Joseph Heath

This chapter discusses the practice of risk classification and underwriting in the insurance industry. It also examines the process of actuarial fairness used by insurers to charge each policy-holder the so-called “actuarially fair” premium. This premium represents the anticipated cost of compensating an individual for a loss, multiplied by the probability that the loss will occur during the term of policy. The entire practice is heavily criticized for being inherently unjust, as actuarial fairness conflicts with luck egalitarianism, the most shared liberal conception of justice. Certain arguments that are in favor of the practice also tend to contradict themselves as actuarial fairness usually demands a “freedom to underwrite” that is much greater than the freedom enjoyed in most transactions. However, there is also a principle of the “right to underwrite,” which can grant legitimacy of the practice.

This chapter describes the virtue theory which emphasizes the role of one's character and the virtues that one's character embodies for determining or evaluating ethical behavior. It presents an overview of the three different lines of critique that the theory faces, with particular emphasis on the lessons that business ethicists can draw from them. These critiques come from three primary sources: social psychology, sociology, and political theory. It looks into how psychologists have been unable to find any evidence that the type of character trait, or disposition traditionally posited by virtue theory have any value, how sociologists find the concept of vice suggested by virtue theory is limited when it comes to understanding the formation of criminal subcultures, and how political theories find perfectionism, the political expression of virtue theory, as a major source of parochialism and disorder.

This chapter discusses the agency theory which explains the relationship between the principals and agents in a business, and considers the theory's function in determining with greater precision the nature of violated moral obligations. It enumerates the various theoretical commitments that are essential to agency theory in order to distinguish between agency theory itself and certain incorrect interpretations that have become widely promulgated. It also highlights the ways the theory can be used to analyze the relations within the firm as a way of determining whether it is the use or abuse in agency theory that has become a source of mischief. It also outlines three major objections to agency theory by various business ethicists, believing that the theory promotes the idea of self-interest, shareholder primacy, and misplaced loyalty.

This chapter examines how business ethics deals with a domain of human affairs that is afflicted by serious criminality, and an institutional environment that is in many cases demonstrably criminogenic. It describes how a criminological position illuminates some of the questions about moral motivation that have often trouble business ethicists. The chapter enumerates various folk theories often proposed as explanations for white-collar crime, and highlights three theories that criminologists unanimously reject: first, that criminals suffer some defect of character; secondly, that they suffer from an excess of greed; and thirdly, that they “don't know right from wrong.” It also highlights the techniques of neutralization theory proposed by Gresham Sykes and David Matza and enumerates five categories used by offenders to deny the criminality of their actions: denial of responsibility, denial of jury, denial of the victim, condemnation of the condemners, and appeal to higher loyalties.

This chapter examines the “invisible hand” theory proposed by Adam Smith. It explains how Smith uses the phrase as a description of unintended social benefits resulting from individual actions, and the way that markets promote cooperation. It enumerates two famous positions of the theory which became prevalent in different periods: the incentive argument, popularized by Emile Durkheim during the early twentieth century, which discusses how markets were superior to other institutional forms because they allowed society to economize on moral motivation; and therefore the market, proposed by Friedrich Hayek during the advent of large-scale bureaucratic organizations and centrally planned economies that consists of large multidivisional companies, which states that markets allow society to economize on knowledge. The chapter analyzes the history and development of these two different lines of thought, and shows how the various theories came together to provide the most sophisticated case for the market.

This chapter examines the nature and functions of social institutions. It highlights the dominant idea in social contract theory that their primary function is to secure some form of cooperative benefit. It discusses the theory and enumerates the different concerns raised such as the theory being formulated at a too high level of abstraction, leading to the complete removal of the mechanism through which social benefits are produced. The chapter attempts to face these issues by listing down five different mechanisms of cooperative benefit that can represent ways in which individuals can help each other. These five are: (1) economies of scale; (2) gains from trade; (3) risk pooling; (4) self-binding; and (5) information transmission.

This chapter discusses the counterintuitive aspect of business ethics as people find it dissipated as to be bereft of normative authority. It first borrows the idea of first, second, and third best normative theory principles from Richard Lipsey and Kevin Lancaster's article “The General Theory of Second Best” where they overturned the assumptions that, when a first-best outcome is unobtainable, the best course of action will be to approximate the conditions required to bring about that outcome. It then clarifies the distinction between ideal and non-ideal theory, and looks into how business ethics is structured by the norms of market economy, which is governed by a set of third-best normative principles where business ethics winds up being so far removed from “the best” giving the impression of being unethical. It also considers business ethics being exercised under non-ideal theory, where individuals fail to do what is morally required of them.

This chapter discusses the arguments of Henry Hansmann and Reiner Kraakman concerning shareholder primacy, highlighting that shareholder-owned, profit-oriented business is the standard arrangement for organizing production and investment. It also emphasizes their claim that ownership of the firm is exercised by the group able to achieve the lowest costs of ownership, and that homogeneity of interest within the ownership group is a crucial factor in achieving lower costs. It describes the implications of their opinions for business ethics, and answers them by enumerating various opinions of business ethicists, such as going against the idea that shareholders should have any sort of privileged position within the firm, and that members of the board of directors of a firm should act as agents for a variety of different stakeholder groups, as well as the author's own concept that Hansmann and Kraakman's belief leads to a less minimalist view of business ethics.

This chapter analyzes the social contract theory of central contractualism where individuals agree to undertake cooperative interaction. It looks into two practical applications of the notion, namely, microcontractualism and macrocontractualism. It first discusses the basic ideas of microcontractualism regarding the treatment of the principles of justice as constraining individual conduct at the action-theoretic level. It also highlights microcontractualism's resemblance to libertarianism, concerning both of the concepts' claims of leaving individuals without redistributive obligations toward those with whom they choose not to cooperate. It then considers macrocontractualism, where individuals are part of a generalized system of cooperation, and so are subject to certain obligations that apply to everyone. It also examines the issue of overlooking the fact that the individuals expect fairness in their interactions and private associations under macrocontractualism, a problem that emerges due to macrocontractualism views “society as whole”.

This chapter studies the problems that emerge from the failure to distinguish between the moral obligations that managers have toward individuals who are “outside” and “inside” the firm. It looks into the two transactions by firms in economic literature: market transactions, which involve buying and selling in the market; and administered transactions, which are governed by the rules that structure the bureaucratic hierarchy of the firm. It emphasizes the importance of the distinction for business ethics due to market transactions being governed by the competitive logic of the market environment where the firm operates, whereas administered transactions are subject to cooperative norms that govern collective actions in a bureaucracy. It analyzes the notion of adversarial ethics that deals with the problem, and examines the structure of competitive behavior, along with the specific forms of competition to develop a model of adversarial ethics.

This chapter examines the stakeholder theory of corporate governance. It analyzes the theory's feature of serving “fair” return on the investment of the company's customers, suppliers, employees, and the local communities. It explains the basis of the theory, citing the extraordinary status and control that shareholders are given under corporate law. It reviews the Enron scandal where shareholders did not have the power to ensure that their interests were fully taken into account by senior management. It argues that the scandal offers more lessons for stakeholder theorists who oppose the dominant shareholder-focused conception of the firm. It also highlights the reasons having a strong convergence of the interests of shareholders and stakeholders, and emphasizes the relevance of agency problems to governance in general, and to the governance of stakeholder-friendly firms in particular.

This chapter considers the stakeholder approach to business ethics. It looks into how the approach is associated with a characteristic style of normative analysis that interprets ethical conduct in a business context under a set of moral obligations toward stakeholder groups. It presents the question of whether the stakeholder paradigm represents the most fruitful approach to study business ethics, as there are many who criticizes paradigm as part of business ethics in general. To serve as a point of contrast, it provides an outline of two possible approaches to the study of business ethics: one anchored in the notion of fiduciary obligations toward shareholders, and the other focusing on the regulatory environment where firms operate. It also attempts to show how the market failures approach offers a more satisfactory framework for articulating the concerns of appeals for increased corporate social responsibility.

This chapter discusses the issues concerning the association between the business obligation of profit maximization and self-interest. It looks into how this problem emerges as a result of the failure to distinguish the two concepts, highlighting that the teaching of self-interest as an underlying factor during market transaction a major factor in its emergence. It suggests that the market failures approach to business ethics shows that a moral code can be developed out of the idea that the fundamental obligation of managers must do so within the framework of the law. It also examines the justification of the profit motive by enumerating sources that approve it, such as Milton Friedman's _Capitalism and Freedom_ where he wrote that the social responsibility of business is to increase profit.

This introductory chapter examines the author's series of papers on business ethics and provides an overview of the method used: the “market failures” approach. It illustrates the intellectual history of the project and how profit, competition, efficiency, and the goal of business ethics are interrelated. It describes how the approach is derived from the author's claim that there is a need for prevention of economic sabotage due of the inability of rules to govern market competition. It then lays the groundwork to an argument of whether to promote a stakeholder's good, or to act on capitalism's primary motive to make profit. It also suggests the need for the study of law and morality as key factors in market competition.

According to a Humean present‐aim theory of rationality, there is no rational requirement of prudence: it is not rationally obligatory to act in light of one's foreseen future desires as well as one's current desires. It might therefore seem that on this view the acts of a rational agent could be absurdly incoherent over time. The author rebuts this worry by showing how the present‐aim approach to rationality itself generates rational constraints on the evolution of desires and hence of reasons. More generally, the author argues that reasons, whatever they are, are time‐relative rather than timeless.

A critique of capitalism, in order to count as such, must identify a problem that is not shared by all other feasible economic systems, for this would amount to little more than a complaint (or kvetch) about the human condition. The distinction between critique and kvetch raises the question of what constitutes a feasible alternative to capitalism. Although it sounds as though this is a pragmatic or technical question, I will argue that it is usually normative. With this clarification in place, I will consider whether Waheed Hussain’s concerns about capitalism amount to a critique or a kvetch.

There are several sectors of the economy in which cooperatives have flourished, competing successfully against standard business corporations. The best explanation for their success is that they provide superior benefits to their members. The question addressed by this paper is whether cooperatives also provide important benefits to society, such that non-members should prefer a cooperative economy to one dominated by business corporations. It has often been suggested that cooperatives are more virtuous because they are more democratic, less hierarchical, less anti-social and less apt to produce economic inequality. This paper evaluates these claims. The central challenge stems from the observation that cooperatives are not nearly as different from corporations as is commonly assumed.

The way that wages are determined in a market economy produces results that strike most people as morally counterintuitive, if not positively unjust. I argue that there is an important and easily defensible principle underlying the system—it is designed to channel labour to its best employment, the way that it does any other resource. But many consider this defence too minimal, and so strive to find a thicker, more robust moral principle that can be used to defend the market, using concepts like ‘contribution’, ‘effort’, ‘laziness’, ‘skill’ or ‘talent’—all of which combine to provide a concept of ‘desert’, or ‘fairness’ in compensation. The objective of this paper is to caution against such overreach. I begin by articulating what I take to be the central principle underlying the determination of wages. I go on to discuss three different ways that both critics and defenders of the market have sought to go further than this, by introducing thicker moral concepts to the discussion, and why each of these initiatives fails. My central contention will be that markets are structurally unable to deliver ‘just’ wages, according to any everyday-moral understanding of what justice requires in cooperative interactions.

Although the harm-reduction approach to policy is most familiar from debates over public health and drug abuse, it provides a perfectly general framework for thinking about normative aspects of policy in non-ideal contexts. This paper seeks to apply a generalized harm reduction approach to the problem of attitudinal racism. Psychological research suggests that racism is unlikely to be completely eradicated, as a result of which a zero-tolerance approach risks becoming both counterproductive and overly punitive. Harm reduction recommends minimization of prevalence with respect to the primary phenomenon combined with attenuation of impact for the ineliminable portion.

ABSTRACT Schemes to replace traditional welfare programmes with a universal basic income (UBI) are sometimes presented as a way to reduce overall economic inequality. But because they lower the implicit marginal taxation rate of individuals entering the workforce, they have the effect of increasing economic inequality between those who opt out of the workforce and those who choose to participate. This article examines the effect that an increase in this income gap can be expected to have on the perceived adequacy of the UBI payment level as an alternative to paid employment. The first question involves the extent to which individuals living on UBI payments will assess the adequacy of their condition by comparing themselves to those who are adjacent to them in the income distribution. If this looms large in their assessment, then the UBI, by increasing inequality within this segment of the income distribution, will tend to increase the perception of its own inadequacy. The second question involves the importance of the consumption of positional goods in determining the adequacy of the UBI. If these are significant then again this will increase the perception of inadequacy, because those in paid employment will enjoy a great deal more than those who opt out.

David Gauthier tries to defend morality by showing that rational agents would choose to adopt a fundamental choice disposition that permits them to cooperate in prisoner's dilemmas. In this paper, I argue that Gauthier, rather than trying to work out a prudential justification for his favored choice disposition, should opt for a transcendental justification. I argue that the disposition in question is the product of socialization, not rational choice. However, only agents who are socialized in such a way that they acquire a disposition of this type could acquire the capacity to use language. Given the internal connection between language and thought, this means that no agent endowed with such a disposition could rationally choose to adopt another. Thus rational reflection by moral agents upon their own fundamental choice disposition will have no tendency to destabilize it. “It is a necessary truth that people tend to do what they think they ought to do, for it is a necessary truth that people who occupy a linguistic position which means /ought to do A now, tend to do A. If they did not, the position they occupy could not mean Iought to do A now.” Wilfrid Sellars, “Some Reflections on Language Games.”