SELF INTEREST AND ETHICAL BEHAVIOUR FOR THE GREATER GOOD
The word ethics is defined by Webster’s Dictionary as a guiding philosophy dealing with that is good and bad and with moral duty and obligation. Here, ‘moral’ represents the ‘ideals of right human conduct’. Ethics refers to standards that guide individuals to identify good, desirable or acceptable conduct. But for some, ethics and morality are distinctly different concepts. Ethics is seen as innate and is used in a scientific sense. Morality on the other hand can be subjective, can vary between cultures and is a term more frequently applied to social issues.
It is difficult and undesirable to argue against ethical behaviour because in most instances, ethical behaviour seals a bond of trust that enables the smooth functioning of society. Ethical behaviour is relatively simple when the situation calls for right versus wrong, but harder when it is seemingly right versus right. For example, loyalty and truth are both worthy values. But should someone display loyalty though it might be in conflict with the truth? Whatever the answer, ethical behaviour at the very minimum closes a loop of voluntary accountability.
But the nature of our society is that it is an aggregation of diverse, and often competing, interests. It is likely that self-regulation is not always a realistic option, especially if parties do not have mutual benefits accruing from self-regulating themselves. We can devise many ad hoc solutions, many of which perhaps involve rules or regulations of sorts. Some of these rules may have the desired effect. Others will surely distort the interaction between free individuals so the optimal point is not reached. This essay will attempt to illustrate these ways and how self-interest can work wards the public interest in a society that prizes lean government, free markets and individual liberty.
These are interesting concepts and it is instructive to first look at what situations self-regulation would generally work. The great philosopher Montesquieu wrote in his Spirit of the Laws that “it is almost a general rule that wherever manners are gentle, there is commerce; and wherever there is commerce, manners are gentle.” Samuel Richard added that “commerce makes him who was so proud and haughty, suddenly turn supple, bending and serviceable. Through commerce, man learns to deliberate, to be honest, to acquire manners, to be prudent and reserved in talk and action.” This is not surprising when we consider the incentives at work in a business.
The first and foremost objective of a business is to make profits. Without the profit motive, no entrepreneur would take the risk of setting up a business in the first place. To achieve profits a businessperson needs to know what the market, or the consumer, wants. Hence, it is in the interest of the businessperson to be ethical in his or her relations with customers, largely due to reputational effects. One can regard this as true with one important qualification: there must be competition. In the absence of competition — a monopolistic situation — the incentives that pushed the businessperson towards, for instance, adopting corporate social responsibility, will no longer be strong enough to ensure ethical behaviour and human nature will take over.
Let us take the example of doctors. We generally trust doctors not to abuse their greater knowledge of medicine when dealing with patients. They, along with other specialised professions, have an advantage of an asymmetry of information — they know more about their ‘product’ (medicine) than we do. How is this apparent contradiction resolved without significant diversion from the market forces principle outlined above? As long as the political will exists, competition can boast the same effects.
Doctors, like others who spend significant amounts of money advertising their services, have an automatic incentive not to lie in their advertisements. If they overstate the quality of their services, patient is unlikely to come back after the first time and the initial spending on the advertising would have been wasted.
Medical organisations such as the Australian Medical Association have traditionally sought to limit numbers entering into the medical profession in order to keep the salaries of those already in the profession high. This is a situation where self-interest, if allowed to take its course, would lead to unethical practices.
But in a free market where entry and exit of new competitors is relatively costless, such cartels are unlikely to survive very long due to price undercutting by competitors striving to provide the best service at the cheapest possible price. It is worth recalling the words of Adam Smith:
"Man has almost constant occasion for the help of his brethren and is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices we stand in need of. It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages."
So the solution to unethical behaviour, at least on a broader scale, is inextricably tied to the concept of self-interest in a free competitive market. Yet because our society is influenced by concepts of ‘social justice’, capitalism is condemned with little analysis of its costs and benefits. There is a case to be made for the concept of social justice, just as there ‘are strong arguments in favour of inequality in the distribution of income.
When self-regulation doesn’t produce results, it is not the principles of a liberal society (where individuals govern their own behaviour to the extent possible) that should be questioned. One should ask another question: is it really self-regulation that hasn’t worked, or is it government attempts at regulation that don’t work? The distinction between the two is important as the solutions we devise to counteract unethical behaviour must acknowledge this distinction if they are to be successful.
In small and large communities alike, social norms play an important part in self-regulating individual behaviour. The expression of opinions in a free society all contribute to the moulding of a particular society’s norms. The breadth and diversity of views is also, of course, self-regulating. In many cases, other than extreme scenarios, one can plausibly design systems that rely on carefully balanced incentives and self-interest to operate smoothly.
Despite criticisms, the beauty of capitalism according to classical liberal thinker Milton Friedman is its relative immunity towards traditional human flaws. For instance, with regards to discrimination, a business operating in a competitive capitalist economy is not concerned with the age, sex, religion or any other distinguishing personal characteristic. Through the self-interest of the individuals comprising a business, in a competitive market employers will have strong motivations to simply choose the best person for the job. Those employers who choose to discriminate on grounds other than skills or suitability for the job are losing a valuable employee, and may face difficulties in the future— especially if that same employee is hired by another firm.
This also raises the interesting point of how self-interest can lead to higher wages. With the profit motive lurking closely in mind, businesses have an incentive to hire the best employees as better, more reliable employees lead to better productive outcomes and increased profits. If other businesses also have a similar goal in mind, a bidding war ensures for the employees themselves. In this way, wages and salaries have been increasing for the past 100 years without the help of arbitrary minimum wage laws.
A social structure that by way of lean government maximises individual social freedoms and has as a primary goal the opening up economic and political freedoms, is therefore one that produces optimal outcomes for society as a whole. Through millions of voluntary actions a great many people are made better off than they would have had they been coerced. There is something intrinsically wrong with the alternative: a society of coerced collective action that goes under the false banner of benevolence and the greater good.