Another upload from my archive website, this comment on market ethics was written in the late 1990’s. Moral action in the market consists of ending the market: the market is inherently wrong, and business ethics consists of ending the business.
The ethics of business cannot be separated from the ethics of the free market economy as a whole. Some pro-business ethical theorists take this view in a different sense to that meant here. They argue that there is in effect no business ethics in the usual sense, that the framework of the market releases individuals and organisations from ethical obligation.
Carr, A. Z. 1968 Is business bluffing ethical? in Harvard Business Review January/February 1968, p. 143-153.
Gauthier, D. 1986 Morals by agreement Oxford: Clarendon.
Carr compares the market to a card game: the rules of the game are the only rules, a separate ethic:
We can learn a good deal about the nature of business by comparing it with poker….No one expects poker to be played on the ethical principles preached in churches….. An executive’s family life can easily be dislocated if he fails to make a sharp distinction between the ethical systems of the home and the office – or if his wife does not grasp that distinction…. Many wives are not prepared to accept the fact that business operates with a special code of ethics (Carr, 149; 152).
Even if this were true, there could still be ethical grounds for not playing the game, for not having a market. I will therefore start with the ethics of the free market as a whole, with the question of why there should be a market at all.
Historically the defence of the free market came before “business ethics” – although there were ethical concerns about fair trading before modern economies. The market referred to in this article is the modern version. Market is a misleading name, because there were markets before modern capitalist economies. A better term for what pro-market groups have in mind might be: open-ended unregulated competitive exchange markets. Open-ended, since exchange does not stop after certain transfers have been effected; unregulated, at least in principle; and competitive in that there is no pre-agreed limit on the activities of participants. The market is the main example of a class which Hayek called catallaxies, systems of competitive exchange, not necessarily involving money or products.
Hayek, J. 1976 Law, legislation and liberty. London: Routledge.
The generally used justification of the market is the welfare of the community, more specifically, a high gross national product (GNP) per capita. This is not an ethical goal as such, and defenders of market ethics try to avoid simple appeals to money or products as legitimising factors. This was also the case with the first advocates of the modern economy. Albert Hirschman explains they were more concerned with its civilising influence and pacifying effect – the “balance of interests” replacing the “wild passions”.
Hirschmann, Albert. 1977 The passions and the interests:
political arguments for capitalism before its triumph. Princeton: Princeton University Press.
The influence of Newtonian physics here is obvious, as it is in the concept of “balance of power” which dates from the same period. So although the free market is now considered to be the opposite of regulation, its first political defenders valued it for precisely the regulation which seemed impossible for states and governments. But still it was regulation on behalf of something: the nation. The modern market emerged alongside the modern nation states in Europe. The clearest indication of this link is that so few market advocates saw the market as replacing the existing states. The apparent paradox, that a capitalist world economy did not lead to a capitalist world state is resolved if market liberalism is seen as a form of organicism. The idea of an economic body replaced (partly) the idea of the body politic, leaving the number of bodies (states) unchanged. In this view, within the state the market was a harmonising, integrating and civilising force or instrument, and among states it was a brake on war. With the addition of economic growth as a goal and GNP as a measure, this is still a widely accepted view: Francis Fukuyama could be said to represent its current version.
Two things can be said about this model. First, as the contrast in Hirschman’s title (passions and interests) implies, it rests on a broader opposition between nature and civilisation. If it is used as a justification, it relies on a negative value for nature. In particular it relies on an association of fanaticism and extremism with “nature”, and of compromise, balance and moderation with “civilisation”. The historical precedent that the first free market liberals had in mind was religious war in Europe. It is part of liberal historical propaganda that Europe was saved from repetition by the wise founders of liberalism, the Lockes and the Humes. However fanaticism in defence of the ethical is not wrong. If the market did “tame passions” in this way, as a sort of ethical tranquilliser, that would be reason enough to reject it.
The second point is that internal or external harmony, balance, welfare or growth are all disputed goals of the state or community. There are some very different visions of what the state is for, including those of empire, ethnicity, and victory in war as ultimate goal of every state. There is no consensus on the goal of the state, of any political community, of any economy. These goals themselves are subject to ethical assessment. So: even if the market were good for a state, or nation, or people, that might in some cases be reason to reject it.
Current neo-liberal justifications of the market seem more abstract than their predecessors. Hayek probably goes furthest in expanding the concept of the market, in effect including politics as another system of exchange, a catallaxy. For Hayek the market is there to order preferences in some way to which he attributes a nearly mystical status. Although Hayek himself denied a connection, the influence of the Thomistic concept of “ordo” is recognisable in this work. A neo-Thomistic justification of the market could be that ordering of preferences is a form of knowledge, which is desirable in itself. At its most explicit it may claim that God’s plan becomes apparent in the working of the market. This is not an internally consistent view, for the same could be said of a planned economy, but more importantly, there is no ethical justification for ordering preferences in this way.
For the market the opposite seems to be true. By mixing preferences and choices, the market removes a direct cause-and-effect relation between choice and outcome. Formally, the market destroys the moral autonomy of the subject, which is sometimes used to justify it. The difficulty of organising boycotts on ethical grounds is a practical expression of this underlying defect of the market. Not just one company must be boycotted, but all its suppliers, and their suppliers, and so on, and ideally all consumers must also join the boycott. In effect, withdrawal into subsistence agriculture is the only way to effect such a boycott.
The market therefore cannot be derived from the rational pursuit of an individual goal: the market virtually eliminates this possibility. A hypothetical rational individual, as in some social contract theories, would never enter into a competitive market system, but would always insist on an autarkic base. A rational individual would not enter into competition unless there was no alternative. Competition is after all a guarantee that interests will be damaged in some way. Similarly the market cannot be derived from competitive-game theories, since no rational actor would consistently enter such a game unless no non-competitive or risk-free alternative was available.
All justifications of the market call on a higher goal than self-interest. The market serves, it is said, to increase prosperity, or welfare, to bring peace, to order choices, to expand or intensify knowledge and so on. Those who advocate the market are propagating a value system of some kind. The question is then whether they do so in a way that leaves choice open to others. Is everyone free to leave the free market? How voluntary is the market for real persons?
The market economy is historically expansionist, as both Marx and Fukuyama agree. It possesses an apparently inherent tendency to growth. However this may not be a property of the market itself, but of its supporters. In other words the market may be capable of co-existing with non-market systems, but its supporters may not want it to. Its expansion may be political, or geopolitical, or ideological, rather than economic.
Whatever the case, the expansion of the market is now almost complete: the whole world participates in the market to some extent. This was true even before “1989”, since all the centrally planned economies were integrated into world trade: none of them ever aimed for or reached full autarky. The expansion in depth of the market continues. Probably within a generation the situation globally will be that which now exists in the industrialised countries, that the alternative of self-sufficiency is no longer real. In this situation it is easy to give examples of how difficult it is to extract yourself from a market economy.
A good example is the impossibility of entering into a non-competition agreement. Imagine an ethical group which wants to end injustice in employment, specifically the tendency of employers to reject the weakest candidates for employment. The group sets up a factory to make a mass product, and employs only those usually rejected by the rest of the labour market: migrants, the disabled, the illiterate, ex-psychiatric patients, and so on. Where necessary the group provides training and support. The result is that their labour costs per unit product are far higher than normal. In the normal working of the market they will sell nothing in competition with the large efficient, prejudiced, producers of the same mass product. Imagine the group therefore asks the large corporations to relinquish a proportional share of the market. How many businesses would do anything but laugh at this request? there is probably no single competitive firm (enterprise) which would sign away the basic principle of its own existence like this. Nor can the ethical group retreat to a protected sector. There is no alternative non-market economy which the market economy carries inside it. There are some remnants of “non-profit” production – beer made in monasteries – but they are sold on the free market. They are not guaranteed against competition. The end result is that the (in reality usually state-organised) workplaces for “unemployable” groups are driven by market forces into low-wage assembly work, the only activity where they can compete. Not only is there no non-market sector, but where there are existing state monopolies – electricity, post, telecommunication – the trend is to privatise them all. (There seems to be no case where an existing state monopoly was handed over to a non-entrepreneurial organisation: they all pass to the private sector).
Such examples, and there are many, indicate that the market is absolute. Market means 100% market. There is no way out of it, and since most people who live in free market economies were born into them, the market cannot be said to be voluntary. It is imposed, probably with the support of the majority, but still imposed. The decision makers here are the entrepreneurs, the support of the majority is passive. In this there is no political distinction between entrepreneurs and (for instance) islamist radicals, who also understand that they can at most rely on passive support from a majority. “Business” is a movement propagating a system of beliefs and values, which has succeeded in imposing that system because many people accept it. The core of that value system is competitive interaction in the market.
Competition
Competition is wrong in itself. It directly contravenes the principle of non-malevolence: that all other things being equal, persons should not harm others. Competition entered into voluntarily may fall outside this principle, but the market is not voluntary. Competition is central to free markets , although not necessarily part of a monetary economy. Competition is harm. The essence of the value system of the free market is harm to others, as a goal.
Entrepreneurs are not pursuing their own profits in a free market economy. The profit motive is not central to the free market economy, and may not even exist in reality. It is a great propaganda victory for the advocates of the free market economy that they have succeeded in convincing even their opponents that they are seeking profit.
What do entrepreneurs, business men and women, do in reality? They sell poisonous cooking oil causing hundreds of deaths. They build unsafe buildings in earthquake zones. They neglect safety regulations in mines. They send unsafe, uncertified and inherently unstable ferries to sea in storms. A business in Beijing collected disposable injection needles, washed them, repackaged them, and sold them as new. That is a classic case of the business mentality: not profit maximisation, but harm maximisation, is the norm.
Harm is inherent to the working of the market. All businesses compete: they cause other businesses to suffer losses, or to go bankrupt. In turn, the pressure on the business as employer causes harm to employees. Their pay may be reduced, they may lose their job. In turn that leads to material losses, to a decline in health, even to suicide. The principle of competition prevails not just among firms but within them. Almost all employers in free markets select their employees by competitive selection. Discrimination is the almost inevitable result. The weak (a category which varies in different societies) are disadvantaged by definition. The harm to employees is cumulative. Those who have not had a good job in the past are less likely to get one in the future. Such cumulative harm – punishing the victim – is an injustice in itself. It is moral for those who can – the employees within firms – to prevent harm, and therefore to sabotage competition. The most responsible and limited method is through theft of strategic business information, and then passing this on to competitors, or making it publicly available.
It is not only through competitive harm that enterprises act unethically. Firms react to the market, and that is wrong if there no ethical limits on how far this reaction should go. It is unethical if organisations are market-oriented: they should be ethics-oriented. That applies also to such formulas as customer-friendly, service-oriented and demand-led. It ought to be obvious, but unfortunately it needs to be stated: neither the market, nor the customer, nor demand are good (and certainly not the supreme good, which is how some people think of them). A belief in an invisible hand is not a licence to act unethically. If firms are to act ethically, they must be prepared to ignore the market, the customer, and their own survival. At a an absolute minimum, the statute by which the firm is incorporated should clearly state that the aim of the firm is to do good – to act ethically (even if no more specific ethic is named). Needless to say, no firm I know of meets even this minimum criterion.
The reality is that the market selects, and in this selection is more likely to amplify unethical behaviour than reduce it, when no participant firm is committed even formally to ethical behaviour. Firms bring their own prejudices to the market, their choice of who to harm. A representative of a major automobile firm once told me they had chosen not to sponsor black musicians in an advertising campaign, because “Blacks are not one of our target markets”. Firms in several European countries regularly sponsor right wing student (fraternity) organisations. Such behaviour is considered normal for business: in these two cases, you would not expect a large company to sponsor minorities, or any firm to sponsor left-wing groups. Being normal and accepted is not however an ethical standard in itself.
Although businesses harm, they cannot pursue a strategy of open-ended and undirected harm. Long-term harm maximisation requires that the market, and some enterprises at least, continue to exist. Business therefore also selects for conformity to the market, and reinforcement of it. In selecting suppliers, in hiring personnel, in their choice of markets for their products, business “rewards” those who chose the market above ethics. Business cultivates its own style in clothes, its own use of language, its own mentality. Sometimes, as in student business games, people who do not belong to a firm are deliberately trained to harm others. This selection, cultivation, and reinforcement of something which is unethical, is unethical in itself.
Even without the goods and services it produces “business” is therefore an important social factor. In effect it makes group choices: there really is such a thing as “business” or “the business community”. Those choices are in general conservative, as would be expected from a movement which has largely succeeded in imposing its value system, and so partly constitutes the status quo. Business is against technological change, making it subordinate to wealth and prosperity. (A world committed to technological change would not be rich. It might have a very low standard of living, as most products available would be imperfect prototypes.) In fact it could be said that the attitude of business to technology is humanist in a broad sense: given alternatives technologies, business will always chose the human-friendly above the innovative.
It seems that this is part of the reason why so many people support a free market economy with harm as its central principle. In some way they seem to recognise that the market forms an effective barrier against change, especially technological change.
Ending the market
What ethical actions can be taken against entrepreneurs and the market?
Firstly the death penalty should be introduced for serious cases of entrepreneurship: where the harm done involves the death of many people. In fact it is not a penalty, in the sense of punishment, but an administrative measure to reduce serious harm. The assumption is that entrepreneurs are committed to their value system, and that in some cases execution is the only effective way to stop them. Prisoners escape, exiles return, but the dead stay dead. Entrepreneurs should be given a chance to stop their activities: only in serious cases of repeated serious entrepreneurship should the death penalty be applied. Lesser penalties should also be applied, to stop lesser harm.
Secondly, it is moral for entrepreneurial organisations – “businesses” – not to compete with each other. They should form ethical cartels to serve ethical goals. If they do not do this, employees should try to force the forming of ethical cartels by undermining competition.
Thirdly , if businesses remain active, it is moral for the state to create a protected ethical sector. Since nation states are based on national values, and on the principle of integration around these values, this implies that a separate non-national ethically based zone be set up. That is in effect a state, a market-free state. In the final analysis this is the best solution tot the problem of the market. Once non-market states exist alongside market states, people can chose which they want to inhabit. A market state in which people have freely chosen to enter into competition is ethically acceptable. The choice must be really free – not based on hypothetical social contracts, but on migration by adults who realise what they are entering into.
In Europe therefore, the ethics of the market indicate a territorial reorganisation, following the abolition of the existing comprehensive nation states. A single European state can effect the abolition, and then re-allocate territory on an ethical basis. It is clear that the inability of the nation state to allocate territory on the basis of ethical values is an obstacle to an ethical approach to entrepreneurs and the market. As long as the national principle is dominant – the principle that historically grounded communities have a monopoly of state formation – there will be no ethics of business.
Political Aspects 