Business Ethics: Readings and Cases in Corporate Morality, Fifth Edition.
Edited by W. Michael Hoffman, Robert E. Frederick, and Mark S. Schwartz.
© 2014 John Wiley & Sons, Inc. Published 2014 by John Wiley & Sons, Inc.
Theories of Economic Justice
Justice as Fairness
John Rawls
James Bryant Conant University
Professor Emeritus, Harvard University
The Main Idea of the Theory
of Justice
My aim is to present a conception of justice which
generalizes and carries to a higher level of abstraction
the familiar theory of the social contract as found, say,
in Locke, Rousseau, and Kant. In order to do this we
are not to think of the original contract as one to
enter a particular society or to set up a particular form
of government. Rather, the guiding idea is that the
principles of justice for the basic structure of society
are the object of the original agreement. They are the
principles that free and rational persons concerned to
further their own interests would accept in an initial
position of equality as defining the fundamental terms
of their association. These principles are to regulate all
further agreements: they specify the kinds of social
cooperation that can be entered into and the forms of
government that can be established. This way of
regarding the principles of justice I shall call justice as
fairness.
Thus we are to imagine that those who engage in
social cooperation choose together, in one joint act,
the principles which are to assign basic rights and
duties and to determine the division of social benefits.
Men are to decide in advance how they are to regulate
their claims against one another and what is to be the
foundation charter of their society. Just as each person
must decide by rational reflection what constitutes his
good, that is, the system of ends which it is rational for
him to pursue, so a group of persons must decide once
and for all what is to count among them as just and
unjust. The choice which rational men would make in
this hypothetical situation of equal liberty, assuming
for the present that this choice problem has a solution,
determines the principles of justice.
In justice as fairness the original position of equality corresponds to the state of nature in the traditional
theory of the social contract. This original position is
not, of course, thought of as an actual historical state
of affairs, much less as a primitive condition of culture.
It is understood as a purely hypothetical situation
1
John Rawls, “Justice as Fairness.” Excerpted from A Theory of
Justice by John Rawls (Cambridge, MA: Belknap Press of Harvard
University Press, 1971), pp. 11–15, 60–64, 100–104, 136–137,
140–143, 144–145. © 1971 by the President and Fellows of
Harvard College. Reprinted with permission of the publisher.
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44 part 1 ethic s and bu sine s s: from theory to practice
characterized so as to lead to a certain conception of
justice. Among the essential features of this situation
is that no one knows his place in society, his class
position or social status, nor does any one know his
fortune in the distribution of natural assets and abilities, his intelligence, strength, and the like. I shall even
assume that the parties do not know their conceptions
of the good or their special psychological propensities.
The principles of justice are chosen behind a veil of
ignorance. This ensures that no one is advantaged or
disadvantaged in the choice of principles by the outcome of natural chance or the contingency of social
circumstances. Since all are similarly situated and no
one is able to design principles to favor his particular
condition, the principles of justice are the result of a
fair agreement or bargain. For given the circumstances
of the original position, the symmetry of everyone’s
relations to each other, this initial situation is fair
between individuals as moral persons, that is, as
rational beings with their own ends and capable, I
shall assume, of a sense of justice. The original position
is, one might say, the appropriate initial status quo, and
thus the fundamental agreements reached in it are fair.
This explains the propriety of the name “justice as
fairness”: it conveys the idea that the principles of justice are agreed to in an initial situation that is fair. The
name does not mean that the concepts of justice and
fairness are the same, any more than the phrase
“poetry as metaphor” means that the concepts of
poetry and metaphor are the same.
Justice as fairness begins, as I have said, with one of
the most general of all choices which persons might
make together, namely, with the choice of the first
principles of a conception of justice which is to regulate all subsequent criticism and reform of institutions.
Then, having chosen a conception of justice, we can
suppose that they are to choose a constitution and a
legislature to enact laws, and so on, all in accordance
with the principles of justice initially agreed upon.
Our social situation is just if it is such that by this
sequence of hypothetical agreements we would have
contracted into the general system of rules which
defines it.
It may be observed that once the principles of
justice are thought of as arising from an original
agreement in a situation of equality, it is an open
question whether the principle of utility would be
acknowledged. Offhand it hardly seems likely that
persons who view themselves as equals, entitled to
press their claims upon one another, would agree to a
principle which may require lesser life prospects for
some simply for the sake of a greater sum of advantages enjoyed by others. Since each desires to protect
his interests, his capacity to advance his conception of
the good, no one has a reason to acquiesce in an
enduring loss for himself in order to bring about a
greater net balance of satisfaction. In the absence of
strong and lasting benevolent impulses, a rational man
would not accept a basic structure merely because it
maximized the algebraic sum of advantages irrespective of its permanent effects on his own basic rights
and interests. Thus it seems that the principle of utility
is incompatible with the conception of social co –
operation among equals for mutual advantage. It appears
to be inconsistent with the idea of reciprocity implicit
in the notion of a well-ordered society. Or, at any rate,
so I shall argue.
I shall maintain instead that the persons in the initial situation would choose two rather different principles: the first requires equality in the assignment of
basic rights and duties, while the second holds that
social and economic inequalities, for example inequalities of wealth and authority, are just only if they
result in compensating benefits for everyone, and in
particular for the least advantaged members of society.
These principles rule out justifying institutions on the
grounds that the hardships of some are offset by a
greater good in the aggregate. It may be expedient but
it is not just that some should have less in order that
others may prosper. But there is no injustice in the
greater benefits earned by a few provided that the
situation of persons not so fortunate is thereby
improved. The intuitive idea is that since everyone’s
well-being depends upon a scheme of cooperation
without which no one could have a satisfactory life,
the division of advantages should be such as to draw
forth the willing cooperation of everyone taking part
in it, including those less well situated. Yet this can be
expected only if reasonable terms are proposed. The
two principles mentioned seem to be a fair agreement
on the basis of which those better endowed, or more
fortunate in their social position, neither of which we
can be said to deserve, could expect the willing cooperation of others when some workable scheme is a
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theories of economic justice 45
necessary condition of the welfare of all.1
Once we
decide to look for a conception of justice that nullifies
the accidents of natural endowment and the contingencies of social circumstance as counters in quest for
political and economic advantage, we are led to these
principles. They express the result of leaving aside
those aspects of the social world that seem arbitrary
from a moral point of view.
The idea of the original position is to set up a fair
procedure so that any principles agreed to will be just.
Somehow we must nullify the effects of specific contingencies which put men at odds and tempt them to
exploit social and natural circumstances to their own
advantage. Now in order to do this I assume that the
parties are situated behind a veil of ignorance. They do
not know how the various alternatives will affect their
own particular case and they are obliged to evaluate
principles solely on the basis of general considerations.2
The veil of ignorance enables us to make vivid
to ourselves the restrictions that it seems reasonable to
impose on arguments for principles of justice, and
therefore on these principles themselves. Thus it seems
reasonable and generally acceptable that no one
should be advantaged or disadvantaged by natural fortune or social circumstances in the choice of principles. It also seems widely agreed that it should be
impossible to tailor principles to the circumstances of
one’s own case. We should insure further that particular inclinations and aspirations, and persons’ conceptions of their good do not affect the principles
adopted. The aim is to rule out those principles that it
would be rational to propose for acceptance, however
little the chance of success, only if one knew certain
things that are irrelevant from the stand point of justice. For example, if a man knew that he was wealthy,
he might find it rational to advance the principle that
various taxes for welfare measures be counted unjust;
if he knew that he was poor, he would most likely
propose the contrary principle. To represent the
desired restrictions one imagines a situation in which
everyone is deprived of this sort of information. One
excludes the knowledge of those contingencies which
sets men at odds and allows them to be guided by
their prejudices.
It is assumed, then, that the parties do not know
certain kinds of particular facts. First of all, no one
knows his place in society, his class position or social
status; nor does he know his fortune in the distribution of natural assets and abilities, his intelligence and
strength, and the like. Nor, again, does anyone know
his conception of the good, the particulars of his
rational plan of life, or even the special features of his
psychology such as his aversion to risk or liability to
optimism or pessimism. More than this, I assume that
the parties do not know the particular circumstances
of their own society. That is, they do not know its
economic or political situation, or the level of civilization and culture it has been able to achieve. The persons in the original position have no information as to
which generation they belong. These broader restrictions on knowledge are appropriate in part because
questions of social justice arise between generations as
well as within them, for example, the question of the
appropriate rate of capital saving and of the conservation of natural resources and the environment of
nature. There is also, theoretically anyway, the question
of a reasonable genetic policy. In these cases too, in
order to carry through the idea of the original position, the parties must not know the contingencies that
set them in opposition. They must choose principles
the consequences of which they are prepared to live
with whatever generation they turn out to belong to.
As far as possible, then, the only particular facts which
the parties know is that their society is subject to the
circumstances of justice and whatever this implies.
The restrictions on particular information in the
original position are of fundamental importance. The
veil of ignorance makes possible a unanimous choice
of a particular conception of justice. Without these
limitations on knowledge the bargaining problem of
the original position would be hopelessly complicated. Even if theoretically a solution were to exist, we
would not, at present anyway, be able to determine it.
The rationality of the parties
I have assumed throughout that the persons in the
original position are rational. In choosing between
principles each tries as best he can to advance his
interests. But I have also assumed that the parties do
not know their conception of the good. This means
that while they know that they have some rational
plan of life, they do not know the details of this plan,
the particular ends and interests which it is calculated
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46 part 1 ethic s and bu sine s s: from theory to practice
to promote. How, then, can they decide which
conceptions of justice are most to their advantage? Or
must we suppose that they are reduced to mere guessing? To meet this difficulty, I postulate that they would
prefer more primary social goods rather than less (i.e.,
rights and liberties, powers and opportunities, income
and wealth and self-respect). Of course, it may turn
out, once the veil of ignorance is removed, that some
of them for religious or other reasons may not, in fact,
want more of these goods. But from the standpoint of
the original position, it is rational for the parties to
suppose that they do want a larger share, since in any
case they are not compelled to accept more if they do
not wish to nor does a person suffer from a greater
liberty. Thus even though the parties are deprived of
information about their particular ends, they have
enough knowledge to rank the alternatives. They
know that in general they must try to protect their
liberties, widen their opportunities, and enlarge their
means for promoting their aims whatever these are.
Guided by the theory of the good and the general
facts of moral psychology, their deliberations are no
longer guesswork. They can make a rational decision
in the ordinary sense.
The assumption of mutually disinterested rationality,
then, comes to this: the persons in the original position
try to acknowledge principles which advance their
system of ends as far as possible. They do this by
attempting to win for themselves the highest index of
primary social goods, since this enables them to promote their conception of the good most effectively
whatever it turns out to be. The parties do not seek to
confer benefits or to impose injuries on one another;
they are not moved by affection or rancor. Nor do they
try to gain relative to each other; they are not envious
or vain. Put in terms of a game, we might say: they
strive for as high an absolute score as possible. They do
not wish a high or a low score for their opponents, nor
do they seek to maximize or minimize the difference
between their successes and those of others. The idea
of a game does not really apply, since the parties are not
concerned to win but to get as many points as possible
judged by their own system of ends.
I shall now state in a provisional form the two principles of justice that I believe would be chosen in the
original position. The first statement of the two principles reads as follows.
● First: each person is to have an equal right to the
most extensive basic liberty compatible with a
similar liberty for others.
● Second: social and economic inequalities are to be
arranged so that they are both (a) reasonably
expected to be to everyone’s advantage, and (b)
attached to positions and offices open to all.
By way of general comment, these principles primarily apply, as I have said, to the basic structure of
society. They are to govern the assignment of rights
and duties and to regulate the distribution of social
and economic advantages. As their formulation suggests, these principles presuppose that the social structure can be divided into two more or less distinct
parts, the first principle applying to the one, the second to the other. They distinguish between those
aspects of the social system that define and secure the
equal liberties of citizenship and those that specify
and establish social and economic inequalities. The
basic liberties of citizens are, roughly speaking, political liberty (the right to vote and to be eligible for
public office) together with freedom of speech and
assembly; liberty of conscience and freedom of
thought; freedom of the person along with the right
to hold (personal) property; and freedom from arbitrary arrest and seizure as defined by the concept of
the rule of law. These liberties are all required to be
equal by the first principle, since citizens of a just society are to have the same basic rights.
The second principle applies, in the first approximation, to the distribution of income and wealth and
to the design of organizations that make use of differences in authority and responsibility, or chains of
command. While the distribution of wealth and
income need not be equal, it must be to everyone’s
advantage, and at the same time, positions of authority
and offices of command must be accessible to all. One
applies the second principle by holding positions
open, and then, subject to this constraint, arranges
social and economic inequalities so that everyone
benefits.
These principles are to be arranged in a serial order
with the first principle prior to the second. This
ordering means that a departure from the institutions
of equal liberty required by the first principle cannot
be justified by, or compensated for, by greater social
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theories of economic justice 47
and economic advantages. The distribution of wealth
and income, and the hierarchies of authority, must be
consistent with both the liberties of equal citizenship
and equality of opportunity.
It is clear that these principles are rather specific in
their content, and their acceptance rests on certain
assumptions that I must eventually try to explain and
justify. For the present, it should be observed that the
two principles (and this holds for all formulations) are
a special case of a more general conception of justice
that can be expressed as follows.
All social values – liberty and opportunity, income and
wealth, and the bases of self-respect – are to be distributed equally unless an unequal distribution of any, or all,
of these values is to everyone’s advantage.
Injustice, then, is simply inequalities that are not to
the benefit of all. Of course, this conception is
extremely vague and requires interpretation.
As a first step, suppose that the basic structure of
society distributes certain primary goods, that is,
things that every rational man is presumed to want.
These goods normally have a use whatever a person’s
rational plan of life. For simplicity, assume that the
chief primary goods at the disposition of society are
rights and liberties, powers and opportunities, income
and wealth. These are the social primary goods. Other
primary goods such as health and vigor, intelligence
and imagination, are natural goods; although their
possession is influenced by the basic structure, they are
not so directly under its control. Imagine, then, a
hypothetical initial arrangement in which all the social
primary goods are equally distributed: everyone has
similar rights and duties, and income and wealth are
evenly shared. This state of affairs provides a benchmark for judging improvements. If certain inequalities
of wealth and organizational powers would make everyone better off than in this hypothetical starting situation, then they accord with the general conception.
Now it is possible, at least theoretically, that by giving up some of their fundamental liberties men are
sufficiently compensated by the resulting social and
economic gains. The general conception of justice
imposes no restrictions on what sort of inequalities
are permissible; it only requires that everyone’s position be improved.
The second principle insists that each person benefit
from permissible inequalities in the basic structure.
This means that it must be reasonable for each relevant representative man defined by this structure, when
he views it as a going concern, to prefer his prospects
with the inequality to his prospects without it. One is
not allowed to justify differences in income or organizational powers on the ground that the disadvantages of
those in one position are outweighed by the greater
advantages of those in another. Much less can infringements of liberty be counterbalanced in this way. Applied
to the basic structure, the principle of utility would have
us maximize the sum of expectations of representative
men (weighted by the number of persons they represent, on the classical view); and this would permit us
to compensate for the losses of some by the gains of
others. Instead, the two principles require that everyone benefit from economic and social inequalities.
The tendency to equality
I wish to conclude this discussion of the two principles by explaining the sense in which they express an
egalitarian conception of justice. Also I should like to
forestall the objection to the principle of fair opportunity that it leads to a callous meritocratic society. In
order to prepare the way for doing this, I note several
aspects of the conception of justice that I have set out.
First we may observe that the difference principle
gives some weight to the considerations singled out
by the principle of redress. This is the principle that
undeserved inequalities call for redress; and since in –
equalities of birth and natural endowment are un –
deserved, these inequalities are to be somehow
compensated for.3
Thus the principle holds that in
order to treat all persons equally, to provide genuine
equality of opportunity, society must give more attention to those with fewer native assets and to those
born into the less favorable social positions. The idea
is to redress the bias of contingencies in the direction
of equality. In pursuit of this principle greater resources
might be spent on the education of the less rather
than the more intelligent, at least over a certain time
of life, say the earlier years of school.
Now the principle of redress has not to my knowledge been proposed as the sole criterion of justice, as
the single aim of the social order. It is plausible as most
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48 part 1 ethic s and bu sine s s: from theory to practice
such principles are only as a prima facie principle, one
that is to be weighed in the balance with others. For
example, we are to weigh it against the principle to
improve the average standard of life, or to advance the
common good. But whatever other principles we
hold, the claims of redress are to be taken into account.
It is thought to represent one of the elements in our
conception of justice. Now the difference principle is
not of course the principle of redress. It does not
require society to try to even out handicaps as if all
were expected to compete on a fair basis in the same
race. But the difference principle would allocate
resources in education, say, so as to improve the longterm expectation of the least favored. If this end is
attained by giving more attention to the better
endowed, it is permissible; otherwise not. And in
making this decision, the value of education should
not be assessed only in terms of economic efficiency
and social welfare. Equally if not more important is
the role of education in enabling a person to enjoy
the culture of his society and to take part in its affairs,
and in this way to provide for each individual a secure
sense of his own worth.
Thus although the difference principle is not the
same as that of redress, it does achieve some of the
intent of the latter principle. It transforms the aims of
the basic structure so that the total scheme of institutions no longer emphasizes social efficiency and technocratic values. We see then that the difference
principle represents, in effect, an agreement to regard
the distribution of natural talents as a common asset
and to share in the benefits of this distribution whatever it turns out to be. Those who have been favored
by nature, whoever they are, may gain from their good
fortune only on terms that improve the situation of
those who have lost out. The naturally advantaged are
not to gain merely because they are more gifted, but
only to cover the costs of training and education and
for using their endowments in ways that help the less
fortunate as well. No one deserves his greater natural
capacity nor merits a more favorable starting place in
society. But it does not follow that one should eliminate these distinctions. There is another way to deal
with them. The basic structure can be arranged so that
these contingencies work for the good of the least
fortunate. Thus we are led to the difference principle
if we wish to set up the social system so that no one
gains or loses from his arbitrary place in the distribution of natural assets or his initial position in society
without giving or receiving compensating advantages
in return.
The natural distribution of talents is neither just
nor unjust; nor is it unjust that men are born into
society at some particular position. These are simply
natural facts. What is just and unjust is the way that
institutions deal with these facts. Aristocratic and caste
societies are unjust because they make these contingencies the ascriptive basis for belonging to more or
less enclosed and privileged social classes. The basic
structure of these societies incorporates the arbitrariness found in nature. But there is no necessity for men
to resign themselves to these contingencies. The social
system is not an unchangeable order beyond human
control but a pattern of human action. In justice as
fairness men agree to share one another’s fate. In
designing institutions they undertake to avail themselves of the accidents of nature and social circumstance only when doing so is for the common benefit.
The two principles are a fair way of meeting the arbitrariness of fortune; and while no doubt imperfect in
other ways, the institutions which satisfy these principles are just.
There is a natural inclination to object that those
better situated deserve their greater advantages
whether or not they are to the benefit of others. At
this point it is necessary to be clear about the notion
of desert. It is perfectly true that given a just system of
cooperation as a scheme of public rules and the
expectations set up by it, those who, with the prospect
of improving their condition, have done what the system announces that it will reward are entitled to their
advantages. In this sense the more fortunate have a
claim to their better situation; their claims are legitimate expectations established by social institutions,
and the community is obligated to meet them. But
this sense of desert presupposes the existence of the
cooperative scheme; it is irrelevant to the question
whether in the first place the scheme is to be designed
in accordance with the difference principle or some
other criterion.
Perhaps some will think that the person with greater
natural endowments deserves those assets and the
superior character that made their development possible. Because he is more worthy in this sense, he
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theories of economic justice 49
deserves the greater advantages that he could achieve
with them. This view, however, is surely incorrect.
It seems to be one of the fixed points of our considered judgments that no one deserves his place in the
distribution of native endowments, any more than
one deserves one’s initial starting place in society. The
assertion that a man deserves the superior character
that enables him to make the effort to cultivate his
abilities is equally problematic; for his character
depends in large part upon fortunate family and social
circumstances for which he can claim no credit. The
notion of desert seems not to apply to these cases. Thus
the more advantaged representative man cannot say
that he deserves and therefore has a right to a scheme
of cooperation in which he is permitted to acquire
benefits in ways that do not contribute to the welfare
of others. There is no basis for his making this claim.
From the standpoint of common sense, then, the difference principle appears to be acceptable both to the
more advantaged and to the less advantaged individual.
Notes
1 For the formulation of this intuitive idea I am indebted
to Allan Gibbard.
2 The veil of ignorance is so natural a condition that
something like it must have occurred to many. The closest express statement of it known to me is found in J. C.
Harsanyi, “Cardinal Utility in Welfare Economics and in
the Theory of Risk-Taking.” Journal of Political Economy,
vol. 61 (1953). Harsanyi uses it to develop a utilitarian
theory.
3 See Herbert Spiegelberg, “A Defense of Human
Equality,” Philosophical Review, vol. 53 (1944), pp. 101,
113–123; and D. D. Raphael, “Justice and Liberty,”
Proceedings of the Aristotelian Society, vol. 51 (1950–1951),
p. 187f.
Distributive Justice
Robert Nozick
Pellegrino University Professor,
Harvard University
The minimal state is the most extensive state that can
be justified. Any state more extensive violates people’s
rights. Yet many persons have put forth reasons purporting to justify a more extensive state. It is impossible within the compass of this book to examine all
the reasons that have been put forth. Therefore, I shall
focus upon those generally acknowledged to be most
weighty and influential, to see precisely wherein they
fail. In this paper we consider the claim that a more
extensive state is justified, because necessary (or the
best instrument) to achieve distributive justice.
The term “distributive justice” is not a neutral one.
Hearing the term “distribution,” most people presume that some thing or mechanism uses some principle or criterion to give out a supply of things. Into
this process of distributing shares some error may have
crept. So it is an open question, at least, whether redistribution should take place; whether we should do
again what has already been done once, though poorly.
However, we are not in the position of children who
have been given portions of pie by someone who
now makes last minute adjustments to rectify careless
cutting. There is no central distribution, no person or
group entitled to control all the resources, jointly
deciding how they are to be doled out. What each
person gets, he gets from others who give to him in
exchange for something, or as a gift. In a free society,
diverse persons control different resources, and new
holdings arise out of the voluntary exchanges and
actions of persons. There is no more a distributing or
distribution of shares than there is a distributing of
mates in a society in which persons choose whom
they shall marry. The total result is the product of
Robert Nozick, “Distributive Justice.” Excerpted from Anarchy,
State and Utopia by Robert Nozick (New York: Basic Books,
Inc.,1974). © 1974 Robert Nozick. Reprinted with permission
of Perseus Books Group.
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50 part 1 ethic s and bu sine s s: from theory to practice
many individual decisions which the different individuals involved are entitled to make.
The Entitlement Theory
The subject of justice in holdings consists of three
major topics. The first is the original acquisition of holdings, the appropriation of unheld things. This includes
the issues of how unheld things may come to be held,
the process, or processes, by which unheld things may
come to be held, the things that may come to be held
by these processes, the extent of what comes to be
held by a particular process, and so on. We shall refer
to the complicated truth about this topic, which we
shall not formulate here, as the principle of justice in
acquisition. The second topic concerns the transfer
of holdings from one person to another. By what processes may a person transfer holdings to another? How
may a person acquire a holding from another who
holds it? Under this topic come general descriptions
of voluntary exchange, and gift and (on the other
hand) fraud, as well as reference to particular conventional details fixed upon in a given society. The
complicated truth about this subject (with placeholders for conventional details) we shall call the principle
of justice in transfer. (And we shall suppose it also
includes principles governing how a person may divest
himself of a holding, passing it into an unheld state.)
If the world were wholly just, the following inductive definition would exhaustively cover the subject of
justice in holdings.
1. A person who acquires a holding in accordance
with the principle of justice in acquisition is entitled to that holding.
2. A person who acquires a holding in accordance
with the principle of justice in transfer, from
someone else entitled to the holding, is entitled to
the holding.
3. No one is entitled to a holding except by
(repeated) applications of 1 and 2.
The complete principle of distributive justice
would say simply that a distribution is just if everyone
is entitled to the holdings they possess under the
distribution.
A distribution is just if it arises from another just
distribution by legitimate means. The legitimate
means of moving from one distribution to another
are specified by the principle of justice in transfer.
The legitimate first “moves” are specified by the principle of justice in acquisition. Whatever arises from a
just situation by just steps is itself just. The means of
change specified by the principle of justice is transfer
preserve justice. As correct rules of inference are
truth-preserving, and any conclusion deduced via
repeated application of such rules from only true
premises is itself true, so the means of transition from
one situation to another specified by the principle of
justice in transfer are justice-preserving, and any situation actually arising from repeated transitions in
accordance with the principle from a just situation is
itself just. The parallel between justice-preserving
transformations and truth-preserving transformations
illuminates where it fails as well as where it holds.
That a conclusion could have been deduced by truthpreserving means from premises that are true suffices
to show its truth. That from a just situation a situation
could have arisen via justice-preserving means does
not suffice to show its justice. The fact that a thief’s
victims voluntarily could have presented him with
gifts does not entitle the thief to his ill-gotten gains.
Justice in holdings is historical; it depends upon what
actually has happened. We shall return to this point
later.
Not all actual situations are generated in accordance with the two principles of justice in holdings: the
principle of justice in acquisition and the principle of
justice in transfer. Some people steal from others, or
defraud them, or enslave them, seizing their product
and preventing them from living as they choose, or
forcibly exclude others from competing in exchanges.
None of these are permissible modes of transition
from one situation to another. And some persons
acquire holdings by means not sanctioned by the
principle of justice in acquisition. The existence of
past injustice (previous violations of the first two
principles of justice in holdings) raises the third major
topic under justice in holdings: the rectification of
injustice in holdings. If past injustice has shaped present holdings in various ways, some identifiable and
some not, what now, if anything, ought to be done to
rectify these injustices? What obligations do the
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theories of economic justice 51
performers of injustice have toward those whose
position is worse than it would have been had the
injustice not been done? Or, that it would have been
had compensation been paid promptly? How, if at all,
do things change if the beneficiaries and those made
worse off are not the direct parties in the act of injustice, but, for example, their descendants? Is an injustice
done to someone whose holding was itself based
upon an unrectified injustice? How far back must one
go in wiping clean the historical slate of injustices? What
may victims of injustice permissibly do in order to
rectify the injustices being done to them, including the
many injustices done by persons acting through their
government? I do not know of a thorough or theoretically sophisticated treatment of such issues.
Idealizing greatly, let us suppose theoretical investigation will produce a principle of rectification. This
principle uses historical information about previous
situations and injustices done in them (as defined by
the first two principles of justice and rights against
interference), and information about the actual course
of events that flowed from these injustices, until the
present, and it yields a description (or descriptions) of
holdings in the society. The principle of rectification
presumably will make use of its best estimate of subjunctive information about what would have occurred
(or a probability distribution over what might have
occurred, using the expected value) if the injustice
had not taken place. If the actual description of holdings turns out not to be one of the descriptions
yielded by the principle, then one of the descriptions
yielded must be realized.
The general outlines of the theory of justice in
holdings are that the holdings of a person are just if
he is entitled to them by the principles of justice in
acquisition and transfer, or by the principle of rectification of injustice (as specified by the first two principles). If each person’s holdings are just, then the
total set (distribution) of holdings is just. To turn
these general outlines into a specific theory we would
have to specify the details of each of the three principles of justice in holdings: the principle of acquisition
of holdings, the principle of transfer of holdings, and
the principle of rectification of violations of the first
two principles. I shall not attempt that task here.
(Locke’s principle of justice in acquisition is discussed
below.)
Historical Principles and
End-Result Principles
The general outlines of the entitlement theory illuminate the nature and defects of other conceptions of
distributive justice. The entitlement theory of justice
in distribution is historical; whether a distribution is
just depends upon how it came about. In contrast,
current time-slice principles of justice hold that the justice
of a distribution is determined by how things are distributed (who has what) as judged by some structural
principle(s) of just distribution. A utilitarian who
judges between any two distributions by seeing which
has the greater sum of utility and, if the sums tie,
applies some fixed equality criterion to choose the
more equal distribution, would hold a current timeslice principle of justice. As would someone who had
a fixed schedule of trade-offs between the sum of
happiness and equality. According to a current timeslice principle, all that needs to be looked at, in judging the justice of a distribution, is who ends up with
what; in comparing any two distributions one need
look only at the matrix presenting the distributions.
No further information need be fed into a principle
of justice. It is a consequence of such principles of
justice that any two structurally identical distributions
are equally just. (Two distributions are structurally
identical if they present the same profile, but perhaps
have different persons occupying the particular slots.
My having ten and your having five, and my having
five and your having ten are structurally identical distributions.) Welfare economics is the theory of current time-slice principles of justice. The subject is
conceived as operating on matrices representing only
current information about distribution. This, as well as
some of the usual conditions (for example, the choice
of distribution is invariant under relabeling of columns), guarantees that welfare economics will be a
current time-slice theory, with all of its inadequacies.
Most persons do not accept current time-slice
principles as constituting the whole story about distributive shares. They think it relevant in assessing the
justice of a situation to consider not only the distribution it embodies, but also how that distribution came
about. If some persons are in prison for murder or war
crimes, we do not say that to assess the justice of the
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52 part 1 ethic s and bu sine s s: from theory to practice
distribution in the society we must look only at what
this person has, and that person has, and that person
has, . . . at the current time. We think it relevant to ask
whether someone did something so that he deserved to
be punished, deserved to have a lower share.
Patterning
The entitlement principles of justice in holdings that
we have sketched are historical principles of justice. To
better understand their precise character, we shall distinguish them from another subclass of the historical
principles. Consider, as an example, the principle of
distribution according to moral merit. This principle
requires that total distributive shares vary directly with
moral merit; no person should have a greater share
than anyone whose moral merit is greater. Or consider
the principle that results by substituting “usefulness to
society” for “moral merit” in the previous principle.
Or instead of “distribute according to moral merit,” or
“distribute according to usefulness to society,” we
might consider “distribute according to the weighted
sum of moral merit, usefulness to society, and need,”
with the weights of the different dimensions equal. Let
us call a principle of distribution patterned if it specifies
that a distribution is to vary along with some natural
dimension, weighted sum of natural dimensions, or
lexicographic ordering of natural dimensions. And let
us say a distribution is patterned if it accords with
some patterned principle. The principle of distribution
in accordance with moral merit is a patterned historical principle, which specifies a patterned distribution.
“Distribute according to I.Q.” is a patterned principle
that looks to information not contained in distributional matrices. It is not historical, however, in that it
does not look to any past actions creating differential
entitlements to evaluate a distribution; it requires only
distributional matrices whose columns are labeled by
I.Q. scores. The distribution in a society, however, may
be composed of such simple patterned distributions,
without itself being simply patterned. Different sectors
may operate different patterns, or some combination
of patterns may operate in different proportions across
a society. A distribution composed in this manner,
from a small number of patterned distributions, we
also shall term “patterned.” And we extend the use of
“pattern” to include the overall designs put forth by
combinations of end-state principles.
Almost every suggested principle of distributive
justice is patterned: to each according to his moral
merit, or needs, or marginal product, or how hard he
tries, or the weighted sum of the foregoing, and so on.
The principle of entitlement we have sketched is not
patterned. There is no one natural dimension or
weighted sum or combination of a small number of
natural dimensions that yields the distributions generated in accordance with the principle of entitlement.
The set of holdings that results when some persons
receive their marginal products, others win at gambling, others receive a share of their mate’s income,
others receive gifts from foundations, others receive
interest on loans, others receive gifts from admirers,
others receive returns on investment, others make for
themselves much of what they have, others find things,
and so on, will not be patterned.
To think that the task of a theory of distributive
justice is to fill in the blank in “to each according to
his ___” is to be predisposed to search for a pattern;
and the separate treatment of “from each according to
his __” treats production and distribution as two separate and independent issues. On an entitlement view
these are not two separate questions. Whoever makes
something, having bought or contracted for all other
held resources used in the process (transferring some
of his holdings for these cooperating factors), is entitled to it. The situation is not one of something’s getting made, and there being an open question of who
is to get it. Things come into the world already
attached to people having entitlements over them.
From the point of view of the historical entitlement
conception of justice in holdings, those who start
afresh to complete “to each according to his __” treat
objects as if they appeared from nowhere, out of nothing. A complete theory of justice might cover this
limited case as well; perhaps here is a use for the usual
conceptions of distributive justice.
So entrenched are maxims of the usual form that
perhaps we should present the entitlement conception as a competitor. Ignoring acquisition and rectification, we might say:
From each according to what he chooses to do, to each
according to what he makes for himself (perhaps with
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theories of economic justice 53
the contracted aid of others) and what others choose to
do for him and choose to give him of what they’ve been
given previously (under this maxim) and haven’t yet
expended or transferred.
This, the discerning reader will have noticed, has its
defects as a slogan. So as a summary and great simplification (and not as a maxim with any independent
meaning) we have:
From each as they choose, to each as they are chosen.
How Liberty Upsets Patterns
It is not clear how those holding alternative conceptions of distributive justice can reject the entitlement
conception of justice in holdings. For suppose a distribution favored by one of these non-entitlement conceptions is realized. Let us suppose it is your favorite
one and let us call this distribution D1
; perhaps everyone
has an equal share, perhaps shares vary in accordance
with some dimension you treasure. Now suppose that
Wilt Chamberlain is greatly in demand by basketball
teams, being a great gate attraction. (Also suppose
contracts run only for a year, with players being free
agents.) He signs the following sort of contract with a
team: In each home game, twenty-five cents from the
price of each ticket of admission goes to him. (We
ignore the question of whether he is “gouging” the
owners, letting them look out for themselves.) The
season starts, and people cheerfully attend his team’s
games; they buy their tickets, each time dropping a
separate twenty-five cents of their admission price
into a special box with Chamberlain’s name on it.
They are excited about seeing him play; it is worth
the total admission price to them. Let us suppose that
in one season one million persons attend his home
games, and Wilt Chamberlain winds up with $250,000,
a much larger sum than the average income and larger
even than anyone else has. Is he entitled to this
income? Is this new distribution D2
unjust? If so, why?
There is no question about whether each of the people was entitled to the control over the resources they
held in D1
because that was the distribution (your
favorite) that (for the purposes of argument) we
assumed was acceptable. Each of these persons chose to
give twenty-five cents of their money to Chamberlain.
They could have spent it on going to the movies, or
on candy bars, or on copies of Dissent magazine, or of
Monthly Review. But they all, at least one million of
them, converged on giving it to Wilt Chamberlain in
exchange for watching him play basketball. If D1
was
a just distribution, and people voluntarily moved from
it to D2
, transferring parts of their shares they were
given under D1
(what was it for if not to do something with?), isn’t D2
also just? If the people were entitled to dispose of the resources to which they were
entitled (under D1
), didn’t this include their being
entitled to give it to, or exchange it with, Wilt
Chamberlain? Can anyone else complain on grounds
of justice? Each other person already has his legitimate share under D1
. Under D1
, there is nothing that
anyone has that anyone else has a claim of justice
against. After someone transfers something to Wilt
Chamberlain, third parties still have their legitimate
shares; their shares are not changed. By what process
could such a transfer among two persons give rise to
a legitimate claim of distributive justice on a portion
of what was transferred, by a third party who had no
claim of justice on any holding of the others before the
transfer? To cut off objections irrelevant here, we
might imagine the exchanges occurring in a socialist
society, after hours. After playing whatever basketball
he does in his daily work, or doing whatever other
daily work he does, Wilt Chamberlain decides to put
in overtime to earn additional money. (First his work
quota is set; he works time over that.) Or imagine it is
a skilled juggler people like to see, who puts on shows
after hours.
The general point illustrated by the Wilt
Chamberlain example and the example of the entrepreneur in a socialist society is that no end-state principle or distributional patterned principle of justice
can be continuously realized without continuous
interference with people’s lives. Any favored pattern
would be transformed into one unfavored by the
principle, by people choosing to act in various ways;
for example, by people exchanging goods and services
with other people, or giving things to other people,
things the transferrers are entitled to under the favored
distributional pattern. To maintain a pattern one must
either continually interfere to stop people from transferring resources as they wish to, or continually (or
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54 part 1 ethic s and bu sine s s: from theory to practice
periodically) interfere to take from some persons
resources that others for some reason chose to transfer
to them.
Patterned principles of distributive justice necessitate redistributive activities. The likelihood is small
that any actual freely-arrived-at set of holdings fit a
given pattern; and the likelihood is nil that it will continue to fit the pattern as people exchange and give.
From the point of view of an entitlement theory,
redistribution is a serious matter indeed, involving, as
it does, the violation of people’s rights. (An exception
is those takings that fall under the principle of the
rectification of injustices.) From other points of view,
also, it is serious.
Taxation of earnings from labor is on a par with
forced labor. Some persons find this claim obviously
true: taking the earnings of n hours labor is like taking
n hours from the person; it is like forcing the person
to work n hours for another’s purpose. Others find the
claim absurd. But even these, if they object to forced
labor, would oppose forcing unemployed hippies to
work for the benefit of the needy. And they would
also object to forcing each person to work five extra
hours each week for the benefit of the needy. But a
system that takes five hours’ wages in taxes does not
seem to them like one that forces someone to work
five hours, since it offers the person forced a wider
range of choice in activities than does taxation in kind
with the particular labor specified.
Whether it is done through taxation on wages or
on wages over a certain amount, or through seizure of
profits, or through there being a big social pot so that
it’s not clear what’s coming from where and what’s
going where, patterned principles of distributive justice involve appropriating the actions of other persons. Seizing the results of someone’s labor is
equivalent to seizing hours from him and directing
him to carry on various activities. If people force you
to do certain work, or unrewarded work, for a certain
period of time, they decide what you are to do and
what purposes your work is to serve apart from your
decisions. This process whereby they take this decision
from you makes them a part-owner of you; it gives
them a property right in you. Just as having such
partial control and power of decision, by right, over
an animal or inanimate object would be to have a
property right in it.
Locke’s Theory of Acquisition
We must introduce an additional bit of complexity
into the structure of the entitlement theory. This is
best approached by considering Locke’s attempt to
specify a principle of justice in acquisition. Locke
views property rights in an unowned object as
originating through someone’s mixing his labor with
it. This gives rise to many questions. What are
the boundaries of what labor is mixed with? If a
private astronaut clears a place on Mars, has he mixed
his labor with (so that he comes to own) the whole
planet, the whole uninhabited universe, or just a
particular plot? Which plot does an act bring under
ownership?
Locke’s proviso that there be “enough and as good
left in common for others” is meant to ensure that
the situation of others is not worsened. I assume
that any adequate theory of justice in acquisition will
contain a proviso similar to Locke’s. A process normally giving rise to a permanent bequeathable property right in a previously unowned thing will not do
so if the position of others no longer at liberty to use
the thing is thereby worsened. It is important to specify this particular mode of worsening the situation of
others, for the proviso does not encompass other
modes. It does not include the worsening due to
more limited opportunities to appropriate, and it
does not include how I “worsen” a seller’s position if
I appropriate materials to make some of what he is
selling, and then enter into competition with him.
Someone whose appropriation otherwise would violate the proviso still may appropriate provided he
compensates the others so that their situation is not
thereby worsened; unless he does compensate these
others, his appropriation will violate the proviso of
the principle of justice in acquisition and will be an
illegitimate one. A theory of appropriation incorporating this Lockean proviso will handle correctly the
cases (objections to the theory lacking the proviso)
where someone appropriates the total supply of
something necessary for life.
A theory which includes this proviso in its principle of justice in acquisition must also contain a more
complex principle of justice in transfer. Some reflection of the proviso about appropriation constrains
later actions. If my appropriating all of a certain
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theories of economic justice 55
substance violates the Lockean proviso, then so does
my appropriating some and purchasing all the rest
from others who obtained it without otherwise violating the Lockean proviso. If the proviso excludes
someone’s appropriating all the drinkable water in the
world, it also excludes his purchasing it all. (More
weakly, and messily, it may exclude his charging certain prices for some of his supply.) This proviso
(almost?) never will come into effect; the more someone acquires of a scarce substance which others want,
the higher the price of the rest will go, and the more
difficult it will become for him to acquire it all.
But still, we can imagine, at least, that something like
this occurs: someone makes simultaneous secret bids
to the separate owners of a substance, each of whom
sells assuming he can easily purchase more from
the other owners; or some natural catastrophe destroys
all of the supply of something except that in one
person’s possession. The total supply could not be permissibly appropriated by one person at the beginning.
His later acquisition of it all does not show that the
original appropriation violated the proviso. Rather, it
is the combination of the original appropriation plus
all the later transfers and actions that violates the
Lockean proviso.
Each owner’s title to his holding includes the
historical shadow of the Lockean proviso on appropriation. This excludes his transferring it into an
agglomeration that does violate the Lockean proviso
and excludes his using it in a way, in coordination
with others or independently of them, so as to violate
the proviso by making the situation of others worse
than their baseline situation. Once it is known that
someone’s ownership runs afoul of the Lockean proviso, there are stringent limits on what he may do
with (what it is difficult any longer unreservedly to
call) “his property.” Thus a person may not appropriate the only water hole in a desert and charge what he
will. Nor may he charge what he will if he possesses
one, and unfortunately it happens that all the water
holes in the desert dry up, except for his. This unfortunate circumstance, admittedly no fault of his, brings
into operation the Lockean proviso and limits his
property rights. Similarly, an owner’s property right in
the only island in an area does not allow him to
order a castaway from a shipwreck off his island as a
trespasser, for this would violate the Lockean proviso.
Notice that the theory does not say that owners do
not have these rights, but that the rights are overridden
to avoid some catastrophe. (Overridden rights do not
disappear; they leave a trace of a sort absent in the cases
under discussion.) There is no such external (and ad
hoc?) overriding. Considerations internal to the theory
of property itself, to its theory of acquisition and appropriation, provide the means for handling such cases.
I believe that the free operation of a market system
will not actually run afoul of the Lockean proviso. If
this is correct, the proviso will not provide a significant opportunity for future state action.
Distributive Justice
and Utilitarianism
J. J. C. Smart
Center for Information Science Research,
The Australian National University
Introduction
In this paper I shall not be concerned with the defense
of utilitarianism against other types of ethical theory.
Indeed I hold that questions of ultimate ethical principle are not susceptible of proof, though something
can be done to render them more acceptable by presenting them in a clear light and by clearing up certain confusions which (for some people) may get in
the way of their acceptance. Ultimately the utilitarian
appeals to the sentiment of generalized benevolence,
and speaks to others who feel this sentiment too and
for whom it is an over-riding feeling.1
(This does not
mean that he will always act from this over-riding
J. J. C. Smart, “Distributive Justice and Utilitarianism.”
Excerpted from “Distributive Justice and Utilitarianism,” published in Justice and Economic Distribution, ed. John Arthur and
William H. Shaw (Englewood Cliffs, NJ: Prentice Hall, 1978).
© J. J. C. Smart. Reprinted with permission.
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56 part 1 ethic s and bu sine s s: from theory to practice
feeling. There can be backsliding and action may
result from more particular feelings, just as an egoist
may go against his own interests, and may regret this.)
I shall be concerned here merely to investigate certain
consequences of utilitarianism, as they relate to questions of distributive justice. The type of utilitarianism
with which I am concerned is act utilitarianism.
The Place of Justice in
Utilitarian Theory
The concept of justice as a fundamental ethical concept is really quite foreign to utilitarianism. A utilitarian would compromise his utilitarianism if he allowed
principles of justice which might conflict with the
maximization of happiness (or more generally of
goodness, should he be an “ideal” utilitarian). He is
concerned with the maximization of happiness2
and
not with the distribution of it. Nevertheless he may
well deduce from his ethical principle that certain
ways of distributing the means to happiness (e.g.,
money, food, housing) are more conducive to the
general good than are others. He will be interested in
justice in so far as it is a political or legal or quasi-legal
concept. He will consider whether the legal institutions and customary sanctions which operate in particular societies are more or less conducive to the
utilitarian end than are other possible institutions and
customs. Even if the society consisted entirely of utilitarians (and of course no actual societies have thus
consisted) it might still be important to have legal and
customary sanctions relating to distribution of goods,
because utilitarians might be tempted to backslide
and favour non-optimistic distributions, perhaps
because of bias in their own favour. They might be
helped to act in a more nearly utilitarian way because
of the presence of these sanctions.
As a utilitarian, therefore, I do not allow the concept
of justice as a fundamental moral concept, but I am
nevertheless interested in justice in a subordinate way,
as a means to the utilitarian end. Thus even though I
hold that it does not matter in what way happiness is
distributed among different persons, provided that the
total amount of happiness is maximized, I do of course
hold that it can be of vital importance that the means
to happiness should be distributed in some ways and
not in others. Suppose that I have the choice of two
alternative actions as follows: I can either give $500 to
each of two needy men, Smith and Campbell, or else
give $1000 to Smith and nothing to Campbell. It is of
course likely to produce the greatest happiness if I
divide the money equally. For this reason utilitarianism
can often emerge as a theory with egalitarian consequences. If it does so this is because of the empirical
situation, and not because of any moral commitment
to egalitarianism as such. Consider, for example,
another empirical situation in which the $500 was
replaced by a half-dose of a life saving drug, in which
case the utilitarian would advocate giving two halfdoses to Smith or Campbell and none to the other.
Indeed if Smith and Campbell each possessed a halfdose it would be right to take one of the half-doses and
give it to the other. (I am assuming that a whole dose
would preserve life and that a half-dose would not. I
am also assuming a simplified situation: in some possible situations, especially in a society of nonutilitarians,
the wide social ramifications of taking a half-dose from
Smith and giving it to Campbell might conceivably
outweigh the good results of saving Campbell’s life.)
However, it is probable that in most situations the
equal distribution of the means to happiness will be
the right utilitarian action, even though the utilitarian
has no ultimate moral commitment to egalitarianism.
If a utilitarian is given the choice of two actions, one of
which will give 2 units of happiness to Smith and 2 to
Campbell, and the other of which will give 1 unit of
happiness to Smith and 9 to Campbell, he will choose
the latter course.3
It may also be that I have the choice
between two alternative actions, one of which gives −1
unit of happiness to Smith and +9 units to Campbell,
and the other of which gives +2 to Smith and +2
to Campbell. As a utilitarian I will choose the former course, and here I will be in conflict with John
Rawls’ theory, whose maximin principle would rule
out making Smith worse off.
Utilitarianism and Rawls’ Theory
Rawls deduces his ethical principles from the contract
which would be made by a group of rational egoists
in an ‘original position’ in which they thought behind
a ‘veil of ignorance,’ so that they would not know who
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theories of economic justice 57
they were or even what generation they belonged to.4
Reasoning behind this veil of ignorance, they would
apply the maximin principle. John Harsanyi earlier
used the notion of a contract in such a position of
ignorance, but used not the maximin principle but the
principle of maximizing expected utility.5
Harsanyi’s
method leads to a form of rule utilitarianism. I see no
great merit in this roundabout approach to ethics via
a contrary to fact supposition, which involves the
tricky notion of a social contract and which thus
appears already to presuppose a moral position. The
approach seems also too Hobbesian: it is anthropologically incorrect to suppose that we are all originally
little egoists. I prefer to base ethics on a principle of
generalized benevolence, to which some of those
with whom I discuss ethics may immediately respond.
Possibly it might show something interesting about
our common moral notions if it could be proved that
they follow from what would be contracted by
rational egoists in an ‘original position,’ but as a utilitarian I am more concerned to advocate a normative
theory which might replace our common moral
notions than I am to explain these notions. Though
some form of utilitarianism might be deducible (as by
Harsanyi) from a contract or original position theory,
I do not think that it either ought to be or need be
defended in this sort of way.
Be that as it may, it is clear that utilitarian views
about distribution of happiness do differ from Rawls’
view. I have made a distinction between justice as a
moral concept and justice as a legal or quasi-legal
concept. The utilitarian has no room for the former,
but he can have strong views about the latter, though
what these views are will depend on empirical considerations. Thus whether he will prefer a political theory which advocates a completely socialist state, or
whether he will prefer one which advocates a minimal state (as Robert Nozick’s book does6
), or whether
again he will advocate something between the two, is
something which depends on the facts of economics,
sociology, and so on. As someone not expert in these
fields I have no desire to dogmatize on these empirical
matters. (My own private non-expert opinion is that
probably neither extreme leads to maximization of
happiness, though I have a liking for rather more
socialism than exists in Australia or U.S.A. at present.)
As a utilitarian my approach to political theory has to
be tentative and empirical. Not believing in moral
rights as such I can not deduce theories about the
best political arrangements by making deductions
(as Nozick does) from propositions which purport to
be about such basic rights.
Rawls deduces two principles of justice.7
The first
of these is that ‘each person is to have an equal right
to the most extensive basic liberty compatible with a
similar liberty for others,’ and the second one is that
‘social and economic inequalities are to be arranged
so that they are both (a) reasonably expected to be to
everyone’s advantage, and (b) attached to positions
and offices open to all.’ Though a utilitarian could (on
empirical grounds) be very much in sympathy with
both of these principles, he could not accept them as
universal rules. Suppose that a society which had no
danger of nuclear war could be achieved only by
reducing the liberty of one percent of the world’s
population. Might it not be right to bring about such
a state of affairs if it were in one’s power? Indeed
might it not be right greatly to reduce the liberty of
100% of the world’s population if such a desirable
outcome could be achieved? Perhaps the present generation would be pretty miserable and would hanker
for their lost liberties. However we must also think
about the countless future generations which might
exist and be happy provided that mankind can avoid
exterminating itself, and we must also think of all the
pain, misery and genetic damage which would be
brought about by nuclear war even if this did not lead
to the total extermination of mankind.
Suppose that this loss of freedom prevented a war so
devastating that the whole process of evolution on this
planet would come to an end. At the cost of the loss of
freedom, instead of the war and the end of evolution
there might occur an evolutionary process which was
not only long lived but also beneficial: in millions of
years there might be creatures descended from Homo
sapiens which had vastly increased talents and capacity
for happiness. At least such considerations show that
Rawls’ first principle is far from obvious to the utilitarian, though in certain mundane contexts he might
accede to it as a useful approximation. Indeed I do not
believe that restriction of liberty, in our present society,
could have beneficial results in helping to prevent
nuclear war, though a case could be made for certain
restrictions on the liberty of all present members of
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58 part 1 ethic s and bu sine s s: from theory to practice
society so as to enable the government to prevent
nuclear blackmail by gangs of terrorists.
Perhaps in the past considerable restrictions on the
personal liberties of a large proportion of citizens may
have been justifiable on utilitarian grounds. In view of
the glories of Athens and its contributions to civilization it is possible that the Athenian slave society was
justifiable. In one part of his paper, ‘Nature and
Soundness of the Contract and Coherence Arguments,’8
David Lyons has judiciously discussed the question of
whether in certain circumstances a utilitarian would
condone slavery. He says that it would be unlikely that
a utilitarian could condone slavery as it has existed in
modern times. However, he considers the possibility
that less objectionable forms of slavery or near slavery
have existed. The less objectionable these may have
been, the more likely it is that utilitarianism would
have condoned them. Lyons remarks that our judgments about the relative advantages of different societies must be very tentative because we do not know
enough about human history to say what were the
social alternatives at any juncture.9
Similar reflections naturally occur in connection
with Rawls’ second principle. Oligarchic societies,
such as that of eighteenth century Britain, may well
have been in fact better governed than they would
have been if posts of responsibility had been available
to all. Certainly to resolve this question we should
have to go deeply into empirical investigations of the
historical facts. (To prevent misunderstanding, I do
think that in our present society utilitarianism would
imply adherence to Rawls’ second principle as a general rule.)
A utilitarian is concerned with maximizing total
happiness (or goodness, if he is an ideal utilitarian).
Rawls largely concerns himself with certain ‘primary
goods,’ as he calls them. These include ‘rights and liberties, powers and opportunities, income and wealth.’10
A utilitarian would regard these as mere means to the
ultimate good. Nevertheless if he is proposing new
laws or changes to social institutions the utilitarian
will have to concern himself in practice with the distribution of these ‘primary goods’ (as Bentham did).11
But if as an approximation we neglect this distinction,
which may be justifiable to the extent that there is a
correlation between happiness and the level of these
‘primary goods,’ we may say that according to Rawls
an action is right only if it is to the benefit of the least
advantaged person. A utilitarian will hold that a redistribution of the means to happiness is right if it maximizes the general happiness, even though some
persons, even the least advantaged ones, are made
worse off. A position which is intermediate between
the utilitarian position and Rawls’ position would be
one which held that one ought to maximize some
sort of trade-off between total happiness and distribution of happiness. Such a position would imply that
sometimes we should redistribute in such a way as to
make some persons, even the least advantaged ones,
worse off, but this would happen less often than it
would according to the classical utilitarian theory.
Utilitarianism and Nozick’s Theory
General adherence to Robert Nozick’s theory (in his
Anarchy, State and Utopia)
12 would be compatible with
the existence of very great inequality indeed. This is
because the whole theory is based quite explicitly on
the notion of rights: in the very first sentence of the
preface of his book we read ‘Individuals have rights. . . .’
The utilitarian would demur here. A utilitarian legislator might tax the rich in order to give aid to the
poor, but a Nozickian legislator would not do so. A
utilitarian legislator might impose a heavy tax on
inherited wealth, whereas Nozick would allow the
relatively fortunate to become even more fortunate,
provided that they did not infringe the rights of the
less fortunate. The utilitarian legislator would hope to
increase the total happiness by equalizing things a bit.
How far he should go in this direction would depend
on empirical considerations. He would not want to
equalize things too much if this led to too much
weakening of the incentive to work, for example. Of
course according to Nozick’s system there would be
no reason why members of society should not set up
a utilitarian Utopia, and voluntarily equalize their
wealth, and also give wealth to poorer communities
outside. However, it is questionable whether such isolated Utopias could survive in a modern environment,
but if they did survive, the conformity of the behaviour of their members to utilitarian theory, rather than
the conformity to Nozick’s theory, would be what
would commend their societies to me.
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theories of economic justice 59
Summary
In this article I have explained that the notion of justice is not a fundamental notion in utilitarianism, but
that utilitarians will characteristically have certain
views about such things as the distribution of wealth,
savings for the benefit of future generations and for
the third world countries and other practical matters.
Utilitarianism differs from John Rawls’ theory in that
it is ready to contemplate some sacrifice to certain
individuals (or classes of individuals) for the sake of
the greater good of all, and in particular may allow
certain limitations of personal freedom which would
be ruled out by Rawls’ theory. In practice, however, the
general tendency of utilitarianism may well be towards
an egalitarian form of society.
Notes
1 In hoping that utilitarianism can be rendered acceptable to some people by presenting it in a clear light, I do
not deny the possibility of the reverse happening. Thus
I confess to a bit of a pull the other way when I consider Nozick’s example of an ‘experience machine.’ See
Robert Nozick, Anarchy, State and Utopia (Oxford:
Blackwell, 1975), pp. 42–45, though I am at least partially reassured by Peter Singer’s remarks towards the
end of his review of Nozick, New York Review of Books,
March 6, 1975. Nozick’s example of an experience
machine is more worrying than the more familiar one
of a pleasure inducing machine, because it seems to
apply to ideal as well as to hedonistic utilitarianism.
2 In this paper I shall assume a hedonistic utilitarianism,
though most of what I have to say will be applicable to
ideal utilitarianism too.
3 There are of course difficult problems about the
assignment of cardinal utilities to states of mind, but
for the purposes of this paper I am assuming that we
can intelligibly talk, as utilitarians do, about units of
happiness.
4 John Rawls, A Theory of Justice (Cambridge, Mass:
Harvard University Press, 1971).
5 John C. Harsanyi, ‘Cardinal Utility in Welfare Economics
and the Theory of Risk-Taking,’ Journal of Political
Economy, 61 (1953), 434–435, and ‘Cardinal Welfare,
Individualistic Ethics, and Interpersonal Comparisons
of Utility,’ ibid., 63 (1955), 309–321. Harsanyi has discussed Rawls’ use of the maximin principle and has
defended the principle of maximizing expected utility
instead, in a paper ‘Can the Maximin Principle Serve as
a Basis for Morality? A Critique of John Rawls’ Theory.’
The American Political Science Review, 69 (1975), 594–606.
These articles have been reprinted in John C. Harsanyi,
Essays on Ethics, Social Behavior, and Scientific Explanation
(Dordrecht, Holland: D. Reidel, 1976).
6 Robert Nozick, Anarchy, State and Utopia. (See note 1
above.)
7 Rawls, A Theory of Justice, p. 60.
8 In Norman Daniels (ed.), Reading Rawls (Oxford:
Blackwell, 1975), pp. 141–167. See pp. 148–149.
9 Lyons, op. cit., p. 149, near top.
10 Rawls, op. cit., p. 62.
11 On this point see Brian Barry, The Liberal Theory of
Justice (London: Oxford University Press, 1973), p. 55.
12 See note 1.
The “Invisible Hand”
Jan Narveson
Professor of Philosophy,
University of Waterloo
Why should we be enthusiastic about the market?
The most famous argument supporting its social
usefulness is the “Invisible Hand” idea, found in a
single paragraph in Adam Smith’s Wealth of Nations.
Such arguments propose that desirable social outcomes will be promoted by people who are not
acting intentionally to promote what they would
describe as “social outcomes” at all. Reflection suggests that the argument, despite its one-liner status
in Smith, is not quite so simple. To fill in such an
argument, we need, I take it, to specify or explain 5
things:
Jan Narveson, “The ‘Invisible Hand’,” Journal of Business
Ethics, 46(3), 2003, pp. 201–212. Reprinted with permission
of Springer.
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60 part 1 ethic s and bu sine s s: from theory to practice
1. the proposed outcome that is claimed to be desirable,
2. the assumed motivations of those whose actions
are held to promote them in this way;
3. the institutional conditions necessary for this to
take place;
4. the mechanism or feature of these nonintentional
processes by which the promotion of these ends is
made likely; and finally,
5. why people should care whether it is brought
about or not.1
At the outset, let me explain that the moral correctness of the principles on which the market is
founded is not derived from the invisible hand. But
the claim that it is the most desirable general social
arrangement for economic affairs is not quite the
same thing as the claim that the morality of the market is sound on basic moral grounds. The Invisible
Hand argument offers frosting on what is already a
cake. But I think it a good argument, and the frosting
is a very rich affair.
Here is my sketch of how this works. In very brief:
1. The proposed outcome is that people do better.
2. The motivation imputed to the actors is simple
self-interest, primarily.
3. The institutional conditions required are whatever it takes to enable people to rely on continued
ownership of property and income got by free
exchange with willing others.
4. The primary mechanism is what are now called
Positive Externalities.
5. People should care because they stand to gain –
individually, as well as collectively, and to gain
almost no matter what their particular interests are.
The rest of this essay will flesh out these claims.
1. The Desired Outcome
The “desired social outcome” is that people are better
off. The more people who are better off, and the
better off they are, the better.
My apologies if this sounds trite. But then, if it does
strike people as trite, that presumably is because
everyone regards it as obvious. We would then have
the highly desirable feature that we are agreed about
the fundamental aim of all this, and if we differ, it is
regarding how to bring it about. But two important
notes have to be made here.
First, and essential: the criteria for better-offness, on
the view assumed here, are set by them – by the very
people whose benefit is in question, not by the theorist. People have a range of values, of preferences,
which can be more or less fulfilled. The object in
question is that they be more rather than less fulfilled.
The object, in short, is the best life for everyone, so far
as each one is concerned.
It is easy to invoke extra criteria here. If you look at
society from the perspective of some special religious
or idealistic viewpoint, of course, arguments of the
kind discussed here may be of little avail. The free
market will not impose your favorite religion, or way
of life, on everyone, and if you regard that as an objection to it, then it will be an irrefutable one. Of course,
the upholders of the innumerable different views with
which you disagree will not regard your option as the
best one, or even as a good one – and then what?
When you bear in mind the multiplicity of people we
find in society, and try to produce an analysis that
takes each of them into account, the rationale of using
the liberal criterion is fairly obvious.
Second: We do need to ask, “best” relative to what?
This, being ambiguous, calls for two answers. First,
it could be better compared to the status quo for each
person. Second, it could be better than any alternatives.
Both are being claimed here.
But a third idea is definitely not fundamentally relevant: better than others are doing. It is, of course, logically impossible for everyone to do better than
everyone else.
A much thornier related issue will be thought to be
this: suppose P1
makes one subset of people better off
relative to the status quo, P0
, whereas P2
renders a
different subset better off, so that some who are better
off in P1
are worse off than they would be in P2
, and
vice versa. What are we to say about this?
Here I provide an answer that will bother some
people and not others: namely, that questions of this
kind, by and large, do not, so far as social philosophy
is concerned, matter. What does matter is that none
are made better off by making others worse off, than
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theories of economic justice 61
they were in the status quo – not worse off than the others,
of course, but worse off than they were before.
The people whom this will “bother,” as I put it, are
many and probably include most readers of this journal. The specific and intended implication of the
above is that we are not to make someone better off
by compelling someone else to help make him so.
Helpfulness to others is a major virtue. Indeed, we
should agree with Hume that benevolence is at the
top of the list of virtues. But it is no longer a virtue
when it is compelled, and compulsion is precisely
what such interventions as state welfare systems substitute for benevolence. The person who professes
such concern for the poor that she is all for compelling the rest to “contribute” to their betterment speaks
from both sides of her mouth. And of course she will
have great difficulty, should she address the matter, in
explaining why it is only her fellow poor Americans
or Canadians or Xians who are to be helped in this
way, rather than the billions of far needier persons in
other parts of the world. She will have even greater
difficulty explaining how it is that compulsion for this
purpose is morally legitimate in the first place. Most
people object to theft, even though it too has the
structure of compelling some people (the victims) to
contribute to the welfare of some others (the thieves).
Few actually try to explain this disparity between
what they think about the behavior of their fellow
men as privately acting people, and what they think
about the behavior of governments which appear to
do exactly the same thing. They seem to think it a
fundamental moral postulate that we are to exercise
compulsion over an arbitrarily selected group of people (fellow nationals of the same state) in order to
provide certain goods for another arbitrarily selected
group of persons (needy fellow residents of the same
state). These “fundamental postulates,” we may well
suspect, are a refuge of the dialectically bereft, and, in
the process, a cloak to cover aspirations to power over
one’s fellows.
In the previous paragraph, to be sure, I go out on a
limb, and no doubt unnecessarily. For one can, and we
in practice do, combine – if uneasily – a partially free
enterprise system with a “safety net” of publicly supported welfare services. Probably few readers object
to the mixed system we actually have, even if none of
them can produce much of a justification for it. So let
us suppose that we have this safety net, at a fairly low
level, with free enterprise prevailing above it. The virtues of the Invisible Hand will still be very much in
evidence, and that is what is being argued for here.
And probably not too many readers will even complain about the market’s indifference to “distribution”
once you get above the “safety level.”
For various reasons, only some of which are developed below, I am quite willing to regard Gross
Domestic Product per capita, with some qualifications,
as a reasonably good measure of the general good we
are interested in here, and I presume that most readers
would accept this, on reflection – for there isn’t much
else that we have to go by, at least at present. GDP is
by no means perfect, however, partly for reasons that
will be mentioned below. It is merely an available and
fairly decent measure of what we are looking for.
One serious shortcoming of GDP, however, needs
mention right away: it doesn’t tell us about the
incomes of recipients of charity and other voluntary
but noncommercial transfers. The income from which
the charitable person makes the transfer is included, as
it should be; but what he does with it may well not
get registered as the income of the someone else who
benefits, as it would when there is actual exchange of
money for services or goods. One critic complains,
“GDP only functions for those with something to
exchange.”2
But that is true only of the measuring
device, not of the thing measured. Gross Domestic
Product is a measure of production, as the name
implies; but it is not a direct measure of distribution,
in the sense of tracking what happens to the products
in question. As a major relevant example: until at least
the late 20th century, most personal income went to
expenditures on persons other than the earner.
Husbands, in particular, spent most of their money on
their families. A wife not receiving income outside
the home is not regarded as having an “income,” and
yet, she typically commanded an array of goods and
services for self and family. in most cases a quite
substantial one, and usually more than half her husband’s reported income. Nowadays, when most
women are employed outside as well as inside the
home, the joint incomes of the parents go considerably, if not mostly, to their children, whose “incomes”
in this respect are in turn not measured by GDP. Not
measured by it, indeed: but it happens all the same,
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62 part 1 ethic s and bu sine s s: from theory to practice
and all the time – exemplifying, in fact, one of the
respects in which the Invisible Hand is at work.
Likewise the recipients of the immense amount of
charitable and other noncommercial expenditure in a
modern economy (notably the U.S., which is by far
the most generous country in terms of personal charitable giving). The effect of this, of course, is to make
the actual income in terms of command of goods and
services of the people in a free market society very
much more equal than it may appear if we confine
ourselves to income-earners only. There is no easy
way to keep track of all that in a measure such as GDP,
but to ignore it would be to distort reality. It is not true
that the only people who receive in a free market society are people who earn what they get (and in the case
of “housewives”, as they used to be called, they also
earn it, but it goes unrecorded as personal income.)
2. Motivations
What is assumed about motivations? A fundamental
virtue of the market is that the answer to this question
is – very little! People are assumed merely to be interested in various goals, personal or otherwise: which is
virtually to say, that they have interests – which in
turn is basically just to recognize that they are people.
It is presumed – and there is overwhelming empirical
evidence for this, if one supposes it to be a matter of
“evidence” – that typical and prominent among those
goals are ones that do not include broad-scale social
ideals. Rather, they include things like a better house
for oneself & one’s family, vacations, nice furniture,
trips to the opera, the odd bottle of scotch, as well as
support of churches, charities, and clubs – things like
that. To say that they are interested in promoting their
personal “wealth” is fair enough, though it is by no
means necessary that this motive be either the exclusive motive or even the predominant motive of everybody or even anybody. All that is required is that an
interest in expanding one’s real income be quite
strong in by far the majority of normal people. What
we assume most people are motivated by, in short, is,
as the saying goes, that it is better to be healthy, happy,
and rich than sick, miserable, and poor. Other things
being equal, the richer the better – and other things
are, very often, close enough to “equal” to do.
Is the pursuit of those goals constrained in some
way? Of course it is. In market relations, it is constrained by the property and personal rights of others:
each person’s pursuits are to be constrained against
pursuing them by imposing costs, losses, harms to
other persons. Thus, the Lockean version of the Law
of Nature is operative: nobody is allowed to better
himself by making others worse off than they would
be absent the intervention. Note, however, two
important points.
First: such pursuit is not constrained by any strictly
distributional requirements, in particular. There is
no insistence that the pattern of benefits issuing from
any particular exchange show any particular configuration – equality with some reference group, for
instance – so long as each party to it is acting under
no misinformation supplied by the other as regards
the activities and conditions under which the agreement is made. In a way, that is what is most distinctive
about the market, and likely what most who object to
it object to.
Second: note too – a matter of enormous importance – that we are not, of course, to be protected
against “loss of market share” or loss of benefits that
others have no duty to give us in the first place. If you
stand to lose a job, you are protected only insofar as
your contract protects you. Society doesn’t owe you a
living, nor does your employer’s competition. And
your employer owes you only what is specified in the
employment agreement. Each, in general, must make
his or her own way; none is to make it by theft or
extortion or coercion of others.
If this seems a downside of the market, consider the
alternative: a stagnant economy in which some few
are fixed in high places and others in low, with no way
to go forward. The free market, if genuinely free,
doesn’t protect those who do badly, but on the other
hand, by that very fact, it creates opportunities. The
person who doesn’t make it at job x is likely to find
another situation, y, and in the longer run it will be a
better one than he had before.
Third: this motivational restriction is not taken to be
a part of human nature. If it were, this whole question
would look very different. The market constraint, to
respect the persons and properties of others, is not a
necessary part of the actors’ basic motivations themselves: it is not assumed that people are just naturally
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theories of economic justice 63
born with these constraints operative. How people
come to be constrained in these ways is an important
question, and I take it be obvious that moral training by
parents and peers has a great deal to do with it. However,
in discussing how the market works in principle, what
we are talking about is what would happen if the rule,
and the only basic rule, of economic activity is that
they are thus constrained, and not how they come to
be so. Nor is it assumed that everyone is in fact always
perfectly respectful of these rights of others – obviously
they are not. We need not make any particular assumptions about which extra sources of reinforcement of
such constraints would be most effective, or necessary.
(And this will be discussed in the next section, on institutional conditions.) The point is only that to have a
market situation rather than some other sort, we must
have individuals in possession of various goods and services that can be transferred to others at will, and their
possession must be secure enough so that individuals
can deal with each other today regarding what they
will do tomorrow and the next. Strictly speaking, we
can only trade what we have, and when instead we steal,
or cheat, or murder in order to get it, we no longer
have a market, but rather a situation of something like
war. The market, as such, is a peaceful institution, based
on mutual recognition of rights over the goods and
services the exchange of which is its purpose.
Many will have doubts about this, claiming that “it’s
a jungle out there!” But the jungle consists of competitors, trying to make an even better offer to potential customers, with wares competitive to the ones
that you are selling, and motivating you to respond by
making your own better yet. The morality of the market does not, of course, allow dealing with the competition by shooting them, or by cheating. It allows
only that you make a better pitch to the consumer,
offering better goods or services or at a lower price.
There is, however – as Adam Smith was well aware
even in his day, and we are even more so now – very
much a question of you or your competitors resorting
to the device of making the other guys’ activities illegal. See your local congressman or MP for details
about government subsidies, restrictions, regulations,
taxes, and other “benefits” designed to reduce the
“threat” of the “jungle” – and thereby to reduce or
eliminate the benefits of the free market. But again,
this is the antithesis of the market, not its instantiation.
3. Institutional Conditions
As to the question of what “institutional conditions”
are necessary, the short answer is – conceivably none.
But that does depend on what you count: as an
“institution,” and even more on what you mean by
“necessary.” If it is government institutions that the
questioner has in mind, then the point is that they are
at least not logically necessary to the market. What is
necessary, in any practical sense, is that the rules recognizing each others’ rightful possessions be adopted
by the participants, and this in turn most likely will
require that they be reinforced by the familiar methods of moral training and social reinforcement.
Specifically, what is needed is the constraint mentioned above: people are to respect others’ persons
and property. No force may be employed against others merely to enhance one’s own ends; it may be
employed only in defense of persons and legitimately
acquired property – that is, of the things people have
acquired by finding, making, or being voluntarily
given them by someone else, or, most essentially so far
as the market is concerned, by trading with others on
agreed terms. That, in brief, is the Morality of the
Market. (Perhaps it is just Morality, period, or rather,
that major part of Morality that treats of our enforceable duties toward others. There is nothing special
about a morality telling you to refrain from getting
your way by killing, assaulting, injuring, maiming,
lying, or stealing.)
There is, of course, the matter of currency systems,
roads and communications – “infrastructure.” It is not
very surprising that all of these useful assists to market
exchange should have fallen into the hands of governments, and indeed, most readers will never even have
considered the possibility that they should be provided in any other way – even though every one of
those things, and many more, such as education –
were, in various places and for ages, privately provided.
But we will, for present purposes, suppose that these
items are provided somehow, whether by government
(typically, nowadays) or not (frequent, especially in the
past); and if by government, that they will be funded
by taxation (likely much less efficiently than they
could be).
At this point, it is perhaps worth mentioning a
misunderstanding that has been more than a little
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64 part 1 ethic s and bu sine s s: from theory to practice
promoted by David Gauthier’s important discussion
in his influential book, Morals by Agreement.
3
Gauthier
there argues that the market is a “morally free zone,”
an area within which nothing is morally right or
wrong. What makes his discussion misleading is that
there is an assumption used to define the market in the
sense he intends there, namely, that there are no externalities. Externalities include things like force and
fraud – the very things that the morality of the market
prohibits. More generally, negative externalities are
the flipside of the invisible hand: unintended harms
and evils inflicted on others in the course of intendedly innocent transactions. (There can also be positive
externalities – unintended benefits to others. We’ll
discuss those in the next section, however.) In a market as stipulated by Gauthier’s definition, each person
gets exactly what he produces or what he agrees to
receive for it, by exchange, and nothing else. But this
is simply to define an abstract model. The claim that
what goes on in what we call the market in the real
world is “morally free” is not true; insofar as the condition is realized purely by stipulation, the question of
what would have to go on in real life in order that
such a model can be approximated is simply put to
one side. But in the real world, people have to be
somehow induced not to violate these constraints on
occasions when it is possible to do so – as it very often
is, obviously. It is those constraints that define the
market, in real-world terms. Insofar as people are
observing them, we have a market, and to the extent
that they don’t, we don’t, strictly speaking, but something less, or something quite other.
Typically when people speak of “market society”
they have in mind various real-world communities
such as Switzerland or the United States. But to do so
is to lump too much together. All contemporary states
have very substantial “public sectors” in which economic activity is to some considerable extent controlled by a central government, deciding generally
what is to be done with people’s money, and the government’s income is got by taxation. But that is not
market activity as such, even though governments
often, and wisely, proceed by putting out contracts for
bidding by private companies, and of course always
negotiate their wage contracts with individuals seeking their best employment option just as they would
when dealing with a private company. Still, insofar as
a nation has public-sector activity, with the possible
exception of the provision of a monetary system and
of such legal apparatus as may be necessary to define
property rights, it is to that extent not fully a market
society. Moreover, insofar as activity in the society is
prompted by criminal activity, we also have deviations
from our market model.
It might be argued that the philosophy of market
society actually induces people to commit crime – just
as it might plausibly be argued that the very success of
market society in providing so much wealth, ready to
be stolen by energetic criminals, is what induces such
crime. But obviously that is no part of the definition
of market society, and it can only promote confusion
to insist on building such deviations into the very
heart of the notion. And as to the presence of potential for deviating, one does have to point out that all
societies, inherently offer such potential. No society
can make it literally impossible for people to kill,
cheat, injure, and delude other people in pursuit of
their various ends. Whether it is “more possible” in
a market society is a fair, but difficult question –
difficult because it is hard to see just how this would
be measured. Pointing to fairly high crime rates in the
U.K. and the U.S., for example, encounters the problem that those rates are extremely low in Hong Kong,
Japan, and Switzerland, which are about as capitalist as,
or perhaps more so than, the first set. It is clear that
other cultural factors besides the functioning of markets are responsible for high crime rates. In the U.S.,
additionally; the crime rate is at least doubled, according to all responsible sources, by the prohibition of
drugs – which is an anti-market measure, not a market
feature. How much of the crime we find around us is
due to the irresponsible laws that such crime builds
on is a nice question, but certainly much of it is. And
that is a point that cannot be laid to the door of the
market, but rather, to the door of the politics of
particular cultures such as our own.
Insofar as there are police forces, guards, and so on,
market participants will be spending money on the sort
of “overhead” that the existence of crime will create. If
we want to call those measures “institutions,” and if we
assume that a certain amount of criminality is only to
be expected, then we may accept that some institutional framework is necessary for real-world, functioning markets. In the ensuing discussion, this will be
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theories of economic justice 65
assumed without further comment, except to remind
the reader that what makes it necessary is deviation
from the market idea, rather than instantiation of it.
4. What Makes it Work?
What reason is there to think that the envisaged
actions of individuals will in fact redound to the
advancement of the objective mentioned in (1),
despite the fact that nobody is presumed to be aiming
at it, as such? The answers to this most fundamental
question for present purposes are, I think clear. I shall
divide them into two parts. The first part is remarkably obvious; but in part it is, perhaps, something that
could escape notice and apparently sometimes does –
indeed, it must have done so, considering the ill repute
into which the market has fallen among most of
today’s intellectuals and academics. The second part is
both subtler and more important.
First, the easy part. The moral (and, usually, legal)
constraints that frame the market require us to refrain
from force, theft, and fraud.4
No one, then, is to visit
harms upon others, whether they are directly in one’s
line of vision or not. That constraint is pretty easy to
meet, generally speaking. We must, to be sure, allow
that it is possible to visit inadvertent or unforeseen
damages on persons well out of one’s “line of vision.”
However, those persons have an interest in not having
such harms visited upon them, and there is some reason to think that they would typically be aware of substantial ones, and ready to do something about them.
Supposing this to be so, now consider the effects of
transactions, dealings with other people who are “in
one’s line of vision”: face-to-face dealings, as with
friends or customers and employees. In all these cases,
we may expect these relations to be, by and large,
mutually advantageous. I deal with you because I suppose that my situation, on the whole, will be improved
by doing so; and vice versa. And for the most part, that
is a reasonable supposition and actually works out.
There is no need to tot up sums and see how much
one of us gains as compared with the other, that being a
factor that is rarely relevant. Each of us does his or her
homework, sizing up the opportunities before him,
comparing their likely benefits with those of known
alternatives, and perhaps sometimes being motivated to
look for further alternatives, which are then added to
the list and duly appraised as well. When we act, we
each suppose we are doing our best. Nobody forces us
to choose the alternative we do, and yet we take it.
There is a reasonable presumption that, by and large,
we take that one because we have done our homework
tolerably competently, and each of us will do reasonably well – better, almost always, than if we do nothing.
Here again, we must bear in mind that the measure
of value is the individual’s own estimates of it, not the
theorist’s or someone else’s. Of course some people
think that almost all of our behavior is wrong: we
should be spending all our time contemplating Allah,
or our navels, or writing poetry. It cannot be too
strongly emphasized that such judgments are not
relevant here. Society consists of a large number of
people, all different from each other, and they pursue
their own ends, not ours or the Pope’s.
Now multiply that obvious point – that voluntary
exchanges are made for mutual benefit – by some
very huge number, and take into account that there is
no special reason to expect significant negative side
effects of our dealings with each other in most cases,
and the result is that we can expect things to go generally fairly well. By and large, we will all enjoy a general improvement in our lots, barring calamities. Yet
each need only intend to benefit himself, or (more
usually) himself and some few others – family, friends,
acquaintances, coworkers. Very often, to be sure, people do intend to benefit many others, but the point is
that it doesn’t matter whether that is so, nor to what
extent it is so, since the result emerges even if they
have no such benevolent intentions. As Adam Smith
notes in the famous quotation, the public good will
be advanced in that way even if no one directly
intends to advance it.
Second: this brings us to the less obvious but more
important feature – the answer that is really the main
one, the primary reason why we should agree with
Adam Smith’s dictum. This answer stems from the fact
that in our dealings with others, there are frequently,
indeed typically, side effects of those dealings, viz.,
effects other than or in addition to the ones we are as
such pursuing in the dealing in question, which can
generally be expected to be for the good – effects that
make somebody or other better off than he or she
might otherwise have been, and make nobody worse
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66 part 1 ethic s and bu sine s s: from theory to practice
off than he or she might otherwise have been. These
are what is known, accordingly, as “positive externalities”. It is the particular way in which these come
about, and the overwhelming likelihood that they will
do so in a free enterprise, market society – but not in
anti-market societies – that attests to the plausibility
of the Invisible Hand thesis.
When Jones builds a fine house on the corner, he
brings pleasure to the eye of passersby even though
that was likely not his main, and probably not any part
of, his object in building the house, Moreover, the
house keeps him healthier, enabling him to work
more years, to the benefit of those with whom he
works. When Linda buys a new clock from Sam’s
hardware, a visitor later contemplates it during tea and
realizes that she must leave now to make an urgent
appointment; tinker Robinson buys tools or books,
and ends up making a major invention that ultimately
saves much labor for millions of people. The merchant
who sells Mr. Robinson those items does not do so
for the purpose of promoting those inventions
(though Robinson’s investors, if he presses his invention to the point of commercial exploitation, of
course do.) As usual, the merchant is simply trying to
make a living. There is no end of unintended byproducts of exchanges which weren’t made for the purpose of promoting those particular objectives, but
nevertheless, and unsurprisingly, do in fact promote
them. As a result, all we need is to block, if we can, the
intended and unintended negative externalities, the
tendencies toward doing harm, toward making life
worse for others, and then the several million flowers
will bloom, variously, but very often, indeed overwhelmingly typically, to the benefit of others.
More generally, then: free exchanges are for mutual
benefit, and usually achieve that; but the benefits thus
obtained enable people, in turn, to do more good for
more people. Merchants in pursuing profits make useful things that people are willing to buy – and the
more money the merchant makes, the more people he
must have benefited, provided that it is derived from
honest trade rather than violence, fraud, or politicallyextorted impositions. And each of these benefits provides a base for further ones down the line. Thus the
utility of society is enhanced over and above the sum of
the good results which were aimed at in the various interactions permitted by the market system. That is the
essence of the invisible hand. Market transactions as
defined above can be expected to produce not only direct benefits for those party to them, but predominantly positive externalities, thus leaving people better off than they are made
strictly as a result of their own engaging in such activities.
Of course, it may be agreed that these results are the
intended, or at least the expected and certainly hopedfor results of the market system: What’s intended by
adopting and promoting the market system is that
people do well. People intend to do well anyway, of
course, but they often enough resort to methods
whose side effects – or even whose central effects – are
quite inconsistent with the promotion, or even the
maintenance, of the good of others. What we who
advance the market cause say is that those are the
wrongful means, the means which are to be blocked –
prohibited in many cases, discouraged in others. And
we say that provided this is done, the overall results
will be even better than the sum of the particular
expected or intended goods stemming from each
individual interaction, insofar as we can reasonably
talk about anything as fancy as a “sum.”
A further word should be added about the effects
of competition. The consumer benefits whenever he
buys anything voluntarily – he’s better off, in his view,
for buying it than not buying it. But of course he’d
like to get it cheaper, or get a better one for the same
price. The free market system does not require anyone
to do anything about this – indeed, there is no requirement that anyone go into business at all. But then, we
do have millions of people interested in promoting
their own well-being, and a prominent way of doing
this is to have, hence to make, more money. You make
more if you sell more at a profit, or in the case of one’s
services, for a higher wage or salary. A higher profit
per unit is fine, or more units, or any blend of the two.
Accepting a lower profit per unit but selling a lot
more units is one of the classic methods, and more
likely to succeed than the alternative of seeking a
higher profit per unit – the latter is done more often
by way of politics than of market activity, seeing that
competition awaits those who try to put up prices on
their own. No one is required to compete, except in
the sense that those who don’t take account of the
competition are unlikely to survive in the business
world. And again, the result of this continual request
for higher net profits is continued improvement for
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theories of economic justice 67
the consumer. And “the consumer,” don’t forget, is
everybody.
At this point, we must take note of a prominent
tendency among critics nowadays, to raise questions
such as this: The world is awash in huge negative
externalities, typically calling for massive doses of government deviance control to manage. Think of all the
environmental legislation, the food and drug acts,
counterfeiting laws, auto safety, toy safety. The history
of capitalism is a history of firms and individuals passing costs on to someone else wherever it is possible.”5
Now, there’s no denying much of what the critic says.
But notice that there are two claims here, not just one.
First, there is an implicit claim that it is part of the
very structure of the market that negative externalities can
be safely imposed on people with no recourse. And
that is exactly false. In fact, the real-world problem is
that the legal structure that would enable these people
to respond to the problem are suppressed by their
governments. Individuals cannot sue for redress from
pollution – not because they have no case, but because
their government has arrogated to itself the sole right
of dealing with the problem. Thus the courts in the
area of Sudbury ruled against local farmers seeking
redress against large companies for defoliating their
farms, holding that it was the “public interest” that the
big companies be able to carry on, pollution and all.6
And second, it is assumed that government regulation, environmental restrictions (such as the notorious
Kyoto Accords recently passed by the Canadian parliament), and innumerable interventions in the market are
in fact both necessary and effective for their purpose.
There is every reason to deny both. Much environmental regulation is not in the interests of the public, but
rather of vested interests. Compulsory or publicsupported “blue boxes,” for example, are anti-economic –
a boon to the companies whose uneconomic services
are thus subsidized by the taxpayer, but a nuisance and
a detriment to the consumer and of no use whatever to
the environment. Thus, for example, there simply is
no case for requiring paper in Ontario to be recycled –
no point in “saving trees,” which are grown at a faster
rate than they are cut down. The requirement is by the
government via ill-considered ideology, not by private
individuals wanting to do better.7
So one must agree with the questioner that we see
a great deal of passing of bucks to governmental
agencies, and a great deal of mishandling of the bucks
thus passed – but it is a mistake to blame this on the
market as such. It is not part of the philosophy of the
market that people be able to injure their fellows with
impunity: for that we must lay the blame on governments. Redressing the effects of, say, pollution is a
tricky matter, but it is not one that is denied by the
market philosophy – precisely the reverse. What’s
wrong with pollution is, precisely, that it invades
persons and their property.
5. Why Cheer?
Why could individuals be expected to applaud the
goal in question – promotion of the public good, and
specifically wealth – even while not as such aiming at
it? This may sound like a self-answering question: of
course – so one might say – the public is interested in the
public well-being. But while the answer is remarkably
easy, it is not actually pleonastic. One can be expected
to applaud because one can expect to gain, no matter
who one is, and so long as one has any capacity to produce results that are desirable in one’s own view. But
why applaud when others prosper? To this there is a
good answer: you are sure to be among those “others.”
Looking down the road, as we must always do in moral
matters, we can see that the tendency of people to confine themselves to activities that benefit some while
harming none is one that will in innumerable ways
redound to one’s own well-being as well.
It might of course be argued – to understate the
case rather markedly, for it not only “might be” but
certainly will be, and is, vociferously and typically
asserted that nonproducers are in a very different boat
from producers. The market system, after all, does not,
just as such, supply anything to paraplegics, incompetents, or those with a very strong aversion to work and
investment. And this is true, of course. The question is
whether that fact provides any reason to deplore the
market, even from the point of view of those persons
themselves. The critic will turn this into a barb aimed
at the market: “a market morality provides no motive
for anyone to help the needy and in fact, provides a
motive to do the reverse,”8
So it is said. But wrongly.
The answer to such critics is clear. First, it is of
course true that the market does not “provide” the
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68 part 1 ethic s and bu sine s s: from theory to practice
motive to help those needing help – in this respect
being identical with all other systems, no system “supplies” motivation – motives must come from within.
Those who simply do not care about their fellows
will not, of course, contribute to charity – though
they will, by their profit-seeking activity, be de facto
contributing to the means for assisting them utilized
by others. (A friend suggests that Bill Gates has done
far more for humanity, even apart from his extremely
generous charitable activities, than Mother Theresa.
He has a point.) But those, like the critic envisaged in
the quotation, who talk of “providing motivation”
mean compulsion. Their claim is that people won’t help
other people unless forced to do so, by law – by the
Taxman. It is interesting that they talk so, which suggests that supporters of welfare states and more are
themselves devoid of human sympathy, as well as very
short on perception of ordinary human behavior. For
it is a matter of common observation that most of us
are indeed disposed to help our fellows out, in innumerable ways.
What I want to urge is that, paradoxical though it
may seem, paraplegics will benefit far more from a system in which no one is compelled to help paraplegics – just
as able persons will gain much more from employment with profit-seekers than from welfare cheques.
The same goes for countless other such cases. This is
all, again, the result of the invisible hand, though it is
also a direct function of the central features of the
system. The first and most basic point here is that in a
wealthy society, there is more for the non-producers
to be able to acquire. The fact that it is much cheaper,
as a result of the innumerable transactions between
self-interested parties, helps a lot, for the charitable
but less wealthy are then enabled to do more to help.
As an example: a few blocks from my house is a
charming store called “Generations,” in which the
castoff goods of many people are sold for ridiculous
prices. No one, however poor, need go without
decent clothing, assorted personal belongings, even
furniture, in Waterloo, Ontario, when a serviceable
sofa is available for $15, suit coats for $3, sweaters for
$1. But this is in no way a government institution. It
is run entirely by volunteers and one paid employee,
and runs at a profit, the profits going to overseas charity. This is but one of many, many establishments of
a similar kind in this modest-sized and typical city.
Meanwhile, the Canadian Government by its program of restrictions and licenses on milk production,
ensures that the poor pay more than twice what the
market would entail for a litre of milk.
What the paraplegic needs is, of course, motivation
on the part of those who own the resources they
desire. But since those resources are much greater and
much cheaper than they would be in any other form
of human society, those who do have such motivation
are more likely to be able to do something about it.
Wealthy parents see to the care of their children, for
example, and characteristically to many others as well,
including, often enough, the poor as a class. Indeed, I
propose that it is wholly reasonable to expect that virtually every single person in this category will be better off
in a strongly market society than he or she would be
in any other sort of society, given a reasonable period
of time. Nor need the time be very long – a few years
was all it took for free-enterprising Germany to rise
from the ruins of World War II under the leadership of
the economically savvy Ludwig Erhardt. And I would
even venture to assert that, antecedently viewed, literally every person would expect to do so. (This does not
mean that if you ask them, that’s what they’ll say. It
means that if you look at his prospects objectively, in
the light of what is known, those prospects are, in his
own terms, better.)
Of course the argument of the welfare-state supporter presupposes that we all have a duty of justice to
cater to the poor and the sick. It is not obvious where
such a duty would come from, and those who employ
the arguments never bother to provide them. (Nor do
they explain why they do not think we should all be
taxed to within an inch of our lives to support impoverished persons in Bangladesh, central China, and so
on.) But there is only one source of support for those
who cannot support themselves: human sympathy,
which is indeed very widespread. Sympathy however,
is a feeling, a sentiment, and the question is how such
a thing can be a rational basis for imposing compulsory
duties on the rest. Again, the most reasonable thing to
say about that is that it cannot, and accordingly that
charity should be voluntary, not compelled. It should
be, because it must be. Nevertheless, in a free society,
we can expect the previous result: the level of wealth
available to sympathetic persons will be so great that
the results for the unfortunate can be expected to be
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theories of economic justice 69
better than they would be under a compulsory regime
anyway. You can have it both ways. (And the history of
wealthy societies makes this clear. Even in the 19th
century, when we were far less wealthy than we are
now, and when there were no laws compelling all to
contribute, the very sick were cared for, starvation was
rare to the point of nonexistence, and in general the
consequences which contemporary pundits assert
for free societies simply did not happen. Sweatshop
labor, of course, did happen – but by the usual method
of voluntary arrangements between worker and
employer, not by the whip and the lash.)9
The general conclusion, then, is that the effects of
the Invisible Hand reach very far and very deep.
People doing the things that interest them, because
they interest them, can be expected to do them better
than people acting under compulsion. In the course
of their pursuit of their various interests, they make
free exchanges with others, whether like-minded or
not, and the result is that society is continually
improved. Even though I have no interest, myself, in
most of the particular services that other people render each other, yet the indirect effect of their doing so
is that I benefit anyway. As Bastiat pointed out, the
work of thousands goes into the supplying of my tencent pencil, as well as my two-thousand-dollar computer; yet none of those concerned need have been
acting with a view to my benefit, as such.10 Yet we can
expect that many will benefit from the use I make of
that pencil or computer, and in general that we all
benefit from the best use that everyone makes of their
various talents and resources, And all of this comes
from people who do not, by and large, intend to benefit society as such, Smith’s view, then, is amply confirmed upon analysis. The right way to organize
society is to prohibit evil, not to inflict evils on some
in order to compel them to do good to others. The
promotion of good for others happens whether it is
directly or indirectly intended by economic agents.
Probably the principal obstacle to the understanding of the free market is the contemporary inability to
understand freedom itself. Freedom does not mean
that you are compelled to seek your own benefit
exclusively. The free market is the situation in which
people are not compelled, rather than one in which
they are: they are not compelled to maximize their
incomes, any more than to contribute to worthy
causes. Freedom means, rather, that you can do what
you want, within the limits imposed by the like freedom of others. But what do you want? The multimillionaires of the late 19th and early 20th centuries,
besides organizing highly productive factories and
retail stores and the like, endowed museums, symphony orchestras, libraries, and universities as well as
churches, hospitals, and assorted other amenities to
their and others’ communities. Nowadays government undercuts such efforts, pocketing their profits
before they can accumulate to the point where people
can afford such things – and we have, everywhere,
underfunded hospitals and symphony orchestras,
homeless people on the streets who prefer the streets
to the public welfare services extended to them (and
much prefer the services of churches and other charities), and innumerable other byproducts of the system
in which we prefer compelling others to allowing
them to act as they see fit.
Business is the fundamental wealth-producer in the
“advanced” nations of the world. The point of this
essay has been that it is no surprise that the societies
in which business has flourished have also been, by
and large, the ones in which more people are better
off than in the dictatorships, would-be communes, or
caste-bound societies of former times. The wealth
comes largely from the efforts of ordinary people to
do better for themselves. It is that which enables all to
thrive – and would do so even more, if only we would
continue to let them do so.11
Notes
1 I am indebted to Alistair MacLeod’s work for being
motivated to work up this list. Professor MacLeod only
lists three, however.
2 The thought was formed by Alex Michelos, editor of
this Journal.
3 David Gauthier, Morals by Agreement (New York; Oxford
University Press, 1986), Ch. IV, 83–112.
4 While I would argue that those all come to the same
thing, I’ll be content here with a list. I would argue,
but not here, that all these are species of the same
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70 part 1 ethic s and bu sine s s: from theory to practice
genus: the unilateral imposition of costs or harms on
others.
5 The question is framed by Alex Michalos.
6 See Elizabeth Brubaker, Property Rights in the Defence of
Nature (1995, Earthscan, Toronto). The case began
when Justice Middleton denied injunctive relief to
farmers who had brought suit against the Sudbury
smelters for damages to their crops. His reasoning was
that the economic benefit from the smelters was worth
more to the region than was the product of the farms.
Donald Dewees and Michael Halewood (U of T Law
Journal, 42 (1992): 1–21) demonstrated that the smelters were more than profitable enough to compensate the
farmers for damages and still be viable. The next year,
the Ontario legislature passed legislation that absolved
Sudbury smelters from liability for trespass or nuisance
from emissions. Part of the rationale, by the way, was
that the smelters were needed for the war effort of that
noblest of conflicts, World War I. [My thanks to Glenn
Fox of the University of Guelph for this reference.]
7 The literature on such matters is immense. I refer the
reader, for a brief treatment, to chapter 10, “Morals and
the Environment,” in my own Moral Matters
(Peterborough, Ont.: Broadview Press, 2nd edition,
1999). See the reading list in it for much more.
8 Again, this formulation is supplied by Michalos.
9 A useful recent source regarding voluntary institutional support of the needy is found in David T. Beito,
From Mutual Aid to the Welfare State (Chapel Hill,
N.C.: University of North Carolina Press, 2000).
There is an immense literature on this and on the
distortions of economic history in the U.S., England,
and elsewhere that are commonly accepted by the
unwary.
10 Frederick Bastiat, “Natural and Artificial Social
Order,” in Economic Harmonies (Irvington-onHudson, NY, Foundation for Economic Education,
1996), p. 3.
11 I am greatly indebted to the editor of the JOBE for
lucidly expounding his extensive and clear disagreements with the first draft of this paper. Several
alterations in this paper are due to that source, and
hopefully make the position herein expressed clearer
and perhaps more persuasive.
Corporate Ethics in
a Devilish System
Kent Greenfield
Professor of Law, Boston College
Law School
When participating in discussions of corporate ethics,
I am often struck by the narrowness of the discussion.
Frequently, what many consider corporate ethics is an
insistence on compliance with law and a focus on
various mechanisms for keeping companies within
the straight and narrow of legal boundaries.1
I believe
this fixation on compliance with law is a constrained
view of corporate ethics, and this Essay will set out
some reasons why.
Legal compliance is important, of course. Corporations
are immensely powerful economic entities, and management’s respect for law is essential if companies are
to be operated in a way that is consistent with social
welfare.2
Moreover, as artificial entities, corporations
are not subject to the constraints of conscience and
social norm that limit the behavior of natural persons3
As I have written before, “it is widely believed that
corporate illegality and crime are ‘imperfectly regulated by social controls’ because corporations cannot
be incarcerated, have no conscience, are typically very
complex institutions, and are not subject to the same
social controls and reputational constraints as individuals.”4
The emphasis on legal compliance is even more
crucial because of the fact that a small but significant
portion of the corporate law academy does not appear
Kent Greenfield, “Corporate Ethics in a Devillish System,”
Journal of Business and Technology Law 3(2), 2008, pp. 427–435.
© Kent Greenfield. Reprinted with kind permission of the
author.
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theories of economic justice 71
to deem it important as a goal in and of itself. Judge
Frank Easterbrook and Professor Daniel Fischel, for
example, two of the leading scholars of the “nexus of
contracts” movement within corporate law, made a
splash a number of years ago when they suggested that
the duty to obey the law is simply a constituent part
of the duty to maximize the firm’s value,5
They
argued, “if illegality will profit the company more
than it will cost the company, the corporation
should break the law.”6
Additionally, they wrote that
“[m]anagers have no general obligation to avoid violating regulatory laws, when violations are profitable
to the firm. …”7
They also argued that when a corporation determines whether illegality is likely to be
profitable, the cost that should be considered is not
the actual penalty or fine; rather, it is the expected penalty, fine, or other costs.8
In essence, a corporation
should consider the cost of illegality as the penalty,
fine, or other costs discounted by the chance of the
exposure of the corporation’s illegality.9
The law, in
other words, merely imposes a price for illegal behavior.10 If the corporation is willing to pay, then no
problem with illegality exists.11
Critics disapprove of this belief in the non-distinctiveness of illegal behavior, which is, thankfully, not
the majority view within the academy12 or in the
courts.13 Without doubt, compliance with law is crucial, and those who make it their life’s work to ensure
that corporations comply with the law deserve congratulations and support.
But a dedication to legality standing alone is
hardly a robust sense of ethics, corporate or otherwise. If I were to teach my son that being ethical
means simply to obey the rules, then I would be
offering impoverished and limited guidance.14 Ethics
means more than obeying the law.15 If that is so, why
do so many discussions of corporate ethics begin and
end in consideration of the law and how to ensure
that corporations obey it? The reason is that it is difficult to expect businesses and the people within
them to do more, given the legal framework we
impose on them.
I should pause to admit an underlying assumption
here: that situation more than disposition drives the
behavior of most people.16 An individual’s motivations occur within a framework of incentives and
disincentives, and individuals are affected by their
surroundings and by myriad influences.17 Despite our
best intentions, and despite what many of us assume
about our own behavior and by those around us, we
make decisions less because of some inner compass
than by the pushes and pulls of situation.
This is especially true of corporate executives (not
to mention the corporations themselves). The “role
morality” of executives, created by law and norm, creates for them the overarching and urgent goal of producing financial returns for shareholders, focused in
the short term.18 That goal subordinates other matters.19 If executives wanted to act beyond that role in
a way they thought their ethical system required, they
might be able to on the edges.20 For the most part,
however, their obligations to their company and their
shareholders, enforced by law and the market, keep
them acting within narrow bounds.21
In this view, failures of corporate ethics are not
matters of bad people acting within and through business. Rather they are failures of the system itself. Let
me explain.
There are many views of what constitutes the substance of ethical or moral behavior.22 Whether one
takes guidance from religious norms or from Rawls,
Kant, Aristotle or other philosophical thinkers, there
are significant areas of agreement as to what amounts
to ethical behavior. If my son asked me what ethics
really means (and I try to tell him these things even
when he does not ask), I would encourage him to
think about the obligations of acting with due care for
others, of taking responsibility for the effect of one’s
actions, of being honest, of considering broadly one’s
impacts, and of taking a long-term view, especially
with regard to resource use.
Corporate law and financial markets operate to
make these ethical obligations difficult to satisfy in a
business setting. Limited liability, for example, the very
cornerstone of corporate law,23 is inconsistent with
the ethical norm of taking responsibility for one’s
own actions since it shields people from liability that
arises from their wrongful conduct.24 Limited liability
is fundamental and indeed is a principal reason that
businesses choose to incorporate.25 Moreover, corporations create subsidiaries through which they can
perform risky operations, in part because the parent
can shield assets from any potential liability.26 There
may be strong reasons to support limited liability in
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72 part 1 ethic s and bu sine s s: from theory to practice
order to incentivize business creation and capital formation. Certainly, however, this has ethical implications and should be subject to an ethical critique,
especially if it allows companies to shield themselves
from taking financial responsibility for harms they
cause.27
The expectations for corporate executives also contradict the ethical obligation of honesty. To be sure,
there is a massive legal framework built up to protect
shareholders from fraud, and consumer and creditor
protections also exist.28 But employees are not protected by anti-fraud law on the federal or state level.29
If the CEO goes to a shareholder meeting and lies
about financial projections, it can be a federal crime.30
If she then appears in the employee lunchroom and
utters the same lie, not only is it not a violation of law,
it may in fact be consistent with (or required by) her
fiduciary duty to maximize shareholder value.31
The imperative that corporate managers take a narrow and short-term view of their obligations is also
ethically problematic. Those executives who think
broadly about their obligations or want to offer fair
and proportionate “returns” to stakeholders other
than equity investors are routinely punished by the
market – they suffer criticism by Wall Street, sometimes suits by the plaintiffs bar, and sometimes takeover.32 An executive that causes the company to act in
the long term, to take into consideration the interests
of stakeholders other than shareholders, or willingly
to accept lower profit in order to avoid imposing
costly externalities on society at large will appear,
from the viewpoint of shareholders and their Wall
Street protectors, to be under-performing.33 To the
extent that ethics imposes costs or lengthens the time
horizon – something that ethics by its own terms is
bound to do – it is unsustainable unless we change the
system in which we ask corporate executives to work.
We would need to adjust the obligations of their roles
to include, at least, the possibility and, more appropriately, the obligation to act in an ethically robust way.
I recognize that short-termism is an evil that many
have started to speak out against, including representatives of corporate management such as the Chamber
of Commerce and the Business Roundtable.34
Sarbanes-Oxley plays into this opposition, in fact,
since it is now more difficult for managers to use
accounting manipulation to hide efforts on their part
to manage for the long term.35 In other words, to
satisfy short-term Wall Street expectations, managers
were formerly able to manipulate more easily the
financial disclosures from quarter to quarter without
actually managing for the short term.36 It is a very real
possibility that one of the unintended consequences
of Sarbanes-Oxley’s stricter reporting standards is that
now in order to appear to manage in the short term,
one must actually manage for the short term.
Many have argued that the responsibilities of
Sarbanes-Oxley should be relaxed.37 There may be
some merit to this argument with regard to specific
provisions, but a general trend toward fewer responsibilities is not one that I would applaud. On the
contrary, I believe we ought to impose more rather
than fewer responsibilities on management and use
the law to make our ethical norms real and impactful.
If the corporations, as institutions, are indeed without
consciences – the prototypical Holmesian “Bad
Man”38 – and corporate managers are limited by their
role morality, then the way to make corporate ethics
more than a public relations gimmick is to embody
them in law.
What would such an ethical system of corporate
law look like? If ethics is taking responsibility for one’s
actions, considering broadly one’s actions, being honest, and taking the long-term view, then we could
change corporate law in realistic and meaningful ways
to make those norms more realizable in the corporate
context. We could change corporate governance to
give those contributors to the firm who do not own
stock – employees, communities, other stakeholders –
some ability to have their views heard and considered
within the governance of the firm. Bringing the views
of non-shareholder stakeholders into the governance
of the firm would not only make it more likely that
the corporation will consider broadly the impacts of
its decisions, it also will – because shareholders tend to
have a very short time horizon39 – necessarily cause
the firm to take a longer-term view of its decisions
and strategies. Such inclusion will also cause corporations to internalize more of the costs of their decisions. In addition, the law should require corporations
to tell the truth not only to shareholders and consumers, but to employees as well.
The market, by itself, will not cause companies to
act this way. Of course, some companies do try to take
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theories of economic justice 73
into account the long-term interests of a broader
group of stakeholders, to beneficial effect.40 But most
do not for several reasons. The long-term benefits are
either not recognized, not deemed important, or not
internalized into the decision-making of the firm.41
Shareholders elect boards, and the law makes shareholders supreme.42 Few directors or managers have
the incentive to push their firms to take what must
seem a huge short-term risk – reallocating more
decision-making power to non-equity investors – for
gains that seem abstract or beyond the time horizon
for shareholders.43 The law must overcome this “stickiness” of the status quo.
One concern often expressed is that a more robust
system of stakeholder governance will impose large
and unsustainable costs on the United States economy, especially in an increasingly globalized world
economy.44 The answer to this concern begins with
the notion that employee (and stakeholder) involvement in management is compatible with business success. As I have discussed at length elsewhere, as
employees feel more “ownership” in their firm, they
will work harder, contribute more ideas, improve
their productivity, malinger less, and obey company
rules more.45 This will tend to improve company profitability over time. The more difficult competitiveness
critique to answer is not that individual firms will fail
if they take into account the interests of stakeholders,
but that capital (i.e., shareholders) will flee U.S. markets if a stakeholder governance framework is established.46 It is true that recognizing a stakeholder
framework might bring about a reallocation of the
corporate surplus away from shareholders and toward
other stakeholders. That is part of the objective of
such a framework. But as the stakeholder model creates gains for the corporation as a whole, then the
slice of the pie going to shareholders may grow in an
absolute sense, even if it is not as large in a comparative sense.
The judgment of capital is always a relative one –
“will I make more if I invest here or elsewhere?” – so
a stakeholder corporate governance regime will only
cause capital to flee if it can find a better risk/return
mix elsewhere. Given the power and stability of U.S.
markets, there are very few places likely to offer a better risk/return ratio. Europe’s current corporate
governance framework is more protective of stakeholders than any regime the U.S. is likely to enact,
making it unlikely that capital will flee to Europe.47
Indeed, the fact that Europe has such a robust system
of stakeholder protection while maintaining healthy
and competitive capital markets is an indication that
there is little reason to worry that capital will abandon
ship if the U.S. adopts a similar model.48
All of this is to say that if we, collectively, desire
corporations and their management to behave more
ethically in any genuine sense, we have the tools at
our disposal to bring that about. Those tools are legal
tools, changing the nature of the obligations of the
firm and of its management. The current corporate
governance framework constrains management to act
in ways that we would deem unethical if conducted in
other areas of life. We cannot expect people to act as
Saints in a devilish system.
Notes
1 See Cynthia A. Williams, Corporate Compliance with the
Law in the Era of Efficiency, 76N.C. L. Rey. 1265, 1375
(1998) (noting that with regard to corporate social
responsibility, prominent scholars and practitioners have
emphasized the duty of corporate directors and officers
to ensure legal compliance).
2 Patrick J. Ryan, Strange Bedfellows: Corporate Fiduciaries
and the General Law Compliance Obligation in Section
201(a) of the American Law Institute’s Principles of Corporate
Governance, 66 Wash. L. Rev. 413, 417, 430–31 (1991).
3 Id. at 423–29 (arguing that corporations are complex
organizations of various individuals whose specialization
and incomplete knowledge make it more likely that
the organization will behave unlawfully); see also
William S. Laufer, Corporate Bodies and Guilty
Minds: The Failure of Corporate Criminal
Liability (2006).
4 Kent Greenfield, Ultra Viess Lives! A Stakeholder Analysis
of Corporate Illegality (With Notes on How Corporate Law
Could Reinforce lnternational Law Norms), 87 Va. L. Rev.
1279,1289–90 (2001) (quoting Ryan, supra note 2, at
417).
5 See Frank H, Easterbrook & Daniel R. Fischel, Antitrust
Suits by Targets of Tender Offers, 80 Mich. L. Rev. 1155,
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74 part 1 ethic s and bu sine s s: from theory to practice
1177 (1982) (“Corporations are not privileges; a corporation is no more than a convenient name for a
nexus of contractual relationships among people….
When the corporation is properly seen as a summary
of a set of contractual relationships, it becomes difficult, probably impossible, to say that the agents (managers) may take it on themselves to define the
responsibility of the firm.”)
6 Id. at 1168 n.36.
7 Id. at 1168 n.36, 1177 n.57 (“[M]anagers not only may
but also should violate the rules when it is profitable
to do so.”).
8 See id. at 1158.
9 See id. For an excellent discussion, see Williams, supra
note 1, at 1279–80.
10 See Easterbrook & Fischel, supra note 5, at 1158.
11 See id.
12 For a review of the literature on point and an extensive critique of the Easterbrook & Fischel view, see
Greenfield, Ultra Vires Lives!, supra note 4; Williams,
supra note 1. For a more recent discussion of mechanisms to control corporate illegality, see Adam
Sulkowski & Kent Greenfield, A Bridle, a Prod, and a
Big Stick: An Evaluation of Class Actions, Shareholder
Proposals, and the Ultra Vires Doctrine as Methods for
Controlling Corporate Behavior, 79 St. John’s L. Rev. 929
(2005).
13 See Stone v. Ritter, 911 A.2d 362, 369 (Del, 2006)
(citing In re Walt Disney Co. Derivative Litig., 906
A.2d 27, 66 (Del. 2006)) (discussing the obligation to
obey the law as a component of the duty of good
faith); In re Caremark Int’l Inc. Derivative Litig., 698
A.2d 959, 968 (Del. Ch. 1996) (discussing the obligation
of management to erect an internal reporting system
to aid management in ensuring that the company is
complying with applicable laws).
14 And even this guidance occasionally would be wrong
because some rules should be disobeyed, as a matter of
ethics. See Martin Luther King, Jr., Letter from a
Birmingham Jail (Apr. 16, 1963), available at http://
www.stanford.edu/group/King/frequentdoes/birmingham.pdf (“[O]ne has a moral responsibility to
disobey unjust laws.”).
15 Merriam-Webster defines “ethics” as “the discipline
dealing with what is good and bad and with moral
duty and obligation.” Merriam-Webster Online
Dictionary, http//www.merriam-webster.com/dictianary/ethics (last visited Feb. 15, 2008); see also Note,
Finding Strategic Corporate Citizenship: A New Game
Theoretic View, 117 Harv. L. Rev. 1957, 1958 (2004)
(“The words ‘ethics’ and ‘responsibility’ connote
selflessness and altruism, internalizing a concept of
charity without expectation of payback.”)
16 For accessible and persuasive treatments of the dispositionalist-situationist debate, see Adam Benforado
et al., Broken Scales: Obesity and Justice in America, 53
Emory L.J. 1645 (2004); Jon Hanson & Kathleen
Hanson, The Blame Frame Justifying (Racial) Injustice in
America, 41 Harv. C. R.–C-L. L. Rev. 413 (2006); Jon
Hanson & David Yosifon, The Stuation: An Introduction
to the Situational Character, Critical Realism, Power
Economics, and Deep Capture, 152 U. Pa, L. Rev. 129
(2003) [hereinafter Hanson & Yosifon, The Situation];
Jon Hanson & David Yosifon, The Situational Character:
A Critical Realist Perspective on the Human Animal, 93
Geo. L.J. 1 (2004). Also very helpful is the blog The
Situationist, http://thesituationist.wordpress.com/
(last visited Mar. 10, 2008) (created by Jon Hanson and
Michael MeCann).
17 See Hanson & Yosifon, The Situation, supra note 16, at
136–38.
18 See Lawrence E. Mitchell, Cooperation and Constraint in
the Modern Corporation: An Inquiry into the Causes of
Corporate Immoraliry, 73 Tex. L. Rev. 477, 501 (1995)
(discussing the role morality of corporate executives).
19 ld.
20 ld. at 522. The business judgment rule provides deference to the decisions of company directors. This
deference offers flexibility to the executives to
make decisions in a more ethically robust way, as
long as they rationally can claim that their actions
are in the long-term interests of the company. See,
e.g., Shlensky v. Wrigley, 237 N.E.2d 776, 780 (Ill.
App. Ct. 1968) (giving deference to management’s
decision not to install lights at the Chicago Cubs
park, even though every other Major League
Baseball franchise had done so, for the putative reason that neighborhood decay brought about by
nighttime games would hurt the team in the long
run). John Nilson and I have argued that the business judgment rule is a necessary ameliorative to the
single-minded demand to maximize profit. See Kent
Greenfield & John E. Nilson, Gradgrind’s Education:
Using Dickens and Aristotle to Understand (and
Replace?) the Business Judgment Rule, 63 Brook. L
Rev. 799, 842 (1997).
21 Mitchell, supra note 18, at 522. For an analysis of the
limitations of the business judgment rule in offering
freedom to corporate executives, see Kent Greenfield,
Reclaiming Corporate Law in a New Gilded Age, 2
Harv. L. & Pol’y Rev. 1 (2008) [hereinafter Greenfield,
Gilded Age].
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theories of economic justice 75
22 For a sampling of the many views on the substance of
ethical or moral behavior, consult religious writings
such as the Bible, the Qu’ran, the Talmud, and the Veda.
See also Aristotle, The Nicomachean Ethics of
Aristotle (Sir David Ross trans., Oxford Univ. Press
1975) (1925) (focusing on the development of a balanced moral character and one’s affirmative choice to
engage in consistent virtuous conduct); Immanuel
Kant, Groundwork for the Metaphysics of Morals (Allen W. Wood ed. and trans., Yale Univ. Press
2002) (reasoning that moral behavior is such only if it
is motivated exclusively by good will); John Rawls, A
Theory of Justice (1971) (invoking social contract
theory to argue that moral behavior on the societal
level is achieved through a recognition of inviolable
basic liberties and equality of opportunity).
23 Nina A. Mendelson, A Controller-Based Approach to
Shareholder Liability for Corporate Torts, 102 Colum. L.
Rev. 1203, 1208–09 (2002).
24 See id. at 1204.
25 Id. at 1208–09.
26 Lynn M. LoPucki, Virtual Judgment Proofing: A
Rejoinder, 107 Yale L. J. 1413,1427 (1998) (“Limiting
liability is widely understood to be the principal reason for the separate incorporation of subsidiaries.”).
27 The scholarship on limited liability and its implications is extensive. For a taste, see Lawrence E.
Mitchell, Corporate Irresponsibility; America’s
Newest Export (2001) (describing the moral hazards
arising from limited liability); Theresa Gabaldon,
Experiencing Limited Liability: On Insularity and
Inbreeding on Corporate Law, in Progressive Corporate
Law 111–37 (Lawrence E. Mitchell ed., 1995);
Mendelson, supra note 23. But see Steven Bainbridge,
Abolishing Veil Piercing 26 J. Corp. L. 479 (2001) (providing an argument to justify limited liability regimes
while suggesting that corporate veil piercing should be
constrained); Henry Hansmann & Reinier Kraakman,
Toward Unlimited Shareholder Liability for Corporate Torts,
100 Yale L. J. 1879 (1991).
28 See generally Sarbanes-Oxley Act of 2002, Pub. L. No.
107–204,116 Stat. 745 (codified as amended in scattered
sections of 11,15, 18, 28, and 29 U.S.C.) the purpose of
the Sarbanes-Oxley Act is to protect shareholders by
improving corporate disclosure regulations. For a more
substantive discussion of the Sarbanes-Oxley Act’s protective provisions, see J. Brent Wilkins, The SarbanesOxley Act of 2002: The Ripple Effects of Restoring
Shareholder Confidence, 29 S. Ill. U. L.J. 339 (2005).
29 See generally Kent Greenfield, The Failure of
Corporate Law: Fundamental Flaws & Progressive
Possibilities (2006) [hereinafter Greenfield, Failure]
(arguing for federal fraud protection for employees);
Kent Greenfield, The Unjustified Absence of Federal
Fraud Protection in the Labor Market, 107 Yale L.J. 715
(1997) (suggesting a potential federal statutory scheme
to protect the labor market in the same way that federal anti-fraud regulation protects the capital markets).
30 Various cases have been brought against corporate
directors alleging violations of federal securities laws
when the corporation lies or conceals financial projections to shareholders. See, e.g., Grossman v. Novell,
Inc., 120F. 3d 1112 (10th Cir. 1997); Provenz v. Miller,
102 F.3d 1478, 1487 (9th Cir. 1996) (“A [financial]
projection is a ‘factual’ misstatement [actionable under
securities law] ‘if (1) the statement is not actually
believed, (2) there is no reasonable basis for the belief,
or (3) the speaker is aware of undisclosed facts tending
seriously to undermine the statement’s accuracy.’”);
Plaine v. McCabe, 797 F.2d 713, 723 (9th Cir. 1986)
(noting that allegations of misrepresentation or failure
to disclose specific items, including, financial projections, from tender offer documents sufficiently stated a
claim for violations of federal law).
31 See Robert C. Clark, Major Changes Lead Us Back to
Basics (A Response to the Symposium on My Treatise),
31 J. Corp. L. 591, 596–97 (2006) (explaining the fiduciary duty to maximize shareholder value).
32 See Shimko v. E. States Corp., 146 A.2d 851, 892 (Md.
1958) (addressing suit by shareholders to compel the
corporation to pay dividends when there was a two million dollar surplus, and the corporation claimed it would
use it as part of a long-term recapitalization plan). See
generally Dodge v. Ford Motor Co., 170 N. W. 668, 685
(Mich. 1919) (awarding payment of dividends to shareholders on the grounds that withholding payment to
increase the welfare of the general public was not in the
best interests of the corporation and shareholders).
33 See Dodge, 170N.W. at 679, 683, 685 (explaining how
Ford Motor Co.’s non-payment policy was viewed to
be under-performing).
34 See Lee Drutman, The Long-Term Value Moment, Am.
Prospect, July 9, 2007, http://ww.prospect.org/cs/
articles?article=the_longterm_value_moment (cataloging various studies pointing out the pathologies of
short-termism in the business strategy).
35 Sarbanes-Oxley Act of 2002, Pub. L. No. 107–204, §§
101–09, 116 Stat. 745, 750–71 (codified as amended at
15 U.S.C. $$ 7201–19 (Supp. V 2006)).
36 See Drutman, supra note 34.
37 See Peter K.M. Chan, Breaking the Market’s Dependence
on Independence: An Alternative to the “Independent”
Hoffman, W. M., Frederick, R. E., & Schwartz, M. S. (Eds.). (2014). Business ethics : Readings and cases in corporate morality. ProQuest Ebook Central <a
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76 part 1 ethic s and bu sine s s: from theory to practice
Outside Auditor, 9 Fordham J. Corp. & Fin. L. 347, 349
(2004) (arguing that the auditing restrictions in
Sarbanes-Oxley should he relaxed); Roberta Romano,
The Sarbanes-Oxley Act and the Making of Quack
Corporate Governance, 114 Yale L.J. 1521, 1602 (2005)
(arguing that because of the haste under which
Sarbanes-Oxley was enacted, the Act does not appropriately serve the corporate world’s needs and should
be relaxed); Stephen Labaton, Investors’ Suits Face
Higher Bar, Justices Rule, N.Y. Times, June 22, 2007, at
A1 (reporting that industry groups and allies in academia have urged the Bush Administration and
Congress to make it more difficult for investors to
bring lawsuits against corporations and to relax some
of the provisions of the Sarbanes-Oxley Act of 2002).
38 Oliver W. Holmes, Jr., Justice, Supreme Judicial Court
of Mass., The Path of the Law, Remarks at the
Dedication of the new hall of the Boston University
School of Law ( Jan. 8, 1897), in 10 Harv. L. Rev. 457,
459 (1897) (“If you want to know the law and nothing else, you must look at it as a bad man, who cares
only for the material consequences.”).
39 The average stock turnover for Fortune 500 companies is over 100% a year, and is even greater for smaller
companies. Lawrence E. Mitchell, The Speculation
Economy: How FinanceTriumphed Over Industry
277–78 (2007).
40 See generally Rajendra S. Sisodia et al., Firms of
Endearment: How World Class Companies Profit
From Passion and Purpose (2007) (arguing that
stakeholder management results in market successes).
41 But see Ronald Chen & Jon Hanson, The Illusion of
Law: The Legitimating Schemas of Modern Policy and
Corporate Law, 103 Mich. L. Rev. 1, 46–48 (2004) (discussing the “shareholder primacy” theory of the corporation where if one takes a long-term view of
shareholders’ interests, advancing the concerns of
other corporate constituents may serve to enhance
shareholder value); David Locasio, Comment, The
Dilemma of the Double Derivative Suit, 83 Nw. U. L. Rev.
729, 758 (1989) (explaining that, under Delaware law,
the business judgment rule affords corporate directors
broad discretion in their decision-making that enables
them to consider the long-term interests of shareholders (citing Auerbach v. Bennett, 393N.E.2d 994, 1000
(N.Y. 1979)).
42 See Unocal Corp. v. Mesa Petroleum Co., 493 A.2d
946, 959 (Del. 1985) (discussing the benefits of a
corporate model where the shareholders elect the
members of the board: “If the stockholders are displeased with the action of their elected representatives,
the powers of corporate democracy are at their
disposal to turn the board out”).
43 There are many factors that have led companies to
focus on equity-driven investors and short-term gains
instead of allocating decisions based on long-term
growth and giving power to non-equity investors. See,
e.g., Martin Lipton & Steven A. Rosenblum, A New
System of Corporate Governance: The Quinquennial Election
of Directors, 58 U. Chi. L. Rev. 187, 205–13 (1991) (discussing how competition among institutional investors
can lead corporations to focus on short-term gains
which can threaten the long-term health of a company). Because of this, the long-term interests of the
shareholders might actually be weakened. Thomas Lee
Hazen, The Short-Term/long-term Dichotomy and
Investment Theory: Implications for Securities Market
Regulation and for Corporate Law, 70 N.C. L. Rev. 137,
179 (1991) (“Although not all observers agree, many
have suggested that corporate managers’ obsession with
short-term shareholder wealth maximization has, in
many cases, diverted their attention away from the efficient operation of their companies.”).
44 See Ethan S. Burger, Who Is the Corporation’s Lawyer?,
107 W.Va. L. Rev. 711, 741–42 (2005) (explaining the
two common theories of stakeholder governance and
noting that the stakeholder model results in difficulty
in sustaining competitiveness because of the increasing
globalization of the economy).
45 See Greenfield, Failure, supra note 29, For a broad
overview of the debate on the effectiveness of
employee ownership, see generally Henry Hansmann,
When Does Worker Ownership Work? ESOPS, Law Firms,
Codetermination, and Economic Dependency, 99 Yale L.J.
1749 (1990) (describing employee ownership in various employment contexts and its benefits and costs).
46 See John C. Coffee, Jr., The Future As History: The
Prospects for Global Convergence in Corporate Governance
and its Implications, 93 Nw. U. L. Rev. 641 (1999)
(examining the various types of stakeholder governance both in the United States and abroad, and discussing the implications of each, the reasons for the
disparity between countries in governance standards,
and how adopting various forms of stakeholder governance specifically could impact the United States).
47 See Luca Enriques, Bad Apples, Bad Oranges: A Comment
From Old Europe on Post-Enron Corporate Governance
Reforms, 38 Wake Forest L. Rev. 911 (2003) (discussing
European corporate governance and stakeholder protection in the context of the Enron collapse).
48 For a more extensive answer to this critique, see
Greenfield, Gilded Age, supra note 21.
Hoffman, W. M., Frederick, R. E., & Schwartz, M. S. (Eds.). (2014). Business ethics : Readings and cases in corporate morality. ProQuest Ebook Central <a
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theories of economic justice 77
Questions for Discussion
1. Rawls argues that just principles would be chosen
by rational, self-interested people behind a “veil
of ignorance.” What is the purpose of the “veil of
ignorance”? Do you think that people placed
behind such a veil would choose the principles
Rawls proposes? Can you imagine another set of
principles they might choose instead?
2. Nozick rejects any system that tries to ensure a
particular distribution of income or wealth, e.g.
an equal distribution, because he believes such
a system would interfere with people’s liberty.
However, he grants that under some circumstances forced redistribution might be permissible. What are those circumstances? What principle
of redistribution might he agree to?
3. Why does Smart believe that the general tendency of utilitarianism is toward equality?
Under what conditions might there be an
exception to this tendency? What would Rawls
and Nozick have to say about Smart’s theory
of justice?
4. Narveson argues that free-market capitalism has
“positive externalities,” i.e. social benefits such as
entrepreneurial creativity, even though such
benefits are not intended by individual market
participants. But he notes that there are negative
externalities as well, industrial pollution, for
example. Might there be circumstances in which
the costs of negative externalities outweigh the
benefits of positive externalities? What would
Narveson advise in this situation?
5. Greenfield believes that the way to reform corporate ethical behavior is to pass laws that encourage
good corporate ethics and discourage bad corporate ethics. But is it really possible to capture anything more than the bare essentials of ethical
behavior in legal terms? Is that good enough?
And what if business conditions change too fast
for the law to keep pace?
Hoffman, W. M., Frederick, R. E., & Schwartz, M. S. (Eds.). (2014). Business ethics : Readings and cases in corporate morality. ProQuest Ebook Central <a
onclick=window.open(‘http://ebookcentral.proquest.com’,’_blank’) href=’http://ebookcentral.proquest.com’ target=’_blank’ style=’cursor: pointer;’>http://ebookcentral.proquest.com</a>
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