Ethics and economics may seem like worlds apart to many people. When we think of typical economic decisions – such as the decision of an investor to fund a new company, the decision of a corporate manager to expand an existing production line, or the decision of a consumer to buy the resulting product – we seldom think of these as having any deeper ethical content. We might think that economic decision-making is inherently amoral, that is, beyond the realm of ethics and ethical scrutiny. Alternatively, we might well think that economic behaviour often is immoral, that is, without proper regard to ethics and ethical values. In any case, many of us have a hard time squaring the things that we associate with economic thinking and behaviour – such as self-interest, attention to prices, and adversarial competition (to name but a few) – with the things that we associate with ethical thinking and behaviour – such as empathy or charity, attention to needs, and voluntary cooperation.
This intuitive conflict between ethics and economics has not arisen in a vacuum, of course. Instead, it is at least partly in line with how the two subjects have come to be treated by academic thinkers, how they are treated in terms of university disciplinary structures, and, therefore, how they are taught and discussed in schools and public debates. Students who go to business school or study economics are typically instructed to view economic decision-making as an entirely rational or even mathematical process, aimed at maximising individual gains or profits for commercial companies. This process gives little to no regard to supposedly ‘softer’ issues such as ethics and social responsibility. Conversely, students who study ethics or practical philosophy are seldom invited to reflect on the decisions of investors or corporate managers, but instead tend to focus on issues such as personal virtue, life-and-death decisions in healthcare, and our obligations to the poor. These discussions have little to no regard for the special context of competitive markets.
Over the last few decades, however, there has been a growing sentiment in global society that ethics and economics (or ethicists and economists) should be made to talk to each other more closely. Most importantly, many people have come to regard certain types of ruthless profit-oriented behaviour, especially on the part of large corporations, as a major threat to many of our basic social values and ethical commitments. This point was nicely formulated by Greta Thunberg, the young climate activist, in her speech to the United Nations: ‘People are dying. Entire ecosystems are collapsing. We are in the beginning of a mass extinction, and all you can talk about is money and fairy tales of eternal economic growth. How dare you!’ (Thunberg Reference Thunberg2019). An idea here is that our tendency to approach economic matters as entirely separate from ethics is currently wreaking havoc on both people and the planet. There is thus a need to rethink or realign our conceptions of ethics and economics to create a more inclusive society and sustainable future.
The academic debate has partly picked up on this social sentiment. Both ethicists and economists have started to talk about the social responsibility of economic agents, using terms such as ‘business ethics’ and ‘corporate social responsibility’. However, it seems fair to say that this line of thinking is still underdeveloped and much remains to be done. For example, most of the debate has focused on the salient example of large corporations, but it remains unclear how the results generalise across other types of economic agents such as smaller companies, investors, and consumers. How far does ‘social responsibility’ generalise, and is it compatible with an economic system such as ours? Unfortunately, we believe that the ‘new’ debate often ends up falling into the very same intellectual pitfalls as the ‘old’ debate, namely, to treat ethics and economics as worlds apart. Much effort has been spent on trying to apply traditional ethical theories to the modern business world, only to realise that they are often too blunt, too abstract, or too unrealistic. Thus, there is a need for rendering the interaction between ethics and economics here more substantive.
This book seeks to address this challenge. Our aim in the book is to outline a more balanced and plausible theory of business or economic ethics. We use the terms ‘business ethics’ and ‘economic ethics’ interchangeably to highlight that the relevant norms and obligations pertain to both corporations (as producers, employers) and individuals (as consumers, employees, and investors). A theory of economic ethics should thus be capable of prescribing norms and obligations that are appropriate for a broad set of economic activities – including commerce, trade, consumption, and investment. More specifically, our aim is to outline a theory that avoids the intellectual pitfalls of previous treatments of ethics and economics. Rather than regarding them as worlds apart, we seek a theory where both ethical and economic thinking have their place and come together into a greater unity.
To give a quick preview of what is to come, our central claim in the book is that markets or ‘the economy’ form an ethically distinct part within an organic social whole. What we mean by this is that economic thinking and behaviour is neither amoral nor immoral, but the ethical norms that are appropriate for markets are somewhat different from – although not entirely alien to – those that apply in other social contexts, such as the everyday morality that applies between friends or neighbours. Much like the contexts of love and war sometimes are regarded as special contexts that call for slightly different ethical norms (‘all is fair in love and war!’), we argue that economic ethics should be regarded as involving a partly distinct set of norms that is appropriate for market interactions – although the norms in question cannot be determined in isolation from broader societal concerns.
What is different about economic ethics is primarily the fact that the ethical norms and obligations that apply to markets are less stringent or demanding than those that apply in (at least some) other areas of life, which again is similar to love and war. We call this phenomenon the moral leeway of markets and it forms the foundation of our approach to business ethics. The reason that such leeway is appropriate is intimately tied to the justification of markets as such; that is, that competitive markets – given that they are adequately regulated by both the state and social responsibility – tend to create a more prosperous and flourishing society. This is a basic tenet of modern economics which we will take for granted throughout the book and which we believe should inform the way that one thinks about economic ethics in contemporary settings.
But the market context cannot and should not be separated entirely from the broader societal situation. By better understanding the ethical role of markets, we think that we can also better understand their shortcomings and limitations. There are certainly ethical limits to economic thinking as it is standardly conceived, and thus an important role for ethical thinking as it is standardly concieved. That is, moral leeway should not be mistaken for ‘anything goes’ – especially not in matters that are of great urgency to people or the planet. One could say that the central challenge of economic ethics is to find the appropriate balance between ethics and economics in this sense, and this is precisely what we set out to find in this book. Thus, we propose that economic ethics should be perceived as something that lies between ethics and economics.
We believe that the theory we present uniquely appreciates the nuances of market activity as a form of human agency. The theory is not only attentive to the ways in which moral norms operate differently in a market context, but also to how these norms depend on and interact with consequences and events in society at large. We will also argue that our theory is uniquely positioned to appreciate the historical changes in attitudes towards various forms of commercial activity that have taken place in concert with the development of modern markets.
This introduction proceeds in the following manner. We start by defining the main research question and method of the book in greater detail. Thereafter, we give a broader overview of the previous academic literature and theorising on business or economic ethics, coming from both economists and ethicists. Our main aim in this endeavour is to describe what we perceive as the intellectual pitfalls of much previous thinking – which we call ‘economism’ and ‘moralism’, respectively. As a rough first approximation, economism is the view that ethics has no role to play in economic life, whereas moralism is the view that ethical principles should be applied without any adjustments to the particularities of the commercial realm.
By working our way through the literature, we gradually reveal the main tenets of our own approach to business ethics. Our hope is that this presentation will give at least some context to and overview of the theory that is defended throughout this book. Finally, we give a brief outline of the structure of the rest of the chapters of the book.
Research Question and Method
The research question we wish to address in this book is roughly: How ought economic agents such as investors, managers, and consumers to act? What ethical norms and obligations are pertinent to, or suitable for, market-based activity? We will here seek to clarify this question further by saying some more about how we understand its central terms.
Our primary focus in the book is on the behaviour of individual economic agents rather than states. What we mean by ‘economic agent’ is any individual person engaging in market-based activity, either on behalf of themselves or on behalf of some larger group such as a corporation. Typical examples of economic agents are thus investors, business owners, and consumers, as well as corporate managers and other employees of corporations or economic associations. It is an interesting question whether corporations themselves can be viewed as ‘persons’ or agents in a deeper philosophical sense. We will discuss this question in some depth in Chapter 5, but we believe that it can be safely ignored throughout most parts of the book.
What does ‘market-based activity’ mean? What we have in mind here is primarily interactions between agents in the form of exchanges of goods, services, and/or money in a competitive setting. We will have much to say about the more specific features of markets in the coming chapters. It is important to note that we are chiefly concerned with the interactions between rather than within firms. As we will see later (in Chapter 5), an interesting observation is that interactions between individuals within the same firm might well not be subject to the same norms (or moral leeway) as interactions between different firms. There is therefore a substantial part of ‘the economy’, as we normally conceive of it, that is not market-based. Furthermore, it should be noted that there is a broad question in the background here about what types of things may legitimately be exchanged on a market, and therefore whether there are moral limits to this very type of interaction. Can just about any interaction be (re)described as market-based and therefore enjoy the moral leeway outlined in this book? We will say something about this question in Chapter 4, and then return to a more thorough discussion of it in Chapter 7.
Our aim in the book is to outline a theory of the ethical norms and obligations that apply to economic agents. What we mean by ‘ethical norms and obligations’ is a set of normative guidelines for how the agents in question ought to think and act. An important distinction in this context is that which holds between ethical norms and legal norms. While both serve to regulate our behaviour and underpin our practices of praise and blame, one could say that ethical norms are more abstract and appeal to the conscience or agency of individuals themselves, whereas legal norms are more concrete and designed for use by third parties (such as regulators and lawyers). Since we perceive ethical norms to be more basic from a philosophical point of view, our primary focus in the book will be on ethical rather than legal norms. Indeed, we will soon see that a central question of business ethics is exactly whether economic agents have ethical obligations that go beyond the requirements of law. But we will also have reason to discuss the ethical justification of various legal norms or public institutions. For instance, we will note that various types of legal norms and public institutions are often needed to effectively underpin and bolster the ethical norms that we propose. Thus, we will see later that a substantial part of business ethics is also relevant to the question of how the economic realm should be regulated by the state.
Now, how does one go about answering questions about suitable ethical norms and obligations? The kind of theory that we seek is not an empirical one but instead a normative theory – that is, a theory of how economic agents ought to act. The academic discipline that is most pertinent to such theorising is moral philosophy. The method of moral philosophy can be described as an attempt to find (or construct) a coherent structure in our most important ethical values and commitments, as well as their practical implications. The philosopher John Rawls (Reference Rawls1971) famously describes this as a process of ‘reflective equilibrium’ (see also Daniels Reference Daniels1996, Knight Reference Knight, Zalta and Nodelman2023). The input into the process is our pretheoretical thoughts or ‘intuitions’ about what seems right and wrong, good and bad, just and unjust. Such intuitions are then subjected to a process of philosophical analysis or reflection that seeks to clarify their origin, meaning, and implications for the issues under debate. We use our best judgement to try to discard the ideas that do not hold up to critical scrutiny while holding on to the ones that do. Finally, we use logical reasoning to try to fit the best ideas together into a coherent and more substantive whole – that is, a theory that can explain as many of our best ideas as possible. We are also allowed to continually update or adjust our theory by going back and forth between different ideas to try to find the best balance between them.
In our view, it is very important that the philosophical thinking process outlined here does not become ‘purely’ philosophical in the sense of being just an abstract exercise. We should strive for an equilibrium that is as ‘wide’ as possible, which means that it also should cohere with insights from other scientific disciplines as well as with practical concerns (see Daniels Reference Daniels1996, Knight Reference Knight, Zalta and Nodelman2023). Our discussion in this book will therefore draw from both theoretical and empirical literatures in several academic disciplines – including other parts of philosophy, micro and macroeconomics, management science, behavioural science, political science, and history. A central part of our argument will be that a plausible theory of business ethics must be consistent with a broader social view on the role of markets and market-based activities in the community. It is our hope that the interdisciplinarity of our treatment contributes to making our approach both more nuanced and more realistic than many previous ones. In this regard, our book can be understood as a response to prominent calls for more holistic or interdisciplinary treatments of ethics and economics from authors with diverse backgrounds (e.g. DeMartino Reference DeMartino2011, Heath et al. Reference Heath, Moriarty and Norman2010, Sen Reference Sen1987).
Economics and Economism
So let us start our journey of theorising, and we will begin with the traditional conception of economic thinking. If you open the business pages of a newspaper, you will seldom find stories about the ethical norms and obligations of economic agents. Instead, you are likely to find stories about various companies’ latest revenues or profits, or their strategies for increasing revenues or profits in the future. The stories may include information on the companies’ positions on various markets, their projections of future demand for their products, or their strategies for increasing revenues or decreasing costs. To put it bluntly, most talk about business and economics is about money and nothing else. If you turn to the financial pages, the picture is even starker and you are likely to find only dry numbers – that is, long lists of recent earnings, profits, and share prices. Money, money, money.
This picture of economic thinking is partly mirrored in the standard economic theorising that students are taught in business schools. The dominant tradition of economics in our times is the so-called neoclassical school, which we can only introduce briefly here (for overviews, see Hubbard & O’Brien Reference Hubbard and O’Brien2024, Krugman & Wells Reference Krugman and Wells2024, Mankiw Reference Mankiw2023, McConnell et al. Reference McConnell, Brue and Flynn2024). The name derives from the aspiration to reject the pessimistic analysis of markets by Karl Marx in the nineteenth century and instead return to and refine the classical and more optimistic analysis pioneered by Adam Smith and others in the eighteenth century. Smith (Reference Smith1776/Reference Smith2012) famously argued that competitive markets transform the self-interested activities of merchants into societal outcomes that benefit us all – as though the merchants are ‘led by an invisible hand’. We will explore Smith’s classical reasoning in greater depth in Chapter 2. One could say that the basic program of the neoclassical school of economics is to seek a better understanding of when, how, and why markets indeed work in this way. In order to do so, it employs certain theoretical assumptions and uses an array of both theoretical and empirical scientific methods.
A central assumption of neoclassical economics is that all behaviour of economic agents can be understood as rational and self-interested in some sense (cf. Boumans & Davis Reference Boumans and Davis2010, Hausman et al. Reference Hausman, McPherson and Satz2016). On a broad interpretation, ‘self-interested’ simply means ‘seeking to satisfy the agent’s own preferences’ – that is, that the agent acts in pursuit of whatever he or she happens to want or like. This is compatible with fairly altruistic behaviour to the extent that the agent has a strong personal concern for others. On a more narrow interpretation, however, it is typically assumed that this can be simplified (at least for the purposes of mathematical modelling) to a concern for money and whatever that money can buy you (Gauthier Reference Gauthier1986, Hausman et al. Reference Hausman, McPherson and Satz2016; Jensen & Meckling Reference Jensen and Meckling1994). Moreover, the ‘preferences’ of organised collectives such as corporations are typically equated with profits – that is, the difference between revenues and costs that can be distributed to the owners of the corporation. What is meant by ‘rational’ is typically that the agent chooses the behaviour that maximises his or her preference satisfaction – that is, that there is no alternative behaviour available that could bring greater individual gains (Harsanyi Reference Harsanyi1977, Jensen & Meckling Reference Jensen and Meckling1994, McClennen Reference McClennen1990).
This model of economic decision-making can then be applied both to the micro-level of individual agents and firms, as well as to the macro-level of national or global markets. What is probably the most famous result of neoclassical economics, and which forms the basics of Economics 101 in business schools, is a demonstration of how these two levels can go together. This is often called the ‘first fundamental theorem of welfare economics’, and it is sometimes viewed as a formal ‘proof’ of Adam Smith’s invisible hand argument. The theorem holds that ‘perfect’ markets – defined as being maximally competitive, free from outside interference or regulation, devoid of transaction costs, and populated by fully informed and rational agents – will lead to ‘Pareto efficient’ outcomes (Arrow Reference Arrow and Neyman1951, Arrow & Debreu Reference Arrow and Debreu1954, Debreu Reference Debreu1959). An outcome is Pareto efficient if there is no way to redistribute resources between agents so that someone benefits without someone else losing (Pareto Reference Pareto1906). To put this point in simpler terms, competitive markets tend to allocate resources in a way that maximises the total sum of preference satisfaction in society, at least under certain idealised conditions. This is, of course, an interesting result that demonstrates the social usefulness of markets and market-style thinking.
It is important to note that neoclassical economics is a broad tradition that allows considerable diversity in economic theorising. For the students who study beyond Economics 101, it should quickly become clear that much of the advanced stuff concerns the myriad of ways in which actual markets tend to differ from their ‘perfect’ counterparts. We will say much more about this discussion below and in later chapters. There are also alternative schools of thought that involve vastly different assumptions – typically grouped together as ‘heterodox economics’ (cf. Foldvary Reference Foldvary1996) – which we unfortunately cannot cover here. Furthermore, it is also important to note that economics first and foremost is a descriptive and explanatory science – that is, its primary aim is to describe and explain rather than to prescribe behaviour. This is, of course, a central difference between the disciplines of economics and moral philosophy. As an economic theory, then, the neoclassical school should primarily be evaluated based on its ability to explain the behaviour of economic agents in the past and present, as well as its ability to forecast future economic events.
However, it is not difficult to see how the neoclassical school – and in particular the first fundamental welfare theorem – also can be given various normative interpretations (cf. Boumans & Davis Reference Boumans and Davis2010, Hausman et al. Reference Hausman, McPherson and Satz2016, Putnam & Walsh Reference Putnam and Walsh2012). It is one such normative interpretation that will be our primary concern in what follows. While we recognise that different economists can promote different normative views, we focus on one type of view that has led to much debate.
A Normative Reading
One of the most vocal proponents of normative neoclassicism is Milton Friedman, the Nobel laureate in economics. According to Friedman, neoclassical economics has clearly demonstrated how social prosperity is maximised by the ‘free market’, and therefore the best political agenda is one that seeks to minimise all regulations of and interventions into the workings of the market (Friedman Reference Friedman1962). Moreover – and what is more important for our purposes – he argues that the theory demonstrates why it makes little sense to impose ethical norms and obligations on economic agents that go beyond the requirements of law. Such norms and obligations would only stifle economic competition and therefore lead to suboptimal outcomes. If they are addressed to the managers of large corporations, the ethical norms would also conflict with the duties that managers have towards the owners of those corporations, which are the shareholders. Friedman summarises his views on this matter in a much-debated article entitled ‘The Social Responsibility of Business is to Increase its Profits’ (1970). Consider the following passage:
The view has been gaining widespread acceptance that corporate officials and labour leaders have a ‘social responsibility’ that goes beyond serving the interest of their stockholders or their members. This view shows a fundamental misconception of the character and nature of a free economy. In such an economy, there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud. … Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible. This is a fundamentally subversive doctrine.
A typical interpretation of Friedman’s view here – although it is not the only possible interpretation, as we will discuss later in this section – is that ethical norms and obligations should play no role whatsoever in markets, at least as long as they go beyond the requirements of law. We may refer to this view as economism, or the position of ‘all economics, no ethics’. Richard De George (Reference De George1999) prominently calls it the ‘myth of amoral business’. A similar position is sometimes taken to follow directly from the descriptive assumptions of neoclassical economics: if we assume that economic agents are rational seekers of individual gains, what room could there possibly be for ethical norms that require a consideration of the common good? However, we take this line of reasoning to involve a misunderstanding of the neoclassical school, since we saw earlier that individual preferences can include both self-regarding and other-regarding concerns.
Several other authors have defended economism in more or less explicit terms. For example, in his (in)famous article ‘Is Business Bluffing Ethical?’ (1968), the economist Albert Carr compares business to the game of poker. According to Carr:
As long as a company does not transgress the rules of the game set by law, it has the legal right to shape its strategy without reference to anything but its profits. If it takes a long-term view of its profits, it will preserve amicable relations, so far as possible, with those with whom it deals. … But decisions in this area are, in the final test, decisions of strategy, not of ethics.
A more elaborate defence comes from the philosopher David Gauthier (Reference Gauthier1986), who argues that we only need ethics in order to establish common rules that allow people to collaborate in situations of differing or adversarial interests. However, he notes that markets allow people to make transactions that are mutually beneficial without adopting any more substantive common rules. Indeed, on a perfectly competitive market, participants effectively have no other choice than to transact on mutually beneficial terms. Therefore, Gauthier (Reference Gauthier1986: 83–112) argues that the perfectly competitive market should be viewed as a ‘morally free zone’, that is, a zone in which ethical norms and obligations have no place.
However, we will argue in this book that economism is an intellectual pitfall. What we mean by this is that it is a position to which it is easy to succumb, so to speak, when one is not thinking straight. But further reflection should reveal how unbalanced and implausible the position is.
The Pitfall of Economism
What is wrong with economism? First, we wish to reiterate that one should not conflate economics in general with economism. As the intellectual historian James Kwak (Reference Kwak2017: 15) puts it, ‘economism is Economics 101 retold as fable …. Economism is what you are left with if you learn the first-year models, forget that there are assumptions involved, and never get your hands dirty with real-world data.’
To say a bit more, we noted that the economistic view is closely related to the first fundamental welfare theorem, which, at least according to Friedman, demonstrates that maximally ‘free’ and competitive markets will produce maximally efficient outcomes. However, this line of reasoning has been subject to intense criticism from both economists and other scholars. Most obviously, the first fundamental theorem rests on highly idealised and unrealistic assumptions that are very different from how actual markets work. Real people are not (always) rational seekers of individual gains, of course, which is a familiar criticism of neoclassical economics more generally (see Ariely Reference Ariely2008, Elster Reference Elster2010, Kahneman Reference Kahneman2011, Sen Reference Sen1987). Similarly, real markets seldom come close to the assumptions that are used to describe ‘perfect’ markets – including zero transaction costs, fully informed agents, and the absence of monopolies and collusion (see Coase Reference Coase1988, Stiglitz Reference Stiglitz1994, Hausman et al. Reference Hausman, McPherson and Satz2016). The upshot of this is that unregulated and unfettered profit-oriented behaviour on real markets is quite unlikely to allocate resources in the most efficient way. One way of moving forward here could be to appeal exactly to ethics and social responsibility.
Second, a more fundamental problem for economism seems to be that it focuses only on economic efficiency and thereby ignores other, broader societal aims. People not only want to live in a society with high material welfare and a well-functioning economic system, but they also want to live in a society that is socially just and environmentally sustainable. These broader social aims are prominent sources of ethical norms and obligations, which at least sometimes should be salient for economic agents as well – or so we will argue in this book. While the institution of the market might be especially apt to further the more specific goal of efficiency, this does not rule out other ethical considerations per se. Indeed, the market can often be the culprit when it comes to society’s failure to reach other important aims. As Greta Thunberg says, an economy without ethics is currently wreaking havoc on both people and the planet.
Third, a correlate of Thunberg’s point is that economism as a normative view turns out to be very radical indeed. If ethical norms and obligations really have no place in economic affairs, should we then say that anything goes – that is, that there really is nothing that economic agents can do that is immoral (as long as they succeed in maximising profits, and perhaps also follow the law)? Given the enormous importance of markets and market-based activities in society, the view not only seems erroneous but even quite dangerous. We have ethical norms and obligations precisely in order to safeguard people from disrespectful or even harmful behaviour. So why should this one area of social life that we call the market or ‘the economy’ be exempt from ethical norms and obligations altogether? Why should we regard it as an entirely sui generis sphere of human activity in which moral norms have no role whatsoever to play?
A similar criticism has been expressed by economists who are critical of the way in which Economics 101 is taught. For instance, a relevant worry is the possible connection between the amoralism of economic theory and recent ethical ‘scandals’ in the business world. Sumantra Ghoshal formulates it in the following way:
By propagating ideologically inspired amoral theories, business schools have actively freed their students from any sense of moral responsibility. … Why then do we feel surprised by the fact that executives in Enron, Global Crossing, Tyco, and scores of other companies granted themselves excessive stock options, treated their employees very badly, and took their customers for a ride when they could?
There are indeed empirical studies that seem to confirm a connection between studying economics and becoming a more selfish person (e.g. Marwell & Ames Reference Marwell and Ames1981, Frank et al. Reference Frank, Gilovich and Regan1993). Across a range of social cooperation tests – such as the prisoner’s dilemma, the public goods game, and the ultimatum game (we will discuss these further in Chapter 2) – students in economics tend to be less cooperative than others, and this effect increases with the length of their study. In response to these worries, there have been several calls for increased attention to ethical training in business schools and professional business settings (DeMartino Reference DeMartino2011, Gintis & Khurana Reference Gintis, Khurana and Zak2008).
Saving Friedman?
Before moving on, it may be helpful to discuss whether one can give an alternative and more plausible interpretation of the arguments from Friedman and others. In the recent literature, some business ethicists have argued that we need not understand Friedman as a proponent of economism and the amorality of business. For example, his central thesis that ‘the social responsibility of business is to increase profits’ is seemingly a thesis about social responsibility. Thus, on an alternative reading, Friedman is saying that managers have an ethical duty to further the interests of the corporation’s shareholders (cf. Bakan Reference Bakan2004, de Bruin Reference de Bruin2015, Sternberg Reference Sternberg1994). Moreover, he allows a crucial qualification when stating that a business’s responsibility is to ‘increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud’ (Friedman Reference Friedman1962: 133). Norms against deception and fraud seem like typical examples of ethical norms. So, there is a role to play for ethical norms after all, although Friedman never expands on this point.
This interpretation is, of course, more plausible, but it is still simplistic. While it makes sense to say that managers have an ethical obligation to shareholders, this point is only relevant for large corporations and does not generalise to other economic agents such as consumers or shareholders themselves. We will analyse this issue in greater depth in Chapter 6. Moreover, the ethical norms against deception and fraud alluded to are obviously minimalistic. Their main point seems to be to safeguard the ‘rules of the game’ – that is, to castigate overly opportunistic behaviour that can distort the ideal functioning of markets. At other places, Friedman (Reference Friedman1962) is expressly critical of more substantive ethical norms, such as obligations to reduce pollution or alleviate poverty. But this means that the criticism that we outlined earlier is still relevant, namely that a narrow focus on efficiency seems inadequate when there are serious threats to both people and the planet.
An interesting expansion at this juncture can be found in the so-called ‘Paretian’ or ‘market failures’ approach to business ethics, defended by the philosopher Joseph Heath (2004; Reference Heath2014) and others. According to Heath, we must accept the result from neoclassical economics that perfectly competitive markets lead to Pareto efficient outcomes. However, Heath argues that thinkers like Friedman and Gauthier have simply been too optimistic or naïve about the tendency of actual markets to approximate that ideal. There is therefore a rather substantial role to play for ethical norms and obligations, and these can be derived directly from the ‘implicit morality of the market’ (see also McMahon Reference McMahon1981, Smith Reference Smith2018). The suggestion is that markets have their own implicit morality, namely Pareto efficiency, that we can explicate and then use to place limits or constraints upon market activities. According to Heath, the main ethical obligations of economic agents are to avoid contributing to, as well as to knowingly exploit, the failure of actual markets to reach Pareto efficiency. More specifically, these obligations include refraining from behaviour that stifles competition (such as collusion or monopolising), reducing information asymmetries between firms and customers, minimising negative ‘externalities’ (that is, effects of market transactions on third parties), and refraining from corporate lobbying that seeks to undermine an effective regulation of markets (Heath Reference Heath2014: 37).
We think that the Paretian approach is a step in the right direction in comparison to Friedman’s view and, as we will see in later chapters, we often end up on the same side in more concrete debates. However, a crucial problem with the approach is that it remains trapped in the economistic project of focusing exclusively on efficiency as the ethical goal of markets. According to Heath, it is vital that the ethical obligations of economic agents are derived from the ‘implicit morality of the market’ itself rather than from any external source. But this creates a very static theory that prevents economic agents from playing a positive role in alleviating broader social problems such as pollution and poverty. We should acknowledge that the concept of ‘externalities’ is relevant here and can be used to account for at least some such problems, to the extent that they are created by market failures. However, not all social problems originate in market failures – we will return to this point in several of the coming chapters. The further step that we want to take here, which is precisely unavailable to Paretians, is to view the market as an ethically distinct part within an organic social whole. We will explain this step further in what follows.
Ethical Theory and Moralism
One can understand the rise of the modern debate on business ethics as a response to the serious flaws of economism noted above – for instance, its amoralism and connection to ethical scandals. Much of the societal debate started in the 1970s and 1980s, in close connection with the laissez-faire politics and deregulatory reforms of the era – most obviously associated with Ronald Reagan in the United States and Margaret Thatcher in the United Kingdom. As more and more influence over societal affairs was being transferred from the public to the private sphere, there was an increasing sentiment to impose stricter ethical norms and obligations on private economic agents, especially large corporations. As William Frederick (Reference Frederick2006: 13) puts it in his historical account of corporate social responsibility, both the social and academic movements here originated from ‘the collapse of laissez faire as a philosophy and as an economic order’.
It should come as no surprise, then, that the bulk of the academic literature on business ethics is formulated in terms that are critical of economism, and especially of Friedman (for overviews, see Brenkert & Beauchamp Reference Brenkert and Beauchamp2010, Heath et al. Reference Heath, Kaldis and Marcoux2018, Frederick Reference Frederick2002). It may be noted that this literature is very diverse and includes contributions from a broad range of disciplines – including economics, management, philosophy, sociology, psychology, and so on. Our main interest here is in the normative and theoretical debate, which primarily has involved economists and philosophers. However, we acknowledge that there are important insights to be gained from the more empirically oriented literature as well, and we will draw from some of these findings throughout the book.
The philosophical literature on business ethics differs quite radically from the type of economic theorising outlined earlier. Rather than seeking to describe or explain empirical phenomena (about how things are), the point of ethical theorising is to provide a coherent and compelling normative account (about how things ought to be). Therefore, the method of philosophy is quite different from that of economics, as we have already noted. Rather than seeking empirical confirmation of theorems, the central tests for ethical theories are typically such things as whether they conform to widely held ‘intuitions’ about right and wrong, and whether they are sufficiently coherent in terms of their overall content and structure. These are also the types of standards by which our theory in this book should be evaluated.
A central theme in the philosophical literature on business ethics has been the attempt to apply traditional ethical theories to the case of business. This is perhaps a natural first strategy, given the long and rich history of philosophical thought on matters of ethics and social responsibility. While there have been a broad range of ethical theories throughout history, we may here focus on the most popular theories, which include virtue ethics (from the ancient Greek philosophers Plato and Aristotle), social contract theory (from early modern thinkers like Thomas Hobbes and John Locke), deontological ethics (from the Enlightenment philosopher Immanuel Kant), and utilitarianism (from the late modern philosophers Jeremy Bentham and John Stuart Mill). We will return to spell out the details of each theory in later chapters, as they become pertinent to our inquiry. One way of understanding the influence of these theories is to say that they each capture an important aspect of what many people take to be salient about ethical norms and obligations. When we think of ethically exemplary behaviour, we tend to think of a good-willed and benevolent person (as captured by virtue ethics) that follows firm principles (deontological ethics) for the sake of social cooperation (social contract theory) or for the sake of the common good (utilitarianism). But when the theories are spelled out more fully, they come with different implications for how we ought to live our lives – which is why the philosophical debate over which theory is best continues.
All of these theories have been applied to business ethics. There is thus literature on the virtue ethics approach to business ethics (Solomon Reference Solomon1992, Hartman Reference Hartman2013, Moore Reference Moore2017), the Kantian approach to business ethics (Arnold & Harris Reference Arnold and Harris2012, Bowie Reference Bowie2017), the social contracts approach to business ethics (Donaldson & Dunfee Reference Donaldson and Dunfee1999, Heugens et al. Reference Heugens, van Oosterhout and Kaptein2006, Wempe Reference Wempe2008), as well as other approaches. A crucial assumption of much of this literature – although not all of it – is that the theories in question are just as pertinent and applicable to the business realm as they are to other areas of social life. For example, the influential business ethicist Norman Bowie writes that:
If traditional moral and political philosophy cannot be fruitfully applied to problems in business, arguably the most influential institution in contemporary society, then normative ethics is in a crisis. The wisdom of the ages no longer applies. That seems counterintuitive on its face.
That does indeed seem ‘counterintuitive on its face’ since, as we have said, why would the business world be entirely distinct or separate from the rest of human social life? Similarly, De George writes in his classic textbook on business ethics:
Business ethics is not a separate ethics that constrains business in a way that other human and social endeavours are not constrained. Nor does it permit business to do what one is not allowed to do in other areas of life. It is part of the general field of ethics and only within that wider sphere can it be properly understood.
According to Kenneth Goodpaster & John Matthews (Reference Goodpaster and Matthews1982: 138), the very purpose of business ethics is to overcome a perceived double standard in what we expect of individuals in different situations, namely ‘a discrepancy between our personal lives and our lives in organisational settings’. Thus, the aim would be to universalise the values that we hold in our personal lives. In a similar manner, Kendy Hess (Reference Hess, Orts and Smith2017: 173) writes that: ‘If it’s wrong for me to lie, cheat, or steal in my personal life, then it is wrong for me to lie, cheat, or steal in my professional life; the fact that I’m being paid to do it at work doesn’t change that.’ Again, we see the point being made that business should not be regarded as a special sphere.
However, we will argue in this book that the view above exemplifies another intellectual pitfall, namely the pitfall of moralism, or the position of ‘all ethics, no economics’. While this pitfall may not be as dangerous as economism, it tends to hamper both intellectual and societal progress. We will further explicate why we think this is a pitfall in what follows.
The Pitfall of Moralism
In our view, it seems plausible to hold that the ethical norms that are appropriate for markets are somewhat different from – although not entirely alien to – those that apply in other social contexts, such as the everyday morality that applies between friends or neighbours. To give just a few initial examples:
Most people regard it as morally wrong to ruin significant life projects of people around us, yet in the context of the market we regard it as acceptable to put a competitor out of business. ‘It’s not personal, it’s business’, we might say.
Similarly, we believe it is important that friends and colleagues honour their promises and commitments to us, yet it has become commonplace to accept that businesses sometimes fail and then leave their shareholders and creditors empty-handed and, in so doing, fail to honour their commitments.
In everyday interactions, we expect both friends and strangers to be honest and fair towards us, yet we teach our children to expect and to accept that commercial agents will often attempt to deceive us and, further, will regularly distort or withhold relevant information.
Finally, when we exchange favours among friends we try to strike a deal that is reasonable and fair to everyone involved, yet on the market we are ready to accept both prices and wages that fluctuate immensely and are seldom equally favourable to both parties.
We will spend the better part of this book on further elaborating on and discussing these kinds of examples (as well as related ones).
The heart of the problem with moralism, in our view, is that the standard vision of exemplary ethical behaviour – a benevolent person who follows firm principles for the sake of the common good – simply is less pertinent to the context of markets and economic affairs. As noted at the outset, most market transactions are made on the basis of more private or self-interested reasons, focused on prices rather than principles, and in situations of adversarial competition rather than a quest for the common good. We are going to assume throughout this book that this is the system that we are trying to improve upon – that is, we acknowledge upfront that we are seeking an economic ethics that is applicable to contemporary market economies. We are, of course, not saying that normative ethical theories are invalidated simply because they are inconsistent with current practices. However, ethical theories that are wholly inconsistent with the market system as we know it form a poor basis for building a balanced theory of business ethics. In this regard, it seems clear that many of the classical ethicists, such as Aristotle and Kant, should not be relied upon for advice that is relevant to modern markets.
Previous authors have formulated similar lines of criticism. For example, in an address on the state of business ethics around the millennium, the influential business ethicist Edward Freeman (Reference Freeman2000: 169) notes that the literature has been dominated by ‘mostly philosophers taking what they know of ethics and ethical theory and applying it to business’. This has unfortunately resulted in ‘isolated theorizing that is unconnected and unconnectable to the practice of value creation and trade’ (178) and, as a consequence, ‘the mainstream conversations in business have had little to do with the work of these philosophers’ (169). Similar remarks can be found in an earlier article by Andrew Stark, who lists several flaws of philosophical business ethics:
First, it is too general – consumed with offering fundamental proposals for overhauling the capitalist system rather than ethics strategies to assist managers who must work within that system. Second, it is too theoretical – preoccupied with philosophical abstractions and anything but ‘user-friendly’. And third, it is too impractical – concerned with prescriptions that, however morally respectable, run so contrary to existing managerial roles and responsibilities that they become untenable.
In our view, not all of these criticisms are equally valid. For example, the comment that philosophical business ethics is ‘too theoretical’ seems misdirected, since there should plausibly be a place for theoretical ambitions in an academic debate. Similarly, the comment that business ethics is failing since it has not impacted on ‘the mainstream conversations in business’ seems too strongly biased in favour of a management perspective. As we will try to show in this book, philosophical analysis has a lot to offer in terms of clarifying and justifying the ethical obligations of economic agents. However, we take the core of the formulations above to be similar to our concern about the pitfall of moralism. Approaches that proceed in a direct and rigid manner from traditional ethical theories tend to fail to acknowledge what is special about the market sphere; they tend to overlook the benefits generated by profit-oriented market behaviour, and they attempt to apply overly rigorous moral norms that are unlikely to be adopted by economic agents.
We need to think in some more detail about what the alternatives to moralism and economism might be here. However, before doing so, we should note how easy it is for business ethicists to fall into the pitfall of moralism, even when they are trying to avoid it.
A Brief Comment on Stakeholder Theory
The problem of moralism is not only a concern with the application of traditional ethical theories to business practice, but it can also afflict some more recent theoretical approaches. To illustrate this, we offer a brief comment on Freeman’s own work in business ethics. One of Freeman’s central claims is that business ethicists must reject what he calls the separation thesis, namely that the ‘discourse’ or ‘affairs’ of business can be separated from the ‘discourse’ or ‘affairs’ of ethics (Freeman Reference Freeman1994, Reference Freeman2000). It is not entirely clear what he means by this, and subsequent authors have understood the separation thesis in rather different ways – including as a semantic claim, a descriptive claim, and a normative claim (Sandberg Reference Sandberg2008). In the present context, however, we need not get into these details. The main gist of Freeman’s argument can be understood as the rejection of what we call economism; that is, in order to get any traction in economic ethics, we cannot continue to treat ethics and economics as worlds apart. So far, we are in full agreement.
Freeman is, of course, most well-known for his more substantive theory of business ethics, namely stakeholder theory (Evan & Freeman Reference Evan, Freeman, Beuchamp and Bowie1993, Freeman Reference Freeman1984, Freeman et al. Reference Freeman, Harrison, Wicks, Parmar and De Colle2010). The name comes from a play with words, trying to contrast Friedman’s focus on the obligations that managers have to shareholders (also called ‘stockholder theory’) with a broader view that also posits obligations to other ‘stakeholders’ – such as employees, consumers, suppliers, and local communities. Freeman (Reference Freeman1984: 46) defines a stakeholder as ‘any group or individual who can affect or is affected by the achievement of the organization‘s objectives’. According to stakeholder theory, then, corporate managers have ethical obligations that go well beyond profitability and the requirements of law. Their general ethical role is to ‘pay attention to’, ‘manage’, or ‘balance’ the interests of all people who are stakeholders in the corporation’s activities (Freeman et al. Reference Freeman, Harrison, Wicks, Parmar and De Colle2010).
Stakeholder theory has become very popular in business ethics, probably because it provides such a stark alternative to economism. Thus, many textbooks on business ethics present stockholder and stakeholder theory, or Friedman versus Freeman, as the main contenders with regard to theories of the ‘purpose’ or main responsibilities of business (e.g. De George Reference De George1999, Moriarty Reference Moriarty2022, Shaw Reference Shaw2008). Many empirically oriented authors also see stakeholder theory as a fruitful perspective for analysing the social interactions between managers and society in greater detail (Egels-Zandén & Sandberg Reference Egels-Zandén and Sandberg2010).
However, at least some philosophers have complained about this development on the grounds that stakeholder theory is ambiguous, to the point of almost being devoid of content. The crucial problem here is that the theory says very little about the character or content of the ethical obligations that managers owe to different stakeholder groups, nor does it say how these are to be weighed or ‘balanced’ against each other (e.g. Hasnas Reference Hasnas1998, Bowie Reference Bowie and Smith2009, Orts & Strudler Reference Orts and Strudler2009). Rather than being a ‘theory’ in its own right, then, it would seem that stakeholder theory needs to be filled in with, or supplemented by, some more basic ethical theory. Indeed, Freeman himself openly acknowledges this problem. In several articles, he tries to show that stakeholder theory is consistent with a broad set of more traditional ethical theories – such as Kantian ethics (Evan & Freeman Reference Evan, Freeman, Beuchamp and Bowie1993), feminist ethics (Wicks et al. Reference Wicks, Gilbert and Freeman1994), and even libertarianism (Freeman & Phillips Reference Freeman and Phillips2002). In later work, he argues that stakeholder theory can be fitted with many different ‘normative cores’ to yield more precise ethical recommendations (Freeman et al. Reference Freeman, Harrison, Wicks, Parmar and De Colle2010).
Given the problem just noted, it is difficult to say anything more precise about stakeholder theory in this context. However, what we wish to highlight is that Freeman comes close to falling into the pitfall of moralism himself. Our reasoning here is that saying that corporate managers have ethical obligations towards ‘any group or individual who can affect or is affected by the achievement of the organisation’s objectives’ is obviously very broad and seems to include more or less all people. In this regard, there is seemingly no difference between the context of the market and other areas of social life. It is therefore easy to see how this version of stakeholder theory simply collapses into general ethics. Thus, the choice between stockholder and stakeholder theory seems, at least on one reading, to boil down to a choice between economism and moralism – which we do not find very helpful.
But perhaps there can be more distinct and plausible versions of stakeholder theory that avoid this problem. In Chapter 3, we will discuss desert-based views on justice in prices and wages which seem to have affinities with stakeholder theory. And in Chapter 6, we will discuss a ‘stakeholder argument’ for corporate social responsibility that builds on the idea that commercial ventures are cooperative activities and therefore give rise to ethical obligations towards all cooperating parties.
A Moral Minimum?
We have so far argued that a more balanced and plausible theory of economic ethics must avoid the pitfalls of economism and moralism, respectively. What we are seeking is some form of ‘middle way’ between these extremes. We are, of course, not alone in this endeavour and several other authors have reasoned along similar lines. This is where things start to become slightly more complicated but at the same time more interesting. Before describing our own approach in greater detail, we will comment on a final alternative view that can be found in the previous literature.
A fairly popular way of proceeding here is to attempt to apply at least some insights from traditional ethical theories to the case of business, but to give room for the idea that markets form a special ethical context. Rather than applying the theories directly or fully, they are applied only partially. This often takes the form of a moral minimum – that is, a reduced set of (often more basic) ethical norms and obligations that carve out a moral space in which the familiar profit- or preference-oriented behaviour of economic agents is allowed. According to Bowie (Reference Bowie1991: 56), the moral minimum approach is ‘something of a consensus [that] has emerged in the past ten years regarding the social responsibility of business’ – although he ultimately argues that it is mistaken. Similarly, Wim Dubbink & Luc Van Liedekerke (Reference Dubbink and Van Liedekerke2014: 528) refer to the minimalist view as ‘orthodoxy’ in mainstream business ethics. So here the view is that it is the natural default position within business ethics.
What do writers mean by a ‘moral minimum’? A popular version of this is centred around the distinction between positive and negative duties. Negative duties are ethical obligations to refrain from certain types of behaviour that are considered unethical or antisocial. The most obvious example is the duty to do no harm – that is, the obligation to refrain from acting in ways that harm the physical or psychological interests of others. In contrast, positive duties are ethical obligations to positively perform certain types of actions that are considered ethically meritorious or exemplary. The most obvious example is the duty of assistance – that is, the obligation to assist or aid others in meeting their physical or psychological needs. According to the minimalists, only negative duties can be imposed on economic agents such as corporate managers. While it would be wrong for managers to act in ways that are harmful to others, they have no strong duties to assist or aid people in need (although it may sometimes be charitable of them to do so).
An early statement of the minimalist view comes from John Simon, Charles Powers, and Jon Gunnemann (Reference Simon, Powers and Gunnemann1972), writing about ‘The Responsibilities of Corporations and Their Owners’:
The negative injunction to avoid and correct social injury threads its way through all morality. We call it a ‘moral minimum’, implying that however one may choose to limit the concept of social responsibility, one cannot exclude this negative injunction. Although reasons may exist why certain persons or institutions cannot or should not be required to pursue moral or social good in all situations, there are many fewer reasons why one should be excused from the injunction against injuring others.
A related view is central in Thomas Donaldson and Thomas Dunfee’s (Reference Donaldson and Dunfee1999) application of social contract theory to business ethics. They argue that we should accept a ‘moral free space’ in communities and organisations to allow for profit- or preference-oriented behaviour on the part of economic agents, but that this space is curtailed by ‘hypernorms’ or moral minimums that should regulate all social relationships. These are norms which act as side-constraints on the pursuit of profit. Central hypernorms, according to Donaldson and Dunfee, are the obligations not to cause gratuitous harm, to honour contracts, and to respect or at least not denigrate the basic rights of individuals.
Similarly, the minimalist view is central in the United Nations report on ‘Guiding Principles on Business and Human Rights’, written by John Ruggie (Reference Ruggie2011) – which subsequently has become a model for several other standards of professional conduct or ‘business ethics codes’. Ruggie argues that the duty to protect human rights rests solely on governments, while corporations have a less demanding duty to respect such rights. The latter is mainly a negative duty to ‘avoid causing or contributing to adverse human rights impacts through their own activities, and [to] address such impacts when they occur’ (14). However, there is also a minimal positive duty to ‘seek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or services by their business relationships, even if they have not contributed to those impacts’. We will return to analyse this latter part in Chapter 6.
There is much to say for the idea of a moral minimum, and we will soon see that our own theory is somewhat similar to this idea. Moreover, there is much to say for the view that negative duties are salient across all areas of social life. The duty to do no harm is an example of an ethical norm that seems to fulfil an important purpose in a broad spectrum of social contexts. However, we will argue in this book that a rigid minimalist approach to business ethics ultimately is mistaken. This is because there are important exceptions to both of its central tenets. First, there are cases in which economic agents should be allowed to do harm – perhaps the most salient example is competition between firms (we discuss this issue in Chapter 4). Second, there are cases in which economic agents have positive duties of assistance – this is the essence of the debate on ‘corporate social responsibility’ (we discuss this in Chapter 6).
The Moral Leeway Approach
It is now time to say something more about the theory that we argue for in this book, as well as how it relates to previous treatments of ethics and economics. As noted at the outset, we seek a more balanced theory where both ethical and economic thinking have their place and come together into a greater unity. We therefore propose to view the market as an ethically distinct part within an organic social whole.
What we mean by ‘ethically distinct part’ is that the ethical norms and obligations that are suitable for markets and market behaviour are different from – although not entirely alien to – those that apply in other social contexts, such as the everyday morality that applies between friends or neighbours. The error of moralistic treatments is that they fail to acknowledge this important difference. It may be helpful to compare our view here to the work of the political philosopher Michael Walzer in his book Spheres of Justice (1983) – since it is similar in some regards but very dissimilar in others. Walzer argues that society should be conceived of as a set of different spheres – including a welfare sphere, a market sphere, a workplace sphere, and an educational sphere – in which different principles of justice apply. So, for instance, a principle of need should be applied in the welfare sphere but a principle of merit in the educational sphere. One could say that our proposal is (superficially) similar to Walzer’s in that we distinguish between different ‘parts’ or ‘contexts’ of society in which slightly different ethical norms are pertinent. However, our view is much less radical than his in that we do not view these parts as entirely separable from each other, nor do we propose that the economic sphere comes with its own separate ethics. We return to a fuller treatment of Walzer’s view in Chapter 7.
On our approach, what is different about the economic sphere is primarily that the ethical norms and obligations that apply here are less stringent or demanding than those that apply in (at least some) other areas of life. This is the phenomenon that we call the moral leeway of markets. Thus, it is not the case that the market comes with its own separate ethics or ‘implicit morality’, but instead it is the same ethical principles that we apply but in a less stringent manner. This is similar in some respects to what Heath (Reference Heath2014: 9) describes as a ‘deontic weakening with respect to everyday morality, where certain actions that would ordinarily be obligatory may become optional (and equivalently, actions that are forbidden may become permissible)’. This deontic weakening might not apply to all moral norms and obligations, but it does at least apply to some very salient ones that we discuss in this book. As far as we can tell, we are the first to propose an approach to business ethics that is anchored around this idea about the moral leeway of markets. The rest of the book is an exploration of this approach and hopefully many of the details should become clearer throughout the coming chapters.
What we mean by ‘within an organic social whole’ is precisely that the ethical context of the market is not entirely separable from other ethical contexts in society. The error of economistic treatments – including Heath’s approach – is that they overstate or exaggerate this distinction. More specifically, we hold that the normative purpose or role of markets cannot be defined in isolation but must instead be understood in relation to broader social or human goals. For instance, there would have been little moral relevance to pursuing economic efficiency if that did not correlate with broader values such as human flourishing and happiness. In situations in which maximising profits creates significant harms to such values, we believe that there is a prima facie case for corporations to go beyond their standard economic activity and benefit society directly. The details of these social responsibilities should hopefully also become clearer in the coming chapters.
The word ‘organic’ is important here and distinguishes our view from the minimalist approach. We suggest that the moral leeway of markets is conditional upon the interplay between markets and other parts of society in fulfilling these broader human goals. What we mean by ‘other parts of society’ is a whole range of non-market societal structures – including, most saliently, the type of regulation and welfare system that the state can provide as well as the informal institutions or ‘social fabric’ of civil society. Although we cannot outline a full political philosophy here, it suffices to say that we envision a well-functioning society to include substantial non-market institutions that are able to complement and/or counterbalance the market in various ways. Each part of society will have its own role to play, but they must also be mindful of how they function together for the sake of a prosperous whole. Societal challenges can come from all directions – for instance, either the market gives rise to problems (which is known as market failure) or some other part of society gives rise to problems (which we can call ‘social failure’). The ethical norms and obligations that fall on economic agents must, in our view, ultimately depend on this organic interplay between markets and society. We explain this point further in several upcoming chapters.
Now, how does this approach relate to the traditional ethical theories noted earlier? The main justification for our approach is that we believe it to be the approach that is most conducive to a prosperous and flourishing society. We would thus describe our reasoning throughout the book as broadly consequentialist in character – that is, as focused on the social consequences of various norms and obligations. The traditional ethical theory that comes closest to our view is therefore utilitarianism. However, we propose that utilitarianism needs to be substantially revised in at least two ways in order to fit the bill. First, the relevant consequences should not only be effects on ‘utility’ in the sense of happiness or preference satisfaction, but should also include effects on other social or human goals such as, for instance, justice and sustainability. We wish to remain as open as possible with regard to how to define the relevant human goals here. Thus, we follow the philosophical convention of distinguishing between utilitarianism and consequentialism, where the latter is understood as a broader view that can be specified in a number of ways (see Portmore Reference Portmore2020, Sinnott-Armstrong Reference Sinnott-Armstrong, Zalta and Nodelman2023).
Second, the theory needs to be revised in a less moralistic direction. Utilitarianism’s standard ‘criterion of rightness’ holds that an action is morally right if and only if it produces the best possible outcome, in terms of the well-being of all members of society, in comparison to all other available actions. For the reasons explained earlier, this criterion seems overly moralistic in the context of market activities. Interestingly, however, it is often conceded by utilitarians that we cannot expect all people to be moral ‘angels’, and therefore it is advisable to support the inculcation and use of less stringent ‘rules of thumb’ or derivative moral principles (Hare Reference Hare1981, Sidgwick Reference Sidgwick1907, Shaw Reference Shaw and West2006a). Moreover, it seems clear that society can be made better off in a large variety of ways, and therefore at least some utilitarians support a ‘division of moral labour’ in which the derivative principles are varied to some extent according to different social contexts and roles (e.g. Goodin Reference Goodin1998). This line of reasoning can then be extended along the lines of our view of business ethics, namely to say that (1) the derivative principles that are suitable for the economic context tend to be different from those that are suitable for other areas of social life, but (2) the background calculation also requires readjustments of these sets of derivative principles based on the organic developments of the social whole.
We hope to demonstrate throughout the book that various forms of consequentialist thinking often lie in the background of both ethical and economic ideas, and therefore consequentialism is a suitable starting point for trying to combine the two. For instance, in Chapters 2, 3, and 4, we will discuss how (proto-)utilitarian philosophers like Adam Smith and John Stuart Mill defended ideas that are somewhat similar to ours, in close connection with their landmark treatments of the ethical role of markets. These treatments were an important inspiration for the whole discipline of economics, but unfortunately modern economists who appeal to utilitarianism tend to forget or disregard important insights about the social embeddedness of markets. Thus, our suggestion is that we can only arrive at a plausible theory of economic ethics if we adopt a broader type of consequentialism that can encompass both ethical and economic thinking.
Plan of the Book
The theory outlined here will be defended in greater detail in the coming chapters of the book. Let us now say something more about how the rest of the book is structured. We have decided to dedicate the chapters to what we take to be the most central or critical points of comparison between ethics and economics – which we, in turn, think are the most crucial issues to discuss in order to understand the ethical norms and obligations that are suitable for markets. What is more, most of the chapters also introduce and engage with some of the intellectual history pertaining to ethical and economic thought. It is our contention that the moral leeway approach is uniquely positioned to appreciate the historical changes in attitudes towards various forms of commercial activity that have taken place in concert with the development of modern markets.
Chapter 2 explores the apparent conflict between economic and moral motives. When the ancient Greek philosophers wrote about money and commerce, they held that morality and virtue stand in stark contrast to the pursuit of self-interest. When we think of ideal moral motivation, we typically think of people putting others’ interests over their own. In contrast, when we think of economic motivation, we typically think of the single-minded pursuit of money or self-interest. A distinction of this nature also seems to underlie Adam Smith’s invisible hand argument, which suggests that self-interested motivation actually can be beneficial in markets. Following this line of reasoning, must we accept that there is a stark conflict between virtue and commerce? We seek to untangle this contrast and argue that ethics does not equate with altruism and the profit motive does not equate with egoism. Properly understood, the motives underpinning economic activity can incorporate both self-interested economic motives and other-regarding moral concerns. The trick here is to adopt a more capacious conception of the profit motive in which it is not a single motive but rather a set of motives. With this conceptual apparatus at our disposal, we can outline ways in which an economic agent can be a moral agent without imposing unrealistic demands that require forms of self-abnegation.
Chapter 3 focuses on the ethics and politics of pricing. A key function of markets – as we shall explore in greater detail – is to facilitate the coordination between buyers and sellers of goods and services. At the heart of this is the price; markets set prices and these roughly reflect the balance between supply and demand. The key question we explore in this chapter is what a plausible theory of business or economic ethics should say about prices and pricing behaviour. Medieval and early modern philosophers had strong opinions on what constitutes ‘true’, ‘fair’, or ‘just’ prices on both commodities and labour. In contrast, modern economics suggests that prices can fluctuate wildly due to subjective valuations on the margin. We defend the thought that our concept of moral leeway allows us to navigate the rocky ground between overly moralistic views and naively economistic claims. We argue that there remains a role for the normative evaluation of prices, but at the same time, this does not mean that the general use of the price mechanism of markets should be abandoned.
In Chapter 4, we consider the moral status of the harms that markets often generate. It is a truism of ordinary moral life that one should not harm other people, nor should we threaten their livelihoods or modes of life. Many moral philosophers have taken this to be at the heart of moral philosophy – for instance, John Stuart Mill’s liberal theory focuses on the so-called harm principle. And yet, engaging in market activity clearly can harm people. One response to this would be to retreat to the view that moral concerns with harm are not relevant in the market. We resist this temptation. Instead, using the intellectual machinery provided by the moral leeway approach, we argue that harm is still a significant ethical category, but we need to accept that the range of justifiable harms is far greater in the market. However, this is only possible in a context where the excesses of markets and more extreme harms are ameliorated by the state and other social institutions.
Chapter 5 considers the question of the moral responsibilities that corporations hold. What responsibilities should corporate entities bear for their actions? What responsibilities should those who direct and work in them bear? Strange as it might seem from the world outside of the economic point of view, the modern corporation is legally regarded as a person of its own. Part of the justification for this is to limit the risk of those who engage in corporate activity. But one consequence of this is that those who direct and work in corporations might avoid some liability for wrongful actions they perform. This sits oddly with our ordinary understanding of morality and yet the corporate form does not attract the kind of opprobrium that an individual performing similar actions might expect. People are remarkably lenient with corporations. We argue that the best explanation for this lax attitude is our moral leeway approach to business ethics. More specifically, we defend a view that we call pluralistic normative functionalism about corporate moral agency. This view implies that the ethical norms that are appropriate for attributing responsibility or liability in a market context are somewhat different from – although not entirely alien to – those that apply in other social contexts, such as the ordinary morality of civil life.
In Chapter 6, we explore what many would regard as the central issue of business ethics, namely corporate social responsibility (CSR). The question is roughly whether businesses have a responsibility directly to society, that is, a responsibility to go beyond their standard economic activity and benefit various stakeholders directly. This chapter is substantially longer than the others. We review the extensive contemporary literature from both CSR opponents – such as Friedman – and CSR proponents, including many business ethicists. Our general argument is that the debate has been too black-and-white and pushes us to choose between two equally implausible extremes: economism and moralism. Our aim in the chapter is to seek out a middle way between the two extremes that can strike a better balance between pro-market and pro-social thinking. More specifically, we argue that the question of whether businesses should engage in CSR does not have a simple yes-or-no answer; instead, some types of CSR activities are sometimes morally required, other such activities are at other times morally supererogatory, and yet again other activities are sometimes morally forbidden.
Finally, in Chapter 7, we explore the debate over what the proper limits to the market should be. Given that we afford moral leeway to activities pursued in a market context, we must find a good way of delimiting or containing that context. Some philosophers have argued that there is a moral limit to markets in the sense that certain goods – including important social and environmental goods – should not be regarded as commodities that are bought and sold. We counter this by providing a more pragmatic view, according to which the suitable limits of the market depend on the consequences of commodification. This view does not imply that there are no moral limits to markets, but simply that these limits are more contingent and situational than some others have thought.
