by Barry A. Liebling
Summary: A common error is to assume that if a business action leads to Diminished Outcomes it is not moral. In fact, all business actions are likely to diminish someone's outcomes. The correct principle to apply is that business actions are moral only if individual rights are respected.
Even if you sincerely intend to be ethical in business, you can still go wrong. You may, in error, accept an "ethical principle" that is invalid - which will prevent you from evaluating business actions properly. One of the common traps you should be careful to avoid is the Fallacy of Diminished Outcomes.
Diminished Outcomes
Frequently, business "ethicists" assert that a sure sign that a business activity is morally wrong is that someone realizes Diminished Outcomes as a result. All that has to be shown to conclude that an action is unethical, according to this mistaken view, is that someone is worse off as a consequence. Consider a typical example. A large retailer moves into town and consumers choose to shop there instead of at retail stores that have been in town for a long time. An observer guided by the Diminished Outcomes notion might say that the large retailer has "harmed" the owners of the established stores and is morally culpable.
When interventionists are intent on taking command of private business policies they often invoke the "Diminished Outcomes" test as their justification for using governmental force. We cannot let a large retailer move into this community, they say, because it will adversely affect the success of existing businesses. Implicit in their assertion is the assumption that existing businesses have a right to be shielded, by governmental force, from new businesses that might be more attractive to consumers.
A typical rejoinder to the interventionists is that they are not looking at the big picture. The naive defender of free enterprise will argue that while the small store might lose business when the large retailer moves in, consumers will on balance benefit since they will be able to buy merchandise more cheaply. Furthermore, the large retailer will hire people from the town, resulting in more jobs for the local residents. Notice that the naive free enterprise defender is accepting the Diminished Outcome test but is contending that the large retailer's negative effect on the small store owner is made up for by positive effects on consumers and on new employees. The naive defender's mistake is to concede any legitimacy to the Diminished Outcome test.
In fact, judging businesses according to whether anyone has Diminished Outcomes is not tenable since this policy incorrectly labels just about every action as corrupt.
When you think about the nature of business actions you will see that everything you do leads to Diminished Outcomes for someone. If you were to take the Diminished Outcomes test seriously, you would be paralyzed. All of your moves - as a business professional or as a consumer - are likely to diminish or enhance someone's economic outcome. There is no escape. To act is to have an effect on your - and other people's - prosperity. If a new restaurant opens in your neighborhood and you decide to eat there, you are enhancing the outcome of the new restaurant while "Diminishing" the success of other restaurants you might have gone to instead. If you stick with established familiar restaurants you are having a "Diminishing" effect on the new restaurant. Stay home and prepare your own food, and you are "Diminishing" sales from all restaurants.
What both the interventionist and the naive free enterprise advocate are missing is that the real issue that applies is individual rights, not whether some people's outcomes are either diminished or enhanced.
Individual Rights
The correct way to look at business decisions and distinguish moral from immoral ones is to focus on individual rights. A business decision must respect individual rights. Detecting violations of individual rights is the proper standard for condemning corrupt actions. You, and everyone else, continually go through episodes of being better off or worse off. The moral issue is that everyone's individual rights should be respected, and no one's individual rights should be violated.
Briefly stated, you are supposed to act honestly and deal by mutual consent. Acting honestly entails saying what you believe to be true to your trading partners, having good reasons for your beliefs, and crafting your communications to be understood accurately. Dealing by mutual consent means that both you and your trading partners act by free choice, not in response to force or threat of force.
Now let us return to the previous examples. The owners of the large retailer have the right to enter a town - providing they can buy or lease the real estate legitimately and hire willing employees. They have an obligation to respect everyone's rights. It is not their responsibility to assure that any businesses that have been in town longer than they have remain profitable. At the same time, the success of the large retailer is not guaranteed. The residents of the town may, or may not, decide to shop at, or work for, the large retailer.
When a new restaurant opens in your neighborhood you have a new option. You are free to go to any restaurant where the terms are mutually satisfactory both to you and the restaurant management. It is not your problem to worry about the success of either new or existing restaurants. That is the responsibility of the business owners, who are taking a calculated risk and may succeed or may fail in their business venture.
The Correct Response
When you hear the charge that a business decision is not ethical check to see if individual rights are being violated. Respect for individual rights is the proper standard for judging right from wrong. Focusing exclusively on whether someone is worse off is a mistake since all actions, moral and immoral, are likely to lead to someone having Diminished Outcomes.
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