Abstract
In this Chapter, I point out that economists who do not relax the utility maximizing assumption and its underpinning in psychological egoism, make economics a foe of ethics. I also note ironically, that economists do not push their psychological egoism assumption to its natural conclusion-that economic actors will cheat when it is in their interest to do so. However, by relaxing that assumption, new forms of economic analysis, such as transaction cost economics, can explain why codes of ethics may not be a good sign of a company’s morality, why an ethical climate can give a company a competitive advantage, and why multinational corporations have universal moral standards. Also relaxing the utility maximizing assumption allows fairness to be an explanatory variable. Lastly, economists tend to ignore the otherness of economic actors and thus promote peace.
The Chapter was originally given as a talk at the Fourth Annual Politeia Forum on Business Ethics and Corporate Social Responsibility in a Global Economy, Milan Italy September 13, 2007. That talk was then published in “notizie di politeia”, XXIV, 89, (2008), pp 13–26. Reprinted by permission of Emilio D’Orazio, editor.
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Notes
- 1.
For a full account of this argument see my “Challenging the Egoistic Paradigm” (1991) in the first issue of Business Ethics Quarterly 1, 1–21.
- 2.
Harris, Jared D., and Philip Bromiley. (2007). “Incentives to Cheat: The Influence of Executive Compensation and Firm Performance on Financial Misrepresentation,” Organization Science, 18(3), 350–367.
- 3.
The classic statements of transaction cost economics can be found in Williamson, Oliver E. (1975). Markets and Hierarchies. New York: The Free Press, and Williamson, Oliver E. (1985). The Economic Institutions of Capitalism. New York: The Free Press.
- 4.
Actually Williamson’s view on opportunism is more nuanced. See The Economic Institutions of Capitalism Appendix to Chapter 2.
- 5.
Needless to say this paragraph was written before BP’s Deepwater Horizon explosion and oil spill in the Gulf of Mexico in 2010. We now realize that much of BP’s Beyond Petroleum campaign was not backed up with action.
- 6.
Discussions of bounded rationality can be found in Simon, Herbert. (1956). “Rational Choice and the Structure of the Environment,” Psychological Review, 63, 129–138 and Simon, Herbert. (1955). “A Behavioral Model of Rational Choice,” Quarterly Journal of Economics, 69, 99–118. His economic papers are in Models of Bounded Rationality, 3 vols. Cambridge, MA: MIT Press, 1982.
- 7.
For more on Kant’s philosophy as it applies to business, see Chap. 4.
- 8.
For more on this topic, see Chap. 5.
- 9.
Frank, Robert H. (1988). Passions Within Reason. New York: W.W. Norton & Co.
- 10.
Guth, Werner, Rolf Schmittberger, and Bernd Schwarze. (1982). “An Experimental Analysis of the Ultimatum Bargaining Game,” Journal of Economic Behavior and Organization, 3, 367–388.
- 11.
A fuller account of these examples can be found in Frank, op.cit., Chapter 9.
- 12.
Ibid., 165.
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Bowie, N.E. (2013). Economics, Friend or Foe of Ethics. In: Business Ethics in the 21st Century. Issues in Business Ethics, vol 39. Springer, Dordrecht. https://doi.org/10.1007/978-94-007-6223-7_3
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