1 Virtue Ethics in Modern Capitalism Ask just about anyone in today’s world about business ethics one might be hard pressed to find an answer that doesn’t question the very existence of business ethics, especially American capitalism, for many see it as a purely self-motivated economic system. However, this assumption is not the whole truth, for the very foundation of the American economic system of capitalism is an ethical one, as seen in Adam Smith’s work, Wealth of Nations. The challenging part lies in identifying the line between ethics and business. In order to observe this line, one must observe the field of ethical philosophy and the foundational structure of an economic system or business. This research will: observe the current climate of ethics in business on the collegiate level, offer insight into the beginning of America’s foundation for business ethics by observing Adam Smith’s ethical system of Capitalism, apply virtue ethics in modern business theory, and finally will discuss the various ways some business attempt to utilize virtue ethics in their business model. For the purpose of this work, the idea of business is implied to be a capitalistic system unless otherwise stated. At first glance, philosophy and business seem polar opposites. Philosophy, or the love of wisdom, concentrates on questioning the world around us, whereas business focuses on the procurement of happiness through the production and sale of goods and services. These subjects cross at the point of ethical argumentation in the fact that the production and sale of goods and services require some degree of “ethical” pricing in a market society. The use of ethics in business is extremely important not only for legal reasons but for theory-based applications as well; in this case, virtue ethics. If one cannot maintain proper relationships between consumers, employees and management, for example, it is easy for the delicate balance of the business to
2 collapse. This is because businesses must follow these natural parameters to stay competitive in the market. The best way to examine a topic in any setting is to look to respective professionals in the subject in question, in this case: philosophers. In that same regard, one should also observe the foundational professional because they serve as the groundwork for all of their predecessors. One of, if not the first, formally systematic philosophies of Western ethics is Aristotle’s Nichomachean Ethics. As Aristotle was one of the first to formally identify ethics, establishing the foundation of ethics as a category of philosophy is crucial for defining the implications of ethics in business. Aristotle’s ethics is that which describes ethicality on a scale of virtue and vice presented in his work, The Nichomachean Ethics. Aristotle claims that the greatest way to exhibit ethical behavior is virtue. Virtue is a keyword in understanding Aristotle’s Nichomachean Ethics. It is for this reason that one must identify the word in its composite parts to better understand how the word was represented in their time. Etymologically, virtue, vir is Latin for man, and virtus being Latin for moral perfection. Collectively, virtue is that which makes man morally excellent and in Aristotle’s thought, the pinnacle of human purpose. One can achieve ultimate happiness by exhibiting virtue, or justice. In the Nicomachean Ethics, Aristotle classifies virtue as two categories: virtues of thought and virtues of character. Virtues of thought such as prudence, for example, are procured through experience and knowledge whereas virtues of character are habituated into existence and are primarily comprised of ideas that involve some sort of repetitious act such as upholding justice. Prudence is an important virtue which is later expound upon in Adam Smith’s work Wealth of Nations and as such, will be discussed later with the introduction of capitalism. Aristotle’s second category of virtues, that of character include ideas
3 such as: generosity and temperance. Summarily, virtues of character can also be habituated with the proper instruction whereas virtues of thought cannot. On a macro level, habituation is the key to obtaining a virtue of character and as such, moderation, a key virtue in business can be habituated. The idea that moderation can be habituated into existence is important because it shows that anyone can conduct ethical business practices. Identifying the distinctions and similarities between formal ethics and business ethics is necessary because while business ethics may appear to be an extension of formal ethics, the method in which each is developed can lead to very different results. For example, formal ethics could incorporate the study of business ethics, but it would include a wide variety of philosophical thought not included in business classes for the sake of time. Therefore, formal ethical practices are important to exhibit in a business setting as it may not necessarily address all situations immediately present. Because of this distinction between ethics and business ethics, it may be difficult to see the formalities of modern business ethics. This can be a result of many factors, however, there is an increasing trend of ethics seen as not necessary for business curricula as they are some times not required for many degree plans, for example, New York University’s School of Continuing and Professional Studies. As Mitchell Langbert, an associate professor at the Brooklyn College business school states that, “US business schools have started to exclude ethics from their core curriculum.” The exclusion of ethics in core curriculum, however, is not absolute. Langbert runs a disclaimer stating that a majority of the business schools who do not offer business classes in their core integrate teachings such as: nihilism, subliminal virtue ethics and lastly, Aristotle’s virtue ethics which are incorporated in classes such as justice and natural law.
4 The need for ethics in business is so crucial, in a such a manner that without ethics, one would be hard pressed to even identify such a phenomenon as a business. Aristotle would claim that ethics in necessary in business because moderate pricing has to be involved in order for the business to garner a sale. More importantly to have moderate pricing will lead to the obtaining the virtue of moderation which is the only way to conduct ethical business in relation to Aristotle’s theory. In an ideal-world, businesses would have the ability to set the highest price for the least amount of product or service, in other words, maximizing revenue, and minimizing costs. In business, it is this idea of balance between revenue and cost is achieved solely through “ethical” pricing. Ethical pricing can be determined by looking at laissez-faire and natural price. Today, capitalism is a blanket economic theory in which a country’s trade and industry are based on private ownership. The United States has established its role as the most successful capitalist society of the world, known for private and economic freedom in which the prices of goods and services are determined by consumers and producers, also known as free market enterprise. In the Wealth, the most successful nations excel all their neighboring countries in agriculture as well as in manufacturing. It is also noted that a countries superiority is commonly distinguished in manufacturing and industry than in agriculture. However, there is no country in the world which practices pure capitalism in its entirety. The governing theory behind pure capitalism, is the idea of an “invisible hand,” discussed in works by thinker, Adam Smith. Smith, a Scottish economist during the Enlightenment, was a key figure in the field of ethics and economics for his development of capitalism as it is represented today, the later contribution, however, is what garners Smith more consideration. Additionally, capitalism utilizes a free market and private ownership in all aspects of business relations in all forms. Popularized by his work An Inquiry into the Nature and Causes of the Wealth of Nations, now
5 shortened to it’s more identifiable form, the Wealth of Nations which sets the foundation for modern capitalism. His credibility in the field of ethical philosophy stems from his work, The Theory of Moral Sentiments which directly addressed the field of ethics and is what he considers to be his best work. The Wealth of Nations, however, is often considered to be one of the pertinent and primary works of economic theory due to it’s revolutionary ideas of economic theory which is built upon the ethical foundation of his Theory of Moral Sentiments. Summarily, Smith places an emphasis on natural price, proposes the idea of an invisible hand, discusses the division of labor, and collectively displays his ultimate form of ethicality as conveyed in the Wealth: prudence. Prudence, as seen in the Nichomachean Ethics Book 6, Chapters 7 and 8 present that, “Prudence is concerned with the human good; it is not limited to what is universal but must also know the particulars, for it is practical. For prudence, particulars are more important than universals because prudence is related to action. Prudence is generally concerned with individual matters, but other types are financial management, legislative prudence and political prudence.” Important figures to consider are action and financial management for in relation to action, it implies that there are practical applications to virtue ethics, whereas most believe it to be a purely ideological theory. One such practical application can be seen in Adam Smith’s faculty of natural price, for natural pricing leads to human good, which is ultimately what prudence is concerned with respectively. On the account of natural price, Smith discusses in the Wealth that, “There is in every society an average rate both of wages and profit… [and] this rate is naturally regulated.” Likewise, this concept of natural price is, “regulated by the proportion between the quantity which is actually brought to the marker, and the demand of those who are willing to pay the
6 natural price of the commodity. Essentially, Smith identifies the theory of supply and demand in it’s purest and uninhibited form: natural. Natural price falls in line with the thought of Aristotle in the fact that it observes a form of virtue or a balance between excess and deficiency. As a reminder, the virtue of moderation is Aristotle’s foremost idea of excellence. Comparatively, natural price is the pinnacle of capitalism for economics is based on the foundation of capital (money). Since this phenomenon of natural price is in fact, natural, it is good. Because the just price is one where consumer demand meets supplier quantity, the unjust price is only when the good or service is priced above or below this equilibrium. The significance of natural price as it relates to ethics is in the fact that consumers essentially vote with their dollar which ultimately determines the success of a business (in theory). If the consumer feels that the price of a product is too high, they will not buy said good or service and the price will adjust itself for suppliers will lower the price to incentivize the market to increase sales. This notion of natural price is evident in relation to Aristotle’s ethics through the virtue of moderation. As seen in his Nichomachean Ethics Aristotle claims that, “in every state the intermediate state is praised, but we must sometimes incline toward the excess, sometimes toward the deficiency; for that is the easiest way to hit the intermediate and good condition.” As discussed, the continuation of natural price in the capitalist economy exhibits this idea of moderation in its entirety because the use of price fixing in an economy regulated by natural price goes against its inherent properties, making the price unjust. Thus, Aristotle’s ideas have foundational applications in modern capitalism and business in relation to natural price: a fundamental part of capitalist society. Since virtue ethics can be applied to capitalism and business, it should theoretically have practical purposes which can be observed in the business world. There are, in fact some
7 approaches of using virtue ethics in conjunction with business through multiple systems or “collaborations”. These collaborative methodologies include: supply chain, sustainable and dictatorial. These collaborative methodologies provide a practical approach to virtue ethics as seen in the business world as argued in Matthew Drake’s article, “A Virtue-Ethics Analysis of Supply Chain Collaboration.” The applicability of Aristotle’s virtue ethics can further be seen in what Alexander Bertland christens as the “capabilities approach”. Collaborative methodologies are a form of maximizing efficiency, the foremost tenet of any business for the ultimate goal of profit maximization. The supply-chain in business focuses on the effective procurement and manufacturing of goods and is comprised of multiple companies: suppliers, manufacturers and retailers. Essentially, supply-chain collaboration is the intercommunication between business who ultimately create a single product. This application of supply-chain collaboration is discussed in an article by Matthew Drake and John Schlachter entitled, “A Virtue-Ethics Analysis of Supply Chain Collaboration,” located in the Journal of Business Ethics. As discussed in the article, virtue ethics is applied in the supply-chain collaboration through the sharing of information throughout each company involved in the chain. The article supports its framework for analyzing the ethical issues of supply-chain collaboration by observing Aristotle’s virtue ethics. Specifically, it addresses Aristotle’s virtue ethics on the nature of friendship as displayed in Books VIII and IX of the Nichomachean Ethics for supporting the idea that the, “collaboration of a firm with others along its supply chain resembles as special kind of friendship of utility,” (Drake 856). A friendship of utility according to the Ethics arises because one entity sees value in the product of another entity. Essentially, friendships of utility arise for the mutual benefit of both parties and are primarily business in nature.
8 Furthermore, Drake and Schlachter state that Aristotelean virtue ethics trumps Enlightenment thinking in relation to collaborative supply-chain efforts. This argument arises because Enlightenment thinkers would treat this idea of supply-chain collaboration as dictatorial for they believe that business transactions do not extend into the private life of the individual; in other words, this division of home and business life would lead to a strictly business relationship. However, it is further argued that the entire purpose of a collaborative supply-chain is to continue well beyond the initial function of the relationship––that is to foster an environment of trust which will reinforce the relationship. This reinforced relationship will lead to increased marginal utility from both companies and is a direct result of the utilization of Aristotle’s virtue ethics. Collectively, business ethics can, but not restrictively, utilize Aristotle’s virtue ethics. The presence of Aristotelian virtue ethics in business can be observed by following Smith’s idea of natural price and prudence and the execution of virtue ethics in supply-chain collaboration. Also addressed, was the idea of formal ethics classes being removed from collegiate level business courses. Defining what is ethical in any setting is difficult especially when it comes to an industry stigmatized as self-motivated. However, this self-motivation comes at the expense where in order to naturally succeed, it requires a degree of fairness or ethicality, one that can be achieved through the use of virtue ethics.
References
9 Bertland, Alexander. "Virtue Ethics In Business And The Capabilities Approach." Journal Of Business Ethics 84. (2009): 25-32. Business Abstracts with Full Text (H.W. Wilson). Web. 1 Oct. 2015. Drake, Matthew J., and John Teepen Schlachter. "A Virtue-Ethics Analysis Of Supply Chain Collaboration." Journal Of Business Ethics 82.4 (2008): 851-864. Business Abstracts with Full Text (H.W. Wilson). Web. 1 Oct. 2015. Langbert, Mitchell. "Toward The Virtue - Based Business School." Journal Of Interdisciplinary Studies 23.1/2 (2011): 97-116. Humanities Full Text (H.W. Wilson). Web. 1 Oct. 2015. Morgan, Michael L. "Nichomachean Ethics, Bk. VI, Ch. 7, 8." Classics of Moral and Political Theory. Indianapolis: Hackett Pub., 2011. 310-312. pag. Print. Smith, Adam. Wealth of Nations. Buffalo, NY: Prometheus, 1991. 58. pag. Print.