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Commentary :: Labor
From the Free Market to the Share Economy
19 Aug 2015
In 1970 the economics Nobel Prize winner Milton Friedman argued the social responsibility of business was only maximization of its profits. This is not true any more today. The responsibility of businesses goes beyond profit maximization.

By Christoph Lutge

[This article published on December 8, 2014 is translated from the German on the Internet.]

In 1789 Benjamin Franklin said only two things are certain on earth: death and taxes. This is true today. Taxes exist so businesses, in particular big businesses, give back something to society for the advantages from the framing conditions of their economy.

Taxes are not gifts to the state. They should be paid by everyone benefiting from the state infrastructure. This is true for individual citizens and businesses of every size. Businesses gladly enjoy the advantages of a good system, a functioning administration, a justice system and a good economic policy. All this is not possible free of charge.

Another viewpoint must be heard. The tax rate in Germany is at a very low level, more exactly at second place worldwide. Defending this top position can hardly be the goal. Taxes must be proportional. In 1995 the German Constitutional Court declared taxes of more than 50% are unconstitutional at least in principle. This accomplished little. So tax competition between states, even between German states, is ultimately the only possibility for controlling tax rates. Thus tax competition fulfills a purpose for citizens in Germany and other states. A world state that could fix all tax rates would not be desirable and would hardly keep its tax rates moderate. No, competition between states with different tax rates and tax systems is in the interest of citizens. Otherwise we would all meet at the highest tax level.

In the current debate, businesses use tax loopholes pragmatically. They seek the advantages of a system without paying the price for that. Countries like Luxemburg enable them to develop elaborate legal constructions that serve the goal of tax evasion. Some of that evasion is legal on account of international tax agreements that exist to avoid double taxation. But that is not really the target of these constructions.

The way competition is carried out here is unethical. Tax competition should be carried out in the framework of proper rules. Competition has positive effects and cannot manage without corresponding rules. With false or inadequate rules, competition does not do what it should but leads to monopolies with excessive prices or one side exploiting the other. Therefore the member states of the EU committed themselves to automatic information exchange about the accounts of their citizens. The foreseeable end of bank secrecy is a great advance. For a long time, it seemed inconceivable to sign agreements on removing or at least reducing tax havens even if some of these havens like the Cayman Islands lie in EU member responsibility. But now giving sensible rules for sensible competition seems possible.

Tax competition should be carried out by participants fairly and with fair means. Businesses should not slip out through the last tax loophole they can find. It is often argued businesses should not be expected to ignore tax openings and cannot always let their money flow where taxes are lowest. Businesses must do more than hold to the rules.

In 1970 the economics Nobel Prize winner Milton Friedman could still argue the social responsibility of businesses is only maximization of their profits. But this is not true any more today. The responsibility of businesses goes beyond profit maximization. Many businesses see this and in their own interest. In the US, other industrial countries and in threshold- and developing countries, many examples show how multinational businesses do more than only practice business. Voluntarily they observe environmental- and social standards that are higher than the legal standards. They carry on constructive dialogues with non-governmental organizations. Voluntarily they join action alliances against corruption that often accomplish more than state regulations. Multinational businesses do this because they know satisfied co-workers, stable conditions in the country and high respect of business in the public are worth much money.

Maximum avoidance of taxes is not a sensible strategy. Big businesses should keep a sense of distance and not seek the most profitable tax havens. Businesses operating in European or worldwide competition can be expected to contribute to a functioning community – in the scope of their possibilities. Big businesses now have greater possibilities and greater responsibility. More can be demanded from those with more power – that jobs are created, good, innovative and very reasonable products or services are offered, that they pay into the social treasury and pay their taxes.

Public and legal bodies, businesses that enjoy special advantages on the German market, are involved in the Luxemburg tax avoidance affair. This makes it very problematic. That subsidiaries of the energy firm Eon sought tax advantages in Luxemburg is very alarming. Energy companies in Germany are protected from the global competition. This case should be an occasion for scrutinizing the market on the energy sector more closely.

Competition is an ally of the citizens when carried out fairly. Proper rules are necessary for fairness. In addition, the responsibility of participating actors is necessary when rules are inadequate or missing. Businesses in competition are well advised to avoid the impression that they evade their responsibility.



By Nils Ole Oermann

[This reading sample of the new book from C.H. Beck publisher/ Germany, April 2015 is translated abridged from the German on the Internet.]

“Being moral means speaking a good word.’
Hauptmann in Georg Buchner’s “Woyzeck”


What is ethics? What distinguishes ethics from morality which is a “good word” in Georg Buchner’s Woyzeck? Why is economic ethics needed instead of ethics? Are other rules in force in the market economy than in other areas of life? Why is there an academic department called economic ethics? What is its subject? What are its historical roots and current themes? How does an economic and/or ethical theme become a specific theme of economic ethics? Whoever seeks answers to these questions should realize what substantively defines ethics as a partial area of philosophy and what defines economics in its core? Whoever understands economic ethics as applied ethics in the sense of a partial area of philosophy or help in everyday economic questions is well advised to begin with an application of general ethics.


…In the perception of different observers, legality (from Latin legales, legal, lawful) and legitimacy (legitimus, legitimate) coincide. While ethics was originally understood by most representatives of the discipline as a partial discipline of philosophy, morality is an action category. An action may be more or less moral while reflection about the quality of action occurs in the realm of ethics.

General “moralizing” is often confused with ethics in the public discussion. Moralizing involves judgments about persons and their actions only on the basis of personal or arbitrary standards more than the penetration of ethical dilemmas. Ethics as a discipline will disappoint whoever expects human conduct to be judged as more or less “morally valuable” and actors divided in “good” or “evil.” The systematic structuring of ethical dilemmas is central, not the alignment or balance of personal moral preferences. Understood this way, the task of ethics in general and economic ethics in particular consists in developing criteria for moral conduct. The Greek philosopher Aristotle (384-322 B.C.) was one of the first to treat ethics as an independent area. He sought to delimit the disciplines of practical philosophy (economy, politics and ethics) from those of theoretical philosophy (logic, mathematics, physics and metaphysics).

Unlike morality, ethics involves the reflection and evaluation of criteria for more or less moral action and conduct, not the actions themselves. Ethics reflecting morality can be subdivided in general and applied ethics… In the general usage, the terms “morality” and “ethics” are usually used without distinction.

As “applied” ethics, economic ethics aims at developing ethical criteria for an inscrutable number of individual cases. Economic ethics systematizes in a scholarly way what often results for normal citizens from a mixture of general manners, education, habits, values and customs of one’s occupational state and intuitive value judgments. These “gut feelings” are valuable because they give us orientation in most situations of the daily routine but are seldom profoundly though through. This has disadvantages. Often gut feelings can hardly be grasped in words and established systematically-rationally and are in no way self-evident or binding for others. On the contrary, one’s gut feeling is somewhat different for every observer and conflict begins (and has little prospect for an orderly resolution). In this sense, ethics in general and economic ethics in particular have a normative claim.

In normative ethics, teleological and deontological drafts can be distinguished. With deontological ethics, the motive or principles underlying action is crucial while the uses and results for ethical valuation are decisive for teleological ethics.

A teleological ethic is from the Greek telos, perfection, purpose, goal. Classical utilitarianism that has its roots in the 18th century in the Anglo-Saxon terrain is one of the most prominent examples for a teleological ethic. It is one of the so-called teleological-consequentialist approaches. Its ethical assessment of human action begins in judging the consequences of actions. Usefulness (utility) understood as the extent of happiness or satisfaction of desires (preferences) is its leading value. Jeremy Bentham’s (1748-1832) introduction in the Principles of Morality and Law (1780) is one of the first systematic elaborations of utilitarianism. For judging the consequences of actions, Bentham cited their so-called gratification value, the measure of pleasure or displeasure of an action for all those affected by its consequences. The gratification value of an action is calculated individually by every concerned person. The overall usefulness of an action results from the sum of the collective gratification values when the individual gratification values are added up. With that, the public interest would be the sum of the values and the preferred ethical action would be the action that brings the greatest happiness of the greatest number.

John Stuart Mill (1806-1873) and Henry Sedgwick (1838-1900) are regarded as classical advocates of utilitarianism. One of the central critical points of teleologically-structured ethics like utilitarianism consists in the question whether an action can be judged afterward as to how close it comes to the greatest benefit of the greatest number. What actor has an overview? Can what I regard as ethically right depend on the end result of my action? From the view of the economist, the basic problem is that use is only a theoretical concept for analyses. Because of subjectivity, uses cannot be measured and aggregated. Therefore economists concentrate on decisions that can be observed. From an ethical view, conflicts as to minority protection are hardly avoidable when the greatest benefit of the greatest number is cited as the only ethically decisive reality. Dostoevsky dramatized this objection into the question how we should decide when the happiness of humanity depends on the torture of a single child. Ethics like truth or God’s reign is not necessarily capable of democracy. That is the argument by those who couple the standard of ethical conduct deontologically to certain principles and values as a standard like equality with Marxists or so-called procedural justice as fairness with John Rawls and not to measured uses or benefits.

Such deontological drafts (from the Greek deon, duty) like most command ethics (“You shall…”) including the Ten Commandments are geared to the motives of actors and the qualities of their actions…

One test for general ethics is how well they manage with complex facts, that is how much orientation they offer to those who know how diverse, distant and unintended the effects of an intended action can be. Economic life is a classic example for unintended side-effects. The people of India began raising cobras when the British colonial administration in India paid bonuses for the heads of dead cobra snakes to defeat a plague. From the perspective of the people of India, there was a British demand for cobra heads with guaranteed fixed prices… Did the people of India act problematically from an ethical perspective? Did the Brits with their well-intended but economically hardly well-thought out regulation plunge efficient people of India into an ethical dilemma? Such examples create a need for an applied ethics tailored to the realm of the economy and supply and demand.

The task of applied ethics is to develop general normative concepts of ethics for specific areas of life and occupational fields like medicine, law, science, technology or the media. Applied ethics requires a well-founded empirical knowledge about the respective field of action. The theological ethicist Trutz Rendtorff describes applied ethics as an “accompanying’ and not a know-it-all science” (Rendtorff 2002). Applied ethics does not declare their subject to economists, lawyers or medical practitioners but examines from an ethical or technical view whether an action is actually “without alternative” as often declared by the actors. Many persons who face ethical dilemmas justify their actions with practical constraints like “I could not act differently,” “I only carried out commands,” “My actions were objectively without alternative” or “Everyone does this.”…

Whoever wants to judge economic life ethically can not be an active entrepreneur, unionist or central banker but should be familiar with the facts and (written and unwritten) rules of the micro- and macro-economy from balancing and controlling the joint-determination – and with the theories of ethics and philosophy.
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