REVIEW: ‘Honorable Business’ by Prof. James Otteson

otteson cover

I wrote up some initial impressions about the new book on business ethics, “Honorable Business: A Framework for Business in a Just and Humane Society,” recently, and now that I’ve finished it, I’m able to provide a fuller review.

The book’s author, Professor James Otteson of Wake Forest University and WFU’s BB&T Center for the Study of Capitalism, is writing primarily for the people he teaches—young people studying for, and looking forward to, a career in business. He writes that the book “can give a coherent meaning and purpose not only for what business ethics classes should be about but also for why people should go into business in the first place.” Otteson goes beyond just providing guidelines for ethical business, however, and ends up tackling a series of increasingly ambitious goals: describe what counts as honorable business practice, convince students and current businesspeople to embrace that ideal, and justify the ways of a market economy to a presumably skeptical public.

The basics will be familiar to those interested in Western political philosophy and classical liberal economics. Otteson sets Aristotle’s idea of eudaimonia—human happiness and flourishing—as the goal of all rational beings, and then offers Adam Smith’s political economy as the best way for individuals to achieve it on a large scale. He argues for a government focused on protecting everyone’s life and property and enforcing contracts, which he refers to as the “three Ps” of justice—person, property, and promise. Finding a regime of negative rights preferable, he suggests that a government need not engage in any modern welfare-style programs or embrace redistributive economic policy in order to be a considered just and sufficient.

By extension, any business arrangements that arise between consenting parties are deemed legitimate. One has to commit to treat other parties with respect and not cheat or defraud them, of course, but one should be able to buy and sell anything that is otherwise legal to produce or do. (See here for a longer discussion of what should be legal to buy and sell in a just society). Otteson does go to pains to remind us that rules of fairness and honesty should be followed even when we don’t fear being caught—ethical business means being honest even when no one’s looking. He warns us to steel ourselves against the temptation of so-called “golden opportunities” in which we have reason to think our potential dishonest actions will not be detected or punished.

Of course, “don’t steal from or defraud people” would make for a pretty short ethics lesson. Otteson extends his basic guidelines into sections on, for example, what should go into a firm’s mission statement. He emphasizes that we, as moral actors, don’t get to decide for others when they’re benefitting from our actions:

Every firm’s mission statement, therefore, regardless of particular goods or services it aims to provide, should include the mandate to create value for others that others themselves find worthwhile. This not only shows respect to others as persons of dignity who have the right to order their lives and expend their limited resources as they see fit, but also disciplines the firms and their members to pay constant attention to those they presume to benefit. [Emphasis in original]

That is an important point, but one that, in effect, takes care of itself in the real world of commerce. If we’re trying to sell some new product, only our customers will get a meaningful say as to whether it provides them value or not. We can’t force someone to buy our product, so we don’t necessarily need to be consciously worried about allowing them the agency to decide about its value for themselves—certainly not the way we might if we were deciding, say, which activities or sports in which to enroll our children.

Otteson repeatedly emphasizes that business transactions should be positive-sum and benefit all involved parties, but stops short of putting an affirmative responsibility on each of us to make sure that actually happens for the other parties. As in the case of the mission statement advice above, we should want everyone to be obtaining value from our deals, but it’s up to each individual to figure out for themselves what is valuable, and either negotiate for their greatest benefit or withdraw from a proposition that they find lacking. We are not morally wanting if someone else comes to a voluntary agreement with us and then, afterward, feels disappointed.

In advising readers on how to formulate their own (rather than their firm’s) code of ethics, Otteson presents these five items as required “core foundational principles” for ethical behavior in business:

  1. You are always morally responsible for your actions.
  2. You should refrain from using coercion and the threat of injury.
  3. You should refrain from fraud, deception, and unjust exploitation.
  4. You should treat all parties with equal respect for their autonomy and dignity.
  5. You should honor all terms and your promises and contracts, including your fiduciary responsibilities.

Note the absence of distributional concerns, intersectional requirements, or worries about outcomes at all. This ethical framework mirrors the classical liberal idea of a just government—protect individual rights and leave people to their own peaceful ends.

It’s been many years since Adam Smith published The Wealth of Nations and John Stuart Mill penned On Liberty, and we’ve seen many competing theories of political economy emerge that make far more extensive demands for a just system of political economy. Because many critics fault the market economy—and thus the contemporary business world itself—for outcomes like wealth inequality, worker exploitation, and alienation, Otteson goes on to answer some of those criticisms. This takes the book out of the category of “giving ethical advice to business students” and into a broad defense of market economics.

When he argues that governments should protect our property rights but only individuals (and voluntary organizations) should engage in charitable activities—the contrast in Adam Smith’s terms between establishing “justice” and practicing “beneficence”—Otteson ropes off much, if not most, of what modern governments actually do. Envisioning a society with no Medicare, Medicaid, Social Security, SNAP, or government disability benefits is going to be a bracing adjustment for most people who are not already libertarian ideologues, but Otteson seems unfazed as he presents his case for why government-dispensed welfare is not just imprudent, but morally suspect.

A lot of Otteson’s argument for negative-rights small government hinges on the importance of local knowledge, subjective value, and opportunity cost. The agents of a central government are unlikely to know, in detail, the circumstances of every supposedly needy person. The money spent on some welfare programs could be wasted or even its recipients worse off. Those spending tax dollars may ignore higher-value goals, and the siphoning of capital from the productive economy will likely shrink economic output and the total amount of wealth available for all uses. 

These are all legitimate concerns, and ones frequently heard in right-of-center political discussions, but as an excuse for why governments should play no role whatsoever in redistribution or social welfare, they seem unlikely to be persuasive to most readers. I am personally inclined to Otteson’s way of thinking in many respects, but I am also under no illusion that my confidence in the potential of private charity to replace government programs is widely shared. Otteson, summarizing Adam Smith’s view on the topic, tells us that “to actually improve another’s situation require[s] extensive knowledge of the particular situation of the people involved, both that of the giver and that of the receiver.” Combine that with the underlying “knowledge problem” that Friedrich Hayek warned us afflicts all government plans and planners, and it would seem that government charity is a terrible idea.

But one doesn’t need to be an Elizabeth Warren policy advisor to suggest that government spending directed at a person’s most basic needs—food, housing, and medical care, for example—doesn’t require any specialized knowledge of a person’s circumstances in order to benefit them. Presumably, we all would like to eat, sleep indoors, and not die of preventable causes. Similarly, a lack of knowledge about a recipient’s particular requirements are what cash transfer payments are supposed to be for—the government doesn’t know exactly what I need, so it provides me with a check each month to spend on whatever I decide will benefit me most.

Otteson has further arguments and concerns, and no doubt would do well in a “Should We Have a Welfare State?” debate versus a socialist-inclined colleague. But as a guide for young, budding business students, I fear his categorical conclusions will come off as outside-the-Overton Window extremism and cause many readers to reject even the more mainstream elements of his argument. I also suspect that, for a general audience, it will generate a kind of jarring cognitive abruptness. Otteson moves from advising his readers that they should not cheat and steal during business deals (met with eager nods of agreement) to suggesting that no government should ever provide any social welfare support to anyone (met with confused frowns of concern).

While I personally am substantially in agreement with the arguments in the book, it seems like “Honorable Business” might be better broken into two volumes. The first would be the existing well-reasoned explanation of the ethical basis and moral value of voluntary transactions (the book for business students and businesspeople) and the second a vociferous defense of classical liberal political theory (for philosophy and government students, and anyone interested in small government advocacy). I fear that the latter, though well-written and tightly reasoned, might drive the audience for the former in the opposite direction as intended.

In any case, Otteson deserves high marks for taking on this project and presenting a reasonable, humane defense of business as a moral enterprise. As my Competitive Enterprise Institute colleague Fred L. Smith has frequently written, undergraduates and business school students desperately need a defense against the many fallacies and calumnies about the commercial world that we observe in popular culture and political rhetoric.

Human beings, as Otteson describes in one particularly fascinating passage, have a primordial, evolutionary suspicion of the kind of behaviors that are necessary to successful business—such as trusting strangers and allocating rewards in an impersonal, long-term manner. It’s essential to have material like “Honorable Business” to push back on those tribal instincts.