Book 1: Capitalism at Work: Business, Government, and Energy

Epilogue Internet Appendix

E.1. Ethical Individualism
E.2 Self-Interest and Ethics
Bibliography: Epilogue Appendices

E.1. Ethical Individualism

The discipline of business ethics should be reoriented around a more sophisticated understanding of capitalism proper. Business ethicists should also respect methodological individualism given that in both the primary and final analyses, businesses do not act, individual businessmen and businesswomen do (Hicks: 18). Because corporate social responsibility (CSR) speaks to the elusive whole more than to the parts, much business-ethics thinking has become prone to a central- and social-planning mentality.Causal ethics applies to the individual, not the group, although the collective actions of individuals can be judged as ethical or not. For a profit-and-loss enterprise, ethics may begin with the CEO, but it involves every member of the organization, from the most senior member of the board of directors to the entry-level employee. Only then can an ethical system cover a business from tip to toe, crowding out bad behavior in “ends-justify-the-means” situations (such as exaggerating the prospects of a division to buoy a stock, all in the name of helping investors).

Many fallacies in the social sciences and humanities have come from imputing values and causality to collectives—such as “business” or “society”—rather than to causal agents: the human actors involved. Short of unanimity, “society” holds different and competing values on a variety of normative issues. What is “social” or “for the common good” to one person may not be to another. Dispassionate analysis—which would include challenging “pessimistic economic, psychological, and biological premises” (Hicks: 16)—can cast self-interested market behavior in a far better light. That is why it is necessary for business ethicists to understand economics and history, not only ethics itself. Educators should be open to new, even opposing, ideas, lest they teach fallacious doctrines and leave students uninterested, bewildered, or ineffective. Smarts, good intentions, and peer agreement (groupthink) are not enough. Critical evaluation and self-evaluation in a determined search for truth is, indeed, part of the Statement on Professional Ethics of the American Association of University Professors (AAUP: 171–72).

Ethical individuals mold ethical organizations, but the organization must define and enforce what is ethical and what is not. Capitalist ethics revolves around the requirement that every individual (and thus the entire company) not initiate force or employ fraud. “Fraud” includes all forms of deceit, from the petty deception of stating half-truths to the full-fledged deceit of falsifying accounting numbers.

But in addition, and as an ethical corollary, the ethical business should refrain from employing force and fraud one step removed, in the sense of seeking or accepting special government favors that redistribute wealth rather than create it. This is part of the Principled Entrepreneurship™ (Koch: 79) presented in the epilogue.

Beyond the ethical is the business plan, the realm of entrepreneurship. An ethical company can fail, as an unethical company can succeed, at least for a time. But in a free market where all constituencies (owners, customers, employees, suppliers) must be courted and convinced, it is difficult for any but a good business to steadily create economic value, as determined by profits and a rising enterprise value. In a consumer-driven economy, a company’s intangible assets include goodwill and fairness, which involve common decency toward every individual who associates with that business.

The ethics of a business is determined from the inside-out rather than outside-in. Much of “business ethics” can thus be subsumed under personal ethics. Such personal ethics revolves around reason and voluntary relations, which rules out collective “ethics.” This is a check against mischief and a guardian of a free people. Indeed, collectivist (organizational) ethics is contrived and artificial without grounding in the individual. The disappointing, even horrific, record of collectivist ethics, where group rights in the name of a majority or the sovereign take precedence over individual rights, is warning enough to avoid holistic notions and respect methodological individualism. As Richard Pipes reminds the reader:

The massacres [of the twentieth century] were legitimized by political doctrines of a new kind demanding the physical liquidation of people designated as belong to the “wrong” social class, race, or ethnic group. The simultaneous violation of property rights and destruction of human lives was not mere coincidence, for, as we have stressed, what man is, what he does, and what he owns are of a piece, so that the assault on his belongings is an assault also on his individuality and his right to life (210).

E.2. Self-Interest and Ethics

What Julian Simon calls the “great breakthrough” or Sudden Modern Progress (Simon, introduction)—the transformation from subsistence to luxurious living in a small human interval—offers prima facie proof that self-interest-driven capitalist institutions are both practical and moral. “It works” is a powerful argument.

Yet much contemporary ethics rejects self-interest, whether free-market self-interest or not, as bad, wrong, evil. “In the current literature in business ethics,” noticed philosopher Stephen Hicks, “business is assumed to be at best an amoral enterprise, and the expectation is often that business practice is more likely than not to be immoral” (3).

Hicks provides quotations from prominent business ethicists indicating a duality between morality and business, one that has a long tradition in philosophy, starting with Plato and continuing with Immanuel Kant (5). Even John Stuart Mill, a major figure in capitalist thought, preached altruism and group interest over what he called “miserable individuality” (5). Not only Marxism but much Christian doctrine has demoted the goodness of self-interested profit-seeking. “So it is not surprising that the discipline of business ethics today is simply applying to business what the dominant voices in the history of ethics have been saying for thousands of years,” Hicks concludes (6).

Invoking Ayn Rand’s concept of egoism, as well as free-market economics, Hicks challenges that dualism, showing that self-regarding business behavior under simple-rules capitalism is moral, and that business is an honorable profession. The anchor argument is that reason is pro-life, and coercion is anti-reason. But philosophy is also informed by the social sciences, and Hicks challenges the notions that resources are fixed and wealth creation is a zero-sum game (for one to gain, another must lose). Informed by economics, self-interested behavior becomes an engine for good, not the playing out of moral dilemmas.

Bibliography: Epilogue Internet Appendices

AAUP (American Association of University Professors). AAUP Policy Documents and Reports. Baltimore: Johns Hopkins University Press, 2006. Portions available at www.aaup.org/AAUP/pubsres/policydocs/contents/default.htm.

Hicks, Stephen. “Ayn Rand and Contemporary Business Ethics.” Journal of Accounting, Ethics, and Public Policy 3 (1): 1–26 (Winter 2003).

Koch, Charles. The Science of Success. Hoboken, NJ: John Wiley & Sons, 2007.

Pipes, Richard. Property and Freedom. New York: Alfred A. Knopf, 1999.

Simon, Julian. The Great Breakthrough and Its Cause. Ann Arbor: University of Michigan Press, 2000.