Next to me on the rock is a portable compact disc player. It is about the size of my hand and weighs a pound. I purchased it, after some bargaining, from a Pakistani immigrant in New York City. The plastic casing was made from oil from the Middle East, and the electronic components were manufactured in Japan. The compact disc I am listening to was recorded in London, manufactured in Germany, and purchased from a mail-order house in Toronto. My compact disc player is truly a cosmopolitan product.
Ethics is about what is valuable and how to achieve it.
I usually take this for granted. I make an average salary—slightly less than the national median last year—yet I routinely buy luxuries no medieval king ever could. In my portable compact disc player, the best work of the best minds in music, electronics, manufacturing, transportation, and merchandising has been coordinated into a package that, for less than a day's pay, allows me to enjoy the sunrise over Lake Ontario while experiencing the passion of a 19th century Russian musical genius.
The Business of Creating Values
This is an article about business ethics. Ethics is about what is valuable and how to achieve it. Each of us needs physical values—food, housing, and so on. We also need psychological values—challenges, pride of accomplishment, security, friendships, the experience of beauty. But to achieve values, we need the character traits that will enable us to plan and act effectively: the willingness to face facts, to think for ourselves, to act on our best judgments, to give credit where it's due.
My musical sunrise was made possible by thousands of such individuals. Compact disc players are a product of the vast network we call the business world: the cooperative system of value-seeking individuals who produce and trade to mutual advantage. Artists, financiers, manufacturers, transportation and merchandising experts—many individuals, each with his own goals to achieve—cooperate as buyers, sellers, coworkers, bosses and subordinates to create disc players.
Start with the orchestra. Each member of the orchestra acquired a specialized expertise and found a way to integrate his love of music with the need to make a living. By cooperating, the orchestra's members create something of value: beautiful music. The orchestra sells its product to the manufacturer of compact discs. To manufacture the discs, the manufacturer cooperates with financiers, who provide something of value: capital. The manufacturer hires engineers to create something of value: a compact disc. The manufacturer cooperates with experts in transportation, advertising, and merchandising, who cooperate with me.
I give them something of value—money—and in return they give me something of value: music anytime, anywhere. Everyone involved is seeking to live the good life, and all of us are better off as a result. If ethics is about what is of value, then business is about the cooperative production and trade of one important category of values.
For most of us the business world is the primary arena in which we pursue our values. Our work gives us the means to satisfy our needs, and it calls upon our highest levels of commitment, energy, creativity. Successful work is measured by the value of the product—the harvest, the hydraulic press, the bond offering, the sculpture—and the pride and financial rewards that follow.
Beyond these values, the business world is valued for many other reasons. For some, it is the cosmopolitan nature of business. Canadians enjoy South American figs in January. Britons fly to Athens and take a Scandinavian cruise ship to Istanbul.
Americans watch Australian movies on Japanese televisions while eating take-out Chinese food. For others there is the excitement of huge endeavors—high-rise multiplexes, billion dollar mergers. For still others there is the excitement of innovation: more powerful computers, affordable bread-making machines, sleek new sports cars. Yet this zest for business is not limited to the international, the large-scale, or the innovative. The business owner who starts a printing business or a welding shop is usually as passionate about his business as the executive who lives in three time zones. The business is his creation, the result of his foresight, his energy, his courage in the face of risk.
The "Competence Ethic" and Its Competitors
Very little writing about business ethics captures the excitement and romance of business. Even less communicates a sense that business is a noble calling that could be celebrated in poetry and song. Instead, a sense of suspicion and strained tolerance often hangs over business that does not hang over other professions. Many hail the scientist, the artist, the teacher, even the politician, as doing exciting and noble work, but will at best feel indifferent about the business professional.
We can point out that business has provided the arena in which countless individuals have satisfied their needs and achieved their dreams. Beyond that, it can be argued that business has been more successful than any other profession in overcoming traditional religious, ethnic, racial, and sexual barriers. Business says: judge individuals by their competence. The primary question in business is: Can he deliver the goods? Only where the business ethic of competence has taken hold are religious and ethnic feuding, racism, and sexism on the defensive.
For example, the rise of the business ethic during and since the Enlightenment has led many former national enemies to decide that they would rather produce and trade than make war. Compare current relations between England and France with their past. The same could be said for relations between France and Germany, Korea and Japan. Consider the fact that from 1815 to 1914—the heyday of capitalism—there were no major international European or North American wars. Contrast that with the almost constant wars from 1914 to the present—during the rise of various national and international versions of socialism.
Business also breaks down religious barriers. The fact that for many centuries Jews were allowed to engage in banking while Christians were not was a major reason why Christians were less energetic in their efforts to stamp out Judaism. The ongoing Islamic jihad against the decadent West has been muted by the fact that the West is the major customer for Middle Eastern oil. In business, few care whether you worship by handling rattlesnakes or rosaries.
The competence ethic of business also breaks down racial and sexual barriers. On countless occasions, individuals of different races and sexes have sat down at boardroom tables and negotiated deals peacefully. To the extent that the ethic of competence is accepted, the stupidity of judging people by sex or race is obvious.
The business world undermines irrational social barriers because the economic interests of all humans are the same. Any human of any color, nation, sex, or religion who can satisfy my economic interests is of value to me. So I am more likely to want to deal rationally, productively, and peacefully with him.
Despite all this, in the eyes of many a cloud of suspicion hangs over business.
The reason is that the moral tradition out of which the competence ethic of business arises conflicts with a competing moral tradition that holds business to be immoral or, at best, amoral. For those who subscribe to this latter moral tradition, ethics is felt to be more a matter of stoically doing one's duty rather than having fun, of fulfilling one's obligations rather than fulfilling yourself, of obeying the rules rather than doing what's practical, of giving away rather than creating. Stooping to stereotypes, if this tradition's view of ethics could be personified, she would appear as a matron who goes about sniffing disapprovingly at anyone who seems to be having a good time. Having a good time means self-indulgence—but, she would declare, we are not here to have a good time; we are here to serve others, to be stewards for future generations, to be nice, to take up as little space in the world as possible. Above all, she would continue, we are here to sacrifice selflessly—to society as a whole, to God, for the greatest happiness of the greatest number, to Duty, to the working class, to the ecosystem.
The theme of this book is that morality is not about human sacrifices. The traditional anti-business ethic is dead wrong. We are not born to serve; we are—every single one of us—ends in ourselves. We are here to live our own lives, to achieve self-fulfillment, to be ambitious, to consume as many valuable resources as possible. Ethics is not about renouncing and sacrificing personal values. It is about producing and consuming them. Life is, in the most serious philosophical sense, about having a good time.
The Ethical Core
"Business ethics is a contradiction in terms." This cliché, usually said half-seriously, is an extreme form of the traditional anti-business ethic. Its advocates will say, for example, "Look At that business executive: he cheated the customer. Well, that's business for you. It's a lowdown, dog-eat-dog world."
Lowdown behavior certainly occurs in business. It also appears in any profession. Some scientists fake the data. Some artists turn to forgery. And some politicians demand bribes. Yet the value of science, art, and government are not sullied by these corrupt deeds. Rather, to the extent that people engage in such corrupt deeds, they are neither scientists, artists, nor politicians. The scientist who fakes his data is not a bad scientist; he is not a scientist at all but, to the extent he fakes, a corrupter of science.
Suppose, by analogy, you investigated a school and discovered many students who cheated, put forth minimal effort, and said that they were there only to "get the piece of paper." And suppose that some of the teachers graded arbitrarily, were more interested in indoctrination than teaching, or became teachers only because they liked to have sex with children. Such immoral behaviors do not invalidate education. They do not justify cynical comments such as: "Well, that's education for you. Ethical education is a contradiction in terms."
The core of education is the acquisition of knowledge. Knowledge is good: It is a form of power that is essential for human life. Knowledge can be learned only by honest methods—although a diploma, the symbol of knowledge, can be acquired honestly or dishonestly. The same holds for business. The core of business is the creation of wealth. Wealth is good: it is a form of power that is essential for human life. Wealth can be produced only by honest methods—even though money, the symbol of wealth, can be acquired honestly or dishonestly.
We do not say: "He cheated on the test; that shows how immoral education is." Rather, we say: "Education is wonderful, but this cheater has corrupted it." The same should hold for business—or any profession. The cold-hearted businessman, the sexually repressed librarian, and the nerdy scientist do not define their professions.
The first questions to ask of any profession are, What is it? What values does it create? and How does it achieve those values? Then, having answered those questions, we deal with the problems caused by distorted or improper values and shady methods.
Power Through Principles
Business is the production of values for trade. Both production and trade are necessary for business. A man living on a desert island, producing and consuming what he needs, is making a living but he is not in business. But if he produces an extra wingo and trades with the woman on the neighboring island for a framister, then they are in business. Business begins with trade: a buyer and a seller form a relationship. From small beginnings, great things can happen.
Trade enriches both buyer and seller, making possible increased production and trade. As production and trade increase, so does specialization, which further increases production and trade. Specialization can take many forms. One form is by commodity: I produce only wheat and you produce only beans. Another form of specialization occurs within a business by employment. Typically, the employer provides capital and strategy and carries the risk for the business, while the employee provides labor and other skills.
As the scope and scale of the production and trade grow, businesses arise that specialize in services to producers of commodities: transportation, advertising, brokerage, banking, financial markets, insurance, legal services. All such services produce value for trade. Advertisers and brokers bring buyers and sellers together, lawyers provide knowledge and advice, insurers provide risk reduction, speculators provide capital and liquidity, and so on.
The increased complexity of the business world has not changed its essential nature: from wingos and framisters to international compact disc players, business is still the production and trade of value. What has changed is the complexity of the human relationships involved, the scale and abstractness of the values at stake, the difficulty of evaluating the merits of competing values, and accordingly the ease with which errors about values and how to get them can be made.
The purpose of business ethics is to discover the evaluative principles necessary to deal with the complex business world. Explicit, principled knowledge gives a business professional a framework within which to think, judge, and act consistently. Knowledge is power, said the philosopher Francis Bacon. Ignorance is impotence. Only with knowledge can the good can be achieved, errors avoided, and problems diagnosed.
Selling and buying raises, for example, issues of fraud, liability, caveat emptor, and bluffing. Employment raises issues of merit versus affirmative action, the status of unions, drug testing and privacy, and whistle-blowing. Financial markets raise questions about the moral status of corporate raiders, junk bonds, and the property status of information. Corporations enjoy a special legal status, so there are questions about why corporations deserve it. Large-scale business raises issues of large-scale waste disposal and how one weighs the values of a clean and beautiful environment. And complicating all of these areas is the question of the proper scope of the government's involvement.
In each of these areas, business professionals make errors, some of them dishonest. Contracts are broken, lies are told, employees are treated arbitrarily, employees steal, confidential information is revealed, cons are pulled, politicians are blackmailed, bad checks are written.
But despite the errors and immoralities that occur in the complex world of big business, the crucial fact is that the same fundamental moral appraisal of business applies. A university is more complex than a one-room school house, but the same positive moral appraisal of education applies to both, no matter how many more opportunities for errors and corruption the complex nature of the university allows.
Business is essentially good. Ethics is about what is valuable, and business is the production and trade of one key category of values.