The Philosophy of Business
Philosophical Reflections XXXVI
Part A: Earning a Living
Previously we investigated the philosophies of science and law, two specialised branches of philosophy that have great if somewhat indirect significance for people’s lives. Science affects our lives and happiness by being the engine of the growth of knowledge and technology, while law affects us by determining how force is applied and controlled in society, which can leave us free to live or not. But while you would hope or demand that scientists and legal professionals follow good philosophies, unless you are one yourself those philosophies do not guide you on how to live your personal life.
Now we turn to a topic of less fundamental significance but of more immediate application to most peoples’ lives and behaviour: the philosophy of business.
Although I will concentrate on business in the sense of commercial enterprises, that is an instance of the more general sense of earning a living by production and trade. In that general sense, the philosophy of business directly affects everyone: as every person is either earning their own living, being supported by someone who is earning a living (e.g. children and the recipients of voluntary charity), or existing as parasites on people earning a living (e.g. criminals). You are in business not only if you run a company or small business, but also if you are a worker who sells your thought or labour to someone else: and whatever your circumstances, your life depends on someone, yourself or others, thanked or despised, recognised or ignored, who is doing just that.
Business & Philosophy
Nevertheless, businesses have qualities distinct from individuals. So what is a business, and what need does it have for philosophy?
A business is an enterprise producing goods or services that is created to enhance the productivity of its members by division of labour. There would be little point forming a combined business, as opposed to remaining lone operators, if all did not stand to gain. There are many possible arrangements that can be ordered by how much they increase productivity. The simplest is just an association of people with different specialties, so that the business can provide a better overall service and share some resources: for example, a legal partnership. At a higher level is a group of people who between them can afford shared capital equipment none could afford individually: consider potters sharing an expensive kiln. At a higher level still is a capitalised business where owners or investors have paid for expensive machinery that enables production otherwise impossible: consider businesses early in the industrial revolution putting in power looms or steam engines. At the highest level is an integrated interprise with workers using capital equipment under the tactical direction of managers, themselves under the strategic direction of a CEO with the vision and ability to make high-level integrations involving all the factors affecting the business and its future.
It is this specialisation which makes businesses the greatest engine of material production in modern societies. No matter how brilliant, a lone operator has only so many hours in a day and by doing everything, can devote only a fraction of that time to what they do best. Add employees with the ability to do some of the work even while lacking the vision to do it all; add capital to save even more time and effort; and productiveness can soar. This combination of thought and effort at all levels from the most basic support functions to the highest levels of mental integration, the capital to purchase technologies, equipment and buildings, and the power and precision those things provide, allows enormously productive enterprises that can churn out steel, cars or computers in quantities and at prices that make them affordable to the common man and hence commonplace.
It is this very wealth that gives businesses a need for philosophy beyond the basic need for guiding principles that any directed action has. Because it is far more productive, a business makes far more money than any individual can. In addition, the higher levels of management of such enterprises earn far more than the “average” worker – as they should, given the disproportionate effect their work has on the earning ability of their companies (and the number of workers depending on the quality of their judgment). The brew of envy, all that money being there to loot, and the remnants of Marxist and related anti-business fallacies, ensures that businesses are a target of both public and private individuals who would like to bleed off that wealth unearned while blithely evading how it was created.
This leads to the odd discrepancy between widely perceived “rights” of businesses versus workers – when as we have seen, the latter are simply the most elemental form of business. Thus we have the spectacle of monopolies being subject to arbitrary legal sanction when done by companies but positive encouragement when done by workers (e.g. compulsory unionism, job protectionism); and price fixing being criminal by businesses yet legally imposed on behalf of workers.
While in the short term there is little companies can do to protect themselves from force initiated or sanctioned by the government, with the right philosophy they can at least understand and assert their rights and, in the long term, achieve them. The limitation of philosophy is that it has little power in the short term for overcoming immediate injustices. But in the long term, it has the greatest power for change (witness the Renaissance, the Enlightenment and the American Revolution).
But just as with individuals, in addition to the most broad aims of defining and defending the rights of businesses, philosophy also determines the values and virtues businesses need to pursue in their day to day activities.
Earning Virtue
In ethical systems based on altruism and centred on the supposed virtues of giving, the matter of earning one’s own living is relegated to at best the morally neutral and at worst the morally maligned. But if human life is your standard of value (as it must be in an objective ethics, as your life is the only objective link between “is” and “ought”), one can see that the matter of earning your own living is not only virtuous in its own right, but requires all the virtues. Note that this is why even the ethics of altruism depend upon it, albeit unacknowledged or evaded: without production, there is nothing to give.
The justification of why your own life is the foundation of value and why virtues are the actions required to achieve it is a detailed question at the root of ethics, the topic of earlier Philosophical Reflections (9-12), and I won’t repeat the details here. But in summary: first, the conditional nature of life is what links what is (reality) to what ought to be (ethics): the life of any organism requires certain types of actions appropriate to its nature if it is to stay in existence and prosper. Second, reason is the fundamental tool of survival of thinking beings like us: that is why we possess it (and furthermore, we are the only kind of being to whom ethics can pertain, as ethics pertain to choice and choice – free will – is only possible to thinking beings). And third, the unbreached application of reason implies and requires virtues such as rationality, honesty, integrity, justice, independence, productiveness and pride: as these are what in practice make the actions of a thinking being consistent with reality and its demands.
Thus, while earning your living might be considered just doing what you have to do to get by, the preservation, improvement and enjoyment of your life is the most fundamental value there is, and therefore choosing to take the actions it requires is the most fundamental act of virtue. And since achieving any value requires rationality, integrity and the other virtues, business and earning your living are not some activities outside the purview of ethics, but intimately demand and requireethics.
Getting & Making
Of course the mere possession of money is not proof of virtue. One can become rich without being completely virtuous or indeed virtuous at all. But here we must identify the key difference between making money and merely having or getting it. It is only the making of money that is the result of virtue.
To make money is to produce, to create things or services that are of such value to other people that they are willing to trade their products with you in turn, with the result that both of you are richer than you could otherwise be. The fundamental here is production: to the extent that you produce, you create wealth even if you are on a desert island and trade with nobody. However your production is maximised by specialising in what you do best, so wealth is maximised by free trade between productive specialists. That is why despite the repeated failure to learn from history shown by protectionists of every ilk – whether at the scale of guilds or nations – reducing trade barriers within or between countries has always resulted in dramatically increased wealth overall.
Getting money without making it, on the other hand, produces nothing, it merely takes it from others. A morally neutral example is someone who inherits wealth. Whatever virtue was required to produce that wealth cannot be claimed by the heir, who can only be judged by their own actions. An immoral case is a “successful” thief: he may be rich, but he has produced nothing, merely stolen it from the people who did. This is the difference between a life based on the initiation of physical force, which is less than a zero sum game, and the life of a thinking being, which enriches all involved.
Of course, many people are a mixture. They might be successful at making money in business by virtues such as productiveness, yet be dishonest when they think they can get away with it.
But fundamentally, making money requires a virtuous character, whatever moral deficiencies might dilute it. Any such moral deficiencies are not what make success possible, but rather undermine it. This is not something peculiar to business. Virtues are virtues because they are consistent with the needs of human life, with reality: and setting oneself against reality might work for a short while or out of sheer luck, but as a policy it cannot succeed. A dishonest businessman managing to be successful does not prove dishonesty is wise, any more than managing to cross a busy highway blindfolded makes that a wise policy or a good idea. Yes, dishonesty, like theft, can acquire money (at someone else’s expense, not to mutual benefit) in the short term. But as policy, in the long term, and in terms of what happiness success can bring, true success in business, as in life, demands a virtuous life.
Part B: Money and Freedom
Business Ethics
We saw in Part A that there is no special “business ethics” in any fundamental sense. Earning one’s living is just a basic part of living, and business ethics are simply the same ethics that apply to living.
For example, consider the fundamental virtue, rationality. Rationality is the application of reason to correctly identify the facts of reality and act accordingly. Clearly this is of vital importance to any business, as in any life. To survive, let alone prosper, a business must correctly identify what it can produce at what prices, such that people will buy its products not only instead of its competitors’, but instead of anything else they could do with their money, including saving it for the future. The alternatives to rationality – putting wishful thinking over facts or evading reality rather than seeking to understand it – are rocks on which many a business has foundered.
The other virtues are merely specific aspects of rationality, and are necessary for and in the best interests of businesses for the same reasons they are for individuals, if not more so. For example, as business is based on production, the virtue of productiveness is plainly one of its defining virtues. The more productive a business is, the more it can produce for less cost, increasing the value of its products to its customers and therefore increasing the amount of money it can make. Related to that, it is important that the owners and workers in a business act with pride, seeking only the best in what they can achieve and continual improvement in what their best is: both increasing productivity even more, and also appealing to the best within those they deal with. And independence – in terms of thinking for yourself – is at the base of all innovation, a major engine of productiveness.
Integrity, honesty and justice are also important business virtues: but as they are less obviously and directly applicable, we will revisit them later.
Business Values
What are the valid aims of a business – its values? That is easily answered by its reason for existence: to make money. Making money is the proper purpose of any business, just as making money is the proper motive of a worker offering their services for hire.
In a real sense, money is to a business what life is to a person: the fundamental and ultimate value, the only end in itself. The life of a business is as conditional as the life of a person: it can cease to be, and the business goes out of existence. And the life of a business is money, without which it cannot continue.
Periodically we see in the news complaints that some company or other is making “excessive” profits that should be curtailed. A common defence is that maximising profits is a duty owed to shareholders. This justification is correct – as far as it goes. People invest their money in companies in order to make more money, by assisting the companies they invest in to perform their primary task of making money. All of this is simply free trade according to individuals” judgment, and they have a right to the earnings that their investments enable. If other people do not approve of what the company does when there is no force or fraud involved, they have no right to impose their will on the company or its shareholders, other than by reasoned argument or refusing to trade with that company (by investment or buying their products). However, there is more to it than the rights of shareholders, real as they are. Making money and maximising profits are the right things for companies to do, regardless: and the directors of companies should proudly proclaim that moral right.
This does not mean “making money at any cost”, any more than the fundamental value of life means one can or should seek to preserve one’s physical existence at any cost. Again, this is because at the most basic level virtue is what makes life possible: to think you can prosper in the absence of virtue is to attempt a contradiction, and contradictions do not work in the long term even if you manage to get away with them in the short term.
Nor does it exclude other values or other goals. Unlike a human being, a business is not a self-guided entity that is an end in itself: it is the creation of human beings, created to achieve their purposes. So while a business must be able to make money, it can be the means to some other end sought by its owners. Similarly, how much money it seeks to make is up to them. Whether their aim is simply to support theselves or to build a billion dollar company is a decision that depends on their own values, ambition and ability.
Which brings us to the final aspect of money, business and life. Money is not an end in itself for people, and people are what create and run businesses. For people, money is merely a means of exchange, and its sole value lies in what they can achieve with it. Part or even most of what they wish to achieve may be the growth of the business itself, but ultimately a business exists to serve and achieve the values of its owners. That is, not only can a business be the means to some other end, it is always the means to someone’s ends: always a means for achieving values. Those values can be any of the infinite array of human values, from the most basic such as feeding one’s family, to the most ambitious such as creating a new industry or making spaceflight a reality.
Consequently, a fundamental business ethic is integrity. One cannot attempt to run a business or work in a job whose methods, aims or products undermine one’s own values: consider how many of your waking hours are spent working, and what it would mean to be spending them directly or indirectly undermining your own values. The purpose of a business is to achieve your values, and if the business you are running or working for is contrary to them, you are attempting a contradiction: and contradictions cannot stand. The best you could hope for from that is a hollow victory – and you’d be “lucky” to achieve even that. As with all things, you owe it to yourself to ensure that your values are rational: but whatever they are, you should not act against them. In this the Biblical advice is true: “What shall it profit a man, if he should gain the whole world, and lose his own soul?” Money is always a means to an end and to upend that hierarchy of values is to oppose and thus risk the values you hold dearest.
Too Much Profit?
A closer examination of the charge of “too much profit” is in order, as it is a lamentably common complaint against some industries – pretty much any industry where companies are so large that their absolute profits can be huge.
The primary economic error one sees so often is a simple-minded “oh, look at all the money they made this year! Unfair! Take it from them!” That is bad enough when coming out of the mouths of people driven by simple envy: it is far worse when taken up by gleeful politicians looking to leverage that envy into more power for themselves. The obvious thing to look at first is how much money has the company invested over the years, and how much risk has it taken, in order to make that profit? Any complaint about “too much profits” that does not mention total investment in the same sentence can be dismissed for its outrageous economic ignorance, without further consideration.
Consider the recent case of ExxonMobil, actually vilified in some quarters for the remarkable achievement of making the highest corporate profit in history ($10B). While huge, it is huge because of the enormous investments oil companies have to make to stay in business. The service they perform for mankind, not only in the valuable products they sell, but in the new science and technologies they drive and the huge number of employees, contractors, suppliers etc they support – not to mention the huge taxes they pay – should make them heroes. Instead, for the sin of making a profit, they were lambasted by the usual suspects. Yet the profits of oil and natural gas industries over the last five years were less than six cents per dollar of sales – which is less than in many other industries.
Free Enterprise
But there is a more fundamental defence of high profits. There is no percentage profit which is “too high” – in a free society.
The virtue of making money and the right to earn as high a profit as one can presupposes a free society in which force and fraud (and only force and fraud) are banned and punished. Then, the only way a company can make money is by offering values to other people, values sufficiently prized to succeed in the marketplace.
In such circumstances, the only way you can make any profit at all is by offering sufficient value that people want your product more than whatever else they can buy with that money now, or its value to them as savings. How then could one possibly make “too much profit?” That has as much meaning as “offering too much value” or “making too many peoples” lives too much better” – which is how the money was made, and the only way the money could be made. No, the charge “too much profit” is code to hide the actual, unadmitted meaning: “They’ve made a lot more than I can and I want to get my hands on some of it, without having to earn it or offering any value in return at all.”
One must distinguish between wishing someone else’s price was lower, and claiming their price is too high in some absolute or moral sense. Too high compared to what? If you are willing to pay the price, then by definition it is not too high: if you are willing to pay it, then while you might prefer a lower price, in your judgment it is still worth it to you or you wouldn’t do it. You may wish someone’s prices were lower (indeed, it is proverbial that buyers always think the price is too high and sellers, too low). But to jump from “I’d prefer a lower price” to “I shall force you to charge a lower price using my mates in government” is to move from the moral behaviour of bargaining under free trade to the immorality of a thief, which is anyone who takes property via physical force, whether direct or delegated.
It must be stressed that these arguments apply only to free trade. They do not apply to money made by deception (where you are lying about the value of your product) or to profits maintained at a premium by government force (such as protections, subsidies or government-imposed monopolies). In neither case would you be earning your money by honest, free trade.
However it is not the responsibility of a business to protect people from their own errors of judgement, nor does anybody have a right to impose their opinions of what is correct judgement on either businesses or their customers. If a business wishes to offer goods that some think are immoral or too risky, but other people are happy to purchase them regardless, then that is solely the business of the people directly concerned. Nobody has the right to initiate physical force against another, no matter how strongly they may feel their beliefs should be imposed on everyone else. The only thing that justifies the use of force is prior force itself.
Part C: A Virtuous Business
I noted earlier that virtues are as essential for a business as for a person’s life, and for the same reasons. So it is worth a more detailed look at how to apply them.
True Integrity
We have already seen that integrity is a fundamental business ethic. But when viewed objectively, this demands quite different behaviour from what is often claimed to be “ethical” business practice.
Consider the idea that companies should show “social responsibility” by “giving something back to society.” It is clear from considering how companies make money in the first place that such a notion has no meaning. An honest company cannot get rich unless it has already given more to “society” (in the person of its customers and all others it and they trade with) than the monetary value of its profits! Any suggestion to the contrary shows either medieval thinking, a lack of economic understanding, or simple envy or political grandstanding. The first represents the view that wealth is causeless, fixed or looted, so the aristocrats who happen to control it, unearned, should dole out some to the peasants, unearned. The second fails to realise that in a free country, money can only be made by offering a greater value for a lesser one (in the mind of the buyer). The last is lamentably common in democracies with inadequate protection of individual rights, where the envy of some is easily parlayed into the power of others.
The morally correct behaviour of businesses is to proudly declare their right to the money they have earned, to spend or invest as they see fit. If they choose to give their money to a cause such as education, science, medicine or charity, they should do so only to causes that promote the values of the owners, and refuse money to anyone who works against them (e.g., for a business to fund an anti-business university faculty or a charity that demands hand-outs as a right, is immoral). And they should fight against, rather than attempt to appease, any group that wishes to shackle them or otherwise attack their existence, profitability or values – just as any individual should.
In other words, as we have seen in other contexts, a business should be run in the same way and for the same reasons as your life. You should choose rational values, then do all in your power to achieve and defend them, including proudly asserting your right to your existence and earnings. Nothing less will do, and nothing less is moral – in life or in business.
It must be stressed again that the above only applies to free enterprise (including any business even in a semi-statist economy which exists, as far as possible, by voluntary trade). Businesses who get their money by seeking government favours at someone else’s expense, or persuading politicians to throttle their competitors for them, are not existing by the virtue of productiveness and free trade but by political pull and the use of force. To the extent that their money was acquired via governmental force, such companies have no claim to virtue and no moral basis on which to defend their “profits.”
Truth
We have already noted why virtues such as rationality, independence, productiveness and pride are important to a business. But as companies by their nature must deal with other people in many ways, what can be considered the specifically social virtues (in that they concern how you treat other people), namely honesty and justice, warrant more detailed consideration.
Honesty, like all the virtues, is a selfish virtue: not something you do for the sake of others at your own expense, but for your own sake – concomitantly, to everyone’s gain. To make reality your enemy, by basing any “success” on a lie contradicting the facts of reality, is the worst policy. Consider the case of the tobacco companies (at least, the case as it has been presented). While tobacco companies are often unfairly vilified, assume for the sake of argument that it is true that company executives knew that smoking was harmful to health and chose to suppress that information. But it is true that smoking can be harmful to health: so by lying about it, any short term gain was much less than the long term costs in lawsuits, loss of credibility and ceding the moral high ground from which to defend themselves, their products and profits.
Then consider an opposite case. When L.L. Bean invented a waterproof hunting boot in the early 1900s, 90 of the first 100 pairs sold were returned due to faulty stitching. Bean took full responsibility and replaced all of them, with the policy that “I do not consider a sale complete until the goods are worn out and the customer is still satisfied.” The result of such a policy of scrupulous honesty and integrity was not bankruptcy, but remarkable growth and success, eventually into a billion dollar company.
Justice
Justice requires treating the people you deal with – customers, suppliers and workers (who are a type of supplier) – as they deserve. Like most others, this is a long term virtue. Just as stealing or lying can give the illusion of being in your interest because it can get you something in the short term, but in the long term is harmful to your own life, so any gains from injustice are short term and illusory. And just as a person lives longer than one day and has to measure their life and happiness over a span of years, so a business exists over a span of years and has to look to tomorrow and next year, not just today.
For example, if you try to underpay your employees compared to their objective worth, you will not end up with a bargain. Your best employees will leave, enticed by better salaries or conditions elsewhere, until all you are left with are workers who are only worth what you are paying and have no ambition to be any better. On the other side, if employees try to get more than they are objectively worth, all they will achieve in the long run is unemployment. Who decides what someone is objectively worth? That is a matter for everyone’s individual judgment – and those whose judgment is the best are those who will succeed the most. And in a proper society where people are free to both offer and accept whatever salaries they choose, it is reality which will set the levels salaries reach. This is simply because people compete for both jobs and workers: employers want to save money but have to attract the best employees they can afford, while workers want to make as much money as possible but to make any money at all, someone has to be willing to hire them. This is the law of supply and demand, the plainest, most universally demonstrable – yet most ignored and evaded – principle of economics. This value of free markets in driving prices toward their true levels derives directly from the fact that the mind is our tool of survival and physical force is its opposite – so justice serves life, and injustice, nothing but destruction in the long term.
The same principles apply to all aspects of how businesses deal with people, whether they are workers, suppliers or customers. Justice for all is the only way to operate, and the wisdom to work out what is just is a key to success.
Being Discriminating
We last discussed why justice is an important business virtue.
An aspect of justice that is worth looking at specially is discrimination. To survive, all businesses should discriminate among all they deal with, whether customers, suppliers or workers, on relevant qualities such as ability and character. However, assuming both ability and character, there should be no discrimination, either for or against, on irrelevant qualities such as sex, race, age, sexual preference, and so on. By the definition of “irrelevant,” it is unjust to do so. Again, as in life so in business: people must be judged as individuals, according to their individual characteristics, not by mere membership in any group. For example, it is certainly true that in some jobs, how old you are affects how well you can do the job. But the actual age where any given individual begins to decline is an individual thing, so it is valid to tell a man he is too old for his job if and only if he, individually, is unable to perform it properly because of his age.
This does not mean that discrimination should be illegal. There is never a justification for overriding any individual’s judgments by force just because they are unpopular. In any event, there is no need. Like any irrationality, irrational discrimination is harmful to business, e.g. by artificially limiting its pool of customers or talented workers. In the long run, justice will be imposed by reality, and that is how it should be. As an aside, note the flaw in arguments that discrimination against some group or other should be illegal because of imagined disasters if most people did it. If most people did it – by what means, in a democracy, could it be made illegal? To put it another way, discrimination will only be outlawed in a democracy if it is unpopular: but if it is unpopular, any negative effects will rebound more upon businesses that practice it than upon their victims (who will have plenty of alternative opportunities). Furthermore, it is the opposite philosophy, that people have a right to impose their moral opinions on others, that has led to all the legalised discrimination in history and all the evils that have resulted. “I know best and I will force others to comply” is one of the most immoral statements there is and the cause of more grief than any amount of private discrimination could achieve.
All or Nothing
Because all virtues are aspects of rationality and concordance with reality, they are all interrelated: you cannot consistently practice one without the others. This applies equally to the philosophy of business, and so business provides a useful illustration of the principle.
For example, productiveness is the key to business success, and production derives from the thought and actions of human beings. Thus a business cannot be productive unless those working in it are productive – and they will not be productive unless they can and want to be productive. Likewise, a business exists by trade: and trade requires someone willing to trade their product for yours. But if a business operates unjustly, people will only work for them or buy their product grudgingly and as little as possible, inhibiting both production and trade.
Similarly, because trade is an exchange of value for value, those you trade with must trust that they will in fact receive the value they want. And trust cannot survive dishonesty. Furthermore, dishonesty comes packaged with injustice as well, as no honest person deserves to be treated dishonestly.
Finally, pride is a root of increased productiveness for the reasons noted previously, both pride and thinking assume and depend upon independence, and integrity is the glue that binds all your values and virtues together into a consistent whole, immune to short-term temptations that are long-term poison.
The Double Bottom Line
The philosophy of business can be summarised by two key points.
First, it is virtuous to run a business, to earn your own living, and to make as much money as you can and want to – as long as the money you earn is made honestly by production and trade, not dishonestly by force or fraud. It is right and proper to defend your right to the money you have earned, and more, it is virtuous to be proud of any money you have made in that way. You do not have to buy approval by “returning something” or appeasing someone else’s agenda: making money by free trade is justification in itself and proof of its own virtue.
Second, businesses should be conducted virtuously. As in life, virtue is not an end in itself: it is a means to and end, namely values and their consequences, life and happiness. Nor does virtue consist of self-sacrifice or any other drain on your life: because its purpose is values, life and happiness. Again as in life, there may be temptations to take shortcuts, to commit this bit of dishonesty or that little injustice to make a quick gain. But such temptations have no power, if one holds in full context the principle that the road to life is paved with unbreached rationality, not with contradictions: any more than you would be tempted to drink the finest champagne if you knew it was poisoned. To act against rational virtues is usually not so immediately fatal: but it becomes a chronic illness that slowly poisons your life and undermines the values you hoped to achieve.
The Objectivist philosopher Tara Smith gave a good illustration of why one should live a moral life, which can be paraphrased to explain why one should be moral in business as well:
Imagine all you want to achieve in your business or your career. Think of all the things you value that can be yours if you succeed, all the reasons why you would want to succeed. Just think about it for a minute…
That is why you should be moral.
Further discussion on this topic, with special reference to the regulation of banks, can be found in The Banking Sector debate.