Why does Business need Business Ethics?

Prepared for the

Value Inquiry Symposium

by

Ralph J. Argen III, JD, Ph.D.

Project Manager

ThermoCor Kimmins, Inc.

January 14, L997

This was presented at the :

25th Conference on Value lnquiry: VALUES IN BUSINESSJesse Taylor

Department of Philosophy & ReligionAppalachian State University

Boone, NC 28068

Introduction

Business ethics is often understood as an oxymoron or as an activity separate from ethics and or as an activity that

desperately needs ethics. The colloquial assumption that ethics is not natural to the practice ofbusiness is rejected

here, but is not denied as an accurate description of what Chompsky refers to as predatory capitalism, which is

business as it is. This paper identifies two fundamental tensions traceable to the human condition, which combine

with the Rule Book of business creating the market economy and business as it is. Initially, I shall focus on these

tensions as they manifest in the activity we call business. What may be called the positive tension is the technical

ability, capacity and or desire of some humans to have or allow the existence of enlightened business organizations.

The opposing tension compels, directs, or encourages market economy participants to practice business as it is.

Business as it is, is (l) a manifestation of the Rule-book-the IRS statutory code, regulations, and all the other

statutes and regulations that create market opportunity for profit, (2) amoral adherence to the Rule Book, and or (3)

reliance on cost benefit analysis search of the available Rule Book for untapped boundary oppornrnities. The

unenlightened business organization is rationally self-interested because it maximizes its self interest, which is to

maximize profits. Profit, in a market economy, is the sole means of ensuring an organizations continued existence.

The unenlightened business organization is allegedly amoral because in seeking to gain or keep profits, the business

organization relies solely on an allegedly amoral decision making process, namely, the cost benefit analysis

combined with a profit and loss balance sheet analysis. The issue is not, is ethics a natural aspect of business or

should business be ethical? The issue is, what about today's market economy creates predatory capitalism; what is

the nature of the tensions that pull persons towards the enlightened or the unenlightened practice of business; why

do enlightened persons find themselves practicing unenlightened business?

I begin here with the standard definition of a business organization. A business organization is any group of persons

or organized entities that seek to gain or keep profits for the sale of goods or services or both. In this sense, a

business organization is any large or small corporation, any mom-and-pop-shop organized to sell goods or services

to gain or keep profits. Profit is the excess of the selling price of goods or services over their cost. Put another way,

profit is the value, usually in currency, over the cost one is willing to pay another for goods and or services. The

search for profit and the action taken to get profit is the business of accumulating profits or wealth. The focus of

this paper is understanding why so many business organizations or businesses tend toward predatory capitalism in

the pursuit of profit rather then the contemplation and the creation of enlightened business organizations. Why does

business need business ethics?

Enlightened Business Organization

There is an enlightened corporate vision; it is the company for which everyone aspires to own or be an employee.

Such a company, looks at and understands employees first as persons then as its valuable assets. The enlightened

business organization recognizes its employees as persons with a life outside of work, as well as responsibilities to

family and friends. In turn, the employee does not abuse the organizations flexibility or humanity. Such an

organization never treats or uses its personnel as one uses the tools in a tool box; employees are never seen as

materials to be used, used up and discarded. An enlightened business organization aspires to cultivate an open,

trusting, respectful work environment that, while maybe not intrinsically fun, is at least consistent with having fun.

The enlightened work environment promotes personal growth, creativity, a realistic and aggressive focus on the

organizations purpose and goals, which are themselves socially responsible contributions to the community. The

enlightened business organization model may be further broken down into various internal relationships between

various staff with an internal organizational hierarchy. Some of these relationships may be as follows:

l. Employees and employee managers2. employee managers and upper management,3. upper management and owner/shareholders4. various interactions between employees, employee managers, upper management and owner/shareholders.

Each of us has our own intuitive sense of how the enlightened organization would or should manage these

relationships. There are infinite complications, conflicts and collisions within every business organization

composed of human egos. The generalizations for resolving the necessary complications, conflicts and collisions

within a business organization are part of the enlightened corporate vision. Each solution is a unique composition of

people and circumstance. Given the enlightened corporate vision and a general scheme for the organizational

hierarchy, I leave the event specific problem solving techniques to the participants with a reminder to return to the

basics ofthe enlightened vision for problem solving guidance. The essence ofthe enlightened business organization

is understanding and practicing the contemplation in the pursuit of profit. Contemplation is the paradigm for the

business organization focused on the enlightened pursuit ofprofit.

Unenlightened Business Organization

The unenlightened business is the negation of one or more components or virtues of the enlightened business

organization. Action is the paradigm for the unenlightened pursuit of profit. The crucial distinction between the

unenlightened business organization and the enlightened business organization is the difference between action to

gain or keep profits and contemplation of action to gain or keep profits. From the perspective of Darwinian

evolutionary psychology, humans have the tools or the technical capacity to be moral, but are not by nature moral.

From this Darwinian perspective morality is designed to be misused; knowing that people tend to have feelings of

moral obligation allows others to use morality selfishly. Darwinian skepticism places morality in doubt, because it

assumes that humans live not to contemplate, but to act. The mere accumulation of profits, as if profits were

intrinsically valuable, is action without contemplation; it is little more than a method of keeping score; a method for

evaluating ones ability to collect profits. Business, as predatory competition, is a zero-sum game of collecting

points or profits, where profits are perceived as intrinsically valuable. A distinction is necessary between the

unenlightened collection ofprofits for the sake oftheir alleged "intrinsic value," and the enlightened collection of

profits for the sake of creating "added value" and the selling of goods and or services.

Profits and Profit Taking

Business as it is, is neither enlightened nor unenlightened. The models for the enlightened and unenlightened

corporation are polar archetypes of which the marketplace contains a plethora of mixed, bad copies of each.

Predatory business organizations use morality or the appearance of enlightenment as a tool for the collection of

profits. To be sure, profit collection must be part of any business organization seeking to survive in a market

economy. The morality of profit collection is the most fundamental assumption of any form of market economy. A

so-called "reasonable" profit is moral. However. usury is interest or profit that is deemed unconscionable or

exorbitant. The amount of profit, not profft per se, is what defines the morality or immorality of profits. In this

usurious sense, profit is moral to a degree, which inspires the question: What level of profiting may be called moral

or the "added value" of a product or service, and what level of profiting is unconscionable or exorbitant? Ethical

profit taking is tied to the creation of "added value." For example, where raw materials are combined to make a

finished product, and the finished product is said to have a different if not greater value than the sum of the cost of

the individual raw materials. A computer can be understood to have a value greater than the value equal to the cost

of the, plastic, metal and glass that makeup the computer. Similarly the services of an environmental remediation

contractor do not produce a product from raw materials, but rather provide an expert service, i.e. knowledge and

techniques for cleaning contaminated soil and or water. The seller of a service sells his or her accumulated

knowledge or expertise in a particular technical field. Such accumulated knowledge is also call the "added value."

This popular story of capitalism has its limits, because "added value" is a fiction. So called "added value" may

originate from a grass roots demand, or more often than not as a byproduct of the corporate technique for

transforming wants into needs, namely marketing. If there is no grass roots demand or manufactured demand, for

computers, water proof cellular phones, Elmo dolls, soil, or water cleanup and so forth then there is no "added

value," no profit and no sale.

The Marxist sense of profit as exploitation provides a useful perspective. One who sells products or services created

by the labor of others for more than the value of that labor exploits the laborers for an amount equal to which the

Sell-price exceeds the cost of labor. Cost is without markup, profit or "added value," and without exploitation.

Sell-price is cost plus markup, profit or "added value." From the Marxist perspective a Sell-price is exploitation

equal to the markup. From the capitalist perspective, a Sell-price is not exploitation, because the markup or profit is

the "added value," which is paid voluntarily and without coercion, and therefore not exploitive or unethical. Why

do business organizations and individuals, without coercion, pay the Sell-price? Subjective valuation is often the

ultimate justification, i.e. the satisfaction of a pure non-instrumental want, which we shall not discuss here. The

other is a purely instrumental justification. Participants in this zero-sum game know that as a buyer my Sell-price,

after purchase, becomes my cost; add a markup to the cost and one creates a New-Sell-price. Product multiplication

or the market economy capacity for transforming a Sell-price to a cost is infinitely repeatable. If this sort of

product multiplication is extended far enough, we can create things like thermal desorbers. A thermal desorber is a

seventy foot long complex agglomeration of steel and electronics designed to remove and destroy volatile organic

compounds from soil; such a devise has a cost of about one million dollars. The proud owner of this desorber

transforms his Sell-price into a service-Sell-price of $55 to $60 per ton of contaminated soil. If all were to go

perfectly, processing 17,000 to 20,000 tons of soil should pay for the machine and generate profits for its owner.

The point of this scenario is that the market economy permits virtually unlimited pass through of the other guy's

profit in the form of a Sell-price; no one need eat the other guy's profit if each is willing to play the pass through

game. In this sense, one willingly accepts this exploitation only because it is possible to pass it on. Marx's

derogatory characterization of profit as exploitation has some merit; it is only because we know and understand how

to pass on this exploitation that we allow ourselves to be exploited by a seller's profit taking. The necessity of

exploitation that goes hand in hand with the creation of profits allows us to conclude that there is nothing

intrinsically good about profits, and nothing intrinsically moral about behavior that creates profits. The significance

of this point cannot be overlooked. The economic system that glorifies profits and the need to take profits-

capitalism-is totally and completely based on the nearly limitless ability to pass the exploitation of profit on to

another. The essential power or capitalism is its ability to perpetuate itself well beyond what Marx thought possible

via product multiplication. Product multiplication as used by capitalism to pass on the markup or profits in the

name of "added value." In the market economy, no one who participates is obliged to be solely an exploitee.

Everyone who participates in the market economy is encouraged to be an exploiter and pass on paid-profits as

costs. "Added value" is a special kind of exploitation; it is not understood as exploitation, because it is paid

voluntarily with the intention of passing it on as a cost. Profits are, therefore, neither intrinsically valuable nor

moral per se. Profits and profit taking are moral when paid voluntarily without coercion or where there is "added

value."

Both enlightened and unenlightened businesses seek to gain or keep profits. Both enlightened and unenlightened

business organizations use the cost benefit profit and loss balance sheet methodology to evaluate options. The

unenlightened business organization may seek profit collection devoid ofproviding any product or service. The

paradigm for a business engaged exclusively in profit collection is stock market trading based solely on the bull and

bear psychology of the market, where no regard is given to the fundamentals of a business organization. Profit

collected solely on the psychology of traders effectively treats profits as if they were intrinsically valuable, i.e.,

where profit collection need not be tied to the creation of any "added value." Enlightened profit collection is

voluntary and without coercion; it requires an exchange of money for goods and or services plus "added value."

Unenlightened profit collection does not involve the trade for "added value;" it is the collection of profits solely

through the assignment of costs, or systematic exploitation. Predatory capitalism stems from the collection of profits

without providing goods, a service or "added value," In short, predatory capitalism treats profits as ifthey are

intrinsically valuable.

The Human Condition

The enlightened business organization could not be reduced to the mere collection of profits. The essential

difference between the enlightened business organization and the unenlightened business organization is an

expression of the people that run and or own them. The question is not why be moral? The question is why do

persons who have chosen the moral life engage in unenlightened business transactions or create unenlightened

business organizations? A corporation is nothing but the commingled self-interested egos of persons that control

the corporation. The commingled synergism of individual egos that is the corporation's composite ego retains liftle

of the socialization characteristic of the morally predisposed individual egos that constitute it, because the united

purpose of perpetuating the corporation's existence is magnified three fold. First, each of the controlling individual

ego's has a desire for the organization to survive in the market place. Second, the composite corporate ego's desire

is magnified not only by the controlling principals desires, but also by the desires of employees that depend on the

corporation for economic survival. Third, the market place Rule Book has no moral code for survival. The market

place Rule Book is the sum total of all tax code statutes, rules regulations and case law, which defines market place

survival in terms of legal opporfunities for profit. The Rule Book is not a static influence on profit making

opportunities; almost every statute creates and eliminates some means of economic survival. Such a three fold

focus on survival within the market place, produces a zero-sum game of survival regulated only by the rules of the

Rule Book. However, the Rule Book has no moral code. The default rule for using the Rule Book is "its all a

matter of what you can get away with." Project Management in the environmental construction industry is a case in

point; it is ground-zero capitalism, hand-to-hand-combat capitalism; this profit starved, hyper cost focused business

requires its Project Managers to walk the fine line between being shrewd and being immoral. There is no

reconciliation between business as it is and business grounded in contemplation.

The hidden hand of the market economy is a tractable myth. The hidden hand is in fact a tangible, entangled, some

times opaque, ambiguous and sometime clear Rule Book. The Rule Book is thousands of pages long, and in those

thousands ofpages oftext there is no ethical code ofconduct or moral vision for how a corporation should pursue

profit. The result is that the pursuit of profit under the rules of the Rule Book are driven by the human condition or

the tensions in the human soul characterized by the clash between Apotlo and Dionysus.

Apollo vs. Dionysus

The tension between creating an enlightened and an unenlightened business organization is traceable to the dualistic

nature of the human condition or the struggle between the human need for both order and creative freedom. One

tension is the Dionysian pursuit of gratification, in business this takes the form of maximizing profits. The other

tension is the Apollonian drive for order; it manifests in business as a socially engineered unprofitable business

organization. It is not my position that the collision of these two extremes always, necessarily and naturally yields

truth, justice, harmony and moral wisdom, but rather that the material and economic creativity necessary for

creating an enlightened business organization are part ofDionysain disorder; and the logic, order and structure

necessary to operate such and organization are part ofApollonian order. The psycho-philosophical structure ofthe

enlightened business organization is not a necessary result of the tensions that define the human condition. Both the

unenlightened and enlightened business organizations are consistent with the human condition. The market

economy and the resulting business, as it is, does not preclude creating a different sort of business Rule Book that

promotes and rewards enlightened business organizations and a libertarian environmental social justice. The

tensions in the human soul represented by Apollo and Dionysus define the conflict within the human spirit.

Spirituality, and or faith are usually associated exclusively with religion. In the West, spirituality is associated with

the big three Judaism, Christianity and Islam. Spirituality in the religious sense is generally used to throttle back

what could be called the Dionysian wants and desires of the human condition. In business, this may be associated

with the collection of profits without contemplation of the social justice of any given opportunity to collect profits.

In order for a business ethic to prosper we need a new spirituality to create a New Rule Book and a different sort of

market economy. This is a search for neither a capitalist not a communist utopia; it is a search for a Darwinian

psycho-philosophical spirituality capable of reconciling the human condition with our information technology

culture, or an on going mediation between Dionysian disorder and Apollonian order. Such a secular spirituality will

take humanity beyond the spirituality of business as it is, namely, "Its all a matter of what you can get away with."

The process of creating this new secular faith for the twenty-frst century should begin with the historical origins of

faith and spirituality, or study of faith in God for some lessons and some warnings (Armstrong 1993, 399). Using

the lessons and particularly the warnings we can discover a new spirituality, create a new Rule Book and build value

creating business organizations. In other words, Business needs business ethics for the same reason humans need

ethics, namely, to disseminate a libertarian social justice.

Cited Work

Armstrong, Karen. A historv of God. New York: Ballantine Books, 1993.