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Philosophy Business Ethics 2074F - Required Readings Notes

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Philosophy 2074F/G
Dean Proessel

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Does  Business  Ethics  Make  Sense? Amartya  Sen -­  the  importance  of  a  claim  depends  to  a  great  extent  on  what  it  denies  (  to  understand  what  the conviction  rests  on,  to  be  able  to  understand  its  inadequacies -­  in  regard  for  people’s  thoughts  that  we  do  not  need  ethics -­  early  philosophers  used  to  believe  economics  was  a  branch  of  “practical  reason” -­  Aristotle,  Ockham,  Aquinas,  Kautilya  Maimonides  etc. -­  official  story;;  this  changed  with  Adam  Smith ;;  father  of  modern  economics ;;  made  it  so  that  economics  was  scientific  and  hard  headed    (no  ethics,  or  morals  and moralizing) Exchange  Production  and  Distribution -­  butcher  brewer  and  baker  example  ;; -­  Wealth  of  Nations -­  “  it’s  not  from  the  benevolence  of  the  butcher,  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...” -­  they  want  our  business  and  we  want  their  products,  there  seems  no  need  for  ethics -­  all  that  is  needed  is  our  regards  for  our  own  respective  interests,  and  the  market  is  due to  bringing  about  the  mutually  gainful  exchanges  -­  he  did  in  fact  insist  that  self  interest  would  do  fine  to  motivate  the  exchange  of commodities  but  it’s  also  a  very  limited  claim -­  so  what  about  the  problems  associated  with  production  and  distribution  and  to  the aspect  that  a  system  of  exchange  can  flourish  institutionally  (although  he  never  stated  that  his theory  voided  all  these  aspects) -­  his  claim  was  simply  that  the  motivation  for  exchange  without  establishing  or  trying  to establish  the  redundancy  of  business  or  ethics  in  general;;  which  could  be  considered  as  true -­  TMS  he  argues  that  “HUmanity.  justice,  generosity  and  public  spirit  are  the  qualities most  useful  to  others” -­  with  just  focusing  on  the  brewer/baker/butcher  aspect,  he  is  made  out  to  be  a ideologue  which  isn’t  the  case -­    transformed  into  a  partisan  exponent  of  ethics-­free  philosophy -­  b-­b-­b-­  example  is  all  about  motivation  for  exchange -­  but  he  was  deeply  concerned  with  production  and  distribution  as  well Author  discusses: 1.  the  problem  of  organization  (especially  that  of  exchange) 2.  The  arrangement  and  performance  of  production 3.  Challenge  of  distribution Organization  and  Exchange:  Rules  and  Trust BBB  example -­  own  interests  can  motivate  all  of  them  and  take  part  in  the  exchange  that  benefits  all  of  them -­  whether  the  exchange  would  operate  depends  on  the  organizational  conditions -­  requires  institutional  development -­  what  needs  to  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  different parties -­  if  he  cannot  trust  the  householder,  the  baker  may  have  difficulty  in  proceeding  to  produce bread  to  meet  orders,  or  in  delivering  bread  without  prepayment -­  householder  may  not  be  certain  on  whether  or  not  he  would  be  sensible  in  relying  on the  delivery  of  the  ordered  bread  if  the  baker  is  not  altogether  reliable -­  these  problems  of  mutual  confidence  can  be  more  severe  and  critical -­  mutual  confidence  in  certain  rules  of  behaviour  is  typically  implicit  rather  than  explicit -­  Third  World:  there  is  a  deep  rooted  scepticism  of  the  reliability  and  moral  quality  of  business behaviour -­  both  local  businesses  and  the  commercial  people  from  abroad -­  vulnerable  countries -­  a  traditional  lack  of  confidence  in  the  moral  behaviour  of  a  particular  group  of  traders  for  e,g, merchants  of  a  food  train -­  issue  of  business  ethics  becomes  a  large  component  when  considering  famine  relief  and prevention -­  creating  additional  incomes  for  the  destitute  (possibly  through  employment  schemes) and  then  rely  on  normal  trade  to  meet  demands -­  however  giving  crucial  roles  to  the  gain  traders  at  times  of  famine  threats  raises  difficult issues  of  trust  and  trustworthiness -­  the  problem  can  be  dealt  with,  with  the  threat  of  government  intervention  in  markets  ( depends  on  the  grain  reserves  the  government  itself  has) much  depends  on  the  extent  to  which  the  relevant  business  people  can  establish  exacting standards  of  behaviour,  rather  than  fly  off  in  search  of  unusual  profits  to  be  rapidly  extracted  from manipulated  situations Organization  of  Production:  Firms  and  Public  Goods Japan  capitalism -­  only  communist  nation  that  works -­  most  of  the  successful  capitalist  nations  flourish  because  their  base  is  from  the  pursuit  of  self-­interest, which  is  the  bedrock  of  capitalism -­  distinction  between  private  and  public  goods -­  when  the  good  is  public,  the  commodities  being  non-­competitive,  then  there  is  a  strain  on  self interest  bases  mechanism  or  the  market -­  the  market  system  initially  works  by  putting  a  price  on  a  commodity  and  the  allocation between  consumers  is  done  by  the  intensities  of  the  respective  willingness  to  buy  it  at  the  prevailing  price -­  when  equilibrium  emerges,  they  balance  demand  and  supply  for  that  commodity -­  in  the  case  of  public  goods  though,  the  uses  are  non  competitive,  so  the  system  of  giving  the good  to  the  highest  bidder  does  not  have  much  merit,  since  one  person's  consumption  does  not  exclude that  of  another -­  optimum  resource  allocations  be  that  combined  benefits  be  compared  with  the  costs of  production  and  here  the  market  mechanism  based  on  profit  max.  functions  badly -­  externalities;;  public  good  and  externalities  are  a  relation 1.    There  would  tend  to  be  some  failure  in  resource  allocation  when  the  commodities produced  are  public  goods  or  involve  strong  externalities taken  either  as: 1.  an  argument  for  having  publicly  owned  enterprises  that  are  governed  by principles  not  profit  maximization 2.  a  case  for  public  regulations  governing  private  enterprise 3.  Establishing  a  need  for  the  use  of  non  profit  values  -­  particularly  of  social concern  -­  in  private  decisions 2.  Even  in  the  production  of  private  commodities,  there  can  be  an  important  “public good”  aspect  in  the  production  process  itself -­  this  is  because  production  itself  is  a  joint  process  (supervisions  are  costly  and  each participant  contributes  to  overall  success  of  the  firm  in  a  way  that  cannot  be  fully  reflected  in  the  private rewards  that  he  or  she  gets The  Challenge  of  Distribution  :  Values  and  Incentives -­  in  dividing  a  cake,  one  person's  gain  is  another  person's  loss -­  amelioration  of  misery  through  policies  explicitly  aimed  at  the  result  of  the  contributions  that can  be  made  by  ethics -­  distributional  and  productional  problems  are  mixed:  so  how  the  cake  is  divided  influences  the size  of  the  cake  itself -­  The  Incentive  Problem:  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 SO  does  business  make  economic  sense?  It  depends  on  how  you  define  economic  sense -­  if  it  includes  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 -­  if  economic  sense  is  interpreted  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 (-­  firms  that  treat  their  employees  well  are  richly  rewarded  for  it-­    for  one  thing workers  are  more  reluctant  to  lose  their  jobs,  since  more  would  be  dismissed  in  the  case  of,  plus  the effort  and  team  spirit) Two  different  ways  a  good  business  behaviour  can  make  economic  sense 1.  see  the  improvement  of  the  society  in  which  one  lives  as  a  reward  in  itself;;  this  works  directly 2.  use  a  business  criterion  for  improvement  but  to  take  note  of  the  extent  to  which  good business  behaviour  could  in  its  turn  lead  to  favorable  business  performance;;  involves  an  indirect reasoning Concluding  Remark 1.  The  importance  of  business  ethics  is  in  no  way  contradicted  by  Adam  Smith -­    Smiths  BBB  argument  is  concerned  with i)  directly  with  exchanges  only  (not  production  and  distribution) ii)  only  with  the  motivational  aspect  of  exchange  (not  organizational  and  behavioral  aspects)  2.  Business  ethics  can  be  ethically  important  in  economic  organization  in  general  and  in  exchange operations  in  particular -­  relationship  is  extensive  and  fairly  ubiquitous 3.  Importance  of  B  Ethics  in  the  arrangement  and  performance  of  production  can  be  illustrated  by  the contrasting  experiences  of  different  economies -­  i.e.  japans  unusual  success Advancements  go  beyond  the  pursuit  of  profit Failure  of  profit-­based  market  allocation  in  dealing  with  public  goods  (relevant  in  2  ways:) 1.  the  presence  of  public  goods  in  the  commodities  produced 2.  the  fact  that  the  success  of  the  firm  can  itself  be  fruitfully  seen  as  a  public  good 4.  Distributional  problems  is  largely  related  to  ethics -­  behavioral  ethics -­  relation  can  be  both  direct  and  valuational -­  relation  can  be  indirect  and  instrumental -­  the  incentive  problem  (  the  interrelation  of  the  cake  aspect)  etc. Systems  of  Moral  Evaluation Heather  Salazar:  Kantian  Business  Ethics Example  of  supplements  and  medication  given  to  patients -­  (In  Depth  Knowledge)    Ephedra;;  banned  in  the  US  in  2004  for  being  the  cause  of  155  deaths and  many  fatal  side  effects,  although  because  there  was  no  proof  of  it  being  a  cause  of  those  deaths  so  it had  been  brought  back  in  2006 -­  the  FDA  notified  62  companies  that  market  products  containing  ephedra  (consider  the fact  that  all  of  them  would  be  affected  therefore) -­  FDA  issues  a  consumer  alert  warning  to  the  public -­  Ephedra  Education  Council  (funded  by  manufacturers  and  distributors-­  had  supported tougher  labeling  requirements  but  opposed  a  federal  ban) -­  constituted  for  1%  of  the  medical  world  sales,  but  64%  of  the  severe  complaints  of side  effects  -­  i.e  increased  chances  for  stroke,  insomnia  etc. -­  Ephedra  had  first  been  introduced  as  a  method  of  curing  asthma  (because  unlike adrenaline  it  could  be  given  by  mouth) -­  since  late  1950s  it  has  stopped  with  its  therapeutic  use  (prevention  and treatment  of  venereal  diseases  and  cough/respiratory  complaints) -­  Ephedra  is  also  a  major  source  of  the  addictive  compound  methamphetamine  (crystal meth) Kantian  answer: -­  to  purchase  and  sell  ineffective  and  harmful  supplements;; 1.  allow  and  help  people  to  make  rational  decisions 2.  having  a  motivation  from  what  Kant  calls  “the  good  will”  (meaning  your  motivation  is from  duty,  not  simple  self-­seeking) -­  must  be  motivated  to  do  so  because  you  believe  it’s  the  right  thing  to  do  (not  because  maybe you  don’t  want  to  create  a  bad  reputation  for  yourself) -­  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  gains -­  concept  of  ‘respect’ -­  as  humans,  we  each  have  value  that  stems  from  our  rational  and  moral  capacities  and  should act  in  a  way  that  shows  our  appreciation  for  that  value -­  differs  from  standard  approaches  i.e.  utilitarianism  or  rights-­based  theories Utilitarianism: -­  it  does  not  ask  us  to  maximize  any  particular  value -­  not  treat  groups  or  people  as  more  or  less  valuable Rights-­based -­  it  does  however,  propose  constraints  on  actions,  giving  us  rules  upon  which  we  act -­  differs  from  both  by  claiming  that  it  is  not  only  what  you  do  that  matter  morally,  but  with  what motivation  you  do  it -­  duties  are  unlike  rights  i.e.  Duty  to  love  my  sister  is  not  her  right  to  my  love -­  Morality  for  Kant:  how  we  ought  to  treat  each  other  as  fellow  members  of  humanity -­  Kant  ethics -­  only  thing  that  is  intrinsically  good,  or  good  in  itself  is  the  good  will Quote:  “  There  is  no  possibility  for  thinking  of  anything  at  all  in  the  world,  or  even  out  if  it,  which  can  be regarded  as  good  without  qualification,  except  a  ‘goodwill’”  MM  393 -­  the  will  is  the  rational  part  of  each  person -­  the  good  will  is  the  rationality  which  chooses  to  do  what  is  right  for  the  reason  that  it  is  good -­  these  are  the  reasons  why 1.  all  members  of  humanity/rationality  have  value 2.  why  these  beings  are  the  only  thing  of  true  value -­  you  have  control  over  your  motivation  but  no  control  over  the  results  of  the  actions/intentions e.g.  UNICEF;;  give  money,  could  never  get  to  the  family which  is  why  for  the  moral  worth  of  the  action,    Kant  claims  you  need: 1.  the  choice  of  what  to  do 2.  motivation Salazar:  Four  steps  to  Determining  the  Right  Action  and  Motivation: 1.  formulate  a  Maxim-­for-­action -­  identify  the  action -­  developing  a  statement  of  the  action  (to  analyze  when  it  is  correct  or  not) -­  asserting  what  you  will  do  and  for  what  purpose  you  will  do  it 2.  Evaluate  it  as  coming  from  the  good  will  or  not a.  ask  whether  it  is  the  right  action b.  ask  whether  in  willing  it,  you  have  the  right  motivation -­  for  kant  the  right  actions  to  take  are  those  that  are  rational  (because  the  will  is  the rational  part  of  each  of  us,  and  so  if  the  maxim  is  rational,  it  is  fit  to  be  willed) Various  tests  to  determining: 1.  The  Categorical  Imperative -­    the  law  of  rationality  that  does  not  depend  on  our  desires,  but  depends  purely on  pure  rationality -­  when  maxim  is  tested  by  the  CI,  it  tells  us  which  maxims  we  can  take,  which we  cannot  take,  and  those  which  we  have  to  take  (permissible,  impermissible,  required) three  formulations  of  the  CI  : 1.  The  Formula  of  Universal  Law -­  rationality=  logic -­  to  be  consistent:  anything  that  is  not  is  irrational  and  immoral  for  Kant -­  once  it  is  universalized  you  must  check  for  inconsistencies -­  is  easy  for  people  to  misunderstand  and  think  that  the  test  requires  that  we  see whether  or  not  a  good  or  bad  state  of  affairs  results  from  universalized  version  of  the  maxim -­  it  tests  whether  it  is  possible  for  everyone  to  will  it  and  still  achieve  the purposes  of  the  maxims 2.  The  Formula  for  Humanity -­  intuitive  version  of  the  CI -­  “Act  in  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” -­  logical  rule  of  consistency  still  applies -­  humanity=  valuable  in  itself -­  “  An  end  is  something  that  is  valuable  in-­itself  and  a  means  si  something  that  is valuable  only  as  a  way  to  get  what  you  want  or  achieve  an  end” -­  eliminates  lying  or  deceiving -­  eliminates  using  ourselves  without  the  consent  of  our  rationality  and  it  prohibits our  use  of  other  people  without  the  consent  of  their  rationality -­  not  consistent  with  someone  giving  their  consent,  because  it  doesn’t necessarily  mean  they’re  giving  their  “rational”  consent -­  giving  one’s  rational  consent:  reflecting  n  the  action  and  its  consequences,  and examining  whether  it  is  a  good  thing  for  one  to  perform  it i.e.  sign  up  for  a  credit  card  with  interest.  One  may  agree  to  a  credit card  but  no  rational  person  would  consent  to  an  interest  charge  -­  therefore  impermissible  and  immoral for  anyone  to  ask  a  person  to  sign  such  a  contract -­  people  ought  never  to  be  unfair  or  treat  people  poorly 3.    The  Formula  for  Autonomy The  Good  Will:  Right  Motivations -­  after  determining  permissible,  impermissible,  one  must  determine  whether  the motivation  for  the  act  is  good -­  not  good=  will  not  come  from  the  Good  Will -­  examine  the  three  maxims  and  the  the  different  motivations  that  accompany these  maxims  (Kant’s  example  of  a  shopkeeper  who  treats  his  customers  honestly  for  three  distinct purposes) 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  the  customers  because  that  is  the  right  thing  to  do Three  Types  of  Motivation  (respective  to  above) A.  Self  Interest  (1) B.  Character  or  Sympathy  (2) C.  The  Moral  Law  or  Duty  (3) -­  only  3  deserves  recognition 3.  If  it  comes  from  the  good  will,  it  is  good,  and  you  are  good  in  doing  it;;  if  it  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  for  the  right  motive  and  so  you  are  not  praiseworthy The  Social  Responsibility  of  Business  Is  to  Increase  Its  Profit Milton  Friedman -­  business  has  responsibilities?  Only  people  have  responsibilities. -­  corporation  is  an  artificial  person  and  in  this  sense  may  have  artificial  responsibilities,  but business  as  a  whole  cannot  be  said  to  have  responsibilities,  even  in  this  vague  sense -­  first  step  towards  clarity  in  examining  the  doctrine  or  social  responsibilities  of  business:  Ask precisely  what  it  implies  and  for  whom corporate  executive  :  an  employee -­  direct  responsibility  to  his  employers -­  responsibility:  to  conduct  duties  in  accordance  to  their  desires -­  corporations  for  eleemosynary  purposes  (e.g.  school)  -­  manager  will  not  have  money profit  as  his  objective  but  the  rendering  of  certain  services -­  point  is:  his  capacity  as  a  corporate  executive,  the  manager  is  the  agent  of  the individuals  who  own  the  corporation  or  establish  the  eleemosynary  institution,  and  his  primary responsibility  is  to  them -­  criterion  of  performance  is  straightforward-­  and  the  persons  among  whom  a  voluntary contractual  arrangement  exists  are  clearly  defined -­  social  responsibility  in  his  capacity  as  a  businessman -­  rhetoric  statement?  or  it  must  mean  that  he  is  to  in  some  way  act  that  is  not  in  the interest  of  his  employers e.g.  refrain  from  increasing  the  principal  objective  of  preventing  inflation e.g.  make  expenditures  on  reducing  pollution  beyond  the  amount  that  is  in  the  best interests  of  the  corporation -­  each  of  these  cases:  he  uses  someone  else’s  money  for  a  general  social  interest -­  stockholders,  customers,  employees  could  separately  spend  their  own  money  on  the particular  action  if  they  wished  to  do  so Raises  political  questions  on  two  levels: 1.  Principles -­  imposition  of  taxes  +expenditure  or  tax  proceeds  are  governmental  functions -­  taxes  without  representation,  checks  and  balances  to  separate  the  legislative  function of  imposing  taxes  and  enacting  expenditures  from  the  executive  function  of  collecting  taxes  and administering  expenditure  programs  and  from  the  judicial  function  of  mediating  disputes  and  interpreting the  law -­  businessman:  simultaneously  the  legislator,  jurist,  and  executive -­  permitting  the  corporate  executive  to  be  selected  by  the  stockholders  is  that  he  is  an  agent serving  the  interests  of  his  principal  (justification  disappears  when  he  imposes  taxes,  and  spends  for social  purposes) -­  becomes  in  effect  a  public  employee,  a  civil  servant -­  intolerable  that  such  civil  servants  should  be  selected  as  they  are  now  (must  be  elected  through a  political  process) Basic  analogy  of  why  the  doctrine  of  “social  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 2.  Consequences -­  can  the  executive  in  fact  discharge  his  alleged  social  responsibilities? -­  assuming  he  gets  away  with  spending  the  money  of  employees,  stockholders  etc.  How is  he  to  know  how  to  spend  it? -­  he  is  told  to  contribute  to  fighting  inflation,  how  is  he  to  know  what  action  of  his  will will  contribute  to  that  end? -­  he  is  an  expert  at  running  his  company-­  but  nothing  about  hat  makes  him  an  expert  in inflation etc. -­  facet  of  social  responsibility  is  brought  to  sharp  relief  when  the  doctrine  is  used  to  justify  wage  restraint by  trade  unions -­  conflict  of  interest  is  naked  when  union  officials  are  asked  to  subordinate  the  interest  of  their members  to  some  more  general  purpose -­  i.e.  union  officials  enforce  wage  restraint:  consequences  are  strikes,  revolts  etc. -­  ironic  phenomenon  that  union  leaders  have  objected  to  Government  interference  with  the market  far  more  consistently  and  courageously  than  have  business  leaders -­  difficulty  of  exercising  social  responsibility:  virtue  of  private  competitive  enterprise  (forces  people  to  be responsible  for  their  own  actions  and  makes  it  difficult  for  them  to  “exploit”  other  people  for  either selfish  or  unselfish  purposes -­  they  can  do  good-­  only  at  their  own  expense -­  Adam  Smith’s  skepticism  about  benefits  that  can  be  expected  from  those  who  affected  to  trade  for  the public  good -­  rejected  on  the  grounds  of  principle -­  an  assertion  that  those  who  favour  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 -­  GM  -­  gain  of  stockholders  against  their  will  for  social  benefits  because  of  activists  (GM-­  The environmentalist  Mark  Lynas  said  GM  crops  could  help  provide  more  food  at  a  lower  price  by  reducing the  need  for  pesticides  and  fertilisers.-­  said  the  poorest  people  of  the  world  could  benefit  from  crops with  additional  nutrients,  or  designed  to  resist  droughts  and  floods,  but  were  not  being  developed because  people  in  positions  of  power  said  GM  was  dangerous) -­  situation  of  individual  proprietor -­  different -­  if
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