Business, Ethics and
Economics IP
Prof. Robert Marks
A/Prof. Damian Grace
The point of this course: 3 skills
1.
2.
3.
Ethical recognition. This is probably
more of a problem than malice.
Analysis. Why is this an ethical question?
How should I address it?
Justification. How could I explain my
decision in terms of principles, norms,
procedures, outcomes?
What is ethics?
Let’s look at what some big names thought:
 Ethics is the way things are done around here.
Aristotle
 Lots
of norms and conventions are not ethical.
 Ethics is treating other people as you would be treated.
Confucius, St Paul, Kant
 Again,
this doesn’t have to apply only to ethical matters.
 Ethics is doing whatever brings the best results.
Bentham, Mill, Singer
 Is
just anything that brings good results ethical?
Results are integral to ethics
Ethics is about consequences even if it is not
only about consequences.
If there were no significance to consequences,
ethics would matter little. It is because ethics
guides conduct that it matters.
It is also because of this that ethics links with
economics.
Ethics and economics
Economics developed as a separate discipline
in 18th Century. Closely related to ethics.
Adam Smith and David Hume were
philosophers who specialised in ethics.
But economics studies what is the case including unintended consequences - in
making recommendations, while ethics
studies what should be the case given the
way things are.
Ethical boundaries
Economics can indicate the boundaries of ethics by
modeling human rationality - as in game theory show the limits of resources - human and natural and show how unintended consequences can
thwart the best intentions.
Economics maps regularities in human behaviour
that limit ethical desiderata. Conversely ethics can
show the limits of economic desiderata.
Justice in market economies.

Goods and services are allocated fairly and
without distortion, partiality, fraud or coercion.
 Applies to fair procedures rather than ‘end states’.
 Implies a large degree of freedom- private
ownership & competition - with government
intervening only to correct market anomalies.
Greed, self-interest and the
invisible hand

In US movie, Wall Street, Gordon Gekko says:
“Greed is good.” But greed is an excessive desire
to acquire. By definition a vice.
 Self-interest: basic to survival, maintenance, &
flourishing. Not a vice: not to be confused with
selfishness.
 Rational self-interest productive of wealth and not
contrary to concern for others or ethics. Adam
Smith and the invisible hand.
Perfect Competition
The theoretically fair set of conditions for maximising
benefits for buyers and sellers:
1.
2.
3.
4.
5.
6.
7.
Many buyers and sellers, none dominant.
All can freely enter and leave the market.
Each has perfect knowledge of prices, quantities and quality of
goods traded.
Goods are so similar that identities of buyers and sellers are
indifferent.
All costs and benefits of trading are assumed by participants in
the market.
Those buying and selling are utility maximisers.
There is no external regulation of cost, quantity or quality of
goods traded.
Why is this ethical?

It does not exploit either buyer or seller.
 It respects autonomy and consent (rights).
 It distributes resources in the most efficient and
effective manner and thereby avoids waste or
want through over or under-production.
 Encourages wealth production and this allows a
greater range of human needs to be met and
human life to flourish.
Problems with practising the
theory
Pre-dates the era of the modern corporation originally a response to mercantilism and
monopoly privilege. Special interests still have
power eg. the US military-industrial complex
identified by President Eisenhower.
Restricting knowledge in a market gives a
competitive advantage.
Restricting competition allows stronger profits.
Globalisation allows corporations to play off
governments - economies - against each other.
Other aspects of ethics apart
from consequences
Principle
Character
Culture
The good life.
Is everything a matter of ethics?
Identifying ethics
Some issues are matters for ethics. Such
matters are either ethical or unethical.
Some matters are neither. They are nonethical.
How can you tell? What is an ethical opinion?
Problems and dilemmas
Consider the dilemmas you submitted.
How are these cases dilemmas rather than
problems? Are not a number of them about the
difficulty of taking hard decisions rather than
there being no morally clear choice between
right and wrong?
Problems
Problems have correct solutions:
 What is the capital city of Chile?
 What happens when you combine sodium and
chlorine?
 You are offered $10,000 to guarantee a
successful tender. Should you accept it?
 A young woman has a flat tyre 30km outside
Goulburn. Should you stop and help her?
Dilemmas
Dilemmas are dilemmas precisely because
there is no correct solution even though you
do not have the option to do nothing.
 You could retrench 6 employees or ask all 20
staff to take a pay cut.
 You inadvertently overhear sensitive and
confidential information while in a competitor’s
office. Is it morally permissible for you to use
this information to your firm’s advantage?
Is Ethics subjective and relative?
Everyone disagrees about ethics. It’s like
religion, so who is to say what is right?
Ethics is relative to your culture, so it is
offensive to impose your values on to
someone else.
Is this so? Do we not share values?
Isn’t ethics just about following
rules?
Rules are essential because they allow for
predictability, the definition of roles and
responsibilities, and the definition of boundaries.
But

Human conduct cannot be reduced to rules

Rules date

Rules cannot cover all contingencies

Rules must be tempered by judgment
What is involved in ethical
justification?
Being accountable in terms of





the law
professional codes
employer’s values statements
common morality
informed ethical judgment (conscience)
An ethical opinion is:






Not just self-interested
Has regard for others
Could apply to anybody - reversible
Takes account of context
Overrides other considerations
Has to be ‘lived with’.
But what principles should steer
ethical judgment?
Two accounts of ethical judgment:
1. Acts are intrinsically right or wrong. Ethical
requirements are expressed in duties – deontology
(Kant)
2. Right and wrong means producing a surplus of
good over evil consequences - consequentialism,
eg. ‘utilitarianism’ (Mill)
These are modern views about
ethics
These views of ethics are not about character
but about acts.
They are universalist - apply to all without
discrimination.
Are not attached to roles but to human
agency.
Deontology
Classic phrases for deontology are:
 “respect for persons”;
 “the ends don’t justify the means”.
This theory holds the worth of persons to be infinite cannot be traded off for other benefits eg. trialing
drugs on a minority group because the majority
will gain.
Varieties of Consequentialism
 Egoism
(everybody should follow their own
conception of their good);
 Epicureanism (follow the greatest true
pleasure);
 Utilitarianism: The classic phrase still widely
used to sum up utilitarianism is “the greatest
happiness for the greatest number”.
Deficiencies of these theories
 Rules
and absolute prohibitions work at the
margins of conduct, eg. Do not torture; do
not kill the innocent. Most conduct is not at
the extreme. Difficult to implement.
 Consequences need some ranking principle
beside quantity to distinguish what is
important and inviolable from what is
tradable + a theory of good.
An ancient theory
Virtue and character
There is a human nature that can be perfected
and it is perfected by the acquisition of the
virtues. These can be learned from masters.
Not a theory of wrong or corruption or failure
but of vices - eg. cowardice, miserliness,
ugliness, stupidity. Often foreign to modern
ways of thinking and to egalitarianism and
principle-based ethics.
Virtue Ethics –
ethics as excellence
Focuses on character or human virtue;
stresses the achievement of excellence in
human activities.
Can be seen as a kind of middle way:
 Holds that virtues are intrinsically good and
perfect human nature (ie. has elements of both
deontology and consequentialism).
Virtues and Management Ethics
Management excellence ranks among the
perfecting human virtues.
All social virtues built on friendship, but
professional virtues include:




High practice standards
Trustworthiness and honesty
Integrity
Compassion
So: why be ethical?
Three answers
“Because it is your rational duty”
“Because this will increase the sum of good in
the world.”
“Because that is the most fitting (excellent)
way to be a person”.
How does ethics extend to
organisations?
Should I bring my personal beliefs
into my organisation?
Should not an employer determine
standards of behaviour for all
employees?
Should not governments set
minimum public expectations of
business?
Why Ethics for Business?
Managers are hired because of knowledge
and skills, not their qualifications in ethics.
Why is social responsibility a manager’s
concern?
Is it not undemocratic for business
professionals or other individuals to decide
social issues under the cover of ethics?
Milton Friedman
Consider Friedman’s argument
Does it contravene democracy for a business
to implement socially responsible policies?
Is it unjust to workers, consumers and the
State for businesses to use corporate funds
for “social” purposes?
Does the contractual approach to justice
over-ride other considerations?
What is so special about business?
Should business abstain from lobbying in its
own interests?
Should business abstain from supporting its
employees; community; special causes?
What issues are at stake in Friedman’s
position?
Law and ethics: a model
Law is the floor, ethics the ceiling.
Ethics is a higher standard, but without law is
unlikely to be effective.
Ethics and law are complementary: they
cannot substitute for each other.
If business is contractual or legal
does ethics really matter?
Reasons that it does:
1. Higher levels of professional and public responsibility
and accountability.
2. People accept common values, even if their priorities
differ.
3. Ethical arguments are still trumps.
4. Ethical justifications are standardly demanded.
5. ‘No one’ accepts ethical defeat.
“Good ethics is good business”
PRO:
• reputation  and so, more business
• can be a differentiator for an organisation
• keep the regulators away
• unethical can be illegal  if you get caught, it’s trouble
CON:
attractive (looks good on letterhead), but ...
• too simple – can be “dangerously simple”
• mighty poor reason for behaving ethically!
• probably just plain false
Good practical reasons for behaving
ethically
• provides stability to the marketplace
• encourages repeat business
• good risk management
• adds to the quality of life
• other reasons?
Ethical excellence in business
See Bayer’s article and his example of the
Johnson & Johnson Tylenol case.
Consider also Masterfoods withdrawal of
Snickers and Mars bars.
Stakeholder theory

Stakeholders are any interest group that is
affected by or can affect a business.
 Stakeholders have varying claims upon a
business, but need to be ranked and taken
seriously according to priority.
 Broadens the notion of “ownership” beyond
stockholders.
 Cautions about need to consider unintended
consequences and effects on third parties.
Can we name these goods?

Life - health, security
 Friendship - friends, community
 Freedom - personal, political, economic
 Knowledge - many forms
 Aesthetics - art, nature
 Play - spontaneous, organised
 Religion - cosmic reference points

John Finnis
Ethics and business
What goods are fundamental in business?
What values do we need to protect them?
What structures should encourage and protect
those values?
What role does an individual have in
safeguarding those values in an
organisation?
What role does business have in protecting
those values in society?
Ethics costs
Not always good for the bottom line.
Triple bottom line to account for this.
Business is responsible for social and
economic goods and sometimes it costs
money and other resources to protect these.
Merck case.
Once more: about excellence.
Do we have to choose an ethical
theory? How could we?
In an ethical position (whichever theory):
 Look at whether fundamental goods are
protected and supported
 Look at human flourishing. Are any goods basic
to human well-being deliberately compromised?