Business Ethics Concepts and Cases, 7E Manuel G. Velasquez Test Bank & Instructor Manuals.pdf

For exam and test prep, contact excellentessaywriters@gmail.com

Type:

Test Bank and Instructor Manual

Business Ethics Concepts and Resource: Cases Edition:

7th Edition

Author(s):

Manuel G. Velasquez

Instructor’s Manual and Test Bank for

Velasquez

Business Ethics Concepts and Cases Seventh Edition

prepared by Richard Trevisan Santa Clara University

Victor Heller University of Texas at San Antonio

For exam and test prep, contact excellentessaywriters@gmail.com

Contents Preface

v

Chapter

1 Ethics and Business

1

Chapter

2 Ethical Principles in Business

21

Chapter

3 Business: Government, Markets, and International Trade The

40

Chapter

4 Ethics in the Market Place

54

Chapter

5 Business and Its External Exchanges: Ecology and Consumers

65

Chapter

6 Ethics of Consumer and Marketing The

81

Chapter

7 Ethics and Employees

94

Chapter 8

Ethics and the Employee

105

.. iii

Preface This Instructor’s Manual will help instructors to use the 7th edition of Manuel G. Velasquez’ Business Ethics Concepts and Cases text book. The manual provides materials designed to assist instructors in presenting central concepts, preparing instructional materials, leading classroom discussions, and organizing other learning activities. Additions to this edition’s Instructor’s Manual are Extra Resources in the form of documentary videos and websites.

The Instructor’s Manual follows the chapter structure of the textbook. For each chapter, instructors will find the following instructional aides.

Chapter Overview – This section provides a summary of what is covered in the chapter, pointing out the themes, ideas, and concepts that the chapter emphasizes. This section will help instructors organize a presentation of the chapter Extra Resources – Numerous published videos have been identified to emphasize certain points for each chapter. In addition, other websites and You Tube videos have been identified for the same purposes. However, there is no guarantee that these websites or YouTube videos will continue to be active.

Questions for Class Discussions – This section provides questions that are intended to stimulate student interaction with and involvement in the topics covered by the chapter.

Instructors should, of course, feel free to adapt them to suit the interests and skill levels of their students.

Activities and Assignments – This section includes suggestions for additional individual and group activities, both in and out of the classroom.

Chapter Quiz Question – This section is designed to provide the instructor with chapter quiz questions on the readings..

Prentice Hall also provides a Companion Website that offers additional instructional materials: an overview of each chapter, a list of key terms and definitions, self-evaluation questions, and Web destinations. Instructors may wish to consult the site themselves and/or to direct their students to make use of the site: http://www.prenhall.com/Velasquez.

.. v

CHAPTER ONE Ethics and Business Overview Introduction This chapter presents an introduction to the basic principles of ethics in general and shows how these principles are relevant to businesses. It begins with a case study of Merck and Company, discussing how they dealt with the problem of developing a drug that was potentially life-saving but which presented them with little, if any, chance of earning a return on their investment.

The drug was Ivermectin, one of their best-selling animal drugs. The potential market for the drug was those suffering from river blindness an agonizing disease afflicting about 18 million impoverished individuals in Africa and Latin America. The disease is particularly horrendous: worms as long as two feet curl up in nodules under an infected person's skin, slowly sending out offspring that cause intense itching, lesions, blindness, and ultimately death (though many sufferers actually commit suicide before the final stage of the disease).

The need for the drug was clear. However, the victims of river blindness are almost exclusively poor. It seemed unlikely that Merck would ever recoup the estimated $100 million it would cost to develop the human version (named Mectizan) of the drug. Moreover, if there proved to be adverse human side effects, this might affect sales of the very profitable animal version that were $300 million of Merck’s $2 billion annual sales. Finally, Congress was getting ready to pass the Drug Regulation Act, which would intensify competition in the drug industry by allowing competitors to more quickly copy and market drugs originally developed by other companies.

Question: Was Merck morally obligated to develop this drug? Their managers felt, ultimately, that they were. They even went so far as to give the drug away for free. This story seems to run counter to the assumption that, given the choice between profits and ethics, companies will always choose the former. The choice, however, may not be as clear-cut as this dichotomy suggests. Some have suggested that, in the long run, Merck will benefit from this act of kindness just as they are currently benefiting from a similar situation in Japan.

Even so, most companies would probably not invest in an R & D project that promises no profit. And some companies often engage in outright unethical behavior. Still, habitually engaging in such behavior is not a good long-term business strategy, and it is the view of this book that, though unethical behavior sometimes pays off, ethical behavior is better in the long run.

A more basic problem is the fact that the ethical choice is not always clear. Merck, as a forprofit corporation, has responsibilities to its shareholders to make a profit. Companies that spend all their funds on unprofitable ventures will find themselves out of business.

This book takes the view that ethical behavior is the best long-term business strategy for a company—a view that has become increasingly accepted during the last few years. This does not mean that occasions never arise when doing what is ethical will prove costly to a company, such as Merck with its VIOXX experience. Such occasions are common in the life of a company, and we will see many examples in this book. Nor does it mean that ethical

..

1

behavior is always rewarded or that unethical behavior is always punished. On the contrary, unethical behavior sometimes pays off, and the good guy sometimes loses. To say that ethical behavior is the best long-range business strategy means merely that, over the long run and for the most part, ethical behavior can give a company significant competitive advantages over companies that are not ethical. The example of Merck and Company suggests this view, and a bit of reflection over how we, as consumers and employees, respond to companies that behave unethically supports it. Later we see what more can be said for or against the view that ethical behavior is the best long-term business strategy for a company.

This text aims to clarify the ethical issues that managers of modern business organizations must face. This does not mean that it is designed to give moral advice to people in business nor that it is aimed at persuading people to act in certain moral ways. The main purpose of the text is to provide a deeper knowledge of the nature of ethical principles and concepts and an understanding of how these apply to the ethical problems encountered in business.

This type of knowledge and understanding should help managers more clearly see their way through the ethical uncertainties that confront them in their business lives—uncertainties such as those faced by the managers of Merck.

1.1 The Nature of Business Ethics According to the dictionary, the term ethics has a variety of different meanings. One of its meanings is: "the principles of conduct governing an individual or a group”. We sometimes use the term personal ethics, for example, when referring to the rules by which an individual lives his or her personal life. We use the term accounting ethics when referring to the code that guides the professional conduct of accountants.

A second—and more important—meaning of ethics, according to the dictionary, is: Ethics is "the study of morality." Ethicists use the term ethics to refer primarily to the study of morality, just as chemists use the term chemistry to refer to a study of the properties of chemical substances. Although ethics deals with morality, it is not quite the same as morality. Ethics is a kind of investigation—and includes both the activity of investigating as well as the results of that investigation—whereas morality is the subject matter that ethics investigates.

This chapter discusses the case of B.F. Goodrich to clarify these definitions. Kermit Vandivier was presented with a moral quandary: he knew that Goodrich was producing brakes for the U.S. government that were likely to fail, but was required by his superiors to report that the brake passed the necessary tests. His choice was to write the false report and go against his ethical principles, or be fired and suffer the economic consequences.

He chose the former, even though his moral standards were in conflict with his actions.

Such standards include the norms we have about the kinds of actions we believe are right and wrong, such as "always tell the truth." As Vandivier shows, we do not always live up to our standards. Moral standards include norms we have about the actions we believe are morally right and wrong, as well as the values we place on what we believe is morally good or morally bad.

There are other types of standards as well, such as standards of etiquette, law, and language. Moral standards can be distinguished from non-moral standards using five characteristics:

..

2

1.Moral standards deal with matters that can seriously injure or benefit humans. For example, most people in American society hold moral standards against theft, rape, enslavement, murder, child abuse, assault, slander, fraud, lawbreaking, and so on.

2.Moral standards, we feel, should be preferred to other values, including self-interest.

This does not mean, of course, that it is always wrong to act on self-interest; it only means that it is wrong to choose self-interest over morality.

3.Moral standards are not established or changed by authoritative bodies. The validity of moral standards rests on the adequacy of the reasons that are taken to support and justify them; so long as these reasons are adequate, the standards remain valid.

4.Moral standards are felt to be universal. People must abide by these standard rules whether they want to or not.

5.Moral standards are based on impartial considerations. The fact that you will benefit from a lie and that I will be harmed is irrelevant to whether lying is morally wrong.

6.Moral standards are associated with special emotions and a special vocabulary (guilt, shame, remorse, etc.). The fact that you will benefit from a lie and that I will be harmed is irrelevant to whether lying is morally wrong.

Ethics is the discipline that examines one's moral standards or the moral standards of a society. It asks how these standards apply to our lives and whether these standards are reasonable or unreasonable—that is, whether they are supported by good reasons or poor ones. Therefore, a person starts to do ethics when he or she takes the moral standards absorbed from family, church, and friends and asks: What do these standards imply for the situations in which I find myself? Do these standards really make sense? What are the reasons for or against these standards? Why should I continue to believe in them? What can be said in their favor and what can be said against them? Are they really reasonable for me to hold? Are their implications in this or that particular situation reasonable?

Taking Vandivier as an example, we might ask if writing the false report was really wrong given his responsibilities to support his family. Moreover, the company, not Vandivier, would be held responsible for any faulty brakes. Finally, as in 5. above, even if he did not cooperate and was consequently fired, the brakes would still be manufactured and installed.

The consequences of writing the report or not would be the same, except that if he chose not to participate he would be fired. It is in considering such points that we begin to do ethics.

Ethics is the study of moral standards—the process of examining the moral standards of a person or society to determine whether these standards are reasonable or unreasonable in order to apply them to concrete situations and issues. The ultimate aim of ethics is to develop a body of moral standards that we feel are reasonable to hold—standards that we have thought about carefully and have decided are justified standards for us to accept and apply to the choices that fill our lives.

Ethics is not the only way to study morality. The social sciences—such as anthropology, sociology, and psychology—also study morality, but do so in a way that is quite different from the approach to morality that is characteristic of ethics. Although ethics is a normative study of ethics, the social sciences engage in a descriptive study of ethics.

Other fields, such as the social sciences, also study ethics; but they do so descriptively, not normatively. That is, they explain the world but without reaching conclusions about whether it ought to be the way it is. Ethics itself, on the other hand, being normative, attempts to determine whether or not standards are correct.

A normative study is an investigation that attempts to reach normative conclusions—that

..

3

is, conclusions about what things are good or bad or about what actions are right or wrong.

In short, a normative study aims to discover what ought to be.

A descriptive study is one that does not try to reach any conclusions about what things are truly good or bad or right or wrong. Instead, a descriptive study attempts to describe or explain the world without reaching any conclusions about whether the world is as it ought to be.

Business ethics is a specialized study of right and wrong applied to business policies, institutions, and behaviors. This is an important study since businesses are some of the most influential institutions within modern society. Business organizations are the primary economic institutions through which people in modern societies carry on the tasks of producing and distributing goods and services. They provide the fundamental structures within which the members of society combine their scarce resources—land, labor, capital, and technology—into usable goods, and they provide the channels through which these goods are distributed in the form of consumer products, employee salaries, investors' return, and government taxes. Today large corporate organizations dominate our economies.

Though business ethics cover a variety of topics, there are three basic types of issues:

1. Systemic issues ─ questions raised about the economic, political, legal, or other social systems within which businesses operate. These include questions about the morality of capitalism or of the laws, regulations, industrial structures, and social practices within which American businesses operate.

2. Corporate issues ─ questions raised about a particular company. These include questions about the morality of the activities, policies, practices, or organizational structure of an individual company taken as a whole.

3. Individual issues ─ questions about a particular individual within an organization and their behaviors and decisions. These include questions about the morality of the decisions, actions, or character of an individual.

Some theorists maintain that moral notions apply only to individuals, not to corporations themselves. They say that it makes no sense to hold businesses "responsible" since businesses are more like machines than people. Others counter that corporations do act like individuals, having objectives and actions, which can be moral or immoral just as an individual's action might be.

In 2002, for example, the Justice Department charged the accounting firm of Arthur Andersen for obstruction of justice. Arthur Andersen was caught shredding documents showing how they helped Enron hide its debt through the use of several accounting tricks.

Critics afterward claimed that the Justice Department should have charged the individual employees of Arthur Andersen, not the company, because "Companies don't commit crimes, people do."

Perhaps neither extreme view is correct. Corporate actions do depend on human individuals who should be held accountable for their actions. However, they also have policies and culture that direct individuals, and should therefore be held accountable for the effects of these corporate artifacts.

Nonetheless, it makes perfectly good sense to say that a corporate organization has moral duties and that it is morally responsible for its acts. Corporate policies, corporate culture, and corporate norms all have an enormous influence on the behavior of corporate

..

4

employees. This is not to say that those human beings who make up a corporation are not influenced by each other and by the corporate environment.

However, organizations have moral duties and are morally responsible in a secondary sense; a corporation has a moral duty to do something only if some of its members have a moral duty to make sure it is done, and a corporation is morally responsible for something only if some of its members are morally responsible for what happened.

There are those that object to the application of ethics in business based on three arguments, which are shown here in italics with a criticism of each argument.

1. In a free market, the pursuit of profit will ensure maximum social benefit. a. First, most markets are not perfectly competitive markets b. Second, the argument assumes that any steps taken to increase profits will necessarily be socially beneficial. Companies pursuing profit and using unethical practices can hardly be called competitive. For example, polluting our environment at the same time can hardly be called ethical. The same goes for price fixing, tax evasion, deceptive advertising, fraud, bribery and concealing product hazards. When these practices are in play, the market is not freely competitive.

2. A manager’s most important obligation as an agent is loyalty to the company regardless of any ethical issue. a. The loyal agent’s argument assumes that there are no limits to the manager’s duties to serve the employer when, in fact, there are, i.e., the law of agency states “…, in no event would it be implied that an agent has a duty to perform acts which are illegal or unethical.” b. Agreements do not change the moral character of wrongful acts nor does the argument “I was following orders” justify them.

3. So, as long as the companies obey the law, they will have done all that ethics requires. a. Our pre-civil war slavery laws were contrary to any form of moral mandate. b. The laws of Nazi Germany required anti-Semitic behavior. c. Goldman Sachs helped Greece hide loans larger than European Union rules allowed by disguising them as currency exchanges that did not have to be disclosed. The Goldman Sachs managers were in effect saying if it was legal, it was ethical.

There are arguments that support ethics in business. They include: 1. Ethics applies to all human activities.

2. Business cannot survive without ethics.

3. Ethics is consistent with profit seeking.

4. Customer, employees, and people in general care about ethical behavior.

5. Studies suggest that ethics does not detract from profits and seems to contribute to it.

Ethics is sometimes confused with corporate social responsibility (CSR). Corporate social responsibility refers to a corporation’s responsibilities or obligations toward society.

There are disagreements in business as well as in the academic world about what those obligations include. The conflict is between the two sides that ask: do companies have a responsibility to donate to charities or to give their employees higher wages and customers’ safer products? Or is the company obligated to maximize profits for their shareholders? At ..

5

the heart of this is the question: What is the purpose of business? The late Milton Friedman argued that in a “free enterprise private property system” the corporate executives work for the owners (shareholders) and must run the company in accordance with their desires, which is usually to ethically and legally make as much money as possible. He went on to say that businesses are obligated only to the stockholders and that owners have the right to say how the corporation should be run because they own the corporation Further, a so managers are obligated to do what the stockholders want. manager has no right to give company money to social causes when doing so will reduce shareholder’s profits. Managers can pay higher wages to employees or provide better products for customers, or give money to local community groups or other causes, if in doing so will make profits for the shareholders.

Friedman has many critics. They claim that the manager is an employee of the corporation, So, the shareholders. not executive is bound to serve the interests of his true employer, not the shareholders. Secondly, the shareholders have limited rights such as the right to elect the board of directors, the right to vote on major company decisions and right to whatever remains after the corporation goes bankrupt and pays off its creditors. Third, the executive’s responsibility, as Friedman claims, is to run the corporations as the stockholders want the company to be run. In reality the executive probably has no idea how stockholders want the company to be run. He/she really is required to run the company in ways that serve many other interests (including employee and consumer interests) besides those of the shareholders. Lastly, Friedman’s claim that when companies maximize shareholders’ returns, society will best be served is not always socially beneficial.

Sometimes competitive forces steer companies in a socially harmful way.

A very different view is that of a “stakeholder’s theory”. Two scholars, Edward Freeman and David Reed, pioneered this view. Any identifiable group or individual who can affect the achievement of an organization’s objectives or who is affected by the achievement of an organization’s objectives is a stakeholder. In other words, a stakeholder has a stake in the company. A company should be run for the benefit of all stakeholders. This is based on two supporting arguments, instrumental and normative arguments. Instrumentally, if a company takes all stakeholders’ interests into account, they will be disposed to do their part to support the company and its interests. From a normative viewpoint, and out of fairness, All theof company these is ethically obligated to be responsive to all stakeholders. concepts – rights, obligations, and fairness are ethical concepts so ethics is not only part of a company’s responsibilities. Ethics also provides the basic normative reasons for corporate social responsibility.

Which approach is correct, shareholder or stakeholder?

Many businesses accept the stakeholder theory, and most of the fifty U.S. States have passed laws that recognize business’ obligations to its many stakeholders, even at the expense of stockholder interests.

1.2 Ethical Issues in Business Technology consists of all those methods, processes, and tools that humans invent to manipulate and control their environment. This has challenged contemporary business and societies are transformed by the rapid evolution of new technologies. This presents new ethical issues for business.

Throughout history, there have been technological changes from the agricultural revolution at the beginning of mankind, to the industrial revolution in the eighteenth century, to new ..

6

technologies presenting themselves at the end of the 20th century.

The more recent technologies included: information, nano and genetic technologies transforming society and business and creating the potential for new ethical problems. They bring with them questions of risks, which may be unpredictable and/or irreversible. Who should decide whether the benefits of a particular technology are worth the risks? How will victims of bad technology be compensated for their loss? How will risk be distributed? How will privacy be maintained? How will property rights be protected?

And what about the question of property rights as related to information technologies.

What kind of rights does the original creator of the information have and how does it differ from the property rights of someone who buys a copy? Is it wrong for me to use my company’s computer system for personal business or to log onto websites that have nothing to do with my work?

Virtually all of the 500 largest U.S. industrial corporations today are multinationals.

Operating in more than one country at once produces a new set of ethical dilemmas. For example, multinationals can escape environmental regulations and labor laws by shifting to another country. They can shift raw materials, goods, and capital so that they escape taxes.

In addition, because they have new technologies and products that less developed countries have, multinationals must decide when a particular country is ready to assimilate these new things. They are also faced with the different moral codes and laws of different countries.

Even if a particular norm is not unethical, they must still decide between competing standards in their many operations.

Many issues that arise in business are related to the phenomenon of globalization. This refers to the way nations are becoming connected so that goods, services, capital knowledge, and cultural artifacts move across national borders at an increasing rate. The volume and rate of transfer across borders has transformed the face of our world.

Multinational Corporations are at the heart of this process. Multinational corporations are companies that have manufacturing, marketing, service, and administrative operations They in many market different theirnations. products in whatever nations offer manufacturing advantages and attractive markets. They draw capital, raw materials, and human labor from wherever in the world they are cheap and available. All of the 500 largest U.S. industrial corporations are multinationals.

Globalization has brought the world many benefits as the recognized name brands like Nike, Motorola, General Electric and Ford build factories and establish assembly operations in countries with low labor costs. They bring jobs, skills, income, and technology to regions of the world that were formerly underdeveloped, raising the standards of living for these countries and providing low priced goods.

But globalization has been blamed for inflicting significant harms on the world as well.

Critics claim it has benefited developed nations but have left behind many poorer nations that only have Additionally, multinationals cheap agricultural have products to trade. brought Western culture everywhere through movies, books, songs, games, toys, television show, electronic gadgets, dances, fast foods, brands, art, magazines and clothes, driving out distinctive local cultures and traditions that are in danger of diminishing or disappearing altogether.

Critics have also said that multinationals can now pull their operations out of one country and insert them into another that offers cheaper labor, less stringent laws and lower taxes. ..

7

They play one nation against another that has created a “race to the bottom.” In addition, globalization has caused serious dilemmas for multinational managers. Forcing the managers to deal with host countries whose laws, government practices, levels of development and cultural understanding are sometimes much different than those from which the multinational’s managers are familiar. Laws being different in foreign countries, the multinational manager is faced with customs that may force the manager into making the decision on which standards to adhere to, his home country’s or the host country’s. But having a blanket rule to go along with local practices as well as one that always tries to adhere to the higher standards of developed nations are both inadequate.

Instead, managers who want to operate ethically in foreign countries must judge each case as it comes along. In some cases the choice may be to choose between staying in a country and going along with a local practice that is clearly and seriously evil, or doing what is right and leaving the country.

Ethical relativism is the theory that, because different societies have different ethical beliefs, there is no rational way of determining whether an action is morally right or wrong other than by asking whether the people of this or that society believe it to be right or wrong by asking whether people of a particular society believe that it is. In fact, the multiplicity of moral codes demonstrates that there is no one "right" answer to ethical questions. The best a company can do is follow the old adage, "When in Rome, do as the Romans do." In other words, there are no absolute moral standards.

Critics of ethical relativism point out that it is illogical to assume that because there is more than one answer to an ethical question that both answers are equally correct or even that either answer is correct. They also maintain that there are more similarities than differences even among what seem to be very divergent societies.

The late Philosopher James Rachels put the matter quite succinctly: The fact that different societies have different moral codes proves nothing. There is also disagreement from society to society about scientific matters: in some cultures it is believed that the earth is flat, and evil spirits cause disease. We do not on that account conclude that there is no truth in geography or in medicine. Instead, we conclude that in some cultures people are better informed than in others. Similarly, disagreement in ethics might signal nothing more than that some people are less enlightened than others. At the very least, the fact of disagreement does not, by itself, entail that truth does not exist.

Why should we assume that, if ethical truth exists, everyone must know it?'

However, the most telling criticisms of the theory point out that it has incoherent consequences. For example, it becomes impossible to criticize a practice of another society as long as members of that society conform to their own standards. How could we maintain that Nazi Germany or pre-Civil War Virginia were wrong if we were consistent relativists?

There must be criteria other than the society's own moral standards by which we can judge actions in any particular society. Though we should not dismiss the moral beliefs of other cultures, we likewise should not conclude that all systems of morality are equally acceptable.

..

8

This leads to a discussion of a framework called”Integrative Social Contracts Theory” (ISCT).

According to this way of looking at moral standards in different societies, there are two kinds of moral standards (1) Hypernorms which consist of moral standards that should be applied to people in all societies, and (2) Microsocial norms which are those norms that differ from one community to another and that should be applied to people only if their community accepts those particular norms. Microsocial norms can be thought of as part of a social contract that the members of a society has accepted. Examples are: 1. Hypernorms – might be human rights principles and principles of justice that apply to all people in all communities.

2. Microsocial - one example is the norm when traveling a married woman must be accompanied by her husband or a male relative, a norm that is practiced in Saudi Arabia and several other Arab countries but not in the United States nor in Europe.

ISCT claims that hypernorms take priority over microsocial norms. Moreover, according to ISCT, when a manager is operating in a foreign community, the manager should follow the microsocial norms of that community, so long as they do not violate any hypernorms. If the microsocial norms of a community violate a hypernorm, then the manager should not follow that microsocial norm.

1.3 Moral Reasoning This section investigates how we examine our own moral standards and apply them to concrete situations and issues. It first looks at the process of moral development itself.

We sometimes assume that a person's values are formed during childhood and do not change. In fact, a great deal of psychological research, as well as one's own personal experience, demonstrates that as people mature, they change their values in very deep and profound ways. Just as people's physical, emotional, and cognitive abilities develop as they age, so also their ability to deal with moral issues develops as they move through their lives.

Lawrence Kohlberg identified six stages of moral development: Moral rights Level One: Pre-conventional Stages 1. Punishment and Obedience Orientation - At this stage, the physical consequences of an act wholly determine the goodness or badness of that act. The child's reasons for doing the right thing are to avoid punishment or defer to the superior physical power of authorities. There is little awareness that others have needs similar to one’s own.

2. Instrument and Relativity Orientation- At this stage, right actions become those that can serve as instruments for satisfying the child’s own needs or the needs of those for whom the child cares.

At these first two stages, the child is able to respond to rules and social expectations and can apply the labels good, bad, right, and wrong. These rules, however, are seen as something externally imposed on the self. Right and wrong are interpreted in terms of the pleasant or painful consequences of actions or in terms of the physical power of those who set the rules.

Level Two: Conventional Stages Maintaining the expectations of one's own family, peer group, or nation is now seen as ..

9

valuable in its own right, regardless of the consequences.

1. Interpersonal Concordance Orientation - Good behavior at this early conventional stage is living to the expectations of those for whom one feels loyalty, affection, and trust, such as family and friends. Right action is conformity to what is generally expected in one's role as a good son, daughter, brother, friend, and so on.

2. Law and Order Orientation - Right and wrong at this more mature conventional stage now come to be determined by loyalty to one's own larger nation or surrounding society. Laws are to be upheld except where they conflict with other fixed social duties.

Level Three: Post-conventional, Autonomous, or Principled Stages 1. Social Contract Orientation - At this first post-conventional stage, the person becomes aware that people hold a variety of conflicting personal views and opinions and emphasizes fair ways of reaching consensus by agreement, contract, and due process.

2. Universal Ethical Principles Orientation - At this final stage, right action comes to be defined in terms of moral principles chosen because of their logical comprehensiveness, universality, and consistency.

At these stages, the person no longer simply accepts the values and norms of the groups to which he or she belongs. Instead, the person now tries to see situations from a point of view that impartially takes everyone's interests into account. The person questions the laws and values that society has adopted and redefines them in terms of self-chosen moral principles that can be justified in rational terms.

Kohlberg's own research found that many people remain stuck at an early stage of moral development. His structure implies that later stages are better than the earlier ones.

Kohlberg has been criticized for this implication, and for not offering any argument to back it up.

Carol Gilligan, a feminist psychologist, has also criticized Kohlberg's theory on the grounds that it describes male and not female patterns of moral development. Gilligan claims that there is a "female" approach to moral issues that Kohlberg ignores.

Both Gilligan and Kohlberg agree that there are stages of growth in moral development, moving from a focus on the self through conventional stages and onto a mature stage where we critically and reflectively examine the adequacy of our moral standards.

Therefore, one of the central aims of ethics is the stimulation of this moral development by discussing, analyzing, and criticizing the moral reasoning that we and others do, finding one set of principles "better" when it has been examined and found to have better and stronger reasons supporting it.

Moral reasoning itself has two essential components: an understanding of what reasonable moral standards require, and evidence or information concerning whether a particular policy, person, institution, or behavior has the features of these moral standards. People often fail to make their moral standards explicit when they make a moral judgment, mainly because they assume them to be obvious. This assumption is not always true, however; often we must retrace a person's moral reasoning to deduce what their moral standards are.

Of course, it is not always easy to separate factual information from moral standards.

..

10

Moral reasoning refers to the reasoning process by which human behaviors, institutions, or policies are judged to be in accordance with or in violation of moral standards. Moral reasoning always involves three essential components: (a) an understanding of what reasonable moral standards require, prohibit, value, or condemn; (b) evidence or information that shows that a particular person, policy, institution, or behavior has the kinds of features that these moral standards require, prohibit, value, or condemn; and (c) a conclusion or moral judgment that the person, policy, institution, or behavior is prohibited or required, right or wrong, just or unjust, valuable or condemnable, and so on.

To evaluate the adequacy of moral reasoning, ethicists employ three main criteria: 1. Moral reasoning must be logical.

2. Factual evidence must be accurate, relevant, and complete.

3. Moral standards must be consistent.

Inconsistency between moral standards can be uncovered and corrected by examining situation s in which these moral standards require incompatible things. For example, if faced with two standards that that I hold and they come in conflict with each other at some point, the situation will reveal an inconsistency between the two moral standards, meaning I cannot do both.

Consistency refers not only to the fact that one's standards must be able to coexist with each other, but also to the requirement that one must be willing to accept the consequences of applying one's moral standards consistently to others in similar circumstances. The consistency requirement is, in fact, the basis of an important critical method in ethics: the use of counterexamples and hypothetical examples.

This consistency requirement can be phrased as follows: If I judge that a certain person is morally justified (or unjustified) in doing A in circumstance C, then I must accept that it is morally justified (or unjustified) for any other person: (a) To perform any act relevantly similar to A (b) In any circumstances relevantly similar to C. Moral reasoning is only one of the processes that lead up to ethical or unethical behavior.

James Rest, a moral psychologist holds the view that four main processes precede ethical action: 1. Recognizing or becoming aware that we are faced with an ethical issue or situation.

2. Making a judgment about what the ethical course of action is 3. Forming an intention or decision to do or not to do what we judge is right.

4. Carrying out or acting on the intention or decision we have made.

These may or may not happen sequentially. However, it is not always easy to distinguish them from each other, especially if they happen simultaneously. Notice that moral reasoning is only concerned with the second process.

When we see a situation, we start to think of what a person is expected to do in that situation. Besides business, legal, and personal frames, we also apply moral frames to situations. Researchers have identified six criteria that we can and do use to decide ..

11

whether to frame a situation as an ethical situation that calls for ethical reasoning. The six criteria are: 1. Does the situation involve the infliction of serious harm on one or more people?

2. Is the harm concentrated on its victims so that each victim will, or already has, sustained a significant amount of harm” 3. Is it likely that the harm will occur (or has actually occurred?

4. Are the victims proximate, i.e., close or near to us?

5. Will the harm occur fairly soon (or has it already occurred)?

6. Is there a possibility that the infliction of the harm possibly violate the moral standards we or most people accept?

The more of these questions that we answer affirmatively the more “intense” or “important” the situation is for us and the more likely that we will frame it as an ethical situation that calls for the use of ethical standards and ethical reasoning.

Rationalizing our Actions We will now look at four main processes that lead up to ethical (or unethical) action. We will first look at impediments that can hamper these processes.

The First Step toward Ethical Behavior: Recognizing a Situation as an Ethical Situation We encounter ethical situations every day. But before we can start to think about those issues, we first have to recognize that the situation we have encountered is one that calls for ethical reasoning. It might be a personal, business, legal or family situation. Each will require us to frame them in those terms. In addition we also apply moral or ethical frames of the situation.

While there are many ways of improving our ability to recognize whether a situation requires ethical thinking, there are also impediments that get in the way of recognition.

Albert Bandura identified six forms of “moral disengagement,” that prevent a person from recognizing or becoming aware that a situation is an ethical one. The main forms are: Euphemistic Labeling - We can use euphemisms to change or veil the way we see a situation we have encountered. If we use the word “down sizing” instead of “firing” we frame it as a business issue, rather than an ethical issue and change how we see it.

Rationalizing our actions – We can tell ourselves that the harm we intend is justified because we are pursuing a worthy cause. So, we need not look at our actions through an ethical framework.

Diminishing Comparisons – Comparing the situation in the context of other larger evils, we diminish the magnitude of our own wrongdoing and make the harms that we inflict appear minor or inconsequential and avoid looking at it through an ethical frame.

Displacement of Responsibility – By claiming that whoever told us to do the harm was primarily responsible for the harm, we mentally remove ourselves from the chain of actors responsible for the harm. Doing this, we do not have to apply an ethical frame to my actions since “I wasn’t really involved in injuring the customer.”

Diffusion of Responsibility – If I see myself as playing only a small role in a large group that is responsible for the harm; I can obscure my involvement in the activities that harm

..

12

someone. Then I can say it was really the team that did the harm and I only had a small role in the situation.

Disregarding or distorting the harm – When we deny, disregard, or distort the harm that our actions produced, then we do not have to frame our actions as needing ethical scrutiny, and we discredit the evidence.

Dehumanizing the Victim – If we can think of the victims we injure as not real or not fully human beings with human feelings and concerns, we can avoid seeing that we are harming real people, we don’t have to think of our actions through an ethical frame.

Redirecting Blame – We can blame what we have done on our adversary or on the circumstances so that we see ourselves as an innocent victim which is provoked by others or circumstances.

These six forms of moral disengagement are obstacles, which without our knowledge, can prevent us from framing the situation and thereby prevent us from thinking about it in moral or ethical terms.

The Second step toward Ethical Behavior: making a judgment Before we judge a situation we should try to gather such information about it that is accurate, relevant and complete. However our attempts to gather the information might be affected by biases that prevent us from getting the information that we need. Several forms of bias have been studied and are put into three groups: 1. Biased theories about the world, refers to beliefs we have about how the world works, the causes that make things happen, and how our actions affect the world.

Because the world floods us with such complicated information, we cannot think about it unless we simplify it. One way that we simplify it is by limiting the amount of information that we allow ourselves to think about. This leads to creating biases that inhibits our ability to take in all necessary information to clearly evaluate the situation.

2. Biased theories about other people include the beliefs we have about how we differ from others, or what the members of certain groups are like. This ethnocentrism leads to the belief that “our” way is good, while what “they” do, seems foreign, strange and less good. This can possibly lead a person to stereotype members of other groups.

3. Biased theories about oneself. Research has shown that our own views of ourselves tend to be inaccurate. Being unrealistic we believe we are more capable, insightful, courteous, honest, ethical and fair to others. We are overconfident about our ability to control random events. Thereby, we overestimate the likelihood that we will experience good events and underestimate the likelihood that we will be the ones who experience bad events leading with the result of taking unnecessary risks.

There are then a number of biases about us, others, and the world that lead us to mistaken beliefs about situations we encounter. These biases can prevent us from making decisions based upon solid information. Thinking we are making right decisions, when in fact, we might be completely wrong.

..

13

The third step toward Ethical Behavior: Deciding to do what is Right Even when I have determined what the morally right and morally wrong course of action should be in a given situation, there is no guarantee that I will do what is right. People often do what is unethical, even when they know it is unethical. The essential nature of evil is knowing something is wrong but deciding to do it anyway. There are a number of factors that influence whether we decide to do what we know is right, or decide instead to do what we know is wrong.

Ethical climate refers to the belief an organization’s members have about how they are expected to behave. Here are two examples: 1. Employees in an “egoistic” organization feel they are expected to be self-seeking and so they are.

2. Employees in an organization with a “benevolent” climate feel they are expected to do what is best for all stakeholders, i.e. employees, customers, suppliers and the community.

Not surprisingly, employees in an egoistic organization find it harder to make ethical decisions about what they know is right than do employees in a benevolent organization.

Organizations with a strong ethical culture make it easier for us to do what is right. While organizations with a strong business culture can make it harder to do what is right.

Organizations can also generate a form of “moral seduction” that exerts pressure on an ethical person to make decisions that he or she knows is wrong. Psychologists have found that moral seduction occurs one step at a time with each successive decision being more serious than the previous decision, until step-by-step the person finds himself deeply involved in unethical practices and so compromised that he feels he must continue his involvement.

The Fourth Step toward Ethical Behavior: Carrying Out one’s Decision Good intentions do not always result in good behavior because we often fail to do what we intended. When the time comes to act, I may lack the determination to do what is right.

Factors that influence whether a person acts on the moral decisions he or she intended include: 1. Weakness of will. This refers to the inability to regulate our actions so that we fail to do what we know is right when emotions, desires, or external pressures tempt us. On the other hand, the ability to be resistant to impulses and to follow one’s own convictions is referred to as “ego strength”.

2. A second important factor that affects those whether a person will decide to do what the person judges is wrong is their belief about their locus of control. Locus of control refers to whether a person believes that what happens to him or her is primarily the result of external forces such as other powerful people, or luck, or circumstances. People who believe they are in control of their own lives tend to have better control of their behavior and are more likely to do what is right, whereas those who believe that what happens to them is not in their control, but is determined by external forces, are more often swayed by external forces to do what they do not think is right.

..

14

3. The third factor that can keep a person from doing what he or she knows to be right is the ability for that person to obey an authority figure, even when they know, or suspect they know, what they are doing is wrong. The Milgram experiment was performed several years ago by psychologist Stanley Milgram.

He set up an experiment with actors and unsuspecting subjects. He tested the subjects to see how far they would go in “shocking” a person with a fake “shock machine” to the point of even killing a person. This was performed in the presence of and with pressure from an authority figure. The experiment showed that ordinary people would follow orders, even when asked to do what they believed was morally wrong, even to the point of killing a person, when there was pressure from an authority figure. In light of the experiment, it is easy to see how in business organizations, many people are likely to feel they have to go along with what managers ask them to do, even when they believe it is morally wrong.

There are impediments to carrying out the decision to do what is right, i.e., peoples’ weakness of will, their views about whether they are in control of what happens to them, and their willingness to obey an authority figure. There are other impediments to doing what we think is right: pressures from our peers put on us to do what we know is wrong, fears of the personal costs of doing what we know is right, and limited self control.

Impediments can hamper any of the four processes leading up to ethical behavior. Being armed with this knowledge, we can be better equipped to overcome the impediments.

1.4 Moral Responsibility and Blame Moral responsibility is directed not only at judgments concerning right or wrong.

Sometimes, they are directed at determining whether a person or organization is morally responsible for having done something wrong. People are not always responsible for their wrongful or injurious acts: moral responsibility is incurred only when a person knowingly and freely acts in an immoral way or fails to act in a moral way.

Ignorance and inability to do otherwise are two conditions, called excusing condition that completely eliminates a person's moral responsibility for causing wrongful injury. Ignorance and inability do not always excuse a person, however. When one deliberately keeps oneself ignorant to escape responsibility, that ignorance does not excuse the wrongful injury. A person is morally responsible for an injury or a wrong if: 1. The person caused or helped cause it, or failed to prevent it when he could and should have; 2. The person did so knowing what he or she was doing; 3. The person did so of his own free will.

Ignorance may concern the relevant facts or the relevant moral standards. Generally, ignorance of the facts eliminates moral responsibility. This is because moral responsibility requires freedom, which is impossible in the case of ignorance of the relevant facts. Inability eliminates responsibility because a person cannot have a moral obligation to do something over which he or she has no control. A person is NOT morally responsible for an injury or a wrong if: ..

15

1.The person did not cause and could not prevent the injury or wrong; 2.The person did not know he was inflicting the injury or the wrong; 3.The person did not inflict the injury or the wrong of his own free will In addition to the excusing conditions, there are also four mitigating factors that diminish moral responsibility. They are: 1. Circumstances that minimize (but do not remove) a person's involvement in an act.

2. Circumstances that leave a person uncertain (but not unsure) about what he or she is doing; 3. Circumstances that make it difficult (but not impossible) for the person to avoid doing it; 4. Circumstances show that the matter involved was of a minor nature The extents to which these mitigating circumstances can diminish an agent's responsibility depend on the seriousness of the injury. Generally, the more serious the injury, the less the mitigating circumstances will diminish responsibility.

Can there be an ethical business situation that might be called cooperating with evil.

Within the modern corporations, responsibility for a corporate act is often distributed among many cooperating parties. If a manager orders something illegal and employees carry out those orders, one party supplies that means and the other carries out the act, another The possible variations on cooperation in an evil act are endless. The group conceals it. determination for responsibility is the same if I knowingly and freely bring about the wrong, even though I rely on other things and people, I am fully morally responsible for the wrongs that I inflict, even though the responsibility is shared by others.

In this case, I cannot hide behind the loyal agent argument. If I knowingly and of my own free will cause an injury, the fact that I was following orders at the time does not change the reality that I fulfilled the three conditions that qualify me as morally responsible for my actions.

Extra Resources

1. “The Dark Side of Chocolate” (2010) is a 47 minute documentary on the slavery of children and others in western Africa, particularly in Ivory Coast. It is available from at: (www.LaborRights.org) The International Labor Rights Forum https://afl.salsalabs.com/o/4058/donate_page/darkside .

2. “The Corporation” (2004) is a 145 minute Documentary on the corporation with interviews of Milton Friedman, Noam Chomsky, Naomi Klein, and many others.

3. “Inside Job” (2011) is a 120 minute documentary on the Wall Street and banking malfeasance that helped create the global financial crisis.

4. “Quiet Rage: the Stanford Prison Experiment” is available for purchase from Prisonexp.org at www.prisonexp.org/documentary.htm or streaming on Google Video and YouTube; “The Milgram Experiment Revisited” (2007) is an ABC Primetime video available at the online abcnews Store, while “Milgram’s Obedience to Authority Experiment” (2009) a BBC documentary and “Milgram Experiment” (1962) can both be streamed at YouTube.

5. “Wal-Mart the high cost of low price” (2005) is a 98 minute documentary that uncovers a retail giant's impact on families and communities struggling to fight a goliath. The video tells about a working mother, other company employees, and the owner of a small Missouri family that loses its business after Wal-Mart is given over

..

16

$2 million to open its doors down the road. Producer/Director Robert Greenwald and Brave New Films . Read more in the director's introduction .

6. A website that describes the work that Merck did when faced with the discovery of blindness the possible medicine that would eradicate river http://www.suite101.com/content/eliminating-river-blindness-a25397 7. A website showing that even corporations that provide altruistic efforts can sometimes engage in what appears to be a different behavior in other situations. The website shows how Merck dealt with the VIOXX product liability lawsuits. http://www.merck.com/newsroom/news-release-archive/corporate/2007_1109.html.

..

17

Questions for Class Discussion 1. Why did the officials at Merck finally decide to produce the "river blindness" medicine, even though it seemed unlikely that they would recoup their investment? Should corporations be required to act as Merck did?

2. What is the distinction between ethics and morality? Discuss the different meanings of the word "ethics," and encourage students to come up with examples that elucidate the distinctions between these definitions.

3. What would you have done in Vandivier's case? Is he to blame for any injuries that resulted from the faulty brakes, or are his actions excusable? Are there any mitigating circumstances that lessen his moral culpability?

4. What are the six characteristics that distinguish moral standards? Why is each of them necessary to define moral standards in general?

5. What are the three basic types of ethical issues? Come up with an example of an ethical issue for each type.

6. How do moral obligations apply to business organizations? Can companies be held accountable for what they do, or are the individuals who make up the company the ones we must hold accountable? Discuss the major arguments concerning corporate responsibility.

7. What special ethical issues face multinational corporations? How should they, and society, respond to these issues?

8. What is ethical relativism? What are the difficulties with the theory? What does it have to offer us, even if it seems largely mistaken?

9. What are the three criteria used to evaluate the adequacy of moral reasoning? Have students apply the criteria to a series of moral judgments to evaluate each example's relative adequacy.

10. What are the objections to bringing ethics into business? What are arguments in favor of doing so? Which side is more persuasive?

11. What considerations are relevant when we assign blame for an injurious act? What is the distinction between excusing conditions and mitigating circumstances?

12. When evaluating an ethical dilemma, does the closeness of a stakeholder relationship influence the outcome of how it is dealt with?

Activities and Assignments 1. Using the Merck "river blindness" example, have students in small groups take on the roles of Merck officials and consider the issue themselves. What are the moral standards that support their view? How will they balance their competing responsibilities to society and to their shareholders? This activity would also work with the class as a whole, unless it is too large.

2. Consider a real-life scenario of a large multinational corporation in the face of the special ethical concerns mentioned in the chapter. Assign students (or groups of students) to different corporations and ask them to investigate how their multinational has responded to the issues raised in the chapter. Have them decide, as a group, which firm or firms are more ethical, and see if they can find any correlation between their relative moral level and their profitability.

3. Have students identify some new ethical issues raised by new technologies. Then have them identify the moral standards each issue relates to.

4. Break students up into six different groups, corresponding to the stages of moral development outlined by Kohlberg. You may also form another group enacting Gilligan's ethics of care. Then give the class a series of hypothetical examples and ask each group to respond appropriately, explaining how they determine what the moral thing to do would be. ..

18

Quiz Questions: Chapter One 1. According to the dictionary, the term ethics has a variety of different meanings. One of its meanings is: The principles of conduct governing an individual or a group. a. True b. False Answer: A 2. Moral standards can be distinguished from non-moral standards using the following characteristics: a. They deal with matters that can seriously injure or benefit humans. b. Are not established or changed by authoritative bodies. c. They are based on impartial considerations. d. A & C e. All the above Answer: E 3. Ethics is the discipline that examines one's moral standards, or the moral standards of a society. a.

True b.

False Answer: A 4.

Though business ethics covers a variety of topics, three basic types of issues are: a. Systematic, corporate and public b. Systematic, corporate and individual c. Individual, group and social d. None of the above Answer: B 5. Ethical relativism is the theory that, because different societies have different ethical beliefs, there is no rational way of determining whether an action is morally right or wrong other than by asking the people of that society what they believe. a. True b. False Answer: A

6.

Lawrence Kohlberg identified twelve stages of moral development. a.

True b.

False Answer: B

7.

To evaluate the adequacy of moral reasoning, ethicists employ the following criteria: a. Moral reasoning must be logical. b. Factual evidence must be accurate, relevant, and complete. c. Moral standards must be consistent. d. A & B e. A, B & C Answer: E

..

19

8. Producing what the buying public wants may not be the same as producing what the entirety of society needs. The argument is essentially making a normative judgment on the basis of some assumed but unproved moral standards. a. True b. False Answer: A 9. The “Loyal Agent Argument” states: An employer would want to be served in whatever ways will advance his or her self-interests. Therefore, as a loyal agent of his or her employer, the manager has a duty to serve his or her employer in whatever ways will advance the employer's self-interests. a. True b. False Answer: A to fund the 10. Dr. P. Roy Vagelos, Merck’s head of research and development, decided money required to develop Ivermectin to cure river blindness because of its large profit potential. a. True b. False Answer: B 11. The Ivory Coast farmers kidnapped young boys to provide a safe place for them to live? a. True b. False Answer: B 12. Which chocolate candy maker(s) use morally tainted cocoa beans? a. Hershey’s Milk Chocolate, b. M & M Mars, Inc. c. Nestle´ USA d. All of the above Answer: D 13. According to Edward Freeman and David Reed corporate managers are obligated only to the shareholders, and no one else, because they own the corporation. a. True b. False Answer: B 14. Microsocial norms take priority over hypernorms. a. True b. False Answer: B 15. Richard Scrushy, former CEO of HealthSouth, was convicted of___________? a. Defrauding Medicare & falsifying reports b. Stealing company property c. Bribery, conspiracy and mail fraud d. Bigamy Answer: C

..

20

CHAPTER TWO Ethical Principles in Business Overview Introduction In this chapter, we begin with a discussion of apartheid-era South Africa and Caltex, an American oil company operating in South Africa during that time. A large number of Caltex stockholders opposed the company's operations in South Africa, and introduced a series of shareholder resolutions requiring Caltex to leave South Africa, which they saw as racist and immoral. Caltex’s management did not agree. Rather than focusing on the financial assistance they were giving the South African government, they pointed to the positive effects their operations had on black workers.

South African leaders, such as Archbishop Desmond Tutu, were not convinced by Caltex's arguments. He supported the shareholder resolutions, saying that comfort under an immoral regime was not preferable to freedom, even at the cost of economic hardship.

The point of this example is to show how a real moral debate in business works. The arguments on both sides appealed to moral considerations and four basic types of moral standards: utilitarianism, rights, justice, and caring. The shareholders' argument referred to the unjust policies of the apartheid government and the fact that these policies violated the civil rights of black citizens. On the other side, Caltex's management made utilitarian arguments and arguments about caring: it was in blacks' best interests to have Caltex jobs, and Caltex had a duty to take care of these workers as best it could. In addition, both sides refer to the moral character of the groups involved, basing these distinctions on what is called the ethic of virtue.

The following sections of this chapter explain each of these approaches, identifying their strengths and weaknesses and showing how they can be used to clarify the moral issues we confront in business.

2.1 Utilitarianism: Weighing Social Costs and Benefits Utilitarianism (or consequentialism) characterizes the moral approach taken by Caltex's management. Another example, Ford and its infamous Pinto, demonstrates just how closely the weighing of costs and benefits can be done.

Ford knew that the Pinto would explode when rear-ended at only 20 mph, but they also knew that it would cost $137 million to fix the problem. Since they would only have to pay $49 million in damages to injured victims and the families of those who died, they calculated that it was not right to spend the money to fix the cars when society set such a low price on the lives and health of the victims. The kind of analysis that Ford managers used in their cost-benefit study is a version of what has been traditionally called utilitarianism. Utilitarianism is a general term for any view that holds that actions and policies should be evaluated on the basis of the benefits and costs they will impose on society. In any situation, the "right" action or policy is the one that will produce the greatest net benefits or the lowest net costs (when all alternatives have only net costs).

Many businesses rely on such utilitarian cost-benefit analyses, and maintain that the socially responsible course to take is the utilitarian one with the lowest net costs. ..

21

Jeremy Bentham (1748-1832) founded traditional utilitarianism. His version of the theory assumes that we can measure and add the quantities of benefits produced by an action and subtract the measured quantities of harm it will cause, allowing us to determine which action has the most benefits or lowest total costs and is therefore moral. The utility Bentham had in mind was not the greatest benefit for the person taking the action, but rather the greatest benefit for all involved. For Bentham: “An action is right from an ethical point of view if and only if the sum total of utilities produced by that act is greater than the sum total of utilities produced by any other act the agent could have performed in its place.”

Also, it is important to note that only one action can have the lowest net costs and greatest net benefits.

To determine what the moral thing to do on any particular occasion might be, there are four considerations to follow: 1. You must determine what alternative actions are available.

2. You must estimate the direct and indirect costs and benefits the action would produce for all involved in the foreseeable future.

3. Subtract the costs from the benefits to determine the net utility of each action.

4. The action that produces the greatest sum total of utility must be chosen as the ethically appropriate course of action, this being the alternative that produces the greatest sum total of utility.

Utilitarianism is attractive to many because it matches the views we tend to hold when discussing governmental policies and public goods. Most people agree, for example, that when the government is trying to determine on which public projects it should spend tax monies, the proper course of action would be for it to adopt those projects that objective studies show will provide the greatest benefits for the members of society at the least cost.

It also fits in with the intuitive criteria that many employ when discussing moral conduct.

Utilitarianism can explain why we hold certain types of activities, such as lying, to be immoral: it is so because of the costly effects it has in the long run. However, traditional utilitarians would deny that an action of a certain kind is always either right or wrong.

Instead, each action would have to be weighed given its particular circumstances. Utilitarian views have also been highly influential in economics. A long line of economists, beginning in the 19th century, argued that economic behavior could be explained by assuming that human beings always attempt to maximize their utility and that the utilities of commodities can be measured by the prices people are willing to pay for them.

Utilitarianism is also the basis of the techniques of economic cost–benefit analysis. This type of analysis is used to determine the desirability of investing in a project (such as a dam, factory, or public park) by calculating whether its present and future economic benefits outweigh its present and future economic costs. To calculate these costs and benefits, discounted monetary prices are estimated for all the effects the project will have on the present and future environment and on present and future populations. Finally, we can note that utilitarianism fits nicely with a value that many people prize: efficiency.

Efficiency can mean different things to different people, but for many it means operating in such a way that one produces the most one can with the resources at hand.

Though utilitarianism offers a superficially clear-cut method of calculating the morality of actions there are three important mistakes to watch out for when using utilitarianism.

..

22

Because almost everyone makes these mistakes when they first start thinking about utilitarianism: 1. When the utilitarian principle says that the right action for a particular occasion is the one that produces more utility than any other possible action, it does not mean that the right action is the one that produces the most utility for the person performing the action. Rather, an action is right if it produces the most utility for all persons affected by the action, including of course, the person who performed the action.

2. To think that the utilitarian principle only requires us to consider only the direct and Instead ,both the immediate and all immediate consequences of our actions. foreseeable future costs and benefits that each alternative will provide for each individual must be taken into account, as well as any significant indirect effects 3. The most important mistake is to say that the utilitarian principle action is right so long as its own outweigh its own costs. Instead, utilitarianism says that the right action is the one whose combined benefits and costs outweigh the combined benefits and costs of every other action the agent could carry out. In other words, utilitarianism holds that to determine the morally right action in any given situation, we must compare the utility of all of the actions that one could carry out in that situation; Though utilitarianism offers a superficially clear-cut method of calculating the morality of actions, it relies upon accurate measurement, and this can be problematic. There are five major problems with the utilitarian reliance on measurement: 1. Comparative measures of the values things have for different people cannot be made-we cannot get into each others' skins to measure the pleasure or pain caused.

2. Some benefits and costs are impossible to measure. How much is a human life worth, for example?

3. The potential benefits and costs of an action cannot always be reliably predicted, so they are also not adequately measurable.

4. It is unclear exactly what counts as a benefit or a cost. People see these things in different ways.

5. Utilitarian measurement implies that all goods can be traded for equivalents of each other. However, not everything has a monetary equivalent.

The critics of utilitarianism contend that these measurement problems undercut whatever claims utilitarian theory makes towards providing an objective basis for determining normative issues. These problems have become especially obvious in debates over the feasibility of corporate social audits.

Utilitarians defend their approach against the objections raised by these problems by saying that though ideally they would like accurate measurements of everything; they know that this is largely impossible. Therefore, when measurements are difficult or impossible to obtain, shared or common-sense judgments of comparative value are sufficient.

There are two widely used common-sense criteria. One relies on the distinction between intrinsic goods and instrumental goods. Intrinsic goods are things that are desired for their own sake, such as health and life. These goods always take precedence over instrumental goods, which are things that are good because they help to bring about an intrinsic good. The other common-sense criterion depends on the distinction between needs and wants. Goods that bring about needs are more important than those that bring about wants. However, these methods are intended to be used only when quantitative methods

..

23

fail. The most flexible method is to measure actions and goods in terms of their monetary equivalents. If someone is willing to pay twice as much for one good than for another, we can assume that the former is twice as valuable for that person. Many people are made uncomfortable by the notion that health and life must be assigned a monetary value.

Utilitarians point out that we do so every day, however, by paying for some safety measures but not for those measures that are considered more expensive. Additionally, there may be instances where market prices are incapable of providing quantitative data for comparing costs and benefits of various decisions. For instance, for sociological issues, a survey or a political vote can be used to measure the intensity and extensiveness of people’s attitudes.

The major difficulty with utilitarianism, according to some critics, is that it is unable to deal with two kinds of moral issues: those relating to rights and those relating to justice. If people have rights to life, health, and other basic needs, and if there is such a thing as justice that does not depend on mere utility, then utilitarianism does not provide a complete picture of morality. Utilitarianism can also go wrong, according to the critics, when it is applied to situations that involve justice. Utilitarianism looks only at how much utility is produced in a society and fails to take into account how that utility is distributed among the members of society.

Largely in response to these concerns, utilitarians have devised an alternative version, called rule utilitarianism. In this version, instead of looking at individual acts to see whether they produce more pleasure than the alternatives, one looks only at moral rules at actions of a particular type. If actions of a kind tend to produce more pleasure or have lower costs, then they are the moral types of actions. Just because an action produces more utility on one occasion does not show it is right ethically.

Rule utilitarianism may not completely answer all of the objections raised by critics of utilitarianism. A rule may generally produce more utility and still be unjust: consider rules that would allow a large majority to take unfair advantage of a smaller minority.

The theory of the rule utilitarian, then, has two parts, which we can summarize in the following two principles:

1. An action is right from an ethical point of view if and only if the action would be required by those moral rules that are correct.

2. A moral rule is correct if and only if the sum total of utilities produced if everyone were to follow that rule is greater than the sum total utilities produced if everyone were to follow some alternative rule.

Thus, according to the rule-utilitarian, the fact that a certain action would maximize utility on one particular occasion does not show that it is right from an ethical point of view.

Thus, the two major limits to utilitarianism difficulties of measurement and the inability to deal with rights and justice remain, though the extent to which they limit utilitarian morality is not clear.

2.2 Rights and Duties On May 17, 2009 a 17-year-old boy, Yiu Wah, who had been hired at the age of 15, was ..

24

crushed and killed while trying to clear a jammed machine in the factory of a Chinese supplier that was making products for the Walt Disney Company, the world’s second-largest media conglomerate. 28 Witnesses claimed that the use of child labor was a human rights violation that was common at the factory of Disney’s supplier.

On March 3, 2004, executives of Walt Disney, the world's second largest media conglomerate, were confronted with a group of stockholders concerned about the company's human rights record in China. Walt Disney markets merchandise based on its characters and films, including toys, apparel, watches, consumer electronics and accessories. Much of this merchandise is manufactured in China in factories that contract with Disney to produce the merchandise according to Disney's specifications. The Congressional-Executive Commission on China, a group established by the U.S. Congress in 2001, reported in 2003, however, "China's poor record of protecting the internationally recognized rights of its workers has not changed significantly in the past year. Chinese workers cannot form or join independent trade unions, and workers who seek redress for wrongs committed by their employers often face harassment and criminal charges. Moreover, child labor continues to be a problem in some sectors of the economy, and forced labor by prisoners is common." In its March 2003 Country Reports on Human Rights Practices, the U.S. State Department said China's economy also made massive use of prison or forced labor.

In general, a right is a person's entitlement to something; one has a right to something when one is entitled to act a certain way or to have others act in a certain way towards oneself. An entitlement is called a legal right. Entitlements can come from laws or moral standards; the latter are called moral rights or human rights. They specify, in general, that all humans are permitted to do something or are entitled to have something done for them.

In our ordinary discourse, we use the term right to cover a variety of situations in which individuals are enabled to make such choices in very different ways. First, we sometimes use the term right to indicate the mere absence of prohibitions against pursuing some interest or activity. Second, we sometimes use the term right to indicate that a person is authorized or empowered to do something either to secure the interests of others or to secure one's interests. Third, the term right is sometimes used to indicate the existence of prohibitions or requirements on others that enable the individual to pursue certain interests or activities The most important rights are those that impose requirements or prohibitions on others, enabling people to choose whether or not to do something. Moral rights have three important features defining them:

1. Moral rights are closely correlated with duties. If I have a right to do something, then other people have a moral duty to not interfere when I do it.

2. Moral rights provide individuals with autonomy and equality in the free pursuit of their interests, i.e., to pursue or not pursue the interest.

3. Moral rights provide a basis for justifying one's actions and invoking the protection or aid of others.

Moral judgments made on the basis of rights differ substantially from those based on utility.

First, they are based on the individual, whereas utilitarianism is based on society as a whole. Second, rights limit the validity of preferring numbers and social benefits to the individual. On the other hand, although rights generally override utilitarian standards, they do not always do so. In times of war, for example, civil rights are commonly restricted for the public good. ..

25

Besides negative rights, which are defined entirely in terms of the duties others have not to interfere with you, there are also positive rights. Positive rights imply that others have a duty not only to refrain from interference, but also to provide you with what you need to pursue your interests. Privacy is an example of a negative right; the rights to food, life, and health care are positive. In general, more liberal theorists hold that society should guarantee positive as well as negative rights; conservatives wish to limit government to enforcing negative rights. Positive rights were not emphasized until the 20th century. Negative rights were often employed in the 17th and 18th centuries by writers of manifestos (such as the Declaration of Independence and the Bill of Rights), who were anxious to protect individuals against the encroachments of monarchical governments. Positive rights became important in the 20th century when society increasingly took it on itself to provide its members with the necessities of life that they were unable to provide for themselves.

Contractual Rights There are other rights as well. Those most closely connected to business activity are contractual rights, sometimes called special rights and duties or special obligations.

These contractual rights are created by specific agreements and conferred only on the parties involved. They required publicly accepted rules on what constitutes agreements and what obligations agreements impose. Additionally, they underlie the special rights and duties imposed by accepting a position or role in an institution or organization. It requires the following: 1. Both parties to a contract must have full knowledge of the nature of the agreement.

2. Neither party must intentionally misrepresent the facts.

3. Neither party must be forced to enter the contract.

4. The contract must not bind the parties to an immoral act.

Generally, a contract that violates one or more of these requirements is considered void. How do we know that people have rights? A person has rights because the person lives within a legal system that guarantees those rights. But, what is the basis of the moral rights? Utilitarians argue that moral rights come about because they maximize utilities.

However, it is doubtful that utilitarianism provides an adequate answer for moral rights. To say that someone has a moral right is to say that person is entitled to it regardless of the utilitarian benefits it provides for others.

Immanuel Kant (1724-1804) provides a more satisfactory foundation for moral rights and is shown in the theory that he developed. He argued that there are certain moral rights and duties that all human beings possess regardless of any utilitarian benefits that the exercise of those rights and duties may provide for others.

His theory is based on a moral principle that he called the Categorical Imperative and that requires that everyone should be treated as a free person equal to everyone else.

The First Formulation of Kant’s Categorical Imperative is one of the most powerful groundings for moral rights (and therefore the ethical rules governing contracts). His principle requires that everyone be treated as a free and equal person. It states, "I ought never to act except in such a way that I can also will that my maxim should become a universal law." A maxim, according to Kant, is the reason a person has for doing what he plans to do. Therefore, an action is morally right if the person's reason for doing it is a reason he would be willing to have every person in a similar situation act upon. Kant’s first

..

26

version of the categorical imperative states: “An action is morally right for a person in a certain situation if, and only if, the person's reason for carrying out the action is a reason that he or she would be willing to have every person act on, in any similar situation.”

The first formulation of the categorical imperative incorporates two criteria for determining moral right and wrong: universalizability and reversibility. Universalizability means the person's reasons for acting must be reasons that everyone could act on at least in principle.

Reversibility means the person's reasons for acting must be reasons that he or she would be willing to have all others use, even as a basis of how they treat him or her. That is, one's reasons for acting must be reasons that everyone could act upon in principle, and the person's reasons must be such that he would be willing to have all others use them as well.

Unlike utilitarianism, which focuses on consequences, Kantian theory focuses on interior motivations.

The second formulation Kant’s Categorical Imperative is this: "Act in such a way that you always treat humanity, whether in your own person or in the person of any other, never simply as a means, but always at the same time as an end." Or never treat people simply as a means, but always also as ends. What Kant means by "treating humanity as an end" is that everyone should treat each human being as a being whose existence as a free rational person should be promoted. For Kant, this means two things: (a) respect each person's freedom by treating people only as they have freely consented to be treated beforehand, and (b) develop each person's capacity to freely choose for him or herself the aims he or she will pursue. Kant's second version of the categorical imperative can be expressed in the following principle: “An action is morally right for a person if, and only if, in performing the action, the person does not use others only as a means for advancing his or her own interests, but always (1) treats them as they have freely and rationally consented to be treated, and (2) contributes to their ability to pursue what they have freely and rationally chosen t pursue.”

This version of the categorical imperative implies that human beings have an equal dignity that sets them apart from things such as tools or machines and that is incompatible with their being manipulated, deceived, or otherwise unwillingly exploited to satisfy the selfinterests of another.

However, even if the categorical imperative explains why people have moral rights, it cannot by itself tell us what particular moral rights humans have. And when rights come into conflict, it cannot tell us which right should take precedence. Still, there seem to be three basic rights that can be defended on Kantian grounds: 1. Humans have a clear interest in being provided with the work, food, clothing, housing, and medical care they need to live.

2. Humans have a clear interest in being free from injury or fraud and in being free to think, have privacy, and associate with whomever as they choose.

3. Humans have a clear interest in preserving the institution of contracts.

Despite the attractiveness of Kant's theory, critics have argued that, like utilitarianism, it has its limitations and inadequacies. A first problem that critics have traditionally pointed out is that Kant's theory is not precise enough to always be useful. Second, some critics claim that although we might be able to agree on the kinds of interests that have the status ..

27

of moral rights, there is substantial disagreement concerning what the limits of each of these rights are and concerning how each of these rights should be balanced against other conflicting rights. A third group of criticisms that have been made of Kant's theory is that there are counterexamples that show the theory sometimes goes wrong. Most counterexamples to Kant's theory focus on the criteria of universalizability and reversibility.

A very different view of rights is based on the work of libertarian philosophers such as Robert Nozick. They claim that freedom from constraint is necessarily good, and that all constraints imposed on one by others are necessary evils, except when they prevent even greater human constraints. The only basic right we all possess is the negative right to be free from the coercion of other human beings.

Thus, the libertarian view that coercive restrictions on freedom are immoral (except when needed to restrain coercion) is also supposed to justify the free use of property, freedom of contract, a free market system, and the elimination of taxes to pay for social welfare programs.

Libertarians may pass too quickly over the fact that the freedom of one person necessarily imposes constraints on other persons. It follows then that if one person is granted freedom, other persons must be constrained from interfering with that person. If I have the right to unionize, for example, I constrain the rights of my employer to treat me as he sees fit for the employer to hire non-union employees. Though libertarians tend to use Kant to support their views, there is no consensus on whether or not this is actually possible. There is also no good reason to assume that only negative rights exist.

2.3 Justice and Fairness The dispute over "brown lung" disease caused by cotton dust illustrates how references to justice and fairness permeate such concerns. Justice and fairness are essentially comparative. They are concerned with the comparative treatment given to the members of a group when benefits and burdens are distributed, when rules and laws are administered, when members of a group cooperate or compete with each other, and when people are when members of a group cooperate or compete with each other, and when people are punished for the wrongs they have done or compensated for the injuries they have suffered.

Justice generally refers to matters that are more serious than fairness, though some philosophers maintain that fairness is more fundamental. In general, we think that considerations of justice are more important than utilitarian concerns: greater benefits for some do not justify injustices to others. However, standards of justice to not generally override the moral rights of individuals. This is probably because justice is, to some extent, based on individual moral rights.

There are three categories of issues involving justice: 1. Distributive justice is concerned with the fair distribution of society's benefits and burdens.

2. Retributive justice refers to the just imposition of punishments and penalties on those who do wrong.

3. Compensatory justice is concerned with compensating people for what they lost when harmed by others.

Questions of distributive justice arise when there is a scarcity of benefits or a plethora of burdens; not enough food or health care, for example, or too much unpleasant work. When resources are scarce, we must develop principles to allocate them fairly. The fundamental ..

28

principle of distributive justice is that equals should be treated equally (and unequals treated unequally). The fundamental principle of distributive justice may be expressed as follows: “Individuals who are similar in all respects relevant to the kind of treatment in question should be given similar benefits and burdens, even if they are dissimilar in other irrelevant respects; and individuals who are dissimilar in a relevant respect ought to be treated dissimilarly, in proportion to their dissimilarity.”

Egalitarians hold that there are no relevant differences among people that can justify unequal treatment. According to the egalitarian, all benefits and burdens should be distributed according to the following formula: “Every person should be given exactly equal shares of a society's or a group's benefits and burdens.”

Though equality is an attractive social ideal for many, egalitarianism has been strongly criticized. Some critics claim that need, ability, and effort are all relevant differences among people, and that it would be unjust to ignore these differences.

Some egalitarians have tried to strengthen their position by distinguishing two different kinds of equality: political equality and economic equality. Political equality refers to an equal participation in, and treatment by, the means of controlling and directing the political system. This includes equal rights to participate in the legislative process, equal civil liberties, and equal rights to due process. Economic equality refers to equality of income and wealth and equality of opportunity. The criticisms leveled against equality, according to some egalitarians, only apply to economic equality and not to political equality.

Capitalists argue that a society's benefits should be distributed in proportion to what each individual contributes to society. According to this capitalist view of justice, when people engage in economic exchanges with each other, what a person gets out of the exchange should be at least equal in value to what he or she contributed. Justice requires, then, that the benefits a person receives should be proportional to the value of his or her contribution.

Quite simply, the capitalist view is that: “Benefits should be distributed according to the value of the contribution the individual makes to a society, a task, a group, or an exchange.”

The main question raised by the contributive principle of distributive justice is how the "value of the contribution" of each individual is to be measured. One long-lived tradition has held that contributions should be measured in terms of work effort. The more effort people put forth in their work, the greater the share of benefits to which they are entitled. The harder one works, the more one deserves. However there are problems using effort as the basis of distribution. First, to reward effort without concern with what the person produces anything worthwhile, rewards incompetence and inefficiency. Second, if we reward people solely for effort and ignore productivity, then highly productive and talented people will lose incentive to invest their talent and productivity in producing their good for society.

A second important tradition has held that contributions should be measured in terms of productivity. The better the quantity of a person's contributed product, the more he or she should receive.

..

29

A major problem with this second proposal is that it ignores people’s needs. Handicapped, ill, untrained, and immature persons may be unable to produce anything worthwhile if people are rewarded on the basis of their productivity. The main problem with this second proposal is that it is difficult to place any objective measure on the value of the product in such fields as art, entertainment, athletics, education, theology, and health care.

To deal with this, some authors have suggested a third and highly influential version of the principle of contribution. The value of the person’s product should be determined by the market forces of supply and demand. But to many people, the market prices are an unjust method of evaluating the precise value of a person’s product because markets ignore the intrinsic value of things. For example, markets reward entertainers more than doctors.

Justice Based on needs and Abilities: Socialism The socialist dictum proposed by Louis Blanc and then (1811-1882) by Karl Marx (18181883) and Nikolai Lenin (1870-1924) is traditionally taken to represent the socialist view on distribution.

Socialists address this concern by stating that the benefits of a society should be distributed according to need, and that people should contribute according to their abilities. The socialist view is: 1. People realize their human potential by exercising their abilities n productive work; therefore, work should be distributed in such a way that a person can be as productive as possible.

2. The benefits produced through work should be to promote human happiness and well being.

Basic to the socialist view is the notion that societies should be communities which benefits and burdens are distributed on the model of a family.

Critics of socialism contend that workers in this system would have no incentive to work knowing they will receive the same regardless of whether or not they work hard, and that the principle would obliterate individual freedom.

Robert Nozick, is a leading libertarian philosopher. The libertarian view of justice is markedly different, of course than the socialist view. Libertarians consider it wrong to tax someone to provide benefits to someone else. No way of distributing goods can be just or unjust apart from an individual's free choice. Nozick suggests this principle as the basic principle of distributive justice: “From each according to what he chooses to do, to each according to what he makes for himself (perhaps with the contracted aid of others) and what others choose to do for him and choose to give him of what they've been given previously (under this maxim) and haven't yet expended or transferred.”

“If I choose to help another, that is fine, but I should not be forced to do so.” Critics of this view point out that freedom from coercion is a value, but not necessarily the most important value, and libertarians seem unable to prove outright that it is more important to be free than, say, to be fed. If each person's life is valuable, it seems as if everyone should be cared for to some extent. A second related criticism of libertarianism claims that the ..

30

libertarian principle of distributive justice will generate unjust treatment of the disadvantaged.

Under the libertarian principle, a person's share of goods will depend wholly on what the person can produce through his or her own efforts or what others choose to give the person out of charity. In other words, freedom from hunger should be more valued than freedom from being coerced to share out of a surplus of food.

John Rawls' theory of justice as fairness is an attempt to bring many of these disparate ideas together in a comprehensive way. According to his theory, the distribution of benefits and burdens in a society is just if: 1. Each person has an equal right to the most extensive basic liberties compatible with equal liberties for all (the principle of equal liberty); and 2. Social and economic inequalities are arranged so that they are both: a. To the greatest benefit of the least advantaged (the difference principle), and b. Attached to offices and positions open fairly and equally to all (the principle of equal opportunity).

Rawls tells us that Principle 1 is supposed to take priority over Principle 2 should the two of them ever come into conflict, and within Principle 2, Part b is supposed to take priority over Part a.

Principle 1 is called the principle of equal liberty. Essentially, it says that each citizen's liberties must be protected from invasion by others and must be equal to those of others.

These basic liberties include the right to vote, freedom of speech and conscience and the other civil liberties, freedom to hold personal property, and freedom from arbitrary arrest.

Part of Principle 2 is called the difference principle. It assumes that a productive society will incorporate inequalities, but it then asserts that steps must be taken to improve the position of the most needy members of society, such as the sick and the disabled, unless such improvements would so burden society that they make everyone, including the needy, worse off than before. Part b of Principle 2 is called the principle of fair equality of opportunity. It says that everyone should be given an equal opportunity to qualify for the more privileged positions in society's institutions.

Therefore, according to Rawls, a principle is moral if it would be acceptable to a group of rational, self-interested persons who know they will live under it themselves but do not know what sex, race, abilities, religion, interests, social position, income, or other particular characteristics each of them will possess in that future society.

Rawls calls this hypothetical circumstance of rational persons the original position. He refers to the ignorance of any particulars about themselves as the veil of ignorance. According to Rawls, the parties of the original position will be morally justified because the parties to the original position had accepted the principles before knowing what characteristics they would have. This would ensure that none of them can protect his or her special interests.

This incorporates the Kantian principles of reversibility and universalizability, and treats people as ends and not as means. Some critics of Rawls point out, however, that just because a group of people would be willing to live under a principle does not mean that it is morally justified.

Two final types of justice are retributive and compensatory justice, both of which deal with how best to deal with wrongdoers. Retributive justice concerns blaming or punishing those who do wrong; however, there are some major conditions under which people could not be held morally responsible:

..

31

1.

2. not know or do not freely choose what they are doing.

3. being punished actually did no wrong. punishment must be consistent and proportioned to the wrong.

If people do If

a

person

The Compensatory justice concerns restoring to a harmed person what he lost when someone else wronged him. Traditionally, theorists have held that a person has a moral obligation to compensate an injured party only if three conditions pertain: 1. The action that inflicted the injury was wrong or negligent.

2. The action was the real cause of the injury.

3. The person did the action voluntarily.

The most controversial forms of compensation undoubtedly are the preferential treatment programs that attempt to remedy past injustices against groups.

2.4 The Ethics of Care As the Malden Mills fire and rebuilding shows, there are perspectives on ethics that are not explainable from the point of view of utilitarianism, rights, or Kantian philosophy. The owner had no duty to rebuild (or to pay his workers when they were not working) from any of these perspectives; still, he maintained that he had a responsibility to his workers and to his community. Rather than being impartial (which all of these theories maintain is crucial), this owner treated his community and workers partially.

This is central to the point of view known as the ethics of care, an approach to ethics that many feminist ethicists have recently advanced. According to this method, we have an obligation to exercise special care toward the people with whom we have valuable, close relationships. Compassion, concern, love, friendship, and kindness are all sentiments or virtues that normally manifest this dimension of morality. Thus, an ethic of care emphasizes two moral demands: 1. We each exist in a web of relationships and should preserve and nurture those concrete and valuable relationships we have with specific persons.

2. We each should exercise special care for those with whom we are concretely related by attending to their particular needs, values, desires, and concrete well-being as seen from their own personal perspective, and by responding positively to these needs, values, desires, and concrete well-being, particularly of those who are vulnerable and dependent on our care.

An ethic of care, therefore, can be seen as encompassing the kinds of obligations that a socalled communitarian ethic advocates. A communitarian ethic is an ethic that sees concrete communities and communal relationships as having a fundamental value that should be preserved and maintained.

Two additional issues are important to note. First, not all relationships have value, and so not all would generate demands of care, e.g., if one party is abusive to the potential care giver. Secondly, the demands of caring are sometimes in conflict with the demands of justice, though, and no fixed rule exists to resolve these conflicts. Critics point out that the ethics of care can easily degenerate into unjust favoritism (partiality). The demands of partiality and caring can also conflict with the demands of utility, justice and rights. What ..

32

morality requires is that we learn to weigh moral considerations and balance their different demands in specific considerations. Though the ethics of care can also lead to burnout, the advantage of the theory is that it is a corrective to the other approaches that are impartial and universal.

2.5 Integrating Utility, Rights, Justice, and Caring So far, the chapter has outlined four main kinds of basic moral considerations: 1. Utilitarian standards - must be used when we do not have the resources to attain everyone's objectives, so we are forced to consider the net social benefits and social costs consequent on the actions (or policies or institutions) by which we can attain these objectives.

2. Standards that specify how individuals must be treated - must be employed when our actions and policies will substantially affect the welfare and freedom of specifiable individuals. Moral reasoning of this type forces consideration of whether the behavior respects the basic rights of the individuals involved and whether the behavior is consistent with one's agreements and special duties. These sorts of standards must be employed when the actions we choose are likely to affect people’s positive or negative rights. When choosing whether to carry out such actions, our moral reasoning must identify the rights of the people our actions will affect, the agreements or expectations that are in place and that impose special obligations on us, and whether our actions treat everyone affected as free and rational persons.

1. Standards of justice - indicate how benefits and burdens should be distributed among the members of a group. These sorts of standards must be employed when evaluating actions whose distributive effects differ in important ways.

2. Standards of caring - indicate the kind of care that is owed to those with whom we have special concrete relationships. Standards of caring are essential when moral questions arise that involve persons embedded in a web of relationships, particularly persons with whom one has close relationships, especially those of dependency.

One simple strategy for ensuring that all four kinds of considerations are incorporated into one's moral reasoning is to inquire systematically into the utility, rights, justice, and caring involved in a given moral judgment, as in section 2.1 of the text. One might, for example, ask a series of questions about an action that one is considering: (a) Does the action, as far as possible, maximize social benefits and minimize social injuries? (b) Is the action consistent with the moral rights of those whom it will affect? (c) Will the action lead to a just distribution of benefits and burdens? (d) Does the action exhibit appropriate care for the well-being of those who are closely related to or dependent on oneself? Unfortunately, there is not yet any comprehensive moral theory to show when one of these considerations should take precedence.

2.6 An Alternative to Moral Principles: Virtue Ethics Many ethicists criticize the entire notion that actions are the subject of ethics. The central issue (as Ivan Boesky's case demonstrates) is the kind of person an agent ought to be and what the character of humans ought to be. This does not mean that the conclusion of this type of ethics (called virtue ethics) will be much different radically from the conclusion of an action-based ethic. Rather, the virtues provide a perspective that covers the same ground as the four approaches, just from a different perspective.

A moral virtue is an acquired disposition that is a valuable part of a morally good person,

..

33

exhibited in the person's habitual behavior. It is praiseworthy, in part, because it is an achievement whose development requires effort. The most basic issue, from the perspective of virtue ethics, is the question: What are the traits of character that make a person a morally good human being? Which traits of character are moral virtues? According to Aristotle, moral virtues enable humans to act in accordance with their specific purpose (which he held to be reasoning). Other philosophers, such as Aquinas, have come up with different lists of virtues.

The American philosopher Alasdair MacIntyre has claimed that a virtue is any human disposition that is praised because it enables a person to achieve the good at which human "practices" aim. Pincoffs suggests that virtues include all those dispositions to act, feel, and think in certain ways that we use as the basis for choosing between persons or between potential future selves. In general, the virtues seem to be dispositions that enable people to deal with human life. However, it also seems that what counts as a moral virtue will depend on one's beliefs and the situations one faces.

A moral virtue is an acquired disposition to behave in certain ways that is valued as part of the character of a morally good human being and that is exhibited in the person’s habitual behavior. Virtue theory says that the aim of the moral life is to develop the dispositions that we call virtues, and to exercise them as well. The key action guiding implication of virtue theory, then, can be summed up in the claim that: “An action is morally right if, in carrying out the action, the agent exercises, exhibits, or develops a morally virtuous character, and it is morally wrong to the extent that by carrying out the action the agent exercises, exhibits, or develops a morally vicious character.”

The wrongfulness of an action can be determined by examining the character the action tends to produce (or the character that tends to produce the action). It also provides a useful criterion for evaluating our social institutions and practices.

A moral virtue an acquired disposition to behave in certain ways that is valued as part of the character of a morally good human being and is exhibited (practiced) in the person’s habitual behavior. An ethic of virtue, then, is not a fifth kind of moral principle that should take its place alongside the principles of utilitarianism, rights, justice, and caring. Instead, an ethics of virtue fills out and adds to utilitarianism, rights, justice, and caring by looking not at the actions people are required to perform, but at the character they are required to have.

2.7 Unconscious Moral Decisions Moral reasoning is the process of applying our moral principles to the knowledge we have about a situation, and making a decision about what ought to be done in that situation.

Reflecting back on the Pinto auto decision, the company made a utilitarian decision and decided not to redesign the tank.

People go through daily activities making moral decisions without using a formal method of analyzing a situation, but make moral decisions nonetheless.

A large number of studies of the brain and its processes have suggested that we have two ways (systems) of making moral decisions. Scott Reynolds, a psychologist) refers to one as the “X-system” and the other the “C-system.” The X-system takes in information and then makes decisions automatically. The C-system, on the other hand, consists of reasoning processes that we engage in consciously and deliberately. What we use for making our daily ethical decisions are part of the X-system. Let’s compare these two systems.

..

34

Several psychologists have agreed that much of the information our senses gather from the world around us is stored in our brains as “schemas” or “prototypes”. These are general memories of the kinds of situations that we have experienced, along with sounds, words, objects or people those situations involved, emotions we felt, the way we behaved in those situations. Our brain tries to match each of the new situations we experience with its stored prototypes. The brain then uses the information stored in the prototype to identify what kind of behavior is usual for that kind of situation, what kind of rules apply in the situation, and what emotions are usual in such a situation.

Although these processes are unconsciously experienced, the brain is made aware of the match and we consciously recognize the situation, what kind of a situation it is and what behavior is appropriate for the situation. This way we don’t use up our limited conscious reasoning abilities to determine what is happening each time we experience something.

Without having to expend conscious reasoning efforts, we know what kind of situation we are in and how we should act because all of the work of coming up with that conscious knowledge was done by the unconscious matching process of the brain.

Prototypes are added as we gain more experience and are thus stored to address future decisions. The next time a conversation comes up the prototype is available for forming new decisions without having to consciously thinking about it. However, as a situation arises, use of the prototypes may require the use of the C-system because we consciously recognize that the prototype system does not adequately address the situation or the situation presents an entirely new set of questions. Through the C-system, we draw upon principles to see what principles might apply to that situation.

So, as we gather more information in using the C-system, we store more information in our prototype system for future use. A form of conscious thinking that was used in the 17th century and then emerged again toward the end of the 20th century, especially in medicine.

This form of reasoning is called “casuistry”. This method of relies on previous “paradigm” cases, i.e., a past situation where it was clear what the ethical response should be and the reasons why that was the ethical response.

Casuistry uses those previous clear cases to decide what is ethical in a new situation. It requires us to decide whether the previous paradigm case was similar enough to our current situation, then we make the decision now to make the decision. If we find, that the new situation differs from the previous paradigm in a morally relevant way, we then are not justified to rely on it to resolve our current situation.

Another reasoning that is somewhat similar is the use by courts for deciding current cases The upon past “precedent” cases to decide what to do with the current cases. based precedent is a legal case that was decided by a higher court or the court that is deciding the current case.

Not all prototypes originate in conscious moral reasoning. Two other ways that we acquire our convictions about morality are from cultural beliefs (from family, peer groups, stories, songs, television, church, etc.) and from intuition (something that seems to be hard wired into the brain).

There are other moral beliefs that that we hold but don’t know why we believe them.

Social psychologist Marc Hauser has found most people follow three principles when making judgments about the morality of harming people:

..

35

The action principle: Harm caused by action is morally worse than equivalent harm caused by an omission.

The intention principle: Harm intended as the means to a goal is morally worse than equivalent harm foreseen as the side effect of a goal.

The contact principle: Using physical contact to cause harm to a victim is morally worse than causing equivalent harm to a victim without using physical contact.

In his experiments, Hauser has shown that people use these when deciding whether it is morally permissible to cause harm to one or more persons. Most of his subjects cannot provide any reasons why they accept these principles. We seem to now know these principles and use them by intuition (seemingly hard wired into our brain), not by moral reasoning.

So, our moral judgments are based on two different processes; the unconscious use of prototypes that we gradually accumulate in life, and the conscious use of moral reasoning that appeals to utility, rights, justice and caring.

Extra Resources 1. Videos on the ethical theories in chapter two have been produced by INTELECOM (www.intelecom.org) as part of a series of 26 half-hour shows called “The Examined Life.” The entire series is available to students for $35 on 4 DVDs at the online INTELECOM “Student Store.” The relevant shows are: No. 18 “Is Morality relative?” (discusses relativism in relation to child labor).

No. 19 “Does the End Justify the Means?” (on utilitarianism).

No. 20 “Can Rules Define Morality?” (on Kant’s ethics).

No. 21 “Is Ethics Based on Virtue?” (Aristotle and virtue theory).

No. 24 “What is Justice?”.

2. Videos explaining some of the normative theories covered in chapter two. There are numerous YouTube videos of lectures on philosophy by Professor Michael Sandel of Harvard University. Search “Professor Michael Sandel, - What’s the Right Thing To Do?” Available from website: http://www.youtube.com/watch?v=hB--71OjVEA .

3. A video about Malden Mills fire and Aaron Feuerstein’s action regarding his employees. “Aaron Feuerstein’s Malden Mills” An ARTzenu Studios Production, A Division of West Coast NCSY. This is 6:03 minute YouTube video clip available from the website: http://www.youtube.com/watch?v=ry7_FcSiQL8 .

Questions for Class Discussion 1. What principles backed up the positions of both sides in the Traidos Bank and Roche’s Drug Trials in China case? Which principle seems to be most correct in this situation? Why? 2. Explain how the Ford cost-benefit analysis showed that it would not be right to fix the exploding Pintos. Did the utilitarian analysis work, in this instance? Why or why not?

3. What are the distinctions between traditional utilitarianism and rule utilitarianism?

Why did theorists come up with rule utilitarianism in the first place?

4. Do Chinese workers have basic human rights that are different from those of American workers? Do American companies have a duty to help protect those rights?

5. What is the difference between a negative and a positive right? Which type of right is more recent? Which type do liberals rather than conservatives most often propose?

Why might this be the case?

6. What are the ethical rules that govern contracts? Why is each of these rules ..

36

necessary?

7. What are the two formulations of Kant's Categorical Imperative? Kant argued that they really said the same thing. Do you think that this is really the case? Explain.

8. What are the three categories of justice? How are they distinguished?

9. What are the differences between Capitalist, Socialist, Fairness, and Libertarian notions of justice? What are the strongest and weakest parts of each theory?

10. What are the principles behind the ethics of care? Was the owner of the Malden Mills company really doing the right thing by rebuilding his factory and, at great cost, paying his idle workers? Explain how his actions exemplify the principles of the ethics of care?

11. Explain the “X-system” and “C-system” methods of discernment.

Activities and Assignments 1. Have students research Publius on the Web and decide whether they think it is moral or immoral. Then use some hypothetical examples (such as Chinese workers trying to organize for better human rights, organized crime figures trying to widen the scope of their activities, and/or teenagers swapping homework and mp3 files) to test out their positions.

2. Organize the class (or groups of students) into a corporation, and ask them to decide between some designs for a child car-safety seat, using information such as that listed below. How much, in their estimation, would they pay for a seat themselves?

How much, therefore, is the life of their child worth to them? How are utilitarian principles at work in this case?

Cost $20 $50 $70 $150 $500

Percentage of deaths at 70 mph 80% 60% 30% 10% 5%

3. After discussing what Microsoft should do with respect to its Chinese operations, and just what human rights the Chinese workers have, ask students to take an inventory of items in their own rooms (or homes) that are made in China. Do we as consumers have a duty not to support the Chinese economy, if it is based in part on forced and child labor?

4. Break the class up into groups: a libertarian, a utilitarian, a Kantian, a Rawlsian, and an ethics of care group. Then, have them examine the Phillip Morris (or PepsiCo) case study and decide what their position should be. Compare the positions with the class as a whole.

5. Have students, in groups, come up with lists of moral virtues and some rationale for each virtue. Then, compare the results in class and see if the group can come up with reasons to explain the differences they find.

..

37

Quiz Questions: Chapter Two 1. Utilitarianism characterizes the moral approach taken by Ford in the infamous Pinto case study. a.

True b.

False Answer: A 2. Few businesses maintain that the socially responsible course to take is the utilitarian one with the lowest net costs. a. True b. False Answer: B 3. Considerations to follow in determining what the moral thing to do might be are: a. You must determine what alternative actions are available. b. You must estimate the direct and indirect costs and benefits the action would produce for all involved in the foreseeable future. c. You must choose the alternative that produces the greatest sum total of utility. d. All the above e. A & C Answer: D 4. Utilitarianism is attractive to many because it matches the views we tend to hold when discussing governmental policies and public goods. a. True b. False Answer: A 5. Cost–benefit analysis is used to determine the desirability of investing in a project (such as a dam, factory, or public park) by figuring whether its present and future economic benefits outweigh its present and future economic costs. a. True b. False Answer: A 6. Major problems with the utilitarian reliance on measurement include: a. Comparative measures of the values things have for different people cannot be made; we cannot get into each others' skins to measure the pleasure or pain caused. b. All benefits and costs are possible to measure. c. The potential benefits and costs of an action cannot always be reliably predicted. d. All the above e. A & C Answer: E 7. Intrinsic goods are things that are desired for their own sake, such as health and life. a. True b. False Answer: A

..

38

8. Rule utilitarianism looks only at moral rules of a particular action. a. True b. False Answer: A 9. Negative rights are defined entirely in terms of the duties others have not to interfere with you. a. True b. False Answer: A 10. Immanuel Kant’s principle, called the categorical imperative, requires that everyone be treated as: a. A free and equal person b. A dependent employee c. An indentured person d. A non-resident employee Answer: A 11. UNOCAL worked with the Burmese army to push the pipeline using forced labor. a. True b. False Answer: A 12. UNOCAL agrees that it shares responsibility with the Burmese army over treatment of pipeline citizens. a. True b. False Answer: B 13 Casuistry uses those previous clear cases to decide what is ethical in a new situation. It requires us to decide whether the previous paradigm case was similar enough to our current situation, then we make the decision how to make the decision. a. True b. False Answer: A 14. Roche can defend its use of harvested organs solely on the basis of ethical relativism. a. True b. False Answer: B 15. Rawls Principle of equal liberty includes: a. Right to vote b. Freedom of speech c. Freedom of arbitrary arrest d. All of the above e. None of the above Answer: D

..

39

CHAPTER THREE The Business System: Government, Markets and International Trade Overview Introduction Since about 1980, globalization has surged forward to a degree that is unprecedented in our world’s history.

Globalization has connected nations together so that goods, services, capital, and knowledge increasingly flow freely between them. These goods are carried by even faster and cheaper transportation and international institutions like the World Trade Organization and the World Bank. This fast change in commerce can accelerate the demise of uncompetitive businesses with relocations of companies and lay-offs of employees.

Workers have found themselves jobless when companies have relocated factories to other nations with cheaper wages. This causes one to ask numerous questions about the most effective and moral way to transact business.

This chapter examines the ethical aspects of the market system itself—how it is justified, and what the strengths and weaknesses of the system are from the point of view of ethics.

It begins by discussing the economic conditions in the U.S. at the close of the 20th century, when proponents of industrial policy were urging the government to help declining industries and their workers to adjust to new economic conditions. Others urged caution, advising the government to "avoid the pitfalls of protectionism." This dichotomy illustrates the difference between two opposite ideologies, those who believe in the "free market" and those who advocate a "planned" economy.

These two ideologies take different positions on some very basic issues: What is human nature really like? What is the purpose of social institutions? How does society function?

What values should it try to protect?

In general, two important ideological camps, the individualistic and communitarian viewpoints, characterize modern societies. Individualistic societies promote a limited government whose primary purpose is to protect property, contract rights, and open markets. Communitarian societies, in contrast, define the needs of the community first and then define the rights and duties of community membership to ensure that those needs are met.

These two camps face the problem of coordinating the economic activities of their members in two distinct ways. Communitarian systems use a command system, in which a single authority decides what to produce, who will produce it, and who will get it. Free market systems are characteristic of individualistic societies. Incorporating ideas from thinkers like John Locke and Adam Smith, they allow individual firms to make their own decisions about what to produce and how to do so.

Free market systems have two main components: a private property system and a voluntary exchange system. The economic system is the system that a society (or group of

To societies) uses to provide the goods and services it needs to survive and flourish. accomplish these two tasks, economic systems rely on three kinds of social devices: traditions, command and markets: 1. Tradition based societies are small and rely on traditional communal and family roles and customs to carry out the two basic economic tasks. ..

40

2.Command economies, where the government authority makes the economic decisions about what enterprises must produce, which enterprises will produce it, and who will get it?

3.In a system based primarily on markets, private companies make the main decisions about what they will produce and who will get it.

It would be undesirable to run an economy completely on the basis of traditions, or commands, or markets for a variety of reasons.

For example, pure free market systems (that is “free” of government “intrusion”) would have absolutely no constraints on the property one can own and what one can do with it.

Slavery would be entirely legal, as would prostitution and all drugs including hard drugs.

Today, however, governments of even the most market-oriented economies decree that there are some things that may not be owned (such as slaves), some things that may not be done with one’s own property (such as pollution), some exchanges that are illegal (children’s labor), and some exchanges that are imposed (through taxation).

Today debates continue on whether a nation’s own internal economy should be organized on “free trade” principles, and whether exchanges between nations should be based on “free trade” principles.

In analyzing these arguments on free markets and free trade, on government commands and markets, we in effect analyze what sociologists refer to as ideologies. An ideology is a system of normative beliefs shared by members of some social group. The ideologies that we here in the United states hold today incorporate ideas drawn from Adam Smith, John Locke, David Ricardo and other influential thinkers. It will be a valuable exercise for the students to identify the ideology he or she holds and to examine and criticize its elements while reading this chapter.

3.1 Free Markets and Rights: John Locke John Locke (1632-1704), an English political philosopher, is generally credited with developing the idea that human beings have a "natural right" to liberty and a "natural right" to private property. Locke argued that if there were no governments, human beings would find themselves in a state of nature. In this state of nature, each man would be the political equal of all others and would be perfectly free of any constraints other than the law of nature—that is, the moral principles that God gave to humanity and that each man can discover by the use of his own God-given reason. As he puts it, in a state of nature, all men would be in: “A state of perfect freedom to order their actions and dispose of their possessions and persons as they think fit, within the bounds of the law of nature, without asking leave, or depending upon the will of any other man. A state also of equality, wherein all the power and jurisdiction is reciprocal, no one having more than another... without subordination or subjection [to another].... But... the state of nature has a law of nature to govern it, which obliges everyone: and reason, which is that law, teaches all mankind, who will but consult it, that being all equal and independent, no one ought to harm another in his life, health, liberty, or possessions.”

Thus, according to Locke, the law of nature teaches us that we have a natural right to liberty. But because the state of nature is so dangerous, says Locke, individuals organize themselves into a political body to protect their lives and property. The power of ..

41

government is limited, however, extending only far enough to protect these very basic rights.

Locke's views on property rights have been very influential in America. The Fifth Amendment to the U.S. Constitution even quotes Locke directly. In this view, government does not grant or create property rights. Rather, nature does, and government must therefore respect and protect these rights. Locke's view that labor creates property rights has also been influential in the U.S. Although Locke never explicitly used his theory of natural rights to argue for free markets, several 20th-century authors have employed his theory for this purpose.19 Friedrich A. Hayek, Murray Rothbard, Gottfried Dietze, Eric Mack, and many others have claimed that each person has the right to liberty and property that Locke credited to every human being and consequently, government must leave individuals free to exchange their labor and their property as they voluntarily choose. Only a free private enterprise exchange economy, in which government stays out of the market and in which government protects the property rights of private individuals, allows for such voluntary exchanges. The existence of the Lockean rights to liberty and property, then, implies that societies should incorporate private property institutions and free markets.

It is also important to note that Locke's views on the right to private property have had a significant influence on American institutions of property even in today's computer society.

First, and most important, throughout most of its early history, American law has held to the theory that individuals have an almost absolute right to do whatever they want with their property and that government has no right to interfere with or confiscate an individual's private property even for the good of society. Second, underlying many American laws regarding property and ownership is Locke's view that when a person expends his or her labor and effort to create or improve a thing, he or she acquires property rights over that thing.

However, it is only relatively recently, in the late nineteenth and twentieth centuries, that this Lockean view began to give way in the United States to the more “socialist” view that government may limit an individual’s private property rights for the good of society. Even today in the United States, there is a strong presumption that government does not create property rights, but must respect and enforced the property rights that individuals create through their own effort through the enforcement of copyrights and patents.

Secondly, underlying many U.S. Laws regarding property and ownership is Lock’s view that, when a person expends labor and effort to create or improve a thing, that person “by Nature” acquires property rights over that thing. These views on property, of course, all assume that “private property” is really a bundle of rights. To say that X is my private property is to say that I have a right to use it, consume it, sell it, give it away, loan it, rent it, keep anything of value it produces, change it, destroy it, and, most important, exclude others from doing any of these things without my consent.

Locke's critics focus on four weaknesses in his argument: The assumption that individuals have natural rights: This assumption is unproven and assumes that the rights to liberty and property should take precedence over all other rights.

If humans do not have the overriding rights to liberty and property, then the fact that free markets would preserve the rights does not mean a great deal.

..

42

The conflict between natural (negative rights) and positive rights: Why should negative rights such as liberty take precedence over positive rights? Critics argue, in fact, that we have no reason to believe that the rights to liberty and property are overriding.

The conflict between Lockean rights and justice: Free markets create unjust inequalities, and people who have no property or who are unable to work will not be able to live. As a result, without government intervention, the gap between the richest and poorest will widen until large disparities of wealth emerge. Unless government intervenes to adjust the distribution of property that results from free markets, large groups of citizens will remain at a subsistence level while others grow ever wealthier.

Individualistic assumptions and their conflicts with the ethics of caring: Locke assumes that people are individuals first, independent of their communities. But humans are born dependent on others, and without caring relationships, no human could survive. The degree of liberty a person has depends on what the person can do. The less a person can do, the less he is free to do. But a person's abilities depend on what he learns from those who care for him as well as on what others care to help him to do or allow him to do.

3.2 Free Markets and Utility: Adam Smith Modifying Locke's views on free markets, Adam Smith's (1723-1790) arguments rest on utilitarian arguments that unregulated markets and private property will produce greater benefits than any amount of government interference could. According to Smith, when private individuals are left free to seek their own interests in free markets, they will inevitably be led to further the public welfare by an "invisible hand:" By directing [his] industry in such a manner as its produce may be of the greatest value, [the individual] intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end that was no part of his intention. By pursuing his own interest he frequently promotes that of society more effectively than when he really intends to promote it.

The invisible hand is market competition. Every producer seeks to ma a living by using private resources to produce and sell those goods that the producer perceives people want to buy. With many private businesses each must compete with each other for the same buyers. To reduce his or her prices, the producer will pare costs to bring the product to market. To increase profits, each producer will reduce the resources consumed in an efficient way. The competition produced by a multiplicity of self-interested private sellers serves to lower prices, conserve resource, and make producers respond to consumer desires. In this way, the self –interest, private businesses serve society.

Supply and demand, according to this view, will help allocate resources efficiently. When the supply of a certain commodity is not enough to meet the demand, buyers bid the price of the commodity upward until it rises above what Smith called the natural price (i.e., the price that just covers the costs of producing the commodity, including the going rate of profit obtainable in other markets). Producers of that commodity then reap profits higher than those available to producers of other commodities. The higher profits induce producers of those other products to switch their resources into the production of the more profitable commodity. As a result, the shortage of that commodity disappears and its price sinks back to its natural level. Conversely, when the supply of a commodity is greater than the quantity demanded, its price falls, inducing its producers to switch their resources into the production of other, more profitable commodities. The fluctuating prices of commodities in a system of competitive markets then forces producers to allocate their resources to those ..

43

industries where they are most in demand and to withdraw resources from industries where there is a relative oversupply of commodities. The market, in short, allocates resources so as to most efficiently meet consumer demand, thereby promoting social utility. As such, all available resources are used and demand always expands to absorb the supply of The commodities best thing made for from them (a relationship called Say’s law). government to do is nothing; the market, on its own, will advance the public welfare, giving people what they want for the lowest possible cost.

In the early twentieth century, economists Ludwig von Mises and Friedrich A.Hayek supplemented Smith’s market theories by an ingenious argument. They argued that not only does a system of free markets and private ownership serve to allocate resources efficiently, but it is in principle, impossible for the government or any human being to allocate resources with the same efficiency. Human beings cannot allocate resources efficiently because they can never have enough information nor calculate fast enough to coordinate in an efficient way the hundreds of thousands of daily exchanges required by a complex industrial economy.

It is important to note that, although Adam Smith did not discuss the notion of private property at great length, it is a key assumption of his views. Before individuals can come together in markets to sell things to each other, they must have some agreement about what each individual "owns" and what each individual has the right to "sell" to others.

Unless a society has a system of private property that allocates its resources to individuals, that society cannot have a free market system.

Smith's utilitarian argument is most commonly criticized for making what some call unrealistic arguments. First, Smith assumes that no one seller can control the price of a good. Though this may have been true at one time, today many industries are monopolized to some extent. Second, Smith assumes that the manufacturer will pay for all the resources used to produce a product, but when a manufacturer uses water and pollutes it without cleaning it, for example, someone else must pay to do so. Third, Smith assumes that humans are motivated only by a natural, self-interested desire for profit. This, say his critics, is clearly false. Many humans are concerned for others and act to help others, constraining their own self-interest. Market systems, say Smith's critics, make humans selfish and make us think that the profit motive is natural. As for von Mises and Hayek’s contention that human planners cannot allocate resources efficiently, example of the French, Dutch, and Swedes have demonstrated that within some sectors of the economy it

However, is not quite it as is possible impossible only asifimagined. it is but one component within an economy in which exchanges are, for the most part, based on market forces.

One especially influential critic of Smith was John Maynard Keynes. Keynes argued that government intervention was necessary because there is a mismatch between aggregate supply and demand, which inevitably leads to a contraction of supply. Government, according to Keynes, can influence the propensity to save, which lowers aggregate demand and creates unemployment. First, government can prevent excess savings through its influence on interest rates, and it can influence interest rates by regulating the money supply. The higher the supply of money, the lower the rate at which it is lent. Second, government can directly affect the amount of money households have available to them by raising or lowering taxes. Third, government spending can close any gap between aggregate demand and aggregate supply by taking up the slack in demand from households and businesses through government expenditures. Keynes' arguments became less convincing after the stagflation (simultaneous occurrence of inflation and unemployment) of the 1970s,

..

44

though. It has been replaced by a post-Keynesian school of thought, which argues for even more governmental intervention in the market.

But in the “Great Recession” of 2008-2009, the governments around the world returned to Keynesian policies with a vengeance. The United States, for example injected more than $700 billion into the U.S. economy to try to pull it out of recession. Other countries in Europe and Asia also injected large amounts of money into their economies.

Social Darwinists had a different take on the utilitarian justification for free markets. They argued that economic competition produced human progress. If governments were to interfere in this process, they would also unintentionally be impeding human progress.

Weak firms must be weeded out by competition, they claim. The basic problem underlying the views of the social Darwinist, however, is the fundamental normative assumption that survival of the fittest means survival of the best. That is, whatever results from the Herbert Spencer workings of nature and is others necessarily suggested good. that the evolution processes were operative in the economic world ensuring that through competition, the most capitalistic survive and rise to the top. The fallacy, which modern authors call the naturalistic fallacy, implies, of course, that whatever happens naturally is always for the best.

3.3 Free Trade and Utility: David Ricardo Adam Smith's major work, the Wealth of Nations, in fact, was primarily aimed at showing the benefits of free trade. There he wrote: It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy. The tailor does not make his own shoes but buys them from the shoemaker... What is prudence in the conduct of every family can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.

Adam Smith's point here is simple. Like individuals, countries differ in their ability to produce goods. One country can produce a good more cheaply than another and it is then said to have an "absolute advantage" in producing that good. These cost differences may be based on differences in labor costs and skills, climate, technology, equipment, land, or natural resources.

Suppose that because of these differences, our nation can make one product for less than a foreign nation can, and suppose the foreign nation can make some other product for less than we can. Then clearly it would be best for both nations to specialize in making the product each has an "absolute advantage" in producing, and to trade it for what the other country has an "absolute advantage" in producing. It was Ricardo's (1772-1823) genius to realize that both countries could benefit from specialization and trade even though one can make everything more cheaply than the other. Specialization increases the total output of goods countries produce, and through trade all countries can share in this added bounty.

Ricardo also defined another way of looking at advantage for one country to trade with another, even though one can make everything more cheaply that the other. He defined “comparative advantage” as a situation where the opportunity costs (costs in terms of other goods given up) of making a commodity are lower for one country than for another.

..

45

Ricardo's ingenious argument has been hailed as the single "most important" and "most meaningful" economic discovery ever made. Some have said it is the most "surprising" and "counterintuitive" concept in economics. It is, without a doubt, the most important concept in international trade theory today and is at the heart of the most significant economic arguments people propose today when they argue in favor of globalization.

Ricardo makes a number of simplifying assumptions that clearly do not hold in the real world, such as that there are only two countries making only two products with only a fixed number of workers. But these are merely simplifying assumptions Ricardo made to get his point across more easily and Ricardo's conclusion could still be proved without these assumptions.

There are other assumptions, however, that are not so easy to get around. First, Ricardo assumes that the resources used to produce goods (labor, equipment, factories, etc.) do not move from one country to another. Yet today multinational companies can, and easily do, move their productive capital from one country to another. Second, Ricardo assumes that each country's production costs are constant and do not decline as countries expand their production or as they acquire new technology.

Third, Ricardo assumes that workers can easily and unreservedly move from one industry to another. Yet when a company closes down because it cannot compete with imports from another country that has a comparative advantage in those goods, the company's workers are laid off, suffer heavy costs, need retraining, and often cannot find comparable jobs.

Finally, and perhaps most importantly, Ricardo ignores international rule setters, such as the World Trade Organization, as well as the World Bank and the International Monetary Fund. International trade inevitably leads to disagreements and conflicts, and so countries must agree to abide by some set of rules and rule-setters.

3.4 Marx and Justice: Criticizing Markets and Free Trade

Karl Marx (1818-1883) offers the most critical view of modern private property and free market institutions. Marx claims that free-market capitalism necessarily produces extremes of inequality. Since capitalist systems offer only two sources of income–owning the means of production and selling one's labor–workers cannot produce anything without the owner of the productive forces. But owners do not pay the full value of the workers' labor; they pay workers what they need to subsist, keeping the rest for themselves and gradually becoming wealthier as a result and the workers become relatively poor. He claimed that capitalism promotes unjust inequality.

In Marx’s view, capitalism and its private property system creates alienation among workers. Rather than realizing their human nature and satisfying their real human needs, they are separated from what is actually theirs in four ways: 1. In capitalist societies, the products that the worker produces by his or her labor are taken away by the capitalist employer and used for purposes that are antagonistic to the worker's own interests.

2. Capitalism forces people into work that they find dissatisfying, unfulfilling, and that is controlled by someone else. They have no control over the products that they make with their own hands. Their finished product is kept by their employer adding to the employer’s profit.

3. Capitalism alienates workers by giving them little control over how they must relate to each other and by forcing them into antagonistic relationships with each ..

46

other.

4. Capitalism alienates workers from themselves by instilling in them false views of what their real human needs are. Capitalism gets us to think that our fulfillment lies in making ever more money when in fact this will satisfy not our own needs, but the needs of capitalism itself.

Though utilitarians claim that people would be lazy without private property, Marx counters that by this argument the bourgeois owners should long ago have wasted away: they do not work, while those who do cannot acquire any real property.

The real purpose of government, according to Marx, is to protect the interests of the ruling class of owners. The forces of production of a society–it’s substructure–always have, historically, given society its class and its superstructure (or government and popular ideologies). Those in power promote the ideologies that justify their position of privilege.

This view of history is called historical materialism.

The result of unrestrained free markets and private ownership will be a series of disasters for working people, leaving them immiserated. Three general tendencies will combine to bring this about: First, modern capitalist systems will exhibit an increasing concentration of industrial power in relatively few hands. As self-interested private owners struggle to increase the assets they control, little businesses will gradually be taken over by larger firms that will keep expanding in size. As businesses expand, they eventually have to move beyond their nation of origin into international markets, replacing national seclusion and self sufficiency with universal interdependence of nations, what we call “Globalization”. This greater power and wealth will be concentrated in few hands.

Second, capitalist societies will experience repeated cycles of economic downturns or crises. Because workers are organized into mass assembly lines, the firm of each owner can produce large amounts of surplus flooding the markets causing a depression or a recession.

Third, Marx argues, the position of the worker in capitalist societies will gradually worsen.' This gradual decline will result from the self-interested desire of capitalist owners to increase their assets at the expense of their workers.

Though many of Marx's predictions have turned out to be correct, the immiseration of workers has not occurred. Still, many claim that unemployment, inflation, alienation, and false desires do characterize much of modern capitalist society.

Defenders of free markets counter that Marx makes an unprovable assumption that just means equality or distribution according to need. They claim that justice really means distribution according to contribution (which requires free markets). Even if private ownership causes inequalities, defenders of free markets still maintain that the benefits of the system are greater and more important than the incidental inequalities. With regards to Marx’s criticism that free capitalistic markets break down communities, critics old that government should not determine the relationships of citizens. The freedom that underlies free the So, markets provides the opportunity to freely form plural communities. persuasiveness of the argument that unregulated markets should be supported because they are efficient and protect the right to liberty and property depends, in the end, on the importance attributed to several ethical factors:

..

47

1.How important are the rights to liberty and to property as compared with a just distribution of income and wealth?

2.How important are the negative rights of liberty and property as compared with the positive rights of needy workers and of those who own no property?

3.How important is efficiency as compared with the claims of justice?

4.How important are the goods of community and of caring as compared with the rights of individuals?

In summary, whether the free market argument is persuasive depends ultimately on the importance one gives to the rights to liberty and property as opposed to a just distribution of income and wealth.

3.5 Conclusion: The Mixed Economy, the New Property, and the End of Marxism The debate for and against free markets, free trade, and private property still continues.

Some claim that the collapse of several communist regimes at the end of the twentieth century showed that capitalism, with its emphasis on free markets has prevailed as the winner. Others hold that countries, like China and Singapore with government intervention and collectivist property rights support the view that free markets alone are not the key to prosperity. The combination of partially free markets and limited property rights is referred to as the mixed economy.

The mixed economy retains the market and private property system but relies heavily on government policies to remedy their deficiencies. The government transfers of private income are used to get rid of the worst aspects of inequality by taxing the wealthy and distributing it to the disadvantaged in the form of welfare payments or services. Minimum wage laws, safety laws, union laws, and other forms of labor legislation are used to protect workers from exploitation.

Monopolies are regulated, nationalized, or outlawed.

Government monetary and fiscal policies attempt to ensure full employment. How effective are these mixed economy policies? Countries, other than the United States, e.g. Sweden, Norway, France, Ireland and Switzerland have had interesting economic results.

For example, the United States shows greater inequality with the top 10% of all U.S. households receiving 15 times as much income as the bottom 10%, whereas the ratio in Sweden and Norway 6 times, France is 8 times, and Ireland and Switzerland it is 9 times.

Looking at the United States GDP during a single decade, the highest per capita growth was 22 percent during the period 1900 and 1910. During the 1940s with the country being run as a command economy (because of WWII), the GDP climbed to 36% and during the 1960’s, a period when the United States introduced its major social welfare programs, the GDP growth rate was 30%. So, although these do not include the whole story, a suggestion can be made that government involvement is not altogether bad.

Property Systems and New Technologies The area of intellectual property has created a debate between the Lockean property rights The area and socialist of genetic notionsengineering of collectiveand ownership. information technologies includes non-physical objects, such as, software programs, a song, an idea, an invention, a recipe, a digital image or sound, a genetic code, or any form of information. So, for instance, if a program or song is created and put on a hard disk, others can copy and use the exact program or song, without limiting your ability to use your original design.

..

48

In a situation like this, what property system should be used? Should it be the Lockean property system because a person has labored to create the design? Then, if someone copies the program or song without my permission, they have violated (illegally) my property rights. There is a lot of hard work in creating the program or song, that is, up front effort to create the program or song. Without a property system that gives them the exclusive right to copy the program or song, the incentive for creating would disappear.

The Marxist view is that property of this sort should be free. The argument is that before modern times songs, stories, ideas, inventions, and information that people created they were not considered private property but were considered public property. Even so, the inventors and artists continued to create their works. Today there are those who believe that information should be free: Linux, Firefox and OpenOffice is free and can be used by many people, supporting the argument that intellectual property should be treated as public or communal property to help others develop new intellectual products. New scientific discoveries or new engineering developments should not be hoarded and hidden as private property, but should be made freely available to benefit society. This view is held by many developing countries. While the intellectual property in the United States is still evolving, it tends toward the Lockean /utilitarian system.

An important distinction in the United States is made between and idea and the expression of an idea. The former cannot be owned by the later (in the form of text, words, or software used to express the idea) may be granted a copyright, indicating that it is owned by a person or company. The copyright expires 120 years after their creation, or 95 years after publication, thereafter becomes public property. Another way of creating property rights in intellectual property is through a patent. Patents expire after 14 years (for patents of a new design of an existing product or 20 years (for patents of new products), thereafter it becomes public property.

The End of Marxism?

The debate continues today in the formerly communist world as in the United States over the best mix of government regulation, private property rights and free markets, and not over whether a pure market system is better or worse that of a pure command system. It may be that the mixed economy comes closest to combining the utilitarian benefits of free markets with the respect for human rights, justice and caring that are the characteristics of government regulation.

Extra Resources

1. Videos on the ethical theories in chapter two have been produced by INTELECOM (www.intelecom.org) as part of a series of 26 half-hour shows called “The Examined Life.” The entire series is available to students for $35 on 4 DVDs at the online INTELECOM “Student Store.” The relevant show is: No. 23 “What Justifies the State?

(This looks at the views of both John Locke and Karl Marx).

2. “Adam Smith and the Wealth of Nations” is a video about Adam Smith’s ideas and their relation to the free market.

3. “The Corporation” (2004) is a 145 minute documentary on the corporation with interviews of: Mark Kingwell - “History Adam Smith” Sam Gibara – “CEO Conflicts” Sam Gibara – “Stakeholder Participation” Chris Komisarjevsky – “People Expect More from Corporations” Peter Drucker – “Fire All Socially Responsible Executives”.

..

49

Questions for Class Discussion 1. What is an ideology in general? What are the two main types of ideologies relevant to business activity in the U.S.?

2. What are the distinctions between "free market" and "command" systems? What components are necessary for each?

3. How does Locke define the state of nature and the law of nature? How do these ideas lead to private property rights and the limitation of governmental power?

4. What four problematic assumptions does Locke make that might cast some doubt on his defense of free market economies?

5. How does Adam Smith defend free markets on utilitarian grounds? What should government do, according to Smith, to advance the public welfare?

6. Why do monopolistic industries, pollution, and concern for others present difficulties for Adam Smith's theory?

7. How did John Maynard Keynes criticize the free market economy? What does he claim is necessary to maximize the social utility of the economic system? Why does stagflation present an obstacle to his theory?

8. Define Social Darwinism. How was Spencer's version of this idea modified to be less callous? What are the basic problems with the idea?

9. What are Marx's four forms of alienation? How does each form help to increase inequalities of wealth and power?

10. How does Marx reply to the utilitarian argument that without private property there would be no incentive to work? Is his reply persuasive?

11. What is substructure? Superstructure? How are these ideas relevant to the real purpose of government?

12. What does Marx mean by immiseration of workers? What three tendencies will help bring this about? Why did immiseration not actually occur?

13. What is a mixed economy? Why would society want to consider such a system? Does it work anywhere in the world today?

14. How do new technologies, such as computers and scientific breakthroughs, create difficulties for systems of property ownership?

Activities and Assignments 1. Divide the class into various "camps": Smith-Lockean, Keynesian, and Marxist. Then ask them to respond in kind to The Health Business case. Have the class as a whole respond to and evaluate each group's evaluation of the case study.

2. Have students identify some current governmental policies and popular ideologies.

Then ask them to examine the media to look for traces of Marx's claim that economic substructure controls the social superstructure.

3. Have students research and debate the repeal of the estate tax (or "death tax") from a free market and socialist perspective, identifying the competing values each side assumes. (You might also ask them to identify how many people they know would actually have had to pay the estate tax.)

4. Have students compare the text of Locke's Second Treatise of Government with the wording of the Declaration of Independence and the U.S. Constitution. Ask them to examine and explain the similarities that they find.

5. Organize a debate in class about whether the fall of the Soviet Union really means that Marxism is dead and that capitalism is the end of history. (This works best if students are given ample time to research and prepare.)

..

50

Quiz Questions: Chapter Three 1. According to Locke, the power of government should be: a. Expanded to meet the needs of all citizens. b. Expanded to meet the needs of corporations. c. Limited, extending only far enough to protect basic rights of all citizens. d. Limited, extending only far enough to protect the basic rights of corporations.

Answer: C 2. Locke's view that labor creates property rights has been influential in the U.S. a. True b. False Answer: A 3. Modifying Locke's views on free markets, Adam Smith's arguments rest on __________ arguments that unregulated markets and private property will produce greater benefits than any other system. a. Kantian b. Utilitarian c. Communist d. None of the above Answer: B 4. According to Smith, when private individuals are left free to seek their own interests in free markets, they will inevitably be led to further the public welfare by an "invisible hand." a. True b. False Answer: A 5. Smith's utilitarian argument is most commonly criticized for making what some call unrealistic arguments. a. Smith assumes that no one seller can control the price of a good. b. Smith assumes that the manufacturer will pay for all the resources used to produce a product. c. Smith assumes that humans are motivated only by a natural, self-interested desire for profit. d. All the above e. B & C Answer: D 6. Social Darwinists had a different take on the utilitarian justification for free markets.

They argued that economic competition would not produce human progress. a. True b. False Answer: B 7. The basic problem underlying the views of the social Darwinist is the fundamental normative assumption that survival of the fittest means survival of the best. a. True b. False Answer: A

..

51

8. Karl Marx offers the most critical view of modern private property and free market institutions. Marx claims that free-market capitalism necessarily produces: a. Extremes of inefficiency b. Extremes of efficiency c. Extremes of equality d. Extremes of inequality Answer: D 9. Many economists now advocate retaining the market system and private property while modifying their workings through government regulation. This is known as a: a. Pure capitalist economy b. Evolutionary economy c. Mixed economy d. Free market economy Answer: C 10. According to the International Labor organization, it is estimated that 218 million children are working today. a. True b. False Answer: A 11. During the financial crisis in 2008, George W. Bush asked U.S. Congress to pass legislation to create a Troubled Asset Relief Program (TARP) in the amount of ___________. a. $1 Trillion b. $90 billion c. $ 80 billion d. $70 billion Answer: D 12. Under TRIPS, patents for new products expire after 20 years. a. True b. False Answer: A 13. Ricardo looks to which rule setter to normalize trade? a. World Trade Organization. b. World Bank. c. International Monetary Fund. d. B&C. e. None of the above.

Answer: E 14. So called primitive societies used economic systems based on_______________. a.

Small business organization. b.

Tradition –based societies. c.

Barter systems. d.

None of the above.

Answer: B

..

52

15. Decisions made in a system primarily based on markets a. Private companies make the main decisions about what they will produce and who will get it. b. Land and factories are owned and managed by private individuals. c. People are motivated to work primarily by the desire to get paid for voluntarily supplying the things others are willing to pay for. d. All of the above. e. None of the above.

Answer: D

..

53

CHAPTER FOUR Ethics in the Marketplace Overview Introduction This chapter moves the consideration of business ethics from the morality of the economic system in general to the morality of specific practices within our system. Given that our system generally follows the free market model, which is based on competition; it may be surprising to note that there are so many examples of anticompetitive practices in the U.S. today. A report on New York Stock Exchange companies showed that 10 percent of the companies had been involved in antitrust suits during the previous five years. A survey of major corporate executives indicated that 60 percent of those sampled believed that many businesses engage in price fixing.6 One study found that in a period of two years alone over sixty major firms were prosecuted by federal agencies for anticompetitive practices.

Actually, it is more than surprising. The morality of the free market system itself is based crucially on the idea of competition creating a just allocation of resources and maximizing the utility of society's members. As we will see, the ethical concepts of utility, justice and rights are intrinsic features of markets that are perfectly competitive. To the extent that the market is not competitive, it loses its moral justification for existing.

To understand the nature of market competition and the ethics of anticompetitive practices, it is helpful to examine three abstract models of the different degrees of competition in a market: perfect competition, pure monopoly, and oligopoly.

4.1 Perfect Competition In a perfectly free competitive market, no buyer or seller has the power to significantly affect the price of a good. Seven features characterize such markets: 1. There are numerous buyers and sellers, none of whom has a substantial share of the market.

2. All buyers and sellers can freely and immediately enter or leave the market.

3. Every buyer and seller has full and perfect knowledge of what every other buyer and seller is doing, including knowledge of the prices, quantities, and quality of all goods being bought and sold.

4. The goods being sold in the market are so similar to each other that no one cares from whom each buys or sells.

5. The costs and benefits of producing or using the goods being exchanged are borne entirely by those buying or selling the goods and not by any other external parties.

6. All buyers and sellers are utility maximizers: Each tries to get as much as possible for as little as possible.

7. No external parties (such as the government) regulate the price, quantity, or quality of any of the goods being bought and sold in the market.

In addition, free competitive markets require an enforceable private property system and a system of contracts and production.

In such markets, prices rise when supply falls, inducing greater production. Thus, prices and quantities move towards the equilibrium point, where the amount produced exactly

..

54

equals the amount buyers want to purchase. Thus, perfectly free markets satisfy three of the moral criteria: justice, utility, and rights. That is, perfectly competitive free markets achieve a certain kind of justice, they satisfy a certain version of utilitarianism, and they respect certain kinds of moral rights.

The movement towards the equilibrium point can be explained in terms of two principles: the principle of diminishing marginal utility and the principle of increasing marginal costs. When a buyer purchases a good, each additional item of a certain type is less satisfying than the earlier ones. Therefore, the more goods a consumer purchases, the less he will be willing to pay for them. On the supply side, the more units of a good a producer makes, the higher the average costs of making each unit. This is because a producer will use the most productive resources to make his or her first few goods. After this point, the producer must turn to less productive resources, which means that his costs will rise. Since sellers and buyers meet in the same market, their respective supply and demand curves will meet and cross at the point of equilibrium or equilibrium price.

Though some agricultural markets approximate the model of the perfectly competitive free market, in actuality there is no real example of such a market. Markets that do not have all seven features of the perfectly free market are, therefore, correspondingly less moral.

In the capitalist sense of the word, justice is when the benefits and burdens of society are distributed such that a person receives the value of the contribution he or she makes to an enterprise. Perfectly competitive free markets embody this sense of justice (in terms of capitalistic justice), since the equilibrium point is the only point at which both the buyer and seller receive the just price for a product. Such markets also maximize the utility of buyers and sellers by leading them to use and distribute goods with maximum efficiency. This is done in a way that respects the buyers and sellers’ right of free consent.

Efficiency comes about in perfectly competitive free markets in three main ways:

1. They motivate firms to invest resources in industries with a high consumer demand and move away from industries where demand is low.

2. They encourage firms to minimize the resources they consume to produce a commodity and to use the most efficient technologies.

3. They distribute bundles of commodities among buyers so that they receive the most satisfying commodities they can purchase, given what is available to them and the amount they have to spend.

Finally, perfectly competitive markets establish capitalist justice and maximize utility in a way that respects buyers’ and seller’ negative rights.

First, in a perfectly competitive market, buyers and sellers are free (by definition) to enter or leave the market as they choose. That is, individuals are neither forced into nor prevented from engaging in a certain business, provided they have the expertise and the financial resources required.

Second, in the perfectly competitive free market, all exchanges are fully voluntary. That is, participants are not forced to buy or sell anything other than what they freely and knowingly consent to buy or sell. Third, no single seller or buyer will so dominate the market that he is able to force the others to accept his terms or go without. In this market, industrial power is decentralized among numerous firms so that prices and quantities are not dependent on the whim of one or a few businesses. In short, perfectly competitive free markets embody the negative right of freedom from coercion. Thus, they are perfectly moral in three important

..

55

respects: (a) Each continuously establishes a capitalist form of justice; (b) together they maximize utility in the form of market efficiency; and (c) each respects certain important negative rights of buyers and sellers. No single seller or buyer can dominate the market and force others to accept his terms. Thus, freedom of opportunity, consent, and freedom from coercion are all preserved under this system.

Several cautions are in order, however, when interpreting these moral features of perfectly competitive free markets. First, perfectly competitive free markets do not establish other forms of justice. Because they do not respond to the needs of those outside the market or those who have little to exchange, for example, they cannot establish a justice based on needs. Second, competitive markets maximize the utility of those who can participate in the market given the constraints of each participant's budget. However, this does not mean that society's total utility is necessarily maximized. Third, although free competitive markets establish certain negative rights for those within the market, they may actually diminish the positive rights of those outside those whose participation is minimal. Fourth, free competitive markets ignore and even conflict with the demands of caring. As we have seen, an ethic of care implies that people exist in a web of interdependent relationships and should care for those who are closely related to them. A free market system, however, operates as if individuals are completely independent of each other and takes no account of the human relationships that may exist among them. Fifth, free competitive markets may have a pernicious effect on people's moral character. The competitive pressures that are present in perfectly competitive markets can lead people to attend constantly to economic efficiency. Producers are constantly pressured to reduce their costs and increase their profit margins. Finally, and most important, we should note that the three values of capitalist justice, utility, and negative rights are produced by free markets only if they embody the seven conditions that define perfect competition. If one or more of these conditions are not present in a given real market, then the claim can no longer be made that these three values are present. This, in fact, is the most crucial limitation of free market morality, because real markets are not perfectly competitive, and consequently they may not achieve the three moral values that characterize perfect competition.

4.2 Monopoly Competition In a monopoly, two of the seven conditions are absent: there is only one seller, and other sellers cannot enter the market. Two examples are Microsoft’s operating system and office suite software. As the case of Microsoft exemplifies, such markets are far from the perfectly competitive model. The operating system market is dominated by Microsoft’s Windows which had a total global market share of 92 percent in 2010. Microsoft also has a monopoly in the worldwide market for integrated office suite software where its MS Office suite commanded 94 percent of the market in 2010. Technically, a company must have 100 percent of the market to be a monopoly. But in practice, a company can do it with lesst.

The key feature that determines whether a company has a monopoly is whether that one company has such control over a product is whether that one company determines who can get some of the product and at what price. So, while Microsoft does not hold 100 percent of either of these markets, most observers characterize its control of these markets as monopolies.

There are several “barriers to entry” any company that wants to come into these markets has to overcome. One barrier is sheer total cost and risk: today it costs more than $10 billion to develop a new operating system like Windows and it would be extremely risky for a company to spend $10 billion on the gamble that it might overcome Microsoft’s dominance of the market. A second barrier is economies of scale which occur when the amount of

..

56

product a company makes has grown so large that it costs it less to make each unit of its products than it would cost any smaller firm.

Yet another barrier is the so-called “network effect” in which the value of a product increases as the number of users increases. Consumers prefer Windows over other operating systems like Unix because there are many more software programs available for Windows than for Unix. And the reason why there are many more programs for Windows is because software developers would much rather develop programs for Windows’ many users, than for Unix’s few users Unregulated monopoly markets fall short of the three values of capitalistic justice, economic efficiency, and respect for negative rights that a perfect competition achieves.

First, monopolistic markets enable the seller to charge more than the goods are worth. Thus, the prices the buyer must pay are unjust because capitalistic justice says that what each person receives should equal the value of the contribution they made. Second, the monopoly market results in a decline in the efficiency of the system. There is little incentive for the monopoly firm to reduce its costs. Third, monopoly markets place restrictions on the negative right that perfectly free markets respect, (a) monopoly markets are markets that other sellers are not free to enter and (b) monopoly markets enable the monopoly firm to force on its buyers goods that they may not want in quantities they may not desire.

A monopoly market is then, is one that can, and generally will, deviate from the ideals of capitalist justice, economic utility, and negative rights. A monopoly market allows the monopoly firm to dictate terms to the consumer, replacing the consumer as “sovereign” of the market.

4.3 Oligopolistic Competition Most industries are not entirely monopolistic; in fact, most are dominated by a few large firms. These markets lie somewhere in between the monopoly and the perfectly competitive free market; the most important type of these imperfectly competitive markets is the oligopoly.

In an oligopoly, two of the seven conditions are not present. Instead of many sellers, there are only a few significant ones and the firms controlling this share may range from 2 to 50 firms depending on the industry. Second, as with the monopoly, other sellers are not free to enter the market. A list of firms in oligopoly markets in the most highly concentrated American industries reads like a who's who of American corporate power.

Oligopoly markets that are highly concentrated markets are dominated by a few (three to eight) large firms. They include many of the largest manufacturing industries.

The most common cause of oligopolistic market structure is the horizontal merger or unification of two companies that formerly competed in the same line of business. Because such markets are comprised of a small number of firms, it is easy for their managers to join forces to set prices and restrict their output, acting, in effect, like one large monopolistic firm. Therefore, like monopolies, they can fail to set just profits, respect basic economic freedoms, and protect social utility.

A highly concentrated oligopoly has a relatively small number of firms, making it relatively easy for mangers of these firms to join forces and act as a single giant firm. They can operate in much the same way as a monopoly, failing to exhibit fair prices, reducing social utility and failing to respect economic freedom.

..

57

Oligopolies can set high prices through explicit or tacit agreements to restrain competition.

The more highly concentrated the oligopoly, the easier it is to collude against the interests of society, economic freedom, and justice. The following list identifies practices that are clearly unethical: 1. Price Fixing - when companies agree to set prices artificially high.

2. Manipulation of Supply - when a company agrees to limit production.

3. Market Allocation – “Market Division” occurs when companies in an oligopoly divides up the market among themselves (“you get India and I get China”).

4. Bid Rigging – Occurs when managers in an oligopoly market decide in advance which of them will submit the winning bid.

5. Exclusive Dealing Arrangements - when a company sells to a retailer only on condition that the retailer will not purchase products from other companies and/or will not sell outside a certain geographical area.

6. Tying Arrangements - when a company sells a buyer certain goods only on condition that the buyer also purchases other goods from the firm.

7. Retail Price Maintenance Agreements - when a company sells to a retailer only on condition that they agree to charge the same set retail prices.

8. Predatory Price Discrimination – Price discrimination is when a company charges different prices to different buyers for the same goods or services. It becomes predatory price discrimination when the company’s intent is to run its competitor out of business.

9. Bribery – Many companies have secretly bribed government officials so they will purchase goods from the company and not its competitors. When a bribe takes place the bribing company becomes a monopoly.

Several industrial and organizational factors lead companies to engage in these practices: Incentives and Pressures 1. A Crowded and Mature Market - Mature industries are sometimes subject to oversupply because demand begins to fall or companies all increase production at the same time, or many new companies come into the market. As prices fall and revenues decline, middle managers can feel pressured to do something to halt their losses and may respond by allowing, encouraging, and even ordering their sales teams to engage in price-fixing 2. Undifferentiated Products - When the product offered by each company in an industry is so similar to those of other companies the companies have no choice but to compete on price alone. This can lead to periodic price wars and salespeople come to feel that the only way to keep prices from collapsing is by getting together and fixing prices.

3. Personnel Practices - When managers are evaluated and rewarded solely or primarily on the basis of revenue and sales volumes so that bonuses, commissions, advancement, and other rewards are dependent on achieving these objectives, they will come to believe that the company wants them to achieve these objectives any way that they can, including price fixing.

Opportunities

..

58

1. The Job-Order Nature of Business – If orders are priced individually so that pricing decisions are made frequently and not closely monitored, collusion among low-level salespeople is more likely.

2. Decentralized Pricing Decisions - When organizations are decentralized so that pricing decisions are pushed down into the hands of lower divisions of the organization, price fixing is more likely to happen particularly when such decisions are not monitored and the division is pressured to perform in a declining market.

3. Industry or Trade Associations – Most industries have organized associations where the managers of the companies in the industry can meet and discuss common Allowing salespeople to meet with competitors in trade association problems. meetings will encourage them to talk about pricing and to begin to engage in price setting arrangements with their counterparts in competing firms.

Rationalizations 1. Inactive Corporate Legal or H.R. Staff - When legal departments or human resource departments fail to provide guidance to sales staff until after a problem has occurred, the sales staff may not understand that price-fixing is a seriously illegitimate sales activity.

Sales staff may then believe that there is nothing inappropriate about meeting with competitors and making price-fixing agreements.

2. Organizational Culture of the Business – Some companies have a freewheeling culture where wrongdoing is condoned and goes unpunished so long as bottom line objectives are met. When an organization's salespeople feel that price fixing is a common practice and is desired, condoned, accepted, rationalized, and even encouraged by the organization, price fixing is more likely.

It is difficult to legislate against many common oligopolistic price-setting practices, however, because they are accomplished by tacit agreement. Firms may, without ever discussing it explicitly, realize that competition is not in their collective best interests. Therefore, they may recognize one firm as the "price leader," raising their prices in reaction when the leader decides to do so. No matter how prices are set, however, clearly social utility declines when prices are artificially raised.

4.4 Oligopolies and Public Policy Oligopolies are not a modern phenomenon. Toward the end of the nineteenth century, many businessmen began using anticompetitive practices to force competitors to sell out to them, in some cases creating gigantic “trust” that would then monopolize the markets. The trusts would then use its monopolistic power to raise prices for consumers, cut prices for their suppliers, and continually terrorize their remaining competitors with predatory pricing.

This ultimately resulted in the U.S. Congress in 1887 passing the Interstate Commerce Act to regulate large railroad companies. Then in 1890, Congress passed the Sherman Antitrust Act and in 1914 the Clayton Act was passed to prohibit acts that would hinder free and open competition in the market place.

What should society do in the face of the high degree of market concentration in oligopolistic industries? There are three main points of view: First, the Do-Nothing view claims that the power of oligopolies is not as large as it

..

59

appears. Though competition within industries has declined, they maintain that competition between industries with substitutable products has replaced it. In addition, there are "countervailing powers" of other large corporate groups, the government, and unions that keep corporations in check. Finally, they argue that bigger is better, especially in the current age of global competition. Economies of scale, produced by high concentration, actually lower prices for consumers. By expanding, the companies are able to reduce their prices and compete more effectively against similarly large foreign companies.

Second, the Antitrust view argues that prices and profits in highly concentrated industries are higher than they should be and that prices and profits in concentrated industries are higher than they should be and that monopolists and oligopolists use unfair tactics against their competitors and suppliers. By breaking up large corporations into smaller units, they claim, higher levels of competition will emerge in those industries. The result will be a decrease in collusion, greater innovation, and lower prices.

The third view is the Regulation view, which can be seen as a middle ground between the other two. Those who advocate regulation do not wish to lose the economies of scale offered by large corporations, but they also wish to ensure that large firms do not harm the consumers. Therefore, they suggest setting up regulatory agencies and legislation to control the activities of large corporations. Some even suggest that the government should take over the operation of firms where only public ownership can guarantee that they operate in the public interest.

Whichever view we take, clearly the social benefits of free markets cannot be guaranteed, and the markets themselves cannot be morally justified, unless firms remain competitive.

Extra Resources

1. “Fair Fight in the Marketplace” (2006) is a 27 minute documentary on antitrust, with segments on three cases: Mylan Pharmaceuticals and supply manipulation.

Microsoft’s attack on Netscape in the browser market. Can be purchased at www.fairfightfilm.org .

Archer Daniels Midland Segment from "Fair Fight in the Marketplace".

ADM and the lysine price-fixing case (with clips of the conspirators’ meetings in hotel rooms).

2. Separately, an Archer Daniels Midland Segment from "Fair Fight in the Marketplace" (2009) a 6.28 minute YouTube clip describing portions of the government’s case against Archer Daniels Midland.

Available by accessing the clip on: http://www.youtube.com/watch?v=DPXTsPS-hyw 3. Videos on the Lysine Cartel. Seven videos of meetings by United States Department of Justice, Antitrust Division on YouTube under “Lysine Cartel”.

“Interview with FBI and Mark Whitacre WEAR 3 September 23, 2009” http://www.youtube.com/watch?v=HZEbbyLRVnE&feature=related FBI discusses Mark Whitacre on WAND TV October 29, 2009 http://www.youtube.com/watch?v=Ka4U24x4_Bk&NR=1 Ginger Whitacre speaks out about her support for her husband, Mark Whitacre WAND NEWS Oct 28 2009 http://www.youtube.com/watch?v=Cd6BBwKP3no&feature=mfu_in_order&list=UL Mark Whitacre Speaking Engagement http://www.youtube.com/user/ISBGlobal#p/u/7/tZWXg6RhuPU Distinguished Visitor Series with Mark Whitacre http://www.youtube.com/watch?v=PulBuTqjLVo&feature=related

..

60

Mark Whitacre Interview CBS 47 http://www.youtube.com/watch?v=r7c-e_9thlk&feature=related FBI Supervisor (retired) discusses Whitacre's informant role on Pensacola TV Source: Wear ABC 3 http://www.markwhitacre.com/fbibacksmark.html Questions for Class Discussion 1. What is the moral justification for free markets? How do anticompetitive practices in general draw this justification into question?

2. What seven features are necessary to ensure perfectly competitive free markets? Why is each feature necessary? What else do free competitive markets require besides these seven features?

3. What is the equilibrium point? How is it achieved? Why are prices above or below the equilibrium point unjust?

4. Define the principles of diminishing marginal utility and increasing marginal costs.

How are they relevant to the equilibrium point?

5. How do market systems achieve perfect efficiency?

6. In what three ways do perfectly competitive free markets establish perfect morality?

What difficulties remain with the morality of such markets?

7. What is a monopoly? How do they come about? In what ways do they threaten the morality of the market system?

8. What is an oligopoly? How do they come about? How are they related to monopolies?

9. What types of unethical market practices are common in oligopolies? Why do they occur? How can they best be prevented?

10. Why are bribes immoral? How can you tell if a payment made in a business transaction is a bribe or not?

11. What are the three views on public policy in the face of highly concentrated oligopolistic industries? Which view is correct?

Activities and Assignments 1. Have students, either individually or in groups, research one particular industry, examining it for signs of monopoly, oligopoly, and unfair market practices.

2. Have students examine one case where a monopoly was broken up and analyze the effects of the governmental action on the industry and society. Was the action justified? Beneficial?

3. Have students collect, assemble, and evaluate the continuing dialogue in the media between the government and companies with reference to alleged unfair market practices. Let them then act as the Federal Trade Commission. What action should be taken, if any?

4. Ask students to choose one of the dominant brands and research it to decide if their dominance in the industry is due to unethical practices or something else.

..

61

Quiz Questions: Chapter Four 1. In a perfectly free competitive market, no buyer or seller has the power to significantly affect the price of a good. a. True b. False Answer: A 2. Which of the following are characteristics of a perfectly free economy? a. There are numerous buyers and sellers, none of whom has a substantial share of the market. b. All buyers and sellers can freely and immediately enter or leave the market. c. Every buyer and seller has full and perfect knowledge of what every other buyer and seller is doing, including knowledge of the prices, quantities, and quality of all goods being bought and sold. d. All the above e. B & C Answer: D 3. In a perfectly free economy, all buyers and sellers are utility maximizers: Each tries to get as much as possible for as little as possible. a. True b. False Answer: A 4. When a buyer purchases a good, each additional item of a certain type is less satisfying than the earlier ones. This is known as: a. The principle of increasing marginal utility b. The principle of gross marginal utility c. The principle of diminishing marginal utility d. The principle of consumer awareness Answer: C 5. Efficiency comes about in perfectly competitive free markets when: a. Firms are motivated to invest resources in industries with a high consumer demand and move away from industries where demand is low. b. Firms are encouraged firms to minimize the resources they consume to produce a commodity and to use the most efficient technologies. c. Commodities are distributed among buyers such that buyers receive the most satisfying commodities they can purchase, given what is available to them and the amount they have to spend. d. All the above e. A & B Answer: D 6. In a monopoly, there is only one seller, but other sellers can enter the market. a. True b. False Answer: B

..

62

7. Monopolistic markets and their high prices and profits violate capitalist justice because the seller charges more than the goods are worth. Thus, the prices the buyer must pay are unjust. a. True b. False Answer: A 8. The common definition of price fixing is: a. When companies agree to set prices artificially high. b. When companies agree to limit production. c. When a company sells a buyer certain goods only on condition that the buyer also purchases other goods from the firm. d. When companies agree to limit production.

Answer: A 9. When a company sells a buyer certain goods only on condition that the buyer also purchases other goods from the firm, this is known as: a. Manipulation of supply. b. Exclusive dealing arrangements c. Price discrimination d. Tying arrangement Answer: D 10. Proponents of the Antitrust view argue that prices and profits in highly concentrated industries are higher than they should be. By breaking up large corporations into smaller units, they claim, higher levels of competition will emerge in those industries. a. True b. False Answer: A 11. Because Microsoft Corporation’s, market share is only 92 percent of the market in operating systems (Windows) and 94 percent of the market in integrated office suite software (MS Office), Microsoft is not considered a monopoly. a. True b. False Answer: B 12. A survey of major corporate executives indicated that 60 percent of those sampled believed that many businesses engage in price fixing. a. True b. False Answer: A 13. When companies get together to fix prices, the result is a ______________. a. A consortium of suppliers. b. An oligopoly. c. A monopoly. d. None of the above.

Answer: C

..

63

14. As in the ADM case, all that companies have to do to fix price is to agree on the price for which the companies will sell the product. a. True b. False Answer: B 15. The most obvious failure of monopoly markets lies in the high prices they allow the monopoly companies to charge, violating capitalist justice. a. True b. False Answer: A

..

64

CHAPTER FIVE Ethics and the Environment Overview Introduction Modern industry has provided us with a material prosperity unequaled in our history. It has also created unparalleled environmental threats to ourselves and to future generations.

According to the U.S. Environmental Protection Agency (EPA), the United States in 2008 pumped more than 130 million tons of “common air pollutants” (such as smoke, lead and carbon monoxide) into the air, in addition to the 7.7 billion tons of carbon dioxide emissions with which we seem to be heating up our atmosphere. We produced 3.9 billion tons of toxic wastes, of which 247 million pounds was released as surface water discharge. Our total energy consumption for the year was 100 quadrillion BTUs (British Thermal Units) which is equivalent to about 17.24 billion barrels of oil or 721 billion gallons of gasoline. Each U.S. citizen annually accounts for the consumption of about 1,300 pounds of metal and 18,500 pounds of other minerals, and each produces over 4.5 pounds of garbage every day.

Environmental issues, then, raise large and complicated ethical and technological questions for our business society. What is the extent of the environmental damage produced by the processes through which we manufacture our products, grow our food, and power our cities?

This chapter explores these environmental issues. It begins with an overview of various technical aspects of environmental resource use. This is followed by a discussion of the ethical basis of environment protection. The final sections discuss two controversial issues: our obligations to future generations and the prospects for continued economic growth.

5.1 The Dimensions of Pollution and Resource Depletion Environmental damage inevitably threatens the welfare of human beings as well as plants and animals. Threats to the environment come from two sources, pollution and resource depletion. Pollution refers to the undesirable and unintended contamination of the environment by the manufacture or use of commodities. Resource depletion refers to the consumption of finite or scarce resources. In a certain sense, pollution is really a type of resource depletion because contamination of air, water, or land diminishes their beneficial qualities.

Air pollution is not new—it has been with us since the Industrial Revolution introduced the world to the belching factory smokestack. However, the costs of air pollution increased exponentially as industrialization expanded. Today, air pollutants affect vegetation, decreasing agricultural yields and inflicting losses on the timber industry; they deteriorate exposed construction materials through corrosion, discoloration, and rot; they are hazardous to health and life, raising medical costs and lessening the enjoyment of living; and they threaten catastrophic global damage in the form of global warming and destruction of the stratospheric ozone layer.

Global warming Greenhouse gases itself poses a difficult and frightening challenge. Global warming greenhouse gases such as: carbon dioxide, nitrous oxide, methane, and chlorofluorocarbons, are gases that absorb and hold heat from the sun, preventing it from ..

65

escaping back into space, much like a greenhouse absorbs and holds the sun's heat. Of these gases, methane is able to capture more heat than an equal amount of any of the others, but there is much more carbon dioxide so it is the gas that actually makes the greatest contribution to heating the atmosphere. These effects will have high human and economic costs. However, to halt the increase of greenhouse gasses, we would have to reduce emissions by 60% to 70%. Some environmentalists have said that making thee kinds of emissions reductions will require a wholesale change in our lifestyles and values. This is such a large reduction, that few governments are ready to attempt the political negotiations required to mandate such a reduction, and so most nations are still increasing their carbon dioxide emissions by substantial amounts.

The main sources of greenhouse gas emissions are: 1. Power generation – 21.3% 2. Industrial processes – 16.8% 3. Transportation – 14% 4. Farming - 12.5% 5. Drilling for oil and processing it – 11.3% These are all activities in which business is heavily involved. If greenhouse gases are going to be reduced, business is going to have to play a major role. Some companies have already worked at reducing their “carbon footprint” but other companies have done little, particularly energy companies who have opposed attempts to reduce greenhouse gas emissions.

Ozone depletion The release of chlorofluorocarbons (CFCs) into the stratosphere above us This layer breaks gradually of ozone down in the ozone gas in the stratosphere. stratosphere screens life on Earth from the harmful ultraviolet radiation the Sun emits.

Ozone depletion may lead to several hundred thousand new cases of skin cancer each year and destroy many valuable food crops. Also, ocean plankton, on which the entire ocean's food chain depends, may be severely damaged. Even though CFC production has been nearly halted, we can expect the gasses already released to continue damaging the ozone for the next 75 - 130 years. Scientists have warned that even if the use of CFC gases were completely halted, CFC levels in the atmosphere would still continue their dangerous upward climb because those gases already released will continue to rise upward for many years and persist for perhaps a century.

Acid Rain Acid rain occurs when coal containing high levels of sulfur is burned and releases large quantities of sulfur oxides and nitrogen oxides into the atmosphere. Coal-burning electric power plants account for 70% of annual sulfur oxide emissions and 30% of nitrogen oxides. When these gases are carried into the air, they combine with water vapor in clouds to form nitric acid and sulfuric acid. These acids are then carried down in rain, which often falls hundreds of miles away from the original sources of the oxides. This acidic rainfall is carried into lakes and rivers, where it raises the acidity of the water. Many fish populations and other aquatic organisms (algae, zooplankton, and amphibians) are unable to survive.

Acid rain directly damages or destroys tree, plants, lichens and mosses and can leach toxic metals – cadmium, nickel, lead, manganese, and mercury – from soil and carry these into water ways, contaminating drinking water or fish. Acid rain can also corrode and damage buildings, statues, and other objects.

Airborne Toxics are less catastrophic but highly worrisome air pollution threats; 2.4 billion pounds of airborne toxic substances released annually into the nation's atmosphere, including phosgene, a nerve gas used in warfare, and methyl isocyanate, which killed 2,000

..

66

Indians in Bhopal. The chemical brew released into the air annually includes 235 million pounds of carcinogens and 527 million pounds of neurotoxins. The EPA estimates that 20 of the more than 329 toxics released into the air alone cause more than 2,000 cases of cancer each year.

Common Air Pollutants The most prevalent forms of air pollution, however, are the six kinds of gases and particulates spewed out mostly autos and industrial process that the EPA calls “common air pollutants” affecting the quality of the air that we breathe, injuring human health, harming the environment, and damaging property. The six “common air pollutant” are carbon monoxide, sulfur oxides, nitrogen oxides, airborne lead, ozone, and particulates. More recent long range studies have indicated that the deterioration of lung function in human beings caused by chronic exposure to air pollutants is long lasting and often irreversible.

Water pollution is likewise a serious problem. About 40% of the world's surface water is too polluted to fish or swim in. Water pollutants enter surface water or underground water basins either from a single point source, such as a pipe or a well carrying sewage or industrial wastes, or they enter from a diffused or nonpoint source covering a large area, such as crop pesticides or animal wastes carried in rainwater or runoff. Salt brines from mines and oil wells, as well as mixtures of sodium chloride and calcium chloride used to keep winter roads clear of snow; all eventually drain into water sources, where they raise the saline content. The high saline levels in ponds, lakes, and rivers kill whatever fish, vegetation, or other organisms inhabit them.

Water drainage from coal mining operations contains sulfuric acid as well as iron and sulfate particles. The acidic water from these sources is sometimes flushed into streams and rivers. The high acid levels produced in waterways by these practices are lethal to most organisms living within the aquatic environment.

Organic wastes affect the water supply. It consists of untreated human wastes and sewage, as well as wastes derived from industrial processing of various food products, wastes from the pulp and paper industry, and wasted from animal feedlots. Various types of bacteria consume organic wastes that find their way into water resources and in the process they

The oxygen deplete the water depleted of its then oxygen. becomes incapable of supporting fish life and other organisms. The following wastes have various polluting effects: 1. Phosphorus found in detergents fertilizers and untreated human and animal waste – Affects lakes with expansions of algae that choke waterways and drive out other life.

2. Inorganic pollutants such as mercury created by burning coal which is naturally contaminated with mercury, finding their way into fresh water supplies and the oceans, ultimately finds its way up the food chains to humans.

3. Cadmium from zinc refineries, agricultural use of certain fertilizers, and disposed electrical batteries makes its way into water sources affecting fish and shellfish.

4. Asbestos in fresh water caused by mining companies depositing contaminated wastes into fresh water sources. If swallowed can cause gastrointestinal tract cancer.

5. Oil spills are a form of water pollution whose occurrence became more frequent as our dependence on oil increases. This contamination is lethal to sea life, including fish, seals, plants, and aquatic birds. It requires extensive cleanup operations and imposes costly losses on nearby tourists and fishing industries.6. In the past, oceans have been used as disposal site for intermediate and low-level Although banned by the U.S. Government in 1979, radioactive wastes. oceanographers have examined seawater and found traces of plutonium, cesium and ..

67

other radioactive materials, apparently leaked from sealed drums in which radioactive wastes are disposed.

More than 50 percent of the U.S. population depends on underground sources for drinking water, yet the water supplies are becoming more polluted. Today approximately 884 million people in the world lack access to safe drinking water and about a third of them live in SubSaharan Africa and most of the rest live in rural areas of poor developing countries.

Land Pollution The pollution of the land by toxic substances also causes increased mortality and illness.

Hazards or toxic substances are those that can cause an increase in mortality rates or irreversible or incapacitating illness, or those that have other seriously adverse health or environmental effects. About 70,000 different chemical compounds are currently being used in the U.S., and well over a thousand are probably toxic with the number increasing each year. How many of these chemicals affect humans, no one really knows. The sheer volume of solid waste is staggering: each U.S. resident produces about 4.5 pounds of garbage per day. Though this quantity is massive, it is not even close to the quantity of industrial waste.

Each nuclear reactor produces 265 pounds of plutonium waste a year, a substance so toxic that only twenty pounds would be sufficient to cause lung cancer in everyone on Earth. So far, no one really knows how to dispose of this and similar wastes safely and securely.

Americans produce more residential garbage than do the citizens of any other country in the world. U.S. cities produce 250 million tons of municipal world waste each year. Each person contributing about 4.5 pounds a day.

The United States generates about 20 percent of it electricity from 65 nuclear plants Of currently these, operating.

59 have been approved to continue operating for an additional 20 years. Light-water nuclear reactors contain radioactive materials including four powerful carcinogens. Extremely high levels of radiation from these materials can kill a person. Low doses can cause thyroid, lung, or bone cancer as well as genetic damage that will be transmitted to future generations. Although no new nuclear power plants have been constructed in the United States for several years, the power plants are still producing nuclear wastes. How theses wastes will be disposed of is still uncertain.

Depletion of Species and Habitats As if pollution was not serious enough, we also must consider the depletion of species, habitats, and natural resources. Since 1600, at least 96 known species of mammals and 88 major identifiable species of birds are known to have become extinct. Of the 47,978 species and subspecies known to exist in 2010 in the last 500 years, 36% were threatened with extinction and 840 are now extinct. Nowhere has the depletion of living organisms been as significant as in the oceans. Fish stocks around the world have collapsed because of overfishing, resulting in a serious decline in the fish protein available to local populations.

Depletion of Fossil Fuels Until the 1980s, our consumption of fossil fuels was rising at exponential rates, but this cannot continue much longer because we are coming close to the depletion point of fossil fuels. Estimated world resources of coal would be depleted in about 100 years, estimated world reserves of oil would be exhausted in about 40 years, and estimated reserves of natural gas would last only about 25 years. Experts point out that our consumption of a ..

68

resource cannot continue rising at exponential rates. As reserves of any resource shrink, they become increasingly difficult, and therefore more costly to extract, which in turn slows down their depletion rates. Using the Hubbert model (after the geologist M. Kin Hubbert) rather than the exponential model, the reserves of coal will probably peak in about 150 years and then continue, but at a declining rate coupled with rising prices, of another 150 years.

Depletion of Minerals Minerals are also being depleted, so we can expect them gradually to become more scarce and expensive. This scarcity will have a serious impact on world economy. Fortunately, as with fossil fuels, the rate at which minerals are depleted does not continue to grow exponentially, but peaks and then declines as metals become rarer, more difficult, and more expensive to extract. Although many are abundant, none can be exploited indefinitely.

Eventually each will peter out and the costs of extraction will rise significantly.

More plentiful substitute material may be found for man of thee resources, but it is likely that substitutes cannot be found for all of them. There are physical limitations to our natural resources, although many are abundant, none can be exploited indefinitely.

5.2 The Ethics of Pollution Control Businesses have been ignoring their impact on the natural environment for centuries, largely because the economic costs and harmful effects of this impact have been unclear.

Businesses have treated air and water as free goods that no one owns. Since the carrying capacity of both is so large, each individual firm sees its own contribution to pollution as negligible. Combined, however, the effects are enormous. The harm comes not only from the direct activity of businesses. Pollution also occurs as a result of consumer use of manufactured Because every items. human being pollutes, pollution problems have increased as our population has multiplied. The world’s population grew from 1 billion in 1850 to 2 billion in 1930 to 6.3 billion in 2003 and is projected to grow to 9 billion in 2050.

The problems of pollution have a variety of origins, and will require a similarly varied set of solutions. The rest of this chapter concentrates on a single range of problems, the ethical issues raised by pollution from commercial and industrial enterprises.

Because our environment is so complex and its parts are so interwoven, many theorists believe that our duty to protect the environment extends beyond the welfare of humans (anthropocentric) to other nonhuman parts of the system. This idea, called ecological ethics or deep ecology, maintains that the environment deserves to be preserved for its own sake, regardless of whether or not this directly benefits humanity. Because the various parts of an ecological system are interrelated, the activities of one of its parts will affect all the other parts. Because the various parts are interdependent, the survival of each part depends on the survival of the other parts. Business firms (and all other social institutions) are parts of a larger ecological system, "spaceship earth.”

Thus we have a moral duty to respect and refrain from harming these nonhumans regardless of whether they make a contribution to our human welfare. Several supporters of this approach have formulated their views in a platform consisting of the following statements: 1. The well-being and flourishing of human and nonhuman life on earth have value in themselves. These values are independent of the usefulness of the nonhuman world for human purposes. ..

69

2.Richness and diversity of life forms contribute to the realization of these values and are also values in themselves.

3.Humans have no right to reduce this richness and diversity except to satisfy vital needs.

4.The flourishing of human life and cultures is compatible with a substantial decrease of the human population. The flourishing of nonhuman life requires such a decrease.

5.Present human interference with the nonhuman world is excessive, and the situation is rapidly worsening.

6.Policies must therefore be changed. The changes in policies affect basic economic, technological, and ideological structures. The resulting state of affairs will be deeply different from the present.

7.The ideological change is mainly that of appreciating life quality, rather than adhering to an increasingly higher standard of living.

8.Those who subscribe to the foregoing points have an obligation directly or indirectly to participate in the attempt to implement the necessary changes.

An ecological ethic, therefore, claims that the welfare of at least some nonhumans is intrinsically valuable and deserves to be protected for their own sake. Utilitarian and rights arguments both support such a view. Under either system, for instance, it would be wrong to raise animals for food in painful conditions.

Though some of the views of deep ecology are unusual and controversial, two traditional views of ethics can also help us to develop an environmental ethic: utilitarianism and concern for human rights.

Environmental Rights and Absolute Bans William T. Blackstone has argued that the possession of a livable environment is something to which every human being has a right. To some extent, U.S. federal law recognizes this concept. The main difficulty with Blackstone's view, however, is that it fails to provide any nuanced guidance on several pressing environmental choices. This lack of nuance in the absolute rights approach is especially problematic when the costs of removing certain amounts of pollution are high in comparison to the benefits that will be attained.

Peter Singer arguing from a utilitarian perspective that pain is an evil whether it is inflicted on humans or on members of other animal species, and the pain experienced by an animal is as great an evil as a comparable pain experienced by a human being. Some ecological ethicians have claimed that it is arbitrary and hedonistic to confine our duties to creatures that can feel pain.

Instead they urge, we should acknowledge that all living things, including plants, have interest in remaining alive.

At what point is the environment “safe” enough? Governments have struggled with this question as they have attempted to implement the many laws that seem to require absolutely no pollution. The U.S. government has often decided that when exposure to pollution during one year poses a risk of death of 1 in 1 million or less, it is safe enough; and when, during a year, exposure poses a risk of death of 3 in 10,000 or more, it is unsafe and must be cleaned up. Risks that lie in-between are handled on a case-by-case basis.

Many people claim that if 1 person out of a million dies every year from exposure to pollution, then the pollution is still too high: that one person also had a right to a healthy environment and that right was violated. But is this claim justified? It seems unrealistic to demand the complete elimination of absolutely all risks to life and health because fulfilling that demand would impose unacceptable costs and burdens on all of us.

..

70

Markets and Partial Controls Utilitarianism can answer some of the difficulties with Blackstone's theory. Utilitarians see environmental problems as market defects, arguing that pollution should be avoided because it harms society's welfare.

To make this position clear, it is helpful to distinguish between private costs and social costs. Private costs are the actual private costs that a firm incurs to produce a commodity.

Social costs include the private costs plus the external costs that the firm does not pay– the costs of pollution and medical care that result from the manufacture of the commodities.

The divergence of private and social costs is problematic because the divergence means that price no longer accurately reflects all of the costs of a commodity. This means that resources are not being allocated efficiently, and society's welfare consequently declines.

When markets do not take all costs into account, more of a commodity will be produced than society would demand if it could measure what it is actually paying for the commodity.

In addition, producers ignore these costs and do not try to minimize them. Since goods are no longer efficiently distributed to consumers, pollution violates the utilitarian principles that underlie the market system. Third, when the production of a commodity imposes external costs on third parties, goods are no longer efficiently distributed to consumer. External costs introduce effective price differentials into the markets and everyone does not pay equal prices for the same commodities.

In a well-functioning competitive market the value of what buyers and sellers on average receive from their market exchanges equals the value of what they contribute.

Pollution violates the kind of justice or fairness that characterizes a free competitive market.

When a market generates pollution, there are external costs that some people have to pay in addition to what they pay for the goods they receive. We also recognize that pollution violates the rights that characterize a free competitive market.

The remedy for external costs, according to utilitarians, is to internalize external costs to ensure that the producer pays all of the real costs of production and uses these costs to determine the price of the commodity. To internalize the costs of pollution, a firm may be required to pay all those harmed by pollution. A problem with this way of internalizing the costs of pollution, however, is that when several polluters are involved, it is not always clear just who is being harmed and by whom. Alternatively, the firm might install pollution control devices and stop the harm at its source.

This way of dealing with pollution is consistent with the requirements of distributive justice.

Since pollution's external costs are largely borne by the poor, pollution produces a net flow of benefits away from the poor and towards the rich. Internalizing these costs can reverse this flow. However, if a firm makes basic goods, such as food, then internalizing costs may place a heavier burden on poorer people.

Internalizing external costs is also consistent with retributive and compensatory justice, because those who are responsible for pollution bear the burden of rectifying it and compensating those who have been harmed. Taken together, these requirements imply that (a) the costs of pollution control should be borne by those who cause pollution and who have benefited from pollution activities, whereas (b) the benefits of pollution control should flow to those who have had to bear the external costs of pollution. Internalizing external costs seems to meet these two requirements: (a) The costs of pollution control are borne by ..

71

stockholders and customers, both of whom benefit from the polluting activities of the firm; and (b) the benefits of pollution control flow to those neighbors who once had to put up with the firm's pollution.

Costs and Benefits Since the effects of pollution are so harmful, it might seem that no action to remedy pollution could be too drastic. However, if a firm spends a greater amount on a pollution control device than the amount of damage the pollution would cause, then the firm should not install it; the economic utility of society will be damaged if they do. The amount a firm should invest in pollution control, then, must rest on a cost-benefit analysis: a precise calculation of what the device or practice would cost and what its expected benefits would be. Thomas Klein summarized the procedures for cost-benefit analysis as follows: 1. Identify costs and benefits of the proposed program and the person or sectors incurring or receiving them. Trace transfers.

2. Evaluate the costs and benefits in terms of their value to beneficiaries and donors.

The standard of measure is the value of each marginal unit to demanders and suppliers ideally captured in competitive prices. Useful refinements involve: a. Incorporating time values through the use of a discount rate. b. Recognizing risk by factoring possible outcomes according to probabilities and, where dependent, probability trees.

3. Add up costs and benefits to determine the net social benefit of a project or program.

The problems involved in getting accurate measurements of the benefits and costs of pollution control are also illustrated by the difficulties businesses have encountered in trying to construct a social audit (a report of the social costs and social benefits of the firm’s activities). Those who advocate that a corporation should measure and report the social impacts of its activities have been forced to understand that all the variables involved in making these measurements will result in compromises having to be made because of the limitations of current technical capabilities. As a result of this inability to measure benefits, so-called social audits are often nothing more than qualitative descriptions of what a firm is doing. Without definite quantitative measurements of the benefits deriving from its attempts to reduce pollution, however, a firm has no way of knowing whether its efforts are costeffective from a social point of view. These measurement difficulties pose significant technical problems for utilitarian approaches to pollution. In addition, the use of utilitarian cost-benefit analysis is sometimes based on assumptions that are inconsistent with people’s moral rights. Advocates of utilitarian cost-benefit analysis sometimes assume that if the benefits of a certain technology or manufacturing process clearly outweigh its costs, then it is morally permissible to impose the process on unwilling citizens.

Many thinkers have argued that the environmental crises we face are rooted in the social systems of hierarchy and domination that characterize our society. This view, now referred to as social ecology, holds that until those patterns of hierarchy and domination are changed, we will be unable to deal with environmental crises. In a system of hierarchy, one group holds power over another and members of the superior group are able to dominate those of the inferior group and get them to serve their ends.

Until these systems (such as racism, sexism, and social classes) are changed, we will be unable to deal adequately with the environment. Ecofeminists, a related group of thinkers, sees the key form of hierarchy connected to the destruction of the environment as the domination of women by men. They believe that there are important connections between ..

72

the domination of women and the domination of nature–patterns of thinking, which justify and perpetuate the subordination. This logic of domination sets up dualisms (artificial and natural, male and female) where one of the pair is seen as stronger and more important. To solve our ecological problems, we must first change these destructive modes of thinking.

According to the ethics of caring, the destruction of nature that has accompanied male domination must be replaced with caring for and nurturing our relationships with nature and other living things. Nature must be seen as an "other" that must be cared for, not tamed or dominated. Thought-provoking as these approaches are, they are still too new and undeveloped to give us specific direction.

5.3 The Ethics of Conserving Depletable Resources Conservation refers to the saving or rationing of natural resources for later use. In fact, even pollution control can be seen as a form of conservation, since pollution consumes air and water. However, generally, conservation refers to the saving of finite, depletable resources. The only source of such resources is what has been left over from previous generations.

As we deplete the world's resources, there is unavoidably a smaller amount of them left for future generations. If future generations have an equal right to the world's resources, then by depleting them we are stealing what is actually theirs.

A number of writers have claimed that it is a mistake to think that future generations have rights. They advance three main reasons to show this: First, future generations cannot intelligently be said to have rights because they do not now exist and may never exist. I may be able to think about future people, but I cannot hit them, punish them, injure them, or treat them wrongly. Future people exist only in the imagination, and imaginary entities cannot be acted on in any way whatsoever except in the imagination. Similarly, we cannot say that future people possess things now when they do not yet exist to possess or have them. Because there is a possibility that future generations may never exist, they cannot "possess" rights.

Second, if future generations did have rights, we might be led to the absurd conclusion that we must sacrifice our entire civilization for their sake. Suppose that each of the infinite number of future generations had an equal right to the world's supply of oil. Then we would have to divide the oil equally among them all, and our share would be a few quarts at the most. We would then be put in the absurd position of having to shut down our entire Western civilization so that each future person might be able to possess a few quarts of oil.

Third, we can say that someone has a certain right only if we know that he or she has a certain interest which that right protects. The purpose of a right, after all, is to protect the interests of the right holder, but we are virtually ignorant of what interests future generations will have. What wants will they have?

John Rawls, on the other hand, argues that though it is unjust to impose heavy burdens on present generations for the sake of the future, it is also unjust for present generations to leave nothing for the future. We should ask ourselves what we can reasonably expect they might want and, putting ourselves in their place, leave what we would like them to have left

..

73

for us. Justice, in short, requires that we hand over to our children a world in no worse condition than the one we received ourselves.

The ethics of care support conservation policies similar to the ones Rawls advocates.

Utilitarian reasoning, too, supports Rawls' conclusions. Some utilitarians posit that the ethical thing to do is to discount future consequences based on their uncertainty and distance from the future. We are therefore clearly obligated not to take actions that will almost certainly harm tomorrow's generations. However, since we can be less certain what the effects of our actions will be on far distant generations, our responsibility towards them is somewhat diminished.

Rawls went on to say that what earlier generations in justice owe to later generations will lead to the conclusion that what justice demands of us is merely that we hand to the next generation a situation no worse than we received from the earlier generation.

We cannot rely on market mechanisms to ensure adequate conservation for future generations, however. The needs of future generations are so heavily discounted by markets that they hardly affect prices at all. It then appears that the only means of conserving for the future appears to be voluntary (or politically enforced) policies of conservation.

Wilcox and Shepherd provide four reasons why businesses in markets will fail to not consider the scarcity of resources: 1. Businesses try to consume resources to quickly before competitors do.

2. Busienesses have short horizons.

3. The future is difficult for businesses to predict.

4. Businesses tend to ignore externalities.

Many observers believe that conservation measures are falling short of what is needed.

Some even maintain that future generations will have a quality of life much lower than our own. Industrialized nations will need to convert from growth-oriented technologies to more labor-intensive ones. In fact, our entire economic system may have to abandon the goal of steadily increasing production: continual economic growth promises to degrade the quality of life for future generations. This is because demand for depletable resources will continue to rise until the resources simply run out. Then, living standards will decline sharply Rawls, Attfield and others believe that we are obligated to do what we can to ensure that we leave the next generation a world that is no worse than the one we received from the generation previous to ours. Unfortunately, there are many definitions of sustainability.

The concept of sustainability, however, is now commonly interpreted as encompassing more than just environmental concerns. Sustainability is often said to depend on “three pillars”: (1) our economic activities, (2) our social arrangements, (3) and our environmental activities. They are seen as interrelated and dependent on each other, so that sustainability in any one domain is possible only if the other domains are sustainable. Although there is some controversy about how sustainability can be achieved, it is clear that the idea of sustainability is consistent with the ethical judgment of Rawls and Attfield that w should leave our children a world that is no worse than the one our parents left us.

Many observers believe that conservation measures will fall far short of what is needed to ensure sustainability. Several environmentalists argue that if we are to preserve enough of ..

74

our limited nonrenewable and non-substitutable resources for the benefit of future generations, people like E.F. Schumacher claim that we will have to scale down our pursuit of economic growth, capital-intensive technologies to much more labor-intensive technologies in which humans do work machines now do. Others argue that economic systems will have to abandon their goal of steadily increasing production and put in its place the goal of decreasing production until it has been scaled down to “a steady state” – that is, a point at which the total population and the total stock of physical wealth are maintained constant at some desired levels by a ‘minimal rate of maintenance throughout.

As our supplies of energy diminish, other moral concerns are raised. Though the U.S. has only 6% of the world's population, we consume 25% of its energy; 50% of the people of the world get along with only 8%. Some seriously question whether high-consuming nations like ours can be justified in using for its own sake the nonrenewable resources of the world that others are too weak or frugal to use themselves.

One group, the Club of Rome, predicted that a catastrophic collapse of goods and services will result at some point in the middle of this century; by 2100 the world's population may even drop below 1900 levels. More recently, the some observers have concluded that even if the Club of Rome's timetables were off, their conclusions were substantially correct.

The high energy consumption rates of Americans, Europeans, and the Japanese are not paralleled by similarly high rates of energy production. At the same time their energy consumption is subsidized by the Caribbean, the Middle East, and Africa. The people of the developed world use much of the energy supplies available to them for inessentials, whereas the more frugal nations tend to use their supplies to meet basic needs. These comparisons cannot help but raise the question of whether the high-consumption nations are morally justified in continuing the economic growth policies that lead them to appropriate for their own use the nonrenewable resources of other, more frugal nations that are too weak economically to use these resources or too weak militarily to protect them.

Extra Resources

1. A large number of documentaries on the environment are now available.

Documentaries on global warming include: “An Inconvenient Truth” (2006); “The 11th Hour” (2007); “Extreme Ice” (2009); “The Antarctica Challenge: A Global Warning,” (2010).

2. Documentaries on environmental threats include: “Earth Report, State of the Planet 2009” (2009) which surveys the impact of development on the environment.

“Planet in Peril” (2008) is a 3 hour CNN documentary that looks at climate change, vanishing habitats, disappearing species, population growth.

“What Price Clean Air?” (2009) looks at effects of air pollution and industry attempts to weaken the Clean Air Act. “Ghana: Digital Dumping Ground” (2009) is a 20:29 minute Frontline – World Watch Stories from A Planet video describing e-waste reclamation in developing countries.

“Global Warming; The Signs and the Science” (2005) is an approximate 60 minute PBS documentary on the effects of global warning (the first nine minutes are a good lead in to the subject).

“From Waste to Watts” (2007) a 10 minute KQED video documentary showing a dairy that uses the cow manure and restaurant left over waste and converting it into clean energy, available online at http://www.kqed.org/quest/television/view/415 . into

..

75

A video series on the pollution described in the On the Edge feature entitled “Ford’s Toxic Wastes” (p. 250) is available online at http://toxiclegacy.northjersey.com and http://www.northjersey.com/specialreports/ringwood5yearslater.html .

3. “The Corporation” (2004) is a 145 minute Documentary on the corporation with interviews. The following is a suggested interview for this chapter: Sam Gibara – “Responsible Corporations Don’t Externalize”.

4. “Death on a Factory Farm” (2009) is an HBO documentary on the inhumane treatment of farm animals.

5. “Meet Your Meat” (2003) is a documentary on the inhumane treatment of farm animals.

6. “Ray Anderson on The Business Logic of Sustainability “A TED2009 film available on web: the http://www.ted.com/talks/ray_anderson_on_the_business_logic_of_sustainability.ht ml .

Questions for Class Discussion 1. What is the distinction (or the relationship) between pollution and resource depletion?

2. What are the most important types of air pollution? What harmful effects does each form have on our lives, health, and economic well-being?

3. What are the main sources and types of land and water pollution? What dangers do these types of pollution represent?

4. What is exponential depletion of resources? What is peaked depletion of resources?

What are the economic consequences of both models?

5. How do the concepts of "unlimited good" and "carrying capacity" relate to pollution control?

6. Define deep ecology or ecological ethics. What are the consequences of taking an ecological ethic seriously?

7. What is Blackstone's concept of environmental rights? What are the weaknesses of his theory? Are there any ways to answer these concerns?

8. What is the difference between private costs and social costs? Why is it a problem when they diverge? What remedies for this divergence are there?

9. How are cost-benefit analyses related to pollution control? What are the limitations inherent in such analyses? How does informed consent enter into the issue?

10. How do social ecology and ecofeminism attempt to rethink standard approaches to the environment? What are the values and limitations of these views?

11. What considerations are relevant for the ethics of conserving depletable resources?

Do future generations have the same right to the earth's resources as we do? Do other countries have the same claim to resources, such as energy, as we do?

12. What are the prospects for continued economic growth? What ethical problems pertain to continual growth?

Activities and Assignments 1. Ask students to visit The Regional Impacts of Climate Change website and/or the EPA website to gather information about the possible effects of global warming in their specific area.

2. The debate about genetically modified foods is a good example of how utilitarian concerns are limited by rights of consent when dealing with potentially harmful new technologies. Have students gather articles on genetically modified foods and then ..

76

analyze them as a group to identify the moral theories that serve as the foundation for each point of view they find.

3. Have students debate the different positions concerning the right of future generations to the world's resources.

4. To begin a discussion of justice to future generations, have students make a list of the major resources used 500 years ago, 100 years ago, and today. Are there types of resources that seem always to be in demand? What things that used to be valuable are no longer necessities of life? What principles seem relevant to predicting the needs of future individuals?

5. Ask students to compare the reports of the Club of Rome and Worldwatch concerning the prospects for continued economic growth. Have them decide what they think their lives will be like in fifty years in the face of these predictions.

..

77

Quiz Questions: Chapter Five 1. Environmental damage inevitably threatens the welfare of human beings as well as plants and animals. Threats to the environment come from two sources: pollution and resource depletion. a. True b. False Answer: A 2. The undesirable and unintended contamination of the environment by the manufacture or use of commodities is commonly referred to as: a. Resource depletion b. Pollution c. Degradation d. Contamination Answer: B 3. _____________refers to the consumption of finite or scarce resources. a. Resource depletion b. Pollution c. Degradation d. Contamination Answer: A 4. The release of CFCs into the atmosphere may lead to several hundred thousand new cases of skin cancer each year and destroy many valuable food crops. Also, ocean plankton–on which the entire ocean's food chain depends–may be severely damaged.

This is referred to as: a. Resource depletion b. Ozone depletion c. Environment depletion d. Contamination continuance Answer: B 5. Acid rain is caused by: a. Global warming b. Fossil fuels c. Airborne toxins d. None of the above Answer: B 6. Because our environment is so complex and its parts are so interwoven, many theorists believe that our duty to protect the environment extends beyond the welfare of humans to other nonhuman parts of the system. This idea is called: a. Ecological ethics or deep ecology b. Conservation ethics c. Survival ethics d. None of the above Answer: A

..

78

7. Few views of deep ecology are unusual and/or controversial. a. True b. False Answer: A 8. The saving or rationing of natural resources for later use is referred to as: a. Evolution b. Ecology c. Planned deletion d. Conservation Answer: D 9. We cannot rely on market mechanisms to ensure adequate conservation for future generations, however. The needs of future generations are so heavily discounted by markets that they hardly affect prices at all. a. True b. False Answer: A 10. The Green Valley is estimated to have enough natural gas to support the nation for an entire year. a. True b. False Answer: A 11. The gas field known as the Pinedale Anticline is expected to stop the energy boom. a. True b. False Answer: B 12. The oil wells are not expected to disrupt the sensitive economic system in the Valley’s Basin a. True b. False Answer: B 13. Each human generates ________ of garbage each day. a. 45 pounds b. 14.5 pounds. c. 4.5 pounds d. None of the above.

Answer: C 14. The hole in the stratospheric ozone layer over the Antarctic expected to not recover until sometime between the years 2060 to 2075. a. True b. False Answer: A

..

79

15. BHP had a tailings containment plan study prepared to deal with the OK Tedi Copper Mine river pollution. Of the following approaches, which one was the least total likely cost. a. Mine and dredge. b. Mine only. c. Mine and dredge and store d. Early Closure Answer: B

..

80

CHAPTER SIX The Ethics of Consumer Production and Marketing Overview Introduction Annually, motor vehicles kill 34,000 Americans incapacitate 260,000, and injure 2.2 million others. Americans are also exposed daily to astonishingly high levels of risk from the use of consumer products. Each year on average 33.6 million people suffer injuries related to consumer products (not counting motor vehicles) and about 28,200 of them are killed. The Consumer Product Safety Commission estimates that the total cost of product related injuries in a single year is about $800 billion. The number of product deaths and injuries would be much greater if the U.S. government did not regularly require companies to recall defective or harmful products. This chapter examines the ethical issues raised by product quality and advertising.

However, product injuries make up only one category of costs imposed on consumers.

Other areas of costs for unwary consumers are deceptive selling practices, shoddy product construction, products that immediately break down, and warranties that are not honored.

6.1 Markets and Consumer Protection Consumers are at great risk every day. Many believe that consumers are automatically protected from injury by the operation of the free market and neither governments nor business people should intervene in markets to require product safety. In the market approach to consumer protection, consumer safety is seen as a good that is most efficiently provided through the mechanism of the free market whereby sellers must respond to consumer demands. If consumers want products to be safer, they will indicate this preference in markets by willingly paying more for safer products and showing a preference for manufacturers of safe products while turning down the goods of manufacturers of unsafe products. Manufacturers will have to respond to this demand by building more safety into their products or they risk losing customers to competitors who cater to the preferences of consumers. Moreover, if consumers do not place a high value on safety (or are unwilling to pay for it), then it is wrong to force them to accept higher levels of safety through regulation. Forcing the manufacturers to provide more safety than consumers want increases manufacturing costs which leads to higher consumer prices so that ultimately consumers are forced to pay for a product feature they did not want in the first place.

Critics to the market approach respond that the benefits of free markets are obtained only when the markets have all of the seven defining characteristics: (a) There are numerous buyers and sellers, (b) everyone can freely enter and exit the market, (c) everyone has full and perfect information, (d) all goods in the market are exactly similar, (e) there are no external costs, (f) all buyers and sellers are rational utility maximizers, and (g) the market is unregulated. Critics of the market approach to consumer issues argue that these characteristics are absent in consumer markets.

Most importantly, markets are efficient only if participants have full and perfect information about the goods they are buying. This is obviously not always the case, however; some products are simply too complex for anyone but an expert to understand them. Gathering information is also time consuming and expensive, so many consumers may not have the resources to acquire the necessary information on their own.

..

81

In theory, of course, if consumers really wanted this information, then a market would be created for consumer information. It is difficult, however, for such organizations to cover their costs. Once costly information is released, it is easily leaked to others who do not pay.

Because people know they can become free riders, the number of people who pay for the information is too small to cover the costs of gathering it. Second, consumers are unwilling to pay for information because they do not know what its value is until after they get it, and then they already have it and don't need to pay for it. When we buy information, we cannot know in advance what we are purchasing until we have it. Markets alone, then, cannot provide consumers with the information they need.

Another criticism of the free market approach to consumer issues refers to the sixth characteristic of perfectly competitive free markets that “All buyers and sellers are utility maximizers…" The consumers defined by the theory think ahead, consider, and watch every penny they spend, knowing how their choices will affect their preferences. This does not really characterize consumer choices, however. Most consumer choices are based on probability estimates that we make concerning the chances that the products we buy will carry no major risk of injury or the probability that it will serve our purposes. Research shows, unfortunately, that we become inept and irrational when we make such choices.

Most of us are not good at estimating probabilities. We typically underestimate risks and overestimate the probabilities of unlikely but memorable things. We typically underestimate the risks of common life-threatening activities such as driving, smoking, eating fried foods, or being injured by the products we use, and we underestimate the probabilities of unlikely but memorable events such as tornadoes or attacks by grizzly bears in national parks. Our probability judgments go astray for a number of reasons:

1. We ignore or discount important information about a product, 2. We make broad generalizations on the basis of small samples.

3. We believe in a self-correcting but nonexistent "law of averages."

4. We believe that we control purely chance events.

Secondly, people are irrational and inconsistent when weighing choices based on probability estimates of future costs and payoffs. Research shows that people inconsistently rank one payoff as being both better and worse than another. Finally, markets often fail to have numerous buyers and sellers. Since most consumer markets are monopolies or oligopolies, the sellers are able to extract abnormally high profits by ensuring that demand always exceeds supply.

Finally, many, perhaps most consumer markets are not competitive, but are, monopolies or oligopolies in which suppliers can manipulate price and supply. So, as a whole then, market forces by themselves are not able to deal with consumer concerns for safety, freedom from risk, and value. Instead, consumers must be protected by governmental action and the voluntary initiatives of responsible business people. Of course, part of the responsibility for consumer injuries does rest on consumers. People often use items that they have neither the skill nor experience to handle.

Injuries also occur because of flaws in design, materials, or manufacturing, however. In these cases, it is the manufacturer's duty to minimize injuries. Their expertise makes them most knowledgeable about the safest materials and methods of making their products.

..

82

Where does the consumers' duty end and the manufacturer's duty to protect the consumers begin? Three different theories address this question: the contract, "due care," and the social costs views.

6.2 The Contract View of Business Firm’s Duties to Consumers In the contract view of business' duties to consumers, the relationship between a firm and its customers is essentially contractual. When we purchase an item, we enter voluntarily into a "sales contract" with the firm, who then has a duty to provide a product with the characteristics they have agreed to supply. Consumers therefore have a correlative right to receive the product they have been promised, and pay a certain sum of money to the firm for the product.

This theory’s primary responsibility rests on the view that such contracts are free agreements that impose on each side the duty of complying with the terms of the agreement. Both Kant's and Rawls' theories offer justification for this view. From Kant’s point of view, if a person fails to adhere to the terms of the contract, the practice cannot be universalized and it treats the other person as a means and not an end. Rawls holds that freedom becomes expanded by the assurance that the keeping of contracts is based on the assurance that people need to trust each other’s word. This secures the benefits of the institution of contracts.

Traditional moralists also remind us that contracts are subject to several moral constraints (mentioned in Chapter Two): both parties must have full knowledge of the agreement, neither party must misrepresent the facts, and neither party must be forced to enter the contract under duress or undue influence.

Therefore, the contractual theory of business firms’ duties to consumers claims that a business has four main moral duties:

1. Complying with the terms of the sales contract and the secondary duties of 2. Disclosing the nature of the product, 3. Avoiding misrepresentation, 4. Avoiding the use of duress and undue influences.

By acting in accordance with these duties, a business respects the right of consumers to be treated as free and equal persons—that is, in accordance with their right to be treated only as they have freely consented to be treated.

The Duty to Comply First, businesses must provide a product that actually lives up to the express claims that they make about it. In addition, they must also carry through on any implied claims they knowingly make about it. Generally, such claims refer to one of four areas: reliability, service life, maintainability, and product safety. Businesses therefore, must provide products that are as reliable, long-lasting, easily maintained, and as safe as consumers are led to believe them to be. In fact, our legal system (as cited in the Uniform Commercial Code) has incorporated the moral view that firms have a duty to live up to the express claims they make about their products.

Since a contract cannot bind where both parties do not have full knowledge, the seller also has a duty to disclose to the buyer any facts about the product that would affect the

..

83

consumer's decision to purchase it. Sellers also must not misrepresent their products. Even more than not disclosing information, misrepresentation makes freedom of choice impossible; it is, in reality, coercive. Coercion itself also renders a contract void, because people act irrationally when under the influence of fear. Sellers must not take advantage of gullibility, immaturity, or ignorance, which reduce the buyer's ability to make a free rational choice.

The main objections to the contractual theory maintain that the assumptions on which the theory is based are unrealistic. Manufacturers do not deal directly with consumers. They do deal indirectly with them through advertisements, however, and promoters of the theory argue that advertisements forge the indirect contractual relationship between seller and the buyer.

Another objection to the theory points out that consumers can freely agree to purchase a product without certain qualities. Manufacturers can be released from normal contractual obligations simply by disclaiming that the product is safe and reliable. Disclaimers can, in effect, nullify all of the seller's contractual duties.

Finally, critics of this theory point out that the assumption that buyer and seller meet on equal ground is false. Buyers and sellers are not equally skilled; the seller is in a much stronger position than the buyer. Sellers only have to know their own products, while buyers need to know about every sellers' products for every commodity they purchase.

Consequently, consumers must usually rely on the word and the judgment of the seller in making their purchase decisions.

6.3 The Due Care Theory The due care theory of the manufacturer's duties to consumers is based on the idea that consumers and sellers do not meet as equals and the consumer's interests are particularly vulnerable to being harmed by the manufacturer, who has a knowledge and an expertise that the consumer lacks. Because manufacturers are in a more advantaged position, they have a duty to take special care to ensure that the products they offer do not harm the consumers' interests. The doctrine of caveat emptor is here replaced with a weak version of the doctrine of caveat vendor. Let the seller take care. Because consumers must rely on the expertise of the manufacturer, they have a duty not only to deliver a product that lives up to the express and implied claims they make about it. They have a duty to exercise due care to prevent others from being injured by the product, even if they explicitly disclaim such responsibility.

Due care must enter into the product's design, choice of materials and construction methods, quality control, and warnings attached to it. Failure to exercise due care in these areas is a breach of the manufacturer's moral duties. This theory rests on the principle that agents have a moral duty not to harm or injure others. The principle can be defended by the ethics of care, of course, but rule utilitarianism, Kant, and Rawls can all also be used as a solid basis for the theory.

Manufacturers' responsibilities to exercise due care extends to the following three areas: 1. Design - a product's design should not conceal any dangers, should conduct research and tests to uncover any risks, incorporate all feasible safety devices, and use adequate materials. The capacities of the persons who will use the product

..

84

should be considered. The design should additionally be well tested to ensure that consumers will use the product properly.

2. Production - the manufacturing process must be controlled to eliminate any defective items, identify weaknesses, and ensure that unsafe economizing measures are not taken.

Adequate quality controls are to be used during manufacturing.

3. Marketing - the firm should attach labels, notices, and instructions on the product warning of all potential dangers involved in using or misusing the item. Manufacturers must also take into consideration the capacities of the persons who they expect will use the product. If the possible harmful effects of using a product are serious or if they cannot be adequately understood without expert opinion, then sale of the product should be carefully controlled.

There are three difficulties with the due care theory. The basic problem with it is that there is no way to determine when one has exercised enough due care. Every product involves some small risk; if all risks were eliminated; few if any products would be affordable.

Secondly, the theory assumes that the manufacturer can indeed discover all the risks attendant upon using a product before it is actually used and this may not be possible.

Finally, the theory is to some, paternalistic, assuming that the manufacturer alone should make the important decisions about the level of risk the consumer should bear. Perhaps such decisions should be left up to consumers, who can decide for themselves whether or not they want to pay for additional safety measures.

6.4 The Social Costs View of the Manufacturer’s Duties The third theory of the duties of the manufacturer extends beyond what the other two theories impose. It maintains that a manufacturer must pay the costs of any injuries sustained through any defects in the product, even when the manufacturer exercised due care in the designing, making, and marketing it, and took all reasonable precautions to warn users of every foreseen danger.

This theory, which forms the basis of the legal doctrine of strict liability, is utilitarian. It says that the external costs of injuries resulting even from unavoidable defects constitute part of the cost society must pay for producing and using a product. Having the manufacturer bear these costs is the most efficient use of society's resources: that way, the price of the good will reflect its real cost and it will not be overproduced. Secondly, manufacturers will take even greater care since they will be responsible for paying for all of the costs of injuries. Third, when they include the cost of injuries in the price of the product, they also will be distributing the real cost of the item among all users, which would seem more fair than making just the unlucky injured parties bear the entire cost of the injury themselves.

Underlying this third theory on the duties of the manufacturer are the standard utilitarian assumptions about the values of efficiency which holds that the efficient use of resources is so important for society that social costs should be allocated in whatever way will lead to a more efficient use and care of our resources.

The major criticism of this theory is that it is unfair because it violates the basic canons of compensatory justice: a person should not be forced to compensate an injured party if he or she could not have foreseen and prevented the injury. Critics also contend that the theory will not actually reduce the number of accidents. Instead, it may have the unintended effect of encouraging carelessness in consumers, which would cause even more accidents. Finally, such critics argue that liability suits will increase and impose heavy losses on insurance

..

85

companies, forcing insurance rates to rise precipitously. A growing number of consumers successfully sue manufacturers for compensation for any injuries sustained while using the product, even when the manufacturers took all due care to ensure that the product was safe.

Social cost theorists counter by pointing out that, in reality, the costs of consumer liability suits are not large. Less than 1% of product-related injuries result in suits, and successful suits average only a few thousand dollars in any case. Moreover, the insurance industry has remained quite profitable, despite the warnings of the critics.

6.5 Advertising Ethics Advertising is a huge industry, which imposes great expense on manufacturers and service providers. Commercial advertising is sometimes defined as a form of "information" and an advertiser as "one who gives information." The implication is that the defining function of advertising is to provide information to consumers. In the end, consumers must cover the costs of advertising, but what do they get for this extra expenditure? Most consumers say that they get very little. So is advertising a waste, or a benefit? Does it help or harm consumers?

Though advertising is sometimes defined as "information," this fails to distinguish it from the type of information found in Consumer Reports. Most advertisements contain precious little information in any case, for example: "Got Milk?" (America’s Dairy Farmers and milk Processors) and "Have it your way" (Burger King) are nearly empty statements. The primary function of advertisements is to sell products to prospective buyers. It is publicly addressed to a mass audience, so it has a necessarily widespread social effect. It is also intended to create desire and a belief in consumers that the product will satisfy the desire.

Advertising's critics point out that it has several harmful effects on society. First, its psychological effects are damaging in that it debases the tastes of consumers by inculcating materialistic values about how to achieve happiness. Whether or not advertising has such effects is still uncertain. Indeed, the success of advertising may depend on consumers already having the values that the advertisements focus upon.

Another major criticism of advertising is that it is wasteful. Those who make this type of objection point to the distinction between production costs and selling costs. Production costs are the costs of the resources consumed in producing a product. Selling costs are the additional costs of resources that do not go into the product itself, but rather are incurred as a result of persuading consumers to purchase it. The resources consumed by advertising, according to this theory, add nothing to the utility of the product.

Advertisers counter that advertisements are a kind of communication between a seller and potential buyers and do add information to the product. They also say, however, that advertising creates desire for the seller’s product in consumers and is a means of satisfying some desire the buyer already has.

Discussion of the ethical aspects of advertising is focused around its stated social effects, its creation of consumer desires, and its effects on consumer beliefs.

Critics of advertising claim it has several adverse effects on society:

..

86

To be effective it must present irritating and 1.It degrades people’s tastes. aesthetically unpleasant displays, inculcating materialistic values and ideas about how happiness is achieved.

2.It wastes valuable resources. Selling costs are those that do not add to the product but are used to getting people to buy the product.

3. It creates monopoly power. Monopolies lead to higher consumer prices.

John Kenneth Galbraith and other critics have long argued that advertising merely manipulates consumers, creating desires solely to absorb industrial output. Physical desires, such as the desire for food and shelter, are perfectly normal. But the psychological desires that are inspired by advertising are not under the consumer's control in the same way that physical desires are, which puts the firm (instead of the individual) in control. If Galbraith’s view is correct, then advertising violates the individual's right to choose freely for himself or herself. It is not clear, however, that this view is correct, and theorists such as F. A. von Hayek have pointed out that psychic wants have been around longer than advertising in any case.

The most common criticism of advertising concerns is its effect on the consumer's beliefs.

Because advertising is a form of communication, it can be as truthful or deceptive as any other form of communication. Most criticisms of advertising focus on the deceptive aspects of modern advertising. Nevertheless, even if advertising as a whole is not manipulative, there are clearly some advertisements that are intended to manipulate. Such advertisements do clearly violate the consumer's right to be treated as a free and equal rational being.

Deceptive advertising takes many forms: using deceptive mock-ups, untrue paid testimonials, inserting the word guarantee where nothing is guaranteed, quoting misleading prices, failing to disclose defects in a product, misleadingly disparaging a competitor’s goods, simulating well-known brands or use of “bait and switch” tactics are all forms of deception. There is no controversy over whether or not deceptive advertising is immoral: it clearly is. The problem is to understand how advertising becomes deceptive.

All communication involves three things: the author or originator of the message, the medium that carries the message, and the audience who receives it. Deception involves three necessary conditions in the author: 1. The author must intend to have the audience believe something false.

2. The author must know it to be false.

3. The author must knowingly do something that leads the audience to believe the falsehood.

Thus, an advertiser cannot be held morally responsible for an audience having misinterpreted a message when the misinterpretation is unintended, unforeseen, or the result of carelessness on the part of the audience.

The media carrying the message also has a responsibility to ensure the truth of what it carries to the audience. Both the author and the media must take into account the interpretive skills of the audience as well. To determine the ethical nature of an advertisement, the following points are relevant: The capacities of the person or persons who receive the message, the capacity that the consumers possess to filter out the puffery and bias most advertising messages carry.

..

87

Whether an advertisement is deceptive depends on the capacity of the audience for which it is intended. A clever and knowledgeable audience may be capable of interpreting and advertising that may be misleading. A less educated audience might not. Advertisements that will reach the less sophisticated audience must be designed to avoid misleading those potential buyers whose judgment is limited, particularly when matters of health or safety are involved. In those cases, special care should be exercised not to mislead users into ignoring possible dangers.

The moral issues raised by advertising are complex and involve still unresolved problems.

However the main factors that should be taken into consideration when determining the ethical nature of a given advertisement are the: social effects, effects on desire and effects on beliefs.

6.6 Consumer Privacy Advances in technology have created the potential for serious harm to consumers' privacy.

Financial institutions, credit bureaus, etc., maintain detailed files on consumers, including information about their economic activity and personal information (such as marriage, employment, addresses, and other information). The three main credit unions maintain files on 150 million consumers, with millions of file updates each day. Though these files are used as an important deciding factor in granting loans, credit cards, and jobs, a recent study found errors in 43% of credit reports.

The individual's obvious right to privacy, both physical and psychological, is important.

Psychological privacy is privacy with respect to a person's inner life. This includes the person's thoughts and plans, personal beliefs and values, feelings, and wants. These inner aspects of a person are so intimately connected with the person that to invade them is almost an invasion of the very person. Physical privacy is privacy with respect to a person's physical activities.

It must be balanced, however, with the rights and needs of others. Banks must know something about the credit history of those to whom they are lending money, for example.

Since consumers benefit from the banking system, they also benefit from their right to privacy being balanced against the banks' right to know their personal information.

To balance these two factors, the following factors are crucial: 1. Purpose - The purpose for which the information is collected must be legitimate, resulting in benefits generally enjoyed by those who are having the information gathered from them.

2. Relevance - Databases should contain only information directly relevant to the purpose for which it is collected.

3. Informing - Consumers should be informed that information is being collected and told what the purpose of its collection is.

4. Consent - Businesses should collect information only if consumers consent to provide it.

5. Accuracy - Agencies must ensure that the information is up to date and otherwise accurate, quickly correcting any errors.

6. Security Recipients and Uses - Agencies must ensure that the information is secure and not revealed to parties that the individual has not explicitly or implicitly consented to be a recipient of that information or used in ways to which the consumer did not consent.

..

88

Extra Resources 1. “Supersize Me” (2005) is a 96 minute documentary on the nutritional value of fast foods; “Food, Inc” (2009) is a 91 minute documentary on how large corporations produce our food.

2. “The Corporation” (2004) is a 145 minute documentary on the corporation with interviews. The following are suggested interviews for this chapter: Lucy Hughes, Vice President of Initiative Media, advertising executive, and Dr. Susan Linn, professor of Psychiatry, Baker’s Children Center, Harvard on advertising for children.

Professor Joe Badaracco – Marketing to Kids “It's OK If It Doesn’t Work” Milton Friedman – Democracy “I Don’t Believe in Democracy” Ira Jackson – History “Adam Smith: Poster Boy for Greed” Ira Jackson - Capitalism “Capitalism Needs a Moral Manifesto” Mary Zepernick – Democracy “Property Over People” .

Questions for Class Discussion 1. What is the market approach to consumer protection? In what ways does it fall short of completely protecting consumers?

2. Why are people not good at making probability estimates? How is this relevant to consumer protection issues?

3. According to the contract view of business' duties to customers, what are the four basic duties a firm has to its customers? Why are they necessary? What objections do critics raise about this theory?

4. What characterizes the due care theory? To what aspects of business does a producer's duty to exercise due care extend?

5. How does the social costs view extend the due care theory and the contract view?

Why do its critics say that the social costs view is unfair? Are their arguments persuasive?

6. What are the social effects of advertising? Does it really create consumer desire in the way that Galbraith maintained?

7. How does advertising become unethical? What steps must each part of the advertising "communication" process take to ensure that it remains ethical?

8. What factors must be taken into consideration when determining the ethical status of a particular advertisement?

9. Why do consumers have a right to privacy? Why does industry have a right to know consumers' personal information? How do we strike the balance between them?

What considerations are relevant when striking this balance?

Activities and Assignments 1. Have students bring in print or video advertisements that are 1. informative and helpful and 2. misleading and/or unethical. Discuss what makes each example either ethical or unethical.

2. Using some of the advertisements the students have collected, discuss the audience that each advertisement seems to be aimed at.

3. Ask students to describe something that they purchased which either immediately broke, was unsafe, or was not what they thought it would be based on the advertisement that induced them to purchase it. What losses did they incur? Were they treated fairly by the producer?

4. Have students get a copy of their own (or a parent's or close relative's) credit report.

Without revealing their personal information to the class, ask each student to rate

..

89

the relevance and accuracy of what they find, and tabulate the results for the entire class. (There are numerous online sources of such reports, either free or moderately priced.)

5. Have students check one of the consumer protection websites listed on the companion web site (www.prenhall.com/velasquez) to look for a product that they have been thinking of buying. Have them compare the information they find there with the information they receive from the media about the product.

..

90

Quiz Questions: Chapter Six 1. In the Market Approach to consumer protection, if consumers do not place a high value on safety (or are unwilling to pay for it), then it is wrong to force them to accept higher levels of safety through regulation. a. True b. False Answer: A 2. Critics to the market approach respond that the benefits of free markets are obtained only when the markets have all of the seven defining characteristics. Several of these are: a. b. c. d. e.

There are numerous buyers and sellers.

Everyone can freely enter and exit the market.

The market is unregulated.

All the above A&B Answer: D

3. The consumers who think ahead, consider, and watch every penny they spend, knowing how their choices will affect their preferences are known as: a. Irrational utility minimizers b. Rational utility maximizers c. Rational consumption maximizers d. All the above Answer: B 4. Research has shown people are irrational and inconsistent when weighing choices based on probability estimates of future costs and payoffs. a. True b. False Answer: A 5. The ________ theory of business' duties to consumers claims that a business has four main moral duties: the basic duty of (a) complying with the terms of the sales contract, and the secondary duties of (b) disclosing the nature of the product, (c) avoiding misrepresentation, and (d) avoiding the use of duress and undue influence. a. Contractual b. Commercial c. Competitive d. Consumptive Answer: A 6. The due care theory of the manufacturer's duties to consumers is based on the idea that consumers and sellers do not meet as equals and that the consumer's interests are particularly vulnerable to being harmed by the manufacturer, who has a knowledge and an expertise that the consumer lacks. a. True b. False Answer: A

..

91

7. The most common criticism of advertising concerns its effect on the consumer's beliefs. a. True b. False Answer: A 8. Although there are some advertisements that are intended to manipulate, such advertisements do not violate the consumer's right to be treated as a free and equal rational being. a. True b. False Answer: B 9. __________is privacy with respect to a person's inner life. This includes the person's thoughts and plans, personal beliefs and values, feelings, and wants. a. Physical privacy b. Personal privacy c. Psychological privacy d. Spiritual privacy 10. Credit Solutions initially advise their clients not to pay their credit cards. a.

True b.

False

Answer: C

Answer: A 11. Credit Solutions has been sued by the attorney general of five states a. True b. False Answer: B 12. Even though advertizing issues are complex, the must include: a.

Social effects b.

Effects on Desire c.

Effects on Belief d.

B&C e.

All of the above Answer: D 13. A study by consumer reports found errors in 43 percent of the credit reports that they analyzed. a.

True b.

False Answer: A 14. Which are the three main credit reporting companies?

Experian, Credex, and Your Credit a.

Experian, Real Credit, and Credibility b.

Experian, Equifax and Trans Union LLC c.

Experian, Exact and Specialty d.

Answer: C

..

92

15. In a narrow sense, the right to privacy can be defined as the right of persons to determine what, to whom, and how much information about themselves will be disclosed to other parties. a.

True b.

False Answer: A

..

93

CHAPTER SEVEN The Ethics of Job Discrimination Overview Introduction The debates over equality, diversity, and discrimination have been prolonged and acrimonious. Controversy continues to swirl around the nature of the plight of racial minorities, the inequality of women, and the harm that whites or males have suffered as a result of preference shown to women and minorities. These continuing debates over racial and sexual diversity have often focused on business and its needs. This is inevitable: Racial and sexual discrimination have had a long history in business, and diversity now promises to have significant benefits for business.

This chapter begins by examining the nature and extent of discrimination. It then turns to discussing the ethical aspects of discriminatory behavior in employment and ends with a discussion of diversity and affirmative action programs in business.

7.1 Job Discrimination: Its Nature Though more women and minorities are entering formerly white male-dominated jobs, they still face discrimination. The experiment conducted by ABC shows that women and minorities were systematically given less consideration in hiring: they received fewer job offers and less desirable jobs than white males. Other research suggests that blacks and Hispanics were offered jobs 50% fewer times than white males.

Discrimination in its root meaning is not at all wrong. It simply refers to the act of distinguishing one object from another. However, in modern usage, the term refers to "wrongful discrimination," or distinguishing among people on the basis of prejudice instead of individual merit.

Discrimination in employment involves three basic elements: 1. It must be a decision not based on individual merit.

2. The decision must derive from racial or sexual prejudice, false stereotypes, or some other kind of morally unjustified attitude against members of the class to which the employee belongs.

3. The decision must have a harmful impact on the interest of employees against whom the decision is made in hiring, compensation, promotion, job assignments, or termination of those employees.

Discriminatory acts themselves can be categorized according to the extent to which they are intentional and institutionalized.

1. An act may be part of the isolated behavior of a single individual who intentionally discriminates based on personal prejudice.

2. An act may be part of the routine, institutionalized behavior of a group that discriminates because of the shared prejudices of its members.

..

94

3.An act may be part of the isolated behavior of a single individual who unintentionally discriminates because he or she uncritically adopts the practices and stereotypes of his or her society.

4.A discriminatory act may be the result of the institutionalized routines of a corporate organization whose procedures and practices unintentionally discriminate against women or minorities.

Whereas in the early 1960s employment discrimination was generally seen an intentional act performed one individual on another. By the 1970s, the term discrimination was being used regularly to include disparities of minority representation within the ranks of a firm regardless of whether the disparity had been intentionally created. An organization was “discriminatory” when minority group representation within its ranks was significantly disproportional to the group’s local availability. A group would be guilty of discrimination if minority group representation were not proportionate to the minority group's local availability.

The Equal Employment Opportunity Act of 1972 gave federal government increased power to combat this form of discrimination and to even require affirmative action programs to correct any deficiencies.

Subsequently, people came to criticize this view. They argued that discrimination was the act of individuals, and that individual minorities and women were its victims. The problem with this criticism is that it is often difficult to know whether a specific individual, was discriminated against. The only way of telling whether a process is fair or discriminatory is to see what happens to minorities as a group. American society has gone back and forth on this issue ever since. Many even believe that though businesses in the U.S. used to be discriminatory, they are no longer so.

7.2 Discrimination: Its Extent An indication of discrimination exists when a disproportionate number of a certain group's members hold less desirable positions despite their preferences and abilities. We can make three types of comparisons to provide evidence of this type: 1. Average Income Comparisons - comparisons of average benefits given to minorities and women, compared to other groups, 2. Lowest Income Comparisons - comparisons of the proportion of a minorities and women found in the lowest levels of the institution compared to the proportions of other groups found at those levels, 3. Desirable Occupation Comparisons - comparisons of the proportion of a minorities and women found in the most advantageous positions in the institution as compared to the proportions of other groups in those positions. When we make these three comparisons, it seems clear that some form of discrimination is still present in the U.S., though for some groups it is not as intense as it used to be.

Income comparisons are the most suggestive indicators of discrimination. The income gap between whites and blacks, counter to what many think, has not decreased (black average family income remains about 64% that of whites in 2008). There are similar inequalities found based on gender as well. Though the ratio between male and female earnings is getting more equal, this is largely due not to a rise in female earnings but to a drop in, male earnings. In 2008, after 10 years after graduation, the average women’s earnings shows women earned only 70% of average earnings for every dollar of average earnings of men.

..

95

Disparities begin immediately after college graduation; in fact, female graduates earn about as much as male high school graduates. In every occupational group, women earn less than men. Blacks fare a bit better than females, but not much.

For most other blacks, however, the picture remains grim. Lowest income group comparisons and desirable occupation comparisons give similar results. Statistically, larger proportions of minorities and women are poor, and larger proportions of white males have the most desirable occupations. In fact, the more women who work in an occupation, the lower the average pay for that job. Though perhaps some of the disparities between white males and women or minorities can be accounted for by the preferences of the latter (who voluntarily choose to work in the lower paying jobs), the disparities are so large that it cannot entirely be accounted for in this way.

The difficulties for minorities seem to be getting worse. Though they will soon be a majority of the labor force, studies indicate that many of the new jobs that will be created will require education beyond high school, and most minorities are falling behind in their educational attainment.

Finding that our economic institutions generally seem to embody discrimination, as this section proves, it does not in itself prove that any particular business is discriminatory, however.

The large influx of women and minorities has encountered major difficulties in the job market.

1. Cultural stenotype, prejudice and conscious and unconscious biases steer a sizable proportion of women into traditionally “women” jobs that pay less than traditionally “male jobs.”

2. When women advance in their careers, they encounter barriers like the glass ceiling.

3. Married women who want children, unlike married men who want children, currently encounter major difficulties in their career advancement.

Whether we compare average incomes, representation in the highest economic positions or, or representation in the lowest economic positions, it turns out that women and minorities do not yet have opportunities equal to those of white males.

7.3 Discrimination: Utility, Rights, and Justice Given the inequalities found in U.S. businesses, we must address the issue of whether these inequalities are wrong and, if they are, how they should be changed. Arguments against discrimination fall into three groups: utilitarian arguments, rights arguments, and justice arguments. The utilitarian argument against discrimination maintains that society's productivity will be highest when jobs are awarded based on competence or merit.

Discrimination based on anything else is inefficient and, therefore, counter to utility.

Utilitarian arguments have been attacked on two fronts. First, if jobs should be assigned on the basis of job-related qualifications only so long as such assignments will advance the public welfare, then if public welfare would be advanced to a greater degree by assigning jobs on the basis of some factor not related to job performance, then the utilitarian would have to hold that in those situations jobs should not be assigned on the basis of job related qualifications, but on the basis of that other factor. Second, it might be true that society as a whole would benefit by having some group discriminated against.

..

96

Other, non-utilitarian arguments against discrimination maintain that it is wrong because it violates people's basic human rights. Kant, for example, says that humans should be treated as ends in themselves and never as a means to an end. Therefore, discrimination is wrong because it violates people's rights to be treated as equals. In addition, some Kantian thinkers argue that discrimination is wrong because the person who discriminates would not want to see his or her behavior universalized (at least they would not want to change places with the victim of their own discrimination).

A third group of arguments against discrimination views it as unjust. Rawls argues that it is unjust arbitrarily to give some people more opportunity than others. Another related argument sees it as a form of injustice because individuals who are equal in all relevant respects cannot be treated differently just because they differ in other, non-relevant respects. The problem with this argument is that it is difficult to define precisely what counts as relevant and to explain why sex and race are not relevant, but intelligence is.

Despite the difficulties with these arguments against discrimination, there are five widely recognized categories of discriminatory practices: 1. Recruitment practices that rely on the word-of-mouth referrals of present employees will tend to recruit only from the groups already represented.

2. Screening practices that include qualifications not relevant to a job (such as requiring a certain level of education for very low-level jobs).

3. Promotion practices that place groups on separate tracks or that rely solely on seniority when past discrimination has kept women or minorities out of senior positions.

4. Conditions of employment that do not award equal wages and salaries to people doing essentially the same work.

5. Discharging an employee based on race or gender, or layoff policies that rely solely on seniority.

Women are victims of a different and troublesome type of discrimination: sexual harassment. Generally, the guidelines against sexual harassment are clearly morally justified.

The Equal Employment Opportunity Commission (EEOC) published a set of guidelines defining harassment and what was prohibited by law.

Unwelcome sexual advances when: 1. Submission to such conduct is made explicitly or implicitly a term or condition of an individual’s employment.

2. Submission to or rejection of such conduct by an individual is used as the basis for employment decisions affecting such individual.

3. Such conduct has the purpose of effect of unreasonably interfering with an individual’s work performance or creating an intimidating, hostile or offensive working environment.

However, there are some aspects of the guidelines that must be examined. First, in addition to prohibiting harassing acts, they also prohibit more than just particular acts of harassment; they prohibit creating an intimidating, hostile, or offensive working environment.

This raises some difficult questions. Are mechanics who hang pin-up calendars guilty of sexual harassment? Though most people now say yes, there are a number of critics who say

..

97

that these kinds of environments were not intended to degrade women, and besides, women have the power to take care of themselves.

Secondly, the guidelines say that verbal or physical contact is harassment if it has the effect of unreasonably interfering with the victim's work performance. This means, claim some critics, that sexual harassment depends on the purely subjective judgments of the victim; what is unreasonable to one person may seem perfectly acceptable to another.

A more serious objection to such guidelines is that they violate people’s right to free speech.

However, though these objections may be valid on college campuses, they are not at all relevant to businesses, where free discussion and examination of ideas are not the focus.

A third feature of the guidelines goes on to say that a firm can be guilty of sexual harassment even if it did not know and could not have known that the harassment was going on–indeed, even if the firm had expressly forbidden the offensive act. Supporters of the guidelines point out that the harms caused by sexual harassment should be considered a cost of doing business, which it is proper to internalize.

Groups other than women and racial minorities can be the victims of discrimination. The disabled, victims of AIDS, homosexuals, and the overweight are all discriminated against.

Currently, there are no federal laws prohibiting discrimination against many of these groups.

7.4 Affirmative Action So far, the policies discussed in this chapter are all negative, aimed at preventing further discrimination. Affirmative action programs, in contrast, call for positive steps designed to eliminate the effects of past discrimination. Such programs are now legally required of all firms holding government contracts.

Affirmative action programs begin with a detailed study, a "utilization analysis" of the major job classifications in an organization. The analysis is designed to discover whether there are fewer minorities or women in a particular job classification than could reasonably be expected. If the analysis shows that women or minorities are underutilized, then the firm must establish practices to correct these deficiencies.

The U.S. Supreme Court has not been clear about the legality of affirmative action The programs. main grounds Rulings for suggest significant vacillation on the issue. attacking them is that, in attempting to correct the effects of past injustice, affirmative action may actually be racially or sexually discriminatory itself.

In the face of this objection, supporters of affirmative action make two main counterarguments. One of these is to interpret affirmative action as a form of compensation for past injuries. The other interprets preferential treatment as an instrument for achieving social goals. The former arguments are backward looking, focusing on the wrongness of the past; the latter are forward looking, instrumentalist arguments focusing on what the future ought to be.

There are those who argue that affirmative action is a form of compensation argument to maintain that white males must pay reparations for unjustly injuring others by discrimination in the past. The difficulty with such arguments is that the principle of compensatory justice requires that compensation should come only from those specific

..

98

individuals who intentionally inflicted a wrong, and should be paid only to those specific individuals who suffered that wrong. It does not require that compensation should come from all members of a group containing some wrongdoers, nor that compensation should go to all members of a group containing some injured parties. Many have attempted to counter this argument by claiming that every minority living today has been injured by discrimination and that every white male has benefited from those injuries. Whether these arguments are successful or not is unclear.

The second way of justifying affirmative action is as an instrument for increasing utility. This argument furthers it as an instrument for social change, promoting public welfare. Based on the statistics such as those at the beginning of this chapter, such arguments maintain that race and gender provide an indicator of need. Since reducing this need is consistent with utilitarian principles (as it will increase total utility), affirmative action is justified.

Objections made to this argument question whether the social costs of affirmative action outweigh their benefits. However, even more elaborate and convincing arguments for affirmative action are made. They argue that the goal of affirmative action is social justice, and that affirmative action is a morally legitimate means for achieving this goal.

Presently, women and minorities do not have the equal opportunity that justice demands, statistics prove this. First, they argue that the end envisioned by affirmative action programs is equal justice. Secondly, the affirmative actions are morally legitimate means of achieving this end. The basic end, therefore, is a more just society, and preferential treatment is a morally legitimate means to attain this end.

However, three reasons have been advanced to show that affirmative action is not, in fact, morally legitimate. First, it is claimed that affirmative action discriminates against white males. However, given the definition of discrimination, because the preferential treatment is not based on contempt of white males, it cannot be said to be the same thing as discrimination against minorities or women.

Second, some claim that preferential treatment violates the principle of equality because it takes into consideration race, which is an irrelevant characteristic. Defenders of affirmative action counter by saying that sexual and racial differences are actually relevant characteristics.

Third, critics claim that affirmative action actually harms women and minorities by implying that they are so inferior to white males that they need special help to succeed. This claim is countered by saying that, though affirmative action undoubtedly has some costs, the benefits of such programs outweigh them. Moreover, they point out that affirmative action is not based on an assumption of white male superiority but on recognition of bias in favor of white males. Finally, they point out that though some minorities may feel inferior because of affirmative action, many more are made to feel inferior because of racism–and besides, showing preference towards them does not make them feel inferior.

The success or failure of an affirmative action program also depends in part on the accommodations a company makes to the special needs of a racially and sexually diverse workforce. Both women and minorities encounter special workplace problems.

The arguments on both sides are powerful, and the debate continues.

..

99

Because of concerns raised by opponents of affirmative action, guidelines have been suggested to ensure that it’s more harmful effects will be lessened. Of course, the problems encountered by minorities differ markedly from those encountered by women. Recently, some proposals that are more radical than affirmative action have been made to deal with sexual discrimination. Since the jobs women have historically taken pay low wages and salaries, proponents of comparable worth programs attempt not to place women into higher paying jobs, but to increase the salaries of those jobs where women currently are employed.

In a comparable worth program, each job in a firm is assigned a certain number of points for difficulty, skill requirements, experience, and other factors. Then, jobs are assumed to deserve equal pay if they score similarly. The fundamental argument in favor of comparative worth is the principle of justice. Opponents counter that the market is the most appropriate determining factor of wages. If the market pays a certain job a low salary, they claim, it is because there is a large supply of workers in that category.

In the near future, only a small proportion of new workers will be white males. Because of this demographic trend, firms' enlightened self-interest will prompt them to give women and minorities special consideration. If they do not accommodate themselves to these workers, they may not be able to find the workers they need to compete in the world market.

Although there continue to be arguments against the affirmative action programs, there are reasons to retain them. Most new workers will be women and minorities, so in order to accommodate this change in demographics, the enlightened self-interest should prompt business to give women and minorities a special hand. The costs of not assisting the coming influx of women and minorities with their special needs will not be borne entirely by the women and minorities. If the U.S. businesses do not accommodate these workers, businesses will not be able to find the workers that they need. To respond to this, many companies have undertaken programs to prepare themselves now to respond to the special needs of women. Other companies have instituted aggressive affirmative action programs to integrate large groups of minorities into their firms to satisfy the need for qualified employees.

Extra Resources

1. “In the Land of Jim Crow” (2008) is a 5-part series that looks at the experience of living in a segregated society and of the struggle for civil rights.

2. “Black. White.” (2006) is a 273 minute 6-part series documentary that looks at a white family and a black family made up as the opposite race.

3. “Black in America,” (2008) a CNN documentary that explores the experience and condition of black men and women today; “500 Years Later” (2009) looks at the struggles of black people around the world.

An on-line Wall Street 4. “Wal-Mart Ruling to Have Wide Reach”(June 21, 2011) Journal article by Jess Bravin and Ann Zimmerman available from http://online.wsj.com/article/SB10001424052702304070104576399673899870098. htm Questions for Class Discussion 1.What are the three basic elements of discrimination in employment? Why is each element necessary to the definition?

2.What is the distinction between institutionalized and isolated discrimination? Can discrimination be unintentional as well as intentional?

3.What types of comparisons can be drawn to prove that discrimination exists?

..

100

4.Can the large disparities between white males and women or minorities be accounted for by the preferences of women and minorities? What other reasons might there be for the disparities?

5.Why, according to the utilitarian view, is discrimination in the workplace unethical?

6.How do rights theorists argue against discrimination? What are the justice-based arguments against it?

7.What kinds of employment practices are clearly discriminatory?

8.If sexual harassment is illegal and clearly immoral, how can the guidelines against sexual harassment be controversial? What aspects do some find problematic?

9.What are the two types of arguments used to justify affirmative action? What are the strengths and weaknesses of both attempts?

10.Does preferential treatment violate the principle of equality? Why or why not?

11.What are comparable worth programs? How are they justified? What objections do critics raise against them?

Activities and Assignments 1. Velasquez notes, "Although future new jobs will require steeply increasing levels of skills and education, minorities are falling behind in their educational attainment".

Have students’ debate whether or not the fact of their falling behind is itself a form of institutionalized discrimination, and just what businesses should do in the face of this fact.

2. Break students randomly into small groups and ask them to explore the feasibility and desirability of expanding discriminatory legislation to groups that are currently beyond the scope of society's attention: the obese, transvestites, and gays. After they come to general agreement on a position, have each group report to the class and discuss the results (and each group's reasoning).

3. Engage students in an investigation of their own college (or in a segment of their institution) as though they were preparing to implement a comparable worth program. Have them decide which jobs would have to have their salaries changed, and then discuss whether the institution would benefit from the program.

4. Ask students to put themselves in the place of the human resources department of a large U.S. corporation. Given Velasquez' statement that "in view of future demographic trends enlightened self-interest should also prompt business to give women and minorities a special hand," assign them the task of coming up with an action plan to ensure the continued business success of their firm.

..

101

Quiz Questions: Chapter Seven 1. Discrimination in employment involves three basic elements: it must be a decision not based on individual merit, the decision must derive from racial or sexual prejudice, and the decision must have a harmful impact on the interest of employees. a. True b. False Answer: A 2. Discriminatory acts themselves can be categorized according to the extent to which they are intentional and institutionalized. An act may be part of the isolated behavior of a single individual who intentionally discriminates based on personal prejudice; be part of the routine, institutionalized behavior of a group; and which intentionally discriminates out of personal prejudice. a. True b. False Answer: A 3. An indication of discrimination exists when a disproportionate number of a certain group's members hold less desirable positions despite their preferences and abilities. a. True b. False Answer: A 4. Types of comparisons to provide evidence of discrimination are: a. Comparisons of average benefits given to various groups b. Comparisons of the proportion of a group found in the lowest levels of the institution c. Comparisons of the proportion of a group found in the most advantageous positions in the institution d. All the above e. B & C Answer: D 5. Arguments against discrimination are: a. Utilitarian, rights, and justice arguments b. Rights, entitlements, and fairness arguments c. Justice and Kantian arguments d. Civil and criminal e. All the above Answer: A 6. “It might be true that society as a whole would benefit by having some group discriminated against” is a/an _____ argument for discrimination. a. Kantian b. Utilitarian c. Capitalist d. Communist Answer: B

..

102

7. Kant would argue that humans should be treated as ends in themselves and never as a means to an end. Therefore, discrimination is wrong because it violates people's rights to be treated as equals. a. True b. False Answer: A 8. Rawls would argue that it is unjust to give some people more opportunity than others. a. True b. False Answer: A 9. Widely recognized categories of discriminatory practices include: a. Recruitment practices that rely on the word-of-mouth referrals of present employees will tend to recruit only from the groups already represented. b. Screening practices that include qualifications not relevant to a job. c. Promotion practices that place groups on separate tracks or that rely solely on seniority when past discrimination has kept women or minorities out of senior positions. d. All the above e. A & B Answer: D 10. Affirmative action programs call for positive steps designed to eliminate the effects of past discrimination. Such programs are now legally required of all firms holding government contracts. a. True b. False Answer: A 11. Since the jobs women have historically taken pay low wages and salaries, proponents of ____________programs attempt not to place women into higher paying jobs, but to increase the salaries of those jobs where women currently are employed. a. Competitive Value b. Competitive Position c. Comparable Worth d. Comparable Equity Answer: C 12. Misiolek made only sex-based insults, not both sex and race-based insults. a. True b. False Answer: B

..

103

13. Argument (s) against affirmative action plans is that criteria besides sex and race must be weighed when making job decision because. Which of the following are used? a. Unqualified workers will be hired and productivity will go down. b. Jobs that have a significant impact on the life or health or the entire success of the company. c. It will turn us into a more racially and sexually conscious nation. d. a. and c. e. All of the above Answer: D 14. In a class action law suit, Wal-Mart was charged by seven women that women were paid 5-15% less than men in holding similar positions. a. True b. False Answer: A 15. The needs of minorities are not different from those of women. c. True d. False Answer: B

..

104

CHAPTER EIGHT The Individual in the Organization Overview Introduction The chapter begins with the experiences of three very different individuals in the business world. Though they each see the organization from a different vantage point, they all on some level report problematic characteristics, from alienation and feelings of oppression to power tactics used by upper-level managers.

This chapter examines the problems caused by living within a business organization. It does so by describing three different models of the business organization: the traditional model of the business as a rational organization, the model of business as a political structure, and the model of the organization as a network of caring relationships.

8.1 The Rational Organization The traditional, "rational" model of the business organization defines it as a structure of formal relationships, which are designed to achieve the organization’s goals efficiently. A firm's organizational chart, identifying the formal hierarchies of authority, exemplifies the fundamental reality of the organization.

At the bottom of the organization is the operational layer of workers who directly produce the goods or provide the services. Above this are levels of middle managers who direct those below them and are, in turn, directed by those above. At the top of the pyramid is the top management: the CEO, the board of directors, and their staff.

This model presupposes that information will be gathered from operating layer, the lower levels, and rise to the top, which collects it and uses it to make policy decisions. Above the operating layer of laborers are ascending levels of middle managers who direct the units below them and who are in turn directed by those above them in ascending formal lines of authority. The glue that holds these layers together is contracts: each employee freely and knowingly agrees to accept the organization's formal authority. Therefore, employees have a moral responsibility to obey the employer in pursuing the organization's goals. The employer has a moral responsibility to provide the employee with the pay and benefits they have promised (including just working conditions).

In this model, the employee's main moral duty is to work toward the goals of the firm.

This legal view has made its way into what is called "the law of agency," which specifies the duties of employees toward their "principles," or employer. The employee must pursue the firm's goals and do nothing that conflict with them while working for the firm.

An employee might fail to live up to this duty in several ways. He or she might steal outright from the firm, act on a conflict of interest, or use his position to leverage illicit benefits out of others through extortion or bribery.

Conflicts of interest arise when employees have a private interest in the outcome of a task in which they are engaged that is possibly antagonistic to the firm's interests and substantial enough that it might affect the employee's independent judgment on the firm's

..

105

behalf. The result is that self-interest induces employees to act in ways that may not be in the best interests of the firm.

When conflicts of interest involve a financial relationship, it is sometimes called an objective conflict of interest. When it involves an emotional tie or other kind of relationship, it is sometimes called a subjective conflict of interest.

Conflicts of interest can also arise when employees of a company hold another job or conflicts of interest.

Conflicts of interest may be actual or potential. A potential conflict of interest occurs when an employee has an interest that could influence what he does for his company if the employee were performing a certain task for his company, but he has not yet been given the task. That would be called a potential conflict of interest. If that employee is actually given the task to perform under the same conditions, an actual conflict of interest

would exist.

An apparent conflict of interest would exist if an employee has no actual conflict of interest but other people might view the situation and wrongly believe that there is an actual conflict of interest.

Conflicts of interest may be dealt with in a number of ways. For instance, when an employee is responsible for making a purchase decisions for a product that is sold by a company in which the employee has a financial interest. This conflict of interest can be eliminated or avoided by (a) recusing oneself from the action that would create the actual conflict of interest (have someone else do the action), (b) eliminating the interest that creates the conflict of interest (for example by selling stock in the company that creates the conflict of interest) or (c) the employee reveals the ownership in the company and the employer knowingly allows the person to do the task because the employer trusts the employee to make an objective decision or the employee can resign from the company. The employee then must strive to be objective when evaluating the various bids.

Commercial bribes and extortion are obviously unethical and create clear conflicts of interest. Accepting gifts may or may not be ethical, depending on a number of factors: 1. What is the value of the gift?

2. What is the purpose of the gift?

3. What are the circumstances under which the gift was given?

4. What is the position of the recipient?

5. What is the accepted business practice in the area?

6. What is the company's policy?

7. What is the law?

Employees have a contractual agreement to accept only specific benefits in return for their services and to use the firm's resources for the good of the firm. Any other use of company resources and any other appropriation of benefits by the employee counts as theft. Though theft is often petty (such as the stealing of office supplies or the padding of expense accounts), it extends to white-collar crimes such as embezzlement, larceny, fraud, and forgery.

..

106

Commercial extortion occurs when an employee demands a consideration from persons outside the firm as a condition for dealing favorably with those persons the employee transacts business for the firm.

More recent forms of theft involve forms of information and company computers. Copying a company's software or data, or using a company computer for personal business (unless explicitly allowed) are examples of unethical forms of theft. Theft of information also includes digitized programs, music, movies, e-books, etc. as well as proprietary formulas or other data. Propriety information or "trade secrets" is information that the company owns concerning its activities, which it explicitly indicates that it does not want others to have.

Sharing such information is also unethical. However, skills that an employee acquires by working for a company do not count as trade secrets. Though some companies have tried to work around this by asking employees to sign contracts agreeing not to work for competitors after leaving the firm, courts generally have rejected the validity of such contracts.

Information can lead to other types of unethical behavior. Insider trading, the act of buying or selling company stock on the basis of confidential or proprietary information, is illegal and unethical. Some have attempted to argue that insider trading is actually ethical and socially beneficial; it does not harm anyone and helps the stock price reflect its true value, they maintain. These arguments ignore some basic facts about insider trading, though: the insider information, being proprietary, does not belong to the trader; it is unjustly stolen from others (the company’s collective owners). In addition, research shows that insider trading increases the costs of buying and selling stock and harms everyone in the market and society in general. It violates people's rights because it is based on an unjust advantage.

A firm's main moral duty to its employees is to provide them with a fair wage and fair Setting aconditions. working fair wage is both important and difficult balancing the employer’s interest in minimizing costs and the workers’ interest in providing a decent living for themselves and their families. So employers will need to consider these factors: 1. What is the going wage in the industry and the area?

2. What are the firm's capabilities?

3. What is the nature of the job including its risks, skill requirements and demands?

4. What are the minimum wage laws?

5. What are the other salaries in the firm?

6. Were wage negotiations fair?

7. What are the local costs of living?

It is difficult to weigh these factors even in industrialized nations. It is much more difficult in developing nations. Multinationals generally pay their workers in developing countries more than the prevailing local wage. Nevertheless, they multinationals are criticized for the wages paid in developing nations. First, wages are too low in comparison to industrialized nations. Secondly, wages are too low in comparison to what the companies in the industrialized world pay to workers or relative what they can afford or to what they make on the products assembled by workers in developing countries. Third, the wages in developing countries are too low relative to what a family needs to live.

Replies to these criticisms include: 1. It is not clear that wages in one country, such as the United States, should be used as a basis for setting wages in other countries.

..

107

2. It is not clear that retail price of a product in the united States should serve as the basis for setting the wages of workers who make the product in a developing country. It is important to take into account the number of wage earners that is 3. traditional in the household of workers given the nation. If a developing nation, for example, traditionally has two or more wage earners per household, then wages that are only 50 percent of a living wage would not necessarily be unjust.

Working conditions are equally important. Ten percent of the U.S. job force suffers a job related injury or illness each year for a loss of over 31 million workdays annually. Workplace hazards are varied and include mechanical, electrocution, burns, extreme heat and cold, noisy machinery, dust, chemical fumes, lead, beryllium, arsenic, corrosives, Manganese vapors, asbestos, poisons, skin irritants and radiation. Many hazards are not recognized until years later.

Risks are sometimes unavoidable and acceptable, as long as employees are fully compensated for assuming them and they do so freely and knowingly. However, if wages are not proportional to the risks, or the risk is accepted unknowingly or out of desperation, then the contract between employer and employee is not fair, and is therefore unethical.

Employers must offer wages that reflect the dangers of high-risk jobs, provide employees with suitable health insurance programs, and collect information about health hazards that accompany its jobs, making the information available to employees.

Job risks are not justified when labor markets are uncompetitive and risks unknown and uncompensated. Further, risks are not justified when companies fail to inform workers of the risk. Lastly, risky jobs may not be justified when less-risky jobs are unavailable, or the workers lack information about the availability of less-risky jobs.

Risk in the workplace is an unavoidable part of many occupations. So if employers take the following precautions, the employer can be said to have acted ethically: 1. Takes reasonably adequate measures to inform him or herself of his and his or her workers about workplace risks and eliminates workplace risk.

2. Fully compensates and insures workers for assuming risks that cannot be eliminated.

3. The workers freely and knowingly accept those remaining risk in exchange for the added compensation.

Basic problems arise, however in hazardous occupations (particularly in less developed countries) when wages fail to provide a level of compensation proportional to the risks of the job, or workers accept risks unknowingly because they do not have adequate access to the information regarding the risks or lastly, workers might accept known risks out of desperation because they lack the mobility to enter other, less risky industries.

When any of the above factors are present, the contract between employer and employee is no longer fair. In such cases, the employer has a duty to fund studies of those risks to (a) clearly and explicitly inform worker of the risks, (b) offer wages that reflect the riskpremiums prevalent in other similar but competitive labor markets, (d) insure the workers against unknown hazards and provide them with suitable health insurance and disability insurance, and (d) collect information on the health hazards that accompany a given job and make the information available to worker.

..

108

The term sweatshop is used to describe a workplace that has numerous health and safety hazards, poor working conditions and low wages.

In the United States sweatshops are unethical, yet the U.S. Department of labor estimates that ½ of the sewing shops in the United States qualify as sweatshops.

Now many U.S. manufacturers outsource their manufacturing to firms in developing countries.

Health and safety issues are problematic in developing countries where their health standards are particularly low or the governments do not have the resources to enforce the standards. The key issue that arises is when a U.S. firm outsources its manufacturing to a separate company in a developing country, what obligation does the U.S. firm have to the foreign workers to eliminate the sweatshop conditions.

Some of the answer is to understand the concept of moral responsibility that was learned earlier (Chapter 1): 1.

The person caused or helped cause it, or failed to prevent it when he could and should have; 2.

The person did so knowing what he or she was doing; 3.

The person did so of his own free will.

For U.S. firms, this poses a number of problems because the foreign firms are often not owned by the U.S. firms. In addition, the access to how the foreign firms are run is limited, with not knowing what is going on in the foreign factories and with pressures from competitors and stockholders.

Employers Another problem have the faced same in the workplace is violence. responsibility to eliminate workplace violence as they have to deal with any other health and safety issues in the workplace. Almost a fifth of all U.S. occupational deaths today are the result of assaults and other forms of violence in the workplace. Supervisors and employees should be trained to recognize the warning signs of violence and learn how to deal with violence when it emerges.

8.2 The Political Organization Although much of the behavior of an organization accords with the rational model of the organization, a great deal of organizational behavior is neither goal directed, efficient, or rational. To understand this behavior, we need a second model of the firm: the firm as a political organization.

This model is newer than the rational model. Unlike that model, it does not look only at the formal lines of authority. Instead, it emphasizes the informal lines of influence and sees the organization as a system of competing power coalitions. This model is much more complex, focusing on the competitive nature of different factions within a firm. The goals of the firm are the goals established by the historically most powerful or dominant coalition and the formal and informal lines of influence and communication that radiate from these coalitions.

The fundamental reality of the organization is not formal authority or contract, but power.

If power is the main organizational reality, then the primary ethical problems in an organization are connected with acquiring and exercising power. The two main questions become: 1. What are the moral limits to the power managers acquire and exercise over their subordinates?

2. What are the moral limits to the power employees acquire and exercise on each other?

..

109

Employee Rights Corporate management is similar to a government: they are centralized decision-making bodies who have power and authority to enforce their decisions on subordinates concerning the distribution of resources, benefits, and burdens, and they have a monopoly on the power to which the subordinates are subject. Some observers hold that this power is so comparable to the power of governmental officials that the moral limits placed on governmental officials must extend to managers as well. As government must respect the civil rights of citizens, managers must respect the moral rights of employees: the rights to privacy, consent, and freedom of speech, among others.

There are important differences between corporations and governments, however.

Governmental power is based on consent, while corporate power is based on ownership.

Since managers' power rests on property rights, they have the right to impose whatever conditions they choose on their employees who freely and knowingly contract to work there.

Moreover, managerial power (unlike governmental power) is limited by the countervailing power of unions, and employees can leave firms more easily than citizens can change countries. Therefore, it may not follow that all of the safeguards afforded citizens should be carried over to employees. Employee rights advocates counter that dispersed ownership means that managers no longer function as agents for the owner of a firm (there is no single owner), so property rights are no longer relevant. In addition, unions do not protect many workers, and changing jobs can be a very difficult and traumatic experience.

Employees have some rights, in any case. Because of technical innovations, the right to privacy is under attack more than ever before. Employees' rights to privacy must be balanced against employers' rights to know certain information about their activities. Three elements are relevant when considering this balance: 1. Relevance - the employer must limit his inquiry to areas that are directly relevant to the issue at hand.

2. Consent - employees must be given the opportunity to give or withhold consent before their private lives are investigated and should be informed of any surveillance.

3. Methods - employers must use ordinary and reasonable methods of inquiry unless circumstances are extraordinary.

Other rights are even less certain. Workers may think they have freedom of conscience, but if they discover that their firm is doing something that harms society, they have few legal options available if internal management does nothing about it. The company has the legal right to punish the employee who informs against the firm with firing or blacklisting him or her. Though some authors have pointed out that this is a clear violation of an individual's right to freedom of conscience, the law nevertheless maintains that the employee's duty is to maintain loyalty and confidentiality towards the employer.

Whistle blowing, the attempt by an employee to disclose wrongdoing in an organization, can take two forms. It is internal if it is reported only to management within the organization. If it is reported to others (such as governmental agencies or the media), then it is external. Whistle blowing can have heavy personal costs, but it is morally justified when there is clear evidence that the firm's activity is seriously harming others and reasonable attempts to prevent it by informing management have failed, as long as it is reasonably certain that the whistle blowing will prevent the harm and the harm is serious enough to justify the injuries it will bring upon the whistleblower.

..

110

However, the fact that it is sometimes justified does not mean it is obligatory. Whistle blowing is only morally required when the employee has a moral obligation to prevent the wrong that whistle blowing will prevent, and the wrong involves serious harm to society's overall welfare, serious injustice against a person or group, or serious violation of people's basic moral rights.

Whistle blowing has serious consequences for the employee. It is argued that employees have a contractual obligation to the employer and to keep all aspects of the business confidential and to pursue the best interests of the company. So, whistle blowing violates this agreement. While it is true that there is an agreement, it is not unqualified with unlimited obligations toward the employer. In a situation, if an employee’s only way of prevent other people from being harmed is by blowing the whistle on one’s employer, an employee agreement cannot require the employee to remain silent. However, this right is only if internal whistle blowing was attempted first, and it the harm remaining silent is greater than the harm that will result to other parties by whistle blowing.

Many companies have now set up “ethics hotline” that employees can use to illegal or ethical violations anonymously to upper management or to an “ethics officer” who will investigate the allegations.

The U. S. Congress has passed several laws that protect whistleblowers from retaliation A number of authors have proposed that the ideals of democracy should be embodied in business organizations allowing workers to have a right to participate in decisions that affect them. In a democracy, citizens have the right to participate in government, where decisions that affect the group are made by a majority of its members after full, free, and open discussions. Some authors have proposed that these ideals should be embodied in business organizations. As a first step, they suggest that business decisions should be made only after open discussion with workers. Next, individual workers should have the right to make decisions about their own immediate work activities. Such models are not generally popular in the U.S. Some management theorists urge managers to adopt a participatory leadership style, assuming that employees want and can develop the capacity to accept responsibility, are ready to support organizational goals, and can determine the best means of achieving them.

Following the theory of Douglas McGregor, Raymond Miles distinguishes three models of sets of assumptions that managers can make about employees: 1. Traditional - employees dislike work, are not capable of being creative or selfdirected, and care only about what they earn.

2. Human relations - employees want to belong and feel recognized, useful, and important; meeting these needs is more important than what they earn.

3. Human resources - employees like work, want to contribute to meaningful goals that they help establish, and can be creative and responsible.

Another theorist, Rensis Likert, posits not three but four "systems of organization." They are: 1.The “exploitive authoritative” system.

2.The “benevolent authoritative” system.

3.The “consultative” system.

4.The “participative” system.

..

111

If such participative management styles are more effective and productive, then on utilitarian grounds firms ought to adopt them. However, research on this issue is not yet conclusive.

Until recently U.S. Labor laws have given prominent position to the principle of employment at will. This was based on the employer’s property rights to decide who will work and for how long, the freedom of contract for the employer to hire and fire the employees at will, and the utilitarian argument that businesses will operate most efficiently if employers have the right to hire and fire employees as they see fit.

This principle has recently come under attack, and the trend is towards the view that employees have some right to due process, a fair process by which decisions about their employment are made.

For many people, the right to due process is the most critical right employees have. This is a vitally important right, since if it is not respected, the employees have little chance of seeing any other right respected. In employment, the right to due process plays a central role in the hearing of grievances. Theorists identify five essential features of an effective grievance procedure: 1. Three to five steps of appeal 2. A written account of the grievance 3. Alternate routes of appeal beyond the immediate supervisor 4. A time limit for each step 5. Permission for the employee to be accompanied by one or two co-workers The Right to Work is embodied in the United Nations Article 23.1 entitled “Universal Declaration of Human Rights”.

It states that “Everyone has the right to work, to free choice of employment, to just and favorable conditions of work and to protection against unemployment.” This has a different meaning in some states where it means the right to refuse to join a union without losing one’s job. In the past, workers in some companies had to join a company union or leave the company. Today, 22 states have laws that prohibit being forced to join a union.

These are called “right to work” laws.

The Universal Declaration of Human Rights has a different meaning.

A right is a fundamental value worthy of being granted the status of a right because it is something of tremendous importance. It is a means to survival. It is: 1. Our work provides an economic benefit to our society.

2. It helps us develop our potential as a human being.

3. We develop our character.

4. Work is a fundamental source of self esteem and self-respect.

Although it is stated that everyone has a right to work, many people are unemployed. In early 2010, more than 10% of the U.S. population was unemployed, 15 million men and Aside from the recession, other factors leading to the unemployment were women. improvements in technology, thereby requiring fewer workers. Secondly, the transfer of U.S. jobs to foreign, developing countries because of lower wages and the free trade zones making it easier to relocate U.S. operations to developing countries such as Mexico and China. Thirdly, in the late twentieth century, U.S. transitioned from a manufacturing economy to a service economy.

..

112

Whatever the reasons, lay-offs and plant closings are threats to right to work and impose high costs on workers and their communities. As plant closings become more common, the rights of employees in these situations need to be considered. Plant closings impose high costs on workers, so when plant closings are inevitable, workers' moral rights should continue to be respected. Utilitarian principles suggest that the harm caused by layoffs should be minimized, which means that the costs of plant closings should be borne by those best able to bear them, namely the company. Considerations of justice further imply that workers and communities should be repaid by the firms not unjustly abandoning pension, health, and retirement plans. Companies that have to close plants can minimize the harm they cause individuals and their communities by giving advance notice, severance pay, health benefits, early retirement, transfers, retraining, allowing employee purchase, and phasing out local taxes.

As owners have the right to associate to establish and run their business to achieve their morally legitimate ends, so workers have the right to freely associate with each other to establish and run unions to achieve their own morally legitimate ends. The worker's right to organize derives from the right to be treated as a free and equal person. Unions, moreover, have traditionally been justified as an important and legitimate countervailing means of balancing the power of large corporations. Workers have the right to form unions and to strike as well. Though unions have been important in the establishing of worker rights in the U.S. and around the world, unions represent a dwindling percentage of American workers.

Opposition to unions is on the rise, and the use of illegal tactics against them is rising as well. As the effectiveness of unions shrinks, it is likely that we will need more laws to secure the rights that unions had previously protected.

While U.S. workers have a right to unions, many U.S. companies are moving their companies to developing countries because the other nations have weak unions which lead to weak wage demands and low worker protections. Therefore, the ethical issues for companies moving to these developing nations is what obligation does a U.S. company have to respect the right to unionize for workers in its foreign factories where the workers’ rights are either not recognized or weakly enforced by the local government?

Whatever the cause, displacement of jobs to other nation, changes in domestic demand, rising productivity, mismanagement or a company’s pursuit of cheaper workers, layoff and plant closing are threats to the right to work and impose high costs on workers and their communities.

William Diehl, a former senior vice president in the Steel industry defined eight steps that companies can do to minimize the effects of plant closings:

1. Provide workers 12 to 18 month of advance notice.

2. Provide severance pay equal to 1 week’s earning for every year of service.

3. Health care should be provided by the company for at least one additional year after employee’s dismissal.

4. Workers who are within 3 years of normal retirement should be retired on full pensions.

5. In the case of a multiplant corporation, workers should be given the opportunity of transfers to an equally paying job at another plant, with moving expenses paid by the company.

6. Company –sponsored training should be established to train and place workers in The programs should also include family other jobs in the local community. counseling for all employees.

..

113

7.Workers and the community should be given the opportunity to purchase the plant and operate it under an Employee Stock Ownership Plan.

8.The company should phase out their local taxes over a 5-year period. This may involve a voluntary contribution to the local tax authority if the plant and equipment are disposed of in a way that will severely reduce property taxes.

Workers have a right to associate with each other and have a right to organize and run a union. The worker’s right to organize into a union is derived from the right of all people to be treated as free and equal persons. Corporate employers, especially during period of high unemployment or in regions where only one or a few firms are located, have much more power in negotiations with individual employee than the employee does. So workers in solidarity with other workers can achieve equal footing in negotiating with the corporation.

In addition to organizing, the unions have a right to strike as long as there is no preexisting prior agreement not to strike. Companies then have an obligation to respect the rights of the workers to form unions and to strike. This right extends to the workers of all nations.

Despite the view that unions are legitimate, there has been a good deal of dissatisfaction toward them in the United States. There are a number of factors for the decline in union membership, including an increase in white collar job, a switch from manufacturing to service jobs and a decline in public confidence in unions. This has been accompanied by a rise in use of illegal tactics to defeat union organizing campaigns. This has had the effect of an increase in the appeal to legislatures and the courts to establish rigid legal protections against the abuses that unions were originally established to secure.

Organizational Politics The chapter, so far, has focused primarily on formal power relationships and the ethical constraints that must be placed on this formal power. But there are informal channels of power in organizations as well, which can be used ethically and unethically.

For the purposes of this chapter, organizational politics is defined as the process by which individuals or groups within an organization use non-formally sanctioned tactics (political tactics) to advance their own aims. (Such aims are not necessarily in conflict with the best interests of the organization.) Because organizational politics aim to advance the interests of an individual or group, political individuals tend to be covert, which means that they can easily become deceptive or manipulative. Some of the most frequent political tactics encountered in business organizations are: 1. Blaming or attacking others.

2. Controlling information.

3. Developing a base of support for one's ideas.

4. Image building.

5. Ingratiation.

6. Associating with the influential.

7. Forming power coalitions and developing strong allies.

8. Creating obligations.

Such behavior can easily become abusive, manipulative, or deceptive, seriously injuring others. It can also be used to advance laudable organizational and social goals, however, and sometimes the only defense a person in an organization has is to fight fire with fire. The

..

114

dilemma is knowing where the line is that separates the moral from the immoral use of political tactics. Perhaps the best way to approach them is to test them against the four standards of ethics: the utilitarian question (are the goals of the tactics socially beneficial or socially harmful?); the rights question (do the tactics treat others consistently with their moral rights?); the justice question (will the tactics lead to an equitable distribution of benefits and burdens?); and the caring question (what impact will the tactics have on the web of relationships within the organization?). Two kinds of political tactics are viewed to be judged unethical: those that involve pursuit of personal goals at the expense of organizational productive goals and those that knowingly involve inefficiency and waste.

Therefore in deciding whether to use political tactics, one should consider the long-range consequences that the exercise of power implied by these tactics can have on oneself and one’s relationships with others in the organization.

8.3 The Caring Organization So far, the chapter has examined organizations as having either hierarchical collections of individuals who are connected to each other and to the organization by contractual Overlying agreements theand rational formally defined hierarchies of authority. organization’s formal lines of authority is the political system, the power relationships crisscrossing lines of power. There can also be a third different system, one seen as a network of connected (“selves”) relationships all concerned with each other. The primary goal of the organization is not profit, but caring for those individuals who make up the organization and with whom the organization interacts.

The characteristics of a caring model of the organization would be focused entirely: 1. On persons, not on profit not “quality,” or any other kinds of ideas that much of today’s “car-talk” seems to revolve around.

2. As an end itself, not as a means to profit or quality 3. Essentially personal, in that it ultimately involves particular individuals engrossed in caring for other particular individuals.

4. As personal and growth-enhancing for the cared-for, in that it moves them toward the use and development of their full capacities, within the context of their selfdefined needs and aspirations.

Some argue that business organizations in which such relationships flourish exhibit better economic performance. There are few organizations that perfectly embody the caring model, though W. L. Gore & Associates comes close. The essential ethical concerns that arises with this model is the problem of caring too much (which leads to burnout) and the problem of not caring enough because of fatigue, self-interest, or disinterest.

Extra Resources 1. “Protecting the Worker: Historic OSHA Films (1980s-2000s)” documents strikes, the history of OSHA, and what it has done for workers; 2. “Behind the Labels: Garment Workers on U.S. Saipan” (2006) looks at sweatshops and sweatshop foreign workers in Saipan (45 minutes); 3. “Child Slavery” (2007) is a 90 minute BBC documentary with reporter Rageh Omaar that looks at unpaid child workers around the world

..

115

4. Several documentaries on sweatshops and workers around the world are available on the website of the Institute for Global Labour and Human Rights including: “Triangle Returns” (2011) on the 2010 Bangladesh garment factory fire that killed 26 workers “Where Ships and Workers Go to Die” (2009) on dangers of working in Bangladesh shipyard “The Human Cost Behind Bargain Shopping” (2005) on sweatshop workers in Bangladesh; several other videos are available for streaming on the Institute for Global Labour and Human Rights website (www.globallabourrights.org) .

Questions for Class Discussion 1. What defines the rational organization? Of what do its layers consist? What obligations do the employees in this model have towards the firm? What obligations does the firm have to its employees?

2. What are conflicts of interest? What types of conflicts of interest are there? Under what circumstances are gifts ethical?

3. Is insider trading moral or immoral? What are the arguments on both sides of the issue?

4. Why should employers care about their employees' level of job satisfaction? Why are modern employees increasingly unsatisfied with their jobs? What can be done to improve their degree of satisfaction?

5. What is the "political organization"? How is it structured and defined? What are the main ethical problems that arise in this model?

6. What are the similarities and differences between the power wielded by managers and the power wielded by governmental officials?

7. Should employees have freedom of conscience? When should they engage in whistle blowing tactics? Why might external whistle blowing occur in any given organization?

8. What is participatory management? Should U.S. firms adopt more participatory practices?

9. What is the distinction between the right to due process and employment at will?

10. How should companies conduct themselves when they are forced to close a plant?

Why should they respect the rights of their former workers?

11. Why do employees have the right to unionize and to strike? What explains the lack of power of modern unions? What are the effects of the dwindling numbers of union employees in the U.S.?

12. What are the most common types of political tactics? When are they justified?

13. What characterizes the caring organization? Why should companies consider adopting this model?

Activities and Assignments 1. Have students interview employees from various business organizations, asking them about their level of job satisfaction and what model of organization their firm uses.

2. Ask students to research a large, well-known corporation (either individually or in small groups). The firm may be one for which they would consider working. Direct them to pay attention to the corporation's organizational structure and corporate climate, its goals, its history in dealing with employees and unions, and the types of positions offered, as well as the duties, requirements, and expectations that go with them. Would the students want to work for this firm? Why or why not?

..

116

3.Have students investigate the activity of unions in their local area. How many firms have unionized employees or partially unionized employees? Are the unions influential or relatively powerless? How do workers themselves feel about unions? 4.Ask students to share their own experiences with the political tactics mentioned in the chapter. How did they work for the student? Were they ever themselves the victims of unethical political tactics? What did they do in response?

5.Promote groups of students to the executive level of a selection of major U.S. corporations that are organized in the traditional, "rational" way. Then, have them assess the feasibility of reorganizing their particular corporation after the "caring" model. What changes would they need to make? What benefits, if any, would they expect? What problems might they encounter in the attempt?

..

117

Quiz Questions: Chapter Eight 1. The traditional, "rational" model of the business organization is defined it as a structure of formal relationships, which are designed to achieve a goal efficiently. a. True b. False Answer: A 2. A firm's organizational chart, identifying the formal and informal hierarchies of authority, exemplifies the fundamental reality of the organization. a. True b. False Answer: B 3. In this view, the employee's main moral duty is to work toward the goals of the firm.

This view is referred to as: a. Law of Legitimacy b. Law of Structure c. Law of Agency d. Law of Duty Answer: C 4. Conflicts of interest arise when employees have a private interest in the outcome of a task in which they are engaged in that is possibly antagonistic to the firm's interests and substantial enough that it might affect the employee's independent judgment on the firm's behalf. a. True b. False Answer: A 5. Potential conflicts of interest may or may not be ethical, depending on the probability that the employee's judgment will affected by the conflict of interest. a. True b. False Answer: A 6. A firm's main moral duty to its employees is to provide them with: a. Clean working environment b. Friendly supervisors c. Medical and dental insurance d. Fair wage and fair working conditions Answer: D 7. Each year, __________ percent of the job force suffers a job-related injury or illness each year. a. 5 b. 10 c. 15 d. 20 e. None of the above Answer: B

..

118

8. Risks are sometimes unavoidable and acceptable, as long as: a. Employees are not coerced b. Employees are fully compensated for assuming them and they do so freely and knowingly c. No one else has the expertise to do the work d. All the above Answer: B 9. Employees' rights to privacy must be balanced against employers' rights to know certain information about their activities. a. True b. False Answer: A 10. Whistle blowing–the attempt by an employee to disclose wrongdoing in an organization– can take two forms. a. True b. False Answer: A 11. Whistle blowing seldom has heavy personal costs to the whistleblower because it is justified when there is clear evidence that the firm's activity is seriously harming others and reasonable attempts to prevent it by informing management have failed. a. True b. False Answer: B 12. Skills that an employee acquires by working for a company can be and usually are considered part of her or her person and are not property of the employer. a. True b. False Answer: A 13. Workers risks on the job in less developed countries are affected by: a. Labor markets that are not competitive or job risks not yet known. b. Workers might accept risks unknowingly because the worker doesn’t have access to the risk information. c. Workers might knowingly accept risks because they lack mobility to enter less risky industries. d. All of the above.

Answer: D 14. Being that the United States is a developed and sophisticated country, there are no sweatshops within its boundaries. a. True b. False Answer: B 15. Immanuel Kant’s argument about moral rights supports the employee’s right to give or withhold their consent before the private aspects of their lives are investigated. a. True b. False Answer: A

..

119