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Business Ethics MGT610

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

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.