THE SOCIAL COSTS VIEW OF THE MANUFACTURER’S DUTIES

Business Ethics MGT610

LESSON 37

THE SOCIAL COSTS VIEW OF THE MANUFACTURER'S DUTIES

The third theory of the duties of the manufacturer extends beyond what the other two theories

impose. It maintains that a manufacturer must pay the costs of any injuries sustained through

any defects in the product, even when the manufacturer exercised due care and took all

reasonable precautions to warn users of every foreseen danger.

This theory, which forms the basis of the legal doctrine of strict liability, is utilitarian. It says

that the external costs of injuries resulting even from unavoidable defects constitute part of the

cost society must pay for producing and using a product. Having the manufacturer bear these

costs is the most efficient use of society's resources: that way, the price of the good will reflect

its real cost and it will not be overproduced. Additionally, manufacturers will take even greater

care since they will be responsible for paying for all of the costs of injuries. When they include

the cost of injuries in the price of the product, they also will be distributing the real cost of the

item among all users, which is more fair than making just the unlucky injured parties bear the

entire cost of the injury themselves.

The major criticism of this theory is that it is unfair because it violates the basic canons of

compensatory justice: a person should not be forced to compensate an injured party if he or she

could not have foreseen and prevented the injury. Critics also contend that the theory will not

actually reduce the number of accidents. Instead, it may have the unintended effect of

encouraging carelessness in consumers, which would cause even more accidents. Finally, such

critics argue that liability suits will increase and impose heavy losses on insurance companies,

forcing insurance rates to rise precipitously.

Social cost theorists counter by pointing out that, in reality, the costs of consumer liability suits

are not large. Less than 1% of product-related injuries result in suits, and successful suits

average only a few thousand dollars in any case. Moreover, the insurance industry has

remained quite profitable, despite the warnings of the critics.

Advertising Ethics

Advertising is a huge industry, which imposes great expense on manufacturers and service

providers. Commercial advertising is sometimes defined as a form of "information" and an

advertiser as "one who gives information." The implication is that the defining function of

advertising is to provide information to consumers. In the end, consumers must cover the costs

of advertising, but what do they get for this extra expenditure? Most consumers say that they

get very little. So is advertising a waste, or a benefit? Does it help or harm consumers

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