Morality in Business and Freedom of Market

By KK Sharma; Regional Head Everonn IIPS Northern Business Region; India


Different philosophers in different span of time have laid down certain moral theories which continue to be interpreted as per the evolving times. Ethics and morals have varying connotations and are highly individual perception dependent. If being ethical were doing "whatever society accepts," then one would have to find out what society accepts. Ethics by definition refers to well-founded standards of right and wrong that prescribe what humans ought to do, usually in terms of rights, obligations, benefits to society, fairness, or specific virtues (Velasquez Manuel, 1997). Morality on the other hand has a wider application. Rational Morality brings out the decision dilemma, certain conditions for moral principles and welfare rights. Liberty and welfare orientation of morality has been discussed in detail. In this context, free market has both - liberal principles and negative arguments. Market operates with different stakeholders, the buyers, sellers, merchants and is held dynamic due to ever present competition amongst all.

Philosophy is actually focused on the fundamental aspects of any subject, which lay down the actual definition of the subject. Business ethics is an applied philosophy as it deals with the real issues we come across in our lives, especially if one is engaged in business. In a way as the book attempts to prove that business ethics is the application of ethics in business, and thus leading to a discussion on ethical theory. World Com (USA), Satyam (India) or economic meltdown of 2008 and 2009 brought forward the importance of business ethics and corporate governance. The

Chapters under study have a gradual build up from the fundamental issues of morality and ethics to free market with its basic characteristics.

Morality: Rules for Everybody Morality has been defined generally in descriptive or normative manners. The original descriptive definition of ³morality´ refers to an actual code of conduct put forward by society and accepted by the members of that society (Gert, Stanford University 2011). Normative view questions this basic assumption. Many authors (like Narvenson Jan) have prescribed a distinction between "matters of fact" and "matters of value". The distinction is how things are to how they should or ought to be. A fact is a state that exists or has existed or will exist, while value will be the qualitative aspects to this. In the business world, both have relevance as far as moral understandings are concerned. Facts are generally not disputed or taken up for further studies if doubted. Values are open to discussions and differing interpretations. Author has even questioned some of the intangible facts ± structure of an atom for example or celestial observations. Philosophers have different interpretations of values ± subjective or not. Values figure in one¶s action and decision, thus activating preferences.

Decision-making on values, norms, principles and rules provide an insight to the differing preferences. Values can be intrinsic or apply to oneself or extrinsic, applied to the others. Pleasure; be it out of food or helping others can be an intrinsic value. But being a social animal, human kind has to look at the society and hence the extrinsic values. Author covers ethics before delving into the more appropriate field of morality. Creation of a human idol should be the main objective rather than creating towering buildings. Surely, one needs to live for oneself and the family but simultaneously one owes something to one¶s neighbour, village and nation. For this, one needs an idol who could lead to this goal. Such leadership is not created by power or money but only by virtues like pure thinking, matching action and willingness to sacrifice. When a seed

buries itself, it leads to a better yield. In order to get better yield of grains, one single grain needs to bury itself (Anna Hazare1 2010). Study of ethics as a general guide to life and individual or collective behaviour has been done in detail in the first chapter. The debate is about individual ethics versus collective or social ethics, as the case with morality which is ethics in a narrow sense. Rules could be self-directed or directed by the society on all. Both require some kind of reinforcement, which is positive or negative; to ensure that a prescribed or accepted behaviour is followed by all.

Theories of morality from Aristotle to modern times debate on rationality of human being and general public good. State knows best has been accepted in authoritarian regime or old kingdoms but not in democratic societies, where public good and social contract has a better acceptability. In ancient times theological morality held the sway and God and his words through the holy books in all religion formed the basis for our conduct and behaviour. µGod Theory´ has been disputed on both the suppositions ± supremacy of God and the concept of supreme good, when viewed purely from a rational perspective. Conscience as some µblack box¶ also is not convincing to the argumentative mind. Other theories like the legalism, conventionalism, relativism or natural laws have limited applicability in real moral sense. Utilitarianism, stating that everyone must µmaximise utility¶, though looks too self-interest-dominant; yet has a wider application. But modern social scientists accept µsocial contract¶ as the best morality theory as it applies to a civilised society.

Rational Social Morality Warren Buffet during his visit to India in early April was asked in many interviews about his rationality of donating billions of dollars for philanthropic purposes. His answer was invariably very simple, a calling of conscience and take what is needed, give balance to those who need it most. It is truly altruistic perhaps but not universally applicable. The world has individuals who differ in values and understanding of fellow human beings. Each one is interested in self, and while most are also interested in some other people, very few are universally, altruistic. Perhaps the most important facet of the theory of rationality is that it makes virtually no assumptions about the particular character of the agent's interests. Rationality of morality is, if it promotes the

Anna Hazare, a 73 years old Gandhian, started his fast-unto-death agitation in Delhi in April 2011 and forced the government of India to accede to his demand of bring forward a law which can prosecute ministers or members of parliaments, judiciary and executive for corruption without having to ask for ay sanction. A movement which engaged the support of millions across the country ± one of the biggest non-violent protests in modern history.

utility, as against in the absence of it. Decision dilemma that most of us face is akin to famous prisoners¶ dilemma as to how to maximise the benefit from a given situation. If one is only playing by self interest, it does not guarantee that it will lead one into a happy situation. Cooperation and collaboration in the larger group interest in fact make more sense. Rules of honesty, coordination, keeping of the promise and non-violence are important parts of the rationality of morality. Philosophers have given us three conditions of morality - universal benefit that everyone must be better off, practicality where following morality is beneficial to all, and forbidden behaviour is attractive enough to indulge in the morality.

The Free Market In a free market, people offer their goods or services for sale to other people who are interested in acquiring these goods. Buyers and sellers are the actors in this drama. The sellers wish to get as high a price as possible, the buyers to pay as little as possible. All are in the market to better their situations. Nobody forces them to be sellers or buyers. They meet at the market because they think they can do better by exchanging their goods with others than by trying to produce everything they want by themselves. Socially speaking, the market manifests the "division of labour".

This division of consumers and producers is not exclusive and exhaustive. The market is based on freedom and property, or freedom to sell and buy any property if two parties agree to the transaction. Classical theory of acquisition of property requires - one to acquire it because it was not owned by anyone or someone has willingly sold it; and the second that one makes it himself. In a free market, materialistic production and exchange are the activities that society witnesses on a daily basis. Milton Friedman had argued against promotion of public good by the management. As per him, in a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business with a direct responsibility to his employers. In modern times, businesses use these arguments forcefully. A business must be run as per stakeholders¶ desire, which is income maximization, while conforming to the basic rules of the society and government (Freidman, 1970). As per Friedman, political principle of market mechanism is non coerciveness and ideal of free market rests on private property where all cooperation is voluntary. Free market is also considered to be competitive. He argued that the social responsibility of a corporation is to make money for its shareholders, and considered Corporate Social Responsibility a µsubversive doctrine¶ that threatened the very foundation of

free enterprise society (Lee, 2005 quoting Friedman 1962). The impact could be seen in the results - in 2001 the charitable contributions by U.S. companies fell 14.5% in real and over the previous 15 years, corporate giving as a percentage of profits had dropped by 50% (Porter 2002).

An ideal market by definition is where complete information is available with all - both the sellers and buyers and individuals are in it with complete rationality. Undifferentiated products and no transaction costs are some other attributes of a free market. But we notice that such a market does not exist in real world. A perfectly free market on the other hand is, where no coercion is used to use a source beyond one¶s control. In markets with monopolies, government is the biggest culprit where natural barrier of high capital investment keeps competition away. There may also be imposed monopolies. Adam Smith in his book ³Wealth of nations´ spoke about the invisible hand as.... "... By directing [his] industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it." (Adam Smith, 1776). His theory propagates a society where people respect contracts, obligations, individual rights to property and promises.

Welfare State and Social Responsibility Theoretically speaking, a free market should be a panacea for a welfare state. Detractors find problem in paying the bureaucrats who plan and hand over tax payers¶ money to those with low skills, unemployed or simply lazy to work. This, so called social net creates its own problems. Contrary to the corporate social responsibility and philanthropic motives, industrialist reinvesting profit into the same or other business and expanding it, will create more jobs. Undoubtedly business creation or entrepreneurship benefit others and society. This will be possible only if people continue to buy business products. Without violating other¶s rights every citizen can earn, spend and create wealth for the society at large. This constitutes the ³wealth of a Nation´. Corporate social responsibility reinforces the we should separate business from the separation thesis, or the idea that

ethics or society (Freeman et al, 2005). Although the

degree of their conviction may vary (The Economist 2005), with the rationalization of CSR as a concept, more and more corporate managers are also convinced that CSR can positively influence the financial performance of corporations (Lee 2005).

1. 2. 3. 4. 5. Anna Hazare 2008; Ethics in the Business and Professional Life by Jan Narveson; Department of Philosophy, University of Waterloo; Waterloo, Ontario Chapters 1, 2 & 3: pages 1 to 47. Frederick William C, 1998; Moving to CSR; What to Pack for the Trip, Business and Society Volume, sage Publication. Freeman R. Edward, 2005; a New Approach to CSR: Company Stakeholder Responsibility, the Darden School, University of Virginia and S. Ramakrishna Velamuri IESE Business School. Friedman Milton, 1970; The Social Responsibility of Business is to Increase its Profits; The New York Times Magazine, September 13, 1970. 6. 7. Gert, Bernard, 2011: The Definition of Morality, The Stanford Encyclopedia of Philosophy, forthcoming URL = < sum2011/entries/morality-definition/>. Lee Min-Doung Paul, 2008: A review of the theories of corporate social responsibility: Its evolutionary path and the road ahead; International Journal of Management Reviews

8. Manuel Velasquez, Claire Andre, Thomas Shanks, S.J., and Michael J. Meyer; what is Ethics? Ethics IIE V1 N1 (Fall 1987).
9. Michael E. Porter and Mark R. Kramer, 2002: The Competitive Advantage of Corporate Philanthropy; Harvard Business Review, On Point. 10. Smith Adam, 1776; Wealth of Nations, W. Strahan and T. Cadell, London, UK.

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