This article reviews and criticizes Joseph Heath’s market failures approach (MFA) to business ethics. Our criticism is organized into three sections. First, we argue that, even under the ideal assumptions of perfect competition, when markets generate Pareto-efficient distributions, Heath’s approach does not rule out significant harms. Second, we show that, under nonideal conditions, the MFA is either too demanding, if efficiency is to be attained, or not sufficiently demanding, if the goal of Pareto efficiency is abandoned. Finally, we argue that (...) Heath’s appeal to regulations and specific moral requirements as a remedy for market failures is unlikely to safeguard efficiency and exposes a number of general worries regarding the moral force of the MFA. We end this article with a constructive suggestion on how to adjust the MFA to avoid these problems while preserving its contractualist and Paretian spirit. (shrink)

In a recent article in this journal, David Rondel argues that symbolic (or semiotic) objections to markets hold significant argumentative force. Rondel distinguishes between Incidental markets and Pervasive markets, where Incidental markets describe individual instances of exchange and Pervasive markets comprise the social management of goods by an institutional market arrangement. In this reply, I specify a key insight that buttresses Rondel’s distinction. The distinction as it is currently characterized fails to identify when Incidental markets become Pervasive. This opaqueness allows (...) scholars that defend markets without limits to question the analytical distinctiveness of Incidental and Pervasive markets. I show that by incorporating the market’s price mechanism as an indicator of a properly Pervasive market, Rondel’s distinction is not only able to tackle the aforementioned retort, but also allows for important reflections on what types of institutions should be considered markets at all. (shrink)

Managers often have discretion in interpreting their ethical requirements, and they should seek democratic guidance in doing so. The undemocratic nature of managerial ethical discretion is shown to be a recurring problem in business ethics. Joseph Heath’s market failures approach (MFA) is introduced as a theory better positioned to deal with this problem than other views. However, due to epistemic uncertainty and conceptual indeterminacy, the MFA is shown to allow a much wider range of managerial discretion than initially appears. The (...) paper explores how this range can be narrowed down with democratic input, comparing models based on formal state institutions and on the informal public sphere. A case study from the pharmaceutical industry illustrates the merits of the informal public sphere approach. (shrink)

Business ethics is often understood as a variety of professional ethics, and thus distinct from ordinary morality in an important way. This article seeks to challenge two ways of defending this claim: first, from the nature of business practice, and second, from the contribution of business. The former argument fails because it undermines our ability to rule out a professional-ethics approach to a number of disreputable practices. The latter argument fails because the contribution of business is extrinsic to business in (...) a way that distinguishes from the established professions. The article ultimately suggests we adopt a more aspirational approach to business ethics, which retains an appeal even in the face of charges of anti-capitalist irrelevance. (shrink)

The Market Failures Approach (MFA) is one of the leading theories in contemporary business ethics. It generates a list of ethical obligations for the managers of private firms that states that they should not create or exploit market failures because doing so reduces the efficiency of the economy. Recently the MFA has been criticised by Abraham Singer on the basis that it unjustifiably does not assign private managers obligations based on egalitarian values. Singer proposes an extension to the MFA, the (...) Justice Failures Approach (JFA), in which managers have duties to alleviate political, social, and distributive inequalities in addition to having obligations to not exploit market failures. In this paper I describe the MFA and JFA and situate them relative to each other. I then highlight a threefold distinction between different types of obligations that can be given to private managers in order to argue that a hybrid theory of business ethics, which I call the MFA +, can be generated by arguing that managers have obligations based on efficiency and duties based on equality to the extent that these latter obligations do not lead to efficiency losses. This argument suggests a novel theoretical option in business ethics, elucidates the issues that are at stake between the MFA and the JFA, and clarifies the costs and benefits of each theory. (shrink)

This paper explores the notion that business calls for an adversarial ethic, akin to that of sport. On this view, because of their competitive structure, both sport and business call for behaviours that are contrary to ‘ordinary morality’, and yet are ultimately justified because of the goods they facilitate. I develop three objections to this analogy. Firstly, there is an important qualitative difference between harms risked voluntarily and harms risked involuntarily. Secondly, the goods achieved by adversarial relationships in sport go (...) beyond the function of sport, i.e. to entertain audiences. Thirdly, the most plausible account of the athlete’s motivational development starts with their love of the sport, which can explain a commitment to the sporting ethics in a way that is not paralleled in business. I close by drawing attention to the ways in which an Aristotelian conception of business ethics may be able to accommodate these objections. (shrink)

ABSTRACT:Technological advances introduce the possibility that, in the future, firms will be able to use big-data analysis to discover and offer consumers their individual reservation price. This can generate some interesting benefits, such as a better state of affairs in terms of equality of both welfare and resources, as well as increased social welfare. However, these benefits are countered by considerations of relational equality. This article takes up the market-failures approach as its basis to demonstrate what is wrong with using (...) big data to personalize prices. The article offers an improvement to the market-failures approach and argues that what is wrong with using big data to personalize prices is that it unfairly undermines consumers’ ability to benefit from the market, which is the very point of having a market. (shrink)

How should we distinguish between ethical and unethical ways of pursuing profit in a market? The market failures approach (MFA) to business ethics purports to provide an answer to this question. I argue that it fails to do so. The source of this failure is the MFA’s reliance on Pareto efficiency as a core ethical principle. Many ethically “preferred” tactics for seeking profit cannot be justified by appeal to Pareto efficiency. One important reason for this is that Pareto efficiency, as (...) understood by the theory of welfare economics upon which the MFA relies, assumes a static conception of efficiency. This is a problem because many ethically “preferred” tactics can only be justified by appeal to dynamic efficiency considerations. I argue that, instead of Pareto efficiency, we should look to the value of wealth creation to understand the ethical constraints on how market actors may pursue profit. (shrink)

We evaluate the effectiveness of impact investing from the perspective of the market failures approach (MFA) to business ethics. Under the MFA, businesses are ethically obligated to contribute to market efficiency by mitigating market failures. The MFA ethics literature emphasizes a negative externality interpretation of market failures, with ethical practice as self-regulation. We argue that the MFA also obligates businesses, and investors, to produce positive externalities, a form of private provision of public goods. We develop a graphical MFA ethical framework (...) addressed to impact investing. The framework is based on impact projects’ dual financial and social returns. Dual returns trade-offs originate in market failures and increase with positive externalities. In practice, a key determinant of market failure and the size of returns trade-offs is the availability of intermediate public goods. This varies systematically across sectors and country-markets. We identify the market circumstances under which impact investing is feasible. We show how provision of positive externalities mitigates market failures. We show that the effectiveness of impact investing depends on the interaction of the determinants of feasibility and of the size of project trade-offs. We show how government supporting intervention, through blended finance vehicles, can improve impact investing effectiveness. Finally, we show that evidence of actual patterns of impact investing across sectors and countries supports our analysis. (shrink)

The market failures approach is amongst the most influential theories of business ethics. Its interest within the field is, in large part, a result of its rejection of moralism and any sort of applied ethics approach, favouring, in contrast, a focus on the institutionally embodied goal of economic activity, which it takes to be that of Pareto efficiency. From this articulation of the goal, or purpose, of markets, a set of efficiency imperatives are derived that are taken to comprise the (...) implicit morality of the market. However, the market failures approach has not adequately explained the basis of market actors’ moral motivation, that is, the reasons individuals have to self-consciously adhere to moral norms governing market transactions. This failure, I argue, stems from its misspecification of the purpose of the market. After explaining this failure to address the problem of moral motivation, I argue that a distinctive mode of freedom understood as a form of self-authorship is better seen as the purpose of the market, a goal that actually animates individual market participants. I then argue that this notion of freedom is intrinsically linked to a conception of responsibility and that this notion of responsibility can be more adequately conceptualized as involving a set of market virtues focused on promoting mutually beneficial transactions. Thus, the link between freedom and responsibility, stemming from an individual’s need to legitimize their freedom in a market context, provides the basis for a self-conscious sense of moral motivation. As such, this approach better captures the implicit morality of the market while also addressing the problem of moral motivation. (shrink)

This article provides an overview of the field of business ethics.

A question facing nearly all private firms is whether they may keep employee pay secret. Many think it is obvious that firms are obligated to disclose a good deal of pay information once we properly appreciate the severity of pay discrimination in our economy and the autonomy-related interests that would be served by pay disclosure. This article puts forth a dissenting voice against the vast majority of recent commentary. It exploits a fissure between reasons we have to support certain coercive (...) regulations and reasons firms have to act in the absence of such regulation. While acknowledging that we may need transparency regulations for firms that fail to act morally, it argues that otherwise moral firms need not disclose pay on the surveyed grounds. (shrink)

The market failures approach to business ethics argues that economic theory regarding the efficient workings of a market can generate normative prescriptions for managerial behaviour. It argues that actions that inhibit Pareto optimal solutions are immoral. However, the approach fails to identify goods that should be regulated or prohibited from the market, something common to the moral limits to markets approach to business ethics. There are, however, numerous assumptions underlying Paretian efficiency, including some about the preferences of market participants. Trade (...) in some goods violates some of these assumptions, and so these goods are morally suspect and can be understood to indicate that the market for these goods is not moral. This creates grounds sufficient for regulating, and possibly prohibiting, these goods. To help determine whether it is then necessary to regulate the goods, I propose a supplementary economic analysis to ascertain why an assumption regarding a particular preference is being violated. (shrink)

I present a dilemma for the market failures approach to business ethics. On an orthodox interpretation, it takes moral requirements for businesses to require them not to profit from market failures to approximate Pareto efficiency. On a moralized interpretation, it also incorporates other considerations. However, the orthodox approach is extensionally inadequate, for it is legitimate to profit from many of the allegedly ruled-out market failures. The moralized approach does better but fails to be sufficiently comprehensive. First, it has not been (...) shown why we ought to adhere to any particular limited subset of norms of and for the market. Second, we have a very general reason to mitigate the moral horror of the world, which indicates that the market failures approach is too arbitrarily restricted. (shrink)