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This topic is about the relationship between capitalism and ethics. It is about whether businesses should be required to follow ethical principles in their dealings, or whether ethics even has or should have any relevance to business at all.
The idea that good ethics is good business is the view that good business decisions are good ethical decisions.
Proponents of CSR argue that good ethics is good business, because it’s profitable to have a good public image and avoid government regulation.
Utilitarians and Kantians believe there should be some restrictions on business. Not all good business decisions which maximise profit will be ethically good. Not if they go against the general happiness or violate duty.
Libertarians economists like Milton Friedman think business and ethics have nothing to do with each other. Businesses only responsibility is to maximise profit which is ethically good because it is the result of freedom and enables economic growth.
This topic includes three sub-issues:
- Corporate social responsibility: the idea that a business has responsibility to the environment and its community.
- Globalisation: the issue that businesses are now global entities, giving them tremendous power.
- Whistleblowing: the ethics around going public to reveal secret unethical business practices.
Corporate social responsibility (CSR)
CSR is the theory that a business has ethical responsibilities to towards the environment and the communities it is part of or affects. There are two main types of CSR.
Environmental CSR. The responsibility a business has towards the environment.
- Reducing negative impact on the environment such as pollution and non-recycled products.
- Increasing the reliance on ‘green’ renewable and sustainable energy and products.
- Offsetting negative impact done to the environment for example by donating to pro-environment groups that will make conservation efforts. E.g. a business aiming to be ‘carbon neutral’ might release some carbon dioxide through industry but donate for trees to be planted that might absorb the same amount of carbon their industry released.
Community CSR. The responsibility a business has to its social community, respecting human rights and avoid exploitation.
- Respecting human rights and avoiding exploitation.
- Avoiding being supplied by any business which involves exploitation, sweatshops or child labour.
- Responsible treatment of employees e.g. minimum wage, health and safety provisions.
- Philanthropy. Donating money to charitable causes.
A more contemporary version of CSR is ESG, Environmental, social and governance. The ‘governance’ term adds the requirement of avoiding political corruption such as bribery.
CSR and ESG is often promoted as a way of linking good business and good ethics. If a business is discovered to have illegal environmental harm human rights violations in its supply chain then that can cause governments to step in and regulate it. That can be very bad for profit. Committing to CSR/ESG can allow a business to maximise its profits by minimising those risks and thus do well by doing good.
It is also an opportunity for improved public relations (PR). The company appears better in the eyes of the public for the good that it does. It can essentially be used as a selling point for advertising, which can also increase profits.
Utilitarianism on CSR
Free market capitalism is the idea that the only responsibility of a business is to maximise profit for its shareholders. Bentham and Mill think that the free market is generally the best way to maximise happiness. They would likely accept environmental CSR because of how damaging climate change can be to happiness. However, regarding community CSR, they would probably reject philanthropy as a responsibility of business. Bentham did favour some regulations for employees like minimum wage. Ultimately, Mill and Bentham think the free market generally works for producing human flourishing and happiness. They would generally be against restrictions and responsibilities laid on business which would interfere with that.
Kantian ethics on CSR
The second formulation would require that market interactions do not involve the treatment of people as mere means. Labour should not be treated merely as a commodity. A basic level of respect must be given to employees and all stakeholders.
- Avoiding exploitation (community CSR). This includes paying workers enough, perhaps a minimum or even living wage.
- Providing a safe work environment (community CSR).
- Avoiding fraud or deceptive advertising (community CSR).
- Avoiding polluting the environment or having a net negative impact on the environment (environmental CSR).
Examples of CSR and critique of CSR as hypocritical window-dressing
Innocent smoothie advertises on every bottle that they give 10% of all their profits to charity. Pret-a-manger gave away their left over food away to charities at the end of the day. On the label of each sandwich they sell, they advertised this fact and stated ‘it’s the right thing to do’.
CSR is typically a centrist or centre-left position. Those further left often regard CSR as hypocritical window dressing, meaning making something appear good while overall it is bad. A business which engages in CSR for public relations purposes might be doing so to distract from their unethical practices.
This can apply to capitalism in general, because by encouraging a slightly healthier version of capitalism, people might feel less motivation to address the problems of capitalism or they might even be deceived that capitalism is not the cause of the problems to begin with.
Anand Giridharadas summed up this self-serving hypocrisy well in this article title: “Jeff Bezos wants to start a school for kids whose families are underpaid by people like Jeff Bezos.” The subtitle was “A free crash course in why generosity is no substitute for justice”.
Anand’s point is that businesses like Amazon, who don’t pay taxes and bust unions, are the actual cause of the problem that they then give a tiny amount of their profits to ‘address’. Corporate social responsibility is a sham. It’s not businesses giving away their profits for the good of society, it is a cold calculation that it would be more profitable for them to give away a fraction of their profits in order to give a good impression of themselves to the public, purely in order to avoid the greater loss to their profits if the public became more focused on their inequality, tax avoidance and union busting. That ‘class consciousness’ might cause the public to vote for more left-wing political parties which would institute policies that would cause businesses to give far more than they do for corporate social responsibility.
“We don’t need you to do more good. We need you to do less harm.”
It’s not simply gaining PR, it is an attempt to disguise the fact that businesses are part of the cause of economic problems like inequality, by giving the impression that businesses can be part of the solution. The amount ‘given back’ through CSR is nothing compared to the profits gained through avoiding taxes and busting unions.
This hypocritical window-dressing can also simply done for public relations (PR) purposes, to make the business look good, regardless of whether the overall impact of the business is negative.
For example, Tim Cook the CEO of Apple made a speech where he talked about how his platform would be against white supremacy, yet Apple continues to exploit people in third world countries.
This brings into question whether CSR even has a good ethical outcome. However even in cases where it does, some would be sceptical and suggest these businesses only do this so they can advertise themselves attractively to customers. The question is whether those intentions matter ethically.
Globalisation is the phenomenon where businesses are now global entities spanning multiple countries and continents and its impact on stakeholders. Globally, economies, industries, markets, cultures and policymaking are integrated (connected).
The problem with globalisation is that it can cause the violation of corporate social responsibilities and even undermine the free market itself.
Becoming global entities has given businesses an unprecedented level of money, and money is power. A business will do whatever it can to increase profit. If its new levels of power allow it to pressure peoples, cultures and governments, then it will do that. Businesses may be less likely to violate CSR in western countries, but globalisation certainly allows them to violate CSR in developing countries instead.
Offshore outsourcing – where businesses build products in factories in third world countries. This moves jobs from western countries to those countries which has made many industry workers unemployed.
The issue of monopolies. If a business gains enough power over a market, they can essentially fix or rig the system, altering the way the market functions, to reduce or eliminate competition and ultimately benefit themselves. This is called a monopoly, when a business has such dominance or power over a market that the market ceases to have competition. Without competition, a market no longer creates innovation and economic progress.
Even Freidman accepted that “It’s always been true that a business is not a friend of a free market”.
Corporations, power, globalisation and monopolies. Since money = power, and some businesses can be so large thanks to globalisation, perhaps they are becoming more powerful than governments, which could be problematic since they aren’t accountable to anyone as they aren’t democratically elected. This gives corporations the power to affect laws by financing the election campaigns of politicians. They can also make offers or threats to a government or state to change regulations and laws in ways that would favour their business. Example of amazon and new York.
This allows businesses to manipulate a market for its own benefit, turning it into a monopoly. Adam Smith may have been right that free market competition is generally good for the progress and prosperity of society. However, a particular corporation would rather not have to compete and if it can use its massive profits to simply buy other companies or affect laws that would give it an unfair advantage, then it will do so. E.g. Facebook acquiring Instagram. Amazon copying products that do well. Uber temporarily lowering its prices, running at a loss in cities it wants to expand into, in order to put other cab companies out of business at which point it can increase its prices and not face competition.
Utilitarianism on globalisation
Utilitarianism would be against the aspects of globalisation which undermine free markets, such as the power it has given business over policy making.
However, Utilitarianins might accept off-shore outsourcing so long as happiness is maximised.
Kant on globalisation
Globalisation seems problematic for Kant in that it can cause all of the corporate social responsibilities to be violated.
Whistleblowing is when someone, usually an employee, leaks information about the wrongdoings of a company. This could be bad business practices regarding employees, customers, society or the environment.
Facebook case study. Frances Haugen worked for Facebook (which owns Instagram) and leaked internal documents which came to be known as ‘The Facebook Files’. One quote from the files in the leak acknowledged that “we make body issues worse for one in three teenage girls”. The leak also shows that the Facebook algorithm promoted posts that caused anger or outrage.
The upside to whistleblowing is that the negative business practice is brought to light which gives it a better chance of being brought to an end.
The downside is that the company might suffer financial losses or even go bankrupt, causing some of or all of its staff to lose their job. In cases where the company was doing good, that could also be stopped.
Utilitarianism on Whistleblowing
Act utilitarianism holds that whistleblowing is morally right depending on the situation. If whistleblowing causes more happiness than not whistleblowing, then it is morally good; if it causes less happiness then it is morally wrong. For example, if the business is causing a lot of happiness, then whistleblowing about some suffering it is causing, e.g. through exploitation, might be wrong.
Kant on Whistleblowing
Kant thinks lying cannot be universalised and is therefore always wrong. So, he would certainly also be against lying to cover up negative business practises, even if that truth being brought to light resulted in the failure of the businesses and employees who may have done nothing wrong nonetheless losing their jobs. It is your duty never to lie.
Kant would also regard the treatment of people as mere means to be wrong due to the second formulation of the categorical imperative. Most if not all cases of whistleblowing seem to involve exploitative or deceptive business practices that treat people as a mere means. This would be another reason that Kant would be in favour of whistleblowing.
Sweatshops are an issue which is relevant to CSR, globalisation and whistleblowing.
A sweatshop is a shop or factory which employs workers, sometimes children, for very low pay, long hours in unsafe conditions. They are seen as a classic case of exploitation. This is because they exploit the lack of choice and opportunity many people have, giving them little choice but to accept terrible working conditions.
Sweatshops & CSR. It is typically considered the responsibility of a business to ensure that none of the products or services in its supply chain are sourced from or make use of sweatshops (community CSR).
Sweatshops & whistleblowing. If a company is discovered to source products from sweatshops without that being public information, it might be thought to be a valid reason to whistle blow.
Sweatshops & globalisation. Sweatshops are often a result of offshore outsourcing which is a consequence of globalisation.
The Utilitarian defence of sweatshops as having good consequences. William MacAskill argues that although sweatshops are ‘horrific’, thinking that boycotting western companies which sell products produced in sweatshops will help the workers there assumes that they have a better opportunity to make a living elsewhere, but “sadly that’s just not the case”. If you boycott sweatshop produced goods “all you are doing is taking away the best working opportunity that these people in very poor countries have”.
The argument is that many people in third world countries are in danger of starvation. If a sweatshop opens then they will at least earn some money. Even though the working conditions are terrible and dangerous, it is still better than nothing. It is a step up on the economic ladder.
If we demanded that businesses sacrifice profit to treat their sweatshop employees non-exploitatively, then businesses will lose their profit incentive to open a sweatshop and will simply stop opening them in third world countries. Then, people in the third world will lose a potential step up the economic ladder. The only reason a business opens a sweatshop in a third world country is because it is cheaper than opening a properly regulated factory in a developed country. In many cases a Utilitarian would therefore be in favour of globalisation, against CSR and against whistleblowing.
Primark case study. Primark were found to be supplied by exploitative factories in the third world that used child labour and paying people very little for extremely long hours. In response to this, Primark cut ties with those suppliers.
In some cases, sweatshops provided a better quality of life to its workers than they previously had and made those in developed countries happy at having products for a lower price. In those cases, a Utilitarian would therefore be in favour of this effect of globalisation, against CSR and against whistleblowing.
Critical comparison of Utilitarianism with Kant: Utilitarianism justifies bad actions (e.g. exploitation). Utilitarianism is incompatible with the basis for human rights which are deontological. This is because a ‘right’ is something which must be respected regardless of the consequences.
The idea of human rights was strongly influenced by Kant’s formula of humanity. Kantian ethics would be against sweatshops regardless of their positive consequences, because they treat workers as a mere means.
Mill’s harm principle seems to solve this problem because it suggests that society will be happiest if the rule of not harming others is followed. The question then is whether exploitation counts as harm. So long as the workers are free to leave any time, technically they accept the risk of harm in the sweatshop because their risk of harm from starvation without the sweatshop is greater. Arguably sweatshops, except in particular circumstances, do not count as harm, therefore. So, sweatshops are permissible
Perhaps it’s not permissible for children to work in them though. The Bangladesh factory case study might be something Mill would prohibit too, since it threatened to withhold pay if people didn’t work, which is borderline forced-labour.
A factory in Bangladesh evacuated because of health and safety concerns, however it then said it would not pay its employees for a month if they didn’t return the next day. So the employees returned, and the next day the factory collapsed on them killing over a thousand of them.
This seems like a better approach than Kant, who famously said he would not value consequences even when life was at stake – claiming that lying even to save a life is wrong. Similarly, Kant would not allow exploitation even if it is generally life-saving when compared to not allowing the exploitation (since without sweatshops there would be more starvation than there would be work-related deaths with sweatshops).
The issue of calculation: Util vs Kant
Utilitarianism faces the issue of calculation, but Kant does not.
Utilitarianism seems to require:
- That we know can the future consequences of all the possible actions we could take
- That we can make incredibly complex calculations about the range of possible actions, sometimes under time-constraints.
- That these calculations include the objective measuring of subjective mental states like pleasure and pain.
All three of these conditions are plagued with difficulty, and yet each seems absolutely necessary if we are act on the principle of utility.
Application of this issue to Business ethics:
CSR: The effects of CSR are difficult to predict, both in terms of how much they might negatively cost a business and how much it might positively affect society or the environment.
Globalisation: the effects of globalisation are very difficult to predict. It’s hard to say how much poverty it might prevent through off-shore outsourcing, or conversely how much it might corrupt markets due to creating monopolies and buying off politicians.
Whistleblowing: It’s possible that whistleblowing might cause a company to go bankrupt, causing unhappiness for its employees, or the business might not. It’s very hard to predict that, but then it’s very hard to know whether whistleblowing would maximise happiness.
Critical comparison with Kant: Kant does not have this issue. In fact, Kant makes this criticism himself when defending himself against the murderer at the door scenario, claiming that we cannot predict or control consequences and therefore cannot be responsible for them. All we are morally responsible for is doing our duty, therefore.
Arguably Kant’s blanket ban on all actions which treat people as a mere means is the better approach than Utilitarianism’s seemingly futile suggestion that we try and calculate which cases will have good or bad consequences.
Bentham’s response to issues with calculation. Bentham claims that an action is right regarding “the tendency which it appears to have” to maximise happiness. So, we actually only need to have a reasonable expectation of what the consequences will be based on how similar actions have tended to turn out in the past.
Mill’s response to issues with calculation. Mill’s version of Utilitarianism seems to avoid these issues regarding calculation. We do not need to know the future, nor make incredibly complex calculations, nor measure subjective feelings. We only need to know the secondary principles that our civilisation has, through its collective efforts and experience, judged to be those best conducive to happiness. We then need to simply follow those principles as best we can. For Mill, the moral rightness of an action depends on maximise happiness, but because of the immense complexity of that, our only moral obligation is to just do our best to follow the principles geared towards producing happiness of our society, which are themselves only the best current principle that our current stage of civilisation and culture has managed to develop.
In cases of a conflict of rules, Mill adopts the same approach as Bentham and says we must judge the individual action by the principle of utility, though Mill adds that we should consider the quality not only quantity of the pleasure it could produce. He agrees with Bentham’s point that when judging individual actions, we can base our calculations on what we know of the ‘tendencies’ actions have. We do not need to exactly predict their consequences.
The issue of the value of consequences: Util vs Kant
Kant and the issue of failing to appreciate the value of consequences. Kant faces this issue, but Utilitarianism does not. Sometimes actions have very good or bad consequences and Kant seems wrong for not thinking that morally relevant.
The murderer at the door example attempts to show the downside of Kant’s rejection of consequences having moral significance.
Whistleblowing – some cases of whistleblowing have very bad consequences – at least resulting in misery but sometimes even resulting in death (if the workers lose their job and starve). Just like with lying, Kant would say we must always tell the truth, even if it ends up killing people.
Imagine that a business employed a genius but sadistic scientist who was likely to cure some terrible disease that affected millions. However, they were treating their workforce in some horrible way, but there was no way to gain the valuable research without allowing the exploitation. A Utilitarian might reason that we should allow the exploitation because the happiness gained would far outweigh the suffering, just like lying to the murderer at the door is justified for its good consequences.
Globalisation & CSR can each have very good consequences, even when allowing exploitation. First world countries get very cheap products and third world countries get jobs.
Kant’s response: we cannot predict/control consequences.
However: we can to some degree and therefore to that degree we are morally responsible for consequences and they do matter ethically to the rightness or wrongness of an action.
The issue of intentions: Util vs Kant
Utilitarianism faces the issue of intentions and character, but Kant does not.
Utilitarianism only views the consequences of actions as good, not the intention or character (integrity) of the person who performs them. This goes against the intuition that a person can be a good person and can have good/bad intentions. Consequentialist theories seem unable to accept that because for them, it is only consequences which are good or bad, not intentions/character.
It is part of Kant’s theory that your moral intention is relevant to the goodness of your action, so he does not face this issue.
Application of this issue to business ethics:
CSR: Applying this to business ethics, it looks like Utilitarianism would not care about a business merely engaging in CSR for PR out of greed for profit or even for deception to distract from their other unethical practices. So long as the business and its CSR activities overall have good consequences, Utilitarian reasoning seems to be committed to it being morally good.
Globalisation: Globalisation could
Whistleblowing: A person whistleblowing might only do it in order to bring down a rival company
Kantian ethics would not have this issue because for Kant good intention is essential. We must act out of duty (“duty for duty’s sake”) in order for our action to be morally good.
Mill responds firstly that a person’s character does matter because it will determine their future actions. The stabber should be condemned for his motive because that will prevent them stabbing others in future. The priest should be forgiven because he’s not likely to do anything bad in the future as his character is good. Secondly, Mill argues that having a good character helps you become happy. Motives and character therefore do matter ethically, though not intrinsically but only insofar as they result in good consequences, in line with consequentialism.
So, Mill might argue that if the intention behind CSR involved greed or deception then that might have bad consequences overall or in the future and therefore can be thought of as morally wrong.
Kant would not be satisfied by this response, however, as he would maintain that it was the greed and deceptiveness itself that should be regarded as morally deficient.
Leads to the critique of Kant – that it is impractical to think humans can act without emotion. Utilitarianism does not have this issue – in fact it accepts that avoiding negative feelings and achieving positive feelings is our ultimate desire/end.
Adam Smith, the ‘father’ of capitalism
Adam Smith was an economist and philosopher sometimes called the father of capitalism. Smith’s argument is that when people follow their rational self-interest competing in a free market, the result is economic prosperity which benefits society and general happiness. In a free market, people gain money by providing a product or service that others are willing to pay for. Competition encourages productivity and innovation resulting in economic growth. Free market capitalism harnesses self-interest for societal gain, as if guided by an ‘invisible hand’. This is the origin of the view that good business decisions have positive social results and is thus linked to good ethics.
Utilitarianism on capitalism & business ethics
Bentham was influenced by Adam Smith. Bentham and Mill mostly agreed with Smith’s reasoning, accepting that in general happiness is maximised by leaving markets free. However, they both thought that restrictions needed to be placed on the market in some cases to direct it towards maximising happiness where it failed to. Bentham thought the government should guarantee employment and impose a minimum wage. Mill thought that the government should step in to aid in cases of market failure by providing their own products or service, such as education, to encourage competition if the market failed to. Mill even thought that worker-owned co-ops were long-term the best model for ownership structure.
The Utilitarian view then is that CSR is generally good and if globalisation detracts from CSR then it is generally bad.
Kant on capitalism & business ethics
Kant was influenced by Adam Smith and agreed that the division of labour was important for progress. Capitalism is based on autonomous market interactions and contracts between employers and employees. It involves individuals pursuing their rational self-interest. Kant’s ethics accords with this as it depicts the rational individual as the centre of moral responsibility. When contractual arrangements and market interactions involve the treatment of people by each other as ends, they are good.
However, when either business practices or the macro effects of capitalism result in people being treated as mere means or otherwise violate duty, it seems that Kant would think that immoral, even if it was good for the profit of the business.
The Kantian view then is that CSR is our duty and globalisation which undermines CSR is wrong.
M. Friedman vs Kant & Utilitarianism on CSR and globalisation. Milton Friedman (libertarian) claims that the only responsibility of a business is to “make as much money for their stockholders as possible”.
Friedman therefore rejects the approach of both Kant and Utilitarianism. He would not accept that restricting markets or businesses is acceptable, whether to maximise the general happiness or to ensure the treatment of stakeholders as ends.
Free market capitalism is the result of freedom, voluntary co-operation. Any attempt to control markets, even with the best of intentions, requires force and power. Friedman argues that no one is angel-like enough to wield that power without becoming corrupted.
The only escape from extreme poverty is capitalism and largely free trade. Societies which depart from that are worse off. Evidence which supports Freidman’s case is that the percentage of the world in extreme poverty dropped from 70% in 1960 to 17% in 2012.
Freidman further argues that free market capitalism is best for economic growth. Reducing profits only reduces the incentive to innovate.
Evidence for Friedman’s point is that northern Europe might be more equal than the USA, but it is less innovative. There’s a reason silicon valley is in America.
The problem for Freidman is that he thinks freedom is good, yet freedom leads to monopolies, especially under globalisation. Monopolies actually end up undermining innovation and freedom. The only way to ensure that the market remains free is government intervention and control. Friedman accepted this, but in that case, he has to accept giving the government power.
A free market is an inherently unstable thing. Money is power. Successful corporations will use their money to rig the market in their favour. The only way to prevent governments from being corrupted is by preventing businesses from having the power to corrupt governments.
Adam Smith’s arguments made much more sense in his time when capitalism was just starting out. The macro-effects of globalised capitalism are disastrous for the environment and for the free market itself.
So, it looks like Kant and Utilitarianism are right that some restrictions should be placed on markets.
Possible exam questions for Business ethics
How useful is utilitarianism in dealing with issues in business ethics?
Assess whether Kantian ethics applies successfully to business ethics
What does it take for business to be ethical?
Does the principle of utility lead to ethical business?
‘the categorical imperative leads to ethical business’ – Discuss.
Is Corporate social responsibility just ‘hypocritical window-dressing covering the greedy profit motive of business.
Can human beings flourish in the context of capitalism and consumerism?
Assess whether corporate social responsibility makes business ethical
To what extent is whistle-blowing ethical?
How successful is Kantian ethics at dealing with the issue of (CSR/Whistleblowing/Globalisation)?
How helpful is Utilitarianism at dealing with the issue of (CSR/Whistleblowing/Globalisation)?
Assess whether globalisation encourages or discourages the pursuit of good ethics as the foundation of good business.
Is good ethics good business?
Should whistle-blowing be considered good ethical business practice?