What does business ethics really mean?
A few remarks on a politically not correct book
Hardy Bouillon*: Business Ethics and the Austrian Tradition in Economics. Routledge, London, 2021. Originally published in German as “Wirtschaft, Ethik und Gerechtigkeit”, vol. IX, ECAEF, “Studien zur Wirtschafts- und Gesellschaftsordnung”.
This book is not politically correct and thus will almost certainly provoke some heated debates. In the course of four short chapters, with concluding remarks in the fifth, Bouillon offers here a number of original insights and explanations to the understanding of Business Ethics and its decisive central part, namely the definition of a morally just economic action. Business Ethics and the Austrian Tradition in Economics ranks among the most important contributions to the wide field of Business Ethics. It is an exceptionally rewarding read and a long overdue and serious blow to an utterly muddled subject that not only profits from the intentional ambiguity of the catch phrase. More to the point, the ubiquitous idiom is firmly in the grip of self-appointed ethicists, of moralists and, as their compliant parrots is also constantly repeated by vote seeking politicians. Apparently, a deliberate vagueness and the prevailing Zeitgeist pay off politically as well as in academic circles.
It is a bit unfortunate that the English title of this book does not immediately attract the interest of the large readership it definitely deserves.
After all, can such vaguely defined slogans as “corporate social responsibility” the ubiquitous word “sustainability” or the equally insuppressible phrase “Social Justice” really provide for a productive discussion of Business Ethics? Unlike the vast majority of authors in the field, Bouillon takes a firm stand and confronts the current semantic and intellectual confusion by contesting the most decisive part of Business Ethics: justice in moral economic actions. He leaves no doubt that Business Ethics is politically biased and almost never follows clear definitions.
Thus, through detailed examinations of the basic assumptions of the body of current Business Ethics, right from the start Bouillon unrelentingly points out the various shortcomings within the subject, which are due to the sloppy and unconvincing language used by most contemporary ethicists. The reader will be grateful for Bouillon’s gentle and clear step by step introduction to the world of precise philosophic thinking and for his reminder of the implication compliance principle, which is increasingly ignored in today’s political discussions. According to this principle, a logical conclusion may never have an implication that is not already implied in the subject. Or as he puts it: “a logical conclusion may not smuggle in new information and claim validity at the same time.” This is especially important for his discussion of the distinction between the empirical and normative aspects of Business Ethics. In order to follow his arguments it is also important to understand his newly introduced term “methodological individualist ethics,” which he describes as ethics that corresponds with one of the main methodological pillars of the Austrian School of Economics, namely its methodological individualism (a term coined in 1908 by Joseph A. Schumpeter). Unlike established Business Ethics, which asserts that there is a moral connection within enterprises, or nations, or any other entity, Bouillon argues that only human beings and their deeds can be categorized as moral. This assumption is important, as firms or other organizations are not “actors” within Bouillon’s methodological individualist ethics. It follows that “social responsibility” or “value to society” among other popular and widely used phrases, can only be interpreted as a composite of many individual actions. The precise operational definitions of his terms and concepts — which he offers along with some elucidations to commonly used words and phrases such as “economic goods,” “property” or “markets” — pave the way for a very useful, step-by-step guide taking readers from a “definition of economic action to the definition of moral economic action.”
In order to lead us to the proper understanding of what he labels “moral economic action” Bouillon provides an interesting and to this day more or less ignored correlation to Carl Menger’s (founder of the Austrian School of Economics) eminent four prerequisites of an economic good. According to Menger, a thing can become an economic good only, if the following 4 prerequisites are simultaneously present:
1: A human need.
2: Such properties as render the thing capable of being brought into a causal connection with the satisfaction of this need.
3: Human knowledge of this causal connection.
4: Command of the thing sufficient to direct it to the satisfaction of the need.
Only when all four of these prerequisites are present simultaneously can a thing become a good.
Bouillon, in good Austrian tradition, argues that we always utilize economic goods according to our subjective preference rankings. It is for this reason that he concludes that in order to be identified as an economic action such an action must be performed under the condition of scarcity and must also be subjectively useful. This statement is of the utmost importance for the understanding of his innovative definition of a moral economic action, because “inasmuch as the characterization of moral action . . . is accepted, we can conclude that economic action must be compatible with this characterization for being entitled to use the label moral economic action”. In other words, the decisive part of the academic field of Business Ethics is the moral economic action, or at least, as Bouillon puts it, moral economic action “should form it.”
In the third chapter Bouillon helps us grasp and follow his arguments for a workable definition of a morally economic justice. This chapter is arguably the most important, especially with today’s Confusion of Language in Political Thought (F. A. von Hayek), with the muddle surrounding the ambiguous concept of Social Justice and in the presence of countless Semantic Traps (K.R.Leube). Right from the onset, Bouillon makes it clear that “there are no ‘more’ or ‘less’ just actions, as there are more or less courageous, generous, and moderate acts. He who suggests a norm that is not entirely compatible with justice, willy-nilly recommends injustice — a cause most people try to avoid, for instance by ways of redefining justice.” At the end of the day, should we try to adapt the concept of justice to existing social norms (which we will never fully comprehend)? Or should we rather use these mostly intuitively felt social norms to test whether they can stand up against what Bouillon calls “formal justice”?
By and large, in following Hayek’s Theory of Social Evolution, Bouillon argues that any social order grows up because individuals unintentionally act within general rules of universal application. The emergence of a social order thus is only possible because individuals act in a certain predictable way with respect to one another. Those groups which have the most effective sets of personal rules of conduct will survive and expand more easily than others. However, the overall effect of observing these rules cannot be known in advance, just like the winners of a game cannot be deduced from looking at or analyzing the rules. In other words, men did not simply design a set of social norms or rules and impose them upon the environment. Social norms may evolve over time from voluntary conventions, from contracts, or even loose agreements between people. These social standards are a sort of structure of interrelated parts that display some predictability and regularity due to the rules that govern their behavior. Our mind is itself a system that undergoes permanent changes as a result of our efforts to adapt to new situations. It is a sort of process of continuous and simultaneous classification, and constant reclassification, on many levels of impulses proceeding in it in any moment. This arrangement is applied in the first instance to all sensory perception but in principle to all the kinds of mental entities, such as emotions, concepts, images, drives, etc. that we find to occur in the mental universe. It seems that the whole order of sensory qualities, all the differences in the effects of their occurrence, could be exhaustively accounted for by a complete explanation of all their effects in different combinations and circumstances.
We can go along with Bouillon’s argument concerning economic moral actions and label them as just so long as they do not interfere with the liberty of others (he thoroughly describes liberty in his second chapter). However, the real question about the politically popular concept of social justice still remains to be investigated. Is his understanding of formal or commutative justice (always demanding a restitution of injustices and only indicating what one person is due from another under generally accepted conditions) weakened or seriously damaged by the introduction of that omnipresent phrase “social justice”?
Over the past 160 years or so, it seems the concept of Social Justice has successfully replaced the clear meaning of Distributive Justice and has inspired generations of social policymakers. Although the model of Distributive Justice can easily be traced back to Aristotle, according to Hayek the synonymous use of Distributive Justice and Social Justice was introduced by John Stuart Mill; the usage has since successfully avoided any serious discussion. It is worthwhile to recall Mill’s own language of about 160 years ago:
‘Society should treat all equally well who have deserved equally well of it, that is, who have deserved equally well absolutely. This is the highest abstract standard of ‘social and distributive justice’; towards which all institutions, and the efforts of all virtuous citizens, should be made in the utmost degree to converge’.
Very importantly, however, Bouillon points out that Social Justice differs from the Aristotelian use of Distributive Justice, insofar as it seems to intentionally discard the decisive aspects of individual success and accomplishment. Among the most important reasons why the term is so popular, according to Bouillon, is that it appeals to those deeply rooted natural instincts that were appropriate in small tribal societies and equally small organizations. But over the span of hundreds of thousands of years, we have gradually developed into a modern mass society that is radically different from its forebears, and we function now on the principles of equal treatment and free cooperation. And still, most arguments in favor of social justice assume that there is a certain set quantity of goods or services — like a cake that can be sliced and then distributed according to abstract moral principles such as need or merit, rather than according to the principles by which the goods or services were produced in the first place.
In markets, however, there is no such distinction. Income is distributed according to the anticipated marginal productivity of factors. A person’s income in a market economy, therefore, is a function of the value of his or her services to others. It is thus inappropriate to assume that there is any merit in a moral sense in his or her actions. The notion of Social Justice becomes meaningless in a society of free people because only a mixture of an individual’s skills and luck determines the outcome. In other words, the term Social Justice is mostly used to imply that a particular distribution of wealth or income between various members of a society is fairer or more just. The never-ending trust in the concept of Social Justice seems to have emerged among other erroneous beliefs from a misconception of a “society.” However, we must clearly distinguish between two types of a society: one which is the result of the spontaneous interaction of a multitude of people with different purposes and goals, like markets; and another which is a result of a deliberate design, determined by a shared purpose and goal, such as a club, a corporation, or an organization. To repeat, the notion of Social Justice is meaningless in a society of free people in which only a mixture of skills and luck determines the outcome.
The final chapter is a highly instructive summary in which Bouillon not only reiterates the countless logical contradictions of diverse concepts and the consequences of these inconsistencies for the contemporary intellectual misconceptions in business ethics. He also applies the definitions and insights provided in the previous chapters to politically sensitive and fiercely contested topics such as “organ trade and abortion,” “insider trading and data protection,” or the politically most-appropriate cases of “bribery and corruption.” In light of current debates about market failures, dazzling bonuses for bankers or CEOs, special taxation for the rich, or the famous but vacuous phrase “fair share,” the topic of Business Ethics is discussed almost everywhere. These debates are regrettably argued either with sloppy terminology or without any deeper understanding of the complex subject. After all, a minimum level of theoretical knowledge about the content, impact and meaning of economic systems and/or social concepts is a prerequisite for any serious political discussion that should differ from the repetition of empty phrases.
Hardy Bouillon’s slim book sets the record straight and is an important and illuminating contribution, a must-read in Business Ethics.
*Hardy Bouillon, a native of Germany, studied Philosophy and Art History at the universities of Albuquerque (USA) and Trier, (D), where he currently teaches political philosophy. Professor Bouillon is one of the leading European liberal philosophers and serves on the academic board of several international institutions. Multiple guest professorships have taken him to European universities, including Frankfurt/M., Vienna, Salzburg or Prague. He was the former Head of Academic Affairs at the Centre for the New Europe (CNE), an independent think tank in Brussels. Prof. Bouillon directs also his own firm “Public Partners”, an agency for public relations, networking and business consultancy that, together with companies and free-market think tanks, organize and host conferences, seminars throughout Europe. Bouillon is a member of the Mont Pèlerin Society and author and/or editor of numerous books and well over 150 academic articles. His numerous books and celebrated essays have been translated into Chinese, English, German, Italian, Romanian, Turkish, and Vietnamese. Among his more recent books only a few will be mentioned: Government: Servant or Master? (1993), Values and the Social Order, 2 vol.; Libertarians and Liberalism, or Ordered Anarchy (2007). Wirtschaft, Ethik und Gerechtigkeit has appeared in an English translation as Business Ethics and the Austrian Tradition in Economics (London, 2021).