Philosophy 223

1. Philosophy 223 Business and Social and Economic Justice

2. Justice • We’ve run into the concept of justice this semester as one of a number of moral terms important to our evaluation of actions or persons. • In the context of business, we are often encouraged to think of justice as primarily criminal justice, and certainly there is an important role for law in business. • But, there is another dimension of the question of justice that is more central to business activity. Business is about the distribution of goods (money, products, services). • Distributive justice addresses the question of how goods and burdens are distributed. Businesses distribute all sorts of important social goods (wealth, resources, labor); it thus seems appropriate to ask if they do it justly.

3. Rawls, “An Egalitarian Theory of Justice” • Rawls proposes a theory of justice based on the concept of justice as fairness. • Justice as fairness sets as its goal the settling of the principles that will determine the basic structure of civil society. • As such, justice as fairness sets out the securing of the basic rights and liberties as the first principle of justice which is lexically prior to the second principle which distributes social goods such that the least well off are benefited and positions and offices are open to all.

4. A Theory of Society • Society is a self-sufficient association of persons cooperating through a system designed to advance the good of those participating. • There is a shared identity of interests as cooperation makes possible a better life for all than each would have on their own. • There is a conflict of interests as all persons prefer a larger to a lesser share of the greater benefits produced by their cooperation. • Principles of Social Justice – Assign rights and duties in the basic institutions of society and define the appropriate distribution of the benefits and burdens of social cooperation.

5. A Hypothetical Starting Point • Original Position (OP) – The hypothetical position from which the principles that will govern social cooperation are chosen. • Veil of Ignorance – The hypothetical limiting condition governing the OP which guarantees that the principles chosen are done so fairly without bias. • Agents do not know their places in society, their class positions, or social status. • Agents do not know their fortunes in the distribution of natural assets and abilities, their intelligence, strengths, etc. • Agents do not know their conception of the good or their special psychological propensities.

6. The Two Principles of Justice • Each person is to have an equal right to the most extensive basic liberty compatible with a similar liberty for others. • Basic Liberties of Citizens: • Political Liberty – the right to vote and be eligible for public office • Freedom of Speech and Assembly • Liberty of Conscious and Freedom of Thought • Freedom of the person along with the right to hold (personal) property • Freedom from Arbitrary Arrest and Seizure • Social and economic inequalities are to be arranged so that they are both: • Reasonably expected to be to everyone’s advantage • The Difference Principle – All inequalities in the distribution of social goods must be acceptable to and benefit the “least well off.” • Attached to positions and offices open to all

7. Pure Procedural Justice • So long as the principles governing the basic structure are just then the outcomes derived from the working out of those principles will be just.

8. Four branches of government • The Allocation Branch – Keeps the price system workably competitive and prevents the formation of unreasonable market power. It is also charged with identifying and correcting departures from efficiency caused by the failure of prices to measure accurately social benefits and costs. • The Stabilization Branch – Brings about reasonably full employment in the sense that those who want to work can find it and the free choice of occupation and the deployment of finance are supported by strong effective demand.

9. Two More • The Transfer Branch – Insures an appropriate social minimum. This branch is responsible for rectifying the fact that competitive market systems do not take proper note of need and the social minimum. • The Distribution Branch – This branch imposes a number of inheritance and gift taxes and sets restrictions on the rights of bequest in order to correct distributions of wealth and prevent problematic concentrations of power.

10. Nozick, “The Entitlement Theory” • Contrary to many of the popular theories of distributive justice which base their distributive scheme on some principle or metric that determines what a just distribution should look like, Nozick proposes an entitlement theory of justice which uses the free exchange of justly held goods between agents as the sole determination of just distributions.

11. Justice in Holdings • In a free society, diverse persons control different resources, and new holdings arise out of the voluntary exchanges and actions of persons. • Justice in Holdings consists of three topics: • The Original Acquisition of Holdings – How unheld things come to be held, the process, or processes, by which unheld things may come to be held, the things that may come to be held by a particular person, etc. • The Principle of Justice in Transfer – By what processes may a person transfer holding to another and how may a person acquire a holding from another who holds it. • The Rectification of Injustice in Holdings – If previous injustices are responsible for current distributions in holdings then what, if anything, ought to be done to rectify those injustices.

12. A Slice of Time • Current Time-Slice Principles of Justice • Hold that justice of a distribution is determined by how things are distributed as judged by some structural principle(s) of just distribution. • Are Patterned – i.e. distribution is determined by some patterning principle such as to each according to his moral merit, needs, how hard he tries, etc.

13. Entitlement Theory of Justice in Distribution • “From each as they choose, to each as they are chosen.” • The theory is historical in that whether a distribution is just depends on how it came about. • Not patterned – there is no principle or metric that determines the just distribution. • Wilt Chamberlain example – Begin with any preferred distribution system. If agents voluntarily decide to pay $.25 to see Chamberlain play then is that money not his to keep? If so then the original, preferred distribution pattern is disrupted. The only way to bring the distribution back into line with the original distribution is to interfere with the exchanges freely chosen by those agents by redistributing the resources.

14. Locke’s Principle of Justice in Acquisition • Property rights in an un-owned object originates through mixing one’s labor with the object. • Locke’s Proviso – There must be “enough and as good left in common for others.”

15. Singer, “Rich and Poor” • Singer begins by constructing an example of passing a child drowning in a pond. Most people would agree that to pass by and allow the child to die when we would only be mildly inconvenienced by the rescue would be a moral wrong. • By analogy he argues that we have a moral obligation similar to the obligation to save the drowning child that requires us to render aid to those living in absolute poverty.

16. The Obligation to Assist • “If it is in our power to prevent something very bad happening, without thereby sacrificing anything of comparable moral significance, we ought to do it” (686). • Argument: • P1 – If we can prevent something bad without sacrificing anything of comparable significance, we ought to do it. • P2 – Absolute poverty is bad. • P3 – There is some absolute poverty we can prevent without sacrificing anything of comparable moral significance. • Conclusion – We ought to prevent some absolute poverty.

17. Objections • Taking care of our own – we should take care of those closest to us first, beginning with our families, up through local communities, and eventually to those of the same country. • Private property – someone like Nozick would argue that since one possesses the rights to the property one holds, then no one else may make a claim on that property, no matter what their condition is. • Ethics of triage – since resources are scarce we should refrain from aiding those countries that will soon be able to provide for their citizens and we should refrain from aiding those nations that, even with our help, will not be able to limit their population to a level they can feed (since aid will merely increase the population and contribute to future poverty and need).

18. Replies • Since there exists a much greater concentration of resources in the developed world, where relatively few live in absolute poverty, it would be wrong for us to decide that the alleviation of the relatively less significant instances of poverty local to us should take precedence over instances of absolute poverty in the developing world. • Even in the face of an individualistic theory of property rights (such as that of Nozick) while one may have no “obligation” to give to those who are poor, this does not mean that morality may not require us to give to them. • Further, from an Rawlsian point of view, if we do not know where in the world and in what economic situation we will live in would we not want those better off to render aid to those in absolute poverty since we cannot know which group we will inhabit? • There is a plausible theory of population growth in which countries pass through a “demographic transition” as the standard of living rises. As health care, economic security, and education improve birth rates fall. As a result, providing aid, especially if measures to institute reforms such as education, land reform measures, and provision of contraception and sterilization are adopted this transition may instead be hastened.

19. Moriarty, “CEO Pay” • Moriarty examines three potential justifications for the fact that corporate CEO’s are paid on average $8 million dollars annually. • After a careful examination of the facts surrounding each of the three justifications Moriarty concludes that there seems to be no reasonable or just explanation for why CEO’s are paid such high salaries.

20. The Agreement View • Just prices for goods are obtained through arm’s-length negotiations between informed buyers and informed sellers. • In the case of CEO wages the good is the CEO’s services, the seller is the CEO, and the buyer is the company’s owner(s).

21. Problems with the “Agreement” • Shareholders are represented in negotiations with the CEO by a subset of the company’s board of directors. • However, generally there is only one person who runs for an open seat in an election. So once a candidate is nominated the election is primarily a formality. • CEO’s generally exert considerable informal influence over the nominating process. • Three reasons to believe that directors’ independence from CEO’s is suspect: • Gratitude – The job of board members is prestigious, lucrative, and undemanding. The position is rather like a gift and there is strong incentive to reciprocate. • Self-Interest – CEO pay is generally at least partially based on the pay of CEO’s at comparable firms. Since board members are often CEO’s of other firms, if they agree to a higher price for the CEO of the firm they serve as a board member then this could translate to a higher salary at their firm. • No Reason to Favor Shareholders – Directors pay CEO’s with the money of shareholders, not their own. Since shareholders generally do not have the power to recall overly generous directors they have no real control over the salaries their directors offer. On the other hand CEO’s generally do have the power to force out directors.

22. The Desert View • People deserve a certain wage for performing a certain job. • The wage they deserve may depend on factors such as the difficulty or degree of responsibility, the individual’s performance, or both (in other words their contribution). • The contribution of CEO’s justifies their compensation.

23. Problems with “Deserts” • An average CEO earning $8 million per year makes 301 times their average employee who earns $27,000 per year. • There are reasons to believe that the ability of CEO’s to affect company performance is largely constrained by forces outside of their control. • If this is so it is hard to justify CEO pay as 301 times as valuable as that of the average employee.

24. The Utility View • Wages are best understood as incentives for future work. • The goal of wages are to maximize the wealth of the corporation by attracting, retaining, and motivating talented candidates. • High CEO compensation maximizes utility (understood as company performance).

25. Problems with “Utility” Pt 1 • Attraction and Retention. • Is the CEO’s job so difficult and stressful; does it require so much training and skill that $8 million a year is required to recruit successful CEO’s? • The median pay for presidents of private research universities is $385,000 per year and the median pay for U.S. military generals is $143,000 per year. There is little reason to believe that these positions are significantly less demanding than that of a CEO. So if talented individuals may be recruited and retained for these positions with much less pay than the $8 million CEO’s are paid, it is difficult to conclude that the difficulty of their job justifies their high salaries.

26. Problems with “Utility” Pt 2 • Motivation. • There is no empirical evidence that shows that CEO’s who are not paid $8 million are poorly motivated or that those paid $8 million are so effectively motivated that their increased motivation gains a firm $8 million worth of corporate wealth. • There is reason to believe that monitoring and the threat of dismissal would be just as effective at motivating as are large CEO salaries paid in company stock. • Looking at the CEO’s pay as an incentive for all employees to work harder has the potential to create problematic competition between employees seeking advancement to those ranks which may damage the cooperative capacities of the firm’s employees.