. The princi- ple is that suffering pervades human existence. Bud- dhism identifies a broad spectrum of phenomena as suffering, and areas causing psychological and moral problems are broader than what we find in West- ern moral theories. Birth, sickness, old age, death, as well as pain, grief, and sorrow are all forms of suf- fering, but even pleasurable experiences cause suf- fering because of their transient nature. A new car, a new promotion, or a new relationship are only new for a short while. If our well-being depends on these highlights, we are subject to constant ups and downs. Not getting what one wants is suffering. Here the Buddha is referring to the idea that when- ever there is a gap between what we have and what we want, or who we are and who we want to be, we
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will suffer. Expectations embedded in ignorance of the principle of dependent origination lead to suf- fering. Assuming a fixed, permanent self makes one a slave to the demands of the ego; one’s social status and material possessions become central, and we try to satisfy aspects of an existence that cannot be satis- fied because it does not exist per se.
The second Noble Truth identifies the origin of suffering. Desire and attachment cause suffering. Craving and attachment refer not only to pleasure and to material goods, but also to ideals, theories, and beliefs. Desires are viewed as insatiable, and thus in principle they cannot be satisfied. All forms of suffering, from personal problems to political strug- gles such as poverty and war, can be viewed as rooted in selfish cravings and desires and in attachment to material goods, ideologies, or religions.
The three roots of evil are greed, hatred, and de- lusion. Here the principle of causality and karma applies not only to action but also to intentions, thoughts, and feelings. Negative thoughts give rise to offensive speech and violent actions, just as sym- pathetic and compassionate thoughts give rise to kind words and actions. Thus, thoughts and feelings have karmic effects as well. Wishing someone ill is not morally neutral. In this sense, Buddhist philoso- phy offers a deeper analysis of morality by including human psychology as a cause of our behavior. This link between psychology and ethics is a central fea- ture of Buddhism. The second Noble Truth shows that what causes psychological suffering also causes immorality. As the goal is to eliminate suffering, one must consider one’s state of mind.
The third Noble Truth concerns the cessation of suffering and the possibility of attaining nir- vana. Nirvana is mostly described in negative terms as it is impossible to convey this transcendent state rationally. Several Buddhist scholars refer to nirvana as a moral state because it includes the cessation of the causes of immorality, i.e., greed, hatred, delu- sion, desire, and attachment. Negative emotions or mental states are eradicated as well. The goal is to
eliminate the cycle of birth and death, although, as mentioned previously, this point is not essential to the moral theory.
The Fourth Noble truth is the truth of the Eight- Fold Path. The Eight-Fold Path lies at the core of Buddhist practice. It embodies the main principles of Buddhism and represents the middle way pre- scribed by the Buddha between asceticism and self-indulgence. The path entails three aspects: wis- dom, morality and meditation. Wisdom pertains to understanding the true nature of reality, that suffer- ing is grounded in ignorance. Moral conduct is a way to purify one’s actions, which also purifies one’s motives. Meditation creates awareness and mental discipline. This path also embodies one of the main principles in Buddhist philosophy—non-violence.
The Eight-Fold Path entails the following: 1. Right view—that suffering originates in ignor- ance; hence understanding the true nature of real- ity is necessary for liberation. 2. Right resolve—after understanding the causes of suffering, one needs to intend to change them. 3. Right speech—one’s words should be used only constructively, not destructive- ly; one’s speech should be honest and non-violent. 4. Right action—one should act in non-destructive, non-violent ways. 5. Right livelihood—one’s liveli- hood should not involve harm to others, sentient beings, or the environment. 6. Right effort—the rec- ognition that this path is not easy and requires work; one needs to replace negative emotions by positive ones, selfish motivations by selfless ones, unwhole- some mental states by wholesome ones. 7. Right mindfulness—creates self-awareness essential for combating aggression and negative motivations. 8. Right concentration—meditation and stillness allow deeper insights. The Eight-Fold Path underscores how ethics are essential to eliminate suffering.
Virtue Ethics
In philosophy, virtue ethics concerns one’s char- acter. Beyond analyzing the causes of immorality,
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Buddhist ethics proffers positive reasons to behave ethically and to resist unethical tendencies. There are four cardinal virtues: loving kindness, com- passion, sympathetic joy, and equanimity. These are incompatible with their opposites and serve as antidotes to their negative counterparts. Loving kindness, the aspiration for another’s well being, is incompatible with hatred for others. Compassion, the hope that others be free from suffering, is in- compatible with cruelty. Sympathetic joy, the ability to truly rejoice in another’s success, is incompatible with envy. Equanimity, being serene and of an even mind, helps dissolve desire and aversion. Cultivat- ing these virtues, then, is an important part of Bud- dhist morality. Practicing virtues leads to thinking about others, identifying with others, and experien- cing selflessness. Considering the positive effects of these virtues, we can see that by helping others one also helps oneself.
Ethical Precepts
Buddhist ethics also includes a normative compon- ent, and there are several sets of precepts governing action. Five basic precepts pertain to the lay person: no killing, no stealing, no lying, no sexual miscon- duct, and no intoxication. Additional sets of eight and ten precepts guide lay persons in deepening their practice. There are over two hundred precepts for monastic life.
Classification of Buddhist Ethics
Buddhist ethics is an ethics of enlightenment and compassion. As a non-authoritarian philosophy, clinging to scriptures or theory is viewed negatively. Truth can only be attained by one’s own authority. Tolerance follows this anti-fundamentalist approach, with wisdom and compassion inseparably linked. By contrast, in Aristotle for instance, morality is a means to an end, to happiness. The Buddhist con- cept of nirvana as a moral state indicates that moral-
ity is not merely a means to enlightenment, but an end in itself as a feature of enlightenment.
Buddhist Economics
Economic teachings are scattered throughout Bud- dhist scriptures. “Right livelihood” is one of the re- quirements of the Eight-Fold Path. In applying the principles of non-violence and not harming others, right livelihood means that one should refrain from making one’s living through any profession bring- ing harm to people, sentient beings, or the environ- ment. Therefore the Buddha denounced professions that trade in weapons, drugs, or poisons, that violate human beings, or that kill animals. It follows that Buddhist economics cannot be a discipline separate from other aspects of life, notably from Buddhist ethics. Economics becomes a subset of morality and a normative social science with moral considerations providing the framework for economic thought. From this perspective, and given the principle of interdependence, economic decisions cannot be made without taking into consideration individuals, society, and the environment. One cannot consider costs alone. If economic decisions are made solely on the basis of profit and loss they are the source of social and environmental problems, rather than positive solutions.
Given the goal in Buddhist philosophy of lib- eration, well being cannot be defined by consump- tion or the accumulation of goods. Nevertheless, Buddhism is by no means adverse to wealth. On the contrary, wealth prevents poverty, about which the Buddha claims “Hunger is the greatest illness.” The concept of the middle way rejects the extremes of poverty or seeking riches for their own sake. Mod- eration, simplicity, non-violence, and non-exploita- tion are watchwords for economic activity, and the accumulation of wealth must also be carried out without violating any of the Five Precepts against killing, stealing, lying, sexual misconduct, and tak- ing intoxicants. Being born into wealth is considered
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a result of good karma, and wealth provides an op- portunity to practice generosity. Sharing wealth sup- ports individual well being and the community.
The goal of liberation implies that wealth is only a means to an end. If greed, craving, and attachment cause suffering and if one’s attitude toward wealth includes these dispositions, wealth will bring suf- fering rather than enjoyment or solutions to the problem of suffering. In addition, economic activity motivated by greed will yield different results than when motivated by the desire for well being. Greed leads to over-consumption and needless accumula- tion of goods, whereas the desire for well being leads to moderation, balance, and sustainability. Distinc- tions between right and wrong consumption and use follow, given these attitudes towards wealth and its pursuit.
Buddhist philosophy consistently addresses the motivation behind human activity, and in the end the causes of suffering, unethical behavior, and im- moral economic activity are the same. Thus ethics and economics are integrated through causal analy- sis and consequently provide guidelines that aim at both individual and social transformation.
FUrther reADiNg AND reFereNces Dharmasiri, Gunapala. (1989). Fundamentals of
Buddhist Ethics. Antioch, California: Golden Leaves Publishing Company.
Harvey, Peter. (2000). An Introduction to Buddhist Ethics. Cambridge: Cambridge University Press.
The Journal of Buddhist Ethics, published online, <http://jbe.gold.au.uk>.
Keown, Damien. (2001). The Nature of Buddhist Ethics (2nd ed.). New York: Palgrave.
Nakasone, Ronald Y. (1990). Ethics of Enlighten- ment: Essays and Sermons in Search of a Buddhist Ethics. Fremont, California: Dharma Cloud Publishers.
Payutto, P.A. (1994). Buddhist Economics: A Middle Way for the Market Place. From <http://www. urbandharma.org/udharma2/becono.html/>.
Saddhatissa, Hammalawa. (1997). Buddhist Ethics (2nd ed.). Boston: Wisdom Publications.
Schumacher, E.F. (1973). Buddhist Economics. Small Is Beautiful: Economics as if People Mat- tered. New York, Hagerstown, San Francisco, London: Harper & Row Publishers.
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RICHARD M. GLAtz
Aristotelean Virtue Ethics and the Recommendations
of Morality Virtue theories of ethics—notably, theories like those advanced by Aristotle and a number of other ancient philosophers—are markedly different from other, more “traditional” theories of ethics. In the (translated) words of Socrates, “ethics is no small- er matter than how one ought to live.” In the more traditional kinds of ethical theories—consequential- ist theories like John Stuart Mill’s utilitarianism and deontological theories like that advanced by Imman- uel Kant—the question of how one ought to live is answered on a case-by-case basis. Such traditional theories of ethics focus on individual actions and (in light of various factors including the circumstances under which the action is to be performed and the intentions or motives of the agent who is to perform the action) classify given actions as right, wrong, ob- ligatory, permissible, impermissible, and the like. In this way, the non-virtue based theories of ethics offer a (often) formulaic and typically straightforwardly applicable procedure for determining which of the courses of action available to us at a given time is the course of action we ought to pursue.
Virtue theories of ethics are not like this. Virtue theories of ethics supply neither a list of rules for conduct nor a procedure for picking the morally best
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course of action in a given situation. Virtue theor- ies of ethics issue neither universal moral principles such as “it is wrong to lie” nor circumscribed moral judgments such as “it would be wrong for John to lie to his wife about the fact that he lost their mortgage payment last night betting against the Bears.” Vir- tue theories of ethics instead issue moral judgments such as “honesty is a virtue” and “John is vicious (viceful).”
The primary reason that virtue theories of ethics differ in this way from other approaches to ethics is that virtue theories of ethics take agents and their characters to be the primary objects of moral scrutiny. Whereas consequentialists and deontologists develop theories for morally evaluating particular actions (as performed in particular circumstances and for par- ticular reasons), virtue theorists develop theories for morally evaluating the character traits that under- write agents’ performances of those actions.
This aspect of the virtue theoretic approach to ethics is responsible not only for the fact that the judgments rendered by virtue theories differ so markedly from the judgments rendered by other kinds of theories of ethics; it is responsible also for a common objection to the virtue theoretic approach. It is thought by some that virtue ethics is unappeal- ing because it does not provide action-guiding principles. Although it might be difficult to deter- mine which action is the correct one on the basis of consequentialist or deontological principles, at least those principles provide some kind of basis for morally evaluating actions. Virtue theories of eth- ics, on the other hand, provide no basis for such an evaluation.
Even if this kind of objection does not show that virtue ethics is theoretically flawed, it does pose a par- ticularly poignant problem for attempts (like those to be considered in this chapter) to employ a virtue theory of ethics to answer applied ethical questions. For this reason, the presentation of virtue ethics to follow is formulated with an eye on determining how virtue ethics can help us understand how to live
our lives—our personal, as well as our professional, lives—and how that kind of understanding can help us make decisions when confronted by morally dif- ficult situations.
1. Aristotle’s Virtue Ethics, In Sketch
It is fairly commonplace for us to think of ethics in terms of questions like “which actions are right and which are wrong?” and “which actions am I morally obligated to perform?” For Aristotle, however, the fundamental questions of ethics are instead ques- tions like “what is a good person?” and “what is the best way to live?”
In pursuing answers to these questions Aristotle begins his principal ethical work—the Nicomachean Ethics—with a detailed discussion of “the good” for man. Through a variety of arguments that need not concern us here Aristotle reaches the conclusion that the highest good for man is happiness. Be warned, however, that the term Aristotle uses here, “eudai- monea,” does not mean what we typically mean by “happiness.” The English word “happiness” would be appropriate to describe the kind of feeling that I have when eating chocolate or the kind of mood into which most people are put by taking a walk on the beach with a lover. Aristotle’s notion of eudaimonea, on the other hand, is meant to capture the kind of enduring state that one is in when, through reasoned activity, one has accomplished a life filled with all of the things that make a life wonderful and “choice- worthy.” (It is often suggested that a more appro- priate English translation of “eudaimonea” would be “(human) flourishing.”)
The foregoing characterization of eudaimonea is by no means a definition. The important thing to remember is that, unlike John Stuart Mill’s notion of happiness as pleasure, eudaimonea is neither a feeling nor a mood. Rather, it is a state of being for which any reasonable person would strive. As such, Aristotle claims that eudaimonea is the chief good for man and the end to which all of our actions ultimately
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aim. It is also important to notice the role that is here played by the notion of reasoned activity. Eudai- monea is a state that is only attainable for rational be- ings that use their reason to achieve ends. It is a kind of psychological happiness that cannot be attained by creatures that lack the kinds of mental lives required to engage in projects or plan their lives.
In part to determine how a person can achieve eudaimonea and in part to show that eudaimonea really is the chief good for man, Aristotle takes up the question of what a good person is. It is instructive to look at this part of his investigation as a particular instance of a general question form, namely:
(Q1) What is a good X?
Aristotle takes it, perhaps mysteriously, that in order to answer an instance of (Q1) we must first find an answer to a subsidiary question of the fol- lowing form:
(Q2) What is the characteristic function of an X?
As an example to see what Aristotle has in mind here, consider an axe. On Aristotle’s view in order to find out what a good axe is we must first understand what the function of an axe is. Of course, axes may be put to various different uses—we might use an axe to split firewood, chop down a tree, drive a nail, slice a loaf of bread, kill an enemy, or even direct traf- fic. Some of these uses we regard as deviant (whether morally or merely socially) while others we regard as perfectly normal. The reason for this, I shall hazard, is that we understand that the characteristic function or purpose of an axe is to chop.
When it comes to artifacts—objects that have been created for a particular purpose—it is to be expected that the function of an artifact is the pur- pose for which it has been made. Aristotle’s notion of a function extends beyond this, however. Indeed, the fact that artifacts have been constructed for a particular purpose only makes it easier to see what function they have. For Aristotle, however, what the function of a thing is depends not upon how it is
used or why it was made (if it was made) but on what activity that thing is best suited to do. Con- sider, for example, a person who has designed and uses a pair of tools—one for the slicing of bread and another for the chopping of firewood. Suppose that the tool created for the slicing of bread is exactly like what we call an “axe” and that the tool created for the chopping of firewood is exactly like what we call a “bread knife.” When this artisan slices bread for his dinner he takes out his bread-slicing tool—a heavy, wedged blade attached to a meter long stick—and proceeds to hack at the loaf. The result is, of course, “slices” of bread that are mauled, flattened, and ir- regular. When the artisan chops wood for his fire, on the other hand, he takes out his wood-chop- ping tool—a lightweight, serrated blade attached to a hand-sized handle—and proceeds to saw, labori- ously, at the logs. The process takes many hours and gives the artisan many splinters.
Holding aside judgment of the artisan regard- ing his rationality and intelligence, what is there to be said about his bread-slicer and wood-chopper? Although each has been made (and is used) for a particular purpose, it seems that the proper, charac- teristic function of the artisan’s bread-slicer is to chop wood and that of the artisan’s wood-chopper is to slice bread. I venture to say that if we approached the artisan as he swung his bread-slicer over his head, we would be correct to stop him, say “excuse me, but you are using that incorrectly,” and hand him his wood-chopper. The reason for this is that the par- ticular qualities of each tool make those tools espe- cially suited for certain uses.
Let this serve, then, as a general approach for an- swering questions of the form (Q2) above. If a thing, X, has particular qualities that make it best suited for a certain activity, then that activity is (part of ) the function of X. In light of this, what (if anything) might the function of a human be?1
Aristotle considers and rejects the suggestion that the function of a human is nourishment and growth. Given that these activities are common to
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plants, and given that Aristotle is looking for a func- tion that is peculiar to humans, Aristotle concludes that nourishment and growth are not the function of humans. Aristotle also considers and rejects the suggestion that the function of a human is a life of perception or sensation as these are common to ani- mals. Aristotle concludes that a life of reasoned ac- tivity is distinctively human and a kind of activity for which we are particularly well suited—indeed, it seems to be the activity that we are best at doing not only in the sense that we are best at doing that ac- tivity (from among activities that we do) but also in the sense that we (among beings who can engage in that activity) are the best at it. As a result, (if humans have a function, then) the function of a human is to engage in reason-governed activity—making plans, solving problems, communicating, interacting so- cially with other people, et cetera.
Let us assume that Aristotle is correct that hu- mans have a function and that engaging in reason- governed activity is that function. We now have an answer to the question of form (Q2) above, but what of (Q1)?
Consider, again, an axe. What is a good axe? To answer this question we must first answer the sub- sidiary question “what is the function of an axe?” As discussed above, the function of an axe seems ob- viously to be chopping. What, then, is a good axe? An obvious and apparently trivial answer to this ques- tion is that a good axe is an axe that chops well. On Aristotle’s view this is correct, but incomplete. In the direction of a complete answer, Aristotle would claim that a good axe is an axe that possesses the excellences of an axe, where the excellences of an axe are whatever characteristics an axe might have that contribute to the fulfillment or performance of the function of an axe. So the excellences of an axe are those characteristics that contribute to chopping— sharpness, weight (heavy but wieldable), balance (weighted near to head rather than the handle), stur- diness, et cetera. A good axe is one that possesses such characteristics.
As should be expected, Aristotle’s answer to the question of what a good person is resembles this ac- count of a good axe. A good person is a person who possesses the excellences of a person, where the ex- cellences of a person are whatever characteristics a person might possess that contribute to the fulfill- ment of the human function—engaging in reason- governed activity. These characteristics or excellences are the virtues.
Aristotle distinguishes between two kinds of vir- tues—intellectual virtues and moral virtues. Intellec- tual virtues are characteristics like practical wisdom (wisdom with respect to making plans and achieving one’s goals), philosophical wisdom, intuitive reason, et cetera. About these I will say no more than to note that lacking the intellectual virtues, one would face great difficulties in successfully engaging in the kind of life planning and social interaction that Aristotle understands by reason-governed activity.
Aristotle defines the moral virtues to be traits of character that consist in a disposition to choose the mean. In many circumstances—facing fear, manag- ing money, pursuing pleasures, et cetera—there are two extremes, one of excess and the other of deficit. There are people who, in the face of frightful things, feel too much fear and are brought by their fear to flee from dangers that are minor or to “freeze up” and fail to accomplish important things. Such people are cowards and cowardice is their vice. On the other hand, there are people who, in the face of frightful things, feel too much confidence and are brought by their over-confidence to plunge into dangers that are beyond their abilities to handle. Such people are rash and rashness is their vice. A person is brave who, in the face of frightful things, feels the right amount of fear and the right amount of confidence and acts in accordance with these appropriate feelings.2
It is important to notice that Aristotle claims that it is virtuous to be disposed to choose the mean relative to us. What is excessive or deficient for one person might not be for another. A person trained in khav magha might exhibit bravery by facing a mug-
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ger with a knife while a wimpy philosopher such as myself would almost certainly be exhibiting rash- ness by doing the same thing. As Aristotle says, “... fear and confidence and appetite and anger and pity and in general pleasure and pain may be felt both too much and too little, and in both cases not well; but to feel them at the right times, with reference to the right objects, toward the right people, with the right motive, and in the right way, is what is both intermediate and best, and this is characteristic of virtue.”3 We must bear in mind, of course, that the right amount of an emotion to feel might depend upon the person who feels it.
According to Aristotle, then, possessing a virtue amounts to having the disposition to feel the right amount of a given emotion in the relevant circum- stances and to act in accordance with that appropri- ately balanced emotion; possessing a vice amounts to having the disposition to feel either too much or too little of a given emotion in the relevant circum- stances and to act in accordance with that inappro- priately balanced emotion. Recall that Aristotle understands the virtues to be human excellences in the sense that they contribute to the well function- ing of man—that is, to the successful engagement in reason-governed activity. When a person engages in reason-governed activity they are bound to be con- fronted by situations that evoke some kind of emo- tional response—fear, anger, sympathy, and the like. When a viceful person is confronted by such situa- tions, their actions will be governed by inappropri- ate emotion responses—perhaps they will feel too much anger and behave wrathfully, or perhaps they will feel too little sympathy and behave callously. It is not Aristotle’s position that their behavior then transgresses some kind of moral edict or law and is therefore wrong. Rather, their behavior fails to con- tribute to their success in whatever reason-governed activity in which they are engaged—be it business dealings, familial relations, or political decision- making. As the ultimate goal of all such activities is eudaimonea, the viceful person will not achieve true
happiness. Only by possessing and acting from the virtues can we succeed in our reason-governed lives and thereby achieve eudaimonea.
It is important to note here that Aristotle places primary moral significance on the character of an agent but places a kind of derivative or secondary moral significance on the actions that the agent per- forms. Although it is, for Aristotle, something of a misnomer to characterize a particular action as a brave one, such characterizations are commonplace for us and even present in Aristotle’s writing. Strict- ly speaking it is the agent who is brave when per- forming a particular action, not the action itself. We might be tempted to think of a brave action simply as whatever action a brave person would do, it is very important for Aristotle that the action in question be performed because of the brave character of the agent. It is possible for an agent to exhibit cowardice when fleeing in the face of danger even if a brave agent would also flee in the same situation. If the agent in question flees as a result of overly pronounced fear, then the agent is not acting on the basis of feeling the right amount of fear given the situation. The fact that the situation calls for the agent to be afraid and flee does not change the fact that the agent in ques- tion actually did flee as a result of his cowardice.
There is another reason that actions themselves are morally significant on Aristotle’s view. Accord- ing to Aristotle, we develop and maintain the virtues through reflective training and habituation. Indeed, the root of the term “ethics” is “ethos,” the Greek term for habit. People are neither virtuous nor vi- cious by nature. Rather, we become virtuous or vi- cious by repeatedly engaging in virtuous or vicious activity respectively. As a result, although virtue theories of ethics are not action-guiding in the same way that deontological and consequentialist theories are, virtue theories of ethics do call for us to routine- ly engage in the right kind of behavior. By engaging in viceful activity we damage our character and be- come vicious; only by engaging in virtuous activity do we develop and preserve a virtuous character and
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ensure that we will be neither overrun by our emo- tions nor emotionally detached in our dealings with others.4
2. Toward Applied Virtue Ethics
The foregoing sketch of Aristotle’s theory is meant to show how Aristotle approaches what he takes to be the fundamental questions of ethics—“what is a good person?” and “how ought one to live?” Accord- ing to Aristotle, we ought to live in accordance with the virtues. As humans our function is to engage in reason-governed activity. The virtues are human excellences in the sense that they contribute to ful- filling this function; the vices are human defects in the sense that they detract from fulfilling this func- tion. Good people develop and maintain the virtues through reflective habituation and thereby enable themselves to achieve eudaimonea—the highest good for man, true happiness.
For many of us, our professional lives are lives of reasoned-activity. Business interactions—buying, selling, producing, serving—are social interactions. Social interactions generally require communica- tion, trust, agreements, et cetera, all of which require engaging one another in a reasoned way. No doubt, then, we are required to conduct ourselves in our professional lives in accordance with the virtues. In this way, virtue ethics applies to our professional lives just as it applies to our personal lives. A truly virtuous person would not simply exhibit the virtues while dealing with family and friends and then go to work and deal with co-workers, suppliers, custom- ers, and bosses in non-virtuous ways. If someone does exhibit this kind of moral two-facedness be- tween their private and professional lives, then they really do not have the dispositions that embody the virtues—they are mere pretenders of virtue. Further- more, if a truly virtuous person were to leave virtue aside in their professional dealings, then that person would eventually habituate themselves contrary to the virtues and would become vicious.
There is another way in which to apply a virtue theory of ethics to the applied moral issues that face professionals. In what follows I will develop a certain Aristotelian view of what is often termed “role-differ- entiated morality.” Discussions of role-differentiated morality are attempts to understand apparently dif- ferent moral requirements that we face as a result of occupying certain roles. With respect to the welfare of a child, parents have different moral responsibil- ities than do teachers who have still different moral responsibilities than neighbors or strangers. By pur- suing a career in law enforcement or medicine one chooses to place one’s self in a role that carries differ- ent moral responsibilities than other lines of work. Following Aristotle we may arrive at a certain under- standing of the moral significance of different roles as they apply to businesspeople.
To begin with an example to illustrate how this is to work, consider what makes a computer a good one. The Aristotelian analysis would begin by identi- fying the function of a computer and then identifying as excellences for a computer those characteristics that a computer might possess that would contribute to its performing its functioning well. There are, how- ever, many different kinds of computers with various different functions. My computer does little beyond word processing and spreadsheet managing. My par- ents recently bought a computer especially designed for managing the many pictures of grandchildren that they now have. So-called “gamers” have com- puters especially designed for playing video games, often networked for multi-player gaming. The com- puters in many business offices have specialized soft- ware for whatever kind of computing is required for a business of that sort.
What all of these different kinds of computers have in common, I suspect, is that they all serve the function of running software, taking input from a user, and displaying output to that user. Excellences for computers considered simply as computers would include characteristics that contribute to perform- ing those functions well—fast, reliable processors,
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memory that can be written (and rewritten), user- friendly interfacing, et cetera. Such characteristics as these are analogous to the human virtues that Aris- totle discusses—those being the excellences of a per- son considered simply as a person. Consider, however, a particular computer considered specifically as a gaming computer. The function of a gaming com- puter (beyond the basic function of a computer) is to allow the user to play games. To be a good gam- ing computer, then, a computer will need to have characteristics that contribute to that function—a high quality graphics card, suitable controller ports, hardware and software that enables fast, reliable net- working, et cetera. While possessing such character- istics makes a gaming computer better, my glorified word-processor would not be improved by possess- ing those characteristics.
It is in this way that I suggest we handle the issue of role-differentiated morality from an Aristotelian perspective. Considering, for example, a corporate executive not simply as a person but as a corporate executive we might get some indication of how cor- porate executives ought to conduct themselves profes- sionally. To do this, of course, we must first consider what the function of a corporate executive is.
This seems to be an easy question. The function of a corporate executive is to run a corporation or some aspect of its operation. Let us imagine, then, that we are dealing with Melissa, the CEO of some particular corporation—say, a pharmaceutical com- pany. Melissa’s function (considering her as the CEO of the pharmaceutical company) is to run that pharmaceutical company. To see how Melissa ought to conduct herself in the course of her job and to see what sorts of characteristics would contribute to Melissa’s successful execution of her job we must first determine what successful running of the pharma- ceutical company would amount to, and to deter- mine this we must determine what the purpose of the pharmaceutical company is.
An overly cynical and simplistic answer that I would like to dismiss up front is that the purpose
of the pharmaceutical company is to turn as large a profit as possible for the owners. Certainly part of the purpose or function of a corporation is to be profit- able, but we must recognize that a pharmaceutical company is part of a wider social network that in- cludes chemical companies (as suppliers), hospitals and private individuals (as customers), employees (as employees), and even other pharmaceutical compan- ies (as competitors). I am not suggesting that it is the purpose of a company to operate for the advantage of each of these groups, but it must be understood how these groups socially interact with the company in question in determining how an executive ought to engage in the reason-governed activity that is her job.
This being said, I think that we should consider the purpose of a company like the pharmaceutical company imagined above in terms of the manu- facture and distribution of pharmaceuticals. For a corporate executive like Melissa to fulfill her pro- fessional function well she must (at least) maintain trusting and mutually beneficial relationships among the parties involved in accomplishing these goals. In order to do this, I suggest, Melissa would be well served to think of suppliers, employees, customers, and others not simply as entities that satisfy some need of the company, but as entities whose interests actually matter. I suspect that such an attitude will be engendered by the general human virtues as dis- cussed by Aristotle—for according to those we must choose the mean even in pursuing such things as profit. Even so, there might be room here for some distinctively corporate virtues. By following this kind of approach to role-differentiated morality we might be able to make some progress toward professional ethics in general and business ethics in particular.
Notes 1 Aristotle offers no good argument for the con-
clusion that man has a function in the first place. However, he does think that man has a function and on the basis of the assumption
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that that is so concludes as indicated in the text.
2 Aristotle develops similar analyses regarding money, pleasure, honor, anger, social inter- course, et cetera.
3 Aristotle, Nicomachean Ethics, II : 6, 18-23 (W.D. Ross, transl.); from McKeon, Richard (ed.) Introduction to Aristotle, Random House, Inc. (New York), 1947.
4 I have left out of this sketch of Aristotle’s view the role that is played by external goods—wealth, health, good looks, pleasures, and other goods that Aristotle sees as necessary for eudaimonea. According to Aristotle, such external goods are achieved quite often by luck and, as a result, are seldom the sorts of things that we have much control over. What we do have control over is the state of our character—whether we habitu- ate ourselves to have the virtues or whether we habituate ourselves to have the vices. It would be nice if we could achieve eudaimonea simply by attending to our characters in this way, but Aristotle thinks that virtue is insufficient for eudaimonea. To achieve eudaimonea we must not only have a good character, we must also have the good fortune to have a life filled with external goods.
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Utilitarianism In everyday life, we make a host of value judgments. Some of these have nothing to do with morality, such as which shoes are better for running or which res- taurant has more tasty food. Other value judgments are obviously moral. For instance, many people think that murder is wrong or stealing violates basic human rights. Most of the ordinary claims we make can be tested for truth. If I say “The class average on the mid-term is 78,” we can verify this. But how are we to test value claims? Suppose I say “Espresso is good.” How can we determine if I am telling the truth? Maybe I just mean “I like espresso.” Sup- pose instead that I say “Charity is good,” or “Rape is wrong.” Should the test be any different? Many people begin testing claims by checking for shared meaning of the terminology. If “espresso” is just my word for “mass murder” then we have a problem. Now, you and I probably won’t have radical confu- sion between words like “espresso” and “mass mur- der,” but terms like “good” and “bad” aren’t always straightforward. So, one important way that many philosophers begin addressing issues in ethics is to investigate the meaning of our value terms. One of the factors differentiating utilitarians from other ethicists is their definition of value-terms, and this is where we’ll start our look into utilitarianism.
To begin with, utilitarianism instructs us to do the greatest good we can for the greatest number of our ethical compatriots. Although some elements of utilitarian theory can be traced to Epicurus (341- 270 BCE), its fullest form is that associated with Jeremy Bentham (1748-1832 CE) and John Stuart Mill (1806-73 CE). These two philosophers de- veloped many of the principles and approaches still used by utilitarians today. Like many philosophical theories, it is easy to provide a quick statement of the key themes in utilitarianism, though it can be difficult to master the subtleties inherent in a richer
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understanding of the view. Let me start with a sim- plistic version.
In its most basic form, utilitarian thinking is associated with hedonism. Hedonism is the view that good and bad go along with pleasure and pain. Bentham’s utilitarian foundations were hedonis- tic. When investigating the times we use the word “good,” Bentham noticed that it’s usually when we are talking about things that bring us pleasure (or at least diminish our pain); and those things we call “bad” are those that cause us pain (or take away our pleasure). For instance, I get pleasure from choco- late-chip cookies, while you may find apples to be a source of endless joy. Similarly, studying for math tests always brought me distress, while some people are perpetually vexed by writing philosophy papers. In terms of a utilitarian theory then, the hedonist version says we should generate the most pleasure (or diminish as much pain) as we can for the rel- evant moral parties. This aspect of hedonism only describes how people use the terms, and as a result this is referred to as “descriptive” hedonism. From this simple beginning based on the psychological preferences of people, Bentham goes on to suggest that we ought to promote pleasure and diminish pain in our daily choices and activities. Thus, Bentham shifts from speaking descriptively about the world to offering the guidance of a standard for behavior, which is called a “norm.” As a result, we say that this version is “normative” hedonism.
This view sounds simple enough, but almost immediately an interesting question emerges. Is it the cookie that is good? Or the pleasure the cookie causes? For hedonists, it is really the pleasure or pain, and not the cookie itself that is the root of our value terms. Cookies are good because they generate pleas- ure; of course, too many cookies are bad because that produces displeasure. But the pleasure or pain we feel is an effect of some other cause. The general ap- proach that focuses on effects, or outcomes, is called consequentialism because the value of an action, or a thing, is found in the consequences that result. Con-
sequentialism, in general, has a strong foothold in common sense. Most of us believe that we should endeavor to improve the world. At the least, most people try to make things better for themselves and their families. When we strive to make the world a better place, we are trying to achieve certain out- comes, or consequences that we think are good; and we judge the value of our choices in part by the qual- ity of the results. For example, we often trade today’s struggle for tomorrow’s gain, such as studying hard and making good grades in order to get better jobs that make it easier to provide well for our families. And when we assess our actions (as well as the ac- tions of others) we generally look to see what good came from our choices, or whether any harm was done. The old adages “All’s well that ends well” and “No harm; no foul” nicely sum up this intuition. Hedonism is merely one kind of utilitarian theory. We can say that utilitarianism is the most famous consequentialist theory.
While the basic idea of hedonism has some in- tuitive appeal, several aspects remain unaddressed. For example, critics say when we rest our morality on mere pleasure we debase humanity. Common sense tells us that consequences are important, but it also seems that not all consequences are equal. The distinction that arises here is between the mere amount of pleasure (quantitative consequentialism) and the kind of pleasure we get (qualitative con- sequentialism). Jeremy Bentham clearly seems to have advocated quantitative consequentialism, for he famously said that playing a simple board-game has as much value as reading fine poetry, so long as equal amounts of pleasure are created. After all, dif- ferent people get pleasure from different activities. John Stuart Mill, on the other hand, favored quali- tative consequentialism. Mill suggests that, like dia- monds, pleasures can be divided into higher and lower grades. Higher pleasures include intellectual pleasures, such as working on mathematical proofs, while lower pleasures are more basic, like sensory experiences.
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Having said that, Mill’s choice of what kinds of activities we include in the higher and lower pleas- ures is not arbitrary. His strategy is quite interest- ing. Mill begins with the practical notion that we must ask people to judge whether pleasures of the intellect are qualitatively better than pleasures of the body. But there is a catch. We need only adhere to the opinions of competent judges. If someone can ex- perience and appreciate both types of pleasure, then they are competent judges of the relative values. This also rests firmly on common sense. If you were go- ing to ask someone whether reggae music is better than country music would you ask someone who only liked one and hated the other? Would you ask someone who hated both? No. Any time we make a comparative value judgment between things, Mill thinks it is important to first be capable of enjoy- ing each. Only then will you be in a position to make the call. As it turns out, Mill says, all compe- tent judges agree that intellectual pleasures are of a higher quality than physical pleasures. Mill’s move from quantitative consequentialism to qualitative consequentialism is an important development in utilitarian ethical theories.
In addition to illustrating consequentialism, the example of pleasurable cookies highlights an import- ant ethical distinction: that between intrinsic value and extrinsic value. Intrinsic value (which you can think of as “inside” value) is the value that a thing has in and of itself. Intrinsic value is also called “in- herent” value. Extrinsic value (which you may think of as “outside” value) is when one thing is valuable because it leads to something else. Extrinsic value is also called “instrumental” value because one thing is valued as a tool, or an instrument, for getting something else. Money is often used as an example of something with only extrinsic value. When you think about it, money isn’t really worth much in and of itself; the greatest value found in money is that other people are willing to trade things for it. So hav- ing at least average amounts of money usually brings pleasure to people because money is a general device
that can be used to get the specific things that make us happy. As a result, money is valuable for what it can get you. But not all things are like this. If you are reading this book, it is highly probable that you are a university student. As such, you may have heard the saying “Education is its own reward.” The meaning of this expression is built on the idea that education has intrinsic value. Of course, we all know education has extrinsic value as well. Studies indicate that col- lege graduates have higher earning potential over the course of their lives. So your college education will likely lead to more money over the long term. Since education has both intrinsic and extrinsic value, ethicists say that education’s value is “mixed.” Many things in the world have mixed value because they are valued both intrinsically and extrinsically.
As well as making the switch from quantitative consequentialism to qualitative consequentialism, Mill made another important change to Bentham’s basic utilitarian idea. Where Bentham focused his analysis of value terms on pleasure and pain, Mill’s emphasis is on “happiness” more generally. Although Bentham speaks of happiness and Mill understood happiness (at least in part) as related to pleasure and pain, they each emphasized a different component. So Mill’s idea represents a shift in utilitarian think- ing. We can paraphrase Mill’s understanding of utili- tarianism as follows: produce the greatest balance of happiness over unhappiness for all members of our moral community. This focus on happiness rather than pleasure is one of the most fundamental chan- ges Mill made to the utilitarian starting points elu- cidated by Bentham in part because it includes the shift to qualitative consequentialism.
Moreover, Mill thinks that happiness holds a special place in the world: it is the only thing that we value only inherently. Mill’s argument for this claim has two primary points. First, Mill suggests that happiness is a universal goal; the greatest proof of the desirability of happiness is the simple fact that everyone desires to be happy. Obviously, we don’t all desire the same things because different things make
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each of us happy. But in the end, every person wants to be happy. So, one aspect of Mill’s argument for the inherent value of happiness is that happiness is the end result of our various chains of extrinsically valued achievements. Perhaps you get good grades to get into a good law-school to get a high-paying job to make enough money to buy a Ferrari to make you happy. In short, we might say that all of our value- roads lead to happiness. The second important fea- ture of Mill’s argument is that happiness just doesn’t work like money; we don’t want happiness because of other things that happiness can bring. Granted, it is probably true that if you are happy then you will have more positive relationships, or make more lucrative sales, etc. Mill’s point is that this is not the reason why we value happiness. We value happiness purely for its own sake, and not for the other things it gets us. As a general rule, we don’t seek to use our happiness to get something else more desirable. Even asking what we expect happiness to get us reveals a fundamental misunderstanding of the inherent value we place on happiness.
Another aspect of utilitarianism—or consequen- tialism more generally—that we haven’t addressed centers on the recipient of the outcome. Up to now I have spoken of generating good consequences for our “ethical compatriots,” “members of our moral community,” and for “all relevant parties,” but I have left these groups undefined. So we don’t know who belongs to these groups. As a result, one might readily ask some important questions of utilitarians: Should I generate good consequences for myself or my family? Should I generate good consequences for my community or for everyone? In its weakest form, utilitarianism requires me to consider the impact of my actions on all those parties who are affected. But this apparently simple idea can quickly become complicated. First, it seems that many people can be affected by a single act. Imagine that I throw a glass bottle out of my car window, which breaks in the road. Another car drives over the glass and pops a tire. Changing the tire makes the driver late to get
home, which irritates his wife so much that she kicks the family dog, which then runs out of the house down to the park and bites a child. Does the child’s dog-bite count as part of the consequence of my lit- tering? It is difficult to specify exactly how many extended consequences I should be held account- able for. In general, utilitarians suggest that the con- sequences I am responsible for are those relatively close to the action itself, so the dog-bite would not count. For most utilitarians, the driver’s upset wife would not count either since there is no way I could reasonably foresee those events. However, the driver getting a flat tire does count because it is to be ex- pected when you throw glass onto the road.
Secondly, I am probably much more interested in the consequences for me than I am in the con- sequences for others, especially those who aren’t significant to me. Nevertheless, utilitarian ideals for- bid me from giving more importance to my conse- quences over others who are affected by my actions. Traditional utilitarians like Bentham and Mill be- lieved in strict equality among those affected by an action. In other words, when you assess the value of your actions, you must be impartial as to who gets the good or bad consequences. Benefits or burdens that fall on one person are just as important as those befalling another; even when the person is you. So I can’t count my pain as more important than your pain. In fact, this facet of neutrality in classical utili- tarianism requires me to treat the consequences for you as equally important as I treat the consequences for myself. From an impartial point of view, one person’s happiness is as valuable as another’s; and utilitarians think ethics should be done from an im- partial point of view. This impersonal accounting is meant to prevent personal bias from entering our value judgments.
Third, even if we settle how many links in the consequence-chain are relevant, and I give no special weight to my own consequences, we might wonder whether the consequences for dogs, cows, chickens or fish should ever count. If the chain of conse-
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quences I am responsible for stops at the dog, then it couldn’t possibly include the child’s bite. According to utilitarianism, the pleasure or suffering of animals is relevant. For hedonists like Bentham the connec- tion is straightforward since they focus on pleasure and pain, and many animals obviously feel both. When qualitative consequentialism like Mill’s is pre- ferred, we give intellectual happiness more weight than bodily pleasures. However, we are still required to count physical pleasures and pains as comparable to other physical effects. Intellectual pleasures might outweigh some physical suffering, but we must treat like pains alike; and since animals can feel physical pain, we must emphasize it as much as we do our own physical pain. Impartiality and universality are important features of all utilitarian thinking because utilitarians adhere to strict equality when counting the various consequences of our actions for all those affected. So the members of our moral commun- ity include all creatures capable of experiencing any kind of pleasure, pain, happiness or unhappiness we think is morally relevant for normal humans; and we must assess those consequences for all those closely affected by our actions.
In its most concise expression, utilitarianism in- structs us to generate the greatest good for the great- est number. Perhaps many of our actions directly impact only a small number of people. However, if you are in a special role the scope of your actions might be enormous. Consider a state legislator. If you are one of the state-senators for your county, then you must consider the impact proposed laws will have on a vast number of people. Similarly, if you are a judge then your decisions will carry the weight of precedent for court cases that follow. Clearly, legislators must be concerned with the gen- eral welfare of the populace, and utilitarians say they should base their decisions on whether more overall happiness (or less overall unhappiness) will result for the largest number of people. Politicians are just as constrained by the limits of strict equality as the rest of us, which means they cannot work for special in-
terests, for the benefit of themselves, for the benefit of their own class, or their own race, gender, etc. Strict egalitarianism requires government represent- atives to always work towards the maximum happi- ness for everyone equally.
Impartially generating happiness for as many sentient beings as you can might be all a utilitarian would need if we only assessed the value of actions after they occurred and the consequences could be readily determined. But when it comes to ethics, we often seek guidance on how we ought to act before we decide what to do. Thus another important distinc- tion in utilitarian thinking is that between wheth- er we are to focus our ethical evaluations on actual consequences or merely foreseeable consequences. On first appearance, this hardly seems like a signifi- cant distinction. Wouldn’t we just use foreseeable consequences when deciding what to do ahead of time and use actual consequences when evaluating what has already been done? This is a good ques- tion, and the guidelines it suggests seem to work rea- sonably well much of the time. However, problem cases might emerge. Imagine that someone wants to generate substantial happiness, thinks carefully and foresees positive results; but when the plan is put in place, disastrous results follow. The foreseeable con- sequences were good but the actual consequences were bad. How should we assess the merits of this person and the action? Even though the results were bad, should we soften our judgment because the in- tentions were good? Classical utilitarians would not favor such an approach. Bentham and Mill both ad- vocated expected utility (which is a form of foresee- able consequences) when we make plans and choose actions; they advocated judging actions based only on actual consequences. Over time, we can be ex- pected to get better at making more accurate predic- tions of expected utility.
One final aspect that bears consideration is how consequences are to be weighted. For both Bentham and Mill, we should assess the value of our actions by determining the best balance of utility over disutil-
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58 SYSTEMS OF MORAL EVALUATION
ity, but even that is not obviously straightforward. For instance, should we balance the total amount of happiness over unhappiness, or should we balance the average amounts of happiness and unhappiness? Traditionally, utilitarians like Bentham and Mill based their moral assessments on total happiness, rather than average happiness. Classical utilitarians said we should determine all the morally-relevant parties to the foreseeable consequences of an act, total the amount of happiness (remember, happiness is “good”) that each party should get, and subtract off the total amount of unhappiness (or “bad”), and we’ll have the net happiness for each person. Then we total all the net results (gains and losses) for each morally-relevant person to get a total net happiness for a proposed action. We do this for every option we are faced with, and then compare the expected total net results. We should choose to do whichever option yields the best total net outcome, regardless of who gets what allotment of happiness in each.
Criticism of Utilitarianism
Traditionally, the philosophical criticism most often mounted against utilitarianism rests on the possibil- ity that highly positive outcomes give good reasons for using horrendous measures to get them. The colloquial expression that captures this feature of utilitarian thinking is “the end justifies the means.” Imagine the vast majority of the class decided that only one student will be responsible for doing all the assignments throughout the semester, for everyone; and they chose you. By heaping all the burdens on one person, everyone else benefits. Whenever those benefits outweigh the burdens, utilitarians say that nothing immoral has been done. On a larger scale, this means that some forms of slavery are permit- ted by utilitarian thinking. If enough happiness is generated for enough people to outweigh the un- happiness caused for the number of slaves, then the resulting happiness justifies the means of slavery. Critics point out that slavery is just plain wrong, re-
gardless of how much happiness results. The mere fact that we use one person to generate happiness for another violates basic principles of justice, which require us to respect the value of persons. Such criti- cisms are often associated with ideas from Immanuel Kant because they are based on the inherent value of human life. Recall that utilitarians think happiness itself is the only thing that has purely inherent value, so a person’s life is valuable only inasmuch as it is a source of happiness. It is this very rejection of in- herent value of human life that makes utilitarianism seem so cold. You are not important to a utilitarian; only the happiness you experience is significant.
Case Example
A careful look at the mission statement from almost any large corporation operating in the twenty-first century will reveal a common idea. By and large, all corporations claim they seek to serve the long-term interests of their stakeholders. Stakeholders, gen- erally, are understood as parties with a significant “stake” in the company’s survival; so stakeholders tend to include such groups as investors (stockhold- ers), employees (management and labor), custom- ers, suppliers, and financiers (banks or other loan organizations). Naturally, the interests of the vari- ous stakeholder groups are frequently at odds with one another. For example, local communities want people employed, business taxes paid and their en- vironment unpolluted, customers want lower priced goods while employees want higher wages, all of which compete with each other as well as cut into the higher profits desired by stockholders. So man- aging the overall strategy of the company means finding the best way to balance all these competing interests. In short, it means maximizing the overall long-term benefit for all.
Perhaps an example will help to illustrate both the positive and negative aspects of utilitarian prin- ciples in action. Consider the impact the last decade has had on the textile industry in the United States.
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Because textile plants historically relied on agricul- tural products, they are most often located in rural communities; and since these communities are gen- erally small, the textile companies tend to be signifi- cant employers in these areas. Textile plants are also often primary employers of minorities and women in their communities, which has advanced social and economic justice in America. Textile workers tend to earn more in their communities, so the jobs are coveted by local workers. Around 1997, the dollar began rising in value as many currencies throughout Southeast Asia declined rapidly. As a result, it be- came more expensive to produce goods in America and less expensive to import goods from Asia. Since that time an increasing number of textile jobs have been lost in America while textile imports from Asia have increased dramatically. When major employ- ers, like textile plants, close in small communities, the effects are far reaching. Local businesses can- not sell goods and services to people who no longer earn a living; burdens on local government support agencies increase; and contributions to charities and churches drop off precipitously.
Of course, we all exacerbate this situation on a daily basis because we usually look for low prices when we shop, and we rarely consider where goods are made. Stores even advertise, and position them- selves, as “low price leaders.” So consumers like you and me seem to prefer low prices and (perhaps in- advertently) choose to support the textile industries in other countries. Companies who supply goods to the retail market appreciate this, and therefore give us just what we demand: less expensive goods. So if manufacturers want to stay in business, they shift production to areas of the world where they can produce more goods at a lower cost. In short, our consumer demand for low-cost goods drives manu- facturers to produce low-cost goods.
Naturally, corporate executives realize that indi- vidual people will lose their jobs during lay-offs or plant-closings; and they realize that in some cases entire communities will be very hard-hit. Of all
the textile jobs lost in the US between 1997 and 2006, 88% were lost in North and South Carolina alone—where the bulk of the US textile manufac- turing is located. But corporate executives are not trying to make decisions that destroy communities; rather they are trying to make decisions that ensure the long-term success of their companies as a whole, and this often means thinking about consequences on a global scale. Workers in the US may lose some jobs, while workers in another country gain jobs and a substantially improved lifestyle, and consumers in the US get cheaper goods, all while worldwide stock- holder profits are maintained. Although one group’s utility is decreased, many others are increased. Un- surprisingly, this probably does not comfort the worker who loses her job, but overall the benefits are substantial.
This style of utilitarian thinking is not confined to the overarching challenges of managing a global business. Most school children in the United States memorize the preamble to the Constitution which avows a deep concern to “promote the general wel- fare, and sustain the blessing of liberty” for all its citizens, now and in the future. Yet, this frequently means that government officials must balance a host of complex and competing interests in their pursuit of general welfare. For instance, after the Persian Gulf War in 1991, Turkey received a 50% increase in its textile importing quota from the US as a re- ward for its assistance during the war. Policy initia- tives pursued by George W. Bush’s administration in the years immediately following the terrorist attacks of September 11, 2001 were analogous. Subsequent to 9/11 the United States initiated a “free-trade” agreement with Jordan, the first ever for an Arab na- tion. Similarly, after Pakistan provided assistance in searching for Osama bin Laden and unseating the Taliban regime in Afghanistan, the Bush adminis- tration wanted to reward the Pakistani government. The most obvious way to do this was to soften the tariffs on Pakistani textiles. Textile manufacturing constitutes a significant portion of Pakistan’s econ-
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60 SYSTEMS OF MORAL EVALUATION
omy, and disenchanted, unemployed Pakistanis are ripe recruits for extremist Islamic terrorist organiza- tions who attack Americans as well as seek to de- stabilize pro-American governments like the one in Pakistan. So, if we can assist Pakistan’s economy, then more Pakistanis will have a decent job, which in turn means there will be fewer possible recruits for terrorist organizations. Moreover, the Bush ad- ministration reasoned that Pakistani citizens would see the increase in jobs as a direct result of US meas- ures on their behalf, and therefore they would feel affinity towards America. (The specific Bush plan to offer economic assistance to Pakistan’s textile indus- try was not approved by the US Congress.)
Thus, pursuing a solution to one set of economic or geo-political problems may create new troubles; but these too can be addressed with some utilitar- ian thinking. As a result of the devastating effects the shift in worldwide textile production has had on communities in the American South, a large amount of US tax-dollars are spent on support services and career retraining for displaced textile workers. Ex- penditures through the Worker Adjustment and Re- training Notification Act (WARN) and the Trade Adjustment Act (TAA) are the most notable. Spread- ing the costs out in this way prevents those citizens in one area from bearing a disproportionate burden to support our consumer desire for cheap goods and our political desires to prevent terrorism.
So the US textile industry was hit hard at the turn of the twenty-first century in part due to utilitarian thinking at three different levels. First, consumers generally try to get the most good they can while incurring the lowest burden possible, which means they usually satisfy their preference for lower-priced goods. This first level of utilitarian thinking was aug- mented when the relative values of global currencies shifted in a way that made production in Asia more cost-effective. Consequently, corporate managers made the second round of utilitarian-style decisions when they responded by shifting production to more cost-effective locales, thus securing more long- term benefit for their companies. Finally, political initiatives that comprise part of America’s foreign policy sometimes sacrifice an impact at home for a benefit abroad. We can say that utilitarian thinking contributed to, if not generated, difficulties for the American textile industry at the turn of the twenty- first century. But it is also utilitarian-style thinking that offers a solution to those difficulties, and hope to those displaced workers here in America. Our government policy-makers realize that international gains must be paid for, but justice and impartiality demand that no one group bears a disproportionate share of the burden. So when one segment of our economy is hard-hit, all Americans contribute tax dollars to the support, retraining, and revitalization of our workforce.
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UnIt 1
Corporate social Responsibility
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AnAnD VAIDyA
Corporate social Responsibility
The central debate in business ethics concerns the nature of corporations. The central question can be put as follows: Are there any moral obligations that corporate executives/managers have other than to maximize profit for the stockholders? There are two standard responses to this question: stockholder theory and stakeholder theory.
Milton Friedman, a recently-deceased Nobel Laureate economist, famously argued that the sole moral responsibility of a corporate executive is to do whatever is permissible within the confines of the law and local ethical customs in order to maxi- mize profits for the stockholders. Friedman saw this as the moral obligation of corporations in general, in so far as one could speak of corporations having moral obligations. As an employee of a corporation, it would be morally impermissible for an executive to use funds allocated for profit maximizing ven- tures for “socially responsible” activities, such as funding charities, environmental clean up, or the building of local schools. According to Friedman, social responsibility is a governmental function. The government is responsible for correcting acknow- ledged social ills by allotting funds and setting up institutions to deal with them. In addition, people are responsible for voting for the political leaders whose agenda includes the social ills they wish to be corrected.
On the stockholder analysis of the moral obli- gations of corporations, executives are employees of the stockholders and thus, as employees, are required to do what the board decides. Friedman holds that corporations are created for the purpose of making a profit, and thus since executives are the employees of the stockholders, their primary responsibility is to increase profits for the stockholders. Corporate
executives are not to use funds for public works pro- jects, since they are not employed to serve that func- tion. Furthermore, if they were to take some of the stockholders’ money and invest it in a specific pub- lic works project without the consent of the whole body of stockholders, they would be violating fidu- ciary obligations owed to the latter.
One critical response to Friedman’s stockholder theory has been articulated by R. Edward Freeman and is known as stakeholder theory. Stakeholder theory maintains that stockholders are but one group among others that has a vested interest in a corpora- tion’s future. Freeman introduces the term “stake- holder” to stand for anyone who has a vested interest in the dealings of a corporation; that is anyone that has a stake in the future of the corporation. Under the narrow understanding of this term distributors, consumers, employees, manufacturers, and the local community in which the corporation is located are stakeholders because they have a vested interest in the corporation’s survival and future well-being.
According to Freeman, stockholder theory is flawed because it does not accurately capture the fact that corporations are to be held accountable by interest groups that are not stockholders, such as en- vironmental protection agencies and animal rights activist groups. Because corporations are held to be legally liable by groups extending outside of the sphere of stockholders, an accurate theory of corpor- ations would model that by taking into considera- tion the real groups that an executive would have to take into consideration in making a decision for the future livelihood of the corporation. For example, employees depend on the corporations continued success and future growth for their job security. Local communities depend on the corporation for jobs, producers and distributors depend on the cor- poration for contracts, and stockholders depend on the corporation for profits. As a consequence of the kind of dependency relation each group bears to the corporation, those groups have a set of interests that are collectively in competition. A corporate execu-
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64 CORPORATE SOCIAL RESPONSIBILITY
tive must take into consideration these competing interests. Their decisions cannot be made solely in light of profit maximization. They must take into consideration that consumers want lower costs, lo- cal communities want more jobs, and employees want higher salaries and more time off. All of these competing interests must be weighed by executives in making decisions for the future sustainability of the corporation.
These two views present themselves as distinct accounts of what a corporation is and what its moral obligations are. According to stockholder theory, it appears as if it could never be the case that a cor- porate executive permissibly chooses a socially re- sponsible action over pure profit maximization. For example, a corporate executive could not choose to spend some funds on building a school in the local community when that money could be used to fund research and development for a project that has a high probability of making profit for the stockhold- ers. By contrast, it appears as if stakeholder theory allows for the possibility that a corporate executive may permissibly choose to fund the school project because his responsibility is not only to the stock- holders, but also the local community. Although the two theories appear to be different, two things should be noted.
First, it is no strict part of stockholder theory that a corporate executive cannot allocate funds for social projects. The reason why is that the main claim of stockholder theory is that a corporate executive’s sole responsibility is to the stockholders and not to any other group. However, in order for it to be the case that an executive cannot allocate funds for use in public works projects, it would additionally have to be true that stockholders always want their money spent on profit maximization. If the stockholders of a certain corporation voted to spend money on a public works project and not to pursue potential profits, then nothing in stockholder theory would block an executive from allocating funds and using them for that purpose. In essence, what stockholder
theory holds is that corporate executives are employ- ees of the stockholders and thus are at the mercy of their desires to the degree to which they conform to the law. The theory does not speak directly to the issue of whether a corporation may, after consulting with its stockholders, pursue the advancement of so- cially responsible projects at the cost of pure profit.
Second, on the plausible assumption that taking into consideration the interests of stakeholders is a good guide to maximizing profits for stockholders, stakeholder theory can be seen as a kind of special case of stockholder theory. In fact, the plausible as- sumption is more than that: failing to pay attention to stakeholder interests inevitably leads to poor long- term growth for a corporation. For example, closing down a car manufacturing facility in one town may, in the short term, increase profits by lowering costs; however it could lead to a loss in sales by boycotts prompted by the frustrated residents of the town. Overworking employees may lead to a strike. Fail- ing to honor contracts with manufacturers and dis- tributors because paying the cost of breaking the contract is less of a loss than living up to the con- tract may lead manufacturers and distributors to refrain from engaging in business with the corpora- tion. Each of these considerations shows that rec- ognizing and attempting to satisfy the interests of the various stakeholder groups may itself be a way of maximizing profit in the long term. Developing a more costly but environmentally sound product at a time where environmental soundness is in the eye of the consumer may actually lead consumers to buy the more expensive product over the less expensive and environmentally unsound product. The initial loss encumbered by research and development for the environmentally sound product is regained later by the future sustainability of the corporation as consumers’ spending habits reflect concern for their environment.
In this unit, we have included the historically central essays by Friedman and Freeman. In addi- tion, we have included a number of other essays that
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take the initial debate in various directions that con- cern the changing physical and social environments in which corporations exist. Both concerns about
the environment and globalization have put corpor- ate social responsibility back to the forefront of busi- ness ethics.
tHE CEntRAL DEBAtE
MILton FRIEDMAn
The social Responsibility of Business Is to Increase
Its Profits
When I hear businessmen speak eloquently about the “social responsibilities of business in a free-enter- prise system,” I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free en- terprise when they declaim that business is not con- cerned “merely” with profit but also with promoting desirable “social” ends; that business has a “social conscience” and takes seriously its responsibilities for providing employment, eliminating discrimina- tion, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reform- ers. In fact they are—or would be if they or any- one else took them seriously—preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free soci- ety these past decades.
The discussions of the “social responsibilities of business” are notable for their analytical looseness and lack of rigor. What does it mean to say that “business” has responsibilities? Only people can have responsibilities. A corporation is an artificial person
and in this sense may have artificial responsibilities, but “business” as a whole cannot be said to have re- sponsibilities, even in this vague sense. The first step toward clarity in examining the doctrine of the so- cial responsibility of business is to ask precisely what it implies for whom.
Presumably, the individuals who are to be re- sponsible are businessmen, which means individ- ual proprietors or corporate executives. Most of the discussion of social responsibility is directed at cor- porations, so in what follows I shall mostly neglect the individual proprietors and speak of corporate executives.
In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his em- ployers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while con- forming to the basic rules of the society, both those embodied in law and those embodied in ethical cus- tom. Of course, in some cases his employers may have a different objective. A group of persons might establish a corporation for an eleemosynary pur- pose—for example, a hospital or a school. The man- ager of such a corporation will not have money profit as his objective but the rendering of certain services.
In either case, the key point is that, in his cap- acity as a corporate executive, the manager is the agent of the individuals who own the corporation or establish the eleemosynary institution, and his pri- mary responsibility is to them.
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Needless to say, this does not mean that it is easy to judge how well he is performing his task. But at least the criterion of performance is straightforward, and the persons among whom a voluntary contrac- tual arrangement exists are clearly defined.
Of course, the corporate executive is also a per- son in his own right. As a person, he may have many other responsibilities that he recognizes or assumes voluntarily—to his family, his conscience, his feel- ings of charity, his church, his clubs, his city, his country. He may feel impelled by these responsibil- ities to devote part of his income to causes he regards as worthy, to refuse to work for particular corpora- tions, even to leave his job, for example, to join his country’s armed forces. If we wish, we may refer to some of these responsibilities as “social responsibil- ities.” But in these respects he is acting as a principal, not an agent; he is spending his own money or time or energy, not the money of his employers or the time or energy he has contracted to devote to their purposes. If these are “social responsibilities,” they are the social responsibilities of individuals, not of business.
What does it mean to say that the corporate executive has a “social responsibility” in his capacity as businessman? If this statement is not pure rhet- oric, it must mean that he is to act in some way that is not in the interest of his employers. For example, that he is to refrain from increasing the price of the product in order to contribute to the social objective of preventing inflation, even though a price increase would be in the best interests of the corporation. Or that he is to make expenditures on reducing pollu- tion beyond the amount that is in the best interests of the corporation or that is required by law in order to contribute to the social objective of improving the environment. Or that, at the expense of corporate profits, he is to hire “hardcore” unemployed instead of better qualified available workmen to contribute to the social objective of reducing poverty.
In each of these cases, the corporate executive would be spending someone else’s money for a gen-
eral social interest. Insofar as his actions in accord with his “social responsibility” reduce returns to stockholders, he is spending their money. Insofar as his actions raise the price to customers, he is spend- ing the customers’ money. Insofar as his actions low- er the wages of some employees, he is spending their money.
The stockholders or the customers or the em- ployees could separately spend their own money on the particular action if they wished to do so. The executive is exercising a distinct “social responsibil- ity,” rather than serving as an agent of the stock- holders or the customers or the employees, only if he spends the money in a different way than they would have spent it.
But if he does this, he is in effect imposing taxes, on the one hand, and deciding how the tax proceeds shall be spent, on the other.
This process raises political questions on two levels: principle and consequences. On the level of political principle, the imposition of taxes and the expenditure of tax proceeds are governmental func- tions. We have established elaborate constitutional, parliamentary, and judicial provisions to control these functions, to assure that taxes are imposed so far as possible in accordance with the preferences and desires of the public—after all, “taxation without rep- resentation” was one of the battle cries of the Amer- ican Revolution. We have a system of checks and balances to separate the legislative function of impos- ing taxes and enacting expenditures from the execu- tive function of collecting taxes and administering expenditure programs and from the judicial function of mediating disputes and interpreting the law.
Here the businessman—self-selected or appoint- ed directly or indirectly by stockholders—is to be simultaneously legislator, executive, and jurist. He is to decide whom to tax by how much and for what purpose, and he is to spend the proceeds—all this guided only by general exhortations from on high to restrain inflation, improve the environment, fight poverty and so on and on.
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The whole justification for permitting the cor- porate executive to be selected by the stockholders is that the executive is an agent sensing the interests of his principal. This justification disappears when the corporate executive imposes taxes and spends the proceeds for “social” purposes. He becomes in effect a public employee, a civil servant, even though he re- mains in name an employee of a private enterprise. On grounds of political principle, it is intolerable that such civil servants—insofar as their actions in the name of social responsibility are real and not just win- dow-dressing—should be selected as they are now. If they are to be civil servants, then they must be elected through a political process. If they are to impose taxes and make expenditures to foster “social” objectives, then political machinery must be set up to make the assessment of taxes and to determine through a polit- ical process the objectives to be served.
This is the basic reason why the doctrine of “so- cial responsibility” involves the acceptance of the socialist view that political mechanisms, not market mechanisms, are the appropriate way to determine the allocation of scarce resources to alternative uses.
On the grounds of consequences, can the corpor- ate executive in fact discharge his alleged “social re- sponsibilities?” On the other hand, suppose he could get away with spending the stockholders’ or custom- ers’ or employees’ money. How is he to know how to spend it? He is told that he must contribute to fight- ing inflation. How is he to know what action of his will contribute to that end? He is presumably an ex- pert in running his company—in producing a prod- uct or selling it or financing it. But nothing about his selection makes him an expert on inflation. Will his holding down the price of his product reduce inflationary pressure? Or, by leaving more spending power in the hands of his customers, simply divert it elsewhere? Or, by forcing him to produce less be- cause of the lower price, will it simply contribute to shortages? Even if he could answer these questions, how much cost is he justified in imposing on his stockholders, customers, and employees for this so-
cial purpose? What is his appropriate share and what is the appropriate share of others?
And, whether he wants to or not, can he get away with spending his stockholders’, customers’ or employees’ money? Will not the stockholders fire him? (Either the present ones or those who take over when his actions in the name of social responsibility have reduced the corporation’s profits and the price of its stock.) His customers and his employees can desert him for other producers and employers less scrupulous in exercising their social responsibilities.
This facet of “social responsibility” doctrine is brought into sharp relief when the doctrine is used to justify wage restraint by trade unions. The conflict of interest is naked and clear when union officials are asked to subordinate the interest of their mem- bers to some more general purpose. If the union of- ficials try to enforce wage restraint, the consequence is likely to be wildcat strikes, rank-and-file revolts, and the emergence of strong competitors for their jobs. We thus have the ironic phenomenon that union leaders—at least in the US—have objected to Government interference with the market far more consistently and courageously than have business leaders.
The difficulty of exercising “social responsibility” illustrates, of course, the great virtue of private com- petitive enterprise—it forces people to be respon- sible for their own actions and makes it difficult for them to “exploit” other people for either selfish or unselfish purposes. They can do good—but only at their own expense.
Many a reader who has followed the argument this far may be tempted to remonstrate that it is all well and good to speak of Government’s having the responsibility to impose taxes and determine ex- penditures for such “social” purposes as controlling pollution or training the hard-core unemployed, but that the problems are too urgent to wait on the slow course of political processes, that the exercise of so- cial responsibility by businessmen is a quicker and surer way to solve pressing current problems.
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Aside from the question of fact—I share Adam Smith’s skepticism about the benefits that can be expected from “those who affected to trade for the public good”—this argument must be rejected on grounds of principle. What it amounts to is an asser- tion that those who favor the taxes and expenditures in question have failed to persuade a majority of their fellow citizens to be of like mind and that they are seeking to attain by undemocratic procedures what they cannot attain by democratic procedures. In a free society, it is hard for “evil” people to do “evil,” especially since one man’s good is another’s evil.
I have, for simplicity, concentrated on the special case of the corporate executive, except only for the brief digression on trade unions. But precisely the same argument applies to the newer phenomenon of calling upon stockholders to require corporations to exercise social responsibility (the recent GM crusade for example). In most of these cases, what is in ef- fect involved is some stockholders trying to get other stockholders (or customers or employees) to con- tribute against their will to “social” causes favored by the activists. Insofar as they succeed, they are again imposing taxes and spending the proceeds.
The situation of the individual proprietor is somewhat different. If he acts to reduce the returns of his enterprise in order to exercise his “social re- sponsibility,” he is spending his own money, not someone else’s. If he wishes to spend his money on such purposes, that is his right, and I cannot see that there is any objection to his doing so. In the process, he, too, may impose costs on employees and cus- tomers. However, because he is far less likely than a large corporation or union to have monopolistic power, any such side effects will tend to be minor.
Of course, in practice, the doctrine of social re- sponsibility is frequently a cloak for actions that are justified on other grounds rather than a reason for those actions.
To illustrate, it may well be in the long-run in- terest of a corporation that is a major employer in a small community to devote resources to provid-
ing amenities to that community or to improving its government. That may make it easier to attract desir- able employees, it may reduce the wage bill or less- en losses from pilferage and sabotage or have other worthwhile effects. Or it may be that, given the laws about the deductibility of corporate charitable con- tributions, the stockholders can contribute more to charities they favor by having the corporation make the gift than by doing it themselves, since they can in that way contribute an amount that would other- wise have been paid as corporate taxes.
In each of these—and many similar—cases, there is a strong temptation to rationalize these actions as an exercise of “social responsibility.” In the present climate of opinion, with its wide-spread aversion to “capitalism,” “profits,” the “soulless corporation,” and so on, this is one way for a corporation to gener- ate goodwill as a by-product of expenditures that are entirely justified in its own self-interest.
It would be inconsistent of me to call on corpor- ate executives to refrain from this hypocritical win- dow-dressing because it harms the foundations of a free society. That would be to call on them to exercise a “social responsibility”! If our institutions, and the attitudes of the public make it in their self-interest to cloak their actions in this way, I cannot summon much indignation to denounce them. At the same time, I can express admiration for those individual proprietors or owners of closely held corporations or stockholders of more broadly held corporations who disdain such tactics as approaching fraud.
Whether blameworthy or not, the use of the cloak of social responsibility, and the nonsense spok- en in its name by influential and prestigious busi- nessmen, does clearly harm the foundations of a free society. I have been impressed time and again by the schizophrenic character of many business- men. They are capable of being extremely far-sight- ed and clear-headed in matters that are internal to their businesses. They are incredibly short-sighted and muddle-headed in matters that are outside their businesses but affect the possible survival of business
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in general. This shortsightedness is strikingly exem- plified in the calls from many businessmen for wage and price guidelines or controls or income policies. There is nothing that could do more in a brief period to destroy a market system and replace it by a cen- trally controlled system than effective governmental control of prices and wages.
The shortsightedness is also exemplified in speeches by businessmen on social responsibility. This may gain them kudos in the short run. But it helps to strengthen the already too prevalent view that the pursuit of profits is wicked and immoral and must be curbed and controlled by external forces. Once this view is adopted, the external forces that curb the market will not be the social consciences, however highly developed, of the pontificating executives; it will be the iron fist of Government bureaucrats. Here, as with price and wage controls, businessmen seem to me to reveal a suicidal impulse.
The political principle that underlies the mar- ket mechanism is unanimity. In an ideal free market resting on private property, no individual can coerce any other, all cooperation is voluntary, all parties to such cooperation benefit or they need not partici- pate. There are no values, no “social” responsibil- ities in any sense other than the shared values and responsibilities of individuals. Society is a collection of individuals and of the various groups they volun- tarily form.
The political principle that underlies the political mechanism is conformity. The individual must serve a more general social interest—whether that be de- termined by a church or a dictator or a majority. The individual may have a vote and say in what is to be done, but if he is overruled, he must conform. It is appropriate for some to require others to contribute to a general social purpose whether they wish to or not.
Unfortunately, unanimity is not always feasible. There are some respects in which conformity appears unavoidable, so I do not see how one can avoid the use of the political mechanism altogether.
But the doctrine of “social responsibility” taken seriously would extend the scope of the apolitical mechanism to every human activity. It does not dif- fer in philosophy from the most explicitly collectiv- ist doctrine. It differs only by professing to believe that collectivist ends can be attained without collec- tivist means. That is why, in my book Capitalism and Freedom, I have called it a “fundamentally subversive doctrine” in a free society, and have said that in such a society, “there is one and only one social respon- sibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”
♦ ♦ ♦ ♦ ♦
R. EDWARD FREEMAn
A stakeholder Theory of the Modern Corporation
Introduction
Corporations have ceased to be merely legal devices through which private business transactions of indi- viduals may be carried on. Though still much used for this purpose, the corporate form has acquired a larger significance. The corporation has, in fact, be- come both a method of property tenure and a means of organizing economic life. Grown to tremendous proportions, there may be said to have evolved a “corporate system”—which has attracted to itself a combination of attributes and powers, and has at- tained a degree of prominence entitling it to be dealt with as a major social institution.1
Despite these prophetic words of Berle and Means (1932), scholars and managers alike continue to hold sacred the view that managers bear a special relationship to the stockholders in the firm. Since
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stockholders own shares in the firm, they have cer- tain rights and privileges, which must be granted to them by management, as well as by others. Sanc- tions, in the form of “the law of corporations,” and other protective mechanisms in the form of social custom, accepted management practice, myth, and ritual, are thought to reinforce the assumption of the primacy of the stockholder.
The purpose of this paper is to pose several chal- lenges to this assumption, from within the frame- work of managerial capitalism, and to suggest the bare bones of an alternative theory, a stakeholder theory of the modern corporation. I do not seek the demise of the modern corporation, either intellec- tually or in fact. Rather, I seek its transformation. In the words of Neurath, we shall attempt to “rebuild the ship, plank by plank, while it remains afloat.”2
My thesis is that I can revitalize the concept of managerial capitalism by replacing the notion that managers have a duty to stockholders with the con- cept that managers bear a fiduciary relationship to stakeholders. Stakeholders are those groups who have a stake in or claim on the firm. Specifically I include suppliers, customers, employees, stockhold- ers, and the local community, as well as management in its role as agent for these groups. I argue that the legal, economic, political, and moral challenges to the currently received theory of the firm, as a nexus of contracts among the owners of the factors of pro- duction and customers, require us to revise this con- cept. That is, each of these stakeholder groups has a right not to be treated as a means to some end, and therefore must participate in determining the future direction of the firm in which they have a stake.
The crux of my argument is that we must recon- ceptualize the firm around the following question: For whose benefit and at whose expense should the firm be managed? I shall set forth such a reconcep- tualization in the form of a stakeholder theory of the firm. I shall then critically examine the stakeholder view and its implications for the future of the cap- italist system.
The Attack on Managerial Capitalism
The Legal Argument
The basic idea of managerial capitalism is that in re- turn for controlling the firm, management vigorous- ly pursues the interests of stockholders. Central to the managerial view of the firm is the idea that man- agement can pursue market transactions with sup- pliers and customers in an unconstrained manner.
The law of corporations gives a less clearcut an- swer to the question: in whose interest and for whose benefit should the modern corporation be governed? While it says that the corporations should be run primarily in the interests of the stockholders in the firm, it says further that the corporation exists “in contemplation of the law” and has personality as a “legal person,” limited liability for its actions, and immortality, since its existence transcends that of its members. Therefore, directors and other officers of the firm have a fiduciary obligation to stockholders in the sense that the “affairs of the corporation” must be conducted in the interest of the stockholders. And stockholders can theoretically bring suit against those directors and managers for doing otherwise. But since the corporation is a legal person, existing in contemplation of the law, managers of the cor- poration are constrained by law.
Until recently, this was no constraint at all. In this century, however, the law has evolved to effect- ively constrain the pursuit of stockholder interests at the expense of other claimants on the firm. It has, in effect, required that the claims of customers, suppli- ers, local communities, and employees be taken into consideration, though in general they are subordin- ated to the claims of stockholders.
For instance, the doctrine of “privity of contract,” as articulated in Winterbottom v. Wright in 1842, has been eroded by recent developments in products lia- bility law. Indeed, Greenman v. Yuba Power gives the manufacturer strict liability for damage caused by its products, even though the seller has exercised all pos-
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sible care in the preparation and sale of the product and the consumer has not bought the product from nor entered into any contractual arrangement with the manufacturer. Caveat emptor has been replaced, in large part, with caveat venditor.3 The Consumer Product Safety Commission has the power to enact product recalls, and in 1980 one US automobile company recalled more cars than it built. Some in- dustries are required to provide information to cus- tomers about a product’s ingredients, whether or not the customers want and are willing to pay for this information.4
The same argument is applicable to manage- ment’s dealings with employees. The National Labor Relations Act gave employees the right to unionize and to bargain in good faith. It set up the National Labor Relations board to enforce these rights with management. The Equal Pay Act of 1963 and Title VII of the Civil Rights Act of 1964 constrain man- agement from discrimination in hiring practices; these have been followed with the Age Discrimina- tion in Employment Act of 1967.5 The emergence of a body of administrative case law arising from labor-management disputes and the historic settling of discrimination claims with large employers such as AT&T have caused the emergence of a body of practice in the corporation that is consistent with the legal guarantee of the rights of the employees. The law has protected the due process rights of those employees who enter into collective bargain- ing agreements with management. As of the pres- ent, however, only 30 per cent of the labor force are participating in such agreements; this has prompt- ed one labor law scholar to propose a statutory law prohibiting dismissals of the 70 percent of the work force not protected.6
The law has also protected the interests of local communities. The Clean Air Act and Clean Water Act have constrained management from “spoiling the commons.” In an historic case, Marsh v. Ala- bama, the Supreme Court ruled that a company owned town was subject to the provisions of the
US Constitution, thereby guaranteeing the rights of local citizens and negating the “property rights” of the firm. Some states and municipalities have gone further and passed laws preventing firms from mov- ing plants or limiting when and how plants can be closed. In sum, there is much current legal activity in this area to constrain management’s pursuit of stock- holders’ interests at the expense of the local com- munities in which the firm operates.
I have argued that the result of such changes in the legal system can be viewed as giving some rights to those groups that have a claim on the firm, for ex- ample, customers, suppliers, employees, local com- munities, stockholders, and management. It raises the question, at the core of a theory of the firm: in whose interest and for whose benefit should the firm be managed? The answer proposed by managerial capitalism is clearly “the stockholders,” but I have argued that the law has been progressively circum- scribing this answer.
The Economic Argument
In its pure ideological form managerial capitalism seeks to maximize the interests of stockholders. In its perennial criticism of government regulation management espouses the “invisible hand” doctrine. It contends that it creates the greatest good for the greatest number, and therefore government need not intervene. However, we know that externalities, moral hazards, and monopoly power exist in fact, whether or not they exist in theory. Further, some of the legal apparatus mentioned above has evolved to deal with just these issues.
The problem of the “tragedy of the commons” or the free-rider problem pervades the concept of public goods such as water and air. No one has an incentive to incur the cost of clean-up or the cost of nonpollution, since the marginal gain of one firm’s action is small. Every firm reasons this way, and the result is pollution of water and air. Since the indus- trial revolution, firms have sought to internalize the
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A Stakeholder Theory of the Firm
The stakeholder Concept
Corporations have stakeholders, that is, groups and individuals who benefit from or are harmed by, and whose rights are violated or respected by, corporate actions. The concept of stakeholders is a generaliza- tion of the notion of stockholders, who themselves have some special claim on the firm. Just as stock- holders have a right to demand certain actions by management, so do other stakeholders have a right to make claims. The exact nature of these claims is a difficult question that I shall address, but the logic is identical to that of the stockholder theory. Stakes require action of a certain sort, and conflicting stakes require methods of resolution.
Freeman and Reed (1983)7 distinguish two senses of stakeholder. The “narrow definition” in- cludes those groups who are vital to the survival and success of the corporation. The “wide-definition” includes any group or individual who can affect or is affected by the corporation. I shall begin with a modest aim: to articulate a stakeholder theory using the narrow definition.
stakeholders in the Modern Corporation
Figure 1 depicts the stakeholders in a typical large corporation. The stakes of each are reciprocal, since
benefits and externalize the costs of their actions. The cost must be borne by all, through taxation and regulation; hence we have the emergence of the en- vironmental regulations of the 1970s.
Similarly, moral hazards arise when the purchas- er of a good or service can pass along the cost of that good. There is no incentive to economize, on the part of either the producer or the consumer, and there is excessive use of the resources involved. The institutionalized practice of third-party payment in health care is a prime example.
Finally, we see the avoidance of competitive be- havior on the part of firms, each seeking to monop- olize a small portion of the market and not compete with one another. In a number of industries, oligop- olies have emerged, and while there is questionable evidence that oligopolies are not the most efficient corporate form in some industries, suffice it to say that the potential for abuse of market power has again led to regulation of managerial activity. In the classic case, AT&T, arguably one of the great techno- logical and managerial achievements of the century, was broken up into eight separate companies to pre- vent its abuse of monopoly power.
Externalities, moral hazards, and monopoly power have led to more external control on manag- erial capitalism. There are de facto constraints, due to these economic facts of life, on the ability of man- agement to act in the interests of stockholders.
Management
Owners Local Community
The Corporation
Suppliers Customers
Employees
Figure 1. A Stakeholder Model of the Corporation
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each can affect the other in terms of harms and bene- fits as well as rights and duties. The stakes of each are not univocal and would vary by particular corpora- tion. I merely set forth some general notions that seem to be common to many large firms.
Owners have financial stake in the corporation in the form of stocks, bonds, and so on, and they expect some kind of financial return from them. Either they have given money directly to the firm, or they have some historical claim made through a series of morally justified exchanges. The firm affects their livelihood or, if a substantial portion of their retirement income is in stocks or bonds, their abil- ity to care for themselves when they can no longer work. Of course, the stakes of owners will differ by type of owner, preferences for money, moral pref- erences, and so on, as well as by type of firm. The owners of AT&T are quite different from the owners of Ford Motor Company, with stock of the former company being widely dispersed among 3 million stockholders and that of the latter being held by a small family group as well as by a large group of pub- lic stockholders.
Employees have their jobs and usually their live- lihood at stake; they often have specialized skills for which there is usually no perfectly elastic market. In return for their labor, they expect security, wages, benefits, and meaningful work. In return for their loyalty, the corporation is expected to provide for them and carry them through difficult times. Em- ployees are expected to follow the instructions of management most of the time, to speak favorably about the company, and to be responsible citizens in the local communities in which the company oper- ates. Where they are used as means to an end, they must participate in decisions affecting such use. The evidence that such policies and values as described here lead to productive company-employee relation- ships is compelling. It is equally compelling to real- ize that the opportunities for “bad faith” on the part of both management and employees are enormous. “Mock participation” in quality circles, singing the
company song, and wearing the company uniform solely to please management all lead to distrust and unproductive work.
Suppliers, interpreted in a stakeholder sense, are vital to the success of the firm, for raw materials will determine the final product’s quality and price. In turn the firm is a customer of the supplier and is therefore vital to the success and survival of the supplier. When the firm treats the supplier as a valued member of the stakeholder network, rather than simply as a source of materials, the supplier will respond when the firm is in need. Chrysler traditionally had very close ties to its suppliers, even to the extent that led some to suspect the transfer of illegal payments. And when Chrysler was on the brink of disaster, the suppliers responded with price cuts, accepting late payments, financing, and so on. Supplier and company can rise and fall to- gether. Of course, again, the particular supplier rela- tionships will depend on a number of variables such as the number of suppliers and whether the supplies are finished goods or raw materials.
Customers exchange resources for the products of the firm and in return receive the benefits of the products. Customers provide the lifeblood of the firm in the form of revenue. Given the level of re- investment of earnings in large corporations, cus- tomers indirectly pay for the development of new products and services. Peters and Waterman (1982)8 have argued that being close to the customer leads to success with other stakeholders and that a distin- guishing characteristic of some companies that have performed well is their emphasis on the customer. By paying attention to customers’ needs, manage- ment automatically addresses the needs of suppli- ers and owners. Moreover, it seems that the ethic of customer service carries over to the community. Al- most without fail the “excellent companies” in Peters and Waterman’s study have good reputations in the community. I would argue that Peters and Water- man have found multiple applications of Kant’s dic- tum, “treat persons as ends unto themselves,” and it should come as no surprise that persons respond to
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such respectful treatment, be they customers, sup- pliers, owners, employees, or members of the local community. The real surprise is the novelty of the application of Kant’s rule in a theory of good man- agement practice.
The local community grants the firm the right to build facilities and, in turn, it benefits from the tax base and economic and social contributions of the firm. In return for the provision of local services, the firm is expected to be a good citizen, as is any person, either “natural or artificial.” The firm can- not expose the community to unreasonable hazards in the form of pollution, toxic waste, and so on. If for some reason the firm must leave a community, it is expected to work with local leaders to make the transition as smoothly as possible. Of course, the firm does not have perfect knowledge, but when it discovers some danger or runs afoul of new compe- tition, it is expected to inform the local commun- ity and to work with the community to overcome any problem. When the firm mismanages its rela- tionship with the local community, it is in the same position as a citizen who commits a crime. It has violated the implicit social contract with the com- munity and should expect to be distrusted and os- tracized. It should not be surprised when punitive measures are invoked.
I have not included “competitors” as stakeholders in the narrow sense, since strictly speaking they are not necessary for the survival and success of the firm; the stakeholder theory works equally well in monop- oly contexts. However, competitors and government would be the first to be included in an extension of this basic theory. It is simply not true that the interests of competitors in an industry are always in conflict. There is no reason why trade associations and other multi-organizational groups cannot band together to solve common problems that have little to do with how to restrain trade. Implementation of stakeholder management principles, in the long run, mitigates the need for industrial policy and an increasing role for government intervention and regulation.
The Role of Management
Management plays a special role, for it too has a stake in the modern corporation. On the one hand, management’s stake is like that of employees, with some kind of explicit or implicit employment con- tract. But, on the other hand, management has a duty of safeguarding the welfare of the abstract entity that is the corporation. In short, management, espe- cially top management, must look after the health of the corporation, and this involves balancing the multiple claims of conflicting stakeholders. Owners want higher financial returns, while customers want more money spent on research and development. Employees want higher wages and better benefits, while the local community wants better parks and day-care facilities.
The task of management in today’s corporation is akin to that of King Solomon. The stakeholder theory does not give primacy to one stakeholder group over another, though there will surely be times when one group will benefit at the expense of others. In general, however, management must keep the re- lationships among stakeholders in balance. When these relationships become imbalanced, the survival of the firm is in jeopardy.
When wages are too high and product qual- ity is too low, customers leave, suppliers suffer, and owners sell their stocks and bonds, depressing the stock price and making it difficult to raise new cap- ital at favorable rates. Note, however, that the reason for paying returns to owners is not that they “own” the firm, but that their support is necessary for the survival of the firm, and that they have a legitimate claim on the firm. Similar reasoning applies in turn to each stakeholder group.
A stakeholder theory of the firm must define the purpose of the firm. The stockholder theory claims that the purpose of the firm is to maximize the welfare of the stockholders, perhaps subject to some moral or social constraints, either because such maximization leads to the greatest good or because
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of property rights. The purpose of the firm is quite different in my view.
“The stakeholder theory” can be unpacked into a number of stakeholder theories, each of which has a “normative core,” inextricably linked to the way that corporations should be governed and the way that managers should act. So, attempts to more fully define, or more carefully define, a stakeholder theory are misguided. Following Donaldson and Preston, I want to insist that the normative, descriptive, in- strumental, and metaphorical (my addition to their framework) uses of “stakeholder” are tied together in particular political constructions to yield a num- ber of possible “stakeholder theories.” “Stakeholder theory” is thus a genre of stories about how we could live. Let me be more specific.
A “normative core” of a theory is a set of senten- ces that includes among others, sentences like:
(1) Corporations ought to be governed ... (2) Managers ought to act to ...
where we need arguments or further narratives which include business and moral terms to fill in the
blanks. This normative core is not always reducible to a fundamental ground like the theory of prop- erty, but certain normative cores are consistent with modern understandings of property. Certain elab- orations of the theory of private property plus the other institutions of political liberalism give rise to particular normative cores. But there are other insti- tutions, other political conceptions of how society ought to be structured, so that there are different possible normative cores.
So, one normative core of a stakeholder theory might be a feminist standpoint one, rethinking how we would restructure “value-creating activity” along principles of caring and connection.9 Another would be an ecological (or several ecological) normative cores. Mark Starik has argued that the very idea of a stakeholder theory of the firm ignores certain eco- logical necessities.10 Exhibit 1 is suggestive of how these theories could be developed.
In the next section I shall sketch the normative core based on pragmatic liberalism. But, any norma- tive core must address the questions in columns A or B, or explain why these questions may be irrelevant,
Exhibit 1. A Reasonable Pluralism
A. B. C. Corporations ought The background disciplines to be governed ... Managers ought to act ... of “value creation” are ...
Doctrine of ... in accordance with ... in the interests of – business theories Fair Contracts the six principles. stakeholders. – theories that explain stakeholder behavior
Feminist ... in accordance with ... to maintain and – business theories Standpoint the principles of care for relationships – feminist theory Theory caring/connection and networks of – social science and relationships. stakeholders. understanding of networks
Ecological ... in accordance with ... to care for the earth. – business theories Principles the principle of caring – ecology for the earth. – other
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as in the ecological view. In addition, each “theory,” and I use the word hesitantly, must place the norma- tive core within a more full-fledged account of how we could understand value-creating activity differ- ently (column C). The only way to get on with this task is to see the stakeholder idea as a metaphor. The attempt to prescribe one and only one “normative core” and construct “a stakeholder theory” is at best a disguised attempt to smuggle a normative core past the unsophisticated noses of other unsuspecting aca- demics who are just as happy to see the end of the stockholder orthodoxy.
If we begin with the view that we can under- stand value-creation activity as a contractual process among those parties affected, and if for simplicity’s sake we initially designate those parties as financiers, customers, suppliers, employees, and communities, then we can construct a normative core that reflects the liberal notions of autonomy, solidarity, and fair- ness as articulated by John Rawls, Richard Rorty, and others.11 Notice that building these moral notions into the foundations of how we understand value creation and contracting requires that we eschew separating the business part of the process from the “ethical” part, and that we start with the presump- tion of equality among the contractors, rather than the presumption in favor of financier rights.
The normative core for this redesigned contrac- tual theory will capture the liberal idea of fairness if it ensures a basic equality among stakeholders in terms of their moral rights as these are realized in the firm, and if it recognizes that inequalities among stakeholders are justified if they raise the level of the least well-off stakeholder. The liberal ideal of autonomy is captured by the realization that each stakeholder must be free to enter agreements that create value for themselves and solidarity is realized by the recognition of the mutuality of stakeholder interests.
One way to understand fairness in this context is to claim à la Rawls that a contract is fair if par- ties to the contract would agree to it in ignorance of
their actual stakes. Thus, a contract is like a fair bet, if each party is willing to turn the tables and accept the other side. What would a fair contract among corporate stakeholders look like? If we can articulate this ideal, a sort of corporate constitution, we could then ask whether actual corporations measure up to this standard, and we also begin to design corporate structures which are consistent with this Doctrine of Fair Contracts.
Imagine if you will, representative stakeholders trying to decide on “the rules of the game.” Each is rational in a straightforward sense, looking out for its own self-interest. At least ex ante, stakeholders are the relevant parties since they will be materially af- fected. Stakeholders know how economic activity is organized and could be organized. They know gen- eral facts about the way the corporate world works. They know that in the real world there are or could be transaction costs, externalities, and positive costs of contracting. Suppose they are uncertain about what other social institutions exist, but they know the range of those institutions. They do not know if government exists to pick up the tab for any external- ities, or if they will exist in the nightwatchman state of libertarian theory. They know success and failure stories of businesses around the world. In short, they are behind a Rawls-like veil of ignorance, and they do not know what stake each will have when the veil is lifted. What groundrules would they choose to guide them?
The first groundrule is “The Principle of Entry and Exit.” Any contract that is the corporation must have clearly defined entry, exit, and renegotiation conditions, or at least it must have methods or pro- cesses for so defining these conditions. The logic is straightforward: each stakeholder must be able to determine when an agreement exists and has a chance of fulfillment. This is not to imply that con- tracts cannot contain contingent claims or other methods for resolving uncertainty, but rather that it must contain methods for determining whether or not it is valid.
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The second groundrule I shall call “The Princi- ple of Governance,” and it says that the procedure for changing the rules of the game must be agreed upon by unanimous consent. Think about the con- sequences of a majority of stakeholders systematic- ally “selling out” a minority. Each stakeholder, in ignorance of its actual role, would seek to avoid such a situation. In reality this principle translates into each stakeholder never giving up its right to participate in the governance of the corporation, or perhaps into the existence of stakeholder governing boards.
The third groundrule I shall call “The Principle of Externalities,” and it says that if a contract be- tween A and B imposes a cost on C, then C has the option to become a party to the contract, and the terms are renegotiated. Once again the rationality of this condition is clear. Each stakeholder will want insurance that it does not become C.
The fourth groundrule is “The Principle of Con- tracting Costs,” and it says that all parties to the contract must share in the cost of contracting. Once again the logic is straightforward. Any one stake- holder can get stuck.
A fifth groundrule is “The Agency Principle” that says that any agent must serve the interests of all stakeholders. It must adjudicate conflicts within the bounds of the other principals. Once again the logic is clear. Agents for any one group would have a privileged place.
A sixth and final groundrule we might call, “The Principle of Limited Immortality.” The corporation shall be managed as if it can continue to serve the interests of stakeholders through time. Stakeholders are uncertain about the future but, subject to exit conditions, they realize that the continued existence of the corporation is in their interest. Therefore, it would be rational to hire managers who are fidu- ciaries to their interest and the interest of the col- lective. If it turns out the collective interests is the empty set, then this principle simply collapses into the Agency Principle.
Thus, the Doctrine of Fair Contracts consists of these six groundrules or principles:
(1) The Principle of Entry and Exit (2) The Principle of Governance (3) The Principle of Externalities (4) The Principle of Contracting Costs (5) The Agency Principle (6) The Principle of Limited Immortality
Think of these groundrules as a doctrine which would guide actual stakeholders in devising a cor- porate constitution or charter. Think of manage- ment as having the duty to act in accordance with some specific constitution or charter.
Obviously, if the Doctrine of Fair Contracts and its accompanying background narratives are to effect real change, there must be requisite changes in the enabling laws of the land. I propose the following three principles to serve as constitutive elements of attempts to reform the law of corporations.
The stakeholder Enabling Principle
Corporations shall be managed in the interests of its stakeholders, defined as employees, financiers, cus- tomers, employees, and communities.
The Principle of Director Responsibility
Directors of the corporation shall have a duty of care to use reasonable judgment to define and direct the affairs of the corporation in accordance with the Stakeholder Enabling Principle.
The Principle of stakeholder Recourse
Stakeholders may bring an action against the direc- tors for failure to perform the required duty of care.
Obviously, there is more work to be done to spell out these principles in terms of model legislation. As they stand, they try to capture the intuitions that drive the liberal ideals. It is equally plain that corpor-
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ate constitutions which meet a test like the doctrine of fair contracts are meant to enable directors and executives to manage the corporation in conjunction with these same liberal ideals.
Notes 1 Cf. A. Berle and C. Means, The Modern Cor-
poration and Private Property (New York: Commerce Clearing House, 1932), 1. For a re- assessment of Berle and Means’ argument after 50 years, see Journal of Law and Economics 26 (June 1983), especially C. Stigler and C. Fried- land, “The Literature of Economics: The Case of Berle and Means,” 237-68; D. North, “Com- ment on Stigler and Friedland,” 269-72; and C. Means, “Corporate Power in the Marketplace,” 467-85.
2 The metaphor of rebuilding the ship while afloat is attributed to Neurath by W. Quine, Word and Object (Cambridge: Harvard Univer- sity Press, 1960), and W. Quine and J. Ullian, The Web of Belief (New York: Random House, 1978). The point is that to keep the ship afloat during repairs we must replace a plank with one that will do a better job. Our argument is that stakeholder capitalism can so replace the current version of managerial capitalism.
3 See R. Charan and E. Freeman, “Planning for the Business Environment of the 1980s,” The Journal of Business Strategy 1 (1980): 9-19, es- pecially p. 15 for a brief account of the major developments in products liability law.
4 See S. Breyer, Regulation and Its Reform (Cam- bridge: Harvard University Press, 1983), 133, for an analysis of food additives.
5 See I. Millstein and S. Katsh, The Limits of Cor- porate Power (New York: Macmillan, 1981), Chapter 4.
6 Cf. C. Summers, “Protecting All Employees Against Unjust Dismissal,” Harvard Business Review 58 (1980): 136, for a careful statement of the argument.
7 See E. Freeman and D. Reed, “Stockholders and Stakeholders: A New Perspective on Cor- porate Governance,” in G. Huizinga, ed., Cor- porate Governance: A Definitive Exploration of the Issues (Los Angeles: UCLA Extension Press, 1983).
8 See T. Peters and R. Waterman, In Search of Ex- cellence (New York: Harper and Row, 1982).
9 See, for instance, A. Wicks, D. Gilbert, and E. Freeman, “A Feminist Reinterpretation of the Stakeholder Concept,” Business Ethics Quarter- ly, Vol. 4, No. 4, October 1994; and E. Freeman and J. Liedtka, “Corporate Social Responsibil- ity: A Critical Approach,” Business Horizons Vol. 34, No. 4, July-August 1991, 92-98.
10 At the Toronto workshop Mark Stark sketched how a theory would look if we took the en- vironment to be a stakeholder. This fruitful line of work is one example of my main point about pluralism.
11 J. Rawls, Political Liberalism (New York: Col- umbia University Press, 1993); and R. Rorty, “The Priority of Democracy to Philosophy” in Reading Rorty: Critical Responses to Philosophy and the Mirror of Nature (and Beyond), ed. Alan R. Malachowski (Cambridge, MA: Blackwell, 1990).
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JoHn HAsnAs1
The normative Theories of Business Ethics:
A Guide for the Perplexed I. Introduction
A charge that is frequently lodged against the prac- tical utility of business ethics as a field of study con- cerns the apparent failure of communication between the theorist and the business practitioner.2 Critics of the discipline often point out that business ethicists are usually academics, and worse, philosophers, who speak in the language of abstract ethical theory. Thus, they are accused of expressing their ideas in terms of “deontological requirements,” “consequentialist considerations,” “the categorical imperative,” “rule utilitarianism,” “the hedonistic calculus,” “human flourishing” and other locutions that are essentially meaningless to the ordinary business person who possesses little or no philosophical training. Business people, it is pointed out, express themselves in ordin- ary language and tend to resist dealing in abstrac- tions. What they want to know is how to resolve the specific problems that confront them.
To the extent that this criticism is justified, it places the business ethicist on the horns of a di- lemma. Without the guidance of principles, ethical discussion is mere casuistry. Thus, general princi- ples are necessary if business ethics is to constitute a substantive normative discipline. However, if the only principles available are expressed in language unfamiliar to those who must apply them, they can have no practical effect. This suggests that the task of the business ethicist is to produce a set of ethical principles that can be both expressed in language ac- cessible to and conveniently applied by an ordinary business person who has no formal philosophical training.
The search for such principles has led to the de- velopment of several normative theories that have been specifically tailored to fit the business environ- ment; theories that, for purposes of this article, I shall refer to as the normative theories of business ethics.3 These theories attempt to derive what might be called “intermediate level” principles to mediate between the highly abstract principles of philosoph- ical ethics and the concrete ethical dilemmas that arise in the business environment. Philosophical ethics must provide human beings with guidance in all aspects of their lives. A normative theory of business ethics is an attempt to focus this general theory exclusively upon those aspects of human life that involve business relationships. By thus limiting its range of application and translating the language of philosophical ethics into the everyday language of the business world, such a theory is specifically designed to provide human beings with ethical guid- ance while they are functioning in their capacity as business people.
Currently, the three leading normative theories of business ethics are the stockholder, stakeholder, and social contract theories. These theories present distinct and incompatible accounts of a business person’s ethical obligations, and hence, at most one of them can be correct. The stockholder theory is the oldest of the three, and it would be fair to char- acterize it as out of favor with many contemporary business ethicists. To them, the stockholder theory represents a disreputable holdover from the bad old days of rampant capitalism. In contrast, the past decade and a half has seen the stakeholder theory gain such widespread adherence that it currently may be considered the conventionally-accepted pos- ition within the business ethics community.4 In re- cent years, however, the social contract theory has been cited with considerable approbation and might accurately be characterized as challenging the stake- holder theory for preeminence among normative theorists.5
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In this article, I propose to present a contrarian review of these theories. I will suggest that the stock- holder theory is neither as outdated nor as unaccept- able as it is often made to seem, and, further, that there are significant problems with both the stake- holder and the social contract theories. To do this, I propose to summarize each theory, analyze its sup- porting rationale, and canvass the chief objections against it. I will then draw a tentative conclusion regarding the adequacy of each theory. Finally, on the basis of these conclusions, I will attempt to sug- gest what the contours of a truly adequate normative theory of business ethics must be. Before turning to this, however, I feel compelled to say a word about the meaning of the phrase, “social responsibility.”
In the business setting, “social responsibility” is often employed as a synonym for a business’s or business person’s ethical obligations. This is unfortu- nate because this loose, generic use of the phrase can often obscure or prejudice the issue of what a business’s or business person’s ethical obligations truly are. To see why, one must appreciate that the phrase is also used to contrast a business’s or business person’s “social” responsibilities with its or his or her ordinary ones. A business’s or business person’s or- dinary responsibilities are to manage the business and expend business resources so as to accomplish the specific purposes for which the business was or- ganized. Thus, in the case of a business organized for charitable or socially beneficial purposes (e.g., nonprofit corporations such as the Red Cross or the Nature Conservancy and for-profit corporations in which the stockholders pass resolutions compelling charitable contributions), it is a manager’s ordinary responsibility to attempt to accomplish these goals. Even when a business is organized strictly for prof- it, it may be part of a manager’s ordinary respon- sibilities to expend business resources for socially beneficial purposes when he or she believes that such expenditures will enhance the firm’s long-term profitability (e.g., through the creation of customer goodwill). When the phrase “social responsibility” is
used in contradistinction to this, the claim that busi- nesses or business persons have social responsibilities indicates that they are obligated to expend business resources for socially beneficial purposes even when such expenditures are not designed to help the busi- ness achieve the ends for which it was organized.
When “social responsibility” in this narrow sense is conflated with “social responsibility” as a synonym for a business’s or business person’s ethical obliga- tions in general, it groundlessly implies that busi- nesses or business persons do, in fact, have ethical obligations to expend business resources in ways that do not promote the business’s fundamental purpos- es. Since not all theorists agree that this is the case, a definition that carries such an implication should be scrupulously avoided. For this reason, I intend to employ “social responsibility” to refer exclusively to those ethical obligations, if any, that businesses or business persons have to expend business resour- ces in ways that do not promote the specific pur- poses for which the business is organized. When the phrase is used in this way, it can make perfect sense to say that a business or business person has no social responsibilities. In fact, the first normative theory of business ethics that I will examine, the stockholder theory, makes precisely this claim.
II. The Stockholder Theory
The first normative theory of business ethics to be examined is the stockholder theory.6 According to this theory, businesses are merely arrangements by which one group of people, the stockholders, ad- vance capital to another group, the managers, to be used to realize specified ends and for which the stockholders receive an ownership interest in the venture.7 Under this view, managers act as agents for the stockholders. They are empowered to manage the money advanced by the stockholders, but are bound by their agency relationship to do so exclusively for the purposes delineated by their stockholder prin- cipals.8 The existence of this fiduciary relationship
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implies that managers cannot have an obligation to expend business resources in ways that have not been authorized by the stockholders regardless of any societal benefits that could be accrued by doing so. Of course, both stockholders and managers are free to spend their personal funds on any charitable or socially beneficial project they wish, but when functioning in their capacity as officers of the busi- ness, managers have a duty not to divert business re- sources away from the purposes expressly authorized by the stockholders. This implies that a business can have no social responsibilities.
Strictly speaking, the stockholder theory holds that managers are obligated to follow the (legal) directions of the stockholders, whatever these may be. Thus, if the stockholders vote that the business should not close a plant without giving its employ- ees 90 days notice, should have no dealings with a country with a racist regime, or should endow a local public library, the management would be obligated to carry out such a directive regardless of its effect on the business’s bottom line. In most cases, however, the stockholders issue no such explicit directives and purchase stock for the sole purpose of maximizing the return on their investment. When this is the pur- pose for which the stockholders have advanced their money, the managers’ fiduciary obligation requires them to apply it to this end. For this reason, the stockholder theory is often imprecisely expressed as requiring managers to maximize the financial returns of the stockholders. The most famous statement of this shorthand description of the stockholder theory has been given by Milton Friedman who ironically refers to this as a “social responsibility.” As he ex- presses it, “there is one and only one social respon- sibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud.”9
It is important to note that even in this imprecise form, the stockholder theory does not instruct man-
agers to do anything at all to increase the profitability of the business. It does not assert that managers have a moral blank check that allows them to ignore all ethical constraints in the pursuit of profits. Rather, it states that managers are obligated to pursue profit by all legal, nondeceptive means.10 Far from asserting that there are no ethical constraints on a manager’s obligation to increase profits, the stockholder theory contends that the ethical constraints society has em- bodied in its laws plus the general ethical tenet in favor of honest dealing constitute the ethical bound- aries within which managers must pursue increased profitability.11 A significant amount of the criticism that is directed against the stockholder theory results from overlooking these ethical limitations.12
For whatever reason, the stockholder theory has come to be associated with the type of utilitar- ian argument frequently advanced by free market economists.13 Thus, supporting arguments often begin with the claim that when individual actors pursue private profit in a free market, they are led by Adam Smith’s invisible hand to promote the general interest as well. It is then claimed that since, for each individual, “[b]y pursuing his own interest he fre- quently promotes that of the society more effectually than when he really intends to promote it,”14 it is both unnecessary and counterproductive to exhort businesses or business persons to act directly to pro- mote the common good. From this it is concluded that there is no justification for claiming that busi- nesses or business persons have any social respon- sibilities other than to legally and honestly maximize the profits of the firm.
Although this consequentialist argument is the one most frequently cited in support of the stock- holder theory, it must be noted that there is an- other, quite simple deontological argument for it as well. This argument is based on the observation that stockholders advance their money to business managers on the condition that it be used in accord- ance with their wishes. If the managers accept the money on this condition and then proceed to spend
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it to accomplish social goals not authorized by the stockholders, they would be violating their agree- ment and spending other people’s money without their consent, which is wrong.15
The stockholder theory has been subjected to some harsh criticism by several of the leading busi- ness ethicists working today. It has been described as an outmoded relic of corporate law that even the law itself has evolved beyond,16 as containing a “myopic view of corporate responsibility” that is unfortunately held by a significant number of business practition- ers, and, more pointedly, as “corporate Neanderthal- ism ... with morally pernicious consequences,”17 and as “not only foolish in theory, but cruel and danger- ous in practice” and misguided “from its nonsens- ically one-sided assumption of responsibility to his pathetic understanding of stockholder personality as Homo economicus.”18 For a significant number of theorists, the stockholder theory is introduced into discussion not as a serious candidate for the proper ethical standard for the business environment, but merely as a foil for other, putatively more enlight- ened normative theories.
At least part of the explanation for this harsh treatment seems to be the stockholder theory’s as- sociation with the utilitarian supporting argument described above. Few contemporary business ethi- cists have the kind of faith in the invisible hand of the market that neoclassical economists do. Most take for granted that a free market produces coercive monopolies, results in damaging externalities, and is beset by other instances of market failure such as the free rider and public goods problems, and thus cannot be relied upon to secure the common good.19 Accordingly, to the extent that it is associated with this line of economic reasoning, the stockholder theory becomes tarred with the brush of these stan- dard objections to laissez faire capitalism.
It should be pointed out, however, that it is not necessary to join the debate over the theoretical vi- ability of laissez faire to demonstrate the vulnerability of the utilitarian defense of the stockholder theory.
This is because contemporary economic conditions are so far removed from those of a true free market as to render the point essentially moot. Regardless of the adequacy of the stockholder theory in a world of ideal markets, the world in which we currently reside is one where businesses may gain competitive advan- tages by obtaining government subsidies, tax breaks, protective tariffs, and state-conferred monopoly status (e.g., utilities, the Baby Bells, cable television franchises); having health, safety or environmental regulations written so as to burden small competi- tors; and otherwise purchasing governmental favor. In such a world, it is extremely unlikely that the pursuit of private profit will truly be productive of the public good. There is ample reason to be suspi- cious of such a claim in an environment in which 65 percent of the chief executive officers of the top 200 Fortune firms come to Washington, DC at least once every two weeks.20
It is important to note that the fact that the utili- tarian argument for the stockholder theory may be seriously flawed does not mean that the theory is untenable. This is because the deontological argu- ment for the theory, which has frequently been overlooked, is, in fact, the superior argument. To the extent that it has received serious consideration, the primary objection against it seems to consist in the contention that it is not wrong to spend other people’s money without their consent as long as it is being done to promote the public interest.21 This contention is usually bolstered by the observation that this is precisely what democratic governments do all the time (at least, in theory). Since such action is presumably justified in the political realm, so the objection goes, there is no reason to think that it is not equally justified in the business realm.
There are two serious problems with this ob- jection, however. The first is that it misses the es- sential point of the argument. As stated above, this argument is deontological in character. It is based on an underlying assumption that there are certain principles of conduct that must be observed regard-
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less of the generalized benefits that must be fore- gone by doing so. One of the most fundamental of these principles states that individuals must honor the commitments they voluntarily and knowingly undertake. Hence, the essence of the argument is the claim that it is morally wrong to violate one’s freely- assumed agreement to use the stockholders’ resources only as specified even though society could be made a somewhat better place by doing so. To assert that a manager may violate his or her agreement with the stockholders whenever doing so would promote the public interest is simply to deny this claim. It is to declare that one’s duty to advance the common good overrides one’s duty to honor one’s agreements, and that the moral quality of one’s actions must ultim- ately be judged according to a utilitarian standard. While some ethicists argue that the principle of util- ity is indeed the supreme ethical principle, this is far from obviously true, and any contention that merely assumes that it is cannot serve as a compelling objec- tion to a deontological argument.
The second problem is that the objection is based on a false analogy. The assumption that demo- cratic governments are morally justified in spending taxpayers’ money without their consent to promote the general interest does not imply that businesses or business persons are justified in spending stock- holders’ money without their consent for the same reason. Consider that once the citizens have made their required contribution to governmental efforts to benefit society, all should be equally entitled to the control of their remaining assets. Should a cit- izen elect to invest them in a savings account to pro- vide for his or her children’s education or his or her old age, a banker who diverted some of these assets to other purposes, no matter how worthy, would clearly be guilty of embezzlement. For that matter, should the citizen elect to use his or her assets to purchase a new car, go on an extravagant vacation, or even take a course in business ethics, a car dealer, travel agent, or university that failed to deliver the bargained-for product in order to provide benefits to
others would be equally guilty. Why should it be any different if the citizen elects to invest in a business? At least superficially, it would appear that citizens have a right to control their after-tax assets that is not abrogated merely because they elect to purchase stock and that would be violated were business man- agers to use these assets in unauthorized ways. If this is not the case, some showing is required to demon- strate why not.
Of course, these comments in no way establish that the stockholder theory is correct. The most that they can demonstrate is that some of the objections that are frequently raised against it are ill-founded. Other, more serious objections remain to be consid- ered.22 However, they do suggest that the cavalier dismissal the stockholder theory sometimes receives is unjustified, and that, at least at present, it should continue to be considered a serious candidate for the proper normative theory of business ethics.23
III. The Stakeholder Theory
The second of the leading normative theories of busi- ness ethics is the stakeholder theory. Unfortunately, “stakeholder theory” is somewhat of a troublesome label because it is used to refer to both an empirical theory of management and a normative theory of business ethics, often without clearly distinguishing between the two.24 As an empirical theory of man- agement, the stakeholder theory holds that effective management requires the balanced consideration of and attention to the legitimate interests of all stake- holders,25 defined as anyone who has “a stake in or claim on the firm.”26 This has been interpreted in both a wide sense that includes “any group or indi- vidual who can affect or is affected by the corpora- tion,” and a more narrow sense that includes only “those groups who are vital to the survival and suc- cess of the corporation.”27 It is perhaps more familiar in its narrow sense in which the stakeholder groups are limited to stockholders, customers, employees, suppliers, management, and the local community.
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Thus, as an empirical theory, the stakeholder theory asserts that a business’s financial success can best be achieved by giving the interests of the business’s stockholders, customers, employees, suppliers, man- agement, and local community proper consideration and adopting policies which produce the optimal balance among them.28
When viewed as an empirical theory of manage- ment designed to prescribe a method for improv- ing a business’s performance, the stakeholder theory does not imply that businesses have any social re- sponsibilities. In this sense, it is perfectly consistent with the normative stockholder theory since what is being asserted is the empirical claim that the best way to enhance the stockholders’ return on their investment is to pay attention to the legitimate in- terests of all stakeholders. The essence of the stake- holder theory of management is that stakeholder management is required for managers to successfully meet their fiduciary obligation to the stockholders. For the purposes of this article, however, we are con- cerned with the stakeholder theory not as an em- pirical theory of management, but as a normative theory of business ethics.
When viewed as a normative theory, the stake- holder theory asserts that, regardless of whether stakeholder management leads to improved financial performance, managers should manage the business for the benefit of all stakeholders. It views the firm not as a mechanism for increasing the stockholders’ financial returns, but as a vehicle for coordinating stakeholder interests and sees management as having a fiduciary relationship not only to the stockholders, but to all stakeholders. According to the normative stakeholder theory, management must give equal consideration to the interests of all stakeholders29 and, when these interests conflict, manage the busi- ness so as to attain the optimal balance among them. This, of course, implies that there will be times when management is obligated to at least partially sacrifice the interests of the stockholders to those of other stakeholders. Hence, in its normative form, the
stakeholder theory does imply that businesses have true social responsibilities.
The stakeholder theory holds that management’s fundamental obligation is not to maximize the firm’s financial success, but to ensure its survival by balan- cing the conflicting claims of multiple stakeholders. This obligation is to be met by acting in accordance with two principles of stakeholder management. The first, called the principle of corporate legitim- acy, states that “the corporation should be managed for the benefit of its stakeholders: its customers, sup- pliers, owners, employees, and the local commun- ities. The rights of these groups must be ensured and, further, the groups must participate, in some sense, in decisions that substantially affect their wel- fare.”30 The second, called the stakeholder fiduciary principle, states that “management bears a fiduciary relationship to stakeholders and to the corporation as an abstract entity. It must act in the interests of the stakeholders as their agent, and it must act in the interests of the corporation to ensure the survival of the firm, safeguarding the long-term stakes of each group.”31
The stakeholder theory enjoys a considerable de- gree of approbation from both theorists and prac- titioners. In fact, it is probably fair to say that the stakeholder theory currently enjoys a breadth of ac- ceptance equal to that the stockholder theory was said to have enjoyed in the past. To some extent, this may result from the fact that the theory seems to accord well with many people’s moral intuitions, and, to some extent, it may simply be a spillover ef- fect of the high regard in which the empirical ver- sion of the stakeholder theory is held as a theory of management. It is clear, however, that the norma- tive theory’s widespread acceptance does not derive from a careful examination of the arguments that have been offered in support of it. In fact, it is often remarked that the theory seems to lack a clear nor- mative foundation.32
An argument that is frequently cited in support of the stakeholder theory is the one offered by Ed
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Freeman and William Evan in their 1988 article.33 That argument asserts that management’s obligation to the stakeholders can be derived from Immanuel Kant’s principle of respect for persons. This funda- mental ethical principle holds that every human be- ing is entitled to be treated not merely as a means to the achievement of the ends of others, but as a being valuable in his or her own right; that each per- son is entitled to be respected as an end in himself or herself. Since to respect someone as an end is to recognize that he or she is an autonomous moral agent, i.e., a being with desires of his or her own and the free will to act upon those desires, the princi- ple of respect for persons requires respect for others’ autonomy.
Freeman and Evan apply this principle to the world of business by claiming that businesses are bound to respect it as much as anyone else. Thus, businesses may not treat their stakeholders merely as means to the business’s ends, but must recognize that as moral agents, all stakeholders are entitled “to agree to and hence participate (or choose not to par- ticipate) in the decisions to be used as such.”34 They then claim that it follows from this that all stake- holders are entitled to “participate in determining the future direction of the firm in which they have a stake.”35 However, because it is impossible to consult with all of a firm’s stakeholders on every decision, this participation must be indirect. Therefore, the firm’s management has an obligation to “represent” the interests of all stakeholders in the business’s de- cision-making process. Accordingly, management is obligated to give equal consideration to the interests of all stakeholders in developing business policy and to manage the business so as to optimize the balance among these interests.
The main problem with this argument is that there is a gap in the reasoning that leads from the principle of respect for persons to the prescriptions of the stakeholder theory. It may readily be admitted that businesses are ethically bound to treat all per- sons, and hence all stakeholders, as entities worthy
of respect as ends in themselves. It may further be admitted that this requires businesses to treat their stakeholders as autonomous moral agents, and hence, that stakeholders are indeed entitled “to agree to and hence participate (or choose not to participate) in the decisions to be used”36 as means to business ends. The problem is that this implies only that no stakeholder may be forced to deal with the business without his or her consent, not that all stakeholders are entitled to a say in the business’s decision-mak- ing process or that the business must be managed for their benefit.
It is certainly true that respect for the auton- omy of others requires that one keep one’s word. To deceive someone into doing something he or she would not otherwise agree to do would be to use him or her merely as a means to one’s own ends. For this reason, the principle of respect for persons requires businesses to deal honestly with all of their stakeholders. This means that businesses must honor the contracts they enter into with their customers, employees, suppliers, managers, and stockholders and live up to any representations they freely make to the local community. However, it is simply in- correct to say that respect for another’s autonomy requires that the other have a say in any decision that affects his or her interests. A student’s interests may be crucially affected by what grade he or she receives in a course as may a Republican’s by the decision of whom the Democrats nominate for President. But the autonomy of neither the student nor the Repub- lican is violated when he or she is denied a say in these decisions.
An adherent of the stockholder theory could point out that employees (including managers), suppliers, and customers negotiate for and autono- mously accept wage and benefit packages, purchas- ing arrangements, and sales contracts, respectively. It does not violate their autonomy or treat them with a lack of the respect they are due as persons to fail to provide them with benefits in excess of those they freely accept. However, if managers were
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to break their agreement with the stockholders to use business resources only as authorized in order to provide other stakeholders with such benefits, the managers would be violating the autonomy of the stockholders. Therefore, the stockholder theor- ist could contend that not only is the stakeholder theory not entailed by the principle of respect for persons, but to the extent that it instructs managers to use the stockholders’ money in ways they have not approved, it is, in fact, violative of it.
Perhaps because of the problems with this argu- ment, efforts have recently been made to provide a more adequate normative justification for the stake- holder theory. Indeed, Freeman and Evan have them- selves offered an alternative argument that claims that changes in corporate law imply that businesses consist in sets of multilateral contracts among stake- holders that must be administered by managers.37 Asserting that “all parties that are affected by a con- tract have a right to bargain about the distribution of those effects,”38 they then apply a Rawlsian “veil of ignorance” decision procedure to deduce that “fair contracting” requires that all stakeholders be entitled to “participate in monitoring the actual effects of the firm on them,”39 i.e., have a say in the business’s de- cision-making process.
Unfortunately, this argument seems to have even more problems than the one it replaces. In the first place, Rawls’ decision procedure was specific- ally designed to guide the construction of the basic structure of society and it is at least open to question whether it may be appropriately employed in the highly specific context of business governance issues. Further, deriving ethical conclusions from observa- tions of the state of the law comes dangerously close to the classic fallacy of assuming that what is legal- ly required must be ethically correct. More signifi- cantly, however, this new argument seems to suffer from the same defect as its predecessor since the as- sumption that all parties that are affected by a con- tract have a right to bargain about the distribution of those effects is virtually equivalent to the earlier
argument’s problematic assumption that all parties affected by a business’s actions have a right to partici- pate in the business’s decision-making process. As in the earlier argument, this is the assertion that must be established, not assumed.40
Another recent attempt at justification has been undertaken by Donaldson and Preston who claim to base the stakeholder theory on a theory of property. After asserting that the stockholder theory is “nor- matively unacceptable,”41 they contend that because 1) property rights must be based on an underlying principle of distributive justice, 2) among theorists, “the trend is toward theories that are pluralistic, al- lowing more than one fundamental principle to play a role,” and 3) “all critical characteristics underlying the classic theories of distributive justice are pres- ent among the stakeholders of a corporation,” it fol- lows that “the normative principles that underlie the contemporary theory of property rights also provide the foundation for the stakeholder theory as well.”42 However, because the authors have failed to provide any specification for what “the contemporary theory of property rights” is, this can be regarded as, at best, a preliminary sketch rather than a fully developed justificatory argument. Further, because premise 1 is open to serious question,43 premise 2 seems to con- fuse academic opinion with evidence of truth, and premise 3 seems, at first glance, to be wholly uncon- nected to the conclusion, much work remains to be done before this argument can serve as an adequate basis for the stakeholder theory.
In sum, the lacunae in each of these supporting arguments suggest that, despite its widespread ac- ceptance, the normative version of the stakeholder theory is simply not well-grounded. At this point, its adequacy as a normative theory of business ethics must be regarded as open to serious question.44
IV. The Social Contract Theory
The third normative theory of business ethics, the social contract theory, really comprises a family of
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closely related theories and, in some ways, is still in the process of formation.45 However, in its most widely accepted form, the social contract theory as- serts that all businesses are ethically obligated to en- hance the welfare of society by satisfying consumer and employee interests without violating any of the general canons of justice.46 Because the specific na- ture of this obligation can best be appreciated in the context of the theory’s derivation, let us turn our attention immediately to the theory’s supporting rationale.
The social contract theory is based on the trad- itional concept of a social contract, an implicit agreement between society and an artificial entity in which society recognizes the existence of the entity on the condition that it serves the interests of society in certain specified ways. As a normative theory of business ethics, the social contract theory is explicit- ly modeled on the political social contract theories of thinkers such as Thomas Hobbes, John Locke, and Jean-Jacques Rousseau. These political theorists each attempted to imagine what life would be like in the absence of a government, i.e., in the “state of nature,” and asked what conditions would have to be met for citizens to agree to form one. The obli- gations of the government toward its citizens were then derived from the terms of this agreement.
The normative social contract theory of busi- ness ethics takes much the same approach toward deriving the social responsibilities of businesses. It begins by imagining a society in which there are no complex business organizations, i.e., a state of “in- dividual production,” and proceeds by asking what conditions would have to be met for the members of such a society to agree to allow businesses to be formed. The ethical obligations of businesses toward the individual members of society are then derived from the terms of this agreement. Thus, the social contract theory posits an implicit contract between the members of society and businesses in which the members of society grant businesses the right to exist in return for certain specified benefits.
In granting businesses the right to exist, the members of society give them legal recognition as single agents and authorize them to own and use land and natural resources and to hire the members of society as employees.47 The question then be- comes what the members of society would demand in return. The minimum would seem to be “that the benefits from authorizing the existence of product- ive organizations outweigh the detriments of doing so.”48 In general, this would mean that businesses would be required to “enhance the welfare of society ... in a way which relies on exploiting corporations’ special advantages and minimizing disadvantages”49 while remaining “within the bounds of the general canons of justice.”50
This generalization may be thought of as giving rise to a social contract with two terms: the social welfare term and the justice term. The social wel- fare term recognizes that the members of society will be willing to authorize the existence of busi- nesses only if they gain by doing so. Further, there are two distinct capacities in which the members of society stand to gain from businesses: as consumers and as employees. As consumers, people can bene- fit from the existence of businesses in at least three ways. First, businesses provide increased economic efficiency by maximizing the advantages of special- ization, improving decisionmaking resources, and increasing the capacity to use and acquire expensive technology and resources. Second, businesses pro- vide stable levels of output and channels of distri- bution. And third, they provide increased liability resources from which to compensate injured con- sumers. As employees, people can benefit from the existence of businesses by receiving increased income potential, diffused personal legal liability for harm- ful errors, and the ability to participate in “income- allocation schemes ... detached from the vicissitudes of [their] capacity to produce.”51 However, busi- nesses can also have negative effects on consumers and employees. People’s interests as consumers can be harmed when businesses pollute the environment
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and deplete natural resources, undermine the per- sonal accountability of their constituent members, and misuse political power. People’s interests as em- ployees can be harmed when they are alienated from the product of their labor, suffer from lack of con- trol over their working conditions, and are subjected to monotonous and dehumanizing working condi- tions. These, then, constitute the respective advan- tages and disadvantages that businesses can provide to and impose upon society. Therefore, when fully specified, the social welfare term of the social con- tract requires that businesses act so as to 1) benefit consumers by increasing economic efficiency, stabil- izing levels of output and channels of distribution, and increasing liability resources; 2) benefit employ- ees by increasing their income potential, diffusing their personal liability, and facilitating their income allocation; while 3) minimizing pollution and deple- tion of natural resources, the destruction of personal accountability, the misuse of political power, as well as worker alienation, lack of control over working conditions, and dehumanization.
The justice term recognizes that the members of society will be willing to authorize the existence of businesses only if businesses agree to remain within the bounds of the general canons of justice. Admit- tedly, precisely what these canons require is far from settled. However, since there seems to be general agreement that the least they require is that busi- nesses “avoid fraud and deception, ... show respect for their workers as human beings, and ... avoid any practice that systematically worsens the situation of a given group in society,”52 it is reasonable to read the justice term as requiring at least this much.
In general, then, the social contract theory holds that managers are ethically obligated to abide by both the social welfare and justice terms of the social contract. Clearly, when fully specified, these terms impose significant social responsibilities on the man- agers of business enterprises.
The social contract theory is often criticized on the ground that the “social contract” is not a contract
at all. To appreciate the nature of this criticism, let us borrow some terminology from the legal realm. The law recognizes three types of contracts: express contracts, implied contracts, and quasi-contracts. An express contract consists in an explicit agree- ment made in speech or writing. In this case, there is a true meeting of the minds of the parties that is expressly memorialized through language. An im- plied contract consists in an agreement that is mani- fested in some other way. For example, continuing to deal with another party under the terms of an expired contract can imply an agreement to renew or, perhaps more familiarly, failing to return an in- voice marked “cancel” following a trial membership can imply a contract to buy four books in the next twelve months. As with express contracts, in such cases, there is a true meeting of the minds. However, in implied contracts, that agreement is manifested through action rather than language. A quasi-con- tract, on the other hand, consists in the legal impos- ition of a contractual relationship where there has been no meeting of the minds because such is neces- sary to avoid injustice. For example, a doctor who expends resources aiding an unconscious patient in an emergency situation is said to have a quasi- contract for reasonable compensation even though there was no antecedent agreement between the par- ties. In quasi-contracts, the law acts as though there has been a meeting of the minds where none in fact exists in order to do justice.
Critics of the social contract theory point out that the social contract is neither an express nor an implied contract. This is because there has been no true meeting of the minds between those who decide to form businesses and the members of the society in which they do so. Most people who start busi- nesses do so by simply following the steps prescribed by state law and would be quite surprised to learn that by doing so they had contractually agreed to serve society’s interests in ways that were not speci- fied in the law and that can significantly reduce the profitability of the newly formed firm.53 To enter a
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contractual arrangement, whether expressly or by implication, one has to at least be aware that one is doing so. Thus, the critics maintain that the social contract must be a quasi-contract, which is merely a fiction rather than a true contract.
This objection is not very distressing to social contract theorists, however. They freely admit that the social contract is a fictional or hypothetical con- tract, but go on to claim that this is precisely what is required to identify managers’ ethical obligations. As Thomas Donaldson has put it, “if the contract were something other than a ‘fiction,’ it would be inad- equate for the purpose at hand: namely revealing the moral foundations of productive organizations.”54 What the social contract theorists are admitting here is that the moral force of the social contract is not derived from the consent of the parties. Rather, they are advancing a moral theory that holds that “[p]roductive organizations should behave as if they had struck a deal, the kind of deal that would be acceptable to free, informed parties acting from pos- itions of equal moral authority ...”55
This seems perfectly adequate as a response to the objection. It does suggest, however, that much of the psychological appeal of the social contract theory is based on a confusion. This is because a great deal of the theory’s appeal to ordinary (philosophically untrained) business practitioners derives from their natural, intuitive identification of contract terminol- ogy with consent. To the extent that the language of contract suggests that one has given consent, it has a strong emotive force. People generally accept con- sent as a source of moral obligation, and this is es- pecially true of the business practitioner who makes contracts every day and whose success or failure often turns on his or her reputation for upholding them. Most people would agree that when one vol- untarily gives one’s word, one is ethically bound to keep it. Thus, business practitioners as well as people generally are psychologically more willing to accept obligations when they believe they have consented to them. By employing contract terminology when
consent plays no role in grounding the posited so- cial responsibilities of business, the social contract theory inappropriately benefits from the positive psychological attitude that this terminology engen- ders. For this reason, it is not unreasonable to sug- gest that the social contract theory trades upon the layperson’s favorable attitude toward consent with no intention of delivering the goods.
This, of course, casts no aspersions on the theory’s philosophical adequacy. However, the ad- mission that the social contract is actually a quasi- contract does provide good reason to believe that the social contract theory has not been adequately supported. Once consent has been abandoned as the basis for the posited social responsibilities, the ac- ceptability of the social contract theory rests squarely on the adequacy of the moral theory that undergirds it. This theory asserts that justice requires businesses and business managers to behave as though they had struck a deal “that would be acceptable to free, in- formed parties acting from positions of equal moral authority.”56 This may be correct, but it is not pat- ently so. It is far from obvious that justice demands that managers behave as if they had made an agree- ment with hypothetical people, especially when do- ing so would violate real-world agreements made with actual people (e.g., the company’s stockhold- ers). It seems equally reasonable to assert that justice demands only that managers abide by the will of the people as it has been expressed by their political rep- resentatives in the commercial law of the state, or perhaps merely that they deal honestly with all par- ties and refrain from taking any illegal or harmful ac- tions. Until the theory of justice on which the social contract theory rests has been fully articulated and defended, there is simply no reason to prefer it to any other putative normative theory of business eth- ics.57 At present, therefore, this version of the social contract theory cannot be regarded as established.
There is, however, another version of the so- cial contract theory that is genuinely consent-based and thus cannot be criticized on this ground.58 This
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version asserts that the business enterprise is char- acterized by a myriad of “extant social contracts,” in- formal agreements that embody “actual behavioral norms which derive from shared goals, beliefs and attitudes of groups or communities of people.”59 These extant social contracts are not quasi-contracts, but true agreements which, although sometimes ex- press, are usually “implied from [sic] certain charac- teristics, attitudes and patterns of the group”60 and “represent the view of the community concerning what constitutes proper behavior within the con- fines of the community.”61 According to this version of the theory, whenever the extant social contracts pass a “filtering test,” i.e., are found not to be viola- tive of the tenets of general ethical theory, they give rise to “genuine ethical norms” that managers are ethically obligated to obey.
There is nothing patently objectionable about this version of the social contract theory. However, it is so underdeveloped that it is difficult to know what to make of it. For example, it is not clear whether the theory contains an implicit norm against enter- ing into social contracts that give rise to incompat- ible obligations or are incompatible with obligations that arise from one’s earlier voluntary agreements. If it does, the theory seems to collapse into the stock- holder theory which instructs managers to deal hon- estly with others and honor all agreements that do not violate their antecedent voluntary agreement to use the stockholders’ resources only as authorized. If it does not, it seems to prescribe a host of incompat- ible obligations.62 Furthermore, because the filter- ing test has not been specified, this version of the social contract theory reduces to the claim that one is obligated to abide by the informal agreements one has entered into as long as doing so is ethically ac- ceptable. Although this does not say nothing, it says very little. For example, if the filtering test places pri- macy on a deontological obligation to honor one’s agreements, the theory becomes coextensive with the stockholder theory and implies that businesses have no social responsibilities. However, if it places
primacy on the principle of utility, the theory may produce a set of social responsibilities very much like that prescribed by the stakeholder theory. Finally, if it prescribes a general obligation to behave as though one had made an agreement with perfectly rational, self-interested, free and equal hypothetical people, the theory might produce a set of social responsibil- ities equivalent to those prescribed by the earlier ver- sion of the social contract theory. As this diversity of outcome suggests, in its present skeletal form, this version of the social contract theory is, at best, of limited usefulness.63
V. Conclusion
In this article, I have subjected each of the three leading normative theories of business ethics to crit- ical examination. I have argued that the stockholder theory is not as obviously flawed as it is sometimes supposed to be and that several of the objections conventionally raised against it are misdirected. I have also suggested that the deontological argument in support of the stockholder theory is not obviously unsound, although I have admittedly not subjected this argument to the scrutiny that would be neces- sary to establish its soundness. Further, I have argued that the supporting arguments for the stakeholder theory are significantly flawed and that the social contract theory either has not been adequately sup- ported or is too underdeveloped to be useful. Thus, I have suggested that the amount of confidence that is currently placed in the stakeholder theory and is coming to be placed in the social contract theory is not well founded.
Although it may appear surprising given these conclusions, I do not view this article as a brief for the stockholder theory. Rather, I view it as a compass that can point us in the direction of a truly adequate normative theory of business ethics. I should add, however, that I also believe it points to a serious dif- ficulty that must be overcome in order to arrive at any such theory.
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To see what I mean, I would ask you to consider that all three normative theories share a common feature; they all either explicitly or implicitly recog- nize the preeminent moral value of individual con- sent. The stockholder theory is explicitly based on consent. The ethical obligations it posits are claimed to derive directly from the voluntary agreement each business officer makes on accepting his or her pos- ition to use the stockholders’ resources strictly in accordance with their wishes. Similarly, the stake- holder theory is at least implicitly based on consent. The ethical obligation it places on business officers to manage the firm in the interest of all stakehold- ers is supposed to derive from the claim that every stakeholder is entitled to a say in decisions that affect his or her interests, which itself contains the implicit recognition of each individual’s right to control his or her own destiny.64 Finally, consent resides at the heart of the social contract theory as well. This is clear with regard to the extant social contract variant of the theory in which the manager’s ethical obliga- tions are explicitly based on consent. However, even the hypothetical social contract variant indirectly recognizes the moral significance of consent. For al- though it derives managers’ ethical obligations from a depersonalized, morally sanitized, hypothetical form of consent, there would be no reason to cast the theory in terms of a contract at all if consent were not recognized as a fundamental source of eth- ical obligation.
The fact that all three normative theories of busi- ness ethics rely on the moral force of individual consent should come as no surprise given a proper understanding of what a business is, i.e., “a volun- tary association of individuals, united by a network of contracts”65 organized to achieve a specified end.66 Because businesses consist in nothing more than a multitude of voluntary agreements among individ- uals, it is entirely natural that the ethical obligations of the parties to these agreements, including those of the managers of the business, should derive from the individual consent of each. Clearly, any attempt to
provide a general account of the ethical obligations of businesses and business people must ultimately rely on the moral force of the individual’s freely- given consent.67
Recognizing this tells us much about what an adequate normative theory of business ethics must look like. If businesses are merely voluntary associa- tions of individuals, then the ethical obligations of business people will be the ethical obligations indi- viduals incur by joining voluntary associations, i.e., the ordinary ethical obligations each has as a human being plus those each has voluntarily assumed by agreement. Just as individuals do not take on ethical obligations beyond those they agree to by joining a chess club, a political party, or a business school faculty, so too individuals do not become burdened with unagreed upon obligations by going into or joining a business. There is no point in time at which the collection of individuals that constitutes a business is magically transformed into a new, separ- ate and distinct entity that is endowed with rights or laden with obligations not possessed by the individ- ual human beings that comprise it.
This implies that an adequate normative theory of business ethics must capture the ethical obliga- tions generated when an individual voluntarily en- ters the complex web of contractual agreements that constitutes a business. Of the three theories I have examined, the stockholder theory comes closest to achieving this because it focuses on the actual agree- ment that exists between the stockholders and man- agers. It is woefully incomplete, however, because it 1) does not adequately address the limits managers’ ordinary ethical obligations as human beings place on the actions they may take in the business environ- ment, and 2) entirely fails to address the managerial obligations that arise out of the actual agreements made with the non-stockholder participants in the business enterprise.68 Of course, recognizing these deficiencies of the stockholder theory also highlights the essential difficulty in constructing a satisfactory normative theory of business ethics; the need to gen-
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eralize across the myriad of individual contractual agreements that are the constituent elements of the business.
Can an adequate consent-based normative theory of business ethics be devised? Can the eth- ical obligations arising from the agreements that characterize the typical business as well as those that individuals carry with them when they enter the business venture be captured in a manageable set of principles expressed in language accessible to the ordinary business person? Considering the dif- fering nature of the relationships and agreements involved in a business of any complexity, devising such a set of principles may appear to be a daunt- ing, if not hopeless, task.69 Nevertheless, I believe the present survey indicates that this is a challenge that must be undertaken if a supportable normative theory of business ethics is to be devised. Undertak- ing this challenge, however, must remain the pro- ject of another day.70
Notes 1 J.D., Ph.D., Philosophy, Duke University,
LL.M. Temple University School of Law.This paper has greatly benefitted from the thought- ful comments and suggestions of Thomas Don- aldson, Dennis Quinn, and Tom Beauchamp of Georgetown University, Thomas Dunfee of the Wharton School, Thomas Jones of the University of Washington, Ian Maitland of the University of Minnesota, Jeff Nesteruk of Franklin & Marshall College, Douglas Den Uyl of Bellarmine College, Patricia Werhane of the Darden Graduate School of Business Administration, Ann C. Tunstall, and my an- onymous reviewers. I am sincerely grateful to each of them for their assistance. An earlier ver- sion of this article was presented as part of the John F. Connelly Business Ethics Seminar Ser- ies at Georgetown University.
2 For a famous example of this, see Andrew Stark, “What’s the Matter with Business Ethics?”
Harvard Business Review Vol. 71 (1993): 38. See also Thomas Donaldson and Thomas W. Dunfee, “Integrative Social Contracts Theory: A Communitarian Conception of Business Ethics,” Economics and Philosophy Vol. 11 (1995): 85, 87.
3 I am employing this phrase in an effort to avoid the confusion engendered by referring to strict- ly normative theories as “theories of corporate social responsibility.” The latter phrase has been used to refer to not only normative theories, which attempt to identify the philosophically verifiable ethical obligations of businesses and business persons, but also to theories that are either purely or partially descriptive or instru- mental in nature, such as those that focus on businesses’ or business person’s responsiveness to societal expectations or demands. Indeed, historically speaking, the concept of corporate social responsibility arose as a response to an increasing level of criticism of the business sys- tem in general and the power and privilege of large corporations in particular, see Thomas M. Jones. “Corporate Social Responsibility: Re- visited, Redefined,” California Business Review Vol. 22 (1980): 59, and, to some extent, as a reaction against the stockholder theory, one of the normative theories to be examined in the body of this article. As a result, the theories of corporate social responsibility should probably be seen as a genus of which what I am calling the normative theories of business ethics are a species.
4 Evidence for this may be found not only in the inordinately large percentage of business eth- ics journal articles that discuss the stakeholder theory favorably, but in the increasing number of textbooks that are being written from the stakeholder perspective. See, e.g., Ronald M. Green, The Ethical Manager (1994), Joseph W. Weiss, Business Ethics: A Managerial, Stakehold- er Approach (1994), Archie B. Carroll, Business
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and Society: Ethics and Stakeholder Management (1996).
5 Consider, for example, the recent special issue of Business Ethics Quarterly devoted to the so- cial contract theory. Business Ethics Quarterly Vol. 5 (Thomas W. Dunfee, ed., 1995): 167.
6 In this article, I intentionally speak in terms of “the stockholder theory” rather than “agency theory” to emphasize that I am discussing a normative theory. “Agency theory” seems to be used ambiguously to refer to both the attempt to produce an empirical description of the re- lationship between managers and stockholders and the normative implications that would flow from such a relationship. See Norman E. Bowie and R. Edward Freeman, “Ethics and Agency Theory: An Introduction,” in Ethics and Agency Theory (Norman E. Bowie and R. Edward Free- man, eds., 1992), 3-4. In order to avoid this ambiguity in the present context, I employ the label “stockholder theory” to indicate that I am referring strictly to a theory of how businesses or business people should behave.
7 Historically, the normative theories of business ethics grew out of the literature on corporate social responsibility. As a result, they are often expressed as though they apply only to corpor- ations rather than to businesses generally. This is certainly the case with regard to the stock- holder theory. To be adequate, however, a nor- mative theory of business ethics should apply to businesses of all types.
For ease of expression, I intend to follow the convention and employ the terminology of the corporate form in my representation of the theories. However, I will attempt to show how each of the theories may be generalized to apply to other forms of business as well. See infra notes 24, 45, 64.
8 I wish to emphasize again that the stockhold- er theory is a normative and not a descriptive theory. As such, it asserts not that managers are,
in fact, the agents of the stockholders, but that they are ethically obligated to act as though they were.
9 Milton Friedman, Capitalism and Freedom (1962), 133. I should point out that Fried- man does not always describe the constraints on the pursuit of profit this precisely. Often, he merely states that businesses should “make as much money as possible while conforming to the basic rules of society, both those embodied in law and those embodied in ethical custom.” Milton Friedman, “The Social Responsibility of Business is to Increase Its Profits,” New York Times Magazine, September 13, 1970 [above, pp. 65–68]. Of course, when stated this broad- ly, Friedman’s injunction becomes a triviality asserting nothing more than that one should pursue profits ethically. Although this has been the source of much criticism of Friedman’s par- ticular expression of the stockholder theory, it need not concern us in the present context. The more specific statement given in the text does define a substantive position worthy of serious consideration, and so, that is the formulation that will be used in this article.
10 The additional restriction of Friedman’s formu- lation that requires managers to engage solely in open and free competition is usually ignored. In today’s regulatory environment, it is not re- garded as unethical to lobby the government for favor. In many cases, such activities are ne- cessary as a matter of corporate self-defense.
11 It may be accurate to characterize the stock- holder theory as proposing an “ethical division of labor.” According to the stockholder theory, the nature of the business environment itself imposes a basic duty of honest dealing on busi- ness people. However, the theory also claims that for there to be any more extensive restric- tions on managers, it is the job of society as a whole to impose them through the legislative process.
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It is, of course, true that this approach defines managers’ ethical obligations partially in terms of their legal obligations and implies that their ethical obligations will change as the legislation that defines and regulates the business environ- ment changes. This, in turn, implies that the stockholder theory is not self-sufficient, but is dependent upon the political theory (which de- limits the scope of the state’s power to legislate) within which it is embedded. This dependence does not render the theory unintelligible, how- ever. At any particular point in time, the theory can be understood as asserting that a business or business person must refrain from engaging in deceptive practices and violating the laws of the land as they exist at that time.
12 It must be kept in mind at all times that the version of the stockholder theory that asserts that the manager is ethically obliged to increase the company’s profits is true only for those for- profit companies in which it is reasonable to interpret the stockholders wishes as the maxi- mization of profit. Whenever the stockholders have indicated that they wish their resources to be used for other purposes, the stockholder theory requires managers to attempt to fulfill those purposes, even if doing so comes at the expense of profits.
13 See, e.g., Dennis P. Quinn and Thomas M. Jones, “An Agent Morality View of Business Policy,” Academy of Management Review Vol. 20 (1995): 22, 24; William M. Evan and R. Edward Freeman, “A Stakeholder Theory of the Modern Corporation: Kantian Capitalism,” in Ethical Theory and Business (Tom L. Beau- champ and Norman E. Bowie, eds., 4th ed., 1993), 75, 77.
14 Adam Smith, The Wealth of Nations, bk. IV, ch. 2, para. 9.
15 This argument can be expressed in more philo- sophically sophisticated language by stating that one who breaches an agreement that in-
duced another to deal with him or her is treat- ing the other merely as a means to his or her own ends, and is thus violating the Kantian principle of respect for persons.
It is useful to note that Friedman himself of- fers this deontological argument in support of the stockholder theory, not the utilitarian argu- ment described previously. See Milton Fried- man, “The Social Responsibility of Business is to Increase Its Profits,” supra note 10. See also Friedman, Capitalism and Freedom, supra note 10, at 135.
16 See Evan and Freeman, supra note 14, at 76- 77; Thomas Donaldson and Lee E. Preston, “The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications,” Acad- emy of Management Review Vol. 20 (1995): 65, 81-82.
17 Thomas Donaldson, The Ethics of International Business (1989), 45.
18 Robert C. Solomon, Ethics and Excellence (1992), 45.
19 Evan and Freeman, supra note 14, at 77-78. 20 See James D. Gwartney and Richard E. Wag-
ner, “Public Choice and the Conduct of Rep- resentative Government,” in Public Choice and Constitutional Economics (James D. Gwartney and Richard E. Wagner, eds., 1988), 3, 23.
21 This highly telescoped formulation of what is, in truth, a considerably more sophisticated consequentialist argument is employed strictly in the interest of conciseness. The fuller articu- lation it deserves must await a more detailed consideration of the stockholder theory than the present overview of the normative theories of business ethics permits.
22 For two examples, see infra p. 35. 23 As mentioned previously, see supra note 8, be-
cause of its historical association with debate over corporate social responsibility, the stockholder theory is expressed in language that suggests the corporate form, e.g., stock, stockholders. De-
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spite this, the stockholder theory can be applied to all forms of business. In its generalized form, the theory would simply state that managers are ethically obligated to use business resources that have been advanced to them under condi- tion that they be used for specified purposes to accomplish only those purposes. Thus, whether the managers are officers of a public corporation funded by stockholders, managing partners of a limited partnership funded by the limited part- ners, or sole proprietors funded by investors, they are obligated to use the business’s resources in accordance with the agreements they entered into with the stockholders, limited partners, or investors.
24 Unlike “agency theory,” however, the phrase “stakeholder theory” cannot be avoided.
Various attempts have been made to clari- fy the distinction between the normative and non-normative variants of the stakeholder theory. For example, Kenneth Goodpaster dis- tinguishes non-normative “strategic stakehold- er synthesis” from normative “multi-fiduciary stakeholder synthesis.” Kenneth E. Goodpaster, “Business Ethics and Stakeholder Analysis,” Business Ethics Quarterly Vol. 1 (1991): 53. Re- cently, Thomas Donaldson and Lee Preston have further clarified the situation by identify- ing and distinguishing three different “types” of stakeholder theory; descriptive/empirical, instrumental, and normative. See Donaldson and Preston, supra note 17, at 69-73.
For purposes of simplicity and because in this article I will not be commenting on the distinction between the descriptive/empirical and instrumental versions of the theory, I will employ the term “empirical” in a generic sense to refer to the non-normative versions of the stakeholder theory.
25 See R.E. Freeman, Strategic Management: A Stakeholder Approach (1984); Donaldson and Preston, supra note 17, at 71.
26 See Evan and Freeman, supra note 14, at 76. 27 Id. at 79. See also E. Freeman and D. Reed,
“Stockholders and Stakeholders: A New Per- spective on Corporate Governance,” in Corpor- ate Governance: A Definitive Exploration of the Issues (C. Huizinga, ed., 1983).
28 This corresponds to Goodpaster’s strategic stakeholder synthesis and Donaldson and Pres- ton’s instrumental stakeholder theory. See supra note 25.
29 In stating that management must give equal consideration to the interests of all stakeholders, I am not ignoring the work being done to dis- tinguish among different classes of stakeholders. See, e.g., Max B.E. Clarkson, “A Stakeholder Framework for Analyzing and Evaluating Cor- porate Social Performance,” Academy of Man- agement Review Vol. 20 (1995): 92, 105-08. On this point, it is essential to distinguish between the stakeholder theory as a normative theory of business ethics on the one hand and as either a theory of corporate social responsibility or a theory of management on the other. See supra note 4 and the material immediately preced- ing this note. For purposes of either evalu- ating a business’s responsiveness to societal demands or describing effective management techniques, it can make perfect sense to distin- guish among different classes of stakeholders. However, given the arguments that have been provided in support of the stakeholder theory as a normative theory of business ethics (to be discussed below), it can not. The logic of these arguments, whether Kantian, Rawlsian, or de- rived from property rights, makes no allow- ance for stakeholders of differing moral status. Each implies that all stakeholders are entitled to equal moral consideration. In my opinion, this represents a major difference between the normative and non-normative versions of the stakeholder theory, and one that is likely to generate confusion if not carefully attended to.
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30 Evan and Freeman, supra note 14, at 82. 31 Id. Clearly, this is Goodpaster’s multi-fiduciary
stakeholder synthesis. See supra note 25. This feature of the normative stakeholder
theory immediately gives rise to the objection that it is based on an oxymoron. Given the meaning of the word “fiduciary,” it is impossible to have a fiduciary relationship to several par- ties who, like the stakeholders of a corporation, have potentially conflicting interests. Further, even if this did make sense, placing oneself in such a position would appear to be unethical. For example, an attorney who represented two parties with conflicting interests would clearly be guilty of a violation of the canon of ethics.
This objection clearly deserves a fuller treat- ment than it can be given in a footnote. How- ever, because the purpose of the present work is limited to the critical examination of the argu- ments offered in support of the three main nor- mative theories of business ethics, an attempt to fully evaluate the theories’ adequacy would clearly be beyond its scope. Hence, a more de- tailed examination of this objection must be deferred until a later time.
32 See, e.g., Donaldson and Preston, supra note 17, at 72, who point out that in most of the stake- holder literature “the fundamental normative principles involved are often unexamined.”
33 Evan and Freeman, supra note 14. This was not the earliest attempt to provide a norma- tive grounding for the stakeholder theory. See, e.g., Thomas M. Jones and Leonard D. Goldberg, “Governing the Large Corporation: More Arguments for Public Directors,” Acad- emy of Management Review Vol. 7 (1982): 603. However, it does appear to be the first effort to derive the stakeholder theory directly from a widely accepted principle of philosophical ethics. This apparently accounts for the wide- spread attention it has commanded among the commentators.
34 Evan and Freeman, supra note 14. 35 Id. at 76. 36 Id. at 78. 37 R. Edward Freeman and William Evan, “Cor-
porate Governance: A Stakeholder Interpreta- tion,” Journal of Behavioral Economics Vol. 19 (1990): 337.
38 Id. at 352. 39 Id. at 353. 40 The unsupported and counter-intuitive as-
sumption that people are ethically entitled to a say in any decision which affects their inter- ests appears to lie at the heart of most attempts to ground the stakeholder theory, and can be found even in those that predate the ones pres- ently under consideration. For an early example of this, consider Jones and Goldberg’s 1982 as- sertion that “if legitimacy centers on the con- sent of the governed, the legitimacy of corporate decisions made by managers would hinge on the willingness of people affected by these deci- sions to recognize the right of the managers to make them. Because several groups are affected by managerial decisions, legitimacy depends on acceptance of this authority by several types of ‘stake holders.’” Jones and Goldberg, supra note 34, at 606 (emphasis added).
41 Donaldson and Preston, supra note 17, at 82. The rationale underlying this claim is, at best, somewhat murky. The sentence which immedi- ately follows it is: “Changes in state incorpora- tion laws to reflect a ‘constituency’ perspective have already been mentioned.” Id. Professor Donaldson has assured me that this is not in- tended as an appeal to the ethical authority of the law, but rather to the normative reasons behind the change in the law as indicated by the article’s next sentence: “The normative basis for these changes in current mainstream legal thinking is articulated in the recent American Law Institute report, Principles of Corporate Governance (1992).” Id. However, the sections
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of the ALI report that the authors cite state nothing more than that corporate officials are legally permitted to take ethical considerations into account even where doing so would not enhance corporate profit or shareholder gain and that they are “subject to the same ethical considerations as other members of society.” Id. This, however, is wholly consistent with the stockholder theory which asserts that corpor- ate managers are not only legally permitted, but ethically required to restrict the means by which they seek to carry out the instructions of their stockholder principals to those which fall within the ethical boundaries set by the law and the principles of honest dealing and open and free competition. The ALI report is in- deed inconsistent with the claim that corporate managers should pursue profit by any means without regard to legal or ethical constraints. It hardly needs repeating, however, that this is not the claim made by the stockholder theory, but that of the straw man the theory’s oppon- ents trot out to stand in its stead. At any rate, it is entirely unclear how the comments cited by Donaldson and Preston provide any support for the assertion that the stockholder theory is normatively unacceptable.
42 Donaldson and Preston, supra note 17, at 82-84.
43 Philosophers such as Robert Nozick would not accept this contention nor would anyone who argues from a classical liberal perspective. Fur- ther, as a matter of purely historical fact, the assertion is clearly false.
44 Like the other theories, the stakeholder theory is expressed in language suggesting the corporate form. However, the theory is clearly perfectly general. Whether the business concerned is a corporation, partnership, or sole proprietorship, the business’s stakeholders, those who are vital to its survival and success, can be identified. The stakeholder theory requires the managers
to manage the business for the benefit of these stakeholders, regardless of the business’s form.
45 Professors Thomas Donaldson and Thomas Dunfee have recently introduced a complex and highly sophisticated version of social con- tract theory that they call Integrative Social Contracts Theory (ISCT). See Thomas Don- aldson and Thomas W. Dunfee, “Toward a Unified Conception of Business Ethics: Inte- grative Social Contracts Theory,” Academy of Management Review Vol. 19 (1994): 252. The authors are presently in the process of develop- ing a book length exposition of this theory. Al- though this theory is beyond the scope of the present work and hence will not be directly ad- dressed, it should be noted that ISCT consti- tutes an attempt to marry the individual social contract theories of Donaldson and Dunfee, both of which are addressed. Therefore, to some extent, the comments made in this article may be extrapolated to apply to ISCT as well.
46 See Thomas Donaldson, Corporations and Mor- ality, ch. 2 (1982).
47 See Donaldson, Corporations and Morality, supra note 47, at 43. The specific description of the social contract theory that follows is taken from this source.
48 Id. at 44. 49 Id. at 54. 50 Id. at 53. 51 Id. at 48-49. 52 Id. at 53. This last requirement is apparently
intended as an antidiscrimination provision. 53 Indeed, many entrepreneurs forum-shop, elect-
ing to go into business in the state whose legal regime appears least burdensome to them. Such individuals would clearly be shocked to be told that regardless of which state they chose, they had agreed to abide by the restrictions described by the social contract theory.
54 Thomas Donaldson, The Ethics of International Business (1989), 56.
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55 Id. at 61. 56 Id. 57 Because this version of the social contract
theory appears to be based on what is essential- ly a Rawlsian theory of justice, this task would indeed be a formidable one. It would require an examination not only of the relative merits of a Rawlsian conception of justice as opposed to Nozickian and other conceptions, but also of whether such a conception is appropriate in the present limited realm of application. How- ever, once consent has been abandoned as the basis for the social contract, there seems to be no avoiding this. Currently, the best that can be said about this version of the social contract theory is that it is, at most, as well established as John Rawls’ theory of justice.
58 See Thomas W. Dunfee, “Business Ethics and Extant Social Contracts,” Business Ethics Quar- terly Vol. 1 (1991): 23.
59 Id. at 32. 60 Id. In fact, there is some question whether all
extant social contracts are true agreements since it is claimed that consent is implied by “mere- ly enjoying the benefits of the community or even engaging in transactions within the realm of the community.” Id. This raises the thorny problem of how one can be said to consent to an agreement without being aware one is doing so. However, because any attempt to resolve this point is beyond the scope of the current work, I will assume for purposes of the present discussion that all extant social contracts are true, consent-based agreements.
61 Id. at 33. 62 This may be an unfair characterization. The
theory contemplates the possibility of one simultaneously belonging to several commun- ities with incompatible social contracts and as- serts that such conflicts must be resolved on the basis of an unspecified “priority rule.” (It should be noted that, like the filtering test discussed
below, as long as the priority rule remains un- specified, it is impossible to fully evaluate this theory.) However, the theory does not seem to address the situation in which one has entered into incompatible agreements within a single community. It is the latter point that I am pres- ently addressing.
63 As was the case with the stakeholder theory, al- though the social contract theory is sometimes expressed in the language of the corporation, it clearly applies to businesses generally. Under a social contract approach, the members of soci- ety authorize the existence of not merely cor- porations, but businesses of any form. Thus, all businesses are bound by the terms of the social contract. As a matter of fact, Donaldson’s early version of the theory was expressed in perfect- ly general terms, speaking not about corpora- tions, but about “productive organizations.”
64 I have argued in the body of this article that there is, in fact, no ethical entitlement to have a say in any decision that affects one’s interests and that the attempts of stakeholder theorists to derive one from Kant’s principle of respect for persons, Rawls’ theory of justice, and a con- temporary theory of property rights have been unsuccessful. However, assuming arguendo that the stakeholder theorists are correct and that such an entitlement does exist, it would certainly imply that individuals are ethically entitled to control their own lives.
65 Robert Hessen, “A New Concept of Corpor- ations: A Contractual and Private Property Model,” Hastings Law Journal Vol. 30 (1979): 1327, 1330.
66 This is as true of corporations as it is of any other type of business organization. The claim that a corporation is a “creature of the state,” endowed by the government with special priv- ileges not available to other freely-organized forms of business is asserted so frequently that it is typically regarded as a truism. That this is
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not, in fact, the case, is amply demonstrated by Robert Hessen in the article cited in the immediately preceding note. I heartily recom- mend it to those unfamiliar with the history and law of corporations.
I should add that I am not claiming either that the idea of a business as a network of con- tracts is a new or original insight (its long lin- eage is indicated by the source I cite in support of it in the immediately preceding note) or that it commands universal acceptance. I am sug- gesting, however, that it is an accurate charac- terization of the ethical nature of business, and further, that support for it can be found in the centrality of consent to each of the three previ- ously examined theories. I am also suggesting that it is an observation that deserves more con- sideration than it has yet received from those working on the normative theories of business ethics.
67 In this context, I am clearly referring to actual, as opposed to hypothetical or tacit, consent. Hypothetical or tacit consent is, in fact, not consent at all, but the presumption of consent where none has actually been given. It follows that in describing a business as a voluntary as- sociation of individuals united by a network of contracts, the contracts being referred to are ac- tual interpersonal agreements, not hypothetical social contracts.
68 It may be more precise to say that the stock- holder theory fails to address the obligations arising out of those agreements that are not inconsistent with the managers’ antecedent agreement with the stockholders. However, it is at least arguable that what should be done when managers have made inconsistent com- mitments is itself an issue that would have to addressed by an adequate normative theory of business ethics.
69 This may well be an understatement. Given the wide variety of enterprises that are described
by the word “business,” from the smallest closely-held family business to the largest pub- licly-traded multinational conglomerate, and from the most mission-oriented nonprofit to the most bottom-line-oriented entrepreneurial venture, it is reasonable to doubt whether this term has a definite enough referent for the con- struction of a general normative theory of busi- ness ethics to even be possible. If it does not, we will simply have to content ourselves with the recognition that ethically proper behavior necessarily depends on the particular agree- ments the actor has entered into, and leave it at that.
70 Actually, some promising preliminary steps in meeting this challenge have already been taken by Professors Dennis Quinn and Thomas Jones in their article An Agent Morality View of Business Policy, supra note 14. This may serve as a useful starting point for those who believe that an adequate general normative theory of business ethics can, in fact, be formulated.
♦ ♦ ♦ ♦ ♦
GEoRGE G. BREnkERt
Private Corporations and Public Welfare
I
The doctrine of corporate social responsibility comes in many varieties.1 Its most developed version de- mands that corporations help alleviate “public wel- fare deficiencies,” by which is understood problems of the inner city, drug problems, poverty, crime, il- literacy, lack of sufficient funding for educational in- stitutions, inadequate health care delivery systems, chronic unemployment, etc.
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In short, social responsibility, it is contended, requires that corporations assume part of the re- sponsibility for the basic prerequisites of individual and social life within a community or society. So- cial responsibility demands this even though, it is claimed, corporations are not causally responsible for these conditions and doing so may not enhance their profits.
In response, corporations today provide job training for the hardcore unemployed, help reno- vate parks, sponsor clean-up programs, establish manufacturing plants in ghetto areas, offer seminars to high school students on how effectively to seek employment, support minority business adventures, provide educational films as well as additional in- structors and tutors to public schools (i.e., “adopt” schools), etc.2
Such projects have, seemingly, met with a great deal of approval. Indeed, during a time when the welfare of many is deficient, one wonders how any- one could object to such activities. It might seem that any objections to such corporate behavior would stem not from their participating in these activities, but from their not participating even more.
Nevertheless, a number of objections to corpor- ations engaging in such activities have been raised and are well-known. Many of these criticisms are not very good and will not be reviewed here. There is, however, one objection that is much more inter- esting, even if it is rarely developed. The essence of this objection is that corporate social responsibility to produce directly the public welfare involves the illegitimate encroachment of private organizations into the public realm. There is much greater merit to it than might appear at first glance.
II
This objection takes various forms, Theodore Levitt, for example, claims that the essence of free enter- prise is the production of high-level profits. Private business corporations tend to impose this narrowly
materialistic view on whatever they touch. Accord- ingly, corporate responsibility for welfare threatens to reduce pluralism and to create a monolithic soci- ety.3 George C. Lodge similarly maintains that “the demand that business apply itself to problems which government is finding it increasingly difficult to comprehend or affect ... is ... absurd. Corporations, whatever else they may be, are not purveyors of so- cial assistance.”4 Unelected businessmen, he claims, have “neither the right nor the competence” to de- fine or establish the goals and the criteria by which society should repair or remake itself.5 Finally, Rich- ard DeGeorge claims that
there is great danger in expecting corpora- tions to take upon themselves the produc- tion of public welfare, because they already have enormous power and are not answer- able for its use to the general public. Pol- iticians are elected by the public and are expected to have the common good as their end. We should not expect corporations to do what they are neither competent nor or- ganized to do ...6
These criticisms question the right as well as the competence of corporations to contribute directly to the public welfare. Further, they challenge the influ- ence which corporations in so acting may gain over society. Both increased corporate power and a de- crease of social pluralism are feared results.7
Unfortunately, these criticisms are, more often than not, simply noted, rather than elaborated upon. In particular, the suggestion implicit within them that the provision of public welfare by private corporations runs afoul of an important distinction between what is public and what is private has not been discussed in recent literature. It is this point which requires greater attention.
The argument offered here is that corporate re- sponsibility for public welfare threatens to reduce, transform, and in some cases eliminate important public dimensions of social life. For this reason we
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must be wary of it and reluctant to accept it in its present forms. Several characteristics of this argu- ment should be noted at the outset. First, it does not pretend to show that all corporate measures that ad- dress public welfare deficiencies are (by themselves or individually) wrong, mischievous, or mistaken. Still, we must not be overly impressed by particular in- stances and thereby miss the systematic and general implications that are thereby promoted. It is not un- common for individually rational actions to lead to collectively irrational or morally problematic results.
Second, this argument does not address corpor- ate social responsibilities with regard to damages that corporations may themselves directly cause to the environment, employees, members of society, etc. For all these harms it is reasonable to believe that corporations do have responsibilities. The ques- tion this paper addresses concerns the implications of demanding that corporations go beyond correct- ing the damages they have brought about and as- sume responsibility for public welfare deficiencies for which they are not causally responsible.
Finally, if we could identify the harms that cor- porations directly and indirectly cause, then the arena of responsibilities that corporations have to society might significantly increase and the deficien- cies in public welfare (assuming corporations ful- filled their responsibilities) might correspondingly decrease. This paper presupposes that, even in such a situation, there would remain public welfare defi- ciencies for which corporations are said to be socially responsible and for which they are neither directly nor indirectly causally responsible.8
The present argument has four parts. To begin with, it is important to highlight the different rela- tion that exists between an individual (or group) who is aided by a private corporation, and the relation between such an individual (or group) and public attempts to aid their welfare. The differences in these relations will, in practice, often be insignificant—es- pecially when things go well. However, when prob- lems arise theoretical and practical differences can be
important. Surely cases could be identified in which corporations have successfully enhanced the public welfare. However, it is not to be expected that cor- porations will always act so successfully or so clearly in accord with public needs.
The point here is not that corporations may act in misguided ways so much as what happens in those instances where there are problems. Obviously appeals and complaints can be made to the corpora- tion. However, the fact remains that appeals to the corporation tend to be appeals from external con- stituencies. Inasmuch as those aided by the corpora- tion are not members of the corporation, they have no standing, as it were, within the corporation other than the one the corporation decides to give them. They have no “constitutional” rights against corpor- ations as they do against public endeavors. They are not “citizens” of the corporation. Thus, they have, in principle, no internal access to the corporation’s decision-making processes. They are part of that process only if the corporation allows it. Those who make the decisions to undertake various programs cannot be voted out of office—there is no political, and little legal control, over them. Accordingly, to advocate corporate provision of, and responsibil- ity for, public welfare is to advocate that the basic requisites for human well-being are to be provided by institutions whose deliberations, at least at pres- ent, do not in principle include representation of those whose interests are affected. Those deficient in welfare lack formal control or power over those agencies from whom they obtain their welfare. Fur- ther, since those deficient in welfare tend to be those who are (in general) powerless, the advocacy of cor- porate responsibility for welfare tends to continue their powerlessness. Corporate social responsibility, in excluding any formal relation between those who are recipients of corporate aid and the corporation, maintains a division between the powerless and the powerful. A democratic society, one would suppose, would seek to moderate, rather than increase, the in- equality presupposed in this division.
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This situation contrasts with the state or other public bodies which provide, as part of their nature, various forms of administrative, legal and political redress.9 The state’s activities on behalf of its citizenry are hemmed in (at least in principle) by safeguards and guarantees (voting, representation, public hear- ings, sunshine laws, etc.) which are not imposed on corporations. Indeed, such public forms of access and standing are generally said to be contrary to the corporation’s private status. Accordingly, whenever people outside the private corporation are granted such access it is simply due to the benevolence of the corporation.
Now this different relation between individuals and the agencies (private or public) which provide support for them is particularly crucial when that support concerns their basic welfare, i.e., items to which one might reasonably claim a right: e.g., min- imal health care, educational opportunities, physical security, shelter, and food. Surely various private in- stitutions such as corporations, churches, etc. may appropriately give aid to those who are deficient in such welfare, when this occurs on an occasional or special basis. Accordingly, private institutions may aid the welfare of their members (those who have access and voice within the organization) as well as non-members (those who do not have such access and voice).
However, those who advocate that this become the normal situation are (implicitly at least) also ad- vocating a condition that places the recipients in a tenuous position vis-à-vis the granting agencies. Though recipients may receive various goods and/ or services they need from private corporations, not only are such individuals dependent on those agen- cies for the aid they receive, but they also lose any formal or “constitutional” voice in the agency which purports to aid them. In effect, any right they have to such welfare is degraded to an act of benevolence on the part of the contributing organization. They can no longer insist or demand that they be treated in various ways, but must play the role of supplicants.
It is in this kind of situation that the view at- tributed to Andrew Carnegie can arise unchecked by formal mechanisms to control it: “In the exer- cise of his trust he was responsible only to his own conscience and judgment of what was best for the community.”10 Recipients of such aid lack means of redress which, in matters of basic importance such as welfare, are terribly significant.
Furthermore, when the institutions (i.e., large business corporations) involved in providing welfare are not themselves dedicated to the welfare of others but primarily focused on their own self-interested economic ends, and when these organizations are extremely large and powerful, then we must reflect on the implications of the lack of membership, and hence the lack of redress and voice, within those or- ganizations. Specifically, we need to consider wheth- er these needs ought not to be met by organizations which will grant those receiving such aid the voice and access which has traditionally protected people who are dependent upon others.
In short, when corporations are asked to under- take public welfare on an ongoing basis, the welfare they give is privatized in a manner that eliminates an important relation for those receiving such welfare. To the extent that it formalizes a relation between the powerful and the powerless, it exposes the re- cipients of such aid to abuses of power. At the same time, the equality that democracy implies is also jeopardized.11
Second, a variation on the preceding point con- cerns the standards by which decisions on the na- ture and means of implementing corporate welfare measures are made. Again, this might not appear to be a significant problem with regard to the con- struction or reconstruction of an inner-city park, a neighborhood clean-up campaign, or reading tutors in the schools.12 Surely corporations will, by and large, consult with the people involved to get their ideas and approval. On other occasions, the people involved will seek out a corporation to aid them. But this does not lay the issue to rest since the standards
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the corporation seeks to follow may be primarily pri- vate in nature, rather than public or general.13
Suppose, for instance, that the welfare measures which the corporation seeks to provide (and to which their recipients agree) are of questionable constitu- tionality. They agree, perhaps, on educational films with a religious or a racist message for the public schools. Or, suppose they agree on an educational program but the corporation liberally sprinkles the presentation with its corporate logo, mascot, jingo, and the like. Suppose that in training of the hard- core unemployed they aim at white, rather than black or Hispanic, populations. The point at issue concerns the legitimacy of these decisions.
The standards according to which the public welfare is fulfilled must be a matter for the pub- lic (through its representatives) to determine, not the private corporation.14 Two reasons lie behind this claim. Such welfare concerns what is common among the citizens, what holds the members of a society together, and what is the nature of their basic prerequisites. It constitutes a statement about how we, as a community or society, believe that we should live. Fulfillment of welfare deficiencies for some that manifests prejudice against other groups, or works to their disadvantage, requires special justification and close public scrutiny, if it is allowed to stand.
In addition, to the extent that corporate con- tributions to public welfare are tax deductible, the foregone tax revenues constitute a public contribu- tion to itself, through the agency of the corporation. Since public monies are committed through such contributions, the public has a right to assure itself that the standards according to which such monies are expended meet its (minimal) standards.15
Accordingly, the legitimacy of the decisions the private corporation makes regarding public welfare cannot be judged simply according to its own pri- vate standards. Thus, if the corporation tries to im- pose its own view and standards, it is crossing an important line between the private and the public. It is naive, then, simply to argue that people’s welfare
is the responsibility of corporations, without provid- ing for social determination and direction of the ac- tivities which corporations undertake.16
In those instances in which corporate contri- butions are of a charitable (or prudential) nature and the objects of their actions are wholly private, it would seem that corporations might legitimate- ly give to those individuals or organizations which promote their own values and ideas. In this way, their gifts may reflect their own idiosyncratic stan- dards. Accordingly, some object to business giving to private universities whose faculty advocate ideas opposed to capitalism.17 However, in contrast, the direction and satisfaction of public welfare accord- ing to private standards is not appropriate, since the public welfare is not to be determined simply by this or that individual corporation’s ideas and values, but by a political process and, ideally a community dia- logue, on what those values should be.18
Finally, if corporations are said to be responsible for remedying certain deficient levels of public wel- fare, but are not given control (both in terms of ap- plicable standards and practical direction) over how such remedies are to be emplaced, then when these measures fail the corporation can hardly be held ac- countable. Nevertheless, since they will be associ- ated with such efforts, they will often be faulted for their lack of success. Hence, if corporations are re- quired to engage in social responsibility efforts, there will be an understandable tendency for them to seek control over the situations in which they participate. This means, however, supplanting (or reducing) pub- lic control and substituting their own judgments and standards for those of the public. Consequently, the demand for corporate social responsibility is a de- mand that encourages the substitution of private stan- dards, authority and control for those of the public.
III
Third, the demand for corporate social responsibil- ity arises, it has been assumed, due to deficient
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public welfare, which stems, at least in part, from inadequate public funding. Corporate opposition to higher taxes has played a contributing role to this situation, since taxes are viewed as coercive takings of corporate property.19 The lower the taxes the greater the return on investment corporations make and the greater the flexibility corporations have to use their resources as they choose. Part of the appeal of corporate social responsibility for public welfare is that the aid that is given is voluntary. Provision of such aid heads off higher taxes, government regula- tion and hence coercion. In short, behind the de- mand for corporate social responsibility is a view that holds that the public realm and the state con- stitute a sphere of coercion, while the private realm and the actions it takes are voluntary.20
This is illustrated in Friedman’s comment that “the political principle that underlies the political mechanism is conformity.... It is appropriate for some to require others to contribute to a general so- cial purpose whether they wish to or not.”21 Cor- porate social responsibility, then, explicitly seeks to reduce the realm of the public, by reducing the area within which coercion and force might be used.
Now if the public were simply a realm of coer- cion, such a view would seem unexceptionable. On the contrary, however, such a view arguably distorts the realm of the public. Corporate social responsibil- ity implies that the public is simply an area within which individual prudential interests are worked out and coercion imposed by the state. Both eliminate an important sense of the public.
The public is also the area within which gener- al and common interests are articulated. It is what binds people together, in contrast to the private realm within which people are separated from each other and view each other as limitations upon their freedom.22 Accordingly, it is the realm of the “we,” rather than the “you” or “I.” It is what is done in all our names, and not just yours or mine. It is the area, some have even held, within which freedom is only possible.23 There is (or can be) a different sense
of accomplishment when the community builds or creates something rather than simply this or that private organization. Conversely, there is a differ- ent sense of loss when a public figure, a President or Prime Minister dies, rather than the head of a pri- vate corporation.
Now charity is an extension of the private into this public realm. It is personal, self-given, and can’t be demanded in particular cases. It need not be based on political discussion or compromise so much as on one’s own willingness to aid others. Those who receive do not have grounds upon which they can demand or negotiate beyond which the charitable organization allows. Charity does not necessarily involve any pol- itical or public process by which recipient and con- tributor are bound together. Thus, Hannah Arendt comments, “The bond of charity between people ... is incapable of founding a public realm of its own ...”24 In short, charity cannot be the basis of a public or political dimension between people.
As such, corporate social responsibility drives out the political and the public. The appeal to cor- porate responsibility is a confession that the public or political realm has broken (or is breaking) down. It is an unwitting manifestation of liberal individual- ism extending the realm of the private to encompass the public.
Consequently, Friedman is quite wrong when he complains that the doctrine of social responsibility “taken serious would extend the scope of the polit- ical mechanism to every human activity.”25 This is plausible only in that case when the corporation and its executives both engage in social responsibility ac- tivities and, as a result, become subject to political election procedures since they are viewed as “civil servants.”26 On the other hand, if this does not hap- pen (and there is little present evidence that it will), then the doctrine of social responsibility extends the nature of private activities to many activities in the public or political realm. In short, quite the opposite of what Friedman contends, it extends the scope of the private “to every human activity.”
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The problem with this approach is that it is im- plausible to treat society as simply an example of an ideal market situation. This is implied by the above comments on the nature of the public. Not all pub- lic (or private) values can be produced or sustained by market exchanges. Friedman slips from discus- sion of market activities to talk of society without argument. Thus, after he portrays the voluntary na- ture of the ideal free market, he immediately goes on (without argument) to equate such exchanges with society itself.27 However, it does not follow (and it is not plausible) to think of society as itself simply an ideal free market. Once again, then, corporate social responsibility involves views and demands which question legitimate distinctions between the private and the public.
IV
Finally, though the relation of the public and the private is a shifting relation, we must guard against collapsing one—either one—term of this relation into the other. The view that the public is simply the arena in which individual actions affect others without their voluntary approval impoverishes the notion of the public.28 As noted above, the public is more and different than this. The public is what binds a people together and relates them to each other.29 It is what is done in their common name; it is what makes them a people, rather than simply a random collection of individuals. It embodies the values, norms and ideals we strive towards even if we fail fully to achieve them. It is the responsibility of public agencies (the state or its government) to foster (at least) the minimal conditions under which the public may exist. To be a citizen is to owe alle- giance to the government as it works to realize these principles and values.
Now suppose that the government does not ful- fill its responsibilities to individuals for basic welfare. The demand that private corporations—other than the government—dispense public welfare is a step
in the privatization of the public realm. The benefits that individuals receive from the government have long been thought to play an important role in their obligations to the state and, hence, their citizenship within the state.30 If these benefits come from private groups, rather than the state, then one would expect loyalties and obligations to be modified accordingly.
Consequently, if a corporation provides training for the hard-core unemployed, renovates the local park, or provides the house which shelters the sick, it is to the corporation that those aided will be grate- ful and indebted, not to the community or society of which they are members.31 It is the corporation to which one’s loyalties will be turned, and not to the city or state of which one is a citizen. Indeed, the very notion of citizenship thereby becomes impover- ished. The grounds upon which the state has been said to acquire the obligations of its citizenry have been narrowed. In its place develop isolated (groups of ) individuals beholden to private institutions of which they are not members (or citizens) and over which they have no formal control.
Surely in these days of popular advertising, the corporation may seem more personal, less ab- stract, than the community or the state. Through logos, jingoes and mascots corporations seek to get people to identify with them and their prod- ucts. And through corporate measures to aid their welfare, individuals would have concrete reason to be indebted to them, even if not members or cit- izens of them. But to accept or promote this situ- ation, and the view of the individual’s relations to private and public institutions which it involves, merely reveals the state of poverty to which our no- tions of the public and citizenship have come. Such corporations encourage us to seek a common iden- tity, rather than to foster our common (public) in- terests.32 We are invited to replace the realm of the public which unavoidably involves impersonality with a personal and privatized realm. We transform a realm laden with political meanings into a private and psychologized realm.33
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However, the danger here does not simply stem from the implications of the altered identifi- cations and loyalties that characterize citizens. The increasing privatization of the public realm that we see in shopping malls, corporate housing develop- ments, the suburban environment, and corporate attempts to establish their own identity and role models within the schools carry other consequences to which we must be keenly sensitive. For example, in private shopping malls people may be prevented from political speech; in corporate housing develop- ments, they may be prohibited from having children and remaining in their home; and cultural exhibits may be skewed to suit corporate purposes.34 Rights which all citizens share may be, wittingly or unwit- tingly, foregone through private efforts uninformed by public reflection and participation. In short, the public values and interests of a society can be threat- ened not simply by an authoritarian government but also by self-interested, though well-meaning, private groups and institutions which lack a sense of the significance of the public realm and the meaning of citizenship.
V
In conclusion, several comments are appropriate. First, it may be allowed that many objections which can be brought against corporate attempts to secure public welfare can also be brought against govern- ment or public attempts. Thus, both government and corporations may be inflexible, insensitive, im- personal, non-innovative, as well as hard to move or get through to. They may produce programs which are misconceived, uncoordinated, and/or precipi- tously stopped, leaving people in the lurch. The pro- duction of such programs may increase their power, size and influence; they may also deal paternalis- tically with those they seek to aid. One would be tempted to abandon all attempts to aid those defi- cient in welfare were it not for the fact that many people continue to suffer grievously from inadequate
welfare. Thus, the question is a complex and messy one. There is no easy and neat answer.
Second, large corporations, however, will con- tinue to be part of our social and political landscape. Their significant economic and political power are obvious. In this situation, the thrust of the public/ private argument is two-sided. It can be taken to urge the separation of private corporations and pub- lic institutions. This is fraught with all the problems of bureaucratization, distant government, powerful but indifferent corporations, and failed efforts to satisfy public welfare needs. This is not to say that these problems could not be overcome within a fair- ly strict separation of the private and the public.35 Still, this would involve a recommitment (and redis- covery!) of the public realm that might be difficult in countries such as the US.
On the other hand, the above argument can also be taken to recommend that we require such large corporations be made more fully public, social or- ganizations. Indeed, many argue that large corpora- tions are no longer simply private organizations. George C. Lodge, for example, comments that “it is now obvious that our large public corporations are not private property at all ... The best we can say,” he continues, “is that the corporation is a sort of collective, floating in philosophic limbo, danger- ously vulnerable to the charge of illegitimacy and to the charge that it is not amenable to commun- ity control.”36 Thus, that corporations increasingly are called to participate in the production of public welfare is not so surprising given their present quasi- public nature. The further claim that has been made is that this quasi-public nature needs to be institu- tionalized so as to make it amenable to greater pub- lic control and direction. This direction, however, is one that others violently oppose.
Thus, we stand at a crossroads. This juncture is part and parcel of that “tension between self-reliant competitive enterprise and a sense of public solidar- ity espoused by civic republicans” that some have identified as “the most important unresolved prob-
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lem in American history.”37 If one rejects the view that corporations must more fully take on the char- acter of public institutions, then demands for cor- porate social responsibility for public welfare should be seriously curtailed.
The preceding arguments do not show conclu- sively that corporations ought never to aid public welfare. They are one set of considerations which might, in some circumstances, be overridden. How- ever, they do indicate important reasons why we should be more reluctant to proceed down the path that many have been encouraging us to take. When we are repeatedly told that the sight of corporate so- cial responsibility is so lovely, and that the prospects of corporate responsibility for public welfare are so rosy, one may rightfully come to suspect that we are being led down the garden path.38
Notes 1 “Private corporation” will be used to refer ex-
clusively to private corporations engaged in the production of goods and services for profit.
2 Sandra L. Holmes reports in a study of how executives perceive social responsibility that 78% of the executives surveyed either strongly agreed or agreed more than they disagreed with the statement that “Business possesses the abil- ity and means to be a major force in the allevia- tion of social problems” (pp. 39-40). It is clear from the context that by “social problems” is meant the kinds of problems listed in the text under “public welfare.” Cf. Sandra L. Holmes, “Executive Perceptions of Corporate Social Re- sponsibility,” Business Horizons (June, 1976).
3 Theodore Levitt, “The Dangers of Social Re- sponsibility,” Harvard Business Review, vol. 36 (September-October, 1958), pp. 44-41.
4 George C. Lodge, The New American Ideology (New York: Alfred A. Knopf, 1975), p. 189.
5 Ibid., p. 190. Cf., also p. 218. 6 DeGeorge, Business Ethics, 3rd. ed. (New York:
Macmillan publishing Co., 1986), p. 171.
7 Cf. Levitt, “The Dangers of Social Responsibil- ity.”
8 The importance of indirect causal factors and the resulting responsibility of corporations has been defended by Larry May in his com- ments, “Corporate Philanthropy and Social Responsibility,” given on an earlier version of this paper, before the Society for Business Ethics meeting in Boston, MA, on December 28, 1990. How we might determine for which harms corporations are directly or indirectly causally responsible is not addressed in this paper. Both topics, but especially the latter, raise significant problems.
9 Even if this is not true in any particular case, it is still appropriate to demand such access and forms of redress of present (i.e., democratic or republican) forms of government.
10 Robert H. Bremner, American Philanthropy, 2nd ed. (Chicago: The University of Chicago Press, 1988), p. 101.
11 This argument allows that other private organ- izations, such as churches, etc., may legitimate- ly contribute to individuals’ welfare needs. The smaller the organization, the more individual the contribution, and the greater the identity of the organization is bound up with promot- ing the public good, the less there is a prob- lem. On the other hand, some organizations, such as churches, run into problems (e.g., First Amendment issues and attempts to convert others rather than simply aid them) that other private groups do not.
12 Even the park example is not all that simple. There are questions that need to be asked be- fore the park can be built or renovated: what will be the nature and form of the park? Who will maintain it (will anyone?)? Will trash con- tainers be put out and regularly emptied (by whom?)? Is the construction of this park likely to require increased police patrols? Are addi- tional burdens being placed on the city recrea-
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tional department, trash department, police department? If so, who decides and upon what basis? Admittedly, these questions must he faced whether the city or a corporation builds the park. However, the important point is that when corporations aid public welfare many im- portant questions remain to be answered. The city or the public is not suddenly let off the hook.
13 The problem is even more complex since those individuals the corporation addresses in the public forum may themselves primarily hold private values. That is, their vision of them- selves and society may have lost any sense of the public. Bellah et al. document the degree to which “Americans … are genuinely ambivalent about public life” (Bellah et al., Habits of the Heart [Berkeley: University of California Press, 1985], p. 250).
14 Similarly for a host of other projects there are questions which demand social or public deci- sion, which only the public through the gov- ernment can legitimately give. For example, it might be asked whether it is really so bad for corporations to provide tutors for secondary schools to help with basic reading skills. But are these tutors trained in teaching? Do they serve to justify inadequate teaching staffs? Do they undercut the demands of teachers for adequate social commitment for education? What pro- grams are they trained to teach? Do they con- stitute an influx of business oriented courses rather than humanity courses, or science cours- es? These are serious issues which need to be addressed on the social and public level, not simply on the private corporation level.
Likewise, it might be asked whether it is wrong for corporations (e.g., McDonald’s) to start drives for houses for relatives of the ser- iously ill to stay in while at the hospital. But again, supposing that the rest of the commun- ity contributes the preponderant amount, why
should the community not get the credit for the house? Why doesn’t the name of the house reflect public values or ideals?
We need not assume that public answers to all these questions may be easily arrived at. However, if corporations (or other private groups) simply operate on their own standards, the public discussion which may lead to public standards and agreement will be short-circuited. As a result, the public will be impoverished.
15 This claim applies to similar contributions that come from other private groups, e.g., churches, the Audubon Society, etc. When such contribu- tions come from small and numerous groups, there is less reason for concern, since they may counterbalance each other. It is reasonable for a society to encourage such contributions. Nevertheless, society may legitimately review the nature of their contributions, given that their contributions are tax deductible and they enjoy (where applicable) tax-exempt status.
This issue is particularly of concern, how- ever, when such contributions come from large corporations which can bring significant power and resources to bear. Similarly, when churches or other private groups become large and their powers significant, the consideration raised in the text applies as well. In short, when the con- tribution of private groups are supported by the public through tax deductions and when those contributions may in particular cases have a significant effect on the public, the public may legitimately review the standards according to which the contributions are made.
16 For example, Control Data’s program, called “City Venture,” which sought to write blue- prints for economic rebirth of down-and-out city neighborhoods had to be withdrawn: “A bossy, ‘we know what’s best’ attitude offend- ed prickly independent community groups in Minneapolis and Miami, forcing City Venture to be withdrawn” (Neil R. Peirce, “To Corpor-
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ate Social Involvement,” The Knoxville Journal, 1982, p. A4).
17 Robert H. Malott, “Corporate Support of Edu- cation: Some Strings Attached,” Harvard Busi- ness Review, vol. 56 (1978), pp. 133-38.
18 This is not to say that corporations, or anyone, must (or should) give to causes they believe to be wrongheaded. Rather, if corporations (or other organizations) are given responsibility for public welfare, they may not simply apply their own idiosyncratic standards. This allows, of course, that they could choose, from a range of public welfare needs, to support those com- patible with their own views. Since the issue concerns basic deficiencies from which people suffer, this should not be impossible.
19 Similarly Levitt argues: “American capitalism also creates, fosters, and acquiesces in enor- mous social and economic cancers. Indeed, it fights against the achievement of certain forms of economic and social progress, pouring mil- lions into campaigns against things which people have a right to expect from their gov- ernment …” (Levitt, “The Dangers of Social Responsibility,” p. 48).
20 Since corporate social responsibility is, usual- ly, viewed either as charitable or as prudential in nature, corporations can make their own, voluntary choices as to when, what and how much they will do. The alternative is to have the public (the state or the government) take more from them in order to fulfill the pub- lic welfare needs. Because this restricts their choices—their freedom (as they would see it)—they argue against state action here. In short, corporate social responsibility is an ex- pression of the liberal view of society. It is also an expression of an individualistic view: “utili- tarian individualism” and “expressive individ- ualism” (Bellah et al., Habits of the Heart, p. 27ff). These views contrast with what they call “civic republicanism.”
21 Milton Friedman, “The Social Responsibility of Business is to Increase its Profits,” in Milton Snoeyenbos, Robert Almeder, James Humber (eds.), Business Ethics (Buffalo, New York: Pro- metheus Books, 1983), p. 78.
22 Ibid., pp. 245, 248. 23 Nancy L. Schwartz, “Distinction Between
Public and Private Life,” Political Theory, vol. 7 (1979), p. 245.
24 Hannah Arendt, The Human Condition (Chi- cago: The University of Chicago Press, 1958), p. 53.
25 Milton Friedman, “The Social Responsibility of Business is to Increase its Profits,” in Milton Snoeyenbos, Robert Almeder, James Humber (eds.), Business Ethics (Buffalo, New York: Pro- metheus Books, 1983) p. 79.
26 Friedman, “The Social Responsibility of Busi- ness is to Increase its Profits,” p. 75.
27 Ibid. 28 Cf. John Dewey, The Public and its Problems
(Chicago: Gateway Books, 1946). 29 Cf. Hannah Arendt, “The Public Realm, as the
Common World, Gathers Us Together and yet Prevents our Falling Over Each Other, So to Speak,” The Human Condition (Chicago: The University of Chicago Press, 1958), p. 52.
30 Cf. A. John Simmons, Moral Principles and Pol- itical Obligations (Princeton: Princeton Univer- sity Press, 1979), pp. 157-90.
31 The following comes from a letter to an editor from a mother of a child in a school adopted by IBM. She was responding to objections that others had raised because children in the school were preparing posters and having assemblies to thank IBM for adopting their school. She argues: “to say that this is taking away from the children’s learning time is not true. What better learning experience is there than to teach our children what’s going on in their schools and to have them have a special program to thank these companies? … I believe it is very import-
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ant that these adopting companies realize, by way of parents and children, that we are hon- ored and grateful that they are willing to help our children with their education” (“Letters to the Editor,” The Knoxville News-Sentinel, Nov- ember 28, 1986).
32 Cf. Richard Sennett who complains that as part of the end of public culture “the pursuit of common interests is destroyed in the search for a common identity” (p. 261); The Fall of Public Man (New York: Vintage Books, 1976).
33 Cf. Sennett, Ibid. 34 IBM, for example, “barred the display of com-
puter-art works designed for the equipment of a major business competitor, Macintosh, in the company’s heretofore prestigious IBM Gallery of Science and Art in midtown Manhattan”; Susan Davis, “IBM Nixes Macintosh,” Art in America, vol. 76 (1990), p. 47. The works barred were part of a touring show organized by the Walker Art Center. IBM, which finances its namesake galleries, “bars its competition ‘as a matter of policy’” (Ibid., p. 47).
35 It would not, for example, prohibit linking education and business in various ways. Various courses of study in schools might be coordin- ated with job opportunities in private busi- ness, without corporations providing for those courses or other educational needs. Public and government welfare measures would have to be tied much more closely to local needs and allowed much greater flexibility in resolving those needs.
36 Lodge, The New American Ideology, p. 18. 37 Bellah et al., Habits of the Heart, p. 256. 38 I am indebted to John Hardwig, W. Michael
Hoffman, Larry May, Richard Nunan, and an anonymous referee for their perceptive and helpful comments on earlier versions of this paper.
♦ ♦ ♦ ♦ ♦
JosEPH HEAtH
Business Ethics Without stakeholders
Over the past two decades, the “stakeholder para- digm” has served as the basis for one of the most powerful currents of thinking in the field of business ethics. Of course, stakeholder vocabulary is used even more widely, in areas where it is not necessar- ily intended to have any moral implications (e.g., in strategic management).1 In business ethics, however, the stakeholder approach is associated with a very characteristic style of normative analysis, viz. one that interprets ethical conduct in a business con- text in terms of a set of moral obligations toward stakeholder groups (or one that helps “to broaden management’s vision of its roles and responsibilities to include interests and claims of non-stockholding groups”2). Seen in this light, the primary moral di- lemmas that arise in a business context involve rec- onciling these obligations in cases where stakeholder interests conflict. Thus ethicists who are impressed by the stakeholder paradigm have become highly adept at translating any moral problem that arises in the workplace into the language of conflicting stake- holder claims.3
The question that I would like to pose in this paper is whether the stakeholder paradigm rep- resents the most fruitful approach to the study of business ethics. The vocabulary of stakeholder obli- gations has become so ubiquitous that in many contexts it is simply taken for granted. Yet the stake- holder approach is one that comes freighted with very substantive—and controversial—normative as- sumptions. Naturally, there are many who have criti- cized the stakeholder paradigm as part of a broader skeptical critique of business ethics in general, one which denies that firms have any “social responsibil- ities” beyond the maximization of profit.4 This is not my intention here. I will argue that firms do have
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important social responsibilities, ones that extend far beyond mere conformity to the law. The question is whether the stakeholder paradigm represents the best framework for articulating the logic and struc- ture of these obligations.
In order to serve as a point of contrast, I would like to provide an outline of two other possible ap- proaches to the study of business ethics: one, a more minimal conception, anchored in the notion of fi- duciary obligations toward shareholders, and the other, a broader conception, focused on the regu- latory environment in which firms operate.5 I will then attempt to show that the latter, which I refer to as a “market failures” approach, offers a more satis- factory framework for the articulating the concerns that underlie traditional appeals for increased cor- porate social responsibility.
Business Ethics as Professional Ethics
There is one point that all three of the approaches that I will be presenting here have in common. All three conceive of business ethics as a species of professional ethics.6 In the same way that medical ethics concerns, first and foremost, ethical questions that arise from the professional role of doctors, and legal ethics deals with questions that arise from the professional prac- tice of lawyers, business ethics deals with questions that arise out of the professional role of managers. This is a narrower sense of the term “business ethics” than one sometimes encounters, but as we shall see, there are some advantages to be had from focusing on this somewhat constrained set of issues.
In each case, the assumption is that a profession- al role itself imposes its own set of obligations upon the person, which are not necessarily part of general morality (although they may be sanctioned by, or derived from, general morality). For example, both doctors and lawyers have a special obligation to pro- tect client confidentiality, an obligation that arises out of their professional role. In other words, this obligation is one that is imposed upon each of them,
not qua individual, but qua doctor, or qua lawyer. According to this conception, business ethics is con- cerned with the special obligations that arise out of the managerial role, and which are imposed upon the manager qua manager.
The reason that it is helpful to conceive of busi- ness ethics as a set of moral obligations arising out of the professional role of the manager is that it serves to head off the commonly expressed accusation that business ethics is just blue sky dreaming, or a wish list of things that ethicists would like corporations to do, many of which will turn out to be unrealistic in practice. According to the “professional ethics” view, business ethics represents an attempt to articulate a code of conduct that is already implicit both in the structure of corporate law and in the best practices of working managers. This helps to allay the suspicion that business ethics is some alien code, which ethicists seek to impose upon corporations from the outside.
Not everyone accepts the “professional ethics” view. There is an influential strain of thinking in busi- ness ethics that treats moral obligations as perfectly invariant across persons. (This tendency is perhaps summed up best in the title of John C. Maxwell’s re- cent book, There is No Such Thing as “Business” Ethics: There’s Only One Rule for Making Decisions.7) Thus some theorists begin by specifying an undifferenti- ated moral code (whether it be Kantian, utilitarian, Christian, Aristotelian, or what have you); they then treat business ethics as a subject concerned primar- ily with reconciling pressures that arise in a business context with the obligations that are imposed by this general morality (e.g., the Bible says “thou shalt not bear false witness,” so what do you do when the boss asks you to lie to a client?).8 From this perspective, the managerial role shows up, not as a source of posi- tive moral obligations, but primarily as a source of social pressures that may conflict with morality.
Absent from this perspective is any clear concep- tion of the role that the professions play in a modern economic system (or of the way that a professional “ethos” can give rise to a system of distinctive moral
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constraints9). The primary difference between hav- ing a job and practicing a profession involves the ele- ment of trust and fiduciary responsibility associated with the latter. In some situations, it is possible for parties in an employment relation to specify all the terms of the contract, to monitor performance com- pletely, and to institute a system of incentives that guarantees perfect compliance. Stacking boxes in a warehouse is an example of an employment relation of this type. These are jobs, and in them, employ- ees are not usually thought to have any special re- sponsibilities beyond those specified in the contract, i.e., the terms of employment. Employees in these sorts of jobs are normally paid by the hour, and have a fixed workday, in recognition of the market-like structure of the transaction.
Things become more complicated, however, when it is impossible to specify the terms of an employment contract completely, imperfect ob- servability of effort makes monitoring difficult, or information asymmetries make the design of a per- fect system of performance incentives impossible. In such cases it is impossible to eliminate moral haz- ard, and so the purchaser of labor services must rely in large measure upon the voluntary cooperation of the seller in order to secure adequate work effort.10 Thus a certain amount of trust, or moral constraint, is required in these relationships. Contracts usually specify goals and obligations in very general terms, and the person supplying the services is expected to use his or her own judgment to decide how best these terms should be satisfied. The purchaser often lacks not only the information and skills to determine the best course on her own, but is often incapable of even verifying that the supplier has done so after the fact. This is the condition that Oliver Williamson refers to as “information impactedness,” and it represents the primary force driving professionalization.11
In certain cases, reputation effects are enough to motivate good faith work effort for individuals in these roles. For example, most people have no ability to evaluate the claims and recommenda-
tions made by their auto mechanic, and the cost of getting a second opinion can be prohibitive (in both time and money). Thus they have no choice but to trust the mechanic. But as a result, reputa- tion and “word-of-mouth” plays an important role in the market for automobile repairs. The market for contractors, plumbers, and hair stylists has a similar structure. These groups are not generally thought of as professionals, because the market still does a tol- erable job of overcoming the important information asymmetries.
It is not an accident that these cases all involve purchases that consumers make frequently, where there is significant opportunity for repeat business. In markets where larger, more infrequent purchas- es are made, or where information asymmetries are even greater, it is much more difficult for purchas- ers of services to impose discipline upon suppliers through reputation mechanisms. As a result, suppli- ers who deploy highly specialized knowledge must work harder to secure the trust of potential clients, simply because the client may never have the oppor- tunity to verify the quality or value of the services received. In some cases, the trust requirements are sufficiently high that these suppliers will form their own membership association, in order to impose an internal “code of conduct” more stringent than the requirements of general labor and contract law. The most well-known examples are the “bar” for lawyers, along with the various medical licensing boards for doctors. These sorts of associations are especially im- portant in professions where the only people compe- tent to evaluate a particular individual’s performance are other members of that same profession.
Economists sometimes suggest that the function of these organizations is merely to cartelize a par- ticular segment of the labor market. This is a good example of the “naïve cynicism” often exhibited in this field—where the automatic identification of pecuniary incentives as the dominant motive leads to sociologically naïve analyses of particular institu- tions. These associations also play an important so-
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cializing role, helping to instill genuine respect for a set of moral obligations that are often specific to the profession.12 For example, many engineers in Can- ada wear an iron ring on their little finger, which is conferred during a ceremony called “The Ritual of the Calling of an Engineer” (developed in 1925 by Rudyard Kipling). The ring is a symbol of the Pont de Québec Bridge, which collapsed in 1907 as it was nearing completion, killing seventy-six people. A subsequent Royal Commission declared that er- rors committed by the bridge’s principal engineers were the primary cause of the tragedy. Initially, the rings were said to have been made with iron from the collapsed bridge. In the present day, the rings are intended simply to serve as a reminder to work- ing engineers that the lives of many people depend upon their efforts. Engineers have more than just an obligation to put in a day’s work for a day’s pay, they must also consider the impact that their actions will have upon the eventual users of the structures or products they design. Many engineering students describe the ceremony as genuinely moving, and find that the ring serves as a constant reminder of their professional ethical obligations.
The existence of a professional association, a certification system, a common body of accepted knowledge, and a shared ethics code, are sometimes treated as the distinguishing marks of a genuine pro- fession.13 This involves some confusion of cause and effect. What makes the complex body of knowledge important is that it generates an information asym- metry, which creates a moral hazard problem that threatens to undermine any market transaction in- volving such specialists. Thus specialists must work hard to cultivate trust among potential purchasers of their services. A certification system, along with a professional association that imposes a stringent code of conduct, is one way of achieving this objective. There may be cases, however, in which a certification system is difficult to devise, or a professional asso- ciation difficult to organize. Such is the case, trad- itionally, with managers (especially during the era
when most were promoted up from the shop floor). Nevertheless, the economic role that managers occupy is a professional one, precisely because of the infor- mation impactedness in the domain of services they provide. The nature of the managerial role is such that they need to be both trusted and trustworthy. This is reflected in the fact that most systems of cor- porate law treat senior managers as fiduciaries of the firm.14 Thus the mere fact that managers do not be- long to professional associations does not mean that they are not professionals, or more importantly, that there is not a distinctive set of ethical obligations that arise out of their occupational role. The fact that they are in a position of trust is what matters.15
Thinking of business ethics in terms of “profes- sional ethics for managers” is an attractive perspec- tive, insofar as it offers some relatively clear criteria for the evaluation of different “theories” or “paradigms” within the field. Managers who take social respon- sibility seriously already have some very firm intui- tions about what constitutes ethical and unethical conduct. The question is whether the vocabulary and the principles that business ethicists develop offer a more or less perspicuous and coherent articulation of these intuitions—whether their theories help us to achieve greater clarity, or whether they sow confu- sion. This is the standard that I shall be employing in this paper. Thus my criticism of the stakeholder approach to business ethics is not that it is false or in- coherent. I shall merely try to show that the vocabu- lary, and the theory that underlies it, is inherently misleading, and thus does not promote useful ways of thinking about corporate social responsibility.16
The Shareholder Model
The managerial role arises as a consequence of the so-called separation of ownership and control in the modern corporation. In the early stages of develop- ment, most corporations are run by the founders, who are also generally the principal owners. At a later point, the owners may choose to employ man-
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agers to assist them in running the firm, or to take over that role entirely. In the same way that indi- viduals employ lawyers in order to advance their in- terests in a legal context, owners hire managers in order to advance their interests in a business con- text. Of course, as the firm becomes more mature, this relationship becomes significantly more com- plex (leading many to argue that the shareholders in a publicly-traded corporation cannot be regarded as its “owners” in any coherent sense). Nevertheless, the fact that shareholders are residual claimants in a standard business corporation means that their in- terests are not protected by an explicit contract. As a result, there is a set of fiduciary principles governing the relationship between managers and sharehold- ers.17 Because the fiduciary relationship imposes upon managers a very broad “duty of loyalty” and “duty of care” toward shareholders—concepts with explicit moral overtones—this particular relation- ship might be thought to serve as a natural point of departure for the development of a theory of busi- ness ethics (in the same way that duties toward the patient form the core of professional ethics for doc- tors, duties toward the client the core of professional ethics for lawyers, etc.).
Yet despite the fact that moral obligations toward shareholders are such a striking feature of the man- agerial role, in the business ethics literature they are the subject of considerable controversy, and are often downplayed or dismissed. (Marjorie Kelly, the editor of Business Ethics magazine, set the tone for one end of this discussion with the title of her article, “Why All the Fuss About Stockholders?”)18 There are sever- al reasons for this relative neglect of the shareholder, some worse than others. In popular debates, there is a tendency when talking about “the corporation” simply to conflate to the two groups (managers and owners), or to assume that there is a greater identity of interests between them than is usually the case. The standard microeconomics curriculum encour- ages this, by starting out with the assumption that individuals maximize utility, but then aggregating
consumers together into “households” and suppliers into “firms”—each of which is thought to maximize some joint utility function—without explaining the transition (this gets reserved for more advanced courses). Even though it is understood that “the firm” is something of a black box in this analysis, the result is still an unhelpful blurring of the distinc- tion between the pursuit of self-interest on the part of individuals and the maximization of profit on the part of firms, and thus a tendency to overestimate the extent to which the latter flows naturally from the former. As a result, it is easy to underestimate the potential for moral hazard in the relationship be- tween managers and shareholders.
The recent scandals at Enron, Parmalat, Tyco, WorldCom, Hollinger, and elsewhere, have shown that shareholders neglect these difficulties at their own peril. In each of the major scandals, managers were able to enrich themselves primarily at the ex- pense of shareholders. (It may be helpful to recall that at its peak, Enron had 19,000 employees and a market capitalization of $77 billion. Thus for each employee who had to look for a new job as a result of the subsequent bankruptcy of the firm, shareholders lost at least $4 million.) The fact that most of these scandals involved illegal conduct should not distract us from the fact that each illegal act was surround- ed by a very broad penumbral region of unethical conduct. For example, it was never decided specific- ally whether the $2.1 million dollar party thrown by Tyco CEO Dennis Kozlowski for his wife’s birthday, half paid out of company funds, constituted fraud or theft, but it most certainly represented a violation of his moral obligation to shareholders.
It is a mistake to believe that self-interest alone, combined with a few performance incentives, is able to achieve a harmony of interest between managers and shareholders. In this respect, a lot of the work done by economists (and game theorists) on the “theory of the firm” has been quite misleading. The overriding objective of many economists has been to extend the methodological tools—and in particular,
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the action theory—used in the analysis of markets to model the internal structure of organizations.19 Thus “principal-agent” theory has focused almost entirely upon the use of external incentives as a mechanism for overcoming collective action and control prob- lems within the firm. In so doing, economists have dramatically underplayed the role that trust, values, social norms, and other aspects of “corporate cul- ture” play in determining organizational behavior.20 Thus they have wasted considerable time and en- ergy devising increasingly baroque performance pay schemes, while neglecting more obvious managerial strategies, such as encouraging employee loyalty to the firm, or cultivating a direct concern for customer satisfaction.21
It is precisely because of the importance of these internal (i.e., moral) incentives, along with the enor- mous potential for abuse, that US corporate law es- sentially imposes a fiduciary relationship between senior managers and shareholders. It is helpful to re- call, for example, the words of an influential US court judgment, concerning the obligations of managers:
He who is in such a fiduciary position can- not serve himself and his cestius second. He cannot manipulate the affairs of his cor- poration to their detriment and in disregard of the standards of common decency and honesty. He cannot by the intervention of a corporate entity violate the ancient precept against serving two masters. He cannot by the use of the corporate device avail himself of privileges normally permitted outsiders in a race of creditors. He cannot utilize his inside information and his strategic position for his own preferment. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do dir- ectly. He cannot use his power for his per- sonal advantage and to the detriment of the stockholders and creditors, no matter how absolute in terms that power may be and
no matter how meticulous he is to satisfy technical requirements, for that power is at all times subject to the equitable limitation that it may not be exercised for the aggrand- izement, preference, or advantage of the fi- duciary to the exclusion or detriment of the cestuis. Where there is a violation of those principles, equity will undo the wrong or intervene to prevent its consummation.22
The obligations enumerated here are sufficiently broad that one could only imagine legal prosecution in cases of the most egregious violation. Thus a very robust theory of business ethics could be developed based simply on the injunction to respect the spirit of this judgment, along with the fiduciary obliga- tions that it outlines toward shareholders. Yet despite this fact, far too little has been said on this subject. The dominant assumption has been that sharehold- ers are able to take care of themselves. Many intro- ductory business ethics textbooks cover topics like whistle-blowing, truth in advertising, pollution, discrimination, and health and safety issues, yet neglect to discuss more common ethical challenges that employees encounter in their day-to-day affairs, such as the temptation to abuse expense accounts.23 Strictly speaking, society should be no more willing to tolerate such abuses when carried out by business executives (wasting shareholders’ money) than when carried out by politicians or civil servants (wasting taxpayers’ money). The reality, needless to say, is quite different. Thus a simple duty of loyalty toward shareholders precludes a lot of the everyday immoral- ity that goes on in firms (but which attracts atten- tion only when it reaches spectacular proportions, as with the recent spate of corporate scandals).
Thus the tendency to overestimate the degree of alignment of managerial and shareholder interests leads to more general failure to appreciate the extent to which shareholders are vulnerable in their rela- tions with managers (just as patients are vulnerable in their relations with doctors, or clients are vulner-
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able in their dealings with lawyers). There is, how- ever, also a more principled reason that obligations toward shareholders tend to get downplayed. There is a widespread perception that the fiduciary rela- tionship between the manager and the shareholder cannot serve as a source of genuine moral obligation. Even though I am morally obliged to keep my prom- ises, if I promise my friend that I will rob a bank that does not mean that I am then morally obliged to rob a bank.24 The same applies to fiduciary relations. Consider the following argument, due to Arthur Applbaum.25 Imagine a Hobbesian state of nature, in which everyone treats everyone else abysmally. Such conduct is immoral. Now imagine that, in this state of nature, each person solemnly swears to stop pursing his own interests, and to begin pursuing the interests of the person next to him. What changes? From the moral point of view, nothing much. It is still the war of all against all, except that now it is be- ing carried out by proxy. Certainly the mere fact that each person is acting “altruistically”—advancing the interests of her neighbor, rather than her own—is not enough to transform this into a morally accept- able state of affairs. If it could, then the simple act of promising would permit unlimited “laundering” of immoral acts into moral ones.
Thus the discussion of the fiduciary responsibil- ities of managers quickly turns into a discussion of the moral legitimacy of the goals being pursued by shareholders. This in turn must lead to a discussion of the moral status of profit (since this is the interest of shareholders that managers are generally understood to be advancing). It is here that the “ethical” status of business ethics begins to seem problematic. Indeed, Milton Friedman’s well-known article “The Social Responsibility of Business Is to Increase its Profits,” which presents the ethical obligation to maximize the returns of shareholders as the cornerstone of a con- ception of business ethics, usually shows up in busi- ness ethics textbooks, not as the point of departure for further development of the theory, but rather as an example of an instructively mistaken point of
view.26 The problem is that “profit” is associated, in many people’s minds, with “self-interest.”27 “Ethics,” on the other hand, is usually associated with behavior that is “altruistic,” in some sense of the term. More precisely, morality can be understood as a “principled constraint on the pursuit of self-interest.”28 If this is the case, then substituting “profit” for “self-interest” yields the conclusion that business ethics must repre- sent some sort of principled constraint on the pursuit of profit—not an injunction to maximize it.29
In the case of doctors, who must do everything in their power to promote the health of their pa- tients, it is easy to see that health is a good thing, and so efforts to promote it in others must also be good. This is more difficult to see in the case of managers and wealth, especially in cases when increasing the wealth of shareholders can only be achieved at the expense of others. Yet managers who take their re- sponsibilities toward shareholders seriously are often put in a situation where they must effect pure dis- tributive transfers—often regressive ones between workers and shareholders. Here it becomes difficult to see what is so ethical about business ethics.
Thus in order to see managerial obligations to- ward shareholders as genuine moral obligations, one cannot merely point to their fiduciary status, one must also come up with some justification for the role that profit-taking plays in a capitalist economy. There are two general strategies for doing so. The first, which might be thought of as broadly Lockean, defends profits as the product of a legitimate exercise of the shareholder’s property rights, under conditions of freedom of contract. According to this view, the shareholder is entitled to these profits for the same reason that the creditor is entitled to repayment with interest, or that the worker is entitled to her wages. This is not very compelling, however, because the Lockean theory is one that defines the individual’s legal rights, but makes no pretence of accounting for her moral obligations. Thus, for example, the Lock- ean thinks that we have no legal obligation to give anything to charity, and our property rights protect
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us from any seizure of our assets for such purposes. But this does not mean that we have no moral obli- gation to give to charity. Ordinary morality tells us that wealth is not an overriding value, and so there would appear to be many cases where the profit mo- tive is trumped by other considerations. This makes it unethical for shareholders to pursue profits in par- ticular ways, and thus unethical for managers to as- sist them in carrying out such strategies.
The more promising defense of profit is the Pare- tian one, which points to the efficiency properties of the market economy as a way of justifying the profit orientation of firms. According to this view, the point of the market economy is not to respect individual property rights, but rather to ensure the smooth operation of the price system. The profit orientation is valued, not because individuals have a right to pur- sue certain interests, but rather because it generates the competition necessary to push prices toward the levels at which markets clear.30 When markets clear, it means that all resources will have been put to their best use, by flowing to the individuals who derive the most relative satisfaction from their consumption. The spirit of the Paretian approach is best expressed in the “invisible hand” theorem of welfare econom- ics, which shows that the equilibrium of a perfectly competitive market will be Pareto-optimal (i.e., it will be impossible to improve anyone’s conditions without worsening someone else’s).31
Yet this framework still seems to be, in many ways, not “ethical enough” to satisfy many people’s intuitions.32 It offers a seal of approval, for instance, to a wide range of so-called sharp practices in market transactions (which, despite being legal, nevertheless offend our intuitive moral sensibilities). And while it has been pointed out many times that firms sel- dom profit in the long run from abusing employees, cheating customers, or taking advantage of suppli- ers, it nevertheless remains true that in certain cases it can be profitable to do so. In other words, it is simply not the case that the interests of sharehold- ers always line up with those of workers, custom-
ers, suppliers, and other groups with an interest in the firm’s decisions. There are genuine conflicts that arise, and it is not obvious that the ethical course of action for managers in every instance is to take the side of shareholders, respecting no constraints beyond those imposed by law. But if this is so, the question becomes how far one should go, as a man- ager, in advancing the interests of the principal, and when one should start showing more concern for others who are affected by one’s actions. Yet even to pose the question in this way is to reveal the limita- tions of any theoretical approach to business ethics that takes obligations to shareholders as the sole cri- terion of ethical conduct in business.
The Stakeholder Model
The shareholder approach to business ethics suffers, first and foremost, from the taint of moral laxity. It does not seem to impose enough obligations upon managers to satisfy the moral intuitions of many people. In particular, it suggests that, as R. Edward Freeman puts it, “management can pursue market transactions with suppliers and customers in an un- constrained manner.”33 Thus the suggestion has been made that managers have moral obligations, not just to shareholders, but to other groups as well. Freeman introduced the term “stakeholders” as a “generaliza- tion of the notion of stockholders,” in order to refer to “groups and individuals who benefit from or are harmed by, and whose rights are violated or respect- ed by, corporate actions.”34 He went on to make the suggestion that managers have fiduciary obligations toward multiple stakeholder groups.
This overall approach has proven to be remarkably influential, and it is not difficult to see why. After all, we understand quite clearly what it means for man- agers to have fiduciary obligations toward sharehold- ers. By construing relations with “stakeholders” on analogy, Freeman provided an intuitively accessible framework for articulating the sorts of moral obliga- tions that the shareholder model elides. (In the same
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way, the term “social capital” has become popular, precisely because people understand what capital is, and so construing social capital on analogy with real capital provides an intuitively accessible framework for thinking about collective action.)
Of course, the term “stakeholder” has been picked up and used quite widely, even by those who do not share Freeman’s views on the structure of managerial obligations. For example, so-called strategic stakeholder theory argues that managers must exercise moral restraint in stakeholder relations as a way of discharging their fiduciary obligations to- ward shareholders (i.e., “ethics pays”). Freeman, on the other hand, claims that managers must exercise moral restraint in dealings with stakeholders because managers have direct fiduciary obligations toward those stakeholders. Shareholders, according to this view, are just one stakeholder group among many. Managers have fiduciary obligations toward shareholders only because shareholders are stakeholders, and managers have fiduciary obligations toward all stakeholders.35
Thus Kenneth Goodpaster identifies the key characteristic of Freeman’s theory when he refers to it as the “multi-fiduciary stakeholder” theory.36 What matters is the idea that managers have fidu- ciary obligations toward multiple groups—regard- less of whether these groups are called stakeholders or something else. Thus the two components of the theory are separable—one need not conceive of stakeholder relations as fiduciary relations. Never- theless, stakeholder vocabulary is often used as a way of expressing tacit commitment to the multi-fiduci- ary view. As a result, some of the obvious weaknesses of the position tend to be overlooked. As Goodpas- ter observes, the fact that managers have moral obli- gations with respect to customers, employees, and other groups, does not mean that these obligations must take a fiduciary form. There is some danger of being seduced by the metaphor, leading one to think that the status of stakeholders is much closer to that of shareholders than it in fact is. For example, the manager might have an obligation to respect certain
rights of customers, without also having a fiduciary duty to advance their interests.
If managers really are to be regarded as fiduciaries of stakeholder groups, it raises immediate difficulties with respect to questions of corporate governance. Freeman suggests that the manager must become like “King Solomon,” adjudicating the rival claims of various stakeholder groups. Yet giving managers the legal freedom to balance these claims as they see fit would create extraordinary agency risks. On the one hand, managers would need to be protect- ed from being fired by shareholders upset over the performance of their investments.37 But even more significantly, it would become almost impossible for members of any stakeholder group to evaluate the performance of management. It is difficult enough for shareholders to determine whether managers are actually maximizing profits, given available re- sources. But when profits can be traded off against myriad other objectives, such as maintaining em- ployment, sustaining supplier relationships, and protecting the environment, while managers have the discretion to balance these objectives as they see fit, then there is really no alternative but to trust the word of managers when they say that they are doing the best they can. The history of state-owned enter- prises shows that the “multiple objectives” problem can completely undermine managerial discipline, and lead to firms behaving in a less socially respon- sible manner than those that are explicitly commit- ted to maximizing shareholder value.38
Setting aside these practical difficulties, the plausibility of multi-fiduciary stakeholder theory also depends quite heavily upon how broadly the term “stakeholder” is understood. This so-called identification problem has attracted considerable at- tention.39 Freeman distinguishes between a “narrow definition” of the term, which refers to groups that are “vital to the success and survival of the firm,” and a “wide definition,” which refers to any group “who can affect or is affected by the achievement of the organization’s objectives.”40 The former includes
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employees, customers, suppliers, but also, in most formulations of the theory, the local community. The wide definition, on the other hand, is so wide that it becomes equivalent to “all of society.” (For example, every pricing decision made by the firm contributes to the national inflation rate, which in turn affects every member of society. So if a stake- holder is anyone affected by the corporation, then everyone is a stakeholder in everything.) Yet the idea that managers are fiduciaries for “all of society” sim- ply collapses business ethics into general ethics (i.e., general utilitarianism, Kantianism, Christian ethics, or what have you). Thus theorists who believe that the managerial role imposes special obligations upon the individual have tended to stick to the narrower definition of the stakeholder.
From the moral point of view, however, there seems to be no reason for the firm to pay special attention to stakeholders in the narrow sense of the term. There are plenty of good strategic reasons for managers to worry most about those whose contri- bution is vital to the success of the firm, but it is difficult to see what moral ones there could be. The groups that are conventionally classified as stakehold- ers in the narrow sense are not necessarily those with the most at stake in a particular decision, in terms of their potential welfare losses. In fact, if one looks at the standard list of stakeholder groups (custom- ers, suppliers, employees and the local community), it tends rather to be those who are the best organ- ized, or who have the most immediate relationship to the firm, or who are best positioned to make their voices heard. Thus stakeholder theory often has a “squeaky wheel” bias.41 For example, when General Motors considers closing down a plant in Detroit and moving it to Mexico, a standard multi-fiduci- ary stakeholder theory would insist that managers take into account the impact of their decision, not just upon their workers in Detroit, but also upon other members of the community whose livelihood depends upon their wages. Thus the “local com- munity” in Detroit where the plant is located would
normally be counted as a “stakeholder.” But what about the “local community” in Mexico, where the plant would be located? And what about the people there who would be getting jobs?42 Presumably they also have a lot at stake (possibly even more, in terms of welfare, given the relative poverty of the society in which they live). The fact that General Motors has built up a relationship over time with the people in Detroit may well count for something, but it cannot justify ignoring the interests of the people in Mexico. From the moral point of view, a potential relation- ship can be just as important as an actual one.43 The only real difference between the groups is that po- tential employees do not know who they are, and so are unable to organize themselves to articulate their interests or express grievances. But it is difficult to see why—from a moral, rather than a strategic point of view—this should give managers the freedom to leave potential employees, or potential “local com- munities,” off the list of groups that the firm has an obligation to.
Because stakeholder theory focuses on the re- lationship between the manager and different “groups” within society, it tends to privilege the in- terests of those who are well-organized over those who are poorly organized, simply because it is the former who are able to present themselves as a co- herent body with a common set of interests. To see this bias in action, one need only look at the dif- ference in the way that different stakeholder theor- ists conceive of “social responsibility” and the way that governments have traditionally approached it.44 In this context, it is useful to recall that the wide- spread nationalization of industry that occurred in Western Europe after the Second World War was motivated, in large part, by the desire of democratic governments to make corporations behave in a more socially responsible manner. The thought was that corporations behaved irresponsibly because owners put their private interests ahead of the public good. By transferring ownership to the state, the people as a whole would become the owners, and so the
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corporation would no longer have an incentive to pursue anything other than the public good.
Needless to say, this initiative did not have pre- cisely the results that were anticipated. The interest- ing point, however, lies in the agenda that various governments initially laid out for these firms. First and foremost, state-owned enterprises were ex- pected to play an important role in assisting the state to implement macroeconomic stabilization policies: attenuating the business cycle by making countercyclical investments; maintaining excess employment during recessionary periods; and fol- lowing self-imposed wage and price controls when necessary, in order to control inflation. Similarly, state-owned enterprises were expected to serve the national interest in various ways, either by provid- ing goods at discounted prices when supplying do- mestic industry, serving as a guaranteed market for domestically produced goods, or by assisting in the “incubation” of industries intended to bolster inter- national competitiveness. They were of course also expected to act as model employers with respect to their workers, to refrain from polluting, to promote regional development, and so forth. While there is significant overlap between the latter set of object- ives and the traditional concerns of many stakehold- er theorists, there are also some striking differences. In particular, one can search the stakeholder litera- ture long and hard without finding any mention of the way that firms can contribute to macroeconomic stability. The reason, I would suggest, is that there are no organized or clearly identifiable “stakeholder” groups in this case. After all, how does one iden- tify those who are harmed by inflation? It is, by and large, an extremely diffuse group of individuals. As a result, business ethicists working within the stake- holder paradigm have had a tendency simply to ig- nore them. For example, I am not aware of anyone having suggested that managers should refrain from granting inflationary wage increases to workers (i.e., increases that are not funded by productivity gains). Governments, on the other hand, have traditionally
been concerned with these questions, precisely be- cause they do have a mandate to defend the welfare of all citizens, and to promote the public interest.
As a result, if one interprets the term “stakehold- er” in the narrow sense, it introduces an unacceptable element of arbitrariness into business ethics. If one expands the definition, such that anyone affected by the firm’s actions will be considered a stakeholder, multi-fiduciary stakeholder theory amounts to the claim that the manager should be motivated by gen- eral considerations of social justice. This risks ren- dering the stakeholder vocabulary nonsensical, since the concept of a “fiduciary” relation is inherently contrastive. Being a loyal fiduciary involves showing partiality toward the interests of one group, not an impartial concern for the interests of all. Further- more, if the manager is obliged to show impartial concern, the question then becomes, is he or she the person best equipped, or best positioned, to be mak- ing these judgments? As Friedman pointed out long ago, normative issues at this level of generality seem to be a more appropriate topic for public policy and democratic deliberation.45 It is simply not obvious that the manager’s obligations should be determined by these concerns.
Part of the unwillingness to accept this line of reasoning stems from a rejection of the idea that there might be an institutional “division of moral labor,” such that not everyone is morally responsible for everything at all times. Many of the most subtle and difficult questions in professional ethics involves dealing with the way that obligations are divided up and parceled out to different individuals occupying different institutional roles. This is especially tricky in cases where the institution has an adversarial structure.46 For example, the role of a defense attor- ney in a criminal trial is to advance the interests of her client by mounting a vigorous defense. Naturally, the overall goal of the procedure is to see that “jus- tice” is served. But that does not make the defense attorney directly accountable to what she thinks is “just” in any particular case. Her job is to defend
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her client (and in fact, mounting a less-than-vigor- ous defense, because she happens to believe that her client is guilty, constitutes a serious violation of pro- fessional ethics). The victim of the crime is no doubt a “stakeholder” in these proceedings, but that does not mean that the defense attorney has a fiduciary obligation toward this individual. Both as a human being and as an officer of the court, she no doubt has ethical obligations toward victims of crime. But qua defense attorney, her obligation in many cases will be to disregard this everyday moral constraint. Justice arises through the interaction of her role-spe- cific obligations with those of the crown prosecutor (or district attorney) and the judge. Of course, this is not to say that defense attorneys should do anything to secure the acquittal of their clients, or should not respect certain constraints in dealing with victims. There are clearly ethical and unethical ways to pro- ceed. The point is that the vocabulary of fiduciary obligation does not provide a useful way of formu- lating these constraints. Furthermore, the idea that attorneys should seek to promote justice by balan- cing the interests of all affected parties is in tension with the role-differentiation that is a central com- ponent of the adversarial trial procedure.
Turning to business ethics, the first thing to note is that market transactions also have an adver- sarial structure (insofar as prices are competitively determined). One can see the problems that this creates for multi-fiduciary stakeholder theory by considering the attempts that have been made to classify “competitors” amongst the relevant stake- holder groups (or more often, the way that “com- petitors” are tacitly excluded without discussion).47 After all, competitors are clearly affected by many of the decisions taken by the firm. Furthermore, since competitors have the power to drive the firm into bankruptcy, their behavior is often vital to its suc- cess or failure. Yet it seems obvious that managers do not have any fiduciary obligations toward rival corporations. After all, the price mechanism func- tions only because of an unresolved collective ac-
tion problem between firms. No company sets out with the intention of selling goods at a price that clears the market. Often no one even knows what that price is. It is only when firms compete with one another, undercutting each other’s prices in order to increase their market share, that the selling price will be driven down to market-clearing levels. This is a classic form of non-cooperative behavior, since it is not normally profit-maximizing overall for firms to sell at this price level. They do it only because they are stuck in a collective action problem.
Thus there is a significant difference between mar- ket transactions and the administered transactions that occur within the organizational hierarchy of the firm. The former, because they are mediated through the price system, have an intrinsically adversarial ele- ment, since prices are supposed to be determined through competition (and considerable legal effort is invested in the task of keeping things that way). Since many of the socially desirable outcomes of the market economy are a consequence of the operation of the price mechanism, it is not clear that individ- ual firms, much less managers, should be held dir- ectly accountable to them. Yet the possibility of such differentiated roles is tacitly denied by the wide ver- sion of stakeholder theory, which demands that the manager be ethically responsible for balancing the interests of everyone who is affected by the firm’s ac- tions, regardless of whether they are in a competitive or a cooperative relationship.
The Market Failures Model
Despite these difficulties, the stakeholder paradigm still exercises an extraordinary grip over the imagina- tion of many business ethicists.48 It is all too often assumed that the stakeholder theory and the share- holder theory exhaust the logical space of alterna- tives. As a result, theorists like Marjorie Kelly and Max Clarkson have sought to defend stakeholder theory by mounting increasingly spirited attacks on the idea that managers have any particular obliga-
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tions to shareholders. The cornerstone of this “noth- ing special about shareholders” defense is the claim that shareholders are not really “owners” of the firm in any meaningful sense.49 Thus Clarkson cites with approval the fact that “serious questions are being raised about the belief, widely held in North Amer- ica, that the purpose of the corporation in society is to maximize profits and financial value for the primary benefit of its shareholders, who are also assumed, mistakenly, to be the corporation’s owners.”50
It is perhaps worth noting that this particular strategy for defending the stakeholder paradigm has the unhelpful effect of making business ethics extremely unintuitive for those who actually work in a standard corporate environment, where the understanding that shareholders own the firm is still widespread. In particular, the downgrading of share- holder claims creates an enormous tension with cor- porate law, which remains very much committed to the idea that shareholders have a special status with- in the firm, and that managers owe them fiduciary duties.51 Of course, it is always possible for the law to be unethical. Nevertheless, this problem is more serious than it would at first appear. If one could produce a sound argument for the conclusion that managers have fiduciary obligations toward various stakeholder groups, one would also have produced a strong prima facie argument for the legal enforce- ment of these obligations. Thus stakeholder theorists have invested some effort in attempting to show that corporate law has in fact been evolving in the direc- tion of increased recognition of stakeholder claims.52 And it is here, I think, that one can see where the most instructive misunderstanding arises.
There can be no doubt that the development of the welfare state in the twentieth century has coincid- ed with increased regulation of the market. Health and safety in the workplace, the minimum wage, unionization procedures, product warranties, “truth in advertising” and product labeling, toxic emis- sion controls, environmental impact studies, even the size and location of commercial signage—have
all become subject to increasingly strict controls. Furthermore, it is clear that all of these regulations respond, in one way or another, to the type of issues that have traditionally been of concern to business ethicists. Each regulation amounts to a legal pro- hibition of a form of corporate conduct that was at one time merely unethical. The question is how we should understand these developments. Free- man argues that the growth in regulation constitutes an increased legal recognition of stakeholder claims.53 This is, I will argue, a serious misunderstanding. The growth of regulation over the course of the twentieth century goes hand-in-hand with the increased posi- tive economic role of the state in supplying public goods. Both represent strategies aimed at correcting market failure. As a result, I think that the concept of market failure provides a much more satisfactory framework for understanding the growth of regula- tion—and thus the increased legal entrenchment of the social responsibilities of business—than that of stakeholder claim recognition.
Setting aside Germany’s “co-determination” ar- rangements, the closest one can find to an explicit recognition of stakeholder claims is the spread of statutes that allow boards of directors to consider the impact that a hostile takeover would have on non-shareholder groups in determining whether resistance to such takeovers would be “reasonable.” These so-called other constituency statutes adopted in many US states (although not Delaware), typ- ically permit (and occasionally require) “officers and directors to consider the impact of their decisions on constituencies besides shareholders.”54 Thomas Donaldson and Lee Preston describe this as a “trend toward stakeholder law.”55 It is significant, however, that these statutes do not impose fiduciary duties, and were largely motivated by a desire on the part of legislators to make hostile control transactions more difficult, based upon a perception that take- overs generate significant social costs. Thus “other constituency” statutes have a lot in common with enabling statutes for “poison pill” and “shark repel-
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lent” defenses. I would argue that they are therefore better understood as an attempt to curtail a (per- ceived) market failure in the stock market than as a legal recognition of stakeholder claims.
The politics of “other constituency” statutes is a complex issue, however, which I do not want to get into here. My primary concern is to illustrate the style of analysis suggested by the market failures perspective. A market failure represents a situation in which the competitive market fails to produce a Pareto-efficient outcome (or for our purposes, let us say, fails egregiously to produce an efficient out- come). There are two primary institutional responses to market failure. The first involves the creation of the corporation itself, which is based upon the sub- stitution of an organizational hierarchy and a set of administered transactions for a competitive mar- ket. The central characteristic of the firm, as Ronald Coase observed in his classic work, is the internal elimination of market transactions and the “super- session of the price mechanism.”56 In more contem- porary terms, we would say that the corporation substitutes a set of principal-agent relations for the non-cooperative relations of marketplace competi- tion. However, because of the limitations of external incentive schemes, these agency relations can often be organized only through some combination of moral and prudential constraint.57 Thus the central of focus of business ethics, in an intrafirm context, involves promoting cooperative behavior within these agency relationships (as Allen Buchanan has argued, in my view persuasively58). First and fore- most among these obligations will be the fiduciary duty that managers have as the agents of sharehold- ers. Thus when dealing with relationships or trans- actions “inside” the organizational hierarchy of the firm, the market failures approach to business ethics follows the shareholder-focused view quite closely. With respect to individuals who are “outside” the firm, on the other hand, it is quite different.
The second primary institutional response to market failure is less drastic than the first; it involves
preservation of the market transaction, but subject to some more extensive set of legal, typically regula- tory, constraints. To see the rationale for this strat- egy, it is helpful to recall that the point of permitting profit-maximizing behavior among firms in the first place is to promote price competition, along with all the beneficial “upstream” and “downstream” ef- fects of such competition, such as technical innova- tion, quality improvement, etc. Under conditions of “perfect competition,” lower price, improved quality and product innovation would be the only way that firms could compete with one another. We can refer to these as the set of preferred competitive strategies. Unfortunately, in the real world, the so-called Par- eto conditions that specify the terms of perfect com- petition are never met. In order for competition to generate an efficient allocation of goods and services, there must be an absence of externalities (e.g., a com- plete set of property rights), symmetric information between buyers and sellers, a complete set of insur- ance markets, and rational, utility-maximizing agents with dynamically consistent preferences. Because of the practical impossibility of satisfying these con- straints, firms are often able to make a profit using non-preferred competitive strategies, such as produ- cing pollution, or selling products with hidden qual- ity defects.59 This is what generates market failure. The basic rules for marketplace competition laid down by the state—including the system of property rights—are designed to limit these possibilities, in or- der to bring real-world competition closer to the ideal (or to bring outcomes closer to those that would be achieved under the ideal, in cases where a functional competition cannot be organized). This is the motiv- ation that underlies not only direct state provision of public goods, such as roads, but also state regulation of negative externalities, such as pollution.60
Unfortunately, the law is a somewhat blunt in- strument. In many cases, the state simply lacks the information needed to implement the measures needed to improve upon a marketplace outcome (sometimes because the information does not exist,
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but often because the state has no way of extract- ing it truthfully from the relevant parties). Even when the information can be obtained, there are significant administrative costs associated with rec- ord-keeping and compliance monitoring, not to mention the costs incurred by firms in an effort to evade compliance. Thus the deadweight losses im- posed through use of the legal mechanism can easily outweigh whatever efficiency gains might have been achieved through the intervention. This often makes legal regulation unfeasible or unwise.
It is at this point that ethical constraints become germane. As we have seen, profit is not intrinsically good. The profit-seeking orientation of the private firm is valued only because of the role that it plays in sustaining the price system, and thus the contribu- tion that it makes to the efficiency properties of the market economy as a whole. Ideally, the only way that a firm could make a profit would be by em- ploying one of the preferred strategies. However, for strictly practical reasons, it is often impossible to cre- ate a system of laws that prohibits the non-preferred ones. Thus according to the market failures per- spective, specifically ethical conduct in an extrafirm business context (i.e., when dealing with external parties) consists in refraining from using non-pre- ferred strategies to maximize profit, even when do- ing so would be legally permissible. Put more simply, the ethical firm does not seek to profit from market failure. In many cases, doing so will be illegal—pre- cisely because the state has tried, through increased regulation, to eliminate the use of non-preferred competitive strategies. Ethical constraint becomes relevant in the rather large penumbral region of strategies that are not illegal, and yet at the same time are not among the preferred.
Corporations, for instance, are often in a pos- ition where they can produce advertising that will be quite likely to mislead the consumer, but which stops short of outright falsity. In a perfect world, ad- vertising would provide nothing more than truthful information about the qualities and prices of goods.
However, the vagaries of interpretation make it im- possible to prohibit anything but the most flagrant forms of misinformation. Thus misleading advertis- ing stands to false advertising as deception does to fraud. It is something that would be illegal, were it not for practical limitations on the scope of the legal mechanism. Profiting from such actions is therefore morally objectionable, not because it violates some duty of loyalty to the customer (as stakeholder theory would have it), but because it undermines the social benefits that justify the profit orientation in the first place. (In a sense, the invisible hand no longer works to transform private vice into public virtue in this case, and so we are left merely with vice.)
In this respect, the market failures approach to business ethics is a version of what Bruce Langtry calls “tinged stockholder theory,” which holds that “firms ought to be run to maximize the interests of stockholders, subject not only to legal constraints but also to moral or social obligations.”61 Indeed, it has been well understood for a long time that a shareholder-focused model with a set of deontic constraints (or “side constraints”) on the set of per- missible profit-maximizing strategies represents a plausible alternative to the stakeholder model.62 What distinguishes the market failures approach from other such proposals is the specific account of how these constraints should be derived. Rather than trying to derive them from general morality (as Langtry does by focusing on the “moral rights” of individuals affected by the firm, or as Goodpas- ter does even more explicitly through appeal to the “moral obligations owed by any member of society to others”), the market failures approach takes its guidance from the policy objectives that underlie the regulatory environment in which firms com- pete, and more generally, from the conditions that must be satisfied in order for the market economy as a whole to achieve efficiency in the production and allocation of goods and services. Furthermore, by focusing on the distinction between administered transactions and market transactions, it is able to of-
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fer a principled basis for the difference in structure between the intrafirm obligations owed to share- holders and the extrafirm obligations owed to other groups affected by the actions of the corporation.
When one adopts this market failures perspec- tive, there is no reason to think that a conception of business ethics that continues to place primary emphasis upon the fiduciary responsibility toward shareholders cannot deal with the ethical obliga- tions that have traditionally been described under the heading of “corporate social responsibility.” What so often upsets people about corporate behav- ior—and what gives profit-seeking a bad name—is the exploitation of one or another form of market imperfection. People generally have no problem with companies that make money by providing good service, quality goods, low prices, and so forth. For example, if all companies fully internalized all costs, and charged consumers the full price that the production of their goods imposed upon society, I believe it would be impossible to make the case for any further “social responsibility” with respect to the environment. Thus the market failures approach to business ethics is able to retain the intuitively famil- iar idea that managers have fiduciary duties toward shareholders, and that the primary goal of corpora- tions is to make a profit. Yet it is able to avoid the charge of moral laxity often leveled against the share- holder model of business ethics, because it imposes strict moral constraints on the range of permissible profit-maximization strategies.
There is a close analogy, from this perspective, between “corporate social responsibility” and the concept of “good sportsmanship” in competitive team sports. In the case of sports, the goal is clear- ly to win—but not by any means available. Every sport has an official set of rules, which constrain the set of admissible strategies. Yet it will generally be impossible to exclude strategies that respect the let- ter of the law, while nevertheless violating its spirit (e.g., taking performance-enhancing drugs that have other legitimate uses, and therefore have not been
banned). “Good sportsmanship” consists in a will- ingness to refrain from exploiting these loopholes, while nevertheless retaining an adversarial orienta- tion. In other words, the obligation is to be a team player and to compete fairly, but not necessarily to let the other side win. The fundamental problem with stakeholder theory is that it tries to eliminate the adversarialism of the managerial role, rather than merely imposing constraints upon it.
Conclusion
One of the charges that hostile critics frequently make against business ethicists is that they are im- plicitly, if not explicitly, anti-capitalist. Insofar as one equates business ethics with the stakeholder paradigm, there is more than a grain of truth in this accusation. Goodpaster was certainly not wrong to observe that the multi-fiduciary stakeholder theory “blurs traditional goals in terms of entrepreneurial risk-taking, pushes decision-making towards paraly- sis because of the dilemmas posed by divided loyal- ties and, in the final analysis, represents nothing less than the conversion of the modern private corpora- tion into a public institution and probably calls for a corresponding restructuring of corporate governance (e.g., representatives of each stakeholder group on the board of directors).”63 There is, of course, noth- ing wrong in principle with arguing for institutional reforms of this sort. But a theory that has this as its consequence is unlikely to provide much guidance when it comes to dealing with the ethical challenges that arise in the day-to-day operations of firms in an unreformed capitalist economy.
One of the central advantages of the market failures approach to business ethics is that, far from being antithetical to the spirit of capitalism, it can plausibly claim to be providing a more rigorous ar- ticulation of the central principles that structure the capitalist economy. If firms were to behave more eth- ically, according to this conception, the result would be an enhancement of the benefits that the market
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provides to society, and the elimination of many of its persistent weaknesses. It would help to perfect the private enterprise system, rather than destroy it.
Of course, none of this is intended to show that one cannot continue to talk about corporate social responsibility in terms of stakeholder interests. The question is simply whether this vocabulary encour- ages a more or less perspicuous articulation of the im- portant moral issues. In this respect, it is important to remember that the term stakeholder was coined precisely in order to suggest an analogy between the relationship that managers have with shareholders and the relationship that they have with other in- terested parties. But as we have seen, the moral obli- gations that managers have toward these disparate groups are not analogous; in fact they are quite dis- similar. So while the term “stakeholder” may remain a useful piece of shop-talk in strategic management circles, as a piece of ethical vocabulary, for use in a theory that tries to articulate the central moral obligations of managers, it is inherently misleading. It creates considerable mischief in business ethics, while offering no real conceptual gain.
Notes The author would like to thank Wayne Nor-
man and Alexei Marcoux for their input and advice with the writing of this paper.
1 For a discussion of the scope and impact of stakeholder theory, see Thomas Donaldson and Lee E. Preston, “The Stakeholder Theory of the Corporation: Concepts, Evidence and Implica- tions,” Academy of Management Review Vol. 20 (1995): 65-91. For an overview, see Jeffrey S. Harrison and R. Edward Freeman, “Stakehold- ers, Social Responsibility and Performance: Empirical Evidence and Theoretical Perspec- tives,” Academy of Management Journal Vol. 42 (1999): 479-85.
2 Ronald K. Mitchell, Bradley R. Agle, and Donna J. Wood, “Toward a Theory of Stake- holder Identification and Salience,” Academy of
Management Review Vol. 22 (1997): 853-86, at 855.
3 See, for example, Joseph R. DesJardins and John J. McCall, Contemporary Issues in Busi- ness Ethics, 5th ed. (Belmont, CA: Wadsworth, 2005). In Robert C. Solomon and Clancy Mar- tin, Above the Bottom Line, 3rd ed. (Belmont, CA: Wadsworth, 2004), the authors go so far as to introduce the environment as “the silent stakeholder,” 310.
4 For a recent, high-profile example, see “Survey: Corporate Social Responsibility,” The Econo- mist (Jan. 20, 2005).
5 The first two correspond well to the typology introduced by John Hasnas, “The Normative Theories of Business Ethics: A Guide to the Per- plexed,” Business Ethics Quarterly 8:1 (1998): 19- 42. On the third, my “market failures” model differs from the “social contract model,” in that it provides more explicit recognition of the ad- versarial structure of market transactions.
6 Thus, for example, Milton Friedman, the most influential proponent of the shareholder-fo- cused view, criticizes the loose talk about “busi- ness” having social responsibility, and argues that these responsibilities, should there be any, must fall upon the shoulders of managers. “The Social Responsibility of Business Is to Increase Its Profits,” New York Times Magazine (Sept. 13, 1970). Similarly, R. Edward Freeman, in his classic work on stakeholder theory, Strategic Management: A Stakeholder Approach (Boston: Pitman, 1984), identifies it quite explicitly as a set of obligations that fall upon managers, as part of their professional role.
7 John C. Maxwell, There’s No Such Thing as “Busi- ness” Ethics: There’s Only One Rule for Making Decision (New York: First Warner, 2003). One can find a considerably more sophisticated, but essentially similar, version of this idea in Nor- man Bowie, Business Ethics: A Kantian Perspec- tive (Oxford: Blackwell, 1995).
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8 This is the framework that is implicitly assumed by Andrew Stark, in his widely discussed paper, “What’s the Matter with Business Ethics?” Harvard Business Review (May/June 1993).
9 The locus classicus is Emile Durkheim, Profes- sional Ethics and Civic Morals, trans. Cornelia Brookfield (Glencoe: Free Press, 1958).
10 For an overview of moral hazard in this context, see Paul Milgrom and John Roberts, Economics, Organization and Management (Upper Saddle River, NJ: Prentice Hall, 1992), 167-97.
11 Oliver Williamson, “Markets and Hierarchies: Some Elementary Considerations,” American Economic Review Vol. 63 (1973): 316-25, at 318.
12 This is why, as R.M. MacIver emphasizes, “Each profession tends to leave its distinctive stamp upon a man, so that it is easier in general to distinguish, say the doctor and the priest, the teacher and the judge, the writer and the man of science than it is to discern, outside their work, the electrician from the railwayman or the plumber from the machinist.” “The So- cial Significance of Professional Ethics,” Annals of the American Academy of Political and Social Science Vol. 101 (1922): 5-11, at 11.
13 See, for example, Rakesh Khurana, Nitin Nohria, and Daniel Penrice, “Management as a Profession” in Restoring Trust in American Busi- ness, ed. Jay W. Lorsch, Leslie Berlowizt, and Andy Zelleke (Cambridge, MA: MIT Press, 2005).
14 Robert C. Clark, “Agency Costs vs. Fiduciary Duties,” in John W. Pratt and Richard J. Zeck- hauser, Principals and Agents: The Structure of Business (Cambridge, MA: Harvard Business School Press, 1985).
15 It is worth noting that there have been some moves afoot among business schools to start offering students some of the trappings of a professional association. One school in Can- ada, for instance, has begun offering a ring
ceremony modeled on that of engineers, where students “make a public oath to behave honor- ably and, in return, receive an inscribed silver ring to wear as a reminder.” Jane Gadd, “Is Ethics the New Bottom Line?” The Globe and Mail (March 8, 2005), E6. It seems to me that the question of whether we want to describe management as a profession should not depend upon the success or failure of such efforts.
16 There are parallels between this aspect of my argument and that of Wayne Norman and Chris MacDonald, who argue that so-called 3BL accounting is also “inherently mislead- ing.” See “Getting to the Bottom of the ‘Triple Bottom Line,’” Business Ethics Quarterly Vol. 14 (2004): 243-62, at 254.
17 This should be interpreted as a positive (i.e., factual) claim about the structure of corpor- ate law. See Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of Corpor- ate Law (Cambridge, MA: Harvard University Press, 1991), 90-91. Whether managers should be fiduciaries of shareholders, or just sharehold- ers, is of course the subject of considerable con- troversy among business ethicists. For a defense of the claim that they should be, see Alexei M. Marcoux, “A Fiduciary Argument Against Stakeholder Theory,” Business Ethics Quarterly 13:1 (2003): 1-25.
18 Marjorie Kelly, “Why all the Fuss about Stock- holders?” reprinted in her The Divine Right of Capital (San Francisco: Berrett-Koehler, 2001).
19 The paper that really set economists off in the wrong direction was Armen A. Alcian and Harold Demsetz’s “Production, Information Costs, and Economic Organization,” Amer- ican Economic Review Vol. 63 (1972): 777-95, with their suggestion that the firm is really just a “privately owned market,” 795. It should be noted, however, that subsequent work by in- centive theorists has been considerably less san-
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guine about the efficiency properties of such “markets.”
20 For a critique of these and other “framing as- sumptions” in agency theory, see J. Gregory Dees, “Principals, Agents and Ethics,” in Ethics and Agency Theory, ed. Norman E. Bowie and R. Edward Freeman (New York: Oxford University Press, 1992), 35; also John Boatright, Ethics in Finance (Oxford: Blackwell, 1999), 49.
21 For example, the chapter in Milgrom and Rob- erts, Economics, Organization and Management, on moral hazard has a section entitled “Control- ling Moral Hazard” (185-92), which discusses, among other things, employee monitoring, supervision, incentive contracts, performance pay, bonding, and ownership changes as man- agerial strategies for preventing shirking. At no point is it mentioned that employees may re- spond to changes in “internal” motives (such as whether they love or hate the company they work for). It also exhibits a lack of concern for the fact that external performance incentives, such as pecuniary compensation, have the po- tential to “crowd out” moral incentives, and thus in some cases generate collective action problems rather than resolve them. See Bruno S. Frey, Felix Oberholzer-Gee, and Reiner Eichenberger, “The Old Lady Visits Your Back- yard: A Tale of Morals and Markets,” Journal of Political Economy Vol. 104 (1996): 1297-1313.
22 Pepper v. Litton 308 U.S. 295 (1939) at 311. Cited in Robert C. Clark, “Agency Costs versus Fiduciary Duties,” 76. As Clark observes, the use of moral rhetoric in cases involving breach of managerial duty is highly significant, be- cause as a general rule “our society is reluctant to allow or encourage organs of the state to try to instill moral feelings about commercial rela- tionships in its citizens,” 75.
23 Although admittedly an unscientific survey, I have in my office fifteen different introduc- tory business ethics textbooks, many of which
discuss insider trading, but only one of which (John E. Richardson, Business Ethics, 16th ed. [Dubuque: McGraw-Hill, 2004]) makes any mention of the issue of employee expense ac- count abuse or employee theft. Even then, the discussion focuses upon falsification of ex- penses, and does not mention the issue of mere profligacy.
24 See Alex C. Michalos’s critique of “the loyal agent’s argument,” in A Pragmatic Approach to Business Ethics (Thousand Oaks, CA: Sage, 1995), 50-52. Also Richard T. DeGeorge, “Agency Theory and the Ethics of Agency,” in Ethics and Agency Theory, 65-66.
25 Arthur Isak Applbaum, Ethics for Adversar- ies (Princeton, NJ: Princeton University Press, 2000).
26 For example, see Tom L. Beauchamp and Nor- man E. Bowie, Ethical Theory and Business, 6th ed. (Upper Saddle River, NJ: Prentice Hall, 2001); Deborah C. Poff, Business Ethics in Canada, 4th ed. (Scarborough: Prentice Hall, 2005); and Thomas White, Business Ethics: A Philosophical Reader (New York: Macmillan Publishing, 1993).
27 Khurana, Nohria, and Penrice, for example, in “Management as a Profession,” argue that a bona fide profession requires of its members “a renunciation of the profit motive.” They then blame “the doctrine of shareholder primacy” for recent corporate ethics scandals, on the grounds that it “has legitimized the idea that the benefits of managerial expertise may be of- fered for purely private gain.” This “led directly to many of the worst profit-maximizing abuses unmasked in the recent wave of corporate scan- dals.” Such an analysis is almost exactly back- wards. The problems at Enron (for example) were not due to managers maximizing profits; they were due to managers failing to maximize profits, then creating special-purpose entities to keep more than $26 billion worth of debt off
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the balance sheet, precisely to generate the il- lusion of profitability. The fact that they were able to line their own pockets in the process demonstrates the extent to which the goal of maximizing one’s own personal earnings and maximizing the profits of a firm can diverge. Professional conduct requires setting aside the goal of maximizing one’s own earnings, but that does not preclude one from earning money for others. Divorce lawyers seek to secure the largest settlement for their clients, without that com- promising their status as professionals.
28 David Gauthier, Morals by Agreement (Oxford: Clarendon Press, 1986).
29 For an especially clear example of confusion on this score, see Duska, “Why Be a Loyal Agent? A Systemic Ethical Analysis,” 157-59. He talks about the “self-interested pursuit of profit,” and argues that in order to diminish the level of self-interested behavior on the part of individ- uals within a firm it will be necessary to chal- lenge the orientation toward profit-making on the part of the business as a whole.
30 John Kay, The Truth About Markets (London: Penguin, 2003), writes “it is not true that profit is the purpose of the market economy, and the production of goods and services the means to it: the purpose is the production of goods and services, profit the means,” 351.
31 See Nicholas Barr, The Economics of the Welfare State, 3rd ed. (Stanford, CA: Stanford Univer- sity Press, 1998), 70-85.
32 Kenneth Goodpaster, “Business Ethics and Stakeholder Analysis,” Business Ethics Quarterly 1:1 (1991): 53-73, at 60.
33 R. Edward Freeman, “A Stakeholder Theory of the Modern Corporation,” in The Corpora- tion and its Stakeholders, ed. Max B.E. Clarkson (Toronto: University of Toronto Press, 1998), 126.
34 Freeman, “A Stakeholder Theory of the Mod- ern Corporation,” 129.
35 Ibid., 132. For an example of this view, further developed, see the list of “Principles of an Eth- ical Firm,” in Norman Bowie Business Ethics: A Kantian Perspective, 90.
36 Goodpaster, “Business Ethics and Stakeholder Analysis,” 61-62.
37 Some US states have been moving in this direc- tion, see n. 54 below.
38 Joseph Heath and Wayne Norman, “Stake- holder Theory, Corporate Governance and Public Management,” Journal of Business Ethics Vol. 53 (2004): 247-65.
39 For a survey of attempts to define the term, see Mitchell, Agle, and Wood, “Toward a Theory of Stakeholder Identification and Salience,” 856-58.
40 The narrow definition is from Freeman, “A Stakeholder Theory of the Modern Corpora- tion,” 129; the wide is from Freeman, Strategic Management, 46.
41 Mitchell, Agle, and Wood, “Toward a Theory of Stakeholder Identification and Salience,” propose a very nuanced analysis of stakeholder groups, classifying them in a way that reflects their relative “salience” to managers. They go on to observe that, “if the stakeholder is par- ticularly clever, for example, at coalition-build- ing, political action, or social construction of reality, that stakeholder can move into the ‘de- finitive stakeholder’ category (characterized by high salience to managers),” 879. This sort of observation shows how stakeholder analysis may be useful for strategic management, but when employed without further ado as the nor- mative foundation of business ethics tends to favor the squeaky wheel.
42 See Bruce Langtry, “Stakeholders and the Moral Responsibility of Business,” Business Ethics Quarterly Vol. 4 (1994): 431-43, at 432.
43 Mitchell, Agle, and Wood, “Toward a Theory of Stakeholder Identification and Salience,” 859.
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44 Heath and Norman, “Stakeholder Theory, Cor- porate Governance and Public Management,” 255-56.
45 Milton Friedman, “The Social Responsibility of Business Is to Increase its Profits,” 34.
46 Applbaum, Ethics for Adversaries. 47 For an example of the former, see Freeman,
“A Stakeholder Theory of the Modern Cor- poration,” 132; for an example of the latter, see Mitchell, Agle, and Wood, “Toward a Theory of Stakeholder Identification and Salience.”
48 See Rogene A. Buchholz and Sandra B. Rosen- thal, “Toward a Contemporary Conceptual Framework for Stakeholder Theory,” Journal of Business Ethics Vol. 58 (2005): 137-48.
49 Kelly, “Why All the Fuss About Stockholders?” Also Max Clarkson’s introduction to The Cor- poration and its Stakeholders (Toronto: Univer- sity of Toronto Press, 1998). Bowie offers an approving survey of such strategies in Business Ethics: A Kantian Perspective, 144-45.
50 Clarkson, The Corporation and its Stakeholders, 1. For a clear antidote to these sorts of views, see Henry Hansmann, The Ownership of En- terprise (Cambridge, MA: Harvard University Press, 1992).
51 See Frank H. Easterbrook and Daniel R. Fis- chel, The Economic Structure of Corporate Law (Cambridge, MA: Harvard University Press 1991), 90-91.
52 See, for example, E.W. Orts, “Beyond Share- holders: Interpreting Corporate Constituency Statutes,” George Washington Law Review Vol. 61 (1992): 14-135; also Donaldson and Pres- ton, “The Stakeholder Theory of the Corpora- tion,” 75-76.
53 Freeman, “A Stakeholder Theory of the Mod- ern Corporation,” 128.
54 John Boatright, “Fiduciary Duties and the Shareholder Managements Relation: or, What’s So Special about Shareholders?” Business Ethics
Quarterly Vol. 4 (1994): 393-407, at 402. See also James J. Hanks, Jr., “Playing With Fire: Nonshareholder Constituency Statutes in the 1990s,” Stetson Law Review Vol. 21 (1991): 97-120.
55 Donaldson and Preston, “The Stakeholder Theory of the Corporation,” 76.
56 Ronald Coase, “The Nature of the Firm,” Economica Vol. 4 (1937): 386-405, at 389. See also Williamson, “Markets and Hierarchies,” 316.
57 Eric Noreen, “The Economics of Ethics: A New Perspective on Agency Theory,” Account- ing Organizations and Society Vol. 13 (1988): 359-69.
58 Allen Buchanan, “Toward a Theory of the Eth- ics of Bureaucratic Organizations,” Business Ethics Quarterly Vol. 6 (1996): 419-40.
59 Kenneth Arrow, in “Social Responsibility and Economic Efficiency,” Public Policy Vol. 21 (1973): 303-17, puts particular emphasis on the consequences of firms maximizing profits in cases where there are pollution externalities and information asymmetries that favor the firm. “The classical efficiency arguments for profit maximization do not apply here,” he writes, “and it is wrong to obfuscate the issue by invoking them,” 308.
60 For more extensive discussion, see Joseph Heath, The Efficient Society (Toronto: Penguin, 2001).
61 Langtry, “Stakeholders and the Moral Respon- sibility of Business,” 434-35.
62 Goodpaster, for example, moots such a propos- al in “Business Ethics and Stakeholder Analy- sis,” 67-68. The term “side constraint” is from Robert Nozick, Anarchy, State, and Utopia (New York: Basic Books, 1974), 28-32, whose discussion of the issue is also quite helpful.
63 Goodpaster, “Business Ethics and Stakeholder Analysis,” 66.
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GLoBALIzAtIon AnD Its EtHICAL sIGnIFICAnCE
tHoMAs DonALDson
The Ethics of Risk in the Global Economy
In India, The Philippines, Nigeria, and elsewhere, technology is spread thin on ancient cultures. In 1984, in Bhopal, India, the devastating potential of technology’s hazards in a non-technological culture was brought home with awesome pain—over 2,000 dead and 200,000 injured. My aim here is to inquire about the justice of practices, like those in Bhopal, that subject foreign citizens to technological risks higher than those faced by either home country cit- izens or more favored foreign citizens. The object of exploration, hence, is the justice of the distribution of technological risks in and among nation states. What moral obligations underlie, what extra-national re- sponsibilities should inform, the behavior of global actors such as Union Carbide and the United States? The question not only intrigues us, it demands an- swers on behalf of those who have been harmed or who have been harmed or who are presently at risk. Yet it appears disturbingly clear that the question as framed eludes answers because we possess no viable interpretive scheme for applying traditional moral precepts to the moral twilight created by the juxta- position of differing legal and cultural traditions.
The key issue to address is obligation. In par- ticular, what are the obligations of macro-agents or macro-organizations to third or fourth parties who are denied membership in those macro-organiza- tions? The terms “macro-agents” or “macro-organiza- tions” will be used interchangeably. They refer to key organizational actors in the international economy,
and especially nation states and multi-national cor- porations. By “third party victims” I mean persons who are put at risk by a given macro-organization who are not themselves members of that organiza- tion, for example, innocent bystanders or citizens of another country; by “fourth party victims” I mean fetuses and future generations. In general, third and fourth party victims do not make policy decisions that affect the level or distribution of risk, and when harmed are entirely innocent. Both categories are to be contrasted to first-party victims such as corporate managers or government leaders, and second-party victims such as rank and file employees or national citizens.1 These latter categories of persons, when harmed, may or not be innocent.
The point about non-membership is important. We expect corporations to honor certain respon- sibilities toward their employees (no matter how fre- quently some may violate them), and when they fail to do so, we are able to appeal to accepted moral principles in criticizing their behavior. Similarly, we expect nation states to exercise special care over their citizens, and doing so is regarded as a sine qua non of a national legal system. Hence when states fail in this regard, we know what to say. But we do not know, or know as well, what to say about the responsibil- ities of the United States government to the citizens of Bangladesh, or of Dow Chemical to the man or woman in the street in Cubatao, Brazil.
Let us begin by sketching key elements of the disaster in Bhopal, India. Bhopal is by no means unique in the history of chemical catastrophes,2 but it is striking for the enormity of its scale and, more importantly, the lesson it teaches.3
Although the entire story remains to be told, blame for the disaster is likely to be spread through
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a complex constellation of persons and acts. Cost cutting measures in the year prior severely weak- ened safety control. The refrigeration unit designed to cool the methyl isocyanate had been broken for some time, and more than a score of crucial safety devices specified in the safety handbook prepared by Union Carbide in the United States were conspicu- ously absent. The training, habits, and attitudes of Indian employees were lax and naive. Safety pro- cedures specified in the book were routinely cir- cumvented by technicians who, lacking adequate training, went on with their work blissfully ignorant of the dangers lurking behind their daily routines. In responding to the disaster, employees showed bad judgement and bad training: upon learning of the initial leak, the officer in charge opted to think about it over tea. Outside the plant, government regulatory authorities and city officials were entirely at a loss either to inspect and regulate the plant on an ongoing basis, or to respond appropriately to a disaster once it occurred.
Finally, Union Carbide itself, despite holding a majority of its subsidiary’s stock and accepting re- sponsibility for all major economic and safety deci- sions, failed to maintain an adequate system of safety accountability, and consequently, to exercise appro- priate control over its subsidiary.
Yet Bhopal was not only a story about tragedy and human frailty, it is also a story about injustice. For the people who died and suffered were not cit- izens of the nation whose corporation held respon- sibility. To make matters worse, the people who suffered the most were slum dwellers, the poorest of the Indian poor, who had pitched their tents literally next to the walls of the Carbide plant.
Cultural variables muddy moral analysis. Where- as in the context of our own culture we can estimate with some assurance the value of goods sacrificed or put at risk by undertaking a given act or policy, in a foreign one our intuitions are opaque. Our ex- tra-cultural vision may be sufficiently clear to allow us to understand a tradeoff between risk and pro-
ductivity, between the dollar value of an increased gross national product on the one hand, and the higher dollar cost of the medical care necessary to accommodate higher levels of risk; but our vision is blurred by more ethnocentric tradeoffs. In many less developed countries a higher gross national product is only one of a handful of crucial goals informed by cultural tradition and experience.
This consideration highlights the second and more disruptive of two cultural variables that can sidetrack international risk analysis. The first is the level of gross marginal improvement in health or economic well-being, as statistically measurable by universally accepted norms of health and economic welfare. Let us call this marginal improvement in health or economic well-being, as statistically meas- urable by universally accepted norms of health and economic welfare. Let us call this marginal value that of “statistical welfare.” Since, as suggested above, the analyst is free to factor cultural values into the de- termination of extra-national responsibilities, he is free to integrate the concept of “statistical welfare” into overall risk analysis, and estimate tradeoffs from the standpoint of the foreign country. Furthermore, since the concept is by definition compatible with the objective, quantitative methods of analysis, the task is manageable. Armed with an appropriate statistical method, he may well conclude that the marginal welfare resulting from the use of a hazard- ous drug or piece of technology is positive in the United States, while negative in another country, or vice versa. The notion of marginal statistical welfare thus aids in sidestepping one version of cultural my- opia and in weighting the effect local conditions can have on the character of tradeoffs between risks and benefits.
The second variable is that of marginal cultural welfare. In contrast to marginal statistical welfare, it cannot be interpreted through standard norms of health or economic well-being. A citizen of Zim- babwe, Africa, may be willing to trade off a few mar- ginal dollars in per capita gross national product for
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THOMAS DONALDSON 133
the unquantifiable improvement in her nation’s eco- nomic independence from earlier colonial powers. For the same improvement, she may even be willing to trade off a fraction of a percentage point in the nation’s infant mortality rate. Similarly, a citizen of Pakistan may be more eager to preserve her country’s Muslim heritage, a heritage with strict sexual differ- entiation in the division of labor, than to increase the country’s economic welfare through integrating women into the work place.
My point is simply that in instances where the tradeoffs involve marginal cultural welfare it is doubt- ful how accurately a cultural stranger can estimate the value that a citizen of another culture places on key goods involved in social tradeoffs. Hence, short of abdicating risk analysis entirely to the other cul- ture (a move I will show later to be unwise), no de- cisive or even objective decision-making mechanism appears to exist for assessing risk tradeoffs.
Still further, cultural variables can aggravate weaknesses of traditional methods of risk analysis. This is especially true of most methods’ tendency to focus on dollars and bodies at the expense of social and cultural criteria, a tendency which, while faulted in domestic contexts, becomes pernicious when the difference between two countries’ social and cultural habits are marked.
Consider the twin issues of distributing risk and pricing risk. It is well known that the techniques of cost-benefit analysis are often mute regarding issues of distributive justice. That is, they tend to bypass ques- tions of the fairness of a practice from the perspective of its relative impact on social subclasses, such as the poor, the infirm, or the members of a minority ethnic group. Such silence is less neglectful in the context of a national legal system whose rules have as a central function the protection of individual rights.4 But in the context of international transactions, where the legal strictures affecting a macro agent’s domestic ac- tivities do not (and in an important sense can not) regulate its activities in a separate legal jurisdiction, the silence is morally corrupting. Clearly pesticide
risks to field workers must be weighed against the cry- ing need of a poor country for greater food produc- tion; but when that development is carried entirely on the backs of the poor, when the life expectancy of the field worker is cut by a decade or more while the life expectancy of the urban elite increases by a decade, then distributive moral factors should trump consequential cost benefit considerations offered in the name of overall welfare.
The common and sometimes criticized distinc- tion in risk analysis between voluntary assumptions of risks is of little help. If we are uneasy over the as- sumption that the decision of a lower class worker in the US to take a high risk job is “voluntary,” despite that worker’s limited technological sophistication and pressing financial needs, then surely we must reject the label of “voluntary” when applied to the starving, shoeless laborer in Bangladesh, who agrees to work in a pesticide infected field.
Finally, the tendency in cost-benefit analysis to tie costs to the market prices can distort risk tradeoffs in less developed countries. The dominant assumption of most risk analysis—and of cost-benefit analysis in particular—that risks must be balanced against costs, means that in the instance of life-threatening risks human life must be assigned a price. Despite the apparent barbarity of the very concept, defend- ers point out that most of us are willing to assume non-zero risks to our life for the sake of reducing cost and frequently do so when we, say, buy a small- er car or accept a higher paying, but riskier job.5 But while assigning a price to human life may have bene- ficial consequences against the backdrop of a single, developed country, i.e., it may help policy makers better allocate scarce safety-promoting resources, in the Third World it can unfairly relativize human worth. Since the market price of a life is tied to the capacity of a person to generate income, and since in most parts of the Third World the absence of a cap- ital infrastructure limits the average individual’s pro- ductive capacity, it follows that in the Third World a human life will be given a lower price.
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If cultural variables confound risk analysis, then how can such analysis address international prob- lems? One tempting solution must be abandoned, namely, reliance on international market pressures for acceptable risk distribution. What the market does unsuccessfully in a national context, it fails utterly to do in an international context. As Charles Perrow has pointed out, even in the developed coun- tries “there is no impersonal fair market that rewards those that risk their lives with higher wages.”6 The “jumpers” or “glow boys” in the nuclear industry, temporary workers “who dash into a radioactive area to make repairs, will be hired for two or three weeks’ work, at only six dollars an hour ... Textile work- ers are not compensated for brown lung disease, nor are chemical plant workers compensated for cancer showing up ten or twenty years after exposure.”7
The average level of unemployment in the Third World today exceeds forty percent, a figure that has frustrated the application of neo-classical economic principles to the international economy on a score of issues. With full employment, market forces will ceteris paribus encourage workers to make tradeoffs between job opportunities using safety as a variable. But with massive unemployment, market forces in Third World countries drive the unemployed to the jobs they are lucky enough to land, regardless of safety.
Does some criterion exist, itself not bound by culture or nation, that can give objectivity to inter- cultural assessments of risk distribution? At first glance nothing seems appropriate. The recent and monumental analysis of distributive justice under- taken by John Rawls8 explicitly exempts inter- national considerations from the reach of his two famous principles, i.e., that everyone is entitled to maximal liberty, and that inequalities in the distri- bution of primary goods are unjust unless everyone, including the average person in the worst affected group, stands to benefit. Rawls’ reasons for nation- alizing distributive justice are tied to his belief that distributive claims can be evaluated meaningfully
only against a background scheme of cooperation that yields goods subject to distribution. Since na- tion states are customarily the agents which provide the mechanisms necessary for facilitating coopera- tive arrangements and for pooling and distribut- ing the fruits of such arrangements, and since such mechanisms are conspicuously not provided on the international scale, it seems both idealistic and im- plausible to speak seriously of distributive justice on an international scale.
Yet, even if Rawls is correct in limiting the ap- plication of the two principles, it is noteworthy that many problems of risk assessment in a global context do not depend on inter-national distributive com- parisons (distributions among nations) but on intra- national comparisons (distributions within a nation). Hence Rawls’ principles have important application, even when inter-national distributive comparisons are excluded. For example, in assessing the fairness of exposing a disproportionate number of poor Indians to the risks of chemical accidents, Union Carbide need not enter into the moral calculus of distributing risk between Indians and US citizens; it need only calculate the fairness of risk distribution among Indians. Insofar as it is unfair to distribute risks disproportionately among US citizens without corresponding benefits for those at greatest risk (and sometimes not even fair when there are correspond- ing benefits), it is also unfair for an official of Union Carbide, or of the US Government, to undertake ac- tivities in India that unfairly distribute risks among Indian citizens.9 Hence Rawls’ second principle need only be modified for application to problems of risk distribution within Third World countries. At a minimum the principle must be adjusted to include freedom from risk as one member of the bundle of primary goods normally covered by the second principle. It may also be argued that modi- fication is needed to Rawls’ condition of moderate scarcity, insofar as some Third World countries may manifest poverty sufficiently harsh that “fruitful ven- tures must inevitably break down.”10 Whether the
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application of the second principle in risk contexts must be limited to societies fulfilling the moderate scarcity proviso, or whether it need not be so lim- ited—at least vis à vis the risk issue—is a question I wish to sidestep at this point. My suspicion is either the application need not be limited in the standard Rawlsian way for risk contexts, or that if it must be limited, the effects are negligible since no matter how poor by European or US standards, most Third World countries are not at the point where “fruitful ventures must inevitably breakdown.”
Turning next to inter-national issues, it is worth noting the possibility that for all his moral acumen Rawls is wrong about the scope of his own theory. As Brian Barry often notes, no scheme of cooper- ation need exist in order to demonstrate the unjust- ness of allowing toxic air pollution, generated in one country for the benefit of that country, to waft over into the unpolluted atmosphere of a second country.11 And in Charles Beitz’s influential book Political Theory and International Relations, Beitz points out that Rawls’ argument for the inapplic- ability of his scheme seems not only to presuppose the present absence of such features as community and enforcement, but their future impossibility as well. What makes assertions of distributive justice and injustice meaningful, according to Beitz, are the shared features of agents to whom such asser- tions apply, such as rationality and purposiveness. To put it another way, what makes it wrong for me to refuse to spend $10 in order to save the life of a starving Ethiopian is our shared humanity, a hu- manity that may someday prompt international en- forcement mechanisms.12
A distributive criterion for risks, then, may be appropriate for evaluating the actions of macro agents in international affairs, although the nature of that criterion remains unspecified. Giving preci- sion to it is no easy matter, since Rawls’ second prin- ciple of justice, even if applicable, must be weakened in the international context. It must be weakened because it is generally assumed that one has greater
duties to one’s fellow citizens than to strangers. For example, people may have a duty to help the home- less in America, but the duty no doubt stops short of providing them with special attention and love, as one is bound to do in the case of one’s own chil- dren. And similarly, one may have a duty to aid the starving poor in Africa, but it does not extend to providing them social security benefits in old age, as it may be the case of one’s fellow citizens. For this and other reasons, I shall not attempt here the complex task of shaping Rawls’ principle to fit prob- lems of international risk distribution (despite my belief that such a project is promising). Instead, I will show that, while not reducible to a single prin- ciple, a set of moral parameters exists that governs issues from the perspective of international distribu- tive fairness. I plan to show how these parameters are confirmed in the context of an analysis of two pivotal moral considerations: namely, universaliza- tion under conditions of relevant similarity, and the distinction between, value-intrinsic and value-ex- trinsic associations.
It will help to provide concrete contexts for the problem. Consider two incidents, the first involving selling banned goods abroad.
Case #1 Morally speaking, selling banned goods abroad seems a clear example of double standards.13 Nonetheless, develop- ing countries sometimes argue that a given banned product is essential to meeting their standards.14
The US Congress in 1979 passed legisla- tion amending the Export Administration Act which gave the President broad pow- ers to control exports.15 But just thirty-six days after the signing of the order, on Feb- ruary 17, 1981, newly elected President Reagan revoked the order.16 In a further move, President Reagan called for a repeal on the export restrictions affecting un- approved drugs and pharmaceutical prod-
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ucts. (Banned pharmaceuticals, in contrast to other banned goods, have been subject to export restrictions for over forty years.) In defense of the Reagan initiative, drug manufacturers in the United States argued by appealing to differing cultural variables. For example, a spokesman for the American Ciba-Geigy Pharmaceuticals justified relax- ing restrictions on the sale of its Entero-Vio- form, a drug he agrees has been associated with blindness and paralysis, on the basis of culture-specific, cost-benefit analysis. “The government of India,” he pointed out, has requested Ciba-Geigy to continue produ- cing the drug because it treats a dysentery problem that can be life-threatening.17
Before continuing, let us consider a second in- stance of international risk distribution, this time involving the world’s worst pollution.
Case #2 A small triangle of land near Sao Paulo, Brazil, known as Cubatao, has more reported cases of cancer, stillbirths, and de- formed babies than anywhere else in Bra- zil.18 Factories, and especially petrochemical plants, dominate the landscape, where about 100,000 live and work. Cubatao has air considered unfit on a record number of days and has the highest level of pollutants in the rainfall recorded anywhere. In 1983, one hundred slum dwellers living alongside a gasoline duct were killed when the duct caught fire. The town was constructed dur- ing the heyday of the so-called “Brazilian miracle,” a time when right-wing military rulers maintained pro-business labor laws, stable political conditions, and some of the highest profit margins in the world, con- ditions that allowed enormous influx of foreign investment. Even today, with the Brazilian miracle in disrepute, substantial foreign investment remains: Cubatao’s 111
plants are owned by twenty-three foreign and Brazilian companies.
According to Marlise Simons of the New York Times, “Squatters have built rows of shacks above a vast underground grid of ducts and pipes that carry flammable, cor- rosive and explosive materials. Trucks lum- ber alongside loaded with poison, which has spilled in past accidents ... ‘But we need the work,’ one man said. ‘We have nowhere else to go.’”19
The neglected responsibilities of importing coun- tries to police more effectively incoming goods and of less developed countries in particular, such as Bra- zil, to improve pollution controls, are no doubt awe- some. But while not forgetting these responsibilities I want for the moment to expand on the responsibil- ities of the exporting nations, and in particular of the developed nations. Now to hold the view that the former responsibilities preclude the latter amounts to adopting what I call the “sociocentric” view. This view holds that all nations, including Third World ones, have moral duties to tighten the inflow of dan- gerous goods and to insure an acceptable level of industrial risks. Government and corporate officials have fiduciary duties to their fellow citizens either through the fact of mutual citizenship, or, as in the case of the government official, because of a public trust. So far so good. But according to the socio- centric view, responsibilities for the citizens of other countries are exclusively of the officials and citizens of those countries.
The sociocentric view shares a packet of mud- dled assumptions with a sister theory, the doctrine of political realism, which is popular among inter- national theorists perhaps because it accepts the convenient definition of statecraft as nothing more than maximizing the interests of one’s nation. Both these views utilize a vague premise to draw a false conclusion. The premise is that we have stronger duties to friends than to strangers; the conclusion
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is that our moral responsibilities to citizens in other countries—responsibilities other than, of course, those defined by explicit covenants—are either neg- ligible or nonexistent. The premise is vague because it says nothing about the relative weight of duties to friends and strangers, nor about possible distinc- tions among kinds of friends, i.e., family members, next-door neighbors, or fellow citizens, and kinds of strangers, i.e., non-family members, passing ac- quaintances, citizens of foreign countries, and so on. While it may be true that a father is morally permit- ted to spend a dollar to repair his own child’s bike instead of sending it to a starving child abroad, or a congresswoman to spend millions on national park improvement instead of sending it to Afghan rebels, this in itself cannot be extended to an unlimited en- dorsement of national favoritism.
Let us back up. Good reasons do exist for lim- ited favoritism. The first is that social arrangements which define memberships in associations as well as the specific fiduciary duties of members, often turn out to be efficient means of maximizing shared val- ues. For example, the institution of the family is a remarkably efficient way of raising the young. It is simply more efficient for a single person, or a small group of persons (as in a Kibbutz) to specialize in caring for a particular child or group of children, than it is for people in general to diffuse love and attention broadly. Nation states, too, are efficient means of organizing judicial arbitration, military defense, and resource control.
The efficiency gained from organizing society in a manner where emotional and geographical realities are recognized through associations and where “each takes care of his own,” recommends the creation and development of permanent associations, i.e., ones whose habits and rules cannot be changed at whim. Hence when a family or nation finds itself in the happy position of possessing a relative abundance of goods or a comparative international advantage, it is not necessarily true that the surplus should be shared equally with other nations or families. To do
so would necessitate the undoing of the very institu- tions and habits that benefit all persons in the long run.
A second reason sometimes offered for favorit- ism fails to justify state favoritism. The reason con- cerns what I have elsewhere called “value-intrinsic” associations, i.e., ones whose ends are by definition logically unobtainable without the existence of the associations themselves.20 Such associations would no doubt include the family (in some version or other, although not necessarily in its present form) since part of the value of parenting—at least from the standpoint of the parent—appears to require the existence of the family for its realization. Hence, ceteris paribus, a certain amount of favoritism finds justification in associations, e.g., of family and friendship, where the favoritism seems essential for securing the value intrinsic to the association.
But the associations of family and friendship are to be contrasted with nation states, whose ends of providing judicial arbitration, military defense, and resource control could conceivably be met by other social arrangements (though perhaps not met as well). Hence, while it may be said that efficiency speaks not only on behalf of the existence of the na- tion state, but on behalf of a certain amount of state favoritism, additional state favoritism will be pre- cluded insofar as the state is a value-extrinsic, not a value-intrinsic association.21 Nation states or multi- national corporations are unable to make appeals in the name of intrinsic value, for although patriotism and national pride may embody slight vestiges of our natural status as political animals, they are val- ued primarily for their instrumental value, that is, for their ability to secure collective goals such as self- defense, personal security, efficient legislation, and the protection of natural rights.
We may conclude that the amount of permissible favoritism by nation states or multinational corpor- ations towards their own members in questions of international risk distribution is only the amount that can be justified in the name of efficiency. To put
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the matter in rule-consequential terms, a corpora- tion or nation state is justified in adopting policies exhibiting favoritism to the extent that the favoritism itself is a non-eliminable aspect of policies which, if adopted by other relevantly similar states, would in- crease efficiency and thus maximize overall welfare.
The point is that precious little risk favoritism can be justified in this manner. I would stretch moral credibility, for example, to suppose that the tolera- tion of frighteningly high levels of toxic pollution in Cubatao, Brazil, or of the export to Third World countries of most banned products—acts which tend to distribute risk to the favor of multinational corporations and First World citizens—could be jus- tified in the name of rule-consequential sanctioned efficiency. It seems highly unlikely that these are non-eliminable aspects of policies that will maximize global welfare; rather the policies seem quite elimin- able and of the sort which, if eliminated, would re- sult in greater overall happiness. Hence, it is safe to conclude that the penchant for national egoism and for the favoring of fellow citizens over foreigners, or for favoring fellow employees and stockholders in the instance of the corporation, provides no justifi- cation for gross inequities in risk distribution.
But appeals to efficiency or to the duty to favor friends over strangers are not the only way to at- tempt to justify international risk inequities. A dif- ferent, and in many respects more successful way, is through appeal to a nation’s special needs, e.g., for economic development or the elimination of a par- ticular problem. Lower safety, pollution, and import standards are explicitly maintained by some coun- tries in order to achieve special ends. In Brazil, for example, lax standards of pollution enforcement are justified in the name of Brazil’s desperate need for greater productivity, and the claim has a persuasive edge in a country where malnutrition is sufficiently widespread that by some estimates one in every five Brazilian children will suffer permanent brain dam- age.22 In India, as mentioned earlier, special dysen- tery problems have prompted the government to
encourage the import of drugs which, without such problems, would be considered unacceptably risky.23 It seems morally arrogant to suppose that acts that encourage or tolerate lower standards abroad under- taken by the macro-agents of developed societies are impermissible simply for that reason. On the other hand, the convenient relativism of some corporate and government officials which excuses anything in the name of socio-centrism seems equally suspect.
Elsewhere I have argued for the need to distin- guish cases of conflicting norms where the norms accepted by citizens of a host country appear inferior to those of the home country.24 There I argued that a key distinction should be drawn between those instances in which from the standpoint of the for- eign country (a) the reason for tolerating the “lower” norms refers to the country’s relative level of eco- nomic development, and (b) the reason for tolerat- ing them is related to inherent cultural beliefs, e.g., in religion or tradition. When an instance falls under the former (a) classification, a different moral analy- sis is required than when it falls under the latter. Here it makes sense to do what for cultural reasons cannot be done in the later instance (where inherent cultural beliefs intrude), namely, put ourselves in the shoes of the foreigner. To be more specific, it makes sense to consider ourselves and our own culture at a level of economic development relevantly similar to that of the other country. And, if, having done this, we find that under such hypothetically altered social circumstances we ourselves would accept the lower standards, then it is permissible to adopt the stan- dards that appear inferior.
What lies behind the thought experiment is an age-old philosophical insight, namely, that when considering the universality of moral principles like must be compared to like, and cases must be evaluated in terms of morally relevant similarities. Hence, when considering the acceptability of prac- tices abroad, the moralist must not err by applying wholesale, principles relevant to her own nation, but instead must ask herself what those principles would
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imply under the relevantly altered circumstances of the foreign nation.
Now as a practical matter of moral psychology, some acts of rational empathy are easier than others. This is reflected in the distinction between lower standards justified in terms of relative economic de- velopment and those that are not. It is relatively easy for us to empathize with the need for economic de- velopment in a poor nation, since economic well- being is an almost universally shared value, than to empathize with the need for a purer form of Muslim government, or for a more African, less European, social system. Indeed, the general principle govern- ing the psychological possibility of rational empathy seems to be one restricting empathy to situations wherein the fundamental values motivating the de- cision-making of our object of empathy, are values that we share.
Let us be more specific. We can “test” the practi- ces of shipping banned products abroad, and oper- ating multinational branch facilities in Cubatao, by a thought experiment wherein we ask whether our own moral intuitions would find such practices ac- ceptable were we in a state of social development rel- evantly similar to the countries in question. This test works in such cases because the values that presum- ably prompt the lower standards in foreign countries are ones we share, i.e., economic and medical well- being. For example, it makes sense to ask whether we in the United States would find levels of pollu- tion equal to those in Cubatao justified here for the sake of economic progress, were we at Brazil’s pres- ent level of economic development. If we answer yes, then we may conclude that it is permissible for US multinationals to adopt the lower standards existing in Cubatao. If not, then the practice is not permis- sible. (I suspect, by the way, that we would not find Cubatao’s pollution permissible.)
The same test is appropriate in the case of banned products. Were we at a hypothetically lowered state of economic development similar to Ghana or Columbia, would we allow Tris-Treated Sleepwear
(sleepwear treated with a fire retardant known to be highly carcinogenic and hence banned from the United States market) to be bought and sold? Prob- ably not. Yet, lest one think that the test always re- turns negative results, consider the case of India’s special request for the drug, Entero-Vioform. Dys- entery, a widespread and virulent health problem, is often associated with undeveloped societies because of their lack of modern systems of food handling and sanitation. It may well be that as we imagine ourselves in a relevantly similar social situation, the tradeoffs between the risks to minority sufferers and the widespread dysentery that would occur without the drug, would favor Entero-Vioform, despite its properly being banned in developed countries.
In instances where we fail to share the moral val- ues that prompt lower safety standards, the test of rational empathy is inappropriate for reasons already stated. Here the final appeal can only be to a floor of universal rights, with the presumption in favor of permitting the lower standards unless doing so violates a basic right or conflicts with standards of intra-national risk distribution mentioned earlier.25 Unable to make appeal to the values that must ul- timately underlie social-welfare tradeoffs, we must presume the validity of the foreign culture’s stance except in the instance where a universal human right is at stake, or where we doubt the actual acceptance of the lower norms by rank and file citizens. Appeal- ing to rights here has special validity because rights are, by definition, moral concepts that specify moral minimums and prescribe, as it were, the lowest com- mon denominator of permissibility.26
The preceding analysis has shown, then, that there are firm limits to the extent to which macro- actors can impose risks on third and fourth parties in foreign countries, even when such risks fall within existing moral and legal guiding principles already operative in the foreign country. Hence, risk socio- centrism must be abandoned. Although reached by a different route, it is noteworthy how similar in tone this conclusion is to Rawls’ second principle of jus-
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tice, wherein, it is necessary to demonstrate univer- sal benefit to justify a systematic inequality.
The only remaining appeal possible for risk sociocentrism is to moral and social autonomy. The argument runs something like this: in individual af- fairs the value of freedom often overrides even that of moral propriety. Even if we suppose it morally wrong for a person to risk his health by drinking excessively at home, we do not want the law to re- strict his activity. Hence, if the Third World coun- tries wish to expose themselves to unreasonable risks it is not our business.
This argument will not wash. In its present form it falls prey to the obvious objection that coercion of others is not directly at issue here (as it is in the instance of law proscribing home drinking). Were multinational corporations and First World nations to restrict voluntarily their risk-imposing activities, they would be exercising self-control, not coercion; and while certainly affecting the actions of others, their decision not to refuse to distribute risk in cer- tain ways would merely limit the range of options available to others (e.g., they would no longer be able to purchase certain banned goods). The actions would be what Mill thought of as “primarily self-re- garding,” not “primarily other regarding.”27
Even if reformulated to refer to actions that may discourage (rather than coercively restrict) un- reasonable risks, however, the argument fails. This is not only because in morality, as in law abiding or abetting an irresponsible action is itself colored by the shadow of the action’s irresponsibility. It is also because in the instance of most Third World coun- tries the agents who assume risks are surrogate ones, which is to say that they act on behalf of third parties to whom they are presumably responsible. Surrogate agency would be less damning were it true that both democracy and informed public opinion lay behind such agency. But in most Third World countries this is seldom the case. Most are far from democratic in the sense of democracy to which we are accustomed, and even when democratic, possess a level of techno-
logical sophistication sufficiently low to rule out the possibility of rational risk assessment. In Bhopal, India, (which happens to be a good sized city), only one in a thousand households owns a telephone. It is arrogant self-delusion for us to imagine that such people make rational decisions about exposing themselves to the risks of methyl isocyanate.
The idea of a culture “choosing” to undertake risks when that culture lacks a sufficient political and technological infrastructure lies at the root of much unwitting technological imperialism. Again, consid- er Bhopal. Even the Indian employees of Union Car- bide were unaware of methyl isocyanate’s toxicity; most thought it was chiefly a skin-eye irritant, and almost none thought it could kill outright.
Outside the plant, the Indian regulatory apparat- us was woefully unequal to its task. A few weeks be- fore the disaster, the Union Carbide Plant had been granted an “environmental clearance certificate.”28 Enforcement was left not to the national govern- ment, but to the separate states. In Madhya Pradesh, the state in which Bhopal lies, fifteen factory inspect- ors were given the task of regulating 8,000 plants, while the inspectors themselves, sometimes lacking even typewriters and telephones, were forced to use public trains and buses to get from factory to factory. The inspectors responsible for the Bhopal area held degrees only in mechanical engineering, and knew little about chemical risks.29 It should be added that India is considerably more advanced technologically, with a better technological infrastructure, than most of its Third World counterparts.
Bhopal offers many lessons about what Third World countries must do to reduce irrational techno- logical risks, among which are the need for suitable zoning ordinances, better inspection and regulation of hazardous factories, and the acceptance of only those technologies that the local technological infra- structure is capable of handling. Similarly, there is little doubt that these same countries have unfulfilled responsibilities in other areas, including policies af- fecting the importation of banned products. Nicho-
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las Ashford, for example, has offered a tidy list of recommendations that such countries coordinate industrial development policy with environmental policy (frequently the Ministry of Industry does not talk to the Ministry of the Environment); that they develop a data base for the assessment of effects on productivity and safety of imported products; and, finally, that they maintain a centralized purchasing control mechanism for choosing products or tech- nology that will enter the country.30
But realism demands that we recognize the un- likelihood of such reforms in the near future. We cannot justify our own irresponsibility by thrusting the moral burden on the shoulders of societies still adolescent in the age of technology.
To conclude, let me summarize the moral limita- tions shown to affect the distribution of risk in the global economy. Both market-dominated risk distri- bution and cultural relativism were rejected as solu- tions. We found each to be excessively permissive. Next, the issues of intra-national and inter-national risk distribution were separated. For intra-nation- al issues, no convincing reason exists for deviating from traditional canons of distributive justice, for example, a modified version of Rawls’ second prin- ciple. Inter-national issues, on the other hand, are more recalcitrant. Sociocentrism, however tempting, is wrongheaded. Claims for state favoritism, while sometimes defensible, were shown to be limited to those justifiable in the name of institutional effi- ciency. A thought-experiment relying on the prin- ciple of adjusting empathy to conditions of relevant similarity may be used to assess risk tradeoffs justified by appeal to marginal welfare, but the experiment succeeds only in instances where the values motivat- ing decisions are shared by the macro-agent and the foreign culture. Otherwise, the empathy necessary for the thought experiment is lacking, and risk deci- sions must be cashed in terms of basic rights. Finally, existing facts about surrogate agency and techno- logical infra-structure in Third World countries re- fute attempts to reintroduce sociocentrism into the
ethics of risk assessment through appeal to national autonomy and freedom.
Notes 1 I have adopted this set of distinctions between
first, second, third, and fourth party victims, from a somewhat different set appearing in Charles Perrow’s book, Normal Accidents (New York: Basic Books, 1984), 67.
2 In 1972 anywhere from 400 to 5,000 Iraqis were killed as a result of eating unlabeled, mer- cury-treated grain from the United States. In 1979 workers and livestock were poisoned in Egypt by the pesticide leptophos; and, more recently, hundreds died and were injured in Mexico City as a result of a liquefied natural gas explosion. Nicholas A. Ashford, “Control the Transfer of Technology,” in the New York Times, Sunday, December 9, 1984, 2.
3 The information used to construct the follow- ing description comes largely from an extended series of four articles appearing in the New York Times on December 9, 1984, shortly after the disaster, written by Stuart Diamond. Mr. Dia- mond’s account comes largely from interviews with workers, including Mr. Suman Dey, who was the senior officer on duty.
4 The view that the fundamental function of a legal system is the protection of rights is ar- ticulated systematically by Ronald Dworkin in Taking Rights Seriously (Cambridge, MA: Har- vard University Press, 1978).
5 For an insightful account of the moral assump- tions involved in risk analysis see Kristin S. Shrader-Frechette, Risk Analysis and Scientific Method: Methodological and Ethical Problems with Evaluating Societal Hazards (Hingham, MA: D. Reidel Publishing, 1985).
6 Perrow, Normal Accidents, 68. 7 Perrow, Normal Accidents, 68. 8 John Rawls, A Theory of Justice (Cambridge,
Mass.: Harvard University Press, 1971).
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9 Here I don’t mean to assert the unquestion- able applicability of Rawls’ principle to intra- national risk assessment since to do so would necessarily involve a comparative assessment of Rawls’ distributive approach in contrast to his competitors’. I want to claim only that if one accepts Rawls’ principle as applying to analy- sis of one’s own society, then one should also accept it in application to other societies. My own sympathies are Rawlsian, but I shall not presume their accuracy here.
10 Rawls’ specific characterization of the “moder- ate scarcity” proviso (which he borrows from Hume) is that “natural and other resources are not so abundant that schemes of cooper- ation become superfluous, nor are conditions so harsh that fruitful ventures must inevitable breakdown.” See John Rawls’ A Theory of Justice (Cambridge, MA: Belknap Press of Harvard University Press, 1971), 127-28.
11 Brian Barry, “The Case for a New International Economic Order,” Ethics, Economics, and Law: Nomos Vol. XXIV, ed. J. Roland Pennock and John W. Chapman (New York: New York Uni- versity Press, 1982).
12 Beitz also notes that a common error prompt- ing the denial of international distributive justice is the assumption that internation- al mechanisms of community and enforce- ment must exactly resemble existing ones at the national level. Other arrangements, while different from those associated with nation states, would be capable of giving substance to distributive claims. Charles Beitz, Political Theory and International Relations (Princeton, NJ: University Press, 1979), parts II and III, and “Cosmopolitan Ideals and National Senti- ment,” The Journal of Philosophy, Vol. LXXX, No. 10, October 1983, 591-600.
13 A 1979 United Nations resolution stressed the need to “exchange information on hazardous chemicals and unsafe pharmaceutical products
that have been banned in their territories and to discourage, in consultation with importing countries, the exportation of such products.” Quoted in “Products Unsafe at Home Are Still Unloaded Abroad,” in The New York Times, Sunday, August 22, 1982, 22.
14 The problem, by the way, is not limited to the United States, since Europe exports even more hazardous products to developing countries than does the US. See “Control the Transfer of Technology,” by Nicholas Ashford in the New York Times, Sunday, December 9, 1984, 2F.
15 With this as a basis, President Carter issued on January 15, 1981, an executive order that asked for a comprehensive approach to hazardous ex- ports. The complex notification schemes for alerting foreign countries about hazards were to be coordinated and streamlined. An annual list of all products banned in the US was to be compiled and made available, and government officials were empowered to seek international agreements on hazardous exports. Finally, the order required the creation of export controls on those “extremely hazardous substances” that constituted a “substantial threat to hu- man health or safety or the environment.” See “Control the Transfer of Technology,” 2F.
16 Industry opposition, described as “massive” by Edward B. Cohen, executive director of the Carter Administration’s Task Force on Hazardous Exports Policy, probably was what killed the Carter plan. See “Products Unsafe at Home,” 22.
17 Quoted in “Products Unsafe at Home,” 22. 18 Most of the information about Cubatao de-
scribed here is from Marlise Simons, “Some Smell a Disaster in Brazil Industry Zone,” The New York Times, May 18, 1985, 4.
19 Simons, “Some Smell a Disaster,” 4. 20 In February, 1985, I presented a paper, as yet
unpublished, to the Great Expectations Phil- osophy Forum at Great Expectations Bookstore,
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Evanston, Illinois. This paper will eventually constitute Chapter 4 of a book I am finishing entitled Ethics in the International Order.
21 “Duties to Strangers,” especially 20-26. 22 See “Controlling Interest,” a film produced and
distributed by California Newsreel (California, 1977).
23 “Products Unsafe at Home,” 4. 24 See “Multinational Decision-Making: Recyc-
ling International Norms,” Journal of Business Ethics (Summer, 1985).
25 In this paper I am able only to sketch what is worked out more fully in “Multinational Decision-Making: Reconciling International Norms” (cited above) regarding the thought- experiment of rational empathy and the use of basic rights in contexts where host country norms appear substandard from the perspective of the host country. Anyone interested in the fuller account should refer to that paper.
26 In attempting to isolate the list of rights with true claim to cultural universality, we might, for example, consult international documents such as the UN Declaration.
27 See John Stuart Mill, On Liberty. 28 Surprisingly, the Union Carbide plant in Bho-
pal was considered almost a model for other plants. In contrast to a steel plant in the same state that had 25 fatalities in the past year, Union Carbide had in recent years only a single fatal accident.
29 Robbert Reinhold, “Disaster in Bhopal: Where Does Blame Lie?” The New York Times, January 31, 1985, 1.
30 Ashford, “Control the Transfer of Technology,” 2F.
♦ ♦ ♦ ♦ ♦
MAnUEL VELAsqUEz
International Business, Morality, and the Common Good
During the last few years an increasing number of voices have urged that we pay more attention to eth- ics in international business, on the grounds that not only are all large corporations now internationally structured and thus engaging in international trans- actions, but that even the smallest domestic firm is increasingly buffeted by the pressures of internation- al competition.1 This call for increased attention to international business ethics has been answered by a slowly growing collection of ethicists who have begun to address issues in this field. The most com- prehensive work on this subject to date is the recent book The Ethics of International Business by Thomas Donaldson.2
I want in this article to discuss certain realist ob- jections to bringing ethics to bear on international transactions, an issue that, I believe, has not yet been either sufficiently acknowledged nor adequately addressed but that must be resolved if the topic of international business ethics is to proceed on solid foundations. Even so careful a writer as Thomas Donaldson fails to address this issue in its proper complexity. Oddly enough, in the first chapter where one would expect him to argue that, in spite of realist objections, businesses have international moral obli- gations, Donaldson argues only for the less pertinent claim that, in spite of realist objections, states have international moral obligations.3 But international business organizations, I will argue, have special fea- tures that render realist objections quite compelling. The question I want to address, here, then, is a par- ticular aspect of the question Donaldson and others have ignored: Can we say that businesses operating in a competitive international environment have any
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moral obligations to contribute to the international common good, particularly in light of realist objec- tions? Unfortunately, my answer to this question will be in the negative.
My subject, then, is international business and the common good. What I will do is the follow- ing. I will begin by explaining what I mean by the common good, and what I mean by international business. Then I will turn directly to the question whether the views of the realist allow us to claim that international businesses have a moral obligation to contribute to the common good. I will first lay out the traditional realist treatment of this question and then revise the traditional realist view so that it can deal with certain shortcomings embedded in the traditional version of realism. I will then bring these revisions to bear on the question of whether international businesses have any obligations toward the common good, a question that I will answer in the negative. My hope is that I have identified some extremely problematic issues that are both critical and disturbing and that, I believe, need to be more widely discussed than they have been because they challenge our easy attribution of moral obligation to international business organizations.
I should note that what follows is quite tentative. I am attempting to work out the implications of cer- tain arguments that have reappeared recently in the literature on morality in international affairs. I am not entirely convinced of the correctness of my con- clusions, and offer them here as a way of trying to get clearer about their status. I should also note that although I have elsewhere argued that it is improper to attribute moral responsibility to corporate entities, I here set these arguments aside in order to show that even if we ignore the issue of moral responsibility, it is still questionable whether international businesses have obligations toward the common good.
I. The Common Good
Let me begin by distinguishing a weak from a strong conception of the common good, so that I might clarify what I have in mind when I refer to the com- mon good.
What I have in mind by a weak conception of the common good is essentially the utilitarian no- tion of the common good. It is a notion that is quite clearly stated by Jeremy Bentham:
The interest of the community then is— what? The sum of the interests of the sev- eral members who compose it.... It is vain to talk of the interest of the community, without understanding what is the inter- est of the individual. A thing is said to pro- mote the interest or to be for the interest of an individual, when it tends to add to the sum total of his pleasure; or what comes to the same thing, to diminish the sum total of his pains.4
On the utilitarian notion of the common good, the common good is nothing more than the sum of the utilities of each individual. The reason why I call this the “weak” conception of the common good will become clear, I believe, once it is contrasted with an- other, quite different notion of the common good.
Let me describe, therefore, what I will call a strong conception of the common good, the con- ception on which I want to focus in this essay. It is a conception that has been elaborated in the Cath- olic tradition, and so I will refer to it as the Catholic conception of the common good. Here is how one writer, William A. Wallace, O.P., characterizes the conception:
A common good is clearly distinct from a private good, the latter being the good of one person only, to the exclusion of its being possessed by any other. A common good is distinct also from a collective good,
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which, though possessed by all of a group, is not really participated in by the members of the group; divided up, a collective good becomes respectively the private goods of the members. A true common good is uni- versal, not singular or collective, and is dis- tributive in character, being communicable to many without becoming anyone’s private good. Moreover, each person participates in the whole common good, not merely in a part of it, nor can any one person possess it wholly.5
In the terms used by Wallace, the utilitarian con- ception of the common good is actually a “collective” good. That is, it is an aggregate of the private goods (the utilities) of the members of a society. The com- mon good in the utilitarian conception is divisible in the sense that the aggregate consists of distinct parts and each part is enjoyable by only one individ- ual. Moreover, the common good in the utilitarian conception is not universal in the sense that not all members of society can enjoy all of the aggregate; instead, each member enjoys only a portion of the aggregate.
By contrast, in the Catholic conception that Wallace is attempting to characterize, the common good consists of those goods that (1) benefit all the members of a society in the sense that all the mem- bers of the society have access to each of these goods, and (2) are not divisible in the sense that none of these goods can be divided up and allocated among individuals in such a way that others can be excluded from enjoying what another individual enjoys. The example that Wallace gives of one common good is the “good of peace and order.”6 Other examples are national security, a clean natural environment, pub- lic health and safety, a productive economic system to whose benefits all have access, a just legal and pol- itical system, and a system of natural and artificial associations in which persons can achieve their per- sonal fulfillment.
It is this strong notion of the common good that the Catholic tradition has had in mind when it has defined the common good as “the sum total of those conditions of social living whereby men are enabled more fully and more readily to achieve their own perfection.”7 It is also the conception that John Rawls has in mind when he writes that “Govern- ment is assumed to aim at the common good, that is, at maintaining conditions and achieving object- ives that are similarly to everyone’s advantage,” and “the common good I think of as certain general con- ditions that are in an appropriate sense equally to everyone’s advantage.”8
The Catholic conception of the common good is the conception that I have in mind in what follows. It is clear from the characterization of the common good laid out above that we can think of the com- mon good on two different levels. We can think of the common good on a national and on an inter- national level. On a national level, the common good is that set of conditions within a certain nation that are necessary for the citizens of that nation to achieve their individual fulfillment and so in which all of the citizens have an interest.
On an international level, we can speak of the global common good as that set of conditions that are necessary for the citizens of all or of most nations to achieve their individual fulfillment, and so those goods in which all the peoples of the world have an interest. In what follows, I will be speaking primarily about the global common good.
Now it is obvious that identifying the global common good is extremely difficult because cultures differ on their views of what conditions are neces- sary for humans to flourish. These differences are particularly acute between the cultures of the lesser developed third world nations who have demand- ed a “new economic order,” and the cultures of the wealthier first world nations who have resisted this demand. Nevertheless, we can identify at least some elements of the global common good. Maintaining a congenial global climate, for example is certain-
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146 GLOBALIZATION AND ITS ETHICAL SIGNIFICANCE
ly part of the global common good. Maintaining safe transportation routes for the international flow of goods is also part of the global common good. Maintaining clean oceans is another aspect of the global common good, as is the avoidance of a global nuclear war. In spite of the difficulties involved in trying to compile a list of the goods that qualify as part of the global common good, then, it is never- theless possible to identify at least some of the items that belong on the list.
II. International Business
Now let me turn to the other term in my title: inter- national business. When speaking of international business, I have in mind a particular kind of organiz- ation: the multinational corporation. Multinational corporations have a number of well known features, but let me briefly summarize a few of them. First, multinational corporations are businesses and as such they are organized primarily to increase their profits within a competitive environment. Virtually all of the activities of a multinational corporation can be explained as more or less rational attempts to achieve this dominant end. Secondly, multinational corporations are bureaucratic organizations. The im- plication of this is that the identity, the fundamental structure, and the dominant objectives of the corpor- ation endure while the many individual human be- ings who fill the various offices and positions within the corporation come and go. As a consequence, the particular values and aspirations of individual mem- bers of the corporation have a relatively minimal and transitory impact on the organization as a whole. Thirdly, and most characteristically, multinational corporations operate in several nations. This has sev- eral implications. First, because the multinational is not confined to a single nation, it can easily es- cape the reach of the laws of any particular nation by simply moving its resources or operations out of one nation and transferring them to another nation. Second, because the multinational is not confined
to a single nation, its interests are not aligned with the interests of any single nation. The ability of the multinational to achieve its profit objectives does not depend upon the ability of any particular nation to achieve its own domestic objectives.
In saying that I want to discuss international business and the common good, I am saying that I want to discuss the relationship between the global common good and multinational corporations, that is, organizations that have the features I have just identified.
The general question I want to discuss is straight- forward: I want to ask whether it is possible for us to say that multinational corporations with the fea- tures I have just described have an obligation to con- tribute toward the global common good. But I want to discuss only one particular aspect of this general question. I want to discuss this question in light of the realist objection.
III. The Traditional Realist Objection in Hobbes The realist objection, of course, is the standard objec- tion to the view that agents—whether corporations, governments, or individuals—have moral obliga- tions on the international level. Generally, the realist holds that it is a mistake to apply moral concepts to international activities: morality has no place in international affairs. The classical statement of this view, which I am calling the “traditional” version of realism, is generally attributed to Thomas Hobbes. I will assume that this customary attribution is cor- rect; my aim is to identify some of the implications of this traditional version of realism even if it is not quite historically accurate to attribute it to Hobbes.
In its Hobbesian form, as traditionally interpret- ed, the realist objection holds that moral concepts have no meaning in the absence of an agency power- ful enough to guarantee that other agents generally adhere to the tenets of morality. Hobbes held, first, that in the absence of a sovereign power capable of
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forcing men to behave civilly with each other, men are in “the state of nature,” a state he characterizes as a “war ... of every man, against every man.”9 Sec- ondly, Hobbes claimed, in such a state of war, moral concepts have no meaning:
To this war of every man against every man, this also is consequent; that nothing can be unjust. The notions of right and wrong, justice and injustice have there no place. Where there is no common power, there is no law: where no law, no injustice.10
Moral concepts are meaningless, then, when ap- plied to state of nature situations. And, Hobbes held, the international arena is a state of nature, since there is no international sovereign that can force agents to adhere to the tenets of morality.11
The Hobbesian objection to talking about mor- ality in international affairs, then, is based on two premises: (1) an ethical premise about the applicabil- ity of moral terms and (2) an apparently empirical premise about how agents behave under certain con- ditions. The ethical premise, at least in its Hobbes- ian form, holds that there is a connection between the meaningfulness of moral terms and the extent to which agents adhere to the tenets of morality: If in a given situation agents do not adhere to the tenets of morality, then in that situation moral terms have no meaning. The apparently empirical premise holds that in the absence of a sovereign, agents will not ad- here to the tenets of morality: they will be in a state of war. This appears to be an empirical generaliza- tion about the extent to which agents adhere to the tenets of morality in the absence of a third-party en- forcer. Taken together, the two premises imply that in situations that lack a sovereign authority, such as one finds in many international exchanges, moral terms have no meaning and so moral obligations are nonexistent.
However, there are a number of reasons for think- ing that the two Hobbesian premises are deficient as they stand. I want next, therefore, to examine each
of these premises more closely and to determine the extent to which they need revision.
IV. Revising the Realist Objection: The First Premise The ethical premise concerning the meaning of moral terms, is, in its original Hobbesian form, extremely difficult to defend. If one is in a situation in which others do not adhere to any moral restraints, it simply does not logically follow that in that situation one’s actions are no longer subject to moral evaluation. At most what follows is that since such an extreme situ- ation is different from the more normal situations in which we usually act, the moral requirements placed on us in such extreme situations are different from the moral requirements that obtain in more normal circumstances. For example, morality requires that in normal circumstances I am not to attack or kill my fellow citizens. But when one of those citizens is attacking me in a dark alley, morality allows me to defend myself by counterattacking or even killing that citizen. It is a truism that what moral principles require in one set of circumstances is different from what they require in other circumstances. And in ex- treme circumstances, the requirements of morality may become correspondingly extreme. But there is no reason to think that they vanish altogether.
Nevertheless, the realist can relinquish the Hobbesian premise about the meaning of moral terms, replace it with a weaker and more plausible premise, and still retain much of Hobbes’ conclu- sion. The realist or neo-Hobbesian can claim that although moral concepts can be meaningfully ap- plied to situations in which agents do not adhere to the tenets of morality, nevertheless it is not mor- ally wrong for agents in such situations to also fail to adhere to those tenets of morality, particularly when doing so puts one at a significant competitive disadvantage.
The neo-Hobbesian or realist, then, might want to propose this premise: When one is in a situa-
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tion in which others do not adhere to certain ten- ets of morality, and when adhering to those tenets of morality will put one at a significant competitive disadvantage, then it is not immoral for one to like- wise fail to adhere to them. The realist might want to argue for this claim, first, by pointing out that in a world in which all are competing to secure sig- nificant benefits and avoid significant costs, and in which others do not adhere to the ordinary tenets of morality, one risks significant harm to one’s interests if one continues to adhere to those tenets of moral- ity. But no one can be morally required to take on major risks of harm to oneself. Consequently, in a competitive world in which others disregard moral constraints and take any means to advance their self- interests, no one can be morally required to take on major risks of injury by adopting the restraints of ordinary morality.
A second argument the realist might want to ad- vance would go as follows. When one is in a situa- tion in which others do not adhere to the ordinary tenets of morality, one is under heavy competitive pressures to do the same. And, when one is under such pressures, one cannot be blamed—i.e., one is excused—for also failing to adhere to the ordinary tenets of morality. One is excused because heavy pressures take away one’s ability to control oneself, and thereby diminish one’s moral culpability.
Yet a third argument advanced by the realist might go as follows. When one is in a situation in which others do not adhere to the ordinary tenets of morality it is not fair to require one to continue to adhere to those tenets, especially if doing so puts one at a significant competitive disadvantage. It is not fair because then one is laying a burden on one party that the other parties refuse to carry.
Thus, there are a number of arguments that can be given in defense of the revised Hobbesian ethical premise that when others do not adhere to the tenets of morality, it is not immoral for one to do likewise. The ethical premise of the Hobbesian or realist argu- ment, then, can be restated as follows:
In situations in which other agents do not adhere to certain tenets of morality, it is not immoral for one to do likewise when one would otherwise be putting oneself at a sig- nificant competitive disadvantage.
In what follows, I will refer to this restatement as the ethical premise of the argument. I am not alto- gether convinced that this premise is correct. But it appears to me to have a great deal of plausibility, and it is, I believe, a premise that underlies the feelings of many that in a competitive international environ- ment where others do not embrace the restraints of morality, one is under no obligation to be moral.
V. Revising the Realist Objection: The Second Premise Let us turn, then, to the other premise in the Hobbes- ian argument, the assertion that in the absence of a sovereign, agents will be in a state of war. As I men- tioned, this is an apparently empirical claim about the extent to which agents will adhere to the tenets of morality in the absence of a third-party enforcer.
Hobbes gives a little bit of empirical evidence for this claim. He cites several examples of situa- tions in which there is no third party to enforce civility and where, as a result, individuals are in a “state of war.”12 Generalizing from these few ex- amples, he reaches the conclusion that in the ab- sence of a third-party enforcer, agents will always be in a “condition of war.” But the meager evidence Hobbes provides is surely too thin to support his rather large empirical generalization. Numerous empirical counterexamples can be cited of people living in peace in the absence of a third-party enfor- cer, so it is difficult to accept Hobbes’ claim as an empirical generalization.
Recently, the Hobbesian claim, however, has been defended on the basis of some of the theor- etical claims of game theory, particularly of the prisoner’s dilemma. Hobbes’ state of nature, the de-
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fense goes, is an instance of a Prisoner’s Dilemma, and rational agents in a Prisoner’s Dilemma neces- sarily would choose not to adhere to a set of moral norms. Rationality is here construed in the sense that is standard in social theory: having a coherent set of preferences among the objects of choice, and selecting the one(s) that has the greatest probability of satisfying more of one’s preferences rather than fewer.13 Or, more simply, always choosing so as to maximize one’s interests.
A Prisoner’s Dilemma is a situation involving at least two individuals. Each individual is faced with two choices: he can cooperate with the other individual or he can choose not to cooperate. If he cooperates and the other individual also cooper- ates, then he gets a certain payoff. If, however, he chooses not to cooperate, while the other individ- ual trustingly cooperates, the noncooperator gets a larger payoff while the cooperator suffers a loss. And if both choose not to cooperate, then both get nothing.
It is a commonplace now that in a Prisoner’s Di- lemma situation, the most rational strategy for a par- ticipant is to choose not to cooperate. For the other party will either cooperate or not cooperate. If the other party cooperates, then it is better for one not to cooperate and thereby get the larger payoff. On the other hand, if the other party does not cooper- ate, then it is also better for one not to cooperate and thereby avoid a loss. In either case, it is better for one to not cooperate.
Now Hobbes’ state of nature, the neo-Hobbes- ian realist can argue, is in fact a Prisoner’s Dilemma situation. In Hobbes’ state of nature each individ- ual must choose either to cooperate with others by adhering to the rules of morality (like the rule against theft), or to not cooperate by disregarding the rules of morality and attempting to take advan- tage of those who are adhering to the rules (e.g., by stealing from them). In such a situation it is more rational (in the sense defined above) to choose not to cooperate. For the other party will either
cooperate or not cooperate. If the other party does not cooperate, then one puts oneself at a competi- tive disadvantage if one adheres to morality while the other party does not. On the other hand, if the other party chooses to cooperate, then one can take advantage of the other party by breaking the rules of morality at his expense. In either case, it is more rational to not cooperate.
Thus, the realist can argue that in a state of nature, where there is no one to enforce compli- ance with the rules of morality, it is more rational from the individual’s point of view to choose not to comply with morality than to choose to comply. Assuming—and this is obviously a critical assump- tion—that agents behave rationally, then we can conclude that agents in a state of nature will choose not to comply with the tenets of ordinary morality. The second premise of the realist argument, then, can, tentatively, be put as follows:
In the absence of an international sover- eign, all rational agents will chose not to comply with the tenets of ordinary moral- ity, when doing so will put one at a serious competitive disadvantage.
This is a striking, and ultimately revealing, de- fense of the Hobbesian claim that in the absence of a third-party enforcer, individuals will choose not to adhere to the tenets of morality in their rela- tions with each other. It is striking because it cor- rectly identifies, I think, the underlying reason for the Hobbesian claim. The Hobbesian claim is not an empirical claim about how most humans actual- ly behave when they are put at a competitive dis- advantage. It is a claim about whether agents that are rational (in the sense defined earlier) will adopt certain behaviors when doing otherwise would put them at a serious competitive disadvantage. For our purposes, this is significant since, as I claimed above, all, most, or at least a significant number of multi- nationals are rational agents in the required sense: all or most of their activities are rational means for
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achieving the dominant end of increasing profits. Multinationals, therefore, are precisely the kind of rational agents envisaged by the realist.
But this reading of the realist claim is also signifi- cant, I think, because it reveals certain limits inher- ent in the Hobbesian claim, and requires revising the claim so as to take these limits into account.
As more than one person has pointed out, moral interactions among agents are often quite unlike Prisoner’s Dilemmas situations.14 The most import- ant difference is that a Prisoner’s Dilemma is a sin- gle meeting between agents who do not meet again, whereas human persons in the real world tend to have repeated dealings with each other. If two people meet each other in a Prisoner’s Dilemma situation, and never have anything to do with each other again, then it is rational (in the sense under discussion) from each individual’s point of view to choose not to cooperate. However, if individuals meet each other in repeated Prisoner’s Dilemma situations, then they are able to punish each other for failures to cooper- ate, and the cumulative costs of noncooperation can make cooperation the more rational strategy.15 One can therefore expect that when rational agents know they will have repeated interactions with each other for an indefinite future, they will start to cooper- ate with each other even in the absence of a third party enforcer. The two cooperating parties in effect are the mutual enforcers of their own cooperative agreements.
The implication is that the realist is wrong in be- lieving that in the absence of a third-party enforcer, rational individuals will always fail to adhere to the tenets of morality, presumably even when doing so would result in serious competitive disadvantage. On the contrary, we can expect that if agents know that they will interact with each other repeatedly in the indefinite future, it is rational for them to be- have morally toward each other. In the international arena, then, we can expect that when persons know that they will have repeated interactions with each other, they will tend to adhere to ordinary tenets of
morality with each other, assuming that they tend to behave rationally, even when doing so threatens to put them at a competitive disadvantage.
There is a second important way in which the Prisoner’s Dilemma is defective as a characteriza- tion of real world interactions. Not only do agents repeatedly interact with each other, but, as Robert Frank has recently pointed out, human agents signal to each other the extent to which they can be relied on to behave morally in future interactions.16 We humans can determine more often than not whether another person can be relied on to be moral by ob- serving the natural visual cues of facial expression and the auditory cues of tone of voice that tend to give us away; by relying on our experience of past dealings with the person; and by relying on the re- ports of others who have had past dealings with the person. Moreover, based on these appraisals of each other’s reliability, we then choose to interact with those who are reliable and choose not to interact with those who are not reliable. That is, we choose to enter Prisoner’s Dilemmas situations with those who are reliable, and choose to avoid entering such situations with those who are not reliable. As Robert Frank has shown, given such conditions it is, under quite ordinary circumstances, rational to habitu- ally be reliable since reliable persons tend to have mutually beneficial interactions with other reliable persons, while unreliable persons will tend to have mutually destructive interactions with other unreli- able persons.
The implication again is that since signaling makes it rational to habitually cooperate in the rules of morality, even in the absence of a third-party en- forcer, we can expect that rational humans, who can send and receive fairly reliable signals between each other, will tend to behave morally even, presumably, when doing so raises the prospect of competitive disadvantage.
These considerations should lead the realist to revise the tentative statement of the second premise of his argument that we laid out above. In its re-
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vised form, the second premise would have to read as follows:
In the absence of an international sover- eign, all rational agents will chose not to comply with the tenets of ordinary mor- ality, when doing so will put one at a ser- ious competitive disadvantage, provided that interactions are not repeated and that agents are not able to signal their reliability to each other.
This, I believe, is a persuasive and defensible ver- sion of the second premise in the Hobbesian argu- ment. It is the one I will exploit in what follows.
VI. Revised Realism, Multinationals, and the Common Good Now how does this apply to multinationals and the common good? Can we claim that it is clear that multinationals have a moral obligation to pursue the global common good in spite of the objections of the realist?
I do not believe that this claim can be made. We can conclude from the discussion of the realist objection that the Hobbesian claim about the per- vasiveness of amorality in the international sphere is false when (1) interactions among international agents are repetitive in such a way that agents can retaliate against those who fail to cooperate, and (2) agents can determine the trustworthiness of other international agents.
But unfortunately, multinational activities often take place in a highly competitive arena in which these two conditions do not obtain. Moreover, these conditions are noticeably absent in the arena of ac- tivities that concern the global common good.
First, as I have noted, the common good con- sists of goods that are indivisible and accessible to all. This means that such goods are susceptible to the free rider problem. Everyone has access to such goods whether or not they do their part in maintain-
ing such goods, so everyone is tempted to free ride on the generosity of others. Now governments can force domestic companies to do their part to main- tain the national common good. Indeed, it is one of the functions of government to solve the free rider problem by forcing all to contribute to the domestic common good to which all have access. Moreover, all companies have to interact repeatedly with their host governments, and this leads them to adopt a cooperative stance toward their host government’s objective of achieving the domestic common good.
But it is not clear that governments can or will do anything effective to force multinationals to do their part to maintain the global common good. For the governments of individual nations can them- selves be free riders, and can join forces with willing multinationals seeking competitive advantages over others. Let me suggest an example. It is clear that a livable global environment is part of the global com- mon good, and it is clear that the manufacture and use of chloroflurocarbons is destroying that good. Some nations have responded by requiring their do- mestic companies to cease manufacturing or using chloroflurocarbons. But other nations have refused to do the same, since they will share in any bene- fits that accrue from the restraint others practice, and they can also reap the benefits of continuing to manufacture and use chloroflurocarbons. Less de- veloped nations, in particular, have advanced the position that since their development depends heav- ily on exploiting the industrial benefits of chloro- flurocarbons, they cannot afford to curtail their use of these substances. Given this situation, it is open to multinationals to shift their operations to those countries that continue to allow the manufacture and use of chloroflurocarbons. For multinationals, too, will reason that they will share in any benefits that accrue from the restraint others practice, and that they can meanwhile reap the profits of continu- ing to manufacture and use chloroflurocarbons in a world where other companies are forced to use more expensive technologies. Moreover, those nations that
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practice restraint cannot force all such multinationals to discontinue the manufacture or use of chlorofluro- carbons because many multinationals can escape the reach of their laws. An exactly parallel, but perhaps even more compelling, set of considerations can be advanced to show that at least some multinationals will join forces with some developing countries to circumvent any global efforts made to control the global warming trends (the so-called “greenhouse ef- fect”) caused by the heavy use of fossil fuels.
The realist will conclude, of course, that in such situations, at least some multinationals will seek to gain competitive advantages by failing to contribute to the global common good (such as the good of a hospitable global environment). For multinationals are rational agents, i.e., agents bureaucratically struc- tured to take rational means toward achieving their dominant end of increasing their profits. And in a competitive environment, contributing to the com- mon good while others do not, will fail to achieve this dominant end. Joining this conclusion to the ethical premise that when others do not adhere to the re- quirements of morality it is not immoral for one to do likewise, the realist can conclude that multinationals are not morally obligated to contribute to such global common goods (such as environmental goods).
Moreover, global common goods often create interactions that are not iterated. This is particularly the case where the global environment is concerned. As I have already noted, preservation of a favorable global climate is clearly part of the global common good. Now the failure of the global climate will be a one-time affair. The breakdown of the ozone lay- er, for example, will happen once, with catastrophic consequences for us all; and the heating up of the global climate as a result of the infusion of carbon dioxide will happen once, with catastrophic con- sequences for us all. Because these environmental disasters are a one-time affair, they represent a non- iterated Prisoner’s Dilemma for multinationals. It is irrational from an individual point of view for a multinational to choose to refrain from polluting
the environment in such cases. Either others will re- frain, and then one can enjoy the benefits of their refraining; or others will not refrain, and then it will be better to have also not refrained since refraining would have made little difference and would have entailed heavy losses.
Finally, we must also note that although natural persons may signal their reliability to other natural persons, it is not at all obvious that multinationals can do the same. As noted above, multinationals are bureaucratic organizations whose members are con- tinually changing and shifting. The natural persons who make up an organization can signal their reli- ability to others, but such persons are soon replaced by others, and they in turn are replaced by others. What endures is each organization’s single-minded pursuit of increasing its profits in a competitive en- vironment. And an enduring commitment to the pursuit of profit in a competitive environment is not a signal of an enduring commitment to morality.
VII. Conclusions
The upshot of these considerations is that it is not obvious that we can say that multinationals have an obligation to contribute to the global common good in a competitive environment in the absence of an international authority that can force all agents to contribute to the global common good. Where other rational agents can be expected to shirk the burden of contributing to the common good and where carrying such a burden will put one at a ser- ious competitive disadvantage, the realist argument that it is not immoral for one to also fail to contrib- ute is a powerful argument.
I have not argued, of course, nor do I find it persuasive to claim that competitive pressures auto- matically relieve agents of their moral obligations, although my arguments here may be wrongly misin- terpreted as making that claim. All that I have tried to do is to lay out a justification for the very narrow claim that certain very special kinds of agents, under
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certain very limited and very special conditions, seem to have no obligations with respect to certain very special kinds of goods.
This is not an argument, however, for complete despair. What the argument points to is the need to establish an effective international authority ca- pable of forcing all agents to contribute their part toward the global common good. Perhaps several of the more powerful autonomous governments of the world, for example, will be prompted to establish such an international agency by relinquishing their autonomy and joining together into a coherently unified group that can exert consistent economic, political, or military pressures on any companies or smaller countries that do not contribute to the global common good. Such an international police group, of course, would transform the present world order, and would be much different from present world organizations such as the United Nations. Once such an international force exists, of course, then both Hobbes and the neo-realist would say that moral obligations can legitimately be attributed to all affected international organizations.
Of course, it is remotely possible but highly unlikely that multinationals themselves will be the source of such promptings for a transformed world order. For whereas governments are concerned with the well being of their citizens, multinationals are bureaucratically structured for the rational pursuit of profit in a competitive environment, not the pursuit of citizen well-being. Here and there we occasionally may see one or even several multinationals whose current cadre of leadership is enlightened enough to regularly steer the organization toward the global common good. But given time, that cadre will be re- placed and profit objectives will reassert themselves as the enduring end built into the on-going struc- ture of the multinational corporation.
Notes 1 See, for example, the articles collected in W.
Michael Hoffman, Ann E. Lange, and David
A. Fedo, eds., Ethics and the Multinational En- terprise (New York: University Press of Amer- ica, 1986).
2 Thomas Donaldson, The Ethics of International Business (New York: Oxford University Press, 1989).
3 Donaldson discusses the question whether states have moral obligations to each other in op. cit., 10-29. The critical question, however, is whether multinationals, i.e., profit-driven types of international organizations, have moral obli- gations. Although Donaldson is able to point out without a great deal of trouble that the realist arguments against morality among na- tions are mistaken (see 20-23, where Donald- son points out that if the realist were correct, then there would be no cooperation among na- tions; but since there is cooperation, the realist must be wrong), his points leave untouched the arguments I discuss below which acknowledge that while much cooperation among nations is possible, nevertheless certain crucial forms of cooperation will not obtain among multi- nationals with respect to the global common good.
4 J. Bentham, Principles of Morals and Legislation, 1.4-5.
5 William A. Wallace, O.P., The Elements of Phil- osophy, A Compendium for Philosophers and Theologians (New York: Alba House, 1977), 166-67.
6 Ibid., 167. 7 “Common Good,” The New Catholic
Encyclopedia. 8 John Rawls, A Theory of Justice (Cambridge,
MA: Harvard University Press, 1971), 233 and 246.
9 Thomas Hobbes, Leviathan, Parts I and II [1651] (New York: The Bobbs-Merrill, 1958), 108.
10 Ibid. As noted earlier, I am simply assuming what I take to be the popular interpretation of
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Hobbes’ view on the state of nature. As Profes- sor Philip Kain has pointed out to me, there is some controversy among Hobbes scholars about whether or not Hobbes actually held that moral obligation exists in the state of nature. Among those who hold that moral obligation does not exist in Hobbes’ state of nature is M. Oakeshott in “The Moral Life in the Writings of Thomas Hobbes” in his Hobbes on Civil As- sociation (Berkeley-Los Angeles: University of California Press, 1975), 95-113; among those who hold that moral obligation does exist in Hobbes’ state of nature is A.E. Taylor in “The Ethical Doctrine of Hobbes” in Hobbes Studies, ed. K.C. Brown (Cambridge: Harvard, 1965), 41ff. Kain suggests that Hobbes simply contra- dicts himself—holding in some passages that moral obligation does exist in the state of na- ture and holding in others that it does not—be- cause of his need to use the concept of the state of nature to achieve purposes that required in- compatible conceptions of the state of nature; see his “Hobbes, Revolution and the Philoso- phy of History,” in “Hobbes’s ‘Science of Nat- ural Justice,’” ed. C. Walton and P.J. Johnson (Boston: Martinus Nijhoff, 1987), 203-18. In the present essay I am simply assuming with- out argument the traditional view that Hobbes made the claim that moral obligation does not exist in the state of nature; my aim is to pursue certain implications of this claim even if I am wrong in assuming that is Hobbes’.
11 See ibid., where Hobbes writes that “yet in all times kings and persons of sovereign authority, because of their independency” are in this state of war.
12 Ibid., 107-08. 13 See Amartya K. Sen, Collective Choice and
Social Welfare (San Francisco: Holden-Day, 1970), 2-5.
14 See, for example, Gregory Kavka, “Hobbes’ War of All Against All,” Ethics, 93 (January,
1983), 291-310; a somewhat different approach is that of David Gauthier, Morals By Agreement (Oxford: Clarendon Press, 1986) and Russell Hardin, Morality Within the Limits of Reason (Chicago: University of Chicago Press, 1988).
15 See Robert Axelrod, The Evolution of Cooper- ation (New York: Basic Books, 1984), 27-69.
16 Robert Frank, Passions Within Reason (New York: W.W. Norton & Company, 1988).
♦ ♦ ♦ ♦ ♦
IAn MAItLAnD
The Great non-Debate over International sweatshops
Recent years have seen a dramatic growth in the contracting out of production by companies in the industrialized countries to suppliers in developing countries. This globalization of production has led to an emerging international division of labor in foot- wear and apparel in which companies like Nike and Reebok concentrate on product design and market- ing but rely on a network of contractors in Asia and Central America, etc., to build shoes or sew shirts according to exact specifications and deliver a high quality good according to precise delivery schedules. These contracting arrangements have drawn intense fire from labor and human rights activists who charge that the companies are (by proxy) exploiting foreign workers. The companies stand accused of chasing cheap labor around the globe, failing to pay their workers living wages, using child labor, turning a blind eye to abuses of human rights, and being com- plicit with repressive regimes in denying workers the right to join unions and failing to enforce minimum labor standards in the workplace, and so on. Many companies have tried to address these concerns by developing codes of conduct for their overseas sup-
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pliers. This workshop will examine the desirability and pitfalls of such codes of conduct.
The campaign against international sweatshops has largely unfolded on television and, to a lesser ex- tent, in the print media. What seems like no more than a handful of critics has mounted an aggressive, media-savvy campaign which has put the publicity- shy retail giants on the defensive. The critics have orchestrated a series of sensational “disclosures” on prime time television exposing the terrible pay and working conditions in factories making jeans for Levi’s or sneakers for Nike or Pocahontas shirts for Disney. One of the principal scourges of the com- panies has been Charles Kernaghan who runs the National Labor Coalition (NLC), a labor human rights group involving 25 unions. It was Kernaghan who, in 1996, broke the news before a Congression- al committee that Kathie Lee Gifford’s clothing line was being made by 13- and 14-year olds working 20-hour days in factories in Honduras.1 Kernaghan also arranged for teenage workers from sweatshops in Central America to testify before Congressional committees about abusive labor practices. At one of these hearings, one of the workers held up a Liz Claiborne cotton sweater identical to ones she had sewn since she was a 13-year old working 12 hour days. According to a news report, “[t]his image, ac- cusations of oppressive conditions at the factory and the Claiborne logo played well on that evening’s net- work news.”2 The result has been a circus-like atmos- phere—as in Roman circus where Christians were thrown to lions.
Kernaghan has shrewdly targeted the compan- ies’ carefully cultivated public images. He has ex- plained: “Their image is everything. They live and die by their image. That gives you a certain power over them.” As a result, he says, “these compan- ies are sitting ducks. They have no leg to stand on. That’s why it’s possible for a tiny group like us to take on a giant like Wal-Mart. You can’t defend paying someone 31 cents an hour in Honduras....”3 Apparently most of the companies agree with Ker-
naghan. Not a single company has tried to mount a serious defense of its contracting practices. They have judged that they cannot win a war of sound bites with the critics. Instead of making a fight of it, the companies have sued for peace in order to pro- tect their principal asset—their image.
Major US retailers have responded by adopt- ing codes of conduct on human and labor rights in their international operations. Levi-Strauss, Nike, Sears, JCPenney, Wal-Mart, Home Depot, Philips Van-Heusen now have such codes. As Lance Compa notes, such codes are the result of a blend of humanitarian and pragmatic impulses: “Often the altruistic motive coincides with ‘bot- tom line’ considerations related to brand name, company image, and other intangibles that make for core value to the firm.”4 Peter Jacobi, President of Global Sourcing for Levi-Strauss has advised: “If your company owns a popular brand, protect this priceless asset at all costs. Highly visible companies have any number of reasons to conduct their busi- ness not just responsibly but also in ways that can- not be portrayed as unfair, illegal, or unethical. This sets an extremely high standard since it must be ap- plied to both company-owned businesses and con- tractors....”5 And according to another Levi-Strauss spokesman, “In many respects, we’re protecting our single largest asset: our brand image and corporate reputation.”6 Nike recently published the results of a generally favorable review of its internation- al operations conducted by former American UN Ambassador Andrew Young.
Recently a truce of sorts between the critics and the companies was announced on the White House lawn with President Clinton and Kathie Lee Gifford in attendance. A presidential task force, including representatives of labor unions, human rights groups and apparel companies like L.L. Bean and Nike, has come up with a set of voluntary standards which, it hopes, will be embraced by the entire industry.7 Companies that comply with the code will be en- titled to use a “No Sweat” label.
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Objective of This Paper
In this confrontation between the companies and their critics, neither side seems to have judged it to be in its interest to seriously engage the issue at the heart of this controversy, namely: What are appro- priate wages and labor standards in international sweatshops? As we have seen, the companies have treated the charges about sweatshops as a public re- lations problem to be managed so as to minimize harm to their public images. The critics have ap- parently judged that the best way to keep public indignation at boiling point is to oversimplify the issue and treat it as a morality play featuring heart- less exploiters and victimized third world workers. The result has been a great non-debate over inter- national sweatshops. Paradoxically, if peace breaks out between the two sides, the chances that the de- bate will be seriously joined may recede still further. Indeed, there exists a real risk (I will argue) that any such truce may be collusive one that will come at the expense of the very third world workers it is supposed to help.
This paper takes up the issue of what are appro- priate wages and labor standards in international sweatshops. Critics charge that the present arrange- ments are exploitative. I proceed by examining the specific charges of exploitation from the standpoints of both (a) their factual8 and (b) their ethical suf- ficiency. However, in the absence of any well-estab- lished consensus among business ethicists (or other thoughtful observers), I simultaneously use the in- vestigation of sweatshops as a setting for trying to adjudicate between competing views about what those standards should be. My examination will pay particular attention to (but will not be limited to) labor conditions at the plants of Nike’s suppli- ers in Indonesia. I have not personally visited any international sweatshops, and so my conclusions are based entirely on secondary analysis of the volumin- ous published record on the topic.
What are Ethically Appropriate Labor Standards in International Sweatshops?
What are ethically acceptable or appropriate levels of wages and labor standards in international sweat- shops? The following four possibilities just about run the gamut of standards or principles that have been seriously proposed to regulate such policies.
(1) Home-country standards: It might be argued (and in rare cases has been9) that international corpora- tions have an ethical duty to pay the same wages and provide the same labor standards regardless of where they operate.10 However, the view that home- country standards should apply in host-countries is rejected by most business ethicists and (officially at least) by the critics of international sweatshops. Thus Thomas Donaldson argues that “[b]y arbitrar- ily establishing US wage levels as the bench mark for fairness one eliminates the role of the international market in establishing salary levels, and this in turn eliminates the incentive US corporations have to hire foreign workers.”11 Richard DeGeorge makes much the same argument: If there were a rule that said that “that American MNCs [multinational cor- porations] that wish to be ethical must pay the same wages abroad as they do at home, ... [then] MNCs would have little incentive to move their manufac- turing abroad; and if they did move abroad they would disrupt the local labor market with artificially high wages that bore no relation to the local stan- dard or cost of living.”12
(2) “Living wage” standard: It has been proposed that an international corporation should, at a minimum, pay a “living wage.” Thus DeGeorge says that cor- porations should pay a living wage “even when this is not paid by local firms.”13 However, it is hard to pin down what this means operationally. According to DeGeorge, a living wage should “allow the work- er to live in dignity as a human being.” In order to
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respect the human rights of its workers, he says, a corporation must pay “at least subsistence wages and as much above that as workers and their dependents need to live with reasonable dignity, given the gener- al state of development of the society.”14 As we shall see, the living wage standard has become a rallying cry of the critics of international sweatshops. Appar- ently, DeGeorge believes that it is preferable for a corporation to provide no job at all than to offer one that pays less than a living wage.
(3) Donaldson’s test: Thomas Donaldson believes that “it is irrelevant whether the standards of the host country comply or fail to comply with home coun- try standards; what is relevant is whether they meet a universal, objective minimum.”15 He tries to speci- fy “a moral minimum for the behavior of all inter- national economic agents.”16 However, he concedes that this “leaves obscure not only the issue of less ex- treme threats but of harms other than physical injury. The language of rights and harm is sufficiently vague so as to leave shrouded in uncertainty a formidable list of issues crucial to multinationals.”17 He accepts that “many rights ... are dependent for their specifi- cation on the level of economic development of the country in question.”18 Accordingly, he proposes a test to determine when deviations from home-coun- try standards are unethical. That test provides as fol- lows: “The practice is permissible if and only if the members of the home country would, under condi- tions of economic development relevantly similar to those of the host country, regard the practice as per- missible.”19 Donaldson’s test is vulnerable to Bernard Shaw’s objection to the Golden Rule, namely that we should not do unto others as we would they do unto us, because their tastes may be different. The test also complicates matters by introducing counterfactuals and hypotheticals (if I were in their place [which I’m not] what would I want?). This indeterminacy is a serious weakness in an ethical code: It is likely to confuse managers who want to act ethically and to provide loopholes for those don’t.20
(4) Classical liberal standard: Finally there is what I will call the classical liberal standard. According to this standard a practice (wage or labor practice) is ethically acceptable if it is freely chosen by informed workers. For example, in a recent report the World Bank invoked this standard in connection with workplace safety. It said: “The appropriate level is therefore that at which the costs are commensur- ate with the value that informed workers place on improved working conditions and reduced risk.”21 Most business ethicists reject this standard on the grounds that there is some sort of market failure or the “background conditions” are lacking for markets to work effectively. Thus for Donaldson full (or near- full) employment is a prerequisite if workers are to make sound choices regarding workplace safety: “The average level of unemployment in the developing countries today exceeds 40 per cent, a figure that has frustrated the application of neoclassical economic principles to the international economy on a score of issues. With full employment, and all other things being equal, market forces will encourage workers to make trade-offs between job opportunities using safety as a variable. But with massive unemploy- ment, market forces in developing countries drive the unemployed to the jobs they are lucky enough to land, regardless of the safety.”22 Apparently there are other forces, like Islamic fundamentalism and the global debt “bomb,” that rule out reliance on market solutions, but Donaldson does not explain their rel- evance.23 DeGeorge, too, believes that the necessary conditions are lacking for market forces to operate benignly. Without what he calls “background insti- tutions” to protect the workers and the resources of the developing country (e.g., enforceable minimum wages) and/or greater equality of bargaining power exploitation is the most likely result.24 “If American MNCs pay workers very low wages ... they clearly have the opportunity to make significant profits.”25 DeGeorge goes on to make the interesting observa- tion that “competition has developed among multi- nationals themselves, so that the profit margin has
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been driven down” and developing countries “can play one company against another.”26 But apparent- ly that is not enough to rehabilitate market forces in his eyes.
The Case Against International Sweatshops To many of their critics, international sweatshops exemplify the way in which the greater openness of the world economy is hurting workers. According to one critic, “as it is now constituted, the world trad- ing system discriminates against workers, especially those in the Third World.”27 Globalization means a transition from (more or less) regulated domestic economies to an unregulated world economy. The superior mobility of capital, and the essentially fixed, immobile nature of world labor, means a fundamen- tal shift in bargaining power in favor of large inter- national corporations. Their global reach permits them to shift production almost costlessly from one location to another. As a consequence, instead of be- ing able to exercise some degree of control over com- panies operating within their borders, governments are now locked in a bidding war with one another to attract and retain the business of large multinational companies.
The critics allege that international companies are using the threat of withdrawal or withholding of investment to pressure governments and workers to grant concessions. “Today [multinational compan- ies] choose between workers in developing countries that compete against each other to depress wages to attract foreign investment.”28 The result is a race for the bottom—a “destructive downward bidding spiral of the labor conditions and wages of workers throughout the world....”29 Kernaghan claims that “It is a race to the bottom over who will accept the lowest wages and the most miserable working condi- tions.”30 Thus, critics charge that in Indonesia wages are deliberately held below the poverty level or sub- sistence in order to make the country a desirable lo-
cation. The results of this competitive dismantling of worker protections, living standards and worker rights are predictable: deteriorating work conditions, declining real incomes for workers, and a widening gap between rich and poor in developing countries. I turn next to the specific charges made by the critics of international sweatshops.
Unconscionable wages: Critics charge that the com- panies, by their proxies, are paying “starvation wages”31 and “slave wages.”32 They are far from clear about what wage level they consider to be appro- priate. But they generally demand that companies pay a “living wage.” Kernaghan has said that work- ers should be paid enough to support their fam- ilies33 and they should get a “living wage” and “be treated like human beings.”34 Jay Mazur of the tex- tile employees union (UNITE) says “On the ques- tion of wages, generally, of course workers should be paid enough to meet their basic needs—and then some.”35 According to Tim Smith, wage levels should be “fair, decent or a living wage for an em- ployee and his or her family.” He has said that wages in the maquiladoras of Mexico averaged $35 to $55 a week (in or near 1993) which he calls a “shockingly substandard wage,” apparently on the grounds that it “clearly does not allow an employee to feed and care for a family adequately.”36 In 1992, Nike came in for harsh criticism when a magazine published the pay stub of a worker at one of its Indonesian suppliers. It showed that the worker was paid at the rate of $1.03 per day which was reportedly less than the Indonesian government’s figure for “minimum physical need.”37
Immiserization thesis: Former Labor Secretary Rob- ert Reich has proposed as a test of the fairness of de- velopment policies that “Low-wage workers should become better off, not worse off, as trade and invest- ment boost national income.” He has written that “[i]f a country pursues policies that ... limit to a nar- row elite the benefits of trade, the promise of open
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commerce is perverted and drained of its ration- ale.”38 A key claim of the activists is that companies actually impoverish or immiserize developing coun- try workers. They experience an absolute decline in living standards. This thesis follows from the claim that the bidding war among developing countries is depressing wages. Critics deride the claim that sweatshops are benefiting the poor by means of a global version of “trickle down” economics.39 They reject as flawed “claims that US [free trade] policies are leading to the growth of huge middle classes—in such countries as China, India and Indonesia—that will drive the world economy in the twenty-first cen- tury.”40 This picture, they say, is belied by the fact that “Most of the ‘global South’—some 45 per cent of humanity who reside mainly in the 140 poorest countries of the Third World—is locked in poverty and left behind as the richer strata grow....”41
Widening gap between rich and poor: A related charge is that international sweatshops are contributing to the increasing gap between rich and poor. Not only are the poor being absolutely impoverished, but trade is generating greater inequality within de- veloping countries. Another test that Reich has pro- posed to establish the fairness of international trade is that “the gap between rich and poor should tend to narrow with development, not widen.”42 Critics charge that international sweatshops flunk that test. They say that the increasing GNPs of some develop- ing countries simply mask a widening gap between rich and poor. “Across the world, both local and foreign elites are getting richer from the exploita- tion of the most vulnerable.”43 And, “The major adverse consequence of quickening global econom- ic integration has been widening income disparity within almost all nations....”44 There appears to be a tacit alliance between the elites of both first and third worlds to exploit the most vulnerable, to regi- ment and control and conscript them so that they can create the material conditions for the elites’ ex- travagant lifestyles.
Collusion with repressive regimes: Critics charge that, in their zeal to make their countries safe for foreign investment, Third World regimes, notably China and Indonesia, have stepped up their repression. Not only have these countries have failed to enforce even the minimal labor rules on the books, but they have also used their military and police to break strikes and repress independent unions. They have stifled political dissent, both to retain their hold on political power and to avoid any instability that might scare off foreign investors. Consequently, crit- ics charge, companies like Nike are profiting from political repression. “As unions spread in [Korea and Taiwan], Nike shifted its suppliers primarily to Indo- nesia, China and Thailand, where they could depend on governments to suppress independent union-or- ganizing efforts.”45
Evaluation of the Charges Against International Sweatshops The critics’ charges are undoubtedly accurate on a number of points: (1) There is no doubt that inter- national companies are chasing cheap labor.46 (2) The wages paid by the international sweatshops are—by American standards—shockingly low. (3) Some developing country governments have tightly controlled or repressed organized labor in order to prevent it from disturbing the flow of foreign in- vestment. Thus, in Indonesia, independent unions have been suppressed.47 (4) It is not unusual in de- veloping countries for minimum wage levels to be lower than the official poverty level. (5) Develop- ing country governments have winked at violations of minimum wage laws and labor rules. However, most jobs are in the informal sector and so largely outside the scope of government supervision.48 (6) Some suppliers have employed children or have sub- contracted work to other producers who have done so. (7) Some developing country governments deny their people basic political rights. China is the ob- vious example; Indonesia’s record is pretty horrible
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but had shown steady improvement until the last two years. But on many of the other counts, the crit- ics’ charges appear to be seriously inaccurate. And, even where the charges are accurate, it is not self-evi- dent that the practices in question are improper or unethical, as we see next.
Wages and conditions: Even the critics of inter- national sweatshops do not dispute that the wages they pay are generally higher than—or at least equal to—comparable wages in the labor markets where they operate. According to the International Labor Organization (ILO), multinational companies often apply standards relating to wages, benefits, condi- tions of work, and occupational safety and health, which both exceed statutory requirements and those practised by local firms.49 The ILO also says that wages and working conditions in so-called Export Processing Zones (EPZs) are often equal to or higher than jobs outside.50 The World Bank says that the poorest workers in developing countries work in the informal sector where they often earn less than half what a formal sector employee earns. Moreover, “informal and rural workers often must work under more hazardous and insecure conditions than their formal sector counterparts.”51
The same appears to hold true for the internation- al sweatshops. In 1996, young women working in the plant of a Nike supplier in Serang, Indonesia were earning the Indonesian legal minimum wage of 5,200 rupiahs or about $2.28 each day. As a report in the Washington Post pointed out, just earning the minimum wage put these workers among higher- paid Indonesians: “In Indonesia, less than half the working population earns the minimum wage, since about half of all adults here are in farming, and the typical farmer would make only about 2,000 rupiahs each day.”52 The workers in the Serang plant report- ed that they save about three-quarters of their pay. A 17 year-old woman said: “I came here one year ago from central Java. I’m making more money than my father makes.” This woman also said that she sent
about 75 per cent of her earnings back to her family on the farm.53 Also in 1996, a Nike spokeswoman estimated that an entry-level factory worker in the plant of a Nike supplier made five times what a farmer makes.54 Nike’s chairman, Phil Knight, likes to teasingly remind critics that the average worker in one of Nike’s Chinese factories is paid more than a professor at Beijing University.55 There is also plen- tiful anecdotal evidence from non-Nike sources. A worker at the Taiwanese-owned King Star Garment Assembly plant in Honduras told a reporter that he was earning seven times what he earned in the countryside.56 In Bangladesh, the country’s fledg- ling garment industry was paying women who had never worked before between $40 and $55 a month in 1991. That compared with a national per capita income of about $200 and the approximately $1 a day earned by many of these women’s husbands as day laborers or rickshaw drivers.57
The same news reports also shed some light on the working conditions in sweatshops. According to the Washington Post, in 1994 the Indonesian of- fice of the international accounting firm Ernst & Young surveyed Nike workers concerning worker pay, safety conditions and attitudes toward the job. The auditors pulled workers off the assembly line at random and asked them questions that the workers answered anonymously. The survey of 25 workers at Nike’s Serang plant found that 23 thought the hours and overtime worked were fair, and two thought the overtime hours too high. None of the workers reported that they had been discriminated against. Thirteen said the working environment was the key reason they worked at the Serang plant while eight cited salary and benefits.58 The Post report also noted that the Serang plant closes for about ten days each year for Muslim holidays. It quoted Nike officials and the plant’s Taiwanese owners as saying that 94 per cent of the workers had returned to the plant fol- lowing the most recent break.
The New York Times’s Larry Rohter went to Hon- duras where he interviewed more than 75 apparel
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workers and union leaders and made visits to half a dozen plants, including the one that made clothes for the Gifford line. Workers and employers told Rohter that managers at some companies verbally abused their workers on a regular basis, but at other plants they treated their employees well. “What resi- dents of a rich country see as exploitation,” Rohter reported, “can seem a rare opportunity to residents of a poor country like Honduras, where the per cap- ita income is $600 a year and unemployment is 40 per cent.”59
There is also the mute testimony of the lines of job applicants outside the sweatshops in Guatemala and Honduras. According to Lucy Martinez-Mont, in Guatemala the sweatshops are conspicuous for the long lines of young people waiting to be interviewed for a job.60 Outside the gates of the industrial park in Honduras that Rohter visited “anxious onlookers are always waiting, hoping for a chance at least to fill out a job application [for employment at one of the apparel plants].”61
The critics of sweatshops acknowledge that work- ers have voluntarily taken their jobs, consider them- selves lucky to have them, and want to keep them. Thus Barnet and Cavanagh quote a worker as saying, “I am happy working here. I can make money and I can make friends.”62 But they go on to discount the workers’ views as the product of confusion or ignor- ance, and/or they just argue that the workers’ views are beside the point. Thus, while “it is undoubt- edly true” that Nike has given jobs to thousands of people who wouldn’t be working otherwise, they say that “neatly skirts the fundamental human-rights issue raised by these production arrangements that are now spreading all across the world.”63 Similarly the NLC’s Kernaghan says that “[w]hether work- ers think they are better off in the assembly plants than elsewhere is not the real issue.”64 Kernaghan, and Jeff Ballinger of the AFL-CIO, concede that the workers desperately need these jobs. But “[t]hey say they’re not asking that US companies stop operat- ing in these countries. They’re asking that workers be
paid a living wage and treated like human beings.”65 Apparently these workers are victims of what Marx called false consciousness, or else they would grasp that they are being exploited. According to Bar- net and Cavanagh, “For many workers ... exploita- tion is not a concept easily comprehended because the alternative prospects for earning a living are so bleak.”66
Immiserization and inequality: The critics’ claim that the countries that host international sweatshops are marked by growing poverty and inequality is flatly contradicted by the record. In fact, many of those countries have experienced sharp increases in living standards—for all strata of society. In trying to at- tract investment in simple manufacturing, Malaysia and Indonesia and, now, Vietnam and China, are re- tracing the industrialization path already successful- ly taken by East Asian countries like Taiwan, Korea, Singapore and Hong Kong. These four countries got their start by producing labor-intensive manu- factured goods (often electrical and electronic com- ponents, shoes, and garments) for export markets. Over time they graduated to the export of higher value-added items that are skill-intensive and require a relatively developed industrial base.67
As is well known, these East Asian countries achieved growth rates exceeding eight per cent for a quarter century.68 As Gary Fields says, the workers in these economies were not impoverished by growth. The benefits of growth were widely diffused: These economies achieved essentially full employment in the 1960s. Real wages rose by as much as a factor of four. Absolute poverty fell. And income inequality remained at low to moderate levels.69 It is true that in the initial stages the rapid growth generated only moderate increases in wages. But once essentially- full employment was reached, and what economists call the Fei-Ranis turning point was reached, the increased demand for labor resulted in the bidding up of wages as firms competed for a scarce labor supply.70
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Interestingly, given its historic mission as a watch- dog for international labor standards,71 the ILO has embraced this development model. It recently noted that the most successful developing economies, in terms of output and employment growth, have been “those who best exploited emerging opportunities in the global economy.”72 An “export-oriented policy is vital in countries that are starting on the indus- trialization path and have large surpluses of cheap labour.”73 Countries which have succeeded in at- tracting foreign direct investment (FDI) have ex- perienced rapid growth in manufacturing output and exports.74 The successful attraction of foreign investment in plant and equipment “can be a power- ful spur to rapid industrialization and employment creation.”75 “At low levels of industrialization, FDI in garments and shoes and some types of consumer electronics can be very useful for creating employ- ment and opening the economy to international markets; there may be some entrepreneurial skills created in simple activities like garments (as has hap- pened in Bangladesh). Moreover, in some cases, such as Malaysia, the investors may strike deeper roots and invest in more capital-intensive technologies as wages rise.”76
According to the World Bank, the rapidly grow- ing Asian economies (including Indonesia) “have also been unusually successful at sharing the fruits of their growth.”77 In fact, while inequality in the West has been growing, it has been shrinking in the Asian economies. They are the only economies in the world to have experienced high growth and de- clining inequality, and they also show shrinking gen- der gaps in education.78
This development strategy is working for Indo- nesia. According to a recent survey in the Economist, “Indonesia is now well and truly launched on the path of export-led growth already trodden by coun- tries such as Malaysia, Thailand and South Korea.”79 “In 1967, when the president, Suharto, first took that job, Indonesia’s GNP of $70 per person meant that it was twice as poor as India and Bangladesh.
Since then Indonesia’s economy has grown at a rate of almost 7 per cent a year in real terms.... By the early 1990s, average annual incomes had spurted to $650 a person—twice what they had been a decade earlier—as gross national product had expanded at an average clip of 6.8 per cent.”80 Indonesia has spent significant sums on health, education and the ad- vancement of women and the provision of credit to low income families and small-scale entrepreneurs.81 It has also spread its wealth to the rural areas. Rural electrification and road construction have made rapid strides. By 1993, about half of the Indonesian countryside was expected to have electricity, up from 35 per cent the previous year. Largely because of im- provements in rural medical facilities and sanitation, the infant mortality rate has fallen by nearly 60 per cent since the early 1970s.82 These facts are reviewed here because they are so starkly different from the much darker picture painted by the critics of inter- national sweatshops.
Profiting from repression?: What about the charge that international sweatshops are profiting from re- pression? It is undeniable that there is repression in many of the countries where sweatshops are located. But economic development appears to be relaxing that repression rather than strengthening its grip.83 The companies are supposed to benefit from govern- ment policies (e.g., repression of unions) that hold down labor costs. However, as we have seen, the wages paid by the international sweatshops already match or exceed the prevailing local wages. Not only that, but incomes in the East Asian economies, and in Indonesia, have risen rapidly. Moreover, even the sweatshops’ critics admit that the main factor restraining wages in countries like Indonesia is the state of the labor market. “Why is Indonesia the bargain basement of world labor?” ask Richard Bar- net and John Cavanagh of the Institute for Policy Studies. Their principal explanation is that “[t]he re- serve army of the unemployed is vast; 2.5 million people enter the job market every year.”84 The high
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rate of unemployment and underemployment acts as a brake on wages: Only about 55 per cent of the Indonesian labor force can find more than 35 hours of work each week, and about 2 million workers are unemployed.85
The critics, however, are right in saying that the Indonesian government has opposed independent unions in the sweatshops out of fear they would lead to higher wages and labor unrest. But the govern- ment’s fear clearly is that unions might drive wages in the modern industrial sector above market-clear- ing levels—or, more exactly, further above market. It is ironic that critics like Barnet and Cavanagh would use the Marxian term “reserve army of the unemployed.” According to Marx, capitalists delib- erately maintain high levels of unemployment in order to control the working class. But the Indo- nesian government’s policies (e.g., suppression of unions, resistance to a higher minimum wage and lax enforcement of labor rules) have been directed at achieving exactly the opposite result. The gov- ernment appears to have calculated that high un- employment is a greater threat to its hold on power. I think we can safely take at face value its claims that its policies are genuinely intended to help the econ- omy create jobs to absorb the massive numbers of unemployed and underemployed.86
Labor Standards in International Sweatshops: Painful Trade-offs Who but the grinch could grudge paying a few addi- tional pennies to some of the world’s poorest work- ers? There is no doubt that the rhetorical force of the critics’ case against international sweatshops rests on this apparently self-evident proposition. However, higher wages and improved labor standards are not free. After all, the critics themselves attack compan- ies for chasing cheap labor. It follows that, if labor in developing countries is made more expensive (say, as the result of pressure by the critics), then those coun- tries will receive less foreign investment, and fewer
jobs will be created there. Imposing higher wages may deprive these countries of the one comparative advantage they enjoy, namely low-cost labor.
We have seen that workers in most “international sweatshops” are already relatively well paid. Workers in the urban, formal sectors of developing countries commonly earn more than twice what informal and rural workers get.87 Simply earning the minimum wage put the young women making Nike shoes in Serang in the top half of the income distribution in Indonesia. Accordingly, the critics are in effect call- ing for a widening of the economic disparity that al- ready greatly favors sweatshop workers.
By itself that may or may not be ethically objec- tionable. But these higher wages come at the expense of the incomes and the job opportunities of much poorer workers. As economists explain, higher wages in the formal sector reduce employment there and (by increasing the supply of labor) depress incomes in the informal sector. The case against requiring above-market wages for international sweatshop workers is essentially the same as the case against other measures that artificially raise labor costs, like the minimum wage. In Jagdish Bhagwati’s words: “Requiring a minimum wage in an overpopulated, developing country, as is done in a developed coun- try, may actually be morally wicked. A minimum wage might help the unionized, industrial prole- tariat, while limiting the ability to save and invest rapidly which is necessary to draw more of the un- employed and nonunionized rural poor into gainful employment and income.”88 The World Bank makes the same point: “Minimum wages may help the most poverty-stricken workers in industrial coun- tries, but they clearly do not in developing nations.... The workers whom minimum wage legislation tries to protect—urban formal workers—already earn much more than the less favored majority.... And inasmuch as minimum wage and other regulations discourage formal employment by increasing wage and nonwage costs, they hurt the poor who aspire to formal employment.”89
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The story is no different when it comes to labor standards other than wages. If standards are set too high they will hurt investment and employment. The World Bank report points out that “[r]educing hazards in the workplace is costly, and typically the greater the reduction the more it costs. Moreover, the costs of compliance often fall largely on employ- ees through lower wages or reduced employment. As a result, setting standards too high can actually lower workers’ welfare....”90 Perversely, if the higher standards advocated by critics retard the growth of formal sector jobs, then that will trap more informal and rural workers in jobs which are far more hazard- ous and insecure than those of their formal sector counterparts.91
The critics consistently advocate policies that will benefit better-off workers at the expense of worse-off ones. If it were within their power, it appears that they would re-invent the labor markets of much of Latin America. Alejandro Portes’ description seems to be on the mark: “In Mexico, Brazil, Peru, and other Third World countries, [unlike East Asia], there are powerful independent unions representing the protected sector of the working class. Although there rhetoric is populist and even radical, the fact is that they tend to represent the better-paid and more stable fraction of the working class. Alongside, there toils a vast, unprotected proletariat, employed by in- formal enterprises and linked, in ways hidden from public view, with modern sector firms.”92
Moreover the critics are embracing a development strategy—one that improves formal sector workers’ wages and conditions by fiat—that has been tried and failed. It is in the process of being abandoned by Third World countries around the globe. Portes, who is no advocate of unfettered markets,93 has warned against the overregulation of labor markets in developing countries. He says: “For those who ad- vocate a full set of advanced regulations to be imple- mented in all countries, I offer the example of those less developed nations which attempted to do so and failed. More often than not, their sophisticated legal
codes did not so much reflect labor market realities as the influence and prestige of things foreign. The common end-result was an acute labor market dual- ism which protected a privileged segment of the labor force at the expense of the majority.”94 It is precisely to escape the web of overregulation of their own making that developing countries have estab- lished so-called “special production zones” (SPZs). The governments of “heavily regulated countries at- tempting to break into export markets have adopted the strategy of establishing [SPZs] in remote areas away from the centers of union strength. What is ‘special’ about these zones is precisely that provisions of the existing tax and labor codes do not apply to them and that they are generally ‘union-free.’”95
Of course it might be objected that trading off workers’ rights for more jobs is unethical. But, so far as I can determine, the critics have not made this argument. Although they sometimes implicitly accept the existence of the trade-off (we saw that they attack Nike for chasing cheap labor), their public statements are silent on the lost or forgone jobs from higher wages and better labor standards. At other times, they imply or claim that improvements in workers’ wages and conditions are essentially free: According to Ker- naghan, “Companies could easily double their em- ployees’ wages, and it would be nothing.”96
In summary, the result of the ostensibly humani- tarian changes urged by critics are likely to be (1) reduced employment in the formal or modern sector of the economy, (2) lower incomes in the informal sector, (3) less investment and so slower economic growth, (4) reduced exports, (5) greater inequality and poverty.97 As Fields says, “The poor workers of the world cannot afford this.”98
Conclusion: The Case for not Exceeding Market Standards It is part of the job description of business ethicists to exhort companies to treat their workers better (otherwise what purpose do they serve?). So it will
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have come as no surprise that both the business ethi- cists whose views I summarized at the beginning of this paper—Thomas Donaldson and Richard De- George—objected to letting the market alone de- termine wages and labor standards in multinational companies. Both of them proposed criteria for set- ting wages that might occasionally “improve” on the outcomes of the market.
Their reasons for rejecting market determination of wages were similar. They both cited conditions that allegedly prevent international markets from generating ethically acceptable results. Donaldson argued that neoclassical economic principles are not applicable to international business because of high unemployment rates in developing countries. And DeGeorge argued that, in an unregulated inter- national market, the gross inequality of bargaining power between workers and companies would lead to exploitation.
But this paper has shown that attempts to im- prove on market outcomes may have unforeseen tra- gic consequences. We saw how raising the wages of workers in international sweatshops might wind up penalizing the most vulnerable workers (those in the informal sectors of developing countries) by depress- ing their wages and reducing their job opportunities in the formal sector. Donaldson and DeGeorge cited high unemployment and unequal bargaining pow- er as conditions that made it necessary to bypass or override the market determination of wages. How- ever, in both cases, bypassing the market in order to prevent exploitation may aggravate these conditions. As we have seen, above-market wages paid to sweat- shop workers may discourage further investment and so perpetuate high unemployment. In turn, the higher unemployment may weaken the bargaining power of workers vis-à-vis employers. Thus such market imperfections seem to call for more reliance on market forces rather than less.
Likewise, the experience of the newly industrial- ized East Asian economies suggests that the best cure for the ills of sweatshops is more sweatshops. But
most of the well-intentioned policies that improve on market outcomes are likely to have the opposite effect.
Where does this leave the international man- ager? If the preceding analysis is correct, then it follows that it is ethically acceptable to pay market wage rates in developing countries (and to provide employment conditions appropriate for the level of development). That holds true even if the wages pay less than so-called living wages or subsistence or even (conceivably) the local minimum wage. The appropriate test is not whether the wage reaches some predetermined standard but whether it is free- ly accepted by (reasonably) informed workers. The workers themselves are in the best position to judge whether the wages offered are superior to their next- best alternatives. (The same logic applies mutatis mu- tandis to workplace labor standards.)
Indeed, not only is it ethically acceptable for a company to pay market wages, but it may be eth- ically unacceptable for it to pay wages that exceed market levels. That will be the case if the company’s above-market wages set precedents for other inter- national companies which raise labor costs to the point of discouraging foreign investment. Further- more, companies may have a social responsibility to transcend their own narrow preoccupation with protecting their brand image and to publicly defend a system which has greatly improved the lot of mil- lions of workers in developing countries.
Notes 1 Stephanie Strom, “From Sweetheart to Scape-
goat,” New York Times, June 27, 1996. Ac- cording to Strom, “Shortly after [Kernaghan] effectively charged Mrs. Gifford with exploiting children in the pursuit of profit, news broke of a factory in New York’s garment district where workers making blouses for the Kathie Lee Gif- ford line had not been paid. Mrs. Gifford dis- solved into tears on her talk show, while her husband, Frank, the football player and broad-
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166 GLOBALIZATION AND ITS ETHICAL SIGNIFICANCE
caster, hurried to the factory, Seo Fashions, and doled out three $100 bills to each of the work- ers.... [Kernaghan] recently apologized saying he and his organization ‘never intended to hurt anyone personally and are truly sorry for any pain caused to Kathie Lee Gifford ...’”
2 Joanna Ramey and Joyce Barrett, “Apparel’s Ethical Dilemma,” Women’s Wear Daily, March 18, 1996.
3 Steven Greenhouse, “A Crusader Makes Celeb- rities Tremble,” New York Times, June 18, 1996, B4.
4 Lance A. Compa and Tashia Hinchliffe Dar- ricarrere, “Enforcement Through Corporate Codes of Conduct,” in Compa and Stephen F. Diamond, Human Rights, Labor Rights, and International Trade (Philadelphia: University of Pennsylvania Press, 1996) 193.
5 Peter Jacobi in Martha Nichols, “Third-World Families at Work: Child Labor or Child Care,” Harvard Business Review, Jan.-Feb. 1993.
6 David Sampson in Robin G. Givhan, “A Stain on Fashion; The Garment Industry Profits from Cheap Labor,” Washington Post, Septem- ber 12, 1995, B1. According to the Wall Street Journal’s G. Pascal Zachary, “Ethics aside, Levi’s was frankly concerned with its image among hip customers.” Zachary quotes Robert Dunn, who helped design Levi’s code of conduct, as saying, “Anyone seeking to protect their brand and company reputation will realize these poli- cies make business sense. The alternative is to put ourselves at risk.” “Exporting Rights: Levi Tries to Make Sure Contract Plants in Asia Treat Workers Well,” Wall Street Journal, July 28, 1994.
7 Steven Greenhouse, “Voluntary Rules on Ap- parel Labor Proving Elusive,” New York Times, February 1, 1997.
8 As Thomas Donaldson rightly says, “In gener- al, the solution to most difficult international problems requires a detailed understanding not
only of moral precepts, but of particular facts.” The Ethics of International Business (New York: Oxford University Press, 1989) 90. This case is especially fact-intensive.
9 Arnold Berleant has proposed that the prin- ciple of equal treatment endorsed by most Americans requires that US corporations pay workers in developing countries exactly the same wages paid to US workers in comparable jobs. See Donaldson, Ethics of International Business, 97-98.
10 Formally, of course, workers at Nike’s suppliers are not Nike employees. But critics say this is a distinction without a difference, and I will not distinguish the two cases in this paper.
11 Donaldson, 98. 12 Richard DeGeorge, Competing with Integrity in
International Business (New York: Oxford Uni- versity Press, 1993) 79.
13 DeGeorge, Competing with Integrity, 356-57. 14 Id., 78. 15 Thomas Donaldson, The Ethics of International
Business (New York: Oxford University Press, 1989), 100.
16 Donaldson, Ethics of International Business, 145.
17 Id., 100. 18 Id., 101. 19 Id., 103. 20 Donaldson rather loftily dismisses the ob-
jection that his “algorithm” makes excessive demands on the sophistication and “ethic- al sensitivity” of managers. “[F]rom a theor- etical perspective the problem is a contingent and practical one. It is no more a theoretical flaw of the proposed algorithm that it may be misunderstood or misapplied by a given multinational, than it is of Rawls’s theory of justice that it may be conveniently misunder- stood by a trickle-down Libertarian.” Eth- ics of International Business, 108. That seems to be equivalent to saying that the operation
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was a success but the patient died. Surely eth- ical guidelines for multinational managers are practical or they are irrelevant.
21 World Bank, World Development Report 1995, “Workers in an Integrating World Economy” (Oxford University Press, 1995) 77.
22 Donaldson, Ethics of International Business, 115.
23 Id., 150. 24 DeGeorge, Competing with Integrity, 48. 25 Id., 358. 26 Id. 27 Kenneth P. Hutchinson, “Third World Growth,”
Harvard Business Review, Nov.-Dec. 1994. (In 1994, Hutchinson was executive director of the Asian-American Free Labor Institute in Wash- ington, DC, an affiliate of the AFL-CIO.)
28 Terry Collingsworth, J. William Goold, Pharis J. Harvey, “Time for a Global New Deal,” For- eign Affairs, Jan.-Feb. 1994, 8.
29 Collingsworth et al., 8. 30 David Holmstrom, “One Man’s Fight Against
Sweatshops,” Christian Science Monitor, July 3, 1996.
31 Nightline (ABC), June 13, 1996. 32 Kernaghan cited in Larry Rohter, “To US Crit-
ics, a Sweatshop; for Hondurans, a Better Life,” New York Times, July 18, 1996.
33 Greenhouse, “A Crusader Makes Celebrities Tremble.”
34 William B. Falk, “Dirty Little Secrets,” News- day, June 16, 1996.
35 Greenhouse, “Voluntary Rules.” 36 Tim Smith, “The Power of Business for Hu-
man Rights,” Business & Society Review, Janu- ary 1994, 36.
37 Jeffrey Ballinger, “The New Free Trade Heel,” Harper’s Magazine, August 1992, 46-47. “As in many developing countries, Indonesia’s min- imum wage, ... is less than poverty level.” Nina Baker, “The Hidden Hands of Nike,” Oregon- ian, August 9, 1992.
38 Robert B. Reich, “Escape from the Global Sweatshop; Capitalism’s Stake in Uniting the Workers of the World,” Washington Post, May 22, 1994. Reich’s test is intended to apply in developing countries “where democratic insti- tutions are weak or absent.”
39 Collingsworth et al., 8. 40 Robin Broad and John Cavanaugh, “Don’t
Neglect the Impoverished South,” Foreign Af- fairs, December 22, 1995, 18. See also the typ- ical muckraking piece by Merrill Goozner: “As the global economy pushes ever deeper into the poorest precincts of the developing world, its benefits aren’t trickling down.... There is mounting evidence that the rising tide of rapid development is not lifting all boats, especially in China and Indonesia, the first and fourth most populous countries on earth.” Goozner, “Asian Labor: Wages of Shame; Western Firms Help to Exploit Brutal Conditions,” Chicago Tribune, Nov. 6, 1994, 1.
41 Broad and Cavanagh, “Don’t Neglect the Im- poverished South.”
42 Reich, “Escape from the Global Sweatshop.” 43 Hutchinson, “Third World Growth.” 44 Broad and Cavanagh, “Don’t Neglect the Im-
poverished South.” See also Goozner, “Wages of Shame.”
45 John Cavanagh and Robin Broad, “Global Reach; Workers Fight the Multinationals,” The Nation, March 18, 1996, 21. See also Bob Her- bert, “Nike’s Bad Neighborhood,” New York Times, June 14, 1996.
46 For example, see Economist, “Wealth in its Grasp, A Survey of Indonesia,” April 17, 1993 (By Gideon Rachman).
47 Adam Schwartz, “Pressures of Work,” Far East- ern Economic Review, June 20, 1991, 14.
48 Schwartz, “Pressures.” 49 International Labor Organization, World Em-
ployment 1995 (Geneva: ILO, 1995) 73. 50 ILO, 73.
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51 World Bank, Workers in an Integrating World Economy, 5.
52 Keith B. Richburg, Anne Swardson, “US in- dustry Overseas: Sweatshop or Job Source?: Indonesians Praise Work at Nike Factory,” Washington Post, July 28, 1996.
53 Richburg and Swardson, “Sweatshop or Job Source?” The 17 year-old was interviewed in the presence of managers. For other reports that workers remit home large parts of their earnings see Seth Mydans, “Tangerang Journal; For Indonesian Workers at Nike Plant: Just Do It,” New York Times, August 9, 1996, and Nina Baker, “The Hidden Hands of Nike.”
54 Donna Gibbs, Nike spokeswoman on ABC’s World News Tonight, June 6, 1996.
55 Mark Clifford, “Trading in Social Issues; Labor Policy and International Trade Regulation,” World Press Review, June 1994, 36.
56 Larry Rohter, “To US Critics, a Sweatshop; for Hondurans, a Better Life,” New York Times, July 18, 1996.
57 Marcus Brauchli, “Garment Industry Booms in Bangladesh,” Wall Street Journal, August 6, 1991.
58 Richburg and Swardson, “Sweatshop or Job Source?”
59 See also Henry Tricks, “Salvador Textile Work- ers Face Bad Times,” Reuters, March 8, 1996; Freddy Cuevas, “Sweatshop, or a Boon?,” St. Paul Pioneer Press, July 17, 1996; and Seth Mydans, “Tangerang Journal.”
60 Lucy Martinez-Mont, “Sweatshops are Better Than No Shops,” Wall Street Journal, June 25, 1996.
61 Rohter, “To US Critics a Sweatshop.” 62 Barnet and Cavanagh, Global Dreams (New
York: Simon and Schuster, 1994) 327. Similarly, Nina Baker reported that “Tri Mugiyanti and her coworkers [at the Hasi plant in Indonesia] think they are lucky to get jobs at factories such as Hasi.” Baker, “The Hidden Hands of Nike.”
63 Barnet and Cavanagh, Global Dreams, 326. 64 Rohter, “To US Critics a Sweatshop.” 65 William B. Falk, “Dirty Little Secrets,” News-
day, June 16, 1996. 66 Barnet and Cavanagh, “Just Undo It: Nike’s
Exploited Workers,” New York Times, February 13, 1994.
67 Sarosh Kuruvilla, “Linkages Between Indus- trialization Strategies and Industrial Relations/ Human Resources Policies: Singapore, Malay- sia, The Philippines, and India,” Industrial & Labor Relations Review, July 1996, 637.
68 Gary S. Fields, “Labor Standards, Economic Development, and International Trade,” in Stephen Herzenberg and Jorge Perez-Lopez (eds.), Labor Standards and the Development of the Global Economy (Washington, DC: US De- partment of Labor, Bureau of International Af- fairs, 1990), 23.
69 Fields, 25. 70 Fields, 25. 71 The ILO’s Constitution (of 1919) mentions
that: “... the failure of any nation to adopt hu- mane conditions of labour is an obstacle in the way of other nations which desire to improve the conditions in their own countries.” ILO, World Employment 1995, 74.
72 ILO, 75. 73 Id., 76. 74 Id., 77. 75 Id., 78. 76 Id., 79. 77 World Bank, The East Asian Miracle (New York:
Oxford University Press, 1993) 2. 78 World Bank, East Asian Miracle, 2-4, 47. 79 Economist, “Wealth in its Grasp.” 80 Marcus W. Brauchli, “Indonesia is Striving to
Prosper in Freedom but is Still Repressive,” Wall Street Journal, October 11, 1994.
81 Barbara Crossette, “UN Survey Finds World Rich-Poor Gap Widening,” New York Times, July 15, 1996, citing UN Human Development
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Report 1996 (New York: Oxford University Press, 1996).
82 Philip Shenon, “Hidden Giant—A Special Re- port; Indonesia Improves Life for Many but the Political Shadows Remain,” New York Times, August 27, 1993, 1.
83 See, for example, Brauchli, “Indonesia is Striv- ing to Prosper.”
84 Barnet and Cavanagh, “Just Undo It: Nike’s Exploited Workers.”
85 Schwartz, “Pressures of Work.” 86 Economist, “Wealth in its Grasp,” 14-15. 87 World Bank, Workers in an Integrating World
Economy, 5. 88 Jagdish Bhagwati and Robert E. Hudec, eds.
Fair Trade and Harmonization (Cambridge: MIT Press, 1996), vol. 1, 2.
89 World Bank, Workers in an Integrating World Economy, 75.
90 Id., 77. As I have noted, the report proposes that the “appropriate level is therefore that at which the costs are commensurate with the value that informed workers place on improved working conditions and reduced risk....” (77).
91 World Bank, Workers in an Integrating World Economy, 5.
92 Compare the World Bank’s analysis: “But unions can also have negative economic effects. In some countries they behave like monopol- ists, protecting a minority group of relatively well-off unionized workers at the expense of the unemployed and those in rural and informal markets, whose formal sector employment opportunities are correspondingly reduced.” World Bank, Workers in an Integrating World Economy, 80. For estimates of the size of the “union wage effect”—the difference in compen- sation between otherwise similar workers that is that is attributed to union membership—in different countries, see sources cited in id., 81.
93 Portes does not advocate “a removal of all state regulation in order to let popular entrepreneur-
ial energies flourish” but believes that “[t]here is no alternative to state intervention in the labor market.... [B]asic rights which have become consensually accepted throughout the civilized world ...” Alejandro Portes, “When More Can Be Less; Labor Standards, Development, and the Informal Economy,” in Herzenberg and Perez-Lopez, Labor Standards and the Develop- ment of the Global Economy, 234.
94 Portes, “When More Can Be Less,” 234. 95 Id., 228-29. 96 Rohter, “To US Critics a Sweatshop.” The focus
on labor conditions in the export sectors of de- veloping economies, when conditions are worse elsewhere, has attracted charges of “protection- ism in the guise of humanitarian concern.” Paul Krugman, “Does Third World Growth Hurt First World Prosperity?,” Harvard Business Re- view, July-Aug. 1994, 113. Critics are accused of advocating increased labor rights in third world export industries in order to reduce the com- petitive threat to first world jobs. Prime Min- ister Mahathir of Malaysia is outspoken on this point: Western pressure, he says, “is intended to stop multinationals from manufacturing in developing markets.” “Striking a Balance; Pres- sured by Workers and the West, Asia Fights to Stay Competitive,” Asiaweek, October 26, 1994. According to Krugman, “Developing countries are already warning, however, that such stan- dards are simply an effort to deny them access to world markets by preventing them from mak- ing use of the only competitive advantage they have: abundant labor. The developing countries are right.” Paul Krugman is right.
97 Gary S. Fields, “Employment, Income Distri- bution and Economic Growth in Seven Small Open Economies,” The Economic Journal, 94 (March 1984), 81.
98 Fields, “Labor Standards,” 21.
♦ ♦ ♦ ♦ ♦
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170 GLOBALIZATION AND ITS ETHICAL SIGNIFICANCE
tHoMAs DonALDson
Values in tension: Ethics Away from Home
World View
When is different just different, and when is different wrong?
When we leave home and cross our nation’s bound- aries, moral clarity often blurs. Without a backdrop of shared attitudes, and without familiar laws and ju- dicial procedures that define standards of ethical con- duct, certainty is elusive. Should a company invest in a foreign country where civil and political rights are violated? Should a company go along with a host country’s discriminatory employment practices? If companies in developed countries shift facilities to developing nations that lack strict environmental and health regulations, or if those companies choose to fill management and other top-level positions in a host nation with people from the home country, whose standards should prevail?
Even the best-informed, best-intentioned exec- utives must rethink their assumptions about busi- ness practice in foreign settings. What works in a company’s home country can fail in a country with different standards of ethical conduct. Such difficul- ties are unavoidable for businesspeople who live and work abroad.
But how can managers resolve the problems? What are the principles that can help them work through the maze of cultural differences and estab- lish codes of conduct for globally ethical business practice? How can companies answer the toughest question in global business ethics: What happens when a host country’s ethical standards seem lower than the home country’s?
Competing Answers
One answer is as old as philosophical discourse. Ac- cording to cultural relativism, no culture’s ethics are better than any other’s; therefore there are no inter- national rights and wrongs. If the people of Indo- nesia tolerate the bribery of their public officials, so what? Their attitude is no better or worse than that of people in Denmark or Singapore who refuse to offer or accept bribes. Likewise, if Belgians fail to find insider trading morally repugnant, who cares? Not enforcing insider-trading laws is no more or less ethical than enforcing such laws.
The cultural relativist’s creed—When in Rome, do as the Romans do—is tempting, especially when failing to do as the locals do means forfeiting busi- ness opportunities. The inadequacy of cultural relativism, however, becomes apparent when the practices in question are more damaging than petty bribery or insider trading.
In the late 1980s, some European tanneries and pharmaceutical companies were looking for cheap waste-dumping sites. They approached virtually every country on Africa’s west coast from Morocco to the Congo. Nigeria agreed to take highly toxic polychlorinated biphenyls. Unprotected local work- ers, wearing thongs and shorts, unloaded barrels of PCBs and placed them near a residential area. Nei- ther the residents nor the workers knew that the bar- rels contained toxic waste.
We may denounce governments that permit such abuses, but many countries are unable to police transnational corporations adequately even if they want to. And in many countries, the combination of ineffective enforcement and inadequate regula- tions leads to behavior by unscrupulous companies that is clearly wrong. A few years ago, for example, a group of investors became interested in restoring the SS United States, once a luxurious ocean liner. Before the actual restoration could begin, the ship had to be stripped of its asbestos lining. A bid from a US company, based on US standards for asbestos re-
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moval, priced the job at more than $100 million. A company in the Ukrainian city of Sevastopol offered to do the work for less than $2 million. In October 1993, the ship was towed to Sevastopol.
A cultural relativist would have no problem with that outcome, but I do. A country has the right to establish its own health and safety regulations, but in the case described above, the standards and the terms of the contract could not possibly have pro- tected workers in Sevastopol from known health risks. Even if the contract met Ukrainian standards, ethical businesspeople must object. Cultural relativ- ism is morally blind. There are fundamental values that cross cultures, and companies must uphold them. (For an economic argument against cultural relativism, see the insert “The Culture and Ethics of Software Piracy.”)
At the other end of the spectrum from cultural relativism is ethical imperialism, which directs people to do everywhere exactly as they do at home. Again, an understandably appealing approach but one that is clearly inadequate. Consider the large US com- puter-products company that in 1993 introduced a course on sexual harassment in its Saudi Arab- ian facility. Under the banner of global consistency, instructors used the same approach to train Saudi Arabian managers that they had used with US man- agers: the participants were asked to discuss a case in which a manager makes sexually explicit remarks to a new female employee over drinks in a bar. The instructors failed to consider how the exercise would work in a culture with strict conventions governing relationships between men and women. As a result, the training sessions were ludicrous. They baffled and offended the Saudi participants, and the message to avoid coercion and sexual discrimination was lost.
The theory behind ethical imperialism is abso- lutism, which is based on three problematic prin- ciples. Absolutists believe that there is a single list of truths, that they can be expressed only with one set of concepts, and that they call for exactly the same behavior around the world.
The first claim clashes with many people’s belief that different cultural traditions must be respected. In some cultures, loyalty to a community—family, organization, or society—is the foundation of all ethical behavior. The Japanese, for example, define business ethics in terms of loyalty to their compan- ies, their business networks, and their nation. Amer- icans place a higher value on liberty than on loyalty; the US tradition of rights emphasizes equality, fair- ness, and individual freedom. It is hard to conclude that truth lies on one side or the other, but an abso- lutist would have us select just one.
The second problem with absolutism is the presumption that people must express moral truth using only one set of concepts. For instance, some absolutists insist that the language of basic rights provide the framework for any discussion of ethics. That means, though, that entire cultural traditions must be ignored. The notion of a right evolved with the rise of democracy in post-Renaissance Europe and the United States, but the term is not found in either Confucian or Buddhist traditions. We all learn ethics in the context of our particular cultures, and the power in the principles is deeply tied to the way in which they are expressed. Internationally ac- cepted lists of moral principles, such as the United Nations’ Universal Declaration of Human Rights, draw on many cultural and religious traditions. As philosopher Michael Walzer has noted, “There is no Esperanto of global ethics.”
The third problem with absolutism is the be- lief in a global standard of ethical behavior. Con- text must shape ethical practice. Very low wages, for example, may be considered unethical in rich, advanced countries, but developing nations may be acting ethically if they encourage investment and improve living standards by accepting low wages. Likewise, when people are malnourished or starv- ing, a government may be wise to use more fertiliz- er in order to improve crop yields, even though that means settling for relatively high levels of thermal water pollution.
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172 GLOBALIZATION AND ITS ETHICAL SIGNIFICANCE
When cultures have different standards of ethical behavior—and different ways of handling unethical behavior—a company that takes an absolutist ap- proach may find itself making a disastrous mistake. When a manager at a large US specialty-products company in China caught an employee stealing, she followed the company’s practice and turned the em- ployee over to the provincial authorities, who exe- cuted him. Managers cannot operate in another culture without being aware of that culture’s atti- tudes toward ethics.
If companies can neither adopt a host country’s ethics nor extend the home country’s standards, what
is the answer? Even the traditional litmus test—What would people think of your actions if they were writ- ten up on the front page of the newspaper?—is an unreliable guide, for there is no international con- sensus on standards of business conduct.
Balancing the Extremes: Three Guiding Principles
Companies must help managers distinguish between practices that are merely different and those that are wrong. For relativists, nothing is sacred and nothing is wrong. For absolutists, many things that are differ-
The Culture and Ethics of Software Piracy
countries regard the practice as less unethical than people in other countries do. Confucian culture, for example, stresses that individuals should share what they create with society. That may be, in part, what prompts the Chinese and other Asians to view the concept of intellectual property as a means for the West to monopolize its technologic- al superiority.
What happens if ethical attitudes around the world permit large-scale software piracy? Software companies won’t want to invest as much in de- veloping new products, because they cannot ex- pect any return on their investment in certain parts of the world. When ethics fail to support technological creativity, there are consequences that go beyond statistics—jobs are lost and liveli- hoods jeopardized.
Companies must do more than lobby foreign governments for tougher enforcement of piracy laws. They must cooperate with other compan- ies and with local organizations to help citizens understand the consequences of piracy and to en- courage the evolution of a different ethic toward the practice.
Before jumping on the cultural relativism band- wagon, stop and consider the potential economic consequences of a when-in-Rome attitude toward business ethics. Take a look at the current statistics on software piracy: In the United States, pirated software is estimated to be 35 per cent of the total software market, and industry losses are estimat- ed at $2.3 billion per year. The piracy rate is 57 per cent in Germany and 80 per cent in Italy and Japan; the rates in most Asian countries are esti- mated to be nearly 100 per cent.
There are similar laws against software piracy in those countries. What, then, accounts for the differences? Although a country’s level of econom- ic development plays a large part, culture, includ- ing ethical attitudes, may be a more crucial factor. The 1995 annual report of the Software Publishers Association connects software piracy directly to culture and attitude. It describes Italy and Hong Kong as having “‘first world’ per capita incomes, along with ‘third world’ rates of piracy.” When asked whether one should use software without paying for it, most people, including people in Italy and Hong Kong, say no. But people in some
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ent are wrong. Neither extreme illuminates the real world of business decision making. The answer lies somewhere in between.
When it comes to shaping ethical behavior, com- panies must be guided by three principles.
• Respect for core human values, which deter- mine the absolute moral threshold for all busi- ness activities.
• Respect for local traditions. • The belief that context matters when deciding
what is right and what is wrong.
Consider those principles in action. In Japan, people doing business together often exchange gifts—sometimes expensive ones—in keeping with long-standing Japanese tradition. When US and European companies started doing a lot of business in Japan, many Western businesspeople thought that the practice of gift giving might be wrong rather than simply different. To them, accepting a gift felt like accepting a bribe. As Western companies have become more familiar with Japanese traditions, how- ever, most have come to tolerate the practice and to set different limits on gift giving in Japan than they do elsewhere.
Respecting differences is a crucial ethical prac- tice. Research shows that management ethics differ among cultures; respecting those differences means recognizing that some cultures have obvious weak- nesses—as well as hidden strengths. Managers in Hong Kong, for example, have a higher tolerance for some forms of bribery than their Western counter- parts, but they have a much lower tolerance for the failure to acknowledge a subordinate’s work. In some parts of the Far East, stealing credit from a subordin- ate is nearly an unpardonable sin.
People often equate respect for local traditions with cultural relativism. That is incorrect. Some practices are clearly wrong. Union Carbide’s tragic experience in Bhopal, India, provides one example. The company’s executives seriously underestimated how much on-site management involvement was
needed at the Bhopal plant to compensate for the country’s poor infrastructure and regulatory capabil- ities. In the aftermath of the disastrous gas leak, the lesson is clear: companies using sophisticated tech- nology in a developing country must evaluate that country’s ability to oversee its safe use. Since the incident at Bhopal, Union Carbide has become a leader in advising companies on using hazardous technologies safely in developing countries.
Some activities are wrong no matter where they take place. But some practices that are unethical in one setting may be acceptable in another. For in- stance, the chemical EDB, a soil fungicide, is banned for use in the United States. In hot climates, how- ever, it quickly becomes harmless through exposure to intense solar radiation and high soil temperatures. As long as the chemical is monitored, companies may be able to use EDB ethically in certain parts of the world.
Defining the Ethical Threshold: Core Values
Few ethical questions are easy for managers to an- swer. But there are some hard truths that must guide managers’ actions, a set of what I call core human val- ues, which define minimum ethical standards for all companies.1 The right to good health and the right to economic advancement and an improved stan- dard of living are two core human values. Another is what Westerners call the Golden Rule, which is rec- ognizable in every major religious and ethical trad- ition around the world. In Book 15 of his Analects, for instance, Confucius counsels people to maintain reciprocity, or not to do to others what they do not want done to themselves.
Although no single list would satisfy every schol- ar, I believe it is possible to articulate three core values that incorporate the work of scores of theo- logians and philosophers around the world. To be broadly relevant, these values must include elements found in both Western and non-Western cultural and religious traditions. Consider the examples of
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values in the insert “What Do These Values Have in Common?”
At first glance, the values expressed in the two lists seem quite different. Nonetheless, in the spir- it of what philosopher John Rawls calls overlapping consensus, one can see that the seemingly divergent values converge at key points. Despite important differences between Western and non-Western cul- tural and religious traditions, both express shared attitudes about what it means to be human. First, individuals must not treat others simply as tools; in other words, they must recognize a person’s value as a human being. Next, individuals and commun- ities must treat people in ways that respect people’s basic rights. Finally, members of a community must work together to support and improve the institu- tions on which the community depends. I call those three values respect for human dignity, respect for basic rights, and good citizenship.
Those values must be the starting point for all companies as they formulate and evaluate standards of ethical conduct at home and abroad. But they are only a starting point. Companies need much more specific guidelines, and the first step to developing those is to translate the core human values into core
values for business. What does it mean, for example, for a company to respect human dignity? How can a company be a good citizen?
I believe that companies can respect human dig- nity by creating and sustaining a corporate culture in which employees, customers, and suppliers are treat- ed not as means to an end but as people whose intrin- sic value must be acknowledged, and by producing safe products and services in a safe workplace. Com- panies can respect basic rights by acting in ways that support and protect the individual rights of employ- ees, customers, and surrounding communities, and by avoiding relationships that violate human beings’ rights to health, education, safety, and an adequate standard of living. And companies can be good cit- izens by supporting essential social institutions, such as the economic system and the education system, and by working with host governments and other organizations to protect the environment.
The core values establish a moral compass for business practice. They can help companies identify practices that are acceptable and those that are in- tolerable—even if the practices are compatible with a host country’s norms and laws. Dumping pollut- ants near people’s homes and accepting inadequate
What Do These Values Have in Common? non-Western Western
Kyosei (Japanese): Individual liberty Living and working together for the common good.
Dharma (Hindu): Egalitarianism The fulfillment of inherited duty.
Santutthi (Buddhist): Political participation The importance of limited desires.
Zakat (Muslim): Human rights The duty to give alms to the Muslim poor.
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standards for handling hazardous materials are two examples of actions that violate core values.
Similarly, if employing children prevents them from receiving a basic education, the practice is in- tolerable. Lying about product specifications in the act of selling may not affect human lives directly, but it too is intolerable because it violates the trust that is needed to sustain a corporate culture in which cus- tomers are respected.
Many companies don’t do anything with their codes of conduct;
they simply paste them on the wall.
Sometimes it is not a company’s actions but those of a supplier or customer that pose problems. Take the case of the Tan family, a large supplier for Levi Strauss. The Tans were allegedly forcing 1,200 Chinese and Filipino women to work 74 hours per week in guarded compounds on the Mariana Islands. In 1992, after repeated warnings to the Tans, Levi Strauss broke off business relations with them.
Creating an Ethical Corporate Culture
The core values for business that I have enumerated can help companies begin to exercise ethical judg- ment and think about how to operate ethically in foreign cultures, but they are not specific enough to guide managers through actual ethical dilem- mas. Levi Strauss relied on a written code of con- duct when figuring out how to deal with the Tan family. The company’s Global Sourcing and Oper- ating Guidelines, formerly called the Business Part- ner Terms of Engagement, state that Levi Strauss will “seek to identify and utilize business partners who aspire as individuals and in the conduct of all their businesses to a set of ethical standards not incompatible with our own.” Whenever intoler- able business situations arise, managers should be
guided by precise statements that spell out the be- havior and operating practices that the company demands.
Ninety per cent of all Fortune 500 companies have codes of conduct, and 70 per cent have state- ments of vision and values. In Europe and the Far East, the percentages are lower but are increasing rapidly. Does that mean that most companies have what they need? Hardly. Even though most large US companies have both statements of values and codes of conduct, many might be better off if they didn’t. Too many companies don’t do anything with the documents; they simply paste them on the wall to impress employees, customers, suppliers, and the public. As a result, the senior managers who drafted the statements lose credibility by proclaiming val- ues and not living up to them. Companies such as Johnson & Johnson, Levi Strauss, Motorola, Texas Instruments, and Lockheed Martin, however, do a great deal to make the words meaningful. Johnson & Johnson, for example, has become well known for its Credo Challenge sessions, in which managers discuss ethics in the context of their current business problems and are invited to criticize the company’s credo and make suggestions for changes. The par- ticipants’ ideas are passed on to the company’s senior managers. Lockheed Martin has created an innova- tive site on the World Wide Web and on its local network that gives employees, customers, and sup- pliers access to the company’s ethical code and the chance to voice complaints.
Many activities are neither good nor bad but exist in moral free space.
Codes of conduct must provide clear direction about ethical behavior when the temptation to be- have unethically is strongest. The pronouncement in a code of conduct that bribery is unacceptable is useless unless accompanied by guidelines for gift giv- ing, payments to get goods through customs, and
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“requests” from intermediaries who are hired to ask for bribes.
Motorola’s values are stated very simply as “How we will always act: [with] constant respect for people [and] uncompromising integrity.” The company’s code of conduct, however, is explicit about actual business practice. With respect to brib- ery, for example, the code states that the “funds and assets of Motorola shall not be used, directly or in- directly, for illegal payments of any kind.” It is un- ambiguous about what sort of payment is illegal: “the payment of a bribe to a public official or the kickback of funds to an employee of a customer....” The code goes on to prescribe specific procedures for handling commissions to intermediaries, issuing sales invoices, and disclosing confidential informa- tion in a sales transaction—all situations in which employees might have an opportunity to accept or offer bribes.
Codes of conduct must be explicit to be use- ful, but they must also leave room for a manager to use his or her judgment in situations requiring cul- tural sensitivity. Host-country employees shouldn’t be forced to adopt all home-country values and re- nounce their own. Again, Motorola’s code is exem- plary. First, it gives clear direction: “Employees of Motorola will respect the laws, customs, and trad- itions of each country in which they operate, but will, at the same time, engage in no course of con- duct which, even if legal, customary, and accepted in any such country, could be deemed to be in violation of the accepted business ethics of Motorola or the laws of the United States relating to business ethics.” After laying down such absolutes, Motorola’s code then makes clear when individual judgment will be necessary. For example, employees may sometimes accept certain kinds of small gifts “in rare circum- stances, where the refusal to accept a gift” would in- jure Motorola’s “legitimate business interests.” Under certain circumstances, such gifts “may be accepted so long as the gift inures to the benefit of Motorola” and not “to the benefit of the Motorola employee.”
Striking the appropriate balance between pro- viding clear direction and leaving room for indi- vidual judgment makes crafting corporate values statements and ethics codes one of the hardest tasks that executives confront. The words are only a start. A company’s leaders need to refer often to their or- ganization’s credo and code and must themselves be credible, committed, and consistent. If senior man- agers act as though ethics don’t matter, the rest of the company’s employees won’t think they do, either.
Conflicts of Development and Conflicts of tradition
Managers living and working abroad who are not prepared to grapple with moral ambiguity and ten- sion should pack their bags and come home. The view that all business practices can be categorized as either ethical or unethical is too simple. As Ein- stein is reported to have said, “Things should be as simple as possible—but no simpler.” Many business practices that are considered unethical in one setting may be ethical in another. Such activities are neither black nor white but exist in what Thomas Dunfee and I have called moral free space.2 In this gray zone, there are no tight prescriptions for a company’s be- havior. Managers must chart their own courses—as long as they do not violate core human values.
Consider the following example. Some success- ful Indian companies offer employees the opportun- ity for one of their children to gain a job with the company once the child has completed a certain level in school. The companies honor this commitment even when other applicants are more qualified than an employee’s child. The perk is extremely valuable in a country where jobs are hard to find, and it reflects the Indian culture’s belief that the West has gone too far in allowing economic opportunities to break up families. Not surprisingly, the perk is among the most cherished by employees, but in most Western coun- tries, it would be branded unacceptable nepotism. In the United States, for example, the ethical principle
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of equal opportunity holds that jobs should go to the applicants with the best qualifications. If a US com- pany made such promises to its employees, it would violate regulations established by the Equal Employ- ment Opportunity Commission. Given this differ- ence in ethical attitudes, how should US managers react to Indian nepotism? Should they condemn the Indian companies, refusing to accept them as partners or suppliers until they agree to clean up their act?
Despite the obvious tension between nepotism and principles of equal opportunity, I cannot con- demn the practice for Indians. In a country, such as India, that emphasizes clan and family relation- ships and has catastrophic levels of unemployment, the practice must be viewed in moral free space. The decision to allow a special perk for employees and their children is not necessarily wrong—at least for members of that country.
The Problem with Bribery
Bribery is widespread and insidious. Managers in transnational companies routinely confront brib- ery even though most countries have laws against it. The fact is that officials in many developing countries wink at the practice, and the salaries of local bureaucrats are so low that many consider bribes a form of remuneration. The US Foreign Corrupt Practices Act defines allowable limits on petty bribery in the form of routine payments re- quired to move goods through customs. But de- mands for bribes often exceed those limits, and there is seldom a good solution.
Bribery disrupts distribution channels when goods languish on docks until local handlers are paid off, and it destroys incentives to compete on quality and cost when purchasing decisions are based on who pays what under the table. Refusing to acquiesce is often tantamount to giving busi- ness to unscrupulous companies.
I believe that even routine bribery is intoler- able. Bribery undermines market efficiency and predictability, thus ultimately denying people their right to a minimal standard of living. Some degree of ethical commitment—some sense that everyone will play by the rules—is necessary for a sound economy. Without an ability to predict outcomes, who would be willing to invest?
There was a US company whose shipping crates were regularly pilfered by handlers on the docks of Rio de Janeiro. The handlers would take about 10 per cent of the contents of the crates, but the company was never sure which 10 per cent it would be. In a partial solution, the company began sending two crates—the first with 90 per cent of the merchandise, the second with 10 per cent. The handlers learned to take the second crate and leave the first untouched. From the company’s perspective, at least knowing which goods it would lose was an improvement.
Bribery does more than destroy predictabil- ity; it undermines essential social and economic systems. That truth is not lost on businesspeople in countries where the practice is woven into the social fabric. CEOs in India admit that their com- panies engage constantly in bribery, and they say that they have considerable disgust for the prac- tice. They blame government policies in part, but Indian executives also know that their country’s business practices perpetuate corrupt behavior. Anyone walking the streets of Calcutta, where it is clear that even a dramatic redistribution of wealth would still leave most of India’s inhabitants in dire poverty, comes face-to-face with the devastating effects of corruption.
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How can managers discover the limits of moral free space? That is, how can they learn to distinguish a value in tension with their own from one that is intolerable? Helping managers develop good eth- ical judgment requires companies to be clear about their core values and codes of conduct. But even the most explicit set of guidelines cannot always pro- vide answers. That is especially true in the thorniest ethical dilemmas in which the host country’s ethical standards not only are different but also seem lower than the home country’s. Managers must recognize that when countries have different ethical standards, there are two types of conflict that commonly arise. Each type requires its own line of reasoning.
If a company declared all gift giving unethical, it wouldn’t be able to
do business in Japan.
In the first type of conflict, which I call a con- flict of relative development, ethical standards conflict because of the countries’ different levels of econom- ic development. As mentioned before, developing countries may accept wage rates that seem inhumane to more advanced countries in order to attract in- vestment. As economic conditions in a developing country improve, the incidence of that sort of con- flict usually decreases. The second type of conflict is a conflict of cultural tradition. For example, Saudi Arabia, unlike most other countries, does not al- low women to serve as corporate managers. Instead, women may work in only a few professions, such as education and health care. The prohibition stems from strongly held religious and cultural beliefs; any increase in the country’s level of economic develop- ment, which is already quite high, is not likely to change the rules.
To resolve a conflict of relative development, a manager must ask the following question: Would the practice be acceptable at home if my country were in a similar stage of economic development?
Consider the difference between wage and safety standards in the United States and in Angola, where citizens accept lower standards on both counts. If a US oil company is hiring Angolans to work on an offshore Angolan oil rig, can the company pay them lower wages than it pays US workers in the Gulf of Mexico? Reasonable people have to answer yes if the alternative for Angola is the loss of both the foreign investment and the jobs.
Consider, too, differences in regulatory environ- ments. In the 1980s, the government of India fought hard to be able to import Ciba-Geigy’s Entero Vio- form, a drug known to be enormously effective in fighting dysentery but one that had been banned in the United States because some users experi- enced side effects. Although dysentery was not a big problem in the United States, in India, poor pub- lic sanitation was contributing to epidemic levels of the disease. Was it unethical to make the drug avail- able in India after it had been banned in the United States? On the contrary, rational people should con- sider it unethical not to do so. Apply our test: Would the United States, at an earlier stage of development, have used this drug despite its side effects? The an- swer is clearly yes.
But there are many instances when the answer to similar questions is no. Sometimes a host country’s standards are inadequate at any level of economic development. If a country’s pollution standards are so low that working on an oil rig would considerably increase a person’s risk of developing cancer, foreign oil companies must refuse to do business there. Like- wise, if the dangerous side effects of a drug treatment outweigh its benefits, managers should not accept health standards that ignore the risks.
When relative economic conditions do not drive tensions, there is a more objective test for resolving ethical problems. Managers should deem a practice permissible only if they can answer no to both of the following questions: Is it possible to conduct busi- ness successfully in the host country without under- taking the practice? and Is the practice a violation of
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a core human value? Japanese gift giving is a perfect example of a conflict of cultural tradition. Most ex- perienced businesspeople, Japanese and non-Japan- ese alike, would agree that doing business in Japan would be virtually impossible without adopting the practice. Does gift giving violate a core human value? I cannot identify one that it violates. As a result, gift giving may be permissible for foreign companies in Japan even if it conflicts with ethical attitudes at home. In fact, that conclusion is widely accepted, even by companies such as Texas Instruments and IBM, which are outspoken against bribery.
Does it follow that all nonmonetary gifts are acceptable or that bribes are generally acceptable in countries where they are common? Not at all. (See the insert “The Problem with Bribery.”) What makes the routine practice of gift giving acceptable in Japan are the limits in its scope and intention. When gift giving moves outside those limits, it soon collides with core human values. For example, when Carl Kotchian, president of Lockheed in the 1970s, carried suitcases full of cash to Japanese politicians, he went beyond the norms established by Japanese tradition. That incident galvanized opinion in the United States Congress and helped lead to passage of the Foreign Corrupt Practices Act. Likewise, Roh Tae Woo went beyond the norms established by Ko- rean cultural tradition when he accepted $635.4 mil- lion in bribes as president of the Republic of Korea between 1988 and 1993.
Guidelines for Ethical Leadership
Learning to spot intolerable practices and to exer- cise good judgment when ethical conflicts arise re- quires practice. Creating a company culture that rewards ethical behavior is essential. The following guidelines for developing a global ethical perspective among managers can help.
treat corporate values and formal standards of conduct as absolutes. Whatever ethical standards a
company chooses, it cannot waver on its principles either at home or abroad. Consider what has become part of company lore at Motorola. Around 1950, a senior executive was negotiating with officials of a South American government on a $10 million sale that would have increased the company’s annual net profits by nearly 25 per cent. As the negotiations neared completion, however, the executive walked away from the deal because the officials were ask- ing for $1 million for “fees.” CEO Robert Galvin not only supported the executive’s decision but also made it clear that Motorola would neither accept the sale on any terms nor do business with those govern- ment officials again. Retold over the decades, this story demonstrating Galvin’s resolve has helped ce- ment a culture of ethics for thousands of employees at Motorola.
Design and implement conditions of engagement for suppliers and customers. Will your company do business with any customer or supplier? What if a customer or supplier uses child labor? What if it has strong links with organized crime? What if it pres- sures your company to break a host country’s laws? Such issues are best not left for spur-of-the-moment decisions. Some companies have realized that. Sears, for instance, has developed a policy of not contract- ing production to companies that use prison labor or infringe on workers’ rights to health and safety. And BankAmerica has specified as a condition for many of its loans to developing countries that en- vironmental standards and human rights must be observed.
Allow foreign business units to help formulate ethical standards and interpret ethical issues. The French pharmaceutical company Rhône-Poulenc Rorer has allowed foreign subsidiaries to augment lists of corporate ethical principles with their own suggestions. Texas Instruments has paid special at- tention to issues of international business ethics by creating the Global Business Practices Council,
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which is made up of managers from countries in which the company operates. With the overarching intent to create a “global ethics strategy, locally de- ployed,” the council’s mandate is to provide ethics education and create local processes that will help managers in the company’s foreign business units re- solve ethical conflicts.
In host countries, support efforts to decrease in- stitutional corruption. Individual managers will not be able to wipe out corruption in a host country, no matter how many bribes they turn down. When a host country’s tax system, import and export pro- cedures, and procurement practices favor unethical players, companies must take action.
Many companies have begun to participate in reforming host-country institutions. General Elec- tric, for example, has taken a strong stand in India, using the media to make repeated condemnations of bribery in business and government. General Elec- tric and others have found, however, that a single company usually cannot drive out entrenched cor- ruption. Transparency International, an organiza- tion based in Germany, has been effective in helping coalitions of companies, government officials, and others work to reform bribery-ridden bureaucracies in Russia, Bangladesh, and elsewhere.
Exercise moral imagination. Using moral imagina- tion means resolving tensions responsibly and cre- atively. Coca-Cola, for instance, has consistently turned down requests for bribes from Egyptian of- ficials but has managed to gain political support and public trust by sponsoring a project to plant fruit trees. And take the example of Levi Strauss, which discovered in the early 1990s that two of its suppliers in Bangladesh were employing children under the age of 14—a practice that violated the company’s principles but was tolerated in Bangladesh. Forcing the suppliers to fire the children would not have en- sured that the children received an education, and it would have caused serious hardship for the fam-
ilies depending on the children’s wages. In a creative arrangement, the suppliers agreed to pay the chil- dren’s regular wages while they attended school and to offer each child a job at age 14. Levi Strauss, in turn, agreed to pay the children’s tuition and provide books and uniforms. That arrangement allowed Levi Strauss to uphold its principles and provide long- term benefits to its host country.
Many people think of values as soft; to some they are usually unspoken. A South Seas island society uses the word mokita, which means, “the truth that everybody knows but nobody speaks.” However dif- ficult they are to articulate, values affect how we all behave. In a global business environment, values in tension are the rule rather than the exception. With- out a company’s commitment, statements of values and codes of ethics end up as empty platitudes that provide managers with no foundation for behaving ethically. Employees need and deserve more, and re- sponsible members of the global business commun- ity can set examples for others to follow. The dark consequences of incidents such as Union Carbide’s disaster in Bhopal remind us how high the stakes can be.
Notes 1 In other writings, Thomas W. Dunfee and I
have used the term hypernorm instead of core human value.
2 Thomas Donaldson and Thomas W. Dunfee, “Toward a Unified Conception of Business Ethics: Integrative Social Contracts Theory,” Academy of Management Review, April 1994; and “Integrative Social Contracts Theory: A Communitarian Conception of Economic Eth- ics,” Economics and Philosophy, Spring 1995.
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Don MAyER AnD AnItA CAVA
Ethics and the Gender Equality Dilemma for
Us Multinationals
We hold these truths to be self-evident: that all men are created equal, and endowed by their creator with certain rights—life, lib- erty, and the pursuit of happiness.
—US Declaration of Independence, 1776
All human beings are born free and equal in dignity and rights.
—United Nations Universal Declaration of Human Rights, 1948
Judging from the US Declaration of Independence, gender equality was not self-evident in 1776. By 1948, however, the Universal Declaration of Human Rights took care not to exclude women from the ambit of declared rights. Since then, while gender equality has come a long way in the United States, many difficult and divisive issues remain unresolved. After completing a global inventory of attitudes on gender equality, Rhoodie (1989) concluded that many nations give only “lip service” to the goals of gender equality articulated in international conven- tions and declarations such as the UN Declaration of Human Rights (1948). Given the uneven progress of gender and racial equality in the world, it is in- evitable that multinational enterprises (MNEs) en- counter uneven ethical terrain.
Recently, the US Congress and the Supreme Court have differed markedly over how the princi- ples of non-discrimination in Title VII of the Civil Rights Act of 1964 (Title VII) should be applied by US MNEs in their overseas activities. Both Congress and the Court recognized that US non-discrimina-
tion laws may create difficulties for US companies doing business in host countries where racial and/or gender discrimination is a way of life. But Congress, having the last word, decided in the Civil Rights Act of 1991 that Title VII protects US citizens from employment discrimination by US MNEs in their overseas operations.1
In so doing, Congress effectively reversed the Su- preme Court, which only a few months earlier had decided that Title VII did not apply “extraterritorial- ly” (E.E.O.C. v. Aramco, 1991).2 According to the Court, to apply US laws abroad might cause “un- intended clashes between our laws and those of other nations which could result in international discord.” The majority of the Court wanted Congress to be entirely clear about its intent before imposing the ethical values inherent in Title VII on the activities of a US company in a foreign country.
This reluctance is understandable. It seems logical to assume that companies would prefer not to have two personnel policies, one for US citizens and one for host country nationals and others. Hu- man resource directors indicate a preference for following the laws and customs of the host coun- try while doing business there, but a concern for furthering human rights values of the US.3 Such a preference corresponds to other observed realities, since the recent history of law and business eth- ics shows that a number of US MNEs would en- gage in bribery in foreign countries, if that should be the custom, in order to remain “competitive.” Similarly, many US MNEs were willing to acqui- esce to apartheid in South Africa, despite the fact that such behavior would not be tolerated in the United States.
The multinational that adopts such a policy of moral neutrality follows what Bowie (1977) has iden- tified as moral relativism. The approach of a moral relativism is characterized as—“When in Rome, do as the Romans do.” This prescription has its arrest- ing aspects. If Rome existed today as a commercial power, would US corporate executives entertain one
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another by watching slaves battle to the death, at- tending Bacchanalian orgies, or cheering while faithful but hapless Christians were being mauled by lions? While such practices do not have overt current counterparts, there are nonetheless substantial dif- ferences among cultures in matters of gender equal- ity (Rhoodie, 1989).
How does the MNE deal ethically with such contrasts? Bowie suggests that while ethical rela- tivism cannot support business ethics in the global economy, neither can we afford to be “ethnocentric” and assume that “our” way is the one “right way.” Bowie uses the term “ethnocentric” to describe a view that “when in Rome, or anywhere else, do as you would at home” (Bowie, 1988; Wicks, 1990). Essentially, it was this concern that animated the Supreme Court’s decision in Aramco, which explicit- ly worried about “unintended clashes” between US law and Saudi Arabian law. Further, it is this con- cern about “ethnocentrism” that fuels speculation that applying Title VII’s equal opportunity provi- sions in countries like Japan is a recipe for corpor- ate non-competitiveness and perhaps even a form of cultural imperialism.
This article explores some of the difficulties faced by US multinationals in complying with Title VII as applied abroad and examines the ethical arguments surrounding achieving the goal of gender equality. Part I discusses the current dilemma for internation- al human resource managers and their employees, as well as for citizens of host countries. We focus on Japan as a model of a country in transition and con- sider the extreme situation of the Islamic countries as a counterpoint in the analysis. The emphasis is on practical and legal considerations. Part II returns to the issues of ethical relativism and cultural imper- ialism, and suggests that US multinationals should not opt for moral relativism by deferring entirely to cultural traditions in countries such as Japan, trad- itions that may be contrary to declared international standards for gender and racial equality and contrary to apparent global trends.
I. Perspectives on the Current Dilemma Human resource managers, employees, and host country nationals will have varying perspectives on the application of US civil rights statutes for the pro- motion of gender equality in the foreign workplace. Each merits consideration in order to understand the framework within which an ethical analysis can be applied.
A. The MnE Managerial Perspective
For a MNE whose operations cover the US, Eur- ope, Asia, and the Middle East, the differing cul- tural norms with respect to equal opportunity in the workplace are a bit unreal. Despite strong move- ments for gender equality in the Scandinavian coun- tries and, to a lesser extent, in the US and Europe, the basic condition of women worldwide is largely “poor, pregnant, and powerless” (Rhoodie, 1989). The differences among various nations span a con- tinuum from cultures with a strong commitment to gender equality in the workplace to those with strong commitments to keeping women out of the workplace entirely (Mayer, 1991).
For the MNE trying to “do the right thing,” the situation suggests a kind of ethical surrealism, where reality retreats before an unreal mix of elements— social, cultural, legal, and philosophical. It seems natural that companies doing business abroad would want to follow host country laws and customs. Ob- viously, following US law only for US employees poses a dual dilemma. First, assuming that gender discrimination is culturally accepted and legally tol- erated in many foreign countries, what should be the MNE personnel policy? The MNE has the option of designing a single non-discriminatory policy for all workers or creating a two-track system, protecting the legal rights of US nationals while accommodat- ing the host country’s norms for their nationals and others. Second, where the MNE has adopted a Code
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of Ethics for global application and the Code spe- cifically refers to equal opportunity, can the MNE honor its commitment in a principled way?
Strict compliance with an ethical position would suggest a simple solution to this conundrum: Adopt an equal opportunity program, educate all em- ployees, and enforce it consistent with Title VII’s mandates across the board. Admittedly, however, following US law worldwide, for all employees, is surely “ethnocentric” and may also be unworkable. In some host countries, such as Saudi Arabia, the legal conflicts may be pronounced. In others, such as Japan, the cultural conflicts may undermine con- sistent enforcement of Title VII-oriented policies throughout the workforce.
Taking Japan as an example, the US MNE doing business in Tokyo is confronted with a patriarchal society in which women are expected to manage household work while men dominate the other forms of work (Lebra, 1984). Although men and women receive comparable educations through the high school level, women are expected to marry by age 25. Employment after that age is generally dis- couraged (Prater, 1981). There is seldom, if ever, a managerial track for Japanese women: if employed by a major Japanese company, they are often given positions largely designed to make the office environ- ment more comfortable (such as by serving tea and appearing “decorative”), and are not taken seriously as career office workers (Seymour, 1991).
For a US MNE to announce a policy of equal op- portunity for Japanese operations, tie that policy to Title VII enforcement, and expect no negative results would require a supposition that the overwhelming- ly male population of Japanese customers, suppliers, and government officials would treat US women and Japanese women equally. But, in fact, the sensi- tivity of Japanese males to sexual harassment issues is only dawning (Ford, 1992; Lan, 1991), and some other forms of overt discrimination are likely. As- suming, as seems warranted, that the MNEs female employees will be adversely affected to some degree
by prevailing male attitudes in Japan, how would the company find that balanced approach that yields the least friction and the best results?
Such a question suggests that a utilitarian analy- sis, or some pragmatism, may be entirely appropri- ate here. It is well beyond the scope of this paper to suggest how absolute adherence to Title VII and equal opportunity principles should be tempered to achieve greater harmony with the host country cul- ture, but a few observations are in order. First, Title VII’s dictates may need to be culturally adjusted. An “appropriate” response to repeated incidents of Jap- anese males looking up female employees’ skirts may be more educational than admonitory, at least for the first transgressions. Second, companies should be wary of any utilitarian or pragmatic approaches that predict a “non-competitive” result unless busi- ness hews to some perceived cultural norms. This point needs further elaboration.
In a country such as Saudi Arabia, the cultural norms and the sacred law, or Shari’a, are fairly con- gruent. The winds of change are not, seemingly, as strong as in other parts of the world. Japan, on the other hand, has demonstrated its willingness to adopt some “Western ways” in order to be part of the global economy, and there is considerable evi- dence that Japanese pragmatism has already created some new opportunities for women in the work- place (Prater, 1991). Moreover, legislation exists which purports to promote gender equality in the workplace, though some critics have questioned its efficacy (Edwards, 1988). In short, the “downside” of promoting equal opportunity in Japan because of cultural norms may easily be overstated; while Jap- anese males are not as sensitive to sexual harassment issues, for example, there are signs that they are be- coming so (Lan, 1991).
For a host country culture that is less in flux, and whose culture and laws present a unified force against social change, the ethical issues change some- what. This is because Title VII expressly allows dis- crimination in certain instances through the bona
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184 GLOBALIZATION AND ITS ETHICAL SIGNIFICANCE
fide occupational qualification (BFOQ)4 exception. The BFOQ exception provides that it will not be il- legal to discriminate “on the basis of ... religion, sex, or national origin in those certain instances where religion, sex, or national origin is a bona fide oc- cupational qualification reasonably necessary to the normal operation of that particular business or enterprise.”
In Kern v. Dynalectron,5 for example, a company in the business of flying planes into the holy city of Mecca advised potential employees that Saudi Arab- ian law prohibited the entry of non-Muslims into the holy area under penalty of death. One pilot took instruction in the Muslim religion, but was Baptist at heart, and rescinded his “conversion.” Returning to the US, he sued under Title VII for employment discrimination based on religion. The federal ap- peals court ultimately determined that Title VII ap- plied but that being Muslim was, in this situation, a “bona fide occupational qualification” and nor discriminatory.
It remains to be seen how gender qualifications may be raised and litigated for alleged discrimination overseas. But if those qualifications have the force of law, and are not the result of cultural preferences only, the most serious ethical dilemma is whether or not to do business in that country at all. To take an example based on racial classification, if South African law prohibited blacks from being hired by MNEs, the MNEs’ only ethical choices would be to (1) do business in South Africa and comply with the law, (2) refuse to do business in South Africa, or (3) do business there and hire blacks anyway.
How are these three options analyzed from a per- spective of ethics and the law? Option (3) may cer- tainly be seen as an ethical policy, though probably of the “ethnocentric” variety, yet few ethicists and even fewer business executives would counsel such a course. Option (1) is well within the mainstream of ethical relativism, and, we would argue, is less ethical than choosing option (2). But again, cultural conflicts do not create such choices; legal mandates
do. And countries whose cultural values are colliding with the values of “outsiders” may choose, at least temporarily, to preserve their culture through legal mandates. Saudi Arabia has laws which prohibit women from travelling alone, working with men, working with non-Muslim foreigners, and these laws apply to foreign women as well as host country women (Moghadam, 1988).
Even without such explicit laws of prohibition, MNEs and their human resource managers may hesitate to violate unwritten or cultural laws, and taking moral relativism’s approach to the problem of gender equality in other countries may seem pru- dent. But such an approach seems to depend on a rather sketchy kind of utilitarian analysis: Engaging in overt equal opportunity policies will result in cultural condemnation, loss of customer and client contacts, and eventual unprofitability of the entire overseas enterprise. But in host countries whose culture is tied to the mainstream of world business, long-held attitudes will be difficult to maintain, and the negative impact of “doing things differently” should not be overestimated, nor should the definite benefits and opportunities of pursuing gender qual- ity be overlooked (Lansing and Ready, 1988).
In this context, a comment about the employee’s perspective seems appropriate. It might be difficult to generalize here because individual perspective often differs, depending upon personal ideology, situa- tion, and career opportunities. However, from the viewpoint of a female manager in a US MNE, we will assume that the greatest good would be a busi- ness world safe for gender equality and supportive of same. Adler and others have noted the difficulty of persuading MNEs that women managers can succeed in many countries whose cultures actively promote gender inequality (Adler, 1984). Certain- ly, a US female manager’s inability to obtain first- hand experience in dealing with Japanese businesses comes close to being a career handicap, and for Jap- anese women, the existence of opportunities outside the home may safely be regarded as benefits.
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Ultimately, most American citizen employees of MNEs will test any policy by asking whether or not they are personally adversely affected. Companies that take care to structure career advancement op- portunities such that experience in countries hostile to a protected class may find themselves with few employee complaints. However, MNEs not able to finesse the mandate of Title VII and the reality of certain foreign cultures will find themselves facing a similar set of choices described above with respect to apartheid. Now, however, a decision to accom- modate host country norms must be accompanied by a fund out of which to pay judgments in Title VII litigation.
B. The Host Country’s Perspective
From the overall Japanese societal perspective, the changes contemplated by a mandate of gender equal- ity may indeed be troubling. The social structure that has built up over centuries, which has “worked” to achieve stability and a degree of consensus and com- fort, could crumble if more and more women leave household work to obtain work in the “business world.” Who will do the careful packing of lunches, the guidance for “cram courses” after school, tend- ing to the children and dinner and bedtime while spouse is engaged in the obligatory socializing with office mates after hours? While Japanese men may now be undertaking more domestic duties, the dif- ferences are still staggering. One recent estimate sug- gested that Japanese women put in four to five hours of domestic work daily, while their husbands put in eight minutes (Watanabe, 1992).
Any change in the prescribed social order is bound to seem disruptive, and, therefore, negative. As one Islamic man declared to a National Public Radio correspondent during the Persian Gulf war, if women are allowed in the workplace, the forces of social decay would soon send the divorce and crime rates skyrocketing. This argument, a kind of utilitar- ian “parade of horribles,”6 overtly trades on fear of
change, is not empirically rigorous, and assumes that changes in the US over a fifty year period represent the ultimate result of mindless social tampering. For the Islamic, this particular proponent of gender in- equality in the workplace has a back-up argument, the Qur’an.
By appeal to divine, or infinite wisdom, we find an argument more akin to natural law or universal- ism. The argument may even suppose that not only Islamic society, but all other societies, would be well advised to follow this divinely decreed social order- ing. What is manifest to the Islamic mind is contrary, it would seem, to “Western” notions of gender equal- ity. This conflict pits two “objective” or “universal” truths against one another: the “truth” of the Qur’an and the “truth” of the Universal Declaration of Hu- man Rights. Is the moral relativist right, after all?
II. Ethical Relativism and Ethical Ethnocentrism: A Synthesis for Overseas Gender Discrimination Issues
In general terms, the theory of moral relativism holds that different moral standards are “equally valid or equally invalid,” and there are no “object- ive standards of right and wrong or good and evil that transcend the opinions of different individuals or different societies.”7 At the opposite extreme of the continuum is the objective approach, which is premised on the notion that there are “transcultural” norms that are universally valid.
Bowie (1988) suggests that the proper view is a point closer to the latter position. Although he stops short of embracing universalism, Bowie be- lieves there are minimum ethical principles that are universally evident such as “do not commit murder” and “do not torture.” These principles, clearly, can be enforced without imposing ethnocentric (or im- perialistic) views upon a host country. To these min- imum universal principles, Bowie adds the “morals
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of the marketplace,” which are required to support transactions in the business world. These include honesty and trust. The combination of these two strands of quasi-universalism is as far as Bowie will go in staking his claim on the continuum.
Consider again the dilemmas faced by a US MNE doing business in Japan, trying to integrate a tradition and practice of equal opportunity into a tradition and practice of unequal opportunity. One strategy for “blending in” with the Japanese market might be to adopt a thoroughly Japanese outlook and approach. That would include differing pay scales for men and women, actively discouraging women past the age of 25 from working with the company, and pointedly not inviting women employees to the after-five work/social functions that seem to play such an important part in an employee’s successful corporate bonding.
Other than outright moral relativism, the social contract approach would appear to be the most like- ly proponent of such assimilation. Social contract theory examines the ethical foundations of societies by the relationships that exist within and between people, organizations, and groups. In an article on “extant social contracts,” Dunfee (1991) explains and defends this communitarian approach to ethics, which appears grounded in relativism, but he also appears to offer an escape clause by way of a “fil- tering” device using utilitarian or deontological ap- proaches. Dunfee would apparently recognize that racial discrimination is more widely condemned, and that gender discrimination is more widely tol- erated, and conclude that perpetuating gender dis- crimination is less unethical than perpetuating racial discrimination. In a subsequent article, Dunfee and Donaldson (1991) retreat somewhat from the rela- tivism approach and appear to suggest some dimen- sions of gender equality qualify as a “hypernorm,” that is, a norm “recognized as core or foundation- al by most humans, regardless of culture.” The ex- ample they give, however, is that of Saudi Arabia prohibiting women from driving, a rule that violates
hypernorms of freedom of movement and rights of self-realization. Obviously, this issue does not ap- proach the complexity posed by the international application of gender equality in the workplace.
In essence, what seems problematic for social contract theory is the substantial variance between the almost universally professed ideals of gender equality and the globally pervasive policies of gender inequality. If one looks to social practice for guid- ance as to what is ethical, gender inequality becomes relatively more ethical; yet if one looks to professed ideals and principles of equality, many existing forms of gender inequality (dowry deaths, female infanti- cide, widow-burning, and abortion based on male preference) (Howe, 1991) seem inexcusable. Ethical guidelines, apart from legal obligations, seem to re- quire more explicit direction.
Bowie rejects relativism and argues for recogni- tion of minimum universal principles and morals of the marketplace, an essentially deontological ap- proach. He suggests that the latter may even con- trol over the former where completely foreign agents meet to do business. Bowie draws upon democratic theory, torture and genocide, and examples based on bribery, apartheid, and political-economic values to make his point. He is, however, silent on gender discrimination. One wonders whether Bowie would view this issue as primarily social or as a political-eco- nomic priority on a plane with his other examples.
We take the position that neither relativism nor extant social contract theory are much help to MNEs in a host country whose values run counter to the company’s ethical code or the laws and trad- itions of its country of origin. Instead, the concepts of minimum universal principles and morals of the marketplace legitimately can be broadened to em- brace gender equality. Support for this position is evident in the increasingly international consensus on this point.
For example, as Frederick (1991) has pointed out, the United Nations Universal Declaration of Human Rights, the OECD Guidelines for Multi-
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national Enterprises, and the International Labor Office Tripartite Declaration all give support to “nondiscriminatory employment policies” and the concept of “equal pay for equal work.” Note that neither of these policies is widespread in Japan. In The United Nations Convention on the Elimina- tion of All Forms of Discrimination Against Women (1979) was ratified by a large number of nations, both industrialized and developing. The European Community has passed a number of Council direc- tives aimed at promoting gender equality in employ- ment (Weiner, 1990).
We believe that by following policies which gen- erally promote gender equality, without slavish ad- herence to all US judicial opinions on Title VII and with good faith adjustments where cultural condi- tions require, a US MNE in Japan can maintain its own code of ethics without the “inevitable” loss of “competitiveness.” Moreover, it can do so without being “ethnocentric” or “imperialist,” and by doing so it can avoid a kind of ethical balkanization that adherence to moral relativism would require. After all, a dozen different cultural traditions might re- quire a dozen different HRM policies, each geared to the host country’s dominant yet often changing traditions.
This does not mean that resort to more uni- versal declarations of principle are based on a need for Wicks’ “metaphysical comfort.” We agree with Wicks that our grasp of certain principles in some sense depends on our own experience and what “works.” Did the social movement toward greater gender and racial equality in the United States come about because of a priori arguments on the ethical treatment of women and blacks, or because there was already equality in some areas and a perception that things “were not working”? There is no way to know with certainty, but there need be no need to identify either “ideal principles” or “real experience” as the mother lode for ethical discoveries.
Values, to be shared, must be mutually discov- ered. Universal standards, such as those proposed
by the United Nations, come out of experience, and do not just emerge a priori (Frederick, 1991). Even without “metaphysical comfort,” a MNE can be satisfied that there is an emerging consensus on gen- der equality. In going to a traditional culture where gender inequality is the norm, the MNE must be aware that there is another community emerging, one whose shape is as yet dimly perceived, but a community where goods, services, and information are traded with ever-increasing speed. Included in the information exchange in the communication of different values, and while these values are not being passed along in traditional ways, their trans- mission is inevitable. In this exchange of values and ideas, the ideals of equality are manifest in many ways. Any MNE, whatever the cultural norms it confronts in a particular country, would be wise to pay attention.
Notes 1 Civil Rights Restoration Act of 1991, P. L. 102-
166, Nov. 21, 1991, 105 Stat. 1071. For the purposes of this discussion, a US MNE is an enterprise with operations in one or more for- eign countries.
2 E.E.O.C. v. Aramco, Boureslan v. Aramco, 111 S. Ct. 1227 (1991).
3 The authors mailed a survey entitled “Use of US Employment Discrimination Law Abroad” to human resource directors of 120 companies identified as multinational enterprises. In part, the questionnaire solicited information about whether or no the company felt it wise to apply Title VII abroad. The eight responses that were received provide anecdotal, as opposed to sta- tistically significant, information. Six respond- ents indicated it would be “unwise” to attempt to apply Title VII to US citizens working abroad. The reasons given appear predictable: it would be “difficult”; it is the “local manager’s responsibility”; we “do not attempt” to impose our norms on others. Two respondents believed
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it would be wise to implement such a policy despite the obstacles discussed in this paper. Nonetheless, all respondents indicated that the policy is appropriately enforced in the US and two believed it would be wise to do so abroad as well.
4 42 U.S.C. §2000e-l (1988). 5 577 F. Supp. 1196, affirmed 746 F.2d 810
(1984). 6 George Christie, of Duke University Law
School, coined this phrase in reference to at- torneys, who learn to see the dark possibilities issuing from any proposed action and are prone to recite a “parade of horribles” to their clients.
7 Van Wyk, Introduction to Ethics, St. Martin’s Press, New York (1990), 15.
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EnVIRonMEntAL REsPonsIBILIty
MARk sAGoFF
At the Monument to General Meade, or
on the Difference Between Beliefs and Benefits
When you visit Gettysburg National Military Park, you can take a tour that follows the course of the three-day battle. The route ends at the National Cemetery, where, four months after the fighting, Abraham Lincoln gave the 270-word speech that marked the emergence of the United States as one nation.1 The tour will not cover all of the battlefield, however, because much of it lies outside the park. Various retail outlets and restaurants, including a
Hardee’s and a Howard Johnson’s, stand where Gen- eral Pickett, at two o’clock on a July afternoon in 1863, marched 15,000 Confederate soldiers to their deaths. The Peach Orchard and Wheatfield, where General Longstreet attacked, became the site of a Stuckey’s family restaurant.2 The Cavalry Heights Trailer Park graces fields where General George Cus- ter turned back the final charge of the Confeder- ate cavalry.3 Over his restaurant, Colonel Sanders, purveyor of fried chicken, smiles with neon jowls upon the monument to George Meade, the victor- ious Union general.4 Above this historic servicescape looms a 310-foot commercial observation tower many Civil War buffs consider to be “a wicked blight on the battlefield vista.”5
One spring day, on my way to give a seminar on “economics and the environment” at Gettysburg College, I drove quickly past the battlefield where
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23,000 Union and 28,000 Confederate soldiers fell in three days. I felt guilty speeding by the somber fields, but I had to teach at two o’clock. I checked my watch. I did not want to be late. How do you keep your appointments and still find time to pay homage to history?
My ruminations were soon relieved by a strip of tawdry motels, restaurants, amusement arcades, and gift shops touting plastic soldiers and “origin- al bullets! $6.95 each.” At the battlefield entrance, I caught sight of the famous golden arches of the battlefield McDonald’s where, on a previous occa- sion, my then eight-year-old son enjoyed a Happy Meal combo called the “burger and cannon.” Near- by, a sign for General Pickett’s All-You-Can-Eat Buffet beckoned me to a restaurant that marks the spot where rifle and artillery fire had torn apart Pickett’s underfed troops. If you have young chil- dren, you understand the deep and abiding sig- nificance of fast food and convenient restrooms in historic and scenic areas. You may ask yourself, though, how you can have comfort, convenience, and commerce and at the same time respect “hal- lowed ground.”
I. Are Battlefields Scarce Resources?
I began the seminar at Gettysburg College by de- scribing a Park Service plan, then under discussion, to build new facilities to absorb the tide of visitors— an increase of 400,000 to 1.7 million annually—that welled up in response to “Gettysburg,” a 1993 mov- ie based on Michael Shaara’s blockbuster novel, The Killer Angels.6 Working with a private developer, the Park Service proposed to construct a new $40 mil- lion visitor center, including a 500-seat family food court, a 450-seat theater, and a 150-seat “upscale casual” restaurant with “white tablecloth” service, gift shops, parking lots, and a bus terminal not far from the place where Lincoln delivered the Gettys- burg Address.7 Several senators, including Senate Majority Leader Trent Lott (R-Miss.), objected that
the project “commercializes the very ground and principle we strive to preserve.”8
It is one thing to commercialize the ground; it is another to commercialize the principle we strive to preserve. Tour buses, fast food, and trinket shops, although they commercialize the ground, express a local entrepreneurial spirit consistent with the free- dom, vitality, and mystery of the place. The soldiers probably would have liked such haunts as the Na- tional Wax Museum, the Colt Firearms Museum, and the Hall of Presidents. They certainly would have appreciated General Lee’s Family Restaurant, which serves great hamburgers practically at the site of Lee’s headquarters. Homespun businesses try to tell the story and perpetuate the glory of Gettysburg—and even when they succeed only absurdly, they do so with an innocence and ineptitude that does not in- trude on the dignity and drama of the park.
In contrast, the upscale tourist mall envisioned by the initial Park Service plan seemed, at least to Sen- ator Lott, to elevate commercialism into a principle for managing Gettysburg. Rather than stand by the principle of commercialism or consumer sovereign- ty, however, the Park Service scaled back its plan.9 In its defense, the Service pointed out that Ziegler’s Grove, where its Visitor Center and Cyclorama now stand, overlooks the main battle lines. The revised proposal, which received Interior Department ap- proval in November 1999, calls for razing these fa- cilities and for returning Ziegler’s Grove to its 1863 appearance, in order, as one official said, “to honor the valor and sacrifices of those men who fought and died on that ground for their beliefs.”10
Since the seminar took place in mid-after- noon—siesta time in civilized societies—I had to engage the students. I did so by proposing a thesis so outrageous and appalling that the students would attack me and it. I told the class that the value of any environment—or of any of its uses—depends on what people now and in the future are willing to pay for it. Accordingly, the Park Service should have stuck with its original plan or, even better, it should
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have auctioned the battlefield to the highest bidder, for example, to Disney Enterprises.11
I asked the students to bear with me long enough to consider my proposal in relation to the subject of the seminar, the theory of environmental econom- ics. This theory defends consumer sovereignty as a principle for environmental policy. More specif- ically, this theory asserts that the goal of environ- mental policy is to maximize social welfare at least when equity issues—matters involving the distribu- tion of benefits among individuals—are not press- ing.12 Welfare, in turn, is defined and measured by consumer willingness to pay (“WTP”) for goods and services. According to this theory, environmental policy should allocate goods and services efficiently, that is, to those willing to pay the most for them and who, in that sense, will benefit from their enjoy- ment, possession, or use.
In the United States, unlike Europe, I explained, battlefields are scarce resources which, like any scarce environmental asset, should be allocated efficiently. To be sure, the Park Service tries to accommodate tourists. The problem, though, is that the Park Ser- vice does not exploit heritage values as efficiently as a competitive market would. At present, Gettysburg is woefully underutilized, or so I argued. Even Dolly- wood, Dolly Parton’s theme park in rural east Ten- nessee, attracts more visitors every year.13 The Park Service does not even try to allocate the resources efficiently. It pursues goals that are not economic but ethical; it seeks to educate the public and honor “the valor and sacrifices of those men who fought and died on that ground for their beliefs.”14
A young lady in the class blurted out, “But that’s what the Park Service should do.” She acknowledged that the Park Service has to provide visitor services. It should do so, she said, only to the extent that it will not “detract from what they did here,” to paraphrase President Lincoln.15 This young lady thought that the history of the place, rather than what people are willing to pay for alternative uses of it, determined its value. She understood the significance of “what
they did here” in moral and historical rather than in economic terms. The value of hallowed ground or of any object with intrinsic value has nothing to do with market behavior or with WTP, she said.
I explicated her concern the following way. A pri- vate developer, I explained, might not realize in gate receipts at Gettysburg the WTP of those individuals, like herself, who wished to protect an area for eth- ical or aesthetic reasons. I promised to describe to the class the contingent valuation (“CV”) method economists have developed to determine how much individuals are willing to pay for policies consistent with their disinterested moral beliefs.16 Using this method, the Park Service could take her preference and therefore her welfare into account. It could then identify the policy that maximizes benefits over costs for all concerned, whether that concern is based on consumer desire or on ethical commitment.
This reply, I am afraid, did little more than taunt the student. In stating her opinion, she said, she implied nothing about her own well-being. She de- scribed what she thought society ought to do, not what would make her better off. The student did not see how scientific management, by measuring costs and benefits, served democracy. The Park Service, she added, had no responsibility, legal or moral, to maximize “satisfactions,” including hers. Rather, it had an obligation keep faith with those who died on that ground for their beliefs. No CV survey, no amount of WTP, she said, could add to or detract from the value of Gettysburg. No action we take could alter, though it may honor or dishonor, what the soldiers did there; no cost-benefit study, however scientific, could change our obligation to those who gave their lives that this nation might live.
II. Conservation Revisited
To prepare for the seminar, I had asked the students to read Conservation Reconsidered,17 an essay econo- mist John V. Krutilla published in 1967 in response to neoclassical economists, who studied the effects
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of technological advance on economic growth. Neo- classical macroeconomists like James Tobin,18 Robert Solow, and William Nordhaus19 argued that techno- logical progress would always make more abundant materials do the work of less abundant ones—for ex- ample, the way kerosene substituted for whale oil in providing household illumination.20 Solow, a Nobel laureate in economics, wrote that “[h]igher and ris- ing prices of exhaustible resources lead competing producers to substitute other materials that are more plentiful and therefore cheaper.”21 These economists adopted a model of economic growth that contained two factors: capital (including technology) and the labor to apply it.22 This model differed from that of classical economists, such as Ricardo and Malthus, because “resources, the third member of the classical triad, have generally been dropped.”23
In the essay the class read, Krutilla cited studies to show that advancing technology has “compensat- ed quite adequately for the depletion of the higher quality natural resource stocks.”24 He observed that “the traditional concerns of conservation econom- ics—the husbanding of natural resource stocks for the use of future generations—may now be out- moded by advances in technology.”25 Krutilla, along with other environmental economists in the 1970s, rejected the view that the resource base imposes lim- its on growth.26 Had they accepted the Malthusian position, they would have risked losing credibility both with their mainstream colleagues and with foundations and institutions, such as the World Bank, that supported their work.27
The neoclassical model of growth, insofar as it takes natural resources for granted, did not sit well with environmentalists, many of whom rejected neo- classical thinking and joined the maverick discipline of ecological economics, which emphasizes tradition- al Malthusian concerns about resource depletion.28 The neoclassical theory of perpetual resource abun- dance, moreover, left environmental economists no obvious scarcities to study. It suggested that econo- mists could do little more than to advise society to
privatize resources, enforce contracts, and otherwise not to worry but just leave markets alone.
Krutilla and other mainstream environmental economists, to find fertile fields for research, moved the focus of their science from macroeconomic to microeconomic analysis.29 Microeconomists study the behavior of individuals and firms as they trade in competitive markets. When markets fail properly to bring buyers together with sellers, prices at which goods and services change hands may fail to reflect the full WTP for them and the full costs involved in producing them. Microeconomists identify ways to correct market failure and to make prices better reflect marginal supply and demand.30
Pollution is the standard example. If the produc- tion of a good, say, an automobile, imposes costs, for example, dirty air, on members of society for which they are not compensated, these individuals unwill- ingly subsidize the production or consumption of that item. This subsidy distorts markets because it encourages the overproduction of some things (e.g., cars) and the underproduction of other things (e.g., clean air) relative to what people want to buy. The production and use of cars imposes social costs, costs on society, that are not reflected in the private costs, prices people pay, to own and drive those cars. This gap between social and private costs, economists rea- son, justifies regulation.
As early as 1920, welfare economist A.C. Pigou had distinguished between “private” and “social” costs and had characterized pollution as an unpriced “externality” or social cost of production.31 Pigou had also proposed the solution: to tax the difference between private costs, those reflected in prices, and social costs, those people bear without compensa- tion, so that the prices charged for polluting goods would reflect the full costs, including the pollution costs, that go into providing them.32
By the 1960s and 1970s, economists had fully characterized Pigou’s argument as what one called “the economic common sense of pollution.”33 After 1970, little new could be said or has been said on
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this subject. The microeconomic analysis of pollu- tion in terms of a divergence between private and social costs, however, has had little if any effect on public policy. Pollution control law relies for its justification on common law principles of nuisance, not on a Pigouvian concept of market failure. Public law regulates pollution, in other words, not as an “externality” to be controlled to the extent that the benefits outweigh the costs, but as an invasion, tres- pass, or tort.34
Krutilla and colleagues saw a way, however, to apply the Pigouvian analysis of market failure far, far beyond the problems of pollution. These econo- mists knew that people often make sacrifices, e.g., by paying dues, to support causes and to vindicate con- victions concerning the natural world. These beliefs or commitments surely involve values; values, in the context of economic theory, suggest costs or bene- fits and, therefore WTP, that market prices may not fully capture.35 This WTP, if entered into a social cost-benefit analysis, could serve environmentalism by justifying regulation.
The young lady in my seminar, for example, thought the Park Service should restore rather than commercialize the battlefield. If policy went her way, arguably, she would experience a benefit, if not, a cost. This example and many others like it sug- gest that markets may fail whenever people support principles or judgments they cannot easily vindicate through private exchange. Experts might correct market allocations by measuring WTP for outcomes consistent with political beliefs and moral commit- ments. This possibility opened a new vista to en- vironmental economics.
III. Moral Commitment as Market Demand At about the time neoclassical economics removed resource scarcity as a cause for concern, citizens across the country swelled the rolls of organiza- tions such as the Sierra Club, which sought to pre-
serve pristine places, endangered species, wild rivers, and other natural objects. These environmentalists, Krutilla pointed out, contributed to organizations such as the World Wildlife Fund “in an effort to save exotic species in remote areas of the world which few subscribers to the Fund ever hope to see.”36 Krutilla noted that people “place a value on the mere exist- ence” of resources, such as species, even though they do not intend to consume or own them, as they would ordinary resources.37
Krutilla argued that if people value natural ob- jects because they are natural, then technological advance cannot provide substitutes for them.38 Among the permanently scarce phenomena of na- ture, Krutilla cited familiar examples including “the Grand Canyon, a threatened species, or an entire eco- system or biotic community essential to the survival of the threatened species.”39 On this basis, Krutilla and many colleagues reinvented environmental eco- nomics as a “new conservation”40 that addresses the failure of markets to respond to the “existence” or “non-use” value of natural objects people want to preserve but may not intend to experience, much less use or consume.
Krutilla was correct, of course, in observing that people often are willing to pay to preserve natural objects such as endangered species. Among them, for example, is Tom Finger, a Mennonite, who said, “we’re eliminating God’s creatures. All these non- human creatures ... have a certain intrinsic worth be- cause they are part of God’s creation.”41 People who believe species have an intrinsic worth may be will- ing to pay to protect them. Does this suggest that endangered species are scarce resources? Do those who believe extinction is wrong suffer a loss, a kind of social cost, when species vanish? Does endangered species habitat have an economic value market prices fail to reflect?
Krutilla thought so. He reasoned that those who wished to protect natural objects or environments find it difficult to communicate their WTP to those who own those resources. Given this practical dif-
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ficulty, “the private resource owner would not be able to appropriate in gate receipts the entire social value of the resources when used in a manner com- patible with preserving the natural state.”42 Accord- ingly, Krutilla proposed that the analysis Pigou had offered to justify the regulation of pollution might also serve to justify governmental action to protect species, wilderness, and other natural objects. He wrote, “private and social returns ... are likely to di- verge significantly.”43
Krutilla’s analysis suggests an argument to show that a private firm should manage Dollywood but not Gettysburg, even if the principle of consumer sovereignty applies equally to both. At Dollywood, the owners can capture in gate and table receipts total WTP for the goods and services the resort pro- vides. Owners who respond to market signals sup- ply just those goods and services the public most wants to buy. The managers of Dollywood, more- over, cover all the costs in labor, materials, etc., of their business. The prices they charge, then, will re- flect the full social costs involved in producing what they sell.
At Gettysburg, it is different. Patriotic Amer- icans, many of whom may never visit the area, may be willing to pay to restore the battlefield or to save it from commercial exploitation. Private, for-profit owners of Gettysburg would have no incentive to take this WTP into account, however, because they cannot capture it in gate and table receipts. The prices managers charge for attractions, then, will not reflect the full social costs of providing them— particularly the costs to patriotic Americans who would suffer if the battlefield is desecrated. Because price signals distort true WTP for preservation, the government, rather than a for-profit firm, should manage or at least regulate Gettysburg. Thus, a Pigouvian argument may provide an economic and, in that sense, scientific rationale for the belief that society should restore Gettysburg to its 1863 condi- tion rather than sell the area to Disney Enterprises to run as a theme park.
This kind of economic argument may appeal to environmentalists because it opposes the priva- tization of places, such as Gettysburg, that possess intrinsic value. This argument seems especially ap- pealing because it rejects privatization for econom- ic reasons—the very sorts of reasons that might be thought to justify it. Since this Pigouvian analysis leads to comfortable conclusions, environmentalists might embrace it. Why not agree with economic theory that the goal of social policy is to maximize net benefits with respect to all environmental assets, whether in places like Dollywood or in places like Gettysburg? After all, the cost-benefit analy- sis, once it factors in the WTP of environmental- ists, surely will come out in favor of protecting the environment.
The problem is this: to buy into this argument, one must accept the idea that the same goal or prin- ciple—net benefits maximization—applies to both Dollywood and Gettysburg.44 Critics of economic theory may contend, however, that the approach to valuation appropriate at Daydream Ridge in Dollywood is not appropriate at Cemetery Ridge in Gettysburg. At Daydream Ridge, the goal is to satisfy consumer demand. At Cemetery Ridge, the goal is to pay homage to those who died that this nation might live.
To say that the nation has a duty to pay homage to those from whom it received the last full measure of devotion is to state a moral fact. You can find other moral facts stated, for example, in the Ten Com- mandments. The imperative “Thou shalt not mur- der” should not be understood as a policy preference for which Moses and other like-minded reformers were willing to pay. Rather, like every statement of moral fact, it presents a hypothesis about what we stand for—what we maintain as true and expect others to believe—insofar as we identify ourselves as a moral and rational community.
Our Constitution puts certain questions, for example, religious belief, beyond the reach of dem- ocracy. Other moral questions, over military inter-
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vention in conflicts abroad, for example, invite reasoned deliberation in appropriate legislative coun- cils. Environmental controversies, once the issues of resource scarcity are removed from the agenda, turn on the discovery and acceptance of moral and aesthetic judgments as facts. The belief that society should respect the sanctity of Cemetery Ridge states a moral fact so uncontroversial nobody would doubt it. This tells us nothing, however, about a scarcity of battlefields, an inelasticity of hallowed ground, mar- ket failure, or the divergence of social and private costs. It suggests only that the principle of consumer sovereignty that economists apply to evaluate man- agement decisions at Dollywood do not apply at Gettysburg or, indeed, wherever the intrinsic value of an environment is at stake.45
IV. Are Beliefs Benefits?
By construing intrinsic or existence value as a kind of demand market prices fail to reflect, Krutilla and other environmental economists envisioned a bril- liant strategy to respond to the quandary in which neoclassical economic theory had placed them.46 They kept their credentials as mainstream econo- mists by accepting the neoclassical macroeconomic model with respect to resources the economy uses. Yet they also “greened” their science by attributing a general scarcity to “non-use” resources such as wil- derness, species, scenic rivers, historical landmarks, and so on, that people believe society has a duty to preserve. Indeed, by applying the divergence-of-pri- vate-and-social-cost argument not just to pollution but also to every plant, animal, or place that anyone may care about for ethical or cultural reasons, eco- nomic theory performed a great service to environ- mentalists. Environmentalists now could represent their moral, religious, or cultural beliefs as WTP market prices failed to reflect.47 At last, they could claim that economic science was on their side.48
By transforming moral or cultural judgments about the environment into preferences for which
people are willing to pay, Krutilla and his colleagues in the early 1970s achieved a great deal. First, they created a complex research agenda centering on the measurement of benefits associated with non-use or existence value.49 Since 1970, indeed, research in environmental economics, both theoretical and empirical, has been preoccupied with measuring the economic benefits people are supposed to enjoy as a result of environmental policies consistent with their moral and religious beliefs.50
Second, Krutilla and colleagues created a div- ision of labor between policy scientists and policy consumers.51 As policy scientists, economists lay down the goals and principles of environmental policy—indeed of all social policy—on the basis of their own theory and without any political delibera- tion, consultation, or process.52 Economists Edith Stokey and Richard Zeckhauser, for example, assert that “public policy should promote the welfare of so- ciety.”53 A. Myrick Freeman III explains, “The basic premises of welfare economics are that the purpose of economic activity is to increase the well-being of the individuals who make up the society.”54 In a widely used textbook, Eban Goodstein states, “Eco- nomic analysts are concerned with human welfare or well-being. From the economic perspective, the environment should be protected for the material benefit of humanity and not for strictly moral or ethical reasons.”55
As policy consumers, citizens make judgments about what is good for them.56 Economists reiterate that “each individual is the best judge of how well off he or she is in a given situation.”57 Henry Ford is reputed to have said that people could have auto- mobiles “in any color so long as it’s black.”58 From the standpoint of economic theory, individuals can make any social judgment they wish, as long as it concerns the extent to which policy outcomes harm or benefit them.59
Economists may offer a ceremonial bow in the direction of markets, but this is quickly followed by a story of market failure followed by a call for
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centralized management based on cost-benefit an- alysis.60 Experts, i.e., economists themselves, must teach society how to allocate resources scientifically, since markets cannot cope with environmental pub- lic goods. In markets, individuals make choices and thus function as agents of change. In microeconom- ic theory, in contrast, individuals function not as agents but primarily as sites or locations where WTP may be found.
Third, as the methodology for benefits estima- tion developed, it typically assigned very high shad- ow prices to existence values, and this appealed to environmentalists. An endangered butterfly, for ex- ample, may be worth millions if every American is willing to pay a dime for its survival. Public interest groups, who associated economists with the enemy, now saw that economic science could be their friend.61 Environmentalists, who might have com- plained that industry groups had “numbers,” could now come up with numbers, too.62 And since WTP adds up quickly when aggregated over all members of society, environmentalists could be sure that the numbers would come out “right.”
V. Is Existence Value a Kind of Economic Value? To establish a connection between existence value and economic value, economists have to explain in what sense people benefit from the existence of goods they may neither experience nor use. To be sure, in- dividuals are willing to pay to protect endangered species, rain forests, and other wonders of nature they may never expect to see. That they are willing to pay for them, however, does not show that they ex- pect to benefit from them. Generally speaking, just because a person’s preferences are all his own, it does not follow that the satisfaction of all or any of those preferences necessarily improves his welfare or well- being. The students in my class were quite willing to contribute to a fund to protect hallowed ground at Gettysburg. They did so, however, largely from
a sense of moral obligation and not in any way or manner because they thought they would be better off personally if the battlefield were preserved.
I wrote the following syllogism on the black- board.
Major premise: The terms “economic value” and “welfare change” are equivalent.
Minor premise: Existence value has no clear relation to welfare change.
Conclusion: Therefore, existence value has no clear relation to economic value.
I defended the major premise by quoting lead- ing environmental economists. According to Free- man, “[T]he terms ‘economic value’ and ‘welfare change’ can be used interchangeably.”63 He adds that “[s]ociety should make changes in environmental and resource allocations only if the results are worth more in terms of individuals’ welfare than what is given up by diverting resources and inputs from other uses.”64 Economists Robert D. Rowe and Lau- raine G. Chestnut observe that “[e]conomists define value as the well-being, or utility, derived from the consumption of a good or service.”65
The major premise, which equates economic value with welfare, explains the sense in which eco- nomic value is valuable. Unless “economic value” re- ferred to some intrinsic good, such as felt happiness or satisfaction, one would be hard-pressed to explain the sense in which environmental economics can be a normative science.66
To establish the minor premise, I argued that the statement “society ought to do x and I will contrib- ute to its cost” does not entail “I shall benefit from x.” When behavior is motivated by ethical concerns rather than by self-interest, it lacks a meaningful connection with well-being or welfare. Accordingly, economist Paul Milgrom concedes that for existence value to be considered a kind of economic value, “it would be necessary for people’s individual existence values to reflect only their own personal economic
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motives and not altruistic motives, or sense of duty, or moral obligation.”67
To escape the conclusion that existence value has no relation to economic value, an economist may challenge either the major or minor premise. The major premise seems to be indispensable, how- ever, if economics is to rest on a consequentialist moral theory such as utilitarianism. The reference to welfare explains why the benefits with which economists are concerned are benefits. The min- or premise may be more vulnerable. This premise would be falsified if individuals made choices only in response to their beliefs about what will benefit them. Why not suppose, then, that people (other than economists) judge policy outcomes only on the basis of personal self interest? This assumption would connect preference with well-being for the ordinary citizen.
The students pointed out to me that Krutilla adopts this very position. In the essay the class read, he proposed that individuals who wish to protect the wonders of nature do so for self-seeking reasons, for example, to increase their own psychological satis- faction.68 Krutilla wrote that
These would be the spiritual descendants of John Muir, the present members of the Si- erra Club, the Wilderness Society, National Wildlife Federation, Audubon Society and others to whom the loss of a species or the disfigurement of a scenic area causes acute distress and a sense of genuine relative impoverishment.69
The reference to “distress and a sense of genuine relative impoverishment” is crucial, of course, be- cause these factors link existence value with econom- ic value by connecting them with expected changes in welfare. Krutilla continued, “There are many per- sons who obtain satisfaction from mere knowledge that part of wilderness North America remains even though they would be appalled by the prospect of being exposed to it.”70 The reference to “satisfaction”
connects the “is” of WTP to the “ought” of econom- ic value and valuation.71
VI. Contingent Valuation
During the past thirty years, economists have worked hard to develop a method, known as con- tingent valuation (“CV”), to assess the “existence” or “non-use” values of natural phenomena.72 The CV method, as one authority writes, “is based on asking an individual to state his or her willingness to pay to bring about an environmental improvement, such as improved visibility from lessened air pollution, the protection of an endangered species, or the preserva- tion of a wilderness area.”73 The authors of a text- book write that the CV method “asks people what they are willing to pay for an environmental bene- fit....”74 They see this method as “uniquely suited to address non-use values.”75
Contrary to what this textbook asserts, the CV questionnaire never asks people what they are will- ing to pay for an environmental benefit. It asks respondents to state their WTP for a particular pol- icy outcome, for example, the protection of a rare butterfly. Economists interpret the stated WTP for the environmental improvement as if it were WTP for a personal benefit the respondent expects it to afford her or him. Yet a person who believes that so- ciety ought to protect a species of butterfly may have no expectation at all that he or she will benefit as a result. Indeed, as Tom Tietenberg observes, people who do not expect to benefit in any way from an environmental good may still be committed to its preservation.76 He notes that “people reveal strong support for environmental resources even when those resources provide no direct or even indirect benefit.”77
Empirical research shows that responses to CV questionnaires reflect moral commitments rather than concerns about personal welfare. In one ex- ample, a careful study showed that ethical consider- ations dominate economic ones in responses to CV
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surveys.78 “Our results provide an assessment of the frequency and seriousness of these considerations in our sample: they are frequent and they are signifi- cant determinants of WTP responses.”79 In another study, researchers found that existence value “is al- most entirely driven by ethical considerations pre- cisely because it is disinterested value.”80
Some observers acknowledge that “existence value has been argued to involve a moral ‘commitment’ which is not in any way at all self-interested.”81 They explain that: “Commitment can be defined in terms of a person choosing an act that he believes will yield a lower level of personal welfare to him than an al- ternative that is also available to him.”82 If the satis- faction of “existence” value lowers welfare, then on which side of the cost-benefit equation should it be entered? The individual does not want less welfare per se, but “adherence to one’s moral commitments will be as important as personal economic welfare maximization and may conflict with it.”83
However they can, respondents to CV questions express disinterested views about policy rather than judgments about what will benefit them. Reviewing several CV protocols, economists concluded that “responses to CV questions concerning environ- mental preservation are dominated by citizen judg- ments concerning desirable social goals rather than by consumer preferences.”84 Two commentators noted that the CV method asks people to “com- ment, without very much opportunity for thought, on a hard issue of public policy. In short, they most likely are exhibiting offhand opinions on the same policy issue to which the cost-benefit analyst pur- ports to give his own answer, not private prefer- ences that might be reflected in their own market transactions.”85
We should not confuse WTP to protect a battle- field, species, or wilderness with WTP for some sort of benefit. Battlefields and benefits constitute dif- ferent goods which can be provided and should be measured separately. If economists cared to measure the economic value, i.e., the benefits, of alterna-
tive outcomes, the CV questionnaire should ask re- spondents to state their WTP for the welfare change they associate an environmental policy. Here is an imaginary protocol I suggested to the class:
Many people believe society should respect the “hallowed ground” at Gettysburg for moral, cultural, or other disinterested rea- sons. This questionnaire asks you to set aside all such disinterested values; it asks you not to consider what is right or wrong or good or bad from a social point of view. In responding to this survey, consider only the benefit you believe you will experience, i.e., the personal satisfaction, if the battle- field is preserved. Please state your WTP simply for the welfare change you expect, not your WTP for the protection of the battlefield itself.
Since CV questionnaires in fact ask nothing about benefits, responses to them tell us nothing rel- evant to economic valuation. Yet CV methodology, which economists have been developing for decades, has become the principal technique policymakers use to measure “nonmarket benefits based primarily on existence value” of assets such as old growth for- ests and endangered species.
As philosopher Ronald Dworkin points out, many of us recognize an obligation to places and ob- jects that reflects a moral judgment about what so- ciety should do, not a subjective expectation about what may benefit us.86 He writes that many of us seek to protect objects or events—which could in- clude endangered species, for example—for reasons that have nothing to do with our well-being. Many of us “think we should admire and protect them be- cause they are important in themselves, and not just if or because we or others want or enjoy them.”87 The idea of intrinsic worth depends on deeply held moral convictions and religious beliefs that underlie social policies for the environment, education, pub- lic health, and so on. Dworkin observes:
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Much of what we think about knowledge, experience, art, and nature, for example, presupposes that in different ways these are valuable in themselves and not just for their utility or for the pleasure or satisfaction they bring us. The idea of intrinsic value is com- monplace, and it has a central place in our shared scheme of values and opinions.88
Beliefs are not benefits. If economists believe that society should allocate resources to maximize welfare, they do not necessarily think this because they will be better off as a result. They are not simply trying to increase demand for their services. Simi- larly, as the evidence cited above suggests, people who believe that society should protect endangered species, old-growth forests, and other places with in- trinsic value do not necessarily think that this will improve their well-being.89 A person who wants the Park Service to respect hallowed ground may consid- er that policy justified by the historical qualities of the battlefield and not by the welfare consequences for her or him. It is hard to understand, then, how CV measures the non-market benefits of environ- mental goods.90 If responses to CV surveys are based on moral beliefs or commitments, there would seem to be no relevant benefits to measure.
VII. Does WTP Measure Welfare?
A young man in the class referred back to the syl- logism that remained on the blackboard. He asked whether the syllogism still would be sound if the term “existence value” were replaced by “willingness to pay.” He reasoned that if existence value, when based on moral commitment rather than self inter- est, has no necessary relation to welfare, this would be true of WTP as well. He asked what WTP meas- ures and how that relates to well-being and thus to economic value.
To answer this question, I reminded the class of what economic value consists in, namely, something
akin to human happiness. As R. Kerry Turner ex- plains, “Positive economic value—a benefit—arises when people feel better off, and negative economic value—a cost—arises when they feel worse off.”91 As Goodstein points out, the “moral foundation under- lying economic analysis, which has as its goal human happiness or utility, is known as utilitarianism.”92 Happiness, contentment, and feelings of satisfaction are psychological states which, arguably, have intrin- sic value.93 Insofar as economic value is ‘valuable,’ its value lies in or refers to subjective well-being or happiness.
Does WTP measure, correlate with, or have any- thing to do with happiness, well-being, or content- ment? We can answer this question empirically by using income as a surrogate measure for WTP; after all, people with more money can obtain more of the things they want to buy. We can use perceived hap- piness or subjective well-being to measure how well off people are. To determine whether WTP relates to well-being, we can find out whether people who have more money are happier than those who have less. On this empirical question, a great deal of evi- dence exists.
Empirical research overwhelmingly shows that after basic needs are met, no correlation whatsoever holds between rising income and perceived hap- piness.94 Researchers consistently find there is very little difference in the levels of reported happiness found in rich and very poor countries.95 Although the buying power of Americans has doubled since the 1950s, reported happiness has remained almost unchanged.96 Absolute levels of income seem not to affect happiness, although relative levels do. People may be less happy if they earn less than their peers.97
The literature contains studies in which people report they become less happy as their income and purchasing power increases.98 Studies relating wealth to perceived happiness find that “rising prosperity in the USA since 1957 has been accompanied by a fall- ing level of satisfaction. Studies of satisfaction and changing economic conditions have found overall no
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stable relationship at all.”99 One major survey states, “None of the respondents believed that money is a major source of happiness.”100 That money does not buy happiness may be one of the best established findings of social science research.101
A great many reasons explain why no empir- ical relation holds between what people are willing to pay for something and the happiness they derive or expect to derive from it. Happiness seems to de- pend on the things money cannot buy, e.g., love, friendship, and faith, not on the extent of one’s pos- sessions.102 Fred Hirsch, among others, argued per- suasively that happiness correlates with status more than with wealth.103 Even those who succeed at their “games” seem to be dissatisfied as their expectations climb. Michael Jordan has been quoted as saying, “I wish I came in first more often.”104
Although economists invoke utilitarianism as a moral foundation, WTP and therefore economic value has no clear relation to happiness and, there- fore, no basis in utilitarianism. As Richard Posner wrote, the “most important thing to bear in mind about the concept of value [in the economist’s sense] is that it is based on what people are willing to pay for something rather than the happiness they would derive from having it.”105 If economic value is a function of what people are willing to pay for some- thing rather than the happiness they would derive from having it, it is unsurprising that those willing to pay the most for goods derive the most economic value from them. The term “economic value” sim- ply coincides with “WTP” and has no connection to anything else.
I asked the class how we get from “people are willing to pay more for A than B” to “A is better than B”? To answer this question, I referred to the syllogism on the board, which now read:
Major premise: The terms “economic value” and “welfare change” are equivalent.
Minor premise: WTP has no clear relation to welfare change.
Conclusion: Therefore, WTP value has no clear relation to economic value.
Environmental economists escape this syllo- gism, I proposed, by ingeniously defining “welfare change” or “benefit” in terms of willingness to pay. Freeman describes this crucial step. He explains that economic theory defines “the benefit of an environ- mental improvement as the sum of the monetary values assigned to these effects by all individuals dir- ectly or indirectly affected by that action.”106 Tiet- enberg analyzes the connection between WTP and benefits in the same way. “Total willingness to pay is the concept we shall use to define total benefits,” he explains.107 Economic theory uses WTP to meas- ure net benefits or welfare change because it defines “benefit” and “welfare change” in terms of willing- ness to pay. The statement that WTP measures or correlates with well-being means no more than the empty identity, “A is equivalent to A.”
The central argument of environmental econom- ics, then, comes to this—An allocation of resources to those willing to pay the most for them maximizes net benefits; net benefits, in turn, are measured in terms of the amount people are willing to pay for those resources. The central contention of environ- mental economics is logically equivalent to the claim that resources should go to those willing to pay the most for them, because they are willing to pay the most for those resources. In this tautology, the terms “welfare” or “well-being” simply drop out. These terms function only as stand-ins or as proxies for WTP and cannot logically be distinguished from it. The measuring rod of money—or WTP—correlates with or measures nothing but itself.
Environmental economics fails as a normative science because it cannot tell us why or in what sense an efficient allocation is better than a less ef- ficient one. Lacking all normative content, terms like “utility,” “well-being,” or “welfare” fail to move environmental economics from the “is” of WTP to the “ought” of value or valuation.
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VIII. Naked Preferences
A young man in the class wondered aloud if this critique of environmental economics had gone too far. The CV method, after all, attributes enormous economic value to so-called “useless” species and to remote places that few people may visit. Instead of rejecting this technique, he suggested, we should be grateful for it. “To the extent that people are willing to pay for existence value—whether the protection of species and habitats, the functioning of ecosystems, or the dignity of Gettysburg—these intangibles are appropriately included in the overall calculus of benefit,” he said. He added that the CV method, because it aggregates WTP for policy preferences, provides valuable information to policymakers. This is true whether preferences reflect judgments about personal benefit or judgments about the goals or val- ues of society.
The student suggested, then, that even if WTP and economic value are logically equivalent, environ- mental economics retains its usefulness as a policy science. He conceded that references to “welfare” or “well-being” could be dismissed as window-dressing. All that matters is WTP itself as an expression of preference. Preferences still matter whether or not they are based on self-interest or on moral or polit- ical judgment.
This view expresses what many economists be- lieve. “The modern theory of social choice,” writes W. Michael Hanemann, “considers it immaterial whether preferences reflect selfish interest or moral judgment.”108 This view goes back at least to Ken- neth Arrow’s observation: “It is not assumed here that an individual’s attitude toward different social states is determined exclusively by commodity bun- dles which accrue to his lot under each.... [T]he in- dividual orders all social states by whatever standards he deems relevant.”109
Let us drop the reference to welfare or well-being, then, from the fundamental thesis of environment- al economics. We are left, then, with the idea that
preferences, as weighed or ranked by WTP, should be satisfied insofar as the resource base allows. “In this framework, preferences are treated as data of the most fundamental kind,” writes economist Alan Randall.110 “Value, in the economic sense, is ultim- ately derived from individual preferences.”111
What sort of value can be derived from prefer- ences? If we no longer refer to welfare or well-be- ing, it is hard to understand why the satisfaction of preferences, weighed by WTP, matters. Plainly, in- dividuals should have the greatest freedom possible, consistent with the like freedom of others, to try to satisfy their preferences, promote their beliefs, and vindicate their values both in markets and through democratic political processes. The statement that people should be free to pursue their own goals through social institutions that are equitable and open expresses a piety nobody denies.112
The thesis that social policy should aim at satis- fying people’s preferences, in contrast, expresses a dogma of welfare economics for which no good argument can be given. Having a preference may give the individual a reason to try to satisfy it, and he or she should have the greatest freedom to do so consistent with the like freedom of others. Absent a reference to a meaningful social goal such as welfare or well-being, however, what reason has society to try to satisfy that preference?
The idea that preferences should be satisfied just because or insofar as people are willing to pay to satisfy them113 creates two problems for economists. First, they must explain why their own policy pref- erences, e.g., for efficient outcomes, should not be assessed or evaluated on the same WTP basis as the judgments or beliefs of others. Economists would also have to show why the satisfaction of preferences, even those preferences having no relation to well-be- ing, is a good thing. Why should preferences count on a WTP basis rather than, say, in relation to the reasons or purposes that underlie them or in rela- tion to the consequences, e.g., for welfare, of their satisfaction?
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Consider, first, the way society evaluates policy proposals put forward by economists. Economists expect public officials to consider these proposals on their merits. Why should these officials, how- ever, treat the views economists defend any differ- ently from those put forward by other citizens? If society uses WTP to evaluate the views or judgments of some citizens, it should apply the same measure to all. A CV study of economist WTP for efficiency in the allocation of resources might be needed to assess the validity of this proposal on the same basis as that of any other policy preference.
Consider, second, the idea that it is a good thing that people’s preferences be satisfied on a WTP basis, no matter how they are formed or what is gained by satisfying them. To test this theory, let us sup- pose that a visitor to Gettysburg suggests that the Park Service rebuild the Stuckey’s Restaurant with its parking lots in the middle of the area where Longstreet attacked. This citizen might argue that since Longstreet himself may have dined there, the restaurant should be restored as part of the original battlefield.
Odd notions of this sort are not uncommon. One visitor to Gettysburg expressed amazement “that so many important battles had occurred on Park Ser- vice land. Another visitor expressed skepticism about a guide’s description of the fierce fighting because there are no bullet marks on the monuments.”114 Silly ideas may lead people to propose silly policies. If the satisfaction of preference ranked by WTP is all that matters, then these proposals would be just as valid as those offered by Civil War historians. The WTP of those ignorant of history would be every bit as good as, possibly greater than, the WTP of those steeped in the lore of Gettysburg.
The idea that society use WTP as the standard by which to judge the merit of policy proposals defies common sense. We do not measure the worthiness of political candidates and their positions by toting up the campaign contributions they attract. On the contrary, those candidates able to raise the most
money appear to be the most beholden to special interests. A recent survey revealed that about “half of young adults believe that separation of races is ac- ceptable....”115 That individuals are willing to pay to segregate schools by race or to exclude non-Chris- tians from office, however, would not make those policies any better. It would only make those indi- viduals worse.
Democracy relies on deliberative discourse in public to evaluate policy options. The point of pol- itical deliberation in a democracy is to separate, on the basis of argument and evidence, more reasonable from less reasonable policy proposals. The Park Ser- vice held public meetings (but did not commission CV studies) to reevaluate its plan for Gettysburg. It sought out the opinions of those who knew the history of the place. As a result, it located the new facility in an area where no soldier had fallen.116 The outcome of political and moral deliberation depends less on the addition of individual utilities than on the force of the better argument about the public interest.117
IX. Designing for Dilemmas
The students who attended the seminar cared about the environment. One student opined that society has an obligation to save old growth forests, which he thought intrinsically valuable. Another mentioned pollution in the Grand Canyon. She said we have a responsibility to keep the area pristine no matter who benefits from it. Another argued that even if a species had no economic use, it is wrong to cause its extinction. Another student proposed that the government should promote prosperity and try to give everyone an opportunity to share in a booming economy. She understood the importance of macro- economic goals but saw no reason to apply micro- economic theory to social policy.
I framed this thought for the students in the following way. If an environmental agency tries to pursue an ethical goal, for example, to minimize
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pollution as a moral trespass, it may have to design for a particular kind of dilemma. It must pursue its moral mission only in ways that allow the economy to prosper.118 The agency would have to accommo- date macroeconomic indicators of economic growth such as levels of employment. Full employment, un- like the microeconomic efficiencies about which en- vironmental economists theorize, does affect human welfare and happiness.119
How might an agency balance its zeal to control pollution with its need to accommodate economic activity? To suggest an answer, I drew a graph in which the x-axis represented incremental pollution reduction and the y-axis represented the “misery index,” i.e., the sum of the current unemployment and inflation rates. One may argue that statutes like the Clean Air Act mandate pollution control to the “knee of the curve.”120 This is the area where the curve begins to go asymptotic because further reduc- tions in pollution cause rapidly increasing increases in unemployment and inflation.121
The authors of the Clean Air Act may have hoped that technological innovation would continu- ally push the “knee of the curve” farther out along the pollution-control axis.122 On this reading, the statute requires the EPA to minimize pollution (as a form of coercion), rather than to optimize it (as an external cost). The EPA may adopt the “knee of the curve” as a moral principle to balance two intrinsic- ally valuable but competing goals. One is to make the environment cleaner; the other is to allow the economy to expand.123
Environmental agencies can pursue their moral missions without invoking the tautologies of wel- fare economics. The Park Service, for example, did not commission a cost-benefit analysis to plan for Gettysburg. It assumed it had a duty to design the Visitor Center in a way that respects hallowed ground; within that mandate, it also has to provide for the education and basic needs of visitors. Simi- larly, the Fish and Wildlife Service has to collabor- ate with landowners to design Habitat Conservation
Plans that protect species while allowing economic development to take place.124 Sometimes, a collab- orative group can find an inexpensive technical “fix,” for example, by relocating the endangered creature to another habitat where it can live in peace.125 A deliberative body representing “stakeholders” can often deal with a particular problem better than a governmental agency located in Washington.126 The Clinton Administration has called for initiatives to “reinvent regulation” by devolving decisionmaking to such groups.127
Environmental agencies may find it difficult, however, to embrace an approach to regulation that relies on collaboration and deliberation rather than centralized science-based decisionmaking. The stat- utes under which these agencies operate, such as the Clean Air Act, tend to be so vague, so aspira- tional, and so precatory that they offer little or no guidance to an agency that has to answer the hard questions, such as how safe or clean or natural is enough.128 The agency, in the absence of a mean- ingful political mandate, has to find some way to give its decisions legitimacy. It therefore cloaks its ethical determinations in the language of science. Environmental professionals, in their eagerness to speak truth to power, may encourage this reliance on their disciplines.
The problem, however, is that science has no moral truth to speak; it cannot say how safe, clean, or natural is safe, clean, or natural enough. Never- theless, agencies defend moral and political deci- sions with arguments to the effect that, “The science made me do it.”129 Environmental agencies, though they must adopt regulations that are ethical at bot- tom, rarely, if ever, offer a moral argument or prin- ciple for Congress to review and citizens to consider and debate. Instead, agencies tend to use the best available science to answer moral and political ques- tions it cannot possibly answer. And the environ- mental sciences—strained in this way well beyond their limits—lose credibility as a result.130
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X. Retreat from Gettysburg
After the seminar, I chose a route out of Gettysburg that avoided the battlefield and, with it, the ghosts of the past. But my path was full of portents of the fu- ture. At a 110-acre site southeast of the battleground, which had served as a staging area for Union troops, I saw equipment gathered to construct the massive mall the Park Service had decided not to build. The developer, the Boyle Group of Malvern, Pennsylva- nia, according to its promotional literature, prom- ises to erect an “authentic village” containing seventy outlet stores, an eighty-room country inn, and a large restaurant. According to the flyer, visitors to Gettys- burg will find the village a refuge from the drudg- ery of touring the battlefield and learning its history. “History is about the only thing these millions of tourists take home,” the promo states. “That’s be- cause there is no serious shopping in Gettysburg.”131
Society can count on firms such as the Boyle Group to provide shopping as serious as anyone could want at Gettysburg and everywhere else. The nation does not have to elevate shopping and, with it, the allocation of goods and services to those willing to pay the most for them, to the status of legislation. Environmental laws state general moral principles or set overall goals that reflect choices we have made to- gether. These principles and goals do not include the empty and futile redundancy of environmental eco- nomics—the rule that society should allocate resour- ces to those willing to pay the most for them because they are willing to pay the most for those resources.
An agency, such as the Park Service, may engage in public deliberation to determine which rule to apply in the circumstances. The principle economists tout, net benefits maximization, is rarely if ever rel- evant or appropriate. At Gettysburg, the principle speaks for itself. “What gives meaning to the place is the land on which the battle was fought and the men who died there,” as longtime Gettysburg preserva- tionist Robert Moore has said. “Keeping the place the same holy place, that’s what’s important.”132
Notes 1 Abraham Lincoln, The Gettysburg Address
(1863), reprinted in Lincoln on Democracy (Mario M. Cuomo and Harold Holzer eds., 1990), 307.
2 See George Will, “A Conflict over Hallowed Ground,” New Orleans Times-Picayune, June 11, 1998, B7. For a brief description of the events, see Lisa Reuter, “Gettysburg: The World Did Long Remember,” Columbus Dispatch, Dec. 5, 1999, 1G (“At the wheat field alone, 6000 men fell in 2½ hours. One soldier would later write, ‘Men were falling like leaves in autumn; my teeth chatter now when I think of it.’ So many bodies covered the field, remembered an- other, that a person could walk across it with- out touching the ground.”).
3 See Rupert Cornwell, “Out of the West; De- velopers March on Killing Fields,” Independent (London), Dec. 18, 1991, 10 (43,000 deaths in total).
4 The Kentucky Fried Chicken restaurant has long occupied the area near the monument and by now may have its own authenticity. Ken- tucky nominally never left the Union.
5 Will, supra note 2, B7. 6 See Michael Shaara, The Killer Angels: A Novel
(1974). For details about the effect on the vis- itor load, see Will, supra note 2, B7.
7 For a description of the Park Service plan and its history, see Edward T. Pound, “The Battle over Gettysburg,” USA Today, Sept. 26, 1997, 4A.
8 Stephen Barr, “Hill General Retreats on Gettys- burg Plan,” Wash. Post, Oct. 2, 1998, A25. See also Ben White, “Lawmaker Criticizes Plan for Gettysburg,” Wash. Post, Feb. 12, 1999, A33.
9 See Brett Lieberman, “Park Service Unveils Re- vised Gettysburg Plan,” Plains Dealer (Cleve- land), June 19, 1999, 14A.
10 APCWS “Position on Proposed Gettysburg Development Plan” (statement by Denis P. Gal-
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vin, Deputy Director, National Park Service, Feb. 24, 1998) (visited Mar. 26, 2000) <http:// users.erols.com/va-udc/nps.html> [hereinafter Proposed Development Plan].
11 In fact, such a proposal is not as far-fetched as it sounds. See Heather Dewar, “Corporate Cash Eyed for Parks, Bill Puts Sponsorships at $10 Million Apiece,” Denver Post, June 8, 1996, A1; “Parks May Get ‘Official’ Sponsors, Sen- ate Measure Would Lure Corporate Bucks,” St. Louis Post-Dispatch, June 9, 1996, 1A. This plan was much derided. See, e.g., Joshua Reichert, “Commercializing Our National Parks A Bad Joke,” Houston Chron., Sept. 23, 1996, 19.
12 From the perspective of welfare economics, a regulation is rational—it promotes the wel- fare of society—only if it confers on members of society benefits in excess of costs. Since the benefits and costs may well accrue to different individuals, welfare economists recognize two fundamental values in terms of which regula- tory policy may be justified. The first is eco- nomic efficiency, which is to say, the extent to which total benefits of the policy exceed total costs. The second goal is equity, which is to say, the extent to which the distribution of costs and benefits is equitable or fair. For a presentation of this view, see generally Ar- thur M. Okun, Equality and Efficiency: The Big Tradeoff (1975). He writes, “This concept of efficiency implies that more is better, insofar as the ‘more’ consists in items people want to buy.” Ibid., 2.
13 Dollywood attracts about 2 million patrons annually and is open only during the warmer months. See Dollywood (visited Mar. 26, 2000) <http://company.monster.com/dolly/>.
14 “Proposed Development Plan,” supra note 10. 15 See Lincoln, supra note 1. 16 See discussion infra Part VI. 17 John V. Krutilla, “Conservation Reconsidered,”
Am. Econ. Rev. Vol. 57 (1967): 777.
18 See, e.g., William D. Nordhaus and James Tobin, “Is Economic Growth Obsolete?” Econ. Growth Vol. 5 (1972): 1.
19 See generally William D. Nordhaus, Invention, Growth, and Welfare: A Theoretical treatment of Technological Change (1969).
20 See Daniel Yergin, The Prize: The Epic Quest for Oil, Money, and Power (1992), 22.
21 Robert M. Solow, “Is the End of the World at Hand?” in The Economic Growth Controversy (Andrew Weintraub et al. eds., 1973), 39, 53 [herinafter Solow, “End of the World”]. Solow sought to establish that technological change, rather than the resource base, is essential to economic production. See, e.g., Robert M. Solow, “A Contribution to the Theory of Eco- nomic Growth,” Q.J. Econ Vol. 70 (1956): 65; Robert M. Solow, “Technical Change and the Aggregate Production Function,” Rev. Econ. & Stat. Vol. 39 (1957): 312.
22 Solow argued that if the future is like the past, raw materials will continually become more plentiful. See Solow, “End of the World,” supra note 21, 49.
23 Nordhaus and Tobin, supra note 18, 14. Many mainstream economists accept Solow’s argu- ment. As analyst Peter Drucker has written, “[w]here there is effective management, that is, application of knowledge to knowledge, we can always obtain the other resources.” Peter Drucker, Post Capitalist Society (1993), 45. Others have argued that our technical ability to substitute resources for one another is so great that “the particular resources with which one starts increasingly become a matter of indiffer- ence. The reservation of particular resources for later use, therefore, may contribute little to the welfare of future generations.” Harold J. Bar- nett and Chandler Morse, Scarcity and Growth: The Economics of Natural Resource Availability (1963), 11.
24 Krutilla, supra note 17, 777.
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25 Ibid., 778. 26 See Krutilla, supra note 17, 784. See also, e.g.,
V. Kerry Smith, “The Effect of Technological Change on Different Uses of Environment- al Resources,” Natural Environments: Studies in Theoretical and Applied Analysis (John V. Krutilla ed., 1972), 54, 54-87. Smith wrote, “advances in scientific knowledge and a mas- tery of techniques have been sufficiently per- vasive and rapid to allow for an ever expanding supply of natural resource commodities at con- stant or falling supply prices.” Ibid., 54.
27 See World Bank, World Development Report: 1992 (1992). This document contains a sus- tained argument against the views of ecological economics and defends the neoclassical as- sumption that, with technological advance and good government, resources do not limit growth.
28 See, e.g., Robert Costanza et al., “Goals, Agen- da, and Policy Recommendations for Eco- logical Economics,” Ecological Economics: The Science and Management of Sustainability (Rob- ert Costanza ed., 1991), 1, 8 (arguing that we have “entered a new era” in which “the limiting factor in development is no longer manmade capital but remaining natural capital”).
29 See, e.g., Edwin Mansfield, Microeconomics: Theory and Applications (2nd ed. 1976). Mans- field writes that economics is divided “into two parts: microeconomics and macroeconomics. Microeconomics deals with the economic be- havior of individual units like consumers, firms, and resource owners; while macroeconomics deals with the behavior of economic aggregates like gross national product and the level of un- employment.” Ibid., 2.
30 See generally The Theory of Market Failure: A Critical Examination (Tyler Cowen, ed., 1988).
31 See A.C. Pigou, The Economics of Welfare (4th ed. 1932), 172-203.
32 See ibid. 33 Larry E. Ruff, “The Economic Common Sense
of Pollution,” Pub. Interest (Spring 1970): 69. 34 Since pollution is clearly a form of coercion
rather than of exchange, to ask how much pollu- tion society should permit is to ask how far one individual may use the person or property of another without his or her consent. Nothing in our law, shared ethical intuitions, or cultural history supports or even tolerates the utilitar- ian principle that one person can trespass upon another—indeed, should do so—whenever the benefits to society exceed the costs. See, e.g., United States v. Kin-Buc, Inc., 532 F. Supp. 699, 702-03 (D.N.J. 1982) (holding that the Clean Air Act preempts federal common law claims of nuisance for air pollution). See also William C. Porter, “The Role of Private Nuis- ance Law in the Control of Air Pollution,” Ariz. L. Rev.Vol. 10 (1968): 107, 108-17.
The non-utilitarian basis of pollution control law is so obvious that, as Maureen Cropper and Wallace Oates observe, “the cornerstones of federal environmental policy in the United States,” such as the Clean Air and Clean Wat- er Acts, “explicitly prohibited the weighing of benefits against costs in the setting of environ- mental standards.” Maureen L. Cropper and Wallace E. Oates, “Environmental Economics: A Survey,” J. Econ. Lit. Vol. 30 (1992): 675.
35 For an illustrative example of this sort of rea- soning, see E.B. Barbier et al., “Economic Value of Biodiversity,” Global Biodiversity Assessment (V.H. Heywood ed., 1995), 823, 829 (“Moral or ethical concerns, like tastes and preferences, can be translated into a willingness to commit resources to conserve biodiversity.”).
36 Krutilla, supra note 17, 781. 37 Ibid. 38 See ibid., 783 (arguing that “while the sup-
ply of fabricated goods and commercial servi- ces may be capable of continuous expansion
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from a given resource base by reason of sci- entific discovery and mastery of technique, the supply of natural phenomena is virtually inelastic”). Krutilla had to show, however, that technology cannot provide substitutes for nat- ural phenomena (such as the Grand Canyon) as it can for natural resources. Krutilla appar- ently infers from the inelasticity of the supply of natural phenomena that technology cannot offer substitutes for them. This is obviously a non-sequitor. Technology can provide amuse- ments—for example, IMAX® theater presen- tations of the Grand Canyon followed by a great party where one can meet celebrities—for which people may be willing to pay as much as to go to the Canyon itself. It is not clear, then, that inelasticities of supply bear on the question of whether technology can provide economic substitutes for intrinsically valuable objects of nature. Technology may provide goods and ser- vices for which people are willing to pay the same amount.
39 Ibid., 778. 40 Ibid., 783. 41 Carlyle Murphy, “A Spiritual Lens on the En-
vironment; Increasingly, Caring for Creation Is Viewed as a Religious Mandate,” Wash. Post, Feb. 3, 1998, A1.
42 Krutilla, supra note 17, 779. 43 Ibid. 44 “Market-determined prices,” some econo-
mists claim, “are the only reliable, legally sig- nificant measures of value.... [T]he value of a natural resource is the sum of the value of all of its associated marketable commodities, such as timber, minerals, animals, and recreational use fees.” Daniel S. Levy and David Friedman, “The Revenge of the Redwoods? Reconsidering Property Rights and the Economic Allocation of Natural Resources,” U. Chi. L. Rev. Vol. 61 (1994): 493, 500-01 (discussing the possibility of WTP estimates for existence values).
45 Gettysburg here serves as an example of any moral decision that confronts society. Econo- mists have applied the WTP criterion to ad- judicate the most important moral decisions that confront society. For example, economists have argued that the decision to wage war in Vietnam represented not a moral failure or pol- itical failure, but a market failure. The decision to carry on the war failed to reflect the WTP demonstrators revealed, for example, in the travel costs they paid to protest against it. See generally Charles J. Cicchetti et al., “On the Economics of Mass Demonstrations: A Case Study of the November 1969 March on Wash- ington,” Am. Econ. Rev. Vol. 61 (1971): 179 .
Whatever the question, from segregation in housing to certain kinds of slavery, practi- ces people oppose for moral reasons may also be characterized as objectionable for economic reasons, once the WTP of those opponents is factored into the cost-benefit analysis. See gen- erally Duncan Kennedy, “Cost-Benefit Analy- sis of Entitlement Problems: A Critique,” Stan. L. Rev. Vol. 33 (1981): 387.
Microeconomists sometimes seem to hold that WTP can adjudicate all questions of truth, beauty, and justice. The use of WTP or utility “to measure preferences can be applied quite generally,” three economists explain. “Utility or preference exists for any activity in which choice is involved, although the choices may themselves involve truth, justice, or beauty, just as easily as the consumption of goods and ser- vices.” Jonathan A. Lesser et al., Environmental Economics and Policy (1997), 42.
46 That is, the quandary involved in finding a subject matter for environmental economics to study when mainstream economics had deter- mined that natural resources could be taken for granted.
47 The high-water mark of this approach to en- vironmental evaluation may be found in Rob-
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ert Costanza et al., “The Value of the World’s Ecosystem Services and Natural Capital,” Na- ture Vol. 387 (1997): 253 (estimating the eco- nomic benefits of the world’s ecosystem services and natural capital at $33 trillion per year).
48 See, e.g., Pete Morton, “The Economic Bene- fits of Wilderness: Theory and Practice,” Denv. U. L. Rev. Vol. 76 (1999): 465. (“While stead- fastly acknowledging that the economic bene- fits of wilderness will never be fully quantified, without at least qualitatively describing and understanding these benefits, politicians and public land managers will continue to make policy decisions that shortchange wilderness in public land management decisions.”) Some en- vironmentalists question the use of contingent valuation largely for technical reasons. See, e.g., Kristin M. Jakobsson and Andrew K. Dragun, Contingent Valuation and Endangered Species (1996), 78-82.
49 For examples of this research agenda, see Valu- ing Natural Assets: The Economics of Natural Re- source Damage Assessments (Raymond J. Kopp and V. Kerry Smith eds., 1993).
50 For a good review of the literature, see gener- ally A. Myrick Freeman III, The Benefits of En- vironmental Improvement: Theory and Practice (1979).
51 See Krutilla, supra note 17, 779 n.7 (describ- ing environmentalists as having subjective reac- tions to, rather than objective opinions about, the loss of a species or the disfiguring of an environment).
52 For a general statement and defense of the pos- ition of welfare economics in environmental policy, see Daniel C. Esty, “Toward Optimal Environmental Governance,” N.Y.U. L. Rev. Vol. 74 (1999): 1495. See also Louis Kaplow and Steven Shavell, “Property Rules Versus Lia- bility Rules: An Economic Analysis,” Harv. L. Rev. Vol. 109 (1996): 715, 725 (taking the cost- benefit balance to define ideal regulation).
53 Edith Stokey and Richard Zeckhauser, A Prim- er for Policy Analysis (1978), 277.
54 A. Myrick Freeman III, The Measurement of En- vironmental Resource Values (1993), 6.
55 Eban S. Goodstein, Economics and the Environ- ment (2nd ed. 1999), 24.
56 Commentators generally refer to this idea as the principle of consumer sovereignty. For a general statement of how this principle fits within the foundations of economic theory, see Martha Nussbaum, “Flawed Foundations: The Philosophical Critique of (a Particular Type of ) Economics,” U. Chi. L. Rev. Vol. 64 (1997): 1197, 1197-98.
57 Freeman, supra note 54, 6. 58 For a discussion of Ford’s beliefs, see Roland
Marchand, Advertising the American Dream: Making Way for Modernity, 1920-1940, (1985), 118, 156-58.
59 Following social choice theory, economists apply the principle of consumer sovereignty to all views but their own—in other words, they regard everyone else as having wants rather than ideas. For the classic statement of this position, see Joseph Schumpeter, “On the Concept of Social Value,” Q.J. Econ. Vol. 23 (1909): 213, 214-17.
60 See, e.g., Allen V. Kneese and Blair T. Bower, “Introduction,” Environmental Quality Analysis: Theory and Method in the Social Sciences (Allen V. Kneese and Blair T. Bower eds., 1972), 3-4.
61 See Kennedy, supra note 45, 401-21. 62 Critics of Krutilla’s approach charged that it
came primarily “from economists desperately eager to play a more significant role in environ- mental policy and environmental groups seek- ing to gain the support of conservatives.” Fred L. Smith, Jr., “A Free-Market Environmental Program,” Cato J. Vol. 11 (1992): 457, 468 n. 15.
63 Freeman, supra note 54, 7. 64 Ibid.
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65 Robert D. Rowe and Lauraine G. Chestnut, The Value of Visibility: Theory and Application (1982), 9. Economists often use consumer sur- plus as the appropriate measure of economic value in calculating the benefits associated with environmental improvements. See, e.g., Rich- ard E. Just et al., Applied Welfare Economics and Public Policy (1982), 69-83; John R. Stoll et al., “A Framework for Identifying Economic Bene- fits and Beneficiaries of Outdoor Recreation,” Pol’y Stud. Rev. Vol. 7 (1987): 443, 445-48.
66 Environmental economists typically ground economic valuation in the moral theory or utilitarianism according to which happiness has intrinsic value. As Goodstein points out, the “moral foundation underlying economic analysis, which has as its goal human happiness or utility, is known as utilitarianism.” Good- stein, supra note 55, 24.
67 Paul Milgrom, “Is Sympathy an Economic Value? Philosophy, Economics, and the Con- tingent Valuation Method,” Contingent Valua- tion: A Critical Assessment (J.A. Hausman ed., 1993), 417, 431.
68 Even if Krutilla were correct about what people want, namely a sense of satisfaction, this would not serve to justify the CV approach. One would then need to distinguish between the value of the policy option (which CV is sup- posed to measure) and the value of the expected moral satisfaction (which people are supposed to want). For further discussion of the possibil- ity that WTP estimates in contingent valuation studies refer to the value not of a policy but of a state of moral satisfaction, see Daniel Kahneman and Jack L. Knetsch, “Valuing Public Goods: The Purchase of Moral Satisfaction,” J. Envtl. Econ. & Mgmt. Vol. 22 (1992): 57, 57-70.
69 Krutilla, supra note 17, 779. 70 Ibid., 781. 71 One can understand this argument in terms of
an ambiguity between two senses—one logical,
the other psychological—in the term “satis- faction.” To satisfy a preference in the logical sense is to meet or fulfill it; this is the sense in which equations and conditions are satisfied. To satisfy a person in the psychological sense is to cause contentment or a feeling of well-being. Krutilla seems to have assumed that to satisfy a preference in the logical sense is to cause a psychological sense of satisfaction. Nothing justifies this inference.
72 For commentaries, see generally John F. Daum, “Some Legal and Regulatory Aspects of Contin- gent Valuation,” Contingent Valuation: A Crit- ical Assessment, supra note 67, 389; William H. Desvousges et al., “Measuring Natural Resource Damages with Contingent Valuation: Tests of Validity and Reliability,” Contingent Valuation: A Critical Assessment, supra note 67, 91.
73 James R. Kahn, The Economic Approach to En- vironmental and Natural Resources (2nd ed. 1998), 102.
74 Lesser et al., supra note 45, 282. 75 Ibid. 76 Tom Tietenberg, Environmental and Natural
Resource Economics (5th ed. 2000), 37. 77 Tom Tietenberg, Environmental Economics and
Policy (1994), 62-63. 78 D.A. Schkade and J.W. Payne, “How People
Respond to Contingent Valuation Questions: A Verbal Protocol Analysis of Willingness to Pay for an Environmental Regulation,” J. En- vtl. Econ. & Mgmt. Vol. 26 (1994): 88, 89.
79 Ibid. 80 Barbier et al., supra note 35, 836. 81 Ibid., 836 (citing Amartya Sen, “Rational
Fools: A Critique of the Behavior Foundations of Economic Theory,” Phil. & Pub. Aff. Vol. 16 (1977): 317.
82 Ibid. 83 Ibid. The authors nicely summarize the ques-
tion as follows: “Indeed, the debate over en- vironmental values often turns on whether
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values are considered as ethical judgements or equivalence measures, i.e. whether environ- mental values are statements of principle or a reflection of social costs.” Ibid., 829. This ques- tion should be asked of the value assumptions of economic theory, e.g., that society should maximize net benefits. Is this a statement of principle or a reflection of social costs? If the former, why is this not true of every other opin- ion as well?
84 R. Blamey et al., “Respondents to Contingent Valuation Surveys: Consumers or Citizens?,” Australian J. Agric. Econ. Vol. 39 (1995): 263, 285.
85 Daniel A. Farber and Paul A. Hemmersbaugh, “The Shadow of the Future: Discount Rates, Later Generations, and the Environment,” Vand. L. Rev. Vol. 46 (1993): 267, 301.
86 See Ronald Dworkin, Life’s Dominion: An Argu- ment About Abortion, Euthanasia, and Individ- ual Freedom (1993), 69-77.
87 Ibid., 71-72. See also ibid., 75-77 (discussing the preservation of animal species).
88 Ibid., 69-70. 89 Experiments show again and again that re-
sponses to CV questionnaires express what the individual believes to be good in general or good for society and not—as the CV methods seek to determine—what individuals believe is good for them. See, e.g., Thomas H. Stevens et al., “Measuring the Existence Value of Wildlife: What Do CVM Estimates Really Show?,” Land Econ.Vol. 67 (1991): 390; Thomas H. Stevens et al., “Measuring the Existence Value of Wild- life: Reply,” Land Econ. Vol. 69 (1993): 309.
90 Some economists agree and write: “[I]t may be inappropriate to use the [contingent valuation methodology] as an input to [benefit cost an- alysis] studies, unless means can be found to extract information on consumer preferences from data predominantly generated by citizen judgments.” Blamey et al., supra note 85, 285.
91 Kerry Turner et al., Environmental Economics: An Elementary Introduction (1993), 38.
92 Goodstein, supra note 55, 24. 93 In fact, these states per se lack intrinsic value.
Their value inheres in their appropriateness to the circumstances in which they arise. The joy sadists take in the pain of others, for example, has no positive value, intrinsic or otherwise; it is bad, not good. The sadness one feels in sym- pathy with others, in contrast, although a pain, possesses intrinsic value. Pleasure and pain have value insofar as they function cognitively, that is, as ways of knowing the moral qualities of the world. Pleasure and pain are both valuable, then, insofar as ways of knowing—knowledge being the ultimate intrinsic good.
94 See Ed Diener et al., “The Relationship Between Income and Subjective Well-Being: Relative or Absolute?,” Soc. Indicators Res. Vol. 28 (1992): 253, 253-81 (finding that that people whose incomes went up, down, or stayed about the same over a 10-year period had approximately the same levels of subjective well being). See also Ruut Veenhoven, “Is Happiness Relative?,” Soc. Indicators Res. Vol. 24 (1991): 1, 1-32.
95 See Michael Argyle, The Psychology of Happiness (1987), 102-06; Richard A. Easterlin, “Does Economic Growth Improve the Human Lot? Some Empirical Evidence,” Nations and House- holds in Economic Growth: Essays in Honor of Moses Abramovitz (Paul A. David and Melvin W. Reder eds., 1974), 89, 106. See also gen- erally F.E. Trainer, Abandon Affluence (1985); Paul Wachtel, The Poverty of Affluence (1989).
96 See David G. Myers, Exploring Psychology (3rd ed. 1996), 346-50. For all kinds of citations and charts, see “The Study of Happiness” (vis- ited Mar. 26, 2000) <http://www.hope.edu/ academic/psychology/myerstxt/happy/happy2. html/>.
97 See Michael Argyle and Maryanne Martin, “The Psychological Causes of Happiness,” Sub-
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jective Well-Being: An Interdisciplinary Perspec- tive (Fritz Strack et al. eds., 1989), 77; Paul Krugman, “A Good Reason Growth Doesn’t Necessarily Make Us Happier,” Ariz. Daily Star, Apr. 2, 2000, F2.
98 See generally P.D. Rickman et al., “Lottery Winners and Accident Victims: Is Happiness Relative?,” J. Personality & Soc. Psych. Vol. 36 (1978): 917; Mary Jordan, “Millions Don’t Turn Everything To Gold: Many Lottery Win- ners Keep Same Jobs, Cars,” Wash. Post, July 21, 1991, A1.
99 Argyle, supra note 95, 144. 100 Ed Diener et al., “Happiness of the Very
Wealthy,” Soc. Indicators Res. Vol. 16 (1985): 263, 263.
101 See Krugman, supra note 97, F2; Robert E. Lane, “Does Money Buy Happiness?,” Pub. In- terest, Fall 1993, 56-65.
102 For a general discussion, see Jonathan Freed- man, Happy People: What Happiness Is, Who Has It, and Why (1978).
103 See Fred Hirsch, Social Limits to Growth (1976). See also generally Tibor Scitovsky, The Joyless Economy (1976); Robert H. Frank, “Frames of Reference and the Quality of Life,” Am. Econ. Rev. Vol. 79 (1989): 80.
104 “Hey, I’m Terrific,” Newsweek, Feb. 17, 1992, 46.
105 Richard Posner, The Economics of Justice (1981), 60.
106 Freeman, supra note 50, 3. 107 Tietenberg, supra note 76, 20. 108 W. Michael Hanemann, “Contingent Valua-
tion and Economics,” Environmental Valuation: New Perspectives (K.G. Willis and J.T. Corkin- dale eds., 1995), 79, 105.
109 Kenneth J. Arrow, Social Choice and Individual Values (2nd ed. 1963), 17.
110 Alan Randall, Resource Economics: An Economic Approach to Natural Resource and Environment- al Policy (1981), 156.
111 Ibid. 112 Notice that in denying that society should
adopt preference-satisfaction as a goal of so- cial policy, one implies nothing whatever about paternalism. A paternalistic policy would pre- vent individuals from making certain choices, e.g., with respect to the consumption of drugs. The argument offered here is consistent with the largest libertarian tolerance for this sort of choice. It extends only to social policy, to the goals the government pursues, not to anything the individual might do in his or her private life.
113 For discussion of this concept in the larger con- text of political theory, see generally Cass R. Sunstein, “Naked Preferences and the Consti- tution,” Colum. L. Rev. Vol. 84 (1984): 1689.
114 Will, supra note 2, B7. 115 J. Balz, “Separation of Races Found OK by
Many Young People,” L.A. Times, Aug. 17, 1999, A10.
116 See Elizabeth Stead Kaszubski, Letter to the Edi- tor, “Park Plan Honors ‘Hallowed Ground,’” USA Today, June 24, 1999, 14A (describing the events that transpired at the spot where the Park Service proposed to build its new Visitors’ Center).
117 See generally Jürgen Habermas, Justification and Application: Remarks on Discourse Ethics (Ciaran Cronin trans., 1993).
118 A regulatory agency can take important macro- economic indicators of prosperity into account while paying no attention to the concepts of microeconomics, such as marginal benefits and costs. The microeconomic concepts central to environmental economics—such as alloca- tory efficiency, net benefits, utility, and exter- nality—have no clear relation, empirical or conceptual, to macroeconomic goals such as prosperity, full employment, and low inflation. Microeconomic efficiency has little or nothing to do with macroeconomic performance. See
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generally Microeconomic Efficiency and Macro- economic Performance (David Shepherd et al. eds., 1983).
119 According to research summarized at the Min- ing Company’s Economics web site, people’s reported happiness, as measured by the annual United States General Social Survey, correlates negatively with the misery index, the sum of inflation and unemployment rates. See “Eco- nomics and Happiness” (visited Mar. 26, 2000) <http://economics.tqn.com/finance/econom- ics/library/weekly/aa051498.htm>.
120 Interpreted in this light, technology-forcing statutes, such as the Clean Air Act, attempt to achieve as much environmental improvement as possible without hobbling the performance of the economy. The EPA, since it has to de- fend its policies politically, must take costs into account, where “costs” are understood in macroeconomic terms, e.g., terms of inflation and unemployment. The agency would not consider “costs” in the microeconomic sense of changes in net welfare or utility. Plainly, people consider the performance of the econ- omy, i.e., prosperity, important enough that agencies that threaten to undermine it are unlikely to succeed politically. This presents no reason, however, for an agency to bother with cost-benefit analysis. Microeconomic efficiency, which cost-benefit analysis meas- ures, has never been shown to have any rela- tion to macroeconomic performance. See Sidney A. Shapiro and Thomas O. McGarity, “Not So Paradoxical: The Rationale for Tech- nology-Based Regulation,” Duke L. J. (1991): 729, 741-42 (arguing that the “willingness to pay” criterion does not provide the context for understanding the economic rationality of health-based environmental standards).
121 For a macroeconomic approach to assessing costs of environmental regulation, see Paul R. Portney, “Economics and the Clean Air Act,”
reprinted in Cong. Rec. Vol. 136 H12911.01, *H12916 (Oct. 26, 1990).
122 See Nicholas A. Ashford, “Understanding Technological Responses of Industrial Firms to Environmental Problems: Implications for Government Policy,” Environmental Strategies for Industry (Kurt Fischer and Johan Schot eds., 1993), 282.
123 See American Trucking Ass’n v. EPA, 175 F.3d 1027, 1035-39, 1051-53 (D.C. Cir. 1999), modified on reh’g, 195 F.3d 4 (D.C. Cir. 1999), petition for cert. filed, Feb. 28, 2000 (No. 99-1442).
124 See generally A. Dan Tarlock, “The Creation of New Risk Sharing Water Entitlement Regimes: The Case of the Truckee-Carson Settlement,” Ecology L.Q. Vol. 25 (1999): 674 (1999) (dis- cussing collateral habitat conservation plans); A. Dan Tarlock, “Biodiversity Federalism,” Md. L. Rev. Vol. 54 (1995): 1315 (surveying place-based environmental decision making).
Courts have required that agencies open decision-making processes to public partici- pation. See, e.g., Scenic Hudson Preservation Conference v. Federal Power Comm’n, 354 F.2d 608, 616 (2d Cir. 1965) (stating that the Federal Power Commission should solicit pub- lic comment on aesthetic, conservation, and recreational interests). For a critical view of participatory initiatives, see Jim Rossi, “Partici- pation Run Amok: The Costs of Mass Participa- tion for Deliberative Agency Decisionmaking,” Nw. U. L. Rev. Vol. 92 (1997): 173 (citing the vast literature on public participation in the regulatory process).
125 See, e.g., Les Line, “Microcosmic Captive Breeding Project Offers New Hope for Be- leaguered Beetle,” Orange County Reg., Sept. 28, 1996, A14 (reporting that it cost less than $10,000 to protect and restore the beetle).
126 For an excellent introduction, see generally Jody Freeman, “Collaborative Governance in
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the Administrative State,” UCLA L. Rev. Vol. 45 (1997): 1. See also generally Richard H. Pildes and Cass R. Sunstein, “Reinventing the Regu- latory State,” U. Chi. L. Rev. Vol. 62 (1995): 1; Lawrence E. Susskind and Joshua Secunda, “The Risks and the Advantages of Agency Discretion: Evidence from EPA’s Project XL,” UCLA J. Envtl. L. & Pol’y Vol. 17 (1998-99): 67. For theoretical commentary on collabora- tive rule-making, see Daniel Fiorino, “Toward a New System of Environmental Regulation: The Case for an Industry Sector Approach,” Envtl. L. Vol. 26 (1996): 457; Douglas Mi- chael, “Cooperative Implementation of Federal Regulations,” Yale J. on Reg. Vol. 13 (1996): 535, 574-89. For criticism, see Rena I. Stein- zor, “Regulatory Reinvention and Project XL: Does the Emperor Have Any Clothes?,” Envtl. L. Rptr. Vol. 26 (1996): 10527.
127 See, e.g., William J. Clinton, “Memorandum, Regulatory Reinvention Initiative, Mar. 4, 1995,” (visited Jan. 27, 1999) <http://www. pub.whitehouse.gov/urires/I2R?urn:pdi:// oma.eop.gov.us/1995/3/6/2.text.1>. See also “EPA Emphasis on Stakeholder Process Ex- asperates Risk Experts,” Risk Policy Rep., Oct. 16, 1998, 6-7; John S. Applegate, “Beyond the Usual Suspects: The Use of Citizen Advisory Boards in Environmental Decisionmaking,” Indiana L.J. Vol. 73 (1998): 901, 901-57.
128 Chief Justice William Rehnquist, reviewing the Occupational Safety and Health Act, described the phrase “to the extent feasible” as one of many examples of “Congress simply avoiding a choice which was both fundamental for pur- poses of the statute and yet politically so div- isive that the necessary decision or compromise was difficult, if not impossible, to hammer out in the legislative forge.” Industrial Union Dep’t, AFL-CIO v. American Petroleum Inst., 448 U.S. 607, 687 (1980) (Rehnquist, C.J., concurring). He implored the Court to invali-
date the vague and precatory laws which sup- port today’s regulatory state. These statutes, he said, “violate the doctrine against uncanalized delegations of legislative power.” Ibid., 675. For discussion of the penchant of Congress to delegate hard choices to others, see for example John P. Dwyer, “The Pathology of Symbolic Legislation,” Ecology L.Q. Vol. 17 (1990): 233.
129 As Judge Williams remarked in “American Trucking,” “[I]t seems bizarre that a statute intended to improve human health would, as EPA claimed at argument, lock the agency into looking at only one half of a substance’s health effects in determining the maximum level for that substance.” American Trucking Ass’n v. EPA, 175 F.3d 1027, 1052 (D.C. Cir. 1999), modified on reh’g, 195 F.3d 4 (D.C. Cir. 1999), petition for cert. filed, Feb. 28, 2000 (No. 99- 1442). The point here is that the EPA, by cit- ing the “knee-of-the-curve” or any other moral basis for its decision, could meet the require- ments that Judge Williams and democratic theory impose on them. Utterly mired in the progressive tradition, however, the EPA will not concede that it makes moral or political judg- ments but will hide these judgments behind a smokescreen of environmental science. Even the threat by the D.C. Circuit panel—that the EPA’s interpretation of the statute might be voided for overdelegation unless the agency ac- knowledges the ethical judgments it makes and must make—is unlikely to dislodge the agency from its scientism.
130 For commentary, see Sheila Jasanoff, The Fifth Branch (1990), 1 (arguing that appeals to sci- ence should not “take the politics out of policy- making”); Bruce Bimber and David H. Guston, “Politics by the Same Means: Government and Science in the United States,” Handbook of Science and Technology Studies (Sheila Jasan- off et al. eds., 1995), 554, 559; Sheila Jasan- off, “Research Subpoenas and the Sociology of
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Knowledge,” Law & Contemp. Probs. (Summer 1996): 95, 98-100 (describing the deleterious effect of the expectations of law on the com- munity of scientists).
131 Pound, supra note 7, 4A. 132 Ibid. (quoting Robert Moore).
♦ ♦ ♦ ♦ ♦
kRIstIn sHRADER-FRECHEttE
A Defense of Risk-Cost- Benefit Analysis
Environmentalists often criticize science. They fre- quently argue for a more romantic, sensitive, hol- istic, or profound view of the world than science provides. William Bees, for example, criticizes eco- nomics on the grounds that it falls victim to scien- tific materialism; in his article in this volume, he says we need a new paradigm, other than economics, for achieving sustainable development. Similarly, Mark Sagoff, also writing in this text, criticizes the eco- nomic model of benefit-cost analysis and argues that it is not always the proper method for making environmental decisions. In particular, he criticizes benefit-cost analysis as utilitarian.
This essay argues that environmentalists’ criti- cisms of science often are misguided. The criticisms err mainly because they ignore the fact that good sci- ence can help environmental causes as well as hinder them. Economic methods, for example, can show that nuclear power is not cost effective,1 that it makes little economic sense to bury long-lived hazardous wastes,2 and that biological conservation is extra- ordinarily cost effective.3 One reason some environ- mentalists are antiscience or antieconomics—and ignore the way science can help environmental- ism—is that they misunderstand science. They at- tribute flaws to science when the errors are the result
of how people use, interpret, or apply science, not the result of science itself. Rees, for example, criti- cizes economics as guilty of scientific materialism, yet this essay will show that economics (benefit-cost analysis) can be interpreted in terms of many frame- works, not just scientific materialism. Similarly, Sagoff criticizes benefit-cost analysis as utilitarian, yet this essay will show that the technique is neither purely utilitarian, nor utilitarian in a flawed way, be- cause those who use benefit-cost analysis can inter- pret it in terms of Kantian values, not just utilitarian ones. If this essay is right, then the ethical problems with economics are not with the science itself but with us, humans who interpret and use it in biased ways. In other words, the real problems of econom- ics are the political and ethical biases of its users, not the science itself. To paraphrase Shakespeare: The fault, dear readers, is not with the science but with ourselves, that we are underlings who use it badly.
Consider the case of risk-cost-benefit analysis and attacks on it. Risk-cost benefit analysis (RCBA), the target of many philosophers’ and environment- alists’ criticisms, is very likely the single, most used economic method, at least in the United States, for evaluating the desirability of a variety of techno- logical actions—from building a liquefied natural gas facility to adding yellow dye number 2 to mar- garine. The 1969 National Environmental Policy Act requires that some form of RCBA be used to evaluate all federal environment-related projects.4 Also, all US regulatory agencies—with the exception perhaps of only the Occupational Health and Safety Administration (OSHA)—routinely use RCBA to help determine their policies.5
Basically, RCBA consists of three main steps. These are (1) identifying all the risks, costs, and benefits associated with a particular policy action; (2) converting those risk, cost, and benefit values into dollar figures; and (3) then adding them to determine whether benefits outweigh the risks and costs. Consider the proposed policy action of coat- ing fresh vegetables with a waxy carcinogenic chem-
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ical to allow them to be stored for longer periods of time. Associated with such a policy would be items such as the risk of worker carcinogenesis or the cost of labor and materials for coating the vegetables. The relevant benefits would include factors such as in- creased market value of the vegetables since the pre- servative coating would reduce spoilage and losses in storage.
Those who favor RCBA argue that this tech- nique—for identifying, quantifying, comparing, and adding all factors relevant to an economic deci- sion—ought to be one of the major considerations that any rational person takes into account in de- veloping social policy. To my knowledge, no econo- mist or policymaker ever has argued that RCBA ought to be the sole basis on which any social or environmental choice is made. Despite the fact that RCBA, an application of welfare economics, dom- inates US decision making regarding environmental and technological issues, it continues to draw much criticism. Economists, industrial representatives, and governmental spokespersons tend to support use of RCBA, but philosophers, environmentalists, and consumer activists tend to criticize its employment.
This essay (1) summarizes the three main lines of criticism of RCBA, (2) outlines arguments for ob- jections to RCBA, (3) shows that the allegedly most devastating criticisms of RCBA are at best misguided and at worst incorrect, and (4) reveals the real source of the alleged deficiencies of RCBA. Let us begin with the three main criticisms of RCBA. These are objections to RCBA (1) as a formal method, (2) as an economic method, and (3) as an ethical method.
Objection 1: RCBA as a Formal Method The most strident criticisms of RCBA (as a formal method for making social decisions) come from phe- nomenologically oriented scholars, such as Hubert and Stuart Dreyfus at Berkeley. They argue that, because it is a rigid, formal method, RCBA cannot
model all instances of “human situational under- standing.”6 For example, say Stuart Dreyfus, Law- rence Tribe, and Robert Socolow, whenever someone makes a decision, whether about playing chess or driving an automobile, he or she uses intuition and not some analytic, economic “point count.”7 They claim that formal models like RCBA fail to capture the essence of human decision making. The mod- els are too narrow and oversimplified in focusing on allegedly transparent rationality and scientific know-how. Rather, say Dreyfus and others, human decision making is mysterious, unformalizable, and intuitive, something close to wisdom.8 This is be- cause the performance of human decision making requires expertise and human skill acquisition that cannot be taught by means of any algorithm or for- mal method like RCBA.9
Moreover, say Robert Coburn, Amory Lovins, Alasdair MacIntyre, and Peter Self, humans not only do not go through any formal routine like RCBA, but they could not, even if they wanted to. Why not? Humans, they say, often can’t distinguish costs from benefits. For example, generating increased amounts of electricity represents a cost for most environment- alists, but a benefit for most economists. Lovins and his colleagues also claim that people don’t know either the probability of certain events, such as en- ergy-related accidents, or the consequences likely to follow from them; they don’t know because humans are not like calculating machines; they cannot put a number on what they value.10
Although these criticisms of RCBA are thought provoking, they need not be evaluated in full here, in part because they are analyzed elsewhere.11 In- stead, it might be good merely to sketch the sorts of arguments that, when developed, are capable of an- swering these objections to the use of RCBA. There are at least six such arguments.
The first is that, since Dreyfus and others merely point to deficiencies in RCBA without arguing that there is some less deficient decision method superi- or to RCBA, they provide only necessary but not
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sufficient grounds for rejecting RCBA. A judgment about sufficient grounds for rejecting RCBA ought to be based on a relative evaluation of all methodo- logic alternatives because reasonable people only re- ject a method if they have a better alternative to it. Showing deficiencies in RCBA does not establish that a better method is available.
A second argument is that Dreyfus, Tribe, So- colow, and others have “proved too much.” If hu- man decision making is unavoidably intuitive and its benefits are indistinguishable from costs, as they say, then no rational, debatable, nonarbitrary form of technologic policymaking is possible. This is because rational policymaking presupposes at least that per- sons can distinguish what is undesirable from what is desirable, costs from benefits. If they cannot, then this problem does not count against only RCBA but against any method. Moreover, Dreyfus and others ignore the fact that no policymaking methods, in- cluding RCBA, are perfect. And if not, then no theory should be merely criticized separately, since such criticisms say nothing about which theory is the least desirable of all.
Another argument, especially relevant to Drey- fus’s claims that RCBA is not useful for individual tasks, such as the decision making involved in driving a car, is that many of the objections to RCBA focus on a point not at issue. That RCBA is not amenable to individual decision making is not at issue. The real issue is how to take into account millions of in- dividual opinions, to make societal decisions. This is because societal decision making presupposes some unifying perspective or method of aggregating pref- erences of many people, a problem not faced by the individual making choices. Of course, accomplish- ing RCBA is not like individual decision making, and that is precisely why social choices require some formal analytic tool like RCBA.
Criticisms of RCBA as a formal method are also questionable because Dreyfus and others provide an incomplete analysis of societal decision making in making appeals to wisdom and intuition. They fail
to specify, in a political and practical context, whose wisdom and intuitions ought to be followed and what criteria ought to be used when the wisdom and intuitions of different persons conflict in an environ- mental controversy. RCBA answers these questions in a methodical way.
A final argument against criticisms of RCBA, as a formal method, is that Dreyfus and others are in- complete in using policy arguments that ignore the real-world importance of making decisions among finite alternatives and with finite resources. Wisdom may tell us that human life has an infinite value, but the scientific and economic reality is that attaining a zero-risk society is impossible and that there are not enough resources for saving all lives. In dismissing RCBA, Dreyfus and others fail to give their answers to the tough question of what criterion to use in dis- tributing environmental health and safety.12 If we do not use RCBA, what informal method is a bigger help? That realistic question they do not answer. If not, RCBA may be the best method among many bad methods.
Objection 2: RCBA as an Economic Method Although these six argument-sketches are too brief to be conclusive in answering objections to RCBA as a formal method, let us move on to the second type of criticism so that we can get to the main focus of this essay. Philosophers of science and those who are critical of mainstream economics, like Kenneth Boulding, most often criticize RCBA as a deficient economic method. Perhaps the most powerful meth- odologic attack on RCBA deficiencies focuses on its central methodologic assumption: Societal welfare can be measured as the algebraic sum of compensat- ing variations (CVs). By analytically unpacking the concept of compensating variation, one can bring many RCBA deficiencies to light.
According to RCBA theory, each individual has a CV that measures the change in his or her welfare
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as a consequence of a proposed policy action. For example, suppose a university was considering rais- ing the price of student parking permits from $200 per year to $400 per year and using the additional money to build a parking garage on campus. Sup- pose also that the university would decide whether this act or policy was desirable on the basis of the way it affected all the students. Raising the parking fees and building a garage would affect the welfare of each student differently, depending on her (or his) circumstances. According to economic theory, the CV of each student would measure her particular change in welfare. To find exactly how each student would measure her CV, her change in welfare be- cause of the changed parking fees, we would ask her to estimate it. For example, suppose Susan drives to campus each day and has a part-time job off cam- pus, so she cannot carpool or ride a bus because she needs her car to move efficiently between campus and work. Susan wants to have the parking garage, however, because she has to look nice in her part- time job. If the university builds the parking garage, she will not get wet and muddy walking to her car and will not have to spend 20 minutes searching for a parking place. If someone asked Susan to put a monetary value on paying $200 more per year for parking in a garage, she might say this change was worth an additional $100, and that, even if the fees increased by $300, would rather have the parking garage. That is, Susan would say her CV was +$100 because she would gain from the new plan. How- ever, suppose Sally also drives to campus each day and suppose her welfare is affected negatively by the increase in parking fees and the proposed parking garage. Because Sally lives at an inconvenient loca- tion two hours away, she must drive to campus and park her car every day. But because she lives so far away, has no part-time job, and is going to school with savings, Sally wants to pay as little as possible for parking and prefers the existing muddy, un- covered parking lots. If someone asks Sally to put a monetary value on paying $200 more per year
for parking in a garage, she might say this change harmed her by $200. That is, Sally would say her CV was -$200. Economists who use RCBA believe that, in order to determine the desirability of build- ing the parking garage and charging $200 more per year, they should add all the CVs of gainers (like Su- san) and losers (like Sally) and see whether the gains of the action outweigh the losses.
Or consider the case of using CVs to measure the effects of building a dam. The CVs of some persons will be positive, and those of others will be nega- tive. Those in the tourism industry might be affected positively, whereas those interested in wilderness ex- periences might be affected negatively. The theory is that the proposed dam is cost-beneficial if the sum of the CVs of the gainers can outweigh the sum of the CVs of the losers. In more technical language, according to economist Ezra Mishan, a CV is the sum of money that, if received or paid after the eco- nomic (or technologic) change in question, would make the individual no better or worse off than be- fore the change. If, for example, the price of a bread loaf falls by 10 cents, the CV is the maximum sum a man would pay to be allowed to buy bread at this lower price. Per contra, if the loaf rises by 10 cents, the CV is the minimum sum the man must receive if he is to continue to feel as well off as he was before the rise in price.13 Implied in the notion of a CV are three basic presuppositions, all noted in standard texts on welfare economics and cost-benefit analysis: (1) the compensating variation is a measure of how gains can be so distributed to make everyone in the community better off;14 (2) the criterion for whether one is better off is how well off feels subjectively;15 and (3) one’s feelings of being well off or better off are measured by a sum of money judged by the in- dividual and calculated at the given set of prices on the market.16
According to the critics of RCBA, each of the three presuppositions buys into the concept of a CV contains controversial assumptions.17 The first presupposition, that CVs provide a measure of how
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to make everyone better off, is built on at least two questionable assumptions: Gains and losses, costs and benefits, for every individual in every situation can be computed numerically.18 A second question- able assumption built into this presupposition is that employing an economic change to improve the community welfare is acceptable, even though dis- tributional effects of this change are ignored. Many people have argued that the effect of this assumption is merely to make economic changes that let the rich get richer and the poor get poorer, thus reflecting the dominant ideologies of the power groups dominat- ing society.
The second presupposition built into the notion of CV, that the criterion for whether one is better off is how one feels subjectively, as measured in quan- titative terms, also embodies a number of doubtful assumptions. Some of these are that, as Kenneth Ar- row admits, individual welfare is defined in terms of egoistic hedonism;19 that the individual is the best judge of his welfare, that is, that preferences reveal welfare, despite the fact that utility is often different from morality;20 that summed preferences of indi- vidual members of a group reveal group welfare;21 and that wealthy and poor persons are equally able to judge their well-being. This last assumption has been widely criticized since willingness to pay is a function of the marginal utility of one’s income. That is, rich people are more easily able to pay for improvements to their welfare than poor people are. As a consequence, poor persons obviously cannot afford to pay as much as rich persons in order to avoid the risks and other disamenities of technol- ogy-related environmental pollution.22 That is why poor people are often forced to live in areas of high pollution, while wealthy people can afford to live in cleaner environments.
Continuing the analysis of CV, critics of RCBA point out that the third presupposition built into the notion of CV also involves a number of ques- tionable assumptions. The presupposition that one’s feelings of being better off are measured by money,
and calculated in terms of market prices, includes at least one highly criticized assumption—that prices measure values. This assumption is controversial on a number of grounds. For one thing, it begs the difference between wants and morally good wants. It also ignores economic effects that distort prices. Some of these distorting effects include monopol- ies, externalities, speculative instabilities, and “free goods,” such as clean air.23
Because methodologic criticisms such as these have been a major focus of much contemporary writ- ing in philosophy of economics and in sociopolitical philosophy, discussion of them is extremely import- ant. However, economists generally admit most of the preceding points but claim that they have no better alternative method to use than RCBA. If their claim is at least partially correct, as I suspect it is (see the previous section of this essay), then many of the preceding criticisms of RCBA are beside the point. Also, both economists and philosophers have devised ways of avoiding most of the troublesome presuppos- itions and consequences of the assumptions built into the notion of compensating variation. Chief among these ways of improving RCBA are use of alternative weighting schemes and employment of various ways to make the controversial aspects of RCBA explicit and open to evaluation. Use of a weighting scheme for RCBA would enable one, for example, to “cost” inequitably distributed risks more than equitably distributed ones. Also, if one desired, it would be possible to employ Rawlsian weighting schemes for promoting the welfare of the least-well-off persons. One of the chief reforms, important for addressing the economic deficiencies of RCBA, would be to em- ploy a form of adversary assessment in which alterna- tive RCBA studies would be performed by groups sharing different ethical and methodologic presup- positions. Such adversary assessment has already been accomplished, with success, in Ann Arbor, Michigan, and in Cambridge, Massachusetts.24 Hence, at least in theory, there are ways to avoid the major economic deficiencies inherent in RCBA.
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Objection 3: RCBA as an Ethical Method The most potentially condemning criticisms of RCBA come from the ranks of moral philosophers. Most of those who criticize RCBA on ethical grounds, as one might suspect, are deontologists who employ stan- dard complaints against utilitarians. Philosophers, such as Alasdair MacIntyre and Douglas MacLean, claim that some things are priceless and not amen- able to risk-benefit costing. Alan Gewirth argues that certain commitments—for example, the right not to be caused to contract cancer—cannot be traded off (via RCBA) for some utilitarian benefit.25 In sum, the claim of these ethicist critics of RCBA is that moral commitments, rights, and basic goods are in- violable and incommensurable and hence cannot be “bargained away” in a utilitarian scheme like RCBA, which is unable to take adequate account of them and of values like distributive justice.
Of course, the linchpin assumption of the argu- ments of Gewirth, MacLean, and others is that RCBA is indeed utilitarian. If this assumption can be proved wrong, then (whatever else is wrong with RCBA) it cannot be attacked on the grounds that it is utilitarian.
Misguided Ethical Criticism of RCBA
RCBA is not essentially utilitarian in some damag- ing sense for a number of reasons. First of all, let’s admit that RCBA is indeed utilitarian in one crucial respect: The optimal choice is always determined by some function of the utilities attached to the conse- quences of all the options considered. Hence reason- ing in RCBA is unavoidably consequentialist.
Because it is unavoidably consequentialist, how- ever, means neither that RCBA is consequentialist in some disparaging sense, nor that it is only con- sequentialist, both points that are generally begged by deontological critics of RCBA. Of course, RCBA is necessarily consequentialist, but so what? Anyone
who follows some deontological theory and ignores consequences altogether is just as simplistic as any- one who focuses merely on consequences and ig- nores deontological elements. This is exactly the point recognized by Amartya Sen when he notes that Jeremy Bentham and John Rawls capture two different but equally important aspects of inter- personal welfare considerations.26 Both provide necessary conditions for ethical judgments, but nei- ther is sufficient.
Although RCBA is necessarily consequential- ist, there are at least four reasons that it is not only consequentialist in some extremist or disparaging sense. First, any application of RCBA principles pre- supposes that we make some value judgments that cannot be justified by utilitarian standards alone.27 For example, suppose we are considering which of a variety of possible actions (e.g., building a nucle- ar plant, a coal plant, or a solar facility) ought to be evaluated in terms of RCBA. A utilitarian value judgment would not suffice for reducing the set of options. It would not suffice for deciding which of many available chemicals to use in preserving foods in a given situation, for example, because we would not have performed the utility weighting yet. Usu- ally we use deontological grounds for rejecting some option. For instance, we might reject chemical X as a food preservative because it is a powerful carcino- gen and use of it would threaten consumers’ rights to life.
Second, RCBA also presupposes another type of nonutilitarian value judgment by virtue of the fact that it would be impossible to know the utilities at- tached to an infinity of options because they are in- finite. To reduce these options, one would have to make some nonutilitarian value judgments about which options not to consider. For example, sup- pose chemical Z (considered for preserving food) were known to cause death to persons with certain allergy sensitivities or to persons with diabetes. On grounds of preventing a violation of a legal right to equal protection, analysts using RCBA could sim-
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ply exclude chemical Z from consideration, much as they exclude technically or economically infeasible options for consideration.
Also, in the course of carrying out RCBA cal- culations—one is required to make a number of nonutilitarian value judgments. Some of these are: (1) There is a cardinal or ordinal scale in terms of which the consequences may be assigned some num- ber, (2) a particular discount rate ought to be used, (3) or certain values ought to be assigned to certain consequences. For example, if policymakers sub- scribed to the deontological, evaluative judgment that future generations have rights equal to our own, then they could employ a zero discount rate. Noth- ing in the theory underlying RCBA would prevent them from doing so and from recognizing this de- ontological value.
Third, one could weight the RCBA parameters to reflect whatever value system society wishes. As Ralph Keeney has noted, one could always assign the value of negative infinity to consequences alleged to be the result of an action that violated some deonto- logical principle.28 Thus, if one wanted to avoid any technology likely to result in violation of people’s rights not to be caused to contract cancer, one could easily do so.
Fourth, RCBA is not necessarily utilitarian, as Patrick Suppes points out, because the theory could, in principle, be adopted (without change) to repre- sent a “calculus of obligation and a theory of expect- ed obligation”; in other words, RCBA is materially indifferent, a purely formal calculus with an incom- plete theory of rationality.29 This being so, one need not interpret only market parameters as costs. In- deed, economists have already shown that one can interpret RCBA to accommodate egalitarianism and intuitionism as well as utilitarianism.30 More gener- ally, Kenneth Boulding has eloquently demonstrated that economic supply-demand curves can be easily interpreted to fit even a benevolent or an altruistic ethical framework, not merely a utilitarian ethical framework.31
The Real Source of RCBA Problems
If these four arguments, from experts such as Suppes and Keeney, are correct, then much of the criticism of RCBA, at least for its alleged ethical deficiencies, has been misguided. It has been directed at the for- mal, economic, and ethical theory underlying RCBA, when apparently something else is the culprit. This final section will argue that there are at least two sources of the problems that have made RCBA so notorious. One is the dominant political ideology in terms of which RCBA has been interpreted, applied, and used. The second source of the difficulties as- sociated with RCBA has been the tendency of both theorists and practitioners—economists and phil- osophers alike—to claim more objectivity for the conclusions of RCBA than the evidence warrants. Let’s investigate both of these problem areas.
Perhaps the major reason that people often think, erroneously, that RCBA is utilitarian is that capitalist utilitarians first used the techniques. Yet, to believe that the logical and ethical presuppositions built into economic methods can be identified with the logical and ethical beliefs of those who origin- ate or use the methods is to commit the genetic fal- lacy.32 Origins do not necessarily determine content. And, if not, then RCBA has no built-in ties to utili- tarianism.33 What has happened is that, in practice, one interpretation of RCBA has been dominant. This interpretation, in terms of capitalist utilitarianism, is what is incompatible with nonutilitarian values. But this means that the problem associated with the dominant political ideology, in terms of which RCBA is interpreted, has been confused with RCBA problems. Were the methods interpreted according to a different ideology, it would be just as wrong to equate RCBA with that ideology.
Confusion about the real source of the problems with RCBA has arisen because of the difficulty of determining causality. The cause of the apparent utilitarian biases in RCBA is the dominant ideology in terms of which people interpret it. The cause is
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not the method itself. This is like the familiar point, which often needs reiteration, that humans, not com- puters, cause computer errors. Given this explana- tion, it is easy to see why C.B. MacPherson argues that there is no necessary incompatibility between maximizing utilities and maximizing some nonutili- tarian value. The alleged incompatibility arises only after one interprets the nonutilitarian value. In this case, the alleged incompatibility arises only when one interprets utilities in terms of unlimited individ- ual appropriations and market incentives.34
If the preceding view of RCBA is correct and if people have erroneously identified one—of many possible—interpretations of RCBA with the method, then obviously they have forgotten that RCBA is a formal calculus to be used with a variety of interpret- ations. But if they have forgotten that RCBA is open to many different interpretations, then they have identified one dominant political interpretation with RCBA itself, then they have forgotten that because of this dominant interpretation, RCBA is politically loaded. And if they have forgotten that they are em- ploying a utilitarian interpretation that is politically loaded, then they probably have assumed that RCBA is objective by virtue of its being part of science.
Utilitarian philosophers and welfare economists have been particularly prone to the errors of believ- ing that utilitarian interpretations of decision mak- ing are objective and value-free. Utilitarian R.M. Hare argues in his book, for example, that moral philosophy can be done without ontology;35 he also argues that moral philosophy can be done objective- ly and with certainty, that there are no irresolvable moral conflicts;36 and that objective moral philoso- phy is utilitarian in character.37 Hare even goes so far as to argue that a hypothetical-deductive method can be used to obtain moral evaluations and to test them.38 Hare, one of the best moral philosophers of the century, equates utilitarian tenets with value-free, certain conclusions obtained by the scientific meth- od of hypothesis-deduction. His error here means that we ought not to be surprised that lesser minds
also have failed to recognize the evaluative and in- terpretational component in utilitarianism and in the utilitarian interpretations of RCBA. Numerous well-known practitioners of RCBA have argued that the technique is objective, and they have failed to recognize its value component.39 Milton Friedman calls economics “objective,”40 and Chauncey Starr, Chris Whipple, David Okrent, and other practition- ers of RCBA use the same terminology; they even claim that those who do not accept their value-laden interpretations of RCBA are following merely “sub- jective” interpretations.41
Given that both moral philosophers and practi- tioners of RCBA claim that their utilitarian analy- ses are objective, they create an intellectual climate in which RCBA is presumed to be more objective, value-free, and final than it really is. Hence, one of the major problems with RCBA is not that it is in- herently utilitarian but that its users erroneously as- sume it has a finality that it does not possess. It is one of many possible techniques, and it has many inter- pretations. Were this recognized, then people would not oppose it so vehemently.
Summary and Conclusions
RCBA has many problems. As a formal method, it suggests that life is more exact and precise than it really is. As an economic method, it suggests that people make decisions on the basis of hedonism and egoism. As an ethical method, people have interpret- ed it in utilitarian ways, in ways that serve the major- ity of people, but not always the minority.
Despite all these criticisms, RCBA is often bet- ter than most environmentalists believe. It is better because criticisms of RCBA often miss the point in two important ways. First, the criticisms miss the point that society needs some methodical way to tally costs and benefits associated with its activities. While it is true that RCBA has problems because of its being a formal, economic method, this criticism of it misses the point. The point is that we humans
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need some clear, analytic way to help us with en- vironmental decision making. Most people would not write a blank check in some area of personal life, and no one ought to write a blank check for solv- ing societal problems. Not using some technique like RCBA means that we would be writing a blank check, making decisions and commitments with- out being aware of their costs, benefits, and conse- quences. All that RCBA asks of us is that we add up all the risks, benefits, and costs of our actions. It asks that we not make decisions without considering all the risks, costs, and benefits. The point is that RCBA does not need to be perfect to be useful in societal and environmental decision making; it needs only to be useful, helpful, and better than other available methods for making societal decisions.
Second, criticisms of RCBA miss the point because they blame RCBA for a variety of ethical problems, mainly problems associated with utilitar- ianism. RCBA, however, is merely a formal calculus for problem solving. The users of RCBA are respon- sible for the capitalistic, utilitarian interpretation of it. If so, then what needs to be done is neither to abandon RCBA, nor to condemn it as utilitarian, but to give some philosophical lessons in the value ladenness of its interpretations. We need more ethic- al and epistemological sensitivity among those who interpret RCBA, and we need to recognize practical, political problems for what they are. The problem is with us, with our values, with our politics. The prob- lem is not with RCBA methods that merely reflect our values and politics.
Notes 1 K.S. Shrader-Frechette, Nuclear Power and
Public Policy (Boston: Kluwer, 1983), 54-60. 2 K.S. Shrader-Frechette, Burying Uncertainty
(Berkeley: University of California Press, 1993), 239-41.
3 K.S. Shrader-Frechette and E. McCoy, Method in Ecology (New York: Cambridge University Press, 1993), 175-85.
4 See Ian G. Barbour, Technology, Environment, and Human Values (New York: Praeger, 1980), 163-64.
5 Luther J. Carter, “Dispute over Cancer Risk Quantification,” Science 203, no. 4387 (1979): 1324-25.
6 Stuart E. Dreyfus, “Formal Models vs. Human Situational Understanding: Inherent Limita- tions on the Modeling of Business Expertise,” Technology and People Vol. 1 (1982): 133-65. See also S. Dreyfus, “The Risks! and Benefits? of Risk-Benefit Analysis,” unpublished paper presented on March 24, 1983, in Berkeley, California, at the Western Division meeting of the American Philosophical Association. Stu- art Dreyfus and his brother Hubert Dreyfus share the beliefs attributed to Stuart in these and other publications. They often coauthor publications. See, for example, S. Dreyfus and H. Dreyfus, “The Scope, Limits, and Training Implications of Three Models of.... Behavior,” ORC 79-2 (Berkeley: Operations Research Center, University of California, February 1979).
7 S. Dreyfus, “Formal Models,” op. cit., note 6, 161. See also Lawrence H. Tribe, “Technology Assessment and the Fourth Discontinuity,” Southern California Law Review Vol. 46, no. 3 (June 1973): 659; and Robert Socolow, “Fail- ures of Discourse,” in D. Scherer and T. Attig, eds., Ethics and the Environment (Englewood Cliffs, NJ: Prentice Hall, 1983), 152-66.
8 S. Dreyfus, “Formal Models,” op. cit., note 6, 161-63; and Douglas MacLean, “Understand- ing the Nuclear Power Controversy,” in A.L. Caplan and H. Englehard, eds., Scientific Con- troversies (Cambridge: Cambridge University Press, 1983), Part 5.
9 S. Dreyfus, “The Risks! and Benefits?” op. cit., note 6, 2.
10 Peter Self, Econocrats and the Polity Process: The Politics and Philosophy of Cost-Benefit Analy-
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sis (London: Macmillan, 1975), 70; Alasdair MacIntyre, “Utilitarians and Cost-Benefit An- alysis,” in D. Scherer and T. Attig, eds., Ethics and the Environment, op. cit., note 7, 143-45; and Amory Lovins, “Cost-Risk-Benefit Assess- ment in Energy Policy,” George Washington Law Review Vol. 45, no. 5 (August 1977): 913-16, 925-26. See also Robert Coburn, “Technology Assessment, Human Good, and Freedom,” in K.E. Goodpaster and K.M. Sayer, eds., Ethics and Problems of the 21st Century (Notre Dame: University of Notre Dame Press, 1979), 108; E. J. Mishan, Cost-Benefit Analysis (New York: Praeger, 1976), 160-61; Gunnar Myrdal, The Political Element in the Development of Eco- nomic Theory, Paul Steeten, trans. (Cambridge: Harvard University Press, 1955), 89; and A. Radomysler, “Welfare Economics and Eco- nomic Policy,” in K. Arrow and T. Scitovsky, eds., Readings in Welfare Economics (Home- wood, IL: Irwin, 1969), 89.
11 See K.S. Shrader-Frechette, Science, Policy, Eth- ics, and Economic Methodology (Boston: Reidel, 1985), 38-54. See also K.S. Shrader-Frechette, Risk and Rationality (Berkeley: University of California Press, 1991), 169-96.
12 Shrader-Frechette, Science Policy, op. cit., note 11, 36-54; K.S. Shrader-Frechette, Risk and Rationality, op. cit., note 11, 169-83.
13 Mishan, Cost-Benefit Analysis, op. cit., note 10, 391.
14 Ibid., 390. 15 Ibid., 309. 16 E.J. Mishan, Welfare Economics (New York:
Random House, 1969), 113; see also 107-13. 17 For a more complete analysis of these points,
see K.S. Shrader-Frechette, “Technology As- sessment as Applied Philosophy of Science,” Science, Technology, and Human Values Vol. 6, no. 33 (Fall 1980), 33-50.
18 M.W. Jones-Lee, The Value of Life (Chicago: University of Chicago Press, 1976), 3; and R.
Coburn, “Technology Assessment,” in K.E. Goodpaster and K.M. Sayer, eds., Ethics and Problems of the 21st Century, op. cit., note 10, 109. See also Oskar Morgenstern, On the Ac- curacy of Economic Observations (Princeton, NJ: Princeton University Press, 1963), 100-01.
19 Cited in V.C. Walsh, “Axiomatic Choice Theory and Values,” in Sidney Hook, ed., Human Val- ues and Economic Policy (New York: New York University Press, 1967), 197.
20 See R. Coburn, “Technology Assessment,” in K.E. Goodpaster and K.M. Sayer, eds., Ethics and Problems of the 21st Century, op. cit., note 10, 109-10; Gail Kennedy, “Social Choice and Policy Formation,” in S. Hook, ed., Human Values and Economic Policy, op. cit., note 19, 142; and John Ladd, “The Use of Mechanical Models for the Solution of Ethical Problems,” in S. Hook, ed., Human Values and Economic Policy, op. cit., 167-68. See also Mark Lutz and Kenneth Lux, The Challenge of Humanistic Eco- nomics (London: Benjamin/Cummings, 1979). Finally, see Richard Brandt, “Personal Val- ues and the Justification of Institutions,” in S. Hook, ed., Human Values and Economic Policy, op. cit., note 19, 37; and John Ladd, “Models,” in S. Hook, ed., Human Values and Economic Policy, op. cit., note 19, 159-68.
21 G. Kennedy, “Social Choice,” S. Hook, ed., Human Values and Economic Policy, op. cit., note 20, 148, makes the same point.
22 Peter S. Albin, “Economic Values and the Val- ues of Human Life,” in S. Hook, ed., Human Values and Economic Policy, op. cit., note 19, 97; and M.W. Jones-Lee, Value of Life, op. cit., note 18, 20-55.
23 See J.A. Hobson, Confessions of an Econom- ic Heretic (Sussex, England: Harvester Press, 1976), 39-40; and Benjamin M. Anderson, So- cial Value (New York: A.M. Kelley, 1966), 24, 26, 31, 162. See also Kenneth Boulding, “The Basis of Value Judgments in Economics,” in S.
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Hook, ed., Human Values and Economic Pol- icy, op. cit., note 19, 67-79; and O. Morgen- stern, Accuracy of Economic Observations, op. cit., note 18, 19. Finally, see E.J. Mishan, Cost- Benefit Analysis, op. cit., note 10, 393-94; and E.F. Schumacher, Small is Beautiful (New York: Harper, 1973), 38-49; as well as N. Georgescu Roegen, Energy and Economic Myths (New York: Pergamon, 1976), x, 10-14.
24 See Shrader-Frechette, Science Policy, op. cit., note 11, Chapters 8-9; Shrader-Frechette, Risk and Rationality, op. cit., note 11; and B.A. Weisbrod, “Income Redistribution Effects and Benefit-Cost Analysis,” in S. Chase, ed., Prob- lems in Public Expenditure Analysis (Washing- ton, DC: Brookings, 1972), 177-208. See also P. Dasgupta, S. Marglin, and A. Sen, Guide- lines of Project Evaluation (New York: UNIDO, 1972); and A.V. Kneese, S. Ben-David, and W. Schulze, “The Ethical Foundations of Benefit- Cost Analysis,” in D. MacLean and P. Brown, eds., “A Study of the Ethical Foundations of Benefit-Cost Techniques,” unpublished report done with funding from the National Science Foundation, Program in Ethics and Values in Science and Technology, August 1979.
25 Lovins, “Cost-Risk-Benefit Assessment,” op. cit., note 10, 929-30; Douglas MacLean, “Qualified Risk Assessment and the Quality of Life,” in D. Zinberg, ed., Uncertain Power (New York: Pergamon, 1983), Part V; and Alan Gewirth, “Human Rights and the Prevention of Cancer,” in D. Scherer and T. Attig, eds., Ethics and the Environment, op. cit., note 7, 177.
26 Amartya K. Sen, “Rawls Versus Bentham,” in N. Daniels, ed., Reading Rawls (New York: Basic Books, 1981), 283-92.
27 Ronald Giere, “Technological Decision Mak- ing,” in M. Bradie and K. Sayre, eds., Reason and Decision (Bowling Green, OH: Bowling Green State University Press, 1981), Part 3, makes a similar argument.
28 Ralph G. Keeney mentioned this to me in a private conversation at Berkeley in January 1983.
29 Patrick Suppes, “Decision Theory,” in P. Ed- wards, ed., Encyclopedia of Philosophy, Vol. 1 and 2 (New York: Collier-Macmillan, 1967), 311.
30 P.S. Dasgupta and G.M. Heal, Economic Theory and Exhaustible Resources (Cambridge: Cam- bridge University Press, 1979), 269-81.
31 K. Boulding, “Value Judgments,” in S. Hook, ed., Human Values and Economic Policy, op. cit., note 23, 67ff.
32 Alexander Rosenberg makes this point in Macroeconomic Laws (Pittsburgh: University of Pittsburgh Press, 1976), 203.
33 Tribe, “Technology Assessment,” op. cit., note 7, 628-29; MacLean, “Qualified Risk Assess- ment,” op. cit., note 25, Parts 5 and 6; MacIn- tyre, “Utilitarian and Cost-Benefit Analysis,” op. cit., note 10, 139-42; Gewirth, “Human Rights,” op. cit., note 25, 177; and C.B. Mac- Pherson, “Democratic Theory: Ontology an Technology,” in C. Mitcham and R. Mackey, eds., Philosophy and Technology (New York: Free Press, 1972), 167-68.
34 See note 33. 35 R.M. Hare, Moral Thinking (Oxford: Claren-
don Press, 1981), 6 (see also 210-11). 36 Ibid., 26. 37 Ibid., 4. 38 Ibid., 12-14. 39 See, for example, Chauncey Starr, “Benefit-
Cost Studies in Sociotechnical Systems,” in Committee on Engineering Policy, Perspectives on Benefit-Risk Decision Making (Washington, DC: National Academy of Engineering, 1972), 26ff.; Chauncey Starr and Chris Whipple, “Risks of Risk Decisions,” Science Vol. 208, no. 4448 (1980), 1116-17; and D. Okrent and C. Whipple, Approach to Societal Risk Accept- ance Criteria and Risk Management, Report no.
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PB-271264 (Washington, DC: Department of Commerce, 1977), 10.
40 Milton Friedman, “Value Judgments in Eco- nomics,” in S. Hook, ed., Human Values and Economic Policy, op. cit., note 19, 85-88.
41 See also note 39; K.S. Shrader-Frechette, Risk Analysis and Scientific Method (Boston: Rei- del, 1985), especially 176-89; and Shrader- Frechette, Risk and Rationality, op. cit., note 11, 169-96.
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DEBoRAH C. PoFF
Reconciling the Irreconcilable:
The Global Economy and the Environment
For the past decade, we have been listening to a number of inconsistent and irreconcilable recom- mendations for solving the serious economic and environmental problems in both domestic and inter- national economies. Our current language with respect to the significant sea changes we have wit- nessed in the global economy over the past decade is filled with, to use that most appropriate euphemism of the 1980s, disinformation.
This discussion will focus on how the relationship among structural adjustment policies and practices, the business activities of transnational corporations and what Robert Reich has called “the coming ir- relevance of corporate nationality” makes environ- mental sustainability impossible. To begin, a brief discussion of the global economy and its relation to the diminishing significance of national boundaries will set the context.
The Global Economy and the Erosion of Statehood In their 1989 book, For the Common Good, Daly and Cobb argued that if Adam Smith were alive to- day, he would probably not be preaching free trade. Their argument is based on what they believe to have been a necessary commitment of the 18th century capitalist to a sense of community and to an iden- tification with his own nationhood. On this point, Smith is perhaps most universally known. He states, “By preferring the support of domestic to that of foreign industry, he (i.e., the capitalist) intends only his own security; and by 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” (Smith, 1776, 423). Daly and Cobb argue that the cornerstone of the free trade argument, capital im- mobility, that factored so strongly into Smith’s belief that the capitalist was committed to investing in his or her own domestic economy has been eroded by
A world of cosmopolitan money managers and transnational corporations which, in addition to having limited liability and im- mortality conferred on them by national governments, have now transcended those very governments and no longer see the national community as their residence. They may speak grandly of the “world com- munity” as their residence, but in fact, since no world community exists, they have es- caped from community into the gap be- tween communities where individualism has a free reign. (Daly and Cobb, 215)
These capitalists, as Daly and Cobb rightly note, have no disinclination to move their capital abroad for the slightest favourable preferential rate of return. The concern which Daly and Cobb articulate here is frequently posed as a question or series of questions.
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For example, “with the globalization of the economy are we living in a world system in which national economies are merely vestigial remnants of modern- ity or the earlier industrial period?,” or, “are nations as political and social regulatory systems necessary agents for global economic negotiation and cooper- ation?” And what we’ve had as answers to these questions is essentially political positioning in two oppositional camps. As MacEwan and Tabb (1989) summarize this debate,
The extreme globalist position often carries the implication that no change is possible except on the international level, and since there is no political mechanism for such change—aside from that of formal relations among governments—oppositional politic- al activity is easily seen as useless. On the other extreme, those who view the national economic system as a viable unit are led to formulate programs that ignore the import- ance of economic forces which transcend national boundaries. Such an outlook can lead to both unrealistic programs which fail because of capital’s international flexibility and implicit alliances with reactionary na- tionalist groups to advocate, for example, increased “competitiveness.” (24)
Now while I will later argue that both of these al- ternatives are inadequate. I’d like first to spend some time discussing how we’ve gotten into our current economic crisis and that means a brief sojourn into the world of structural adjustment, the world we have essentially been living in for much of the past decade.
Structural Adjustment
I am going to address structural adjustment only as a consequence of the debt crisis and the stagnation and economic insecurity of the 1980s. Those famil- iar with the literature on the current economic crisis
know that a complete picture starts with the Bret- ton Woods conference of 1944 which set guidelines for what was to become the International Monetary Fund and the International Bank for Reconstruc- tion and Development (the World Bank as it is now known). Bretton Woods also guaranteed the dominance of the United States in the world econ- omy. As Jamie Swift notes, “the US dollar, linked to gold, would be the world’s most important reserve currency and the United States effectively became banker to the Western world, with the right to print and spend the principal currency” (82). What en- sued in the next forty plus years is too complex to examine here. It is sufficient to note that during that time, Japan and Germany rebuilt, the United States faced with a growing trade deficit and budget deficits abandoned the gold standard, and an unprecedented exchange of world currency as commodities ensued. This was followed by extensive loans to third world countries. And with those loans went conditionality, that conditionality being structural adjustment.
Structural adjustment as the salvation from na- tional and international economic insecurity was a natural by-product of the Reagan-Thatcher-Mulro- ney era posited as it is on an idealized nineteenth- century laissez-faire. It comes from, as Foster (1989) notes, a “renewed faith in the rationalizing effect of market forces in the face of economic stagnation” (281).
Structural adjustment involves, in fact, a num- ber of complementary actions, all mutually target- ed to producing on a global scale, a so-called level playing field. These actions include privatization, deregulation and liberalization of national econ- omies. Much of this is familiar to Canadians for this is precisely what the Canadian government has been pursuing in concert with the Canadian-American Free Trade agreement and with the North American Free Trade Agreement. The impact of structural ad- justment it is assumed will remove the supposed artificial obstacles and allow for the rational correc- tion of the current crisis by removing the obstruc-
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tions to natural market forces. Part of adjusting to create a level playing field, however, means, to quote Rosenberg (1986) “a weakened, restructured labour force with lowered expectations” (as quoted in Foster, 281). Thus, part of the restructuring for global competitiveness has meant deregulating or decertifying unions in the United Kingdom, New Zealand and elsewhere in the developed world. In the developing world, it has meant devalued do- mestic currencies, high unemployment, increased poverty and starvation, inflation of the cost of liv- ing and, as a strategy for global competitiveness, the establishment of free trade zones within a number of these countries.
Furthermore, within the developing nations all of these factors have lead to disproportionately increased poverty among women. This appears somewhat para- doxical given that much of this increase in poverty happened during the second half of the United Na- tions Decade for Women. However, since women are the poorest and most politically and economically vulnerable members of the global community (the UN 1980 data argued that women do two-thirds of the world’s labour, earn one-tenth of the world’s income and own one-one hundredth of the world’s property), they also represent the largest so called surplus labour force. Hence we have the incongru- ity that while both nationally and internationally, more equity legislation was introduced into charters and constitutions and international agreements than ever before in recorded history, at the same time, the transnational corporations of advanced economies were utilizing the world’s poor women as an avenue out of the stagnation of their own domestic econo- mies by moving some of their operations to free trade zones. As Beneria (1989) states,
The existence of a large pool of female labour at a world scale is being used to deal with the pressures of international compe- tition, profitability crises, and economic restructuring that characterize the current
reorganization of production. The avail- ability of cheap female labour has also been an instrumental factor in the export-led policies of their world countries shifting from previous import-substitution strat- egies. (250)
The United Nations World Survey on Women (1989) concludes that “[t] he bottom line shows that, ... economic progress for women has virtually stopped, social progress has slowed, social well-being in many cases has deteriorated and, because of the importance of women’s social and economic role, the aspirations for them in current development strategies will not be met” (xiv).
Environmental Sustainability
Having briefly outlined the parameters of struc- tural adjustment, we can now ask: “What does it mean for environmental sustainability?” Well, if it is not already evident, any attempt to repay debts and remain competitive in such a global market under such conditions is almost impossible for a third world country and increasingly difficult for developed nations like Canada. To look first at the seemingly more favourable conditions in Can- ada, consider that environmental protection in developed nations like our own is only a relative- ly recent phenomenon. Snider (1993) argues that even within the boundaries of a nation state where a conflict arises between business interests and en- vironmental protection, business wins. Thus, she states that both in Canada and the United States “environmental protection varies from poor to no- nexistent, basically ... because of the power of busi- ness” (194). When we add to this the power of transnational corporations which take on super- numerary roles, traversing the globe and engaging in negotiations that change the quality of life and laws in various domestic economies, we begin to realize the resistance which any attempt to protect
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the environment meets. To again quote Snider with respect to the situation in Canada,
As with occupational health and protec- tion laws, provinces and countries fear they will be at a competitive disadvantage if they strengthen environmental regulations unilaterally. Industries have always tried to minimize the costs of operation by mov- ing to the cheapest locations they can find. Free trade between Canada and the United States has often resulted in industries from Canada and northern US states relocating to the less regulated south ... With an exten- sion of the free trade agreement to Mexico, many can be expected to join the already extensive migration, ... taking advantage of cheap labour and lax environmental regula- tions there. (194)
In developing countries, the situation is exacerbat- ed by the very nature of their so-called competitive edge as outlined by Snider (i.e., cheap labour, lax en- vironmental regulations). The result of a heavy debt load, structural adjustment, and a radical change in the basis of domestic economies in third world na- tions guarantees that such nations cannot put the environment before economic survival. As Swift (1991) summarizes the problem,
It is simply not possible to push the idea of sustainable development while insisting also on debt repayment, favourable access to minerals and agricultural resources for trans- national corporations, and cuts in the pub- lic sector and lower levels of social spending by Third World governments. Such an eco- nomic model is bound to focus not on en- vironmental safeguards but on achieving a better trade and payments balance—the kind of policy package known as “struc- tural adjustment.” The notion that the same ideologies of industrial growth that created the environmental crisis can bring about
“sustainable growth” is, in the end, not only puzzling but also dangerous. (215-16)
The perversity of food-aid distribution over the past decade to countries where predictably famine follows deforestation and desertification and devel- oped nation dogooders attempt to teach starving people in the third world modern farming methods to previously agrarian peoples who destroyed their environment cash-cropping for markets in the devel- oped world, is sufficiently mind-boggling as to make us search for alternative, more coherent explana- tions to the problem. Essentially, we have here three cycles of activity. The first is the externally imposed requirement within a third world country to move from traditionally agrarian subsistence farming to large-scale cash crop farming. This results in a cycle of famine. And this, in turn, results in foreign food- aid and the attempt by non-profit organizations from industrialized countries to bring modern agri- cultural farming methods to the famine-stricken area along with the food-aid as a means of eliminating starvation. The latter cycle is initially done in relative ignorance by well-intentioned individuals who are unaware that the cycle of famine was predictable en- gineered by previous development strategies. Rather, it assumed that there is an inability among poor na- tions to deal with what are believed to be natural disasters like famine in Ethiopia or flooding in Ban- gladesh. However, as Berlan (1989) notes these dis- asters are not caused by whims of nature. Nor are they caused by the ignorance of peoples who merely need instruction in ecological conservation. Rather, “Third World countries are caught up in a desperate and vicious process of destroying their natural re- sources simply to service debt and allow short-term survival” (222). And they are doing so because they have lost control of their domestic economy and of national self-governance. The environmental damage seems reminiscent and evocative. It brings to mind images of the pollution and environmental degrada- tion which was endemic to the Industrial Revolu-
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tion. The difference here is that the negotiations and damages incurred by development have been trans- national in nature and have seemingly gone beyond the capacity of nation-states to effectively control. This is not just a difference in scale but a difference in kind. As Berlan summarizes the problem,
Transnational companies are involved in all manner of hazardous ventures in Third World countries. They are building nuclear power plants, constructing massive dam projects, undertaking large mining and mineral-processing ventures, and invest- ing in manufacturing that uses dangerous chemicals and produces hazardous wastes. In most Third World countries health and safety regulations inside plants are either non-existent or weak. Environmental stan- dards to govern industry are just starting to be taken seriously. Most Third World gov- ernments are so desperate to attract invest- ment that companies are in a good position to reduce their costs by saving on expensive pollution controls and health and safety equipment for workers. (221-22)
Such radical shifts in power from national econo- mies to transnational corporations and supranational monetary funds has led some intellectuals to em- brace a new political cynicism and existential ennui captured by the general heading, post-modernism. David Harvey summarizes this state as a loss of faith in progress, science and technology and a total ag- nosticism with respect to any political or collective solutions. At least psychologically, if not epistemo- logically, this is similar to the political inertia noted at the beginning of this paper, the position of the extreme globalist which “carries the implication that no change is possible except on the international level, and since there is no political mechanism for such change—aside from that of formal relations among governments—oppositional political activity is easily seen as useless” (x).
The Remnant State?
This brings us to the final questions; “Do we have both conceptually and factually or descriptively an erosion of nationhood or statehood?” And, if so, “What does this mean for such global problems as environmental sustainability?”
Robert Reich (1991) argues that it is no longer meaningful to speak of nations in terms of national economies because the emerging global economy has rendered those economies irrelevant. He states,
As almost every factor of production— money, technology, factories, and equip- ment—moves effortlessly across borders, the very idea of an American economy is becoming meaningless, as are the notions of an American corporation, American capital, American products, and American technology. A similar transformation is af- fecting every other nation, some faster and more profoundly than others. (8)
This perspective is echoed in the discussion of na- tional governance in the UN World Investment Re- port (1991). The report notes,
One of the trends highlighted in the pres- ent volume is the growing regionalization of the world economy. National economies are becoming increasingly linked in region- al groupings, whether through initiatives at the political level, as in the case of the integration of the European Community, or through activities at the private-sector level ... As described in this report, region- alization is one of the important factors behind the recent growth of foreign dir- ect investment and its growing role in the world economies. (40)
For those concerned with Canada’s involvement in free trade agreements and the protection of Canada’s natural resources in those agreements, the question
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of Canadian sovereignty is central. As Bienefeld (1991) notes with respect to financial deregulation, “the political content of financial regulation is usu- ally entirely neglected when the multilateral agen- cies stress the importance of international regulation while advocating national deregulation even though this means giving up a large degree of autonomy in domestic ... policy” (50). To this, Easter (1992) adds “In Canada, our true sovereignty as a nation is be- ing lost as we replace political debate and decision- making for community goals, with the absolute rule of the market ... Almost all ... [good policies] ... are now being lost or rendered useless under the ‘com- petitiveness’ and ‘open borders’” (93).
But there is something to remain cognizant of when we look at the literature on the loss of national economic autonomy and sovereignty and that is that it is nations that are the key agents in negotiating deregulation, privatization and free trade deals. In the worst literature on the globalization of the econ- omy it is as if Adam Smith’s invisible hand had been replaced by the invisible man for all we hear about are global economic forces that require structural adjustments.
Nation states which, in liberal democracies, we view as protectors of basic rights, both positive and negative, and basic civil liberties are, in fact, in- volved in global negotiations which may erode the very principles on which they are based. And this not only affects rights meant to ensure the quality of life, including the right to live in a clean and sus- tainable environment, within given nations but also diminishes the possibility for the growth of democ- racy and democratic rights on a global scale. As Foster points out, “as each state makes its economy leaner and meaner to enlarge its own internally generated profits and export the crisis to others, the stress on the world economy intensifies, and international cooperation—always a dim possibility—becomes more remote” (294). Interestingly, as regional dep- rivation within developed economies more and more mirrors the economies in developing nations, we wit-
ness what we previously only saw in countries, like India, where prior to Bhopal, the prime minister of the country was willing to put jobs at any cost before anything else; safety, environment, quality of work life, etc. As we add the nations of the former Soviet Union to this mix, we observe with seeming fatalism the bottom-rung position which both environmental protection and quality of life issues take in the tur- moil of establishing political and economic security.
Not only, however, do forward-looking princi- ples of rights and benefits get undermined as nation after nation positions for a competitive advan- tage that results in levelling to the lowest common denominator, but global negotiation coupled with financial deregulation and the development of infor- mation technology has resulted in unbridled corrup- tion and crime. As chief financial officer of the Bank of Montreal noted,
I can hide money in the twinkling of an eye from all of the bloodhounds that could be put on the case, and I would be so far ahead of them that there would never be a hope of unravelling the trail ... Technology today means that that sort of thing can be done through electronic means. (quoted in Naylor, 1987, 12)
In a related argument, Thomas (1989) claims that “the contradictory development of bureaucracy in the face of ideological assaults on the state ... in- cludes a burgeoning growth of corruption, which has reached such staggering proportions that some social scientists see it as an ‘independent productive factor’” (337).
With respect to the environment, this level of corruption coupled with desperation has been evi- denced in the third world as nations vie for position to accept toxic waste from developed countries in contravention to international law.
So, does all of this mean that indeed the no- tion of statehood has shifted, diminished or been eroded? I would say unequivocally not. What has
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been eroded here is not statehood but democracy and the ability for citizens within democratic states to exercise democratic rights. Democracy has been undermined or subverted and people have been dis- empowered, but states have not. And this is not only true with respect to developed countries which have some type of democratic governance but it also bodes ominously for the establishment of new fledgling de- mocracies. Not only is Canada less democratic to the extent that deregulation, privatization and eco- nomic liberalization has been accomplished, but to the extent that nations are willing to use such factors as economic bargaining chips, so is the possibility for democracy in other nations. With deregulation, privatization and economic liberalization, environ- mental sustainability becomes one more barrier to competitiveness, as do social programs and other quality of life indicators.
Assuming as I do that democracy is a good thing, what should be done about this? At the beginning of this paper, I pointed out what I thought were false alternatives, on the one hand extreme globalism that accepts the world defeat of nationhood and, on the other, naive nationalism which we encounter fre- quently in Canada these days as Canadians try to claw back Canada’s social democracy from its recent demise. So, what’s my solution? Well, it is not a new idea. Essentially all nations need to negotiate inter- nationally from a position where they can set their own national priorities with respect to the social, political and economic needs of their citizens. This is something that increasingly has been given up even in nations like Canada where there is still the possi- bility of exercising collective political will. All na- tions have to negotiate from a position of national self-sufficiency. Transnational corporations have a political and undemocratic message that citizens in all nations have to be more competitive and that that is to be accomplished by dismantling national insti- tutions, social programs and environmental protec- tions. The fact that competitiveness without the protection of our natural resources, our infrastruc-
ture and social programs amounts to mass suicide is rarely considered. And what I am going to conclude with here may sound reminiscent of the cultural im- peralism of a former era but it behooves those of us with the privilege to still resist global degradation and the erosion of basic rights and freedoms to do so and not allow our nations to bargain away the world. As Keynes noted in 1933,
The divorce between ownership and the real responsibility of management is serious within a country when, as a result of joint- stock enterprise, ownership is broken up between innumerable individuals who buy their interest today and sell it tomorrow and lack altogether both knowledge and re- sponsibility towards what they monetarily own. But when this same principle is ap- plied internationally, it is, in times of stress, intolerable—I am irresponsible towards what I own and those who operate what I own are irresponsible towards me. (193)
And the solution to the problem of divorce here is reconciliation rather than resignation and resistance to the false and alarming rhetoric of global greed that has benumbed our better sensibilities.
reFereNces Berlan, J.P. 1989, “Capital Accumulation, Trans-
formation of Agriculture, and the Agricultural Crisis: A Long-Term Perspective,” in Instability and Change in the World Economy.
Bienefeld, M. 1992, “Financial Deregulation: Dis- arming the Nation State,” Studies in Political Economy 37, 31-58.
Daly, H. and J. Cobb. 1989, For the Common Good: Redirecting the Economy Toward Community, the Environment and a Sustainable Future (Boston: Beacon Press).
Easeer, W. 1992, “How Much Lower is Low Enough?” in J. Sinclair (ed.), Crossing the Line (Vancouver: New Star Books).
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Foster, J.B. 1989, “The Age of Restructuring,” in In- stability and Change in the World Economy.
Keynes, J.M. 1933, “National Self-Sufficiency,” in D. Moggeridge (ed.), The Collected Writings of John Maynard Keynes, Vol. 21 (London: Cam- bridge University Press).
MacEwan, A. and W. Tabb (eds.). 1989, Instability and Change in the World Economy (New York: Monthly Review Press).
Naylor, R. 1987, Hot Money and the Politics of Debt (Toronto: McClelland and Stewart).
Reich, R. 1991, The Work of Nations: Preparing Our- selves for 21st Century Capitalism (New York: Alfred Knopf ).
Snider, L. 1993, Bad Business: Corporate Crime in Canada (Toronto: Nelson).
Swift, J. and the Ecumenical Coalition for Eco- nomic Justice. 1991, “The Debt Crisis: A Case of Global Usury,” in J. Swift and B. Tomlin- son (eds.), Conflicts of Interest: Canada and the Third World (Toronto: Between the Lines).
Swift, L. 1991, “The Environmental Challenge: To- wards a Survival Economy,” in Conflicts of In- terest: Canada and the Third World.
Thomas, C. 1989, “Restructuring of the World Economy and its Political Implications for the Third World,” in A. MacEwan and W. Tabb (eds.), Instability and Change in the World Econ- omy (New York: Monthly Review Press).
United Nations. 1989, 1989 World Survey on the Role of Women in Development (New York: United Nations).
United Nations. 1991, World Investment Report: The Triad in Foreign Direct Investment (New York: United Nations).
Wood, R. 1989, “The International Monetary Fund and the World Bank in a Changing World Economy,” in Instability and Change in the World Economy.
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tIBoR R. MACHAn
Environmentalism Humanized
Introduction
I want to argue here the case of a certain type of anthropocentrism, the view that human beings are more important or valuable1 than other aspects of nature, including plants and animals. I begin with some clarifications of terms I plan to use and then ex- plore whether anything in my anthropocentric pos- ition contradicts the tenets of evolutionary biology. I also consider whether the ascription of a moral na- ture to human beings makes sense and how it squares with certain objections from those who would take animals, for example, to have nearly equal moral status to human beings. I consider, next, some pol- itical implications of what I have discussed, specific- ally as they bear on environmental public policy.
First, by anthropocentrism is not meant that hu- man beings—as a collectivity—are the telos of exist- ence, the ultimate aim or end or the central fact of the universe. All that is meant is that human beings are of the highest value in the known universe.
To construe human beings as the highest value in the known universe, they are identified thus as individuals of a given kind. There is no concrete universal “human being,” only individual human beings.2 The conception of humanity as a kind of collective whole entity derives, in the main, from the legacy of Platonic metaphysics that regarded general abstract ideas or universals, at least in its standard rendition, as concrete albeit intellectual or spiritual beings is not metaphysically sound. On the other hand, neither are individuals entirely unique. They are of a specific kind—e.g., human, feline, male, apple, etc. For anthropocentrism to be metaphysic- ally cogent, individual human beings would have to be the most valuable entities in nature.
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This point about the sort of individualist anthropocentrism to be discussed serves to preempt any objections that may be grounded on the philo- sophical and moral weaknesses of radical individual- ism, the sort derived from Hobbes and carried to its logical implications by the nineteenth-century Ger- man social thinker Max Stirner. The individualism or egoism discussed here—dubbed “classical,” so as to distinguish it from the “atomic” or “radical” var- iety commonly criticized by those who wish to call attention to the social nature of human beings—rec- ognizes that the human individual is so classified for good reasons, based on the rational recognition of kinds of beings in nature. This then renders justified not only personal but several social virtues—gener- osity, charity, compassion.3 It is also recognized in this view that a virtue must be practiced by choice and cannot be coerced.
All in all, the position here considered is still a bona fide individualism since it identifies human nature as essentially individual, in contrast to, for example, Karl Marx who states that “The human essence is the true collectivity of man” or August Comte who argues that
[The] social point of view ... cannot tolerate the notion of rights, for such notion rests on individualism. We are born under a load of obligations of every kind, to our pre- decessors, to our successors, to our contem- poraries. After our birth these obligations increase or accumulate, for it is some time before we can return any service.... This [“to live for others”], the definitive formula of human morality, gives a direct sanction exclusively to our instincts of benevolence, the common source of happiness and duty. [Man must serve] Humanity, whose we are entirely.4
If this argument is sound, it will establish in large measure that in discussing environmental eth- ics—whether at the level of principles or applied
morality—the highest value must be attributed to measures that enhance the lives of individual hu- man beings on earth. There will be no reliance here on supernaturalism to advance the argument. The aim is to defend the anthropocentric position from within a naturalistic framework—that is, by sticking to considerations based on our understanding of the natural world, including the nature of living beings such as plants, animals and human beings.5
However, neither is it the position here that hu- man beings are “uniquely important [or valuable],” a view avidly ridiculed by Stephen R.L. Clark, who claims that “there seems no decent ground in reason or revelation to suppose that man is uniquely import- ant or significant.”6 If human beings were uniquely important, that would imply that one had no basis for assigning any value to plants or non-human ani- mals apart from their relationship to human beings. That is not the position to be defended. What will be argued, instead, is that there is a scale of values in nature and among all the various kinds of beings, human beings are the most valuable—even while it is true that some members of the human species may indeed prove themselves to be the most vile and worthless, as well. This is all that anthropocentrism requires.
The Importance of Being Human
How do we establish that something is most valu- able? First we must consider whether the idea of less- er or greater value in nature makes clear sense and we must apply these considerations to an understanding of whether human beings or other animals are the most valuable. If it turns out that ranking things in nature as more or less valuable makes sense, and if we qualify as more valuable than other animals, there is at least the beginning of a reason why we may make use of other animals for our purposes.
Let me make clear that even if it were not the case that human beings are more valuable than other aspects of nature, it is doubtful that any conclusions
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could follow from this warranting policies that favor these other aspects. It would seem that only if it can be shown that beings other than humans qualify as being of supreme importance, based on argu- ments that do not draw on esoteric knowledge or intuition but on commonly accessible evidence and sound theories, would we have to yield our policies focusing on our welfare in favor of some alternative objective.
Quite independently of the implicit acknow- ledgment even by many environmentalists of the qualitatively hierarchical structure of nature, there is evidence through the natural world of the existence of beings of greater complexity as well as of higher value. For example, while it makes no sense to evalu- ate as good or bad such things as planets or rocks or pebbles—except as they may relate to goals or purposes of living things—when it comes to plants and animals the process of evaluation commences very naturally indeed. We can and most of us tend to speak of better or worse trees, oaks, redwoods, or zebras, foxes or chimps. Clearly, if we could not do this rationally, there would be little point to environ- mental ethics in the first place, a field that presup- poses value differentiation through and through.
Now, while at this stage we confine our evalua- tions to the condition or behavior of living beings without any intimation of their responsibility for be- ing better or worse, when we start discussing human beings our evaluation takes on an additional, namely, moral component. Indeed, none are more ready to testify to this than environmental ethicists who, after all, do not demand any change of behavior on the part of non-human beings but insist that human be- ings conform to certain moral edicts as a matter of their own choice, as what ought or oughtn’t be done but might not or might be done. This means that en- vironmental ethicists admit outright that to the best of our knowledge it is with human beings that the idea of at least active moral goodness and active moral responsibility arises in the universe. Human moral goodness depends on individual human initiative.
Does this show a hierarchical structure in na- ture? What we may note is that some things do not invite evaluations at all—it is a matter of no signifi- cance or of indifference whether some beings are or are not or what they are or how they behave. Some beings invite evaluation but without implying any active moral standing with reference to whether they do well or badly. And some things—namely, human beings or their conduct—invite moral evaluation.
Why is a being that invites moral ranking more valuable in nature than one that invites mere rank- ing? Why would the addition of the moral compon- ent—one that involves the choosing capacity of the agent—elevate the being with such a component in the scale of values in nature?
When evaluation—or value—involves beings that are not self-determined, the capacity to contrib- ute creatively to the values in nature is lacking. What human beings have the capacity to do is to create value,7 not just exhibit it. They can produce a cul- ture of science, art, athletics, etc., the diverse features of which can themselves all exhibit value. So while nature’s non-human living beings can have value, human beings can create value as a matter of their own initiative. This would enable human beings, for example, to replace some lost values in nature, if that turned out to be the right course for them to take. So the addition of choice—the moral component— to value clear makes a valuable difference.
At this point one might object that simply be- cause human beings are capable of moral responsibil- ity, it does not follow that they are the only beings of moral worth. But we need to keep in mind that “moral worth” comes to. To ascribe moral worth or merit to something, or to deny that it has such worth or merit, amounts to relating it to human action from the start. A wonderful sunny day has no moral worth, an destructive earthquake does not lack it. Morality involves beings with the capacity to make choices. So something can have moral worth or lack it only if some human (or other rational choosing) agent produced or destroyed it. Thus the success of a
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symphony can have moral worth, just as the failure of a saving and loan association may lack it (or even have moral disvalue), because human agency was in- volved in making it happen.
Accordingly, the agents of moral worth can also have moral worth—thus we consider men and women who produce morally good actions and re- sults as morally worthwhile. But we do not consider horses or tidal waves either morally good or evil. It all has to do with the fact that the concept “moral” or “ethical” arises from circumstances where actions and results come about through the initiative of the agent.
Does this show a hierarchical structure in na- ture? What we may note is that some things do not invite evaluations at all—it is a matter of no signifi- cance or of indifference whether some beings are or are not or what they are or how they behave. Some beings invite evaluation but without implying any active moral standing with reference to whether they do well or badly. And some things—name- ly, human beings or their conduct—invite moral evaluation.
It might now be argued, in opposition to the above, that the fact that human beings have the cap- acity to create value on grounds that they create sci- ence, art, etc., all of which have value. Does creating what has value come to the same thing as creating value? It would seem that this is the only sense we can make of “creating value”—since value is inherently relational (meaning value is the abstract category of the relationship of being of value to something). It is not confounding value with having value to say this, since value and having value differ only from the point of view of greater and lesser generality. X’s having value is, more broadly characterized, the phe- nomena of value in nature. Nothing else works— things are not just values, all alone, without making contributions to something, being pleasing to or en- hancing for or supportive of something.
After this brief defense of the superior value of human life, we may note, also, that the level or de-
gree of value moves from the inanimate to the ani- mate world, culminating, as far as we now know, with human life. Normal human life involves moral and creative tasks, and that is why we are, as a spe- cies, more valuable than other beings in nature—we are subject to moral appraisal regarding all our cre- ative activities; it is a matter of our doing whether we succeed or fail in our lives.8
Now when it comes to our moral task, namely, to succeed as human beings, we are dependent upon reaching justified conclusions about what we should do and summoning the will to do it. What we will do, in turn, often involves the transformation and utilization of the natural world of which we are a part. We have the moral responsibility to engage in the needed transformation and utilization in a mor- ally responsible fashion. We can fail to do this and do so too often. But we can also succeed. That, in- deed, is once again implicit in the field of environ- mental ethics.
The process that leads to our success involves learning what nature contains with which we may achieve our highly varied tasks in life, tasks that share the one common feature to make us good at living our lives as our nature, including our indi- viduality, requires. Among these highly varied tasks could be some that makes judicious use of nature’s varied living beings, such as plants, animals, even others people (under certain conditions)—for ex- ample, to discover whether some medicine may cure us of some illness, is safe for our use, we might wish to use animals and plants.
Why would it be morally proper for us to make such use of nature? Because we are unique in having to make choices for purposes of doing well at living. We know from our study of the rest of the living world that doing well at living is what it means, at least predominantly, to be good. Our evaluations in zoology, botany, biology, and medicine makes this clear—the good is what is conducive and the bad is what is destructive of living, mostly of the individ- ual living being, even if at times only in a complex
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fashion that may make it appear that individuals as such do not count for much.9 So when we come to human life, the same general standard remains in force, namely, pro-life versus anti-life; only given the specifics of human nature, this will involve now a moral dimension and whatever is requisite for that, including certain sociopolitical principles. There are those, of course, who claim that much if not all of what human beings invent so as to enhance their existence is a kind of intrusion or trampling upon nature—unnatural or artificial, in fact. But there is no good reason to suppose this. Human beings emerged in reality alongside all other living things, and their activities—such as playing football, bowl- ing, holding philosophy conferences in pleasant sur- roundings, driving cars from the airport to these surroundings, building tunnels, burning fossil fuels, cutting down trees, etc.—could be just as natural as it is for the bee to make honey, the swallow to fly south in winter time, or the beaver to dam up creeks. Human life is a form of natural life. Whatever de- rives from its consistent development or realization will be in accordance with nature, whatever subverts or corrupts it will not.
The major difference is, of course, something already mentioned, namely, that human beings can mismanage their lives, can (choose to) subvert their nature. But what would amount to a subversion of human nature? It would be to conduct oneself ir- rationally, thoughtlessly, imprudently, and by evad- ing what is most healthy and productive for one’s life. That is what amounts to living a vicious rath- er than virtuous life. It is to fail to exercising one’s unique capacity for coping with one’s life, a capacity that in the case of human beings must be exercised by choice. Thinking is not automatic—and, in- deed, environmental ethicists appear to assume this, implicitly, when they criticize failed thinking and the resulting conduct in various areas of private be- havior and public policy. Indeed, ethics itself rests on the view that human beings can choose—“ought implies can” embodies this point.
Within the parameters of these broad standards, a great deal of the diverse things that human beings do can be perfectly natural, even when it is destruc- tive or—or rather transforms and utilizes—certain other aspects of nature. (Notice that the frequently used phrase “domination of nature” has something suspiciously pejorative about it—it suggests hostility and cruelty toward the rest of nature. Transforma- tion and use do not have to involve dominance.)
The rational thing for us to do is to make the best use of nature for our success in living our lives. That does not mean there need be no guidelines in- volved in how we might make use of plants, animals, etc.—any more than there need be no guidelines in- volved in how we make use of objects of art, technol- ogy, etc. But it can easily involve managing nature so as to serve our own goals and aspirations, to make ourselves happy.
Why Individual Human Rights?
At this point we need to make an excursion into the realm of politics and law. As already hinted, the pe- culiar value dimension of human life, involving as it does moral choices all individuals will need to make so as to succeed in living well, has socio-economic- political implications. This involves the emergence of a normative realm known as the domain of indi- vidual human rights.
Why do individual human rights come into this picture? The rights being talked of in connection with human beings have as their conceptual source the human capacity to make moral choices. For in- stance, if (as has been argued in other forums10), each of us has the right to life, liberty and prop- erty—as well as more specialized rights connected with politics, the press, religion—we do so because we have as our central task in life to act morally and this task needs to be shielded against intrusive ac- tions from other moral agents. In order to be able to engage in responsible and sound moral judgment and conduct throughout the scope of our lives, we
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require a reasonably clear sphere of personal juris- diction—a dominion where we are sovereign and can either succeed or fail to live well, to do right, to act properly.
If we did not have rights, we would not have such a sphere of personal jurisdiction and there could be no clear idea as to whether we are acting on our own behalf or those of other persons. A kind of moral tragedy of the commons would ensue, with an indeterminate measure of moral dumping and shar- ing without responsibility being assignable to any- one for either.11 No one could be blamed or praised for we would not know clearly enough whether what the person is doing is in his or her authority to do or in someone else’s. This is precisely the problem that arises in communal living and, especially, in to- talitarian countries where everything is under forced collective governance. The reason moral distinctions are still possible to make under such circumstances is that in fact—as distinct from law—there is always some sphere of personal jurisdiction wherein people may exhibit courage, prudence, justice, honesty, and other virtues. But where collectivism has been suc- cessfully enforced, there is no individual responsibil- ity at play and people’s morality and immorality is submerged within the group.
Indeed the main reason for governments has for some time been recognized to be nothing other than that our individual human rights should be protected. In the past—and in many places even to- day—it was thought that government (or the State) has some kind of leadership role in human com- munities. This belief followed the view that human beings differ amongst themselves radically, some be- ing lower, some higher class, some possessing divine rights, others lacking them, some having a personal communion with God, others lacking this special advantage. With such views in place, it made clear enough sense to argue that government should have a patriarchal role in human communities—the view against which John Locke argued his theory of nat- ural individual human rights.12
Is There Room for Non-human Rights?
A crucial implication of a non-anthropocentric en- vironmental ethics is the view that at least animals, if not plants, are as valuable as human beings, possibly even to the extent that the law should acknowledge animal rights and the legal standing of plants.13 There may be other grounds for rejecting anthropo- centrism but this one is certainly a significant aspect of the anti-anthropocentrist position or ethos.
We have seen that the most sensible and influen- tial doctrine of human rights rests on the purport- ed fact that human beings are indeed members of a discernibly different species. Central to what distin- guishes human beings from other animals is that they are moral agents and thus have as their central objective in life to live morally well, to uphold prin- ciples of right and wrong for them in their personal lives and in communities.
Quite uncontroversially, there is no valid intel- lectual place for rights in the non-human world, the world in which moral responsibility is for all prac- tical purposes absent. Some would want to argue that some measure of morality can be found with- in the world of at least higher animals—e.g., dogs. For example, Bernard Rollin holds that “In actual fact, some animals even seem to exhibit behavior that bespeaks something like moral agency or moral agreement.”14
Rollin maintains that it is impossible to clearly distinguish between human and non-human ani- mals, including on the grounds of the former’s char- acteristic as a moral agent. Yet what they do to defend this point is to invoke borderline cases, imaginary hypotheses, and anecdotes. While such arguments are suggestive, they are bested by others defending the opposite viewpoint.
Perhaps the central point in support of animal rights is the view that no fundamental differences may be identified between human beings and other animals. Yet, this is a mistake. Human individuals are indeed members of a distinct species of animals.
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Their human nature is a fact, not merely a nominal category.15
No doubt many environmental ethicists sin- cerely believe that they have found a justification for opposing anthropocentrism. They seem to hold that anthropocentrism means human beings exercising random, capricious control over the rest of nature— trampling on the rest of the world as they desire. Yet many environmentalist might change their perspec- tive if they became convinced that anthropocentrism does not endorse rapaciousness and is by no means in any inherent conflict with the rational manage- ment of the environment.
Not only does a perspective that favors human life above all appear to be better justified, as indicat- ed in this discussion; as it happens it also generates the most environmentally sound public policy. Let’s turn to this in the final section of this discussion.
Environmentalism and Politics
Of late no one can deny that collectivist political economies have fallen into some disrepute. Theor- etically there were hints of this as far back as the 4th century BC when in the Politics Aristotle ob- served that private ownership of property encour- ages responsible human behavior more readily than does collectivism as spelled out in Plato’s Republic. Aristotle said, “That all persons call the same thing mine in the sense in which each does so may be a fine thing, but it is impracticable; or if the words are taken in the other sense, such a unity in no way con- duces to harmony. And there is another objection to the proposal. For that which is common to the greatest number has the least care bestowed upon it. Everyone thinks chiefly of his own, hardly at all of the common interest; and only when he is himself concerned as an individual. For besides other con- siderations, everybody is more inclined to neglect the duty which he expects another to fulfill; as in families many attendants are often less useful than a few.”16
In our time the same general observation was advanced in more technical and rigorous terms by Ludwig von Mises, in his 1922 (German edition) book Socialism,17 although he was mainly con- cerned with economic problems of production and allocation of resources for satisfying individual pref- erences. More recently, however, Garrett Hardin argued18 that the difficulties first noticed by Aris- totle plague us in the context of our concerns with the quintessentially public realm, namely, the eco- logical environment.
These various indictments19 of collectivism, coupled with the few moral arguments against it, didn’t manage to dissuade many intellectuals from the task of attempting to implement the system. Our own century is filled with enthusiastic, stubborn, vi- sionary, opportunistic but almost always bloody ef- forts to implement the collectivist dream. Not until the crumpling of the Soviet attempt, in the form of its Marxist-Leninist internationalist socialist revolu- tion, did it dawn on most people that collectivism is simply not going to do the job of enabling people to live a decent human social life. Although most admit that in small units—convents, kibbutzes, the fam- ily—a limited, temporary collectivist arrangement may be feasible, they no longer look with much hope toward transforming entire societies into col- lectivist human organizations.
The most recent admission of the failure of eco- nomic collectivism—in the wake of the collapse of the Soviet bloc economy (something most enthusi- asts would not expect based on the kind of predic- tions advanced by Mises and F.A. Hayek)—comes from Professor Robert Heilbroner, one of socialism’s most intelligent and loyal champions for the last sev- eral decades. As he puts it in his recent essay, “After Communism”: “... Ludwig von Mises ... had writ- ten of the ‘impossibility’ of socialism, arguing that no Central Planning Board could ever gather the enormous amount of information needed to create a workable economic system.... It turns out, of course, that Mises was right....”20
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But, not unlike previous thinkers who have seen various examples of the failure of some kind of perfectionist, idealist normative moral or polit- ical scheme, Heilbroner cannot quite say good bye to his utopia. He notes that there are two ways it may remain something of a handy concept. First, it may leave us piecemeal social objectives to strive for—but these have always come in the context of essentially capitalist economics systems. Secondly, it may reemerge as the adjunct of the ecological move- ment. As Heilbroner puts it,
[If ] there is any single problem that will have to be faced by any socioeconomic or- der over the coming decades it is the prob- lem of making our economic peace with the demands of the environment. Making that peace means insuring that the vital process- es of material provisioning do not contam- inate the green-blue film on which life itself depends. This imperative need not affect all social formations, but none so profoundly as capitalism.21
What is one to say about this new fear, a new problem allegedly too complicated for free men and women to handle? Has Heilbroner not heard of the “tragedy of the commons” so that he could imagine the environmental difficulties that face the collectiv- ist social systems? Here is how Heilbroner issues the “new” warning:
It is, perhaps, possible that some of the institutions of capitalism—markets, dual realms of power, even private ownership of some kind of production—may be adapted to that new state of ecological vigilance, but, if so, they must be monitored, regu- lated, and contained to such a degree that it would be difficult to call the final social order capitalism.22
This somewhat novel but essentially old fash- ioned skepticism about free market capitalism needs to be addressed.
My first response is that there is no justification for any of this distrust of “the market,” as opposed to trusting some scientific bureaucracy that is to do the monitoring, regulating, and containing Heilbroner and so many other champions of regimentation are calling for. Such distrust tends to arise from com- paring the market system to some ideal and static construct developed in the mind of a theorist. But since human community life is dynamic, the most we can hope for in improving it is the establishment of certain basic principles of law, or a constitution, that will keep the dynamics of the community with- in certain bounds.23
Accordingly, put plainly, if men and women act- ing in the market place, guided by the rule of law based on their natural individual rights to life, liber- ty and property, were incapable of standing up to the ecological challenges Heilbroner and many others in the environmentalist movement have in mind, there is no reasonable doubt that those could not be met better by some new statist means.24 Why should ecologically minded bureaucrats be better motivat- ed, more competent, and more virtuous than those motivated by a concern for the hungry, the unjustly treated, the poor, the artistically deprived, the un- educated masses or the workers of the world? There is no reason to attribute to the members of any eco- logical politburo or central committee more noble characteristics than to the rest of those individuals who have made a try at coercing people into good behavior throughout human history.
As already suggested, lamentations about capital- ism tend to rest on a kind of idealism that is ill suited to the formation of public policy for a dynamic hu- man community. One might be able to imagine—in a Platonic sort of fashion, vis-à-vis the ideal state—a perfectly functioning ecological order. It is doubtful that even this much is possible. It is another thing entirely to attempt to implement policies that will produce such an idealized order in the actual world. What we actually face in our various human com- munities is a choice between what we may call live
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options, e.g., capitalism, socialism, the welfare state, fascism, etc. No ideal system is a contender and it is folly to compare any of the live options to such an ideal. In the actual contest, in turn, it seems the capitalist alternative is superior for reasons already alluded to and discussed elsewhere.25 Yet it will help to sketch some central aspects of that alternative.
In the first place, if human beings have the right to private property, not to mention their lives and liberty, a just legal system would prohibit any kind of dumping by one person on another, including all en- vironmental assaults such as transmitting toxic sub- stances unto unsuspecting victims, polluting public realms, seepage, etc. Beyond a harmless level of waste disposal, no pollution would be legal, no matter whether jobs or the achievement of any other laud- able purpose depended on it. Just as slavery may not be practiced regardless of how it might facilitate cer- tain valued objectives, just as rape is impermissible no matter how desperate one may be, so too may pollution and other forms of environmental offenses not be carried out regardless of the various possible valued objectives the pursuit of which would gener- ate it. To put the matter into the language of the economists, if one cannot internalize the negative ex- ternalities associated with some production or trans- portation process, one will simply have to stop it.
There are, of course, technical problems associat- ed with measuring how much waste disposal consti- tutes reaching the threshold. But this is in principle no different from determining how much of some food substance or medicine constitutes poison. Just as the criminal law employs forensic science to de- termine who is guilty of what degree of homicide, so various branches of environmental science would be utilized so as to establish culpability in environ- mental crime.
The worry that industrial civilization would be slowed to a dead halt by the above approach is un- founded. Alternative technologies to those that in- volve environmental assault will certainly emerge and are already on the way. Past errors, of course,
cannot be fully remedied, yet some of what has been wrought upon us by way of the highly subsidized internal combustion engine could be mitigated by imposing full cost on transportation, not permitting owners of vehicles to dump on those whose permis- sion they do not have or cannot obtain.
In general, then, clearly the anthropocentric— i.e., individual rights—oriented environmental ethics and law is more radical and just than any- thing offered within standard environmental ethics literature.
If free men and women will not manage the en- vironment, nor will anyone else. In any case, more optimism about the capacity of free citizens to deal with this issue is warranted when we examine just what are the sources of our ecological troubles. Given, especially, the fact of collectivism’s far greater mismanagement of the environment than that of the mixed economies we loosely label capitalist, there is already some suggestion implicit here about what the problem comes to, namely, too little free market capitalism. Given the comparatively worse environ- mental situation evident in political economies that rely on collective ownership and management, and given the natural individualism of human life, free markets appear to be more suited to solving the tra- gedy of the commons. What Heilbroner and friends fail to realize is that the environmental problems most people are concerned about are due to the tra- gedy of the commons, not due to the privatization of resources and the implementation of the principles that prohibit dumping and other kinds of trespass- ing. With more attention to protecting individual rights to life, liberty and property, solutions to our problems are more likely, period.
The best defense of the free market approach to environmentalism in matters of public policy begins with the realization that it is the nature of human beings to be essentially individual. This can be put alternatively by saying that the individual rights ap- proach is most natural—it most readily accommo- dates nature and, therefore, the ecology.
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If there is a crisis here, it amounts to the history of human action that has been out of line with eco- logical well being, health, flourishing. But how do we know what kinds of human action might have been more or less conducive to ecological well-be- ing? It will not do to speculate on some ideal config- uration of the living world, apart from considering what is best for human individuals. There simply is no standard of a right pattern to which the world should be made to conform—it is a dynamic system of living entities, with no final pattern discernible in it to which the current configuration should be ad- justed. Indeed, if there is something we have learned about environmental wisdom, it is that the environ- ment’s health, so to speak, emerges spontaneously, reflecting something of a chaotic development, one that is not predictable.26
We need first of all to know about human na- ture—what it is that human beings are and what this implies for their conduct within the natural world. If, as the natural rights (classical liberal) tradition invoked here would have it, human beings are individuals with basic rights to life, liberty and property, that also implies, very generally at first, that this is how they are best fitted within the nat- ural world, within the rest of nature. Environment- alism is most effectively promoted if we trust free men and women with the task of choosing the best policies bearing on the same, not relying on govern- ments to determine the most suitable relationship various individuals and organizations should culti- vate with the rest of nature. Not that this will serve to avoid all failings vis-à-vis this area of human con- cern—anymore than leaving human beings free to choose in other spheres creates utopia. Neverthe- less, when we consider that governments are admin- istered by persons with no greater claim to virtue and wisdom than others can make, and if we also consider that officials of the government make their mistakes, when they do, without the chance of full accountability and with the benefit of the legal use of force, it is not at all unreasonable to suppose that
when problems need solutions, governments are not going to be the most useful for this purpose un- less their particular means of dealing with persons, force, is required.
Last Reflections
The fact is that with human nature a problem arose in nature that had not been there before—basic choices had to be confronted, which other animals do not have to confront. The question “How should I live?” faces each human being but not other liv- ing things, not to mention inanimate nature. And that is what makes it unavoidable for human beings to dwell on moral issues as well as to see other hu- man beings as having the same problem to solve, the same question to dwell on. For this reason we are very different from other living beings, plants and animals—we also do terrible, horrible, awful things to each other as well as to the rest of nature, but we can also do much, much better and achieve incred- ible feats nothing else in nature can come close to.
Yet, merely because we do have a moral dimen- sion in our lives, it does not follow that we must agonize about everything in nature, as if we had the moral capacity to remake the entire universe.
Indeed, then, the moral life is the exclusive prov- ince of human beings, so far as we can tell for now. Other, lower—i.e., less important or valuable—ani- mals simply cannot be accorded—because they have no requirement for—the kind of treatment that such a moral life demands, namely, respect for and protection of basic rights.
As such it is to human life we must, rationally considered, attribute the greatest value in the uni- verse. And since human life is essentially individual, not collective—which does not preclude its vital so- cial yet largely voluntary dimension—the individ- ual rights approach, that protects each person as a moral agent and provides for him or her a sphere of privacy or exclusive jurisdiction, is the most sensible environmentalist public policy.
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Notes 1 In