For some Christians, including many bishops and other senior clergy, business presents a problem: they consider that business people habitually behave in ways that are inconsistent with Christian morality and assert that a complete change in business behaviour is necessary. At the other end of the spectrum, some people suggest that morality has no applicability in business and that, subject to compliance with the law, business people should concentrate on making money. Most people, however, including probably most Christians, feel uncomfortable with both these extremes: they feel that business is, in principle, morally unobjectionable but are uneasy about how they reach this conclusion or precisely how moral rules should be applied in a business context.
In Ethics for Capitalists Joseph Heath rejects both extremes and provides a framework for the discussion of moral issues in a business context. He does not provide detailed moral guidance in relation to specific issues and some readers will find the moral philosophy in the book heavy going. Furthermore, Christians are likely to take issue with his starting point, which is John Rawls’s theory of justice, since it is based on seeking normative principles that produce institutional structures that will be broadly accepted rather than being based in the character of God. However, Heath writes well. He explains his points clearly and his analysis introduces much needed conceptual clarity to the discussion of business ethics. Provided that they are prepared to take time over Ethics for Capitalists, readers coming from all viewpoints will find in it much to think about.
Perhaps the most important point made by Heath is that business ethics must be assessed in the context of the economic system that exists in the West today (i.e. the market economy). Many ethical purists forget this point and demand behaviour on the part of business people that is unrealistic since it essentially requires that they do not participate in the economy of which their business is a part. For example, competition is a fundamental part of a market economy and it is promoted by regulators and others since it is perceived to be the key to desirable outcomes. Thus, to demand that business people reject competitive behaviour is to demand that they opt out of the economic system, which is impossible.
Justifying the Market
In the light of this, before considering business ethics, Heath considers the justification for the market system. His purpose in doing so is not so much to establish its superiority over other systems (although he does in fact establish this) but to explain the rationale for its existence so that this rationale can inform his analysis of the kinds of behaviour of market participants that are and are not acceptable. He believes that, in a perfect world, the economic system would be based on pure selfless cooperation but argues that, in the real world, this is impossible owing to human nature and, in particular the ‘free rider’ problem. Hence, one is driven towards a system that involves what Heath terms ‘staged competition’ (i.e. a structure that is deliberately designed to create competition rather than cooperation, on the basis that the overall societal outcome is positive).
There are a number of aspects of Heath’s analysis that are questionable: his suggestion that the market would not exist in a perfect world is probably only viable if one assumes that this perfect world is not only inhabited by morally perfect beings but also that these beings have perfect knowledge and foresight; his analysis of the downsides of a planned economy largely omits consideration of the loss of freedom and agency that it entails (which is itself a moral issue) whilst his analysis of markets tends to exaggerate their moral downsides; and his analysis treats the market economy as, essentially, an artificial creation that is designed to avoid the problems inherent in a cooperative (i.e. planned) system whereas, in reality, a market economy naturally comes into existence unless it is prevented from doing so by human intervention (whether lawful or otherwise). Heath’s acceptance of the market economy, although clearly real, lacks enthusiasm.
These are serious issues but they don’t undermine Heath’s argument that the basic justification for the market economy relates to the objective of inducing an efficient allocation of goods and ‘the fact that the competitive market does a better job at achieving this objective than the most feasible cooperative alternative’ (page 85) and that our approach to business ethics has to be consistent with this justification.
Ethics in Context
With this point as his foundation, Heath’s analysis of business ethics begins with the assertions that ‘it is not difficult to show that capitalism violates certain moral constraints’ (page 1) and that market institutions ‘are designed in such a way as to permit, and in some cases encourage, certain forms of behavior that are normally regarded as anti-social’ (page 2). However, his central claim is that ‘in the context of market exchange economic actors are permitted to violate certain rules of everyday morality’ (page 5). He believes that ‘the ethical principles preached in churches’ have no applicability in that context or, perhaps more precisely, he believes that they have to be materially adjusted in order to be usable in it.
Once again, one can take issue with Heath’s approach. He appears to imagine that there is a set of ethical rules that are ‘normally’ to be adhered to and that we need to ask what adjustments are necessary in a market context. Of course, if one adopts a simplistic moral absolutist approach to everyday ethics based on a list of universal propositions, then conflicts with the behaviour required by market institutions will soon emerge and adjustments will be necessary. However, as Heath concedes, this is no different from the situation that exists in relation to war and one can easily find other situations in which a simplistic approach falls down (e.g. how does the golden rule apply to the treatment of criminals or to many of the difficult divisions that have to be made by governments?). It seems far better to recognise that there is no base line of ‘normal’ morality from which situations like the market and war require departures. Instead, there are principles and considerations that need to be applied in an infinite variety of different situations.
At a theoretical level, Heath appears to concede this. Indeed, he says that ‘The basic conundrum of business ethics is caused … by the insistence that there must be a “one size fits all” solution to moral problems’ (pages 26-27) and he recognises that those who adopt a consequentialist or utilitarian view of ethics will not have any problem in adjusting their ethical requirements to the market situation. However, he does not seem to recognise that one can be a moral realist, adopting an objective view of ethics that is not based purely in utilitarian considerations or other consequences, and yet still believe that ethical obligations are context specific. This point is frequently forgotten by moral absolutists, including those in the pulpit, but it is consistent with the Biblical approach and thus with what ought to be ‘the ethics preached in churches’.
For example, Heath asserts that ‘there are no plausible formulations of … the golden rule that permit price competition’ (page 18) and he would presumably take a similar view in relation to the related principle of loving our neighbours. However, their application is situation specific: one has to think about all those impacted by our actions and, in some situations, ask which neighbours should take priority and precisely what love requires (which may not be obvious in complex economic situations). The benefits to society of the market are, therefore, relevant in assessing what behaviour the golden rule and the principle of loving our neighbours requires. Actors in markets do not need to cast these principles aside and should not do so. In particular, suppliers of goods may thus conclude that they are observing these principles by competing vigorously with another supplier since, although that other supplier may suffer as a result, the customers and general society (who are also ‘neighbours’) will benefit.
Ethics and Market Failure
That said, the end result of Heath’s approach is probably close to the end result of the approach that a Christian moral realist will adopt. Both approaches recognise that participation in the competitive world of business does not necessitate unethical behaviour but that this does not mean that ethics have no application to such participation. Furthermore, Heath’s suggestion that ethical issues are engaged when there is market failure, in the sense of a failure to produce an efficient allocation of goods, although perhaps not sufficient to ground the whole of business ethics, is worthy of serious consideration. Heath’s analysis and his high level application of his analysis (in chapters 7 and 8) is thus valuable and is useful as a framework to assist business people in assessing the ethical requirements to which they are subject.
Applications
In the second half of Ethics for Capitalists, Heath turns his attention to various aspects of business and seeks to apply his approach to them. These include: ethics within companies and other organisations (where, as Heath points out, there is a co-operative rather than a competitive market model in operation); the ethics of labour relations (where there is both a co-operative and a competitive element that complicates the analysis); and the ethics of business ownership and the maximising of shareholder value.
Heath has worthwhile things to say about all of these subjects but his most interesting analysis relates to business ownership and shareholder value. He distinguishes the main constituencies of businesses (providers of capital, suppliers, workers and consumers) and points out that, in principle, the residual financial interest and control can be vested in any one or more of these constituencies. He then argues that there are good practical reasons why the residual interest and control are generally vested in the same group and why this group is normally the providers of equity capital. He defends the modern norm of shareholder primacy not on the ground that it is morally superior to other models (e.g. consumer, supplier or worker co-operatives) but on the ground that it is the option that has been found most workable in practice and that is does not suffer from inherent ethical problems. Along the way, he convincingly argues that what he calls ‘multifiduciary stakeholder theory’ (page 20) is not morally superior to shareholder primacy, that it suffers from a serious ‘multi-agency’ problem that is itself a moral problem and that it imposes moral demands ‘that could only be satisfied in the public sector and thus under a socialist reorganisation of the economy’ (page 20).
Ethics for Capitalists is a short book (209 pages) but it covers a lot of ground and deserves to be read slowly and carefully. Any business person who wants to come to grips with their ethical duties should read it, as should anyone who comments on business ethics, including many church leaders.
