Not all ethical problems which arise in business can be dealt with so summarily. A recent attempt to come to grips with these questions can be found in a book written by M R Griffiths, an international management consultant, and J R Lucas, an Oxford philosopher (Ethical Economics, Macmillan).
The main argument of the book is given in the first chapter. A distinction is drawn between various kinds of association according to the degree to which its members have shared values and interests. A high degree of shared values characterizes the family -- at least in its ideal form. To a lesser extent it characterises even political associations such as the state. Such shared values are at their least in business, where sellers and buyers or employers and employees can have highly disparate values, but still have a common interest in co-operation. Hence the need to rely on arms-length relationships, such as contracts, and on the mutual desire for gain.
The contention that even very competitive business relations are a form of co-operation would not of course have been news to Adam Smith who wrote: In civilized society man stands at all times in need of the co-operation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons. It is because of this very widespread dependence that we need to address ourselves not to the humanity but to the self love of others.
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No place is seen by Griffiths and Lucas for state laws to determine just prices or minimum wages. But justice is regarded as something objective rather than subjective. The businessman is, in their view, often called on to balance conflicting interests, as a tribunal chairman so often was in post-war Britain.
The authors rightly see that businessmen have some freedom of action even while pursuing profit. Most companies have little bits of monopoly profit which they have some discretion how to allocate; and it is quite reasonable that some of this should go to good causes or employee welfare.
They do not discuss, however, the role of takeover threats in compensating for imperfections in the product market and thereby limiting the scope for such discretion. Would we be better off with a less competitive economy in which employers had more scope to exercise a quasi-governmental role? Or would it be better to have a more competitive one in which citizens themselves decided which good causes to support?
The authors know it is impossible to lay down rigid rules of business behaviour. But my worry is that other authors, using the same intellectual apparatus, could come to much more dirigiste conclusions. If their book had appeared in, say 1974, it would not have provided a warning against Old Labours attempt to interfere in every aspect of economic life.
Ethical Economics is written in Victorian didactic style. This has its advantages in the shape of clear summaries and definitions, but the disadvantage of not quite coming to life. If the readers attention is to be gripped, the controversies in both ethics and economics need to be highlighted.
Such highlighting can be seen in the 1997 Napier Enterprise Lecture by Adair Turner, director of the Confederation of British Industry. He contrasts what he calls Redistributive Market Liberalism (RML) with the stakeholder-communitarian approach to such matters. He divides his discussion into two sections. The first is on how a society should assert its social objectives. The second on what form of market economy is most likely to achieve economic success.
On the first question he is unequivocally on the side of RML. This model leaves plenty of scope for political activity. But that activity takes the form of adjusting the rules of the market, providing for the collective finance of some services, and income redistribution via taxes and benefits. Within these constraints shareholder wealth maximization can apply.
Turner cites evidence of RML working -- for instance the effects of the recent landfill tax. Even more important, he doubts whether managers have the knowledge to take into account the second -- and third-order effects of their actions on national well-being. It is the role of markets to make use of dispersed knowledge not available either to boards of directors or governments.
This knowledge problem is often overlooked by so-called ethical economists. Moreover, while a simple profit maximization model provides subsidiary performance indicators for decentralized managers within a corporation, this does not apply to the much vaguer stakeholder objectives.
Turner is more nuanced on the second question: whether a company that tries to maximise its long-term self-interest should identify that interest with shareholders or with a wider group. The book by Griffiths and Lucas endorses the profit motive, but argues that a businessman should also be concerned with customers, employees, suppliers and the wider community -- and not merely as a means to long-term profitability.
Turner points out that there are not merely the German and Anglo Saxon forms of capitalism but very many more. Nevertheless, in the vast majority, the legal duty of a company is quite clearly and solely to share-holders. In some countries an important percentage of the economy is held by private companies whose shares are not traded in financial markets. Here ownership and control are combined as in the German Mittelstand or medium-sized Italian companies.
He clearly has a soft spot for companies where the whole problem of the relationship between owners and managers is bypassed because the managers are effectively the owners. In the UK, he cites JCB, Europes biggest maker of construction equipment, which has flourished as a private unquoted company. Another example is Unipart, the car parts manufacturer, whose capital structure is dominated by manager and employee shares and a few large shareholders, thus giving it some freedom from the immediate pressures of the capital market.
Turner also wonders how it is that moderate advocates of the stakeholder approach, such as John Kay, director of Oxford Universitys School of Management Studies, and advocates of RML, can agree on specific instances. The difference is surely this. A stake-holder or communitarian would like social and ethical objectives pursued directly by corporations in addition to the search for profit. Market liberals prefer to provide for these objectives in the background conditions and rules within which profit is pursued.
In many cases reasonable members of both schools might agree. But the market liberal will worry that the stakeholder arrogates to business leaders the role of shaping society for which they are ill-suited; and that they would serve us and themselves better if they stuck to limited aims.
Samuel Brittan