Abstract
One common justification for the pursuit of profit by business firms within a market economy is that profit is not an end in itself but a means to more efficiently produce and allocate resources. Profit, in short, is a mechanism that serves the market’s purpose of producing Pareto superior outcomes for society. This discussion examines whether such a justification, if correct, requires business managers to remain attentive to how their firm’s operation impacts the market’s purpose. In particular, it is argued that the value of efficiency, despite views to the contrary, cannot be fully separated from the planning and intentions of business managers as long as those managers direct their firms in an ethically responsible fashion. This position is inspired by, and serves as a supportive clarification of Joseph Heath’s so-called “market failures approach” to business ethics.
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Notes
I recognize that many will find it objectionable to maintain that standards of ethical business conduct can be given a complete normative foundation merely in the behavioral requirements needed to assure efficiency in the market. I will assume, following Heath, that we can identify the market’s purpose (or aim) as efficiency. This is admittedly contentious. The market has been supported on a variety of grounds unrelated to efficiency and to suppose without argument that there is one definitive end of the market does not do this literature justice (Miller 2010; Norman 2013; Sen 1985; Matthews 1981).
I will assume throughout this discussion that this problem can be examined by understanding “efficiency” as Pareto efficiency, i.e., states of production and allocation that lead to welfare gains without concurrently producing any losses. I do this largely because Heath’s own project is built upon a similar premise. It is possible to consider alternatives to this assumption. One could define efficiency in terms of Kaldor-Hicks efficiency, which conceives of efficiency as those changes in production and allocation that result in a range of welfare gains and losses but any losses could be hypothetically offset through compensatory transfers that result in a Pareto efficient outcomes. Kaldor-Hicks efficiency has the advantage of implicitly recognizing that any particular change to the production and allocation of goods in an economy rarely leads to a Pareto efficient outcome without other accompanying changes to the distribution of the welfare gains produced by the change (cf. Coleman 1980). Whether efficiency is understood as Pareto efficiency or some other variant (such as Kaldor-Hicks) will not impact the substance of the argument in this discussion because efficiency, however defined, is not a consequentialist standard that any one market actor can reasonably use to evaluate different courses of action. Heath himself interprets Kaldor-Hicks efficiency as “a commitment to Pareto efficiency, modulated by a ‘realistic’ accommodation of the fact that literal Pareto improvements are few and far between” (Heath 2014, p. 198n).
This section's discussion of the division of moral labor was developed in response to an insightful set of comments and recommendations offered by an anonymous reviewer. It should be noted that a case can also be made that Rawls’s use of the division of moral labor is more accurately a basic recognition that different institutions serve different moral tasks. A division of labor among institutions is not the same as a division between personal and impersonal spheres of action. Scheffler (2005) and Porter (2009) maintain that Rawls subscribes to an institutional division of labor but not necessarily a division of moral labor in the sense put forth by Nagel. This is highlighted by the fact that Rawls includes the institution of the family within the “basic structure,” which is arguably a private association that may nonetheless be subject to the principles of justice. See Rawls (2001, pp. 162–166) and Cohen (1997).
Heath seems to recognize this second type of application problem when he states that the requirements implied by the market “must be further refined, in order to fit the circumstances of specific markets (with particular attention to the possibility of offsetting market imperfections that may generate conflict among the principles) in order to generate concrete rules that can directly govern managerial conduct” (2014, p. 199).
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Smith, J. Efficiency and Ethically Responsible Management. J Bus Ethics 150, 603–618 (2018). https://doi.org/10.1007/s10551-016-3175-x
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DOI: https://doi.org/10.1007/s10551-016-3175-x