Ethics of Profit, Part 2: Profits Unjustly Gained

This is the second in a 3-part series on the ethics of profit.

As I noted in the first in this series, profit is often subject to ethical criticism. But the reasons for that are not clear. To begin our analysis, we need to distinguish between the ethical evaluation of profit itself, and the ethical evaluation of the profit motive. The first 2 parts in this series are focused on profits per se. The next one will focus on the profit motive.

Our focus last day was on unjustly large profits. Today’s focus is on profits that are gained unjustly, regardless of the size of those profits.

There are several distinct circumstances in which profits might be said (by at least some people) to have been unjustly gained.

  1. Profits gained through exploitation. Under this heading, we might include the profits earned by drug companies that jack up the prices for life-saving drugs, or profits earned by tow-truck operators who cruise the highways during snowstorms, offering to rescue stranded motorists at exaggerated prices. I’ve blogged before about exploitation, and in particular about how hard it is to define. The big problem is that, generally, situations that get called “exploitative” involve none of the usual factors that make transactions unethical, factors like force, fraud, or deception. When we say that profits have been gained through “exploitation,” we typically mean that the situation in which such profits were earned were — in some vague way — unfair, but it is notoriously difficult to say just what is unfair about them.
  2. Profiting from vice. Under this heading, we might include profiting from legal sale of tobacco, alcohol, pornography, and sexual services. Many people think one or more of these ways of making a living are morally suspect. We might want to distinguish among different cases, however, including based on factors such as choice and information and power. The janitor at a cigarett company, for example, might be held less blameworthy than the company’s lawyers and advertising executives.. We might also include, under the general heading “profiting from vice,” things like doing business with bloodthirsty dictators.
  3. Profits from financial speculation. This one may strike some as odd. But there is a long history of suspicion with regard to those who engage in financial speculation, including especially things like short selling (which involves betting that the price of a stock will fall). After all, the speculator is essentially a gambler, and the sense that many people have is that such gambling is of no social value: speculators don’t build things, after all. And there are worries that speculators contribute to the growth of dangerous market bubbles. But defenders of speculation argue that speculators, unlike gamblers, do have beneficial effects. They add liquidity to markets, and their speculation, made visible by their investments, adds valuable information to the market.
  4. Unethical business practices. Here we have what is potentially an enormous grab-bag of business practices that constitute legal, but unethical, ways to make a profit. I tend to agree with Joseph Heath’s view*, that we should delineate the boundaries of this category in terms of what Heath calls (socially) “non-preferred competitive strategies”. Heath’s idea is basically that agressive competitive behaviour on the part of companies is generally a good thing (when, e.g., they compete by innovating and by seeking efficiencies), but their behaviour becomes fundamentally anti-social when they compete by using strategies that tend to make markets work worse overall (i.e., make markets less able to perform their social function of increasing social well-being). So the “forbidden” strategies here would include any attempt to profit from information asymmetries (e.g., by misleading customers), externalities (e.g., pollution) or monopoly. Profits gained in those ways may rightly be criticized.

We might add to this list the gaining of profit by individuals or institutions that we think ought, for various reasons, not make profits at all. For some people, at least, that includes government agencies and public universities.

Are there other ways in which profits (even small profits) can be unethical, ways that don’t fit into one of the categories above?

——
*Heath’s argument about non-preferred competitive strategies can be found in his paper, “Business Ethics Without Stakeholders,” Business Ethics Quarterly, 2006 (Vol. 16, No.3).

7 comments so far

  1. Matthew Brophy on

    A few supplements to your thoughtful observations (most of which I wholly agree with):

    1. “exploitation” is a tricky concept – at least for business students. One could defend, for instance, a drug company jacking up prices on a life-saving drug by pointing out that no potential customer has any entitlement claim to such drugs. In addition, there is no “Lockean Proviso” clause that can apply when such drugs were produced at large cost by (in part) these drug companies. Second, tow-truck drivers are incentivized to actually cruise highways in treacherous and unpleasant snowy conditions by the very fact that they can jack-up prices for stranded motorists: one might argue that it is the free market at work, improving the lives of stranded motorists via the profit motive. Third, I would define “exploitation” as taking advantage of one’s circumstances where there is a lack any reasonable alternatives for that person when it comes to some essential good or service, and it treats that person as a mere means (per Kant’s 2nd formulation) to an end without giving any care to the person’s ends. I’m not sure that any “exploitation” is automatically unethical, however (e.g., in the tow-truck case).

    2. Profiting from vice, as a topic, reminds me of the very lucrative “Ashley Madison” website, enticing married couples to cheat on their spouses anonymously. The sexy ads seem to in fact motivate spouses to stray with the carpe diem slogan: Life is short. Have an affair. The CEO, raking in millions, defends the practice as merely providing a service for which there is already a market. Still, very unethical. Ashley Madison.com wanted to advertise during the Superbowl, and they were barred from doing so.

    3. Financial speculation profiting. Short selling, I have heard, provides some service to the market. Of course it needs to be reigned in. The idea of hedge funds, for instance, creating derivatives designed to fail and then betting against them is surely unethical profit-making.

    4. Unethical business practices. At the very least, business practices should not involve deception, fraud, coercion, or violating of rights. Profiting from information asymmetries, for instance, often involves deception in my opinion (e.g., don’t worry, you’ll totally be able to afford your adjustable rate mortgage – sign here after browsing through arcane pages of legalese). And profiting from externalities that harm those downriver is coercion or rights violation. I’d add more ethical constraints beyond this, but it’s a good start.

  2. Chris MacDonald on

    Matthew:

    Thanks for your thoughtful additions.

    The particular form of exploitation you mention also goes by the name “price gouging.” I’ve blogged about that here:
    https://businessethicsblog.com/2010/01/24/business-as-usual-plus-price-gouging-in-parts-of-haiti/

    As for financial speculation, tomorrow’s blog entry will be entirely on that topic.

    Chris.

  3. […] Vol. 86, No. 4 (Jul., 1976), pp. 312-322 ———- Update: Part 2 of this series is here. « Corporate Motives and Discrimination Ethics of Profit, Part 2: Profits […]

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