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The Reality and Morality of Business
We should take a positive view of business enterprise and achievement and should honor the act of creating value. A principled commitment to production should be valued as a moral accomplishment. Unfortunately, there is a sense of suspicion of, and bias against, business in our society. Many intellectuals are disdainful regarding the moral merits of business and declare the focus of business on profits and prosperity as immoral. Most textbooks in business ethics and related areas are prejudiced against business and are not representative of the real business world. Too many misconceptions and misstatements have been disseminated about business and businessmen. There is a dire need for books written by authors who are in touch with the reality and morality of business. Fortunately, there are several books that characterize business and the businessmen in a more favorable light. For example, there are Ayn Randís Atlas Shrugged, Why Businessmen Need Philosophy (edited by Richard E. Ralston), and Capitalism: The Unknown Ideal. Then there are edited collections such as Tibor R. Machanís Commerce and Morality, and Robert W. McGeeís Business Ethics and Common Sense. In addition, there are textbooks such as James E. Chesher and Tibor R. Machanís The Business of Commerce and my own book, Capitalism and Commerce. Also, there is Donna Greiner and Theodore B. Kinniís book, Ayn Rand and Business. Finally, there are Andrew Bernsteinís forthcoming book called The Capitalist Manifesto and Stephen Hicks' work in process entitled The Virtuous Dollar Chasers. This essay will take a brief look at the perspective on business that is taken in these above works.
Reality Is Not Optional
Reality lies outside the human mind and is what the mind focuses on in manís efforts to discern and discover the principles related to the operation of the physical world. People need to understand the nature of man and the world and the nature of human action in order to determine how to act. The order of nature is not invented by man. Rather, he uses his unique attribute, reason, to apprehend the order by which he is bound.
Work is built into the human condition. Men must transform parts of their natural environment into consumable forms in order to survive and prosper. Wealth has to be produced by men. Nature provides the raw materials, but man must use his mind to uncover the knowledge of how to use them and must use his physical abilities to convert them into usable form.
Production is the means to the fulfillment of menís material needs. The production of goods, services, and wealth metaphysically precedes their distribution and exchange. When a man acts rationally and in his own self-interest he makes wealth creation, economic activity, and the scientific study of economics possible. To survive and flourish, men have to produce what is necessary for their existence. The requirements of life must be objectively identified and produced. The facts regarding what enhances or restrains life are objective, established by the facts of reality, and based on proper cognition. There are requirements and rules built into the nature of things which must be met if we are to survive and prosper.
Productiveness is the virtue of using oneís mind to create the values required to sustain his life. People tend to be productive and successful when they are rational and self-interested. Production requires people who practice the virtues of rationality and self-interest. Rationality, a common standard in human nature, is a discerning approach to the selection of both ends and means. Self-interest is also a virtue because living for human beings is ultimately an individual task. Because the maintenance of each personís life is conditional, it is necessary for each individual to choose to think, plan, and produce if he wants to survive and flourish. Because life requires the production and consumption of values, it is imperative to determine the principles that enable individuals to produce and to trade with one another.
A man must obtain what he requires, if he is to maintain his life. Either he or someone else must produce the things that he requires. There is an innate inequality of men with respect to their capacities to perform different kinds of work. Human beings are born unequal with regard to their intellectual and physical abilities. Division of labor is a logical outcome of manís rational reaction to countless natural conditions.
A free society recognizes individual rights and leaves each individual free to think, to act on his thoughts, and to enjoy the rewards of his actions. Business in a free society permits one to perform a specialized task, at which one excels, while gaining the benefits of others performing tasks at which they excel. Because talents vary from one person to another, they can create and enjoy more if they specialize in production and then exchange with others. Producers create values and then gain additional values from others through voluntary trade.
Scientists discover natureís laws. Engineers use these laws to develop new product ideas. In turn, the businessman takes the theoretical achievements of the scientists and engineers and turns them into reality. The businessman takes scientific discoveries into his factories and transforms them into products that meet menís needs and increase the pleasure of their existence.
The Nature and Role of Business
Businessmen must be committed to reality. After scientists and engineers uncover new knowledge, it is the task of the businessman to determine how to use that knowledge. Rational thinking is the cause of wealth production. The businessman searches for opportunities and combines land, labor, and capital to create wealth. The market creates benefits in the form of new and better products and lower prices. A businessman benefits only by offering goods and services that others are willing to buy. If he does not cater to the desires of others, he will not prosper. He enables others to attain what they want and to pursue their visions of happiness. The businessman is an appropriate symbol of a free society. Capitalism inspires business behavior that is prudent, diligent, prescient, innovative, imaginative, and virtuous. The successful businessman must be a risk-taking man of ideas and moral action.
To be successful, a businessman must objectively perceive reality and rationally process and evaluate information. He must detect information gaps between consumer wants and needs and the potential of a new but as yet undeveloped product or service to meet those wants and needs. The businessman must anticipate new markets and consumersí future wants and needs, learn from competitorsí successes and failures, accumulate capital for his projects, acquire the needed resources, coordinate numerous activities and employee skills, and take risks by trading present and known values for resources that only promise a potential future value for him. Profit is payment for the businessmanís thought, vision, initiative, determination, and efficiency.
Businessmen aim to produce a profit by selling at the highest price the market will permit while buying at the lowest prices the market will yield. They profit by doing the best they can in creating goods and services that consumers desire. The role of business is to produce the best possible goods, services, and ideas at the lowest possible cost so as to maximize the firmís profits. The businessman earns profits by using as little as possible to provide customers with as much as possible. Profit is made by creating wealth and trading with others.
The core of business is wealth creation. Its essential nature involves the production of value for trade. Professional businessmen are specialists in voluntary exchange. In a firm, managers are employed to add to the net worth of the company. They are not typically hired to carry on programs of social reform. The businessman provides business competence for a price. People normally invest to increase their wealth and the businessman furnishes the skills to meet this goal.
Business qua business serves those who wish to trade and does not make use of coercion. It is the entry of the state into the business realm that leads to coercive monopolies and unfair advantages. Unlike business, the state relies on coercive power rather than on voluntary agreement. When a failed or faltering business is rescued by a government handout, it is no longer a business. Likewise, when a businessman obtains his results outside the market framework by receiving special privileges (e.g., subsidies or monopolistic advantages) granted by the government, he forfeits his status as a businessman.
Sometimes businesses lobby government for special privileges such as bailouts, price supports, subsidized loans, trade protection, resource privileges, grants of monopoly, etc. A moral business would succeed or fail on its own without any government assistance. If a moral businessman makes a mistake, he is prepared to suffer the consequences. If he fails, he takes the loss. A moral businessman profits only if he satisfies the needs of people by offering better products or services or at a lower price than do others. When practiced properly, business is a noble and virtuous pursuit.
A businessman should be honest and just in his dealings with othersóthey should be identified and treated according to what they are, do, and freely agree to. For example, the most deserving employees should be promoted and the best bidders should be awarded contracts. In addition, a manager should not support government actions such as price supports, tariffs, quotas, and subsidies even though such policies may result in higher profits for his own company. To do so would involve coercion, one step removed. To support such natural-rights-violating actions would be to undermine the principles of the free society upon which business depends. When corporate leaders use the political process to protect themselves from competition and to receive taxpayer subsidies, they cease to be engaged in commercial activity.
The Moral Responsibility of Businessmen
The moral responsibility of the corporationís directors, managers, and other employees, is simply to respect the natural rights of individuals. Individuals in a corporation have the legally enforceable responsibility or duty to respect the moral agency, space, or autonomy of persons. This involves the basic principle of the noninitiation of physical force and includes: the obligation to honor a corporationís contracts with its managers, employees, customers, suppliers, and others; duties not to engage in deception, fraud, force, threats, theft, or coercion against others; and the responsibility to honor representations made to the local community.
Customers, employers, suppliers, and others autonomously negotiate for and agree to contract with the corporation. If managers were to break an agreement with the shareholders to maximize profits in order to give one or more groups more benefits than they freely agreed upon, they would be violating the rights of the owners. Corporations and their managers are obligated to respect the rights of individuals within each group, but the rights are limited to the rights of parties in market transactions.
Socially responsible actions may be acceptable when the manager undertakes them in anticipation of effects that, in the long run, will be beneficial to business. A socially responsible investment should have a direct business purpose, involve cost-benefit analysis, and be expected to generate sufficient future net tangible benefits for the firm and its shareholders. The question is not whether an activity is in the interest of a firm, but whether it is enough in its interest to justify the expenditure.
Managers are employees of the shareholders and have a contractual and hence moral responsibility to fulfill the wishes of the shareholders. As a corporate executive, the manager is an agent of the owners of the corporation and has a voluntarily-assumed fiduciary responsibility to them. Corporate social responsibility may be permitted within the limits of prior contractual agreements with the shareholders. This occurs when individuals organize corporations for reasons other than, or in addition to, profit. Also, socially responsible actions such as charitable contributions may be acceptable when the manager makes these in anticipation of effects that, in the long run, will be beneficial to business.
A Principled Approach to Business Ethics
A man needs a system of rational ethical principles to provide knowledge and guidance in real business situations. The purpose of business ethics is to discern the evaluative principles that are appropriate for the complex world of business. Explicit principles provide those engaged in business with a moral framework within which to think, evaluate, and act. Business ethics is concerned with how a businessman should act so that the goals of his company are attained in a manner consistent with applicable ethical principles.
In business, just as in all aspects of his life, a man needs a system of proper rational principles to tell right from wrong and to accurately make decisions in complex situations. A person requires moral principles to guide his choices and actions. Moral principles involve the application of conceptual thinking to the realm of action. A man must abstract principles and then act on principles in any particular set of circumstances. Because principles are inescapable, it is essential to consciously identify and critically assess oneís principles and to decide which principle is the proper principle in the context of the situation at hand. A person needs to delineate the context of a situation in order to decide what principle is applicable. He must determine under what known principle the concrete facts of situations can be subsumed. Of course, applying an ethical principle to complex concrete situations can be difficult and challenging.
Moral principles are true in context. It follows that a personís recognition of the moral context of a situation must precede his efforts to deal with it. A man can act on appropriate moral principles when he rationally apprehends the facts of a situation. When deciding how to act a person should not drop context nor evade relevant knowledge. Moral principles are universally applicable in the context in which they are defined and appropriate. It follows that certain cases do not fall within the context in which the principle is to be applied. Each of us must endeavor to learn the contexts that validate various principles.
Business is about the cooperative production and trade of values. In a business context the production or pursuit of wealth is paramount. The business world is comprised of individuals each holding his own life as the standard of value. Because human life depends upon the production and consumption of values, individuals in business need to act in defined ways. To be productive means to create values that can be traded for goods and services needed for oneís life. Production depends on oneís knowledge and thought with respect to what values are to be produced and consumed and the actions required to produce them. As more and more people produce, the supply of goods and services increases thereby making it more and more possible to trade to mutual advantage.
Business in a free society requires honesty, prudence, integrity, justice, respect for contracts and property rights, and so on. Many business ethics issues revolve around the principle or virtue of honesty. An honest man attempts to gain values through productive action and voluntary exchange rather than by force or deception. Honesty as a principle is applicable in an authentic business context because it is necessary to allow men to live well on earth. Honesty means adhering to reality. An honest person does not gain at anotherís expense. Honesty means that it is wrong to gain value by faking reality or by misrepresenting the truth. Honesty is an appropriate principle in the context of dealing with others through voluntary cooperation. In other words, when force has been initiated by another then honesty is not the appropriate principle for that given context. A threat or act of physical force makes it impossible or imprudent to practice honesty. When one encounters force or fraud, or has his freedom taken away, honesty is no longer a means to attaining values. Instead, some method of self-defense such as lying is called for. Honesty assumes a context in which a person is free to produce values and to voluntarily trade them with others.
Business Rewards and Promotes Virtuous Behavior
When commerce is conducted within a capitalistic society, virtues are promoted. The pursuit of profit reflects the presence of many of the virtues. The free market rewards polite, accommodating, tolerant, open, honest, realistic, trustworthy, discerning, creative, fair-dealing businessmen. In the long run, profitable businesses tend to be populated by people who conduct the business in accordance with basic ethical principles calling for honesty, respect for persons and property, fidelity to commitments, and justice.
Business, as a calling and a profession, is related to the flourishing of the individual. Innumerable persons have satisfied their needs, developed their characters, actualized their potentialities, and attained their goals in the realm of business. When a businessman has the talent to do a job that is right for him and he does it well and according to appropriate moral principles, he is likely to experience enjoyment, a sense of accomplishment, satisfaction, and renewed energies. It follows that the businessmanís activities are morally proper and worthy goals.
The moral virtue of prudence is concerned with the intelligent living of oneís life. If a person is to be prudent about his life, he must attend to his total well-being. Prudence thus involves the intelligent pursuit of profit, prosperity, and commercial success. Business can be viewed as the social product of human concern with prudence. Commerce is a proper, morally justified area of human action in which businessmen are concerned with obtaining economic well-being.
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