LESSON 6: ETHICAL PRINCIPLES IN BUSINESS
CONCEPT OF UTILITARIANISM
I know this word “Utilitarianism” is a tongue twister. I can see have the benefit of preventing losses with a total value of
some of you trying really hard to figure out that what this word only $49.15 million.
actually means. In Business Ethics, the concept of “Utilitarian- Thus, a modification that would ultimately cost customers $
ism” is an important one. 137 million (since the cost of modification would be added
Points to be covered in this lecture: to the price of the car), would result in the prevention of
• Utilitarianism – concept, measurement customer losses valued at only $49.15 million. It was not
right, the study argued, to spend $ 137 million of society’s
First of all let me explain you the meaning of this concept.
money to provide a benefit society valued at only $49.15
Utilitarianism – It’s Meaning and Nature million.
• In the early 1960s, Ford’s position in the automobile market Ford subsequently went ahead with the production of the
was being heavily eroded by competition from foreign unmodified Pinto. It is estimated in the decade that followed
automakers, particularly from Japanese companies making at least 60 persons died in fiery accidents involving Pintos
compact fuel-efficient cars. Lee Iaccoca, president of Ford at that and that at least twice that many suffered burns over large
time, was desperately trying to regain Ford’s share of the areas of their bodies, many requiring years of painful skin
automobile market. His strategy centered on quickly designing, grafts. Ford eventually phased out the Pinto model.
manufacturing, and marketing a new car to be called “Pinto”. • Utilitarianism holds that actions and policies should be
The Pinto was to be a low cost subcompact that would weigh evaluated on the basis of the “benefits” and “costs” they will
less than 2000 pounds, cost less than impose on society. In any situation, the “right” action or
$2000, and be brought to market in two years instead of policy is the one that will produce the greatest net benefits or
normal four. Because the Pinto was a rush project, styling the lowest net costs. “Benefits” include both monetary
considerations dictated engineering design to a greater degree benefits (like income) and non-monetary benefits (like
than usual. In particular, the Pinto’s styling required that the happiness, satisfaction). “Costs” include both monetary
gas tank be placed behind the rear axle where it was more costs (like income losses) and non-monetary costs (like
vulnerable to being punctured in case of a rear-end collision. unhappiness, dissatisfaction). The Ford managers estimated
When an early model of the Pinto was crash-tested, it was only the monetary costs and benefits. The utilitarian principle
found that when struck from the rear at 20 miles per hour or assumes that we can somehow measure and add the
more, the gas tank would sometimes rupture and gas would
quantities of benefits and costs.
spray out and into the passenger compartment. In a real
accident stray sparks might explosively ignite the spraying • Utilitarianism is an effort to provide an answer to the
gasoline and possibly burn any trapped occupants. practical question “What ought a man to do?” Its answer is
that he ought to act so as to produce the best consequences
Ford managers decided, nonetheless, to go ahead with the
production of the Pinto for several reasons. First the design
met all the applicable legal and government standards then in • Utilitarianism proposes that an action is right if it produces
effect. At the time government regulations required that a gas the most utility for all persons affected by the action
tank only remain intact in rear-end collision of less than 20 (including the person performing the act). Utilitarianism
miles per hour. Second, Ford managers felt that the car was holds that in the final analysis only one action is right – that
comparable in safety to several other cars then being action whose net benefits are greatest relative to the net
produced by other auto companies. Third, according to an benefits of all other possible alternatives. Finally,
internal cost-benefit study that Ford carried out, the costs of Utilitarianism considers both immediate as well as all future
modifying the Pinto would not be balanced by the benefits. costs and benefits of the action taken.
The study showed that modifying the gas tank of the 12.5 • Utilitarian values have been highly influential in economics.
million autos that would eventually be built would cost about
Economists argue that economic behavior could be
$11 a unit for a total of $ 137 million.
explained by assuming that human beings always attempt to
On the other hand, statistical data showed that the maximize their utility (see the definition of utility in an
modification would prevent the loss of about 180 burn economics textbook), and that the utilities of commodities
deaths, 180 serious burn injuries, and 2100 burned vehicles. can be measured by the prices people are willing to pay for
At the time the government officially valued a human life at them. Economists proved that in perfectly competitive
$200,000, insurance companies valued a serious burn injury at markets (see the definition of perfect competition in an
$67,000, and the average residual value on subcompacts was economics textbook), prices gravitate towards an equilibrium
$700. So, in monetary terms, the modification would (ie. prices do not change, and the demand for a product is
equal to its supply). Economists showed that perfectly
competitive markets are better than any other market system.
Problems of Measurement legitimately rely on shared and commonsense judgements of
1. Difficult to measure “utility” – how can the utilities different the comparative values things have for most people. For
example, by and large cancer is a greater injury than a cold, no
actions have for different people be measured and compared as
matter who has the cancer and who has the cold.
utilitarianism requires? Since comparative measures of the
values things have for different people cannot be made, the Utilitarians also explain this problem by dividing goods into
critics argue that there is no way of knowing whether two types:
“utility” would be maximized. And if we cannot know • Instrumental goods: Things that are considered valuable
which actions will produce the greatest amount of utility, only because they lead to other good things. For example, a
then we cannot apply the utilitarian principle. painful visit to the dentist.
2. Some benefits and costs are very difficult to measure – how, • Intrinsic goods: Things that are desirable independent of
for example, can one measure the value of health or life? any other benefits they may produce. A visit to a physician
Suppose that installing an expensive exhaust system in a for a general check up is an instrumental good but this is
workshop will significantly reduce carcinogenic particles that done keeping only one thing in mind and that is good
workers might otherwise inhale. And suppose that as a health, which is example of intrinsic good.
result some of the workers live five years longer. How is one So, it is clear that intrinsic goods take priority over
to calculate the value of those years of added life, and how is instrumental goods.
this value to be quantitatively balanced against the costs of
2. The second argument can be that goods can be weighed by
installing the exhaust system?
distinguishing between needs and wants. You all are
3. Some benefits and costs are very difficult to predict – the Management students and you must have read the difference
benefits and costs of basic scientific research are very difficult to between needs and wants. Needs are the things without
predict. Suppose one has to decide how much to invest in a which people will suffer some fundamental harm and wants
research program that will probably uncover some highly are desires of that person. Satisfying a person’s basic needs is
theoretical, but not immediately usable information about the more valuable than satisfying his or her wants.
universe. How is the future value of that information to be
3. Benefits and costs can be measured in terms of their monetary
measured, and how can it be weighed against either the present
equivalents. The value a thing has for a person can be
costs of funding the research or the more certain benefits that
measured by the price the person is willing to pay for it. If a
would result from putting the funds to an alternative use, such
person will pay twice as much for one thing as for another,
as adding a new wing to the local hospital or building housing
then that thing has exactly twice the value of the other for that
for the poor?
person. The use of monetary value has the advantage of
4. Benefits and costs mean different things to different to allowing one to take into account the effects of the passage
different people - suppose the government decides to give of time and the impact of uncertainty.
subsidies to manufacturers of alchoholic drinks. This policy
Utilitarians also say that we can measure even the value of
definitely benefits the manufacturers of alchoholic drinks
health and life and they say that almost daily we measure this
(thus a benefit), but many people would definitely consider
value. Anytime people place a limit on the amount of money
this policy to be harmful, and thus consider it as a cost.
they are willing to pay to reduce the risk posed to their lives
Therefore, it is not clear whether this policy is a “benefit” or a
due to some activity, they have set an implicit price on their
5. All goods cannot be traded for equivalents – the utilitarian
view assumes that a particular good can be traded 4. Costs and benefits can be measured by conducting surveys
(exchanged) for another good/goods. For a given quantity of or political votes. They help to measure the intensity and
any specific good there is some quantity of another good that extensiveness of people’s attitudes. Economic experts can
is equal in value to it. However, critics have argued that for also provide informed judgments on the relative quantitative
some goods like health, freedom etc, there is no other good of value of various costs and benefits.
equivalent value. No amount of money (or pizzas) can be These are some of the counter-arguments which the utilitarians
equal in value to the value of freedom or health. have given for the above-mentioned measurement problems.
The above problems have created many critics of “Utilitarian- Problems with Rights and Justice
ism”. Corporations have found it difficult to measure the 1. The major difficulty with utilitarianism, according to some
“benefits” and “costs” of their business activities, when critics, is that it is unable to deal with two kinds of moral
required by the government or other public agencies. issues: those relating to rights and those relating to justice.
Utilitarians’ Replies to the Objections That is, the utilitarian principle implies that certain actions are
There are counter-arguments for all the above-mentioned morally right when in fact they are unjust or they violate
problems. people’s rights.
1. Utilitarians argue that, although “Utilitarianism” requires If your uncle had an incurable and painful disease, so that as
ideally accurate measurements of all costs and benefits, this a result he was quite unhappy but does not choose to die.
requirement can be relaxed when such, measurements are Although he is hospitalized and will die within a year, he
impossible. When quantitative data are unavailable, one may continues to run his chemical plant. Because of his own
misery he deliberately makes life miserable for his workers and will produce more utility than anything else I can do. Instead, I
has insisted on not installing safety devices in his chemical should first ask – what are the correct moral rules with respect to
plant, although he knows that as result one worker will price-fixing? Perhaps, the following list of rules includes all the
certainly lose his life over the next year. You, his only living candidates:
relative, know that on your uncle’s death you will inherit his a. Managers are never to meet with competitors for the
business and will not only be wealthy and immensely happy,
purpose of fixing prices.
but also intend to prevent any future loss of life by installing
the needed safety devices. You are cold- blooded, and correctly b. Managers may always meet with competitors for the purpose
judge that you could secretly murder of fixing prices.
your uncle without being caught and without your happiness c. Managers may meet with competitors for the purpose of
being in any way affected by it afterwards. If it is possible for fixing prices when they are losing money.
you to murder your uncle without in any way diminishing
Which of these three is the correct moral rule? According to the
anyone else’s happiness, then according to utilitarianism you
rule-utilitarian, the correct moral rule is the one that would
have a moral obligation to do so. However, the critics of
produce the greatest amount of utility for everyone affected.
Utilitarianism say that this is a gross violation of your uncle’s
Suppose that rule ‘a’ would produce the greatest benefit for
right to life.
everyone affected. Consequently, even if price-fixing would
2. Utilitarianism can go wrong when applied to situations that produce more utility than not doing so, I am, nonetheless,
involve social justice. ethically obligated to refrain from fixing prices because this is
Suppose, for example, that the fact that they are paid required by the rules from which everyone in my society would
subsistence wages compel a small group of migrant workers to most benefit.
continue doing the most undesirable agricultural jobs in an According to the rule-utilitarian, when trying to determine
economy, but produces immense amounts of satisfaction for whether a particular action is ethical, one is never supposed to
the vast majority of society’s members, since they enjoy cheap ask whether that particular action will produce the greatest
vegetables and savings that allow them to indulge other wants. amount of utility. Instead, one should ask whether the action is
Suppose also that the amounts of satisfaction thereby required by the correct moral rules that everyone should follow.
produced, when balanced against the unhappiness and pain The fact that a certain action would maximize utility on one
imposed upon the small group of farm workers, results in a particular occasion does not show that it is right from an ethical
greater net utility than would exist if everyone had to share the point of view.
burdens of farm-work. Then, according to the utilitarian
The concept of rule-utilitarianism, however, has not satisfied the
criterion, it would be morally right to continue this system of
critics of utilitarianism, who have pointed out an important
subsistence wages for farm workers. However, to the critics of
difficulty in the rule-utilitarianism position - rule-utilitarianism
utilitarianism, a social system that imposes such unequal
is traditional utilitarianism in disguise. These critics argue that
sharing of burdens is clearly immoral and unjust. The great
rules that allow exceptions will produce more utility than rules
benefits the system may have for the majority does not justify
that do not allow any exceptions. For example, more utility
the extreme burdens that it
would be produced by a rule which says “people are not to be
imposes on a small group. The shortcoming this counter-
killed without due process except when doing so will produce
example reveals is that utilitarianism allows benefits and
more utility than not doing so,” than would be produced by a
burdens to be distributed among the members of society in
rule which simply says “people are not to be killed without due
anyway whatsoever, so long as the total amount of benefits is
Many rule utilitarian do not admit that rules produce more
Thus from the following examples we can see that Utilitarian-
utility when they allow exceptions. Since human nature is weak
ism seems to ignore certain important aspects of ethics.
and self-interested, they claim, humans would take advantage
Utilitarian Replies to these Objections
of any allowable exceptions and this would leave everyone
To counter the above-mentioned examples, utilitarians have
worse off. Other utilitarian refuse to admit that the counter-
proposed an important and influential alternative version of
examples of the critics are correct. They claim that if killing a
utilitarianism called rule-utilitarianism. According to rule-
person without due process really would produce more utility
than all other feasible alternatives, then all other feasible
a. An action is right from an ethical point of view if and only if alternatives must have greater evils attached to them. And if
the action would be required by those moral rules that are this is so, then killing the person without due process really
correct. would be morally right.
b. A moral rule is correct if and only if the sum total of utilities There are two main limits to utilitarian methods of moral
produced if everyone were to follow that rule is greater than the reasoning, therefore, although the precise extent of these limits
sum total of utilities produced if everyone were to is controversial. First, utilitarian methods are difficult to use
follow some alternative rule. when dealing with values that are difficult and perhaps impos-
Example - Suppose I am trying to decide whether or not it is sible to measure quantitatively. Second, utilitarianism by itself
ethical for me to fix prices with a competitor. Then, according to seems to deal inadequately with situations that involve rights
the rule-utilitarian, I should not ask whether this price-fixing and justice, although some have tried to remedy this deficiency
by restricting utilitarianism to the evaluation of rules. To clarify
these ideas, the next two sections will examine methods of
moral reasoning that explicitly deal with the two moral issues
on which utilitarianism seems to fall short: rights and justice.
• Utilitarianism holds that actions and policies should be
evaluated on the basis of the “benefits” and “costs” they will
impose on society. In any situation, the “right” action or
policy is the one that will produce the greatest net benefits or
the lowest net costs. “Benefits” include both monetary
benefits (like income) and non-monetary benefits (like
happiness, satisfaction). “Costs” include both monetary
costs (like income losses) and non-monetary costs (like
Briefly discuss utilitarianism. Discuss the problems of measure-
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