Utilitarianism and Business Ethics in B PDF

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Utilitarianism and Business Ethics1 . . . the creed which accepts as the foundation of morals, Utility, or the Greatest Happiness Principle, holds that actions are right in proportion as they tend to promote happiness, wrong as they tend to produce the reverse of happiness. By happiness is intended ...

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Utilitarianism and Business Ethics1 . . . the creed which accepts as the foundation of morals, Utility, or the Greatest Happiness Principle, holds that actions are right in proportion as they tend to promote happiness, wrong as they tend to produce the reverse of happiness. By happiness is intended pleasure, and the absence of pain; by unhappiness, pain, and the privation of pleasure. It seems as though business would be the arena most likely to appropriate Mill’s utilitarian ethics. Utilitarianism is outcome-oriented, its goal is to bring about the greatest happiness—i.e., the greatest social benefit—something many companies would like to believe that they do promote alongside their goal of making a profit. In addition, those familiar with Herbert Simon’s concept of ‘satisficing’ or the abundance of publications on ‘happiness economics’ may find that the earlier utilitarians may have fruitful things to add to the discussion. 1 Despite this alignment, strangely, there are only a few articles written attempting to apply utilitarianism as an ethical theory to business. Jeremy Bentham and John Stuart Mill are perhaps the most famous promoters of utilitarianism. While Bentham’s Utilitarianism offer an ethical theory to business which helps calculate happiness, Mill’s Utilitarianism does this with full awareness of the importance of sponsoring the higher sentiments. A society which does not support higher happiness capacities and aspirations will become an animal-like society where the capacity for better levels of happiness become less possible. Business has some important power in preserving these higher capacities in society. Further, I will suggest some business decision-making questions rooted in utilitarianism. Our goal is a utilitarian business-ethic which evaluates business in terms of its contributions towards higherpleasure capacities in society.

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Jeremy Bentham Utilitarianism is a consequentialist theory of ethics-- utilitarians believe that we must make our decisions based on what we forecast to be the most pleasurable and least painful outcome. It is also referred to as a eudaimonianistic theory, meaning that happiness is the specific desired consequence or goal of ethics. What will bring the happy consequence to the most is the right thing to do. Since pleasure is the specific form of happiness which is sought after, it is also frequently referred to as a hedonistic theory, meaning that its goal is pleasure. Of course pleasure can come from many sources, including acquiring land, friendships, lasting marriage, health from jogging, or even intellectual pursuits, in addition to sheer sensual pleasures of taste, touch, and smell. Jeremy Bentham (1748-1832), one of the early British Utilitarians, said that there is no hierarchy of pleasures, all are equal qualitatively, and it is up to us to calculate the quantitative pleasure-value of one act over another in making our moral decisions. If the quantity of pleasure derived from one is as much as the other, then, in Bentham’s words, ‘pushpin is as good as poetry’. Pushpin is a child’s game, and it is of no less value than poetry, provided that they provide the same amount of pleasure. Bentham developed a hedonistic calculus, to be calculated by determining which act is likely to result in the greatest maximization or happiness overall for the most people. At times, this may mean I need to sacrifice for the good of the many, for example, by stepping down from a position for the good of the company, or staying late so the project is completed on time. At other times this may mean that one person’s good may outweigh the relatively small pain of a group—for example when we give an arrested man a fair trial

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Herbert Simon published many works along these lines including the original 1957 Models of Man. More recent work includes that of Andrew J Oswald and David G Blanchflower ( The Wage Curve). 2

at the expense of the many taxpayers- because the relative significance of the taxes used for the trial are insignificant in comparison with the good of his fair trial. Bentham said that in each instance, we must consider the following aspects of the forcasted outcome: 1. Intensity: How intense will the pleasure be from this action? 2. Duration: How long will this pleasure last? 3. Certainty: How likely is it that this pleasure will actually take place? 4. Remoteness: How far away is the hoped-for pleasure outcome? 5. Repeatability: How likely is it that this will be a repeatable pleasure? 6. Purity: How much pain will accompany the pleasure produced? 7. Extent (number): How many will be affected with either pleasure or pain? These principles are quite practical. We do consider how extensive the return is when we evaluate an investment possibility (intensity). We consider how long the benefit will last (duration). We consider ‘how sure of a bet’ this investment is (certainty). We often disregard unlikely scenarios, consequences hundreds of years from now, etc (remoteness). We consider the potential repeatability of our actions—for example, if I steal, I may never work here again, or anywhere for that matter (repeatability). We consider the negative consequences along with the benefits (purity), and we finally consider the overall benefits for the many (extent). This type of calculus happens in business. As an example, Abbott Laboratories last year raised the price of their HIV drug Novir 500% (from 1.71 per day’s dosage to 8.57 per day) This left Novir still remarkably cheaper than similar drugs, and Abbott claimed that it would help pay for costs of research for cancer drugs—some pain was accepted in return for greater pleasure/benefit for the many. Abbott provides the drug free to some who lack healthcare, and have been helping countries like Africa to distribute the drug at low cost. Critics claim that Abbott could lower their profit margin to direct more money to research, but of course Abbott’s investors want returns on their money which 3

make Abbott an attractive investment. Using Bentham’s calculus, Abbott had to consider the displeasure of HIV-drug purchasers against potential pleasure of those who benefit from the research the increased costs would support. Second, they had to consider how long that displeasure from cost increases and pleasure of new breakthroughs would last. Third they needed to consider how certain is it that they could actually achieve that pleasure of making progress in research, since it was quite likely that people were displeased with the cost increase. Fourth, Abbott should consider how far away the hoped for pleasure is—is the cancer research likely to come soon, or is it 50 years away? In addition, they had to consider the displeasure of their investors if they told them that profits would be down for many years in order to support research for long-term benefits. Investors can be patient, but not indefinitely so. Fifth, Abbott would consider whether the pleasure from the cancer research would be repeatable—it does seem that it would have ongoing repeatable benefits if in fact a better cure was found. Sixth, they needed to take account of the possible pain involved in this decision—would some go without the medicine due to the increased cost? Abbott did provide ways for low-income people not covered by health insurance to obtain the drug, to alleviate this problem. Seventh, they needed to think of the way in which many different people would be affected— stockholders, users of Novir, insurance companies, the poor, their research lab, those who could benefit from the research, etc. In following the Greatest Happiness Principle, Abbott would need to accept responsibility to bring about the greatest happiness for the most, not just for Abbott. But of course, Abbott does a great deal to benefit many people. To provide short term good of cheaper drugs may cause long-term negative consequences for the companies profits, which could lead to long term negative consequences for their

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research abilities, which would lead to long term negative consequences for society. All of these things must be considered. To those familiar with the term ‘satisficing’ or the recent explosion of literature on ‘happiness economics’, this pleasure calculus may sound familiar.

In his 1957 work

Models of Man Nobel Prize winner Herbert A. Simon first introduced the concept of ‘satisficing’.2 On this model, instead of achieving the optimal-maximum result, one aims for a satisfying result—one which will provide satisfactory happiness, if not maximal happiness. In many cases it seems that it would be more rational to achieve a satisfying result resulting in actual happiness, rather than not being satisfied until the optimal result occurs. Why be dissatisfied that you could not achieve perfection when you can achieve something quite pleasing and completely satisfying, despite its not being the best of all possible results? We see the problem of maximal-oriented decision making practically in many work situations where a perfectionist has difficulties finishing a project because there is always ‘just one more thing to adjust’ to make the project better. In such cases we realize that it is better (and will bring about more happiness) to achieve the closer-at-hand satisfying result rather than perpetually put off the maximal result. We almost always have limited timeframes for our decision-making, and limited resources to learn the consequences of our actions.

But we must make our decisions within these bounds.

This was what Simon referred to as ‘bounded rationality’—we have limits within which we must strive for the most satisfying solution possible (given our situated limits). This relativization of the framework of decision making is more practical. If one waits until all possible data is received, it may be too late to make a decision. So we must often simply 2

One of the earliest attempts to apply the concept of satisficing to business is Cyert and March’s A Behavioral Theory of the Firm (1963). Other more recent literature on measuring happiness in general include Well Being: The Foundations of Hedonic Psychology by Kahneman, Diener and Schwarz (1999). 5

make decisions based on the information we have. To make a decision with limited information is better than to not make a decision at all. Other recent economists, focusing on happiness, have built on Simon’s work to suggest that economics should judge economies based on the happiness they produce, rather than the bottom line alone.3 Bentham’s hedonistic calculus can be seen to be a precursor to this upsurge in ‘happiness economics’.

But while much of this makes good sense, it appears that there

are some problems with Bentham-style utilitarianism as an ethical theory. Perhaps the most damning criticism is that utilitarianism doesn’t appear to adequately support principles of justice, fairness, truth telling, etc. If it would bring more happiness to the majority to not provide a fair or just trial, then the interest of the many would override the interest of the one, it would seem. If our company signs a contract with a dealer, but later finds that honoring that contract would cause a great deal of pain for the company, its customers and employees, and other stakeholders, then the right thing to do would be to break promises made in the contract, due to the new information. One can imagine scenarios where it would appear to bring more happiness in the end if a company or individual lies, cheats, steals, acts unfairly, etc. Another criticism may be that even on this hedonistic calculus, sometimes the bad consequences don’t nearly outweigh the benefits of wrong conduct. This we see in cases where a company happily pays a fine for doing immoral and illegal activities since committing those illegal acts nets it hundreds of times more money than the cost of the fine. Satisficing as a method of decision making seems to face similar criticisms— compromise becomes always the better choice, and sacrificing for the sake of principle 3

See Bruno S. Free and Alois Stutzer’s Happiness and Economics: How the Economy and Institutions Affect Human Well-Being. (2001) or Ed Diener and Eunkook M Suh’s Culture and Subjective Well-Being (Well Being and Quality of Life) (2000); Or see: The Economist July 25, 2002. 6

becomes irrelevant. In short, a pursuit of satisficing will always choose what will suffice, rather than sacrifice for the sake of a principle. The question, then, for the utilitarian, is: how can utilitarianism provide a basis for ethical behavior when its consequentialism seems to undermine the very moral principles (such as justice, fairness and truth telling) which we normally consider to be moral starting points?

I. Mill’s Revised Utilitarian Principle John Stuart Mill (1806-1873) claims that Utilitarianism “holds that actions are right in proportion as they tend to promote happiness, wrong as they tend to produce the reverse of happiness.”2 But despite this initial agreement with Bentham, Mill, in contrast to Bentham, claims that there are two classes of pleasures—higher and lower. We have capacities for higher and lower pleasures. We desire food, sleep, breathing, and sensual pleasures, and these are not bad. But these lower pleasures have a lower quality and are lower in the sense that they are not unique to us, and are shared with squirrels, dogs, rats, etc. To live for lower pleasures would be to live like a dog. Mill says “a beast’s pleasures do not satisfy a human beings conceptions of happiness.”3 Its not that we shouldn’t like to eat, or that we should despise these sorts of pleasures we share with animals. The point is rather, that we shouldn’t have these as our higher aspirations and meaning for being. If your meaning in life is eating, you have a problem. If you meaning in life is to sleep, you are depressed. If your sole purpose in life is to have sex, most would say you have a shallow existence. Human beings should have higher goals and higher pleasure capacities than that animals.

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Critics frequently attack Mill’s higher-lower pleasure distinction with objections like: if I am extremely hungry, by Mill’s principle, I would have to choose an ounce of Roquefort cheese over a pound of cheap mild cheddar, or if I was thirsty, I should choose a small amount of a top-quality bottled water over a gallon jug of tapwater. These sorts of criticisms are irrelevant, and misunderstand Mill. These examples, it is easy to see, refer to differences in quality between the same kinds of things. Here the distinction is between higher and lower quality food, etc. On this logic, I would choose a bumper of a Rolls Royce, over a complete inexpensive Hyundai with a 100,000 mile warranty, etc. But that is not Mill’s point at all. He is talking about distinguishing higher-types from lower types, but he is not suggesting this for making inner-type distinctions necessarily. But Mill is also not suggesting that one should always choose the higher over the lower. Sometimes it is good to sleep, sometimes one should eat. Mill is not advocating people starving to death at the opera house, or suffering from sleep-deprivation in order to read the encyclopedia. His point is simply that we can usually identify one pleasure to be of higher quality than the other.

Higher Pleasure Capacities But what are these higher-pleasure capacities? Mill mentions these four4: 1. Pleasures of the intellect: literacy, logic, emotional intelligence, etc. 2. pleasures of the noble feelings: sympathy, heroism, empathy, humility, courage 3. pleasures of imagination: moral imagination, creativity, innovative thinking 4. pleasures of the moral sentiments: justice, honesty, fairness Certainly we might train ourselves to be content with the bestial pleasures alone—but no one would really agree that such a life was better than the non-bestial life. 8

If people in society lose their higher capacities, the overall societal possibility for pleasure is lost. In other words, societal pleasure-maximization rating goes down. Consider the consequences of a loss of moral sentiments: Think, for example, of a society in which one cannot trust that others will act decently—a society in which one person may decide to shoot another, or where one person might decide to strap a bomb to herself and kill a group of others. In such a case, she no longer has an appreciation of moral sentiments about justice or fairness. When these capacities are lost, society will not be as happy. In the same way, a business which loses these basic moral sentiments will be less able to produce pleasure for the many. We value sentiments like justice, fairness, and honesty because to do so will ultimately lead to a greater happiness potential for all. Mill says that we value virtue as we value money—for what it will DO for us. But, just as we often forget why we want money, we forget why we want justice—we just do want it . But the reason we want justice, says Mill, is because a society in which we want justice is better able to make us happy. Consider the happiness which is brought about by noble feelings like heroism: This feeling, when nurtured in society, brings about bravery in the face of danger, the kind of bravery which leads firefighters and policemen to risk their lives, or leads a parent to provide and sacrifice for her family. If these sentiments are lost, then society as a whole suffers and loses important happiness- possibilities. In the movie Blackhawk Down the marines had a motto, and it was “never leave a man behind”. That was something they followed, even when it meant risking men’s lives to try to save injured soldiers. They had this principle which put others in harms way. But the reason that they had this principle was that maintaining that motto preserved morale among the men. Knowing their fellow soldiers would come to rescue them if they went down gave them courage. In other 9

words, the purpose of the principle was that this principle would bring more pleasure than not maintaining it and giving it up when inconvenient. In the same way, maintaining particular ethical principles at work, even when not immediately convenient, will in many cases bring about greater capacity for happiness in the company, and also society at large. Consider the loss of intellectual or imaginative capacities. A society which loses its ability to think and dream cannot be as happy as a society which educates people to think for themselves and to creatively respond to life situations and opportunities which arise. In the same way, a company which does not empower its employees by nurturing their intellectual and imaginative capacities is likely to be less competitive, less capable of dealing with change, and less able to maintain a positive future.

On Losing Higher Capacities Now if higher pleasures are so very important, then how or why do we lose them? The very capacity we have for higher pleasures may be lost, according to Mill, and often is in our day-to-day living which often neglects pursuits of the higher pleasures:

Capacity for the nobler feeling is in most natures a very tender plant, easily killed, not only by hostile influences, but by mere want of sustenance; and in the majority of young persons it speedily dies away if the occupations to which their position in life has devoted them, and the society into which it has thrown them, are not favourable to keeping that higher capacity in exercise. Men lose their high aspirations as they lose their intellectual tastes, because they have not time or opportunity for indulging them; and they addict themselves to inferior pleasures, not because they deliberately prefer them, but because they are either the only ones to which they have access, or the only ones which they are any longer capable of enjoying. It may be questioned whether any one who has remained equally susceptible to both classes of pleasures, ever knowingly and calmly preferred the lower; . . .5

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One must be careful to maintain the higher capacities, like a gardener caring for a plant. Most...