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Ethics in Economics
that computer models are developed by people and people Decisions made by economic institutions do not
are the ones who implement recommendations made by always match what the general populace thinks is correct.
computer modeling. When this happens, the result can be new laws or rules
In order for people in all institutions to make choices, that are passed to try to contain those who are perceived
there must be some guidelines or principles upon which as violating the public trust. For example, many laws have
the choices are based. These guidelines are often referred been passed to curb problems with pollution. Antipollu-
to as values. Everyone develops a set of values, or prefer- tion laws are designed to reduce the harmful effects of pol-
ences, beginning in early childhood—or perhaps even lution; when a business does not follow the laws, it can be
immediately from birth. These values stem from how peo- severely penalized. In some cases, the new laws force the
ple are raised, where they live, their ancestry, and all the closure of business enterprises because conformity to the
other factors that influence everyone’s lives. If everyone laws is cost-prohibitive. This was the case when laws went
has a value system, everyone must have an ethical system into effect requiring underground gasoline tanks at service
upon which to base judgments and choices. Stemming stations to meet Environmental Protection Agency
from this personal set of values will come policies and pro- requirements. Many businesses could not meet the
cedures that will guide all organizations within the eco- requirements because of the expenses involved and they
nomic structure. closed their doors.
Boulding (1968) argued that individuals have a real At other times, businesses choose to violate the laws
personal ethic, which can be deduced from a person’s in order to save money. In the long run, this can cost more
actual behavior, and a verbal ethic, which can be deduced than the business would have had to pay had the changes
from a person’s statements. Boulding found that it is basi- been made to comply with the laws. This occurred when
cally a universal phenomenon that a person will talk about a chemical manufacturing company was caught dumping
one set of ethical principles but act according to another. hazardous waste into an Illinois River. The company was
The old statement “Do as I say, not as I do” seems to told to stop the dumping and was fined a large sum of
reflect an accurate perception of reality. money. However, during the time the environmental
inspectors were on the premises, the company chose to
Ethics, from an economist’s perspective, is a matter of
dump more waste into the river, saying that if they had
choice. Economics is a matter of choice. There are several
not done it, there could have been a fatal accident in the
alternatives from which a choice must be made. A busi-
plant. They were fined an additional sum. These examples
ness owner or manager might have to decide between pro-
ducing weapons for military use or firearms for use by illustrate choices that must be made—not by businesses in
private individuals who pursue the sport of wild game economic systems, but by individuals in the businesses.
hunting. These decisions are not always easy, especially Whereas businesses are the most significant institu-
when guided by the need for the organization to make a tion within the economic structure, it should also be
profit. The choice that is ultimately made is based on a noted that businesses are not the only institutions within
value system that influences policies and procedures in the an economic structure. There are many other important
organization. In an economic environment, the decision is groups, such as the family, government, churches, and
often made based on values that have been determined to schools. All these institutions play an important role in
be most important or that are ranked on a scale of best to developing value systems and the moral influences on
worst. individuals in businesses.
A dilemma that faces all decision makers, especially Because many other institutions influence the think-
when group decision making is used, is the different value ing of individuals in organizations, different value systems
systems that are held by individuals. While organizations are developed. Some value systems are inconsistent with
have policies and procedures, not every option from what is necessary for successful business operations and
which to choose is necessarily easily defined or clearly become a threat to a business and economic system. An
understood. Many organizations have mechanisms example of that is honesty. An individual whose value sys-
through which those affected by the decision can appeal it tem does not include complete honesty becomes a threat
for further consideration. In the case of a university stu- to successful business operations. Because of threats like
dent who receives a failing grade but thinks the grade was these to economic entities, rules are established to deal
undeserved because of a conflict with the professor, an with those who have different value systems. The rules are
appeal by the student might be heard and a decision could called laws, and the government is the largest enforcer of
be made to overturn the professor’s decision. Or the deci- laws.
sion might be made in favor of the professor and the stu- Governments are important to successful business
dent’s appeal denied. Such a decision is based on value and economic operations. Governments help to assure fair
systems that guide ethical behaviors. trade and commerce within a country and internationally.
ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 265