[This is something of a “think piece,” not in particularly good form, written in the late 1970s as the first draft of a chapter for a proposed book on business to be written by various members of the faculty in the college of business at Wichita State University.  The book project never developed, and the material here was accordingly never put into final form.  It is included in these “collected writings” because it touches on some matters that aren’t otherwise covered in Dwight Murphey’s writings.  It was written in the late 1970s, and it would be well to read the article on Ethics that appears here as Ms6 before reading this discussion.  That article was apparently a product of the thinking reflected here.] 

 

The Practical Context of Business Ethics

 

Dwight D. Murphey

 

            Attitude of the “Practical Realist.”  A man active in business or a profession is not likely to find fault with “business ethics” as a subject for study.  Nor is he likely to compare himself unfavorably with others so far as ethical behavior is concerned.  Nevertheless, the acting man is often inclined to become so immersed in the pursuit of a preoccupation with “practical matters” that ethical concerns are in effect given a low place in his hierarchy of values.

            Men who consider themselves competitive and capable often tend to think—and not without some justification—that to be successful a man cannot afford to be substantially better or worse, in an ethical sense, than other men.  This attitude intuitively recognizes the “fact of life” that success in the real world demands a willingness to do that which is necessary in a given situation.  It is felt that, within limits, successful activity must be pursued, regardless of whether it meets someone’s punctilio about how things ought to be done.

            It is important to grasp what this view entails, since it is an attitude that is absorbed rather than an argument that is explicitly stated.  From the “practical realist’s” perspective, the ethical idealist is not merely an unwelcome reminder of values that ought to be honored but often are not; he is more than that: he is simply wrong. He is wrong because he is naïve and lacks cleverness.  This naivete, this simplicity and impracticality, makes him something of a fool.

            This may be seen in the case of a young lawyer in a middle-sized law firm when a senior partner calls him in to his office and hands him a case file involving a client who has received a traffic ticket.  If he tells the younger lawyer to go to the courthouse to have the ticket fixed, how will the conversation develop if the younger lawyer sits down, thumbs the file thoughtfully, and tells the older man as tactfully as he can that he does not consider it ethical to fix the ticket?

            In such a case, the senior partner is likely to be incredulous.  He will not be able to believe that the young lawyer is that impractical.  To his way of thinking, the other will not yet have learned that the important thing is results, and that if an attorney is able to fix a ticket he is naïve and unrealistic not to do it.  This hypothetical older lawyer will not give the young lawyer credit for his higher ethical standards; he will think him, instead, an impractical young novice.  Idealism will seem to him a symptom of inexperience.

             This does not commonly happen to young lawyers.  Most lawyers have a higher set of standards than this illustration presupposes.  Yet, the illustration is not inappropriate; it is a fact that the world of the acting man involves a continuing interplay between the type of “practical realism” voiced by the older lawyer and the recognized standards of ethical conduct.  Neither prevails totally.

            There is no effective answer to the “practical realist” within the context of his assumptions.  His argument cannot be answered, precisely because it is not really an argument at all.  It is an attitude, not a reasoned position.  The older lawyer would hardly attempt to reason that ticket fixing is in the long run the most workable and just system for society as a whole.  Instead, the realist’s attitude is hammered out of his intense preoccupation with his own concerns.  It reflects, as well, a significant spiritual limitation.

            It is not to be doubted that the realist is exceedingly energetic and capable.  His contribution to human well-being may be substantial.  And yet it ought to be clear that to the degree that he pursues success by a method that accepts the lowest common denominator of the system within which he operates, he is inevitably a parasite off of the moral capital of the society.  To that extent, he accepts the benefits of civilized life, but shirks the burdens.  He is not conscious of a need to do his part to sustain the ethical level that exists or to improve it.  If everyone were to act as he does, the civilized social order in which he participates would disintegrate.  As with the young lawyer in the conversation, it would be useless to speak to the “practical realist” of these things; they are long-term considerations that are irrelevant to those who put a prime value on cleverness, but they are true, nevertheless.

            Ethics as an “Academic” Discipline.  There is some tendency, particularly by those already oriented toward the “practical realist’s” attitude, to set “business ethics” aside subconsciously as being primarily academic.  It is something professors can easily talk about.  But what do professors know or care about the “real world”?

            If this prevents the acting man from being seriously concerned about ethics, it is not appreciably different from the “practical realist’s” attitude already discussed.  However, there is more to it than this.  It is an objection that has some substance.

            Writers on business ethics may indeed be far removed from the exigencies of business.  If they are professors ensconced in academic life, they may in fact be sheltered and made into spectators.  It is easy for a spectator to be critical, far easier than if he were in the game himself.  Many writings on business ethics reflect this.

            This “ivy tower” quality is markedly augmented by the circumstance—itself of major importance in our civilization—that for at least a century and a half in the United States and for an even longer period in Europe the “intellectual” has had thoughts, feelings and interests very different from those of the “man of commerce.”  The intelligentsia has constituted virtually a separate subculture.  To one degree or another, this intelligentsia has judged the larger middle class (i.e., the “bourgeois”) culture by standards that are derived from a philosophical orientation that is not primarily sympathetic to the bourgeoisie and to the commercial system itself.  There have been intellectuals who have supported capitalism and middle class values, but they have not represented the main thrust of modern intellectuality.

            The upshot has been that much “business ethics” has been written from a point of view that is to some degree at odds with the philosophical rationale that would accept and support a commercial way of life.  As will be seen in the remainder of this essay,  recognition of this philosophical disparity is important if we are to understand a good many suggestions that writers on business ethics make about what would or would not be good business practice.  The ideological orientation of the writer is itself important.

            The Legal Context.  Ethical behavior in business, as elsewhere, cannot simply be the result of men resolving to act ethically.  Such personal resolutions would beyond doubt result in about the same success as New Year’s resolutions.  Instead, there must be a setting, a social framework, in which ethical behavior finds itself at home and in which the sacrifices that may (or may not) come with “being ethical” are minimized.

            One of the more important components of this “ethical context” is the legal component.  It is here that the society institutionalizes the adherence to standards of conduct and provides the machinery by which minimum levels of behavior can be enforced.

            Business conduct is enhanced, if not indeed made possible, for example, by the judicial machinery for the enforcement of contracts.  Although it is also necessary, as will be seen, that the great preponderance of contracts be performed without the necessity for legal enforcement (because otherwise the entire business system would break down), the very existence of machinery that can be invoked for enforcement strengthens the initial impulse to adhere to contractual obligations and provides a remedy in those few cases where actual enforcement proves necessary.

            The value of a legal framework can be illustrated, also, by reference to the problem of pollution.  A legal standard can make possible ethical behavior that would otherwise involve impossible competitive disadvantages to those who would attempt to avoid polluting.  If one spends money to avoid polluting, while ones competitors are still able to dump their refuse into a river or the air, it may be very difficult to compete.  But if the law sets a standard that everyone must follow, competition will take place within that standard and each competitor will know that his rivals will have approximately the same costs as he will—unless, that is, they can think of a more efficient way than he can to handle their refuse.

            The Technological and Informational Context.  It would be a serious mistake, however, to think that the law by itself can create a satisfactory context for ethical behavior.  If the law says that a business can no longer dump its refuse into the rivers or air, but there is no technology available to provide an alternative way to dispose of it, the law may well have the effect of outlawing the industry itself.  There may be instances in which the society, acting through its political representatives, may choose to see the industry die rather than continue to allow the pollution, but obviously that choice will be made far less often than will a choice merely to assess reasonable anti-pollution costs on an industry that has the technology to solve the problem.

                Technology can be helpful in yet another way.  One of the major sources of “unethical” behavior in business is the fact that consumers simply have no way to obtain the information that is vital if they are to make sound choices.  If one goes to buy a used car, he runs a real risk of not knowing its actual mechanical condition before he buys it.  He can inspect it; he can even borrow it for a weekend to drive it and take it to a mechanic for examination.  But still there is a major element of uncertainty.  It is because of this uncertainty that the law places used car purchases pretty much on a “buyer beware” basis, unless the salesman tells an explicit lie about the car and thus commits fraud.

            This is a difficult problem.  How is one to be an “ethical” used car salesman?—that is, one who will volunteer to the customer all that he knows about the car?  How long can such a salesman stay in business if he tells the customers of all the defects while the salesman at the lot next door does not?  He may attract some customers who have gotten to know of his honesty and appreciate it, but the chances are that most used car salesmen will consider such an approach a real gamble.

            But what would happen if the new “automobile diagnostic centers” that have come into existence recently were to become widespread and inexpensive?  In this case, it may then be possible for the public to get to know what they are buying before they buy it.  Or else it may develop that used cars will be tested and graded by independent diagnostic agencies even before the cars are placed on the lot.  Under such circumstances, the “ethics” of the used car business could be made more satisfactory.  There would no longer be a major sacrifice from being candid.  In fact, the public might well refuse to buy cars that have not been tested by an agency in which the public would have confidence.

            This suggests still another point—that the maturation of the economic system is an important part of the context for ethics.  The American economy has for a long time been in rapid transition.  A great many industries are relatively new.  Even the automobile has been in existence a rather short time.  And it takes time for the institutions to arise that will give real maturity to the framework within which business operates.

            Although many persons are not aware of it, the accounting profession is itself very young.  It is an excellent example of the role that can be played by an independent service profession that by its efforts makes available information that the market needs for optimal performance.

            There are other possible professions of a similar nature, some of which have barely started to appear.  One would involve independent investment and insurance counselors.  Some insurance agents today try to give their customers the impression that they are giving independent professional advice about the best life insurance to buy, but so long as the person giving this impression is actually trying to sell a certain thing himself, he cannot in fact be an independent advisor.  A young person receives an abundance of advice from insurance salesmen, mutual fund representatives and stockbrokers about what to do with his savings.  A profession of independent advisors would serve a valuable market function, and would also enhance structurally the ethical setting of the vast investment market.

            The Role of Character.  We have already observed that business would break down if most men were not voluntarily to abide by their contractual obligations.  If most customers were not honest, commerce would collapse because of the extent of the shoplifting; or if most employees were not honest, the theft by employees would become an insuperable problem.  And if people did not pay when they agreed to, the system of credit could not function.

            Any society relies on the basic decency of the general public and on the fact that the public will conform to certain standards.  Even under a totalitarian regime, where extensive police and domestic spying measures are available to enforce the rules, the system counts on the fact that most people, most of the time, will do what is expected of them.  In a free society where there is a strong value placed on avoiding extensive police functions, the need for peoples’ adherence to responsible standards is particularly acute.  This leads to the need to consider here, then, the role of character in a free society and its business system.

            It is here that the most pervasive difficulties about ethics, including business ethics, arise.  It is a fundamental datum that the human race suffers, as many philosophers have remarked and as I discussed in my book Understanding the Modern Predicament, from a chronic immaturity.  Ralph Waldo Emerson observed that “in our barbarous society the influence of character is in its infancy.”  At an earlier time, Jonathan Swift drew a bitter satire of human beings as uncivilized Yahoos.  In today’s literature, Ayn Rand exalts the possibility of men of noble stature, but shows a clear disdain for what she sees as a pervasive spiritual, intellectual and ethical mediocrity.  For its part, the Left, both Old and New, decries the contemporary nature of man—and, blaming capitalism as a distorter of man’s otherwise generous impulses, calls for a non-competitive utopia.  On the Right, the Burkean conservatives see the secular modern age as failing to perceive the fundamental reality of human life: that God exists.

            To me, the problem seems rather a manifestation of the cosmic youth of civilized society.  There have been only about six to ten thousand years of recorded history during the million or so years the human race has existed—and all of those few millennia have been replete with examples both of mankind’s vigor and of its immaturity.  It seems unwise to start from the premise that men are good but have deviated from the path; they are from the start a mixture of the noble, the generous and the active with the short-sighted, the insensitive and the inert.  Thus, “human nature” is mixed.

            Although it is often said that all religions share certain basic suggestions about the values men should hold, one important fact about the modern period is that there is in fact no consensus about what should be done to raise the level of character within society.  American capitalism is based very much on the “middle class virtues” of responsibility, respectability, hard work, thrift and competitive striving.  But it is precisely these virtues that have been under attack in our culture—primarily by socialist authors like Jean Jacques Rousseau two hundred years ago, Thorstein Veblen not quite a century ago, and Herbert Marcuse in the present.  It is said that middle class values are stiff and unyielding and that they keep men from enjoying life and tie them to a predatory-competitive-aggressive nexus.

            How important are these “middle class values”?  To a conservative, it is important to tell a woman on welfare that the society will not tolerate her having (yet another) illegitimate child while receiving public support.  The conservative wants one of the inputs to her from her social environment to be that she is expected to adhere to a standard of responsibility.  To the Left, however, it is society that is at fault if the woman has the additional child—and the society should change its structure to eliminate the causes of her distress, but should not emphasize restraints on her conduct.

            The result is that there is no agreement about what lies at the bottom of the widespread ethical mediocrity that virtually all points of view perceive. 

            One of the primary sources of difficulty arises out of what we might call “the existential structuring” of the American lifestyle.  As the existentialist philosopher Jose Ortega y Gasset has stressed, there is a “radical solitude” within each person, and it is within this solitude that the intimate center of his life is to be found.  The things that are deeply meaningful to him are those that affect him at this intimate center.

            In a society such as ours there are literally billions of human contacts every day that do not vitally touch the radical solitude of the individual.  It is inherent in commercial transactions that they be carried on pleasantly.  Each party desires the exchange with the other, with the result that their conversation will consist of pleasantries and small talk.  This “small talk” greases the path in commercial transactions, where each party seeks to attract, not offend, the other.

            What results is a society that is essentially genial in its human relationships.  The continual pleasantness with which people treat each other is itself of great value, since the tone of the society is humane and gentle.

            The extroverted or “outer-directed” emphasis, however, is not without its problems.  “Small talk” is by definition trivial: it concerns the weather, sports and well-known personalities.  If people become absorbed in such trivia, so that it becomes the primary contact among them, serious spiritual dislocations occur.  In the movie “The Graduate” the main character Benjamin comes home from college deeply concerned, within his radical solitude, about his ultimate purposes in life.  Juxtaposed against this solitude is the triviality and sterility of the cocktail party hosted for him by his parents.  The cocktail party is incapable structurally of accommodating his deeper concerns.  He experiences a feeling of lostness and of separation from other people.

            It is possible in this context to discuss a broad range of problems that have plagued the “bourgeoisie”—the middle class—and have created a severe anti-middle class reaction among many intellectuals.  At this point, however, we are concerned with how this “existential difficulty” relates to the business world.  It affects the business world in at least three ways:

            1.  Where the main human nexus is extroverted, many people become absorbed in the extroversion itself, with the result that they stop aspiring to cultivate their inner being.  They pursue life for its daily satisfactions and to accomplish career goals that, even though they may involve considerable attainment and produce substantial benefits for mankind, may carry with them relatively little by way of personal cultivation intellectually, spiritually or artistically.  Many live without a “higher purpose.”  Few Americans, for example, aspire to become “educated men” in the full meaning of that term.  Life in a middle class culture often proves not merely secular, but also mundane.

            This is not entirely bad.  It is perhaps nothing but the “other side of the coin” from the American virtues.  Nevertheless, the bourgeoisie have characteristically suffered a spiritual deficiency that drains it of a significant part of its intellectual, spiritual and moral potential.  All ethical issues that relate to this are affected by it.  An example is the ethical suggestion that businessmen should be concerned about the aesthetic merit of the neon signs that cover their store buildings, or of the television commercials that advertise their products.

            2.  Where a people’s consciousness is preoccupied with extroverted relationships, extroversion itself becomes an art, involving certain skills that become highly developed.  These skills involve the successful manipulation of other people.  In such a setting, “all becomes politics,” if “politics” is used in its broad sense and not limited to seeking elective office.  Although it is the faith of classical and neo-classical economists that in a free economy “the most efficient rise to the top,” there is a strong cultural tendency for the more glib, the least offensive and most studiedly pleasing people to rise to the top.  This is one of the most striking characteristics today in elective politics, the professions and business.  The man who makes no enemies, necessarily by never standing up for anything he considers right or opposing what he considers wrong, is better positioned for advancement in competition with a man who has alienated one or more members of his organization.  [Note in 2007: A recent biography of Mao Tse-tung shows how different this is from some other human situations.  The Soviet Union under Stalin was attracted to Mao, and hence sponsored him, precisely because he was pitiless in the destruction of his rivals.  Pleasantness had nothing to do with it.]

            A sizeable offsetting factor is built into a market economy.  A company will be less profitable if the less capable rise to the top.  In a profit-and-loss system there are mechanisms that tend to eliminate the inefficient.  Nevertheless, the elevation of men who have mastered the skills of impressing and not offending others is widespread.  This may be present even more in a bureaucratic system that does not have a profit-and-loss check upon it, but that fact doesn’t obviate its importance in business.

            With respect to business ethics, if the person with “backbone” suffers for it, while the one who smiles and says nothing is rewarded, there is little foundation for making hard ethical decisions.  Returning to the example of the young lawyer who would not fix a ticket, there is every likelihood that he will either go along, keeping silent, the next time or will find himself shunted to one side as “someone who does not know how to get along with people.”    

            3.  This brings the problem of personal integrity into focus.  Integrity involves someone’s consistent inclusion of his convictions into his conduct.  What does the young lawyer do about his integrity on the next occasion?

            This problem is by no means limited to business or American culture.  It is implicit in human life.  The only pure answer to the problem of integrity is to become an ascetic, a hermit and a saint.  This has been the recurrent experience of religious men throughout the centuries.  For those who stay in the world rather than withdrawing from it, the continuing problem is how to maximize ones integrity within the confines of an imperfect situation.  Much compromise and accommodation must come in if the person is not to become involved in such persistent conflict with other people as to force upon himself a withdrawal, or at least a significant reduction of his potential for success.

            It is often said that “it is profitable to be ethical,” and there is some truth in the saying, since some people will be attracted to a man or company that is known for its ethics, but the saying should not be accepted so fully that the personal dilemma just described is obscured.

            The Cultural Context.  Much of the cultural context of business ethics has just been discussed, but two additional points are worth noting:  (1) that cultural and intellectual changes can cause something to appear an ethical problem that previously wasn’t seen as one; and (2) that changes in a society’s situation can alter the consequences of an activity, evoking ethical problems that weren’t previously present.

            Racial discrimination is an example of the first.  Discrimination on the basis of race in employing personnel is now illegal and considered unethical.  A few years ago it was not illegal, and although the discrimination ran counter to the ethical principles of classical liberal individualism, such differentiation was culturally accepted.  This author remembers his parents having pointed out “colored town” to him as a child, and there was no intimation that the existence of such a place was an evil.  And the old childhood refrain of “eenie, meenie, minie, moe…” was accepted as simple fun, whereas today it strikes the hearer as an obscenity.  Intellectual and cultural changes over even so short a period as a few decades can modify the society’s perception of ethics.

            An example of the second is provided by the history of rules about fencing in the American West.  As conditions change, so may the consequences from a given activity, with the result that what is ethical (and legal) also changes.  When the West was overwhelmingly open range and there were few settlers, it made sense for a rancher to be able to let his cattle roam at will.  It was for the occasional farmer to build fences that would keep the cattle out.  When later the population became more dense and there were many farms, the open grazing of cattle became too destructive.  This led to the rule’s being reversed so that the rancher had to fence his cattle in.

            Another example relates to water pollution.  While the population was sparse, little thought needed to be given to a feed lot owner’s letting the manure run off into a stream.  After all, it was said, running water purifies itself every so many feet.  But today, with a much denser population, the consequences of polluting are severe, leading to a change in the ethic and the law.

            The Business Firm as an Ethical Context.   It is often said, rightly, that one of the main influences on individuals’ ethical behavior is the ethical tone of the firm as a whole as set by management.  If the atmosphere within the firm permits the padding of expense reports or the taking of gifts by a buyer, the individuals within the firm are likely to consider it at least marginally acceptable to do those things.  If, rather, the atmosphere calls for ethical behavior, the employee finds it just as easy and acceptable to act ethically.  It may never enter his mind not to.  Management can do much to establish the pattern.

            I at one time (years ago) sold “men’s furnishings” for a reputable store in Denver.  Despite its reputation, the store’s management put a large number of regularly $2.98 shirts in with others on a sale table that had a sign “regularly $5.98 shirts marked down to $2.98.”  Such a practice will easily lower the ethical tone of the entire staff.  It would not have been surprising for employees to cheat both the customers and the company.

            The Role of Ideology.  Several issues in business ethics relate to the point of view of one of the major ideologies.  Here are some:

             1.  Should a business or a farmer accept subsidies and even lobby for more of them?  Most have no hesitation today, but classical liberalism (America’s traditional philosophy) would look askance at it. 

            2.  Is it ethical for a company to agree to a “union shop” whereby all employees are required to join a union within a certain time after becoming employed?  Authors on business ethics take diametrically opposite sides on this.  This was the issue in the years-long Kohler strike in Wisconsin.

            3.  Is it ethical in advertising to appeal to a desire for status?  Those who look with disfavor upon the social strivings that are involved in a competitive society consider it unethical.  Neither a Burkean conservative nor a classical liberal think it so.

            4.  Is it ethical to use advertising to create a demand for a new product where there was no earlier demand?  Those who argue that electric can openers and self-cleaning ovens are luxuries Americans don’t need often point to such things as examples of “mindless American materialism.”  Such a view is integral to the New Left, but is rejected by those who see a market economy as dynamically creative and as “the source of the highest standard of living in the world.”

            5.  Is usury (i.e., interest charges higher than exacted by the major lenders) unethical?  High interest rates were considered unethical during the Middle Ages, and interest rates are today regulated minutely by state and federal law, but it is interesting that during the eighteenth and early nineteenth centuries usury legislation was opposed on principle by Jeremy Bentham and others of the free trade school.

            6.  Should businesses feel an imperative to exercise “positive discrimination” (called “affirmative action”) in favor of blacks?  The ideologies differ greatly on this in the United States.

            7.  Does big business have an obligation to spend money on the retraining of the “hard-core unemployed”?  Present-day liberalism says it does, but there was a time when the liberal-Left opposed calling upon business to provide such social services, believing instead that government should do it.  The classical liberal economist Milton Friedman opposed business’ provision of social services on the basis that people had invested in companies expecting the best possible financial return.

            8.  Is it unethical for a company to trade with a “rogue nation,” such as South Africa and Rhodesia were once considered?  What nations are considered “outside the pale” differs among varying points of view.

            9.  Is it unethical for a company to decline to hire anyone over, say, forty?  (It is now illegal to do so, but should it be?)  In the United States since shortly after World War II, business firms have been considered as something of quasi-public entities, involving such obligations.  Complex ideological issues are involved, however, even though they are most often brushed over lightly.

            10. Is it unethical to pay men more than women for the same work?  An affirmative answer may come too facilely today.  Consider this: If a society were to seek to put primary emphasis on the home and on the parental role in raising children (as Americans traditionally did, and a certain form of classical liberalism would prefer that the society do), it will perhaps serve that purpose best not to expect women to receive equal pay at work, so as to encourage their remaining at home.  It depends upon what sort of society is desired.  The egalitarian model accepted in the United States in recent years is not the only possible model.

            11.  Is it more ethical to manufacture quality merchandise than cheap goods?  Many authors suggest that it is, but the theorists for capitalism consider it one of the major achievements of a market economy that it has produced “inexpensive goods for the masses” rather than just luxury goods for the few. 

            12.  Are low wages unethical?  Again, the issue turns on the differing ideological views of economics.  Some authors believe it is unethical for a company to move to the American South to take advantage of low wage rates there.  The free trade enthusiast, however, looks upon this flow of capital as beneficial, both to the owners of capital and to workers taken as a whole.  [Note in 2007: Since this was written, the issue has widened considerably.  Now, in a global market, the question involves the off-shoring of capital to other countries for lower wages and perhaps non-existent fringe benefits, or the use of outsourcing to obtain products made cheaply with overseas labor.  This raises questions of national self-interest that the issue initially discussed here did not.]

            13.  Is it unethical to manufacture weapons of war, such as napalm or helicopters?  It is impossible to unravel this one without taking into account a great many considerations, both factual and theoretical.  Any answer that seems too simple probably is.

            14.  Is it ethical to pursue a business or professional career without devoting substantial time to spiritual matters and to worship?  St. Augustine certainly would not have thought so.  In the present secular age in the West, however, the pursuit of life without extensive religious observance is taken for granted. 

            All of these questions, and many more, make it apparent that there are many aspects of business ethics that cannot be answered without an intelligent study of the competing philosophies and even religions. 

            Status versus Contract.  A century ago Sir Henry Maine wrote in his book Ancient Law that the movement of progressive societies had been from status to contract.  “Nor is it difficult to see what is the tie between man and man which replaces by degrees those forms of reciprocity in rights and duties which have their origin in the Family.  It is Contract.  Starting, as from one terminus in history, from a condition of society in which all the relations of Persons are summed up in the relations of Family, we seem to have steadily moved towards a phase of social order in which all these relations arise from the free agreement of individuals.”

            To Maine, the liberty of the individual had been progressively developing, to the point at which the nexus among men was contractual—i.e., based upon their voluntary agreement rather than set out for them by a structured system that defined their reciprocal rights and duties.

            This contractual voluntarism is basic to classical liberal thought.  Two things should be observed, however:

            (1) That this contractual nexus has long been opposed by other intellectual traditions, such as those of Burkean conservatism and of socialism—and by cultures in which a clan or tribal organization of society is central.  Russell Kirk, a Burkean, wrote in  his Enemies of the Permanent Things that “the vague attitude that one is entitled to do as one likes, so long as it doesn’t injure somebody else [is] devoid of spiritual and intellectual discipline.”  And R. H. Tawney, an early-twentieth century British socialist, wrote in his The Acquisitive Society that “to say the end of social institutions is happiness, is to say that they have no common end at all.  For happiness is individual, and to make happiness the object of society is to resolve society itself into the ambitions of numberless individuals, each directed towards the attainment of some personal purpose.”  Although I don’t mention it to put the others in bad company, German national socialism felt the same way, thinking that the individual found his meaning in race and nation, not in autonomous life.

            (2) That, ironically, the movement in Europe and the United States during the century since Sir Henry Maine made his famous observation has run counter to his expectation.  The shift has been back toward status and away from contract.  [Note in 2007: The rise of the global market with its unconcern for particular nations or peoples, something that has become evident since this paper was written, reverses this trend, except to the extent the displacing effects of the global market are offset for the individual by increased social welfare spending to sustain the members of a given constituency.  Another part of the shift back has come from the “commercialization” of the learned professions.  American anti-trust law has since the mid-1970s insisted that doctors and lawyers, among others, be price competitive and able to advertise, both of which fly in the face of the traditional concept that the learned professions were “vocations” or “callings” in which the professional occupied a “fiduciary” relation toward the client or patient, looking more toward service than toward profit.]

            Both status and contract tend to produce some undesirable results, along with the good that they connote.  Defined, structured relationships (such as that a chimney sweep’s son is expected also to become a chimney sweep, as was the case a couple of centuries ago in England) tend to become enervating and suffocating.  On the other hand, individual voluntarism is often thought to atomize the society, depriving it of a sense of community.  (This would seem to overlook the immense participation in voluntary organizations that involves people in a great many things in a free society.)  There is a problem with individual autonomy, also, if there are very many people in the society who are unable or unwilling to cope with a competitive independence.  [Note in 2007: This is precisely the problem that stimulated my book The Emerging Crisis of Economic Displacement.  An additional note: In much of the discussion that follows, I  present the opposing views as though they are polar opposites, which to many who consider themselves ideological “purists” they are; but actually each pole needs to be mitigated by the inclusion of significant aspects of the other.  An organic, structured society will be unlivable if it does not allow a certain amount of individuality.  For its part, classical liberal individualism needs a substantial cocoon of social, familial and civic relationships, with a strong ethic of responsibility, if it is to be a well-rounded philosophy that will address the needs of advanced civilization -- all of which at least superficially runs counter to the “anything that’s voluntary is all right” rationale.]    

            Many business ethics problems reflect this unresolved tension between status and contract.  Here are some:

            1.  I once knew a lawyer who had had a secretary for some twenty-plus years.  Before leaving on a long trip, he told his associates “I want her gone by the time I get back.”  She was fired immediately before his return.

            She had no contracted-for term of employment that entitled her to stay longer as his employee.  For her part, she could have quit at any time. And yet, despite this legal freedom, a long-term relationship creates certain dependencies and expectations, not the least of which is that she will be treated with personal empathy.  The freedom to quit or to terminate is based on “contract”; the presence of expectations is based on “status.”

            2.  An employee for the parts division of a large automobile company developed a serious drinking problem, was divorced by his second wife, began drinking even more, was more than once jailed for failing to support his children, and missed work recurrently because of his drinking.  The company paid him sick pay for the time he missed, and never discharged him.

            Here, a very considerable indulgence is evident.  Several questions come to mind about this much job security:

            Was the company obliged to be indulgent?  Could it ethically have fired him?  In retaining him, has it met its obligations to its stockholders?  Was this an example of a destructive permissiveness that removes the social sanctions from the individual’s violation of ethical norms, or was it rather an example of a benign spirit that has made the company a virtual family of which the man was a part?

            3.  The question comes up of whether an employer stands in loco parentis (i.e., in the relationship of a parent) to his employees.  Should the employer (and is it proper for the employer) to care about the private lives of his employees, so long as their work is not affected?  Are adultery, taking drugs, drinking excessively off the job any business of the employer?  This sort of question arises in business, and also outside it, such as when a university recently suspended a coed who was living with a man off campus, and when a branch of the military discharged an unmarried officer in its women’s corps because she became pregnant.

            At least superficially, it seems the main ethical philosophies switch their positions on questions of this sort.  Even though classical liberalism stresses the autonomy of the individual, it tends to support the in loco parentis role (although it’s noteworthy that its “libertarian” variant does not) because it believes strong cultural and moral cements are needed in a free society.  The generally less individualistic left-oriented viewpoint, however, tends to oppose it.  To understand this, it is necessary to understand the subtleties of the philosophies, each taken as a whole.

            4.  “Featherbedding” is the word for the deliberate retention of more employees than are needed to perform a function.  Often insisted upon by trade unions in the past, it directly reflects a “status” view of employment. 

            5.  An issue that has been in the news for several years has concerned the living conditions of migrant workers from Mexico.  [Note in 2007: This concern was pressed strongly by Cesar Chavez in his campaign in the 1950s and ’60s.  It was a separate matter from the later concern over mass illegal immigration from Mexico.]  The criticism of those conditions has been based on the premise that the employers have a moral duty to provide living conditions that are up to American standards.  The “contract”-oriented argument against this premise is that the workers have voluntarily come into the country for the jobs and that they wouldn’t come unless the overall effect were to improve their condition from that in Mexico as they perceive it.  The view also argues that increasing the costs that employers must bear would reduce their demand for labor from Mexico, resulting in more workers being left in the even less desirable conditions that exist in Mexico.  [Note in 2007: It’s worth remembering that Chavez himself shared this concern; he wanted to stop the flow of illegal immigrants precisely to reduce the supply of labor and force up wages for those here.  He reversed this position only after he became identified as an ethnic, as distinct from a labor, leader.]

            6.  A seniority system for the retention and promotion of employees reflects a “status” approach, while a “merit” system reflects the “contract” perspective.

            7.  When a company comes to lay off some employees, the question comes up whether the less capable, the less senior or the less needy employees should be laid off first.  If an employee has a spouse and five children to support, but is less capable than an employee with no dependents, should he be retained and the more capable employee let go?  “Status” would incline toward the affirmative, “contract” toward the negative.

            8.  The “hard case” is posed of an employee who is terminated right before retirement age after many years of service so that he won’t receive a pension.  Such a thing causes most people to reject pure “contract” and to believe there should be some softening of a purely voluntaristic nexus.  How much softening?  Should it be by a legal requirement, by institutional pressures, or by moral suasion?  What are the offsetting costs of going to a well-defined “status” protection (because in fact there are some trade-offs)?

            The “Fairness” Nexus. The classical liberal view tends to reject “fairness” as a concern where the contract has been entered voluntarily without force or fraud.  According to a common formulation, each party enters into the exchange precisely because he, in his own subjective evaluation at the time, concludes he is gaining from it.  If each side did not feel he was gaining, one or both of them would lack incentive to enter into the transaction.  Classical liberals consider it both a sound factual assumption, and also a moral imperative, that adults are (or should be) competent to judge such a thing for themselves.  Accordingly, the question to them is not whether the contract is “fair,” but whether it is freely arrived at.

            Virtually all other points of view, however, have used the “fairness” idea.  This was seen in the medieval and mercantilist concepts of “fair profits,” “fair wages,” “fair prices,” “fair interest,” “fair rents,” “fair credit practices,” and the like.  Although these concepts are seldom well defined, they involve the notion of “equivalency” and sometimes of “reasonableness,” by which “excessive” rewards to one of the parties are sought to be avoided.  [Note to 2007: Even under the classical liberal market-oriented perspective, a return may be thought to be excessive  if it arises out of a non-competitive situation or through governmental favor.  The incredibly high compensation of chief executive officers today compared with the past, even where the company does badly, seems to be the result not of market forces but of a community of mutual favors within the top managements and boards of directors.]  The concept of equivalency can relate either (1) to the view, commonly held until the mid-nineteenth century, that goods have intrinsic values, and that an exchange should involve at least a rough parity between the values given up by each side in a transaction, or (2) to the view that the subjective satisfactions should be roughly the same on each side.  The concept of “reasonableness” often relates to the view that many times one party will be in a “stronger” position and will have less urgency, perhaps psychological, than the other party.  This relates to the concepts of exploitation and of “bargaining power.”  [Note in 2007: I have addressed the issues involved here, including that of “bargaining power disparity,” at length in Chapter 12 of my book Socialist Thought.]

            The “fairness” concept was central to the economic thinking of the Middle Ages.  In the eighteenth and early nineteenth centuries, classical liberals vigorously attacked usury laws and in various other ways favored removing the constraints on contractual dealings.  That did not decide the issue, however.   Since that time, the concept has been continued or renewed in a number of contexts.  The Uniform Commercial Code in the United States has for several years, for example, provided that courts may refuse to enforce a sales contract if it is ”unconscionable.”