Thursday, December 13, 2007

Philosophy of business

Philosophy of

The philosophy of business considers the fundamental principles that underlie
the formation and operation of a business enterprise; the nature and purpose of
a business, for example, is it primarily property or a social institution; its
role in society; and the moral obligations that pertain to it. The subject is
important to business and management, and is closely related to business ethics
and political economy. It is influenced significantly by philosophy, ethics, and
economic theory.

One must draw an important distinction between the philosophy of business and
business philosophy, which is an appellation that one often hears in the
business world. More often than not, the latter designation is intended to
denote a way of doing business or a business outlook, a popular use of the term
philosophy, instead of its more formal, academic meaning, using the concepts and
methods employed by philosophers. The latter meaning applies to the philosophy
of business in this article. The phrase philosophy of business also might be
used in the same way as business philosophy, for example, "Risk taking
represents my philosophy of business." However, this is not the same sense that
philosophy is used in this article.

Early development
of the philosophy of business

It is a somewhat curious truism that despite the fact that business touches
nearly every aspect of our lives, few thinkers have shown an interest in it from
a more philosophical perspective until relatively recently. Indeed, few
philosophers can be said to have paid much attention to the business enterprise,
itself, prior to the latter part of the 20th century. Many philosophers tended
to look askance at commercial activity, believing, as Plato did, that only the
worst sort of people are involved in such matters. Plato is not unlike many
academics throughout history, even today, who tend to think of business as a
necessary evil in society, and not as something worthy of serious philosophical
consideration. To the extent philosophers were concerned with business, they
were primarily interested in it from an economic or political standpoint, and
not as a primary object of attention.

Although there have been few "philosophers of business", per se, business and
economics has not developed in a vacuum. It is built on many tacit philosophical
principles and assumptions that we can examine. As a general rule, business
practitioners and theorists tend to accept the principles that are current in
their society. In the European middle ages, for example, the dominant Christian
influence resulted in a pricing practice know as just price, and in the
Enlightenment the dominant view of economic decision making was one of

The formative years in the development of the modern philosophy of business and
economics was the 17th and 18th century. At that time, thinkers like Hobbes,
Locke, Rousseau, Shaftesbury, and Smith created the intellectual foundation upon
which modern business and capitalism was built. A basic principle subsumed
within business practice and economic theory alike is the notion of free will.
Thomas Hobbes, John Locke, and Jean-Jacques Rousseau all accepted that we are
free moral agents, able to make decisions, control our own destiny, and engage
in a social contract. This notion would later be celebrated in the idea of the
entrepreneur, someone that freely decides to pursue a risky venture in the hope
of receiving great rewards. It is also at the core of utility theory, a model of
consumer behaviour in economics in which consumers freely choose what to

Another philosophic principle that would become part of business theory and
practice is rationality. The general philosophic predilection of the
enlightenment was that people were fundamentally rational. Philosophers such as
René Descartes and Spinoza had built whole systems of thought on this
assumption. Capitalism would do the same. For two hundred years economics was
founded on the assumption of Homo economicus. This assumption has recently been
challenged by Herbert Simon, among others.

Another key philosophic assumption is atomism. It was John Locke's view of
society as an aggregation of independent, autonomous individuals, rather than
Jean-Jacques Rousseau's vision of society as an organic collective that would
become an integral part of business philosophy. The key ethical unit is the
individual. Social institutions are merely constructs that individuals can use
for their own purposes. Many years later, Milton Friedman used this assumption
in arguing that corporations have no moral responsibility because, he contended,
they are not individuals capable of responding to moral claims. Only the
individuals within the business enterprise have a moral responsibility.

Modern business practice and theory developed in the age of scientific
discovery, and this gave it a mechanistic orientation. In particular, Newton had
just discovered classical physics. This would influence business and economics
in ways that we are just beginning to understand. Early writers dealing with
economic topics, such as Adam Smith, borrowed many of their techniques and
terminology from classical physics. They would use terms like "equilibrium", "labour
force", "elasticity", and "income accelerator". Today a few theorists are
starting to question the mechanistic approach and model business on biological
principles or chaos theory. Newton's law of inertia has found its way into
marketing where it is claimed that consumers will continue in their current
state unless they are encouraged to act otherwise. Thus advertising is claimed
to perform the valuable role of helping people experience a more variegated and
interesting life.

John Locke also contributed an important attitude towards the private ownership
of property. He claimed that individuals have certain inalienable, natural
rights. One of these is the right of ownership. He said that if we toil on the
land and mix our sweat with the soil, we become the rightful owners of the land.
This argument was extended to other assets including the factors of production,
a conclusion that many, including Karl Marx, would challenge.

Another key concept that underlies modern business is psychological egoism. This
states that the core moral obligation is to oneself. Thomas Hobbes saw all
action as motivated out of self-interest. A group of philosophers including
Mandeville, Butler, Shaftsebury, Hutcheson, and Smith (sometimes referred to as
the "enlightened self-interest school") developed this into one of the core
concepts of modern business theory. Bernard Mandeville claimed that private
vices are actually public benefits. In The Fable of the Bees (1714) he laments
that the "bees of social virtue are buzzing in mans bonnet". Civilized man has
stigmatized his private appetites and the result is the retardation of the
common good. Bishop Butler claimed that pursuing the public good was the best
way of advancing one's own good since the two were necessarily identical. Lord
Shaftesbury turned the convergence of public and private good around, claiming
that acting in accordance with ones self interest will produce socially
beneficial results. An underlying unifying force that Shaftesbury called the
"Will of Nature" maintains equilibrium, congruency, and harmony. This force, if
it is to operate freely, requires the individual pursuit of rational
self-interest, and the preservation and advancement of the self. Francis
Hutcheson also accepted this convergence between public and private interest,
but he attributed the mechanism, not to rational self interest, but to personal
intuition which he called a "moral sense". Adam Smith developed a version of
this general principle in which six psychological motives combine in each
individual to produce the common good. He called it the invisible hand. In The
Theory of Moral Sentiments, vol II, page 316, he says: By acting according to
the dictates of our moral faculties, we necessarily pursue the most effective
means for promoting the happiness of mankind. Since Smith's time, the principle
of the invisible hand has been further incorporated into economic theory. Leon
Walras developed a four equation general equilibrium model which concludes that
individual self interest operating in a competitive market place produce the
unique conditions under which a society's total utility is maximized. Vilfredo
Pareto used an edgeworth box contact line to illustrate a similar social

A link can also be made between utilitarianism and the fundamental principles of
the philosophy of business, however this is more theoretical that practical.
Economists use utility theory to model human actions. Like Jeremy Bentham,
modern economists assume that people are hedonists, that is they prefer more
satisfaction to less satisfaction. The amount of satisfaction can be expressed
in terms of the utility a person derives from the satisfaction. Social welfare
functions used in modern welfare economics are an outgrowth of John Stuart
Mill's utilitarian calculation of obtaining the greatest good for the greatest
number. The grounding of business principles on teleological ethics has been
challenged by many deontological philosophers. John Rawls' maxmin criterion also
provides an alternative.

Modern philosophers
of business

It is fair to say that most modern philosophers of business are involved in
other philosophical or scholarly pursuits, and that they come to the philosophy
of business as a sub-specialty, or only indirectly because it relates to another
area of interest. Thus, they are primarily philosophers dealing with other
subjects, economists, or business management theorists. If one were to examine
the philosophy departments in most universities, today, one would find precious
few courses in the philosophy of business (as opposed to a growing number of
business ethics or applied ethics courses). There are indications that a growing
number of philosophers with formal training in academic philosophy will come to
specialize in the philosophy of business.

Perhaps the best known modern philosopher of business is Peter Drucker, whose
publications have had a profound influence on management and organizational
theory, generally, and on how we think of the business enterprise. More often
than not, people who think about business issues are considering it from an
applied perspective, which is to say, what is the best or most effective means
of transacting commerce or managing the enterprise, with some goal in mind,
usually profitability, improving employee relations, or marketing. While Drucker
has dealt with these issues and many more in numerous publications over his long
life, he also inquires into the principles and concepts that underlie commercial
activity and organizational structure, and he asks what ought the mission of a
business to be, and, in particular, how can we reconcile a business mission with
conflicting interests in the marketplace and society.

One of the most frequently discussed topics is the matter of organizational
change in a complex environment. Paul R. Lawrence has dealt primarily with
organizational change, organization design, and the relationship between the
structural characteristics of complex organizations and the technical, market
and other conditions of their immediate environment. His 1967 book, Organization
and Environment (written with Professor Jay Lorsch), added contingency theory to
the vocabulary of students of organizational behavior.

Other philosophers of business, for example, Geoffrey Klempner, are principally
interested in examining how business is even possible, which is to say, how can
an enterprise function in society as a whole. Klempner states that theories of
ethics and business are often at odds, and that one might even have to suspend
the normal ethical considerations that would apply outside of business in order
for a business to be possible. This is reminiscent of Albert Z. Carr's famous
and controversial Harvard Business Review article on bluffing, where he said
business was similar to playing poker, and that deception is a necessary part of

Of course, there is a close relationship between the philosophy of business and
business ethics. Philosophers specializing in business ethics are primarily
interested in how business people ought to conduct themselves in the marketplace
and in society. Philosopher Norman E. Bowie adopts Kant's three versions of the
categorical imperative for ensuring ethical business conduct, and he pays
particular attention to the third variation, whereby the people within a
business must be seen as a kingdom of ends, and not merely treated as means to
an end.

The "invisible hand" is a favorite metaphor for practitioners of modern-day
Western capitalism, the ideology driving globalization and, for the most part,
business as we know it today. What many of the bottom-line fundamentalists may
ignore is the degree to which the so-called "free market" has been skewed and
maneuvered in ways Adam Smith never envisioned. Thus the question of ethics and
conscience runs deeper yet. With exponential increases in government laws,
regulations and court decisions regarding business in the past century, ethical
practice has morphed from doing "the right thing" as conscience would dictate to
doing what complies with the law or isn't explicityly illegal. Thus there's been
a gradual relaxation of internal moral compass and greater reliance on external
parameters, as in "if it isn't illegal, it must be all right," as well as a new
skillset in finding "legal loopholes" in stretching the boundaries of

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