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Business Ethics ­MGT610
VU
LESSON 07
UTILITARIANISM
Utilitarianism: Weighing Social Costs and Benefits
Utilitarianism (or consequentialism) characterizes the moral approach taken by Caltex's
management. Another example, Ford and its infamous Pinto, demonstrates just how closely the
weighing of costs and benefits can be done.
Ford knew that the Pinto would explode when rear-ended at only 20 mph, but they also knew
that it would cost $137 million to fix the problem. Since they would only have to pay $49
million in damages to injured victims and the families of those who died, they calculated that it
was not right to spend the money to fix the cars when society set such a low price on the lives
and health of the victims. The kind of analysis that Ford managers used in their cost-benefit
study is a version of what has been traditionally called utilitarianism. Utilitarianism is a
general term for any view that holds that actions and policies should be evaluated on the basis
of the benefits and costs they will impose on society. In any situation, the "right" action or
policy is the one that will produce the greatest net benefits or the lowest net costs (when all
alternatives have only net costs).
Many businesses rely on such utilitarian cost-benefit analyses, and maintain that the socially
responsible course to take is the utilitarian one with the lowest net costs.
Jeremy Bentham founded traditional utilitarianism. His version of the theory assumes that we
can measure and add the quantities of benefits produced by an action and subtract the measured
quantities of harm it will cause, allowing us to determine which action has the most benefits or
lowest total costs and is therefore moral. The utility Bentham had in mind was not the greatest
benefit for the person taking the action, but rather the greatest benefit for all involved. For
Bentham:
"An action is right from an ethical point of view if and only if the sum total of
utilities produced by that act is greater than the sum total of utilities produced by
any other act the agent could have performed in its place."
Also, it is important to note that only one action can have the lowest net costs and greatest net
benefits.
To determine what the moral thing to do on any particular occasion might be, there are three
considerations to follow:
1. You must determine what alternative actions are available.
2. You must estimate the direct and indirect costs and benefits the action would produce
for all involved in the foreseeable future.
3. You must choose the alternative that produces the greatest sum total of utility.
Utilitarianism is attractive to many because it matches the views we tend to hold when
discussing governmental policies and public goods. Most people agree, for example, that when
the government is trying to determine on which public projects it should spend tax monies, the
proper course of action would be for it to adopt those projects that objective studies show will
provide the greatest benefits for the members of society at the least cost. It also fits in with the
intuitive criteria that many employ when discussing moral conduct. Utilitarianism can explain
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Business Ethics ­MGT610
VU
why we hold certain types of activities, such as lying, to be immoral: it is so because of the
costly effects it has in the long run. However, traditional utilitarians would deny that an action
of a certain kind is always either right or wrong. Instead, each action would have to be weighed
given its particular circumstances. Utilitarian views have also been highly influential in
economics. A long line of economists, beginning in the 19th century, argued that economic
behavior could be explained by assuming that human beings always attempt to maximize their
utility and that the utilities of commodities can be measured by the prices people are willing to
pay for them.
Utilitarianism is also the basis of the techniques of economic cost­benefit analysis. This type
of analysis is used to determine the desirability of investing in a project (such as a dam, factory,
or public park) by figuring whether its present and future economic benefits outweigh its
present and future economic costs. To calculate these costs and benefits, discounted monetary
prices are estimated for all the effects the project will have on the present and future
environment and on present and future populations. Finally, we can note that utilitarianism fits
nicely with a value that many people prize: efficiency. Efficiency can mean different things to
different people, but for many it means operating in such a way that one produces the most one
can with the resources at hand.
Though utilitarianism offers a superficially clear-cut method of calculating the morality of
actions, it relies upon accurate measurement, and this can be problematic. There are five major
problems with the utilitarian reliance on measurement:
1. Comparative measures of the values things have for different people cannot be
made-we cannot get into each others' skins to measure the pleasure or pain caused.
2. Some benefits and costs are impossible to measure. How much is a human life
worth, for example?
3. The potential benefits and costs of an action cannot always be reliably predicted, so
they are also not adequately measurable.
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Table of Contents:
  1. INTRODUCTION:Business Issues
  2. INTRODUCTION (CONTD.)
  3. THEORY OF ETHICAL RELATIVISM
  4. MORAL DEVELOPMENTS AND MORAL REASONING
  5. MORAL REASONING:Arguments For and Against Business Ethics
  6. MORAL RESPONSIBILITY AND BLAME
  7. UTILITARIANISM:Utilitarianism: Weighing Social Costs and Benefits
  8. UTILITARIANISM (CONTD.):rule utilitarianism, Rights and Duties
  9. UNIVERSALIZABILITY & REVERSIBILITY:Justice and Fairness
  10. EGALITARIANS’ VIEW
  11. JOHN RAWLS' THEORY OF JUSTICE:The Ethics of Care
  12. THE ETHICS OF CARE:Integrating Utility, Rights, Justice, and Caring
  13. THE ETHICS OF CARE (CONTD.):Morality in International Contexts
  14. MORALITY IN INTERNATIONAL CONTEXTS:Free Markets and Rights: John Locke
  15. FREE MARKET & PLANNED ECONOMY:FREE TRADE THEORIES
  16. LAW OF NATURE:Theory of Absolute Advantage, Comparative Advantage
  17. FREE MARKETS AND UTILITY: ADAM SMITH:Free Trade and Utility: David Ricardo
  18. RICARDO & GLOBALIZATION:Ricardo’s Assumptions, Conclusion
  19. FREE MARKET ECONOMY:Mixed Economy, Bottom Line for Business
  20. COMPETITION AND THE MARKET:Perfect Competition
  21. PERFECT COMPETITION
  22. MONOPOLY COMPETITION:Oligopolistic Competition
  23. OLIGOPOLISTIC COMPETITION:Crowded and Mature Market
  24. OLIGOPOLIES AND PUBLIC POLICY:Ethic & Environment, Ozone depletion
  25. WORLDWATCH FIGURES:Population Year, Agriculture, Food and Land Use
  26. FORESTS AND BIODIVERSITY:The Ethics of Pollution Control
  27. THE ETHICS OF POLLUTION CONTROL:Toxic Chemicals in Teflon
  28. THE ETHICS OF POLLUTION CONTROL
  29. THE ETHICS OF POLLUTION CONTROL:Recommendations to Managers
  30. COST AND BENEFITS:Basis of social audit, Objectives of social audit
  31. COST AND BENEFITS:The Ethics of Conserving Depletable Resources
  32. COST AND BENEFITS:The Club of Rome
  33. THE ETHICS OF CONSUMER PRODUCTION AND MARKETING:DSA Comments
  34. THE ETHICS OF CONSUMER PRODUCTION AND MARKETING:Should Consumers Bear More Responsibility?
  35. THE CONTRACT VIEW OF BUSINESS' DUTIES TO CONSUMERS
  36. THE CONTRACT VIEW OF BUSINESS' DUTIES TO CONSUMERS:The Due Care Theory
  37. THE SOCIAL COSTS VIEW OF THE MANUFACTURER’S DUTIES
  38. ADVERTISING ETHICS:The Benefits of Advertising, The harm done by advertising
  39. ADVERTISING ETHICS:Basic Principles, Evidence, Remedies, Puffery
  40. ADVERTISING IN TODAY’S SOCIETY:Psychological tricks
  41. ADVERTISING IN TODAY’S SOCIETY:Criticism of Galbraith's Work
  42. ADVERTISING IN TODAY’S SOCIETY:Medal of Freedom
  43. ADVERTISING IN TODAY’S SOCIETY:GENERAL RULES, Substantiation
  44. ADVERTISING IN TODAY’S SOCIETY:Consumer Privacy, Accuracy
  45. THE ETHICS OF JOB DISCRIMINATION:Job Discrimination: Its Nature