Business Ethics

and
Corporate Governance
 About the Author
B.N. Ghosh, PhD (India), PhD (Australia), M CIM (UK), GFCR (Harvard),
is a Visiting Professor at Leeds College of Management and Technology,
Leeds, UK. He was formerly the Director of Institute of Management
and Technology, Government of Kerala, Punnapra, Kerala. He received
his education from India, Australia, the UK and the USA and has taught
at numerous universities in India and abroad, including the University of
Science, Malaysia, and Eastern Mediterranean University, Cyprus. He also
had a stint as a Visiting Professor at Zhejiang Gongshang University,
China. Dr. Ghosh has authored a large number of books published by
reputed publishers, including Routledge, Palgrave-Macmillan (London
and New
York), Nova Science (New York), Wisdom House, Longman and Ashgate (London). He has
contributed a large number of research papers in professional journals of India, the USA, the UK,
Cyprus, Malaysia, Singapore, Italy, Bangladesh, Sweden, Korea, the Netherlands and Philippines.
He has also provided short-term consultancy to various organizations, including UGC,
Government of Malaysia and UNDP. He was bestowed with the Emerald Award (UK) for
academic excellence in 2006. He is the Chief Editor of Journal of Human Development.

2
 Business
Ethics and
Corporate
Governance

B.N. Ghosh
Visiting Professor
Leeds College of Management and Technology,
Leeds (UK)
and
Former Director and Visiting Professor
Institute of Management and Technology, Government of Kerala,
Alleppey, Kerala

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5
Preface

Once Winston Churchill and Lady Astor were informally discussing the issue of morality in a pub.
Churchill posed the question: If a very rich man promises one million pounds to a lady, would
she temporarily marry him? Lady Astor pondered a bit and answered, “Yes, if the money was
guaranteed.”
Then Churchill asked her if she would temporarily marry him for 5 pounds. Nancy Astor’s
sharp reply was, “Of course not. What do you think I am a whore?” Churchill quipped, “We
have already established that; we are now simply negotiating the price.”
The fundamental lesson that we get from the above anecdote is that morality which is the
quintes- sence of Ethics is indeed a volatile concept and gets more convoluted in a world
dominated by material considerations of life. Thus, for some people, morality is context-bound
and not something absolute. However, strictly speaking, this notion of morality is incorrect. The
basic purpose of human life is happiness and not necessarily the acquisition of material wealth.
Aristotle said that all things worthwhile should be done in the best way. However, an economist,
like Buchanan, will advise us that we need not do all things, and even if we have to do all, we do
not have to do in the best way, but in the most efficient way. But in order to do in the most
efficient and effective way, what we forget is the ethical input.
The business world is often dominated by the idea of profit maximization which becomes the
be-all and end-all of life, and in the process, it may, more often than not, take resort to many
types of immoral and unethical practices. It is in this context that the subject of Business Ethics
becomes very crucial for the would-be managers and business people.
It is gratifying to note that ethics of late has become a popular subject of study in both under-
graduate and postgraduate levels in various universities and institutions in India and abroad. This
is indeed a welcome trend. Since the subject is comparatively new, the supply of study materials
is rather less. There are indeed many reasons behind writing this book. First, although there are
books available in the market, some of these books are not comprehensive enough. Second, it is
indeed difficult for ordinary students to access the available research materials from journals and
researched books. Third, some of the published books are not well-balanced. The theory section
may be well-written and comprehensive but suitable illustrations may be missing or inadequate.
Last, the book covers many theories which are studied still today, and contextualizes the Indian
models of ethics and philosophy. The book is divided into three parts. The first part discusses the
theories of ethics, the second part analyses the application of ethical principles in the domain of
business and the third part gives an insight into principles and practices of corporate governance
in India as well as world at large. The concepts discussed in these three parts are well reflected in
the 25 book end cases.
In the present book, I have presented a balanced analysis by providing theories, illustrations
and examples. Each chapter provides Key Terms, Test Your Knowledge (Objective Type
Questions),
6
vi Preface

Review Questions, Web Links and References. The book is written in a student-friendly manner.
The meat of the matter is presented in a simple language devoid of jargons. Important ideas and
points are put in bold and every chapter is made very precise and examination-oriented without
compro- mising the essential ideas or points. I verily believe that the book will be immensely
useful to the students of ethics of all Indian universities.
The book is primarily designed as a textbook for MBA students of Indian universities.
However, it can also be used as a standard textbook for the subject in any university irrespective
of its geographic location. The book will also prove useful for PGDBM, BBA, BCA and MBBS
courses on the subject of business/professional ethics.
We learn as we teach. While writing this book, I have incurred huge intellectual indebtedness
to many people who helped me in writing this book. I am thankful to Fr. Boni Sebastian for
going through a part of the manuscript and giving his valuable suggestions.
This is basically a textbook with differences. At many places, I have incorporated original
thinking, introspective exposition, analytical simplicity and my own points of view. However, a
textbook is a textbook. It is said that those who can, do, those who cannot, teach, and those who
cannot teach, write textbooks! The logic of the statement may seem to be appealing to many but
not compelling to all.

B.N. Ghosh

7
Acknowledgements

In the preparation of this book, I have incurred intellectual indebtedness to many. Although I
have mentioned the names of books and journals at the end of each chapter, I am grateful to the
following authors and publishers, whose works I have consulted and used their ideas frequently in
this book: Durant, Will (1961), The Story of Philosophy, Pocket Books, New York; Sinha, J.N.
(2006), A Manual of Ethics, New Central Book Agency, Kolkata; Weiss, Joseph W. (2009),
Business Ethics: Concepts and Cases, Cengage Learning, New Delhi; Ferrell, O.C. and Ferrell,
Linda (2001), Business Ethics: A Case Perspective, Cengage Learning, New Delhi; Day, Lewis
Alvin (2006), Media Communication Ethics, Wadsworth, New Delhi; Velasquez, Manuel (2006),
Business Ethics: Concepts and Cases, Prentice-Hall of India, New Delhi.
For others, I have consulted various websites, especially Wikipedia. For preparing the case
studies, relevant materials from various newspapers, magazines and journals have been used with
proper acknowledgement of the sources. Some of these are The Hindu, News Daily, The Indian
Express, The Times of India, and The Economic Times. I have adapted news items that were
published in these dailies before incorporating them in this volume. These cases are selected
because of their ethical significance for the academic use of the students of business ethics.
Among the magazines from which I have drawn materials having ethical implications, some, like
Reader’s Digest, India Today, This Week and Frontline, deserve special mention.
I am sincerely thankful to Ms. Shruthi Francis, Lecturer, Union Christian College, Kerala, for
writing a couple of case studies in spite of her busy schedule. I am also thankful to Ms. Sumana
Shome, Head of Marketing, George College, Department of Management Studies, Kolkata, for
writing a portion of the chapter on Corporate Governance in India and assisting me in preparing
the end-questions of each chapter; and to Kaan Kutaly, my PhD student from the Eastern
Mediterranean University, North Cyprus, for searching out weblinks used in this volume.
My publisher, Tata McGraw-Hill Education, New Delhi, deserves my appreciation and thanks
for bringing out the book within a short span of time.
Also, I along with the publishers, would like to thank the following reviewers for their
invaluable suggestions and feedback during the development phase of this book: S. Shyam
Prasad, IILM Academy of Higher Learning, Jaipur; Piyali Ghosh, Motilal Nehru National Institute
of Technology, Allahabad; Govinda Sharma N.R., SDM Institute for Management Development,
Mysore; and Prerna Jain, Jaipuria Institute of Management, Jaipur; and Anjali Mehra, School of
Social Sciences, Guru Nanak Dev University, Amritsar.

8
Brief Contents

Preface v
Acknowledgements vii

PART ONE: Theories of Ethics

1. Definition and Ontology of Ethics 3

2. Belief, Values, Attitude and Virtue 17
3. Theories of Ethics 33
4. Ethics and the Market Structure 69
5. Ethics and Governance: Law, Bureaucracy and Globalization 83
6. Ethics of Care and Compassion 102
7. Environmental Ethics 121
8. Indian Ethos and Gandhian Ethics 149

PART TWO: Business Ethics in Management

9. Business Ethics: An Overview 187

10. Ethics and Business: Codes, Dilemmas and Dialectics 204
11. Functional Areas in Business Management: Some Ethical Issues 223
12. Professional Ethics and Human Values 243
13. Organization, Culture and Ethics 263
14. Business Ethics: A Cross-Country Perspective 283
15. Ethical Decision-Making in Business 302

9
 Part Three: Corporate Governance—Principles and Practices

16. Corporate Governance: Principles, Issues and Trend 323

17. Corporate Social Responsibility 352
18. Corporate Governance in India 372
19. Models of Corporate Governance: A Global Perspective 392
20. Ethics and International Business 411
Cases 429
Glossary 465
Bibliography 473
Index 479

10
Contents

Preface v
Acknowledgements vii

PART ONE: Theories of Ethics

1. Definition and Ontology of Ethics 3

Introduction 3
What is Ethics? 4
Summary 14
Key Terms 14
Test Your Knowledge 15
Review Questions 16
Web Links 16
References 16
2. Belief, Values, Attitude and Virtue 17
Introduction 17
Beliefs 18
Values 19
Attitudes 24
Virtue Ethics 25
Summary 29
Key Terms 29
Test Your Knowledge 29
Review Questions 31
Web Links 32
References 32
3. Theories of Ethics 33
Introduction 33
Ten Commandments 34
Aristotle’s Theory of Golden Mean 34
Aristotle’s Nicomachean Ethics 35
Utilitarianism 36
Theory of Consequentialism 39
Teleological Theory 39
Kantian Deonticism and Categorical Imperatives 40
Consequentialism vs Deonticism: A Reconciliatory Approach 42

11
 Contents xii

Rights and Duties 43

Robert Nozick’s Theory of Entitlement and Property Rights 45
W.D. Ross’ Seven Prima Facie Duties (Rules)
46 Albert
Carr’s Theory of Business Ethics 47 Concepts
and Theories of Justice 48
Theories of Justice
51
Summary 64
Key Terms 65
Test Your Knowledge
65
Review Questions 67
Web Links 67
References 67
4. Ethics and the Market Structure 69
Introduction 69
Perfectly Competitive Market 70
Monopoly 73
Oligopoly 76
Summary 79
Key Terms 79
Test Your Knowledge 80
Review Questions 81
Web Links 82
References 82
5. Ethics and Governance: Law, Bureaucracy and Globalization 83
Introduction 83
Ethics and Law 84
Governance, Bureaucracy and Ethics 86
Bureaucracy and Ethics 89
Globalization, Global Governance and Ethical Issues 90
Summary 98
Key Terms 99
Test Your Knowledge 99
Review Questions 100
Web Links 101
References 101
6. Ethics of Care and Compassion 102
Introduction 102
Care and Relationship 103
Care and the Principles of Ethics 104
Genesis of Care: The Feminist Theory 106
Why Do We Care? 109
12
 Contents xiii
Care, Cost and Conflicts 113
Ethics of Care: A Critical Appraisal 114

13
 Contents xiv

Summary 116
Key Terms 117
Test Your Knowledge
117
Review Questions 119
Web Links 119
References 120
7. Environmental Ethics 121
Introduction 121
Poverty, Resources and Environment 122
Is Economic Growth Conducive to the Environment? 124
Global Environment: Some Basic Issues 126
Causes of Envirionmental Pollution: Some Ethical Issues 128
Impact of Environmental Pollution on Human Health 129
Some Facts About Environmental Pollution in India 137
Social Cost of Pollution 138
Sustainable Development 141
Optimum Pollution 143
Resolving Environment and Growth Conflict 144
Summary 144
Key Terms 145
Test Your Knowledge 145
Review Questions 147
Web Links 147
References 147
8. Indian Ethos and Gandhian Ethics 149
Introduction 149
Dharma Sutras (Shastra) 150
Ethics of Jainism 153
Ethics of Buddhism 154
The Charvaka Ethics of Gross Hedonism 157
Advaita Vedanta (Shankara) 158
Visishtadvaita Philosophy (Ramanuja) 159
Ethics of Vaishnavism 160
Patanjali Sutra: Eightfold Path of Yoga 161
Ethics of the Bhagavad Gita 162
Moral Standards in Indian Ethics 165
Gandhian Ethics 166
Summary 179
Key Terms 180
Test Your Knowledge 181
Review Questions 182
Web Links 183

14
 Contents xv
References 183

PART TWO: Business Ethics in Management

9. Business Ethics: An Overview 187
Introduction 187
What is Business Ethics? 188
Relation between Ethics and Business Ethics 188
Evolution of Business Ethics 189
Contemporary Development 191
Nature of Business Ethics 192
Nature of Ethical Enquiry in Business 192
Scope of Business Ethics 193
Need and Purpose of Business Ethics 194
Importance of Business Ethics 195
Approaches to Business Ethics 196
Sources of Ethical Knowledge for Business 196
Ten Popular Myths about Business Ethics 198
Summary 200
Key Terms 201
Test Your Knowledge 201
Review Questions 203
Web Links 203
References 203
10. Ethics and Business: Codes, Dilemmas and Dialectics 204
Introduction 204
Does Business Need to Have any Ethics? 205
Code of Conduct in Business 208
Ethical Dilemmas 209
Dialectics of Ethical Development in Business 213
Some Major Unethical Business Practices 216
Summary 218
Key Terms 219
Test Your Knowledge 219
Review Questions 221
Web Links 221
References 222
11. Functional Areas in Business Management: Some Ethical Issues 223
Introduction 223
Ethical Issues in Marketing and Advertisement 224
Ethical Issues in Finance and Accounting 227
Ethical Issues in Human Resource Management (HRM) 230
Ethical Issues in Production and Operations Management (POM) 234
Ethical Issues in Information Technology (IT) Industry 236

15
 Contents xvi
Summary 238

Key Terms 239

Test Your Knowledge
240
Review Questions 242
Web Links 242
References 242
12. Professional Ethics and Human Values 243
Introduction 243
Meaning of Work Ethics 244
What is Professional Ethics? 245
Professional Ethics and Human Values 246
Professional Ethics for Journalists 246
Professional Ethics (Bioethics) for Physicians 248
Professional Ethics for Lawyers 251
Professional Ethics for Engineers 253
Professional Ethics for Accountants 256
Summary 258
Key Terms 259
Test Your Knowledge 259
Review Questions 261
Web Links 261
References 262
13. Organization, Culture and Ethics 263
Introduction 263
Organization Structure, Leadership and Ethical Culture 264
Value-Based Management 268
Employees Rights and Conflict of Interests 270
Strengthening Personal and Organizational Integrity 271
Social Audit 272
Ethics Committees 273
Ethics Hotlines 274
Whistle Blowing 274
Summary 278
Key Terms 279
Test Your Knowledge 279
Review Questions 281
Web Links 281
References 281
14. Business Ethics: A Cross-Country Perspective 283
Introduction 283
Why do the Levels of Ethical Development Differ? 284

16
 Contents
Business Ethics in Japan 285 xvii
Business Ethics in America 287

17
 Contents
xviii
Business Ethics in India 289
Business Ethics in China 293
Business Ethics in the Arab World
295 Summary 297
Key Terms 298
Test Your Knowledge
298
Review Questions 300
Web Links 300
References 301
15. Ethical Decision-Making in Business 302
Introduction 302
Decision-Making and Types of Business Companies 303
Determinants of Ethical Decision-Making in Business 303
Josephson’s Six Pillars of Character and Business Decision-Making 306
Krolick Model of Decision-Making Styles 308
Stage Theory of Cognitive Ethical Development and Business Decision-Making 309
Ethical Models for Making Business Decisions 311
Constraints in Ethical Decision-Making and Implementation 313
A Framework for Making Good Ethical Decisions in Business 314
Ten General Ethical Tests to Ensure Good Decisions 315
Summary 316
Key Terms 317
Test Your Knowledge 317
Review Questions 319
Web Links 319
References 320

Part Three: Corporate Governance—Principles and Practices

16. Corporate Governance: Principles, Issues and Trend 323
Introduction 323
What is Corporate Governance? 324
Distinction between Corporate Management and Corporate Governance 325
Historical Background of Corporate Governance 325
Nature, Characteristics and Purposes of Corporate Governance 326
Theories of Corporate Governance 329
Mechanism of Corporate Governance 331
Principles of Corporate Governance 332
Corporate Governance Codes and Practices 333
Structure and Processes of Corporate Governance 334
Shareholders’ Rights and Protection 337
Issues in Corporate Governance 339
Why Some Corporations Overlook Ethics? 341

18
 Contents xix

The Principal-Agent Problem (PAP) 342

The Emerging Trend in Corporate Governance 345
OECD Principles of Corporate Governance 346
Summary 346
Key Terms 348
Test Your Knowledge
348
Review Questions 350
Web Links 350
References 351
17. Corporate Social Responsibility 352
Introduction 352
What is Corporate Social Responsibility (CSR)?
353 Types and Nature
of Social Responsibilities 354 CSR Principles
and Strategies 356
Models of Corporate Social Responsibility 357
Best Practices of CSR 361
Need for Corporate Social Responsibility 362
Corporate Social Responsibility: The Debate
363 Arguments Against
CSR 363
Arguments in Favour of CSR 364
CSR: The Indian Perspective 364
Summary 367
Key Terms 368
Test Your Knowledge
368
Review Questions 370
Web Links 370
References 370
18. Corporate Governance in India 372
Introduction 372
History and Evolution of Corporate Governance in India 373
Salient Features, Structure and Standards of Corporate Governance in India 376
Major Defects of Corporate Governance in India 378
Improvement in Corporate Governance in India 379
The World Bank on the Corporate Governance in India 383
Role of Government in Ensuring Corporate Ethics 385
Contemporary Issues in Corporate Governance in India
386 Summary 387
Key Terms 388
Test Your Knowledge
388
Review Questions 390
19
 Contents xx
Web Links 390
References 391

20
 Contents xxi

19. Models of Corporate Governance: A Global Perspective 392

Introduction 392
Anglo-American Model of Corporate Governance 393
Corporate Governance in America 396
Corporate Governance in Japan 398
Corporate Governance in Germany
400 402
Corporate Governance in Transitional and Developing Economies
Summary 406
Key Terms 408
Test Your Knowledge
408
Review Questions 410
Web Links 410
References 410
20. Ethics and International Business 411
Introduction 411
Why is International Business Growing so Fast? 412
Ethical Issues in International Business Practices 414
Multinational Corporations (MNCs) and Unethical International Business 416
Cross-Cultural Ethical Dilemmas and International Business (IB) 417
Global Values, Codes and Principles for International Business 419
Summary 423
Key Terms 424
Test Your Knowledge
424
Review Questions 426
Web Links 426
References 427
Cases 429
Glossary 465
Bibliography 473
Index 479

21
 PART ONE

Theories of Ethics

22
 CHAPTER 1

Definition and
Ontology of Ethics

L E A R N I N GO B J E C T I V E S

This chapter will help the reader understand

■ The meaning, purpose, ontology and nature of ethics
■ Distinction between ethics and morality
■ Principles of ethics
■ Kohlberg and Gilligan’s theories of moral development
■ Ethical reasoning, ethical absolutism and ethical relativism
■ Cognitivism and non-cognitivism

INTRODUCTION
The logical starting point in understanding the concept of ethics is to demarcate science from
philosophy–simply because ethics is a part and parcel of the latter. Philosophy is defined as the
hypothetical interpretation of unknowns. Thus, science is an analytical description, but
philosophy is a synthetic interpretation. Science gives us knowledge, philosophy gives us
wisdom. However, it is imperative that we do not forget that every science begins with
philosophy and ends with arts. Thus, arts give us beauty, science gives us utility and philosophy
teaches us the futility of many of our mundane day-to-day happenings.

23
 Definition and Ontology of Ethics
4
Further, philosophy includes the wisdom of the five fields—namely, logic, aesthetics,
politics and metaphysics. Logic is the study of the ideal method of argument, thought and
analysis. The areas in logic include observation, induction, deduction, inference, syllogism, and
the rules of reasoning. Inductive logic is based on empirical observations from which certain
inferences are drawn. Deductive logic makes use of the inferences from the inductive logic and
deduces gener- alization from universal facts to a particular case. A syllogism consists of a trio of
propositions in which the third (conclusion) follows from the relational truth of two other
propositions. For instance, from the two given propositions—all men are mortal, and John is a
man—we can logically deduce the conclusion that John is mortal.
Aesthetics is the study of the ideal form and conduct. It is sometimes regarded as the
philosophy of art and beauty. Politics is the study of the ideal form of government and social
institution and organization. Metaphysics is the study of ultimate reality, and the interrelation
between mind and matter. The nature of being (ontology) and the process of perception and
knowledge (epistemology) are the subject-matter of metaphysics. Metaphysics is a complex
analysis of matter, motion, space and time elements.

WHAT IS ETHICS?
Before we get down to a formal definition of ethics, the readers should attempt reading the
following passage:
The teacher’s wife reprimanded her husband saying, “When a student argues that multinational
corporations are good for a country, you said, ‘you are right’, and when another student explained
that they are bad for a country, you again said, ‘you are right’. Surely they cannot both be right?”
To this question, the teacher answered, “My dear, you are quite right”! One of the
characteristics that distinguish man from animals is the ability to judge right from wrong, and to
separate good from bad. While human beings have that innate ability, animals do not possess that
finer knowledge or judgment. Hence, ethics encompasses moral judgment that helps you
differentiate good from bad, and right from wrong. Moreover, ethics is not concerned with good
or bad in the material sense based on worldly standard. In the materialistic sense, right or wrong
can be explained with reference to context, and in the ethical sense, there is something known as
ethical relativism which implies that ethical behaviour is to be judged with reference to time,
place and circumstances. Thus, whether MNCs are good or bad, as is the issue in the above
discussion, is difficult to determine in isolation.”
The meaning of ethical relativism and ethical absolutism will be elaborated further in
subse- quent discussion. Let us first define ethics.

Definition of Ethics
The term ethics is derived from the Greek word, Ethikos meaning conduct, custom or habit. These
meanings are quite similar to the meaning of a Latin word, “mores”. Therefore, ethics is regarded
as the science of morality or simply, ethics is moral philosophy which deals with moral conduct,

4
 Definition and Ontology of Ethics
5
judgment, habit, character, rules or principles. Habit needs to be distinguished from character.
Habit is the outward expression of character, which is the inner disposition or bent of mind.
Human conduct which is the foundation of ethics, deals with right or wrong conduct with
reference to the supreme ideals of human life. These ideals are deeply rooted in religion and
handed down from generation to generation. These ideals comprise truth, honesty, non-injury to
others, compassion, kindness, and peace, to name a few.
Listed below are a few definitions of ethics based on what has been discussed above:
Ethics is “the study of what is right or good human conduct”.
Ethics is “the science of ideal involved in human life”.
Ethics is “the science of moral judgment”.
Ethics is “the science of morals in human conduct”.
Ethics is “the study of the general nature of morals and of specific moral choices”.

Branches of Ethics
Broadly speaking, there are five divisions of ethics. Applied ethics tells us how a moral outcome
can be achieved. It is concerned with the practical application of the doctrines of morality.
Normative ethics studies the determination of the correct moral standard or norm. Descriptive
ethics deals with the moral values that people in a society try to abide by. Meta-ethics analyses
the truth-value of ethics related propositions and practices.
Modern ethics concentrates on the deontological and consequential aspects of moral devel-
opment and human behaviour.

Distinction between Morality and Ethics

Although, the two terms, ethics and morality are used as synonyms, it is necessary to know that
both have different connotations. Morality involves individual character and disposition, but
ethics studies how one should behave in a group or society. Ethics consists of a standard or code
of behaviour of a group. Often, the various types of ethics like professional, social or corporate
could be conflicting. For instance, a manager encounters a clash between personal morality and
corporate ethics. The teachings of Jesus given in the Bible, for example, are morals, while the
standard behaviour prescribed by human authorities is based on ethical considerations. The
Josephon Institute of Ethics in America has recommended six core ethical values, such as,
respect, responsi- bility, fairness, care, trustworthiness and citizenship. The basic distinctions
between morality and ethics are given in Table 1.1.
Ethical considerations arise from right or wrong practices with respect to a profession. For
instance, the fact that killing is immoral comes from the nomological axiom of the Bible’s Ten
Commandments. But professional ethics demands that the suspect needs to be defended—even if
circumstantial evidence shows that he is a murderer. There may be a conflict between the
personal morality of the lawyer and his professional ethics. In the same way, a person may
consider abortion as immoral, but since it is legal in many countries, it is regarded as medically
ethical.

5
 Definition and Ontology of Ethics
6
Table 1.1 Distinction between Morality and Ethics
Morality Ethics
1. Prescribes right conduct for every one Right code of behaviour for a group or profession
2. Absolute and not changeable Subject to change and relative in nature
3. Individual disposition Applied in the social system, groups or
professions
4. Nomological in origin Arises out of specific recommendation of conduct
in a particular profession
5. Handed over from generation to generation; It is developed and goes on evolving
primordial in origin
6. It is prescriptive It is recommended to be followed in a profession

Moral and Meta-Moral (Non-Moral) Standards

Moral standards have certain rules and codes. But in a society, there are also some standards for
non-moral things like etiquette, dress codes and rules of games, among the many. Moreover, both
moral standards and non-moral or meta-moral standards are defined by certain authorities making
them distinct. Table 1.2 gives clarity to the distinction.

Table 1.2 Differences between Moral and Meta-Moral Standards

Moral Standard Meta-moral Standard
It is based on some concepts of morality. It does not have to be so.
It is primordial in origin. Not given by authorities, It is not so. It is formulated by an agency or person.
but steeped in religion and nomological axioms.
It is idealized and normative. It is practical and pragmatic.
It is neutral, impartial and universal. It is relative in character.
Needs some inclination to follow It is practice-oriented.
morality. It is superior to meta-moral Since it is man-made, it is vulnerable and hence does
standard. not extract respect.
No such obligation.
Has some obligation to observe/obey the standard. Coming from outward.
Coming from within and inward. It is based on accepted rules.
Is a type of individual disposition. It does not give you any such sentiment.
Its non-observance hurts and injures your
sentiment.

Who Sets Moral Standards?

The moral standard that is adopted in ethics for the purpose of passing judgment is set by the
following agents and institutions:
1. Tradition and convention, and inter-generational practices
6
 Definition and Ontology of Ethics
7
2. Various types of institutions, such as, religion, social institutions and educational institu- tions.
3. Nomological axioms
4. Knowledge, wisdom and experience
5. Family and friends

Kohlberg and Gilligan’s Analysis of Moral Development

The stage theory of moral development which psychologists believe in reflects that the idealized moral
standard in a person needs to be cultivated and developed gradually at different stages of life. Let us
concentrate on two celebrated studies on moral development by Lawrence Kohlberg and Carol Gilligan.
In the 1950s, Kohlberg made an extensive longitudinal and cross-sectional study for a period of nearly
20 years to precisely analyse the pattern of moral development among the American males. According to
him, there are three broad levels of morality development. However, each level can be further divided into
two stages. Thus, there are six stages of morality development (see Table 1.3).

Table 1.3 Kohlberg’s Stage Theory of Moral Development

Level One Level Two Level Three
Pre-conventional level Conventional level Post-conventional level
Punishment and obedience Interpersonal concordance Social contract/legalistic orientation
orientation orientation
Institutional-relativist orientation Law and order orientation Universal ethical orientation

Kohlberg reasons that when there is a cognitive disequilibrium (CD), a person feels the need to
pass on to another stage of moral development. The CD occurs when one does not understand the
behaviour of another group in relation to his own group.

Stages of Moral Development

The first stage is defined by the study of consequence to you. In this stage, a person knows right or
wrong on the basis of reward and punishment. When the mother punishes or rewards the child for their
respective action, the child realises what is undesirable and what is right.
In the second stage, a rule is considered solid, if it brings some salutary effect or impact.
In the third stage, good moral behaviour involves living up to the expectations of those family
members and friends for whom the person has respect.
The fourth stage is marked by respect and loyalty to community, society and the nation.
At the fifth stage, people become tolerant and liberal with the understanding that in a society there
are different types of rules and regulations which may be mutually conflicting at times. But in spite of that
people obey these contradictory community rules, traditions and regulations.

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8
the last stage of moral development, a person consolidates all his critical views on
morality— through his own judgment and evaluation, he accepts some principles as the
universal ethical principles because these are consistent, logical and comprehensive.
These principles are abstract in nature and deal with rights and duty, social welfare, justice and
ideal moral behaviour. They are universal in the sense that they can be applied anywhere and at
any time.
Kohlberg observes that people generally progress through the stages in the sequence
mentioned earlier (from stage one to stage six). He points out that the later stages are superior to
the earlier stages because they are based on maturity, reflective thinking and situational
experience, wider perspective and impartial reasoning. However, some people stunt their own
growth because of their inadequacy to reach the last stage and remain stuck to a particular stage
throughout their lives. Moral judgment to them depends on the characteristics of that particular
stage.

Criticism Against Kohlberg’s Stage Theory of Moral Development

A number of criticisms are levelled against Kohlberg’s theory.
1. Moral development does not always follow a particular sequence as shown by Kohlberg;
hence the sequential order, is not compelling.
2. Even if some sequence of progress can be observed in moral development, the stages
themselves could overlap, or be skipped. Some later stages may come earlier. Thus, stage
four (law and order orientation) may come much earlier when a person understands the
importance of law and order. This knowledge is imbibed from family and friends.
3. Kohlberg has only discussed the male pattern of morality development and neglected the
gender perspective and therefore the result is one-sided. This point is elaborated by Carol
Gilligan.

Carol Gilligan’s Theory of Moral Development

While approving the stages of moral development as emphasized by Kohlberg, Carol Gilligan
emphasized the fact that the female pattern of moral development is of a special type.
Moral development among women, as Gilligan observes, depends on and is conditioned by a
well-knit system of relationships among family, friends and peer-groups. The fundamental
driving force for moral development in Gilligan’s theory is care and compassion. Gilligan
describes three precise stages of moral development among women.
At the pre-conventional (first) stage, women care for themselves. In the second stage
or what is known as the conventional stage, women internalize the prevailing moral norms or
standards. Along with these norms, they learn to make sacrifices for their near and dear ones
which would sometimes involve neglecting themselves. In the more mature third stage (post-
conventional stage), women generally maintain a balance—they care for themselves and
others. In this stage, women become cautious and question the prevailing standard of morality
which was initially accepted by them in the second stage. According to Gilligan, the male pattern
of moral development is not suitable to explain the female pattern of moral development. The
male pattern of moral development deals with issues that are more impartial, impersonal and

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somewhat abstract. Gilligan’s female pattern is distinctly different. 9

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The truth is that the male pattern also sometimes depends on care and compassion while devel-
oping the concept or standard of morality. In the same way, the female pattern, may also take into
consideration, factors like impartiality and impersonal motivation. Thus, a more comprehensive
theory of moral development will include both Kohlberg’s male pattern development and
Gilligan’s female pattern of development of morality.

Similarities between Kohlberg and Gilligan’s Studies

1. Both these studies present cognitive development theories.
2. Both the studies agree that there are three stages of moral development:
■ Self-oriented level
■ Group-oriented level
■ Reflective level in which people examine their own points of view.
3. Both these studies prove that moral development takes place through stages.
4. Both these studies come to the conclusion that moral development at the mature stage is
better than that at the pre-conventional stage. This is so because at the mature stage, people
evolve their own view based on sound judgment, experience and interaction with society.
5. Both the studies seem to suggest that the moral standard of a person is a relative concept and
gradually takes shape in the process of evolution over time.

Table 1.4 Differences between Kohlberg’s and Gilligan’s Approach

Kohlberg’s Theory Gilligan’s Theory
Right-based analysis. Care-based analysis.
Believes in six distinct stages of development. Take into account three distinct levels.
Considers only the male pattern development. Considers only the female pattern of development.
Personal relationship with others is not a decisive Personal relationship is the basis of moral
factor in moral development of an individual. development.
Love and care do not decide the trajectory of For women, everything is based on love and care.
moral growth.

Undoubtedly, the studies by Kohlberg and Gilligan are important and point out the significance of
evolution of our thought process in the development of morality and ethics. Even if one does not
agree with these studies, there is no denying that moral development follows a route.

Ethical Syllogism (Reasoning)

In ethical reasoning, the moral standard of any country or society can be judged with reference to
the set of universal moral standards. So it is necessary to gauge the universal moral standard in a
particular situation. This is regarded as the major universal premise of reasoning. In ethical or
moral reasoning, there are two interrelated ethical propositions, and on the basis of this
relationship, one can arrive at the third proposition. The third proposition is called the inference
or conclusion. The

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11
whole logical process of drawing conclusions from the two given propositions is called syllogism
in logic. Let us give an example:
A country is unjust if there is gender discrimination.
Saudi Arabia is a country where there is gender discrimination. Therefore, Saudi Arabia is an
unjust country.
In this example, the first proposition can be regarded as ethically correct. Any form of
discrimi- nation is morally unjust in the sense that it violates human rights and goes against the
natural principle of equality. The second proposition is to be based on strict empirical truth. If the
second proposition is factually incorrect, we will not have correct ethical reasoning.
In a logical syllogism, the form of the argument remains critical. Given the form, one can use
any related ethical proposition to arrive at the conclusion. In this process of ethical reasoning, the
universal first proposition must be based on some accepted moral/immoral standard. The basic
factual truth in relation to the first proposition for a particular case must be based on accepted
moral standard, and then it will be possible to draw the valid conclusion. It should be noted that
the conclusion drawn in the ethical syllogism is formally valid. It is also empirically valid
because the second proposition is based on empirical truth as in the above example.
For the validity of moral reasoning, the terms used must have the same connotation. For
instance, the expression “gender discrimination” must have the same meaning in both the first
and the second proposition. It is in this context one can speak about consistency. The conceptual
consistency of the expression “gender discrimination” is the primary prerequisite for the validity
of the whole reasoning process.

Ethical Relativism and Ethical Absolutism

It is an empirical fact that all ethical norms and practices are not equally valid and applicable to
all societies. Some ethical norms or practices are acceptable in some countries but not acceptable
in others. For example, caste system or untouchability was accepted in India, but not in other
countries. Matrimony between homosexuals is legally acceptable in the United Kingdom; based
on marital ethics; but is considered unethical and immoral in other countries. Thus, ethical
standards differ from country to country or from place to place, and hence the birth of ethical
relativism. Ethical standards are relative to a situation, place, time and circumstances.
Criticism Against Ethical Relativism (ER)
1. If ER is correct, then the same practices cannot be criticized in other parts of the world. For
instance, if drinking is not prohibited in the UK, it should not be prohibited in India. Such a
reasoning is not tenable because circumstances may be different.
2. It seems that to the proponents of ER, all local moral standards are equally acceptable
without exceptions. Morality in that case becomes a flexible concept without any rational
basis.
3. ER believes that the only criteria for judging right and wrong are the local standards and
practices. Such a standard of judgment is too constricted.
4. ER tends to believe that the moral standards of a particular society are the fundamental basis
of judging it or for subsequent policy actions. This view is incorrect.

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12
5. If injustice prevails in a particular country, it should not be the yardstick for others. For instance, the
argument that the Indian caste system is good because it is steeped in tradition and hence should be
emulated elsewhere, is objectionable.
6. ER does not lay emphasis on the universal moral standard. In fact, some moral standards are
unchanged, and live on.
Ethical Absolutism (EA)
EA relies on the fact that some ethical standards are universal, permanent and absolute and are applicable to
all countries and places. They do not change over time. For instance, the maxims like “Don’t steal”, “Don’t
lie” or “Respect your parents” have universal appeal and applicability. This is ethical absolutism.

Nature (Ontology) and Scope of Ethics

Ethics is a normative science. It sets the norm by explaining what ought to be the ideal human conduct and
character. Hence, it is not a positive science. It studies what is right in human action in the pursuit of the
supreme ideal good but it does not lay down the rules to achieve that state of perfection.
According to ethics, the morality of action depends on the inner motive and attitude and not
necessarily the overt action, as Immanuel Kant maintains. When you cannot help a poor person
because you lack the means to, your attitude still is moral and ethical.
One of the objectives of ethics is to observe and classify moral behaviour and justify them with
reference to moral standard. Ethics is the science of ideals. It considers man as a self- conscious being
who is conscious of his relationship with family, society and environment. Thus, ethics is very close
to sociology and of course philosophy.
Ethics is sometimes defined as the science of character. However, it does not study the historical
evolution or origin of conduct and character. But it does investigate the nature of moral ideals. When
certain human actions are in conformity with the moral ideals, the actions are regarded as right. It is
the duty of a person to pursue what is good and appropriate. Since moral judgments accompany
moral sentiments, ethics is also concerned with moral senti- ments. Adam Smith’s book The Theory
Moral Sentiments analyses the nature, characteristics and implications of moral sentiments. These
sentiments include feeling of approval, disap- proval, guilt, right and wrong.
In many cases, morality is a product of social milieu. Ethics is critical of popular morality. If an action is
very popular and is adopted by many, it does not necessarily mean that the action is good or moral. If the
majority of people in a society indulge in drinking, it does not imply that drinking is a morally ideal habit.
The purpose of ethics is to throw light on the highest good of human beings and society and correct the
existing inconsistencies.
The nature and scope of ethics can be summarised as follows:
1. Ethics deals with human behaviour that is related to character, conduct, moral issues and right or
wrong.
2. The human conduct that ethics studies are voluntary and not forced or imposed.

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13
3. Ethics is a science in the sense that it gives you systematic knowledge about moral conduct,
behaviour and moral standard. It is a type of social science.
4. Ethics sets the ideal moral standard for social and human welfare.
5. The moral standard is set with reference to religious tradition and custom. These standards
are based on nomological axioms which have been prevalent in human society from time
immemorial.
Having understood the ontology and scope of ethics, it is now imperative to appreciate the
funda- mental objectives of ethics.

Fundamental Objectives of Ethics

1. Ethics is concerned with human behaviour—to understand whether such a behaviour is in
conformity with the standard ethical norm or not.
2. It sets an ideal standard of moral conduct of behaviour.
3. It is diagnostic in nature—it passes judgments on human behaviour.
4. It is also prescriptive—it recommends ideal ethical behaviour that can be followed.
5. It is analytical—it analyses overt human behaviour and conduct and passes judgment.

Four Critical Principles of Ethics

Ego-based Principle (Ethical or Psychological Egoism)
Human actions are essentially ego-centric and selfish. Even when a man is making a donation to an
organization, his intention is to gain popularity which will feed his ego. However, as Adam Smith
observed, some consequences of human selfishness may bring social welfare by satisfying human
needs. However, there is a difference between selfishness and self-centredness. While the latter is
aimed at furthering personal ambition, it does not harm the interest of others. Selfishness, on the
other hand, is the achievement of gains at the cost of others. Thus, if a cake is bought for the
members of a family consisting of three individuals, and half of it is eaten by a person before
distributing it to others, the person can be called selfish, as he has reduced the share of others. But
if a person buys a cake and does not share it with his friends, he is self-centred.
Rule-based Principle
This principle believes that ethical action should be based on certain given rules of ethics. In such a
case, the consequences are not important, but the open action is crucial. For instance, the dictum:
“always speak the truth” is important, whether its consequences are good or bad.
End-based Principle
This ethical principle is based on the notion of the consequence of actions. Thus, an action is
undertaken only when it produces some positive results or utility. This is often termed as conse-
quentialism or utilitarianism.
Care-based Principle
It is revered as the golden rule in ethics. In this rule, the action of an agent is based on care and
compassion. Thus, if an accident victim is lying on the road, your involvement may bring less
utility as it will involve time and money to give him the necessary medical care, and the
consequences

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14
may be dealing with a police case. So, utility and consequence based ethics, will not advise one to
take care of the victim. The only relevant ethics in this case is care and compassion. The care-
based ethics overrules all other principles and it is the essence of all religious teachings.
It should be noted that the notion of justice remains the basic guiding principle in all the
cases. The above four ethical principles have the following implications:
Although, the four principles of ethics are distinctly different, they have important implications
for practitioners.
1. These principles suggest that in the same situation, different decisions can be arrived at, and
depending on the merit, a particular principle can be applied.
2. Depending on the inclination of the user, any one of the principles can be translated into
practice. It is the context that remains important. It is not necessary that one has to follow
the same principle over and over again.
3. There are four ways of looking at the world through the lens of ethics. Each of the principles
is unique in its own way. It cannot be said that one principle is better than the other—they
are all equally appealing. However, to many, the caring principle is special.

Ethical Pluralism
The four basic principles of ethics that we have discussed above, namely, psychological egoism
or self-interest, utilitarianism (or consequentialism), deonticism and care-based principles,
focuses on different types of attitudes and information. If a person at all times and under all
circumstances applies only one principle, he fails to understand the possible relevance of the
other three, and important information may be relegated to the background. Secondly, by
rejecting the other three principles, one might have given up the opportunity of applying the most
apt principle in a particular context.
Ethical pluralism makes an attempt to integrate all the ethical theories or principles while
consid- ering a particular situation. In that case, conflicts can be resolved with the application of
the correct ethical principle.
Both Adam Smith and Aristotle have used ethical pluralism in their studies. A study of Smith’s
important publications namely The Theory of Moral Sentiments, The Wealth of Nations and his
lectures on jurisprudence show that he has laid importance to utility, value, self-interest, and
relationships with family and friends and justice (Werhane, 1991). Aristotle has also observed
that the fundamental function of ethics is to help human beings lead a good life, and that can be
achieved by integrating the basic ethical principles. According to him, we should downplay the
underlying conflicts between principles. The four principles of ethics, namely, justice, self-
interest, group welfare and care and compassion constitute the elements of a meaningful life.
Thus, ethical pluralism remains the best normative approach in practice.

Cognitivism and Non-Cognitivism

One branch of ethical philosophy claims that it is possible to know right from wrong or good
from bad in a very clear and objective manner. This is called cognitivism. However, some
philosophers maintain that it is not objectively possible to know what is good and what is bad.
This is known as non-cognitivism.

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15
Under cognitivism, one can include various types of ethical theories. Some of these theories are:
● Utilitarianism

● Consequentialism and non-consequentialism

● Religion-based morality

Some non-cognitive theories are:

● Duty based theory of Immanuel Kant (Deontological Theory)

● Natural law-based theory of rights

All these theories will be explained later in this book.

Summary
The chapter has encompassed and discussed at length the meaning, nature, purpose, and scope of
ethics. In a nutshell, ethics is considered to be the science of morality as it deals with moral
conduct. The different branches of ethics are normative, applied, descriptive and meta-ethics. It
should, however, be noted that ethics is different from morality. Generally, morality is individual
specific but ethics is the right code of behaviour for a group or profession. But in ordinary
parlance, both morality and ethics are used synonymously. It is necessary to distinguish between
moral standard. Moral standard is derived for the purpose of moral development or behaviour but
non-moral standard is meant for the correct social behaviour or norms, like dress code, rules of
games, and so on. There are many authorities who set the moral standard.
The moral development takes time to become a habit among human beings. In this context,
Kohlberg has discussed six fundamental stages of moral development. While Gilligan approves
of the six stages of development of Kohlberg, she points out that Kohlberg has ignored the female
pattern of moral development. There are some similarities and some fundamental differences
between Kohlberg’s and Gilligan’s approaches to the whole analysis of moral development.
While discussing ethics, it needs to be borne in mind that ethical norms and practices are only
relative. However, it cannot be denied that ethical principles are absolute in character in that
sense that they are valid in all situations and circumstances. Ethics is a normative science that
helps build your character. Ethics is based on four basic pillars or principles: rule-based, end-
based, ego-based and care-based principles. Ethical pluralism shows that it is better to follow all
the important notions of ethics in explaining situations rather than follow only one of the
principles. Cognitivism observes that it is possible to objectively identify right and wrong.
However, some ethical philosophers think that it is impossible to do so. This type of ethical
philosophy is called ethical non-cognitivism.

Key Terms
Ethics Nomological Axioms Ethical Pluralism
Ethical Relativism Ethical Syllogism Cognitivism
Ethical Absolutism Principles of Ethics Non-cognitivism
Morality Cognitive Disequilibrium

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16

Test Your Knowledge

1.State whether the following statements are True or False
(i) Ethics and morality are the same things.
(ii) A person who is not moral must be immoral.
(iii) Ethical standard is all absolute.
(iv) Ethical standard is only relative.
(v) Selfishness is different from self-centeredness.
(vi) Ontology and epistemology are the subject matter of metaphysics.
(vii) A syllogism consists of four propositions.
(viii) There are certain ethical principles which are universal in nature.
(ix) Moral development is evolutionary in nature.
(x) Adam Smith believed in ethical pluralism.
2.Fill in the blanks
(i) Gilligan’s theory is based.
(ii) Kohlberg’s theory analyses the pattern of moral development.
(iii) Psychologists believe in the theory of moral development.
(iv) There are critical principles of ethics.
(v) The end-based principle is also known as .
(vi) The title of Adam Smith’s book is the Theory of Moral
(vii) Deductive logic deduces generalizations from the universal to the .
(viii) In Gilligan’s theory, personal is the basis of all moral development.
(ix) Morality depends not on overt action but on .
(x) Cognitivism asserts that it is to know what is good and what is bad.
3.Choose the correct option
(i) Categorical imperatives are
(a) Rule-based (b) Care-based (c) Ego-based
(ii) Gilligan’s theory of moral development considers only
(a) Adults (b) Males (c) Females
(iii) The golden rule of ethics is
(a) Care-based (b) End-based (c) Rule-based
(iv) Ethical relativism is very:
(a) Common (b) Uncommon (c) Unknown
(v) “Do not tell lies” is a form of
(a) Ethical absolutism (b) Ethical relativism (c) Ethical pluralism
(vi) Ethics is essentially
(a) Positive (b) Normative (c) Whimsical
(vii) Aesthetics is the study of
(a) Ideal form and conduct (b) Ideal behavior (c) Ideal nature
(viii) In ethical reasoning, the third proposition is called
(a) Conclusion (b) Universal proposition (c) Syllogism
(ix) Ethics is connected with human
(a) Behavior (b) Greed (c) Psychology

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17

Review Questions
1. Define ethics.
2. Distinguish between ethics and morality.
3. Enumerate the major characteristics of moral standards.
4. Explain the basic nature of the science of ethics.
5. Write a note on ethical relativism and ethical positivism.

Web Links
1. http://ethics.askdefine.com/ [Definition of Ethics]
2. http://www.yourdictionary.com/library/reference/define-ethics.html [Definition of Ethics]
3. http://www.cimaglobal.com/Documents/ImportedDocuments/fm_oct06_upstanding
[Definition of Ethics]
4. http://www.accountancyage.com/aa/feature/1779764/the-moral-maze [The moral maze]
5. http://kpaprzycka.swps.edu.pl/xPhilosophyIntroduction/08Relativism.pdf
[Ethical Relativism]
6. http://www.buzzle.com/articles/difference-between-ethics-and-morality.html
[Difference between Ethics and Morality]

References
Alex, C.M. (1995), A Pragmatic Approach to Business Ethics, Sage Publications, Thousand
Oaks, California
Durant, Will (1964), The Story of Philosophy, The Washington Square Press, New York,
pp. xxv-xxix
Gilligan, Carol (1982), In a Different Voice: Psychological Theory and Women’s Development,
Harvard University Press, Cambridge, MA
Kidder, Rushworth, and Sheila Bloom (2008), “The Ethical Fitness in Today’s Business
Environment”, in Chris Moon and Clive Bonny (Eds.), Business Ethics, The Economist,
London, pp.70–73
Kohlberg, Lawrence, “Moral Stages and Moralization: The Cognitive Development Approach” in
Lickona, Thomas (Ed.), Moral Development and Behaviour, Holt, Reinhart and Winston,
pp. 31–53
Singer, Peter (1993), Practical Ethics, Cambridge University Press, New York
Velasquez, Manuel (2009), Business Ethics: Concepts and Cases, Prentice-Hall of India, Ch.1
Werhane, Patricia H. (1991), Adam Smith and His Legacy for Modern Capitalism, Oxford
University
Press, New York

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 CHAPTER
2
Belief, Values,
Attitude and
Virtue

L E A R N I N GO B J E C T I V E S

This chapter will help the reader understand

■ The meaning of belief, attitudes, values and virtues
■ Contemporary approach to beliefs
■ Sources of values and attitudes
■ Similarities and differences between attitudes and values
■ Different dimensions of virtue ethics

INTRODUCTION
In Lewis Carroll’s Through the Looking-Glass, the White Queen says, “Why sometimes I
believed as many as six impossible things before breakfast?”. This quotation can be used as an
example of mockery against belief. The question posed here is: Can there be beliefs contrary to
facts? Although possible, such a belief is generally called fantasy or delusional belief. Belief,
values and attitude are all interlinked. Whatever you believe in determines your values. Values
are assumptions about things or persons which or who ought to behave in a certain way that you
believe in. If you believe in spirituality, you assume that spirituality is valuable and that people
should be spiritual in nature. Once a person develops a certain value system, it merges with his
attitude towards people and situations. It becomes an established way of responding or
interacting with people. Attitudes do

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18
not change or end easily. In the present chapter, we will explain the apparent relationship between
beliefs, values and attitude. We then go on to explain the salient features of virtue ethics.
Although some virtues are acquired, it is not uncommon that some are naturally endowed with or
have proclivity towards being virtuous. For instance, two sons of the same parents being brought
up in the same family environment may have different degrees of virtues or vices. This can be
attributed either to the social milieu or to their inherent nature. Virtue also may depend on beliefs,
values and attitudes to life and religiosity.

BELIEFS
Beliefs stem from knowledge or information. It has an epistemic basis. Epistemology is the philo-
sophical study of beliefs and knowledge. However, only true knowledge is the foundation for and
is helpful for your understanding of the belief system. Beliefs are ideas or principles that are dear
to people. Ethical behaviour of a person in many cases depends on beliefs and attitudes. Some of
the basic assumptions of life and society are based on beliefs. Science believes that there is an
order in nature. However, what we claim to know is mainly belief or judgment. But every type of
belief cannot be equated with knowledge, because some of our beliefs may turn out to be false on
verification. Knowledge or epistemological foundation of our understanding is not fool-proof,
and our knowledge is only a matter of acquisition of degrees. True beliefs can exist without even
direct perception of facts. Some beliefs are be supported by evidence and some are not. The
evidence may be based on our perception and experience. The beliefs which are supported by
evidence are called justified beliefs. Only justified belief is knowledge. Justified beliefs consist of
two types of judgments: direct or intuitive judgment, and derived judgments. Direct judgments
are based on our sense perceptions. Derived judgments are formed out of the existing body of
knowledge.
In psychology, belief is the elementary form of mental representation and is also one of the
fundamental bases of conscious thoughts. Belief depends on the moral state of the believer. In
other words, a belief represents a mental state. Beliefs are sometimes defined as a mental attitude
of acceptance or recognition of facts without verification. There are basically two types of beliefs:
core beliefs and dispositional belief. Core beliefs are more or less permanent and
difficult to change whereas dispositional beliefs are dependent and changeable.
Lynne Rudder Baker (1989) of Princeton University has analysed four main
contemporary approaches to belief:
1. Our common-sense understanding of belief is correct.
2. Our common-sense understanding of belief may not be entirely correct, but is useful for
making some relevant predictions.
3. Our common-sense understanding of beliefs is entirely wrong and is overridden by a theory
which does not make use of beliefs.
4. Our common-sense understanding of belief may be wrong but it is not useless. It may be
used in human beings and animals cases to make some predictive strategy.

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Formation of Beliefs
There are the following six ways of belief formation:
● Beliefs come out of confidence in the spoken words of people we respect. This type of

belief is called commendatory belief.

● We may have a belief from childhood about the existence of ghosts or supernatural phenomenon

— they may be real or not. This type of belief is called existential belief.
● Beliefs can be adopted from our role models.

● In our formative years, somebody else’s belief may be internalized.

● Sudden changes in life may also result in new beliefs, or cancellation of old beliefs.

● Some beliefs are formed on the basis of knowledge, research or commercials.

VALUES
Every person believes in certain critical values. Jesus Christ valued love, Mahatma Gandhi valued
truth, Plato valued wisdom, and Moses valued justice. Value is anything which has utility or
worth. It may be a physical or intrinsic value (in psychological or philosophical sense). A value is
a general belief which helps differentiate good from bad. Values guide actions in your personal or
social life. It is a particular standard that a community gives importance to. In most communities,
moral values are assigned to fairness, justice, honesty and integrity to name a few. Mostly our
actions are guided by our values. Moral value is something that is esteemed, or highly revered
(Angeles, 1981, p.310). When we can assign values to particular objects, it becomes easier to
make a choice. Values are related to culture, society or a system. When a particular thing
conforms to our basic value or conviction, we prefer it, compared to another alternative which
may appeal more to another person with another point of view. As a social phenomenon, values
are inculcated and sustained through an adaptive process. Values are desires that have content and
intensity. The content aspect of value indicates the nature of achievement or the ultimate benefits
as realized by the user. The intensity attribute of value indicates the degree of its importance in a
particular context. Individual values are commitments to which a particular person subscribes,
like social justice, honesty, and so on.

Significance of Value
A set of values is critical since it gives a person direction and motivation to live in a desired way.
Value is also socially useful and has many positive external influences for others. For instance,
if a person is non-violent, he is helping others by not hurting them. Similarly, a person of good
character is not only an ideal man but he is also a source of good work and inspiration for others.
A knowledgeable man helps himself and others by disseminating his knowledge and new ideas.
A value system that a person is endowed with through experience and inherent predisposition,
may help him in the following ways (Alex, 2010, p.35):
The value system helps a person in making clear decisions.
● The value system helps build the perception of an individual.

● A clear value premise helps a person arrive at flawless logical deductions and moral

reasoning.
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● It gives clarity of understanding to a person confronted with a particular situation.
Some examples of individual values:
● Adherence to justice

● Practice of honesty under all situations

● Hard work

● Sincerity

● Sacrifice

● Kindness

● Care and compassion for the poor

● Simplicity

● Respect for others

(The list is indeed very conservative here; one can add many more individual values.)

Types of Values
Three classificatory schemes are generally used by researchers in the categorization of value.
1. Terminal Values and Instrumental Values
Terminal values are those that a person wants to address at the end. As against the end, there
may be many means to achieve the terminal value or the desideratum. These values are
called instrumental values. In terms of spirituality, to be just or righteous is instrumental in
the realization of God which is the terminal value. An instrumental value is necessary to
achieve the ultimate goal.
2. Personal Values
The following are basic categories of personal values:
■ Egocentric value: The value is directed towards satisfying the ego.

■ Socio-centric value: The value aims at socialization and adaptation to society.

■ Existentialist value: This value is in conformity with the existing reality.

■ Conformist value: This is an orientation to achieve a materialistic goal by

controlling the physical resources.

■ Supernatural value: It a type of a metaphysical value beyond norms of the

physical world to achieve the ultimate reality.

■ Tribalistic value: It consists of submission of oneself to higher power and authority.

■ Deontic value: It considers one’s own duty as the supreme religion.

■ Utilitarian value: In this type the aim is to realize the net benefits over cost.

■ Consequentiality value: In this case, an important value is assigned to those

actions having good consequences.

3. Many psychologists, philosophers and sociologists have classified values into the following
categories:
■ Religious values

■ Economic values

■ Social values

■ Aesthetic values

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■Political values
■ Logical values

4. Individual values can further be classified into the following two categories:
■ Practical or pragmatic value

■ Moralistic or metaphysical value

■ Core values

■ Cultural values

■ Social values

■ Values relating to social responsibilities

■ Values relating to civic responsibilities

5. Another type of classification of value is based on the following:

■ Acquiring and dissemination of knowledge

■ Justice, righteousness and fair play

■ Care and compassion

■ Universal love

■ God-fearing attitude

■ Truth and non-violence

■ No desire for materialistic possession

■ Character-building

■ Honesty

■ Kindness and sacrifice

Characteristics of Value
● A value or values are chosen freely without any coercion or compulsion.
● A value is chosen from a number of options.
● The choice of value is made after taking into account different consequences of this choice.
● The value that is chosen is practiced and then sustained and applied at different stages of
your life.
● Value makes a man. It shows up in every situation of his life.
● Value becomes a part of yourself and being. It persists and stays on, unless some drastic
value changing situation and experience arises.
● Values are partly genetically determined, and partly acquired through experience and
interac- tions.

Sources of Values and Attitudes

There are many sources of values:
● Parents and family

● Teachers and classmates

● Peer groups and friends

● Reference groups

● Culture and tradition

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Let us elaborate on some important sources of value:

Family
The most important source of value formation is the family. Parents are the first people to instill the
ideas of right and wrong and good and bad in the minds of young children. The conscience of the
parents and their ideas on morality gradually are drilled into the minds of youngsters. If parents
tell lies, the children pick up that habit and it will be very difficult to erase it in the coming years.
Children experience moral development and distinguish between right and wrong through reward
and punishment by parents too. Children in the course of time, internalize these moral lessons.
At a young age children accept certain values without questioning them. They have blind faith in
their parents. Thus, it is evident that moral reasoning does not develop at a young age. However,
as children grow up they become capable of developing their own sense of moral reasoning.
Peer Groups
The second important source of value formation peer groups, friends and colleagues with whom you
interact in day-to-day life. In the adult days, a person is influenced by the value system of his
classmates, religious institutions, clubs and playmates. During this phase of life, the adult is
confronted with several challenging issues involved in his acquired value system. He may, after
moral reasoning once again, either retain his values or reject them in favour of new values. He
may experience a wave of creative destruction. A good peer group may be helpful in inculcating
good moral values and vice versa.
Role Models

In our lives you meet some people whom you admire, respect, adore and emulate. These people may
be one of your teachers, a sportsman, a film star or a political leader. They exert a profound
influence on the minds of an adolescent especially. A film hero’s moral behaviour in a film which
has become famous or notorious influences the minds of millions of fans all over the country.
Like peer groups, the role models can also modify the values of people from good to bad, or from
bad to good.
Institutions
Institutions exert a strong and significant influence on the minds of people regarding moral devel-
opment of values. The institutions may be educational, religious or social. Social institutions
through the process of socialization may mould values and attitudes. Similarly, a religious
institution like a church influences value premise and value system. They bring about positive
change and there influences have far reaching effects. Thus, a regular church-goer inculcates a
value system that is morally progressive with qualities like compassion, care, love, kindness and
sacrifice.

Values and Business

Generally, a business organization depends on the following types of values:
● Excellence in all fields of business, like production, marketing and distribution.

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● Innovation in production technique, cost reduction, procuring and finding new sources of
raw materials, finding new markets and in reorganizing the business. Innovation sustains
creativity.
● Establishing credibility can be ensured by trust, goodwill, rapport with customers and
suppliers, and consistent good performance.
● Providing consumers with best services, in particular after-sales services.
● Gathering market intelligence to know the status of the product and thereby
improve the marketing mix, if required.
● Maintaining external and internal coordination of all product lines, marketing
and factor use efficiency.
● Creation and development of corporate values towards employees, customers and
suppliers, and social responsibility towards society.

Conflict of Values
Every professional has to live with two sets of values: personal and professional. These two values
could be conflicting at times. However, whenever a clash occurs between these two values,
profes- sional and morally responsible people give preference to the professional value over the
personal value or interest (Bivens, 2004, p.11). Thus, a judge may sentence his only son for
murder or a teacher may punish his daughter for not learning the lesson—there are several such
cases in society. Hence, in many cases, barring penal code cases, a compromise, trade off or a
balanced approach may be possible. For instance, you are the forest officer and on your
inspection tour you find a woodcutter felling a tree from the forest illegally. On enquiry, you
learn that he is poor, jobless and his family is starving. If you are compassionate, you will tell him
not to indulge in this illegal act again and impose a penalty on him. You pay him money which
helps him pay his penalty and feed his family too. However, this kind of compromise although
not impractical is rare.
In another instance, your Principal wants you to revise the grade of a student in the subject of
which you are the teacher. Your official loyalty to the Principal will direct you to do so. However,
your personal ethical principle prevents you from doing the needful. In such a case, there may be
a third alternative. You may think twice on the matter and reconsider the case in terms of
fairness. Will it be unfair on your part to increase the grade of one student and not the entire class
(Day, 2006, p.33)? On the other hand, you may find instances to justify your action based on
attendance of the student, his level of intelligence, his class participation and his compelling
family background. In the case of media reporting too, there may be some potential conflict areas
between the public’s right to know everything about the reported case and the individual’s right
to privacy and confiden- tiality. For instance, it is not necessary to reveal the full name and
address of a rape victim while reporting such a case. A compromise is possible in many cases by
following a middle-path and collecting more and more compelling evidence in favour of your
decision.

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ATTITUDES
Your attitude towards life is based on a value system that you have inculcated. Values and attitude
go hand in hand. Attitudes relate to a personal feeling, belief and predisposed ideas. Attitudes
involve a hypothetical construct representing your likes and dislikes. Values guide your attitude.
Attitude is a learnt predisposition of behaviour towards a person, group, object and environment.
Attitudes regarding an object or situation may be positive, negative, neutral, or undetermined
(unknown zone).
Tables 2.1 and 2.2 list out differences and similarities between attitude and values.

Table 2.1 Differences between Attitude and Values

Attitudes Values
Attitudes represent predisposition Values relate to judgments
Attitudes are mostly personal Values are gathered from social and cultural
parameters Attitudes may amalgamate several beliefs Values originates from a single belief

Table 2.2 Similarities between Attitude and Values

Attitudes interact with values Values interact with
attitudes Attitudes affect the behaviour of people Values affect the behaviour of
people Attitudes are learnt outcome Values are learnt outcome
Attitudes are acquired from family, peers, role Values are acquired from family, peer groups role
models and institutions models and institutions
Attitudes are difficult to change Values are difficult to change

Components of Attitudes
The Greek philosophers were the first to recognize the components and importance of attitude.
Attitudes are tendencies to feel or behave in a particular way with respect to certain people,
objects or events. Basically there are three major components of attitudes, better
known as ABC.
● Affective Component (A) of attitude is the emotional aspect of your belief about a

situation or object which could be positive or negative. Whenever you see the hero or
heroine in a movie, you may be moved by their charm, dialogue delivery and charisma; all
these evoke a positive response towards that personality. However, in some cases, the hero
may show negative qualities, and therefore, you develop a corresponding attitude towards
him. Your attitude is thus based on your emotion towards that person at a point in time. But
the difficulty here is that the same person may reveal different types of behaviour at
different times. Thus, in many cases, the attitude formation of a permanent nature becomes
rather difficult. In the majority of cases, the basic nature of the person or situation being
considered decides your attitude.

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●Behavioral Component (B) of attitude relates to the individual’s predisposition to
respond. The behavioural component is the verbal expression of the intention of the
individual. If any person or situation or event is liked by the agent, he will express it through
his positive attitude of acceptance. Also, your behaviour in a particular context could lead to
good or bad attitude in the mind of the observer. In this situation what is critical is the
observed behaviour from which one can infer the nature of the attitude.
● Cognitive Component (C) In this case, there is a cognitive evaluation of the entity that

helps form an attitude. The cognitive component is rational and the effective component
is emotional in the formation of attitude. In the formation of correct attitude, it is necessary
to take into consideration of both these components; otherwise the attitude may be incorrect.
This is so because sometimes the first component dominates the second and vice versa.
As a matter of fact, attitude about morality is a combination of many factors including feeling
(emotion), actual happenings (reality or rationality), thoughts and actions (Harrison, 1976, p.193).

VIRTUE ETHICS
Virtue ethics is a special branch of ethics founded by Plato and his disciple, Aristotle. The tradi-
tional theories of ethics are based on actions. For instance, the theory of utilitarianism
observes that an action which maximizes net utility of the society is the right kind of action.
Utilitarianism puts more emphasis on the greatest good of the greatest number of people. This
idea is the same as the theory of consequentialism which says that a right action is the one
which leads to good conse- quences. The theory of deontology believes that a right action is to be
judged in terms of duty. Thus a person doing his duty well is performing the right action. The
same notion applies to theories of justice, caring and compassion.
However, the problem is that even if a person is doing the right action, his character may be
morally unethical. It is not the action that matters, but more importantly the character of the
person performing the action. Hence, what is needed is a combination of both right action as well
as correct character. Virtue ethics emphasizes the importance of right character among human
beings. This is, however, not to say that all the alternative ethical theories mentioned above are
devoid of the quality of virtue. But virtue theory exclusively puts an emphasis on character based
on virtues. A man of virtue is always respected and praised because virtue is a special type of
achievement which needs hard work and determination.

What is Virtue?
Moral virtue is an acquired mental disposition which forms a part of the character of a
morally upright person which is further reflected in the behaviour pattern of that person
(Velasquez, 2006, p.110). There can be a long list of virtues. However, the major virtues are
honesty, sincerity, truth, courage, temperance, integrity, compassion and kindness. Virtue is the
habit of deliberate choice of right activities and performance of duties in the correct way (Sinha,
2006, p. 286). Virtue is excel- lence of character. According to Aristotle, virtue is a permanent
state of mind to perform the best things in life. The concept of best is to be decided on the basis of
reason. Virtue is not a congenital

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26
disposition of mind but an acquired disposition which is in harmony with moral laws.
Virtue implies both knowledge and habit (Mackenzie, 1956). Virtue constitutes only socially
desirable human disposition and not all types of disposition.
Alasdair MacIntyre, an American philosopher, defines virtue as any human disposition that
is praised because it enables a person achieve good human practices (MacIntyre, 1981, p. 204).
The use of the expression, “human practices” has been criticized by many philosophers as being
inaccurate. For instance, Pincoffs is of the opinion that moral virtues give us a feeling and a
mental capability to judge persons so that it is possible to distinguish between a good and a bad
person (Pincoffs, 1986).
A man of virtue is always happy. Aristotle observes that a man who does not feel pleasure or
happiness in noble actions is not a good man. Virtue by itself is not happiness but happiness is the
index of virtue. Happiness is discovered in performing some good actions based on reason. This
view is also supported by modern eudemonism.
To Socrates, virtue is knowledge. However, this view is not fully correct in the sense that
knowledge by itself does not give us virtue even though it may be a condition or the necessary
basis for acquiring virtue. Virtue needs the knowledge of good and evil, and the internalization of
only the good traits.
Wisdom and virtue involve living in accordance with the ethos of the people and time.
Ethos implies the rules of morality based on ideals, institutions and collective moral habits and
standards of people. Ethos is the morality of people expressed in definite rules and precepts, such
as the Ten Commandments in the Bible.
To Aristotle, it is the habit of choosing the relative mean as determined by reason. The mean
is the moderation of two extreme values which are vices. Thus, the virtue of courage is
the golden mean between rashness and cowardice. The point of mean will not, however, be the
same for every person. The essence of virtue lies in moderation, and when it is in excess or
deficient, it becomes a vice. The moderation will imply that the person is controlling his instincts
and impulses to the point which is consistent with the moral law of reason. But how does one
know which is moderate (or the best mean) for him. Aristotle says that it is decided by prudence.
However, all types of virtues under all circumstances cannot be based on moderation. For
instance, when you are surrounded by enemies, you have to show the utmost courage to fight with
the enemies and in that case moderation of courage will be a vice. Aristotle’s theory of
golden mean can be interpreted as a general rule but it has its limitations.
For St. Thomas Aquinas, a medieval theologian and economic thinker, virtue is that type of
habit which enables a person to live peacefully and reasonably well in this world and also that
ideal Christian habit which will ensure the union with God. These ideal habits are faith, hope
and charity.
Virtue is the product of the rational self which can be realized by controlling instinct, desire,
greed and illusions. This can be done with constant endeavour and habit. To possess this type of
a noble habit is virtue. All worldly virtues are streamlined from this one single system of
virtue (Unicity of virtue). This view is entertained by all philosophers including Plato and T
H Green.

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Since temperance is essential to control your senses and instincts, it is an equally
redeeming virtue. Temperance is a type of self-discipline. Culture is another important virtue
that leads to self development of personality. Courage is the power to conquer fear. Courage
can be of different forms. Moral courage is the courage of conviction. Justice and
benevolence are also critical social virtues. A few important moral virtues that make
one’s character noble are truth, beauty, goodwill, friendship, non-violence, love, loyalty, respect,
renunciation, humility, righteousness, kindness, care, compassion and reverence to God, among
other virtues.
Virtue is a relative concept. Virtue is relative to society, the nature of the state and
social position and responsibility. While some virtues like patriotism and nationalism are virtues
in all types of states, for some states, like a communist state, religious activities are not looked
upon as virtues. For a totalitarian state, loyalty to ruler is a higher virtue than devotion to God.
People are given different social power, position and functions, and accordingly their virtues
will differ. Thus, the virtue of a teacher is different from the virtue of a priest. In the
Varnashram Dharma (caste-based classification of duties) of Hindu philosophy,
the four different classes of people are to perform different functions, and therefore their virtues
will be different. For instance, a Brahmin will engage in teaching, worship, and reading of
religious scriptures, a kshatriya (warrior) will engage in protecting the motherland through battle
and war, a vaishya (trader/farmer) will engage in trade and farming, and a shudra (a low caste)
will serve all other higher castes.
The nature of virtue also differs from country to country and from time to time. In Greek
society, pride is regarded as a great elite virtue, but it is not so in India. In some countries,
courage is the most important virtue but not in others. In the olden days, simplicity was regarded
as a prime virtue, but now it is regarded as foolishness to many. To be clever is an ideal virtue in
the modern world. Thus, virtue has a contextual connotation, and therefore, it is a relative term.
Virtue has been classified in different ways by different philosophers (vide Sinha, 2006, 292-97).
Some of the major classifications are shown in Table 2.3.

Table 2.3 Classification of Virtue

General Classification 1. Self regarding truth, beauty, temperance and courage.
2. Others regarding justice, benevolence and patriotism.
3. Ideal regarding love, truth and passion for the Almighty.
James Seth 1. Temperance (regulation of impulses).
2. Culture (inner excellence and self-development).
3. Justice
4. Benevolence
Plato’s Cardinal Virtues (Basis of all 1. Wisdom
other virtues) 2. Courage
3. Temperance
4. Justice
(Contd.)

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(Contd.)
Aristotle 1. Intellectual virtue (rationality and knowledge)
2. Moral virtue (temperance, courage and habits for the
realization of God)
3. Aristotle accepted Plato’s cardinal virtues but interpreted it
in a narrower sense.
It needs to be noted in this context that some virtues are natural and some are artificial
(Dienhart, 2000, p.111). Thus, kindness, compassion and generosity are natural virtues. They do
not need any type of rule for their application. But artificial virtues like justice or politeness are
based on rules made by society.

Virtues and Values

Is there a difference between virtues and values? Generally speaking, virtues are character traits
which are good, and as such, they are subjective in essence. Values are different kinds of objects
that can be both subjective and objective. Values and virtues are inter-related qualities. By nature,
values can be intrinsic and instrumental. Virtues have different connotations in different contexts.
During Aristotle’s time, pride was a virtue in the Greek society and humility was a vice; but the
situation is quite the opposite among Christians. Virtue in the context of wisdom relates to intel-
lectual values, in benevolence, to social values, in the context of the economy, to economic
values and so on. Thus, the habitual pursuit of different types of values in our life can help us
develop different types of virtues. It is interesting to note that at some stages, and in some
situation, some virtues and values do have common ground. That is to say, some virtues like
simplicity, honesty, integrity, kindness and love can be regarded both as virtues and values.

Criticisms against Virtue Ethics

● Virtues are not enough for enhancing social welfare which depends on some right overt
action. Virtues are covert qualities. Unless virtues are translated into action, there is no
social welfare or personal improvement or gratification.
● At times, it becomes very difficult to distinguish between virtues and values, and to that
extent, virtue ethics loses its importance as a separate branch of ethics.
● Virtues may be looked upon as vice. For instance, in Aristotle’s Greece, humility was a vice
but to Christians, it was a virtue. There is no clear-cut classification of unique virtues.
● A man may possess some virtues, yet he may be a bad man. For instance, a man may
possess courage, prudence, justice and temperance (the four classic virtues) and yet he may
be angry, cruel, nasty and vengeful.
● Virtue ethics fails to address the dilemmas that arise in applied ethics. For instance, in the
case of abortion virtue ethics does not give any direction.

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Summary
The chapter studies the nexus among beliefs, values, attitudes and virtues.
If these elements are favorable in a person, it is easier for him to be moral or ethical. The value
system becomes a part of the person through the sub-conscious mind and the whole attitude formation
becomes permanent. Attitudes die hard and they take time to change once they are entrenched
into the human psyche. Spirituality and virtue strengthen the process of the ethicalization process.
In the journey to ethical life, belief plays a major role. True knowledge is helpful for your
under- standing and belief. Beliefs can exist even without perception and experience. Our
understanding may or may not contribute to our beliefs. Beliefs can be formed in many ways
including existential, commendatory, or self experience. Value is anything that is dear to us or
have some utility. Moral value is a highly prized good. There are many types of values namely
terminal, instrumental, social, political, or economic. There are many sources of value including
family, friends, peer groups, insti- tutions and environment. A business organization depends on
certain cherished values. However, at the personal and professional level, there are many
possibilities of value conflicts.
Our attitudes are generally based on our value system. But there are indeed many similarities
and differences between values and attitudes. Attitudes have many components including
behavioral, affective and cognitive components.
Attitude is a combination of rationality, emotion, thoughts and actions.
All theories of ethics are action-based. However, it needs to be understood that it is not so
much the action but the character of the person performing the action that remains important.
Virtue emphasizes the right kind of action and character. Virtue ethics is a special genre of
ethics. Virtue is an acquired mental disposition which is praiseworthy because it enables a person
to achieve the good that human beings endeavour. To Aristotle, it is the golden mean, i.e., the
moderation of two extreme values. Virtue exists in that type of habit which enables a person to
live peacefully and reasonably in this world and thereafter. It can be acquired by controlling
instinct, desire, greed and illusions. Virtue is a relative concept but in all societies, certain human
qualities like benevolence, temperance, courage and self-discipline are considered as great
virtues. Virtues and values are inter-related categories and one may influence the other in many
ways.

Key Terms
Beliefs Role Models Values and Business
Values Family Aristotle’s theory of Golden
Attitudes Epistemology Mean
Virtue Ethos Varnashram Dharma
ABC Components of Ten Commandments Plato’s Cardinal Virtues
Attitudes Conflicts of Values

Test Your Knowledge

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1.State whether the following statements are True or False
(i) Ethics and morality are the same things.

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31
(ii) A person who is not moral must be immoral.
(iii) Ethical standard is all absolute.
(iv) Ethical standard is only relative.
(v) Selfishness is different from self-centeredness.
(vi) Moral virtue is an acquired mental disposition.
(vii) Derived judgement is based on our sense perceptions.
(viii) Attitudes and values are inter-related.
(ix) Individual values are basically socio-centric values.
(x) Core beliefs are highly changeable in nature.
2.Fill in the blanks
(i) The behavioural component of attitude is the of the intention of the
individual.
(ii) The theory of observes that an action which maximizes net utility of
the society is the right kind of action.
(iii) The ideal Christian habits that ensure union with God are , ,
and .
(iv) The values which a person tries to attend at the end are called .
(v) There are primarily two types of beliefs, and .
(vi) is the philosophical study of beliefs and knowledge.
(vii) Justified beliefs consist of two types of judgement, and
.
(viii) The value that refers to the submission of oneself to higher power and authority is
value.
(ix) The orientation to achieve materialistic goals by controlling the physical resources is
value.
(x) The emotional aspect of our belief about a situation or object can be referred to as the
component of attitude.
3.Choose the correct option
(i) The philosophical study of beliefs and knowledge is better known as
(a) Ontology
(b) Anthropology
(c) Epistemology
(d) None of these
(ii) Direct judgements are based on
(a) Our existing body of knowledge
(b) Sense perceptions
(c) Both (a) and (b)
(d) None of these
(iii) The means to achieve the terminal values can be referred to as
(a) Instrumental values
(b) Individual values
(c) Both (a) and (b)
(d) None of these
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32
(iv) The behavioural component of attitude relates to the
(a) Emotional aspect of our belief
(b) The verbal expression of the intention of the individual
(c) The personality of the individual
(d) None of these
(v) The three ideal values of Christianity that ensures union with God are
(a) Faith, Hope and Charity
(b) Personality, Generosity and Faith
(c) Fear, Hope and Belief
(d) Action, Personality and Fear
(vi) The value that considers one’s own duty as the supreme religion is
(a) Existentialist value
(b) Deontic value
(c) Derived value
(d) None of these
(vii) Supernatural value relates to
(a) Metaphysical value beyond the norms of the physical world to achieve ultimate
reality
(b) Submission of oneself to higher power and authority
(c) Both (a) and (b)
(d) None of these
(viii) Virtue is
(a) An absolute concept
(b) Relative concept
(c) An utilitarian concept
(d) None of these
(ix) Caste-based classification of deeds is otherwise known as
(a) Varnashrama Dharma
(b) Religious Dharma
(c) Both (a) and (b)
(d) None of these
(x) Wisdom, courage, temperance and justice by Plato are the much known
(a) Ordinal virtue
(b) Cardinal virtue
(c) Terminal virtue
(d) None of these

Review Questions
1. What is attitude? What are the sources of attitudes? Why does your attitude change?
2. What is value? What are major sources of your values? Why does your value change?
3. Explain the basic similarities and differences between values and attitudes.

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33
4. What is the importance of value in your life?
5. What values should a business organization be concerned with?
6. Write an essay on virtue ethics.
7. Elaborate on some ethical dilemmas arising out of conflicts of values by giving suitable
examples.

Web Links
1. http://home.comcast.net/~icek.aizen/book/ch2.pdf [Theories of Attitudes]
2. http://en.wikipedia.org/wiki/Virtue_ethics [Definition of Virtue ethics]
3. http://www.qld.ipaa.org.au/content/docs/iQ_Resources/iQ_Research/POGP/Values_and_
Ethics_FULL_version.pdf [Values and
Ethics]
4. http://www.teacherdrivenchange.org/teacherdrivenchange/files/miguel_e_basez_phd.pdf
[Measuring Values, Beliefs and Attitudes]
5. http://www.uk.sagepub.com/upm-data/17521_Chapter_5.pdf
[Values, Attitudes, and Behaviours]

References
Alex, K. (2010), Soft Skill, S. Chand and Co., New Delhi
Angeles, Peter A. (1981), Dictionary of Philosophy, Barnes & Noble, New York
Baker, Lynne, Rudder (1989), Saving Belief, Princeton University Press, USA
Bivens, Thomas, H. (2004), Mixed Media: Moral Distinctions in Advertising, Public Relations
and Journalism, Lawrence Erlbaum, N. J., USA
Day, Louis Alvin (2006), Media Communication Ethics, Wadsworth (Cengage Learning), New
Delhi
Dienhart, John W. (2000), Business, Institutions and Ethics, Oxford University Press, New York
Harrison, Albert, A. (1976), Individuals and Groups: Understanding Social Behaviour, Pacific
Grove, California
MacIntyre, Alasadair (1981), After Virtue, University of Notre Dame Press, USA
Mackenzie, J. (1956), A Manual of Ethics, University Tutorial Press, London
Pincoffs, E. I. (1986), Quandaries and Virtues, University Press of Kansas, USA
Sinha, J. N. (2006), A Manual of Ethics, New Central Book Agency, Kolkata
Velasquez, Manuel (2006), Business Ethics: Concepts and Cases, Prentice-Hall of India, New
Delhi

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 CHAPTER
3
Theories of
Ethics

L E A R N I N GO B J E C T I V E S

This chapter will help the reader understand

■ The fundamental propositions of the major theories of ethics
■ Similarities and differences among different theories
■ Applicability of some theories of ethics
■ Critical appraisal of many of the theories of ethics
■ Concept and different contemporary theories of justice

INTRODUCTION
It was rightly said by Voltaire that if God did not exist, it would be necessary to invent ‘Him’.
The importance of God lies in creating in us a certain amount of obedience to godly virtues that
help us live the right kind of life, behave ourselves in a godly way and to mould our character
through some nomological axioms or principles by following divine examples. If God is not
important, godliness continues to remain a decisive human virtue. There are many theories of
ethics that seek to discover right and wrong moral behaviour. The basic purpose of ethics and
morality is to help us lead a life of beauty and happiness with all the divine qualities like
righteousness, justice, non-violence, truth, kindness, care and compassion, renunciation and love.
In the following discussion, we will briefly concentrate on some of the major influential ethical
theories.

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TEN COMMANDMENTS
The Bible has given the following Ten Commandments to make followers morally good. The
Christian concept of a good man incorporates obedience, devotion and love to God and people.
The commandments are listed below.
1. Worship your God with all your heart, soul and mind.
2. Worship no idol, image or anybody except your God.
3. Observe Sabbath (the seventh day of the week) and keep it holy. None in your family
including your domestic help is to work on that day. It is a day of rest. It is the day of special
worship to God.
4. Do not use God’s name for any evil purpose.
5. Respect your parents.
6. Do not commit murder.
7. Do not commit adultery.
8. Do not steal.
9. Do not accuse anyone falsely.
10. Do not desire another man’s house, his wife, his slaves, his cattle, his donkeys, or anything
else that he owns.
It is to be noted that in Christianity, idolatry which was prevalent in many countries in the past
and even now is a sin. The tenth commandment needs a special mention. In modern times, the
expression,” do not desire…anything else” should mean anything valuable including money,
gold, diamond, silver, or any other assets or wealth that belong to others.
The whole purpose of these commandments is to make people socially and personally moral
by sacrificing rapacity, selfishness and irresponsibility.

ARISTOTLE’S THEORY OF GOLDEN MEAN

In our discussion of virtue ethics in Chapter 2, we had explained some important aspects of
Aristo- tle’s theory of golden mean. Virtue ethics is based on the idea of the golden mean. It is a
virtue to follow the middle course between excess and deficiency. In other words, according to
Aristotle, it is a virtue to follow the middle path because it requires some restraint and control of
greed or instincts. For instance, courage is the middle ground between foolhardiness and
cowardice, which are extremes and hence vices. The essence of Aristotle’s theory of golden mean
is the idea that moderation is a definite virtue to enjoy life and is the secret of a good and happy
life. The attainment of excellence (virtue) is dependent on self-control, clear judgment and
symmetry of desire. How do you achieve this? Aristotle observes that this is possible if we follow
a life of reason and prudence. However, if we want to do that, it is necessary to follow the golden
mean or middle path.
The concept of golden mean is the characteristic attitude of every system of Greek philosophy.
Both Plato and Socrates followed and propagated this idea. In the temple of Apollo at Delphi, one
finds a motto engraved ‘meden agan’ (nothing in excess) (Durant, 1961, p. 99). Youth is the age
of extremes when he commits mistakes. When a person matures with reason, wisdom and
prudence, he comes closer to the middle path.

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The Greek philosophical idea on the golden mean is entertained by Buddhism. Buddhism
advises its followers to adhere to the middle path by abandoning the sufferings of a very strict
ritualistic life on the one hand and the pleasure and easy-going life of a worldly man on the other.
Aristotle says that the road to achieve excellence is the middle way (golden mean) which can
save you many detours and delays. The qualities of character, according to Aristotle, can be struc-
tured in triads, for each of which the first and last will be extremes and vices, and the middle
quality is the virtue for excellence. Thus, between humility and pride, we have modesty; between
quarrel- someness and flattery, we have friendship, and between Hamlet’s indecisiveness and
Quixote’s impulsiveness, we have self-control (Cf. Aristotle’s Ethics). However, it should be
noted that the golden mean is not as exact as the mathematical mean (average). It is a flexible
concept and is discovered by a mature person through the application of reason when confronted
by different situations in life, training, experience and habituation.
However, as we had discussed in Chapter 2, it is not possible to follow the golden mean for
actions like murder, theft, adultery, and so on (Beauchamp, 1982, p. 162). In the Nichomachean
Ethics, Aristotle puts forward the idea that character building is essential for a happy and
meaningful life. However, character is based on virtues. Virtues and moral values are inter-related
in many ways and with constant practice a person can acquire the disposition of a person of good
character. In this context, habit-forming is of prime importance. The golden mean is not only the
right quantity but it occurs at the right time towards the right people, for the right reason and the
right manner (Christians, et al., 2005, p.13). Aristotle explains that in order to be happy, some
external aids are necessary; and only the golden path will not suffice. One of the important
external helps comes from friendship.
Further, some philosophers observe that the mean is not always the middle path. In several
cases, the involved moral dilemma can be solved by leaning more towards one extreme than the
other. This is evident in cases of decisions regarding pay rise of employees or allocation of office
responsibilities.

ARISTOTLE’S NICOMACHEAN ETHICS

Aristotle’s Nicomachean Ethics (NE) is a comprehensive work on several types of ethical issues
and principles. It is now studied as a part of historical philosophy. NE might have been edited by
his son Nicomachus, or possibly, the work was dedicated to Aristotle’s son. Whatever its value,
there is no denying that it is a major work on Aristotelian ethics. The work was published in 350
B.C., which was later translated too. W.D. Ross made a very authentic translation of NE in
English language.
The work consists of ten distinct books on ethics. These books are:
Book I
It discusses what is good for human beings. In this context Aristotle explains the meaning of the
concept of good and why and how a man can be good. He also explains happiness as the supreme
goal of life.

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36
Book II
This book concentrates on the analysis of virtue which was discussed in detail in chapter two.
Book III
It elaborates on some aspects of human virtue including courage, temperance and generosity. The
analysis is continued in Book IV.
Book IV
It goes on illustrating some moral virtues like gentleness, truthfulness, wit and charm.
Book V
It makes an analysis of justice and fairness, and gives examples of the essentials elements of just
action and behaviour.
Book VI
This book dwells on intellectual virtue by illustrating his points of view.
Book VII
It discusses pleasures and evils, and the situations when pleasure leads you to evil. In this context,
the book gives clarity to ideas of continence and incontinence.
Books VIII & IX
It elaborates on friendship which, according to Aristotle, is perhaps the best virtue. In this
connection, he explains the advantages of friendship and, the qualities and requirements of a good
friend.
Book X
The book is devoted to a detailed discussion of pleasure and politics. Aristotle believes that a
good life is possible through properly practiced politics.

Lessons from the Nicomachean Ethics

NE explains the highest good in life is eudemonia (well-being or happiness) which can be
achieved in accordance with virtues (excellence) in a sustainable way so that it permeates the
human psyche throughout the life. NE shows how it is possible to be a good or virtuous man.
Virtuous actions are possible through right actions, right habits and right character. The idea is
similar to the philosophy of Buddhism. Like Aristotle, Buddha has also advised you to practice
right understanding, attitude, action and speech (vide Chapter Ten of this volume).

UTILITARIANISM
Utilitarianism is a teleological theory regarding what we ought to do. It is a normative ethical
principle of judging the right or wrong of a human action. According to this theory, social welfare
is the sum of the well-being of all individuals. What should human beings do? The answer can be
teleological or deontological. Deontological theory says that one’s duty is of ultimate importance.
Teleological theory points out than in the ultimate analysis, we should do only those things which
can bring the highest level of happiness to the greatest number of people. It considers the utility
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rules or laws, and is therefore, more concerned with policy formulation. Utilitarianism states that
man’s worldly happiness is the only good. This is a normative-positive test of all policies, actions
and institutions.
The motto: “greatest good of the greatest number”, was first voiced by Francis Hutcheson.
Utilitarianism developed between the late eighteenth century and the last quarter of the nineteenth
century. The main proponent of this philosophy is Jeremy Bentham who is revered as the father
of utilitarianism. The other prominent members are David Hume, John Stuart Mill, Henry
Sidgwick and Francis Hutcheson. Bentham introduced the doctrine of utilitarianism in the
analysis of social action and policy. In the Greek period, utilitarianism was regarded as a form of
hedonism (Epicureanism).
The classical concept of human nature is Benthamite in essence, which states that although
human beings are selfish by nature, the selfishness, teleologically brings some social benefits.
This is also the essence of Smith’s theory of naturalism and optimism. As a matter of fact, policy
prescriptions of the classical writers exude utilitarianism. In this connection, one can think of corn
laws, factory regulations, poor laws and tariffs.
The neoclassical-marginalist school extensively used the concept of Utilitarianism since its
inception in 1870s. Neoclassical writers, like Vilfredo Pareto, Leon Walras, William Stanely
Jevons, Francis Ysidro Edgeworth, Alfred Marshall and P. H. Wicksteed were all utilitarians. The
neoclassical school was really based on the concept of utility maximization (economic man).
The neoclassical economists used the concept of diminishing marginal utility and interpersonal
comparison utility to demonstrate that overall utility will increase if there is a transfer of income
and wealth from the affluent section of the people to the poor. The richer section will lose some
utility in this case but the gain of utility received by the poor people will be more overwhelming.
This is one of the reasons why a system of equal distribution of income was preferred.
Welfare Economics, especially that propagated by Pigou and Pareto, begins with the concept
of welfare that is tantamount to utility. Pareto lays down the condition that an optimal situation is
one where the general utility (welfare) cannot increase without jeopardizing the utility of anybody
else (Pareto Optimality). The notion of neoclassical economists (Hicks, Bergson and others) is
based on the idea that welfare gains or losses are really utilitarian in essence. In our times, J.C
Harsanyi, among others, advocates the maximization of average utility (preference). He prefers a
social utility function without envy and jealousy. He advocates a policy that safeguards against
our being worse off. He recommends social cooperation and emphasizes the need for moral
principle in human action. Utilitarianism as an approach to moral action is popular in
contemporary American society (Day, 2006, p.70).
The concept of utilitarianism has many loose ends and it means many things to many people.
The following are the basic meanings of utilitarianism:
● Greatest good of the greatest number

● Maximization of pleasure

● Minimization of pains

● Maximization of happiness

● Satisfaction of desire

Although there are various meanings and versions of utilitarianism, there is one common
philosophy underlying all these notions. They are basically concerned with the consequences of

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an action or judgment. The philosophy is anti-Kantian, in the sense that unlike the Kantian idea,
it does not emphasize the intention of the moral action but on its end-result, the
consequences. It is a philosophy which is the same as that of consequentialism. In the case of
utilitarianism, the end justifies the means.
The theory of utilitarianism is sometimes interpreted in terms of cost and benefit analysis
(CBA). An action is acceptable if the net benefit (benefit minus cost) is the greatest in a project
as compared to other available projects or policies. The concept of utility involved in the theory
of utilitarianism has been interpreted by many as net benefit. There are basically two variants of
utilitarianism—Act Utilitarianism and Rule utilitarianism. (Brandt, 1959, pp. 253–54, & Smart
and William,1973, p. 4).
Act utilitarianism is concerned with those actions which will bring great benefits to great
number of people. However, in case of act utilitarianism, the problem arises because some acts
are by themselves not socially acceptable like stealing. Hence, act utilitarianism has to be
supplemented with rule utilitarianism which gives direction to the former. An action in all cases
may not bring about the greatest good of the greatest number. Obedience to rules (say traffic
rules) will prevent chaos and will maximize happiness of passers by reducing accidents.
However, the fact that “stealing is not acceptable” is not always correct to rule based
utilitarianism, because sometimes, stealing can save innocent lives too (Weiss, 2009, p.75).
Suppose accidentally John has been caught by a terrorist outfit and is asked to join the gang. He
has agreed to do this by force and by nature, he is a moralist and does not want to kill anybody.
The gang is making a plan in the night to plant a very heavy and powerful bomb in the congested
railway station of New Delhi. If this is successful, the bomb will kill human lives. In the middle
of the night, John steals the bomb and runs away from the place just to save human lives. He may
be caught later and might be killed. But he is not concerned with that. This act of stealing, as
many will agree, is not a sin. It is a correct action as per the philosophy of utilitarianism.
Utilitarianism based on the principle of CBA is an important part of decision–making in
modern organizations and institutions. However, the concept of utilitarianism has a number of
conceptual problems. Firstly, one needs to define utility in a unique manner. We have already
seen that it has been given different meanings by different proponents. Utility is subjective and
mental, and this raises an epistemological question: how do we gauge a person’s happiness or
feeling of pleasure or goodness? (Hoffman and Graham, 2010, p.180). Secondly, another tricky
issue is the measurement of utility. Many people believe that being a subjective concept, utility is
not measurable. However, there are two important ways to measure utility. Alfred Marshall, the
leader of the neoclassical school of economics, said that the utility that one is expecting from a
commodity can be indirectly measured by the amount of money he is prepared to pay for it.
However, in the case of social policy or action, the application of market valuation approach to
measurement of utility becomes difficult. Hence, when utility is measured in this way, we get
cardinal measurement. As opposed to this, we can get another type of measurement (ordinal
measurement) where utility or satisfaction is ranked (from highest to lowest, or vice versa). In the
ordinal sense, utility leads to preference satisfaction. However, in the case of preference or
ordinal ranking, we can only rank different utility functions to know which is better (or higher)
but we cannot say by how much.

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Limitations of Utilitarianism
● The theory is incoherent simply because you cannot maximize two numbers at the same
time (greatest happiness and greatest number).
● Utility is essentially a subjective concept. There is no acceptable definition of “good”.

● The concept (happiness) means different things to different people. There are also multiple

meanings of the concept of utilitarianism.

● In the case of utilitarianism, the end justifies the means. This idea has been vehemently criti-

cized by many. It is said by critics that for a moral action, both the end and the means must
be good. To many, the means justify the ends, and not the other way round.
● Utilitarianism does not consider individuals or minorities. It does not care for individual

entitlements, rights and distributive justice.

● There is a critical question that utilitarianism does not answer. Suppose some actions are by

nature morally wrong, but their consequences are good. Utilitarianism will support those
actions. But then this will not prima facie entitle the theory to be a moral theory.
However, in spite of its many conceptual limitations, the movement of utilitarianism has been
instrumental in saving the conditions of common people. The philosophy of utilitarianism stood
for the aspirations of the middle class. It has been the basis of many reformative movements in
the fields of legislation, politics and socio-economic institutional changes around the world.

THEORY OF CONSEQUENTIALISM
A consequentialist philosophy is based on consequences of actions. Some human actions which
are good for society at large are regarded as good actions. It is the outcome of the action on the
society which is important. A consequentialist theory is end-based (teleology). If the
consequences and end are good, then it can be recommended for implementation; otherwise not.
Consequentialism embodies in itself two important schools of moral philosophy. These two
schools are utilitarian and teleological schools. We have discussed earlier the basic ideas of
utilitarian thought. Hence, there is a need for a separate discussion on the teleological theory.

TELEOLOGICAL THEORY
Greek philosophers, in particular Aristotle, popularized the teleological theory. The word
teleology is derived from telos which means the end or consequences. Thus, the theory of
consequentialism is directly associated with the teleological theory. There are indeed many
variations of the theory of teleology. At the one extreme of the teleological theme, there may be
egoism and at the other extreme, there is utilitarianism as suggested by Bentham and J.S. Mill.
Utilitarianism provides a criterion for the concrete decision-making process to choose an action
or policy. An action is taken only if it maximizes the net utility or benefits from the given
circumstances, and also, the project is accepted if it is the best among all the available projects in
terms of net benefits. Thus, there, apparently is a moral basis of choosing the project. However,
the net gains or benefits may also be yielded by a project which is otherwise not supportable on
moral grounds. The cost-benefit calculus

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41
that is used for the calculation of projects in the context of utilitarianism does not say much about
morality.
Egoism which is a form of teleology accepts any decision which produces individual gain or
benefit. These benefits include pleasure, power, name and fame. An egoist will choose a situation
which will increase his personal gain or satisfy his ego. The basis of egoism is self-interest. Many
people are of the opinion that an egoistic person or organization is governed by self-interest. They
will go to any extent to maximize their gains and objective functions. They are short-sighted and
unethical in principle. However, there is another variety of egoism known as enlightened egoism
which is socially better than pure egoism. Enlightened egoism takes into account a long-run
perspective and also allows for the welfare of people and society, but in every case, the self-
interest remains the primary consideration.
Another aspect of teleological theories, especially utilitarianism is the focus on minimizing
harm to affected individuals. This makes the theory popular in the public eye. Rule-utilitarians
follow certain rules to maximize their gains or net utility. They support the rule of laws in a
country as they believe that by following rules, the society can maximize the total gains.
However, if there are alternative rules in a particular situation, the utilitarians will choose that
rule which would promote greater utility. There may be a problem with the rule-utilitarians. They
will not bribe anybody because this is the law of the land. However, if bribe giving can lead to
larger benefits than the cost, then they will perhaps bribe officials to gain some favours. Suppose
Smith is a utilitarian like Robin Hood. He always helps people in distress. Smith owns a big
business house where several poor people work. Smith has applied for a contract to supply goods
to a multinational company, but he is not sure about getting it. In that case, Smith will not hesitate
in bribing the MNC boss to get the contract. He is the follower of correct conduct but in this case,
he makes an exception otherwise he will have to retrench his poor workers. Thus, bribing helps
him maximize the utility (benefits) of his employees. So, for a rule utilitarian, rules give him a
guideline and at times, he violates them. To an act utilitarian, bribery is acceptable if it leads to
maximum gains or net utility. If corruption can save many lives, both act and rule utilitarians will
perhaps support it.
Teleological theories do give a definite perspective to make moral choices by comparing
compet- itive alternatives, and the relative impact on people. On this count, the consequentialist
theory fares better than the theory of deonticism. Teleological theories are, however, criticized on
the ground that they rely too much on unknown and uncertain results, and neglect the rights and
needs of minorities. These right and needs may be in conflict with those of the majority.

KANTIAN DEONTICISM AND CATEGORICAL IMPERATIVES

The Greek word “deon” means duty. Deontology refers to a particular type of ethical behaviour
based on rights and duties and not merely its consequences—it is the intention or motive that
matters rather than the consequences of the overt action. Thus, deontologists are non-conse-
quentialists which is governed by certain dos and do nots. As per the principle you should not
steal or kill even if they lead to maximum gain or happiness. The principle of deontology is based
on the idea of correctness or rightness of moral behaviour. However, there are absolute moral
behaviour patterns that are recognized universally as good behaviour, like respect your parents

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and elders. 42

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According to deontologists, the nature of moral principles is permanent and stable. The perfor-
mance of these principles into action determines the degree of ethical behaviour of an action.
What is right or wrong is an individual perspective based on virtue and values which are acquired
from nomological axioms, tradition and culture. However, it must be pointed out that whilst
teleological philosophers give more emphasis on the ends associated with an action,
deontological philoso- phers emphasize the means.
The philosophy of deonticism has found its best expression in the hands of Immanuel Kant
(1724–1804), a celebrated German philosopher. Kant advised us to do that act which can be
universalized and ‘do that unto others which you want them to do to you’. The principle is stated
in the Bible: “do not judge others; otherwise, you will be judged.” Your good act must be an
example of universal behaviour.
Kant is the leading founder of the principle of universalism. This is also known as deonto-
logical ethics. It is a kind of non-consequentialist ethics. The basic idea of this ethical
principle is that the ends can never justify the means of an action. Universal ethical principles are
based on justice, rights, fairness, honesty and respect (Kant, 1964). Kant makes it clear at the
beginning that:
1. Morality is impartial. It applies equally to everybody.
2. Morality is concerned with our intentions and not necessarily with the consequences of our
actions.
There are two types of deontologists: Act deontologists and rule deontologists. Act deontolo-
gists believe that the ethicalness of a person can be known by his overt actions which should be
based on justice, fairness, benevolence, equity and kindness Kant (1972, p. 229). Act
deontologists observe that deontological rules provide only guidelines. In other words, act
deontologists insist that people should have some knowledge about certain rules which are right
and act accordingly without any reference to deontological rules.
Rule deontologists believe that there are certain rules of morality that people should follow
while making decisions. These rules are framed on the basis of moral and logical principles to
guide human actions. The ethicalness of a person’s behaviour is to be decided on the basis of
these rules. Kant’s categorical imperatives and the Ten Commandments of the Bible provide
some of these rules. These rules guide ethical behaviour and actions which eventually override
other contextual local practices.
Categorical imperative has the following two building blocks:
● A person should choose to act in a way which is acceptable to him if another person acts in

the exact same behaviour in that same situation.

● In the situation of an ethical dilemma, a person should act in a way that respects and treats

all the others involved as ends as well as means (Friedman, 1978, pp.119–28).
The first principle is absolute and it does not admit of any exception under any situation.
Categorical imperatives are the guidelines that will allow the decision-makers to do their duties in
such a responsible way that all persons involved will be respected and not neglected.

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Criticism
● Sometimes other elements in a deal become compelling before the narrow sense of duty.
Smith is performing an important official duty on which the lives of many innocent people
depend (e.g., negotiation with the terrorist group). Suddenly there is a call from his house
conveying his mother’s deteriorating health. What will Smith do? Both require his attention
and involve his duties. The theory of deonticism is silent in such cases.
● It is often difficult to follow your duties blindly when confronted by a situation that
demands immediate attention. Smith is in front of a city traffic light when suddenly the
green signal is put on and all vehicles start moving. His duty as a pedestrian is not to cross
the road. However, he finds that a small boy is running through the road. Smith runs across
the road without caring for his life just to save the life of that small boy. Is it a deontological
act? Many deontologists will say that Smith should not cross the road when the green signal
is on.
● There are examples that show that Kant’s theory of morality goes wrong. For instance, an
employer in Iran pays lower wages to a woman employee for the same job compared to the
man, and it is accepted by the woman. According to Kant’s theory, the employer is acting
morally in this case. But critics may point out that this is basically unethical because gender
discrimination for the same work (both quality and quantity) is morally wrong.
● It is not a good behaviour to follow blindly one’s own duties as directed by your boss. The
duties may be wrong or immoral. The boss asks Smith to mix water with milk. Should
Smith perform such a duty? There may be a conflict in many cases between duty and
morality, or between right and wrong duties. Deontological principle does not clarify these
conflicting cases.

CONSEQUENTIALISM VS DEONTICISM: A RECONCILIATORY APPROACH

Utilitarianism and consequentialism are used in the ethical theories in the same sense, since both
these doctrines depend on the end-result of an action. However, on keener observation they are
not the same. Utilitarianism is based on the notion of net utility maximization. It is a social policy
or action that seeks to yield greatest happiness or utility for greatest number of people. The
method- ological approach followed to measure the net utility is the cost-benefit approach (CBA)
where the value of total benefits is greater than that of the cost of the project. There are many
conceptual problems in such a type of calculation. We will mention only a couple of these
problems.
What is happiness (or, good) or utility? How will you measure it? There is indeed no
satisfactory answer. In terms of the CBA approach, the net benefit is accepted as the
appropriate criterion to accept a project or policy. However, the project may generate a net
benefit and yet, it may be entirely unethical.
Our contention is that consequentialism is different from utilitarianism. The former simply
depends on good consequences for a policy to be supported but the latter has nothing to do with
any consequences other than utility. On the other hand, consequences may be of many types. We
may retain the consequentialist structure of the utilitarian theory but reject the notion of utility
which is a highly objectionable quality (Mackie, 1990, p.149). The concept of utility or goal can
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be replaced by some sort of concrete entity which can be quantified or objectified.

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One can consider in this context, the gain or loss in terms of some basic political or social
goods like liberty and freedom. The basic economic goods that may be considered are the basic
necessities of life without which life will be impossible. If consequentialism leads to the
availability of more of these basic or primary goods, then nobody will have any objection to
utilitarianism or conse- quentialism, and they can be said to be the same in essence. The basic
point that we are driving home is that you should develop non-utilitarian consequentialism. The
same idea was proposed by Mackie (1990) but it was not fully developed by him.
The consequentialist structure can be modified by introducing some moralistic rules,
principles, duties and rights or virtues. If we do so, it will merge with the theory of deonticism.
The impact of the theory of deonticism can be reduced by taking away those duties that are
contrary to moral principles. In deonticism, duty is the main consideration. However, not all duties
are morally correct; some duties given to you by your superior officer may be morally wrong. So,
one is justified in rejecting those duties. We should include in deonticism only those duties that
are based on those rights that will increase social welfare. In such a way, one can think of a
reconciliation between consequentialism and deonticism. Consequentialism will lead to the
production or availability of more of primary goods or services and deonticism will lead to more
social welfare. Such a recon- ciliation can retain the basic philosophy of both the principles and
make them complementary to each other.

RIGHTS AND DUTIES

Right is the entitlement or empowerment to do certain things. For instance, a teacher is entitled
to teach in a class and a priest is entitled to worship. Rights are moral claims of individuals
recognized by society. There are many types of rights, like, legal, constitutional, fundamental and
moral. Right gives us the liberty and choice and empowerment. There are many basic rights
given to every citizen of a country. These rights include life and security, education, freedom of
speech, employment, express opinion, legal remedies, contractual right, equality and human
rights. Rights are based on several sources of authority (Tuck, 1979). Moral rights give
individuals the freedom to pursue one’s own interest so long as the interests of others are not
violated. Moral rights need to be justified, and they are necessary for self-realization. These
rights are essential for the highest personal good and social benefits.

Negative and Positive Rights

Negative rights are rights to be free from interference by others; life, liberty and property rights,
according to Robert Nozick (Dienhart, 2000, p.124). This view of Nozick is not accepted by
several. Positive rights are those that others have a duty to supply. If you have a right to
education, others must supply schools, teachers and books.
Kant and Rawls argue that rights are based on your intrinsic value. Rights vary between
different social groups as there are many traditional ways of respecting and expressing human
worth and dignity (Dienhart, 2000, p.124). To Nozick, your intrinsic value resides in your
fundamental right to life, liberty and property; to Kant, it lies in your ability to make rational
decisions and duties to

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respect all human beings and to do what is morally good. To Rawls, your intrinsic value lies in
our ability to do justice based on free and fair distribution. John Locke observes that human
beings have natural right to life, liberty and property; and by virtue of a social contract, the state
is assigned rights to protect them. The purpose of the state is to ensure that people respect and do
not violate each other’s rights.
Hohfeld (1923) considers all rights as relationships. There are four types of rights:
● Claims (A claim entitles a person to demand something from another person).

● Privilege (Liberty/No-claim. Therefore, one is free to do something).

● Power (A legal relationship or claims can be created by power to control others).

● Immunity (This enables a person to resist the powers of others over a person having

immunity). It disables others.

Duties
Rights and duties are correlative terms. Duties are moral obligations. The main duties that a
person should perform are as follows:
● Respect for truth

● Respect for laws

● Respect for society and the state

● Respect for life

● Respect for freedom and personality

Duties are determined by the status and particular station of life.

There are generally three classes of duties:
● Duties to self (health, self-development, capability expansion and so on).

● Duties to others (duties to family and friends, relatives, neighbors, society, humanity,

animals and plants, and the country).

● Duties to God (devotion, prayer, meditation, worship, communion and love for God)

Kantian Theory of Duty (Categorical Imperatives)

Immanuel Kant distinguished between duties of perfect obligation and of imperfect obligation.
The former duties are generally duties which are precise and definite and can be exacted from
individuals. The latter duties are mostly positive and are indefinite, unlimited, and cannot be
exacted from individuals.
Kant explains that you have to act ethically irrespective of the need of others. There are four
principles of Kantian theory of Duty (see also the earlier discussion on Categorical Imperatives in
this chapter):
● Morality of your action depends on what you intend to do and not on the consequences.

● Moral rules are impartial, and these apply equally to everyone.

● An action is moral only if you can justify the rule that everyone can follow.

● People are not merely means to an end. They should be treated as human beings with

infinite value.

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There are two precise rules for determining a morally right duty in the Kantian Categorical
Imperatives.
Reversibility: It implies that you should perform your duty involving others in such a way that you
will like others to perform their duties towards you in exactly the same way.
Universality: A person’s justifications for acting in a particular way should be the so exemplary that
they will induce others to act in the same way. This is why your action must be universal in
nature.

Robert Nozick’s Ideas on Duty

● In Robert Nozick’s view, it is the duty of everyone, in particular the state, to ensure that
there is no restriction on freedom for people and there is no coercion imposed by the state.
However, when a person is coercing others, his freedom may be restricted.
● Like Kant, Nozick asks everyone to regard individuals as an end and not as a means to an
end.
● The ideals of free market should be promoted.
● Since the basic rights to life, liberty and property are negative in character, it is duty of the
state to ensure that these rights are not violated.

ROBERT NOZICK’S THEORY OF ENTITLEMENT AND PROPERTY RIGHTS

Robert Nozick is an American philosopher and Nozick’s publication (1974) has been a controversial
but an interesting book. In the following analysis, we will explain the main points of Nozick’s
theory of entitlement and property rights. These two concepts are inter-related. His entitlement
theory (ET) is a theory of distributive justice. He refers to the holding in private poverty as
something related to justice in holding (1974, p.150). To him, private property indicates self-
ownership. Nozick is a liber- tarian and gives too much emphasis on freedom in every matter
including the acquisition, transfer and disposal of property. But freedom is to be punctuated by
justice. There are three important constituent elements of ET:
● Principle of justice in the acquisition of private property.

● Principle of justice in the transfer of private property.

● Rectification of injustice in the case of unjust transfer of private property.

If justice is followed in the case of the first type of holding, the possessor has the right to
entitlement. Similarly, if principles of justice are followed in the case of the second type of
holding, the possessor is entitled to that holding. Nozick warns us by saying that none is entitled
to justly hold any property except through cases One and Two as stated above. ET upholds the
view that there should be justice in the distribution of property (holdings). The purpose of the
Third rule (stated above) is to protect the weaker sections who have been victimized in
property matters. It is quite possible that the wealthy, influential or powerful people might have
cheated the poor possessor in a deal. It is, therefore, necessary to enforce the correct principle of
rectification so that the loser gets proper compensation.

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Two important influences have been the bases of Nozick’s ET. It is firstly based on John
Locke’s ideas on private property. The second is the philosophy of Immanuel Kant who has
suggested that people are ends in themselves and all of them, in a sense, are equal. The basic idea
of Nozick’s theory of entitlement is to create a strong system of property rights and the operation
of a free market economy. He is of the opinion that a voluntary transfer of property is a just
transfer. Transfer under duress, temptation or false promise is unjust.
In this context, Nozick observes that taxing rich people in the name of social programmes for
the poor and also the redistribution of income from the rich to the poor is inherently unjust. This
is so because the state is collecting money by coercion rather than through voluntary transfer or
transactions.
In the case of the creation of any value or product, the creator has the right to enjoy or use it
in any way he/she desires. It is unjust to dispossess the rightful holder or creator by temptation or
force. If somebody has the just right over something, then justice demands that this right should
not be violated (Nozick, 1974). The entitlement theory of Nozick goes against the two popular
theories of distributive justice.
● Nozick does not agree with the Marxian theory of equality. According to Nozick, inequality

is natural. Equality is a contrived notion that is unjust and unnatural.

● Nozick also does not believe in the difference principle of Rawls. He dislikes the idea that

there should be redistribution of income or goods from the rich to the poor.
Nozick’s entitlement theory is unpatterned and historical. His unpatterned theory is based on
choice. His entitlement theory is against the violation of property rights. Although the entitlement
theory looks like something original, it is not free from criticism.

Criticism against Nozick’s Theory of Entitlement

● Nozick’s view that taxation is unjust is not true. In many cases, the tax payers receive quid
pro quo (benefits in return).
● Nozick is not completely accurate in assigning a minimal role to the state. In fact, to ensure
property rights and to introduce compensatory justice, a strong role of state is very essential.
● Nozick is in favour of proper and voluntary bequests. However, bequests in the long run
show all the evils of unearned income, inequality and loss of productivity. It draws us more
towards feudalism than a free market economy that Nozick favours.

W.D. ROSS’ SEVEN PRIMA FACIE DUTIES (RULES)

W.D Ross (1877–1971) was an American intuitionalist who has given seven absolute moral rules
for human beings to live a happy life. These rules (see Ross, 1930) are:
Fidelity
This is essential to maintain a good relation in a society by keeping promises and being honest in
all situations, and respecting the rule of mutual trust. The whole structure of any long-term
relationship is based on trust or fidelity.

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Justice
In dealing with people and in the distribution of basic goods, justice and fairness should be
practiced by people. The idea of justice is based on equity and fairness. Without justice, no moral
rule or dealings can be made effective in a society.
Gratitude
Gratitude is basically an individual virtue that makes life enjoyable and pleasant. It is necessary to
return a favour by words or deeds of gratitude. It makes a person endearing, and he becomes
worthy of favour in the future.
Reparation
It is a kind of compensation for the injury and harm done to others. This is a form of justice.
Reparation should be proportional to the damage done. Although in many cases, the appropriate
type and amount of reparation cannot be made, it is a good moral rule to make a compromise by
both the parties involved.
Beneficence
You must be benevolent in nature and do good to others whenever necessary. Thus, kindness and
compassion are important in reducing the impact or eliminating undesirable situations.
Non-malice
This means the prevention of injury or harm to others. This is possible only when it is non-
violent. This moral duty also implies a mindset that does not bear ill to anybody. It shows equal
love and good relation with every person.
Self-improvement
Ross’s rules do include provisions for constant self-improvement by practicing virtues and a
value system in accordance with the principles of morality. Unless people are constantly
inculcating the principles of good moral behaviour and applying them in actual practice, self-
improvement does not become possible.
Ross’s prima facie duties are concerned with what people ought to do. Many philosophers do
not consider these rules to be duties. They observe that these should be called responsibilities.
Ross calls these rules as prima facie duties because while deciding to act, all these rules (duties)
need to be taken into consideration. No duty should be considered in isolation. It is for this reason
that you must follow the principle of ethical pluralism.

ALBERT CARR’S THEORY OF BUSINESS ETHICS

In an interesting article in Harvard Business Review (1968, pp. 2–8), Albert Carr favours business
ideas which reminds you of a similar stand taken by Adam Smith and Milton Friedman. Both
Smith and Friedman have pointed out that the first ethic of a businessman is to do his duty in such
a way that leads to the maximization of profits. Albert Carr goes one step further by saying that
the profit maximization principle should be followed by business people even if it involves lying.
According to him, deception is a legitimate part of business. He compares business with poker
games. In such a game, there are rules, but within the broad framework of rules, it is permissible
to bluff in order
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to mislead or hoodwink the public (customers or suppliers). Carr warns the business people that if
bluffing is not done, there is a possibility that the business will undergo losses. In such a case,
there should be a distinction between business and family life. Family ethics and values are not
relevant in business. A businessman may be ethical in his private life but he cannot apply the
same moral principles in his own profession (business). The two worlds are entirely different.
Carr approves of the following types of business tactics to maximize profits:
● Deception (say, in a business like food processing products).

● Neglect of safety devices (say, in automobile industry).

● Utility companies that practice regulatory capture, bribe government officials to extract

unduly large payments from electricity users.

In all these cases, companies are justified in bluffing to earn more profits. So like in poker,
Carr observes that deception is not considered to be a bane. It is a part and parcel of the game.
However, Carr cautions, that companies should comply with the spirit of the law. Bluffing is
justified; but should be done very discreetly, so that one is not legally caught. Advertisement such
as “This is the best product in the market” is acceptable. But malicious deception is wrong, as it
intends to harm other people.

Critical Appraisal
Carr’s theory can be supported on the following two grounds:
● Carr’s theory can be supported on teleological ground. The telos (end) of every business

enterprise is to maximize profit. Carr supports the idea that ends justify the means. A teleo-
logical theory does not imply that means need be ethical. So in order to maximize net gains,
business people can be unethical.
● Carr’s thesis can also be supported on the basis of ethics of utilitarianism or consequen-

tialism. A businessman knows the consequences of his actions while maximizing his profit.
His utility or “good” lies in this materialistic behaviour. Thus, his actions can be supported
on the ground of utilitarianism.
● But if the intention of the business enterprise is to cheat customers and suppliers and to

produce financial losses to them, the actions are wrong, according to deontological ethics.
Such deception is wrongful behaviour. However, there is no objection to profit
maximization if it is done in an ethically correct manner. Business in practice cannot go
beyond a certain limit. Carr is aiming at proving too much at the same time and making
unwise suggestions.
Carr seems to believe in ethical relativism. He points out that whatever is ethical in in a family
is not ethical in business. A business has its own ethics.

CONCEPTS AND THEORIES OF JUSTICE

Philosophers observe that there are three worthwhile things in this universe and none of them
can be defined in a compelling way. They are: truth, beauty and justice. The word “justice” has
several definitions. In the perspective of bounded human rationality, we will make an attempt
here to analyse a few well-known theories of justice. Before beginning a discussion on a few
cognitive theories of justice, it is necessary to explain briefly a few relevant concepts of justice.
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What is Justice?
The term “justice” is derived from the word “just”, which means “appropriate”, “proper” and
“fair”. The word “fairness” is regarded as the most appropriate equivalent to the term “justice”.
When a treatment is accorded to a person in proportion to what he deserves, he can be said to be
treated in a just way. For instance, when a labourer is asked to work and paid wage equal to the
market value of his physical productivity, the payment is based on justice. Justice is something
which can be regarded as reasonable on both moral and empirical grounds. Justice is a normative
social order. It is a form of righteousness. When some people are in bondage, justice implies
freedom to them. Absolute justice is divine and is difficult to achieve in the real world. In the
actual practice, we come across what is known as relative justice.

Types of Justice
There are many types of justice. These are briefly explained in the following pages.
1. Procedural Justice
There may be justice in an act. However, what is important is to see whether that action has
been performed complying to the law or through a correct procedure. For instance, a
labourer is asked to do a job but is forced to accept the terms and conditions imposed by the
employer. Here the procedure is unjust. In the same way, the property of a poor person can
be trans- ferred or sold in an illegal manner or by force. These types of action go against the
procedural justice.
2. Commutative Justice
Commutative justice is a form of justice where fairness or justice is ensured at the beginning
and all people are treated equally. In other words, people start on the level field. The background
of the people is totally irrelevant in the case of commutative justice. Commutative justice
also ensures that all people are given equal opportunities for development. Further, the
fairness of exchange between two or more parties involved is of prime consideration. Thus,
it is said that the remuneration to a factor of production must be equal to its marginal
productivity. In such a case, there is no exploitation; and justice is done to the factor of
production. It is in this sense that the neoclassical theory of distribution can be said to be
just.
3. Compensatory Justice
In the case of compensatory justice, some compensation is given to the person who has been
treated unequally in the past. The point is that the compensation for the injustice done in the
past must be proportional or equivalent to the loss sustained by an individual in question.
But, in many cases, it is difficult to assess the appropriate amount of financial
compensation. For instance, if somebody has lost his hand while working in a factory, what
would an accurate compensation be? The payment of a particular amount sanctioned by the
factory or by a legal institution may not take into account his all-round incapability, social
stigma and future losses in the absence of his hand. However, in the present social system,
some amount of compen- sation is granted, depending not on the requirements of the loser
but on the capability of the person giving the compensation. Sometimes, it so happens that
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the payment of compensation 53

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is either too low or too high for a prolonged period. This may lead to reverse injustice. For
instance, the granting of some special favour to backward classes or castes for a very long
time may mean injustice to higher castes or classes of people. This may create reverse
injustice to these classes and castes.
4. Retributive Justice
This ensures some form of punishment to a defaulter. The imposition of fines or penalties,
however, may not be adequate or just in a particular situation. Sometimes, the punishment
may be more than what is needed and sometimes, it may be less than what is necessary.
There is no objective criterion to impose just punishments in several cases, whether it is
fixed by the court of law or done by a particular person to whom wrong has been done.
Thus, where simple fine should be imposed, the authorities may order rigorous
imprisonment. The basic purpose of retributive justice is to prevent the person from doing
similar type of unjust work in the future. This is often not done in actual practice. In the case
of retributive justice, the main criterion for punishment should be the motivation for the
crime or what is called mens rea. If the motive for the crime is not established beyond
reasonable doubt, it is unjust to impose any punishment.
5. Communitarian Justice
This refers to a system of justice shown to a particular community which has been suffering
in the past from injustice (say, the tribal people in Australia). Tribal people in many
countries are not given equal freedom and rights like other citizens. Therefore,
communitarian justice will imply that these people are given some rights and liberties which
may be political or economic in nature.
6. Distributive Justice
Distributive justice is very critical for human society as a whole. The basic idea of
distributive justice is to treat equal people equally and unequal people unequally. Therefore,
it can be either vertical or horizontal in character. The principle of distributive justice
upholds the view that the benefits and burdens in a society must be distributed equally
among its members. However, there may arise a situation where the resources to be
distributed are limited compared to the number of persons sharing these resources. In such a
case, certain principles need to be followed like first-come-first-served, ladies first or the
sick and disabled people may be given more preference than a normal person.
The principles of justice are the principles of fairness. Justice is also regarded as a method or
system of ensuring equality to all who are equal and unequal. In Public Sector Economics, which
deals with public choice and the collective decision-making process, the issue of justice becomes
extremely important. Such public decisions may make some people worse off and some people
better off. Therefore, the principle of fairness assumes a significant role.
For the purpose of public choice, social welfare and reforms, what is important is the concept
of distributive justice which means the application of the principles of fairness in the distribution
of income and wealth in a society. However, the concept of fairness is often unfairly complicated
with various subjective interpretations. We have a number of theories of distributive justice, some
of which will be elaborated here.

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THEORIES OF JUSTICE

We will start our discussion on theories of justice with utilitarian theory.

Utilitarian Theory
It considers any action which leads to the maximum benefits and happiness of the greatest
number of people in a society as a just action. For example, it is indeed very difficult to measure
the concept of utility because it is a subjective concept, similar to the concept of happiness.
However, the theory judges the rightness or wrongness of human action in terms of the principle
of maximum benefit or happiness. However, it does not take into account the impact of that
action on minorities. Therefore, this theory does not seem to be justified in many cases. The
utilitarian theory takes into consideration the well-being of most of the people but not all of them.
It says that if the benefits are more than the cost of an action, the action is justified. (A more
detailed discussion on utilitarianism is given previously.)

Egalitarian Theory of Justice

This theory is based on equality in the matter of distribution of burdens and benefits. This is an
important theory of distributive justice. The theory seems to give importance to absolute equality.
It does not take into account ability, efforts and need. Thus, according to this theory, the rich and
poor will get the same benefits and will make the same sacrifices. This theory has been criticized
on many grounds.

Criticism Against the Egalitarian Theory of Justice

Firstly, since human beings are not equal, it is said that the principle of equality is not a just
principle. Some people are more intelligent, more capable and educated than others. Therefore,
these people should be treated in accordance to their ability.
Secondly, it does not take into account the genuine need of people. Some people may need social
goods more than others because of large families or inadequate sources of income. The principle
of justice requires that these people should be given a bit more from the social stock of necessary
goods.
Thirdly, if all people are treated equally, there would be no incentive for the hardworking and
intel- ligent people to produce or achieve more.
Lastly, absolute equality is meaningless. What is more important is not absolute equality but
equality in terms of capability, need and resource endowment. Thus, a rich person should
contribute more and a poor person may contribute less or nothing to the national exchequer by
way of taxation. Thus, it is seen that the concept of equity is more meaningful than that of
equality.
However, there is no denying the fact that every person must have equal political rights and
opportunities regarding rights and duties, and everybody must be ensured some basic minimum
standard of living.

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Capitalist Theory of Justice
The basic principle of Capitalist Theory of Justice is that everybody should receive the benefits
according to his contribution. Thus, a worker whose productivity is higher will get higher wages
than a labourer whose productivity is low. Capitalist justice favours inequality because inequality
leads to differential contribution. Thus, a person with more talent, experience and qualifications
will be able to contribute more to capitalist’s profits. It is based on the assumption that human
beings are essentially unequal. Therefore, justice wants inequality to be accepted as the basis of
just reward.
It is sometimes problematic to measure the actual contribution of a factor of production.
However, the productivity of a factor of production can be measured by the market value of its
marginal productivity. There are many methods to calculate the value of marginal productivity of
a factor of production. In the case of services being produced by Government employees, it is
difficult to calculate objectively the marginal productivity of a worker who is working in the
services sector like education or hospitals. It is sometimes argued that a person who is working
for a longer period of time should be given higher wages compared to a person who is working
for a shorter time. This is not always a correct principle because longer duration of work does not
automatically mean higher productivity. It is the intensity of work which is more important than
mere work efforts.
Criticism Against the Capitalist Theory of Justice
Firstly, a criticism that is often levelled against the capitalist theory of justice is that it does not
take into account the needs of the people and neglects the requirements of the people with less
abilities and opportunities. The principle of contribution does not consider the cases of socially
disadvan- taged or physically handicapped people.
Secondly, the practice of market valuation of productivity is itself incomplete or imperfect, as
market prices are often distorted by many factors.

Marxian Theory
Marx (1867) was of the view that only the establishment of communism could guarantee the
need- based wage payments to workers. Thus, communism to Marx is a just economic system.
The capitalist system cannot be reformed to bring justice to the labour class because under
capitalism, all institutions including the legal system, and the state are pro-capitalist instruments.
Justice requires that the wage system should be need-based. However, the question of the
measurement of needs will depend on the stage of economic development and also on the level of
human development that is aimed at. The needs should include not only the individual needs but
also the social needs of human beings. In spite of debates over the issue of needs, it has been
accepted by almost all that the needs must take into account a fair standard of living for the
working class. Marx has remained very critical of the capitalist idea of encouraging inequalities
as the basis of principle of justice. Marx has given a number of instances where he has proved
that a capitalist system is basically unjust, particularly to the working class. We will explain
briefly these instances.

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Surplus Value
A capitalist does not pay a labourer according to the productivity of his labour. The wages
under a capitalist system is always less than the productivity of labour. Every worker creates a
surplus value which is equal to the total productivity of labour minus the wage that is paid to
him. The positive difference between these two is called surplus value. This is pocketed by the
capitalists. Thus, a worker under a capitalist system is always exploited. The greater this surplus
value, the greater is the degree of exploitation.
Capital Accumulation
● Capitalism survives on the basis of capital accumulation which leads to centralization
of capital and concentration of capital. Concentration of capital is a process of capital
deepening where capital per worker is increased, or a particular technique of production is
made more capital-intensive. The taking over of weak enterprises or the merger of small
capitalists can be called the process of centralization of capital. The development of these
two forms of capital accumulation leads to the growth of monopoly capitalism. As a result
of centralization of capital, the bourgeoisie and small manufacturers are wiped out. Most of
them become proletarians. It has been pointed out by Lenin and others that monopoly is the
intensification of and not the negation of capitalism. In fact, monopoly capitalism grows out
of intense capitalist competition. The growth of capital accumulation hinders the interest of
the working class because this leads to more automation in the production process, resulting
in displacement of labour by machinery, and the result is the growth of the reserve army of
labour. A capitalist mode of production in the long run creates a pool of unemployed and
under-employed labour.
● The reserve army of labour created by capital accumulation leads to increase in poverty

among the labour class. Capital accumulation adds to the absolute deterioration of the
condition of the working class. The relative deterioration is called immiserization of the
proletariats. However, another condition, known as proliterianization of the working
class, is created when the workers are fully unemployed. The workers under capitalism not
only suffer from physical poverty including malnutrition, under-nutrition, and poor living
conditions but also from social poverty, implying discrepancy between wages, inequality in
consumption, inequality in opportunities and in resource endowments.
● According to Marx, a capitalist system is unjust because of many reasons including distrib-

utive injustice, lack of freedom and liberty and denial of human rights.
● Capitalism leads of alienation of workers. This alienation takes many forms such as alien-

ation from society, family, products made by workers, rights and freedom and from the self
also. In the context of alienation, capitalism cannot be said to be a just system.
Marx has elaborated how labour power is regarded as a commodity under capitalism. The
commodification of labour is totally unjust. Capitalism leads to de-humanization of labour power.
Marx was so disillusioned with system of capitalism that he believed the tradition of private
property system to be error ridden. The capitalist exploits labourers on the basis of the
ownership of the means of production and not because of his superior ability. Marx also has
castigated the role of the

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Government by saying that the state is not neutral under capitalism; it always works in favour of
the capitalist class. Under such a situation, no justice can be expected from the state.

Criticism Against the Marxian Theory

The Marxian theory of justice has been subjected to several criticism. Briefly discussed here are a
few major criticisms.
Firstly, Marx’s prediction that economic conditions of workers under capitalism worsens, has not
been supported by historical evidence. They say that in a country like the United States, the
relative economic status of workers is gradually improving. This is, however, a polemical issue,
and can be settled only with more empirical evidence.
Secondly, Marx’s idea that workers should be given need-based wage, has not been accepted on
economic grounds. Critics point out that the payment of wages should be based on contribution.
Marx’s analysis that under capitalism workers are exploited is perhaps true in the sense that they
are paid lesser wages than the value of their marginal productivity. The surplus value is absorbed
by the capitalist.
Thirdly, Marx’s view that the free market is an unjust system because it generates inequalities
has been criticized by non-Marxists by saying that justice does not mean equality. It is also
argued that inequalities are essential to bring about more efficient allocation of resources. This is
better than the system of equality. The point is debatable. Better allocation of resources has
nothing to do with distributive justice. It has been accepted almost universally that a system of
growing inequality stands in the way of establishment of a just society. Inequality can be tolerated
if it is in favour of less fortunate members of the society (Rawlsian difference principle).
However, this is conspicuous by its absence in capitalism.
Lastly, it is pointed out by critics that the demise of the Soviet Union is proof that the Marxian
theory is unworkable in actual practice. However, it should be noted that the disintegration of the
former Soviet Union does not prove the end of Marxism. As a creed, Marxism will perhaps never
die and many of the basic tenets of Marxism are still true.

Socialist Theory of Justice

Socialism is based on the idea of equality of human rights, freedom and dignity. Socialism is
the first or the lower phase of communism. In this system, the ideal form of distribution will be:
“from each according to his ability and to each according to his needs”. Socialism stands for the
abolition of class conflicts, through the socialization of means of production. Socialist production
is based on the idea of maximum social welfare and justice. It tries to establish equality in the
sphere of production as far as possible. The class distinctions are gradually abolished and fully
obliterated during the higher phase of socialism (communism). There is no exploitation of one by
the other. The social properties are held by the state, the collective firms and co-operative
societies. Production is done by the people and for their maximum benefit. All people work
collectively and labour is socialized. The surplus product is utilized for the purpose of socio-
economic devel- opment. The institution of state is very essential under socialism. The State is
the owner of the

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means of production. It looks after the interest of the people by organizing production,
distribution and exchange. Under socialism, the state does not represent the interest of any
particular class, but it stands for the interest of all people.
Socialism promises to transform the society from the realm of necessities to the realm of
freedom and justice. It gives more emphasis on the ability of people to contribute to the social
stock of goods and services and the distribution is based on the needs of the people.
Criticism Against the Socialist Theory of Justice
Firstly, under socialism, there is no correspondence between the contribution of a worker and his
needs. In such a case, the remuneration is not based on contribution but on the needs of the
people. This practice cannot be said to be just in the sense that contribution has no relevance for
fixing wages.
Secondly, the needs of people are very ambiguous. There may be physical, social, present and
future needs. The needs may vary in quality too. What type of need is to be taken into account
under socialism is the question.
Thirdly, since remuneration depends on needs and not on the ability or contribution, there is no
incentive for the workers to increase his productivity. Thus, under socialism, it is likely that social
productivity will reduce.
Lastly, under socialism, individual freedom may be restricted because the occupations will not be
chosen by freewill. There may often be a conflict between the ability and the individual choice.
Since the distribution is based on needs and not on choice, ultimately the need will prevail and the
choice will be relegated to the background.

John Rawls’ Theory

John Rawls’ theory of justice (1971) has been regarded as a landmark that provides an alternative
to the theory of utilitarianism. Rawls complains that political theory in the past was sandwiched
between two dominant ideas: theory of utilitarianism and philosophy of intuitionism. Rawls was
not happy with either of these doctrines, and therefore, attempted to find a comprehensive
political theory that could rationally explain the structures of intuition and also explain
satisfactorily the principles that should govern distributive justice.
Rawls’ theory is based on the following three principles:
There should be equal liberty for all citizens with respect to essential fundamental rights
including human rights, freedom to own private property, freedom of speech, civil liberties, and
freedom of expression. These are the basic goods which are highly essential for any citizen to live
a meaningful life. These basic goods, according to Rawls, should be equally distributed.
There should be equality of opportunities for everybody so that the person can pursue his own
line of action or profession for the maximum capability expansion and growth.
Some amount of inequality is permitted to exist but there should be an attempt to improve the
economic conditions of the unfortunate people in the society (Difference Principle).

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A morally warranted situation for justice will have to be based on some neutral position at the
beginning, which Rawls refers to as the original position. In this original position, the parties (the
rational people) will choose those principles which they will apply to themselves. This is the
same as the Kantian moral ideas of reversibility. The original position should also be such
that the principles of justice chosen must be equally applicable to everyone. This is called the
principle of universalizability.
According to Rawls, social welfare is the welfare of the worst off members of a society.
Rawls’ theory tries to answer two basic questions of distributive justice:
1. How can we find the principles of justice?,
2. What are these principles of justice?
The answer to the first question is that it is necessary to have a contact which is shielded under
the veil of ignorance. While answering the second question, Rawls rejects the importance of merit
because merit comes from heritage, upbringing and natural endowments that are irrelevant from
the moral point of view. All primary goods like liberty, opportunity, and so on are to be
distributed equally unless an unequal distribution is to the advantage of the least favoured. The
difference principle states that difference is allowed so long as they gain the least advantaged. In
Rawls’ theory, no person deserves to benefit exclusively from his talent; but it is not unfair to
allow such benefits when they work to the advantage of those who were less fortunate. This is
precisely the essence of Rawls’ principles. Under the difference principle, people only have a
claim to a larger share of resources if they can show that it benefits those who have lesser shares.
However, in general, people are not indifferent to the way the benefits produced by their
collaboration is distributed, and there may be a conflict of interests unless there is a set of
principles. The importance of a set of principles needed for the division of advantages among the
participants is clearly recognized by Rawls when he says:
A set of principles is required for choosing among the various social arrangements which
determine this division of advantages and for underwriting an agreement on the proper
distrib- utive shares. The principles are the principles of social justice: they provide a way of
assigning rights and duties in the basic institutions of society and they define the appropriate
distribution of the benefits and burden of social cooperation. A conception of social justice,
then, is to be regarded as providing in the first instance a standard whereby the distributive
aspects of the basic structure of society are to be assessed.
(Rawls, 1971, pp. 4–9)

According to Rawls, justice can be achieved on the basics of a hypothetical social contract
characterized by a situation so as to lead to the conception of justice. The point of the contract is
to determine principles of justice from the conception of equality. Rawls is interested in
commutative justice with an equal start and opportunity and fairness to everyone.
Given the position of contractarian equality among the members making the hypothetical
contract, justice would constitute a significant part of rational choice. Rawls advises to choose
a situation or strategy where in the worst situation, the payoff would be the largest among the
smallest (maximum) i.e. maximize the gain in the worst situation. However, for an unknown and
uncertain situation, Rawls suggests that people in the original position should choose the
difference principle.

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People’s claim to social goods should not depend on natural endowments. Under the difference
principle, people only receive extra reward for their talents if that leads to the benefit of the less-
well off. Rawls defends the difference principle by saying that it counteracts the inequalities of
natural and social disadvantages. In his theory of justice individuals are expected to think about
justice in terms of the rules that should govern their self-interest without recognizing their talents,
endow- ments and social position.
Rawls presumes rational individuals would agree to two rather different principles—equality
in the assignment of basic rights and duties, and socio-economic inequalities are permitted only if
these result in compensating benefits for everyone. Rawl’s theory of justice makes use of
distinctive restatement and application of the social contract and rational choice theories. Rawls’
theory states that the principles of justice are really the choice of rational people under the
hypothetical situation of equalized liberty, and under such a situation, justice can be regarded as
the outcome of fair agreement or bargain.
The parties making a contract or agreement for justice as fairness must be rational and
mutually disinterested. John Rawls interprets rationality in a narrow sense as the most effective
means to the given ends. The basic merit of the contract terminology, Rawls states, is that it
conveys the idea that principles of justice may be conceived as principles to be chosen by rational
persons. Rawls suggests that his principles of justice are superior for two reasons: (1) they spell
out the idea of fairness with clarity (2) they are the outcome of a hypothetical social contract.
Criticism Against Rawls’ Theory
1. The original position which is hypothetical in the case of his theory does not specifically say
anything about the principles of justice which are morally acceptable. The original position
may also suggest the importance of duty (Deontic Theory) or the theory of consequen-
tialism.
2. Rawls’ difference principle will not be accepted by all. Why should rich people sacrifice
their money and wealth for the betterment of poor people in a capitalist society? Many will
argue that the differences in wealth and income are the reflection of individual talent,
intelligence and ability, and such differences are natural.
3. The hypothetical social contract that becomes the basis of Rawls theory, is not practically
helpful for having a theory and principle of ideal justice.
4. Rationality has been defined too narrowly by Rawls as the most effective means to a given
end. He has not defined the nature of ends (just or otherwise) and the most effective means.
Effective means can be interpreted in terms of time or in terms of physical inputs or in terms
of cost. Each one of these will have different socio-economic implications.
However, in spite of these criticisms, it should be pointed out that Rawls has analysed some
important elements of justice by combining his notions on equality and inequality. Although he
has taken into account socio-economic inequalities, he has not failed to suggest some ways and
means to improve the living standards of downtrodden people.

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Libertarian Theory
The most important proponent of libertarian thinking is Robert Nozick (1974). According to him,
the transfer of income or wealth from the rich to the poor is unjust for many reasons. Nozick is an
anti-consequentialist. This means that it is not the outcome of any action that is important,
but it is the process that remains decisive. According to Nozick, only those processes are just
where exchange is voluntary.
According to Nozick, any justified distribution of benefits and burden will take into account
the free choice of the individual. If any action or policy is imposed on an individual in the matter
of exchange, it is not justifiable. A person’s choice has to be given full credit for creating a just
situation. The motto is—from each according to his choice and to each according to what he has
chosen. In other words, if a person has created something, he should be allowed to keep his own
creation, provided he wants it; it is not justifiable according to Nozick to take contribution from
one citizen to increase the welfare of another citizen. Such a type of distribution is not permitted
by the Nozick’s theory. Nozick also does not support the idea of infringement of individual
freedom by any authority. To Nozick, justice means freedom. So imposition of any rule or policy
that curbs the freedom of individual will be unjust. The only type of distribution which is
justifiable is the one which is based on the free choice of individuals. If something wrong has
been done by the policy- maker in the past, a way must be found to undo such things.
However, this is a very complicated task for the government and society. The libertarian view
says that the entitlement theory of justice should regard economic outcomes as just only when
they arise from acquisition by the state (or dispossession by the state) of what was not earned or
what was not voluntarily transferred. Just acquisitions in a sense are those that do not violate
individual rights and freedom, the distribution of income, therefore, must remedy these previous
violations. Nozick’s theory relies heavily on the concept of rights and freedom in the matter of
property rights and ownership. The present property rights are mostly found to be unjust.
Therefore, the attempt to redistribute such property is just. The concept of freedom developed by
the libertarian thinkers is a negative concept in the sense that it upholds non-interference with
anybody’s freedom and rights. The idea of Nozick has given rise to many debates about the
concept of equity. It is indeed difficult to know what is right and what is wrong.
Criticism Against Nozick’s Theory of Justice
Firstly, if a person has to depend on his creation, as Nozick observes, then most of the poor
persons in a society will remain poor forever, as most of them have inadequate resource
endowment and lower level of ability.
Secondly, Nozick does not favour the idea of income transfer from the rich to the poor. In such a
case, the level of socio-economic inequality will go on increasing. The theory is anti-
progressive.
Thirdly, if some people’s lives can be saved by coercing others a bit, or distributing income from
the rich to the poor, the ultimate social or individual gain may be remarkable. However, Nozick’s
view is narrow and rigid.
Lastly, Nozick has given primary importance to freedom from coercion. What about other
forms of freedom? He is not concerned with basic human freedom like freedom from poverty
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and unemployment, ignorance and starvation. These forms of freedom are equally important as
the freedom from coercion.

Quranic Theory
Justice is one of the most used words in the Quran (Koran). According to the Islamic system, it is
man’s responsibility to establish justice. Allah commands justice and welfare. The fundamental
principle that guided the social formation of Medina was the equality of men. The most honored
person in Islam is the one who is the most righteous. Justice is equated with what is socially good
for all. The Islamic concept of justice in the distribution of income and wealth does not require
reward for everyone irrespective of one’s contribution to society. Islam tolerates some
inequalities and allows differential earnings. Implicitly, the desirable pattern of income
distribution is based on the principle of equity. The quality determines the quantity. For instance,
a man having two wives need not buy the same length of cloth for each wife; since one may be
shorter or slimmer than the other. Islam advocates the provision of honorable living for the
unfortunate who are unable to participate in productive activities. It supports the program of basic
needs (ma-ash) for every family.
Social justice constitutes freedom, but with some constraints, as dictated by the religious
prescrip- tions. Social justice guarantees individual freedom against the misuse of power (Naqvi,
1981; 86). The starting point of social justice is the equality of all before law. Social justice
requires that the poor be levelled up and the rich levelled down. Islam prohibits the concentration
of wealth and power in a few hands. The possessor of wealth in Islam is merely a trustee, who
should spend the wealth in such a way as will maximize social welfare. There is a built-in
institutional mechanism for the desirable pattern of redistribution of income through zakat
(compulsory contribution for the benefit of the have-nots). There is also a provision of sadaqah
(occasional offerings) of alms to the needy. The Islamic concept of justice is aimed at minimizing
social inequalities through religious prescriptions. As a matter of fact, true belief in Allah
automatically entails devotion to justice and righteousness.
The consequentialist philosophy envisages that a just action is that which is based on the
possible consequences of the action, policy or choice. Thus, it is the outcome of the action and
policy of choice. Thus, it is the outcome of the action that is important for the evaluation of any
public policy or choice. The utilitarian theory of justice is based on consequentialism. Under this
system, if consequences are good from the point of social welfare they are justified. If the conse-
quences are bad, the action cannot be considered as just.
The deontic philosophy is associated with Immanuel Kant. According to this philosophy, an
action is just if it is done as a duty. These duties or rules may be the rules of natural justice, moral
principle, codified rules or what may be categorical imperatives. The idea is similar to rule utili-
tarianism which states that social welfare or utility can be maximized by adhering to codified
rules or laws. New age utilitarians are deontological in their attitude. However, all the theories
discussed earlier are designed in a normative framework. It is necessary to integrate these theories
of distrib- utive justice to make them amenable to and a part of the mainstream economic theory
that is still dominated by the idea of Pareto Optimality.

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Gandhian Concept of Justice
Gandhi assigns a critical role to justice. Gandhi observes that justice for the individual is prime to
him and all else comes after that (Gandhi, September 17, 1919.). In Gandhi’s conceptualization,
justice constitutes natural universal justice and is based on rights. To him, justice is an uncondi-
tional claim to certain universal, natural, inherent and inalienable rights earned by duties. Duties
are preconditions of rights that are to be earned through proper performance of duties. Being
influ- enced by the theory of karma (action, as enshrined in Hindu religious scriptures, especially
the Gita), Gandhi placed much more significance on karma without any attachment and
expectation of rewards. Justice empowers a person to enjoy certain natural rights, such as equality
of social status, equal social and economic opportunities and equal enjoyment of freedom. Gandhi
has talked about at least six different types of justice (see Figure 3.1). These mainly relate to
social justice, pure justice, justice as natural rights in some situations, justice in the absence of
duress, justice as fair treatment, justice as a situation where no harm is done to an opponent in
dispute, and the Satanic concept of justice. He was deeply concerned about social and economic
justice, which was closely connected to his basic philosophy of non-violence. To Gandhi, justice
is a prerequisite for non-violence (Bhattacharya, 1969:395). These two Gandhian concepts are so
interconnected that neither could be understood without studying its relations with the other. It
needs the Hegelian concept of relations. One of the most important contributions of Hegel was his
theory of relations, which stated that nothing can really be understood in the true sense of the
term without knowing its relation to other related concepts or things. The same philosophy
applies to the case of Gandhian concepts of non-violence and justice.

Figure 3.1 Gandhian concept of justice

According to Gandhi, an action is just when it does not harm either party to a dispute (Gandhi,
1958–84, Vol.14:233). This idea of justice is the very heart of Gandhi’s satyagraha and conflict
resolution. To Gandhi, the simplest principle of justice depicts that situation where nobody should
be forced to do anything under duress (Gandhi, 1958–84, vol. 4:266). He has explained some
important principles of justice in connection with mill workers’ strikes in Ahmedabad in 1917.
His ideas are contained in various leaflets that he distributed to the workers and employers in his
bid to settle disputes. According to him, the cheating game of the employers towards the workers
was the Satanic notion of justice prevalent among the capitalists in the Western or modern world

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(Gandhi, 1958–84, vol.4:233). The workers themselves also might have been influenced by the
Satanic concept of justice when they put forward a list of demands simply because they thought
that the union was strong enough to do so.
Speaking of the Satanic concept of justice, Gandhi writes:

In the present war in Europe…. no means is considered improper in defeating the enemy.
Wars must have been fought even in the past, but vast masses of people were not involved
in them. We would do well not to introduce into India this despicable idea of justice. When
workers make a demand merely because they think themselves strong enough to do so,
regardless of the employers’ condition, they will have succumbed to the modern, Satanic
idea of justice… you will never find in ancient India that a situation in which the workers
starved was regarded as the employers’ opportunity. That action alone is just which does
not harm either party to a dispute.
(Gandhi,1958-84, vol. 4: 233).

The Satanic concept of justice is wicked in nature and is motivated by revenge and selfish
personal gain. As against this auto-centric concept, there is the notion of pure justice which is
according to Gandhi is motivated by compassion, kindness and pity shown by the employer
towards the subordinate or dependent employees. Thus Gandhi writes:
There was a time in India when servants, passing from father to son, used to serve in the
same family for generations. They were regarded and treated as members of the family.
They suffered with the employers in their misfortunes and the latter shared the servants’
joys and sorrows. In those days, India was reputed for a social order free from friction, and
this order endured for thousands of years on that basis. Even now this sense of fellow-
feeling is not altogether absent in our country. Where such an arrangement exists, there is
hardly any need for a third party or an arbitrator. Disputes between a master and a servant
are settled amicably. There is no room in this arrangement for increase or reduction in
wages according as the changing needs of the two might dictate.
(Gandhi, 1958-84,vol. 4: 232-233)

The Gandhian concept of pure justice is quite consistent with the Rawlsian difference
principle, which recommends a skewed distribution of income in favour of the poor and deprived
sections of a community. An example of a system of pure justice in India is to be found in the
practice of the jajmani system in ancient India to which Gandhi has alluded in various places in
his writings. Gandhi observes that in the past, the people of India had achieved great things
because they made pure justice the law of their life (Gandhi, 1958-84, vol. 16:316). In explaining
the concept of pure justice, Gandhi writes:
Pure justice is that which is inspired by fellow-feeling and compassion. We in India call it
the Eastern or the ancient way of justice. That way of justice which has no place in it for
fellow- feeling or compassion is known as Satanic, Western or modern justice.
(Gandhi, 1958-84, vol. 16:302–03)

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In Gandhis’ conceptualization, justice is basically tantamount to fair treatment (Gandhi, 1968,
vol.6:445). Justice must be laced with generosity and mercy. Gandhi observes: “Justice needs to
be tempered with generosity as much as generosity needs to be tempered with justice (Gandhi,
1958-84, vol. 88:259).
He was convinced that swaraj could never be achieved by usurping the rights of any
community, big or small, but by ensuring even-handed justice and fair treatment. Although the
term fair treatment admits various subjective connotations, it is not wrong to think that in the
Gandhian concept of justice, the term includes the basic idea of natural justice, equality and
rights. He lamented that British India was rife with injustice. To cite but one example, Gandhi
said that he saw almost daily courts in India denying justice and distorting the truth. In his words
“…in the district of Khurda, acknowledgements of enhancement of revenue are being forced from
the people practi- cally at point of the bayonet” (Gandhi, 1928, 12 June).
Appraisal of the Gandhian Concept of Justice
Gandhi’s concept of justice is a combination of two important philosophical theories—the
Kantian deontic philosophy and the philosophy of consequentialism. For Gandhi, to do one’s
assigned duty is a way to earn rights; he never became uncritical about the nature of duties. Only
those duties that are just, sanctioned by natural laws, and consistent with religious practices need
to be performed. These, then, are the categorical imperatives for him. The duties assigned by the
higher authority or by the state can very well be violated if these are immoral, unjust and
repugnant to the religiosity of men. Thus, Gandhi was not an uncompromising follower of deontic
philosophy. He was a discriminating consequentialist in the sense that he would like us to do only
such work whose consequences are ethical, morally upright and practically just. Thus, one can
find an amicable and no contradictory conflux of deonticism and consequentialism in Gandhi’s
concept of justice.
Gandhi never subscribed fully to the utilitarian philosophy of the greatest good of the greatest
number. However, these two notions (Gandhian and utilitarian) of justice converge at many
points but there is no time when they part ways. A utilitarian, to be logical, will never sacrifice
oneself, whereas the greatest good of all. As a votary of non-violence and services to others, he
was not prepared to do any work that was not good for the society, nation and humankind.
The teachings of the Gita inspired Gandhi to do morally and socially just work without
thinking about the fruits of actions, which are to be decided by God. It is in the context of social
justice and equality that Gandhi considered the possession of wealth as something ethically
unjust (Gandhi, 1931, 23 Sept). Gandhi’s concept of social justice includes socio-economic
equalities and fair treatment, which can be attained through the non-violence means of
satyagraha. As Gandhi observes:
I have always held that social justice, even unto the least and lowliest, is impossible of
attainment by force. I have believed that it is possible by proper training of the lowliest by
non-violent means to secure the redress of the wrongs suffered by them.
(Gandhi, 1969:138)

The Gandhian theory of justice, if one can call it a theory, was an amalgam of all the theories
that have been elaborated upon earlier. His believed in the holistic notion of justice. His concept
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justice was quite similar to the utilitarian theory. To him, a just law or action is that which not
only maximizes the welfare of the greatest number of people but of all the people. He was not
prepared to accept that such actions were impossible in actual practice. However, he was not
completely a utilitarian because he did not support the idea of an individual behaviour that is
based on the principle of utility maximization without caring for the social welfare. One should
not fail to note here the principle of agency and structure, which is explained by Gandhi in terms
of reciprocal needs for interdependence. Gandhi supported the Marxian theory of justice in the
sense that it is based on the need for the absence of exploitation of the poor working class by the
rich capitalist class. Like Marx, he also believed that justice lies in the payment of need-based
wages to the working population. To Gandhi, justice is a relative term (Gandhi, 1935, 1 June).
Gandhi was Rawlsian in the sense that he was interested in commutative justice—justice with
an equal start, equal opportunities and equal fairness to all classes of people. Like Rawls, Gandhi
also had a soft spot for the poor and the so-called lesser mortals for whom he favored a little bit of
inequality and human kindness in the matter of distribution of resources.
Further, Gandhi did not agree with the libertarian view that the transfer of income and wealth
from the rich to the poor is unjust. In fact, on many occasions, Gandhi himself recommended
such transfers. However, he agreed with Nozick’s suggestion that it is the duty of the state to find
some mechanism to undo the wrongs done in the past. The implications of the Gandhian theory of
justice also support the libertarian view that just acquisitions must not disturb the rights and
freedom of individuals. Like the Islamic theory of justice, Gandhi’s concept of justice recognizes
the equality of all human beings and wants the possessor of wealth to be the trustee of the wealth
for the benefit of all. Gandhi also favoured the policy of leveling up the poor and leveling down
the rich for the sake of socio-economic equality. Gandhi has suggested basically a couple of
methods for combating injustice.
There are two ways of countering injustice. One way is to smash the head of the man who
perpetrates injustice and to get your own head smashed in the process. All strong people in
this world adopt this course. Everywhere wars are fought and millions of people are killed.
The consequence is not the progress of a nation but its decline. Soldiers returning from the
front have become so bereft of reason that they indulge in various anti-social activities. But
through the other method of combating injustice, we alone suffer the consequences of our
mistakes; and the other side is wholly spared. This other method is satyagraha. One who
resorts to it does not have to break another’s head: he may merely have his own head
broken. He has to be prepared to die himself suffering all the pain.
(Gandhi, 1916, 27 July)

The method of satyagraha as a means to achieve justice was first applied by Gandhi in South
Africa and then in India. The history of this struggle for all practical purposes became the history
of the remainder of Gandhi’s life in South Africa, and especially of his experiments with truth in
that subcontinent and in India (Gandhi, 1927:266).

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Summary
The discussion on “right” and “wrong” has been attempted by a number of theories. The Bible
has in this context given ten commandments—the most important of them are to love your
neighbor and to worship God with all heart, soul and mind. Aristotle has put more emphasis on
human virtues like benevolence, courage and kindness . He has advised to follow in every matter
a golden mean which is the mean between two extreme values. In his Nicomachean Ethics,
Aristotle has put forward the idea that character-building is essential for a happy and meaningful
life; but character is based on virtues.
Utilitarianism is based on the principle of greatest good of the greatest number, The theory of
consequentialism is an end-based theory: an action is good if the end result is good. Theory of
consequentialism is directly associated with teleological theory; it emphasizes telos (the ultimate
end). Kant emphasizes on the fact that no action is good or bad by itself; what matters is the
intention behind the act. He has put more emphasis on duties. He has proposed the principle of
universalism which is anti-consequentialist in nature. We should do only those acts which can be
universalized. According to Kant, categorical imperatives are ethical acts which must pass two
tests: Firstly, a person’s reasons for acting in a particular way should be the reason which should
induce others to act exactly in the same way (universalizability). Secondly, you should perform
your duty on others in such a way that you will like others to perform their duties on you in
exactly the same way (reversibility).
Nozick explains that the state must ensure that there is no restriction of freedom. To him,
individual is the end and not the means. The basic human rights must not be violated. According
to him, inequality is the natural principle and it should not be reduced, and it is improper for
anybody to distribute income of the rich among the poor people. The transfer of property or
income should be voluntary and not by coercion or any other means. Albert Carr’s theory of
business ethics considers bluffs in business as a permissible phenomenon. Is this fair? In any
discourse on ethics, the concept of justice is the most important. Justice is regarded as fairness.
There are many types of justice including retributive, communitarian, and compensatory,
commutative, procedural and distributive justice. The utilitarian theory of justice asserts that an
action is just if it leads to the greatest good of the greatest number of people. The egalitarian
theory is based on equality. In the capitalist theory of justice everybody should receive according
to his contribution. However, the Marxian theory asserts that wage should be need-based. This is
possible only under communism. This is also the view of the socialist theory. Rawls’ theory
emphasizes on equality of opportunity for everybody, and equal liberty for all citizens. However,
he is in favour of the poor people and advocates for the improvement of their economic
conditions through difference principle.
The Quranic theory puts emphasis on equity, social welfare and righteousness. Some amount
of inequality is permitted, and it allows differential earnings. To Mahatma Gandhi, justice is
based on rights. It consists of absence of duress, claims to natural rights and no harm to anybody.
He advocated welfare of all. He also supported the Marxian theory by saying that wages should
be need-based. Like Rawls, he also stood for equal opportunities, equal fairness and equal rights
and also some favours for the poor people. He did not agree with the libertarian view that it is
unjust to distribute rich men’s wealth among the poor. Like the Quranic theory, he supported the

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idea of levelling up the poor and levelling down the rich. 70

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Key Terms
Hedonism Act Deontology Veil of Ignorance
Utilitarianism Enlightened Egoism Social Justice
W.D. Ross’s Seven rules Hedonism Libertarian View
Nichomachean Ethics Epicureanism Communitarian Justice
Golden Mean Principle of Universalism Contractarian Justice
Ten Commandments Categorical Imperatives Distributive Justice
Act Utilitarianism Justice Procedural Justice
Rule Utilitarianism Fairness Egalitarian Theory of Justice
Ordinal Measurement Retributive Justice Anti-Consequentialist
Cardinal Measurement Compensatory Justice Reverse Injustice
Telos Procedural Justice Jajmani System
Egoism Equity and Equality
Rule Deontology Difference Principle

Test Your Knowledge

1. State whether the following statements are True or False
(i) ‘Do not tell lies’ is a Christian Commandment.
(ii) Utilitarianism is based on the principle of cost and benefit.
(iii) A consequentialist theory is a teleological theory.
(iv) The Kantian theory of deonticism is based on the idea of performance of duties.
(v) Albert Carr’s theory suggests that it is perfectly right to bluff in business.
(vi) According to the Greek philosophy, the best life is the life of contemplation.
(vii) There are 15 Christian Commandments.
(viii) The theory of “golden mean” is associated with the name of Aristotle.
(ix) The concept of “categorical imperatives’ is associated with the name of Immanuel Kant.
(x) The capitalist theory of justice says that everybody should be paid according to his
contri- bution.
2. Fill in the blanks
(i) Retributive justice ensures some form of punishment to .
(ii) Gandhi’s theory of justice advocates greatest good of .
(iii) The difference principle is associated with the name of .
(iv) The Nichomachean ethics is written by .
(v) Libertarianism is associated with the name of .
(vi) philosophy envisages that a just action is that which leads to good
conse- quences.
(vii) Robert Nozick says that it is to transfer income or wealth from the rich
to the poor.
(viii) The Kantian theory of justice is based on the ideas of reversibility and .
(ix) Justice is equivalent to .
(x) According to Karl Marx, leads to alienation of workers.

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3. Choose the correct option
(i) Socialism is based on the principle:
(a) From each according to his ability to each according to his needs
(b) From each according to his ability and to each according to his contribution
(c) From each according to his desire, to each according to his needs
(ii) Karl Marx shows that under capitalism, labour power becomes a
(a) Commodity
(b) Free good
(c) Basic good
(iii) Reserve army of labour signifies
(a) Unemployment
(b) Military power
(c) Young terrorists
(iv) Egalitarian theory of justice is based on the idea of
(a) Equality
(b) Inequality
(c) None of these
(v) Utility can be measured in
(a) Two ways
(b) Three ways
(c) Four ways
(vi) The teleological theory is basically concerned with
(a) End or consequences
(b) Morality
(c) Total costs and benefits
(vii) In Kant’s theory,
(a) It is the intention or motive that matters
(b) It is the actual action that matters
(c) Both action and motive matter
(viii) Rights are
(a) Empowerments or entitlements
(b) Liberties to do anything
(c) Powers to control
(ix) Surplus value is equal to
(a) The difference between the value of total product of labour and the wage paid
(b) Net profit
(c) Value which is unaccounted for
(x) Utilitarianism has been explained as the theory of
(a) Net benefit
(b) Net cost
(c) Benefit equal to cost

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Review Questions
1. How will you distinguish between utilitarianism and consequentialism? Explain.
2. Make a reconciliatory approach between consequentialism and deonticism.
3. Explain the salient features of Aristotle’s golden mean.
4. What is a teleological theory? Analyse its various ramifications.
5. Discuss the Biblical assertion of the Ten Commandments of the Christian ethics. Which of
the commandments you think is the best?
6. Critically analyse W.D. Ross’ seven prima facie moral rules.
7. Why do our ethical decisions differ?
8. Explain why does a good man sometimes do ethically bad works?
9. Distinguish between the utilitarian and the consequentialist notions of justice.
10. Write an essay on Rawls’ theory of justice.
11. Compare and contrast the ideas of justice under capitalism and socialism.
12. Bring out the salient features of the Gandhian theory of justice.
13. Why is capitalism considered as an unjust system by Marx?
14. Which of the theories of justice that you have studied here appears to be most appealing to
you and why?
15. Compare and contrast the Gandhian concept of justice with the theories that you have
studied.

Web Links
1. http://jan.ucc.nau.edu/~dgs2/theories.pdf [Nine Theories of Ethics that Rule the World]
2. http://www.princeton.edu/~ppettit/papers/1974/A_Theory_of_Justice.pdf
[A Theory of Justice]
3. http://www.cupr.org/VI3/Storelli-VI3.pdf [John Rawls’ Principles of Justice]
4. http://www.tannerlectures.utah.edu/lectures/documents/Striker88.pdf
[Greek Ethics and Moral Theory]
5. http://www.bced.gov.bc.ca/irp/social_justice12/sj12irp2008.pdf [Social Justice]

References
American Bible Society (2005), Good News Bible, New York
Brandt, R. (1959), Ethical Theory, Prentice Hall, NJ, USA
Carr, Albert, Z. (1968), “Is Business Bluffing Ethical?”, Harvard Business Review, January–Feb-
ruary, 1968
Christians, C.G., et al. (2005), Media Ethics, Addison Wesley Longman, New York Day,
Louis Alvin (2006), Media Communication Ethics, Wadsworth, New Delhi Dienhart,
John W. (2000), Business, Institutions and Ethics, Oxford University Press
Durant, Will (1961), The Story of Philosophy, Pocket Books (Simon and Schuster), New York
Friedman, F. (1978), Introductory Ethics, Prentice Hall, NJ, USA

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 Theories of Ethics
74
Hoffman, John and Graham, Paul (2010), Introduction to Political Theory, Pearson, New Delhi
(South Asia Edition).
Hohfeld (1923), Fundamental Legal Conceptions as Applied in Judicial Reasoning, Yale
University Press, New Haven, Connecticut
Kant, Immanuel (1964), Groundwork of the Metaphysics of Morals (Translated by H. Paton),
Harper and Row, New York
Kant, Immanuel (1972), “Fundamental Principles of the Metaphysics of Morals” in Paul W.
Taylor (Ed.), Problems of Moral Philosophy, Dickenson, CA, USA
Mackie, J.L. (1990), Ethics: Inventing Right and Wrong, Penguin Books, USA, New York
Nozick, Robert(1974), Anarchy, State and Utopia, Basic Books, New York
Ross, W. D. (1930), The Right and the Good, Clarendon Press, Oxford
Smart, J., and William, B. (1973), Utilitarianism: For and Against, Cambridge University Press,
England
Tuck, R. (1979), Natural Rights Theories, Cambridge University Press, New York
Weiss, Joseph W. (2009), Business Ethics, Cengage, New Delhi
Bhattacharya, Buddhadev (1959), Evolution of the Political Philosophy of Gandhi, Calcutta Book
House, Calcutta, Chapters 6 and 7
Davis, John. B. (1948) “Justice” in Philip O’Hara (Ed.), Encyclopedia of Political Economy,
Routledge, London and New York
Gandhi.M.K. (1909), India, 22 October
——— (1909), Indian Opinion, 25 December
——— (1927), An Autobiography, Navajivan Publishing House, Ahmedabad
——— (1919), Young India, 17 September
——— (1968), Selected Works of Gandhi, D. Narayana (Ed.), Ahmedabad
——— (1969), All Men Are Brothers, K. Kripalani (Ed.), UNESCO
——— (1916), Readiness for Satyagraha, July 27
——— (1928), Young India, 17 March
——— (1931), “Questions and Answers”, Young India, 26 March
——— (1935), Harijan, 1 June
——— (1958–84), The Collected Works of Mahatma Gandhi, Government of India, Publication
Division, New Delhi, Vols. 14, 16, 61,77, 88, 91, 93, 94
Ghosh, B.N. (2001), Gandhian Political Economy, Ashgate Publishing, UK, pp. 129
——— (1990), Political Economy: A Marxist Approach, Macmillan India, New Delhi
Marx, Karl (1867), Das Capital, Vol. 1, Progress Publishers, New York
Nozick, Robert (1974), Anarchy, State and Utopia, Basic Books, New York
Rawls, John ( 1971), A Theory of Justice, Cambridge, MA

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 CHAPTER
4
Ethics and the
Market

L E A R N I N GO B J E C T I V E S

This chapter will help the reader understand

■ Price and output determination under perfect competition, monopoly and oligopoly
■ The concept of measurement of monopoly power
■ Regulation of monopoly
■ Cartelization: theory and practice
■ Ethical issues and the market structure

INTRODUCTION
A market is a place of interaction between buyers and sellers. The geographical location of the
market is of little importance. Transactions can be done at any place. So, in order to be a market,
the exclusion principle must apply. This means that a person, who is not paying, can be excluded
from the market. Therefore, a market is a neutral institution and a place where exchange of goods
and services is based on the principle of fair play. A market can have one or more sellers or buyers.
Thus, there may be monopoly, duopoly or oligopoly. From the buyer’s side, there may be
monopsony, duopsony or oligopsony.
The existence of all these types of markets will create a market structure. The purpose of this
chapter is to analyse the output and pricing conditions of different types of market structures and

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70
organizations, and more importantly, to pin-point the ethical issues embedded in each type of
market system.

PERFECTLY COMPETITIVE MARKET

Perfect competition has the following characteristics:
1. There are many buyers and many sellers.
2. There is free entry and exit for any firm.
3. Every firm is a price-taker.
4. No firm is able to increase or decrease the price level in a perfectly competitive market.
5. The goods are homogenous in quality.
6. The firms are guided by the philosophy of profit maximization.
7. The products are all divisible.
8. There is no Government intervention or regulation affecting the market.
9. The market is transparent and there is perfect knowledge on the part of the seller and the
buyer about the prevalent market conditions.
10. There is complete mobility of factors of production in the industry.

Distinction Between Perfect Competition and Pure Competition

Perfect competition is a broader concept than pure competition.
In pure competition, the last two characteristics of
perfect competition described above, namely perfect
knowledge and perfect mobility of factors of
production, are not present. Both perfect competition
and pure competition are illusory concepts, as they do
not exist in the real world.

Determination of Output and Prices Under

Perfect Competition
The output and price decisions under perfect competition Figure 4.1 Output and prices under
for the industry as a whole are shown in Figure 4.1. perfect competition
The pricing and output decisions can be described both for the short and long run.
The equilibrium price is the market-clearing price. At that price, the quantity demanded and
supplied will be equal.
In the short run, firms can make profit or sustain losses, or can make only normal profit by
attaining the breakeven. It should be noted that the average revenue, marginal revenue, average
cost and marginal cost are all equal at the point of equilibrium. Under perfect competition, the
Average Revenue Curve and Marginal Revenue Curve are equal and horizontal. It is possible for
a firm in the short run to earn super normal profit or economic profit. However, in the long run
this profit is competed away, as there is free entry in the market. It is competition that
reduces the prices to
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 Ethics and the Market Structure
71
the minimum level giving maximum benefits to the consumers. Such a
situation also ensures minimum profit (normal profit) to the producers to stay
in the business. Perfect competition is justified because it works against the
possibility of concentration of economic power in a social system.
In the short run, the firms making losses will not immediately leave the industry. They will try
to adjust their internal production conditions so that they can in future attain the equilibrium price
without incurring losses. Such firms will continue to exist so long as they can cover the average
variable cost. However, after waiting for a reasonable period of time, if a firm cannot recover the
average variable cost, then it will have to shut down.

Long-Run Equilibrium Output and Price

In the long run, a firm will attain equilibrium under the following two conditions:
(i) The price must be equal to marginal cost
(ii) Price must be equal to the average cost
Under perfect competition, since the price
level is the same, i.e., the Average Revenue
(AR) curve and the Marginal Revenue (MR)
curves are perfectly elastic (horizontal straight
line). The Marginal Cost (MC) curve must cut
the Marginal Revenue curve from below in order
to determine the equilibrium output and price.
The Average Revenue curve is nothing but the
demand curve. In the long run, under perfect
competition, a firm will produce at the lowest
point of the Average Cost (AC) curve as shown
in Figure 4.2.
There are two implications of production Figure 4.2 Perfect competition situation
at the lowest point of the AC curve.
Firstly, the firm will have the maximum amount of output at the minimum possible price.
Secondly, the firm will have a situation of equilibrium where there will be a breakeven point; this
means that the firm will make no profit or no loss. In other words, the firm will have an economi-
cally optimum or ideal size, that it is the best for society and also for the producer because it leads
to a situation of maximum efficiency from the point of view of the producer as well as the
consumers. This situation of zero profit is to be interpreted cautiously. The zero profit
does not mean that the firms are not making a profit. The firms are indeed making normal profits.
The firms are making positive accounting profits, and these profits are different in the long run. In
the accounting sense, the differential managerial skills, experience and cost-reducing internal
economies and the impact of all are taken into account. Thus, a firm which is more efficient and
competitive will make an accounting profit. For instance, a manager with better skills and
experience will get a higher salary in the accounting sense and the firm will get a higher profit if
it has better technology and efficiency. Thus, it is possible for a good firm to earn more profit
even in the long run. Better efficiency and technology will lead to a reduction in the average cost
of production per unit of output. But in the economic sense the average cost will equalize the
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average revenue and marginal revenue. 72

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73
In the long-run equilibrium, a firm under perfect competition will have the following condi-
tions:
P = MR = LMC = LAC
In the long run, a firm in the perfectly competitive market cannot exist unless it is able to
reduce its cost to minimum and which is equal to the prevalent market price. Thus, in a sense the
firm tends to be of optimum size.

Competitive Equilibrium and Efficiency

A perfectly competitive market which is in equili-
brium shows efficiency in terms of consumers and
producers. There is efficiency in production which
is called allocative efficiency. This is achieved
when the price level is equal to Marginal Cost (P =
MC). The consumers are able to get consumers’
surplus and producers are able to produce those
commodities at the minimum possible price
(producer’s surplus). Thus, a competitive Figure 4.3 Equilibrium and efficiency
equilibrium is an efficient equilibrium as shown in
Figure 4.3.

Where is the Competition in Perfect Competition?

It is sometimes felt that the expression, perfect competition, is a misnomer because there does not
seem to be any competition. This is so because the prices and the quality of goods are the same
and everyone is earning normal profits (production at the minimum point of AC curve ensures
normal profit). So, where is the competition?
The answer to this question lies in the fact that it is because of intense competition among the
producers that price equalizes in the market. Moreover, the competition is present, every firm
wants to maximize profit by selling more so that the total normal profit is the largest. Every firm
is trying to achieve the goal of total sales maximization which will lead to normal profit
maximization.

Ethical Issues in Perfect Competition

From the above discussion, the ethical issues involved in perfect competition become very
obvious.
Firstly, the system of perfect competition (PC) seems to be just in the sense that it is
generating maximum output under the given situation. Given an appropriate distributive
mechanism, it should ensure that everybody is getting his largest share of output. PC leads to
maximum satisfaction in terms of needs. Social welfare means that a situation of maximum
output is better than that of minimum output. Thus, PC is a situation of abundance where nobody
suffers from the scarcity of products.

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74
Secondly, PC is justified on the ground that both consumers and producers are happier—
consumers get some consumer’s surplus because of lowest possible prices of products and
producers are satisfied because they can reap producer’s surplus by supplying the output at the
lowest possible cost. PC ensures an efficient condition in the realm of production and
consumption. It is ethically a just market condition, nothing can be better than this. In terms of
utilitarian ethics, no other market structure will be as beneficial as PC.
Thirdly, under PC, not only the output is maximum but the price of that output is minimum
too. Both these situations are ethically justified in the sense that they can be helpful for the poorer
section of the society. Other things, remaining the same, one should expect that PC will lead to
lesser poverty and deprivation.
Finally, marginal cost pricing rule, that fixes price equal to marginal cost, can ensure allocative
efficiency. In such a situation, no factor of production (including labour) is exploited. Since the
remuneration to a factor of production is made equal to its contribution or marginal productivity,
it can be said to be the just method of remuneration.

MONOPOLY
A monopoly is a type of market form where there is only one seller controlling the entire supply
of a single commodity which has no substitute. A monopoly firm is a price maker firm.
Monopoly arises because of efficiency, large-scale production, specialization and presence of
barriers. The barriers may be purely economic or legal in nature. There are some major
differences between perfect competition and monopoly (See Table 4.1).

Table 1.4 Differences between Perfect Competition and Monopoly

Perfect Competition Monopoly
1. Many buyers and many sellers. 1. One seller but many buyers.
2. Price is lower and output is generally higher. 2. Price is higher, output is lower.
3. Monopoly power is absent. 3. Monopoly power is present.
4. AR and MR curves are horizontal. 4. AR and MR curves are downward sloping.
5. Only normal profit is possible in the long run. 5. Super normal profit is possible.
6. There is economic efficiency. 6. There is no economic efficiency.
7. Price is the same. 7. Price may not be the same.
In spite of many differences discussed above, there are two important similarities between
perfect competition and monopoly.
1. In both the cases, the equilibrium output and prices are determined by the principle of
MR = MC.
2. Both these market firms are governed by the basic objective of profit maximization.

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75
Output and Price Determination under Monopoly
A monopolist generally makes profit as shown in
Figure 4.4.
However, in the short period, a monopolist
may incur some losses too. But this eventuality
is very rare.
The AR and MR curves for a monopolist
are downward sloping. This means that to sell
more of his output, he has to reduce the price.
It is not always necessary that a monopolist’s
price will be higher than the price under perfect
competition. This is so because price depends
on the cost structure, technology and input-use.
Figure 4.4 Price determination under
A monopolist who is inexperienced and has no
monopoly
control over inputs may face spiraling costs.
Then there may be some legal restrictions to
increase the mark-up; so a monopolist may neither be able to increase the price of his product at
his own will or his mark-up margin at any rate he wants. When a monopoly power becomes very
high, the Government likes to control such a power for social welfare.

Measurement of Monopoly Power

Monopoly power implies the amount of discretion which a monopolist possesses to fix up the
prices of his products and the degree of control over his output decisions. There are different
methods of measuring monopoly power which have been discussed below.
1. According to A.P. Lerner, the monopoly power can be measured in terms of the gap
between monopoly price and price under perfect competition;
The degree of monopoly power = (P − MC)/P
(P is the equilibrium price of the monopolist; MC = Marginal cost of the monopoly firm
which is in equilibrium).
If we take a positive value of P and MC, we find that the monopoly power is positive. In
the case of a commodity, the MC = 0 (free good) but the price is say 20, the value of
monopoly power will be = 1. If the price is 20 but the MC is also 20, then the value of the
monopoly power will be = 0. Thus, Lerner shows that the degree of monopoly power varies
between 0 and 1.
2. J.S. Bains has argued that the degree of monopoly power can be measured by the
monopoly firm’s super-normal profit.
Monopoly power is equal to (R − 0)/R.
The opportunity cost of owner’s capital is O and the actual profit is R. The margin for the
risk is assumed to be zero in this analysis. If the value of this is zero, there is no monopoly
power and if it is greater than zero there is monopoly power. The higher the value of R-0/R
the greater is the monopoly power.

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76
3. The degree of monopoly power can also be measured by concentration ratio.
The concentration ratio measures the size of the largest firms’ shares in the total sales or
assets or profits of the whole industry. One can consider a number of firms to estimate the
concentration ratio (traditionally, concentration of four large firms is taken into account).
Suppose the market shares of 4 firms are respectively, 0.30, 0.20, 0.10 and 0.05. Then, we
take the cumulative market shares and calculate the monopoly power. Thus, the cumulative
market shares will be respectively: 0.30, 0.50, 0.80 and 0.85. Therefore, in a four-firm
model, the concentration ratio may be 0.85 (CR = 85%). One can then compare this result
with a 5-firm concentration situation and compare the degree of monopoly power.
Concentration ratio refers to the market share of the largest firms in an industry. If the
concentration ratio is 85 per cent, it means that the largest firms have 85 per cent of market
shares. Two problems vitiate the result. Firstly, the result will be different, if one takes
assets, or profits rather than sales. Secondly, unless there is a cut-off point, one does not
know whether a particular concentration ratio indicates monopoly power or not. In the
United Kingdom, a CR ratio of more than 65 per cent indicates monopoly power.
4. The degree of monopoly power can be measured by the price elasticity of demand.
Monopoly power is the inverse of the price elasticity of demand. Thus, if the
price elasticity of demand is 0.5, the monopoly power = 1/0.5 = 2, but if the elasticity is 4,
the monopoly power is ¼. It becomes clear that the degree of monopoly power will be
higher in the case of inelastic goods and lower in the case of elastic goods. This outcome
stands to reason.
There are other measures of estimating the degree of monopoly power which we need not
discuss here.

Regulations of Monopoly
Since a monopoly price is generally high and output is low, there arises a need to control
monopoly, and this is done through different types of regulatory measures. The following are the
major regula- tions to control monopoly.
1. The Government can impose price regulation on monopolists through various
strategies. However, if the price is above the competitive price level, the welfare loss due to
monopoly cannot be completely eradicated.
2. Various types of taxes can be imposed on a monopolist. These taxes may be a lump-
sum tax, or may be a specific or per unit tax. The impact of a lump-sum tax may be borne
by the seller and buyers may be spared the tax. The most common taxes are excise duties
and sales tax. However, the monopolists may be able to transfer the tax to the buyer. This
will depend on the elasticity of demand for his product. If the elasticity of demand is very
low, the tax burden is borne by the buyers. However, if the elasticity of demand for the
product is high, the tax is generally borne by the monopolist.
3. Many countries now are coming up with anti-monopoly legislations to promote
greater competition in the market.
4. Another way of regulating the monopoly is to introduce the marginal cost pricing
where P = MC. In such a case, the efficiency in the allocation of resources can be
ensured.
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 Ethics and the Market Structure
77
5. The Government can also prevent by legislation cartelization and collusion
among the firms which are producing similar types of goods.
6. Through various measures, barriers to enter a particular type of business can
be reduced.
7. It is also necessary to break large firms into small firms and prevent big firms from
getting bigger and ultimately turning into a monopoly.
In the case of India, the MRTP commission has been entrusted with the task to ensure that
monopoly power and restrictive trade practices do not grow to a dangerous level. However, the
MRTP, in several cases lacks the legal authority to impose punishment against the big monopo-
lists.

Ethical Issues in Monopoly

Monopoly is diametrically different from perfect competition in terms of ethical considerations.
Firstly, monopoly is socially unjust in the sense that it produces lower output thereby creating a
situation of scarcity. Under this situation, people have to suffer to get the output at a reasonable
price which is detrimental to poor people and to the society as a whole. This form of market is
not conducive for the maximization of social welfare.
Secondly, product prices under monopoly are unreasonably high. Poor people cannot afford the
products being produced under monopoly. Social welfare is significantly minimized. Even though
the monopoly price is sometimes discriminatory, it is not determined whether the poor will gain.
Thirdly, under monopoly, the goods having inelastic demand (necessity) which are generally
consumed by poor people are priced higher than those commodities that have more elastic
demand. This implies that a monopoly is specially unjust to lower income groups.
Finally, to maximize profit may not be unethical per se, but to reduce the availability of output in a
bid to maximize profit is unethical behaviour.

OLIGOPOLY
Oligopoly is a type of market where there are a few sellers and many buyers. The number of sellers
may be three or more. However, the exact number has not provided by any definition of
oligopoly. It is generally understood that under oligopoly, there are only a few sellers.
Most of the time, prices under oligopoly are rigid. This happens when the demand curve is
unpredictable. In such a case, there is an asymmetric response from one firm to another firm’s
price change.
If one firm raises the price, other firms will not do so. This is why the top portion of the
demand curve is elastic. But if the price is reduced by a firm, others will follow. If they do not
comply, then they will loose customers. So, the first seller will not gain much by reducing the
price level. Thus, the bottom portion of the demand curve is relatively inelastic Thus,
oligopolistic price remains stable and rigid.

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78
Collusive Oligopoly: Cartel
Some oligopolists may work on the basis of collusion and form a cartel. They produce the same
type of goods and agree formally to follow a uniform price and output policy, as the OPEC
countries producing petrol.

Determinants of Cartels
A cartel is formed on the basis of the following characteristics of production:
1. Homogenous products.
2. The products should have inelastic demand.
3. There is a geographical concentration of firms of producing similar type of products.
4. There is the absence of legal restrictions.
5. Few firms produce the products.
6. There are entry barriers.
7. There is the absence of substitutable commodities.

Price and Output Decisions

The basic purpose of cartel formation is the maximization of profits. The cartel may also advise
the member firms to produce output at costs which are equal. The members are free to fix their
output for sale. But they cannot change the price formally agreed by the cartel. However, in a
perfect type of cartel system, the members are not allowed to change the level of their individual
output either. In extreme cases, however, the whole market is divided and the members are
allowed to change the levels of output and price when they desire. The cartel acts like a monopoly
with full control over output and prices of all firms which are its members.
Each individual firm determines its own output level at the point of intersection between the
MC and MR curve. The individual MR curve is determined by the profit maximizing MR of the
industry.

CARTELS IN INDIA
Adam Smith, the father of Economic Science, wrote in his Wealth of Nations that
“when the people of the same trade meet, the conversation ends in conspiracy
against the public or in some contrivance to raise prices”. The statement is true in the
case of cartels in both developed and developing countries. In India, cartelization is present
in many of the industries like iron and steel industry, pharmaceutical retailing, cement
industries, private airlines, transmission towers, electric cables, construction and
transportation, to name a few. Cartels are also present in tyres and trucking industries and
family planning devices.
Most of the cartels are to be found in those industries that produce intermediate
goods and also in service sectors. As a result of cartelization the prices of finished
products escalate, and the consumers experience difficulties to buy those products. For
instance, the pharmaceutical cartels demand 2000 per cent profit margin. A study by
Pradeep Mehta revealed that the cement industry in India recently intro- duced a 50 per

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79
guilty of cartelization in 2004. Most of the cartels in the pharmaceutical industry in both
developed and developing countries control vitamin production. The vitamin cartels
are very active in the European union, US and also in India. But no legal action is
being taken against those cartels.
The Finance Ministry of India was recently thinking of launching competition audits
to reduce and restricting these unhealthy practices. The new Competition
Commission of India has an ambitious agenda in this regard. The MRTP Commission has
also been conducting surveys to unearth those cases of cartelization which are harmful to
the public. However, it is beyond the power of the MRTP to punish the cartelers. In a recent
case against a cement company, the Supreme Court of India rejected the punishment
imposed by the MRTP Commission on the ground that the Commission had no legal
jurisdiction over the cement cartels in India. Many such cases of cartelization and their
monopolistic practices are being gradually reviewed by research studies in recent
years.

Ethical Issues in Oligopoly

An oligopolistic system is involved in many types of unethical practices some of which are
briefly discussed here.
Firstly, as Adam Smith pointed out, a system of business practices by some firms (oligopoly)
with or without cartels, is a type of conspiracy against the public. This conspiracy ultimately
leads to price inflation which goes against the poor consumer. This is ethically unjust.
Secondly, oligopolistic market practices, particularly in the case of collusion or cartelization,
may lead to the curtailment of production, which means that the society is deprived of some
necessary goods and services, and social resources remain under-utilized. This is ethically unjust
especially in a situation if these goods are to be used by sick people, babies and the poorer section
of the society. The creation of artificial scarcity for maximizing profits is a moral crime.
Thirdly, cartelization and collusion are organized unethical practices that reduce the supply and
increase prices. There is no moral justification for this type of business behavior. Thus, on ethical
grounds, this type of organized group strategy should be condemned and legally punished. This is
the reason why cartels have been legally banned in several countries.
Lastly, oligopoly prices remain unpredictable. If the price is increased by a firm A, but others do
not follow the same strategy, firm A will lose his customers. There is usually no move by a firm
to reduce the price of its own product either, even if the situation permits. This is so because
although he may attract some additional customers by doing so, he may be a loser (in terms of
cost) and there may be retaliatory price cutting by his rivals. If the rival firms reduce their prices
at a rate which is higher than that of the first firm, firm A that initiated the price reduction will
lose his customers. Thus, usually under oligopoly, the price level remains ‘sticky’ and stable.
However, for many reasons, price stability may be unjust when situations demand price
reduction. Even if the cost of production substantially reduces, the consumers do not get any
advantage of that under oligopo- listic market structure. This is obviously unjust.

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Summary
A market is a neutral institution and a place for exchange of goods and services. There are many
types of markets including perfect competition, monopoly, duopoly and oligopoly. The existence
of all or some of these types of markets creates a market structure. A perfectly competitive
market is characterized by many sellers, many buyers, one price and the same quality of goods. A
particular seller cannot influence the price of goods. He is only a price-taker and not price-maker.
Because of stiff competition in the market, the price is the lowest and the output is the highest.
Perfect compe- tition is a much wider concept than pure competition. In perfect competition,
there is no possibility of concentration of economic power. Every firm under perfect competition
earns normal profit only. A perfectly competitive system is an efficient system because there is
allocative efficiency and there is consumer and producer surplus. Perfect competition seems to be
a just system because of many reasons. It generates maximum possible output at minimum
possible price, making both consumer and producer happy—the price is based on marginal cost.
Monopoly, on the other hand, is ethically an unjust system because, prices are high but output
is low. There is a concentration of power; no economic efficiency and the producers get super-
normal profit. These are the reasons why monopolies need to be regulated. The regulation is done
through price control, control on the profit margin, taxation, and so on. Under oligopoly, a few
sellers control the market. However, because of inter-firm actions and reactions, oligopoly price
remains sticky. Some oligopoly firms may firm a cartel and follow more or less the same price
and output policies.
Cartelization has become a serious problem both for consumers and for the government. It is
unethical in the sense that it increases the prices of products and reduces the volume of output.
Adam Smith says that it is a system of business practices by some firms which is a sort of
conspiracy against the public. Cartelization and collusion are organized unethical business
practices. Moreover, when price reduction is called for, because of market condition, it is not done
by the system of collusive oligopolistic practices. There are many cartels in the world and also in
India. The OPEC cartels, vitamins cartels in the USA, EU and India are some examples. They
make hundred per cent profits, increase social cost and malpractices but unfortunately no serious
legal actions are taken against them.

Key Terms
Perfect Competition
Efficiency Oligopoly
Competitive
Monopoly Cartels
Equilibrium
Monopoly Power Ethics of Market Structure

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Test Your Knowledge

1.State whether the following statements are True or False
(i) Perfect competition is a much wider concept than pure competition.
(ii) In perfect competition, output is maximum and price is the minimum.
(iii) Monopoly is a socially just system.
(iv) In general, oligopoly prices are sticky.
(v) The degree of monopoly power is measured by the gap between the monopoly price and
the price under perfect competition.
(vi) Price regulations are not required for a monopolistic market.
(vii) Normal profit is not possible in the long run in a perfect market situation.
(viii) Marginal cost pricing rule fixes prices equal to marginal cost.
(ix) In a perfect competition, the AR curve and the MR curve are inelastic.
(x) Cartelization and collusion are organized unethical practices that reduce the supply and
increase prices.
2.Fill in the blanks
(i) In a monopoly market situation, both the AR and the MR curves are .
(ii) Perfect competition is a situation of , and nobody suffers from the
.
(iii) If a firm cannot recover even the , then it has to finally shut down.
(iv) In a perfectly competitive market, the goods are .
(v) The degree of monopoly power can be measured by calculating .
(vi) The Government can impose on monopolists.
(vii) The Commission has been entrusted to see the monopoly power and
restrictive trade practices do not grow to a level which is dangerous for society.
(viii) is a type of market where there are few sellers and
buyers.
(ix) produce the same type of goods and agree formally to follow a uniform
price and output policy.
(x) J.S. Bains has argued that the degree of monopoly power can be measured by
.
3.Choose the correct option
(i) In the long run, a firm will attain equilibrium under the following two conditions:
(a) The price must be equal to marginal cost
(b) Price must be equal to the average cost
(c) Both (a) and (b)
(d) None of the above
(ii) Under perfect competition, since the price level is the same, the Average Revenue curve
(AR) and the Marginal Revenue curve (MR) are
(a) Perfectly inelastic
(b) Perfectly elastic

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(c) Vertical to each other
(d) None of the above
(iii) The number of cement companies found to be guilty of cartelization in 2004 is
(a) 44 (b) 56
(c) 40 (d) 100
(iv) Adam Smith is the father of
(a) Social Science (b) Economic Science
(c) Philosophy (d) Moral Science
(v) One of the determinants of cartel formation is that
(a) There is a geographical concentration of firms producing similar type of products
(b) The firms are widely spread throughout the world
(c) Both (a) and (b)
(d) None of these
(vi) Another way of regulating the monopoly is to introduce the
(a) Average cost pricing (b) Total cost pricing
(c) Break even pricing (d) Marginal cost pricing
(vii) The Wealth of Nations was written by
(a) Adam Smith (b) Winston Churchill
(c) Karl Marx (d) Theodore Roosevelt
(viii) The basic purpose of cartel formation is
(a) To reach the break even situation
(b) Maximization of profits
(c) Minimization of profits
(d) None of the above
(ix) Who argued that the degree of monopoly power can be measured by monopoly
firm’s super-normal profit?
(a) Adam Smith (b) Karl Marx
(c) J.S. Bains (d) Both (a) and (b)
(x) Under perfectly market competition, it is
(a) not only that the output is minimum but also the price is maximum
(b) not only that the output is maximum but also the price is minimum
(c) not only that the output is maximum but also the price is maximum
(d) none of the above

Review Questions
1. Distinguish between monopoly and perfect competition.
2. Is monopoly always higher than competitive price? Give reasons for your answer.
3. Examine the concept of Nash equilibrium in the context of duopoly.
4. How will you measure monopoly power? Explain briefly the major models.
5. What is a cartel? Write a note on cartels in India.

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Web Links
1. http://free-books-online.org/management/business-ethics/competition-and-the-market-intro-
duction/ [Competition and the Market:
Introduction]
2. http://managementinnovations.wordpress.com/2008/12/02/ethics-in-the-market-theories-
and-definitions/ [Ethics in the Market: Theories and
Definitions]
3. http://web.inter.nl.net/users/Paul.Treanor/free-market.html
[The Ethics of the Free Market: Why Market Liberalism is Wrong]
4. http://www.stanford.edu/~hammond/Vatican1990.pdf
[Ethics, Distribution, Incentives, Efficiency and Markets]
5. http://www.acton.org/global/article/market-economy-and-ethics
[Market Economy and Ethics]
6. http://www.scribd.com/doc/22577491/Microsoft-Ethics-Case [Microsoft Ethics Case]

References
Baumol, William, J. (1966), Economic Theory and Operations Analysis, Prentice-Hall of India,
Delhi
Brigham, E.F. and Pappas, J.L. (1972), Managerial Economics, Dryden Press, USA
Koutsoyiannis, A. (1979), Modern Microeconomics, Macmillan, London
Salvatore, D. (2001), Managerial Economics, McGraw Hill, USA
Stigler, G. and Boulding, Kenneth E. (Eds.) (1967), Readings in Price Theory, George Allen and
Unwin, USA

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 CHAPTER
5
Ethics and Governance:
Law, Bureaucracy and
Globalization

L E A R N I N GO B J E C T I V E S

This chapter will help the reader understand

■ The relation between ethics and laws
■ The nexus among governance, bureaucracy and ethics
■ Relation between bureaucracy and ethics
■ Globalization, global governance and ethical issues
■ Multinational capitalism and its unethical practices

INTRODUCTION
“It is better for a city to be governed by a good man than by good laws”, so said the Greek philos-
opher Aristotle. Governance by a statesman is indeed far more desirable than that by politicians.
Aristotle was implicitly emphasizing the need for an ethically desirable system of governance by
dedicated statesmen. There is in fact a fundamental difference between a statesman and a
politician. A politician looks for the future election, whereas a statesman looks for the future
generation. In general, a modern-day politician is more like the character of Rhett Butler of Gone
with the Wind, who does not ‘give a damn’ about anything in the public domain. Unfortunately in
the present world, there are more politicians than statesmen. However, good governance is
required to carry on day-to-day administration and achieve a steady and sustainable rate of
economic growth, human

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capability expansion, fairness and justice, reduction in poverty and hunger, and for transferring
the people from the realm of necessity to the realm of freedom. There are many areas of
interactions among governance. However, in the present analysis, we will concentrate only on the
involved ethical issues that connect the related topics. An attempt will also be made in this
chapter to discuss some of the pressing global issues of the contemporary world.

ETHICS AND LAW

Both law and morality are man-made. However, there are some absolute notions of morality that
remain more or less permanent in human society—in the relativist sense morality is the product
of humankind. There are some natural laws existing from time immemorial and they are like
natural justice. In contradiction to the natural laws, there are also positive laws that are
made in a state. In the ethical sense, positive laws must be in congruence with natural laws. If
there is a conflict between natural and positive law, the former will vanquish the latter. The
principle of natural law supports the theory of objectivism in ethics (Mackie, 1990, pp. 232–35).
In the ethical sense, natural laws are intrinsically objective and hence are supported by the
principles of morality. Natural laws are believed to be based on divine commands. The
existence of natural laws makes it difficult to reform such laws and at the same time such laws
can be used as constraints for the application of some positive laws which are not consistent with
such laws.
Natural laws may be helpful for the implementation of many ethical principles via the positive
laws. Some political goals can be based on ethics and as such can be enforced more strongly for
the popular support. If the purpose of political policy is to make human life beautiful, enjoyable
and happy, then political goals can be based on ethics because all these are also the basic
objectives of ethics. Thus, in a sense, politics and ethics go together for quite a distance.
Should laws be based on ethics? The answer to this question is absurdly simple in the sense
that almost all civil and criminal laws follow the basic principles of ethics. The laws that prohibit
killing, stealing, burglary, cheating, and so on are based on ethical foundations. The ethical
principles are first line of defence for the concept of good laws. The formulation and
implementation of such morally-based laws are also parts of ethical principles. In many of the
cases, the legal system provides the framework to regulate and ensure an ethical system of
behaviour in a society. Law represents a collective moral standard of a society at a particular
juncture of history. However, the legalistic code may not always conform to the ethical code of
behaviour, and vice versa. There are some laws in some countries which are Draconian in nature
and inhuman, and totally unfair. Some laws support gender and racial discrimination. Some laws,
as in South Africa in the past, may work against the majority of population, and some are against
the minorities.
In many cases, the respect for law is due to respect for the moral authority. The moral respect
for laws is the foundation of human culture (Day, 2006, pp. 46–49). There may also be the fear of
punishment or coercion. Even though law imposes some restraints on the liberty of human beings,
still laws are obeyed because they are supposed to maximize the social welfare or bring about an
order in a society which otherwise will be full of chaos and confusions without such laws. One
of the best examples is perhaps the traffic laws and rules. There is then a definite nexus
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between laws and morality. In many countries and for many social issues, legal issues are
based on moral

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dimensions. Suppose that there is a prohibited area and people from outside are not permitted to
enter the area. If some journalists observe from a distance that somebody is being molested there.
Is it morally right for the journalists to enter the place and save the victim, even if there is a notice
that “Trespassers will be Prosecuted”?. Many experts will opine that it is morally right for the
journalists to do so. But in a similar case, in Puerto Rico (Camp Gracia) in 2000, the court
observed that journalists had no special right of access to the facility not available to the general
public and the violation of the law is not permitted (Day, 2006, p.48).
It is imperative to understand that all moral issues cannot be or are not codified.
For instance, offenders of your sentiments, betrayal by friends, unkind behaviour, insulting
words, unilateral breaking up of long-standing relationships and so on are not legally punished.
But in spite of all these aberrations, most of the times, the basic legal obligations are
based on ethical principles. The best examples are provided by the various clauses and
provisions of civil and criminal procedure codes of any country. However, this does not mean that
all moral principles are taken care of by laws. There are many types of social aberrations like the
marriage between two adults even without the consent of parents is legally valid, and in the same
way, the sexual relations between two consenting adults. But, these are not morally supported
activities.
All types of ethical actions may not be governed by law. Generally speaking, laws prescribe
the critical minimum human behaviour but ethical behaviour goes beyond that limited
human action or behaviour. Laws deals with specific and covert human behaviour, but ethics
deals with both overt and covert human behaviour. One of the basic purposes of ethics is to guide
and develop the correct human behaviour. Laws are meant to prevent and control some negative
overt human behaviour which may be detrimental to the person or to the society at large. In the
enforcement of laws certain agencies are necessary; ethical behaviour does not need any
enforcing moral agency but it is done by the free will of the morally conscious person. A person
who is a good citizen and obeys laws is not necessarily a person who is fully ethical.
In many cases, laws are silent about the normative behaviour of a person as a social being, but
ethics may enjoin on him some necessary social obligations. For instance, law does not ask you to
respect your teachers or parents, but ethics wants you to do so. If your next-door brother is dying
of starvation, no law can compel you to help him with food, but ethics will tell you to share your
food with him out of compassion and care. Suppose that somebody from your neighbour’s family
has died today and it is also the birthday of your only child. In this case, law does not prevent you
to celebrate the birthday of your child, but your moral conscience (or ethical self) will prevent
you to celebrate the function with pomp and grandeur.
However, it needs to be noted in this context that all laws made and used in a country do not
smack of morality. Some laws are based on local traditions, customs, habits and necessity. Even
in different parts of the same country, there may be divergent moral practices. This is supported
by the notion of relativist ethics. Indeed, ethics is sometimes relative in character. For
example, differences in religious practices may necessitate different types of laws for people of
different faith and religious traditions. Thus, for a Muslim, it is perfectly ethical to have four
wives but it is an offence in Hinduism. If the same type of law is followed and applied in cases of
differences, there may be the inevitable possibility of conflicts. However, the conflicts need to be
contained through negotiation and cooperation. Laws then should try to promote mutual
tolerance and respect for
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the moralities of different communities. It is the basic purpose of governance to
encourage and sustain this spirit of mutual tolerance and brotherhood. However,
an immoral or unethical act is not always punishable but an illegal act is.
In some cases, it is considered morally right to violate laws. Some of these cases are:
1. Laws can be violated if the law is in contradiction to the moral standard of the society.
2. Laws can be violated if they are against the general cherished feeling of the people.
3. Laws can be violated if such laws are against the higher moral principles involved, or, if
there is any compelling moral obligation to be protected. For instance, if the law asks the
citizens not to visit a country (A) for political reasons, but some citizens find that in that
country (A), human rights are rampantly violated, the citizens of another country are
morally right to violate such a law and should visit the country for protests.
In all these cases, Mahatma Gandhi advocated and participated in Civil Disobedience
Movements (CDM). In the 1960s, Martin Luther King did the same thing. In such a case, the
citizens can ignore the established law of the country if they all of them jointly feel that such laws
are morally unjust. But in order to be legitimate, the CDM must have the following characteristics
(Olen, 1988, pp. 33–34).
1. All the participants must strongly believe that the law being enforced by the state is unjust
and immoral, as the salt law in India during the British regime.
2. The protests must be based on non-violence and non-cooperation and non-injury to others.
3. The participants must be prepared to suffer the consequences of such civil disobedience.
4. CDM can be resorted to when all the negotiations and attempts for a peaceful settlement
have failed.

GOVERNANCE, BUREAUCRACY AND ETHICS

The term governance does not have the same connotation as the term management. Governance is
more relevant for an open system but management is more esoteric and indicates a closed system.
Governance is concerned with the ideology, objectives and strategy to achieve the goal. The
gover- nance of a country is more of an exoteric nature. The main stakeholders in a state are the
citizens. The government has to look after the interests of its citizens and even foreigners who are
not its citizens. Governance is effected through certain rules and regulation. The rule of law
will ensure that everybody in the country is subject to the rules and regulations of the land,
irrespective of caste, colour and creed, religion, profession, social position, and so on. The
existence of the rule of law can improve and reinforce the legal, judicial and the law enforcement
systems for the country.
Good governance is based on transparency and accountability not only to the
parliament but also to the people in general and institutions in particular. The governance must
ensure that there are neutral and strong agencies to settle the principal-agent problems
which at times may lead to clash and conflicts. A system of incentives incorporating
proper punishment and rewards for the works done by citizens and agencies can be an
important method of making the system of governance a workable proposition. A good
governance must ensure justice, equality inclusive of gender, racial and economic equality,
individual freedom different types of basic rights (including human rights).
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Ideology
Governance is generally based on some cherished ideology. It may be democracy, dictatorship,
communism, socialism, or any other ideology. In fact, people get the type of
government that they deserve. Thus, one type of government is not the substitute for the
other. In the contem- porary world, democracy has found popular favour as the most acceptable
system of governance. However, contestability theory suggests that all systems of
governance have both good and bad points. Democracy is not free from some ethical problems,
though many other system, like dicta- torship, may be morally more unjust.

Ethical Issues in Democracy

● Democracy delays everything, it is governance through procrastination. But justice
delayed, they say, is justice denied. In many vital matters of life and country, delay may
cause more sufferings and hardship for the common people.
● In a democracy, all are supposed to be equal. There is no special consideration for
those who are unfortunate, have limited capabilities and less contestabilities. It also does not
do justice to those who are more capable, and more competent. However, in actual practice,
though all are supposed to be equal, some happen to be more equal.
● Although political freedom is ensured to all, no guarantee is given for economic
freedom. Without this, the life of poor and destitute becomes meaningless.
● It is a system of governance by the majority. If the majority of the people are
corrupt, it would be a government by the corrupt people. Majority cannot always determine
an acceptable ethical basis.
● Democratic governance suffers from the tyranny of the majority. Minorities are
neglected, repressed or unfairly treated in a democracy. Majority voting is
not a perfect procedure for the production of public goods as people often do not reveal their
preference.
● As Schumpeter observes, there is nothing in democracy that makes it desirable. It
does not possess any moral quality nor is it morally superior (Schumpeter, 1947, p. 256).
● Democracy is based on majority voting, but is ruled by selected representatives. In many
democracies, simply through the immoral process of buying votes, money politics hollow
promises to unsuspecting public, unscrupulous people including gangsters, under-world
mafias and corrupt rich people get elected; and later on, they exacerbate and sustain the
regime of corruption in public life. In India, many corrupt ministers and politicians are
spotted out from time to time, but they never go behind the prison. Such is the travesty of
democracy.
● Kenneth Arrow in a seminal work (1951) has shown that it is impossible to have a
consistent social choice in democracy. In fact, social choice through majority
voting does not lead to a socially optimum level of welfare (Ghosh, 2001, p. 269). Arrow
subscribes to methodological individualism rather than the metaphysics of general will.
● Democratic elections suffer from many types of procedural injustice. People who are
fortunate to be born in rich families or who have amassed wealth through moral or immoral
means can contest effectively for elections, and in many instances, these elections are far

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from free and fair. Once elected, they 89
satisfy their dark urges and try to stay put through

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various types of strategies like log-rolling and pork-barrel politics. Log-rolling is
called the vote-trading in which case X votes for Y’s proposal and Y votes for X’s proposal.
Log-rolling sometimes makes majority voting apparently efficient and is based on the
utilitarian principle and self-interest. The process, however, is ethically wrong. The practice
does not really reflect the majority choice in a natural way. It is contrived and cannot be said
to be efficient and ethically justified.
In order to be in the game of politics, politicians often nurture their constituencies in a
way that is not economically justified. That they will like to see that good projects are
located in their constituencies which are their vote banks, even if the location is unjustified,
the investment is not wise and the whole project may be a white elephant. The cost exceeds
the benefits and the government becomes a loser. Pork-barrel politics can influence
government decisions quite unreasonably with special interest effect. The government may
be guided by a special interest groups (or pressure group) or minority preferences. In the
event of economic loss to the government, the whole society may suffer, and therefore,
pork-barrel politics is not ethically justified.
● Empirical observations show that in almost all the democracies of the world, poverty,

inequality and exploitation are on the increase, and poor and uneducated
masses are becoming more and more vulnerable. Apart from this, one democracy is
attacking another for selfish gains, and international hatred for some democracies is
constantly increasing.
● Although the Athenian democracy is supposed to be pure and genuine, it is a fact that it was

rooted in slavery and patriarchy and chauvinism, and the slaves and women
did not have the right to vote (Hoffman and Graham, 2010, p. 109). The present-day
democracy may be a bit better relatively but not in absolute terms. The same class struggle
continues still today; some of these are silent and some are violent.
In the realm of governance, whatever may be the nature of governing mechanism, there are
possi- bilities of sub-optimalities. In a situation where bureaucracy is functioning without much
control, there is a chance of regulatory failure in the area of governance. There are indeed
various reasons for regulatory failures. The first source of this is the conflicting goals of
regulations. For instance, the objectives of equity and efficiency are conflicting in
nature. Some other conflicting objec- tives are: social welfare and profitability, and price and
quality of products. Some governments may often try to over-regulate or under-regulate. In such
cases, the result may be more disastrous than that of a regime of non-regulation. In many cases,
the government policy may appear to be good for the people, but due to corruption among
political entrepreneurs, there may be policy failures mainly due to implementation
failures.
Corruption index is very high for India (ranking 70 among 163 countries) as it is in China
which has the same rank (Ghosh, 2009, p. 94). In an analysis of governance in less developed
countries (LDCs), like India, it needs to be mentioned that in India, more economic freedom is
necessary to ensure sufficient job opportunities for the unemployed and underemployed labour
force. In many countries of the Third world, growth is taking place without corresponding
expansion in employment. This is ethically no sustainable growth rate. Secondly, there
are less opportunities for the underprivileged people, women and ruralities in the drama of
economic growth. They feel like defeated winners who have won the so-called political freedom
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but not economic freedom. 91

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Continued emphasis on quantitative growth rate has increased income inequalities in
both India and China over the years. Gini coeffiecients (a measure of income inequality), were
0.30 for India and 0.27 for China in the year 1986. But these increased to 32.5 for India and 44.7
for China in 2004 (see, Ghosh, 2009, p. 28). This shows that income distribution from the rich to
the poor has not remained at the ethically justifiable pattern.
Politics is the game of elections, and the process, the governments experience what is called
political business cycles which are harmful for people. Thus, because of its ideology, one
government might have put more emphasis in eradicating unemployment without caring for
inflation. But this government is defeated in the election, and a new government comes in, the
policy may be completely changed, and the country experiences a new political equilibrium.
This time, the country will experience less unemployment but more inflation as it was neglected
in the past. Thus, the management of political cycles is an important part of governance in
any country. In a country like the United States, the unethical impact of political business cycles
(inflation and unemployment) on the populace of the country is very prominent.
Inflation and unemployment generally occur as a result of political instability which in turn
may aggravate income inequality. Thus, there seems to be a correlation among political
instability, inflation and income inequality. Needless to add, a high degree of income inequality is
not only unethical but is also associated with illegal activities, social instability and unrest. For
politically unstable poor countries, this vicious circle continues unabated.

BUREAUCRACY AND ETHICS

In the governance of a country, bureaucracy has a special role to play not only in formulating
polices and but also in implementing them. The Niskanen model of bureaucracy (1971), it is
pointed out that
● Bureaucrats generally try to maximize the total budget for their bureaus.

● Bureaucracy its utility functions that include many variables like salary, power, patronage,

pecuniary motivation, easy management and so on.

The bureaus have the same type market power as in monopoly. This is so because the bureau is
often the sole producer of a particular type of product which is sheltered from competition (say,
defense products). Thus, as a producer, each bureau is unique in its own way and enjoys some
monopoly power. Bureaucracy expands by increasing the size of the budget every year. How is it
made possible? This is possible because the (minister) has to depend on the bureaucracy; and its
information base cannot be challenged by the minister. It is to be noted that the relationship
between a minister and bureaucracy is like that of a bilateral monopoly where settlement has to be
made by way of compromise. Because of information asymmetry between a minister and a
bureaucrat, of a department, bureaucracy often enjoys a unique position as it possesses a stock of
better and more updated information. The proposed budget expansion by the bureaucrat is thus
granted by the minister, and this results in inefficiency (see for details, Ghosh, 2001, pp. 91–95).
This can be simply explained in the following way.
The efficient output is produced at a point where marginal social benefits (MSB) are equal to
marginal social cost (MSC). However, there is no cost control and the budget is surplus, the
bureaus

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produce output at a point where the MSC is higher than the MSB. Thus, there is loss of efficiency
under bureaucracy. This may result from misuse of inputs, (harbouring surplus labour, feather-
bedding practices, and so on). Very often, under bureaucracy, due to favouritism and nepotism,
labour employment is extended beyond the optimum level. Employment of a large number of
people is regarded as a symbol of power. Bureaucracy also leads to social inefficiency by
increasing the transaction cost of negotiations through rent-seeking and bribery. The
transaction cost is very high and cannot be monitored. The minister and the bureaucrat often are in
collusion to divide the gain.
Rent–seeking is a type of behaviour that may confer on the bureaucrat practicing it, through
the misuse of his official power and position, the possibility of extra benefits, pecuniary or
otherwise. Political agents practice it in exchange of their monopoly rights for granting special
favour regarding licensing, permits, market power, and so on. Rent-seeking is an unethical way of
increasing wealth through non-market forces, often through political market. In such a situation,
various pressure groups use the state to increase their wealth and the political entrepreneurs make
some quick bucks by selling their monopoly rights of control and regulation. Rent-seeking breeds
bribery and corruption, and through these, the private parties try to buy the laws and regulations
in their favour. This is often known as regulatory capture. Rent-seeking is often socially
wasteful because it is not used for increasing real productivity. It creates a situation of monopoly
market where output is restricted, price is escalated and consumers’ surplus is lost.
People now tend to believe that with the introduction of liberalization, India was able to free
the private sector from the clutches of bureaucracy. This perception is not fully true. Arguably
and evidently, during the period of liberalization, bureaucracy in India created many pressure
points and introduced controls at many levels through rent-seeking. In a country like India,
automatic clear- ances are anything but automatic, and people across the business line still now
suffer from many types of bureaucratic pressures.

GLOBALIZATION, GLOBAL GOVERNANCE AND ETHICAL ISSUES

Global governance is a process of global institutional interaction for the management of the
global economy in the wake of globalization when there is the absence of global government. A
little elaboration is needed at the outset on the convoluted nexus between globalization and global
gover- nance. As a system of homogenization and unification, globalization is said to have an
important influence on global governance. Globalization needs global governance, but global
governance has to work through national and local governments. Globalization may impose a
limit on the ability of the national government to impose rules and regulations as these are mostly
conflicting with those of the global governance. In a globalized economy, national government
finds it increasingly difficult to implement its own laws and rules. The rules of globalization are
implemented through supernational governance by multinational corporations, and other
influential international organi- zations. The MNC-led global governance does not care for
national labour laws, environmental regulations, tax regimes, domestic macroeconomic policies,
human rights and human freedom. In the wake of globalization, national governments become
weaker and less relevant, and omnipotent markets make impotent politicians. Thus, it is not
surprising to find that some seventy governments went bankrupt in the 1980s and the early 1990,
the hey-days of globalization.
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Global governance has become imperative in the wake of globalization. The concept of global-
ization admits of many interpretations. It may mean universalization of market economy and
relations, globalized accumulation, global dependency and the growth of a world system. Global-
ization constitutes the cross-national flows of investment, capital, goods and resources on wider
scale and rather freely without any constraint. The concept of globalization implicitly presumes
the notion of win-win situation of mutuality of interdependence and gains. Globalization is
measured by (Import + Export)/GDP, or FDI/GDP. The higher the values of these ratios, higher
the degree of globalization.
Globalization has many commonalities with imperialism in the earlier centuries. In
this sense, globalism is not a new phenomenon. Some scholars look upon globalism as an
extension and continuation of imperialism. For instance, British imperialism in the nineteenth
century was based on the accumulation of capital, goods and resources from the colonies. One-
third of British capital formation in the seventeenth century was based on the international
slave trade. The Mercantilist globalization was the exploitation and accumulation of resources
through trade and commerce.
The modern system of globalization is different from the old system of globalization in many
important respects. In the past, the resource flows were mainly unidirectional, erratic and crude;
in contradistinction to the earlier system, the recent system of globalization is highly planned,
systematic, subtle and more overwhelming, covering almost all aspects of economic life of the
Third World countries. In such a system, as a matter of fact, there is an increasing amount of
depen- dence on the external flows of resources.
Whereas in the past imperialism, which was based on capitalist ideology, made an attempt to
spread it in the sphere of production in the dependent colonies, modern globalism is an attempt to
globalize capitalism not only in the mode of production but also in other areas such as
distribution. It is an attempt to randomly integrate the less developed countries into the
framework of world capitalism to make them more dependent and to subject them to
unequal competition. Because it is through this process that these countries can be
exploited and substantial amount of surplus can be extracted from them.
However, whatever may be the sources of possible conflicts between modernism and
nationalism of a country; it is essential that all groups, communities and classes of people live
peacefully in a cordial atmosphere. It should be possible in the 21 st century to ensure secure
places for all people no matter where they live. The first step is to consider the universality of the
human condition, the reality of life, rather than the universality of the globalized economy.
Western capitalism, based on “the mystique of an idealized Western worldview” was founded on
a belief in the capacity of free markets to bring order and prosperity. Far from creating either, the
freedom allowing global expansion of financial markets based on Western, Eurocentric economic
development theories proved lethal to many national economies, increased global poverty,
and contributed to social conflicts. Compromise between state and the market and
between labour and capital was denied. The separation of human beings into categories (Third
World, migrant, economic migrant, refugee, illegal, skilled, non-skilled, citizens, non-citizens)
denies the integration of the human condition. There has long been a tension between
theory and practice of globalization as spread by Western capitalism and the implications of this
on reality of life for large numbers of marginalized people who are on the move seeking
a better life. This is true for Asia, Africa and Latin America.
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More than a decade has passed since the WTO was established and during this short period,
it has become obvious that the WTO s principal objective of creating a fair and market oriented
global trading system, free from restrictions and distortions, is in reality a threat to the
livelihood security of resource poor farmers and agricultural economy of
developing countries. India’s joining of WTO as a founder member has put Indian
agriculture into the framework of global competition and the rule of the global market. Majority
of the Indian population being dependent on agriculture, the issue has become really important.
Within India, the state of Kerala stands apart (the same is true of many other states) in respect of
its sensitivity to changes in the national and international trade environment. With the economic
reforms and commitments to the WTO and the consequent opening up of the Indian economy,
Kerala has been hit hard. Kerala’s exports are now subjected to the wide volatility of global
markets. Imposition by rich countries of import control, sanitary and phyto-sanitary standards
(SPS), environmental and labour standards, safe guard measures, antidumping measures,
reduction in tariffs and quantitative restrictions in strict adherence to WTO commitments are
weakening most of the developing economies exports and production base. Following the
initiation of trade liberalization in farm products, concurrent with the implementation of AoA
(agreement on agriculture) from 1995, India’s agricultural products have encountered
unprecedented price crash. The brunt of this crisis has been borne by farmers having
small and marginal farm holdings, who constitute a major segment of rural workforce.
Their subsistence depends upon favourable market prices. The crisis which arose as a result of
the reform measures has directly affected the livelihood of the farmer households of the state and
the stock of wealth in Kerala agriculture has significantly diminished (for many more instances of
how WTO rules are adversely affecting developing countries, see Ghosh and Guven, 2006).

Salient Features of Globalization

Several salient features of modern globalization become quite apparent. First, it is a programme
of binding all individuals, institutions and nations into a common set of market relations. These
relations, needless to say have their own laws of motion. Second, it is a calculated economic
strategy of the capitalist economies and institutions to reinforce capitalist process of growth for
these countries. Lastly, it is a means to extract surplus through the exploitation of cheap labour,
HQM and resources of the Third World.
It is clear from the classical economic system that a capitalist system of growth ultimately
leads to a stationary state and that the rate of profit is ultimately to fall, some counteractive
mechanism was needed by the modern capitalist countries to oppose these tendencies. The
mechanism that is discovered is globalism which makes dependency more pronounced
between the West and the rest for capital, technology, investment and goods, and thus, creating an
atmosphere more conductive for the sustaining growth of developed countries (DCs). It should be
noted here that the present-day DCs in general have a very low rate of economic growth, large-
scale fiscal imbalances, and growing unemployment and recession. Globalism is a device to solve
these macro problems all at once. Hence, for the speculators, financiers, investors and MNCs of
DCs, globalization is an inevitable phenomenon. It is the last stage of and the last attempt to
ensure capitalism to survive.

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Why is Globalization Ethically Bad?
But why is globalization regarded so obnoxious? Modern globalization is not based on any
normative or moral culture. It is neo-liberal and not democratic. The clash of
cultures is embedded in the growing economic disparities, marginalization exclusion of cultural
groups in the process of globalization. Some major points of criticism against globalization are:
● Globalization of capitalism is sure to intensify economic inequalities not

only between the developed countries (DCs) and less developed countries (LDCs), but also
between the capitalist and labouring classes in a state. Capitalism is based on the philosophy
of production efficiency but neglects distributional equity. Under globalization,
capital will get more and labour will get less, much less than the value of its marginal
productivity. So, there may be the perpetuation of relative poverty and
inequality. The point is substantiated by many studies (see, among others,
Deininger and Squire, 1996).
● In spite of the tremendous increase in production, unprecedented and rapid technological

change and a great increase in the average life expectancy, the world is still characterized by
dramatic inequalities and development failures or even disasters. Income and wealth,
far from converging, remain highly concentrated in few countries and in small, elite groups
in most other countries.
● Unequal competition between DCs and LDCs in various fields of economic activities,

e.g. banking in LDCs, would lead to more harm to LDCs in the form of unemployment,
contraction, recession, and so on. In the face of better technology and capital-intensive
methods of operation of DCs, the LDCs would not be able to compete effectively, and their
income, output and employment will fall. On the other hand, the multinational corporations
(MNCs) will gain substantially. Thus, there would not only be more dependency but also
more poverty and backwardness in LDCs. The unequal competition generated
and perpet- uated by globalism is the most detrimental dimension of this phenomenon for
LDCs.
● There would be more exploitation of labour, for the DCs will relocate their

production centres to LDCs for minimization of labour cost, and in the face of the
introduction of high-tech production, labour demand is likely to go down. Thus, there may
be proletariani- zation and immiserization of labour. On the other extreme, due
to monopoly-monopsony relation in the market, surplus value from labour is likely to
increase. The MNCs will have higher degrees of concentration and
centralization of capital, and these will virtually capture the market for capital and
consumption goods in LDCs. The free movement of global capital creates, on the one hand,
instability and shocks, while, on the other, discrimination, and unfair employment practices
(often in a race to the bottom). Globalization has had a huge impact on the
deregulation of labour market which is witnessing removal of workers’ protection, lowering
of social protection and weakening of labour unions. The labour market is becoming
more and more informalized. There has also been impoverization of workers as
MNCs squeeze them in both the home and host countries. Globalization has escalated the
labour market conflicts and clashes of interest. The unethical practices in the labour
market have rampantly exacerbated.

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In fact, since the introduction of the idea of globalization in the late eighties of the last century,
the pauperization of workers in the USA and England has intensified, and the living standards
of Eastern Europe have fallen between 30 and 80 per cent. The calorie intake in many LDCs has
also substantially fallen between 1979–80 and 1995–97 (FAO Stat. 1999, as quoted in Ghosh and
Guven, 2006).
● The neo-liberal ideology like privatization and deregulation unleashed by globalism has

been creating many dislocations. Privatization has converted public monopoly

into private monopoly. It has led to excessive price escalations without corresponding
quality improve- ments in many countries; but it has not led to new product development or
development of new productive forces. It has brought about massive transfers of wealth
from the public sector to the rich private capitalists. It has unnecessarily absolved the
public sector of its respon- sibility towards social reproduction. It is no
wonder, therefore, that the World Bank has declared public health not as a public good but
as a private good.
● Capitalist free market principle propagated through globalization is not able to eradicate

crisis. As a matter of fact, a capitalist economy is prone to have periodic recessions

and crisis. Evidently, the inflow of capital in the absence of well-regulated and well-
disciplined capital markets may create havoc in LDCs. The Asian crisis in the nineties of the
last century is a case in point. Nevertheless, under such a situation, the global players can
bring home their capital safe or even with some speculative profit but the domestic
economies of the affected countries are in peril.
● Globalization reduces the power of the state to borrow from international

organizations, reduces the revenues from tariffs and has made the state more indebted.
Therefore, the power of the state has considerably declined during the period of
globalization, and it had to set aside many welfare-oriented programmes meant for the poor
people in the domestic country.
● The weak states in LDCs cannot pay subsidies to poor farmers to make

their compet- itive in the world market. Globalization of agricultural markets has raised new
food security dilemmas for developing countries where dumping and cheaper
export by food MNCs has jeopardized the growth of domestic agriculture and thus
pauperizing a large number of farmers, many of whom have committed suicides in India. On
the other hand, LDCs are losing their own food securities at a very fast rate.
Globalization is likely to give rise to unequal competition between DCs and LDCs where
the latter would be adversely affected. Thus, it would be better for the LDCs not to be carried by
the Western slogan of globalization. It would be necessary to slowly open their economies for
deregu- lation and liberalization. Behind the philosophy of globalization are the immense
possibilities of exploitation of cheap and innocuous resources of LDCs: high quality manpower,
skilled and semi- skilled labour, natural resources and the environment of LDCs which are priced
much lower than the average world market price in such countries. The race to the bottom
goes hand in hand with globalization. Globalization, after all, is a neo-colonialist
strategy devised to extract surplus by the West from the rest.
Globalization may not experience any bloody clashes anywhere but there will be a deep and
sustained undercurrent of popular dissatisfaction among the common people of LDCs, who are
alienated and defeated. The superimposition of global reality in the context of traditional or
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conservative actuality in many LDCs immediately creates clashes of interests that give
rise to different forms of protests including Islamic resurgence and many
other types of regional insurrections.

Multinational Capitalism
There is a great controversy regarding the real role of MNCs. Some are of the opinion that they
are boons, while others stress that they are a curse. But all admit that they are realities of the
present day international economy, and that they have come to stay on and cannot be wished way.
Admittedly, with the conflicting ideologies, the world has reached at a stage where a few
hundred MNCs dominate the world economic scene. Hence, all of us are constrained to nurture an
attitude and adopt a policy towards them—either the attitude of reception or that of repulsion. The
people and masses of the developed and also of underdeveloped countries have been vastly and
deeply affected by the activities and operations of the multinationals. The entire globe has been
encom- passed and brought within the pale of their operations.
MNCs have established complete domination in industries like rubber, tyres,
oil, tobacco, pharmaceuticals and motor vehicles. They are particularly strong in consumer
durable and capital goods industries. The total output of the MNCs has been estimated to be
growing at the rate of 10 per cent per annum. At this rate, by the end of 2020 A.D., 200–300 of
these global giants will account for 50 per cent of the world output. Multinationals are
multinationals only in name. They are very much national in outlook and character. According to
the U.N.O. Report (1973), there are 650 giant MNCs and they had combined turnover worth 773
billion dollars a year. The LDCs are virtually their debtors.
Developing countries consider industrialization as the means of reallocating resources,
improving productivity and achieving rapid economic growth. What the developed countries have
and the backward countries lack is modern science and modern technology. The problem of
developing the poor countries is, therefore, the problem of establishing modern science and
transforming their economies to one based on modern science and technology. Introduction of
advanced technology is vital and may require organized innovation to keep it productively
employed. It is now univer- sally believed that development requires technical progress, capital
accumulation and capital aid to finance. Capital import does not necessarily guarantee
technological progress. Possession of superior technology provides the MNCs with one of the
strongest incentives to grow larger and spread their operations more widely. This is also one of
the important sources of their market power. They increase production at a cheaper rate. They
provide better and cheaper inputs to other industries, and thereby they play crucial role in the
process of economic development.

Unethical Practices of MNCs

As any other individual business concern, the motive of a MNC is the maximization of profit. It
will undertake the research expenditure which would make its products more attractive. When the
parent firm incurs an expenditure, it intends to obtain maximum profit out of it. Therefore, the
evils tend to list up as drain of foreign exchange, tax evasion, technological colonialism,
oligopolistic
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character, and concentration of economic power. There is also a widespread apprehension about
the dangerous consequences of power economies of MNCs joining hand with power
politics. It tries in many ways to exploit the LDCs.
MNCs are considered unethical because of the following reasons:
● Instead of helping the LDCs with capital, every year, MNCs are engaged in sending out

dividends, profits, technical fees, royalties and other income from the host country to their
own countries. This creates an unfavourable impact on the balance of payment
of the domestic economy.
● In the true sense of the term, the MNCs do not really transfer technology to the host

country. They only part with outdated, expensive and inappropriate technologies. Thus, no
real techno- logical gain can be obtained by the host country from the MNCs working there.
● Many of the MNCs are engaged in the separation of rival industries in the host

country. In some cases, these corporations buy these weak and small enterprises and try to
build up a business empire. This leads to concentration of more economic power
and monopolistic behaviour. This is regarded by many as a form of neo-imperialism in
modern times.
● With the enormous money power, many multinationals try to interfere with the domestic

internal affairs of the host country. In many cases, the MNCs were responsible for
political disturbances and regime change.
● The MNCs introduce products which are disturbing in many cases the cultural

and tradi- tional value system of the host country. For instance, the food habits of
the young generation of many countries are distorted by Coke culture. Many of the French
singers and musicians have complained that their traditional music system is disturbed and
overpowered by the cheap American Pop songs. Thus MNCs are spreading cultural
neo-colonialism in devel- oping countries.
● The MNCs are engaged in intensifying unfair competition in the host country. They

buy small enterprises, and therefore, many of the small enterprises and businesses are being
wiped-out in the poor developing countries. As a result of the competition from the MNCs,
the poor business enterprises have to go out of business.
● MNCs are trying to create market leadership and distorting market rules. Once they

have gained sufficient market power, they try to control the market by either increasing
prices, reducing competition or decreasing the level of output.
● The MNCs do not care about the economic growth and development of the

host country. They invest more and more only in those sectors and areas which are profit
maximizing. Therefore, in many cases, national priorities are not adhered to by the MNCs.
● In recent years, many researchers have come to observe that MNCs in developing countries

are engaged in what is called the practice of race to the bottom. This shows that they
are reducing the pay structure of unskilled and manual workers in their own enterprises.
Since these workers do not have enough bargaining power and are not properly organized,
they cannot protest against such a policy of the MNC.
The impact of MNC is thus a mixed one. There are some good points and there also some bad
impacts of multi-national corporations in the host country. The critical issue is how to control the
MNCs through the formulation of suitable policies, and the attitude of the government towards

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MNCs. In some countries as in China, the MNCs are given free hand in hiring and firing of
labour. Therefore, the government policy is not in favour of the working class.
However, in a democratic country like India, there must be ways and means to control the MNCs.

Technology Transfer
Another story of the MNC-led globalization is the so-called transfer of technology. Technology
supplied to LDCs is either too sophisticated to adapt or too obsolete to reduce the cost of
production. Thus, most of the technology transferred to the LDCs is not appropriate. LDCs may be
more harmed than helped by inappropriate products as well as inappropriate techniques and
products are not consistent with the requirements, standards and income levels of these countries.
LDCs had better develop their own technology and products suitable for their own circumstances.
Imported large-scale capital intensive technology is not necessarily better than indigenous small-
scale labour-intensive technology in LDCs for maximizing employment in LDCs, although with
low productivity. The imported technology may be not only inappropriate but may also kill the
initiative and innovative enterprise. In LDCs, the local conditions may be such that foreign
technology may not be produc- tively absorbed. However, some amount of importation of
technology at a stage cannot be avoided, for the purchaser may not be able to develop the
technology at all, or it may be too costly to develop it. But be that as it may, the bargaining power
of the buyer in LDCs being low, the cost of technology acquisition becomes pretty high. The price
the LDCs have to pay to the technology supplying DCs is really prohibitive. There are various
types of technologies, e.g., technical assistance, license of a patent, know-how embodied in
intermediate products and machinery. Each of these technologies has different alternative price
and is associated with different degrees of obligations, dependence and implications. The LDCs
very often do not know as to what type of technology import would be best for them.
Foreign investment very often produces once-for-all change in technology which after
sometime becomes fossilized or frozen. The technology does not also remain flexible. In LDCs,
the people are tradition-bound and do not generally favour the introduction of sophisticated
technology, which is not only costly but also requires skilled and technical personnel for its
application. LDCs are proverbially capital-shy and the level of human capital formation is also
low in such countries. However, Western juggernaut technology may not be useful everywhere.
Technology transfer is very likely to being in its wake, technological domination by and
dependence on the foreign countries. The MNCs not only ask for high price for the
transfer of technology but also want to keep control over the technology so that the competitors
cannot get to it. Sometimes the govern- ments of the LDCs are under the false impression that
only imported technology furthers the cause of national development. It is not often realized that
the development of the strategic sectors or industries by imported technology may be dangerous
in the long run.
There are two basic divergences creating friction between exporters and importers of
technology. MNCs consider technology as an expensive commodity having shorter life. So they
must sell it at a high price. The LDCs, on the other hand, contend that research and development
of technology conducted by MNCs is amortized in their home countries. Hence, the technology
that is to be trans- ferred should be modestly priced. Another area of conflict is the desire
of MNCs to extend control
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over the transferred technology. This is not wanted by the LDCs. The MNCs portray themselves
as the vectors of technological salvation. But one can question whether the
imported technology is best suited to abolish mass poverty. Evidently, technology
transfer has increased inequalities in LDCs and is not efficient. In case technology is
imported by LDCs, it needs to be regulated and assimilated to suit the local needs.

Summary
There are many areas of interactions among governance, bureaucracy and law. There are both
natural laws and positive laws. Natural laws are in congruence with ethical principles. Some laws
are based on natural laws, and politics and go together for quite a distance. Almost all civil and
criminal laws follow the principles of ethics. However, some laws are Draconian and inhuman.
Laws are obeyed because they are supposed to maximize social welfare an order in a society. One
of the best example is traffic laws and rules. There is a nexus between law and morality in most
of the cases. However, it must be understood that all moral issues cannot be codified. All types of
ethical actions may not be governed by laws. Laws prescribe the critical minimum human
behaviour, but ethical behaviour goes beyond that limited human action. In many cases, laws are
silent about the normative behaviour of a person but ethics may enjoin on him some necessary
social obligations. Ethics is relativist in character and same type of laws cannot be followed in the
case of different communities. The basic purpose of governance is to encourage the spirit of
diversity and mutual tolerance. If the law is ethically unjust, it is morally right to violate laws.
Governance is not the same thing as management. Governance is effected through certain rules
and regulations. Good governance is based on transparency and accountability. It must ensure
justice, fairness and equality. However, people get the type of government that they deserve.
Democracy, though regarded as the best type of government, has many types of ethical issues
including, delays, minority problems, implementation failures, and so on.
Bureaucracy has a special role to play both in formulating and implementing policies. Bureau-
cracy leads to inefficiency, delay, rent-seeking practices and regulatory failures. The opening up
of the Indian economy in the early 1990s did not fully free the private sector from the clutches
of bureaucracy. However, the MNCs have been found to be indulging in many types of unethical
practices including.
The process of globalization introduced since the early 1980s needs global governance.
Global- ization has many commonalities with imperialism. It is ethically questionable because it
intensifies economic inequalities, unequal competition, exploitation of ordinary labour, weakens
the power of nation states and the like. Neo-colonial globalization is based on the market
philosophy and it is dominated by MNCs. However, they indulge in various types of unethical
practices including concentration of more and more economic power, creating political
disturbances, intensifying unfair competition, distorting market rules, creating cultural neo-
colonialism, and so on. MNCs claim that they transfer technology to developing economies. To
some extent this true, but the technology is very obsolete, expensive and they still retain some
controls. MNCs never transfer new and novel technology. In some cases, the technology is not
suitable to these developing countries. The techno- logical domination and dependence still
continue in these days of globalization.

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Key Terms
Globalization Regulatory Failure MNCs
Relativist Ethics Democracy Rent-seeking
Rule of Law Corruption Index Technology Transfer
Regulatory Capture Political Business Cycles

Test Your Knowledge

1. State whether the following statements are True or False
(i) All laws are based on ethics.
(ii) Governance and management are not the same things.
(iii) Pork-barrel politics is not ethically justified.
(iv) In the case of bureaucratic control, there is a chance of regulatory failure.
(v) Rent-seeking behaviour involves misuse of official power.
(vi) Globalization has many commonalities with imperialism.
(vii) MNCs are trying to create market leadership and distorting market rules.
(viii) MNCs are not so powerful in nature and can never achieve complete domination in any
industry.
(ix) Globalization increases the revenue from tariffs.
(x) Globalization is neo-liberal and not democratic.
2.Fill in the blanks
(i) In other words, vote trading may be called .
(ii) In a situation where bureaucracy is functioning without much control, there is a chance of
.
(iii) The ensure that everybody in the country is subject to the rules and
regulations of the land, irrespective of caste, colour and creed, religion, profession,
social position, and so on.
(iv) The basic purpose of governance is to encourage and sustain .
(v) The basic legal obligations are based on .
(vi) Law represents a of a society at a particular juncture of history.
(vii) Bureaucracy also leads to social inefficiency by increasing the of
negoti- ations through and bribery.
(viii) The separation of human beings into categories (Third World, migrant, economic
migrant, refugee, illegal, skilled, non-skilled, citizens, non-citizens) the
of the human condition.
(ix) has converted public monopoly into private monopoly.
(x) With globalization, the labour market is becoming more and more .

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3.Choose the correct option
(i) “It is better for a city to be governed by a good man than by good laws”, so said
(a) Plato (b) Socrates
(c) Aristotle (d) None of these
(ii) Natural laws are believed to be based on
(a) Human commands (b) Divine commands
(c) Both (a) and (b) (d) None of these
(iii) Basic legal obligations are based on
(a) Ethical principles (b) Judicial principles
(c) Legislative principles (d) None of these
(iv) The principle of natural law supports the theory of
(a) Relativism in ethics (b) Objectivism in ethics
(c) Subjectivism in ethics (d) None of these
(v) Good governance is based on
(a) Transparency and Accountability (b) Powerful political strategies
(c) Both (a) and (b) (d) None of these
(vi) The theory suggests that all systems of governance have both good and bad points is
(a) Ontological theory (b) Contestability theory
(c) Epistemological theory (d) Spiritual theory
(vii) Who has shown that it is impossible to have a consistent social choice in democracy?
(a) Adam Smith (b) Winston Churchill
(c) Kenneth Arrow (d) None of them
(viii) Corruption Index is the highest for
(a) India (ranking 1 among 700 countries)
(b) India (ranking 70 among 163 countries)
(c) India (ranking 10 among 163 countries)
(d) USA (ranking 100 among 700 countries)
(ix) A measure of inequality is
(a) Gini coefficients (b) Correlation coefficient
(c) Smith coefficients (d) None of these
(x) Which model of bureaucracy has pointed out that the bureaucrats generally try to
maximize the total budget for their bureaus?
(a) PZB model (b) Nicosia model
(c) Howard Sheth model (d) Niskanen model

Review Questions
1. Clearly bring out the relationship between law and ethics by suitable examples.
2. Why is democracy ethically bad?
3. Explain the ethical issues involved in globalization and global governance.
4. Explain with examples some unethical practices of MNCs in less developed countries.
5. Why is globalization considered as ethically undesirable? Explain fully.

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Web Links
1. http://www.cvc.nic.in/vcrktalk.pdf [Ethics and Governance]
2. http://www.moller.ca/subsite2/Writings/Documents/ETHICS.pdf
[Bureaucracy versus Ethics]
3. http://www.vicnapier.com/MyArticles/OrgDevPapers/ethics_of_bureaucracy.htm
[Ethics of Bureaucracy]
4. http://www.hbs.edu/centennial/businesssummit/business-society/ethics-in-globalization.pdf
[Ethics in Globalization]
5. http://homepage.mac.com/haroldsjursen/GlobalEthics.htm
[Globalization and the New Challenges for Ethics]

References
Arrow, Kenneth (1951), Social Choice and Individual Values, Yale University Press, New Haven
Day, Louis Alvin (2006), Media Communication Ethics, Wadsworth (Cengage Learning), New
Delhi
Deininger, Klaus and Square, Lyn (1996), A New Dataset Measuring Income Inequality, World
Bank, Washington
Ghosh, B.N. (2009), A Tale of Two Economies: Development Dynamics of India and China,
Nova Science Publications, New York
Ghosh, B.N. and Halil Guven (2006), Globalization and the Third World: A Study of Negative
Consequences, Palgrave-Macmillan, London and New York
Ghosh, B.N. (2001), From Market Failure to Government Failure, Wisdom House, Leeds Hoffman,
John and Graham, Paul (2010), Introduction to Political Theory, Pearson, New Delhi Mackie,
J.L. (1990), Ethics: Inventing Right and Wrong, Penguin Books, UK
Olen, Jeffrey (1988), Ethics in Journalism, Prentice Hall, NJ
Schumpeter, J.A. (1947), Capitalism, Socialism and Democracy, Harper, London and New York

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CHAPTER
6
Ethics of Care
and
Compassion

L E A R N I N GO B J E C T I V E S

This chapter will help the reader understand

■ The meaning of care
■ Principles of care ethics
■ The Feminist theory of care ethics
■ Conflict between care and justice
■ Care, cost and conflict
■ Organizations for ethical care in India

INTRODUCTION
In Victor Hugo’s celebrated novel Les Miserables, the bishop liberates the convict Jean Valjean
and gifts him two candlesticks besides the silverware that the convict had stolen. The bishop also
lies to the police in order to save the convict. Such is the nature of compassion and care. To some,
whilst this compassion is a temporary effusion of a kind soul, care is a more permanent mental
attitude and involves preoccupation with the near and dear ones. Although human beings are
essentially selfish in nature, qualities like altruism and doing good to others usually belong to
their second order disposition. Care for others, particularly to one’s own people, parents and
members of the family grow out of an instinct implanted in man by the nature. Care,
compassion and love are

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interconnected categories and all these qualities are determined by and arise out of natural love.
Love is the most important and decisive factor involved in the generation and sustenance of care.

CARE AND RELATIONSHIP

All religions in the world including Jainism, Christianity, Hinduism, Islam and Buddhism depend
on care-based ethics. Care-based ethics teach the golden rule: “Do unto others as you would have
them do to you”. The ethics of care is based on the philosophical theory of reversibility.
It is simply the case of a role reversal where we are to put ourselves in the positions of others and
ask ourselves regarding what we feel about a particular type of treatment (Kidder, 1995, p.5). It
gives us the realization that how will we feel if we are the victims and others is the caretakers.
Care has been the implicit basis of all types of ethical behaviour. It is very clearly mentioned in
Christianity and Islam. The Bible says: “love thy neighbour as thyself”. Islam advises you not to
take your food if your neighbour is starving and share the food with him. Care is primarily based
on love and includes respecting the dignity of other individuals.
Care depends on the nature of a relationship. The deeper the relationship, the more intense is
the care. When a person is born in a family, he is first and foremost given care by his parents. He
grows through the assistance of care and love. Gradually, he learns the importance of care from
his family in order to survive and grow. This process of learning is followed by a reciprocal love,
affection and care from his side for the rest of his life. Care primarily depends on the
understanding of the relationship between the person who is caring and the person who is cared.
Care can be done with attachment or detachment. While a mother’s care involves attachment, a
hired nurse’s care is often without this emotion.
Care is a particular type of enduring love and affection that is reciprocated by an individual to
those people in his family whom he loves. The same is true of friends and near and dear ones.
Care is an expression of regard coming from esteem. Care for somebody depends primarily on the
nature of the relationship. If the relationship is very intimate, the care becomes deep. On the
contrary, if the relationship gets sour, the care for the person gradually diminishes. When the
relationship becomes very strained, the care degenerates into hate and can no longer be sustained.
Ethics of care is a study of all the factors concerning care, care-based relations, sources and
motivation for care, costs and conflicts of care, care and justice, and many other related issues. In
the present chapter, we will analyse all these aspects of ethics of care. Basically, there are two
broad domains of care:

Esoteric Care and Exoteric Care

The conventional analysis that care is only related to one’s near and dear ones, family and friends
is indeed a narrow view. This can be called the esoteric concept of care. According to this
concept, care is shown only to a person’s own family and to some intimate friends. These people
are shown care by sacrifice in terms of physical or mental efforts or monetary expenditure
whenever needed. Thus, when a child in a family is critically sick, the parents remain awake the
whole night, if necessary, to look after the sick child. This is an example of Esoteric Care
which is shown to a selected group of friends and the nearest kith and kin.

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Care can also be exoteric in nature and, in some cases, temporary or for a limited period of
time. Thus, one may take an unknown victim of a road accident to a hospital and spend time and
money to look after him until he is discharged. This type of care can be called Exoteric Care
and is shown to people outside the domain of family and friends. Exoteric care can also be about
a community or a tribe. In this case, a person takes pride in or takes care of his own community.
This care is called Communitarian Care. It arises out of compassion and kindness and serves
the people at large irrespective of caste, colour, creed or religion. It is a manifestation of a kind of
love in the mind of the person who takes care. It transcends all the narrow boundaries of family,
country and friends. When a person’s mind is very broad and considerate, he is encouraged by the
divine quality of love, care and compassion and to such a man the whole world is his relative. It is
rightly said:
“Udar Charitanamtu Vasudhaivo Kutumbokam”
(To a broad minded person, the whole world is kith and kin.)

As said earlier, care arises out of love and love transcends every boundary or limit. Thus, when
a stranger is loved, he no longer remains a stranger; he becomes an object of love and, therefore,
deserves care and compassion. Thus, there is no fine line of demarcation between the esoteric and
exoteric care. Over the course of time, the exoteric domain mingles into the esoteric domain if the
relationship is sustained and nurtured. In the similar way, with the changing matrix of personal
relations, the esoteric relations may degenerate into an exoteric category revealing less affection,
love, care and compassion.

CARE AND THE PRINCIPLES OF ETHICS

In Chapter 1, we have briefly discussed the four main principles of ethics namely rule-based
ethics, ego or self-interest-based ethics, end or consequence-based ethics and care-based ethics.
In a sense, out of all these theories of ethics, the care-based ethics seems to be the best. Let us
elaborate our point of view. Rule-based ethics sometimes give ridiculous consequences. A
constable posted at the border which divides India and Pakistan is asked by the DSP to arrest
anybody who is smuggling rice. Once he saw a smuggler approaching the India-Pakistan border
with a small bag. The constable asked, “What is there in your bag?” The smuggler quipped, “Sir,
a few gold biscuits”. The constable said, “That’s okay, you may go. I would have arrested you
had there been any rice in your bag. This is my DSP’s order”. Thus, in many situations, rule-
based ethics do not deliver the desired result. Rule-based ethics is too mechanical and as such
cannot take care of the relativity of many ethical issues in terms of time, circumstances and
situations. Some rules may prove to be irrelevant with changing time and circumstances. Thus, it
is not always proper to blindly follow the rule-based ethics. The duty-based ethics may follow
mere routine duties. It consists of a job that somebody has asked you to do.
Similar is the case with consequence-based utilitarian ethics. Utilitarian ethics is basically
concerned with the social well-being or the welfare of the majority of population, but it neglects
the welfare of the minorities. The utilitarian principles may be in conflict with many of our core
moral standards. Consider a situation where the UN Mission has come to you as the Director of

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National Health services for a negotiation to deliver HIV vaccines for the HIV patients in India.
The vaccines can save the lives of thousands of HIV patients. The mission is on its way to
Somalia and the delivery of the vaccines has to be effected exactly at 10 am which is the
appointed time. Your mother has been ailing for quite some time and she is hospitalized now.
You have received a call from your relative a few minutes before 10 am, asking you to come to
the hospital immediately to see your mother who is in a serious condition and may die any
moment. The utilitarian ethics will advise you not to attend your mother but to take the delivery
of the HIV vaccines which can save thousands of lives. This will bring the greatest good of the
greatest number in lieu of the death of only one person. In a situation like this, no theory of ethics
can serve the best purpose except the ethics of care. In fact, it is rightly pointed out by Velasquez
that utilitarianism is a perverse and mistaken theory (Velasquez, 2009, p.103).
Apart from this, the utilitarian ethics calculates the consequences with reference to a finite
horizon. Such a calculation is often incorrect, particularly so if one takes into account the
perspective of “other life” as enshrined in the Hindu philosophy. The point will be elaborated a
little later (see the section on Why Do We Care?).
Care ethics is above and beyond any cognitive theory of justice and ethics. Since care comes
out of love, it conquers everything, transgression and inequity. The Bible rightly says:
“For God will not show mercy when he judges the person
who has not been merciful; but mercy triumphs over judgment.”
(James 2: 13)

This is the true nature of the ethics of care; mercy comes out of compassion, care and love.
When you care for the poor people, the Bible promises that you will be blessed by the God.
“When you give a lunch or a dinner, do not invite your friends or
your brothers or your relatives or your rich neighbours—for they will
Invite you back, and in this way, you will be paid for what you did.
When you give a feast, invite the poor the rippled, the lame and the
blind; and you will be blessed, because they are not able to pay you
back. God will repay you on the day the good people rise from death.”
(Luke 14: 12–14)

If one has made a habit of caring about others, he may even forget the relationship he has
with the person he is caring for. The victim may be a friend or a stranger or even an enemy. The
inspiration can be taken from scriptures and the advice of Jesus may be followed. Jesus said:
“Love your enemies, do good to others who hate you,
bless those who curse you, and pray for those
who ill-treat you………Give to everyone who asks you
something, and when someone takes what is yours,
do not ask for it back. Do for others just what
you want them to do for you.”
(Luke 6: 27–31)

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The Bible here illustrates the ethical duty of an ideal God-fearing person. This is indeed an
uncanny duty, not even thought of by any consequentialist. The last sentence of the above
quotation from the Bible of course smacks the consequentialist philosophy, but not the first part.
Many theories of justice do not really bring the practice of care ethics inside their analytic
umbrella. Nozick’s libertarian theory of justice considers any redistribution of income from the
rich to the poor as an unwanted and unjust one, if such transfer of income is not voluntary.
However, the satisfaction of the needs of the poor is an important part of the ethics of care.
Though not all the theories, the socialist theory of justice comes a long way towards the
ethics of care. Under socialism the payment is based not on contribution but on needs. To supply
the needs of people is equivalent to taking care of them. The Rawlsian theory of justice with its
special emphasis on the difference principle makes a provision to give something extra to
the poor people so that they can take care of themselves.
In the capitalist principle of justice, payment to the labour is based on the contributions of
labour. If the contribution is low, he gets low wages. There is no scope for care in such a
situation, even if the need for more is genuine. The equity principle of justice is also silent about
the special needs of people to take care of their families and loved ones. Most of the theories of
justice are thus inadequate and cannot supersede the ethics of care and compassion.

GENESIS OF CARE: THE FEMINIST THEORY

Ethical issues or principles of morality arise, according to Lawrence Kohlberg, out of the need
for justice and rights. This view is rejected by Carol Gilligan. Gilligan observes that care, love
and morality all arise out of special relations and affections which are more in accord with female
psychology (Gilligan, 1982). In the discussion that follows, we will present views of some
celebrated contemporary authors.

Mary Midgley’s View

All care theorists believe that human happiness which is the goal of life can be maximized by
maintaining a very close and intimate relationship with families. In this context, the observation
of a British philosopher is very relevant. Mary Midgley (1991) through the analysis of Darwin’s
theory comes to the conclusion that morality begins and grows with our natural affections for
the family and friends. As we grow older, we develop reasoning strategies to understand more
about our emotions in relation to our family and friends. As family as a social unit, came into
existence, practice of group relations like obedience to parents, respect to elders and the strategy
of maximizing happiness became gradually entrenched in the family. This practice is then passed
on to future generations. One of the important practices in maximization of happiness is
developing the habit of sharing and caring. In a joint family system, which still exists in India,
this practice is very common.
From the perspective of Midgley’s analysis, morality can be considered as a set of conflict
resolution strategies that preserves and perpetuates the family or group relationships. This type of
relationship is the basis of survival of the species. This observation about family ethics and
morality

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development is very close to that of Kohlberg and Gilligan (Dienhart, 2000, p. 104). Midgley
assures us that natural affection for family and friends plays a major role in the development of
care and compassion. The centrality of this theory is, however, denied by philosophers like
Epicurus and Rand, it remains unchallenged that care comes from the fact we value some people
in the whole mosaic of our myriad relations in this world. The imputation of values to some
special people is not because of our material benefits or gains, but because of our instinct and
voluntary choice and preference for whatever the underlying reason may be.

Nel Noddings’ View

Nel Noddings (1984) lays more emphasis on the most intimate relationship for care and
compassion. But giving care to anybody, according to her, does not mean the negation of his
liberty or personal wishes. One should not impose one’s own rules while taking care of others.
However, it is imper- ative to understand that care should not make the receiver too much
dependent on us.
It is also necessary sometimes to first take care of ourselves and then give care to others. This
point is borne out by a set of instructions about the use of oxygen mask in the airlines flight.
These instructions say that a person travelling with children should put the oxygen mask on
him/her first and then put them on the children, if any such situation arises. There does not seem
to be any kind of contradiction in the instructions issued by airlines even if some parents think
that they should put the masks on the children first. For many people, particularly for parents, it is
a difficult choice to make first to take care of themselves than that of their small children.
Our caring response may not always be forthcoming immediately for the people who are not
intimately related to us. In many cases, we are to arouse our response. Care for the others is a
psychological behaviour that needs to be cultivated in a regular manner. In taking care, many
times, one is confronted with the choices that may be conflicting in nature. This can be settled
with some trade-offs and compromise.
Many ethicists of care will advise us that the interest of the family must be given priority over
many other interests such as taking an employment at a distant place, staying away from home
for a long time, and so on. However, in many situations, economic considerations become the
decisive factor, but the important point is that the final decision is to be based on the aggregate
and acceptable opinion of the family. Indeed, a family is an organization of conflicting
cooperation where the contribution of each member remains essentially unequal, yet it may
enjoy maximum happiness and reciprocal care.

Marilyn Friedman’s Views

Marilyn Friedman (1987) is of the view that the ethical principles of care must be integrated with
those of justice. But that does not mean that care and justice are the same notions. They are not.
Friedman makes it clear that men and women use care and rights more or less in the same way.
She quotes many studies to show that it is the general belief that most men use justice-based
reasoning and most women use care-based reasoning. She makes a reconciliatory approach by
saying that it will be best to integrate the two views (male and female). According to her,
morality cannot be
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separated in the form of a gender division of labour. Very often, men are entrusted with the
activities concerning public affairs, government assignments and running of business. On the
other hand, women are mostly entrusted with softer jobs at home and to look after family welfare,
take care of relationships with family and friends, and so on. This assigns different roles to the
males and the females in a society.
However, a society cannot assign the care based reasoning alone to women and justice based
reasoning exclusively to men. Friedman argues that the spheres of pure justice and pure care are
too limited and undefined to be finely compartmentalized to solve many of our day-to-day
practical problems. We need care in many situations where justice is a major concern, and care
can become an important issue in a case involved with justice. Thus, Friedman advises us to
integrate justice with care for the best possible result.
Friedman in this context speaks about the following three types of Justice:
1. Distributive Justice
2. Corrective Justice
3. Institutional Justice

Distributive Justice
According to her, distributional equality in the matter of distribution of property, assets and
wealth among the members of a family is unjust, if one of the members is doing most of the work
than others to maintain the family relationship and contributing maximum to the growth of the
family. As a matter of fact, many studies in India and abroad show that women suffer most from
this type of distributive injustice. It is a common sight in an Indian joint family system that
after the distri- bution of food to the adults and children, women eat whatever is left.
Corrective or Retributive Justice
Very often, a personal relationship stands in the way of corrective injustice in a family. A person
in the family may constantly impose harm to another or cause injury to others but he goes scot-
free. In an ideal situation, the wrong-doer should regret and change his behaviour so that this type
of transgression may not happen in future. However, this does not happen in most of the cases,
and women remain the most vulnerable.
Institutional Justice
Institutional justice is based on an integration of care, corrective justice and distributive justice.
For a family, institutional justice is necessary to properly groom the young children in a just way
so that a healthy family relationship and a regime of caring and sharing can be established. A
family is living in a just way with the necessary care and compassion only if both, the most
vulnerable and the most independent (physically or financially strong) members live the best
possible life through affection, care and sacrifice.
In this context, Friedman makes the following observation:

“Personal relationships may also regarded in the context of their various

institutional settings, such as marriage and the family. Here justice emerges

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again as a relevant ideal, its role being to define appropriate institutions to
structure interactions among family members, other household co-habitants,
and inmates in general. The family, for example, is a miniature society,
exhibiting all the major facets of large-scale social life: decision-making
affecting the whole unit; executive action; judgments of guilt and innocence;
reward and punishment; allocation of responsibilities and privileges, of
burdens and benefits.”
—Friedman, 1987, p. 102

Friedman believes that it is a very dangerous idea to relegate the role of justice in the personal
relationships in a family to the background. It may lead to violence, injury and many types of
aberrations in the family life. Justice is also necessary for a better and more meaningful group life
as it promotes a congenial relationship among the members and creates a suitable environment for
the full development of their potentials. In such a situation, many types of conflicts can be
resolved without compromising with group values and ethos.
In the public life and reform measures, there is an utmost need for integrating care with justice;
otherwise, there may be negligence and distributive and corrective injustice.

Conflicts between Care and Justice

Justice focuses more on values, principles and abstract rules, but care specifically focuses on
persons and personal relations and does not depend on codified rules. Thus, if my child is
crossing the road at a time when the green signal is on, I may not care for the traffic rules but will
run to save my child first because I care for him more than I care for the road rules. Justice or
rules do not care about relationships; it is impartial. In many cases, the two perspectives are
diametrically opposite. But this should not prevent us from getting the information about the rules
and their relevance in maintaining a caring and sharing society. There is no denying the fact that
an integration of justice and care in the institutional framework of a country may make the society
more meaningful and family life more happy and enjoyable. At an individual level, many persons
nowadays accept the hedonic theory of wage, which is somewhat lower than the
competitive wage just to get posted near home and family.

WHY DO WE CARE?
We care for a person or a group of persons for many intrinsic reasons, some of which are
discussed below:
1. To love others and care for others, in particular our loved ones is a natural human
instinct. Care comes out of affection and love, and love means sacrifice without any
expectation.
2. Natural religion (deism) or justice demands that one should take care of those who are
dependent on you, because they are helpless and have no other person to care for them.
3. Since compassionate behaviour requires a relationship with the others, a compassionate
person will develop new and noble relationships with many persons and their families and

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friends which will guide his noble behaviour throughout his life. In this way, his faith and
commitment to compassion and care will be deep-rooted.
4. Sometimes, care is based on security. Parents give security to their children in their
young days, so children are naturally indebted to them, and they try to pay that off to some
extent by caring for them in their needs. In the same way, parents may care for children and
rear them up with the hope that they will give them security when they become old and
helpless. Care gives reciprocal security and love, although it can exist even without the need
for security.
5. Care gives us a rare sense of happiness, mental peace and satisfaction. If we do not care
about others, we do not get the taste of that unusual sense of happiness.
6. In the Buddhist philosophy, desire is the source of all unhappiness, and compassion is the
natural antidote to desire. Compassion is followed by care. Compassion can also be an
antidote to suffering. For instance, if a person is suffering from financial loss, he may find
that his suffering and the pain due to that will be significantly reduced when he observes the
plight of war victims who have lost everything including their families, property,
possessions and communities (Gruzalski, 2000, p.68).
Once a mother came to Buddha with her only child who had died. She was crying bitterly
and asked Buddha why God has taken away the life of her only child. Buddha said to her “I
will give you the answer, first do what I say. Go to every family far and near and get me
some mustard seeds only from that family which has not so far experienced any grief due to
death”. The mother visited many families but could not find a family untouched by death.
She told this to Buddha and came to know from him that death is natural and everybody
must die. Then she consoled herself thinking that she is not the only sufferer but one of the
victims. This helped her to trivialize her agony and pain. In the Buddhist literature it is
acknowledged that:
“Whatever joy there is in this world
All comes from desiring others to be happy.
And whatever suffering there is in the world
All comes from desiring myself to be happy”
(Bdh: viii, p.129 as quoted in Gruzalski, 2000, p.71)

7. Care gives us an opportunity to pay off our debts to our near and dear ones who
might have helped us or cared for us in many situations of our lives in the past. It may also
set an example of how care is necessary to lead a life of sharing our joys and sorrows so that
our burden may be lessened. The idea is—if you give care, you will receive care. This is the
divine dispen- sation. All religions including Hinduism, Islam and Christianity advise us to
care for your neighbours, parents, teachers, brothers, sisters, and so on.
8. For many religious-minded people, care for others is a means to get the blessings of God. In
this context, Swami Vivekananda has observed:
“Where do you try to find God by overlooking before you His
myriad manifestations in different forms? ………
People who love His creatures, do really love Him” (Jiv Seva is Shiv seva)

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Jesus Christ says in the Bible:

“Blessed is he who is concerned for the poor;

The Lord delivers him in times of trouble;
The Lord will protect him and preserve his life;
He will bless him in the land and will not surrender
him to the desire of his foes.
The Lord will sustain him on his sick-bed
and restore him from his bed of illness
(Psalm, 41:1-3)

In the Bhagvad Gita, Lord Krishna says:

“..........those who have conquered

themselves
and those who have engaged themselves
in working for the good of others become
one with Brahma” (Bhagvad Gita, 5:
25) [Here the Gita is alluding to the exoteric care for the people]
The Bhagvad Gita has described the attributes of a person of a godly nature in the following
words:
“Fearlessness, purity of nature, steadfastness in the yoga of knowledge,
charity, self-control, sacrifice, study of scriptures, and
straightforwardness, harmlessness, truthfulness, absence of wrath,
renunciation, peace, aversion
to fault-finding, compassion for all beings, gentleness, modesty and steadiness,
vigour, forgiveness, patience, purity, absence of envy and pride. These O Bharata,
are endowments of him who is born with Daivik (divine) nature”
(Gita 16: 1, 2 & 3).

Many of the qualities of those persons who practice ethics of care are common with those of
divine nature (see the italicized words).
However, according to the utilitarian ethics, care is justified when benefits from care exceed
the cost of caring. Apparently, caring involves only costs which are monetary, physical and in
terms of time. Thus, as we have explained earlier, the utilitarian theory cannot justify care ethics
as the cost is higher than the benefits. However, it needs to be mentioned that the cost-benefit
calculus (CBA) used in the utilitarian theory is to be appreciated in terms of real cost and real
benefit.
Human rationality implies that an individual usually undertakes a venture where the benefit is
greater than the cost. In ethics, the cost-benefit calculus is to be appreciated intrinsically in terms
of the real cost and the real benefit. Real benefit means moral benefit or progress, and real cost
involves moral degradation. Thus, individual rationality will involve an action where moral cost
(or for that matter any cost-psychic or monetary) is offset by moral benefits. This makes sense
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112basis for calculation. The
when it is under- stood that every individual has its own subjective
expected benefits are explained in terms of rewards from the God either in this or in the next life.
A good work consistent

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with the ethico-moral categorical imperatives is always rational in the metaphysical sense as the
benefits are several times more than the cost.
The unknown future value of benefit is generally greater than the present benefit. Similarly,
future cost (punishment by God) may be greater than the present cost. This is so because cost and
benefit are cumulative in nature. For instance, the metaphysical cost of say astea (stealing) will
be very high when considered in terms of punishment in this world along with the added
punishment by the God in the next world. Metaphysical rationality demands that the cost-benefit
approach (CBA) must be interpreted in terms of futurity. For actions that are not morally
justified, the future value of cost (FVC) will be greater than the present cost; and for a morally
just work, the future value of benefits (FVB) will also be higher than the present benefit. Thus,
what is more relevant in the CBA analysis in the case of ethics is not the calculation of the
present values of benefits and cost but their future values. Such a calculation is based on
individual valuation and also on the punishment prescribed in the scriptures in some cases. Cost
and benefit will have to be measured in the ethical scale of reward and punishment; therefore, the
expected value of benefit and cost is more important than current cost and benefit.

Figure 6.1 Basic needs and care

All the ethical axioms such as love, care and compassion are like public goods which have a
very high degree of positive externality, but since these involve some cost in terms of
sacrifice, the individual rationality of imperfect humankind at a particular time may not find the
immediate proximate benefit justified to follow these categorical imperatives. However, since
human beings are mostly imperfect and are guided by bounded rationality, they do make
mistakes, even if they are otherwise rational. It is important to understand that the worldly
rational behaviour may be different from the metaphysical and ethical rational behaviour, and it is
not surprising that much of the overt human bahaviour is irrational in the perspective of the
ethico-moral rationality. Rational behaviour does not preclude altruism or service to others for the
welfare of all (exoteric care). For a philan- thropic person, when the fixed basic needs are
satisfied, it would be perfectly rational to spend the extra resources or income, if any, for the
welfare of all; and when the command over resources increases, it is possible to devote more
resources for exoteric care (Figure 6.1).

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Ethics speaks more about normative rational behaviour than actual worldly rationality. The
calculus of the present value of cost and benefit to take rational decision may not guide an
ethically rational person as a moral person, but rationality ultimately depends on the values and
norms of life. A person who is ethically rational may not be rational in the material sense.
One important point to note in this connection is that the rational behaviour is always supposed
to be manifested in the actual behaviour of human beings in all their overt and covert actions.
A.K. Sen has, however, argued that the implicit assumption that the actual behaviour is the same
as the rational behaviour is not necessarily correct (Sen, 1987, p.11). As a matter of fact, it is very
essential to explicate the content of rational behaviour, particularly because rationality may be
expressed in many alternate behavioural ways. For instance, for a person guided by morality and
ethics, serving a sick person or caring for an ailing mother is more rational than a life of pleasure
and enjoyment. It needs to be emphasized that the conceptualization of rationality and its related
cognates in an objective way is really very difficult.

CARE, COST AND CONFLICTS

As a part of the programme for the social responsibility of business now becoming popular, many
organized and established companies have been undertaking activities for providing various types
of care to the sick, disabled, mentally retarded, orphans and helpless people. The philanthropic
activ- ities have been found to be negatively associated with cost. The cost reduction is perhaps
because of the spread of goodwill of the company which attracts more and more customers.
However, the social care programmes are not undertaken by these companies primarily for the
purpose of reduction in cost. It is indeed surprising to some as to how the cost reduction takes
place. As a matter of fact, caring programmes do involve costs, and some well-established
companies in India like The Tata group of companies, Birla, Reliance, and so on regularly spend
on ethical care programmes.
On the basis of empirical observations of Indian business houses with respect to the ethical
care, one can classify them into three broad groups:
1. Some companies do not undertake any ethical care programmes on a regular basis.
2. Some companies carry on ethical care programmes on a regular basis irrespective of the
volume of realized profits.
3. Some companies spend on ethical care programmes only when the profit level is high.
When the profit goes down, the programme is discontinued or substantially slashed.
Care is a function of mind, which does not depend so much on the level of profit or assets but
on values, attitude and the tradition of care culture. All these are not only individual
characteristics favouring ethical care but are also critical for the companies in many ways. Some
companies that are making huge amount of profit may not be motivated by the philosophy of
ethical care because they lack in the culture of care, sympathy and compassion. The real test of
the motivation for ethical care and compassion is whether in the event of adverse economic and
financial conditions, the company is still interested in maintaining the caring and sharing
activities.

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Conflicts and Trade-Offs
There is often a conflict between the personal care (PC) and impersonal care (IC) expenditures.
The total amount of resources being given, an increase in the personal care expenditure leads to a
decrease in the impersonal care expenditure. The situation becomes difficult to settle when
personal care expenditure includes care for one’s own parents or dependent children. In such a
case what is appropriate is to make a trade-off. There may be many points of trade-offs between
PC and IC, and out of these, depending on the urgency, need and circumstances, one can choose a
particular point of trade-off. Such a trade-off may not be a permanent one; when resource position
improves, another point of trade off may be chosen.
In a quite different way, personal and impersonal interest may lead to a clash. Let us
exemplify. Suppose you are working as a doctor in one Anti-HIV hospital. It is to be noted
that this type of a hospital is very limited in any Third World country. In such a hospital, the
patients are first required to get registered and then they are called on first-come-first-serve basis.
The seats are awfully limited. A patient, Ms. Mary, is called today to take admission for which
she is ready. In the mean time, a close relative of yours, Mr. Brown, arrives in the same hospital
for admission as his condition is equally critical. He hopes that he will be admitted immediately
as you are his close relative. You are now in an ethical dilemma and it is a situation of conflict
between personal care and impersonal care. If you admit him on the basis of his being your
relative, you are violating the hospital rules. However, if you abide by the hospital rules and
admit Ms. Mary, you are not caring for your relative, Mr. Brown. What will you do in this case?
If you put more importance to the personal care, you will admit Mr. Brown, and if you are very
particular about the hospital rules, you will sacrifice personal care for impersonal care.

ETHICS OF CARE: A CRITICAL APPRAISAL

The following points of criticism are levelled against the ethics of care:
1. Care, particularly too much of it, makes the person to whom the care is shown, dependent.
This creates a moral hazard problem in the sense that the dependent person becomes
indifferent or less concerned about his own health and well-being. He is prone to forget the
importance of self-help. So once the care is given, there is the need for continuous care, and
the situation continues on and on ad nauseam.
2. While giving real care, the caretaker forgets his own need, rest and limits, and beyond a
point, the person’s condition may itself be pathological. He may become physically and
mentally exhausted. There may also be the chance of his capability failure. In an extreme
situation, he may not be able to perform his duties as a caretaker any longer. Then who will
take care of the caretaker?
3. Care ethics has its own limitations. If for no other reason, financial constraint, time
constraint and physical constraint can make the application of care ethics practically very
difficult.
4. The application of care ethics is likely to give rise to discrimination, inequality and even
injustice. In the same family, some may receive more care and others less without any
apparent cause. For instance, in a family, a person’s mother and mother-in-law may be the
victims of
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Parkinson’s disease. The person is more likely to show more favour to his own mother than his
mother-in-law in the matter of distribution of care in spite of the fact the stage of the disease
in the case of the mother-in-law is more advanced.
5. The urge for care taking is a function of mind. For instance, two sons may not be equally
prepared to care about their parents at an old age. Care ethics has no legal standing in the
same sense in which utilitarianism and deontology seem to have. Care ethics cannot and is
not yet made operational through enactments, policy and legal codes. It is entirely voluntary.
It is to be noted that the ethics of care is of a special genre that goes beyond the cognitive
theories and principles of ethics. It is embedded in the principle of renunciation and love, and
even in a poor country like India, one can witness an overwhelming number of organizations of
ethical care, and the number is increasing every year. Some of the renowned ethical care
organizations in India are listed below.
● Ramkrishna Mission (Throughout India)

● Bharat Sevak Samaj (Throughout India)

● Red Cross Society (Throughout India)

● Nariniketan (Throughout India)

● Old Age Homes (Throughout India)

● Society for the Prevention of Cruelty to Animals (Throughout India)

● Orphanages (Throughout India)

● Centre of Concern for Child labour (Mayur Vihar, Delhi)

● Adarsh Charitable Trust (Ernakulam, Kerala)

● Divine Children’s Home (Chalakudy, Kerala)

● Association of Mentally handicapped Adults (Thrissur, Kerala)

● All India Animal Welfare Association (Mumbai)

● Annapurna Mahila Mandal (Dadar, Mumbai)

● Anti-Dowry Guidance Cell (Churchgate, Mumbai)

● Anti-HIV Care for Children (Tamil Nadu)

● Community Outreach Programs (YMCA Road, Mumbai)

● Dignity Foundation (Grant Road, Mumbai)

● Federation of Slum Dwellers of India (Byculla (W), Mumbai)

● HelpAge India (Mumbai)

● Fellowship of the Physically Handicapped (Haji Ali, Mumbai)

● Indian Council for Mental Health (Girgaum, Mumbai)

● People for the Ethical Treatment of Animals (Juhu, Mumbai)

● Seva Dham (Andheri, Mumbai)

● The Family Welfare Agency (Lower Parel, Mumbai)

● The MNB Industrial Home for the Blind [Jogeswari (W), Mumbai]

● The Spastics Society of India (Bandra, Mumbai)

● The Welfare of Stray Dogs (Apollo Pier Road, Mumbai)

● Toybank (Andheri, Mumbai)

● Welfare of handicapped People (Chandigarh)

● Welfare of SC, ST and backward classes of people

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● Juvenile Homes
● Association for the Care of the Aged (Kerala)
● Animal Welfare Organization (Baroda)
● National Thalassemia Welfare
● Share and Care Children’s Welfare Society
● Affus Women’s Welfare Association
● Astitwa Welfare Society
● Prayas Social Welfare Society
● Ladies Welfare Society Hospital
● St. Paul’s Educational and Welfare Associations: Orphanages
● Faith Welfare Society
● Indian Tiger Welfare Society
● Plant and Animal Welfare Society
● AIDS Control Society (Tamil Nadu)
● Family Welfare Schemes
● Senior Citizens Welfare Society
● Child and Women Care Society
● Human Care Foundation (Delhi)
● Circles of Animals Lovers (Mumbai)
● Senior Housing in India (Delhi)
● Spastic Society of Tamil Nadu
● Saaral Social Service Society
● Tamil Nadu Corporation for the Development of Women

Summary
Love is the most important and decisive factor in the generation and sustenance of care. Care is the
second-order human disposition. Care ethics is based on the philosophy of reversibility, i.e. if you
care for others, you can expect that others will care for you. “Do unto others as you would have
them do to you” is a religious dictum. Care primarily depends on the nature of a relationship. The
deeper the relationship, the more intense is the care. Care may be esoteric (for one’s own people)
and exoteric (for others). There may be care for one’s own community (communitarian care).
This care grows out of compassion and kindness. There is no fine line demarcation between
esoteric and exoteric care; in the course of time, both may mingle together. In fact, for a very
broad-minded person, the whole world is kith and kin.
Of all the theories of ethics, care ethics seems to be the best. This is so because all other
principles of ethics have their circumstantial limitations but care ethics has no such limitations.
Care ethics is above and beyond any cognitive theory of justice and ethics. Care conquers
everything, every transgression, and inequity. The Bible says that in spite of all sins of human
beings, Jesus loved people around him, forgave them, and did miracles to heal them up. He took
all the sins and curses of all and died for them just because he loved and cared for them.

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Some theories of justice, like the socialist theory and the Rawlsian theory, do propagate the
virtue of care and compassion. Carol Gilligan believes that care, love and morality all arise out of
special relations affections which are more in accord with female psychology. In the same way,
Mary Midgley also observed that morality begins and grows with our natural affections for family
and friends. Net Noddings gives more emphasis to the intimate relationship for care and
compassion. Marilyn Friedman is of the view that ethical principles of care must be integrated
with those of justice. It must be conceded that justice focuses more on values, principles and
abstract rules, but care specifically focuses on personal relations and does not care much about
codified rule.
Our care may be based on love, a sense of happiness, natural human instinct, natural religion or
even a sense of gratitude and security. It gives us an opportunity to pay off our debts (especially
to our parents). According to the logic of the utilitarian theory, care is justified when the cost of
care is lower than the benefits from care. This is a very narrow interpretation of the ethics of care.
In such a case, care becomes a sort of business and goes beyond the realm of ethics.
Many business companies are involved in the ethics of care irrespective of the volume of
profit. Care does involve some costs, and there may be a conflict between personal care and
impersonal care. Care very often does not break any rules or regulations. However, it needs to be
borne in mind that too much care for a person creates the problem of moral hazards and he
becomes more and more dependent on others. Care may also give rise to the problem of
inequality, discrimination and injustice. If you are a doctor in a hospital, you may care more for
your relatives and friends but may neglect others. Care is voluntary and is based on love, sacrifice
and compassion. There are many organizations for care and compassion even in a poor country
like India, and the good news is that the number of such organizations is gradually increasing
every year.

Key Terms
Theory of Reversibility
Mary Midgley’s Theory of Nel Noddings’ View of Positive Externality
Care Care Marilyn Friedman’s Moral Hazards Problem
Interpretation of Care

Test Your Knowledge

1.State whether the following statements are True or False
(i) Care ethics is based on the philosophical theory of reversibility.
(ii) Care ethics may lead to decisions which may be contrary to those of utilitarianism.
(iii) Too much care sometimes creates a moral hazard problem.
(iv) Care ethics comes under the cognitive theory of justice.
(v) The application of care ethics may lead to discrimination, inequality and injustice.
(vi) Care is the first order human disposition.
(vii) Rational behaviour does not preclude altruism or service to others for the welfare of all
(exoteric care).

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119theory is to be appreciated
(viii) The cost-benefit calculus (CBA) that is used in the utilitarian
in terms of real cost and real benefit and helps in measuring love and care.

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(ix) To love others and care for others is a natural human instinct.
(x) Institutional justice is based on the concept of corporate governance.
2.Fill in the blanks
(i) The ethics of care is based on .
(ii) Basically there are two broad domains of care namely and .
(iii) Utilitarian ethics is basically concerned with or the welfare
of majority of population, but it the welfare of the minorities.
(iv) gives more emphasis on the intimate relationship for care and
compassion.
(v) A family is an organization of where the contribution of each member
remains essentially unequal.
(vi) justice is based on an integration of care, corrective justice and distrib-
utive justice.
(vii) The Bhagvad Gita alludes to the care for the people, when it points out
“….those who have conquered themselves and those who have engaged themselves in
working for the good of others become one with Brahma”.
(viii) There is often a conflict between care and care.
(ix) All ethical axioms such as love, care and compassion are like public goods having a
very high degree of .
(x) Care gives us an to pay off our to our near and dear
ones who might have helped us or cared for us in many situations of our lives in the
past.
3.Choose the correct option
(i) A family is an organization of
(a) Conflicting cooperation (b) Distributive cooperation
(c) Both (a) and (b) (d) None of these
(ii) The justice which is based on an integration of care, corrective justice and distributive
justice is
(a) Distributive justice (b) Institutional justice
(c) Retributive justice (d) None of these
(iii) Who gave more emphasis on the most intimate relationship for care and compassion?
(a) A.K. Sen (b) Marilyn Friedman
(c) Nel Noddings (d) None of these
(iv) Who is of the view that the ethical principles of care must be integrated with those of
justice?
(a) A.K. Sen (b) Marilyn Friedman
(c) Nel Noddings (d) None of these
(v) From whose analysis can it be analysed that morality can be considered as a set of
conflict resolution strategies that preserve and perpetuates the family or a group
relationship?
(a) Marilyn Friedman (b) Nel Noddings
(c) Mary Midgley (d) A.K. Sen

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(vi) Who has argued that the implicit assumption that the actual behaviour is the same as the
rational behaviour is not necessarily correct?
(a) Mary Midgley (b) A.K. Sen
(c) Marilyn Friedman (d) None of these
(vii) By CBA, we mean
(a) Cost–Benefit Approach (b) Care–Benefit Approach
(c) Care–Behaviour Approach (d) None of these
(viii) FVB is otherwise known as
(a) Fixed Value of By-products (b) Future Value of Benefits
(c) Both (a) and (b) (d) None of these
(ix) Cost and benefit will have to be measured in the
(a) Ethical scale of reward and punishment
(b) Measurement scale of cost and production
(c) Likert scale
(d) None of these
(x) When exoteric care is about a community or tribe, then it can be called
(a) Marginal Care (b) Communitarian Care
(c) Peripheral Care (d) None of these

Review Questions
1. Critically examine the feminist theory of care.
2. Why is it necessary to integrate care and justice?
3. Why do we care for others?
4. Distinguish between esoteric care and exoteric care and bring out their important character-
istics.
5. Is there any nexus between care and relationship? Explain.
6. Why is the theory of care called the best principle of ethics?

Web Links
1. http://assets.cambridge.org/97805218/56867/excerpt/9780521856867_excerpt.pdf
[Feminist Theory]
2. http://en.wikipedia.org/wiki/Feminism [Feminism]
3. http://en.wikipedia.org/wiki/Ethics_of_care [Ethics of Care]
4. http://www.utilitarian.net/singer/by/199812--.pdf
[Reconciling Impartial Morality and a Feminist Ethic of Care]
5. http://ftp.iza.org/dp5076.pdf [Hedonic Wage Equilibrium: Theory, Evidence and Policy]
6. http://www.sagepub.com/upm-data/10977_Chapter_6.pdf
[Feminist Ethics and Counselor Decision-Making]
7. http://www.csus.edu/org/wpsa/pisigmaalphaaward.pdf
[Can Care Ethics be Institutionalized ...]

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References
Dienhart, John W. (2000), Business, Institutions and Ethics, Oxford University Press, New York,
pp. 102–110
Friedman, Marilyn (1987), “Beyond Caring: The De-Moralization of Gender”, Canadian Journal
of Philosophy, Vol. 13, pp. 87–110
Gilligan, Carol (1982), In a Different Voice: Psychological Theory and Women’s Development,
Harvard University Press, Cambridge, MA
Gruzalski, Bart (2000), On the Buddha, Wadsworth, Cengage Learning, Australia
Kidder, Rushworth, M. (1995), How Good People Make Tough Choices, William Morrow,
New York
Midgley, Mary (1991), “The Origin of Ethics”, in A Companion to Ethics, Peter Singer (Ed.),
Basil Blackwell, Cambridge
Noddings, Nel (1984), Caring: A Feminine Approach to Ethics and Moral Education, University
of California Press, Berkeley
Sen, A.K. (1987), On Ethics and Economics, Basil and Blackwell, London
Velasquez, Manuel (2009), Business Ethics: Concepts and Cases, Prentice-Hall of India, Delhi,
p. 103

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 CHAPTER
7
Environmental
Ethics

L E A R N I N GO B J E C T I V E S

This chapter will help the reader understand

■ Poverty, resources and environment
■ Economic growth and environment
■ Global environment
■ Impact of environmental pollution on human health
■ Social cost of pollution
■ Ethical issues in environmental pollution
■ Management of environmental pollution
■ Sustainable development
■ Resolution of the conflict between growth and environment

INTRODUCTION
Like Oliver, in Charles Dickens’ novel Oliver Twist, who always wanted more and more, all the
industrializing countries, now, want more and more out of the environmental resources and
natural capital although they are prevented from using them to an unsustainable degree. In recent
years, analysts and policy-makers have become concerned about the appropriate use of our
environmental resources. The environment is under constant attack and is being assaulted by
those factors and

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forces which accompany a rapid rate of industrialization and the escalating rate of human
poverty. Both poverty and growth do have convoluted interactions with environmental resources
and, to some extent they are the primary causes behind environmental damage and degradation.
Whilst a moderate rate of growth is desirable and often harmless, too much of it at too fast a rate
impinges on the eco-system and environmental tranquillity. Innumerable ethical issues are
involved in the management of human environment. The present chapter aims at analysing some
of these issues and many other related problems including the policy of sustainable development
and proper management of environmental resources.

POVERTY, RESOURCES AND ENVIRONMENT

It should be appreciated that poverty arises because of lack of basic resources. Many of the
resources that can alleviate poverty are natural that one can gather from forests, water, mountains,
land, mines and the nearby environmental endowment. There seems to be a vicious circle of the
relationship working here. In order to reduce poverty, more natural resources will be depleted
which, in future, will aggravate poverty. Thus, one starts from a situation of poverty and again
lands into it, and the poverty cycle continues. One of the reasons for the growth and sustenance of
poverty is degrading of natural resources or the environment. Too much of use of natural
resources due to excessive growth of population, or due to lack of proper policy to regenerate or
renew the natural resources leads to environmental fall out. Natural resources have the power to
regenerate themselves, but it takes time and if they are constantly assaulted without giving the
necessary time to regenerate, the depletion becomes inevitable. Over-use and wrong usage of
resources are the contributory factors for the damage and depletion of our natural resources.
Can a payment for the environment lead to sustainable resource use and poverty alleviation?
This is a complex question which does not have a straight-forward answer. If the user is a rich
person or a multinational agency, some payment will be made for the use of resources. In the
process of exploitation of environmental resources, the user may derive some values (benefits)
which remain unknown to the owner, and the actual value may be several times higher than the
amount paid for the use of those resources. This is particularly the case of many plants which
have medicinal value. In such a case, there will be a tendency on the part of the user to over-
exploit the natural resources. More often than not, the exploiter is receiving enormous benefits
and he will go the whole hog to maximize his gains. In such a case, even if payment is made, it
will bring more harm than good to the environment.
If the owner is an individual person, his poverty may be alleviated but at the cost of the
country’s natural resources. There may be private benefit but the public loss may be enormous.
Moreover, some of the benefits of our natural resources cannot be evaluated by the market price.
The indirect benefits of natural resources are in particular not amenable to market valuation.
The fact that overuse of natural resources can lead to poverty is substantiated by the case of
many developing countries. In Laos PDR, more than 50% of the GDP is derived from agriculture
and 80% of the people rely on natural resources to eke out a living. This practice has been going
on since long, and as a consequence, agriculture and other natural resources have become
overbur- dened and less productive. The situation has been aggravated by deforestation, illegal
logging, and

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conversion of cultivable land into industrial areas, decline in non-timber forest products, loss of
biodiversity and water resources, depleting fish stock, and so forth. Clearly, poverty is again
raising its ugly head. So, the government of Laos PDR has to take a number of practical steps to
not only reduce poverty but at the same time ensure a sustainable development. Sustainable
development is that development which does not harm the environment or distorts the ecological
balance of the society. It needs to be noted that both poverty reduction and sustainable
development are simulta- neously possible with rational implementation of some good policies.
In most of the developing countries, there is an urgent need to minimize the impact of
environmental changes.
The case of Philippines is getting more publicity now under the tag of a country, where
profitable agricultural production is destroying the eco-balance. In Philippines, for increasing
palm oil production, the plant and animal diversity has been seriously damaged, and carbon
emissions, however, have not been reduced. All this is done for the benefit of a handful of
business people and their commercial firms. The period of globalization has witnessed a
structural change in the agrarian development of many countries. Agricultural land is becoming
more and more an ordinary commodity. The commodification of land in many countries
including India, Pakistan and some African countries, have been contributing substantially to the
degradation of environment. It is high time for the less developed countries to find out some
viable alternatives to land degradation and soil erosion problems. This may make the land more
fertile once again and alleviate the poverty of the cultivators. It is not impossible to enhance the
resource use efficiency and transform traditional agriculture, and at the same time, keep intact the
ecological balance.
Population growth and poverty are responsible for both land and forest degradation. The poor
people depend on the nearby forest in order to collect fuel-wood, fodder and, thus, get some extra
income for their extended family. All these are important causes of deforestation. However, legal
and illegal logging and exploitation of forest resources with connivance of forest officers is also
equally responsible for this state of affairs in many developing countries. The programmes for
afforestation and regeneration have never been a howling success in these countries due to
various reasons.
Be that as it may, the poor people suffer disproportionately from the resource imbalance
created by various factors. Pollution of all types affects the poor most in terms of loss of income,
sickness and loss of amenities that are generated from a nearby forest. Population growth and
poverty often go hand in hand.
As suggested earlier, poverty and environmental deterioration are mutually reinforcing, and so
is the population growth. Poverty is correctly blamed for both, excessive population growth and
environmental pollution. It is rightly said that “poverty is the worst pollutant”. Poverty induces
parents to have more children so that the total family income can be maximized as each child in a
poor family becomes an earning member at an early age, and the marginal cost of rearing children
in such a scenario is also very low. Thus, since the benefit of a marginal child is higher than the
cost of having an extra child, the rate of the growth of population, particularly in poor families
and rural areas, is very high. The poor people are rational in calculating the economic benefits
and the cost factors involved in rearing extra children.
But the relevant issue is—if poverty is reduced, from where the resources will be coming?
Are those natural resources being replenished? In many cases, one of the contributory causes of
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environmental degradation is the pressure of population which is again the cause of poverty. In
the mainstream thinking, particularly stemming from the western countries, however, the basic
advice is that for the sake of development, the concern for environment must be relegated to the
background. This type of wrong advice is not called for. The world institutions, in general, are
concerned more with quantitative economic growth and do not care for the quality of human life.
Since cost of living is cheaper in developing countries, the developed capitalist countries often
transfer their dirty industries to the former. Many of the world institutions do recommend the
entry of such bad industries to less-developed countries in the name of globalization and
liberalization. In fact, one of the basic purposes of liberalization in the LDCs is to open their gates
to all the polluting industries of the developed capitalist countries. While permitting these
industries, the LDCs do not strictly adhere to the international environmental norms.

IS ECONOMIC GROWTH CONDUCIVE TO THE ENVIRONMENT?

There is no inherent contradiction between growth and environment if the rate of growth is
moderate and not competitive. A growth rate based on the domestic saving (investment) and the
existing capital-output ratio is supposed to be moderate in nature as it is based on the carrying
capacity of the economy. Technological improvement can also raise and sustain this moderate
rate of growth. Such a rate of growth is not necessarily harmful for the environment. However,
the craze for a high rate of quantitative growth by hook or by crook can endanger the
environmental equilibrium. The problem is that this craze very often dominates the policy makers
and planners. A high rate of growth is looked on as an evidence of a high level of achievement by
the political authorities. So, eventually, growth becomes a competitive game. The greatness of a
country is measured in terms of its quantitative growth rate.
When important national problems are discussed in a forum, economic growth comes at the
top, and environment does not capture the mind of the people or planners. It is believed by
politicians that public vote is based on per capita income growth and not on the clear sky or clean
air. When questions were asked in a recent survey in America, people showed more concern for
economic growth and its sustainability rather than environment. Moderate growth is a necessary
but not a sufficient condition for clean environment. Economic development is definitely more
conducive to environmental balance. This is substantiated by the fact that a sustainable type of
economic development is quite compatible and consistent with environmental development. In
fact, economic development includes environmental development.
Economic growth entails many types of activities that may endanger the environment. In a bid
to achieve a high rate of growth, different types of polluting industries may be set up in areas that
were earlier devoted to agricultural works and forestry. In such a case, growth disturbs the
environment and the ecological balance. A high rate of economic growth is often found to be
positively correlated with environmental pollution. It is believed that much of the current urban
environmental degra- dation has been underpinned by a long-lasting trend of uncontrolled
quantitative growth which has resulted in general ill-health and pollution. Economic growth, of
course, brings many new opportu- nities but it creates many problems at the same time in the
process of growth which is detrimental to the environment. Perhaps, it is not so much the growth
itself, but the composition or the content

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of growth that is more decisive for the environment. A growth in a clean way does not have to
necessarily jeopardize the environment. A growth exercise that is based only on the establishment
of dirty industries and the exploitation of our natural capital is detrimental to the environment.
Promiscuous and rampant growth can put pressure on the ecological balance.
It is touted by western capitalist economists that economic growth can correct many
environment- retarding factors such as population and poverty by increasing the growth of per
capita income. There is no doubt that these two problems are the worst enemies of environmental
and sustainable development. Indeed, higher income level can reduce the level of poverty and in
that case, the exploitation of forest resources and pollution of environment by the poor classes of
population will be substantially reduced. The poor will, then, not pollute the environment. For
instance, they will not defecate near road side, nor will they cut the forest for fodder and
firewood. They will innovate more decent ways of performing their daily chores. Moreover, at a
higher level of per capita income, the parents will not have to depend so much on the additional
income from children. In other words, when the parental income level is higher, the dependence
on the children will automatically reduce.
In the early stages of development, or in the traditional sector, the cost of rearing a child is
very low, while the expected benefit out of him is too high. However, at an advanced stage of
industrial- ization, the situation is quite opposite. As a result of increased per capita income, birth
rate tends to fall. At a higher level of income, the standard of living becomes a more dominant
consideration. At this stage, many parents will like to have a car rather than a baby. Urbanization
has also helped in reducing the birth rate. In an urban area, a big family is a liability. Lack of
accommodation, higher rents and higher cost of rearing children helps to reduce the tendency
towards higher birth rate. Moreover, birth gets reduced by late marriage, which is a trend in many
urbanized societies. Birth rate can also be reduced if the death rate is low. In fact, with the rise in
the level of income, it is possible to have better medical care and public health services, and all
these combinations reduce the death rate. Since death rate is lower now, the birth rate has also
reduced. In the same way, since poverty is a negative function of income, a rise in the level of
income will help to reduce poverty. But the level of income that is needed to reduce the rate of
growth of population will have to be critical minimum. If the rise in income is very low and slow,
population and poverty both will rather increase than decrease. Thus, people say that a good rate
of growth is the best contraceptive.
However, there is a note of caveat. It is often found from experience in less-developed
countries that it is during the period of fairly good growth rate that an economy experiences
environmental hazards and pollution. The point is made by the South against the limitless growth
philosophy of the North. The North maintains that in LDCs, the pollution is not created by
economic growth as such but by the teeming millions of people. The North goes so far as to say
that the LDCs are suffering not from high growth rate but from low growth rate syndrome. Some
researchers cite results of cross-national regressions showing that there is an inverted U-shaped
relationship between per capita income and the correlates of environmental degradation in a
country like India (see Rao, in Chary and Vayasulu, 200). This implies that at a lower per capita
income growth, the environmental pollution is showing an upward trend and, at a still higher
level of income, the level of pollution is going to be lower. If this is true, one should specify the
exact level of income that is expected to show such a declining trend of national pollution.

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But in spite of the fact that a very high level of income growth is a method to bring down the
pollution level, a number of cogent points can be made here. First, a higher level of per capita
income growth is often associated with a higher level of inequality in income distribution. This
is true for many LDCs including both India and China (Ghosh, 2009, p.28). In both India and
China, the levels of income inequality were lower in 1986 when these countries had a lower rate
of economic growth. However, with a higher level of economic growth, the income inequalities
were exacerbated in both these countries.
It should be pointed out that growth and environment are not necessarily competitive issues.
The one is interacting with the other. So the choice cannot be an absolute one for the time to
come. There are in fact many points of trade-off—there can be a higher growth rate with a
tolerable rate of environmental damage, or a lower level of growth rate with maximum possible
level of environ- mental resources and natural capital. The pertinent question is—what does the
society want at the present stage of development? It is a choice between the present and the
future. If society puts more premiums on the present, then higher level of growth is the answer,
but if the society discounts the present and puts a premium on the future, then lower rate of
economic growth will have to be associated with a higher level of environmental growth and
protection.

GLOBAL ENVIRONMENT: SOME BASIC ISSUES

The issues involved in the study of global environment (GE) will be analysed in three parts. First,
a list of major global environmental problems will be provided. The second part of the discussion
will be devoted to the global inequalities in handling GE problems and the last part will analyse a
few serious problems of less developed countries including India. The impact of different types of
pollution on human health is discussed in the next section of this chapter.

Major Global Environmental Issues

The major global environmental problems include:

Global climate change

Ozone layer depletion
Acid rains
Noise pollution
Pollution of international waters
Desertification of land
Deforestation
Soil erosion, radioactive pollution
Loss of valuable species
Loss of biodiversity

In the year 1991, the World Bank, UNDP and UNEP identified the following four major global
environmental issues. These issues are—biodiversity, climate change, depletion of the ozone
layer
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and the problems of international waters. Various environmental treaties have been trying to take
the following actions:
1. To conserve the biological diversity and to fairly and equitably share the benefits of genetic
resources
2. To control and reduce the harmful effects of desertification and deforestation
3. To protect and enhance wetlands
4. To conserve and rationally use the marine living resources
5. To protect the endangered species of flora and fauna from over-exploitation
6. To conserve and effectively manage migratory species.
7. To protect the ozone layer, and phase out the ozone depleting substances
8. To stabilize the emission of greenhouse gases
9. To prevent the dumping of hazardous waste
10. To regulate the quantity/quality aspects of international waters.

Global Inequalities in the Management of Environmental Problems

Some developed countries (DCs) are unnecessarily internationalizing the global environmental
problems to gain some advantages and to put the LDCs into trouble. The following discussion
will make the point clear. The DCs are interested only in those problems the solution of which
will give them some advantages and will lead to an effective control over the LDCs. In Africa, for
a long time, desertification was a global problem but no attention was paid to it by the DCs until
recently. While LDCs are trying to phase out the harmful CFCs, the DCs under the Montreal
protocol have been given the power to increase the production of CFCs. The LDCs, however, are
not getting any special financial assistance for such an attempt, although the production of CFCs
may reduce the tempo of industrialization in these countries. CFCs are often necessary for
industrialization and growth. DCs are mostly the polluters in developing countries which are
accommodating more and more multinational corporations. The principle that “polluters must
pay” was adopted in the Rio Declaration; but the MNCs do not bother to pay any heed to such a
treaty.
The DCs dump hazardous wastes in the LDCs so as to reduce cost and evade laws. Sometimes,
the Northern companies make deals with Southern companies, or villagers in the coastal areas for
dumping of hazardous waste. In 1996, more than 289 ships came to India for the disposal of such
harmful waste from America [Gupta, J., 2000 in Cary and Vayasulu (Eds.), book, p. 259].
Western researchers, very often, use genetic resources from developing countries without
paying any compensation. The patent system, especially in the field of biotechnology, exploits the
LDCs. Since the products of biotechnology industries earn a huge amount of profit, the North is
interested in patent protection, although the basic inputs are obtained from developing countries.
The international agencies are interested in making an international treaty on forestry. This is
objected by the LDCs on the basis of the fact that forests are national resources and no
international treaty is needed for their protection. The above points will show that the DCs are
trying to interna- tionalize every environmental issue in their favour for imposing control and
gaining international supremacy.

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Problems before Developing Countries: International Inequalities
In the area of environmental management, the LDCs are confronted with many serious problems.
Some of the major problems are listed below.
First, in the long-run, it is believed that reduction in emission will reduce the tempo of economic
growth in such countries.
Second, the western polluters in such countries cannot be compelled to pay for the pollution
created by them. The paradigm ‘polluters must pay’ has been changed to leadership paradigm.
The western polluters are accorded the role of leaders who try to control pollution in all the
countries. The principle of ‘grandfathering’ is getting the upper-hand.
Third, while the DCs have got the de facto property rights to pollute more, the LDCs are punished
for that. The international agencies are following a double standard, and the interests of LDCs are
consistently overlooked.
Fourth, the technology transfer agreements are increasingly using the provision of certain
environ- mental criteria. In that case, it will be difficult for the LDCs to absorb western
technologies.
Fifth, global power politics is being used in the case of global environment management. The
western investors are asking for a complete control over their own investment and its
consequences in the developing, host countries. This will intensify the problems of environment
in LDCs.
Sixth, current international trade from the South involves a form of invisible subsidy to the North
as the raw materials exported by the South are not priced on the basis of ecological value. The
eco-la- belling and packaging rules imposed by the importing DCs may reduce the trade from the
South.
Seventh, international debt problems make the LDCs economically and environmentally
vulnerable as many of these countries have to exploit their forest resources to a level which is
unsustainable.
The aforesaid problems are common to many of the developing countries, and unless the inter-
national economic and power structure is based on equity principle and the Southern countries
develop a strong countervailing power, such a deplorable situation is likely to continue forever.

CAUSES OF ENVIRIONMENTAL POLLUTION: SOME ETHICAL ISSUES

Mahatma Gandhi used to say:
“The earth provides enough to satisfy every man’s need but not every man’s greed.”
The basic causes of environmental degradation are:
● Human greed and rapacity (egoism and selfishness)

● Large and growing population and capitalist industrialization (profit/exploitation).

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As the following diagram shows, if ethical rooting and profit motive are strong, depending on
their relative strength, two alternatives are possible. If the rooting is strong but profit motive is
normal, environmental degradation can be reduced. In the case of poor ethical rooting of the mind
in the context of a strong profit motive, there will be more of environmental degradation. But if
there is normal profit motive and also poor ethical concern (rooting), the situation may be indeter-
minate (or amoral) with respect to environment.
ETHICAL ROOTING
STRONG POOR
NORMALSTRONG

ER > P = Env. Care

Profit Motive

PM >ER = Env. Degradation Env. Degradation

Env. Care and Support Indifference [Amoral]

IMPACT OF ENVIRONMENTAL POLLUTION ON HUMAN HEALTH

Neo-liberal globalization that spreads the message of an increased tempo of industrialization
through capital and technology intensive methods of production has exacerbated the
environmental pollution (EP) several times in recent years. The EP is the common name given to
a syndrome of different types of pollution including air pollution, water pollution, dust pollution,
soil pollution, radioactive pollution, noise pollution and thermal pollution. The modern world has
been witnessing various types of environmental pollution. Population growth and environmental
pollution go hand in hand. Population growth directly or indirectly affects the environmental
tranquillity and ecological balance. Run-away world population figures continue to exacerbate
environmental problems. In the year 1999, the world had 6 billion human beings, by the year
2110 it will have 10 billion people. These additional people need food, fuel and other necessities
that the earth is already straining to provide. The world already has 500 million undernourished
people, and this number will increase by 10 per cent in the next decade. Along with population
growth, different types of environmental degradations will be triggered. Environmental
pollution has been affecting the people of both the developed and underdeveloped countries.
However, the nature of environmental pollution is different in these two types of countries. In the
developing countries, urban slums and pollution are the outcome of excessive population growth
and uncontrolled migration of people. The threat to human life has become so imminent that
concerns have been expressed by experts and even by the world bodies to control the
environmental problems at the earliest opportunity.
Linked with globalization is the ecological system of the world. Globalization may not be the
casual factor but it is associated with the declining state of our eco-system. The ecological devel-
opment of the world has a definite impact on human health and well-being. The UN Report on the

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State of the World’s Cities (2008/9) puts the current ecological footprint of humanity as 2.2
hectares per person, while the earth’s biological capacity remains at 1.8 hectares. The two Asian
super- powers, China and India have ecological footprints that are twice their bio-capacity. This
implies that what the population consumes in a year, their area of earth will take two years to
produce. This seems to be consistent with the Malthusian legacy—the growth of population is
going to outstrip the growth of food supply. If this is true, it is sure to impinge on human health
and happiness. There are, of course, other challenges on which the report has been elaborated.
These challenges relate to mobility, waste management and environment. Some of the natural
catastrophes like climate change, triggered partly by irresponsible human actions during the
period of globalization, will not be amenable to proper management and control. The magnitude
of the climate change in the years to come will be simply incredible. There could be long spells of
heavy rains, prolonged dry weather, powerful cyclones or tsunamis. The glaciers of the
Himalayas may start melting and the sea levels may rise. But the rub is that, it will be difficult to
reverse the trend, even if the whole world starts taking measures to protect the environment now
(The Hindu, December 3, 2008). The impact of the climate change will not be confined to one or
two countries, but will be felt across the world. The disaster will have direct deleterious impact on
human and animal health.

Climate Change and Other Agents of Pollution

The indirect impact of climate change on human health will be through its damaging effect on the
production of food and fibre. In a report by the Food and Agricultural Organization (FAO, 2008),
it is said that ocean warming, frequent tropical cyclones, flash floods and droughts are very likely
to bring a devastating impact on food production system in the Pacific Island countries. Climate
change related disasters have already constrained the development of these islands in a serious
manner. The climate change is also going to reduce the food security (especially for the house-
holds). Moreover, increasing coastal inundation, salinization and erosion as a consequence of the
rise of the sea level, and human actions may indeed contaminate and reduce the area of
agricultural lands for the purpose of food production. This is sure to impinge on the problem of
household and national food security. The FAO has advised the world countries to build a
resilience of the food systems in order to avoid enormous future economic losses in food,
agriculture, fisheries and forestry. In order to fight the menace of climate-change-related
disasters, the countries will need to assess the degree of vulnerability of their food security
systems, and accordingly, they can make viable plans for agriculture, forestry and fisheries. It
becomes clear from the report of the FAO that the indirect effect of climate change on human
health will be serious and unpredictable.
Because of excessive concentration of population and industrial activities, enormous amount
of domestic and industrial waste is discharged into rivers, which creates water pollution. The
deposit of chemicals may also pollute the air. Water may also be polluted by cadmium, which
causes impairment of the central nervous system. Nitrate pollution of water supplies, which
causes methaemoglobinaemia, particularly among infants, is reported in North American
countries. Water pollution may also cause hepatic disorders, typhoid and intestinal diseases.
Water pollution may be biological, radioactive or chemical. The constant use of synthetic
detergents leads to consid- erable river pollution. The presence of detergents renders life
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which assist in the natural biological purification of water. Detergents also affect the re-oxygen-
ation capacity of river water. Excessive fluoride in water may cause dental fluorosis or hearing
deficiencies in children. Chemical contamination of water is enough to produce toxic effects. The
biological contamination of water is responsible for many types of endemic infectious diseases
like typhoid, cholera and dysentery. Epidemiological studies carried out in many countries have
estab- lished that soft water may produce cardiovascular and cerebrovascular diseases.
Only 10 per cent of the world’s fresh water is polluted in terms of diminished oxygen content.
However, while most rivers are fairly clear of organic pollution, some contain high concentration
of pesticides or polychlorinated biphenyls. These are dangerous carcinogens. A more serious
problem regarding fresh water is its uneven distribution. Less than 50 per cent of the world’s rural
population and nearly 75 per cent of its urban population have access to clean water. Adequate
sanitation is available only to 15 per cent of the rural population and 59 per cent of the urban
population. The UN hoped that by the year 2000, everyone could have clean water and adequate
sanitation. But that hope has not been a reality. A high rate of population growth prevents
adequate investment for the availability of pure water and adequate sanitation in developing
countries. Salt water pollution remains a concern especially after the outbreak of algae blooms
along the southern Scandinavian and the US east coasts. The North Sea seal and dolphin deaths
and the appearance of medical rubbish have polluted the salt water. One hopeful sign was the fact
that in 1987, eight North Sea countries agreed to reduce the waste incineration at sea by at least
65 per cent by the end of 1990, and phase it out completely by 1994. However, it has not been
possible to do so.
Noise is capable of producing damage to human beings. Noises produce congestion, visual
distraction and so on. Noise at a high pitch (over 80 decibels) may cause temporary decrease in
the size of the blood vessels and produce a high pulse rate, hearing damage, cardiovascular
problems and the constriction of muscles. The blaring of loudspeakers and radios in the urban
areas may create noise over 70 decibels which, in many cases, can cause a nervous breakdown
and disturbance of sleep.
It is necessary to dispose of hazardous wastes. Most developed countries send their waste to
the less developed countries of Africa and elsewhere. The OECD countries generate between 300
and 800 million tonnes of hazardous waste per year. The US alone contributes 88 per cent of
this amount. The developing countries like India, Brazil, South Korea and China also contribute
substantial hazardous wastes. A large proportion of this waste is produced by the chemical and
mineral industries. The cost of the disposal of hazardous waste is pretty high and several
countries flush their wastes into oceans, even though there are international and regional
conventions to control such dumping. Land disposal is the most popular method of waste
disposal. The Komme- nekimi method of Denmark destroys more than 90 per cent of the
country’s hazardous waste and at the same time supplies 35 per cent of the heating needs.
However, because of many difficulties, the developed nations continue to transport their
hazardous waste across borders for someone else to deal with. Some of the third world countries
accept the waste in exchange for hard cash. But this has triggered widespread concern recently in
the African countries. In 1988, the Organization of African Unity adopted a resolution
condemning the use of Africa as a garbage heap.
Another important issue in the environmental balance is the fact that the earth is gradually
burning due to those human activities that artificially increase the amount of carbon dioxide and
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other greenhouse gases in the atmosphere. The burning of fossil fuels releases an extra 5000
million tonnes of carbon every year and the destruction of forests and other vegetation creates
another 1600 million tonnes of carbon annually. The other gases that are harmful for the
environment are nitrous oxide, methane, chlorofluorocarbons and ozone, which, when trapped
below about 12 km, are damaging to the human body. According to one estimate, within a
century, there will be a warming of the earth by between 1.5 oC and 4.5oC. This will have far-
reaching environmental and socio- economic implications. The wind pattern and rainfall will
change, making some regions wetter and some drier. In some regions, there may be tropical
storms. In the event of the greenhouse effect, food production will fall marginally, because some
areas may not be able to adjust to the climatic changes.

Air pollution
In the present section of the book, I will concentrate on the ill-effects of only air pollution. Of all
the agents of environmental pollution, air pollution is the most serious that affects our health.
There are, of course, ozone depletion, global warming and climate change. Air pollution refers to
the presence of many types of obnoxious substances and chemicals in solid, liquid or gaseous
forms in the air. Air becomes polluted when the concentration of sulphur and nitrogen based
compounds and other harmful particles like dust, smoke, ash and gas, and suspended particulate
matter accumulate in the air beyond the acceptable standards. The World Health Organization
estimates that more than a billion people in Asia are exposed to air pollution levels that exceed
their guidelines. This is considered to be a reason for the premature death of half a million people
every year. Researchers at Brigham University and Harvard School of Public Health have
recently found that the average life expectancy had increased by three years between 1980 and
2000 in those cities in America where pollution had been kept at bay. Reducing pollution
produces measurable gains in terms of human health and life expectancy. Cleaner air has
lengthened life expectancy by five months in 51 US cities, as a news report revealed in January
2009.
Air pollution may be caused by the combustion of fuels, incineration and the fumes from
different types of transportation. Nearly 70 per cent of air pollution is caused by the exhausts from
automo- biles which have become a part of modern life. The clean air is contaminated by carbon
dioxide, sulphur compounds, carbon monoxide, nitrogen compounds, hydrocarbons and
particulate matters. Different types of compounds become highly toxic when they are mixed in
the air. Air pollution largely affects the industrial sector of both the developed and the developing
countries. A high concentration of carbon monoxide in the blood obstructs the supply of oxygen
necessary to maintain the vitality of the body’s cells. Tetraethyl mixed with automobile fumes and
lead poisoning become very harmful for the human body. All these may cause anaemia, nervous
disorders and muscular problems. Air pollution is responsible for various types of respiratory
diseases. Air pollution in some countries has, of course, decreased since the 1970s, particularly in
some western countries. The Protocol of the 1979 Convention on Long-Range Trans Boundary
Air pollution which came into force in 1987 is further expected to reduce it. However, according
to the data supplied by the NEP (1984), out of the 54 major cities, 27 were found to have
unacceptable or just marginal air according to the standard of the World Health Organization.
Extrapolated worldwide, this means
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that some 990 million people (almost 50 per cent of world’s urban people) breathe marginal or
unacceptable air. The cities surveyed which had this marginal or unacceptable air included Delhi,
Dublin, Hong Kong, Shanghai, New York, London, Milan, Tehran, Seoul, Rio de Janeiro, Sao
Paulo, Paris, Beijing, Madrid and Manila.
The World Development Report (2007) has studied the seriousness of the air pollution problem
in different countries of the world and finds that the most polluted city in the world in terms of
particulate matter (PM) is Cairo (Egypt) followed by Delhi (India), and the least polluted is the
Shenyang City in China (see Table 7.1).

Table 7.1 Most Polluted Cities by Particulate Matter (PM)

Particulate Matter City

μg/m3 (2004)
169 Cairo (Egypt)
150 Delhi (India)
128 Kolkata (India)
125 Tianjin (China)
123 Chongqing (China)
109 Kanpur (India)
109 Lucknow (India)
104 Jakarta (Indonesia)
101 Shenyang (China)
Source: World Development Report, 2007
A large number of epidemiological studies have provided quite authentic evidence that air
pollution is associated with increased morbidity and mortality (WHO 2002). Air pollution mostly
affects the cardiovascular and respiratory systems. A study by Gregory A. Wellenius et al. (2007)
finds a small but statistically significant inverse association between ambient particles and blood
oxygen saturation, but no association between short-term fluctuations in the ambient pollution
levels and functional status as assessed by the circulating levels of BNP have been found.
However, in this case, the sample size was too small to give the correct result.
The reports of the WHO disclose that each year, more than 2.5 million people die of air-borne
diseases. EP can be an indoor or an outdoor phenomenon, or both. Tobacco pollution can lead to
both indoor and outdoor pollution. The problem of air pollution is more or less affecting all the
countries in the world, which has a deleterious effect on human health. The National Resources
Defence Council of America reported a few years ago that every year due to air pollution, nearly
64,000 people die of cardiopulmonary diseases in the US, and nearly 30,000 people die prema-
turely every year due to the coal-fired power plants. It is estimated that for every one per cent loss
of ozone, the risk of skin cancer in human beings will increase by about six per cent (GEO Year

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Book, 1997). The increasing demand for energy in the modern world leads to a burning of fossil
fuels, which is a contributory factor to the aggravation of air pollution.
A study by Beatrix Groneberg-Kloft et al. (2006) has established that air pollution remains a
leading cause of many respiratory diseases, including chronic cough. The authors observe that
a long-term exposure of children to nitrogen oxide is associated with an increased incidence of
chronic cough and decreased lung function parameters, and there is some evidence that chronic
inhalation of diesel can also lead to the development of the cough. Sulphur dioxide is also known
as a major respiratory irritant. Another powerful oxidant is ozone that affects the functionality of
the respiratory tract. An exposure to a slightly elevated ozone concentration produces many
unwanted respiratory syndromes. A correlation is found between the indoor air pollution and
chronic cough; arsenic contaminated well water in Bangladesh has been responsible for chronic
respiratory diseases too. Depleted uranium, a radioactive heavy metal, is also associated with
chronic cough.
Air pollution consists of particulate matter, sulphur dioxide, nitrogen oxide, carbon monoxide,
hydrocarbons, volatile organic compounds and ozone. Except ozone, all other chemicals, having
the value of the air quality index exceeding 150, can affect human health. Lead and arsenic, very
common chemicals found in water, soil, air, paints and children’s toys, can cause serious damage
to health. Arsenic is associated with diseases of the skin and nervous system. It also triggers the
risk of certain types of cancer including kidney, lungs and bladder. Lead poisoning, which is a
common type of poisoning in less developed countries, is associated with brain damage, mental
retardation, stunted growth and reduced I.Q. Very often, indoor air pollution is many times more
serious than outdoor air pollution in terms of health risk. Indoor air pollution in India causes
nearly half a million of deaths of women and children every year (Mukherjee and Hazra, 2008,
p.14). Apart from these, there are hazardous chemicals all around us that have deleterious effects
on human and animal health. The International Environmental Organization has identified more
than 180 air pollutants and some of them are so poisonous that they can have a devastating effect
on human health including skin, brain, nervous system, reproductive system, and respiratory and
circulating channels.
Continued exposure of workers in the asbestos factories to silica dust in various parts of the
world, particularly in the LDCs, leads to different types of serious diseases. Asbestosis causes
pleural and parenchymal changes and may also cause broncogenic carcinoma and malignant
mesothelioma among the workers. Silicosis is caused by exposure to silica dust and it primarily
involves diseases of the lungs. It is accompanied by cyanosis and inflammation of lungs,
shortness of breath and fever. In the Western countries, the incidence of silicosis has substantially
reduced over the years due to the use of many protective gadgets and respirators. However, in the
LDCs, the multinational factories and local producers do not often provide the workers with these
protective devices. Hence, the death rate due to silicosis cannot be reduced. This Grinder’s
disease is taking a large toll of human lives. Occupational hazards become more pronounced in
the LDCs because of poor working environments and an absence of necessary safety nets.
Globalization has indeed increased the risk of lives of poor factory workers. The bad news is that
the green house gas emission has increased in transitional economies by 7.4 per cent, while it was
reduced by 5 per cent in the industrialized countries during the period 1990–2006 (UN
Framework: Convention on Climate Change).

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Motivated by the philosophy of maximization of profits, neo-liberal globalization has
witnessed an expansion of the polluting industries in different parts of the world, particularly in
the Third World countries. Table 7.2 reveals the global trend of carbon concentration, ozone
depletion and global temperature over a period of four decades. The table clearly shows that
while the carbon concentration in the air has been increasing with the rising temperature, the
concentration of ozone is gradually declining which is harmful for life on earth. This may, in the
long run, jeopardize human well-being resulting in a declining stock of the ecological capital and
an inferior quality of human life. A study by Phillip O’Hara (2006) finds that there is a
contradiction between environ- mental protection and the expansion of business/profit in our
times. The temptation for profit in the days of globalization is so great that the world’s most
polluting country, the United States, refuses to sign the Kyoto protocol to minimize the level of
pollution. What has become clear by now is that there is a positive trade off between business
profits and environmental pollution in the world today; but the problem is that the capitalist
countries do not appear to understand this empirical truth.

Table 7.2 Global Environment (1960–2000)

1960 1970 1980 1990 2000

317 326 339 354 369
Air Concentration of CO2
Global Temperature Change 0 −0.05 +0.12 +0.26 +0.38
(Compared with the 1961-90 average)
Ozone Concentration (Dobson Units) 293 276 227 172 135
Source: Compiled from various sources, as given in O’Hara (2006)
The level of pollution varies from country to country, and even in the same country, there may
be different cities with different degrees of air pollution. Generally speaking, urban areas are
more affected by air pollution than rural areas. Urban areas have higher concentration of
motorized vehicles and various types of industrial activities. The Central Pollution Board of India
measured the air quality in four Indian cities in 2007 and found that in terms of nitrogen dioxide
and respirable suspended particulate matter (RSPM), the city of Mumbai was the most polluted
one, followed by Delhi. The level of air pollution in these two cities was beyond the nationally
acceptable average (vide the following Table 7.3). However, due to heavy rains, no comparable
data could be collected for another city (Vadodara).

Table 7.3 Air Quality in Major Indian Cities (13–14 February, 2007)

City Sulphur Dioxide Nitrogen Dioxide RSPM

National Standard 80 80 100
Chennai (Adyar) 7 12 94
Delhi (BSZ Marg) 7 70 133
Mumbai (Sion) 35 103 293
Vadodara NA NA NA
Source: Govt. of India, Central Pollution Control Board (www.cpcb.nic.in)

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In all the cities in the world, due to a large number of vehicles and burning of fossil fuels,
the air pollution is on the rise on a daily basis. Whereas in the developed countries old vehicles
are discarded or destroyed after a specified number of years, in the LDCs, they are repaired and
used on the road, and this increases the concentration of pollutants in the air. Of course, there are
official provisions to check pollutants from vehicles and punish/suggest to the owners to remedy
the situation. However, due to corruption and regulatory capture, the system of checks and
balances does not work well in LDCs.
The damage caused by air pollution in many countries is well-known. Who is not aware of
the Chernobyl nuclear power plant disaster of 1986? This has left behind a horrible impression
on the minds of the people of Ukraine. In Kolkata, the winter season experiences deaths of many
old people and children every year due to chronic obstructive pulmonary diseases and respiratory
distress syndrome. The city of Kolkata has over 12,000 small and big registered factories, and
there are over 60,000 registered vehicles operating daily (Mukherjee and Hazra, 2008, p. 45). The
damage to health in Kolkata is caused by high concentration of the respirable suspended
particulate matter and nitrogen dioxide in both industrial and residential areas. However, the
Central Pollution Control Board of New Delhi (India) finds that the level of concentration of
sulphur dioxide is not that alarming in Kolkata. Air pollution is very high in thermal power
stations in India. Sulphur dioxide emitted from these plants is a major source of air pollution. A
report by the WHO discloses that about 10 to 15 per cent of the population in India is suffering
from asthma, bronchitis, hay fever and common cold, all air-borne diseases.
The BBC report in the year 2002 disclosed that in the United Kingdom, the Great Smog of
1952 which spread over London for six days was the main cause of death of 12,000 people. In the
history of India, the worst type of air pollution was the Bhopal Gas Tragedy (1984). The leakage
of a hazardous gas called methyl isocyanate from the Union Carbide factory, a multinational
pesticide company, was responsible for the death of about 4,000 people and caused permanent or
temporary injury to about 5,00,000. The gas leakage not only disabled the factory workers but
also affected the members of their families and the residents who were staying nearby including
children and women. In the US, in one of the worst incidents of air pollution, 20 people died and
7000 people were injured in Donara, Pennsylvania in 1948. The leakage of a poisonous gas,
anthrax spores, from a biological warfare laboratory in former USSR led to the death of hundreds
of civilians including women and children in 1979. There are numerous examples to prove that no
place in the world is safe from air pollution. The Environmental Protection Agency reported in
1985 that indoor air pollution was three times more dangerous than outdoor air pollution in
American homes, and in such a situation, the members of a family are susceptible to serious
health problems including cancer. This shows that ladies who stay at home most of the time are
prone to air-borne diseases. The chances for such diseases are far higher for women in less
developed countries than those in developed ones, as in the latter countries, most of the female
members also work outside homes. In fact, housewives who are constantly exposed to the
cooking fuel in the developing countries, have higher possibilities of health damage from the
indoor air pollution.
In China, the major cities like Beijing and Shanghai are affected by the over-accumulation of
carbon monoxide, nitrogen oxide and photochemical smog. However, China has been trying to
reduce the air pollution by following the standard set by the European Union. In an empirical
study conducted in Ukraine, it is estimated by Elena Strukova et al. (reported in Mukherjee and
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2008, Ch. 8) that air pollution related mortality represents about six per cent of the total mortality
in the country; in Russia, it is about four per cent. But morbidity represents about thirty per cent
of total air pollution health load.
The monetary cost of mortality and morbidity due to air pollution is around 2.6 billion USD
per year. This cost of air pollution in Ukraine is too high and in the near future, as the authors
maintain, it will offset the economic growth rate.
It needs to be borne in mind that the actual effects of air pollution on human health are not
properly Air pollution preciated in the LDCs because most of the minor ailments produced during
the short period or due to a short-term exposure are neither medically consulted nor registered
on medical records. However, the acute effects of air pollution are produced rather dramatically
and can be easily identified. Short-term elevations in atmospheric particulate matter have been
often associated with the triggering of acute cardiovascular syndromes which include myocardial
infarction, ventricular arrhythmias and ischemic strokes. Studies have found a positive
association between short-term increases in these ambient particles and the risk of heart ailments.
The long-term effect of air pollution is also ignored as it cannot be separated when mixed with the
basic syndrome of another acute or chronic disease. Moreover, the effect of air pollution on plants
and animals is neglected in such studies. Thus, the actual impact of air pollution remains
underestimated. The authorities very often forget about human health and are excited about the
progress of urbanization, rapid rate of industrialization and a high rate of quantitative economic
growth. Quantity of material gains often overshadows the quality of human life. This is indeed
the travesty of modern age and civilization.

SOME FACTS ABOUT ENVIRONMENTAL POLLUTION IN INDIA

1. The Bhopal Gas Tragedy of 1984 is still vivid in the minds of Indians.
2. Every year, India generates USD 1.5 billion worth of e-waste and out of this, 30% is
contributed alone by the IT industries (Toxics Link, 2006). In the IT industry in Bangalore
alone, some 30,000 computers are discarded every year. If we add the figures from the rest
of the country, it will be an alarming statistics. India does not have a strong E-waste
Disposal Policy
3. Most of the rivers in Gujarat near the chemical corridor are polluted, and 74 out of total 184
Talukas are polluted by the industries (see State Environment Action Plan Report).
4. The mercury spill by the Hindustan Lever in 2001 has been causing potential threats to the
lives of about 30,000 people in Kodaikanal, Tamil Nadu (Chokhani, 2005). The project was
subsequently discontinued.
5. The 700 dyeing and bleaching units of textile industry at Tirupur in Coimbatore (Tamil
Nadu) have been discharging 100 million litres of effluent every day to Noyyal, a tributary
of the river Cauvery. This has contaminated the water and made it unsafe for human usage
and it has also rendered about 20,000 acres of land in the nearby area uncultivable (Kapadia,
2006).
6. The adverse effects of endosulphan on the cashew nut plantation workers in the villages in
the Kasargod district of Kerala has now become very clear from many empirical studies on
the subject (see at the end of this book, case studies). The aerial spraying of endosulphan for
fifteen years has brought about hundreds of death, disabilities and disorders in Kasargod.
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7. Human food chains are also consistently affected by environmental pollution. So, the
vegetables, fruits, fish, etc., that we eat everyday are all contaminated.

SOCIAL COST OF POLLUTION

Some authorities favour the idea of calculating costs and benefits for the purpose of proper
management of the environment. However, it is indeed very difficult to calculate the cost and
benefits of environmental control. In this section, we will explain the meaning and impact of the
externalities (external factors or influences).

What is an Externality?
Externality is an influence that does not come from the institution of market but affects the welfare
of a person either adversely or favourably. Externalities adversely affect the economic efficiency.
Externalities can be positive or negative. Air pollution is an example of negative externality. A
negative externality is a cost which is not reflected in the market place. A positive externality is a
benefit accruing to a person without his own effort and it is not generated from market
transaction. Education is a good example of a positive externality. An educated person is likely to
produce many benefits to the society as a better citizen, as a source of information, advice, and so
on.
Positive and negative externalities can be found both in the case of consumption and
production. An example of positive externality in consumption is vaccination. By vaccination, not
only is the individual vaccinated and protected from certain diseases, but the whole society is
protected. An example of negative externality in consumption is the noisy motorbike which creates
disturbances to the others. An example of positive externality in production is the beehive which
not only produces honey for the owner but also help in the pollination of plants. Another example
of negative exter- nality in production is the riverside chemical factory which dumps its chemical
wastes in the river and pollutes its water.
As it has already been pointed out, a positive externality is a benefit and not a social problem
because it simultaneously improves the economic welfare of everybody (e.g. provides a good
climate). Since a negative externality creates real problems, the subsequent discussion would be
devoted to the same.

Negative Externality and Market Failure

In the case of negative externality, the social cost is higher than the private cost. To be more precise,
the marginal social cost is higher than the marginal private cost, and the actual output produced
by the negative externality creating industry (or film) does not take into account the social cost
that it creates. Thus, the competitive equilibrium will result in, (i) more than the efficient
output and
(ii) less than the efficient price. The market price falls short of the actual marginal social cost of the
product. Under such a situation, an excessive amount of resources is allocated to produce the
output which involves externality (see Fig. 7.1). The market fails to achieve allocative efficiency.
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Figure 7.1Externality and market failure

Figure 7.1 assumes that the demand curve for the product (D) reflects the marginal benefits
(MB). When the social cost (equivalent to MD) is neglected and the production consideration is
based on the marginal cost (MPC) alone, then the output would be OM and the price $ 100 per
unit of the output. However, if social cost is added to the marginal private cost, then one can get
the actual marginal social cost (MSC). Thus, the correct equilibrium point is not A but B, and the
correct output is not OM but ON. The actual output OM is not the correct output and the actual
price (OP0) is not the correct price because at this level of output and price, the marginal serial
cost (MSC) is higher than MSB. The efficient output corresponds to point B where MSC = MSB.
Thus, in the case of negative externality, actual output is higher than efficient output and actual
price is lower than the efficient price (P1 = $ 110).

Why is Negative Externality a Problem?

The problem of the negative externality in production, though discussed earlier, can be
summarized as follows:
(i) Price mechanism fails to allocate resources.
(ii) Actual competitive output is more than the efficient output.
(iii) The actual competitive price is lower than the efficient price.
(iv) The society is at a loss because the competitive productions relations and conditions to the
losers.
(v) Since externality is not transmitted through the market and there is no market for the
negative externalities, the market solution does not seem to be possible.

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Ethical Issues in Environmental Pollution/Damage
Environment pollution is associated with many types of ethical problems, some of which are briefly
discussed below.
1. As pointed out in the foregoing analysis, negative environmental externalities (external
influence) impose extra cost on the poor people who are affected by the pollution. This
leads to lower benefits and loss of utility. Very often, the social cost is not paid by the
polluter but has to be borne by the sufferer. This is ethically unjust and wrong. Negative
externalities thus lead to market failure because the market mechanism cannot account for
them, and as a result, the market price does not show the real worth of a commodity. In such
a situation, there are misallocations of resources.
2. As most of the poor people depend on forests for the environmental resources for their
livelihood, it is morally unjust to destroy or damage these resources. As discussed earlier,
poverty is also responsible for environmental degradation. However, once the level of
poverty is reduced through economic development, there is a possibility of less
environmental damage.
3. It is the basic human right to enjoy a clean and healthy environment. Environment pollution
deprives human beings of such natural rights and hence it is unethical.
4. Environment pollution endangers the health of poor people who reside in vulnerable areas.
EP imposes a higher burden on the poor people because sickness leads to a loss of income
and productivity and man days.
5. Pollution increases the cost of production (if the social cost is included) and reduces the
output. Both are socially undesirable, particularly for the poor people.
6. Justice says that polluters must be punished and they should pay for the damage. But very
often, they go scot free because of the legal loopholes and regulatory culture.
7. More often than not, environmental pollution occurs due to the over-use of natural resource,
which is made possible by an increasing domination over nature. Too much domination over
nature is unjust and unethical in the sense that it is exploited for personal or selfish ends.
8. Damage to environment is unethical and unjust for the future generations who have equal
rights to enjoy the benefits and gifts of nature. Human racity is responsible for the
degradation of the environmental resources. The depletion of these resources is unjust and
unethical for the posterity.
9. Environmental pollution leads to the loss of life or extinction of certain species of animals,
fish and plants and the loss of ecological balance. Non-human creatures have also the right
to live in a natural environment along with human beings. The harm caused to them is
unethical and unjust.
10. Environmental pollution leads to hedonic injustice by distorting the prices of land, houses
and other habitats. Prices of houses and lands in the polluted areas go down abnormally and
the owners suffer unjustly without any fault of theirs.

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Management of Environmental Pollution
Corrective Pigovian Tax
A tax equivalent to the marginal damage created by the polluter can be imposed by the government
on the polluter. Such a market-internalising tax is able to secure the position of Pareto optimality.

Government Regulation
Government regulation may be resorted in two cases: (i) to impose the correct dose of taxation on
the polluter, and (ii) the merger of firms (the polluting firm and the victimized firm). However,
such a merger is not possible due to many reasons. Nevertheless, the imposition of tax is likely to
reduce the output of the polluting firm, which would be a gain for the victim because less output
means less damage.

Market for Pollution Rights

Some economists feel that it would be better to allow the market to solve the negative externality
problem by permitting the polluters to pay fees for the pollution. Such fees can be correlated to
the pollution damage. The creation of a market for buying and selling polluting rights will have
several advantages (e.g. the right can be given to the highest bidder), identification of the
polluters would be possible and the emission standard can be fixed and controlled.
Internalization of Externalities
The internalization of externalities requires that the producers (polluters) are forced to take account
of the costs they impose on others. In the case of negative externality, internalization requires that
the social cost of negative externality be incorporated into the market price of the product. The
increase in the market price of the good (as a result of the marginal social cost incorporating
marginal private cost plus the cost of damage) would mean that the equilibrium quantity
demanded and supplied of the good would come down, and therefore, negative externality would
be internalized.
Creating Property Rights
According to Ronald Coase, well-defined property rights are sufficient to internalize any negative
externality when there are small numbers of affected parties and when the transaction cost is very
low. Government intervention is essential because it can not only establish rights to use resources
but also encourage the trading of those rights, and minimize the transaction costs involved.

SUSTAINABLE DEVELOPMENT
Sustainable development (SD) is now regarded as one of the best policies for the management of
environment vis-à-vis human consumption needs.
Ever since the publication of the Brundtland Commission Report in 1987, the concept of
sustainable development has been the subject of a new understanding and many
misunderstandings.
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The United Nations World Summit in 2005 reiterated the views of the Brundtland Commission
for the popularization and practice of sustainable development among all the countries in the
world for the sake of a meaningful human existence with ecological balance. Sustainable
development is a type of development that aims at using natural capital and environment in a way
that can meet the present and future human needs. Thus, the use of these resources by the present
generation will not deplete the stock of these resources for the posterity. Thus, sustainable
development incorporates an element of intergenerational equity. However, sustainable
development needs to be distinguished from Green Development which basically aims at
preserving and promoting the environmental resources. The concept of green development is an
overtly protective idea, and has nothing to do with economic and social development.
For understanding the core idea of sustainable development, one needs to know the level of
human consumption and the replenishment capacity of the stock of natural capital. In this context,
we may come across the following three situations:
Case One: Human consumption exceeds the replenishment capacity. So there is a
depletion of natural capital. This, then, does not constitute a sustainable development.
Case Two: Human consumption of natural capital is just equal to the replenishment
capital. This is, therefore, the steady state growth.
Case Three: Human consumption of the natural capital is much lower than the
replenishment capital. This is precisely the case of sustainable development.

There are basically the following four connotations of a sustainable development:

● Human consumption of the natural capital is much lower than the replenishment capacity.

● Growth of development does not disturb the natural capital stock.

● Economic growth and natural capital development must be supportive of each other and

they should be complementary in character.

● The needs of the present generation do not adversely affect the needs of the future gener-

ation.
Ethical issues implicit in the concept of Sustainable Development are:
● Cooperation and not the destructive greed and egoism.

● The virtue of the Aristotelian Golden Mean: Balance everywhere.

● The care for the posterity and recognition of their natural rights.

Sustainable development recognizes the constraints and limits to development, and believes in
the inter-linkages that exist among the economy, society and environment. It is based on the
recog- nition of the nexus that exists between socioeconomic development and environmental
development. The theory of sustainable development works through inter-linkages, inter-
generational equity and operational efficiency. It is a common experience that economic growth
in the days of globalization impinges on natural environment and disturbs the ecological balance.
The details about the type of nexus between growth and environment and the impact of growth
upon environment have been discussed in the last section of the present chapter.
In recent years, the craze for quantitative growth in the developing countries under the influence
of globalization does not pay much heed to environmental protection, which slowly destroys the
stock

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of the natural capital and is detrimental to both the present and the future generations. However, a
contrary idea held by many economists is that natural capital, human capital and knowledge
capital do not diminish over time. However, although these capitals are not completely destroyed
in the long run, their replenishment capacity may not be the same as their levels of wear and tear
and destruction due to over-use. But it must be conceded that, by following the policy of
sustainable development strategy, the planners are able to make sure that there will not be any
natural capability failure in the area of natural resource use. Sustainable development is
essentially a policy-oriented strategy of development.
Sustainable environmental development has to take into account the carrying load on the
environmental resources. As hinted earlier, if the load is such that it cannot replenish the damage
or loss over a period of time, then the environmental development does not qualify for sustainable
development. However, if the damage or loss done to the environment can be replenished over
time and if the consumption level of the natural stock of the capital is much less than the
replenishment power of the environment, then it is a case of sustainable environmental
development. The problem with this type of analysis is that it considers environmental
development in isolation and does not take into account many types of inter-linkages and
feedbacks. It also assumes away the problem- atics of measuring the extent of real environmental
damage or losses.

OPTIMUM POLLUTION
Sustainable development calls for optimum pollution (shown in Fig. 7.2).
A society should control pollution in such a way that the marginal damage cost from pollution
(MDCP) becomes equal to the marginal abatement cost of pollution (MACP). The MACP is
really the marginal benefit curve, as the abatement of pollution leads to some benefits. The
intersection point (M) of these two curves determines the optimum pollution (OP). OP can also
be explained

Figure 7.2Optimum Pollution

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in terms of total cost too (marginal cost is the slope of total cost). In the diagram, the total cost
is the sum of the areas (X and Y). At the equilibrium, the total cost of pollution is the minimum.
However, TACP is not necessarily equal to TDCP. Optimum pollution does not mean zero
pollution. Generally, pollution is directly correlated to production of goods and services.

RESOLVING ENVIRONMENT AND GROWTH CONFLICT

While trying to resolve the conflict between environmental balance and economic growth, the
following points need to be borne in mind:
1. Social cost and social benefits from environmental exploitation should be equal.
2. A trade-off is necessary between environmental goals and industrial growth.
3. There should be a market for pollution rights
4. A Pigou-type tax should be imposed on the polluters.
5. Negative externalities must be internalized by the polluting firm.

Summary
Human poverty, economic growth and environment are inextricably interrelated. In many ways,
poverty is both the cause and effect of environmental degradation. Over-use and wrong use of
resources are contributory factors to the damage and depletion of our natural resources. Both
poverty reduction and sustainable development are possible simultaneously with good policies
and their rational implementation. It is not impossible to enhance the resource use efficiency and
transform traditional agriculture, and at the same time, keep intact the ecological balance.
Population growth and poverty are responsible for land and forest degradation. However, the
poor people suffer disproportionally from the resources imbalance created by various factors.
Pollution of all types affects the poor most; in terms of sickness, loss of income, loss of amenities
that are possible from the nearby forest. Poverty is the worst pollutant. The pressure of population
causes environmental degradation, which in turn causes more poverty.
There is no inherent contradiction between economic growth and environment, if the rate of
growth is moderate and not competitive. A high rate of capitalist type of growth may jeopardize
environment. It is the craze for a high rate of quantitative growth which is dangerous. A growth
exercise based on the establishment of dirty industries and the exploitation of natural resources is
detrimental to environment. Population growth rate is no doubt very harmful for the environment,
but a high growth rate of per capita income may help in reducing the rate of the growth of
population. A good rate of growth is the best contraceptive. A moderate growth rate can be
achieved without much damage to the environment. It is the component of growth rate which is
important.
There are many global environmental problems that include climate change, ozone layer
depletion, acid rains, and different types of pollution, and many treaties have been trying to solve
these environmental problems. Developing countries are suffering from serious environmental
problems. The impact of environmental pollution on human health is well-known. Pollution also
creates many social costs through negative externalities leading to market failures. Environmental

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pollution is associated with many ethical issues which are more damaging to the poor people. It
leads to hedonic injustice, accentuation of poverty, sickness and ecological imbalances.
Analysts have suggested many ways like pollution tax, creation of property rights, government
regulations and so forth for the management of pollution. Green development and sustainable
development are suggested to ward off the bad impact of pollution. Sustainable development can
be made possible if human consumption of natural resources is kept at a much lower level than
the replenishment capacity. It is, however, a policy-oriented strategy of development.

Key Terms
Poverty Cycles Climate Change Negative Externality
Polluters Market Failure Sustainable Development
Air pollution

Test Your Knowledge

1. State whether the following statements are True or False
(i) Externality affects the economic efficiency
(ii) Poverty is both the cause and effect of environmental degradation.
(iii) There is no inherent contradiction between the economic growth and the environment.
(iv) Environmental pollution leads to a hedonic justice.
(v) In a sustainable development, human consumption of the natural capital is lower than
the replenishment capacity.
(vi) “Polluters must pay” was adopted at the Copenhagen Conclave.
(vii) SD incorporates an element of the intergenerational equity.
(viii) Government intervention may not be essential to establish rights to use resources,
encourage the trading of those rights, and minimize the transaction costs involved.
(ix) A market-internalizing tax is able to secure the position of Pareto optimality.
(x) Human food chains are not at all affected by environmental pollution.
2. Fill in the blanks
(i) In order to reduce poverty, more of the natural resources will be depleted which, in
future, will aggravate poverty – This is called .
(ii) A growth rate based on the and the existing is
supposed to be moderate in nature as it is based on the carrying capacity of the
economy.
(iii) A growth exercise that is based only on the establishment of dirty industries and the
exploitation of our is detrimental to environment.
(iv) Some researchers cite results of the cross-national regressions showing that there is an
-shed relationship between and the correlates of
environ- mental degradation in a country like India.

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(v) In the year 1991, the World Bank, UNDP and UNEP identified the following four major
global environmental issues, namely, , ,
and
.
(vi) The principle that “ ” was adopted in the Rio Declaration.
(vii) Population growth directly or indirectly affects the tranquillity and
balance.
(viii) water pollution remains a concern especially after the outbreak of
along the southern Scandinavian and the US east coasts.
(ix) Noises produce and .
(x) Environmental pollution leads to injustice by distorting the prices of land,
houses and other habitats.
3. Choose the correct option
(i) Which organization adopted a resolution condemning the use of Africa as a garbage
heap?
(a) Organization of African Unity
(b) Organization of Somalia
(c) Organization for the Protection of Human Rights
(d) None of these
(ii) Which country uses which particular method to destroy more than 90 per cent of the
hazardous waste and at the same time supplies 35 per cent of the heating needs?
(a) India, Sublimation method (b) Denmark, Kommenekimi method
(c) Both (a) and (b) (d) None of these
(iii) What type of pollution can cause methaemoglobinaemia in infants?
(a) Nitrate pollution (b) Hydrogen pollution
(c) Water pollution (d) None of these
(iv) Nitrate pollution can cause:
(a) Insomnia (b) Alzheimer
(c) Both (a) and (b) (d) Methaemoglobinaemia
(v) Which study has established that the air pollution remains a leading cause of many
respi- ratory diseases, including chronic cough?
(a) Study by Beatrix Groneberg-Kloft (b) Study by Engels
(c) Study by Zeithmal and Berry (d) None of these
(vi) Arsenic is associated with diseases of the:
(a) Brain and nails (b) Skin and nervous system
(c) Both (a) and (b) (d) None of these
(vii) Asbestosis causes
(a) Pleural and parenchymal changes (b) Inflammation of the oesophagus
(c) Distortion of limbs (d) None of these
(viii) The Bhopal Gas Tragedy took place in the year:
(a) 2000 (b) 1985
(c) 1986 (d) 1984

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(ix) According to which author are the well-defined property rights sufficient to internalize
any negative externality when there are small numbers of affected parties and when the
transaction cost is very low?
(a) Ronald Coase (b) The Indian Government
(c) Adam Smith (d) None of these
(x) A society should control pollution in such a way that the:
(a) Marginal Cost equals Marginal Revenue
(b) Marginal Damage Cost from Pollution equals the Marginal Abatement Cost of
Pollution
(c) Average Cost equals Average Revenue
(d) None of these

Review Questions
1. Write a note on sustainable eevelopment.
2. Discuss the major ethical issues involved in environmental pollution.
3. Explain the major social cost of pollution.
4. How does environmental pollution lead to human health problems?
5. Explain how global inequalities are being accentuated by environmental pollution.
6. How is human poverty related to environmental pollution?

Web Links
1. http://plato.stanford.edu/entries/ethics-environmental/ [Environmental Ethics]
2. http://strafogetik.ruc.dk/Publikationer/2007/Environmental%20Ethics%20-%20Soebirk.pdf
[Environmental Ethics]
3. http://home.cogeco.ca/~drheault/ee_readings/East/Suggested/Bilimoria.pdf
[Environmental Ethics of Indian Religious Traditions]
4. http://publishing.unesco.org/chAir pollutionters/978-92-3-104039-9.pdf
[Towards an Egalitarian Global Environmental Ethics]
5. http://en.beijing2008.cn/58/92/article211929258.shtml
[Prevention and Control of the Environmental Pollution]
6. http://www.cag.gov.in/EnvironmentAudit/Presentations/Session_Groundwater/4%20 S
%20Krisnan%20Social%20Cost%20Groundwater%20Pollution%20-%20CAG%20 March
%202010.pdf [Social Cost of Groundwater Pollution in India]
7. http://en.wikipedia.org/wiki/Externality [What is an Externality?]

References
Chary, S.N and Vyasulu, Vinod (Eds.) (2000), Environmental Management, Macmillan, Delhi
Chokhani, Anand (2005), “Ethical and Unethical Practices of Hindustan Lever Ltd.”, LIBRA,
Chennai

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Ghosh, B. N. (2010), Rich Doctors and Poor Patients: Market Failure and Healthcare Systems
in Developing Countries, Wisdom House, U.K., pp. 1–17
Ghosh B.N. (2009), Understanding Engineering Humanities, Trinity Press, UK, Chs. 10 and 11
Ghosh, B.N. (2001), From Market Failure to Government Failure, Wisdom House, Leeds, UK,
Ch. 1
Kapadia, Karin (2006), “A Tirupur Story”, Frontline, 2nd June.
Mukherjee, Debashree and Hazra, Somnath (Eds.) (2008), Air Pollution and Health, The ICFAI
University Books, Hyderabad, India
O’Hara, Phillip (2006), “The Contradictory Dynamics of Globalization” in B.N. Ghosh et al. (Eds.),
Globalization and the Third World, Palgrave-Macmillan, London and New York

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 CHAPTER
8
Indian Ethos
and Gandhian

L E A R N I N GO B J E C T I V E S

This chapter will help the reader to understand

■ Early religious scriptures in India
■ Ethics of Jainism
■ Ethics of Buddhism
■ Charvaka ethics of Hedonism
■ Ethics of Vaishnavism
■ Patanjali sutra
■ Ethics of the Gita
■ Moral standards in Indian ethics
■ Gandhian ethics

INTRODUCTION
One of the greatest problems of philosophy, as Santyana once realized, is to devise the means
whereby human beings may be persuaded to embrace virtue without any stimulus of supernatural
hopes and fears. However, this problem was theoretically resolved by both Socrates and Spinoza
who gave the world more or less, a perfect system of natural or rational ethics. If human beings
follow either one of these, all will be well. But strictly speaking, rational morality or social
regimen has never existed in the real world (Durant, 1961, p. 653).

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However, there is a ray of hope simmering through the trajectory of Indian ethics. Indian ethics
is an admixture of and an attempt to juxtapose the possibility of the realization of God and the
godliness in human souls. Whilst the Gita and many other schools of Hindu philosophy aim at
the realization of God, Buddhism and Jainism do not believe in the existence of God, but show
empirical ways to attain the state of godhood through self-efforts that can liberate the human soul
from the eternal cycle of birth and death. An attempt is made in the present chapter to elaborate
on all these and many other major theories of Indian ethics. It will also incorporate a detailed
analysis of Gandhian ethics.

DHARMA SUTRAS (SHASTRA)

The period of Dharma Sutras proceeded the era of Buddhism and Jainism in the sixth century
B.C. It accommodated many of the important ethical principles and precepts of the Hindu way of
life. Dharma Sutras contains many codes of behaviour and rules to be observed by human beings.
Different dimensions of Hinduism are recorded in Dharma Sutras and various normative ethical
behavioural and moral standards to be followed by the citizens are also discussed in this very
ancient book. It also elaborates on the fourfold classification of human beings in terms of caste.
The instructions contained in Dharma Sutras have been used and further clarified by many other
religious writings and instructions. One such Smriti is known as the Manu Smriti.

Manu Smriti
Smirits are remembrances. Manu Smriti was intensely influenced by the Dharma Shastra. Manu
Samhita contains discussions on various issues relating to economy, polity, social problems,
religion, culture, morality, and so on. Manu Smritis has given further details on the behaviour,
duties and responsibilities of various social classes of people as permitted by Hinduism. In this
section, we will discuss the Four Stages in the life of human beings.

Four Stages of Life (Ashramas)

While Shakespeare has dwelt on the seven stages of life, Hinduism has compartmentalized life
into four distinct stages. These four different stages are:
● Brahmacharya (Celibacy)

● Grihastha (Family life or householder)

● Vanprastha (Retired life)

● Sanyas (Life of renunciation or complete detachment from the family)

Considering the span of a life to be 100 years, each stage is to be counted as 25 years.

Stage One
In the first stage of life (Brahmacharya), a person is to acquire knowledge and about the practical
world, religion, shastras and ethical behaviour. The person is to, generally stay, in the house of
his teacher and serve him constantly, and learn religious ideas. He has to regularly read religious

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verses and listen to religious discourses. In this way, he attains maturity and becomes fit for the
real world. This period of life is the period of learning and character building by practicing
restraints by keeping all the senses under control.

Stage Two
The time span for the second stage of life is approximately between 25 and 50 years of age.
During this period, a person marries and creates his own family and friends. His main duty is to
maintain the family, look after his parents and accumulate wealth for his own family. He has to
engage in mundane affairs. However, his life is supposed to be regulated by those moral and
ethical teachings that he has learnt from his religious teacher. He must speak the truth, remain
devoted to his family, respect his parents and observe all other duties towards his ancestors,
parents and family, and also towards the society where he is living.
Stage Three
In the stage three of life (expanding between 50 and 75 years), a person spends a retired life. He
gradually withdraws himself from the ties, burden and responsibilities of the family life. He shifts
these burdens to his son or other eligible members of his family. He now takes less interest in
family affairs and concentrates more and more on the spiritual aspect of life. He regularly reads
scriptures and takes an active part in the religious ceremonies and rituals. However, he may still
remain in the family but remains aloof from the materialistic tentacles. He starts practicing
sacrifice and renun- ciation rather than accumulation and possession.
Stage Four
This is the last stage of life that covers the age span between 75 and 100. In this stage, a man
prepares himself for the other world and tries to acquire all the qualities that will help him to
endear himself to God. In this stage, one is advised to abandon the family life and its pleasure and
pains. He must become free from every bondage and retire to a forest and maintain his remaining
life all by himself. by becoming a recluse and taking sanyas. It is defined as a life of complete
renun- ciation. The most important duty of a person during this stage is to take the name of God
all the time, constantly remember Him and submit to His will.
It is instructive to note that that the timespan specified as 25 years for every stage of life is not
to be followed in a strict sense. Some stages may last more than twenty years and some less. The
four stages of life as explained by Manu can also be found in many other writings on Hinduism.

Four Objectives of Life

Hinduism ordains a person to remain balanced by attaining the four worldly objectives of life as
recognized by the Manu Smriti and Vedas. These objectives of life are:
● Dharma (Religion)

● Artha (Wealth)

● Kama (Sensual pleasure)

● Moksha (Salvation)

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In all the stages of life, the moral duty to pursue religion remains the primary consideration.
Scriptures make it clear that wherever there is religion, there is happiness. According to
Hinduism, human happiness is impossible without the practice of religion. Religious ideals should
be pervasive in all the activities of human beings. These ideals are prescribed in different
scriptures like the Bhagvad Gita, the Upanishads, the Shrutis, Smritis, Vedas and the Vedanta.
A person is permitted to acquire wealth for the benefits of his family, relatives, for sacrifices
and in order to help poor people. The sacrifices or offerings are necessary for the present
generation as well as for the ancestors who are already dead. The earning of money and wealth,
however, should be done in a righteous way and not by cheating, corruption or immorality. The
religion reminds people that money is the root cause of all troubles (artham moolam anartham).
Money is needed by a householder but not by a person who is passing through the stage of
vanaprastha or sanyas.
Hinduism permits a person to enjoy life and to have sensual pleasure in a right way. This is
especially allowed for a husband and wife. However, the purpose of sex is procreation and not
anything else. However, excess in all form is to be avoided at all times. Although the Kama Sutra
demonstrates different poses and arts of love-making with one’s wife; it does not allow perverted
sensual pleasures. The ideas enunciated in the Kama Sutra are within the framework of religious
sanction. Sensual pleasure is denied to students during their stage of learning when celibacy is to
be followed. It is also denied to very old people who are passing through the stage of sanyas (75
onwards).
Moksha (salvation or liberation from the painful cycle of birth and death) remains the ultimate
objective of every person who does not want to be born again. Various ways and means are
suggested by Hinduism to attain salvation. The most important ways are: to remain God-fearing
and devoted to Him, to perform all activities in a righteous way, to purify one’s character, to
eliminate all the traces of ignorance by acquiring the right kind of knowledge, to perform yoga
(communion with God), to sacrifice for the poor and needy and to perform all the worldly actions
without the desire for the consequences.

Vranasharam Dharma (Caste-based Religion)

Just like the four objectives of life, Hinduism advocates a caste-based social system. The evidence
and the description of the duties of different castes can be found in Manu Smriti and the Gita,
among others. Lord Krishna in the Gita clearly states that:
Chatur Varnam Moya Sristam Guna Karma Bibhagasa
The four castes are created by me on the basis of Guna (quality) and Karma (actions).
The Four Castes are:
● Brahmana (Teachers and priests)

● Kshatriya (Administrators and the army)

● Vaishya (Traders and farmers)

● Shudra (Servants and manual labour)

It is said that a Brahmin is created from the mouth of Brahma (the creator God), a Kshatriya
from the shoulder, a Vaishya from the thigh and the Shudra from the feet. This indicates the
social hierarchy inflicted on a person belonging to a particular class. Thus, a Brahmin gets the
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position and status, Kshatriya, the second highest status, Vaishya, the third, and Shudra the last
(lowest) status.
Brahmins are endowed with the responsibilities and duties of giving advice, worshipping,
indulging in religious performances, teaching and preaching. Kshatriyas should give themselves
to fighting and protect the country from foreign invasions and attack. Vaishyas should look after
business, trade and farming. Shudras should provide personal services to the other three classes.
In ancient India, the Jajmani system provided a social and economic interdependence. The social
division of labour demarcated the rights and duties of each and every class. However, this often
created social inequalities and exploitation. The Brahmin class took the upper hand and often
exploited the other classes in the name of religion. Shudras were looked down upon and they
became untouchables and the most hated class.

ETHICS OF JAINISM
Jainism flourished in the sixth century B.C. in India. It is believed that when a person through his
own efforts conquers passions, desires and karma (mundane duty), he is emancipated and
becomes a Tirthankara (liberated soul). They believe in 24 Tirthankaras who contributed to the
development of Jainism, and the last of these Tirthankaras was Mahavira during whose period
the religion witnessed some paradigm shift. Jainism is contemporary to Buddhism.
The basic purpose of Jainism is the realization of the true nature of our souls. When the soul
becomes pure and free from the duty-bound obligations in a complete manner, it is possible to
attain divine consciousness. Any soul that has been able to conquer the inner enemies by constant
practice of the recommended basic principles can be called Jina (victor). Jainism is intensely
spiritual and ethical. All the recommended principles to be followed by a monk in Jainism are
very rigorous and strict.
Our grief and sorrows and the cycle of birth-death are all due to our ignorance. This ignorance
can be overcome by true knowledge. In order to attain ultimate enlightenment and liberation
(moksha), one must practice the following five ethical principles in thought, peace and actions:

Five Ethical Principles of Jainism

● Non-violence and non-injury to any man and animal
● Truthfulness
● Non-stealing (asteya)

● Non-possession (aprigraha)

● Celibacy (Brahmacharya)

Since human beings have different capabilities and environments, their performance with
respect to these five principles will not be the same (Jaini, 1979, p.169). Thus, for monks, the
rituals and practices should be very rigorous but for the laymen, there will be some relaxation.
Celibacy will be strictly observed by monks but for householders, there may be a provision for
monogamy.
According to Jainism, every living creature is regarded as potentially divine, and hence, no
harm should be done to it. Non-violence is the path to attain self-consciousness. By following this

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fivefold path, when a person attains self-consciousness, wisdom and enlightenment, he becomes

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free from the trouble of cycle of birth and death. This state of mind of a person is called Nirvana
or Thirthankara. When a person becomes Thirthankara, he is worshipped by others, and every
Jain aspires to be like him.
In Jainism, there is no explicit recognition of the existence of God. Perhaps, it teaches us that
good behaviour and character, can help one attain divine quality. To attain this state of mind, one
needs spiritual development mainly through real wisdom and self-control. Jainism does of course
the godhead, and any liberated soul is considered as God. It is a religion of self-development, and
it does not believe in the existence of God for explaining creation. There is no room for devotion
to God in Jainism (Sharma, 2009, 67). The fire of asceticism is designed to burn all worldly
emotions and desires to ashes. It is a very difficult religion to follow.
There are the following Three ways through which one can achieve liberation from all
mundane duties (karma) (Jain, 2004). In fact, our behavioural pattern is immensely important in
Jainism. There are consequences of certain physical and mental behaviour, and monks and
laymen should behave differently.

Triple Commandments of Jainism

● Right Perception (Faith)
● Right Knowledge

● Right Conduct

Jainism accepts the fact that human passion, which is due to ignorance, attracts the flow of
karmic matter (duty-related matter) into the souls. Then follows the system of bondage. But there
is a ray of hope. This ignorance which is the real cause of all the troubles can be conquered by
the aforesaid triple paths. These factors are all interconnected; none can be effectively practiced
without the other.
Jainism is against any kind of imperfection, and in order to attain perfection, it advises the
practice of restraints—restraints of the body, speech and mind. These restraints are necessary for
the purification of the soul. Every Jain inculcates the cultivation of excellence or virtues like
humility, purity, truthfulness, austerities, forgiveness, simplicity, and so on.
There are mainly two sects of Jainism—Swetambara (white-clad) and Digambara (nude or
sky-clad). There is no fundamental religious difference between them, but ritualistically, the
Digam- baras are more rigorous and puritanical. They believe that food and clothes are not
necessary items for monks. The white-clad Jains are more moderate in their approach to life and
religious rituals.

ETHICS OF BUDDHISM
Buddhism developed in India in the sixth century B.C. and was contemporary to Jainism.
Buddhism is full of ethical ideas and mysticism. Buddha did not believe in the existence of God.
He also did not encourage beliefs in the transcendental or metaphysical dogmas. His teaching is
all about what human beings can experience in this empirical world. Basically, Buddha only
taught two things— human sufferings and the cessation of sufferings (Sharma, 2009, p.70).
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things are conditioned and impermanent. The teachings of Buddha can be categorically divided
into the following three interrelated parts:

Four Noble Truths

1. The world is full of sufferings. People are suffering from pain, poverty, diseases, old age,
selfishness, greed, anger, conflicts, and exploitation. Pleasure, at the end, generates
sufferings. Birth, lamentation, dejection, separation from loved ones, frustration, and the
like are all sufferings. Sufferings lead us to sorrow and sadness (Dukkha).
2. Since everything has a cause, there is also a cause for sufferings. Sufferings also depend on
some conditions. The presence of cause leads to some effect. The causal law is Dependent
Origination.
3. There is the possibility of the cessation of sufferings. Suffering is the effect of some cause
or a number of causes. If we can identify the cause and remove it, a suffering can be ended.
Everything being conditional and relative is obviously transitory, and whatever is transitory,
is perishable. If something is born, it must die sooner or later.
4. There are ways that can lead to the cessation of sufferings (dukkha nirodha). The ethical
path and the spiritual way of life will put an end to all sufferings and miseries, and at the
same time will lead to liberation from the vicious cycle of birth and death.
In this context, Buddha spoke about the Noble eightfold path.

Noble Eightfold Path

● Right faith
● Right resolve
● Right speech

● Right action

● Right living

● Right efforts

● Right thought

● Right concentration

These paths can be followed by all classes of people. While analysing the causes of sufferings,
Buddha found that desire is the root cause of suffering. Thus, he advised us to abandon all our
desires. The possibility of liberation lies mainly in the Desire for Desirelessness. Buddha,
however, is not the originator of these eight paths but he only discovered them.

The Middle Path

Lord Buddha advised us not to go to extreme while treading these eight paths. One should follow
the middle-path. This reminds us of the Aristotelian theory of Golden Mean. Buddha himself
practiced a very hard life full of rituals for a period of six years in order to attain Nirvana.
However, he became emaciated and too weak to practically do anything meaningful. He came to
realize that an extreme retribution does not do any good to the monk or the householders. Self-
indulgence and
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self-mortification are to be equally avoided. Thus, he favoured the Middle-path. The middle-path
is the most suitable way to get both enlightenment and Nirvana. In his analytical discourses with
his followers, Buddha came to the observation that in the teleological sense, ignorance is the root
cause of all our sufferings.
When all ignorance is banished by the right kind of spiritual knowledge, and all worldly
miseries are eliminated, a person attains Nirvana (the state of perfect bliss or enlightenment) as
Buddha experienced. At this stage, there is no desire for anything. It is the dissolution of all the
positive and negative wishes, all activities stop here, and the mind achieves a complete
equilibrium. It is instructive to note that Nirvana is not a momentary stage; it is that highest stage
of attainment which may be called a stage of liberation and enlightenment that is beyond all
desires and the cycle of birth and death. It is called Nirvana because at this stage, all desires and
sufferings are extinguished.
Buddha discovered the following Twelve Causal links of Dependent Origination (Sharma,
2009, p.74).
1. Ignorance (Avidya)
2. Impression of Karmic forces (Samskara)
3. Initial consciousness of the embryo (Vijnana)
4. Psycho-physical organism (Nama and Rupa)
5. Six sense organs including mind (Sadayatana)
6. Sense-object contact (Sparsha)
7. Sense experience (Vedana)
8. Thirst for sensual enjoyment (Thrishna)
9. Clinging to sensual enjoyment (Upadana)
10. Desire to be born (Bhava)
11. Birth or rebirth (Jati)
12. Old age and death (Jara-marana)
These twelve causes are related to human beings in various ways. For instance, the first two
are related to past life and the last two to future and the all the other items are related to the
present life. These twelve causes are always with us and are not destroyed even after death. They
create a vicious cycle of birth-death and birth again which accompanies all types of sufferings.
The cycle is basically due to ignorance and it can be broken by the right type of knowledge. The
Principle of Dependency is the backbone of the cardinal teachings of Lord Buddha. The central
idea of these teachings is that our present station and status of life is the offshoot of our past
karmas (actions) and is also responsible for the future shape of the things to come.
A number of inferences can be drawn from the theory of Dependent Origination:
● All things are transitory in character (impermanence).

● Individual ego is ultimately false.

● Matter is unreal in nature.

● An effect is produced by a cause or many causes.

Standard of Morality in Buddhism

Lord Buddha advised people to be non-violent (ahimsa), full of love and compassion, kind to the
poor, patient, contended, considerate, altruistic, and free from anger, lust, malice and ill-will. He
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put much emphasis on inner-purification, sacrifice and desirelessness. Mahayana Buddhism lays
more emphasis on compassion. Thus, it is said:
“Whatever Joy there is in this world
All come from desiring others to be
happy,
And whatever suffering there is in this world
All comes from desiring myself to be happy”
(Bdh.viii, p.129, as quoted in Gruzalski, 2000, p.71)

THE CHARVAKA ETHICS OF GROSS HEDONISM

The Charvaka system of philosophy is a system of speculative metaphysics and is called the
heterodox (nastik) system. It does not believe in any kind of God. Probably it arose in the sixth
century and died out in the sixteenth century. The word charvak has two meanings, the root word,
charv or charvan means ‘to eat’ (or eating) and the second meaning of the word is ‘skilled or
clever in the art of speaking’ (charuvak). It is a common name given to a system of the
philosophy of atheism. The Charvaka School of philosophy was founded by Charvaka who was
the author of the Brahaspatya Sutra. The ethics of Charvaka is co-eval with Buddhism (Hopkins,
1924). The Charvaka school is also known as the Lokayata school. This philosophy is meant for
the common people.
A few important inferences (presumptions) of the Charvak school are:
● There is no life after death.

● There is no God.

● The world is not created by God; it is an outcome of a natural evolution.

● Religion is invented by men; it is not a divine authority.

● The soul is nothing but a part of the conscious body.

● Consciousness arises out of matter.

● Enjoyment is the only aim of life.

● Death alone is liberation.

● All ceremonies advised by the Brahmins are a means of their livelihood.

Essentials of Charvaka Ethics

Based on the above presumptions, the Charvakas suggest that the only aim of human life is happiness,
and the only means to be happy is sensual pleasure and self-gratification. The Charvakas identify
the soul with human body. The gross hedonist philosophy of Charvaka advocates the dictum of
“eat, drink and be merry”. Maximization of pleasure is the be-all and end-all of life. It is like
the Epicurean system in its essence. To the Charvakas, perception is the only means of a valid
knowledge. Charvaka realizes that the attainment of pleasure may be accompanied by pains. But
his advice is that, one should try to maximize pleasure and minimize pain, so that the net pleasure
will be worth pursuing.

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Charvaka advises us to live a life of complete happiness and sensual pleasure till the time of
death, and if necessary, borrow money to drink ghee (clarified butter). Thus, goes his advice:
Yabat Jivet Sukham jibet Rinam kritwa ghreetam pibet
Charvaks assure us that there is no heaven, no final liberation, no soul, and no other world. He
does not believe in the cycle of birth and death. The life on this earth is the beginning and the end
of everything. He criticizes the caste system and the supremacy of the Brahmin class. The ethics
of sensual pleasure advised by Charvaka has been vehemently criticized by many scholars and
authors of Indian philosophy.

Criticisms against Charvaka Ethics

● It is not proper to say that sensual pleasures should be the only aim of human life. This
means that there is no fundamental difference between men and animals. Charvaka gives a
very narrow view of human life.
● Life has a number of important duties like to build up a good character, acquiring

knowledge and human virtues and making the life of others comfortable through care and
compassion, and so on. The Charvaka ethics do not give any importance to all these noble
virtues.
● It is a very selfish, egoistic and hedonist ethics that does not care for the family, society and

the nation. Happiness can be the purpose of ethics but not the standard. There is no moral
code for the Charvakas.
● The Charvakas consider soul as a separate entity from body. If the soul is in a separate

domain, how is the physical pleasure transmitted to the mind/soul to produce the sense of
satisfaction? The Charvakas do not have any answer to this question.
● Direct sense perception, according to the Charvakas, is the only source of knowledge.

Knowledge may come from many other sources like information, thoughts, meditation,
intuition, and so on.
However, it is instructive to note that there are some Charvakas who are enlightened hedonists
(like Vatsyana) and they advocate that the aim of life is happiness (pleasure) but it must be punctuated
by virtues. A life of refined hedonism is worth living and should be pursued by rational human
beings.

ADVAITA VEDANTA (SHANKARA)

Vedanta is a very influential school of the Indian philosophy, developed in the eighth century.
Shankara’s teaching is based on the ideas enunciated in the Upanishads and Vedanta. He is of the
opinion that knowledge comes from the Upanishads. Vedas contain Upanishads which are also
Vedantas.
To Shankara, human life is bondage and has to be liberated from the unending cycle of birth
and death.
The core ideas of Shankara’s philosophy are the following:
● Brahma is the only reality (satyam) or truth.

● The whole world is false and unreal (jagat mithya).

● Individual soul (atman) is apparently different from the Brahman because of ignorance

(avidya).
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● But when maya (illusion) is eliminated, the atman (soul) and the Brahman become the
same. There is no difference between them any longer. Sometimes the world appears to be
real because of hallucination, just as we consider a mere rope as a snake.
● After the elimination of avidya and maya, a person becomes jivanmukta (completely
liberated).
● Vidya (knowledge) can liberate us from this mundane world and position. Our station in life
is because of our karma (action). The karmic (action-related) situations can be broken by
following the right path.
● The right path is based on bhakti (devotion) and jnana (knowledge).
● Shankara makes us believe that selflessness and love are very essential for liberation
(moksha).

Pravitti and Nivritti

Pravritti is the tendency to pursue a life of pleasure and enjoyment, and nivritti is the proclivity of
the mind to refrain from such empirical pleasure and enjoyment. According to Shankara, the
former is the lower path of empirical morality and the latter is the higher path of transcendental
morality. The performance of one’s own duty without any attachment, as suggested by the Vedas
and the Smritis is beneficial for getting an integrated knowledge of the pure self. This is a
desirable moral standard. Nivritti is the renunciation and cessation of all actions and desires. This
gives the highest good and frees a person from bondage and ignorance.
Shankara believes that the attainment of Brahma (the Absolute) will give us the highest bliss, a
state of complete happiness. However, to attain this stage, it is necessary to abandon all types of
sensual pleasure. One should give up all types of desires and actions, and practice renunciation.
The practice of virtue and the abandonment of vices is extremely necessary. Virtue leads to
happiness and vices lead to misery. Shankara advises people to lead a life of asceticism. His
advice to follow non-action has been criticized by other schools of Indian philosophy. They point
out that karma (action) is not necessarily bad if it is ‘nishkam karma’ (virtuous action without any
desire for the fruit). Similarly, Shankara’s advice for the eradication of all desires and the pursuit
of knowledge has been criticized by many. Desire for something good involving God or
godliness, and the desire for getting liberated are not are not to be despised.
Shankara’s theory is based on the concept of non-dualism. That is to say, the atman (soul)
and the Brahma are basically one and there is no duality. This view has been created by many
philosophers but his view has remained very powerful in shaping the course of the Hindu
religion. Although Shankara has remained critical about Buddhism, some of his ideas are similar
to those of Buddhism.

VISISHTADVAITA PHILOSOPHY (RAMANUJA)

Ramanuja’s philosophy was developed in the eleventh century AD. Ramanuja was critical about the
Advaita Vedanta philosophy of Shankara. He modified it and renamed it as the Visishtadvaita
philosophy. It is a qualified system of Advaita Vedanta. Ramanuja believes in the oneness
(monism)

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of God but with certain attributes. God is one but all visible things in the world are his manifesta-
tions or attributes. He criticizes many of the basic tenets of Shankara’s philosophy. Thus, while
Shankara says that all man-made rituals and duties are evil, Ramanuja observes that some
religious duties are necessary for human beings. However, Ramanuja explains why the Gita
wants us to abandon dharma. Ramanuja has given two reasons why the Gita says so. First, Lord
Krishna wants us to give up the agencies to rich God but wants our direct dependence on God.
Second, we should give up the expiatory rituals which are also called dharma. Ramanuja advises
us to perform the prescribed obligations (duties).
Ramanuja gives special importance to devotion or bhakti. He argues for the soteriological
impor- tance of bhakti. He also admits of the reality of the plurality of individual human beings,
objects, attributes and values, and yet affirms the substantial unity in diversity and plurality.
Ramanuja advises wholehearted devotion to God. He worshipped Vishnu and Narayana.
According to him, there are many obstacles for the realization of God and for human liberation
(moksha). Devotion has an enormous power that can eliminate the bad effects of the past actions
(karma). Moreover, through devotion one can fully submit himself to God and His will. All these
help in realizing moksha. Service to God is in itself is a rewarding experience.
Liberation is not possible because of our ignorance which can be washed away by true
knowledge. How to acquire proper knowledge? Ramanuja points out that a scripture is an
important source of knowledge—knowledge about our moral duties and responsibilities, and it
also educates us about the paths through which we can gather celestial knowledge. Veda is an
important source of knowledge. A study of the Gita will enable us to acquire certain types of
values and deontological attitude. Our unflinching devotion will also give us some knowledge
about the Brahman. Upasana (worship) is also essential for the realization of God. But there is
one pre-condition. One must have strong faith. While explaining the ethical principles, Ramanuja
made it clear that morality is intrinsically valuable and it has also instrumental values as it
prepares one to be perfect in the eyes of God to receive our rewards.

ETHICS OF VAISHNAVISM
Vaishnavism is a part of Hinduism and is very old in terms of its historicity. It has the influence
of the Vedas, Vedanta, Puranas and the Upanishads. The basic concept of the religion is based on
the need to worship Lord Vishnu, the God of maintenance and sustenance. Vaishnavas believe
that God (Vishnu) is within everybody, and they feel an eternal anand (esctacy) in serving God.
Vaishnavite Hindus worship the incarnation of Vishnu (like Rama and Krishna). There are two
basic pillars of Vaishnavism. These are—Prapatti (submission or sharanam) and Bhakti
(devotion).
Vaishnavism is based on a fivefold samskara (sacrament). These are:
● Regular morning prayer

● Collection of materials for worship

● Formal worship of God

● Study of scriptures

● Yoga (contemplation of God)

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The ethical principles of Vaishnavism incorporate a number of values and virtues. The major
principles are:
● Living a life based on ahimsa (non-violence and non-injury to others).

● Living a simple, humble and a pious life.

● Living a truthful life with magnanimity.

● Building up a pure and noble character.

● Showing mercy to all men and animals, especially the poor.

● Living a life of contentment and peace.

● Controlling lust, anger and greed, and not getting inebriated.

● Performance of welfare to others and serving all people and guests.

● Earning by right means, and no desire for material possession.

● Chanting mantras (hymns) consisting of God’s name.

A true Vaishnav lives a life of detachment, helps others in distress and is tormented by the
suffering of others; he is a man of equanimity and sees equality in everything (Gandhi, 1909, 25
December).

PATANJALI SUTRA: EIGHTFOLD PATH OF YOGA

Patanjali Sutra was compiled during 800 BC. The sutras consist of concise aphorisms that are the
guiding principles for living a moral and an ethical human life. Patanjali feels that regular yoga
exercise is essential for having a trained body and mind. Yoga purifies both the mind and the
body, and purity is necessary for a union with God. The basic purpose of yoga is to discipline the
self. Patanjali introduced the system of astanga yoga. The eightfold path of yoga consists of the
following:
Yama, Niyama, Asana, Pranayama, Pratyhara, Dharna, Dhyana and Samadhi

Yama and Niyama

Yama includes those fivefold actions (Jainism also recommends the same) that regulate the
behaviour with others. These are non-violence (ahimsa), truth and honesty, non-stealing, non-lust
(celibacy), and non-possessiveness (aprigraha). Niyama is meant for self-purification and disci-
pline. Niyama includes purity in thoughts and deeds, contentment, austerity (tapas), a regular
study of the sacred scriptures and a constant awareness and remembrance of the divine power.
Asana means a comfortable posture of the body. Pranayam is a system of controlling breath
through proper inhalation and exhalation. Pratyahara is controlling the senses. Dharana is the
fixing of the mind on a particular object (like the tip of nose). Dhyana is meditation on a certain
object (may be God), and Samadhi is the final stage of the yoga where the mind is completely
absorbed in the thoughts of the object.

Nyaya Viasheshika
Nyaya Viasheshika is the combination of two different schools of Indian philosophy. However,

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because of many similarities in their teachings, they were later merged into one. The Nyaya
Viashe- shika school uses logical reasoning and deductions to prove the existence of
God/supernatural power. Nyaya considers the fact that all our actions spring from ignorance,
aversion and delusion. Viasheshika thinkers recognize that the individual self and God are two
different ontological entities. However, in order to unite these two entities, it is necessary to
perform some universal and specific duties. The universal duties are like the Kantian categorical
imperatives and include virtues like truth, purity of mind, devotion to God, ahimsa, and so on.
Specific duties are those that are prescribed as Varnasharam Dharma and also for the Four Stages
of life (discussed earlier in this chapter). It is also necessary to lead a balanced life based on
dharma, artha, kama and moksha.

ETHICS OF THE BHAGAVAD GITA

It is said that the value of a philosophy needs to be judged by its ethical principles or contents.
If we follow this rule, then the Bhagavad Gita should qualify as a very successful philosophical
work. It is the most popular book of Hindu philosophy and consists of 700 verses and 18
chapters. It is presumed that it was written in 3102 B.C. As a Vedic text, the Gita is an excellent
summary of the Upanishads. It is a superb integration of several yogas (such as karma yoja, jnana
yoja and bhakti yoga). Yogas are paths for attaining liberation or salvation. The Gita is an
intrinsic part of the Mahabharata, an important Hindu epic.
The philosophy of pantheism is pervasive in the Gita. According to the Bhagvad Gita, there
are three basic paths to get liberation. These are bhakti yoga (the path of devotion), karma yoga
(the path of action) and jnana yoga (the path of knowledge). These paths assist in establishing a
direct relationship with God. A person can follow one path or a combination of all the three to
achieve liberation. Lord Krishna advises a single-minded devotion towards Him. It is said that
even if a person worships lesser goods, his worship, nevertheless, will reach Him. The Lord says
to completely surrender to Him is an easy path. Here no dharma or any man-made rituals are
necessary. The Lord says:
Sarvo dharman paritajyo mum ekam saranam brajo
Aham tam sarvo papevyo rakshoisamy (Bhagvad Gita, XVIII: 66)
[By sacrificing all the dharmas, just come to me; I will save you from every type of sin]
In the karma yoga, the Lord asks us to sincerely perform our duties as given by Him without
any desire for the results of such duties. The duties also include the caste-based duties. The Lord
advises thus:
Karmanye vadhikaraste, Maa faleshu kadachana (Bhagvad Gita, II:
47) [Your duty is to work and not to be desirous of its result or outcome]
It is necessary to remain unperturbed by the result of the action whether failure or success.
The Lord says:
Considering alike pleasure and pain, gain and loss, victory and defeat,
fight thou this battle. In such a case, no sin will touch you.

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(Bhagvad Gita, II:38)

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The duty is to be done; its fruits should be offered to the Lord. All specific duties should be
performed for the sake of human welfare (Gita, III:20 & XII:4). The Gita emphasizes a duty-
based morality. This message is a radical departure from the ritualistic overtones of the Vedic
cults (Srinivasan 2006, p.20).
The duty-based ethics of the Gita reminds one of the Kantian theory of deonticism. However,
there are the following differences (see Sinha, 2006, p. 364).

Differences between the Kantian Deonticism and the Karma Yoga of the Gita
1. The duty-based morality as advised by the Gita is teleological in essence, but in Kant, it is
pure deontological. The Gita is teleological and consequentialist but not utilitarian.
2. The Kantian morality is more individualistic, but the main aim of the Gita’s theory is more
universalistic.
3. The Gita is spiritual in essence , but Kant’s philosophy is not essentially spiritual.
The Gita condemns ritualism and ceremonialism. The karma yoga is the cardinal message of
the Gita. The karma yoga and bhakti yoga are the preparatory steps for spiritual liberalization
after attaining the purity of mind. These steps also lead us to become a jnana yogi. This means
that liber- ation is now possible through the path of knowledge. Yoga also implies efficiency in
any right type of work: Yoga karmasu kauslam. In the practice of yoga, the equanimity of mind is
very essential (Gita, XII:17 &II: 56, 57).
A person who is not perturbed by unhappiness and does not desire anything when
happy, and has freed himself from attachment, fear and anger, he is indeed a sage of true
wisdom.
(Gita, II:58)
Jnana yoga is all about an enquiry related to the Self or the Atman. The Self (soul) is unborn,
neither created nor could it be destroyed. It is eternal. There is no difference between the
individual self (soul) and the Brahman (Paramatman). They are not different. The Lord has a
lower form in terms of the five senses, and the mind, the ego, and so on. The lower form is
constantly changing but not the higher form. When proper knowledge is gained about the Self
through a master (guru), the ignorance is dispelled, and the person merges with the Brahman. Our
mind (like a mirror) is covered with the dust of ignorance, it can be made clean only by
controlling our five senses, and intellect.

Three Specific Vices

The Gita states that lust, anger and greed are the three gates (vices) to hell and one should avoid
them. Similarly, rudeness, pride, harshness and ignorance are the signs of demonic temperament
(Gita, XVI:4). The Gita advises us to eschew all these traits of selfishness and egoism.
At the end of performing all the prescribed yogas, the devotee comes to realize that the best
way is to completely surrender to God who will wash away all our sins and the deleterious effects
of karma (actions). Human beings are given free will to choose any action they like with their
own intelligence. However, the Gita advises us to reduce the bad karma; otherwise the effect
will be
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carried with us in the next cycle of birth. The Bhagvad Gita does not ask for the renunciation of
action but for renunciation in the karma of interest, attachment and desires.
The acts of sacrifice, gift and austerity are not be relinquished, but should be
performed, for these are purifying to the discriminating person. (Bhagvad Gita,
XVIII: 5).

Moral Virtues
Just like the Buddhist and Aristotle’s theory of the golden mean, Gita also lays emphasis on
moder- ation. It says that moderation or temperance in everything is indispensable for
establishing mental discipline (Gita, VI:16-17 & IV:30).
He who is moderate in eating and recreation, moderate in work, sleep and waking
state, practices yoga…the destroyer of all misery. (Bhagvad Gita, VI:
17)
Five cardinal virtues are emphasized in the Gita. These are—purity, self-control, detachment,
truth and non-violence. Self-control is the foundation of a virtuous life. The Gita wants us to
show love and compassion to all living creatures. The Gita teaches us virtues like humility, non-
injury to anyone, forgiveness, charity, and so on (BG, XVI: 13 & 5). The highest good is the non-
empirical transcendental condition of the self beyond virtues and vices. One who delights in the
self, is contented with the self and always satisfied with the self, has no more duty to perform
(Gita, III: 17 &18).
The mediator having mastered the senses, mind and intellect, having attained
freedom from lust, anger and fear, regarding freedom as his goal, is liberated
forever.
(Bhagvad Gita, V:26)
Once the mind attains piety and becomes sattvic (pure), then the desire for God develops in
him, and the individual self can meet the eternal self. It is said that those who read, ponder and
practice the teaching of the Gita will attain moksha or nirvana. The Gita proclaims that:
Wisdom is born of Sattawa; greed of Rajas and false perceptions and ignorance arise
from Tamas. (Bhagvad Gita, IV:17).
[As a quality of mind, sattawa comes out of purity and knowledge, and begets peace and
righteousness; Rajas comes out of pride, and begets passion, power and action; and Tamas comes
from ignorance, and begets laziness and indifference].

Cardinal Ethics of the Gita

The cardinal ethical principle of the Gita can be summarized in the words of Annie Besant.
The Gita is meant to lift the aspirant from the lower levels of renunciation, where objects are
renounced, to the loftier height, where all desires are dead, and the yogi dwells in calm and
ceaseless contemplation while his body and mind are actively engaged in discharging the duties
that he needs to perform in the particular station of his life. The Gita emphasizes on the
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philosophy of karma (action) based on jnana (knowledge) and supported by bhakti (devotion).
What is immensely

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necessary for an aspirant of liberation is to develop a strong faith in God. The Lord declares that
He is everything (the way, the supporter, the Lord, the witness, the resting place, the storehouse,
the abode, the refuge, the origin and the dissolution); therefore, it is wise to follow Him uncondi-
tionally and surrender to Him. This is often compared with the Biblical verse where Jesus says:
“I am the way, the truth, and the life; no one goes to the Father except by me.”
(Bible, John XIV: 6)

MORAL STANDARDS IN INDIAN ETHICS

Moral standards are certain ethical codes and rules which serve as the criterion for judging right
and wrong actions or behaviour. Indian ethical scenario consists of a large number of scriptures
and religious rules. Although most of these moral rules are more or less consistent and well-
comparable with others, there are some contradictions and aberrations. Moreover, when one takes
into account the meticulous details of each religious school and its ritualistic programmes, one
notes that they are at variance. Be that as it may, in the explanation of the basic moral standards
of Indian ethics, we have considered ten broad schools and religious writings. For the sake of
analytical simplicity, in a few cases, we have put together a couple of schools and scriptures.
Thus, the Dharma Sutras and the Manu Smriti are clubbed together because of their similar
religious ethos and affinities.
The moral standards of Indian ethics are presented in a concise way in the following chart
which is self-explanatory. Most of the points shown in the chart are explained at some length
earlier in this chapter; thus in some cases, only a brief reference is indicated. For instance, the
eightfold path of Patanjali Yoga, the Triple Gems of Jainism and others are to be read in detail
from the respective schools/scriptures from elsewhere in this chapter.
It is instructive to note that Indian ethics is not based on any single moral standard. Different
schools/nomological scriptures have codified different standards to judge morality or otherwise.
In every case, a few virtues and behaviour traits have been specified for the followers. All of
these need to be followed as one package of moral behaviour; observance of one or two isolated
aspects will not entitle the person to qualify for the benefit of moral standard.

Table 8.1 Moral Standards in Indian Ethics

Religious School/ Scripture Moral Standard
Advaita Vedanta (Shankara) Divine knowledge, Asceticism, Nivritti, Devotion, Selflessness and
Love.
Vedanta (Gita, Upanishads Nishakam karma, Equanimity, Non-attachment, Performance of Caste-
and Brahmasutra) based duties, Renunciation, Acquiring sattva quality, Social welfare,
self-control, temperance and altruism.
Dharma Sutras and Manu Smriti Performance of Caste-based duties, duties based on the stages of life
and the achievement of four objectives of life (dharama, artha, kama
and moksha) and observance of social laws.
(Contd.)

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(Contd.)
Religious School/ Scripture Moral Standard
Nyaya-Vaisheshika, Vedas,
Ramayana and Mahabharata Divine laws and the instructions in scriptures regarding a good life.
Patanjali Sutra Eightfold Path of Yoga, Yama and Niyam
Charvaka’s Gross Hedonism Maximization of sensual pleasures and enjoyment: Eat, drink and be
merry.
Buddhism Ahimsa, Desirelessness, Eight right paths, altruism and purity of life,
middle path.
Jainism Ahimsa, Five Vows and Rigorous Rituals, Restraint of body, speech
and mind.
Vaishnavism Ahimsa, Five Samaskara and constant remembrance of Lord Vishnu
Ramanuja Performance of the prescribed duties, knowledge, devotion and
complete surrender to God and worshipping Vishnu

GANDHIAN ETHICS
Mahatma Gandhi’s life and works, and speeches are saturated with his ethical idiosyncrasies.
Every single issue that he has examined and got involved with exudes morality and ethics. This is
found to be true in his analysis of the social system, exploitation and inequalities, conflict and
conflict resolution, state, power and policy, development and underdevelopment and his
economic analysis. In what follows, we will concentrate on a few important ethical issues which
are critical in the understanding of Gandhian philosophy.

Truth, Non-violence and Religion: The Basic Axioms

Mohandas Karamchand Gandhi (1869–1948) was born in a Hindu Bania (merchant) family. It
needs to be mentioned here that although Hinduism accepts a four-fold functional division of
social classes according to qualifications, heritage and actions (guna and karma), it does not
support exploitation of one caste by the other. However, Gandhi saw many types of caste-based
exploitation in India. While his father was a Vaishnavite Hindu, his mother was from the
Pranami sect that believed both in Hinduism and in Islam.
Among the various duties of an ideal vaishanava, the following are very critical. A true
vaishanava is tormented by others’ sufferings. He does not speak anything that is untrue. He has
no craving for wealth and lives a life of detachment. He is without anger and desire, and he sees
equality in everything. He helps others in distress (Gandhi, December 5, 1920). Gandhi was a
Vaishnav in a true sense. In his childhood, Gandhi was also exposed to Christianity, and during
his later years, he borrowed many ideas from the teachings of Jesus Christ. He grew up in an
eclectic religious atmosphere in his family which helped him to have an eclectic view of religion,
morality and ethics. For Gandhi, Hinduism is the manifestation of a continuous progress of

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adaptability to circumstances. According to him, Hinduism represents a progressive realization of
the unity of life.
In the childhood of Gandhi, Kathiawar was an important place for the culture of Jainism in
which his mother had complete faith and devotion. Needless to say, his mother’s influence shaped
his esoteric inner-world and his father’s influence configured his exoteric outer-world. The
basic principle of Jainism is the practice of ahimsa (non-violence), which is also the principle
of Vaishnavism that was followed by his family. Jainism is based on the doctrine of syadvada
(many sidedness of reality). Gandhi’s adherence to the ethics of non-violence, non-possession and
community welfare throughout his life can directly be attributed to the basic teachings of Jainism.
The spell of different religions including Jainism and related nomological practices created a kind
of a hallow effect in the mind of Gandhi to generate an unflinching faith in the truth-value of
these inter-generational ethical traditions and cultures of devotional practices.
I have known from early youth that non-violence is not a cloistered virtue to be
practiced by an individual for his peace and final salvation, but it is a rule of conduct
for a society if it is to live consistently with human dignity and make progress towards
the attainment of peace for which it has been yearning for ages past. (Gandhi,1958–
84,Vol.8, p.369)
Non-violence is the weapon of the strong; it is impossible to be non-violent without being
utterly fearless. In this context, Gandhi made a seminal statement that:
“Where there is only a choice between cowardice and violence, I would advise violence.”
(Gandhi, 1920, 11 August)
Islam taught him the importance of brotherhood, care for others and also the unity of God.
Hinduism taught him the significance of sacrifice and love. Thus, the basic ethical ideas of
Gandhi were influenced by the eclectic Indian religious tradition of his time. Hinduism and
Buddhism influenced his ethical beliefs in many ways. Buddhism taught him the importance of
Nirvana (the supreme inner knowledge for salvation) and sacrifice. He learned from Hinduism
the various manifestations of God and the principle of unity in diversity. He also learned about
the value and importance of truth from the teachings of the Upanishads and other religious
scriptures. Truth or ultimate reality remains the fundamental basis of every religion. Gandhi
learned that truth is the ultimate aim of all metaphysical speculations and theories. In the case of
Gandhi, religion governs all departments of life; it is pervasive and omnipresent, and God is
nothing but truth, or more impor- tantly truth is God (Gandhi 1925). For Gandhi, morality is the
basis of everything and truth is the substance of morality (Gandhi, 1927, p. 29).
It needs to be mentioned in the analysis of the Gandhian ethics that, according to Gandhi, truth
and non-violence are interrelated categories. Gandhian ethics is mainly based on four
nomological axioms. These are truth, non-violence, anasakti (non-attachment to worldly wealth),
and sarvodaya (welfare of all). Gandhi considered some crucial institutional parameters which
included families, communities, and traditional socio-religious institutions like varnashram
(social division of labour) as ordained by religious tradition. The social division of labour
suggests social interdependence through the traditional jajmani system. He wanted to introduce
many institutional changes to achieve the goal of an ideal society. These institutional changes
included the introduction of bread- labour, trusteeship, spiritualization of politics and so forth.
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Bread labour was a term popularized by Gandhi, such labour needs to be done by everybody
irrespective of one’s position or status in life. It gives an opportunity to participate in the
fulfilment of the universal law of karma (action) and recognize the significance of the dignity of
labour.
Trusteeship is a system of reforming the capitalist organizations. The Gandhian system of
trust- eeship is based on the idea that the rich people and the capitalists should consider that, a
part of their wealth should be distributed to the society for the maximization of social welfare.
Trusteeship is an attempt to socialize wealth and to allow social control over poverty and
economic inequalities in a country like India where the distribution of income and wealth is
highly skewed. The principle of trusteeship is to reinforce the spirit of the philosophy of
renunciation and sacrifice.
The two most important categorical imperatives in the Gandhian ethics are non-violence and
truth. Satyagraha (adherence to truth), like non-violence, remains both a means and an end in
itself. Gandhi observed that individual welfare and social welfare are interdependent in nature,
and the former is contained in the latter. To Gandhi, the basic desideratum of all social action and
policy is the maximization of social welfare. The welfare is not predicated upon the material
sense of the term but is more of a spiritual nature. For him, wealth does not mean welfare. Gandhi
thought that it is necessary to voluntarily reduce wants, particularly when a majority of the people
are not really living but somehow exist below the poverty line. All economic activities should,
according to Gandhi, be based on ethical and moral considerations. Gandhi’s economics is
pragmatic yet moral. He writes:
“Economics that hurts the moral well-being of an individual or nation is immoral and..
therefore, sinful… True economics never militates against the higher ethical standard;
just all true ethics to be worth its name must at the same time be also good economics”.
(Gandhi, 1968, Vol. 6:321-322)
In the context of interdependence, Gandhi analyses the issue of human rationality. According
to him, human rationality has no meaning if it is not based on ethical considerations. To explicate
this, Gandhi laid more emphasis on the Ends-Means consistency based on natural religion or
morality. His concept of man with a particular type of rationality is different from the so-called
material- istically successful man. He wanted an all round capability expansion of human beings
based on morality and ethics in order to make them more contestable and competent in the real
world.
Human development being the principal goal, Gandhi devised various plans to empower and
entitle the citizens with freedom, dignity, equity and justice. In the field of politics, Gandhi
advised a decentralization of power so as to equip human beings with greater power in the matter
of decision-making in a true participatory democracy. Gandhian ethics is a virtual study of the
inter- relation between society, institution and organization done to maximize a win-win co-
operation and social interdependence for the human development and welfare. Gandhi
experienced many types of exploitation in the British India. This included the exploitation by the
States, exploitation of the poor by the rich, exploitation of labour by the capitalist, caste-based
exploitation and the exploi- tation resulting from the dependency on the foreign government.

Exploitation, Inequalities and Injustice

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According to Gandhi, all exploitation is based on co-operation, willing or forced, of the exploited.

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The fact remains that there will be no exploitation if the people refuse to obey the perpetrator.
One type of social exploitation in Gandhi’s India was untouchability which was essentially caste
based. He also observed labour market discrimination of women, gender division of labour, and
an unequal power relation in all the walks of life. Another category of the social-economic
exploitation was the exploitation of the Indian people by the British administration. There was
also class-based exploitation between landlord and tenants and between capitalists and labourers.
Gandhi observed that it is possible to remove all types of exploitation through the development
of a strong will power. Exploitation and inequalities are interrelated in the Gandhian ethics.
Gandhi believes that “our ignorance or negligence of the Divine Law, which gives to man from
day to day his daily bread and no more, has given rise to inequalities with all the miseries
attendant upon them” (Gandhi, 1930, 26 August). To minimize the degree of inequalities in
society, Gandhi advocated a twofold affirmative action programme; first, to reduce the range of
inequalities though various actions and policies; to eliminate the chance of the growth of
inequalities in future. Gandhi was sufficiently pragmatic to realize that in a modern society with a
predominantly materi- alistic culture, economic inequality will stay on. It is also true that some
inequalities are natural. For the removal of some economic inequalities under capitalism, a non-
violent action is preferable to the violent enforcement of egalitarian principles because such
actions will only kill the goose that lays the golden egg. Gandhi also favoured a distributive
justice for reducing inequalities and exploitation.
Exploitation generates inequalities, as inequalities give rise to exploitation. Gandhi had doubts
about the so-called beneficial nature of the trickle-down effects of the capitalist method of indus-
trialization. According to him, capitalist industrialization is not necessary for any country because
it leads to more and more inequalities. In the process of development, the rural-urban inequalities
can be a serious problem. The urban sector, in many ways, leads to the exploitation of the rural
sector, and this was one of the primary reasons for the growing rural poverty in India. It is in
this context that Gandhi proposed the theory of equality, which was not absolute equality but
equity. He advocated the fulfillment of basic needs for everybody and a higher income for the
more competent and capable persons.
However, like the Rawlsian difference principle, Gandhi advocated some special concessions
and considerations for the poor and downtrodden sections of the population. He wanted to ensure
distributive justice to all. In this context, it is necessary to explain the Gandhian concept of justice
at some length (for a more detailed discussion, see Chapter 3, The Theories of Justice).
The Gandhian concept of justice involves the following six main constituents:
1. Pure justice
2. Satanic justice
3. Claims to natural rights
4. Social justice
5. Absence of duress
6. No harm to the opponent party
According to Gandhi, pure justice comes from kindness, compassion, care and love. But
Satanic justice is wicked in nature and is motivated by a selfish personal gain. Personal gain,
selfishness and inequalities are responsible for social conflicts. In Gandhian literature, one can
find various types

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of conflict, such as those between landlords and peasants, between capital and labour, between
the rich and the poor, between the village and the city and between various social classes. Apart
from these, there are also conflicts between rationality and morality, between ends and means,
between the temporal order and the inter-temporal order and the like.

Conflict and Conflict Resolution

The genesis of conflict in the Gandhian philosophy can be traced back to human nature, which
may be egocentric, greedy, materialistic, selfish and competitive. Unequal power relations and
rent-seeking behaviour may also contribute to the genesis of conflict. In the case of conflict,
Gandhian ethics suggests the resolution of conflict through non-violence in an amicable way.
According to Gandhi, violence begets violence. So it cannot be a real solution for conflict
resolution. The two most important and interrelated methods of conflict resolution are satyagraha
(protest for the sake of truth) and non-violence. In the matter of conflict resolution, truth is always
equated with justice. In the Gandhian ethics, the means justifies the end, and not the other way
round. This is something novel in the praxeology of conflict resolution. Gandhi regarded non-
violence as a powerful and a comprehensive means that must be the first condition for any
conflict resolution. Socio-economic justice is interrelated with the creed of non-violence. The
relationship between justice and conflict resolution is a two-way relationship justice can
contribute as much towards conflict resolution as conflict resolution can contribute to justice.
Gandhi’s theory of conflict resolution is an attempt to ensure justice in the deal; and to
establish the reign of justice. The retreat to justice is both the means and the end in his theory of
conflict management. Through the operation of the principle of justice in the matter of conflict
resolution, he wished to achieve at least three proximate objectives—to put an end to the conflict
arising out of horizontal and vertical inequalities, to assign appropriate rights and freedom to the
repressed weaker section of the community, and to weed out the constraints in the way of human
development and capability expansion of all classes of people. This was necessary for sarvodaya
—the highest stage of Gandhian socialism. Gandhi suggested four basic methods for conflict
resolution—negoti- ations and persuasion, satyagraha, education and organizational-institutional
reforms.
For conflict resolution, Gandhi suggested a mutual co-operation between the parties. If the
co-operative conflict is the aim, as in the case of the Gandhian theory of conflict resolution, then
both the workers and the capitalist will work hard to maximize the profit of the company. Gandhi
put more emphasis on the benefits from co-operation. Negotiations may not always guarantee the
maximum pay-off but can be an important alternative to a deadlock. He is sure that both the
parties can have a maximum benefit if they have co-operation between them rather than
confrontation. These can be briefly explained with the prisoner’s dilemma model.
Suppose that there are two suspects (Tom and Dick) in a crime. They have been temporarily
put in two prison cells, and they cannot have any communication between them. If they confess,
they get a four-year sentence each. However, if one confesses (through the persuasive pressure of
the investigating officer), but the other person does not confess, the person confessing gets a one-
year sentence and the person not confessing gets six years of punishment. If both the prisoners do
not confess, they get zero years of punishment. Since there is no co-operation between them,
their
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individual act of confession gives them a maximum punishment of four years. However, had
there been communication and co-operation between them, the punishment could have been
reduced to zero years.

Table 8.2 Prisoners’ Dilemma Model

TOM
Confess Not Confess
4 6
Confess
DICK
4
1

1 0
Not Confess
6 0
Notes: (i) Numerical figures are punishment in years.
(ii) Dick’s sentences are recorded in the lower-left corner of each box.

State, Power and Policy

To Gandhi, a state represents violence in a concentrated and organized form. A state is an insti-
tution of conflict between organized interests, manipulated and controlled by the more powerful
groups in the ruling class (Parekh, 1997, P. 70) In the Marxist literature, the state is also looked
upon as an instrument of the capitalist class for the attainment of certain policy variables. In the
Gandhian concept, the modern state does have the power of coercion and exploitation. However,
Gandhi wanted to empower the masses with a dictatorial power within a state. Gandhi preferred
to make an enlightened anarchy juxtaposed with a democratic state. According to him, many of
the western democracies were not democracies at all. These democracies were engaged in
violence and exploitation. The basic function of a state is to maintain law and order, but the
British state in India was busy more with order than with laws, and in doing so, it had to be
violent and coercive. Gandhi thought that absolute freedom is necessary to protest and fight
against the coercive state. From his experience of the British Government and politics in India,
when Gandhi was writing, he became convinced that a state is an engine of coercion and
oppression. To him, modern state repre- sents centralization of power, which cannot be sustained
and defended without the application of an adequate force. Gandhi was totally opposed to the
application of the coercive power of the state upon the masses for two reasons:
First, obeying the wrong commandments of the state is immoral and unjust; and second, it
stifles the growth of individualism, principles and personality. Thus, if absolute sovereignty and
the coercive power of the state go unchallenged, these will weaken the moral rights of citizens
and the moral basis of political culture. Therefore, he vehemently opposed the absolutist notion of
state

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sovereignty. His objection to the absolute state sovereignty was based on a number of presump-
tions (Parekh, 1989, pp.126–127). First, it is necessary to oppose state orders, laws, statues,
decrees or ordinance when they are apparently unjust, immoral or wrong. In such a case, the last
form of protest against the political authority would be to launch a satyagraha (protest for
adherence to truth).
Gandhi’s concept of democracy was based on morality, justice, truth and individual freedom.
In a perfect democracy, as Gandhi observed, everyone’s welfare is maximum and it should be
an ideal situation. There is no manipulation of power relations to exploit others. Such a type of
democracy operating with non-violence is an ideal polity (Ram rajya) and anarchy of the first
order. In this context, it is necessary to understand Gandhi’s interpretation of the term “anarchy”.
He is of the opinion that in a perfect democracy, everybody can follow his course of action,
express his own views and do whatever he likes. But since everybody’s action is responsible,
non-violent, and harmless and not clashing with anybody else’s, the law and order problem is not
violated at all. Gandhi recommended several measures for reforming the state. The basic purpose
of state reform would be to spiritualize politics and endow the state with a moral basis. Gandhi
advised policy makers to ask themselves before making any policy whether such a policy will
benefit the poor or not. Gandhi’s view was different from that of the utilitarian ethics. Whereas
the utilitarian ethics recommends a policy that brings greatest benefit to the largest number of
people, Gandhi will recommend a policy which will bring a gain to all the people of the society,
particularly to the poorer section of the community. Gandhi makes the message clear to policy
makers in the following passage:
I will give you a talisman. Whenever you are in doubt, or when the self becomes too
much with you, apply the following test. Recall the face of the poorest and the weakest
man whom you may have seen, and ask yourself if the step you contemplate is going
to be of any use to him. Will he gain anything by it? In other words, will it lead to
swaraj for the hungry and spiritually starving millions?...Then you will find your
doubts and yourself melting away. (Gandhi, 1947, August, vol.
8)

Rights and Duties

Gandhi found a positive correlation between the rights and duties of the citizens in a state. The
performance of one’s own duties entitles a person to enjoy his rights. Hence, duties should be
placed prior to rights and should involve social responsibilities. Gandhi’s view seems to be similar
to Kant’s philosophy of deonticism. Rights are justified only when such rights maximize the
common social welfare. Drawing on the Hindu philosophy of Karma (action), Gandhi laid down
the principle that any obligatory action is duty and this is the basic source of all rights. As Gandhi
observes,
Every man has an equal right to the necessities of life even as birds and beasts have.
And since every right carries with it a corresponding duty and the corresponding
remedy for resisting any attack upon it, it is merely a matter of finding out the corre-
sponding duties and remedies to vindicate the elementary fundamental equality.
(Gandhi, 1931, 26 March)
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Gandhi’s balanced view on rights, duties and equalities is a contemporary reminder to those
proponents of human rights and egalitarianism who propose these rights unconditionally without
any corresponding human duties. However, in the absence of human duties, human rights do not
remain in a workable proposition in the long run. One such duty is the duty of constant pre-occu-
pation with one’s own work (deontic duty). In this context, Gandhi supported the Kantian theory
of deontology. Gandhi was profoundly influenced by John Ruskin’s book Unto this Last (1862),
which considered all works to be of equal dignity. However, Gandhi advised that if any order or
work suggested by the superior officer is unethical or immoral, one should not carry out such a
duty.

Seven Human Vices and Sins

Gandhi pointed out that there are the following seven unethical practices and sins that people
often commit:

1. Politics without principle

Many of the politicians have no ethical principles and, these days, politics has become the last
resort of scoundrels. These people enter into politics through money power, buy votes and get
elected. These people do not care about morality and ethics in the administration and policy
making.

2. Pleasure without conscience

Gandhi here refers to sensual pleasure and body love without any moral purpose. A life of
pleasure without the consideration of the consequences leads to destruction not only of the person
but also of the society. According to Gandhi, this type of irresponsible and immoral pleasure
needs to be avoided for both the individual and social welfare in the context of moral
development.

3. Wealth without work

Many of the wealthy people become necessarily idle and do not perform bread labour. Since they
do not perform any labour, they do not take part in the divine act of creation which manual labour
imparts. Work is also a means of achieving personal self-realization. Therefore, absenteeism from
work is not only physically harmful but also morally injurious.

4. Knowledge without character

According to the Gandhian ethics, character-building is an essential part of education. If
knowledge is not accompanied by character building, the knowledge remains imperfect and
makes the person socially useless and harmful. He uses his knowledge in a wrong way and
misleads the society. Therefore, the knowledge becomes devoid of social welfare.

5. Business without morality

Businessmen are very often engaged in maximising the profit without paying any attention to the
social development and welfare. Recently, however, it is realized that every business has a social
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responsibility because it is a part of the society. If a business is not based on morality, it can
ultimately affect social welfare. In such a case, the welfare of the consumers, suppliers and stake
holders is adversely affected. Business based on ethics and morality becomes more profitable in
the long run as its reputation and goodwill go on expanding.

6. Science without humanity

Science and technology can be used for the purpose of human welfare and progress. However, if
science is not humanized, it may lead to destruction of the human society. The case of atom bomb
can serve as an example. Therefore, Gandhi suggested that science must be used in such a way
that it leads to human development and social progress.

7. Worship without sacrifice

Worship needs some sort of sacrifice. This sacrifice may be in terms of fasting, suffering of the
soul or the sacrifice of the resources at the altar of God. The sacrifice may be the sacrifice of bad
habits, bad companions and vices. If worship does not involve any sacrifice, it cannot become
complete and perfect. Therefore, Gandhi suggested that any form of worship must be with
suitable sacrifice depending on the type of worship and the result that is expected. For instance, in
the case of Gandhi, satyagraha, observation of truth and ahimsa involved all types of sacrifices to
get the blessings of God in the pursuit of certain kinds of ethical victory. And the attainment of all
these needed some sacrifices in terms of injury by others, sufferings and hardship.

Gandhi on Sustainable Development

To Gandhi, that state of development is most desirable which is not excessive and harmful. A
high growth rate which imposes a burden on our environment is not a desirable rate of growth. By
impli- cation, Gandhi was referring to what is known as the just (warranted) rate of growth
keeping in mind the sustainability of such a growth rate.
To Gandhi, India’s backwardness in the past was due to exploitation by the colonial power.
He seems to have supported the dependency theory of underdevelopment which later became
popular with the publication of Paul Baran’s magnum opus, The Political Economy of Growth in
1957. According to Gandhi, the development of the underdeveloped sections of India followed
the immoral British policy of surplus extraction through direct resource transfer (cash drain) and
unequal exchange.
Gandhi’s concept of development is holistic in nature and is basically human-centric. He was
opposed to capitalist method of development as it leads to exploitation, unending capital-labour
conflict and a dehumanization of labour. Mao Tse-tung had many ideas similar to those of
Gandhi. Both the great leaders wanted human development, growth with equity and justice. Some
social provisions for the poor and the development of the rural sector. Both the models
emphasized the importance of self-sufficiency with egalitarianism.
Economic development, social development and moral development are integrated categories
in the Gandhian schema. Gandhi’s concept of sustainable development is based on the provision
of basic needs for all the people in a country like India. Unless poverty and unemployment are
wiped

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out, Gandhi is not prepared to accept that the country has really attained prosperity, freedom and
sustainable development. The Gandhian concept of sustainable development is a holistic devel-
opment that includes social and cultural development. For Gandhi,
Real wealth does not consist of jewellery and money, but in providing for proper food,
clothes, education, and creating healthy conditions of living for every one of us. A
country can be called prosperous and free only when its citizens can easily earn
enough to meet their needs.
Gandhi’s development paradigm follows the principle of balanced development. To a
discerning reader, Gandhi’s concept of sustainable development encompasses self-sufficiency,
self-reliance, sarvodaya and a balanced development. Let us elaborate on these issues.
The following were the basic objectives of the Gandhian schema of holistic
development: First, human development (including moral development) for capability
expansion.
Second, development in a balanced way through manual and intellectual labour (development
of body, mind and soul).
Third, development with social justice, rights and freedom. This is in accordance with the
principle of social and human development.
Fourth, attainment of self-sufficiency and self-reliance through rural development.
Fifth, reduction in poverty through the generation of additional income and employment.
The most important concept of progress in the Gandhian theory of development is the same as
the one in the Hegelian version of Marxism concerned with the humanist goal, that is, a journey
towards the emancipation of mankind from the realm of necessity to the realm of freedom.
In the scheme of sustainable development that Gandhi was contemplating, the achievement of
freedom was closely identified with the welfare of under-privileged people. Gandhi is like Kant
who propounded that a true ideal can never be achieved in one life, but there should be a progress
towards it.
However, unlike the Marxian concept of development which is production-centric, Gandhi’s
concept of sustainable development is human-centric and it limits production to basic needs.
Gandhi’s theory is not concerned with the perception of newer and newer human needs and the
consciousness to satisfy these needs. But like Marx, Gandhi believed that capitalist development,
by its very nature, is uneven, exploitative and unequal, and the poor colonies which are linked
with the metropolitan countries ultimately become the hewers of wood and the drawers of water.
Gandhi’s basic idea of sustainable development was to have an all-round development of
society which included human development along with socio-economic-political development.
For him, human development and social development are inseparable because the two are
interactive in more ways than one. In the context of the Gandhian paradigm of development, a
person acquires soul force through the practice of all the four nomological rules that include truth,
anasakti, ahimsa and sarvodaya. A strong soul-force is the necessary precondition for success in
any important endeavour which is just and moral. To Gandhi, proper education not only includes
knowledge of the subject but also a devotion to duty, spirit of service and, most importantly the
training of character. Gandhi advocated the dissemination of knowledge among common people
through the spread of adult education programmes, part-time schooling and also programmes for
women’s education in
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India. For ensuring a command over resources, he suggested the development of village and
cottage industries.
In the Gandhian theory of sustainable development, the village is the primary organizational
unit and, hence, the development of the village or the rural area is the primary concern in any
successful scheme of sustainable development. The methodology of development here is the
bottom-up approach. In such a schema of development, khadi or village industries will
predominate and it will generate a number of desirable advantages. First, the development of
village industries will create sufficient employment and income for the rural population. The level
of income and productivity generated by these industries may not be high but it will be sufficient
for the rural population if their meta-needs are controlled. Capitalist production relations are
overtly inappropriate for the cottage and village industries that Gandhi was recommending for
increasing rural income and employment. To Gandhi, sustainable development should ensure that
income and employment must go hand in hand even if they are at the low level.
Gandhi advocated the development of village and cottage industries primarily because such
indus- tries would be able to eliminate poverty, hunger, unemployment and human degradation.
Secondly, to help village level development, Gandhi popularized the concept of swadeshi (home-
produced goods). Once people are inspired by patriotic sentiments to buy Indian goods, the
indigenous indus- tries can be expanded to a considerable extent and the levels of income, output
and employment could be developed satisfactorily.
Gandhi realized that although economic development was necessary for a country like India,
capitalist industrialization was unwanted because industrialization leads to either active or passive
exploitation of villagers. Capital–intensive methods of industrialization also lead to the impover-
ishment of villages and an increase in unemployment. Moreover, capitalist development breeds a
permanent conflict between labour and capital. It is because of the possibility of inequality that
Gandhi did not want industrialization. Through economic development, Gandhi wanted to
generate rejuvenation of mind, body and spirit for everybody.
Gandhi was not in favour of an exorbitantly high rate of growth of output per se, but he wanted
a fairly good amount of production to satisfy the increased rate of population growth. He was
right in appreciating the truth that a high rate of growth is not necessarily the optimum rate of
growth. Gandhi advocated the control of desire for meta-needs and bringing down the scale of
wants to the ethical minima, or what can be called the basic necessities of life. This is necessary
in the context of the staggering poverty of India and it requires some changes in lifestyle. These
basic neces- sities include people’s right to a proper house, an adequate and balanced diet for the
family and the supply of locally made clothes, facilities for the education of children and
adequate medical relief. To Gandhi, economic development does not mean that one should have
more but that one should be more. His concept of development is ethical in nature in the sense
that it incorporates social well- being, human capability expansion, equality of opportunity,
justice and non-exploitation, and rights and freedom (see Figure 8.1).
The production of basic needs has to be employment-generating and income-creating, and
what was needed was mutual help and cooperation without exploitation at the levels of both
production and distribution. In the Gandhian schema, sustainable development must have a moral
basis. It needs discipline and moral responsibility as well as a particular type of personality
pattern. The

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production conditions of the basic necessities of life would be under the direct control of the
people. Rural development was thought to be a means for correcting the urban bias. Gandhi’s main
argument for the development of village industries was to remove poverty through the generation
of sufficient employment opportunities for the unemployed, underemployed and surplus (idle)
labour.

Gandhi’s Concept of
Holistic Development

Freedom Well-being

Human Socio-economic
Economic Political
Developme Development
nt

Removal of Development
Self-sufficiency Capability
Poverty & of Body, Mind
Expansion
Unemployment & Sprit

Right Free Will & Equality & Justice &

Expression Opportunity Non-
exploitation

Figure 8.1 Gandhi’s concept of holistic development

The Gandhian type of sustainable development seems to be feasible and realistic, given the
basic objective functions, the possible parameters of action and the economic milieu of his time.
In Gandhi’s view, technological improvement could be introduced to the village industries to
make capital more efficient. In fact, an appropriate technology was needed for the regeneration
of the village economy, and such technology would not be an anachronism but could be well-
embedded in the system. In the case of “Gandhian development”, the basic objective being full
employment even with a low level of per capita income and economic independence with social
justice, the appropriate technique of production could not have been anything other than the
labour- intensive method.
The more advanced stage of development in the Gandhian plan would be marked by an
increasing degree of decentralization of the industrial structure which was initiated in the first
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stage of rural 184

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development. Gandhi advocated decentralization for reaping the advantages resulting out of the
flexible structure of technology and organization. Decentralization was not meant for capital
goods but only for consumer goods industries. Decentralization was not only recommended for
indus- tries but also for political power in order to make it more advantageous for the common
people. The decentralized structure of the politico-economic system was presumed to be
necessary for preventing exploitation, inequality and conflicts. The structural change suggested in
the second stage of development after the attainment of self-sufficiency was to eradicate the
urban bias in development.
Decentralization is advocated for at least four basic reasons. First, for better administration,
control and supervision. Second, for eradicating the possibility of violence, as centralized organi-
zations or institutions are generally prone to violence. Centralization cannot be fully defended
and protected without an adequate force. Third, centralization leads to concentration of power
and authority which can be misused by the possessor of such power in the name of settling socio-
economic problems. Fourth, decentralization stands for maximization of individual freedom.
However, Gandhi was prepared to give more power to people’s organizations like panchayats. In
the final stage of sustainable development, Gandhi suggested the principle of holistic
development (sarvodaya) for the welfare of all.

A Critical Appraisal
In the Gandhian ethics, truth, ahimsa and satyagraha are all very lofty concepts and ideas.
However, in a society which is mostly inhabited by lesser mortals, these ideas cannot be made
operational. The following are the fundamental criticisms levelled against the Gandhian ethics.
First, Gandhi speaks about truth. However, absolute truth is an unattainable goal. Relative
truth, of course, is attainable, but the problem is that truth is a many-sided reality. It is difficult to
under- stand which type of reality constitutes the truth. Gandhi advised that in order to make any
decision based on truth, it is necessary to take the help of the inner-voice. However, for a
common person, the inner voice may be completely absent as everybody is not endowed with the
gift of inner voice. Gandhi also points out that truth is karta (doer) as well as akarta (non-doer).
This dialectical expla- nation of truth is beyond the head of common people and is confusing, to
say the least.
Second, in a society full of violence, it is impossible to perform ahimsa. Ahimsa is not
successful in the ultimate analysis unless everyone follows the same philosophy. Gandhi
disclosed at one point that there is non-violence in violence. This is also a complicated
philosophical statement which cannot be easily interpreted in a correct way.
Third, Gandhi’s satyagraha movement became a failure many times in India. The satyagraha
makes the opposite party stronger and if that part is not guided by any idealistic philosophy, the
movement cannot become successful.
Fourth, Gandhi has underplayed the presence of sex-instinct in human beings. Sex instinct is
not necessarily irrational or immoral. If it is controlled, it generates love and affection that bind
men and women. However, sex is not immoral for Gandhi in the Calvinist sense, but it was an
impediment for Gandhi. It was to be subdued to awaken the soul force. Gandhi practiced celibacy
at the age of thirty one, which is not permitted by the code of conduct suggested by Manu. At
thirty one years of age, one should practise garhastha (family life).
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Fifth, Gandhi’s ethics consisting of asceticism, rationalism and monastic detachment from the
worldly life are one-sided doctrines.
Sixth, the ideal type of state that should work with non-violence police force, as Gandhi
proposes, is practically impossible in modern times.
Lastly, Gandhi idealizes and spiritualizes man. This type of man that Gandhi contemplates is
conspicuous by his absence in the materialistic world.
Gandhi’s theory is the outcome of a clash between the spiritual reality of traditional Bharat
and the historical specificity of British capitalism in India. The application of some of his ethical
principles was quite relevant in British India. But, these do not seem to be randomly applicable
in the modern world. But this is not to deny the fact that although some of the principles of the
Gandhian ethics are particular and historic-specific in character, the universal message of Gandhi
such as non-violence, truth, sarvodaya, spiritualization of politics, and the like, have an universal
appeal and can be applied everywhere. Many of the ideas of the Gandhian ethics are Euclidean
in nature and will probably remain unrealized in the contemporary world, not because the ideas
themselves are noxious, but because the world is not yet prepared to accommodate these ideals.

Summary
Indian ethos is an admixture of and an attempt to juxtapose the possibility of realization of God
and the godliness in human nature. The Dharma Sutras accommodated many of the ethical
principles and precepts of the Hindu way of life. The Manu Smriti dwelt on the four stages and
the four objec- tives of life (religion, wealth, sensual pleasure and salvation). Varnashram
Dharma emphasized on the social division of labour through the four-fold caste system
(Brahman, Kshatrya, Vaishya and Shudra). Jainsim and Buddhism did not believe in God but
argued that through efforts, human beings can acquire the godhood. Jainism depends on five
ethical principles (non-violence, truth- fulness, non-stealing, non-possession and celibacy). It
believed that by following the three ways (right perception, right knowledge and right
conduct),one can achieve liberation from this mundane world. Buddhism has advised people to
follow four noble paths, saying that the world is full of sufferings which are caused by desire;
there is the possibility of cessation of sufferings and that path is the spiritual way. The eight-fold
noble paths are—right faith, right resolve, right speech, right action, right living, right efforts,
right thoughts and right concentration. Buddha has advised to follow the middle path to realize
nirvana, a state of mental equilibrium, perfect bliss and enlight- enment.
The Charvaka philosophy is a heterodox system and does not believe in God; it advocates
sensual pleasure. The speculative metaphysics of Charvaka is vehemently criticized by many.
Advaita Vedanta of Shankara points out that the basic source of knowledge is Upanishads which
are also Vedantas. It teaches that Brahma is the only reality but due to ignorance, people cannot
realize it and once the illusion is eliminated, the person becomes completely liberated. This is
possible by true knowledge, devotion and renunciation. The Visishtadvaita philosophy of
Ramanuja is different in many important ways from that of Shankara. Vaishnavism had a lasting
influence on the Hindu philosophy. It is based on a fivefold sacrament like regular prayer, study
of scriptures, yoga, formal worship of God and collection of materials for worship. The basic
principles of Vaishnavism are

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ahimsa, pious life, truth, freedom from anger and lust, peace of mind, and so on. Patanjali Sutra
proposed that by following the eightfold path (that also includes yoga), one can get liberation.
Perhaps the most influential scripture for the Hindus is the Bhagvad Gita. The Gita builds up
a philosophy of karma (duty without the desire for fruits) with skill, based on knowledge and
supported by devotion. It advises to remain calm under all circumstances (good or bad) and have
strong faith in God and to follow Him unconditionally and surrender to Him.
Mahatma Gandhi was a true vaishnav and a follower of the principles of Gita. His basic
religion was truth and non-violence. He spread the message of compulsory labour (bread labour)
and trust- eeship for reforming the capitalist organizations and to reinforce the spirit of the
philosophy of renunciation and sacrifice. He was against exploitation, inequalities and injustice.
He advocated cooperation between labour and capital in the process of production and supported
the labour-in- tensive method of development and the development of villages and small
industries for extending employment facilities to all. He wanted a sustainable development which,
according to him, was possible through limiting one’s greed and bringing down the scale of wants
to the ethical minima. His plan was to have a development where everybody will have a house to
live in, hand-made clothes to wear and all basic necessities of life. He wanted democracy with
power remaining in the hands of the people, decentralization of all power and village level
administration by the panachayat. He wanted an ideal polity with spiritualization of politics. The
state will only be a coordinating agency and human beings will have all basic rights with duties.
Gandhi said nobody should follow an order which is immoral. One can protest (satyagraha)
against the unethical order and laws. He listed seven unethical practices and sins people often
commit. There are—politics without principle, pleasure without conscience, wealth without work,
knowledge without character, business without morality, science without humanity and worship
without sacrifice. Gandhi wanted a balanced process of holistic development where human
development will be the first priority with freedom, equality of opportunity, self-sufficiency,
absence of poverty and deprivation, human rights, natural justice and opportunities for the
development of body, mind and spirit.

Key Terms
Smritis Eight Fold Path Sarvodaya
Four Stages of Life Pravitti and Nivritti Bottom-up Approach
Varnasharam Dharma Fivefold Samaskara Anasakti
Five Ethical Principles of of Principle of Balanced
Jainism Vaishnavism Development
Triple James of Jainism Yama and Niyama
Four Noble Truths of Nyaya Vaisheshika
Buddhism Nirvana
Ahimsa

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Test Your Knowledge

1. State whether the following statements are True or False
(i) Jainsim is based on the doctrine of syadvada.
(ii) Hinduism advocates five stages of life.
(iii) Hinduism advocates five objectives of life.
(iv) There are five ethical principles of Jainism.
(v) According to Buddhism, the basic cause of all sufferings is our desire.
(vi) Charvaka’s philosophy is heterodox in nature.
(vii) In the true sense, Gandhi was a vaishnav.
(viii) Bread labour is the term popularized by Nehru.
(ix) Gandhi was much influenced by Vincent Peale’s book, Unto the Last.
(x) To Gandhi, a state represents concentration and is based on the concept of violence.
2. Fill in the Blanks
(i) The philosophy of is to devise a means whereby human beings may be
persuaded to virtue without any stimulus of supernatural hopes and fears.
(ii) Buddhism and Jainism do not believe in the , but show
ways to attain the state of godhood.
(iii) Smirits are .
(iv) In the first stage of life, Brahmacharya, a person is to acquire .
(v) pleasure is denied to students during their stage of learning when
celibacy is to be followed.
(vi) Hinduism advocates a caste-based social system, better known as the .
(vii) In ancient India, the system provided a social and economic
interdepen- dence.
(viii) The ethical attribute of ‘non-stealing’ in the teachings of Jainism is otherwise known as
.
(ix) When a person attains self-consciousness, wisdom and enlightenment, he becomes free
from the trouble of birth and death. This state of mind of a person is called
or .
(x) The is the backbone of the cardinal teachings of Lord Buddha.
3. Choose the correct option
(i) Gandhi advocated the control of desire for the meta-needs and bringing down the scale
of wants to the:
(a) Ethical minima or the basic necessities of life
(b) Ethical maxima
(c) Aspirations or desires
(d) None of these
(ii) The Hegelian version of Marxism is concerned with the humanist goal and refers to a
journey towards the emancipation of mankind
(a) From the Earth to the Heaven

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(b) From the realm of necessity to the realm of freedom
(c) Both (a) and (b)
(d) None of these
(iii) In the Gita, the Three Gates or Vices to Hell are:
(a) Fear, Love, Greed (b) Lust, Fear and Greed
(c) Lust, Anger and Greed (d) None of these
(iv) To Gandhi, the basic purpose of state reform is to:
(a) Materialize politics (b) Spiritualize politics
(c) Both (a) and (b) (d) None of these
(v) Which type of behaviour may also contribute to the genesis of conflict?
(a) Rent-seeking behaviour (b) Fearsome attitude
(c) Affectionate behaviour (d) None of these
(vi) Which Gandhian system is meant to reform the capitalist organizations?
(a) Non-Violence (b) Trusteeship
(c) Satyagraha (d) All of them
(vii) The five cardinal virtues that are emphasized in the Gita are:
(a) Purity, Self-control, Detachment, Truth and Non-violence
(b) Impurity, Attachment, Violence, Control over others, Luxurious lifestyle
(c) Purity, Self-control, Attachment, Truth and Non-violence
(d) None of these
(viii) What refers to the proclivity of mind to refrain from empirical pleasures and enjoyment?
(a) Pavritti (b) Nivritti
(c) Jnana (d) Karma
(ix) As per the Varnashrama Dharma, the Vaishyas are created from the:
(a) Mouth of Brahma (b) Feet of Brahma
(c) Thighs of Brahma (d) Belly of Brahma
(x) The ‘Non-possession’ attribute in Jainism is better known as:
(a) Asteya (b) Griha
(c) Apigraha (d) Sahridaya

Review Questions
1. Explain the basic points of differences between Buddhism and Jainism.
2. Write a critical appraisal of Shankara’s exposition of Advaita Vedanta.
3. How is Ramanuja’s philosophy different from that of Shankara?
4. Write a short essay on the ethics of the Gita.
5. Explain the basic points of Charvaka’s hedonistic ethics.
6. What are the eight basic principles of Vaishnavism?
7. What is a moral standard? Briefly explain the common moral standards of Indian ethics.
8. What are basic ethical ideas of Gandhi on state, power and policy?
9. Critically examine the Gandhian ethics as related to ahimsa, truth and satyagraha.
10. What are the views of Gandhi on conflict and conflict resolution?

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11. Examine Gandhi’s views on development and underdevelopment.
12. Make a critical appraisal of the Gandhian ethics.

Web Links
1. http://worldview.carnegiecouncil.org/archive/worldview1969/12/1820.html/_res/id=sa_
File1/v12_i012_a005.pdf
[Philosophical Contributions of Gandhi’s Ideas on Non-Violence]
2. http://www.pdf-finder.com/INDIAN-ETHOS-AND-VALUES.html
[Indian Ethos and Values]
3. http://www.thehindubusinessline.com/2005/12/06/stories/2005120601450800.htm
[Indian Ethos in Management]
4. http://himadri.cmsdu.org/documents/IndianEthos.pdf
[Indian Ethos & Values in Modern Management]
5. http://www.sssbpt.info/ssspeaks/volume19/sss19-17.pdf [Give Due Place for Indian Values]
6. http://www.ibiblio.mohyal.com/index.php/component/myblog/ethics-indian-ethos.html
[Ethics and Indian Ethos]

References
Durant, Will (1961), The Story of Philosophy, The Washington Square Press, New York,
pp. xxv–xxix
Gandhi, Mahatma (1909), “Preface to Leo Tolstoy’s Letter to a Hindoo”, Indian Opinion,
25 December
Gruzalski, Bart (2000), On the Buddha, Wadsworth (Cengage Learning), New Delhi
Hopkins, E.W. (1924), The Ethics of India, Oxford University Press, New York
Jain, Duli Chandra (2004), Studies in Jainism, Jain Study Circle, New York (Three Volumes)
Jaini, P. S. (1979), The Jaina Path to Purification, Motilal Banarsidass, New Delhi
Sharma, Chandradhar (2009), A Critical Survey of Indian Philosophy, Motilal Banarsidass
Publishers, New Delhi
Sinha, Jadunath (2006), A Manual of Ethics, New Central Book Agency, Kolkata
Srinivasan, N.K. (2006), Essence of Srimad Bhagavad Gita, Pustak Mahal,
Delhi Verma, Dayanand (1999), The Bhagvad Gita, Books for All, New Delhi
Bhattacharya, B. (1969), Evolution of the Political Philosophy of Gandhi, Calcutta Book House,
Calcutta
Bondurant, J.V. (1971), Conquest of Violence: The Gandhian Philosophy of Conflict, Oxford
University Press, Bombay
Gandhi, M.K. (1925), Young India, 10 December
Gandhi, M.K. (1927), An Autobiography: The Story of My Experiments with Truth, Navajivan
Publications, Ahmedabad
M. K. Gandhi (1920), “The Doctrine of the Sword”, Young India, 11 August

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191
(1958-84), Collected Works of Mahatma Gandhi, Govt. of India, Publication Division, New
Delhi
1920), “The Vaishnava Ideal”, Navajivan, 5 December
(1930), “Letter to Narandas Gandhi”, 26 August
(1916), “Readiness for Satyagraha”, 27 July
(1928), Young India, 12 June
(1920), “The Greatest Good of All”, Young India
(1931), “Speech at Guildhouse Church”, 23 September
(1931), “Questions and Answers”, Young India, 26 March
(1947), “A Note”, from, a Facsimile of Mahatma, Vol.8, August
(1968), Selected Works of Gandhi, S. Narayan (Ed.), Ahmedabad
Ghosh, B.N. (2007), Gandhian Political Economy, Ashgate Publishing,
UK Parekh, B. (1997), Gandhi, Oxford University Press, New York
Parekh, B.(1989), Gandhi’s Political Philosophy, Macmillan, London

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 PART TWO

Business Ethics in Management

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 CHAPTER
9
Business
Ethics:

L E A R N I N GO B J E C T I V E S

This chapter will help the reader to understand

■ The meaning of business ethics
■ Relation between ethics and business
■ Historical evolution of business ethics
■ Nature and scope of business ethics
■ Need, purpose and importance of business ethics
■ Approaches of business ethics
■ Sources of ethical knowledge for business ethics
■ Ten popular myths about business ethics

INTRODUCTION
We start off with an important verse from the Bible which says that:
“Whoever has will be given more and he
will have an abundance. Whoever does
not
have, even what he has will be taken away from him”
(The Bible: Matthew, Xiii:12)

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Although the Bible here makes an allusion to the spiritual knowledge and faith, the idea can
be applied in the case of business too. All businessmen need to accumulate capital, and such
accumulation if done in a wise way will lead to abundance. Money begets money. However, a
businessman who cannot accumulate will soon have to face diminishing returns. In another sense,
from the long-term perspective, a business based on honesty, sincerity and ethical values, will
have a sustainable future with abundance and if one does not have it, one cannot survive in the
long-run. What many empirical studies have revealed is that, critical consideration for the
meaningful survival and growth of any organization is its ethical premises and not simply its
machinery, workforce and material stock. It is in this context that one examines the importance of
business ethics and values. Historical evidence has shown that many European and American
firms which were very prosperous in the past have been reduced to shambles only due to
unethical behaviour, fraud and immoral personal gratification. Implicitly or explicitly, business
ethics, thus, remains very critical to the sustained growth of a company. This chapter discusses
the meaning, nature, scope and other related concepts of business ethics.

WHAT IS BUSINESS ETHICS?

The following are some of the important definitions of business ethics. These definitions are
similar in ideas but differ in wordings:
● Business ethics is the application of the principles of ethics in the realm of business, trade

and commerce.
● Business ethics is the evaluation of business in terms of certain ethical principles and

norms.
● Business ethics deals with certain moral principles that can tell us whether a particular

business concern is run in a morally right or wrong way.

● Business ethics is the systematic analysis of ethical principles pertaining to business,

industry, commerce, trade and other related activities, institutions, beliefs and practices.
● Business ethics is the sum-total of rules and principles which can be regarded as the

standard norm to evaluate and guide business activities.

RELATION BETWEEN ETHICS AND BUSINESS ETHICS

There are definite interconnections between ethics and business ethics. Many of the theories,
principles, concepts and precepts of ethics are successfully used in business ethics. In fact,
business ethics is the practical application of theories, principles and rules of ethics. Indeed, many
inter- relations between these two subjects can easily be established. The theories of ethics can
effectively contribute to the growth of the subject of business ethics. There are at least the
following three inter-relations between these subjects.
First, ethical theories offer various concepts and precepts which are relevant to business
managers in conceptualising certain ethical issues in relation to business. Some of these concepts
are: deonticism, utilitarianism, consequentialism, morality, value and virtues, and so on.

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Second, ethical theories provide a set of analytical guidelines and moral standards, which can
be directly or indirectly applied to the solutions of business problems in a fairly just and
satisfactory way. A proper knowledge of the standards and principles of ethics can make a
manager more analytically capable and expert in interpreting many ethical issues in business in
day-to-day life.
Third, one of the most important ways in which ethical theories can contribute to business
management is the building up of ethical models (framework) about ethical decision-making,
ethical audit, solving ethical dilemmas, and so on. This exercise helps managers understand the
structure of ethical problems in management and assist in providing an ethical solution to the
same.
It must be understood that ethics and business ethics are integrative in nature, and there are
many commonalities between these two subjects. Whereas ethics is more theoretical, business
ethics is more practical and is the application of the theoretical principles of ethics, as revealed in
the defini- tions given earlier.

EVOLUTION OF BUSINESS ETHICS

Business ethics is a rather new discipline. But the idea that ethics is important in business goes
back to the time of Socrates and Confucius and many catholic discourses. In the medieval period,
the schoolmen introduced the idea of just price. St. Thomas Aquinas (1225–1274) condemned
usury (lending money on rate of interest) as unethical. The churches advised the observation of
Sabbath (Sunday) as the day of rest for all employers and employees. However, gradually ethics
was pressed into service for the analysis of work culture. St. Paul went so far as to say that if a
person does not work, let him not eat.
With the development of capitalism, the entire gamut of work ethics got dramatically changed
in the Western world. In terms of historical sequence, the change from Mercantilism to
individualistic capitalism and then to corporate type business enterprise is a reflection of changes
in attitude towards a new institution for promoting business enterprises. Commenting on the
economic progress of the seventh century Holland, William Petty observed that in Holland, there
were numerous dissenters who believed that labour (and industry) was the sacred duty towards
God. The glorification of human work can be traced back to the days of early capitalism.
Calvinism and Puritanism empha- sized the importance of unceasing human toil and trouble for
the growth of business from the spiritual point of view (Ghosh, 2009, p.17).
Max Weber in his book, The Protestant Ethic and the Spirit of Capitalism, has shown that how
from the sixteenth century the attitude towards work and wealth-creating activities changed. In
the medieval society and also in the Aristotelian period, a life of meditation and contemplation
was acclaimed and in the scholastic economy trade was considered undignified. Merchants were
one round higher than pariahs. This attitude underwent a change from the time of Calvin. John
Calvin was opposed to self-aggrandizement and indulgence but not to accumulation of riches.
According to him, the development of material resources through toil and trouble is a virtuous
activity which a businessman should perform. Parables of Talents were cited from the Bible to
support economic activities and productive works. Calvin developed the idea of spiritual callings
to materialize the activity relating to economic progress. The Puritans conceded the idea that

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spiritual obligations including business duties are a discipline quite in accord with the Divine
Will, and by following this, men can improve and ennoble their characters.

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The spirit of Christianity became somewhat different with the rise of Protestantism. Protestants
actively associated themselves with business and industries. Religious ethics has had a definite
impact on the attitude towards the growth of business. Confucianism valourizes hard work,
sincerity and honesty, and Hinduism advocates deontic notion of duty without any desire for the
results of the action. Both Confucianism and Hinduism do not lay any stress on materialistic
acquisitions and culture. In India, in the early twentieth century, the businessmen who
accumulated wealth were not given much social respect, and for the same reason, some of them
were out-grouped such as the Parsis, Jains and Marwaris. However, being an out-group, a
particular business community could break the established social tradition. But with economic
development, the attitudes towards these business communities gradually changed and they were
again brought back to the social fold and were respected.
Sometimes, an anti-religious philosophy can also help the growth of business and trade. In the
communist ideology, the will of God is replaced by materialistic dialectics. Marx has accepted
that although capitalism has many attending evils associated with unethical activities like
exploitation of labour and dehumanization of labour, there is no denying the fact that capitalism is
the most progressive mode of production.
The classical and neo-classical views considered business ethics as irrelevant and supported
unbridled expansion of capitalism and market forces. According to these views, business and
ethics are two separate categories, and these cannot be meaningfully mixed up. Free market
competition, they say, can lead to several types of benefits supported by the theories of both
deonticism and utilitarianism (consequentialism). The following are ways through which a free
market philosophy leads to social and economic benefits, and so becomes ethical.

Benefits of Free Market Philosophy

1. Market Ethics may generate social benefits through human selfishness. All sellers,
motivated by self-interest, provide goods and services in abundance and all the essential
social needs are satisfied by the mechanism of free market forces. Adam Smith believed that
in a free market economy, self-interestedness leads to social welfare and happiness.
2. Competition and free market price setting may lead to maximization of production with
minimum possible per unit cost. This generates the producer’s and consumer’s surpluses
that positively benefit the society. Competition reduces prices and a large-scale production
decreases the unit cost of production with economies of scale and scope. Thus, competition
in business becomes ethical (see the chapter on Ethics and the Market Structure in this
book).
3. Expansion of business renders free choice and liberty for the consumers. This satisfies
the libertarian view of ethics, and the growth technology and different means of production
give a choice to producers too regarding production technology, production methods and
production mixes. According to one view, more the choice more is the freedom and more is
the satisfaction, welfare and happiness. The libertarian idea is propagated by John Locke
and Nozick, among others.
4. As discussed earlier, the ethical foundation of the growth of capitalism was provided by
Max Weber through his writings on Protestant Ethic and the Spirit of Capitalism. It is
already
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explained in this chapter how the principles of protestant ethics led to the ethical justification
of work efforts and business expansion.
5. Free market philosophy maximizes individual freedom and utility (utilitarianism). It
also leads to better utilization of social and individual potentials and social resources, higher
employment opportunities and overall economic growth and increased real per capita
income (consequentialism).
Against the two extreme views of medieval writers and classical writers, there is an integrative
view taken by Talcott Parsons and others who claim that business is not an extension of morality
nor it can be wholly separated from ethics; both are complementary in nature.

CONTEMPORARY DEVELOPMENT
The issue of ethical consciousness in business can be classified into the following six periods.
However, this periodization is not based on any clear-cut apple-pie order of historical events but
is based on the broad trend with the temper of time. A short account of the historical evolution of
the growth of business ethics in America is given in the following chart (see, Ferrel et al. 2003,
pp. 25, 29).
An analysis of contemporary development reveals that business ethics was born Nov. 1974 at
the University of Kansas Conference on Business Ethics (Bowie, 1986). Subsequently, the greed
resulting in “Wall Street Scandals” of the 1980s shocked many observers and instigated them to
think about some suitable changes in the managerial psyche (Bradburn, 2001). As a consequence
of all these, a few things happened in the United States, such as the development of code of
ethics, employees’ rights movement, changed relation between business institutions and civil
environment in which business operates (Kitson and Campbell, 1996).

HISTORICAL EVOLUTION OF BUSINESS ETHICS

Before 1960s 1920s: Capitalism was in question and employers were asked to
provide fair wages to employees.
1930s: The New Deal blamed business for the economic predicament
and lower personal income.
1950s: President Truman considered environment problems as ethical
issues to be addressed by business management.
1960s Religious leaders and Catholic Churches raised questions about morality in
capitalism, labour practices, workers’ rights and unfair wages. Many
catholic colleges started courses on social ethics. Religious tradition
provided the very building block for the growth of business ethics.
Consumers’ movement became strong and President Kennedy passed
Consumers’ Bill of Rights protecting the safety of consumers from the
unethical business practices in America.
1970s Growth of the idea of corporate social responsibility.
Businessmen became more aware of ethical issues in business and
the Watergate Scandal focused on the importance of ethics in
administration and government.

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193
Many unethical business practices came to the fore and business ethics
became well
entrenched as a subject of study particularly after the conference on the
1980 subject in the University of Kansas in 1974.
s Business ethics was formally recognized by various business organizations. 500
courses were offered in colleges and ethical organizations started growing
in leaps and bound. Defence Industry took the initiative of guiding the
corporate sector in matters of business ethics. The new wave of
globalisation was responsible for many structural and operational changes
in business, and since business became more international, the local rules
1990 of business had to be replaced by international ethical values.
s This was the period of institutionalization of business ethics. Bill Clinton
worked hard to implement business ethics particularly in health-related
business organizations. Organizational ethical compliance programmes
were stringently applied in business organizations. Companies were
forced to formulate their own corporate values and implement them
seriously. Thus, business ethics became institutionalized.
In spite of the institutionalization of business ethics, many business houses
in America did not like the idea and were often involved in scandals.
Many person and firms were involved in accounting scandals, unethical
business practices including Arthur Anderson, Enron, Halliburton, and so
on. Laws have been made stringent to make the Directors and top bosses

NATURE OF BUSINESS ETHICS

There are generally two recognized perspectives of BE: the naturalist approach and the normative
approach (Frederick, 2002). The naturalist approach to BE takes into account the natural laws,
natural religion and nomological principles embedded in the natural system. The normative
approach is couched in empirical terms. Business ethics is essentially a normative science where
one talks about various ethical norms, and standard practices as prevalent in a particular country.
As has been pointed out earlier in Part One of this book, ethical consideration is relative in
nature. Thus, some values in business may be ethical in a particular context or country but may
not be ethical in another situation. However, there are some absolute ethical considerations like
honesty, sincerity, fairness, and so forth which are transcendental in nature and are equally appli-
cable in all types of business concerns.

NATURE OF ETHICAL ENQUIRY IN BUSINESS

There are the following five dimensions of the ontology of business ethics:
1. Business ethics as a subject is analytical. Its purpose is to analyse things as they are. The
nature of this type of study is known as positive study. It is both a normative and positive
science.

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2. Business ethics is diagnostic in nature. After examining the various aspects of business
dealings, operations and management techniques, it is possible to know the ethical or
non-ethical pathology of the business.
3. Business ethics is evaluative in nature. It makes an evaluation of business dealings, overt
firm behaviour and performance and comes to judge whether a particular business concern
is ethical or not.
4. Business ethics is prescriptive in nature. It makes various prescriptions to eradicate the
unethical behaviour of the firm so that it can be ethical. It suggests many corrective ways
and means to purge the firm out of the morass of moral wrongs.
5. Business ethics sets the moral standard in business as its guiding principle to be followed
in all its dealings with the public, employees, suppliers and consumers.

SCOPE OF BUSINESS ETHICS

Business ethics works at different planes and levels. It encompasses different levels of activities:
Individual level (Personal level)
Organizational level (May or may not be business organizations)
Association level (May be with various types of institutions and domestic associations)
Societal level (Customers, Banks and Government)
Internal policy making (Making business strategies) Global
level (Business interactions)
In all these five levels, some ethical issues are conspicuously present and such issues come
within the domain of business ethics. For instance, whether tax is to be evaded or not, whether
price is to be raised or not, whether insider trading is to be encouraged or not, are all considered
as ethical issues. The scope of business ethics is very vast. It encompasses the following areas
where ethical issues are directly or indirectly involved with a business concern:
1. Ethical responsibilities of business
2. Unethical practices in HRM, finance, marketing and informational technology
3. Ethical responsibilities towards employees, consumers, suppliers, and other stakeholders
4. Ethical leadership and performance of social responsibilities
5. Ethical decision-making and solution of various types of ethical dilemmas
6. Ethical issues in corporate governance
7. Ethical business strategy
8. International business ethics
9. Ethical audit
10. Professional ethics
The list can be extended by making many more topics in the area of business ethics. However,
these areas of utmost importance in business ethics.

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Towards a New Direction
The subject of business ethics is now taking a new trajectory (see, Frederick, 2002). The
following five main directions are clearly visible in the horizon of the contemporary scenario of
business ethics:
1. One of the contemporary trends of business ethics is to explain things in the context of
ethical pluralism that admits validity of many moral standards in different contexts. This
also permits a business decision to be taken not in isolation but with reference to many
theories and inter- pretations of morality.
2. Fact-value distinction is becoming more prominent now, and this has resulted in the
separation of empirical and normative business ethics.
3. The idea of individualism is gaining popularity, and it puts the individual against the
community. Thus, an implicit choice between communitarianism and libertarianism
becomes obvious.
4. Environmental ethics is becoming an integral part of business ethics for many obvious
reasons.
5. The application of top-down rules and at the same time the fixed-end reasoning is giving
rise to a situation where the demand of internationalism cannot be neglected any more.
The introduction of globalization since 1980s has changed the whole scenario of business
ethics by making it more complex and convoluted in the context of cross-country differences in
ethical norms. Another factor that has given a new dimension to business ethics is the public
opinion in favour of sustainable development (Crane and Matten, 2003) as also the environmental
ethics. These aspects are discussed in the relevant chapters of this book.

NEED AND PURPOSE OF BUSINESS ETHICS

Business ethics is necessary to give guidance to uphold the interests of stakeholders
including consumers, shareholders, suppliers, distributors and investors. Business ethics is
necessary to remind the business firm that it is the moral duty of the firm as a part of society to
undertake some social responsibilities. The following are the five primary objectives of
business ethics:

Objectives/Purposes
● Business ethics teaches us the ethical rules and principles that are relevant for business.
● Business ethics is concerned with the application of ethical standard and values to business.
● Business ethics teaches the manager as to how to run the business on ethical lines.
● The rules of business ethics enable a business firm to identify the areas which are not
practicing ethical principles and therefore can prescribe the necessary ethical code.
● Business ethics can help a firm to make business decisions and strategy which are morally
fair, just and consistent.

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IMPORTANCE OF BUSINESS ETHICS
Nobel laureate, Sir John Hicks, once said that the best of all monopoly profit is a peaceful life.
Aristotle also observed that the happiness of mind can be multiplied several times if one follows
certain virtues in life. Needless to say, these virtues give us an ethical life, be it in business or in
any other profession. Virtues are intrinsically valuable. Business ethics has both micro and macro
ramifications. The micro aspect of business ethics is related to the private and professional life of
a manager or CEO. The macro dimension of business ethics encompasses all aspects of business
world including policy making, settle of conflicts, and running of day-to-day business. At the
macro level, many unethical practices are confronted in a business concern like, unfair
discrimination among employees, immoral competition, bribery and corruption, deceptive
information, forgery, cheating, and so on.
Business behaviour in the macro perspective is based on mutual trust, faith and consideration.
This trust is found generally between employer and employee, customers and sellers and
suppliers and purchasers. These relations have to be based on some tacit normative moral
standards. Thus, ethics can be very useful for running a business successfully. The importance
and significance of BE can be summarized as given below.
● BE provides a broad framework for giving guidance to all those who run the business.

This guidance is based on certain moral principles that we derive from ethics. Without such a
framework, business may go haywire.
● A company based on ethical principles is trusted by all the stakeholders like customers,

suppliers, employees and the public. The visible and invisible benefits of such a trust may
not be quantified in the short-run under all circumstances but its benefits can be realized in
the long-run.
● A business based on ethics improves its social image which gives it a long standing

goodwill and financial pay off at the end. A better public image brings about many types of
positive externalities and consequences.
● Business ethics improves and strengthens organizational culture at all levels both within

and without. When the whole organization is motivated by a unified culture, the milieu of
work and motivation, compliance and respect for the company automatically improves. This
is indeed a great advantage for not only making a policy but for its implementation as well.
● The strategic value and decision-making goals of a business concern are founded on ethical

beliefs and values and not on its balance sheet position and profit mark-up. While monetary
norms are transitory, ethical values create a solid foundation for all time to come.
● A company which is ethically strong and committed generates a sense of empowerment and

security among its employees and stakeholders.

● Ethics-based companies are empirically found to have strong team work, commitment and

higher productivity than similar other firms which have no ethical foundation.
● Ethically conscious employees and management are responsible for changing the work

culture and motivation towards a better end without any formal inducement or coercion.
● A company run on the basis of business ethics can avoid many types of work-related

conflicts both within and outside the firm. The principles of fairness and justice in running

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the firm save it from many possible harms, injustice, unfair discrimination and exploitation.
Even if there is any conflict, it can be hoped to be solved on the basis of cooperation, justice
and fairness.
● A business firm that is run on ethical principles can save a lot of money every year as it can

avoid criminal and legal involvement. Indeed, the economic costs of sin are very high. A
study by Morse has revealed that many corporations have paid enormous financial penalties
for acting unethically (Morse, 3003, p.14).
● Many types of market failures that arise from misleading information, lack of trans-

parency, non-absorption of harmful externalities of firms can be prevented by ethically run

organizations. Needless to add, the economic cost of market failure in any society is indeed
prohibitively high.
In fact, laws cannot protect a society, but the ethical foundation can in many cases. It needs to
be realized that there is no necessarily compelling contradiction between the profit maximization
philosophy of a firm and its ethical moorings.

APPROACHES TO BUSINESS ETHICS

There are basically the following three approaches to Business Ethics.
1. Profit-based morality approach. This approach recognizes the symbiotic relation between
profits and moral activities (Hartley, 1993). Thus, when the profit of a firm is high, its
morality gets a better priority. In such a case, morality is a function of profit and there is a
positive correlation between the two. This is supported by Robert Hartely’s study of 20
empirical firms in the United States.
2. Law-based morality approach. This approach believes that the laws of a country are mostly
based on moral principles. Thus, if a firm or a person obeys the established laws of a
country, then morality is also obeyed.
3. As against the above two approaches on morality, there is a third one that derives its
strength from the prevailing natural laws and spiritual practices and advices. This approach
upholds the view that there the following five moral obligations for business ethics
(Laczniak, 1983):
■ Veracity principle. A business firm should follow the truth under all situations.

■ Non-injury (no harm) principle. A business firm should not harm anybody.

■ Fairness (Honesty) principle. A business firm must remain honest in its dealings.

■ Human Rights principle. A business firm must respect and maintain human rights.

■ Autonomy principle. A business firm must ensure that it does not make infringement of

human choice for goods and services.

SOURCES OF ETHICAL KNOWLEDGE FOR BUSINESS

How does a business firm know what is good and what is bad? There are five possible sources of
ethical knowledge for a business firm:

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● Empiricism: According to this view, the knowledge of moral right or wrong comes to a firm
by experience and empiricism. The experiential knowledge may be acquired by the firm or
it may be vicarious (that is, gathered from others).
● Intuition: The knowledge about what is right and what is wrong is acquired through

intuition. Introspection is very helpful to know good and bad things.

● Principle of Rationality: A rational human being, as a businessman is, can, on the basis of

common sense, know what is good and what is morally bad. This rationality is inherent in
human beings and is supplemented by experience, reading of scriptures and association with
rational people.
● Principle of Revelation: This shows that what is already revealed is an important source

of ethical knowledge. This revelation may be known through scriptures, divine knowledge,
experience of others and the age-old traditional teachings, customs or practices.
A study by John Steiner and George Steiner reveals that in the case of the American business,
in general, there are the following six primary sources of ethical knowledge:
1. Philosophical system existing in a country does influence the pattern of business behaviour.
What has been found in actual practice is the influence of a particular type of philosophy on
a particular type of person/class. Some business people are basically influenced by the
prevalent contemporary philosophical consciousness/system.
2. Legal system is an influential factor in business ethics. Good or even bad business people
generally have to follow the existing laws in the country, although the latter sometimes take
advantage of the loopholes of laws.
3. Codes of Conduct. There are various codes of conduct that business people have to adhere
to. These codes relate to operating business policies, company codes, and the Affirmative
Ethical Principles of the American Institute of Certified Public Accountants. Different types
of indus- tries in USA are formulating different appropriate codes for various businesses.
The process of codification of ideal business behaviour is itself a proof of the seriousness of
business ethics in America. However, a simple formulation of codes does not by itself
guarantee the implementation of ideal ethical business behaviour.
4. Cultural Experience. Culture, standards and customs are transmitted from generation to
generation and these become the standard societal norms that are broadly followed without
much questioning. This is one of the ways that individual business norms are influenced and
formed. Cultural experience is a strong guideline for the running of business in a particular
way.
5. Genetic Inheritance. Evolutionary forces of natural selection considerably influence the
development of individual characteristic traits such as proclivity to do good or bad works,
cooperative spirit and conflicting attitudes, and so on. These traits vary from individual to
individual and can explain broadly the ethical or unethical human behaviour in business and
society.
6. Religion and Religiosity. Religion is a very strong force in individual actions and behaviour,
and every religion does teach more or less the same type of absolute ethical or moral
behaviour regarding what is good and what is bad. However, some people are religious but
not spiritual; they do not strictly follow and practice the basic religious teachings and
nomological axioms particularly in the conduct of business.

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In many Eastern countries, religion is very strictly adhered to. For instance, Confucianism in
China and Japan, Hinduism in India and Islam in the Islamic countries, has established
themselves as the basic external (or internal) sources of morality. But in the United States, the
external source of morality seems to be very weak, although Christianity remains a generalized
type of religion. The influence of religion on the American business psyche is minimal or
marginal. This is so because the materialist culture generated by the philosophy of capitalism or
marketism always gains the upper-hand.

TEN POPULAR MYTHS ABOUT BUSINESS ETHICS

There are many popular myths about business ethics. Some of the most popular myths are discussed
below (McNamara, 2003; Weiss, 2009, pp. 27–31).
Myth # One: When a business house is obeying the laws of the land, it is ethical.
However, this view is not correct simply because all laws are not ethical, nor is all
ethical behaviour legal. There are indeed many examples to substantiate this
view. For instance, if your neighbour dies, law does not ask you to visit the
house but ethics does demand that.
Myth # Two: Business ethics is best suited to philosophers but not to others.
This is not really true. Business ethics might be formulated by moral philoso-
phers but it is to be practiced by businessmen and business corporations. The
subject has many practical values. It is a new business discipline.
Myth # Three: Business ethics is more a matter of religion than of management.
As a matter of fact, some of the ethical principles may be based on religion
but not all. Moreover, business ethics as a subject is an attempt to implement
ethical rules or standards in decision-making, policy framework and conducting
day-to-day business activities. Such ethical rules are very much applicable to
business management.
Myth # Four: Business ethics is preaching of good persons to bad persons, and even good
persons can make mistakes and take bad decisions.
The statement is factually incorrect. Business ethics is not preaching; it is the
actual implementation of ethical rules and standards to business practices,
policies and regulations. The application of such rules is not undertaken by a
single person but by the committees and a group of persons who formulate such
policies. There is hardly any chance of mistake in that type of policy making.
Myth # Five: Business ethics is a new type of policing in business and is a recent
phenomenon.
The purpose of business ethics is misunderstood by many. It is not a type of
policing but is a set of self-imposed ethical rules for the betterment of business
climate and the sustainability of a long-run profit and business goodwill. It is, of
course, a recent subject of business management.
Myth # Six: Our employees are reasonable and good people, so business ethics is not
necessary.

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This view is complacent but not necessarily correct. The point is that a good
person or a reasonable person is not necessarily a moral person. For instance,
a manager may be very courteous and polite in his behaviour but he may be
quite unethical in his business. He may be an adulterer, engaged in
manipulating accounts or may be out and out a corrupt person. A good
behaviour may be a mask.
Myth # Seven: Business and Ethics cannot go together.
This is a very popular myth, but like all the other myths it is empirically
incorrect. It is sometimes pointed out that business people are not necessarily
immoral but may be amoral. Some people, however, believe that the statement that
businessmen are amoral is in itself a myth (DeGeorge, 1999).
They are very much involved in shady deals as history has proved in many
countries including the United States in the Twentieth century. Many other
cases also prove to the contrary that business can run very well on the basis of
honesty and morality. Many business houses accept the age-old truth that
honesty is the best policy.
Myth # Eight: Business ethics is a personal or private matter and not for public debate
or practice.
This view is held to be true by many including Milton Friedman, a noted
economist. According to this view, corporate social responsibility, which is an
extension of the principles of business ethics, is not appropriate for the business
world. This is so because business men are not professionally trained to perform
such responsibilities (Friedman, 1970, Sept. 13).
However, the truth of the matter is that individuals have to make business
decisions by taking into account the milieu, the institutional matrix and the legal
framework. If they work in a socially irresponsible way, they have to pay the
penalty. Hence, business needs to be socially responsible.
Myth # Nine: Good business means good ethics.
A question that at once can be asked is–what is good business? Does it mean
good profit, good market share or good volume of sales? Whatever be the
answer in this case, it does not imply good ethics in a compelling sense. One
can have, say, a thriving pharmaceutical business but the medicines may be
cheaper but sub-standard, and this fact is not known to the public, so the sale
continues. For instance, a blood pressure lowering medicine amlodipine basilate
tablet for which the correct dose is 5 mg. and the same is written on the label
may actually contain less than the recommended dose. This type of cheating
remains unknown for quite sometime to the customers.
Myth # Ten: Ethics in business is always relative.
This popular myth says that there is nothing which is either right or wrong.
Ethics is a relative term.
A relevant question may be asked: relative to what? If it is relative to the
attitude of the businessman, then practically anything that is unethical can be

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justified by him. Although, ethics is a relative term, it does not mean that there
cannot be anything that is unethical. In fact, there are absolute notions of certain
values. Thus, cheating in business is cheating; no relativity of ethics will justify
it. There are certain virtues in business which are absolute, like, honesty, truth,
transparency, sincerity, and so on.

Summary
Business ethics is the application of the principles of ethics in the area of business and commerce.
There are many interconnections between ethics and business ethics. Theories of ethics supply
concepts and precepts, set our analytical guidelines and provide ethical models or frameworks for
solving ethical dilemmas and other related problems. Business ethics has undergone a long period
of historical evolution beginning from the medieval period through the 1970s when it was
formally well-entrenched as an independent, full-fledged discipline. Reformation movement and
the rise of Protestantism gave some valuable impetus to the growth of the subject. In the 1980s,
about 500 courses were offered in colleges in advanced countries on the subject. Since
globalization has made business international in character, every corner of the earth is eager to
learn more about business ethics and international business practices.
Basically the subject of business ethics is normative in character. It is analytical, diagnostic,
evaluative, prescriptive, and it sets a moral standard to be followed. Its scope is very wide
including within its fold various types of organizations, institutions, customers, banks, corporate
houses and private buyers and sellers of all varieties. In the contemporary world, business ethics
is playing an inclusive role in the administration of communities, in explaining cross-country
differences in business practices, in the management of environment and also in workplaces. The
modern tendency is to follow the dictates of ethical pluralism superimposed on the principle of
ethical relativity. This trend is gaining popularity in the context of globalization and
internationalization.
Business ethics has been found to be necessary to guide and uphold the interests of stake
holders in a business and has placed considerable importance on the performance of corporate
social responsibility. Business ethics has many micro and macro ramifications and it strengthens
the organizational culture and creates a solid foundation for a business. As a result, many
stakeholders feel more secure, empowered and many types of conflicts are now avoidable in the
business world. In the long-run, business ethics has been found to be beneficial to a firm. It spreads
goodwill, creates more confidence among the stakeholders and makes business more trustworthy.
The knowledge of business ethics is gathered from various sources including the natural laws,
empiricism, inner voice, religious scriptures, legal system, cultural practices and the principle of
rationality. There are of course many myths about business ethics. Most of these myths consider
business as irrelevant to ethics. It is wrongly argued that ethics is most suitable to philosophers,
religious persons and not to managers. This view is incorrect. It is also equally an erroneous view
that obedience to laws means obedience to ethics. Ethics is a moral discipline and is designed to
reform our mental attitudes, whereas the law of the land is only to control the external individual
behaviour. The two can of course go a long way and then they must change their respective
trajectories.

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Key Terms
Business Ethics
Veracity Principle Puritanism Naturalist Approach
Calvinism Market Philosophy Parables of Talents
Normative Approach

Test Your Knowledge

1. State whether the following statements are True or False
(i) Business ethics is a positive science.
(ii) Business and ethics cannot go together.
(iii) Protestantism justified the work efforts and business expansion.
(iv) Business ethics became well-entrenched as a subject in the 1970s.
(v) Business ethics is more a matter of religion than of management.
(vi) The modern tendency is to follow the dictates of ethical pluralism superimposed upon
the principle of ethical relativity.
(vii) The truth is that business ethics is best suited to philosophers but not to others.
(viii) Philosophical system existing in a country does not influence the pattern of business
behaviour at all.
(ix) The knowledge about what is right and what is wrong is the principle of revelation.
(x) A company run on the basis of business ethics can avoid many types of work-related
conflicts both within and outside the firm.
2. Fill in the Blanks
(i) The schoolmen introduced the idea of .
(ii) went so far as to say that if a person does not work, let him not eat.
(iii) was opposed to self-aggrandizement and indulgence but not opposed to
an accumulation of riches.
(iv) believed that in a free market economy, self-interestedness leads to
social welfare and happiness.
(v) Free market philosophy maximizes individual and .
(vi) There are generally two recognized perspectives of Business Ethics, namely,
and .
(vii) One of the contemporary trends of business ethics is to explain things in the context of
, that admits the validity of many moral standards in different contexts.
(viii) A Nobel laureate, , once said that the best of all monopoly profit is a
peaceful life.
(ix) Ethics based companies are found to have a strong .
(x) The approach believes that laws of a country are mostly based on moral
principles.

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3. Choose the correct option
(i) The aphorism, “Whoever has will be given more and he will have an abundance.
Whoever does not have, even what he has will be taken away from him”, can be found
in the
(a) Bible (b) Gita
(c) Koran (d) None of these
(ii) Who condemned usury as being unethical?
(a) Aristotle (b) Plato
(c) Socrates (d) St. Thomas Aquinas
(iii) Commenting on the economic progress of the seventh century Holland, who observed
that in Holland there were numerous dissenters who believed that labour (and industry)
was the sacred duty towards God?
(a) William Betty (b) Adam Smith
(c) Karl Marx (d) None of them
(iv) What were cited from the Bible to support the economic activities and productive
works?
(a) Fables of Talents (b) Parables of Talents
(c) Both (a) and (b) (d) None of these
(v) Who developed the idea of spiritual callings to materialize the activity relating to
economic progress?
(a) Calvin (b) Adam Smith
(c) St. Thomas Aquinas (d) Mahatma Gandhi
(vi) Which group conceded the idea that spiritual obligations including business duties are a
discipline quite in accord with the Divine Will, and by following this, men can improve
and ennoble their characters?
(a) Opus Dei (b) Puritans
(c) Catholics (d) Protestants
(vii) “The expansion of business renders free choice and liberty for the consumers”–this
satisfies the
(a) Socialistic view of ethics (b) Religious view of ethics
(c) Libertarian view of ethics (d) All of these
(viii) The ethical foundation of the growth of capitalism was provided by Max Weber through
his writings on:
(a) Industrialism
(b) Imperialism
(c) Religion and Society
(d) Protestant Ethic and the Spirit of Capitalism
(ix) An integrative view taken by whom claim that business is not an extension of morality
and nor it can be wholly separated from ethics; both are complementary in nature?
(a) Max Weber (b) Karl Marx
(c) Talcott Parsons (d) Adam Smith
(x) Which principle states that a business firm should follow the truth under all situations?
(a) Fairness Principle (b) Veracity Principle
(c) Human Rights Principle (d) Autonomy Principle
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Review Questions
1. Distinguish between ethics and business ethics.
2. Explain the need and basic objectives of business ethics.
3. Why should you study business ethics?
4. What are the main sources of the knowledge of business ethics?
5. Enumerate the scope of business ethics.

Web Links
1. http://media.wiley.com/product_data/excerpt/45/04712305/0471230545.pdf
[Introduction to Business Ethics]
2. http://www.hks.harvard.edu/m-rcbg/CSRI/publications/workingpaper_19_michael.pdf
[Business Ethics: The Law of Rules]
3. http://web.tepper.cmu.edu/ethics/whybizethics.pdf [Why Business Ethics?]
4. http://portal.unesco.org/education/en/files/53748/11840802765Baker.pdf/Baker.pdf
[A Reflection on Business Ethics]
5. http://501cweb.wordpress.com/2007/02/07/ten-myths-about-business-ethics/
[Ten Myths About Business Ethics]
6. http://www.eubios.info/EJ86/ej86h.htm [New Approaches to Business Ethics]
7. http://www.e-sinessethics.com/PowerPointSlides/ScopeofBEthics.pdf
[The Nature and Scope Business Ethics]

References
Bowie, Norman (1986), “Business Ethics” in J. P. Demarco and R. M. Fox (Eds.), New
Directions in Business Ethics, Routledge and Kegan Paul, London
Bradburn, Roger (2001), Understanding Business Ethics, Continuum, London
Crane, Andrew and Matten, Dirk (2003), Business Ethics: A European Perspective, Oxford
University Press, Oxford
DeGeorge, Robert (1999), Business Ethics, Prentice Hall, USA
Frederick, Robert (2002), A Companion to Business Ethics, Print Publications, USA
Friedman, Milton (1973), “The Social Responsibility of Business is to Increase its Profits”, New
York Times Magazine, 33, 13 September
Ghosh, B. N. (2009), A Tale of Two Economies: Development Dynamics of India and China,
Nova Science Publications, New York
Hartely, Robert (1993), Business Ethics, Amazon Publishing, USA
Laczniak, Gene (1983), Business Ethics: A Manager’s Premier, Pitman Publishing, Boston
McNamara, Carter (2003), Business Ethics, Macmillan, New York
Mores, J. R. (2003), “ The Economic Costs of Sins”, American Enterprise, Vol.14, # 7, October
Weiss, J. W. (2009), Business Ethics: Concepts and Cases, Cengage Learning, New Delhi

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CHAPTER
10
Ethics and Business:
Codes, Dilemmas and
Dialectics

L E A R N I N GO B J E C T I V E S

This chapter will help the reader to understand

■ Need for ethics in business
■ Ethical responsibilities Vs. Social responsibilities
■ Adam Smith and Milton Friedman on the ethical responsibility of business
■ Ethical dilemma: characteristics, types, causes, sources and resolution
■ Dialectics of ethical development in business
■ Ethical issues in business and society
■ Some major unethical business practices

INTRODUCTION
Immanuel Kant, a celebrated German philosopher, once remarked that there are two mysterious
things in this world—“the starry heavens above and the moral law within”.
The moral laws are not something absolute but are subjective in nature. They are the unfath-
omable noumena of the human mind which can be conceived by thought but cannot be perceived
by experience. Every human being whether a businessman or a commoner has a particular moral
standard but the problem is that such a standard might work at the esoteric plane and its outward
manifestation is at variance with the covert predisposition. This incongruence is the source of
many problems, both personal and impersonal.

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As a matter of fact, morality, ethics, right and wrong are all, in a sense, relative terms and they
cannot be uniquely defined. The standard of morality differs from country to country and from
situation to situation. Ethics, which was once the domain of philosophy, is now being applied
to various professions including business a profession that is dominated more often than not by
materialistic considerations of life and has been witnessing scams and scandals across the globe.
It is gratifying to note that since 1970s, ethics has entered the arena of business and has been
influencing many business decisions through the adoption of corporate social responsibility. The
present chapter will discuss a number of issues that plague the application of ethics in business.
The prominent among these are: the justification of ethics in the running of business enterprises,
unethical practices in business, ethical dilemmas and ethical dialectics.

DOES BUSINESS NEED TO HAVE ANY ETHICS?

Chapter 19 of this book discusses at some length the need for corporate social responsibility. In
this section, the views of some researchers and economists are analysed to explain the relevance
of ethics in the area of business.

Ethical Responsibility vs Social Responsibility

At the outset, it is imperative to distinguish between social responsibility and ethical
responsibility. The following are the major points of difference between social responsibility and
ethical respon- sibility:
● Social responsibility is related to anything that promotes social development and enhances

social welfare such as setting up a school, building a road or any other social infrastructure.
The concept of ethical responsibility is a bit different as it gives a moral responsibility to a
person to do certain things. Thus, for a manager it is a moral responsibility to ensure that his
employees are given a reasonably good working environment. The improvement of working
conditions for employees and the production and circulation of safe and useful products
among the customers are all examples of moral or ethical responsibility of a manager.
● The basic purpose of social responsibility is to help the society to enjoy certain benefits and

it may involve the production of some public goods like roads, provision of drinking water
and so forth. The purpose of ethical responsibility is to develop the ethical standard of
givers and/or receivers. There can be both positive and negative ethical responsibility.
Whereas the positive ethical responsibility is done through the construction of some projects
and initi- ation of some activities (like building a church or a temple in a locality), the
negative ethical responsibility is to eliminate some morally bad things from a particular
area. The purpose is to prevent something which is ethically wrong. For instance, a liquor
shop is dislocated from a college area a public institution.
● What is generally expected of a business enterprise is social responsibility and not ethical

responsibility. It is not proper to assign to a business house the responsibility of moral

devel- opment of people. Ethical responsibility is more compelling, demanding and
complicated. Thus, it is too much to ask a businessman to take or give bribe. This is an
ethical issue and is difficult to implement.

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Adam Smith and Milton Friedman on the Ethical Responsibility of Business
Classical economists including Adam Smith have questioned the ethical role of business by
saying that for the purpose of business and its success in making profit only two things are
important, and these are legal compliance and market contestability through competition in
product quality and prices. If these two critical things are well looked after, the firm can be said to
have performed all the social responsibilities (Steiner and Steiner, 1988; Friedman, 1970). On the
basis of this view, a business firm is considered as ethical in two ways. First, it is doing its duty
to supply goods and services needed by the society and second, it is performing its job given by
the shareholders of bringing maximum gains to them. In the process of supplying goods and
services to the society, Adam Smith says that the business houses are performing a commendable
social work which can be regarded as a part of ethical duty.
Smith’s argument is fundamentally different from that of Friedman. Basically what Smith is
arguing in his The Theory of Moral Sentiments is that although business people are primarily
motivated by self-interest, they are indirectly contributing to the common good and social
welfare. According to Smith, the invisible hands are creating through the business expansion a
natural order in the society where common good is encouraged and the society comes to a stage
of a desirable equilibrium where, assuming perfect competition, the prices are fixed at the lowest
possible level and the maximum goods are supplied. In terms of the modern terminology, the
society can enjoy both consumers’ and producers’ surpluses. The automatic market mechanism
working through invisible hands brings the economy to the desirable state of equilibrium and in
arriving at this state of perfect bliss, the contribution of market remains profound. The business
has done its duty in the sense that it has contributed to common good ethics through different
values like prudence, propriety, reason and sentiment. These values are essentially business
values. The bottom line is that through such values, the happiness of mankind can be maximized
(Smith, 2000).
Adam Smith is one of the founders of a variety of capitalism, which may be called enlightened
capitalism. The basic philosophy of this brand of capitalism is that it works selfishly but, still, it
has some tendency to do good to others. Friedman’s concept of capitalism is not enlightened; it is
capitalism simlicita. Ferrell et al. observe that the Smithsonian type of capitalism is now
replacing the Friedmanian type of capitalism in most of the capitalist countries (Ferrell et al.,
2003). In fact, it is increasingly being realized that business houses do need to care for the well-
being of the share- holders for earning trust and cooperation that go a long way to reduce cost,
increase productivity and enhance total gains (Bowie, 1990).
Even if it is realized that businesspeople should have some ethical responsibility, it is, for
various reasons, difficult to make the concept operational in actual practice for the following
reasons:
● Ethical responsibility is an ethical issue, and hence, it is very difficult to define it. If a company

improves the working conditions of its employees, does it mean it has performed some
ethical responsibility? Not necessarily.
● It is equally problematic to demarcate the boundaries of ethical responsibility. For instance,

a business company has built a new road and it claims that it has performed some ethical
responsibility. It may not be correct because the road is built for the purpose of its own
conve- nience for the movement of men and material.

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● It is often difficult to identify the fine line that distinguishes between ethical and non-ethical
responsibilities. Many things are made and unmade by companies, but all of them may not
be ethical. For instance, a business house establishes an MBA institute. It does not
necessarily mean that it is spreading education in the community. It may be simply to earn
profit. The problem is that a particular work can be interpreted as a work of ethical
responsibility or a work to enhance private profit. Things depend a great deal on how one
looks at it.
The above-mentioned points conveying the practical difficulty of implementing the ethical
responsibility of business do not exonerate business firms to shirk from ethical responsibilities.
Most of the arguments put forward against the imposition of ethical business responsibilities are
feather-bedding arguments; they are more sentimental and funky rather than real.

Critical Appraisal of Friedman’s View

Friedman’s view that in the case of mistakes or fraud by businessmen it is better for the market to
correct those aberrations rather than by the government, is not fully supported by any empirical
evidence. A large number of cases of fraud, cheating and ethical mismanagement take place every
year in different countries but the market has never been able to correct those cases. In fact, there
are times when the market itself fails and it needs the intervention of the government (Ghosh,
2001). Many more points of criticism can be levelled against Friedman’s point of view.
● Friedman argues that the basic object of business is to maximise profit. It is not so. There

are many other alternative objectives of business enterprises which I have discussed
elsewhere (for details see Ghosh, 2010, Chapter 2). Some of these alternative objectives of
firms are: sales maximization, revenue maximization, assets maximization, goodwill
maximization and maximization of market power or market share. To say the least,
Friedman has taken a very archaic view of the philosophy of business firms.
● If profit is maximised all the time without any restraint, as Friedman advocates, the result

will be the growth of monopoly which will lead to less supply of output, higher prices and
the concentration of monopoly power. All these are unethical in a free-market economy. In
a competitive economy, as Karl Marx observed, the firm which becomes more competitive
and efficient, will turn into monopoly. Once monopoly is generated, it is very difficult for
the government to control it.
● Friedman talks about the free-market economy. Except in a few countries in the developed

world, most world economies are mixed economies dominated both by the private and the
public sectors. Given the nature and stages of development of these economies, both ethical
and social responsibilities of business become imperative, for many of these business houses
are engaged in unethical business activities (see the last section of this chapter) at the cost
of the society.
● The automatic market mechanism that both Adam Smith and Friedman believe is

not so automatic. The invisible hands operating through the market mechanism have to be
controlled by the visible hands of the state. Unless some social or ethical responsibility is
fixed for firms, they may prove dangerous for the society. Friedman plays down the
potential danger of these unethical firms for the human society.

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● Friedman has observed that the profit maximization goal must be pursued by staying within
the rules of the game, that is, without deception and fraud. These idealistic conditions for
the operation of firms do not hold well in modern times. In the name of profit, many firms
do whatever they want to do (Heilbroner et al., 1927). The cases of regulatory capture are
rampant in our times. Under this situation, if the firms do not want to have social responsi-
bilities, they should have at least social sense and sensibilities.

CODE OF CONDUCT IN BUSINESS

Code of conduct in business is important to organize certain business activities. These days code of
conduct in business are developed by many business houses and also by the corporate sector (see,
for example, the code of conduct in business of Jet Airways, Coca Cola Company, Dow, and so
on). All codes of conduct in business are based on the core values of the company, its mission and
vision. Core values are the guiding practices of the company and they are meant to be strictly
adhered to by its employees and stakeholders. All of them must understand and follow code of
conduct in business in order to appreciate the business policy of the company. The basic purpose
of code of conduct in business is to ensure a proper ethical behaviour in the conduct of the
business. Different companies may have different code of conduct in business; however, the basic
business codes remain the same. The following are the standard codes of conduct in business:
● Compliance with laws, rules and regulations.

● Working with honesty, integrity and diligence and on the basis of work ethics.

● Respect and honour for human rights.

● Everybody should follow the policy of the company and nothing should be done against the

company.
● Confidentiality should be maintained and there should be no disclosure of confidential

infor- mation at any cost.

● Maintenance of company’s goodwill, assets and property.

● There should no manipulation, abuse or misuse of power and position and non-acceptance

of bribery and favour from others.

● Political connection and subscription to political parties are discouraged.

● No discrimination and harassment against any employee or stakeholders.

● Competition with another company can be done with honesty and fair trade practices.

● Non-development of cartels and monopoly practices.

● No insider trading.

● There should be accountability and transparency.

● Adequate disclosure of useful information inside the company is needed.

● The company should serve well the consumers and ensure adequate after-sales services.

● Goods to be produced by the company should be qualitatively good, reliable and moderately

priced.
● To maintain adequate and effective health and safety measures and employees’ privacy.

● The company employees are to protect the environment and help the government in the

achievement of sustainable development.

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● The company has to carry out the corporate social responsibilities.
● The whole business will be run on ethical principles for all concerned.
The aforesaid codes will have to be strictly observed by all concerned and if there is any
willful violation of the code, the offender will run the risk of departmental enquiry and even
dismissal from the service. Any conflict in this matter may be brought to the notice of the
supervisor. If any other regulation comes in conflict with the code of conduct in business, the
code will be overpowering.

ETHICAL DILEMMAS
Many business managers in their day-to-day working have to face ethical dilemmas, and these create
problems in the process of business decision-making.

What is an Ethical Dilemma?

An ethical dilemma is a situation that involves at least an ethical issue where a clear decision or a
choice becomes problematic because of competing claims or interests. There may be an ethical
contradiction or conflict in the choice to be made. In such a case, the solution may not lie in the
interest of the company or of the decision-maker. An instance will make the meaning clear.
Suppose John has been appointed as an assistant to the manager of a dairy firm, and on the very
first day of his work, he is asked by the manager to mix water in milk and sell it to the customers.
John is an innocent boy. He is shocked by this order because he comes from a religious family
and he does not want to indulge in unethical work. John is in ethical dilemma now: his ethical
principle does not allow him to mix water with milk, but if does not carry out the order of the
manager, may lose his new job which he wants very badly. In this type of ethical dilemma, it is
difficult to take an immediate, clear-cut decision. The decision of course is possible if the person
is straightforward and does not bother about the consequences of his decision. The problem is
that, in many cases, the decision-maker has to consider the possible consequences of his action.
In an ethical dilemma, the choice has to be made between two desirable/undesirable situations
as John is facing. He does not want either (perhaps) to lose his job or to mix water with milk. In a
dilemma, usually there may be two or more than two options or choices. In the case of an ethical
dilemma, the decision rules are not clear-cut and may be of conflicting values. For ethical
dilemma, the solution is not unique or universal; it depends to a great extent on the ethical
background and personality pattern of the decision-maker. If John has a weak moral background,
he will obey the order of his manager and will retain his job.

Characteristic Features of Ethical Dilemmas

If one analyses the causes of ethical dilemma, it becomes clear that in the case of dilemmas:
● Social cost and private gains are different.

● No linkage is established between the two alternative courses of actions (choices).

● Competitive behaviour gains predominance in many cases.

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● There may be an inconsistency between goals (e.g. materialism vs altruism)
● Cross-cultural value differentials do exist.
● There are some pressures from somewhere.
● A problem of right choice is the main issue.
● Very often, the exact impact of the two alternatives may not be known or determined.

Types of Ethical Dilemmas

Ethical dilemma may be of different types. Some of which are listed below:
● Ethical dilemma between one ethically right and one ethically wrong alternative.

● Ethical dilemma between two ethically wrong alternatives.

● Ethical dilemma between two ethically right alternatives.

In the last two cases, the decision-maker has to make a choice on the basis of his own ethical
perception, judgment, background, ethical intensity and needs; such a choice is not often clear-cut
but involves dilemmas in the sense that one may have to decide whether to choose the more
immoral or less immoral option, as the rewards may be different, or, whether to choose the
morally more right one or the less right one, as the pay offs may be different. “More right” or
“less right” is the mental judgments of the assessor. In the case of two morally wrong situations,
the person may choose the one which brings least harm or injury to the smallest number of
people. This may be called the situation of reverse utilitarianism. Ethical dilemmas are with
respect to two situations created by two institutions or value systems. The typology of dilemma
may involve the following situations:
● Organization vs Persons (Employees)

● Persons vs Society

● Local culture vs Foreign culture

● Organization vs Law

● Organization vs Society

● Person vs Law

● Right vs Right

● Wrong vs Wrong

● Right vs Wrong

Causes and Sources of Ethical Dilemmas

Several sources and causes are responsible for the phenomenon of ethical dilemma. These sources
are:
Individual (Individual values may be in conflict with social or family culture).
Family (Family values may be in clash with values in the business). Organization/workplace
(Organizational culture may be in conflict with personal values). Society (Social norms
may be in conflict with individual norms).
Cross-cultural Level (The culture of one country may be in conflict with the cultural practices of
another country). This type of dilemma is found mostly in international business.

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The basic causes of ethical dilemmas are the clash of two situations where one may be right
and the other may be wrong, both may be wrong, or both may be right. A dilemma is the outcome
of a mental perception (psychological) about a critical situation involving choice. The perceptual
clash may occur in the following ways: (see Davis and Frederick, 1983).
● The dilemma may be due to a clash between personal values and the organizational

culture or values. In such a case, it is difficult to decide as to which value is to be sacri-

ficed.
● The dilemma may be due to organizational goals and social (or legal) standards. Your

senior police officer may ask you to give him every month Rs. one lakh and also urges you
to take money from your subordinate officers in the same way. You are told that he would
not check the amount of money that you take as bribes from the cases you investigate.
● The dilemma may be caused by a clash between organization practices and personal

beliefs. For instance, you may not like racial or gender discrimination. But your boss wants
to practice it and continue the trend.
● Pressure from organization may also cause ethical dilemma. The CEO, your boss, wants

you to produce and sell hazardous or adulterated products in an organised way, which you
do not want. This, then, will create a dilemma in your mind. As empirical cases show, a
moral person often faces more ethical dilemmas than an immoral person.

Resolution of Ethical Dilemmas

There is no clear-cut method to resolve an ethical dilemma. However, the following discussion
can throw an important light in the matter of the resolution of ethical dilemmas.

1. Study the Nature of the Ethical Dilemmas

● If the ethical dilemmas involves right vs. wrong, ethicists will generally recommend the
acceptance of what is right. However, in doing so, one should be prepared to suffer the
conse- quences. For instance, if you do not follow the order of the manager to do the
unethical thing suggested by him, you may lose your job.
● In the case of right vs. right ethical dilemmas, apply the one which is very close to your core
values and is consistent with the accepted ethical standard.
● In the matter of resolving an ethical dilemma where both the alternatives are wrong, it is
better to choose the one which is less damaging to the person, organization or the society.

2.Analyse the Consequences of Each Contemplated Solution

Very often, the following types of ethical dilemmas need resolution:
(i) Individual Gain vs Social Gain
(ii) Truth vs Loyalty
(iii) Justice vs Mercy
(iv) Short-run vs Long-run Gains

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In each one of these cases of ethical dilemmas, the solution can depend on any prejudiced
preconception. Each case of ethical dilemmas is a different world and the decision has to be based
on circumstances. However, some general naïve views may be useful to remember.
In the first case, it is better to resolve the issue in favour of social gain and sacrifice the
individual gain. This is particularly so if the decision-maker is a consequentialist or utilitarian.
However, this cannot be generalised. Suppose, your father and a renowned surgeon who can save
hundreds of lives, are in a boat which is sinking and you can save one of them. Whom will you
save? Utili- tarian ethics will suggest that it is ethical to save the surgeon. But the ethics of care
will say that you should save your father. Many a times, ethical theories are themselves
conflicting in resolving ethical dilemmas. The best way is to listen to your inner voice and make
the decision.
The third case is similar in nature. Suppose your accountant has done something unlawful. You
are in a dilemma as to what to do? There are two alternatives to solve this problem. If you follow
the theory of justice, you may hand him over to the police and let the law take its own course, or
you may show mercy and let him go by giving some warnings. If you are religious minded,
perhaps you will show mercy considering the Biblical dictum that “mercy triumphs over
judgment”.
In resolving the conflict between truth vs. loyalty [Case (ii)], ethicists will recommend the
superiority of truth. But in that case one needs to examine the consequences and bear with them.
This is not an easy job.
Ethical resolution in the case of ethical dilemma involving a short-run and a long-run gain is
a problematic issue [Case (iv)]. Nothing can be said by way of generalization. In some cases,
short-run benefit is considered more attractive than a long-run gain. But the opposite is also true
under many situations. The merit of the case is the critical consideration. If possible, it is
advisable to make a compromise between short-period and long-period gains. The realization of a
short-run goal must not stand in the way of a long-term ethical goal or desideratum. Sometimes, it
is possible to work out an optimal combination which is consistent with the ethical core values. A
trade-off or a compromise can be worked out between the short-run and long-run objectives. For
instance, a firm’s short-run objective may be to maximise savings and the long-run objective may
be to maximise the goodwill through performing corporate social responsibility. However, if the
short-run goal is emphasised too much, the long-run desideratum will suffer, for there will be no
resources available. Likewise, if the long-run goal of corporate social responsibility is too much
stressed, the short-run objective of maximization of the savings will get a jolt, and in the course
of time, the long-run goal will remain unfulfilled. Hence, it is prudent to make reconciliation
between these two basic objec- tives. These objectives need to be made complementary and not
competitive.

How to Make the Resolution Workable?

To sum up the discussion, the following points need to be emphasised:
● The resolution of ethical dilemma should be within the legal framework. It must not go

against the established law of the land.

● The consequences of all the alternatives must be studied properly.

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● 213
It is, at times, necessary to make a compromise. A policy trade-off in this context may
be very essential. There may be many points of policy trade-off, and depending on the
prevailing

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situation, a particular point of trade-off should be chosen. A trade-off is a combination of
something of both the policies. It is necessary because both the policies in question cannot
be taken in full measure. A trade-off is not a permanent choice; it may go on changing with
the circumstances.
Suppose that a business house is trying to remain engaged in two evils: tax evasion and
adulter- ation. At a particular moment in time, this will create a managerial dilemma as to how
much money should it make by adulteration and how much through tax evasion. Both are ethically
wrong choices. This creates a dilemma in the mind of the manager because it needs some policy
decision. Too much of tax evasion is not possible as there will be the chance of being caught by
the tax authorities and the penalty may be prohibitively high. In the same way, adulteration
cannot be done beyond a point as it involves the risk of criminal involvement, fines and loss of
customers.
The manager at this point confronts an ethical
dilemma: how much should be the level adulteration
and how much the tax evasion. If one is high, the
other will be low, given the target of profit. So these
two unethical activities are negatively correlated.
The manager resolves the dilemma by finding out a
point of compromise or trade-off (shown by the point
“A” in the following diagram). At this point, OD is
the extent of adulteration and OT is the extent of tax
evasion. Next time, the trade-off point may shift to
either C or
B, depending on many internal and external factors. Figure 10.1
● The ethical resolution should be based as far

as possible on a cognitive ethical principle with justification. All ethical theories are not
equally applicable every time in all types of ethical dilemma resolution.
● The principle of universalism has much to recommend in the resolution of ethical conflict

and dilemmas. Resolve the ethical dilemmas in such a way that will win everybody’s
approval in the given situation.
● A balanced approach to the resolution of ethical dilemmas is immensely necessary to make

it acceptable to all types of stakeholders. There are many types and balances that one should
keep in mind. There should be a balance between private gain and social gain; a balance
between cost and benefits; balance between the present and the future prospects; balance
between the organizational values, personal values, and so on.
The genesis and nature of ethical dilemma can also be understood by ethical dialectics. The
following section explains briefly its essential features.

DIALECTICS OF ETHICAL DEVELOPMENT IN BUSINESS

Dialectics brings into focus the whole range of changes and interactions that occur in the process
of development and change (Ghosh, 1990). Dialectic analysis of a system consists of showing

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the process that can explain its growth and evolution and also the explanation of the interacting

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conditions under which the system exists. The explanation of the growth of business ethics as a
subject needs to be understood in this context of evolutionary interactions. Dialectics replaces the
concept of things by the concept of process that explains the involved history, relations and
future. Dialectical approach begins with the whole system and then it proceeds to an explanation
of the parts to see where they fit and how they function. The whole business system, in its
macrocosmic sense, is taken to explain the relevance of ethics in this approach and then one can
analyse the micro functional aspect of business in relation to ethics. It needs to be appreciated that
the parts of the whole are always connected and interact with each other in the area of business
and commerce. The whole purpose of the study of ethical dialectics is to explain ethical dilemmas
in business and also to understand the ontology of business ethics.
Ethical dialectics can be interpreted as an interrelated dimension of business dilemmas.
Dialectics considers everything from the perspective of changes and explains a situation in terms
of involved relations and relational changes (Sherman, 1995). Thus, in order to explain the ethical
perspective in business, it is imperative to bring to focus the whole gamut of relations within the
business organizations and outside it, and account for the systemic changes that have occurred.
Business dilemmas and conflicts can best be understood in terms of ethical dialectics.

Interpretations of Ethical Dialectics

Ethical dialectics can be interpreted at least in the following six senses.
First, ethical dialectics can explain many types of ethical dilemmas and conflicts. In the
Hegelian sense, it analyses the genesis and the historical character of a particular dilemma. Why
the dilemma is created, what contradictions are involved between the personal moral
predisposition of the manager and the amoral or immoral business organization? Gandhi found a
contradiction between material affluence and moral degradation of a nation (Ghosh, 2007,
pp.197–203). Like the Hegelian concept, in the case of business ethics, the moral ethical code is
the thesis, the unethical or immoral business ethics is the anti-thesis and the resolution of the
dilemma (contradiction) to do some socially beneficial work is the ultimate synthesis. Thus, in the
perspective of business ethics, the Hegelian dialectics is at work through thesis-anti-thesis and
synthesis. The contemporary attempt to accept corporate social responsibility is a reconciliatory
ethical dialectics.
Second, in the case of ethics in business, the ethical dilemmas need to explain the systemic
development in business that neglects some concepts which are interrelated. For instance, Indian
civilization, in particular, Hinduism, propagates the four-fold objectives of life that balance
dharma (religion), artha (financial resources), kama (desire) and moksha (salvation). However, the
capitalist system puts more emphasis on wealth accumulation and satisfaction of physical desire.
The Western concept of business is overly unbalanced, body-centric and ungodly (Gandhi, 1999,
22 October). In such a situation, ethical dilemma is inevitable and it upholds the truth-value of
ethical dialectics.
Third, in dialectics, the same force produces opposite effects. This is also true of business
dialectics. Capitalism is a salutary organizational system for the business people because, as Marx
says, it is the most progressive mode of production. But the same system leads to exploitation of
labour, inhuman working conditions and proletarianization of labour. Thus, capitalism is good for
businessmen but bad for ordinary labourers.
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Fourth, ethical dialectics witnesses an internal transformation from quantity to quality. In
the perspective of business, the growth of the company in terms of market share, profit, assets,
and so on are quantitative concepts. But the change in its objective function towards social
responsibility, human welfare and environmental consciousness over a period of time are all
qualitative transfor- mations. All these transformational qualities can be regarded as its
developmental metamorphosis. Fifth, ethical dialectics seeks to unfold the interactions among
institutions, human nature, organizational culture, and ethical values. It also explains the
possibility of dilemmas and disequi- librium in the social system. Through interdependence and
interactions, the temporal relations are half-heartedly internalized. This produces unstable
internality, dilemmas and conflict. For instance, the traditional Indian system was characterised
by varnashram dharma (caste-based religion) revealing social interdependence and division of
labour. But in the course of time, it degenerated
into social exploitation, oppression and conflict.
Sixth, dialectics assures us that there is an essential unity in everything. This is ensured by
the natural laws (what Adam Smith calls natural order). The invisible hands ultimately bring
about some equilibrium. Thus, business profit and morality do not always remain contradictory
for a long time. In fact, many business houses all over the world do perform some commendable
social and ethical works and behave as good corporate citizens.

Ethical Issues in Business and Society

Many ethical issues now plague the society and the business world. The problem is discussed to a
certain extent in Chapter Twenty, International Business Ethics.
Contemporary society and business are engulfed by a myriad of unethical issues and problems.
The problems are intensified by many factors like greed, competitive lifestyle, demonstration
effect, excessive materialistic condition of life and the Westernization of culture unleashed by the
forces of globalization since the 1980s.

Why Does Business have a Tarnished Image?

Anywhere in the world, modern business is characterized by unethical practices. Only a small
percentage of business people in a country are found to be ethically robust and contestable. The
percentage of corporate citizenship is below five per cent in India. In the United States, the figure
is still lower, not more than three per cent. In developing societies, the public servants, police and
the businessmen are proverbially considered to be the rotten lots. Businessmen are involved in
criminal scams and scandals, dubious business practices, cheating, fraud, profiteering, black
marketing, tax evasion, exploitation, bribery and corruption, to name only a few of their
irresponsible practices.
Because of their anti-social activities, the public and the press have contributed to the spread of
negative image of businessmen. Van Buren (2006) has explained many reasons that are
responsible for the negative image of the business world. There is no denying the fact that many
business houses are performing some important social responsibilities but some of them are also
exposed to public criticism for being occasionally socially irresponsible. One such example is the
mercury spill by Hindustan Unilever Ltd. in 2001 causing potential threats to the lives of about
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30,000 people in 218

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Kodaikanal in Tamil Nadu (Chokhani, 2005). The company has a record of many good social
activities and gradually it discontinued the project in Tamil Nadu. Whether advertent or inadvertent,
these types of lapses from business companies are rampant in less developed countries. Because
of many anti-social and unethical activities, businessmen, since past have been carrying an
unsavory image. I have elsewhere discussed the historicity of the tarnished image of business at
some length (Ghosh, 2004, Ch.1), so let me be brief it here.
The Greek philosophers in the Fifth Century B.C. idealised the life of contemplation. Aristotle
condemned monopoly and usury, and considered trade as a virile activity. In the medieval
society, life of meditation was highly acclaimed. In scholastic economy, trade was considered as
undig- nified. It was thought to be so even in Greece. Merchants were one round higher in status
than the untouchables. Luther, a reformer, hated economic activities like trade, credit, capitalist
enterprises, and so forth. However, this attitude underwent a change from the time of Calvin.
Calvinism was opposed to self-indulgence but not to accumulation of riches. Calvin developed
the idea of spiritual callings to materialise the activities relating to worldly resources. The growth
of Protestantism emphasized certain character traits that were helpful for the development of
business activities. The Protestants actively associated themselves with business and industry.
The growth of Marxism and the spread of communist ideology replaced the will of God by
materialistic dialectics. Capitalism was regarded as the most progressive mode of production
and its basic philosophy was the creation of surplus value through the exploitation of labour and
capital accumulation at a crazy speed to survive in the rate race of a competitive game. The same
philosophy that does not recognise any God does, still, continue in business.
As historical evidence reveals, the group that prospered in business had to break many
established social and ethical norms and standards in the past, and such groups were out-groups
and had to go through the process of social ostracism. In the European community, the Jews were
out-grouped and in India, the Parsis were out-grouped but they were all successful businessmen.
Since they had to disobey the social customs for the sake of business, they were considered as
low class people by some. However, things have changed now in many ways but the unethical
activities have multiplied by many times in the business world. It seems that behind every success
in business, there are some overt or covert crimes.
Some of the social crimes and unethical issues are briefly discussed in the following section.

SOME MAJOR UNETHICAL BUSINESS PRACTICES

● Sexual Harassment at Workplaces
It includes many types of offences including sexual advances, requests for sexual favours,
avoidable physical contacts, request for dates, and so on. In the name of good business, girls
of nubile age-groups are sent to different places and persons to gain business favour,
contract and orders. This is often done sometimes by alluring the poor girls with higher pay
and promotions, and sometimes, it is done without the consent of these helpless girls. Sexual
harassment has been made punishable by laws. Indian Penal Code contains several
provisions such as section 354 (outraging the modesty of women), section 209 (obscene acts
and signs), and section 509 (insulting the modesty of women) on sexual harassment. Apart
from these, there are Industrial

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Disputes Act and Industrial Employment Act among others that prescribe punishment for
sexual harassment. In a very sensational case of Vishaka vs. the State of Rajasthan (1997),
the Supreme Court of India prescribed some guidelines to be followed by organizations in
the case of sexual harassment.
● Forced Labour and Bonded Labour
In India, bonded labour and forced labour in the rural and urban areas is around two per cent
of the total labour force in the country. The incidence is higher in the rural than in the urban
labour market. Bonded child labour is widespread in many parts of Andhra Pradesh, Uttar
Pradesh, Orissa and Bihar. Child labour is rampant in the carpet industry of Uttar Pradesh in
India. Other industries include tea faming, stone quarrying, fireworks, fishing and cigarette
making. Children are also forced to serve as domestic servants, road-side beggars,
prostitutes and shop boys in many Third World countries. These children never get the
opportunity to go to school.
● Sweat Shops
These shops are abundant in a country like India and include the places where all types of
manual, unskilled and women labourers have to work to eke out a living. They make toys,
shoes, and cheap quality consumer goods. The wage is very low and irregular and the
working conditions are inhuman, to say the least, with no fans, sometimes no electricity, no
pure drinking water and no sanitation facilities. Numerous abuses are reported in sweat
shops but no one cares.
● Discriminations
Various types of discriminations including gender discrimination, age discrimination, and
racial and minorities discrimination are openly practiced by business houses. Favouritism,
nepotism and casteism dominate the job market in India. Discrimination is prevalent not
only at the entry point but also in job allocation and promotion. There are also glass
ceilings that prevent the ethnic minorities and women to reach the upper echelons of the
corporate sector in many countries including the United States. In United Sates, the
Hispanic, the Asian American and the African labourers do not have the same wage
structure. There are serious wage and job discriminations.
● Fraud
A fraud is a type of theft by deception. Fraud may be a violation of civil law (Law of Tort)
and/or a violation of criminal law. A fraud is a deliberate misrepresentation of facts that
causes the other party to suffer loss or damage. Who does not know the case of World Com
Accounting Fraud? Impersonation constitutes another kind of fraud (see, Daily Mail, 30
May 1995). There are many types of fraud being practiced by people. Some of these are:
forgery, quackery, Ponzi-type schemes, money-doubling scam, mobile phone fraud,
telemarketing fraud, chit-fund fraud, phishing (acquiring sensitive information to defraud
somebody), and so on.
● Theft
The corporate sector every year loses a huge amount of money through theft by disgruntled
workers, security personnel, store operators, suppliers, waste contractors, staff purchasers, and
so on. Both big officials and lower grade persons are involved in company theft. Corporate

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theft is possible because of many types of lapses and loopholes in the system of corporate
management. A study by the University of Florida (2000) found that a substantial amount of
losses (about 45 per cent) in the studied companies was due to theft by disgruntled workers.
● Corruption
Corruption is the abuse of public offices and power for private gain. The gain may be
financial or in kind or any other temptation. There are many forms of corruption such as
bribery, kickbacks, extortion and the like. Absence of accountability and transparency and
lack of proper control are the basic causes of corruption. Corruption index is rising in every
country, for both India and China it was 70 (out of 183 countries) till recently. However,
a survey by Transparency International (2010) shows that corruption perception index has
increased for India (3.3) and reduced for China (3.5) out of 178 countries (higher value
means lower corruption and lower value means higher corruption). According to the same
survey, while Denmark, New Zealand and Singapore are voted to be the cleanest, Somalia is
classified as the most corrupt.
Corruption is anti-development as it misallocates resources, is anti-poor, anti-democratic
and anti-national, to say the least. Corruption is a function of many factors including
personal values, social values, nature of governance, the legal framework and institutional
competence to combat corruption. Unless these are favourably refurbished, there is no hope
of a better tomorrow.

Summary
Business ethics is now the word of the day. At this stage, it is necessary to understand the differ-
ences between ethical responsibility and social responsibility of business. Social responsibility is
towards the society and ethical responsibility is mainly towards the organization and its
employees. The purpose of social responsibility is to promote social development, but ethical
responsibility is a type of moral responsibility to ensure that employees enjoy a reasonably good
working atmosphere and also get some opportunity for their moral development too.
Social responsibilities of business have been discussed by both Adam Smith and Milton
Friedman. However, their views are different. Smith asserts that although business people are
primarily motivated by self-interest, they are indirectly contributing to common good and social
welfare. Smith’s enlightened capitalism shows that even in capitalism, there is the possibility of
social welfare maximization.
Friedman, however, argues that the basic objective of business is to maximise profits.
However, critics point out that if profit is maximised all the time, there is a possibility of the
growth of monopoly. He talks about free-market economies, but such economies need direction;
otherwise there may be market failures.
In the process of making business, businessmen are likely to confront dilemmas. It is a
situation involving an ethical issue for which a clear-cut answer becomes difficult. Dilemmas
may arise out of a clash between the personal interest and the organizational interest. It may be
between two wrong alternatives or two right alternatives. Dilemmas may come from various
sources: family, organization, society, and so on.

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Dilemmas can be resolved in many ways like compromise, taking recourse to the legal
framework or by making a reasonable sacrifice. Dilemmas can also be studied in terms of
dialectics to under- stand the nature of the conflict. Today, because of various types of scams and
scandals, business people have a tarnished image. Such an image is created by a few business
houses and, in some cases such business houses do perform some social responsibilities. But bad
news spreads like wildfire and it suppresses all good records. The reason behind the bad image is
greed and the propensity to accumulate money even with bad means.
The business sector everywhere in the world is involved in many types of unethical practices
like fraud, discrimination, sexual harassment at workplaces, forced labour, exploitation of labour,
sweat shops and corruption. The psychology of greed for the purpose of going ahead of someone
in competition is the basic reason for the tarnished image of business today.

Key Terms

Ethical Dilemmas Public Goods Demonstration Effect

Ethical Dialectics Regulatory Capture Materialistic Dialectics
Corporate Citizens Policy Trade-off Glass Ceilings
Varnasharam Dharma Inner Voice Reverse Utilitarianism
Invisible Hands Globalization
Enlightened Capitalism Westernization

Test Your Knowledge

1. State whether the following statements are True or False
(i) Social Responsibility is the same as the ethical responsibility.
(ii) Milton Friedman did not advocate enlightened capitalism.
(iii) Aristotle considered trade as a virile activity.
(iv) Marxism replaced the will of God by materialistic dialectics.
(v) The purpose of dialectics is to explain ethical dilemma.
(vi) Corruption is anti-development as it misallocates resources, anti-poor, anti-democratic
and anti-national.
(vii) Sweat shops aid in the manufacturing of high quality consumer goods and the wages are
quite high.
(viii) Section 209 of the Indian Penal Code is meant to combat sexual harassment against
women.
(ix) Imperialism was regarded as the most progressive mode of production and its basic
philosophy was the creation of surplus value through the exploitation of labour and
capital accumulation.
(x) Dialectics assures us that there is an essential diversity in everything.

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223
2. Fill in the Blanks
(i) In his book , Adam Smith argues that although business people are
primarily motivated by self-interest, they are indirectly contributing to common good
and social welfare.
(ii) Friedman’s concept of capitalism is not enlightened. It is .
(iii) In the case of two morally wrong situations, the person may choose the one which brings
the least harm or injury to the smallest number of people – This is called .
(iv) The realization of a short-run goal must not stand in the way of long-term
.
(v) The principle of has much to recommend in the resolution of ethical
conflict and dilemmas.
(vi) Dialectics replaces the concept of by the concept of that
explains the involved history, relations and future.
(vii) Like the Hegelian concept, in the case of business ethics, the moral ethical code is the
, the unethical or immoral business ethics is the .
(viii) is a salutary system for the business people because,
as Marx says, it is the most progressive mode of production.
(ix) The traditional Indian system was characterised by dharma (caste-
based religion) revealing social interdependence and .
(x) In the economy, trade was considered as undignified.
3. Choose the correct option
(i) “The starry heavens above and the moral law within”, is the maxim of:
(a) Aristotle (b) Plato
(c) Immanuel Kant (d) Max Weber
(ii) Who questioned the ethical role of business by saying that for the purpose of business
and its success in making profit only two things are important and these are legal
compliance and market contestability through competition in product quality and
product prices?
(a) Max Weber (b) Adam Smith
(c) Immanuel Kant (d) None of them.
(iii) Adam Smith is one of the founders of a variety of capitalism, which may be called
(a) Enlightened Capitalism (b) Industrialism
(c) Colonialism (d) Both (a) and (b)
(iv) If profit is maximized all the time without any restraint, as Friedman advocates, the
result will be the growth of:
(a) Oligopoly (b) Monopoly
(c) Perfectly Competitive Market (d) None of these
(v) Except in a few countries in the developed world, most world economies are:
(a) Free market economies (b) Open market economies
(c) Mixed economies (d) Both (a) and (b)
(vi) Code of Conduct In Business can be otherwise referred to as:
(a) Code of Conduct and Behaviour (b) Code of Conduct in Business
(c) Code of Corporate Behaviour (d) None of these

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224
(vii) It is at times it is necessary to make a compromise. Hence, a
(a) Policy trade-off is required (b) Balance of payment is required
(c) Both (a) and (b) (d) None of these
(viii) What brings into focus the whole range of changes and interactions that occur in the
process of development and change?
(a) Dialogue (b) Monologue
(c) Dialectics (d) None of these
(ix) The resolution of the dilemma (contradiction) to do some socially beneficial work is the
ultimate:
(a) Thesis (b) Anti-thesis
(c) Synthesis (d) None of these
(x) The growth of Marxism and the spread of communist ideology replaced the will of God
by:
(a) Reformist ideology (b) Materialistic dialectics
(c) Both (a) and (b) (d) None of these

Review Questions
1. Do business people have any social responsibility? Explain your view.
2. What is an ethical dilemma? Analyse its basic causes.
3. Write a short note on ethical dialectics. How is this concept related to ethical dilemma?
4. Explain the views of Adam Smith and Milton Friedman on social responsibility of business.
5. Critically discuss the main points of Friedman’s argument against business social responsi-
bility.
6. How do you propose to solve ethical dilemmas in business?
7. Why is the business world full of unethical practices? Explain your views.

Web Links
1. http://www.leaderu.com/orgs/probe/docs/bus-ethi.html
[“Business” and “Ethics “Can These Terms Be Used in the Same Title?]
2. http://www.independent.co.uk/student/postgraduate/mbas-guide/do-ethics-have-any-busi-
ness-in-the-workplace-1989377.html [Do Ethics Have Any Business in the
Workplace?]
3. http://www.succezz.com/Articles/business-ethics-dilemma4.html
[Ethical Dilemmas in Business]
4. http://www.ed.uiuc.edu/eps/PES-Yearbook/97_docs/vokey.html
[Towards a Dialectical Ethics beyond Objectivism and Relativism]
5. http://www.buzzle.com/articles/ethical-and-unethical-business-practices.html
[Ethical and Unethical Business Practices]
6. http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html
[The Social Responsibility of Business is to Increase its Profits]

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225

References
Bowie, Norman (1990), “Empowering People as an End of Business” in Enderle, G. et al. (Eds.),
People in Corporations: Ethical Responsibilities and Corporate Effectiveness, Kluwer
Academic Press, Netherlands
Buren, Van (2006), “Why Does Business have Such a Negative Image?”, Anderson School of
Management Publication (available at the Internet)
Chokhani, Anand (2005), “Ethical and Unethical Practices of Hindustan Lever Ltd.”, LIBRA,
Chennai
Davis, K. and Frederick, W.C. (1983), Business and Society: Management, Public Policy, Ethics,
McGraw Hill, New York
Ferrell, O.C. et al. (2003), Business Ethics: A Case Persoective, Cengage, New Delhi
Friedman, Milton (1970), “Social Responsibility of Business is to Increase its Profits”, New York
Times Magazine, Sept.13
Gandhi, Mahatma (1909), “Speech at Friends’ Meeting House, Hampstead”, India, 22 October
Ghosh, B.N.(1990), Political Economy: A Marxist Approach, Macmillan, Delhi
Ghosh, B. N.(2001), From Market Failure to Government Failure, Wisdom House, UK
Ghosh, B.N.(2004), Development Economics: Principles, Practice and Policy, Wisdom House,
UK
Ghosh, B.N. (2007), “Understanding Gandhian Dialectics”, Humanomics, Vol. 23, #4
Ghosh, B. N. (2010), Managerial Economics and Business Decisions, Ane Books, Delhi
Heilbroner, Robert et al. (1927), In the Name of Profit, Doubleday, New York
Sherman, H.J. (1995), Reinventing Marxism, Johns Hopkins University, Baltimore, USA
Smith, Adam (2000), The Theory of Moral Sentiments, Vol. 2, Prometheus, New York
Steiner, G.A and Steiner, J.F. (1988), Business, Government and Society, Random House, New
York

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 CHAPTER
11
Functional Areas in
Business
Management:

L E A R N I N GO B J E C T I V E S

This chapter will help the reader to understand

■ Ethical issues in marketing and advertisement
■ Ethical issues in finance and accounting
■ Ethical issues in human resource management
■ Ethical issues in production and operation management
■ Ethical issues in information technology

INTRODUCTION
President Roosevelt and Winston Churchill were great friends. Once, Roosevelt wanted to meet
Churchill without any prior engagement or appointment. When Roosevelt entered into his room,
Churchill was completely naked and was getting himself massaged. Churchill was not at all
ashamed. He said, “Everything is open before you, I have nothing to hide from you”. This is,
indeed, the spirit of transparency where everything is open except the physical body. As it is well-
known, many of the financial and accounting scams and scandals in our times are occurring more
because of its absence rather than its presence. Transparency and accountability are the
two critical words in the corporate world especially in the areas of functional management.
The functional areas in business management are concerned with the practical application of
management principles in different fields of day-to-day business activities. These areas are
human resource management, advertisement, marketing, finance, information technology, and so
on. In all
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224
such activities, cognitive ethical principles need to be followed. The general ethical principles
that these areas are supposed to apply are: justice and fairness in all dealings, producing good
conse- quences to individuals and society, no harm or injury to any individual, respect towards
individuals, obeying of certain categorical imperatives, respect for individual rights including
human rights and creation of common good or social welfare.
The present chapter will discuss the ethical issues in the management of functional areas. In
particular, it will focus on the ethical norms and unethical practices in various fields of
management and also on associated problems and their impact on business policy and strategy.
The chapter is not meant to teach management principles but to expose the unethical practices in
the functional areas of business management.

ETHICAL ISSUES IN MARKETING AND ADVERTISEMENT

Over the years, substantial paradigm shifts have taken place in the areas of marketing. Some
of these will be highlighted here.

Paradigm Shifts in Marketing Management

In the realm of paradigm shift in marketing management, the following three changes are
noteworthy:
1. The emphasis has shifted from the philosophy of “let the buyer beware
(caveat emptor)” to that of “let the seller beware (caveat venditor)”. The
implication is obvious. The respon- sibility of sellers has enormously increased.
2. In the case of marketing, there has been a paradigm shift from products to process.
Marketing involves not only selling but the creation of the whole gamut of the process of
product creation and its disposal: the cycle of product procession.
3. The focus has largely shifted from materials or goods to men and the
building up of a sustained relationship between the buyer and the seller.

Ethical Dilemmas in Marketing

Marketing, it should be noted, is not simply about selling but it has a broad connotation of
creating a socioeconomic relationship between buyers and sellers while discharging some social
responsi- bilities. The process of marketing involves many types of ethical issues or questions.
For instance, suppose a consumer wants to consume a product which is not good for his health.
Should the marketer supply it? Opinions differ in this type of situation. Some will say that since it
is a harmful product, the marketer should not supply it; others will say it is quite ethical to supply
a product when it is demanded (Kotler, 2004). However, many will not agree with the view of
Kotler. The whole problem stems from the fact that it has not been unanimously decided as to
what consti- tutes marketing ethics? What are its boundaries and what principles are relevant for
its working? However, in a very broad perspective, the following factors can be taken to be the
constituents of marketing ethics:

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What is Marketing Ethics?
● Honesty in all marketing transactions
● Responsibility for the goods sold
● Openness in all dealing

● Fairness in all the deals (absence of cheating or deception at any stage)

● Respect for human dignity

● Disclosure of information regarding the product

● Selling products that are not harmful or injurious

● Absence of unethical means to sell the product (no unethical advertisements)

● Charging fair prices

● Truthfulness in disclosing the quality and effect of the product being sold (no hiding of

infor- mation)
The British Code of Advertising Practice is based on the four fundamental ethical principles—
Truthfulness, Legality, Honesty and Decency. The basic purpose of advertisements is supplying
information about a product and generating a persuasion to buy it. The consequentialist
philosophy will say that an advertisement is good for the society if it brings happiness to the
largest number of people and especially so if the marketing of the product does have the same
effect. However, if the advertisement of the product and the product itself brings any harm or
injury to the largest number of people, then both the advertisement and the product marketing are
unethical. A note of caveat! If the product is good but its advertisement is unethical, the
advertisement is not acceptable. On the other hand, if the advertisement is good (ethical) but the
product is not good, the whole marketing process becomes unethical.

Unethical Practices in Marketing

In the process of product market, we should take into account the whole range of issues related
to product, pricing, packaging, promotion and placing (distribution). In all these processes, many
firms are engaged in certain unethical practices in the following ways:
Products: These are not always safe and harmless. They may be adulterated, qualitatively poor
and may contain some substances whose effect on health may be dangerous. The buyers may be
ignorant about the long-run impact of the ingredients. For instance, research has revealed that
coke contains some carcinogenic substances. Sugar substitutes taken by diabetic patients are more
harmful than sugar itself. It is the moral duty of the marketer to supply those products which are
completely harmless, but this is not always done. The effects of the product are not always
disclosed. In many medical products, the warning signals are not given and the impact on the
children is not mentioned. As news items often disclose, chemists are in the habit of selling
expired medicines to uneducated, rural people.
Pricing: Dealers and manufacturers often charge either too high (skimming or gouging) or too
low (predatory or penetrating) pricing. There are many methods of price fixation (Ghosh, 2010)
but manufacturers often indulge in charging unethical prices and not just prices. Predatory prices
are charged to eliminate competition, often unethically. The retailers sometimes charge higher
than

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what is written as MRP on the label. Many sellers use discriminatory pricing policy. There may
also be dumping of goods at a very low price just to capture the market at present and to increase
the prices at a later date.
Packaging: Does not often mention the safety instruction or level and no expiry date.
Packaging may be done with harmful materials like plastics.
Placing (Distribution): May be often uneven but, certain products are not distributed in all
the areas and an artificial scarcity is created by the dealers to charge higher prices. Many products
that are distributed in the market are pirated or violate the copyright act. Shoddy and adulterated
goods (like medicines) are also sold by bribing the hospital directors or purchase officers.
Promotion (Advertisements): Promotion of the product through advertisement is the most
unethical part of marketing.
Advertisements: As H.G. Wells once remarked, advertisement is a sort of legalized lying.
Very often it makes false claims, and is deceitful and implies cheating. The products which are
used for slimming, improving skin colour and hair growth might be misleading and false.
Products like fairness cream, slimming tea or belt, or new hair growth formula are all hoax, and
unsuspecting customers are duped by these types of unethical ads. Sometimes, foreign names are
used as brand names to dupe the customers who think that the product might have been imported
for the local market. Thus, such brands are misleading. Very often, in the advertisement for
tobacco or alcohol a surrogate advertisement is used that shows these products not directly
but along with another product or occasion like a big royal party or a get together. In many
advertisements these days, young girls are shown in skimpy outfit for sex appeal in order to woo
would-be customers. TV ads are notorious for this matter. Such ads might have a negative impact
on young school-going kids.

Ethics of Consumer Issues

Since consumers are always neglected in the product market and they are at the receiving end, it
is necessary to have an explicit subject of consumer ethics. As discussed earlier, marketing and
adver- tising by sellers are more often than not purported to exploit the consumers in many ways.
This is the reason why a concerted attempt is made in many countries to implement consumer
ethics at the marketplace. Consumer ethics is based on the following theories:
● Contractual Theory

It argues that while buying/selling a product, the seller and the consumer enter into an
implicit contract that protects the buyer from the risk of the product, if any, and he expects
some satisfaction out of the product, and the seller is giving him the value for money and
also the assurance that necessary after-sales services will be provided whenever required.
● Social Cost Theory

The theory argues that the product sold should not create extra social cost by creating
negative utility, sickness, disease and environmental degradation, loss of life and any other
type of social danger.

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● Due Care Theory
This theory is based on the presumption that due care has been taken by the seller/manufac-
turer so that it is safe and does not involve any risk at the time of use. It will not create any
problem to the consumer and his family when the product is used with due care.
Two mottos are generally followed in the case of sale and purchase of a product. It is either
the rule that “let the seller beware” or the rule that “let the buyer beware”. In most of the seller-
dominated economies (having monopoly, duopoly or oligopoly-dominated market) the buyer has
to take more care than the seller. However, the wind now is blowing from the other direction. In
an economy having cut-throat competitions and abundant supply, the consumer has a lot of
choices. So the modern consumer market is dominated by the slogan: “let the seller be beware”.
However, in spite of everything, consumer ethics and rights are constantly being violated.
They are given shoddy goods, risky, unreliable and dangerous products, and no after-sales
services. Ethical consumerism has therefore take into account many policies, rules and
provisions to ensure consumers’ rights. The following are the major issues that
consumer ethics is now trying to address:
● The first and foremost issue is the consumer protection and safety.

● Consumer organization is looking after the interest and welfare.

● Assurance about product life, product safety, reliability and maintenance.

● Disclosure of all necessary and relevant information about the product.

● There should be no information asymmetry about the product between the seller and the

buyer.
● Proper marketing and advertisement ethics for selling products.

● Proper product labeling with warnings and methods of use.

● Protection against unfair trade practices and unfair and false advertisement.

● Consumers’ grievance cells run by the state.

● Strong consumer organizations and agencies.

● Consumer-seller relations agencies.

● Consumers law and policy.

Many of the states in the world are coming forward to protect consumer rights. However,
substantive laws in this regard are still inadequate and they do not cover many aspects of
consumer exploitation and cheating by sellers. It is expected that consumer ethics will take care
of these burning issues.

ETHICAL ISSUES IN FINANCE AND ACCOUNTING

Finance is the lifeblood of business and with the management of finance, accounting is invariably
associated. Financial management is concerned with many related activities like investment,
financial decision-making and also decisions on dividend payments. There are, fundamentally,
two objectives of financial management. First, in the short-run to maximize profits and
to plough back some part of this profit. And second, to maximize wealth or company assets.
Ideally, the financial sector of a company is motivated by some operational and social
desiderata. These are:

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Operational Desiderata
● To ensure that adequate amount of finance is available when it is necessary to make an
investment.
● To efficiently use the financial resources for the benefit of the company.
● To make safe and sound investment that generates a stream of cash flow.
● To ensure that investments leads to net benefits over costs.

Social Desiderata
● To make timely payments of wages, interest and taxes, a reasonable amount of dividend.
The social desiderate also may include, in some cases, a payment for social work to fulfill
social responsibilities.
A proper financial management, however, depends on the correctness of information and its
flow. If there is an uneven flow of information across the market, the financial market dynamics
cannot work in an optimum way (Boatright, 1999).

Accountability and Transparency

The manager is accountable and answerable to the management authorities or board about the
justi- fication for each and every type of payment made by him or his department. This
accountability is a sort of ownership corporate financial responsibility. Accountability slots well
with transparency in a responsible managerial function. Transparency implies the openness with
which the financial functions are discharged; there is nothing secret or confidential and
everything is available for examination and verification.
However, a business world is not the citadel of ethicists or philosophers. It is a world of
materi- alist acquisitions. Here, growth or development does not mean what you are but what you
have, and in discharging the duties as a financial manager or officer, many unethical activities are
performed by them, some of which are listed as under:

Unethical Financial Practices

● For gathering money for investment it is necessary to show that the financial health of
the company is very safe and sound. Hence, the company cooks the financial data
and manipulates them to suit the requirements. The cooking of data is also known as
creative accounting.
● The share prices are artificially raised without any economic fundamentals
justifying this action. In this context, the Harshad Mehta case of Financial Scam is a pointer.
In order to raise the share prices, in the prospectus, the company’s performance is glorified.
The public is cheated this way. There may be some government rules and regulations,
but there is a regulatory capture where government officials are bribed.
● Insider Trading is a very notorious form of financial practice. People having inside
infor- mation buy most of the shares of a company when the conditions are very favourable,
and the

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outsiders get less number of such shares. It is one of the undesirable situations when company
executives pass the information on to some selected people. T.T. Krishnamachari (1958)
had to resign as the Commerce Minister to buy the shares of Mundhra. He was involved in
the insider trading as he was invested with all the information. In 2008, the CFO of
Wockhardt was found guilty of insider trading in India (Business Standard, December 12,
2008)
● Merger of companies may be a financial stunt. A good company merges with

an old company in order to evade taxes or to reduce competition. After merger, the joint
company becomes strong and it is possible to increase prices and market share. Sometimes
merger is resorted to take advantage of the brand image of one of the companies.
● Another unethical financial issue is creating unusual delay in making payments to

suppliers, taxes, excise duties and other legal payments.

● Many companies open accounts in different banks to avoid taxes and avoid

adjustments against loans.

● Companies may create many independent subsidiaries and make ‘benami’ property

transactions to avoid payments to government and taxes.

● Financial irregularities also include cheating employees in the matter of payment of

regular wages, medical bills, bonus, LTC, children’s tuition fees, and so on.
● Companies falsify bills of purchase to inflate cost in order to reduce taxes.

● Loans are often taken from those institutions which are ready to do

some personal favour.

● Sometimes, excessive or inappropriate trading on behalf of a client is

done by a broker. This is called churning. It is a breach of fiduciary duty.

Since the broker has access to the account of a client, he does this churning for increasing
his commission rather than benefitting the client.
● Many a time a company does not share the correct information in the

stock market. It commits fraud and there is information asymmetry. The

practice is unethical.
● The banking sector is not free from fraud. Several types of frauds are

committed in the banking sector as well (see for details, Nainta, 2005). These frauds are of
three types: involving banking officials, non-involvement of banking officials but there may
be the element of dereliction of duties, or frauds committed by outside elements. There may
also be frauds through forgery of signature, misuse of credit cards, and so on. In a
sensational case of fraud, a Chennai-based fraudster was arrested in 2006 for taking loans
from different banks to the tune of more than a million rupees by using a colour photocopy
of the same property for home loans (Reporter, The Hindu, September 7, 2006).

Unethical Practices in Accounting

Everyone is now familiar with the unethical behaviour of Arthur Anderson, the head of the Auditing
firm that was entrusted to check the accounts of Enron Company in the United States. It is
because of his irresponsible and unethical behaviour led to the eventual downfall of the company.
What is the responsibility of an auditor? The basic task of an auditor is to bring to the surface
the financial problems and loopholes of a company and give it a direction and point out how to
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the situation and manage the company in a better way in terms of finance and accounts. Anderson
was doing his job lackadaisically and unethically. Let us now turn to the basic unethical issues in
company accounting.
● Misappropriation by not recording the cash receipts. This may be from the

recovery of bad loans, cash sales, under-recording of sales proceeds, and so on. The amount
may be embezzled.
● Misappropriation of cash payments. Cash payment may be inflated, not made at all

or a false entry may be made by showing cash payments.

● Misappropriation of goods by wrong recording of sales and supply or by theft,

or by showing damages, and so on.

● Manipulation of accounts may be done by showing higher values of

assets, lower liabil- ities, higher sales, and so on. False entries are made in the
books of account to show very good financial position of the company. This is called
window dressing. For instance, it can be done by recording fictitious
sales or profits and the like. This is done to befool the public.
● There are many ways to manipulate accounts. A few will make the situation clear.

For instance, liabilities may be shown as higher or lower, profit may be shown as higher or
lower, depreciation may be shown as higher or lower, and so on as the situation demands.
In India, as in many other countries, books of accounts are manipulated often by some
renowned firms. This can be known from annual company reports. Accountants are considered
important professionals for an impeccable financial management and they are expected to
maintain integrity and a high level of professional ethics (see Chapter 12). But unfortunately they
instead follow many unethical practices.

ETHICAL ISSUES IN HUMAN RESOURCE MANAGEMENT (HRM)

The history of all the hitherto existing societies is the history of their human beings, their culture
and capabilities. Workforce is the heart of an organization. It is used in administration,
supervision and management, production and distribution, marketing and technology
development. The impor- tance of HRM can hardly be exaggerated in the system of business
management. In the following discussion, an attempt will be made to focus on some ethical
dimensions of HRM, apart from other related topics.

What is HRM?
Narrowly defined, HRM consists of acquisition, development and utilization of workforce for the
benefit of a business organization. Broadly speaking, it includes recruitment, training,
positioning, allocation, motivation, performance appraisal, promotional policy, welfare
consideration, workforce strategy and policy, forecasting of workforce demand and supply, and
developing a committed workforce through a healthy relationship between the employer and the
employees and also between the employees themselves to work as an organized team.

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Paradigm Shifts in HRM
Many types of structural changes have taken place in recent years in the management of human
resources. Some of the major changes are given below:
● There has been a paradigm shift of emphasis on the recruitment of people based on hard

skill or academic qualifications to overall personality endowment, or what is called soft

skill development (For details on soft skill development, see, Ghosh, 2011).
● Internationally useful skills are given more importance than locally useful skills. These

include knowledge of languages, cross-country culture, leadership spirit, and so on.

● The emphasis in HRM has shifted from recruitment of good people to the retention of these

people (Karnik, 2006).

● In the days of value-based management, the emphasis has shifted from the creation of

physical productivity to value creation that includes the idea of value added as well as
ethicality and human values.
● There has been a definite shift of emphasis from a legalised and formalised settlement of

conflict to a more personalized and humanized system of resolution of discord and dissen-
sions.

Challenges in HRM
Several challenging areas have come to the surface in the matter of HRM particularly in the era of
globalization in addition to the traditional problematic areas. Some of these challenging situations
will be pointed out in the following points:
● The training of workforce poses a challenge. Not only does it involve funds but also a

choice of the right type of training that the organization will need both in the short-run and
in the long-run. Another connected problem is that after training, many of the trainees leave
the organization.
● The problem of brain drain is a real challenge to those organizations that need highly

qualified workforce. The issue is how to retain them. Globalization has made labour more
mobile and footloose, and hence, the retention of good labour is indeed a problem.
● To maintain allocative efficiency where the productivity of a factor is just equal to its

remuner- ation, is also a challenge. This is so because the firms do not, strictly speaking,
calculate the marginal productivity of labour before making the factor payments.
● The removal of discrimination is a tricky issue. The discrimination may be due to

age, race, caste, religion, and so on. There may also be gender discrimination in recruitment,
promotion, allocation of jobs, and so on. Sometimes, it becomes a very sensitive issue.
Connected to this issue is the problem of reverse discrimination where the weaker section
has already been enjoying a favourable position for a long time. Thus, there is a reverse
discrimination for those who are discriminated now (may be high-caste employees).
How to solve this problem? There is no easy solution.
● Pay differences among various ladders of services or jobs are substantial in

some firms. For instances, in many educational institutions in foreign countries (as in
Malaysia), the pay of a lecturer is 3,000 Ringgit per month but the pay of a Professor is
15,000 Ringgit. Both these

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posts need doctorate degrees. Is such a difference in pay justified? The removal of such a gap
in pay is a great challenge for some firms.
● There may also be a problem of alienation among some employees; it may be an

alienation from the product, alienation from organization and alienation from the working
environment. With the growth of sophisticated and expensive products being produced by
factories, the ordinary workers feel alienated when they cannot buy them, as Karl Marx
observed. It is indeed a challenge to solve this problem, and unless it is solved, the workers
feel themselves aloof and disinterested.
● Many foreign organizations believe that there is an economy in high wages. High wages

should lead to higher labour productivity. It comes under the scheme of incentives. But how
the individual firm should go about it and how to make sure about its effectiveness in micro
perspective are some of the critical challenges in HRM.
● While it is accepted in principle that there should be a balance between the economic

efficiency of a firm and its ethical policy-making, nobody is sure as to how to bring this
balance through a change in wages and salaries.
● To enhance the contestability of employees through capability expansion is perhaps

one of the greatest challenges in HRM today.

Ethical Dilemmas in HRM

There are, indeed, many types of ethical dilemmas in HRM. Only few of them are mentioned here.
In all these cases, it is difficult to take a straightforward policy as they all involve some ethical
dilemmas.
● In the matter of promotion, whether one should give special preference to his

relatives or friends, or caste and religion?

● Should the manager follow the policy of divide and rule by making a rift in the trade

union leaderships? If he does so, he can control the work perhaps in a better way. But is it
moralistic to do so?
● The use of women and children will reduce the wage cost. Is it morally all right to use

child labour?
● Many MNCs practice what is called the policy of race to the bottom so that at the

lower end of the employment ladder, wages are reduced, and the workers who are affected
are mostly women and manual workers. This is profitable for the firm, but is it morally
correct?
● Should the firm declare a generous bonus at the end of the year or a stingy one?

● By exploiting labour (that is, by paying less wage than productivity) the company can

gain much, but is it morally permissible?

● Should discrimination be permitted? It may allow the firm to get some egoistic

satisfaction or earn more profit. But is it not morally oblique?

● Given the resource endowment, a firm can increase the wage level and reduce the level of

employment or wages may be lowered to employ more people. Which alternative is

ethically correct?

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● The firm can practice the policy of hiring and firing of labour without giving
any prior notice. This is done in China with the connivance of the government. But is it
morally justified?
● The choice of technique of production is itself an ethical issue. If labour-
intensive method of production is used, productivity per labour may be lower but
employment can be given to a large number of labourers. However, if the capital-intensive
method of production is used, labour productivity will go up but labour employment will go
down. Which alternative is morally correct? Gandhi used to say that in a labour-surplus
economy like India, capital- intensive method of industrialisation is morally wrong.

Unethical Practices in HRM

There are rampant unethical practices in HRM. Some of those practices are listed as under:
● Many firms use discriminatory policies in recruitment, promotion, wages payment and

even in work allocation. This includes gender and caste or religious discrimination.
● Firms often do not care for safety, health, job satisfaction and comfortable

working environment.
● HRM policies may be absent or biased with respect to promotion, recruitment,

reward and punishment.

● Workers’ rights and unionism are not looked upon favourably by employers.

● While practicing downsizing and lay-offs, sufficient prior notice is not

given to employees.
● Many firms are engaged in exploiting workers by giving them unjustifiably lower wages.

● Sometimes privacy is not allowed and this goes against the women workers.

● Forced labour and child labourers are used by many firms.

● Hiring and firing policy is extended too far to threaten the workers.

● Sexual harassment prevails in many firms in both overt and covert forms.

● Industrial disputes are solved high-handedly without much consideration for the

inferior economic status of workers. Conflicts are not settled through negotiations and co-
operations.
● For the exploited workers, compensatory justice policy is either delayed or completely

denied. No affirmative actions are permitted.

Qualities of a Good Employer

● A good employer is always considerate. He follows the principle of natural justice
and fairness in dealing with cases of aberrations.
● He guides his employee in a proper way, respects them and is their well-wisher. He obeys
the principles of human rights.
● His HRM policy is based on justice and fairness in the matters of recruitment,
promotion and dismissal. There is no discrimination and harassment.
● He keeps the working environment comfortable, safe and healthy.
● He solves all disputes and conflicts in an amicable way.

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● He does not exploit workers but allows them fair wages.
● He never resorts to unethical short-cuts to win over workers.
● Like the Japanese system, he builds a life-long relationship with employees.

● He respects privacy, permits unionism and allows whistle blowing.

● He is in favour of capability expansion of workers, human development and

employees’ welfare maximisation.

He becomes a fatherly figure and works as a friend, philosopher and guide to the workers. He
is well-respected by all workers and he never creates a chance for an enmity between him and the
workers. He believes in industrial democracy and works as a trustee. He remains thoroughly
ethical in his behaviour and cares for ethical and social responsibilities associated with his own
business. An ideal employer is inspired by the ethical principle of care and compassion
and he is forgiving in nature. He bears no ill-will against anybody and shows his love to all and
sundry.

ETHICAL ISSUES IN PRODUCTION AND OPERATIONS MANAGEMENT

(POM)
What is POM?
POM is concerned with all matters related to the organization and production, working environment,
occupational safety and health, regulations and precautions. There are basically two dimensions
of POM:
Product and its quality and safety aspect, and workers engaged in production and their safety
and health.

Unethical Attributes of Products

The following are the seven major unethical and socially unacceptable standards of products:
● The product may be unsafe and damaging to health either in the short or in the

long-run. For instance, a particular brand of painkiller may be addictive. Coke may quench
thirst but it contains carcinogenic substances.
● The product is not reliable. This means that product on its application does not serve the

purpose for which it was bought in spite of the claim by the producer.
● The product may be sub-standard. For instance, a particular brand of blood pressure

reducing medicine that contains 5 mg of amlodipine, as written on the label, contains only 3
mg of the medicine, hence it might not be effective.
● The service life of the product may be shorter than what is claimed.

● The maintenance standard as claimed by the producer may not be

correctly stated. It needs more frequent attention and involves expenditure.

● The product may produce unwanted side-effects. A particular brand of medicine may

cure the disease but leads to hair growth on the face and many other parts of the body. It
cures one disease but produces a new disease.
● The product may be contaminated and adulterated by another product whose effect is

unknown and uncertain. For instance, milk may be adulterated by unclean water from an
ordinary pond containing bacteria.
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Unethical Working Conditions
The working conditions and environment in many factories particularly in the less developed
countries are inhuman, to say the least. Some examples provided as under will substantiate the
statement:
● Many serious diseases like cancer, asthma and bronchitis are job-related

(Ghosh, 2010a, Ch.11). To give a few examples, mercury poisoning is very common among
felt workers, silicosis among the stone-cutters, asbestosis among the workers working in
asbestos factories and the like.
● Noise pollution inside the factory is another serious concern. Noises produce

congestion, visual distraction and deafness. Noise at a high pitch (over 80 decibels) may
cause temporary decrease in the size of blood vessels and produce high pulse rate, hearing
damage, cardiovas- cular problems and the constriction of muscles. In Germany, hearing
impairment is the most serious type of occupational hazard problem costing more than $100
million every year. Other countries are not an exception.
● Death due to physical accidents in factories is a common problem in all

countries. This is so because of the fact that adequate occupational or functional

safety measures are not provided by factories.
● Occupational hazards are mostly preventable if adequate care and instruments are

used in factories. However, POM authorities do not often care for the occupational safety
measures.
● To work under the conditions of occupational safety is one of the important rights of

workers, but it is not carefully implemented by POM authorities. They may be unethical, or
amoral. In the United States, the Occupational Safety and Health Act (OSHA) was enacted
in 1970 is strictly followed.
● Other unfair practices in POM may be about the choice of unhealthy production site,

buying of second quality machinery and poor maintenance. Generally, to save money,
factories are set up in a location far away from the main town where good doctors and
hospitalisation facilities are not available and in building the factory, an adequate provision
is not made for a good working environment. The factory may be congested, with less air
circulation, lack of oxygen, lack of air-conditioner or fans, and so on.
● The working conditions and facilities may be inadequate like long

working hours, high temperature at the working place, lack of privacy, dirty or no
separate washrooms for men and women, polluted environment, no provision for first aids,
no clean drinking water, not reasonable compensation for over-time work, and so on. To
take but one example, in many MNCs factories in the Philippines, girls have to work at 30
degree temperature without any fans just to earn about 25 Philippine pesos per day.
● Inside and outside pollution by chemical substances and obnoxious gases

are the regular features of many types industrial enterprise. The Bhopal gas
tragedy is a case in point. However, the authorities do not internalize the negative
externalities.
In India, there are norms and rules provided in the Indian Factory Act of 1948 but these
are not strictly followed in POM.

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ETHICAL ISSUES IN INFORMATION TECHNOLOGY (IT) INDUSTRY
Salient Features of IT Industry
In recent years, IT industry is proving to be one of the best industries in terms of employment
generation, economic growth and international business interaction.
● The demand for its products is constantly growing. The classical theory of Say’s law of

Market is perhaps applicable in the case of IT industry. Here, supply creates its own
demand. Newer and newer varieties of products are being invented by this industry almost
every month in the international market, and the demand copes with the supply.
● IT industry is based on research and knowledge. Hence, it is managed by high quality

workforce. Without constant innovation and application of new knowledge, this industry
cannot be made contestable and competitive.
● The industry is linked with many other growing industries and is supported by many sunrise

consumer goods industries both in India and outside.

● In India, the bulk of the development of the services sector is due to the growth of this

industry. In the post-liberalization period in India, the inflow of Foreign Direct Investment
(FDI) has been mainly responsible for the growth of IT industry.
● The export of IT products and services has enormously grown in recent years. Export

contributes 75 per cent of the total revenue of the IT industry in India.

While the industry is growing very fast, many challenges are in the offing. The following are
the major challenges of this industry:

Major Challenges in the IT Industry in India

● Contestability in the international market demands that the industry climbs constantly on
the learning curve and makes newer and newer innovations in the areas of product
devel- opment, looks for newer sources of raw materials, finding newer markets, newer
technique of production and devises newer organizational structure. All these are difficult
challenges to cope with.
● The maintenance of the excellent standard already achieved by the IT industry of India
seems to be optimum. The basic challenge is now to keep up the standard and make it
contestable all the time, and like Alice in the Wonderland, it has to run and run to find itself
at the same place. The question is how to run and run without getting exhausted.
● The human resources aspect of the industry is serious. It will be difficult to cope up with the
growth of this industry in terms of human resource requirement. As the industry is getting
more and more sophisticated, it needs more and more skilled workforce. But the supply
curve of high quality workforce is rather steep in any developing country, and India is not
an exception.
● The industry is adversely affected by the problem of brain drain. Every year, thousands
of brilliant IT specialists are moving out of India to work or to settle in some advanced
countries. This type of brain drain is adversely affecting India and other developing
countries, and involves substantial losses in terms of productivity, income and leadership.
The net result is

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a negative multiplier effect. We have analysed this major problem elsewhere in detail (see
Ghosh and Ghosh, 2001).

Ethical Issues and Dilemmas in IT Industry

There are many ethical issues and dilemmas in the IT industry (ITI). Some of these can be briefly
explained here as under. The discussion here is partly based on Richard Mason’s analysis
(Mason, 1986).
● Level of informational privacy. In the present age of information, it is necessary to

keep some information completely private. But this involves both ethical issues and
dilemmas. What information should be kept in the private domain? How to keep it private
and personal? How much of the information is to be shared with others, when and under
what circum- stances? With whom should we share the information? All these questions
involve ethical issues and dilemmas.
● Ensuring the accuracy of information. How to ensure the accuracy of the

information? Who is responsible for the wrong information? How to fix up the
accountability? How much should be the compensation for the harm done to the affected
party? All these constitute ethical dilemmas.
● Informational property rights. Who owns the information? How should he allocate or

share it? What should be the cost and benefits of such information? How to decide the fair
price of information? These are the basic issues.
● Accessibility of information. How to access the information? Is it fair to use the

information without compensation? Does one have the right to access the information? If
yes, under what circumstances and conditions?
● Availability without payment. If the information is available only with payment, is it

ethical to approach somebody to avoid the payment or bribe him to get the information?
● Use the information in a modified form. Sometimes, copyright information can be

modified linguistically or by slightly changing the content of the information. Sometimes,

data is used not on the whole information package, and the other way round is also possible.
In many cases, it is not known to the user whether the Internet material involves any
copyright or not. All these cases involve ethical issues and dilemmas.

Unethical Practices in IT Industry

Since there is no universally accepted netiquette, the IT industry is invaded by many unethical
issues. Some of these are related to computer. Some very common unethical issues are discussed
below.
● Spreading viruses: This is a major issue that unnecessarily puts the computer users into

trouble for no fault of their own. This goes against the principle of common good or
unethical consequentialism.
● Piracy: This is a kind of illegal copyright of software and causes financial damages to the

original provider.

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● Hacking: It is the practice of modification of the computer system when it is insecure.
This is done to satisfy some personal motives of the hacker. The hacker illegally gains
access to and very often tampers with the information in a computer system.
● Hijacking: It is an attack in which the original server resource is disconnected and

replaced by another server resource. In this way, a channel is hijacked.

● Spoofing: It involves the replacement, destruction, forging or corrupting a resource. It is a

variation of hijacking.
● Infringement of copyright materials: It is unethical to use somebody’s materials

without permission or proper acknowledgement. This constitutes theft of intellectual

property.
● Credit card fraud: This is done by obtaining personal information of the original credit

card holder and using it for personal gains.

● Account take-over: This happens when the fraudster obtains the information about

somebody’s credit card and bank account number. Then he, through impersonation, asks for an
address change, and subsequently he declares that the credit card is lost. In this way, he gets
a duplicate card with a new address.
● Phishing: It is a crime done through the internet. In this case, the Phishers set up a bogus

website and email addresses. Then they will inform a person that his bank (where he has the
deposit) has encountered a problem, and they will ask you to send the account details. These
are then sent to a person in some distant location and then he will misuse the information
provided. This is a serious threat to the internal banking system.
● Cyber extortions and electronic message transfer: This is to keep a track, for

example; terrorist attacks are also perpetrated through Internet.

● Emails threat: Some problems related to emails are impersonation, forgery, virus

spreading and other unethical message transfer.

● Unauthorized sharing of information: Sharing is a common kind of unethical

problem. By knowing the passwords, when the system is insecure, a lot of unauthorised
information about a person can be obtained.

Summary
The functional areas of business management are concerned with the practical application of
management principles in different fields of day-to-day business activities, including marketing,
advertising, human resource management, accounting production and operation management,
information technology, and so on. In all these areas, the manager encounters ethical dilemmas
and has to confront many types of unethical practices. The general ethical principles that these
areas are supposed to apply include justice and fairness in all the dealings producing good
consequences to individual and society, no harm to any individual, respect for individuals,
obeying of certain categorical imperatives and the creation of common goods.
Marketing is not simply about selling but it has a broad connotation of creating socio-
economic relationship and discharging some social responsibilities. Thus, in selling products or
services, there should be truthfulness, honesty, legality and decency. Bad goods should not be
marketed at any cost. Many a time it is found that the product is good but its advertisement is
unethical, or the product is
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bad but its advertisement is a hoax and gives wrong information to the public. Sometimes, both
the product and the advertisement are bad. All such cases are unethical. Many of the
advertisements of certain products are targeted to hoodwink the customers. The unethical
practices in marketing involve products which are neither safe nor harmless, prices are
unreasonably high, packaging does not often label the safety instructions and the advertisement is
totally false.
In the area of finance and accounting, the unethical practices include cooking of data and infor-
mation where share prices are artificially raised, falsification of bills of purchase, window
dressing, permission of insider trading, manipulation of accounts, misappropriation of cash
payments, and so on. Unethical practices in HRM include the the practices of child or forced
labour, discriminatory practices in recruitment, unsafe working places, no provision for privacy,
exploitation of workers and the like. Unethical issues in production and operations management
are many. Products may not be reliable, they may have shorter lives than claimed, products may
be unsafe and damaging to health, unwanted side effects are not often mentioned on the product
package, and similarly, other product-related information may either be suppressed or wrongly
stated. In the IT sector, some information is not available without payments, the information may
not be accurate making some information unavailable, and many other unethical practices like
phishing, piracy, account take-over, hacking, hijacking, spoofing, credit card fraud, and
infringement of copyright materials are rampant.
Besides all these, the working conditions and factory environment, particularly in the
developing economies, are inhuman to say the least. In many cases, occupational or functional
safety measures are not provided, there may be arduous and long hours of work, inside and
outside pollution in the factory and noise pollution. It has been empirically found that many
diseases like cancer, asthma and bronchitis are job-related. It is instructive to note that efficient
business management is not the same thing as ethical business management.

Key Terms
Dumping Regulatory Capture Alienation
Gouging Creative Accounting Race to the Bottom
Predatory Pricing Churning Affirmative Actions
Surrogate Advertisement Soft Skill Development Occupational Hazards and
Insider Trading Value-based Management Safety
Transparency Brain Drain Learning Curve
Accountability Allocative Efficiency
Window Dressing Reverse Discrimination

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241

Test Your Knowledge

1.State whether the following statements are True or False
(i) Value-based management means the creation of more values through product devel-
opment.
(ii) Allocative efficiency is achieved where the productivity of a factor is made equal to its
marginal productivity.
(iii) The emphasis has now shifted from “let the buyer beware” to “let the seller beware”.
(iv) Accountability generally comes from a good accounting system.
(v) Price gouging means charging too high a price.
(vi) Piracy is an attack in which the original server resource is disconnected and replaced by
another server resource.
(vii) Contestability in the international market demands that the industry climbs constantly
on the learning curve and makes newer and newer innovations.
(viii) Serious diseases like cancer, asthma and bronchitis are never job-related.
(ix) The use of women and children reduces the wage cost.
(x) In reverse discrimination, the weaker section enjoys a favourable position for a long
time.
2.Fill in the blanks
(i) and are the two critical words in the corporate world
in the areas of functional management.
(ii) “Let the buyer beware” can be termed as .
(iii) In the case of marketing, there has been a paradigm shift from to
.
(iv) The philosophy will say that an advertisement is good for the society if
it brings happiness to the largest number of people and especially so if the marketing of
the product does have the same effect.
(v) Very often in the advertisement for tobacco or alcohol it uses that
shows these products not directly but along with another product or occasion like a big
royal party or a get together.
(vi) The theory argues that the product sold should not create extra social
cost by creating negative utility, sickness, disease and environmental degradation, loss
of life and any other type of social danger.
(vii) Ideally, the financial sector of a company is motivated by some operational and
.
(viii) Companies falsify bills of to cost in order to reduce
taxes.
(ix) The problem of is a real challenge to those organizations that need
highly qualified workforce.
(x) An ideal employer is inspired by the ethical principle of and
.

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 Functional Areas in Business Management: Some Ethical Issues
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3.Choose the correct option
(i) Sometimes excessive or inappropriate trading on behalf of a client is done by a broker.
This is called:
(a) Spoofing (b) Hacking
(c) Churning (d) Phishing
(ii) The theory which is based on the presumption that due care has been taken by the seller/
manufacturer so that it is safe and does not involve any risk at the time of use is called:
(a) Social Cost theory (b) Due Care theory
(c) Contractual theory (d) None of these
(iii) “Let the seller beware” is better termed as:
(a) Caveat Emptor (b) Ultravires
(c) Caveat Venditor (d) All of them
(iv) Dealers and manufacturers often charge either too high by:
(a) Predatory or Penetration Pricing (b) Skimming or Gouging
(c) Both (a) and (b) (d) None of these
(v) To make timely payments of wages, interest and taxes, a reasonable amount of dividend
is:
(a) Operational Desiderata (b) Systematic Desiderata
(c) Social Desiderata (d) None of these
(vi) Who observed that with the growth of sophisticated and expensive products being
produced by the factories, the ordinary workers feel alienated when they cannot buy
them?
(a) Adam Smith (b) Karl Marx
(c) Max Weber (d) None of these
(vii) A good employer follows which principle in dealing with cases of aberrations?
(a) Principle of natural justice and fairness
(b) Divide and rule principle
(c) Both (a) and (b)
(d) None of these
(viii) Which department is concerned with all the matters related to the organization and
production, working environment, occupational safety and health, regulations and precau-
tions?
(a) Purchase Department (b) Production and Operations Management
(c) Both (a) and (b) (d) None of these
(ix) The Indian Factories Act was formulated in the year:
(a) 1948 (b) 1984
(c) 1872 (d) 1881
(x) What involves the replacement, destruction, forging or corrupting a resource?
(a) Human commands (b) Divine commands
(a) Hacking (b) Piracy
(c) Churning (d) Spoofing

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243

Review Questions
1. What is an ethical dilemma? Explain some ethical dilemmas in the IT industry.
2. What are major unethical practices in the IT industry? Explain some major problems.
3. What do you think are the major challenges in India’s IT industry? Suggest some solutions.
4. What are the major internet crimes these days? Suggest some solutions.
5. What are the unique features of India’s IT industry? Explain with reference to some recent
developments.

Web Links
1. http://en.wikipedia.org/wiki/Marketing_ethics [Marketing Ethics]
2. http://dspace.iimk.ac.in/bitstream/2259/392/1/17-27.pdf
[Social Responsibility and Ethics in Marketing]
3. http://en.wikipedia.org/wiki/Accounting_ethics [Accounting Ethics]
4. http://www.download-it.org/free_files/Pages%20from%20Chapter%202%20Ethics%20
and%20Human%20Resource%20Management-ced48f14eea2a5b20df2e2c60376c3a1.pdf
[The Ethical Nature of Human Resource Management]
5. http://www.prenhall.com/behindthebook/0132304619/pdf/laudon%20MIS10_CH-04%20
FINAL.pdf [Ethical and Social Issues Information Systems]
6. www.mbaknol.com/wp.../03/ethical-issues-in-accounting-and-finance.ppt
[Ethical Issues in Accounting & Finance]

References
Boatright, J.R. (1999), Ethics in Finance, Blackwell Publishing, Oxford, UK
Correspondent (2008), “Wockhardt CFO Held Guilty of Insider Trading”, Business Standard,
December, 12.
Gandhi, M.K. (1958-84), Collected Works, Govt. of India, New Delhi, Vol. 92, p. 63
Ghosh, B.N. (Ed.)(2011), Managing Life Skills for Everyday Success, Tata McGraw Hill, New
Delhi
Ghosh, B.N. (2010), Managerial Economics and Business Decisions, Ane Books, Delhi
Ghosh, B.N.(2010a), Understanding Engineering Humanities, Trinity Press, UK
Ghosh, B.N. and Ghosh, Rama (2001), “The Problem of Brain Drain”, in B.N. Ghosh (Ed.),
Contemporary Issues in Development Economics, Routledge, London and New York
Karnik, Kiran (2006), “The Changing Role of HR Professionals”, The Hindu, July 18
Kotler, Philip (2004), “Wrestling with Ethics: Is Marketing Ethics an Oxymoron?” Marketing
Management, November-December
Mason, Robert (1986), “Four Ethical Issues of the Information Age”, Management Information
Systems Quarterly, Vol.10, March
Reporter (2006), “Man Cheats Banks of Rs. 1.5 Crore”, The Hindu, September 7

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 CHAPTER
12
Professional
Ethics and

L E A R N I N GO B J E C T I V E S

This chapter will help the reader to understand

■ Meaning of work ethics
■ Characteristics of professional ethics
■ Professional ethics and human values
■ Professional ethics for journalists
■ Professional ethics for physicians
■ World Medical Association code
■ Professional ethics for lawyers
■ Professional ethics for engineers
■ Professional ethics for accountants

INTRODUCTION
Aristotle said, everything in the world moves naturally towards a specific fulfillment, and of the
various causes that determine an event, the final cause, is the most decisive. Development of
anything is not accidental or haphazard; it is guided in a certain direction from within by its
nature, structure and purpose. A profession has its specific fulfillment and final cause (the telos).
The teleology of a profession is guided in a certain direction according to its purpose. The
fundamental purpose of a profession is to help the mankind in a certain way and that assistance
will be several times more

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244
useful and meaningful if the profession is ethically grounded. The present chapter makes an
attempt to define professional ethics in a very broad way and examine the ethical dilemmas of
different professions. The professional codes or ethics of professions like journalism, medicine,
engineering, accountancy and law have also been laid bare in this chapter.

MEANING OF WORK ETHICS

Before discussing professional ethics in detail, one should understand the meaning and nature of
work ethics. All professional ethics involve work ethics but all works ethics may not involve
profes- sional ethics. However, the two concepts are interdependent in nature. Work ethics relates
to certain norms and a set of values that a worker considers as essential in his view while doing a
work. All this then becomes the basis of work culture. Work ethics puts to the forefront the moral
benefits and compelling virtues in all the professions and vocations that people choose voluntarily
as those are ordained by God. Thus, work ethics becomes a part and parcel of culture and
character.
There is a Latin saying that “to labour is to pray”. Mahatma Gandhi used to say that
everybody, irrespective of his social position or status, must do some physical labour. It gives an
opportunity to participate in the fulfillment of the universal law of karma (duty) and recognise the
significance of the dignity of labour (Ghosh, 2007). In fact, labour is the creator of value, and it is
through work that an individual participates in the divine act of creation. Work is also a means of
achieving personal realisation. Thus, laziness is morally wrong and it is equally wrong to eke out
a living based on the work done by others. However, there must be a philosophy behind work,
apart from it being a source of livelihood. This philosophy is called work ethics. The Christian
world view suggests that work must be done with humility and love. Works should be based on
ability and should involve honesty, integrity and accountability. The Bhagvad Gita advises
everybody to perform his duty given by God in a dispassionate manner without being inquisitive
about the fruits of labour. The work ethics propounded by the Bhagvad Gita considers work as a
type of yoga (meditation) known as the Karma Yoga and yoga is defined as the skill in the
performance of any work or duty.
Work ethics idealises hard work and diligence. However, hard work is not always looked with
favour. For instance, Aristotle believed that hard manual labour dulls and deteriorates the mind.
According to him, manual labour is fit for people without mind and is suitable for slaves. To him,
a person with leisure is a more honourable person and should be given a position in the
government. Such a person can be a thinker. To the Greek philosophers, a life of contemplation is
more adorable than a life of action and work.
Before Industrial Revolution, work ethics was not a popular term. Workers preferred more
leisure than work and even by raising wages labour supply could not be increased. This is
substantiated by the theory of backward sloping supply curve of labour. But after the protestant
reformation, the cultural perception about hard work underwent dramatic changes. The
glorification of human work can be traced back to the days of early capitalism (Ghosh, 2009,
pp.16–18). From Luther to Puritans, one notices a gradual change towards the religious approval
of economic activities. This was conspicuous by its absence in the medieval period. Calvin
propagated the idea that the resources of the world are the creation of God and the development
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of material resources through proper work ethics which includes favouring toils and troubles 245
is a
virtuous activity. Parables of

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Talents were cited from the Bible for supporting work and economic activities, in particular the
Biblical statement that, “to everyone who has more will be given but as for the one who has
nothing, even what he has will be taken away” (Luke, IX:26). Calvin developed the idea of
spiritual callings to materialise the activities relating to economic development through proper
work ethics. The Puritans conceded the idea that spiritual obligations including business duties
are a discipline quite in accord with the Divine Will, and that by following an appropriate work
ethics, a man can improve and ennoble his character (Ghosh, 2009). The idea that “work is
worship” became popular.
The reformation was important from the point of view of the development of work ethics and
culture that could be helpful for the development of capitalism. Protestants actively associated
themselves with business and industries and encouraged the development of work ethics. This
message of a new work ethics spread from Europe to America through English Puritans and
French Huguenots. Since the 18th century and through the 20th century, work ethics became a part
of the new work culture in the wake of capitalism. Karl Marx regarded labour as the fundamental
source of creation of all the values in the capitalist system which, according to him, is the most
progressive mode of production.
However, keeping alive the Marxian tirade against capitalism and its impact on the working
class, intellectual people came to realize that behind the facade of a capitalist’s insistence on work
ethics in the name of efficiency, regularity, honesty, and so forth, there is an ulterior motive of
spreading authority and developing the spirit of blind submission by workers to the capitalist
system of control and management. It is observed that more or better work may not be a better
alternative unless there is a system of reward and incentive. This is often absent in the case of
manual and unskilled workers. The philosophy of race to the bottom practiced during the period
of globalization is in fact designed to work against these workers in the matter of wage payments
(for details, see Ghosh and Guven, 2006).
The philosophy of work ethics is, however, more popular among professional workers
including doctor, professors, engineers and accountants as they get positive returns out of that and
corporate governance promotes this type of work culture. Let us now discuss professional ethics
at some length.

WHAT IS PROFESSIONAL ETHICS?

To start off, it is imperative to make clear the meaning of a profession. A profession is a social
calling that ensures a vocation which provides one with the means to earn one’s livelihood. The
main characteristics of a profession are given below.
● Professional ethics is based on certain ethical values and norms which a professional is

supposed to follow.
● A profession is a specialised calling that needs skill, commitment, special knowledge,

dedication and dignity. A profession is based on expertise and special capabilities.

● A professional person has to take an oath on his expected social duties and ideal behaviour

at the time of entering into a profession as a doctor, engineer, cleric, and so on. The oath is
the acknowledgement and the promise to observe certain ethical standards for these public
services and do the duties in the spirit of service and sacrifice.

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● A profession is above and beyond any monetary gain or temptation. It has a mission to serve
the society. The purpose of a profession is to serve and not to exploit others in the name of
fees. The fees should be as low as possible. Charging of too much of fees by a professional
is to trivialise the noble profession.
● A profession is meant to provide some public services and has some social responsibilities.
There are three types of social responsibilities:
Responsibility towards the community
Responsibility towards the profession, and
Responsibility towards the client or the victim

PROFESSIONAL ETHICS AND HUMAN VALUES

Professional ethics is necessary to reveal, sustain and enhance certain basic human values. These
values are kindness, care and compassion, trust and reliability, truthfulness and honesty, justice
and fairness, performance of a duty for the benefit of others, non-violence and non-injury, and
account- ability and social responsibility. The following three types of human values are
embedded in a profession:
● Human values on which the profession is based and the professional values which a person

is expected to respect and observe.

● The impact of professional values and actions on the values of the client, recipient, or the

victim.
● Professional values and socio-cultural values.

All these three values are interactive in nature. The outcome of such interactions may be
positive in the sense that they may reinforce one another, go in the same direction and enhance
the social and ethical values. This may be called as cooperative interactions. The interactions
may also be conflicting in nature and there may be a clash of values, leading to the disturbance of
social cohesiveness, bickering and tension. The third possible outcome of the interaction of these
values can be a situation of cooperative conflict. In such a case, the initial value conflicts may be
resolved peacefully by the affected parties through cooperation and all of them will have a win-
win situation that will maximise their goals. Cooperative conflict is not a conflict qua conflict, but
there are differences of opinions that ultimately lead to the maximization of common goals. For
instance, a patient may not agree to undergo surgery as suggested by his doctor for fear of
potential excruci- ating pain but is ready to suffer silently, the inconveniences created by the
disease. Once the doctor assures him that the pain is very negligible and temporary as it is a laser
surgery, the patient agrees to it and both of them achieve the common goal of disease elimination.

PROFESSIONAL ETHICS FOR JOURNALISTS

Basically, journalism is concerned with news management and it is a very responsible public
profession that brings to us everyday stories of right and wrong, morality and immorality and
many other sensational news and episodes. The basic purpose of journalism is to make the public
aware of what is happening around in the areas of politics, economics and business, society,
entertainment
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and sports. Coverage is a critical issue in journalism. In some newspapers and media politics is
given more prominence than social and economic issues, and in some others, the opposite is the
main focus. The coverage is a function of many factors including the bias, orientation, reporter’s
attitudes, values and beliefs, resources and the culture of the media. The disquieting fact is that
the same sensational or national incident is reported differently in different newspapers. One of
the most serious aspects of reporting is the incorporation or omission of some ethical principles of
journalism, and this makes a major difference in the presentation of facts. A journalistic writing
is always a mixture of facts and fictions, the writer’s own idiosyncrasies, personal likings and
disliking and, of course, his mental or moral orientation. The present section is devoted towards
the analysis of basic moral issues and ethical codes of good journalism.

Ethical Dilemmas in Journalism

It is often very difficult for a journalist to objectively resolve an ethical dilemma in a particular
context without compromising and in doing so, the personal values and ethical culture of the
journalist becomes a deciding criterion. One can cite a large number of cases of ethical dilemmas
that a practicing journalist has to resolve before sending his report to the media. A few examples
here will make the importance of the issue of ethical dilemma clear. Suppose a close relative of a
reporter is involved in a sex scandal and the concerned person holds a responsible public position.
Should the journalist report the full details of the case? If he does, his relation with the involved
relative will be strained; if he does not report the full details, his professional morality gets a jolt.
Second, suppose, a journalist has gathered some sensational news about a national event but the
authenticity of the source is not yet either properly verified or may be slightly doubtful. The
incident might have happened but the sources and other details are not yet accurately known.
Should the journalist report the matter to the newspaper? Third, he wants to make public, the
secret of success of a businessman but there is a court case pending (sub judice) against him.
Should the journalist interview the businessman and publish his credentials in his news
magazine? There are many such dilemmas that confront a journalist and he must apply the
principles of morality to resolve these dilemmas to the satisfaction of everybody. What are these
principles and what are the ethical codes of journalism? What a journalist should and should not
do? This is discussed in the following section.

Ethics of Journalism
● The very basic ethical principle of journalism is to present the facts in an objective manner
without any fear or favour. No subjective likings or disliking should cloud the facts of the
case being reported. A journalist is a neutral observer and reporter. He must forget his party
affili- ation or religious feelings while reporting a matter of national or public interest. His
reporting should be done dispassionately.
● A journalist must not be biased or prejudiced. He should not use the policy of discrimi-
nation against race, sex, political party, religion, colour or creed. The European journalism
ethics is particularly against discriminatory practices. This is also the principle of journalism
in many countries.

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● There should be truth and fairness in the reporting of a case. The reporter must follow
the canons of journalism and should work in the public interest, and should give a
compre- hensive account of the fact. Thoroughness and honesty in reporting are basic
requirements for a good journalist.
● A good journalism involves public accountability. A journalist is responsible for what

he reports and the full onus is on him.

● The reporting should be based on the principle of fairness and justice, and also

compassion. For instance, it is not necessary to disclose the name of a rape victim, her exact
age, the location of her house and so many other personal details about her. All details may
stand in the way of her social adjustments in future.
● While reporting a case, the journalist should follow the policy of minimum harm to the

victim, and also respect the principles of human rights. As Kant says, the respect for the
personality of a man is a fundamental ethical principle under all situations.
● The freedom of press should be practiced with sufficient caution and circumspection.

The reporting must be with decency and in good taste. Nasty matters and dirty side of
the case should be played down as far as possible.
● There is a dire need for maintaining privacy even though the case needs some public

revelation for the information of the common people. Thus, it is imperative to have a
balanced reporting between the public interest and the right to have privacy.
● It is necessary to keep in mind, as some noted journalists believe, that truth reporting is not

a libel. But the truth should be reported with fairness and decency.
● It is indeed difficult to deal with sensationalism. Sensitive issues need honesty and

objectivity in reporting. Perhaps the introduction of a media ombudsman is a better way of

dealing with sensationalism.
● Sub judice cases (pending court cases) must be reported in such a way that there is no

casting of unnecessary aspersion on the involved victim. It should be borne in mind that
the law of the land considers a person innocent so long as his guilt is not proved beyond the
shadow of doubt.
● The information reported for the consumption of the public must be based on accuracy,

professional integrity and objectivity. A journalist must not use a double standard while
reporting cases. In case there are eye-witnesses, their views and opinions can also be used
for reporting.
● The lure for negative journalism in the case of scoop news should be carefully avoided.

Such a type of journalism presents facts in a very crude manner without any regard to
decency and decorum.
The bottom line is that a good journalist should have social responsibility for what he writes
and it is better if his reporting on a matter is based on some substratum of truth and on either
documentary or a circumstantial evidence.

PROFESSIONAL ETHICS (BIOETHICS) FOR PHYSICIANS

Health is proverbially regarded as wealth, and the ancient Hindu scripture wishes everybody to be
happy and well (sarve sukhino vabantu, sarve santu niramaya). Like food, health is our basic

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requirement. Since human capital resides in human bodies, body capital is an important part of
human capital. The contributions extended by the physicians to keep us in a wellness paradigm
can hardly be exaggerated. That is why in many countries, doctors are regarded as the
representatives of God. It is a noble profession and certain natural ethical principles are attached
to it. The ethical questions are interlinked with law, religion and culture.

Ethical Dilemmas in Medical Profession

In the course of practicing, a doctor may come across numerous ethical dilemmas which he has
to resolve. The dilemmas are the outcome of a clash between professional values and personal
values or among legal, moral or professional ethics or values. Some of the biomedical dilemmas
are presented as under:
● A teenaged college-going girl becomes pregnant and she tells that to her family physician.

The girl wants to undergo abortion; otherwise, she will not get married and the name of the
family will be ruined. Whether you should help her or not?
● A cancer patient is suffering from excruciating pain and is on a queue to get admitted to the

hospital where you practice. Suddenly a relative of yours who is also suffering from cancer
comes to your hospital with the hope that he will be immediately admitted as you are his
relative. Who will admit first, given the limited number of seats? If you do not admit your
relative, your personal relationship breaks down, and if you do not admit the patient waiting
in the queue, you are breaking the hospital rules. This is when you face an ethical dilemma.
● A terrorist from Pakistan is under your treatment in your hospital and there is a strong

pressure on you to kill him somehow as he is dangerous for the country. The authorities tell
you that if you can wipe him out, you will be rewarded with a huge amount of money. But
your ethical code does not allow you to kill him. You are now between two horns of an
ethical dilemma.
● There are many uncertainties involved in surgical operations. For instance, you have a

patient who wants to get a bypass surgery and you are not sure about the exact percentage of
success of the operation and the survival chance of the patient. Will you perform the
surgery?
● Is it better to invest some money by the government through public education system,

adver- tisement and the like to reduce smoking and bring down heart diseases, or to invest
money directly to hospitals as subsidies to treat heart disease? Prevention has no guaranteed
success. How will you resolve the dilemma as the medical advisor to your government?
Ethical dilemmas can be solved in many ways, but in some cases, you need to apply your
judgement and stick to your value premises. In modern hospitals, driven by the need to gain more
profit, it is difficult to maintain your ethical standard. In such hospitals, many a times,
unnecessary clinical tests are ordered and very expensive branded drugs are prescribed and sold
although less- expensive alternatives are available in the market (for many such cases, see Ghosh,
2010). Medical service is an essential basic service, but many doctors these days resort to a
prolong period of strike to enhance their pay scale. According to many, this constitutes an
unethical practice. It is sometimes pointed out that doctors should work on the basis of the
prevailing law of the land. However, law is not always the substitute for ethical reasoning. For
instance, the law tells that whenever an accident case comes to the hospital, it is first of all
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emergency and the patient is struggling with a situation of life and death, a good doctor may not
be able to follow the legal requirements first.

Principles of Medical Ethics

One of the earliest exponents of medical ethics is Hippocrates (460 B.C.) who founded a School
of Medicine at Kos. The graduates of the school had to take oath at the time of receiving their
degrees. These oaths consisted of several important ethical principles for physicians.

Hippocratic Oath
In the first part, the oath consists of a declaration that the physicians will have respect for parents
and teachers and will provide all help, even monetary assistance, to them when needed. The oath
says that they will abide by the Physicians’ laws and none other. The second part of the oath has
the following five ethical principles:
● The physicians will treat the sick according to their abilities and judgement and will not do

any harm or wrong to the sick people.

● They will not administer poison to any one even if asked to do so.

● They will not cause abortion.

● They will keep themselves free from fornication with women or men, bond or free.

● They will maintain secrecy regarding their patients and their diseases.

Revised Hippocratic Principles

Medical graduates in recent years take oath on the revised Hippocratic Principles. The five
revised medical ethics are:
● Complete loyalty to the profession

● Professional practice with uprightness and honour

● Doing everything morally and professionally good for the sick

● Keeping aloof from all types of corruption

● Doing nothing for a criminal purpose

The World Medical Association Codes (WMAC)

WMAC were formulated in London (1949). These codes are quite elaborate (see WMA Publi-
cation, 1949). However, a simplified form of the codes is given as under:
● A doctor is supposed to maintain the highest standard of professional excellence.

● A doctor must not be influenced by monetary temptation and profit motive.

● A doctor must maintain professional independence.

● A physician must not engage in self-aggrandizement or self-advertisement.

● A doctor must accept only the professional fees and no other money.

● A doctor must take great caution in publishing or using new technique or discovery.

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● A doctor should certify or testify only to that which he has personally verified.
● A doctor must not do anything that will weaken the resistance power of human beings.

Duties of a Physician
● Complete loyalty to patients.
● Maintain secrecy regarding what he has been told by the patient.

● A doctor must give necessary treatment in emergency as a humanitarian service.

● A doctor should behave with his colleagues in such a way as he himself will expect them to

behave with him.

● A doctor must not entice away the patients from his colleagues.

To sum up the discussion, one can state that basically there are five very compelling medical
codes for the practitioners to follow. These codes are:
● Giving freedom to patient to decide on certain matters (autonomy)

● Beneficence (doing good to the patient)

● Non-malfeasance (doing no harm to the patient)

● Maintenance of doctor-patient confidentiality

● Treating sick as a sacred bounden duty above all (Kantian deontology)

PROFESSIONAL ETHICS FOR LAWYERS

It is a generalized opinion that lawyers are by and large unethical. Therefore, the expression “legal
ethics” or “ethics for lawyers” seems like an oxymoron (Hazard and Dondi, 2007). However, this
does not prevent anyone to prescribe some code of ethics for the normative behaviour of lawyers.
The analysis here presumes that a lawyer is a normal human being with a feeling of good and bad
and that, like all other humans, he is also guided by certain socially acceptable and reasonable
behaviour pattern though with some constraints. However, in his day-to-day working life, a
lawyer may come across more ethical dilemmas than anyone else.

Ethical Dilemmas in Legal Profession

For understanding the nature of ethical dilemmas in the legal profession, a few examples are
provided as under:
● Whether a lawyer should take up a case of a person who has accepted his guilt to him and

try to support and save him from the legal punishment. This dilemma comes to the mind of
a lawyer almost every day. If he tries to save a criminal, he is doing an unethical work; and
if he does not take up the case, he is not true to his profession and cannot earn and maintain
his family.
● In order to win a case, for which he is being paid and has taken a challenge, should he ask

his client and other witnesses to tell lies? This is often necessary to win a case in the court
which wants concrete evidence. How far the lawyer should go to win the case, and at what
cost? This is a clear dilemma in a court case that the lawyer is fighting. He very often needs
organized lies and manipulation.

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● A lawyer is often offered a huge amount of money from the opponent party to weaken the
case of his own client. Should a lawyer do that or should he honestly fight for his client?
There is a temptation of clandestine income over and above his regular fees. This initiates a
clear dilemma in the mind of a lawyer.
The profession of a lawyer is full of dilemmas, unethical manoeuvrings and organized lying.
However, to some extent, a lawyer, if he is ethical, can avoid many immoral professional hazards.
This is the reason why many countries have codified certain ethical rules for the lawyers and legal
practitioners.

Professional Ethics for Lawyers

● In the United States, the Bar Associations have formulated some standard ethical rules for
practicing lawyers. If these rules are violated, the lawyers can be punished and that
punishment may be in the form of disciplinary actions, reprimand or disbarment. The rules
emphasise the importance of local practices and ethical traditions. Till 2008, 50 states
had adopted the Bar Association’s model codes. The Association has the role of monitoring
legal ethics in the country.
● A lawyer should maintain dignity, independence, and guarantee professional confidentiality.
In order to be ethical, he should follow the principles of conscience and humanity.
● He must respect all the individuals involved in the court case. Human dignity is the basis
of all ethical reasoning. Everybody is to be regarded as innocent in the eyes of law unless
his guilt is proved beyond the shadow of doubt.
● A lawyer should avoid all canvassing or solicitations for the clients. He or she should not
snatch away the clients from another lawyer.
● A lawyer should not solicit employment from a prospective client.
● A lawyer should not get his clients’ cases published in the media, and give interviews in
connection with any sensational case.
● When approached by a prospective client, a lawyer can accept or refuse to accept any
brief. However, once he accepts a case, he should continue with it till the finalization of the
case.
● Rule of law has been accepted as the guideline for the legal profession in all the civilised
countries. In this context, various rules and regulations framed by the government need to
be observed. The law in the broad sense also includes social convention and morality.
● Lawyers are supposed to follow the legal codes of the country like the Penal code, Criminal
Procedure code, Evidence act and so many other Acts and Rules. Their interpretations are
to be supported by similar cases already decided. They are supposed to have a thorough
knowledge of all the legal documents and procedures.
● Lawyers are to follow certain professional decency and norms while arguing for a case
or examining witnesses. In such cases, any immoral remark or personal attack is to be
strictly avoided to escape from the offence of contempt of court.
● He should not ask his witnesses or client to give false or wrong evidence. Perjury is a
serious criminal offence.

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● A lawyer has two types of rights: right to be heard in the court and the legal right to speak
to the judge.
● A good lawyer is to fight for truth and justice. It is not a good practice to take time again

and again and delay the case. Justice delayed is justice denied.
● Lawyers have a social responsibility of not protecting criminals in the larger interest of

the society. They have to maintain a balance between their legal duties, social empow-
erment and the trust they enjoy.
Lawyers are often confronted with legal battles. It should be instructive to note that legal
conflicts are not often legalistic or philosophical in origin but are specific in character, and need
to be contextualised in terms of historical specificity, social norms, tradition and culture. In
settling such disputes or conflicts, an ethical lawyer may have to go beyond the boundary of
absolutist view of ethics and need to explore the relevance of the relativity of legal ethics. Here
comes the impor- tance of meta-ethics.
It seems that the theory of consequentialism has some relevance in the case of legal ethics. For
instance, if the offender is not properly punished or goes scot-free, he may repeat the crime on a
larger scale and the social consequence of this will be explosively dangerous. In the deontological
sense, the duty of a lawyer is to be understood in terms of ethical duty or right duty to reveal truth
and justice. The meaning of duty is not just any action but the action that is desired of a
profession in terms of social responsibility and common good.

PROFESSIONAL ETHICS FOR ENGINEERS

Engineering services are essential for the industrial development of a country. Engineers make
infrastructure, technological outfits, communication network, factories and equipment and the
like. The importance of engineering profession is increasing in recent years due to globalized and
competitive industrial product markets. It is felt that since engineering is a crucial profession,
there should be a code of ethics for engineers. There are two types of code of ethics: one for the
general engineers to follow and the other for the corporate members. However, in the discussion
here, all ethical principles are clubbed together. The code of ethics for engineers in India is
formulated by the Institution of Engineers. The Rules for Professional Conduct were first
formulated as early as in 1944 on the basis of the Royal Charters of London. Subsequently, those
rules were replaced by the Code of Ethics for corporate members and were updated and slightly
modified in 1954, 1997 and 2003.

Code of Ethics for Engineers

The corporate members of the Institution of Indian Engineers are committed to serve the community
and promote and practice the profession of engineering in such a way as would contribute to
common good and national welfare. At all times while working, engineers are to keep in mind the
five concerns as under:
1. Concern for the application of an ethical standard.
2. Concern for social justice, social order and human rights.

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3. Concern for environmental protection.
4. Concern for public safety and tranquility.
5. Concern for sustainable development.
The following code of ethics is accepted as universal for the professional engineers:
● All engineers are supposed to follow the general ethical principles of honesty, justice and

fairness, truth in all dealings, individual respect, trustworthiness, reliability, human welfare,
safeguarding of human life and property, working with competence and accountability and
social responsibility.
● Engineers will serve the society with a view to ensure social safety, creating a social good

and enhancing the public utilities, preventing the wastage of national resources through the
application of their knowledge, expertise and professional competence.
● An engineer shall pay particular attention to safety in design and operation for all

processes and products.

● An engineer should maintain the honour, integrity, dignity of his profession so that he

gains the trust of the people and the profession.

● One of the important duties of the engineers is to enhance engineering efficiency by using

less input to produce a particular amount of output. This concept is different from economic
efficiency which aims at reducing cost of production to the minimum.
● Engineers are to promote the common tie that exists between the humanity at large and

the engineering profession in particular. The members should have the highest regard for
social justice, and fairness, and equality of opportunities without any discrimination.
● Engineers should not misuse their power and position for private, sectional and personal

gain. Maximisation of social welfare should be their motto.

● They should neither solicit nor accept any financial or other consideration from any one

related to the project or assignment of which they are in-charge.

● While making a statement or giving evidence in the court of law, they should reveal the

interest, pecuniary or otherwise, that may have a bearing on the case.

● They should make statements or give evidence in the court of law in an objective and

responsible manner and give opinion on the basis of proved knowledge, evidence and
experience.
● They should not act in any manner that may injure or damage the reputation of the

Insti- tution of Engineers or of the Institution where they are employed.

● They should maintain confidentiality of any information with utmost sincerity. However,

if non-disclosure of such information leads to jeopardising public safety, welfare and health,
they may disclose the information.
● When an engineer is asked to review the work of another person, known and unknown to

him, he should consult another competent person or organization and give a balanced
and correct opinion without fear or favour.
● An engineer should keep his employer or client informed about a project all the time

which may or may not be viable or feasible in terms of technicality, environment,

economic and other risks. In such a case, there may be a conflict of interest and he can save
himself by disclosing all the necessary information.

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● In order to secure a job, an engineer should neither pay nor offer any kind of
inducement or bribe.
● An engineer should refrain from a breach of contract which is already finalized.
● He should not snatch away the contract/project given to another engineer.
● In all the job opportunities for which he is a candidate, he should compete only on the basis
of merit and experience, and no extraneous influence.
● A qualified engineer should work only in the domain of his competence and expertise with
all honesty, sincerity, care and diligence.
● An engineer shall not falsify or misrepresent his own or his associates’ qualifications,
experience and other credentials.
● He shall reject any kind of offer that may involve unfair practice, or may cause avoidable
damage to the eco-system.
● An engineer should be concerned about and shall act to the best of his abilities for
maintaining and promoting sustainable development.
● An engineer shall apply his knowledge and expertise in the interest of his employer or
client for whom he shall work without any compromise.
● An engineer shall inform his employer/client about the economic, social, environmental
and other probable consequences of the project whenever it is necessary.
● An engineer shall not directly or indirectly damage the professional reputation of
another engineer.
● He should perform his duties timely, honestly, correctly and impartially for the benefits
of others.
● He should have an accountability and social responsibility for all the actions performed
by him.

Ethical Dilemmas for Engineers

An ideal engineer always strives for the advancement and betterment of human welfare, partici-
pates in honest enterprises and strives for excellence. However, in the course of discharging his
duties as an engineer, he is likely to face many ethical dilemmas where he has to decide about the
correct decision that he should take. Some of the ethical dilemmas are explained below.
● An engineer has taken up a contractual project and will be given a certain amount of money

for the work. He is asked to use good materials. While starting the work, he finds that the
contractual amount for the job is not very large. He then thinks about increasing the margin
of profit by using spurious and sub-standard materials. These materials are not only unsafe
but are of an inferior quality. But he is under an ethical dilemma: should he use the sub-
standard and cheaper materials?
If he uses standard materials, his profit margin becomes negligible but if uses sub-
standard materials, he is, in a sense, cheating the client. What should he do?
● A contractor has given a construction work to a civil engineering firm for the completion of

the project within a specified period of time. However, although the firm is doing the work,
the contractor is not satisfied with the speed of the work. The contractor then approaches

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you with the request to take up the work. You are in the midst of an ethical dilemma because
your code of professional ethics does not allow snatching the work from another
person/firm. However, you are urgently in need of a work as you have no project at the
moment. How will you resolve the dilemma?
● As a software engineer, you have developed a software while working in a private firm. The

software can automatically type out the verbal dictation before a machine developed by you.
A publishing company has approached you to sell them the software in exchange for a huge
amount of money. You have now an ethical dilemma: should the software be sold to a party
for private gain without the knowledge of the present employer? Should it be duplicated or
the secret of that software be divulged?
There are many such ethical dilemmas that may stand in the way of an engineer. The problem
is how to solve them in a way that will be acceptable to all.

PROFESSIONAL ETHICS FOR ACCOUNTANTS

Ever since the serial failures of many giant corporate houses in the United States and the United
Kingdom in the present century, the profession of an accountant has become all the more critical
and important. Although the bosses at different layers of the company ganged up for personal
greed, the downfall of Enron was hastened by the callous activities of the company auditor M/s
Anderson. It is a fact that the accountants are not tough enough with big corporate houses because
servicing with a consultancy job is a big business. Since companies choose their auditors, there is
an unholy alliance and dependency. Anderson committed an out-and-out fraud because he was
paid for it. The lessons from Enron alone make the code of ethics for chartered accountants all the
more relevant.

Code of Ethics for Chartered Accountants (CAs)

The genesis of the modern accounting profession is the appearance of limited companies during the
days of Industrial Revolution in England. The profession of accountants grew out of the need for
statutory accounting and auditing for companies. In India, the Chartered Accountants Act of 1949
is the primary source of code of ethics for accountants. The basic codes of conduct for CAs, as
given in the CA Act of 1949, are briefly enumerated as under:
● CAs is expected to work with professional dignity and prestige in discharging his duties.

They are expected to work in a manner which is not derogatory to their profession.
● They should work with diligence, honesty and independence, and it is essential for him

to command the respect and confidence of the general public and he has his obligations
and responsibilities to those who rely on his services.
● A CA must have the necessary professional competence and should be a person of character

and integrity.
● A CA shall act in public interest and public responsibility must always be alert in his

mind.
● The accountant should prepare the financial statements and auditing in a dispassionately

efficient and correct manner so that the users can rely on the financial documents
prepared
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by him. These documents are used by tax experts, management consultants, government and
other companies.
● The services provided by CAs are to be executed at the highest level of performance in

accordance with ethical requirements.

● Objectives of the accountancy profession are based on:

Credibility of information provided by CAs

Professionalism
Professional ethics to evoke public confidence
Best quality of services
● The achievement of the aforesaid objectives will necessitate the CAs to observe a number of

fundamental ethical principles.

The Fundamental Principles are:
● Integrity (straightforward and honest)

● Objectivity (should work without prejudice, fear or favour to any one)

● Professional competence and care (diligence, skill and circumspection)

● Professional demeanour (behaviour consistent with the good reputation of the profession)

● Confidentiality (should not disclose the accounting information unless there is legal

obligation)

Punishment for Professional Misconduct

A chartered accountant (under Sections 21 and 22 of the CA Act of 1949) can be punished for
professional misconduct (and other misconduct). The punishment may involve disciplinary
action, legal prosecution and imprisonment. Other misconduct may include, among others,
offence like material representation, moral turpitude, use of coercive method by a CA for
personal gains, misap- propriation, possession of crucial records and non-reply to important
letters and the like.

Ethical Dilemmas for Accountants

A chartered accountant (CA) is likely to confront many ethical dilemmas while performing his
official duties. Some of these dilemmas are briefly discussed below.
● The CEO of a firm may want the financial statement to be stated in a particular way. His

purpose is to show that the company is financially stable, which is not the fact. What is
necessary is a type of window dressing in the balance sheet of the company. This is done to
attract investors and to raise the share prices. The CA of the company in such a situation
finds himself in an ethical dilemma because he is asked to do something which is unethical
and contrary to facts.
● It is the usual practice of a company to minimize the payment of taxes. This is possible

when the company’s account is manipulated and falsified. The company often maintains
duplicate account books for this purpose, and the services of CAs or auditors become
extremely necessary for such manipulations. Once again, the CA of the company confronts
an ethical dilemma because he is asked to do something which is against facts, contrary to
the ethical principles, justice and fairness. In the matter of tax evasion, company accounts
and auditors play a major role.
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● From time to time, a particular company needs to issue certificates to government, export-
import authorities and other companies regarding its financial position. Certificates are also
necessary for obtaining loans and getting some financial favours. These certificates are to be
issued and certified by CAs and auditors. The CEO may ask the accountant to issue such
certif- icates whenever necessary. This creates some ethical dilemmas in the mind of the
accountant if the financial position of the company is very poor and unsound.
● In view of the escalation of commodity inflation in a country like India, the government is

committed to check the price rise. One of the methods to do so is to have a control over the
mark-ups through the estimation of the cost of production. Thus, cost auditing is becoming
an important anti-inflationary instrument in India. The company may ask the accountants to
show on paper a high cost of production so that it can maximize the profits through higher
prices. A CA may find himself in ethical dilemma as he has to inflate the cost and
manipulate the cost data in favour of the company.
The aforesaid examples of ethical dilemmas are not exhaustive by any means but are only
illus- trative of some representative situations.

Summary
A professional ethics is the fulfillment of the final cause of a profession. Work ethics and professional
ethics are interrelated categories. Work ethics is concerned with the value or a culture attached to
a particular work. History shows that work, particularly manual work, was considered of a low
status in the early days. Aristotle considered manual works as an alternative fit for only slaves.
However, after the Industrial Revolution, the whole concept of work underwent considerable
changes. Work was glorified. The rise of Protestantism and the Reformation movement brought
in a new work culture. Work was considered as a divine will and it was believed that by
participating in a work, a person could associate himself with the divine act of creation.
A profession is a social calling that ensures a vocation which provides one with the means to
earn one’s livelihood. Professional ethics is based on certain ethical values and norms which a
profession is supposed to follow. Professional ethics is necessary to reveal, sustain and enhance
certain basic human values. There are many professions including journalism, legal profession,
medical profession, accountancy and the like. Every profession has its own professional ethics.
The basic purpose of journalism is to make the public aware of what is happening around in
the areas of politics, economics, business, society, entertainment, sports, and so forth. A journalist
has to present facts in an objective manner without fear or favour. There should be truth and
fairness in the reporting of a case. The freedom of press should be practiced with caution and
circumspection, and the reporting must be done with decency and in a good taste. Truth reporting
is not a libel, but the information reported must be based on accuracy, professional integrity and
objectivity.
A doctor is supposed to maintain the highest standard of professional excellence. A doctor
must not be influenced by monetary temptations and profit motive. A doctor must maintain
professional independence. A physician must not engage in self-aggrandizement or self-
advertisement. A doctor must accept only the professional fees and no other money. A doctor
must take great caution in publishing or using new technique or discovery. A doctor should
certify or testify only to that
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261
which he has personally verified. A doctor must not do anything that will weaken the resistance
power of human beings. The duties of a doctor include complete loyalty to patients and maintain
secrecy regarding what he has been told by the patient. A doctor must give necessary treatment in
emergency as a humanitarian service. A doctor should behave with his colleagues in such a way
as he himself will expect them to behave with him. A doctor must not entice away the patients
from his colleagues.
A lawyer should maintain the dignity of his profession, independence, and guarantee profes-
sional confidentiality. He must respect the individuals involved in a court case. He is supposed
to follow the legal codes of the country. He should not ask his witnesses to give false or wrong
evidences. He is supposed to fight for truth and justice. Engineers are supposed to follow general
ethical principles while discharging their duties. He should maintain confidentiality. He should
pay particular attention to safety in design and operation for the concerned processes and
products, and should not misuse his power and position. He should not follow unfair practices
and must refrain from breach of contract. A chartered accountant (CA) is expected to work with
professional dignity, prestige, honour and competence. He or she shall act in public interest and
public responsibility must always be present in his mind. He should maintain objectivity,
integrity, professional compe- tence and confidentiality.
All the professions have ethical dilemmas. These will have to be resolved by keeping in mind
the supremacy of professional ethics, objectivity and truth, and not personal interest, private
motive, rapacity and selfish gain.

Key Terms
Public Accountability Common Good Sustainable Development
Media Ombudsman Deontological Sense Window Dressing
Negative Journalism Consequentialism Cost Auditing
Meta-ethics Cooperative Conflict Race to the
Teleology Engineering Efficiency Bottom
Perjury Economic Efficiency

Test Your Knowledge

1. State whether the following statements are True or False
(i) In a cooperative conflict, the broad objective remains the same.
(ii) Journalism has no public accountability.
(iii) Mercy killing is always ethical.
(iv) According to the Hippocratic oath, abortion is ethical.
(v) It is unethical for a lawyer to take up the case of a bad person.
(vi) A doctor must not entice away the patients from his colleagues.
(vii) A journalist has to present facts in a subjective manner without fear or favour.
(viii) Maximisation of social welfare is not always the motto of the engineers.

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 Professional Ethics and Human Values
262
(ix) In the epistemological sense, the duty of a lawyer is to be understood in terms of ethical
duty or the duty to reveal truth and justice.
(x) Till 2008, 60 states have adopted the Bar Association’s model codes.
2. Fill in the blanks
(i) To the Greek philosophers, a life of is more adorable than a life of
and .
(ii) Before the onset of the Industrial Revolution, work ethics was not a popular term.
Workers preferred leisure more than work and even by raising wages labour supply
could not be increased. This is substantiated by the theory of .
(iii) The philosophy of practiced during the period of globalization is in fact
designed to work against these workers in the matter of wage payments.
(iv) The very basic ethical principle of journalism is to present the facts in an
manner.
(v) Treating the sick as a sacred bounden duty above all is upheld by .
(vi) The Bar Associations emphasise the importance of and
.
(vii) Lawyers have to maintain a balance between their and the
and trust they enjoy.
(viii) The Rules for Professional Conduct were first formulated as early as in
on the basis of the .
(ix) The genesis of the modern accounting profession is the appearance of
companies during the days of in England.
(x) is the fulfillment of the final cause of a profession.
3. Choose the correct option
(i) The World Medical Association Codes was formulated in:
(a) London, 1949 (b) London, 1984
(c) France, 1949 (d) Denmark, 1950
(ii) One of the earliest exponents of medical ethics is:
(a) Aristotle (b) Pythagoras
(c) Patanjali (d) Hippocrates
(iii) Who regarded labour as the fundamental source of creation of all values in the capitalist
system which, according to him, is the most progressive mode of production?
(a) Victor Hugo (b) Adam Smith
(c) Karl Marx (d) None of them
(iv) Who developed the idea of spiritual callings to materialise the activities relating to
economic development through proper work ethics?
(a) Karl Marx (b) Calvin
(c) Adam Smith (d) All of them
(v) According to whom is the respect for the personality of a man is a fundamental ethical
principles under all situations?
(a) Immanuel Kant (b) Hippocrates
(c) Adam Smith (d) Karl Marx

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263
(vi) The work ethics propounded by the Gita considers work as a type of yoga (meditation)
known as the:
(a) Varnashrama Dharma (b) Karma Yoga
(c) Both (a) and (b) (d) None of these
(vii) According to whom does everything in the world moves naturally towards a specific
fulfillment, and of the various causes that determine an event, the final cause, which
deter- mines the purpose, is the most decisive?
(a) Plato (b) Socrates
(c) Aristotle (d) All of them
(viii) A profession has its specific fulfillment and the final cause, which is also known as the:
(a) Logos (b) Telos
(c) Both (a) and (b) (d) None of these
(ix) Work ethics relates to certain norms and a set of values that a worker considers as
essential in his view while doing works. All this then becomes the basis of:
(a) Organizational Culture (b) National Culture
(c) Work Culture (d) All of them
(x) What is defined as the skill in the performance of any work or duty?
(a) Karma (b) Dharma
(c) Rasa (d) Yoga

Review Questions
1. Define a profession and its essential characteristics
2. What is professional ethics? What are the purposes of such ethics?
3. How will you relate professional ethics and human values?
4. Explain ethical dilemmas in any profession that you are acquainted with. How do you
propose to resolve such dilemmas?
5. A murderer has approached a lawyer to save him from punishment and he has confessed his
crime. Should the lawyer accept his brief? Should he try to save him?
6. A physician’s services are essential in nature to any society for helping the sick and dying
people. Given that ethical duty, is it moral for any physician to go on strike for his possible
pay rise? Justify your answer.
7. What should be an ideal ethical code for journalists? Should a journalist publish all the
details about an incident of rape that he has witnessed himself and the rape victim?

Web Links
1. http://en.wikipedia.org/wiki/Professional_ethics [Professional Ethics]
2. http://www.psihq.ie/DOCUMENTS/Code%20of%20Professional%20Ethics.PDF
[Code of Professional Ethics]
3. http://en.wikipedia.org/wiki/Journalism_ethics_and_standards
[Journalism Ethics and Standards]

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 Professional Ethics and Human Values
264
4. http://www.issuesinmedicalethics.org/054mi105.html
[Medical ethics: relationships between doctors]
5. http://rajeev2007.wordpress.com/2006/10/20/the-hindu-work-ethic/ [The Hindu Work Ethic]
6. http://rationalwiki.org/wiki/Work_ethic [Work Ethic]
7. http://rationalwiki.org/wiki/Work_ethic [Legal Ethics]

References
American Medical Association (1996), Code of Medical Ethics: Current Opinion and
Annotations, AMA, Chicago
Bauchamp, T.L. and Childress, J.F. (2001), Principles of Biomedical Ethics, Oxford University
Press, New York
Ghosh, B. N. (2010), Rich Doctors and Poor Patients: Market Failure and Healthcare Systems in
Developing Countries, Wisdom House, Leeds, UK.
Ghosh, B. N. (2009), A Tale of Two Economies: Development Dynamics of India and China,
Nova Science Publications, New York
Ghosh, B.N. (2007), Gandhian Political Economy, Ashgate, London
Ghosh, B. N. and Guven, Halil (2006), Globalization and the Third World, Palgrave-Macmillan,
London and New York
Hausman, Carl (1992), Crisis of Conscience: Perspectives on Journalism Ethics, Harper Collins,
New York
Hazard (Jr.), Geoffrey and Dondi, Angelo (2007), Legal Ethics, Stanford University Press, USA
Sandeles, Karen (2003), Ethics and Journalism, Sage Publications, London
Veatch, R.M. (1988), A Theory of Medical Ethics, Basic Books, New York
WMA (1949), “International Code of Medical Ethics”, World Medical Association Bulletin,
`Vol.1, #3

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 CHAPTER
13
Organization,
Culture and
Ethics

L E A R N I N GO B J E C T I V E S

This chapter will help the reader to understand

■ Organizational structure and ethical culture
■ All about leadership
■ Value-based management
■ Social audits, ethics committees and hotlines
■ Whistle-blowing

INTRODUCTION
An organization without any ethical culture is like a ship without a rudder. It has no direction, no
trajectory and no definite destination. Such an organization cannot be successful in the long-run
even though it may earn a hunk of money. In recent years, the failures of most of the well-
established companies did not occur due to lack of salesmanship, goodwill or strategic planning
but mostly because of lack of ethical terra firma. The lesson that we get from the failure of these
corporate giants is that unless a company is seriously accepting and operating value-based
management, it cannot survive with success. The word success has to be cautiously interpreted.
Making money is not necessarily and always the yardstick of success. The success must be
interpreted in terms of a composite index that includes good financial returns, goodwill,
customers’ satisfaction, employees’

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welfare, performance of social and ethical responsibilities, and above all, the organization’s
ethical core values.
In the present chapter, an attempt is made to analyse the structure, leadership and ethical
culture of an organization. In doing so, the importance of leadership in the development of ethical
core values and value-based management is also discussed at some length.

ORGANIZATION STRUCTURE, LEADERSHIP AND ETHICAL CULTURE

An organization accommodates many types of structures with respect to administration and functional
matters. There may be a hierarchical centralized or a decentralized organizational structure (see
for details, Ferrell et al., 2003). In the matter of taking decisions, a centralized system is less
flexible, and less amenable to adaptability. But it is not so in a decentralized system. Such a
system is very flexible, adjustable, amenable and ever ready for adaptability. In most of the cases,
a decentralized system is more informal and personal whereas the centralized system is more
formal and imper- sonal. The bureaucratic control in a centralized system is very rigid and time-
taking but the division of labour is well-defined. A centralized system follows the top-down
approach in decision-making but a decentralized system follows the bottom up method.
The speed of implementation is very quick in a centralized system but it is rather slow in a
decentralized system.

Ethical Implications of Organization Structure

In general, in a centralized organization structure, the down-top communication is few
and far between, and there is also an absence of personal contact, relationship and concern. Thus,
the employees at the bottom have practically no chance to communicate to the top level bosses. It
is this distance that makes the medium level and lower level employees somewhat aloof and
alienated from the mainstream culture and ethos of the organization, and because of the
communication gap, the lower level employees often engage in many unethical activities such as
bribe, gift-taking and so on for favours done to outsiders. They may also run sweat shops, use
forced labour and illegal immigrants for the factory work. This may be done without the
knowledge of top level bosses as they never visit the production centre of the factory. In fact, lack
of communication, and absence of direct supervision by top level employers can lead to many
unethical practices in and outside the factory premises. Unless the ethical culture is put into the
communication flow and all the official activities by a motivated leader, the employees in a
centralized system do not have the feel and compulsion to work ethically.
Contrary to the ethos of a centralized system, a decentralized system is more informal with
personal contact and communication. In such a system, the flow of information is very quick and
information asymmetry is almost conspicuous by its absence. So, any unethical behaviour by
an employee promptly comes to the notice of everybody through grapevines. It is very difficult
for an unethical person to survive there for a long time, as he is caught and condemned sooner
or later. Official ostracism is the cost of an unethical behaviour. Thus, an unethical aberration
can be corrected more easily in a decentralized system than in a system which is centralized. A
decentralized system can resolve, or even avoid, many ethical dilemmas more promptly
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through

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informal discussion, as the system is more democratic. In a centralized system, however,

corruption and similar other unethical practices get institutionalized over time, and it is very
difficult to remove them. In fact, it takes a long time to unearth unethical practices as they get
entrenched. The procedure is too formal, cumbersome and lengthy. However, if a person is found
guilty of any serious unethical aberration, he is dismissed from the job. However, the bottom line
is that certain unethical practices are possible in both centralized and decentralized types of
organizations. But in a centralized system, it takes a long time for the unethical cultural rooting
and the elimination of such a behaviour, as compared to a decentralized system where minor
unethical aberrations may come and go without rooting and sprawling. Much will depend on the
nature of organizational leadership. Let us concentrate on this topic.

Leadership and Corporate Ethical Culture

The ethical culture in a corporation depends primarily on the nature of its leadership. If the
leadership is ethical, the ethical culture easily percolates down to the level of the whole
organization and its employees are inspired naturally by it. A good leader can contribute to the:
● Creation of some ethical core values

● Setting of ethical goals and agenda for action

● Development of ethics programmes for the company (by setting up a code of ethics, ethics

committees, ethics hotlines, and so on)

● Development of ethical culture

● Implementation of all ethical policies

● Settlement of all ethical dilemmas

● Resolution of all conflicts through ethical means

Who is a Leader?
A leader is a person who can lead a team of followers towards the right direction to achieve a
particular goal. A political leader, however, is substantially different from an ethical leader. But a
leader has the ability or power to guide the followers in a compelling way.

Types of Leader
A seminal contribution has been made by Daniel Goldman in recognising six types of leadership
in an organization (see Goldman, 2006). These leadership styles are:
● Affiliative type (values the needs and emotions of people)

● Authoritative type (strong-handed with a positive vision)

● Coercive type (gets works done by imposing fear and punishment)

● Democratic type (depends on participation and team work)

● Coaching type (teaches the people how to work with skill and competence)

● Pacesetting type (sets high standards and gets the work quickly done)

As against the aforesaid six types of leadership proposed by Daniel Goldman, a different type
of classification of leadership is proposed here by the present author. In this schema, we have

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the following seven types of leadership which is somewhat fundamentally different from the one
proposed by Goldman.
● Proactive Taking the action on its own without waiting for the situation to
Type arise Doing something by way of reaction or solving the problem
● Reactive arisen Doing something new for the organization
Type
● Creative

Type
● Creatively Destructive Type Destroying the old habits/culture or practice
and creating something new
● Benevolent Dictator Type Working like a dictator but for the good of an
organization and its stakeholders
● Collaborate-cooperative Type Deciding everything on the basis of cooperation and collab-
oration. It is more democratic in orientation
● Radical Transformer Type Doing things in a radical way to improve the status of the

organization by making structural changes. This is somewhat similar to the type of leader
mentioned by J.M. Burns (1985).

Leadership and Power Structure

A leader possesses certain inherent or acquired power and, therefore, has the ability by virtue
of his power to convince or compel others to follow a certain course of ethical action proposed
by him. Power remains important in the sense that it is necessary for making and implementing
effective ethical policies. French and Ravin (1962) have identified five main power bases.
These are: coercive power, reward power, referent power, expert power and legitimate power.
However, for the present discussion, an attempt is made here to analyse the power bases in a
broader manner and we propose the following seven critical power bases:
● Power accrues to a person because of his expertise and vast knowledge

in a particular discipline. It is an accepted fact that knowledge is power.

● Power comes out of the official position. The official position might have been

acquired by him on the basis of merit or nomination by a superior authority.

● Power may be because of the person’s intimate and informal contact with

the higher-ups who can make and unmake policies.

● Power of an authority may be delegated by a superior authority. This

power may be for a temporary period.

● Power is acquired by a person if he has the ability to hire and fire. This

power is mainly valuable for the employees of an organization.

● A person becomes powerful when he is a in a position to use coercive

method to penalise persons working under him. He has a certain amount of

nuisance value. He may not be in a position of hiring and firing but he can write bad
reports or can complain to the higher authorities. This power generally belongs to middle
level managers or supervisors.
● Power comes from personal charisma, ability to convince others and

certain behavioural traits (like friendship, spirit of sacrifice, fellow-feeling,

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uprightness and the like) that make a person popular and powerful.

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It is instructive to note that power is not an end in itself but a means to an end. The end may
be public good and/or organizational development. An ideal system would be like an expanding
concentric circle, as Gandhi believes, where the power of the outer circle will not squeeze the
inner circles but would mutually reinforce each other (Gandhi, July 28, 1948).
For the ethical development of an organization, the leader must possess certain power base and
should be a person of high moral integrity and strong personal character. An ethical leader must
possess certain habits and character traits. These are discussed as under.

Ten Habits of Strong Ethical Leaders

Following Stephen Covey’s classic book (1989), A.B. Carroll (2003) formulated seven habits of
highly moral leaders, which Ferrell et al. (2003) has adopted to characterise strong ethical leaders.
The ten habits discussed here are somewhat different from the seven habits identified by them.
In the present discussion, an attempt is made here to identify ten habits of strong and successful
ethical leaders. These ten habits are:
● An ethical leader always works and feels for the good of the people in

general including the consumers, employees, suppliers, stakeholders, clients and the
general public.
● He is inspired by the ethical principles of care, compassion and kindness. He

does not do any harm to anybody knowingly. His ethical policy is based on the principle of
service to humanity and in particular to the organization where he is working.
● He follows the policy of justice and fairness in all his official and personal

dealings. He is fair and impartial in treatment avoids practicing any unnecessary prejudice
or discrimi- nation.
● He gives respect and dignity to human beings and does not look down upon

anybody. He follows the principle of human rights and the basic equality of all human
beings.
● He keeps his promises, honours, his contracts and commitments and follows

just laws. He is reliable and trustworthy in all matters.

● He is guided by the policy of truth, honesty and integrity. He holds an

exemplary moral character which influences the organizational culture and values. He is a
role model and influ- ences everyone around him.
● He is devoted to his duty and only performs those activities which are

morally right. He observes all categorical imperatives not only in his personal life
but also in his official capacity.
● He respects individual freedom and autonomy. He encourages the principle of

self-deter- mination within the general ethical framework. He gives importance to individual
opinion, right to free choice and right to have privacy.
● He always follows the principles of transparency and accountability. He

discloses to the concerned persons all types of information that he is supposed to share. He
believes in the principle that all individuals have the right to know many corporate matters.
● In discharging his works, he follows a rule-based policy without fear or

favour. However, in the application of the set rules, if there is any chance for some people
getting harmed, the ethical leader tries to minimise the harm to the maximum extent
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possible by following the principle of negative utilitarianism, i.e. minimum loss to
smallest number of people.

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VALUE-BASED MANAGEMENT
One of the important ways through which the ethical culture of an organization can be established
and entrenched is the introduction of value-based management (VBM). Value-based management
aims at looking at the long-term benefits and goal (shreya) and values rather than a short-term
goal that is temporarily pleasant (preya) and incorporates certain long-lasting motivational
strategies that transform the whole concept of management from the skill-based objective concept
to the subjective concept of human development in the true sense of the term (Chakravorty,
1998). Value- based management is human-centric and aims at holistic development of man and
expansion of human capabilities. Once the owner of the renowned automobile manufacturing
firm, Mitsubishi, said that, “we do not manufacture automobiles, we make men”. This sums up
the whole philosophy of value-based management. Value-based management is a process of
transforming the level of consciousness to purer and higher levels, and an ethical leader of an
organization can be of consid- erable help in this direction. Such leaders can make it sure that the
company is based on some ethical mission and vision, and all the concerned stakeholders
follow the ethical path without any exception (Seiznick, 1983).
The mission and vision of an ethical organization will clearly state the fundamental purpose of
the existence of the company apart from making money. In fact, the real reason for the existence
of a corporation is other than simply making money. In many cases companies are inspired by
social mission and aim at enhancing the community value. Some well-known
companies state their values that are to be followed very seriously. These values may vary from
company to company depending upon the focus, expertise and experience. However, some values
may still remain funda- mental. These values are: integrity, honesty, serving the people, fair
dealings, value for money, and so on. Some companies may emphasize equal employment
opportunities.
Code of ethical conduct, originality, social responsibility, innovation and courage. These are
the values set by Levi Strauss and company, and the company has the courage to state that it will
“clothe the world”. The mission of the company is very clear.
The core values are immensely essential for the successful existence of a company. These
are the be-all and end-all of an organization. The core values are core ideological tents of a
company (Svendsen,1998). Some of the core values of well-known companies are:
“We believe in the dignity of the individuals.” (Johnson & Johnson)
“We exist to provide value to our customer.” (Wal-Mart)
“To honourably serve the community by providing products and services of a superior quality
at a fair price”(Motorala)
“Respecting and encouraging each individual’s ability and creativity” (Sony)
Svendsen believes that through core values and core ideology, the employees of a company
can be thoroughly indoctrinated and gradually, a culture will emerge as a mark of identity that
will sustain it. A value-based organization will follow the core values in all its important
activities. Such a system of management will create and sustain an ethical culture, and will guide
the building of strategies and policies. Given the integrity and the value-based management
technique, it is possible for managers to:
● Act with compassion and kindness

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● Invent new, innovative strategies

● Understand the customers more clearly and serve them better
● Create a culture of understanding and work on the basis of fairness and justice

● Empower everyone to do his/her best

It should be noted that when a company becomes value-based, the message has already
percolated down to the stakeholders and they will approach the company to receive value based
services and share the culture. That tacit understanding will go a long way for the company to be
successful.
The value-based management can develop from the perspective of spiritual leadership
(Reave, 2005). The basic idea of spirituality is the discovery of ultimate meaning
and purpose of life. A person can be spiritual without being religious; conversely, a person
may be religious without being spiritual. The two are separate entities. Spirituality has a broader
connotation and is more relevant for an organizational management. In the case of an
organization, spirituality means the management on the basis of its purpose and enshrined value
premises. Spiritual values emanate from what Mahatma Gandhi called “inner voice” or wisdom.
Wisdom is a virtue and a part of morality with the help of which one can set the correct goal and
build up strategies to achieve it. The spiritual values give the courage to do the right things
without fear and favour, and these right things are directed to the maximization of social benefits
and common good. When a person (say leader) gets illuminated by the light of spirituality, he will
be ready for a calling or a profession where he can do his duty without being disturbed by any
worldly materialism. This type of duty enables him to work for others who may be customers,
suppliers, shareholders and the society. The duty to do good is also advocated by the Kantian
categorical imperatives. In the Bhagvad Gita, Lord Krishna advises Arjuna to do selfless
duties without caring for reward.
Value-based management is a system of management that manages the organization on the
basis of accepted ethical values or values that aim at satisfying both stakeholders and
stockholders. In such a company, not only the ends should be good, but also the means. There
ends do not justify the means; both are to be ethical. In a value-based management, all secular
values like truth, dignity, honesty trust and the like are given important roles in every matter. A
value-based management approach is more effective in the long run than a rule based
management approach. This is simply because values are more or less permanent but rules are
rather temporal. Even if we apply the logic of ethical relativity, it can be said that the universal or
absolute values are unchangeable. A system of management based on values is more appealing to
the human mind since it is more supportive and permanent.
In the value-based management, six core values have been found to be useful by researchers
(Schartz, 2002). These core values are:
● Trustworthiness

● Responsibility

● Respect for others

● Fairness in all dealings

● Care and compassion

● Corporate citizenship

Corporate ethics should clearly define the moral identity and moral tone of a corporation. It
should provide a set of guidelines for everybody to follow and to adjudicate disputes on ethical
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issues. The importance of ethics in value-based management can hardly be exaggerated. Many
successful companies which are implementing value-based management are often referred to as
firms of endearment as these firms become dear to every stakeholder. These days, leadership is
defined in terms of value-based management that it can influence, and the companies with high
ethical values are often used as the benchmarks for transforming the organizational ethical
culture of companies with a comparatively lower ethical index.

EMPLOYEES RIGHTS AND CONFLICT OF INTERESTS

Employees in any organization have certain rights and obligations. The fulfillment of these rights
is mutually beneficial for both, employees and the organization. The following are the major
important rights:
● Right to have fair wages

● Right to have good working conditions and environment

● Human rights and mutual respect

● Right to have confidential personal information

● Right to be a member of a recognized labour union

● Right to have collective bargaining

● Right to have workplace safety and security

● Right not to be asked for unethical and illegal favour or activities

● Right to file legal complaints against the employer, if necessary

● Right to have legal protection

● Right to enjoy workers’ compenzation

● Right to have privacy

● Right to have fair treatment and non-discrimination in the workplace

● Right to get promotion if qualified and experienced

Conflict of Interests
The conflict arises out of two competitive situations which are more are less equally desirable.
The situations giving rise to conflicting interests of a person (employee or
employer) may be as under:
● Private or personal interest and organizational interest

● Outside employment in another organization may cause conflict with the present

employment for many reasons

● Competing interest and loyalties

● Outside activity and the primary organizational interest

● Institutional interest may affect employee interest

● Conflict between the two roles of the same person (decision-making and ordinary employee)

● Conflict as profits maximize and also as a moralist

● Conflict to choose between two wrong or right situations when a choice has to be made.

There may be various types of ethical dilemmas (see Chapter 10).

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● Conflict between morality and rationality

● Conflict is inherent in many cases involving principal and agent (discussed in Chapter 16)

STRENGTHENING PERSONAL AND ORGANIZATIONAL INTEGRITY

The organizational ethical culture of a company primarily depends on the people who are manning it
and on the nature of leadership as well. We have already discussed the importance of leadership
in the development of ethical organizational culture. It is an empirical fact that personal integrity
and organizational integrity are closely-interlinked. However, a person may be immoral but still
the organization may remain honest and ethical. This is possible in a micro situation of a
particular person or employee, but if all the people or employees are immoral then it is rather
difficult to make the organization ethically sustainable. In many cases, organizational behaviour
influences personal behaviour and in turn, personal ethical behaviour also influences organizational
behaviour. Since both are interdependent to a great extent, it is necessary to strengthen both
personal and organizational behaviour. The following are some of the ways through which both
personal and organizational integrity can be strengthened:
● The employees must be held responsible for any unethical action whether that action is

taken on behalf of the organization or on a particular employee’s own behalf.

● The organization must develop a code of ethical conduct for everybody.

● Personal integrity should be the guiding principle everywhere whether at work or in the

private domain. Once this is distilled in the sub-conscious mind, it will become a part of
individual behaviour.
● It is necessary to understand right and wrong very objectively both in the case of personal

activities and also in organizational matters.

● The organization must encourage right, ethical leadership and it will ensure that ethical

personal behaviour converges with that of organizational behaviour. The leader must
circulate the advantages of ethical behaviour and action for all concerned and also for the
growth of organization.
● The manager should be responsible for the maintenance of an ethical ambience through the

functioning of ethics committee which will work on the basis of reward-punishment

principle. A carrot-and-stick policy should be used to carry out proper functioning.
● Consistent ethical behaviour and commitment to the idea of growth of the company will

strengthen both personal and organizational integrity.

The virtues like mutual trust and unity, participatory management style and the supporting role
of the organization will go a long way to maintain an atmosphere of integrated ethical
development. The motivation for the development of altruism, common values and community
services should be encouraged both at the micro and the macro level of company management.
What is perhaps most important for an organization is to inculcate the habit of moral uprightness
coupled with the idea of social responsibilities. For both these noble ethical missions, it is
imperative to be spiritually motivated. What is the use of winning the whole material world, if the
soul is lost? Unless a person understands the meaning of spiritually, it is for him to strengthen his
own and his organization’s ethical integrity.

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SOCIAL AUDIT
Social audit is comparatively a new concept that tries to study the social responsibilities of a
business organization in a systematic manner. It is a system that attempts the social performance
and not the economic performance. Social audit is a method of understanding, measuring,
reporting and improving the organization’s social and ethical performance. Social audit is
necessary to substan- tiate the claim of a company that it has been performing social
responsibilities. The basic purpose of social audit is to identify and measure the social component
of a business organization. Social audit is basically a tool of analysis.
In the process of measurement, a quantitative or a qualitative method can be used. Since
some of the social responsibilities are not amenable to quantitative manipulation (for instance,
the development of business relations in various social areas), it is better to use both quantitative
and qualitative measures. Social audit should be conducted by both internal auditors and external
consultants for a better, neutral auditing.
Theodore Kreps (1940) coined the term social audit in a study of 72 industries over a period
of two decades in an attempt to study the social performance through the system of social audit.
The methodological approach to social audit has been modified subsequently by many
researchers and the prominent among them was Howard Bowen (1953) who took into account
many variables including advertisement, community relations, human relations and public
relations to gauge the extent of social performance of companies.
The scope of social audit includes many social areas including the satisfaction of community
needs, building of social infrastructure, consumerism, labour and employee relations, help to
minor- ities, disabled, orphans and very old people, donations and ecology and environment
protection, and the like. The following are the major objectives and advantages of social audit:
● It makes the company aware of the social works it is doing. This may function as a guide for

the future course of action.

● It is an important determinant of the public image of a company.

● It can be helpful to qualify a company to be a corporate citizen.

● It can reveal the social status of a company.

● The company can know the practical effectiveness of the different types of social

programmes and make a comparative cost-benefit analysis in this regard.

● In making future programmes, the company can make use of the data and

information provided by social audit in its budgeting, priority formation and project
evaluation.
● Social audit can be related to various social impacts of corporate social responsibility

programmes.
● Social audit creates an impact on corporate governance and is a reflection of its social effec-

tiveness. It is taken up for the purpose of knowing its contribution to social development.
● It measures the gap between social objectives and actual achievement.

The Indian Scenario

In India, for the first time, social audit was conducted by TISCO to “examine and report whether
and to what extent the company has fulfilled the objectives …regarding its social and moral
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responsibilities to the consumers, employees, shareholders, society and the local community”.
Subsequently, many other companies including the UTI, SAIL, JK Synthetics, Escorts started
social audit on a regular basis. However, many renowned private companies in India do not
perform social audit as it is not mandatory. The Department of Public Enterprises has now made
social reporting compulsory for each and every public enterprise which is under compulsion to
disclose its social expenses. This is a great step forward and it should be extended to the private
sector as well.

ETHICS COMMITTEES
Ethics committees are formed in many organizations for the purpose of setting ethical standards
for both the employees and the employers, to settle disputes of ethical nature, and give ethical
guidance to the organization by formulating certain ethical policies and codes of conduct. These
committees are concerned with all types of ethical issues that an organization is confronted with
and solve the ethical dilemmas. The Motorola for this purpose maintains Business Ethics
Compliance Committee (Ferrell et al., 2003, p.178).
In order to function properly, however, the ethics committees’ members must be neutral and
independent, and they should have no stake with the management. Hence, many analysts
recommend that ethics committee should consist of both insiders and outsiders. These people must
have an sound knowledge of the organization’s culture, values, mission and vision. They should
have independent power to settle an issue.
In many organizations, however, the ethics committees cannot function well because of many
constraints. Some of these constraints are:
● If the members are appointed by the management, most of the time, they are misused

and have to abide by the view of the management in every situation. The CEO
often recruits only those members who are henpecked or yes-men.
● Sometimes, the members of the ethics committee are not well-aware of the

company’s stand, core values and ethical culture. Moreover, a company’s policy is a
variable and not a constant: for every case, it has a different policy. Supposing that an
employee is not liked by the CEO, he may be fired for even a minor infraction. Very often a
double standard is followed and the Committee is politicized.
● Many a time, the personal views of some members may clash with those of other

members and even if there is a consensus on a particular issue, the decision arrived at by the
ethics committee may be in conflict with the organization’s own standard. Unfortunately,
some members may not know the views of the CEO on a particular case, and that may
create a trouble if his views are different from those of the members. The manager’s
personal view in a case may be different from the view of the management or the Board of
Directors.
Although ethical committees are recommended by experts for better corporate governance,
many Indian companies do not have the ethics committee as these are not mandatory.

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ETHICS HOTLINES
Ethics hotlines are communication facilities that can bring any matter related to any ethical issue
to the notice of a member of the ethics committee for an immediate solution. These are toll-free
lines. On receiving the communication from an employee or even from an outsider, the member
of the ethics committee starts investigation, finds facts and solves the problem. The investigation
is conducted by an ethics officer specially appointed and empowered for the purpose. The
matter regarding ethical violations is first reported to the ethics officer who is a full-time
employee. The allegation is kept secret for the personal safety of the reporter. The reporter may
be the victim, his/ her colleague or well-wisher. Ethics hotline is one of the ways to control
unethical practices inside an organization. It is the duty of the organization to make sure that
every employee is aware of the ethics hotline and its purpose and working.

WHISTLE BLOWING
Whistle blowing is a mechanism of protesting against the misdeeds of the
manager, some employees or any one of the corporate bosses. It is a method of
publicly exposing either the covert or the overt unethical or immoral activity of a person. Whistle
blowing is a way of reporting organizational misconduct. The reporting of a wrong doing can be
done by a journalist, public interest groups or even by a single individual who may or may not be
employed in the company. The reporting may come from the insider or outsider (Hoffman, 1990).
It may be personal or impersonal. The analogy is taken from the world of sports where the referee
blows his whistle to announce a foul when somebody violates the rules of the game, then the
game stops for a moment and the penalty is imposed. It is instructive to note that all allegations
made by a whistle blower may not be correct in the ultimate analysis, but it is just a first
information report (FIR) for a possible corporate crime. Whistle blowing goes against the
boundary of loyalty towards the company one is working for, and it involves a sort of
ethical dilemma: on the one hand, there is an implicit loyalty and on the other, there is
something which is going against the moral fibre or culture of the potential whistle blower.
Objectives of whistle blowing:
● Whistle blowing may be undertaken to bring the unethical matter before the public.

● It is resorted to for increasing the awareness of the people about a particular firm or a

corporate house. This is one of the ways the public can be informed about the real picture of
the company about what is happening inside.
● The basic purpose is to put the wrong-doer on the ethically right track. It a method of moral

correction. It is an act of reform.

● It is to prove that the company is not ethical or the involved person is unethical, although

the company is projected to the public as ethical.

● It is practiced to bring justice and fairness in all the activities of the company, and therefore,

the deviations need to be brought to the surface.

● It is necessary to book the wrong-doer and punish him as per the law of the land.

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● The allegation is made for the purpose of further investigation and analysis to reveal the
truth.
● It may be necessary to protect or improve the corporate image, which is under threat.

Can Whistle Blowing be Justified?

Whistle blowing is not always justified, but under certain circumstances, it can be resorted to.
DeGeorge (1990) is of the opinion that under the following five conditions, whistle blowing is
justified:
● It is justified if the fool-proof evidence (eye-witness) or any documentary evidence can

support the case of the whistle blower. If one is sure that the policy, product or practice of
the firm is damaging to the public’s security and safety.
● Whistle blowing is justified if the product or policy of the firm is going to harm the

consumers and others members of the public in a serious manner.

● When the serious threat (the way the harm will come) is identified, the matter needs to be

reported.
● Whistle blowing is justified if the immediate supervisor of the employee is indifferent about

the matter when internally reported. The matter can be reported to the board of directors.
● The whistle blower must be sure that if the case is reported, a proper action will be taken to

remedy the situation. It can be reported, if the risk of whistle blowing should be equal to the
degree of its completed success.

Necessary Precautions before Whistle Blowing

In a paper written by Brown and Williamson (as quoted by Weiss, 2009, p. 231), the following
twelve guidelines have been offered as a precautionary measure before one decides to blow
the whistle.
● It is necessary to make sure that the situation justifies whistle blowing in spite of the

potential risks involved.

● Examine your motive of whistle blowing. Is it strong and justified under the given situation?

● Prepare beforehand all the documentary evidence and information. You may have to

produce them in a court of law.

● Clearly understand the category of wrong-doing and the person to whom it should be

reported.
● State your allegation specifically and clearly.

● Be ready with facts always.

● First report the case to the internal supervisor, and if he does not pay any heed, report it to

the external authority (may be newspapers).

● Decide whether you want to disclose your identity or not. Study the risk.

● Decide whether you should resign or not before whistle blowing. One should take into

account all the possible consequences and risks involved in whistle blowing.
● Follow proper guidelines for reporting such cases of wrong-doing.

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● It is imperative to consult a good lawyer at every step and listen to his advice.
● Prepare all the documents that may be necessary if your case is challenged in the court of
law.
Apart from all the twelve precautionary measures to be taken before whistle blowing, it is also
necessary to ponder over the following five points not mentioned by Brown and
Williamson:
1. Is it not advisable to take your colleagues or at least a few of them into confidence? They
may support you every time you need their help.
2. Does the whistle blowing satisfy your personal vendetta? Or, is it for the benefit of all the
employees or the public at large? If it is a personal grudge, whistle blowing may not be
necessary. Self-interest is not a compelling moral principle.
3. Study minutely the consequences (in a cost-benefit framework) of your action on you and
on your family.
4. Confide with your very close friend or relative about your decision to whistle blowing.
5. Ponder over all the alternative actions that can mitigate the unwanted situation.

Possible Consequences of Whistle Blowing

● The whistle blower may undergo constant pressure, trauma and stress. This may take a toll
on his health, both physically and mentally.
● The whistle blower may be terminated from his job. His family may have to bear the brunt

and his family budget will become unbalanced.

● If he is not dismissed from the job, he may be discriminated against by the management. He

may be given more onerous duties, burdensome assignments and his every action will be
monitored. He may have to undergo disciplinary actions and there may be financial
penalties and harassment.
● He may be identified as a trouble shooter and some of his colleagues, who are very loyal to

the company, will shun him and may report his weakness or dereliction of some duties. He
may be officially ostracized.
● Some of the members of his family may not cooperate with him and family relations may be

restrained for a while.

However, if he wins his case, and draws the attention of his sympathetic friends and the public,
he will be able to restore the lost paradise. If a person wins the battle based on an ethical issue, he
gets a lot of mental satisfaction which is incomparable.

Protection to Whistle Blowers

Depending on the situation of the case for which WB is resorted to, protection may or may not be
justified.
Protection to the whistle blower is justified under the following situations:
● The whistle blower is fighting for a morally right cause.

● He is fighting for a common cause which affects his colleagues and the public.

● Protection can be given by keeping his name and identity secret.

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● Legal protection can be given if he is fighting a socially and morally just cause.
● In case of any punishment imposed upon him by his firm, the government can take action
against the firm if the latter is right.
However, protection should not be granted to a whistle blower under the flowing
situations (Ewing, 1977):
● If the whistle blower has divulged the confidential matter of the company which is supposed

to be kept secret for the sake of business.

● When the accusation is not convincing about the wrong-doing of the company and when

that accusation is damaging to the company.

● When the accusations are irrelevant to the policy and practices that may appear to be

irrespon- sible or illegal.

● Whistle blower relating to a manager’s competence in daily work decision has nothing to

do with legality or ethicality. So this type of accusation is not to get any protection from any
quarter.
● Whistle blower against the decision of the management to transfer, demote or discharge, if

rightly done, is not legal or moral. Hence, the whistle blower should not be protected.

Indian Laws on Protecting the Whistle Blowers

In India, the Public Interest Disclosures and the Protection to Persons Making the Disclosures Bill of
2010 is the outcome of the Supreme Court’s strong pitch for a mechanism to protect the whistle
blowers (The Hindu, 2 Sept., 2010). The Court issued an order to the Central Vigilance
Commission as early as in 2004 to receive and act on the complaints of the whistle blowers and
protect them. The Bill was to become a law in 2006. The Bill concentrates basically on two
things: First, to protect the identity of the whistle blower and second, to safeguard him against the
punitive disciplinary actions. However, what measures will be necessary to achieve these two
objectives have not been mentioned in the Bill.
The Right to Information Act (RTI) of 2005 is one of the most powerful laws enacted in India.
But many whistle blowers who are exposing the corrupt officials involved in land scam, sand
scam, and so on are being killed (The Hindu, Sept. 20, 2010). This has been happening in many
parts of India including Bihar, Gujarat and Maharashtra. There is a threat from corrupt officials
and the mafia. Dangerous nexuses between the corrupt officials and the police on the one hand,
and the politicians and the mafia on the other are open secrets. The Central and the State
governments should protect the RTI activists if misconduct, malpractices and corruption are to be
kept in check. In the United States and the United Kingdom, the laws to protect whistle blowers
are more rigorous than those in India.
However, prevention is better than cure. The question then is: How to eliminate the need for
whistle blowing? This is briefly discussed in the following section.

How to Eliminate the Need for Whistle Blowing?

The following managerial actions can reduce or even eliminate the need for whistle blowing that

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may damage the reputation of a corporate house. Some of these actions are also emphasized by
Maatman (2000, p.158):
● Take strict actions against those who are filing false reports.

● Do not produce any harmful or dangerous products.

● Stern actions should be taken against those who are corrupt and accepting or giving bribes,

or engaged in any other type of corruption.

● Appoint an ethics officer to investigate the reported wrong-doing cases.

● Make it obligatory on the part of the employees to bring any act of malpractices and

corruption to the notice of the internal ethics officer or another senior executive entrusted
with investi- gating these cases.
● There should be an internal mechanism to listen to employees’ grievances.

● Reward those people who are ethical and who internally inform the malpractices.

These simple steps will eliminate the need for whistle blowing and perhaps the reputation of
the organization can be kept intact.

Summary
Organizational success needs to be cautiously interpreted. The success must be interpreted in
terms of a composite index that includes good financial returns, goodwill, customers’ satisfaction,
employees’ welfare, performance of social and ethical responsibilities and above all, the
organiza- tion’s core ethical values.
An organization has many types of structures. It may be centralized or decentralized. A
centralized system is very rigid and follows a top-down approach; a decentralized system is flexible
and follows the bottom-up method in decision-making. In a centralized organization,
communication between the top and the lower levels personnel is rather difficult, and hence
ethical culture takes time to become rooted. A decentralized type of organization can avoid many
ethical dilemmas through informal communication. The ethical culture of an organization
depends primarily on the nature of its leadership. A good leader can contribute to the creation of
some ethical core values and can strengthen and sustain the ethical milieu.
There are many types of leadership. It may be authoritative, affiliative, coercive or democratic.
It may also be radical, benevolent, collaborative, reactive or proactive. Leadership has to have
some power base. Power may come from expertise, official position, contact with higher author-
ities, coercive or personal charisma and behaviour traits. The ethical leader should have an ideal
character with accountability and transparency, and must be neutral in making decisions.
The ethical culture of an organization can be established through value based management. It
aims at looking at the long-term benefits, values and goals in the matter of management. The
value- based management can develop from the perspective of spiritual leadership which seeks to
discover the ultimate meaning and purpose of life. The social responsibility of a company can be
enforced by many ways including social audit. It reports an organization’s social performance.
Many companies these days appoint ethics committees and ethics hotlines to promote an
atmosphere of ethicality. The company following value-based management should give special
attention to employees’ rights and try to fulfil those rights. It is indeed necessary for the
employees to strengthen personal

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and organizational integrity at all costs. In case there is any conflict, it should be settled by giving
topmost priority to the organization.
The misdeed of an officer of a company can be exposed by whistle blowing. It is justified
under certain circumstances but it involves many personal risks and undesirable consequences
even to the extent of loss of one’s job. Indian laws give some protection to whistle blowers.
However, it is better to eliminate at all costs the need for whistle blowing in an organization.

Key Terms
Ethics Hotlines
Top-down Approach Official Ostracism
Ethics Committee
Bottom-up Approach Core Values
Negative Utilitarianism
Sweat Shop Social Mission
Ethics Officer
Whistle Blowing

Test Your Knowledge

1.State whether the following statements are True or False
(i) Official ostracism is the cost of an unethical behaviour.
(ii) Power is not an end in itself but a means to an end.
(iii) Stephen Covey’s classic book analyses five habits of highly effective people.
(iv) Value-based management considers only long-term benefits, goals and values.
(v) Whistle blowing is not ethically justified.
(vi) The Right to Information Act (RTI) of 2005 is one of the most powerful laws enacted in
India.
(vii) Whistle blowers never undergo constant pressure, trauma and stress.
(viii) In India, for the first time, social auditing was conducted by Infosys.
(ix) Social auditing is to identify and measure the social component of a business organi-
zation.
(x) Spiritual values emanate from what Mahatma Gandhi called “inner voice” or wisdom.
2.Fill in the blanks
(i) The decentralized system follows a approach.
(ii) A leader who values the needs and emotions of people is an leader.
(iii) The type of leader who works like a dictator but for the good of an organization and its
stakeholders is .
(iv) An ideal leader always follows the principles of and .
(v) Value-based management (VBM) is and aims at the
development of man and expansion of human capabilities.
(vi) The VBM can develop from the perspective of leadership.
(vii) is comparatively a new concept that tries to systematically study the
social responsibilities of a business organization.

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(viii) In India, the and the Bill of 2010 are the outcomes of
the Supreme Court’s strong pitch for a mechanism to protect the whistle blowers.
(ix) are communication facilities that can quickly bring any matter related
to any ethical issue to the notice of a member of ethics committee for an immediate
solution.
(x) To settle disputes and set ethical standards for its employees, the Motorola has set up the
.
3.Choose the correct option
(i) Who have identified the five main power bases?
(a) French and Ravin (b) Blake and Mouton
(c) Both (a) and (b) (d) None of them
(ii) Which type of leadership depends on participation and team work?
(a) Coercive type (b) Democratic type
(c) Coaching type (d) None of these
(iii) Which type of leadership sets high standards and get the work quickly done?
(a) Democratic type (b) Coaching type
(c) Pacesetting type (d) All of them
(iv) Long-term benefit and goals may be termed as:
(a) Yoga (b) Karma
(c) Dharma (d) Shreya
(v) Short-term goals that are temporarily present are termed as:
(a) Preya (b) Shreya
(c) Dharma (d) None of these
(vi) The duty to do good is also advocated by the Kantian:
(a) Dharma (b) Metaphysics
(c) Interpretation of dreams (d) Categorical imperatives
(vii) In India, for the first time, SA was conducted by:
(a) TISCO (b) IBM
(c) CTS (d) All of them.
(viii) Who (full-time employees) are specially appointed and empowered to investigate
ethical issues in an organization?
(a) CBI (b) Ethics Officers
(c) CID (d) All of them
(ix) Which is a mechanism of protest against the misdeeds of the manager, some employees
or any one of the corporate bosses?
(a) Whistle Blowing (b) Annual General Meetings
(c) Both (a) and (b) (d) None of these
(x) The Right to Information Act came into force in India in the year:
(a) 2000 (b) 2005
(c) 2004 (d) 2001

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Review Questions
1. What do you mean by power bases? Explain how they are related to organizational
leadership.
2. Write a short essay on social audit by explaining its objectives, scope and limitations.
3. Explain with examples the importance of leadership in a corporate ethical structure.
4. What do you think are ten most strong habits of an ethical leader? Elaborate.
5. What are the functioning styles of different types of leaders? Which one is the best?
6. Write an essay on whistle blowing explaining its purposes, importance and limitations.
7. What is value-based management? Explain its basic features and determinants.
8. Write short notes on: Ethics Committees, Ethics Hotlines and Ethics Officer.

Web Links
1. www.answers.com/topic/employee-rights [Employee Rights]
2. http://www.darden.virginia.edu/corporate ethics/pdf/ethical_leadership.pdf
[Developing Ethical Leadership]
3. http://www.ijtef.org/papers/27-C133.pdf
[Ethical Corporate Culture and Guidelines for Ethical Leadership]
4. http://www.accountancy.smu.edu.sg/events/pdf/whistle_blowing.pdf
[Whistle Blowing History]
5. http://timesofindia.indiatimes.com/india/India-doesnt-have-a-law-to-protect-whistleblower/
articleshow/5736903.cms [India doesn’t have a law to protect whistleblower]
6. http://www.scu.edu/ethics/practicing/focusareas/business/whistleblowing-update.html
[Encouraging Internal Whistle Blowing]
7. http://en.wikipedia.org/wiki/Leadership [Leadership]

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 CHAPTER
14
Business Ethics:
A Cross-Country
Perspective

L E A R N I N GO B J E C T I V E S

This chapter will help the reader to understand

■ Why do levels of ethical developments differ?
■ Business ethics in Japan
■ Business ethics in America
■ Business ethics in India
■ Business ethics in China
■ Business ethics in the Arab World

INTRODUCTION
International business ethics is difficult to conceptualize, more difficult to interpret and perhaps
most difficult to make an appraisal. While interpreting business ethics of different countries, it is
imperative to take note of a couple of caveats. First, business ethics is not static; it cannot stick at
a particular plane and at a particular point in time. Second, the level of ethicality is a mixed bag
containing both ethical and unethical syndromes. Therefore, in the fitness of things, it is
necessary to keep in mind only the overwhelming ethical trajectory of a country. Since there are
exceptions, it is hazardous to generalize on the ethical nature of a country. In this chapter, an
attempt will be made to analyse the trend of business ethics in a few countries like the USA,
Japan, China, India and the Arabian countries as broadly as possible.

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WHY DO THE LEVELS OF ETHICAL DEVELOPMENT DIFFER?
In order to answer this question, one should make a distinction between religion and spirituality
(explained in Chapter 13). Business manager of a firm may be religious but not spiritual;
conversely, it is possible to be spiritual without being religious. Spirituality is the quest for
discovering the meaning and purpose of life, and hence the meaning and purpose of business. It is
the proclivity of mind towards self-discovery. Indian philosophy advises a person to “know
thyself” (atmanam biddhi). Religion, however, is a devotion (worship) to a particular deity in the
framework of a system of rituals. However, having said that, it should not be forgotten that there
is an invisible undercurrent between religion and spirituality. But this may not be so compelling
as to unite the two.
It is apparent that most of the Western countries are pre-ethical in the sense that they have not
embraced religion in a serious manner as a part and way of life although Christianity has been the
dominating religion for a long time. In the name of religion, people mostly follow the rituals and
rules without knowing the real meaning and purpose of life, and also of the religion. But religions
ask people to look inside and to know themselves, for infinite strength springs from the self
within (atmana vindate viryam). The Eastern countries including Japan, India and China, Ceylon,
Nepal, Indonesia and so on had religious traditions, and religion was taken as a way of life unlike
their Western counterparts. It is in this context that Rudyard Kipling’s ballard: “the East is East,
the West is West, and the twain shall never meet” seems to be relevant. The Eastern countries,
however, are now in a post-ethical stage. They had already experienced enough of ethicality. For
instance, Indian religious philosophy is more than 5000 years old and almost the same is the case
with China. But as an aftermath of neo-liberal liberalization, these countries have been
experiencing a clash of culture and civilization (Huntington, 1993), and their religious ethos is on
the decline. The clash of civilization may not be a clash of religions as Huntington thinks, but it
may arise out of a clash of ethical values.
Ethical values of countries will be more or less the same if the religious tradition is the same;
otherwise, different religions will manifest different moral values and codes of conduct. This is
one of the reasons why we find ethical relativism in modern times. That is, every country has a
different set of ethical values and codes of right and wrong. Whatever is right in the western
culture may not be right in Saudi Arabia or India. For instance, an adult can smoke in front of
parents in America, but it is not so in India. An Indian teacher will never offer cigarettes to his
students who are in the habit of smoking but an American teacher does it. For instance, women
are regarded as subordinate to men in the Islamic tradition but in the West, they are equal
partners. Thus, cultural differences between the West and the Rest are very obvious. This may be
partly the reason for differences in ethicality. Racial discrimination and sexual harassment in the
working place are explosively higher in the West than in Eastern countries.
The impact of religious tradition on cultural relativism is often forgotten in the West because
they have a very weak spiritual tradition. This is reflected in their business ethics and practices.
The corporate failure of Enron and WorldCom, among many others, is unprecedented in
dimension and intensity, and has nowhere been experienced in the developing world. The whole
business culture was based on fraudulent window-dressing from the very beginning to the end,
and excessive greed was the basic cause of the corporate downfall in both the cases.

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Needless to add, when the value systems are different in different countries, the outlook to
business ethics is bound to be different, and there must be different techniques to resolve the
ethical dilemmas. However, there is a tacit understanding among scholars that the standard
international management culture is the same, it never varies. This notion of the uniformity of
business culture is known as universalism, and by implication, it is supposed to generate the same
type of business ethics all over the world. However, the business reality is not so simple, as will
be evident from the discussion hereafter.

BUSINESS ETHICS IN JAPAN

A bit of historicity is important to understand the Japanese system of business ethics. Japan had a
long history of hibernation during the Tokugawa period. The Japanese economy became open for
trade and commerce with foreigners only after the historic and revolutionary period of Meiji
resto- ration in 1868. At the beginning, Japan had a strong history of cultural cohesion and
religious ethos that dominated every field of life, including management and public
administration. However, by and large, during the late twentieth century, that religious ethos was
replaced by more of material- istic culture and values. Both the trends will be discussed here at
some length.
Iowa Taka (1997) has described several stages of development of business ethics in Japan.
From the very beginning, business ethics in Japan has been influenced by its culture and
religions. Japan has three dominant religions like Confucianism, Buddhism and Shintoism. These
religions compelled the country to follow religious equality everywhere including the workplace.
Human equality is one of the important facets of Japanese business ethics. Japanese work culture
is also the product of religious basis of life. Profession or duty is regarded as a sort of religious
calling that permits people to work hard beyond the officially permissible limit suggested by the
spiritual micro universe. It is said that the unflinching devotion to duty is a means to unify the
individual spirit with the larger macro cosmos, and in this way, a person can enjoy harmony and
peace in every walk of life.
Work is regarded as a means for self-actualization, and hard-working people are well respected
everywhere. The idea of calling for material progress that is working in Japan is similar to the
philosophy propagated by Calvinism and Puritanism which emphasised the importance of
unceasing human toil and trouble from the spiritual point of view (see Ghosh, 2009, p.17).
Calvinism was opposed to self-aggrandizement and self-indulgence but not to the riches. Calvin
thought that the resources of the world are the creation of God, and the development of material
resources through toil and trouble is a virtuous activity. In the same way, the Puritans conceded
the idea that spiritual obligations including business duties are a discipline quite in accord with
the Divine Will, and that by following this, a man can improve and ennoble his character. In fact,
capitalism could not have been developed anywhere had not the greatest part of man’s energy
been channelled in the direction of work (Fromm, 1942). Max Weber in his celebrated book, The
Protestant Ethic and the Spirit of Capitalism (1930) has shown how from the sixteenth century
the attitude towards work and wealth- creating activities changed. In Japan, the process of self-
actualisation through hard work is based on ethical ideals.

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In the past, Japan had a centralized feudalistic system and that has gone a long way in
influencing the system of teamwork and group practices. Hierarchical relations are still prevalent
in Japan. The workers are subordinated to companies, and small groups are subordinated and pay
allegiance to larger groups of corporate houses. It is indeed very difficult to violate this age-old
tradition. Deviant behaviour is openly criticised and punished. Group ethics is very strong in
Japanese industries and the business ethics or codes formulated by big corporate group of
industries, are followed obedi- ently by the smaller group of industries. For instance, the
following business principles formulated by the Matsushita are widely followed in Japan:
● Fairness

● Harmony and cooperation

● Courtesy and humility

● Adjustment and assimilation

● Struggle for improvement

● Gratitude

● National service through industries

In Japan, there is a conscious attempt to balance between the rationalization of the West and
the spiritualization of the East. The Japanese industrial ethics is always based on a visionary
spirit. The secrets of the success of the Japanese industries are listed below (Ouchi, 1982):
● Caring and sharing spirit of management and workers, disciplined working environment and

intimacy with the society.

● Mutual trust between workers and management and also between the management and the

stakeholders.
● Loyalty to the organization. The workers and the management are in a familial relationship

and the conflict between the two, if ever happens, is a healthy, constructive and cooperative
conflict.
● The employment is permanent and the commitment is lifelong. The employers know the

workers very well and make the right decision at the right time for their promotions. Every
decision is made not by one man but by a group of executives.
● Leaders are motivated by personal integrity, hard work and social responsibility.

● Works are to be done just in time (JIT) with zero defect management (ZDM).

● Ethical values are not only to be respected but also to be translated into practice.

The seven principles cited above form the core principles of Japanese business ethics and
management practices. The long-term relationship between the two concerned parties has consid-
erably helped to build up a harmonious society. The philosophy of reciprocal help has remained
the basic tenet of Confucianism and Buddhism in Japan, and contributed to the development of a
harmonious business climate and growth of business ethics. The mutual trust has been the basis of
Japan’s social capital. Social capital is the mutual trust for the benefit of the society. Reciprocity
has influenced business ethics in the sense that it creates viable balance between sacrifice and
benefit. Everybody is working hard to benefit from business. Nobody is an exception. In the
system so developed, the transgressor is looked down upon and thus, finds himself isolated from
the group. The relationship between the employer and the employee is very strong and healthy.
Both are implicated in a system of mutual dependency. Japanese industries do not believe in
downsizing, retrenchment, merger and acquisitions and shareholders’ priorities, unlike the
American system.
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Japan’s business ethics is based upon religious and social ethos. It is like a system of
concentric circle where the outer circle does not squeeze the inner circles but both mutually
reinforce each other. Concentric circle applies different ethical rules. Groups have their own spirit
(numen) which is connected to the ultimate reality in a normative framework. There are two
normative environments—transcendental normative environment and group normative
environment. These are interconnected. In a system of transcendental normative environment, the
inner microcosm is connected to the outer macrocosm through a good work based on ethical
values. Japan did well in retaining business ethics till the 1990s.
However, things have considerably changed in the area of business ethics in Japan after 1990s.
The recession had hit the economy hardly and in an attempt to recover from the recession, Japan
lost the spiritual values to pave way for materialistic considerations. People started working long
hours without caring for families just to establish themselves in a highly competitive world. The
workers became, so to say, the company’s livestocks. In the absence of the head of the family for
a long time, away from home, the family developed a different lifestyle which is not so ethical in
reality. Many executives commit suicides and mental diseases are a normal outcome of karoshi
(overwork). In recent years, loss of spiritual value in work, high-handed and corrupt bureaucracy,
cut-throat competition, dominating profit motive and the breakdown of employer-employee
relations are the basic causes of deteriorating ethical standards in the Japanese business today.

BUSINESS ETHICS IN AMERICA

In Christopher Marlowe’s famous play, Doctor Faustus, the protagonist at the end realizes that
he has won the whole world but he has lost his soul. This is perhaps true in the case of business
ethics of USA. The country is at pre-ethical stage of development. This is, however, not to deny
the presence of any religious influence in the country. The constitution of the country apparently
reveals the importance of God. The US currency embodies the religious faith by declaring that “in
God we trust”. However, the business world of America upholds a diametrically different picture.
The only business of America is business, and there is no free lunch in a capitalist system of
production, distribution and exchange relations. In general, the business world is immersed in
unethical practices and window dressing to rob clandestinely the poor investors, shareholders and
customers. There has really been the demise of ethics in America (Thomas, 1988). This is proved
by many cases of downfall of big business houses since 1990s and even earlier. The recent
debacles of Enron and WorldCom are cases in point. In spite of many ethical codes and
principles, and ethical mission and vision, companies are not practicing ethicality in their dealings
with the public. It is not that the country is bad but that its corporate sector is full of manipulators
and drivers. The individual managers or corporate leaders may be religious but they are not
spiritual in the sense that business ethics does not reflect in actual practice the basic purpose of
business, corporate life and the long-term objective of the company. The core values like fairness,
integrity, honesty and transparency are there on papers only. Gabor (1978) has rightly pointed out
that, “Our present civili- zation is based materially on an extraordinarily successful technology
and spiritually on practically nothing”.

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The American business system is based on the ideas as under:
● Excessive materialism

● Performance and productivity

● Strict market principles

● Protestant ethics (for the sake of business, any means are justified)

● The best is rewarded and the worst has to go out

● Hiring and firing of labour

● Importance of value-added

● Use of science and technology

● Individualism and freedom

● Decisions are based on benefit over cost criterion.

● Personal relations do not matter

● No ethical values like, harmony, loyalty, religiosity and spirituality are given any priority.

Under this system of business design, there is hardly any scope for ethical compulsion, and the
freedom given to the corporate sector is abused and misused. The following unethical practices in
business are rampant:
● Corporate leaders are tempted by a very high target of profit and the concerned employees

have to achieve the target for promotion, job stability and good assignment.
● Corporate pressure compels the employees to adopt unethical ways and means

● By and large, most of the American companies violate the ethical principle of account-

ability. Loss of accountability has been responsible for many types of corporate crimes and
manipulation.
● Information leaking worth millions of dollars is another corporate misbehaviour. By doing

this, some insiders get benefits at the cost of the company’s goodwill and reputation. This
is an ethical infraction because managers do not take the responsibility. The only interest of
managers is to keep the business a going concern at any cost.
● The employees are not trained in business ethics, and the business environment is haphaz-

ardly diverse.
● Unethical practices like greed and temptation are rampant. Corporate leaders who are not

spiritual in orientation cannot resist from these unethical lures.

● Corporate transparency is also conspicuous by its absence in many enterprises. The

auditors who are appointed by the company have to work to the satisfaction of the boss who
is motivated by illegal and immoral gains and window dressing strategies.
● There are also various types of discrimination like sexual discrimination, racial discrimi-

nation, religious discrimination and insider-outsider discrimination at workplaces.

● In many cases, the workers are paid much less than their productivities and just wages.

Thus, exploitation of labour is randomly practiced. Workers are used as commodities,

particu- larly in the case of less skilled manual labourers.
● The pay differences between highly qualified manpower and low level manpower are too

wide. The multinational corporations practice what is known as “race to the bottom”. In
such a system, the workers at the lowest rung of the ladder (manual and unskilled workers)
have to face a dilemma of accepting a lower pay or quit the job.

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● Many of the American companies are dumping goods to developing countries.
● American MNCs are also known to pollute the environmental standards of the less
developed countries.
Most of the companies working unethically these days are exonerated in the name of bad
business and recession which is endemic in a capitalist economy like America. However, before
1990s, America companies were much better on the whole. But the beginning of the 1990s was
also the beginning of bad days. A few lines from Charles Dickens are apt to describe the
situation:
“ It was the best of times , it was the worst of times, it was the age of wisdom, it was the
age of foolishness, it was the season of light, it was the season of darkness, it was the
spring of hope, it was the season of despair”. (Charles Dickens, 1984)
The good news is that after the downfall of many renowned industries, many corporate houses
have now realised the importance of ethics in business from a long-run perspective. Incidentally,
companies that had high levels of corruption and unethical practices had to face the onslaught and
they were ultimately destroyed. The recent recession of 2009 experienced much lower incidence
of ethical misconduct, although otherwise it had remained very high in normal times.
All said, it is instructive to note that the Department of Commerce has approved certain
business principles in America for implementation. These principles are:
● Every business needs to respect human rights.

● Businesses are responsible for environmental protection.

● Development of a legitimate business system and a corporate culture and no political

coercion in the workplace.

● Encouragement of corporate citizenship.

● Business is to be based on fair principles, practices and competition.

● No bribery should be resorted to for the benefit of business.

● Maintenance of a safe and healthy working place.

● Compliance with local and the US laws while doing business.

● Fair employment practices with no forced labour, or employment of child labour. The

employees should have the right of association, organization and collective bargaining.
● No discrimination at the workplace in terms of gender, religion, race and nationality.

The principles mentioned earlier, though do not cover many compelling ethical issues like
social and ethical responsibilities, and so on, are fair enough. The set of principles in itself is not
that important, but its fair and strict implementation. Many international business principles like
the Caux Round Table Principles and the Sullivan Principles, and so on, have been enforced in
America from time to time. But in spite of all that, many companies are behaving in an ethically
oblique way.

BUSINESS ETHICS IN INDIA

India is now in a post-ethical stage. However, many business firms based particularly in semi-
urban or rural surroundings are at the ethical stage and follow many of the ethical principles
like justice and fairness, non-discrimination, cordial personal relationship, honesty and social

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responsibility. But this is not the story of all types of small and medium business firms. Some of
them are over-ambitious and want to get rich quick. They do not much care about ethics in
business and use corrupt practices, adulteration, tax evasion, account manipulation, and so on.
Although Indian firms, particularly some of the big ones, are at post-ethical stage because of the
influence of globalization and a fierce competition, some of the big businesses in India are still at
the ethical stage and do not indulge in large-scale unethical practices.
A bit of historical development of corporate ethical practices will be necessary here to under-
stand the evolution of corporate mentality and, hence, the corporate ethics. There are three
distinct periods of industrial development in India—pre-independence, the period between 1947–
1990 and the post 1991 period (period of economic liberalization). In the pre-independence
period, there was hardly any industrial growth and corporate ethics was not elaborate, and there
was strict control by the British colonial power. The industries like the Ahmedabad textile mills,
jute mills in Kolkata and some other existing industries did practice some unethical labour
relations and exploitation but serious scams were absent. In the second period (1947–1990), India
experienced many unethical industrial practices because of the lack of strict government control,
unethical bureaucratic practices, and flexible industrial rules and regulations. Tax evasion, bribery
and labour unrest were the usual practices. During the period of economic liberalization, many
firms tried to be more internationally competitive and they became outward-looking. So, these
firms started following international ethical practices and standard, at least on paper, and because
of the conflux of efficiency and ethicality, many of the Indian firms like the Tata, Infosys and
Ranbaxy, to name only a few, have become well-known. The positive spread effect compelled
many other firms to follow the suit and this has been improving the corporate ethics in India by
and large. But all this does not mean that all firms are ethical in India.
In fact, there are two types of business firms in India—ethical small, medium and large firms,
and unethical small, medium and large firms.

Ethical Indian Firms

They are both spiritual and many a time religious with the following managerial styles:
● Decisions are taken on the basis of the merit of the case and these are not unreasonable or

unethical.
● At the working place, respect is shown to elderly people and senior officials.

● Work is regarded as worship and official duty is performed without much consideration for

its material reward, as the Bhagvad Gita teaches.

● Human rights are respected and allowed and disputes are amicably settled on the basis of

cooperation and negotiation.

● Women employees are allowed privacy and respect.

● Working place discrimination is avoided as far as possible.

● Firms are engaged in performing social and ethical responsibilities.

● Employees are treated well, and often empathy plays an important role.

● Sexual harassment is conspicuous by its absence.

● Management is value-based and embezzlement, bribery and corruption are mostly absent.

● Accountability and transparency are widely practiced.

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● Reliable price and product qualities. Promises are kept with regard to after-sales services.
Customers’ satisfaction is the motto of many firms. Customers are regarded as Lakshmi (the
Goddess of wealth).
● The margin of profit is reasonable, and there is no attempt to cheat the customers.

Firms are guided by the idea of creation of goodwill and reputation.

Unethical Indian Firms

Unethical firms are characterized by many overwhelmingly unethical practices. The following are
the manifestations of some of these practices:
● Discrimination is rampant in the matter of selection, promotion and job allocation.

Nepotism and favouritism are widely prevalent.

● Adulteration, sub-standard and even dangerous products are marketed.

● Imitation of foreign brand names to hoodwink customers.

● Political pressure impinges on the ethical standard of firms. The appointment in the high

post is often political.

● In some types of industries, like carpet manufacturing, use of child labour is rampant.

● Delay in wage payments and promotions are the usual practices in many small and medium

firms.
● Window-dressing in the balance sheet is widely done to attract investors and increase the

share prices.
● Many types of company scams have cropped up in India (for details, see Fernando, 2006).

Some of these scams include issues by non-descript companies (1993-94), mutual fund
scam (1998), market manipulation scams of Harshad Mehta (1992 and 1998), insider trading
scam (1994), fraudulent share delivery scam (1995) and IT scam (2000).
Ethical dichotomy (one firm having two ethical standards) is one of the important character-
istics of Indian firms. The dichotomy is both internal and external. Internally, even the same
ethical firm may have some unethical frills, and the unethical firms may have some ethical
appendices. Examples are abundant in India. Our categorisation of ethical and unethical firms is
based on the overwhelming characteristics of the firms.

Why Some Firms are Unethical in India?

All firms are not basically unethical to begin with. But as it goes on doing the business, it is
confronted with a number of problematic situations that almost compel a firm to deviate from its
chartered path of honesty and scruple. These circumstances are:
1. Bureaucratic pressure, including delay-dally tactics, compels a firm to spend some speed
money to move the file. Even after liberalization, bureaucratic tentacle has not yet been
completely eliminated from India. Officials often demand bribe to perform a task.
2. To keep up with the Joneses, business firms often have to do the same thing as other firms
are doing like benami transactions, tax evasion, accounts manipulation to record less
income, reduced sales, and so on.
3. While point 2 discussed above is the corporate practice to survive competition, the idea of
going ahead of Smith, compels many unscrupulous firms to devise ways and means to go a

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step further to win the race. These include creative destruction, like, forgery, window
dressing in the balance sheet, product adulteration (say instead of 500 mg of paracetamol as
written on the label, the actual content may be 300 mg. of the real medicine), manufacturing
of duplicate products (like medicines), and so on.
4. Absence of strong and ethical corporate policy. If the policy is weak and the manager does
not make any strong commitment to ethical practices, a company cannot work coherently
towards any ethical goal.
5. Absence of ethical leadership. This prevents many companies to draw ethical working plans
and programmes. It is very often true that if the manager is ethically committed and very
strong in character, the idea percolates down to the lower level and the whole company
becomes ethical. A company is what its director or manager is. The percolation effect is a
very strong factor for the ethicality or otherwise of a company. On one occasion a senior
executive of a Tata company thought of saving some money on taxes. He expressed the idea
and showed his accounts records to the then Chairman, JRD Tata. Mr. Tata said, “It is not
illegal but is it right? It is not after all a virtue” (Lala, 2004). The executive never came to
him with the same issue and request, and the ethical ambience of the company totally
changed from then onwards.
Having had some inkling about the ethical practices in India and America, we can now
summarise the basic differences in the Western and Indian cultural-traditional outlook in Table
14.1:
India thinks about value-based management, humanistic and socialistic pattern of society, and
a type of balanced and total man who is imbued with the idea of morality and spirituality and
plain living and high thinking. But the Western nations prefer to a have a system of profit-based
management, rationality and materialism, and the type of man they want is a calculated economic
person who always buys in the cheapest market and sells in the dearest market. Such a type of
man lives on the ideals of high living and plain thinking and is endowed with a capitalistic
mentality. For the Western countries, development means that you have to have more and more
and but you still remain unsatisfied (like Oliver in Charles Dickens’ novel, Oliver Twist), but for
India, development means that you should grow accordingly with a high level of human
development.
Table 14.1 summarizes basic differences between the Indian and western cultural traditions.

Table 14.1 Basic Differences between the Indian and Western Cultural Traditions
India Western Countries
● Value-based Management
● Profit-based Management
● Socialistic and Holistic
● Capitalistic
● Morality
● Rationality
● Balanced Man
● Economic Man
● Spiritualism
● Materialism
● Emphasis on Ethics
● Emphasis on Economics
● Human Development
● Material development (Acquisition)
● Plain Living, High Thinking
● High Living and Plain Thinking
● Cooperation
● Conflict
● Focusing on Society
● Focusing on Self and Market
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BUSINESS ETHICS IN CHINA
They say that in a country ruled by the Communist party, there may not be any big scope for
religion and ethics. However, it is instructive to note that ethics, particularly business ethics, is
different from religion. A person may not believe in religion but he may be ethical or moral, if
he follows certain ethical codes. Thus, if the ethical codes of conduct of business are followed
by China and for that matter by any other communist country, there is no problem in its being a
communist regime. The fact remains that China, being a communist country, considers the forces
and relations of production as more critical and valuable than the formal principles of ethics.
After being wedded to the capitalist market philosophy, it has become a post-ethical society, far
away from its ancient tradition of Buddhism and Confucianism. In the discussion that follows
hereafter, it remains to be seen whether the practice of business ethics is strong in China or not.
The erstwhile communist party of China prohibited many unethical practices existing in China.
The party prohibited bribery, gift, influence from outside and some payments, and so on. The use
of public funds for personal gain, large ostentatious expenditure, and spending huge amount of
money on tours and in offices were also prohibited by the party. All these offences were seriously
punished in China.
China is a booming economy which is the second largest in the world. It aims at becoming
world’s number one economic power and for this many ethical practices will have to be
introduced by the government. There is a pressure exerted on China to ‘ethicalize’ its business
world. The pressure is coming from the global business partners including America. At the
moment, China has been involved in the following unethical business practices as reported in the
world media:
● Selling contaminated milk powder in the world market.

● Lead paint used in toys to be used by children. Lead is a dangerous metal and is a threat to

health.
● Injecting water into meat to increase the weight.

● Supply of substandard, unsafe and dangerous goods.

There may be many more undetected scandals and scams. People doubt the ethicality of
Chinese business particularly for two reasons. First, it is a big question as to how China can
supply goods in the world market at such cheap rates by remaining honest? Second, since China’s
corruption index is very high, the business world cannot remain insulated from corruption.
Transparency Interna- tional’s Corruption Perception Index shows that China ranked 79th among
163 countries in 2009 in the matter of corruption. Corruption is defined as the abuse of public
office for private gains. The puzzle is, in spite of serious problems of integrity and corruption,
how can its economy prosper in a continuous manner? One plausible answer to this question is
that China is a big supplier of products to the largest corporate firms in the United States. These
firms always insist on cost reduction. Hence, China has to find ways and means for cost
reduction, and the result is unethical business practices.
Back home, China is involved in a number of unethical business practices. The following are
only a few examples:
● Labour is highly regimented with no workplace freedom and with only limited occupational

mobility.

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● Wage is much lower than the productivity of labour and virtually there is a rampant exploi-
tation.
● Working hours are long and arduous.

● Labourers are the most oppressed class in China. They have no outlet to address their

grievances. Although their contribution is the highest in the country’s economic growth,
they live a miserable and dehumanized life. Trade unions are not permitted in China.
● Labour laws and rules are very strict. The Western philosophy of hiring and firing is

frequently practiced by the management. There cannot be any protest.

● The government itself is involved in various types of land scams where it buys the land of

small and poor farmers at throwaway prices, develops it and sells at a much higher price or
builds houses and sells at exorbitantly high prices. This practice of government is unethical
on two counts: First, the land deals are not consensual, and second, these poor farmers are
not given alternative employment or means of livelihood. They are reduced to the status of
proletariats.
● The Chinese labour market has been experiencing capitalist orientation since long where

labour is bought and sold as a commodity.

● Dissident groups are routinely arrested and imprisoned without trial. Incidents of torture,

forced confessions and forced labour are widely reported (Ghosh, 2009, p.78).
● The human rights record of China is already tainted since the time of Tiananmen Square

incident of 1989 when about 3000 civilians died and thousands more were injured.
● Inequality of all types is very high and gradually increasing in China. For income inequality,

the value of Gini coefficient, which is a measure of inequality, was 0.27 in 1986 but it rose
to
0.44 in 2004 (Ghosh, 2009, p. 28).
● Favouritism and nepotism are widely practiced in the industrial world.

Business ethics in China is influenced by a number of factors such as the Chinese traditional
ethics, the influence of the Marxist philosophy, principles of reforms and the global factors
(Xiaohe, 1997). Before 1978, China was dominated by feudalism and there was hardly any scope
for the use of ethics in business. Only some mistaken class consciousness was prevalent in the
society. Even now, a section of the Chinese intellectuals and government spokesmen do not want
to follow the western ethical codes. The Chinese government wants to develop its own code of
ethics instead. However, it wants to retain some of the fundamental ethical codes of Confucius
like responsibility towards family, care and compassion, and so on.
In formal terms, ethics is given low priority in the Chinese business circle, and there is no
impor- tance of social responsibility in business. However, in many cases, ethical dilemmas
cannot be avoided. For instance, at the time of downsizing, who is to be retrenched, an old man or
a young man? If an old man is retrenched, the business neglects justice and compassion, and if a
young man is retrenched, the business loses efficiency.
Business ethics in China is influenced by the interplay of the principles of three religions:
Confucianism, Buddhism and Taoism. Sometimes it is called three-in-one business negotiations.
Chinese business people follow three basic rules for business negotiations. These are: trust,
strategy and the principles of bureaucracy. When the trust is very high, the negotiation is done
like a gentleman. When the trust is low, then a suitable strategy needs to be applied and when the
political
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factors are important, bureaucratic principles are to be used for negotiations. For doing business
in China, it is not so much the business ethics that is important; what is more critical is the
sharing of the same heritage and values.
One of the reasons why business ethics is neglected in China is that, until now, all the
organiza- tions in China are to follow strictly the government rules and regulations. They have no
freedom to violate those instructions. However, the government is not fully a communist type, but
there is a system of one party rule—the communist party. In that framework, the Chinese
philosophy is basically capitalist in nature, and hence, market rules or principles are more
important than ethical rules.
However, of late, since China is becoming more and more a global player, it has to reduce
many unethical practices including corruption. Rather than favouring corruption, Mozia, a 5th
century philosopher suggested a law of protection (Rothlin, 2004). Nobody knows how effective
it would be. But in practice, corruption takes a long period of time to get eradicated in the absence
of a pervasive sense of spirituality.

BUSINESS ETHICS IN THE ARAB WORLD

Some of the Arabian countries are at the ethical stage and perhaps their business ethics is more
consistent and perfect than those of many of the developed capitalist countries. Business in the
Arabian world is based on the religious ethos of Islam. Rather than using the term business ethics,
Islamic scholars use the term, halal and haram. Halal is something ethical and permissible and
haram is ethically bad and prohibited in these countries. Based on the instructions of Islam, these
countries form their ethical rules in business. Since the Arab people are guided only by their
religious ethos, they do not feel the need for business ethics. The private sector is neither
influenced by the idea of business ethics nor do they have any such code. There is no organized
effort to promote business ethics in the Arab world. There are corruptions among government
officials and every country has its own Vigilance Department and Central Audit Agency.
Some of the ethical/unethical business rules are as under:
● In the area of business, like all other walks of life, men and women are segregated. If there

is a woman manager, the contracting or negotiating part must have a woman to talk to her.
The woman in Arab must use a long veil.
● One has to respect the Arabian rules and follow them strictly. They are all based on the

Islamic culture.
● It is not good business etiquette to say “no” directly. Put it in a roundabout way so that the

other party gets the message.

● A businessperson must have a business card written in English on the one side and Arabic

on the other.
● During the business negotiation, nobody is permitted to consume alcohol, smoke or even

have coffee. These are considered haram, although smoking through water-pipe is permitted
in some countries.
● Prayer time must be observed, and there will be no negotiation during that time.

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● All trade must be in halal products and no haram product should be traded in or out of the
country. For instance, pork is a haram product.
● Charging of interest on loans is not permitted in Islam.

● Compromises with the religious and ethical beliefs under pressure are highly

deplorable, and will be punished according to Muslim sharia laws.

● Padding an expense account is unethical, but offering a gift to a purchaser is ethical.

● Unlike in the United States, bribery is permitted in the Arabian countries. It is regarded as

an incentive and a way of doing business. It is not unethical.

● Nepotism is rampant but it is not unethical.

● The idea of corporate social responsibility is gaining ground in the Arab world but it is still

in its nascent stage.

● According to the Arabian perception, there are the following four essential characteristics

of business ethics:
■ Loyalty: Loyalty to the religion, to authorities and culture and tradition.

■ Consistency: The behaviour pattern is uniform and there is no drastic change in the

personality pattern.
■ Predictability: The behaviour of the negotiator and authorities is predictable. It is also

related to consistency.
● Labour market gender discrimination is very conspicuous. But it is not considered to be

ethically wrong.
It is to be noted that the labour market dynamics of the Arab world is a conflux of the spiritual
reality of Islam and the materialistic actuality of the neo-liberal globalized world (Ghosh, 2010).
Women are segregated to low-paying occupations and their unemployment rate is very high. The
private sector is not much interested in employing women as they have to be given maternity
benefits. However, the recent trend is that women are making an in-road to the male-dominated
professions, and, thus, there are now women employees in stock exchanges and cyber clubs.
However, women do not own any means of production and do not participate in the decision-
making processes. But things are changing now in the Arab world.
The integrations of Western modernity with deeply-rooted religious beliefs and culture
produce a unique business ambience in the Arab world. One can find a peculiar mixture of the
growing trends of modernization and Islam. The introduction of market Islam has been
responsible for the generation of Islamic capitalistic spirit and prosperity theology. All these have
been instrumental for many products that are truly Islamic, like Islamic banking practices with
many new products, Islamic finance, profit-sharing schemes, and their own Islamic products
including non-alcoholic drinks, and so on. These are becoming popular among the Muslim
countries. Sustainable devel- opment organization has already been established and it is doing
good works for a sustainable development and putting the environmental issue on the top priority
of the government.
All said, it must be appreciated that the Arabian people do not put any organized efforts to
develop business, unlike in the western countries. They neither have the outward-looking business
strategy or policy, nor do they have any business acumen and expertise. However, other people
including the MNCs are doing business in their land to tap the natural resources of which oil
remains very important. Thus, in order to deal with the foreign business people and MNCs, the
Arab world is now
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interested in knowing some form of standardized global business practices and rules. It is in this
context that business ethics becomes relevant to them. However, this involves a cultural dualism
in the sense that on the one hand they have to be a part of the progressive trend of Islam and on
the other they have to deal with the external forces of modernization and globalization. It is
indeed a big challenge to make a judicious compromise or a trade-off between these two
compelling and emerging trends which are somewhat contradictory in nature.

Summary
The levels of ethicality differ mainly because of the influence of religion or spirituality. When
the firm owner is guided by the dictates of spirituality, he understands the meaning and purpose
of life and also the desirable objectives of his firm; whereas a religious-minded man knows only
the exoteric aspect of religion which consists of many rituals and details of outward behaviour. A
spiritually-inspired firm is more ethical than a firm which is guided by religious rituals. The
levels of spiritual development also make a perceptible difference. Most of the western countries
are at the pre-ethical stage whereas Asian countries in general are at post-ethical stage. These
countries are now under the influence of liberalization and globalization. They are forgetting their
religious ethos and tradition.
Japanese work culture and business ethics are influenced by religious ideas. Group ethics is
very strong in Japanese industries and the code of ethics formulated by big firms is followed by
small firms. Japan makes a balance between the rationalization of the West and the
spiritualisation of the East. Japanese industrial ethics is based on seven important principles like,
respect for ethical values, caring and sharing with environmental intimacy, mutual trust, loyalty,
lifelong employment, personal integrity and hard work. But after 1990s, the spiritual value system
is decaying and business is becoming more profit-oriented.
In America, there is an excess of materialism through the successful use of science and
technology. The motto of America is only business. Free market philosophy and profit-maximis-
ation principles dominate the business world. Although on paper, most of the rules and principles
of corporate governance are followed, but in practice, there are dangerous violations of almost
all the ethical principles. For instance, violations of accountability, information leaking, unethical
business practices, discrimination, dumping, and environmental pollution, and so on. Before
1990s, American companies were much better but with the dawn of the new century most of the
giant companies became extremely unethical and had to face financial stresses and strains and
downfall. However, some of the companies learnt from the past mistakes and started behaving
well. The Department of Commerce approved a list of business principles for making the
companies more accountable, transparent and ethical.
In India, one can notice three distinct periods of industrial development and ethical leanings.
During the pre-Independence period, there was not much of industrial development and corporate
ethics was not elaborate. During the second period (1947–1990), India experienced many
unethical business practices due to high-handed control and regulations, and in the third period
(since 1991), many of the Indian firms started following international business practices in order
to remain internationally competitive. There are some ethical, some unethical and some firms
with ethical

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dichotomy. Most of the firms are in this category. It is instructive to note that some of the
compet- itive firms have understood the importance of ethical responsibilities but at the same
time, some are indulging in unethical practices in order to get rich quick. The newly emerging big
firms seem to be more ethically vulnerable and have experienced scams and scandals due to their
excessive greed.
Chinese firms have been exposed to international community in many unethical cases like the
sale of contaminated milk powder, supply of dangerous and unsafe goods, and so on. Evidently,
there is hardly any social responsibility in business. But in the business negotiations, bureaucratic
principles, trust and strategy are still depended upon. A few business practices will point to the
fact that Chinese business is not based upon any strong ethical foundation— labour is regimented,
wages are lower than productivity, working hours are long and arduous, labour laws and rules are
very strict and human rights are rampantly violated. The government is itself involved in many
types of scams and scandals. One of the reasons why business ethics is neglected in China is that
firms have to follow the government rules and regulations strictly, and the government does not
insist on business ethics.
In the Arab world, there is no formal recognition of business ethics. There is only the concept
of haram and halal. Whatever is dictated by the religion is also followed in business. The
integrations of western modernity with deeply-rooted religious beliefs produce a unique business
ambience in the Arab world. It does not put any organizational efforts to develop business ethics.
However, in the context of globalization, modernization and ‘Islamization’, the Arab world is
facing a new type of challenge in the area of international trade and business.

Key Terms
Religion and Spirituality Pre-ethical and Post-ethical Percolation Effect
Universalism Stages Halal and Haram
Karoshi Ethical Dichotomy Market Islam
Race to the Bottom Spread Effect
Social Capital Gini Coefficient

Test Your Knowledge

1. State whether the following statements are True or False
(i) Western countries are at a pre-ethical stage.
(ii) Group ethics is very strong in the Japanese industries.
(iii) The present civilisation in America is based materially upon an extraordinarily
successful technology and contains practically nothing in spiritual terms.
(iv) Ethical dichotomy is one of the important characteristics of the Indian firms.
(v) Business ethics in China is influenced by the interplay of the principles of three
religions, namely, Confucianism, Buddhism and Taoism.
(vi) The private sector in the Arab world is neither influenced by the idea of business ethics
nor do they have any such code.
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(vii) Halal is ethically bad and prohibited in the Arab countries.
(viii) The introduction of “market Islam” has been responsible for the generation of Islamic
capitalistic spirit and prosperity theology.
(ix) Consistency is the behaviour pattern which is diverse and there is no drastic change in
the personality pattern.
(x) The labour market dynamics of the Arab world is a conflux of the spiritual reality of
Islam and the materialistic actuality of the neo-liberal globalized world.

2. Fill in the blanks

(i) business ethics is not at a particular plane and at a
particular point in time.
(ii) Indian philosophy advises a person to “know thyself” or .
(iii) has described several stages of development of business ethics in Japan.
(iv) Japan had a which has gone a long way in influencing the system of
team work and group practices.
(v) Groups in Japanese organizations have their own spirit or .
(vi) By and large, most of the American companies violate the ethical principle of
.
(vii) There are three distinct periods of industrial development in India, namely, ,
, and .
(viii) In China, labour is highly with no workplace freedom and with only
limited .
(ix) Chinese business people follow three basic rules for business negotiations, namely,
, , and .
(x) In theArab world is something ethical and permissible and
is ethically bad and prohibited in these countries.
3. Choose the correct option
(i) In the Arab world, compromises with the religious and ethical beliefs under pressure are
highly deplorable, and will be punished according to the Muslim:
(a) Sharia laws (b) Haram
(c) Both (a) and (b) (d) None of these
(ii) One of the measures of income inequality is:
(a) Correlation coefficient (b) Gini coefficient
(c) Both (a) and (b) (d) None of these
(iii) In Japan, many executives commit suicides and mental diseases are a normal outcome
of:
(a) Karoshi (b) Shitsuke
(c) Dharma (d) All of these
(iv) The Protestant Ethic and the Spirit of Capitalism was written by:
(a) Immanuel Kant (b) Max Weber
(c) Adam Smith (d) Karl Marx

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(v) The human rights record of China is tainted since the time of:
(a) Tiananmen Square incident (b) Hong Kong incident
(c) Both (a) and (b) (d) None of these
(vi) Rather than favouring corruption which philosopher of the 5th century suggested a law
of protection?
(a) Mao Tse Tung (b) Mozia
(c) Hiuen Tsang (d) All of them
(vii) In the Arab world, products like tobacco, coffee, alcohol are otherwise known as:
(a) Halal (b) Haram
(c) Both (a) and (b) (d) None of these
(viii) Which is ethical in the Arab world?
(a) Haram (b) Halal
(c) Sharia (d) All of them
(ix) The idea of calling for material progress that is working in Japan is similar to the
philosophy propagated by:
(a) Calvinism and Puritanism (b) Imperialism and Colonialism
(c) Both (a) and (b) (d) None of these
(x) The notion of unicity of business culture is known as:
(a) Organizational culture (b) Universalism
(c) Imperialism (d) All of them

Review Questions
1. Why do the levels of ethicality differ? Explain with suitable examples.
2. Compare and contrast the business ethics of India and China. Which one is better?
3. Why is the US called a pre-ethical country? If it has any business ethics, then why so many
important corporate houses failed?
4. Explain fully the basic characteristics of Japan’s business ethics.
5. Critically explain the business ethics of India. Compare it with that of the USA.
6. Why is China progressing so fast as a global business player in spite of its questionable
business integrity?
7. Of all the countries that have been studied, whose business ethics has influenced you the
most and why?
8. Arabic people are religious. Does it mean that they are ethical? Explain your views.

Web Links
1. http://web.tepper.cmu.edu/jnh/aib.pdf [Cross-Cultural Issues in Business Ethics]
2. http://www.uhyadvisors-us.com/uhy/Default.aspx?tabid=917
[Reviving Business Ethics in America]
3. https://cfo.executiveboard.com/public/documents/CELC_Business_Ethics_in_China_
When_Working_with_Potential_Chinese_Partners.pdf
[Business Ethics in China When Working with Potential Chinese Partners]

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4. http://www.tradechakra.com/business-culture-india.html [Business Culture of India]
5. http://www.islamicperspective.net/Pictures/Essay%20File/a6s2s2.pdf
[Business Ethics in Islam]
6. http://www.asianperspective.org/articles/v29n1-f.pdf
[Ethical Challenges Facing Japanese Business: Historical and Contemporary Observations]
7. http://www.asianperspective.org/articles/v29n1-f.pdf
[Business Ethics in a Global World: India’s Changing Ethics]

References
Dickens, Charles (1984), A Tale of Two Cities, Academic Industries, Inc., West Haven
Fernando, A.C. (2006), Corporate Governance, Pearson Publications, New Delhi
Fromm, E. (1942), The Fear of Freedom, Routledge and Kegan Paul, London
Ghosh, B.N. (2011), “Gender Disparities and Labour Market Dynamics in the Middle East”,
Journal of Human Development, October–December
Ghosh, B.N. (2009), A Tale of Two Economies: Development Dynamics of India and China,
Nova Science Publications, New York
Gabor, Dennis et al. (1978), Beyond the Age of Waste, Pergamon Press, Oxford
Hsu, R. (1999), “Business Ethics in Japan”, Global Business and Economic Review, Vol. 1, # 2
Huntington, Samuel, P. (1993), “The Clash of Civilization”, Foreign Affairs, Vol. 72, # 3
Lala, R.M. (2004), “Business Ethics of RGD Tata”, The Hindu, 29 July
Ouchi, W.G. (1982), Theory Z, Avon Books, New York
Rothlin, Stephan (2004), Eighteen Rules of International Business Ethics, Renmen University
Press, Beijing
Taka, Iowa (1997), “Business Ethics in Japan”, Journal of Business Ethics, Vol. 16
Thomas, C. (1988), The Death of Ethics in America, World Books, USA
Weber, Max (1930), The Protestant Ethic and the Spirit of Capitalism, Routledge, London
Xiaohe, Lu (1997), “Business Ethics in China”, Journal of Business Ethics, Vol. 16, #14

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CHAPTER 15

Ethical Decision-Making
in Business

L E A R N I N GO B J E C T I V E S

This chapter will help the reader to understand

■ Decision-making and types of business company
■ Josephson’s six pillars of character and business decision-making
■ Krolick model of decision-making styles
■ Stage theory of cognitive ethical development and business decision-making
■ Ethical models for making business decisions
■ Constraints in ethical decision-making and implementation
■ A framework for making good ethical decisions in business

INTRODUCTION
The highest knowledge, said Socrates, is the knowledge of good and evil, the knowledge of the
wisdom of life. But in his Practical Reason, Immanuel Kant, the famous German philosopher,
observed that no action is good in itself. A good intention is the prerequisite for a good and
ethical decision-making. If an ethical decision is made by force or by the circumstantial
compulsion, much of the ethical motive or intention is lost in the process. The ethical decision-
making should come from the heart and not the head. Indeed, a heart has a reason of its own
which a head sometimes cannot understand. The present chapter discusses a number of relevant
topics for ethical decision- making in business including the nature of the company, decision-
making styles, determinants,

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character traits of decision-makers, cognitive theory of moral development and business
decisions, theories and basis of decision-making and the ethical tests of good decisions in
business.

DECISION-MAKING AND TYPES OF BUSINESS COMPANIES

There are basically the following three types of business concerns (Weiss, 2009, p. 85):
● Morality-based management

● Immoral management

● Amoral management

Some business concerns are based on morality. It may not be hundred per cent moral in the
strict sense of the term, but it is based on ethical premises, does not cheat anybody, and follows
the dictates of morality in its actions and behaviour. It follows the policy of honesty, openness,
equal and fair treatment towards the employees, suppliers, consumers and shareholders. The
strategy of this type of business organization is morally managed and it gives a due consideration
to follow the rules of morality in business and day-to-day decision-making process. For such a
company, it is not difficult to make ethical decisions.. This is so because the whole business
ambience smacks of morality.
Against the morally managed business concern, there may be some concerns which are
immoral in nature. This is evident in their actions, pricing, dealings, distribution mechanism,
marketing strategy, advertising, price fixation, treatment of employees, customers, suppliers and
stakeholders. This type of business company practices lying, cheating, forgery, irresponsibility,
unfair treatment, discrimination of various types, unfair and fraudulent behaviour, exploitation
and secrecy of many types. It is very difficult for these companies to be ethical. They do not give
much importance to the principles of morality and it cannot be expected that these companies will
usually implement an ethical decision-making. If, at all an ethical decision-making is made, it
may be more a matter of chance than a matter of practice.
Conceptually, there may be another type of business company which may be called amoral.
This type of concern is neither moral nor immoral. It has no basic proclivity to a
particular type. The company is rather indifferent and less concerned about morality and ethics. It
does not take up any immoral actions or strategy. It follows the minimalist strategy towards
shareholders and stakeholders. It does not care about ethical or non-ethical business decision-
making. However, it is instructive to note that it is not ant-ethical or immoral by nature. Given the
orientation by a proactive manager, it can be made sensitive to ethical decision-making decisions.
The only thing that is needed to make it more ethical is a strong external or internal force which
may come from a new management or managerial initiative.

DETERMINANTS OF ETHICAL DECISION-MAKING IN BUSINESS

In making ethical decisions, a number of factors are involved in any business. Basically there are
two sets of factors:
Organizational
Individual factors
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Organizational Value
It has been accepted by researchers that organizational values wield a far greater
influence on the decision-making than individual factors (Ferrell and Ferrell, 2001, pp. 64–
78). An organi- zation is composed of a group of persons having different background and family
circumstances. In the matter of personal life, these people may have different views on ethical or
moral principles. However, whenever a group of people meets in an open space for a purpose, it
is the idealistic view that predominates. In fact, group or herd psychology is different
from individual psychology and the former is more pro-ethical than the latter. The group takes up
an ethical decision jointly and in so doing, it is criticised less or praised more by the public and
also by the community.
Whether a company will go for an ethical decision-making or not will largely depend on
the orientation or predisposition of the company towards morality and ethics, as
discussed earlier. The orientation of the company can be known from its mission and
vision statements. Once these are publicly portrayed as the accepted principles, the company
finds it difficult to change the orientation structure in the short-run. The corporate culture
consisting of a set of values, principles, goals, attitudes and beliefs is more or less permanent in
character, and it takes years or a revolution to change it. The corporate culture needs to be
institutionalised and enforced. It is inter- esting to note that there is a definite interrelation
between the corporate culture and ethical culture (Weber and Seger, 2002); both are cause and
effect of each other and it is indeed problematic to functionally separate them, although they are
conceptually separate categories.
Ethical Intensity, Base and Superstructure
In this context, the concept of ethical base or intensity is worth noting (McDevitt
and Van Hise, 2002, pp. 261–74). Ethical intensity is the degree of the importance of the ethical
issue related to a decision-making. If the ethical base is strong and broad, its ethical
superstructure will be sprawling and expanding. This implies that in all its dealing,
ethics will get the prominent place. The relationship between ethical base and a
superstructure is indeed a very crucial one but is often neglected by ethicists while
explaining ethical decision-making in business. An organiza- tion’s ethical intensity will be more
sensitive towards moral issues, their possible effects on the public and the priority pattern of
moral decision-making in business. Moral intensity can be influ- enced by many factors including
managerial influence, outside pressure, reward and punishment, and the legal and social factors.
Managerial influence, indeed, remains very critical. If the manager is a person of strong moral or
ethical background, he will be able to influence the whole team to vote for ethical decision-
making. He can even use the reward and punishment technique.

Personal Predisposition
Just as an organization is influenced by ethical issue intensity, in the same way, an individual in a
company either the employee, employer or the stakeholder is influenced by this. At the individual
level, the importance of ethical issue in all decision-making will partly depend on his family
situation, upbringing, parental values, social values, and so on. Many factors and forces shape the
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personal predisposition towards ethical decision-making by a manager. Some of these factors will
be briefly discussed here:

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Gender
It has been found from experience that in general women are more ethical than men (Loe et al.,
2000, pp. 185–204). This means that women are more sensitive towards the ethical issues and
they seem to be more concerned with them.

Age Structure
By and large, young managers are less concerned about ethical issues in business decision-
making. There are, of course, exceptions but no compelling empirical finding contrary to this
statement. Elderly managers are more sensitive to ethical issues and corporate social
responsibilities. This is, however, not to deny the complex relation between age and morality.
Some researchers have stated that older people may not be necessarily more wise (see Peterson et
al., 2001).

External and Internal Factors

Ethical values in the corporate world are also influenced by many internal business dynamics and
externalities. One internal factor is the amount of corporate profit. There is, generally, a positive
relationship between profit and ethical decision-making. However, it may not always be true for
all types of firms.

Education Level
The level of education of a manager is an important determinant of ethical values. The
relationship between these is generally positive. However, education should be interpreted in a
broad sense that includes both formal and informal education. For instance, a person may not
have much formal education but he may be highly religious-minded and ethical in decision-
making. Businesspeople are found to be more ethical than students (O’Fallon and Butterfield
2005).

Ethical Leadership
The quality of leadership is a critical factor for business decision-making. If the leader or the
corporate manager has no ethical mental make-up, it cannot be expected that business decisions
will be ethical. In a system of hierarchical management based on Top-Down Principle
leadership, ethics is the first prerequisite for ethical business decision-making.
Rules vs Discretion
This is an important issue in making or not making ethical decisions in business. The rules laid
down by the senior bosses will have to be obeyed in the corporate world. Hence, an ordinary
manager cannot flout the rules. If the set rules are based on ethical principles, the decision-
making will be ethical, otherwise not. Managerial discretion may or may not be favourable to
ethical decision- making. It depends on the personal proclivity of the manager.
In this connection, a few personal values discussed as under remain crucial for business
decision-making:

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Personal Values in Decision-making
● Caring for Others
● Fairness and Justice
● Commitment to Social Responsibilities

● Sense of Trusteeship

● Sense of Duty

● Good Citizenship

The list of virtues can be extended further (see for details, Chapter 2). All the above-mentioned
virtues are directly correlated with ethical business decision-making. It is now possible to state in
a functional form the factors that influence ethical decision-making in business.
Ethical Business Decision-making = f (G, AS, EIF, EL, EL, R/D, PV)
Where:
[G = Gender, AS = Age structure, EIF = external-internal factors, educational level, Rule or
discretion, personal values]. The general impact of these factors on ethical business decision-
making has been discussed earlier.

JOSEPHSON’S SIX PILLARS OF CHARACTER AND BUSINESS DECISION-MAKING

Michael Josephson (www.josephsoninstitute.org) has identified six personality traits that are
very favourable to ethical decision-making. These traits are characterised as six pillars, and their
impact and effectiveness in ethical business decision-making will be complete if all these six
attributes are taken in totality. These character traits of decision-maker are briefly discussed in the
following pages.

Caring Personality
Care triumphs over all human deficiencies and transgression. The most important attribute of a
person is his caring attitude. The caring and sharing can be for the family members, relatives or
for the society. If one cares for the society, the business decisions will be pro-social and more
human-centric. Care is the first starting point of all ethics and ethical principles worth the name.
Without care and love, no principle can be developed by a person. Care advises renunciation and
philanthropy. Thus, if a businessman is endowed with the attribute of caring and sharing, it is
normally expected that the businessperson will make ethical decisions for the purpose of running
his business. This is so because ethical decisions will ultimately benefit some people who may be
needy and poor. Having said this, it is imperative to understand a note of caveat. A caring person-
ality or attitude does not mean that a business man has to relinquish his basic business philosophy
of profit maximization. Care can co-exist with business principles.

Respect
Respect for others is another cornerstone for ethical decision-making. Respect involves caring,
non-injury, giving attention to somebody’s needs, courtesy, avoidance of exploitation, giving
equal
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status or even higher position to others, decency, dignity and honour. Respect is a method of
paving a way for egalitarianism. Respect is reciprocal in nature. If you pay respect to somebody,
he will, in turn, pay respect to you. Respect implies a negative ego-centric behaviour, which is the
basic pre-condition of ethical positioning. Thus, out of respect you activate the social
interdependence, connection and cooperation. All these are great virtues to any businessman, and
respect is one of the pillars of ethical decision-making. If you have no respect for others, you
have no right to make ethical space for others.

Responsibility
From care and respect comes the sense of responsibility. Responsibilities are basic duties that one
needs to perform for sustaining care and respect. Responsibilities imply accountability, sharing
the agreed burden and preparedness for every eventuality in a particular context. When a person
takes a responsibility, he has to work hard to perform the work for which he has taken the respon-
sibility. Responsibility and accountability go hand in hand. Accountability implies that a person is
answerable for what has happened in that particular case or situation, and he has to bear all moral
responsibility for that. In the matter of ethical business decision-making, the decision-maker takes
the sole responsibility of such a decision. He is accountable for the impact of that decision
whether it turns to be good or bad. Ethical decision-making, however, does not involve any bad
outcome but only social welfare or public good. Needless to say, in the case of ethical business
decision-making, the manager bears the responsibility and he also remains singularly accountable
for his decision.

Trustworthiness
A moral responsibility on the manager or any person implies that the person is trusted by others.
A trust is an important asset of all human beings. To be trustworthy is to have an additional
respon- sibility. A person becomes trustworthy only when he possesses some special virtues and
character traits like integrity, honesty, sincerity, regards from others and truthfulness. Integrity
has been defined as a process of awareness and alignment of moral values, character and balanced
judgment that can ensure the promotion of a sustainable moral development (Petrick and Quinn,
1997). So, a person who is trustworthy has many ethical or moral qualities. When a manager is
found trust- worthy by a company, he is entrusted with some autonomous managerial functions
that become helpful for ethical decision-making in the business.
Trustworthiness is also related to loyalty and reliability. A person who is trustworthy has to
be loyal to certain authorities or persons from whom the trust comes. It is after going through
numerous tests and experiments that a person is declared trustworthy. Thus, a trustworthy person
is invariably reliable. In the matter of managerial decision-making, the superior authorities
delegate some power to the manager to make ethical decisions, and they believe that since the
manager is trustworthy, he will not do anything wrong.

Fairness
Fairness involves justice, equal treatment of people under equal situations, impartiality, non-dis-
crimination, openness and transparency. A fair decision is the decision that is taken without fear
and favour and without pride and prejudice. A fair decision is always based upon the merit of the
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case. A neutral decision is a fair decision. In a fair decision, the person, group or individuality
does not matter. A fair judgement is taken dispassionately without any partiality. However, a fair
ethical decision may be somewhat in favour of the poor and the deprived section of the
community. In the matter of justice and fairness, John Rawls (1971) has some special concessions
to offer to those people who have already been exploited and who do not have even the basic
goods for survival. He calls this as the Difference Principle. It says that, if at all some
inequality is to be permitted it must be in favour of the poor and the destitute. Fairness is a great
virtue that should be practiced in making ethical decisions in business.

Citizenship
Citizenship is the recognition of a person as the legal inhabitant of a particular country for which
he is accorded some rights and privileges like, right to vote, right to enjoy public goods and
benefits, and so on. However, it also enjoins certain duties and responsibilities, like the obeying
of laws, respect for the constitution of the country, taking part in the decision-making process,
directly or indirectly, to keep up the moral strength, standard and pride of the country, and so on.
A citizen enjoys certain fundamental rights like the freedom of expression, of speech, right to
live, right to security and protection, right to information, right to enjoy the public goods and
basic necessities of life, and so on. A good citizen has to contribute towards community
development, maintenance of environmental quality, ecological balances and social development.
Social responsibility is one of the important responsibilities of a good citizen. In the same way, a
good corporate citizen has to perform many social responsibilities including social
welfare, environmental protection, conservation of resources and sustainable development of the
country. Ethical decision-making in business includes all these areas of responsibilities.

KROLICK MODEL OF DECISION-MAKING STYLES

In a famous but somewhat controversial survey, Stanley Krolick (1987) has developed a model
that explains the following four modes of making individual decisions in business.
These four modes are:
● Individualistic Mode

● Altruistic Mode

● Pragmatist Mode

● Idealistic Mode

The individualistic mode is based on self-interest, personal gain, progress and success.
However, although many individualists speak about success, the meaning of the term success is
neither uniform nor the same to everybody. Success may be calculated in terms of total profit, or
name of the company, or market share, goodwill, sales maximization or assets maximization (see
Ghosh, 2010, Ch.2). The decision mode is based on naïve ethical relativism.
Altruism is a philosophical and a philanthropic approach to decision-making. In
this context, altruists think about the interests of the society, mankind, and the future generation.
They take or recommend the policy which will maximise happiness of all or at least the
maximum number of people. Sometimes, confusion is created by saying that altruists are
utilitarians in disguise. This is
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not so, because altruists do not make a rational calculation of costs and benefits from the project
and do not recommend the one that brings the highest net benefit (total benefits minus total
costs). The altruists are universalists and not at all self-interested.
Pragmatists are concerned with the practical solution of a problem at the
present moment by disregarding other things. The present needs, problems and solutions are more
important to pragmatists than anything else. For solving the present issue, they can adopt any
ethical theory or principles and may not necessarily adhere to that theory for all the time to come.
They depend more on ethical relativism. More often than not, the pragmatists use that approach
which brings in more utility or advantage. Thus, it can be said that it is, in a sense, more close to
the philosophy of utilitarianism. But this is not to deny the fact that it does not follow a particular
rule or theory all the time.
Idealists are lovers of ideal principles or rules. Sometimes, they blindly follow those rules.
Business decisions of idealists will be based upon an ethical principle which is dear to them,
and for that principle, idealists can sacrifice anything and everything. They are duty-bound people
and justify their actions in terms of certain ethical norms or principles. They do not believe in
ethical relativism or any sort of compromise. They believe in ethical absolutism under all
situations. They are very committed, motivated and consistent in all their decision-making.
Having explained all these decision-making modes, it must be conceded that none of these
modes is free from criticism. This is the reason why some people prefer to apply the rule of
ethical pluralism in making business decisions. Ethical pluralism takes into account an
admixture of a few principles at the same time, if possible, and does not believe in the uniqueness
or all-time superi- ority of one principle over the other.
Be as it may, it has been accepted by ethical analysts that while pondering over ethical
decision- making in business, the personal ethical background of the decision-makers becomes a
critical factor.
The process of ethical development is a long-drawn process from childhood days to mature
stage of a person. In this context, one can explain the theory by Kohlberg and others (see for
details, Chapter 1). It is believed that Kohlberg’s theory can be applied in the case of business
decision- making. Let me elaborate on this in the following section.

STAGE THEORY OF COGNITIVE ETHICAL DEVELOPMENT AND

BUSINESS DECISION-MAKING
Kohlberg has explained six stages of development of morality in human beings. The
analysis is helpful for explaining ethical decision-making in business.
● First Stage in moral development is marked by a system of punishment

and reward for doing bad things and for the overt action to good things. Although this is
the childhood stage of moral development, it can be made applicable in the business world.
The manager can induce other employees to do good things for rewards and can also punish
the wrong-doers. However, the application of the punishment and reward principle will
depend on the corporate ethical culture and ethical base and structure.

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● In the Second Stage of ethical development, a person considers a rule to
be right or correct if it is fair to him. In most cases of ethical decision-making in
business, the theory of reciprocity or mutual fairness is translated into action. Thus, a
firm will do business with another firm or supplier if the dealings are reasonable and fair,
and X firm will remain fair to Y firm, if Y firm is also fair to X firm. This type of bondage
can and does continue for a long time simply on the basis of mutual trust and fairness. This
is especially true in the case of Japanese firms.
● The Third Stage of ethical or moral development goes beyond the theory

of mutuality or reciprocal advantage. It is really the beginning of ethical or social

responsibility both for individuals and for the business. The company is now out to do
something good for the stake- holders, stockholders and society and undertakes ethical
decision-making. This is the stage of building good relationship, maintaining it and thinking
about the well-being of others. This is the stage in which corporate social responsibility
starts gaining the foothold and business decisions are moulded accordingly.
● The Stage Four is marked by the consideration of duties. The firm becomes

more deonto- logical in nature and makes business decisions accordingly. Duty towards
society, maintenance of social order and respect for laws and superior authorities are
reflected in business decision- making. Obedience to legal instructions is marked in this
stage of ethical development.
● Stage Five is the stage of upholding basic human rights and values and

creating social contract. At this stage, the business company recognizes other groups
and some business commitments. This stage may experience some conflict between the
prevailing law of the land and some moral principles or ethics. This type of conflict can be
reduced by rational evalu- ation of overall utility functions. The decision of the firm at this
stage is based on the idea of utilitarianism. That is, it is influenced by net utility or net
benefit to society (total social benefit minus total social cost). For instance, a doctor may
first try to save the life of an accident victim without wasting any time to report the case to
the police. This is so because the medical form thinks that life is more valuable than the
amount of fines to be imposed by the police authorities for non-compliance.
● Stage Six is the stage of consolidation of certain ethical values. At this stage, a

firm
develops certain universal ethical values based on experience and learning.
The firm becomes more conscious about certain rights and duties and gives more credit to the
absolute and universal moral values. These values are made operational through suitable
decision-making. The firm may discard the making of the product which is injurious to
human health even though it is profitable. In the same way, it will like to internalise the
negative or harmful externalities like chemical effluence that pollutes the nearby river or
lake. At this stage, the firm is more conscious about social and ethical issues, and is guided
by universal ethical principles like justice, fairness and equality, and business decisions are
taken to promote them.
These stages can of course overlap and some stages may even be skipped over. The stage
theory of Kohlberg is not compelling but can throw some important light on the moral
development of persons or business firms. Even if a manager is a mature person, he may not have
the same exposure to moral development as another manager. There may be some lag effect in
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morality development. In fact, the ethical decision-making of a business firm depends on312
its
stage of moral development.

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ETHICAL MODELS FOR MAKING BUSINESS DECISIONS
There are seven fundamental ethical models or principles that can be used for ethical
business decision-making. These models are discussed in Chapter 1. Readers are advised to read
Chapter 1 for a detailed explanation of these principles. Sometimes, one clear-cut principle or a
combination of some principles may be used for making ethical decisions in business. The basic
ideas of these models are given as under:

Consequence-based Model (Utilitarianism or Consequentialist Principle)

● This principle holds that a policy or action is ethically good or correct if such an action
produces the greatest good for the largest number of people. There are many interpretations
of this principle.
● One interpretation says that the benefit from the policy should be higher than the cost

involved. In other words, a policy is good if it produces positive net benefits.

● Another view is that a policy is morally justifiable if it brings the greatest benefit to each

individual and if this benefit is higher than the net benefit of an alternative policy. This
principle was made popular by Jeremy Bentham and John Stuart Mill in the nineteenth
century. They are the founders of the school of utilitarianism. The principle of utilitarianism
is being used since long and is still a very popular principle in public policy domain in spite
of its many limitations.
● In the context of this principle, a minor moral lapse or aberration (cost) like bribery is justi-

fiable if it brings greater benefit to the society. Suppose Mr. Martin bribes a governmental
official to get a permit to continue the production of soldiers’ uniform in his factory where
100 poor people are working. Is it morally wrong to bribe an official? The utilitarian
principle will tell us that it is morally right to bribe the official in this case because through
this action, Martin has been able to save the family of 100 workers from starving.
Consequentialism puts more emphasis on the consequences or result of an action rather than
the action itself. A business decision is morally acceptable if it benefits people at large at the end
of the day and that benefit is much higher than the cost. It is instructive to note that in the case of
ethical business decisions, the social gain must offset the personal gain, and that the desired end
must be achieved in an efficient manner (Barry, 1986).

Duty-based Model (Universalism or Kantianism)

● According to this principle, all persons should be treated with respect. It says that a person
or a firm has certain universal duties to protect others whose welfare or needs are at risk. It
is perfectly an ethical decision to help these individuals and provide to them their legitimate
basic needs. Thus, it is a firm’s right, ethical decision to protect its employees against
coercion, force, abuse or any type of harm in the office.
● Another test of universalism is that the action or decision is acceptable to all concerned, and
that other rational human beings will take the same decision in the same situation.
● The principle emphasises that a duty-based action is ethically correct an idea propounded by
Immanuel Kant. However, as Mahatma Gandhi pointed out, the duty to be performed must
be morally correct; it is morally wrong to perform unethical duties (Gandhi, March 27,
1930).
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Rights-based Model
● Duties correspond to rights. According to the theory of rights, it is ethically correct to take a
decision or make a policy that will guarantee the legitimate rights to people who do not have
these rights. The violation of rights must be protected and legitimate rights must be estab-
lished or restored.
● Rights are entitlements and some rights are fundamental in nature such as, right to live, to
have freedom of speech, to security, right to property and the like.
● Kant stressed the importance of personal rights. There many types of rights including moral
rights, legal rights, property rights, contractual rights, and so forth. While legal rights are
protected by state, moral rights are to be protected by society. Hence, there is a need for the
corporate sector to intervene and make suitable decisions in this regard.

Justice-based Model
The term justice is interpreted in various ways, some of which are discussed as under:
● Justice is an ethical action that treats everyone fairly and consistently in accordance with

some legal or ethical standard.

● Justice also implies a policy or decision where all equals are treated equally.

● Since all people are not equal in every respect, justice demands that equity should be the

correct principle and not absolute equality. Thus, for a person in the middle-income group,
the rate of tax is lower than that on a rich person.
This is so because the marginal utility of money is different for these two groups of people.
● The concept of justice includes: distributive justice (fair distribution of benefits and burden),

procedural justice (fair method of making a deal, agreement or contract), retributive justice
(correct punishment in accordance with the harm or injury done) and compensatory justice
(fair compensation to someone for the harm or injury done in the past).

Virtue-based Model
● Any decision or action is justified if it encourages certain virtues, like honesty, integrity,
sincerity, self-control, fairness, sacrifice, trust, truthfulness and so forth.
● Virtue is a type of character trait that makes a person wise and helpful for the optimum
development of his personality in such a way that he cannot only develop himself but can
also contribute towards the social and humanitarian development. Virtue has many positive
externalities (external effects).
● A virtuous man is an ethical man and any decision taken to develop human virtues is an
ethically correct decision.
● An ethical decision needs to be consistent with certain ideals of virtue. The decision-maker
must exhibit, exercise, develop or encourage a morally virtuous character. All good
decisions must encourage virtues and discourage vices of any form.

Common Good Model

● A business decision that contributes positively for the maximization of social welfare or
benefits for all is an ethical decision because it enhances common good and all are
benefitted.
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● Common goods are those goods which can be used by all, irrespective of their personal
status or position. Such goods may be public goods like charitable hospitals, roads, street
lights, public security system, and so on. For using such goods, all persons need not pay
equally or some persons need not pay at all. Those who are not paying are called free
riders, and they can also enjoy the benefits of such goods.
● Common goods are benefits that can be made available in a particular region or area or state.

Care-based Model
Care-based ethics is perhaps the best of all ethical models. It says that the interlocking social and
personal relationship is the basis of all ethical actions. A decision is ethical which is based on
care, compassion and love. The Bible says: mercy triumphs over all judgments. Care-based ethics
can be interpreted in various ways:
● It is ethical to take care of all those persons whom we love and who need our care and

compassion, love, kindness and mercy. This primarily encompasses our close relatives and
family members.
● Care-based model is also extended to include the people in a society that need care and

compassion. The care may be through financial support or physical care. Care based ethics
is a part of corporate social responsibility.
● The model also includes caring for all those persons who are not our relatives. They may be

unknown and strangers to us, yet they deserve our care and compassion.
● The ethics of care transcends the boundary of narrowly-defined relationships and teaches us

to be more humane with magnanimity and catholicity of character.

CONSTRAINTS IN ETHICAL DECISION-MAKING AND IMPLEMENTATION

There are several obstacles in the making and implementation of ethical business decisions. Some of
the major constraints are listed as under:
1. The ethical organizational culture may be completely absent or, the
company may not be serious at all about ethical decision-making. This generally happens
when the company is amoral.
2. The manager may not have any ethical orientation, his upbringing and family
history may be contrary to ethical culture.
3. The business may be focused only towards the principle of profit
maximization and nothing else.
4. Ethical dilemmas in the mind of the manager or shareholders may not have
been properly addressed. Even if they are tried to be solved, every time, material
considerations gain the topmost priority and the ethical issue is neglected.
5. The shareholders and investors may oppose the ethical culture of the
company. Some of them may be in favour but majority of them may not want such a
culture to grow.
6. The company may not have any history or precedent of ethical
predisposition. When it studies the history of the company, it gets no encouragement or

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incentive towards ethical predilection. 316

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7. The organization may be indifferent towards business ethics and there may
be the absence of ethical leadership. There is no proactive attempt to make the
company ethical in character.
8. There may be different types of conflict at different organizational levels
such as between employer-employee level, employee-employee level, investors-management
level, and so on, about the desirability of ethical orientation and ethical decision-making in
business. If all the people working in organizations do not have a common opinion about an
issue, there may be a moral conflict. If conflicts are not resolved properly, ethical decision-
making may be delayed or discontinued, or not taken up at all.
9. There may be, in many cases, lack of suitable opportunities, timing or financial
ability to engage in an ethical programme. The will may be there but right opportunities
may be absent.

A FRAMEWORK FOR MAKING GOOD ETHICAL DECISIONS IN BUSINESS

To make a good ethical decision is a complex and convoluted matter. Different types of ethical issues
and problems may need different solutions. All ethical issues are not equally critical to business
management. In the same way, all ethical problems are not equally compelling. Some are short-
run in character and some have only long-run implications. However, in spite of the different
nature and dimension of ethical issues, it is necessary to have a framework with reference to
which many types of ethical decision-making can be properly tackled. An attempt is made in this
section to discuss a general framework for ethical decision-making in business. It may be useful
to business managers as a guideline for making decisions. The framework detailed below assumes
that the company has the moral culture and moral will to solve ethical problems. The constituent
elements (points) in the framework are self-explanatory; hence, too much of rigmarole is
consciously avoided. A point by point approach is used for explaining the framework. The
following are the Ten Points to make good ethical decisions.
● Study the case carefully and seriously to get intimately acquainted with

the ethical issues involved that need to be solved. The case may be with respect to
internal management relating to working conditions for all the employees, or about the
possibility of giving a job to a crippled person. The ethical issues in these two cases are
different, and the manager should analyse each case separately to appreciate its various
dimensions. It is not enough to merely read the files, but it is imperative to study the cases.
● Think about the ethical intensity of the problem, its importance for the

firm and the industry, and its priority in the scheme of your business agenda. One should
also analyse the company’s goals and objectives (mission and vision) to contextualise the
case that needs a solution. A green signal is given when there is no fundamental
contradiction between the goals of the company and the ethical solution needed. It is also to
be ensured that the company has the ethical culture that can accommodate this type of
situation.
● The solution of the case in terms of the most appropriate ethical model (I

have discussed many such models earlier in this chapter) needs to be

contemplated at this stage. There may be the relevance of the model of rights, of

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care, or of fairness and justice. For instance, if there is unfair gender discrimination 318
and
women workers are not given the same pay as their male counterparts in spite of equal
productivity, it is a clear case of injustice and discrimination.

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The manager should apply the principle of justice and fairness. The model that is to be applied
must be consistent with the company’s ethical culture, commitment and ethical base.
● At this stage, the manager will do well to study the feasibility of the solution in

terms of available resources. If the solution is within the feasibility area, he should take the
case forward.
● It is now necessary to discuss the completed ethical action or decision to the

senior officers and with those whose assent is necessary. The manager should impress
upon them about the importance of the case and its far-reaching implications.
● At this juncture, it is imperative to clearly understand the dual implications

of the case. First, what will be the consequences if this ethical issue is not solved? This
may be examined in terms of legal action, damage of reputation, expenditure on litigation,
and so on. Second, what will be the implications if this case is solved ethically? The
manager must discuss all these factors with the Board of Management.
● It is advisable to think about all the possible and feasible alternative

solutions. Some of these may be relevant in the short-run and some in the long-run. But
the implications may be different. Knowledge about the alternative ways of attaining the
ethical desideratum is immensely helpful for the manager to make adjustments and
accommodations in the policy framework. Some of the alternative solutions may be
discussed in open meetings to get the feedback and general consensus. It is also necessary to
resolve the legal issues, if any, that stand in the way of ethical solution.
● Some proposed ethical solutions of a problem may involve ethical

dilemmas, conflicts and contradictions. These may be internal or external. These

should be resolved amicably, and many a time, a trade-off between two
alternatives may be necessary. Very often, the long-run and the short-run objectives
of a firm may be in conflict. A compromise or a recon- ciliatory approach on the basis of
cooperation may be helpful in this type of situation. For instance, profit maximising
objective of a firm is in conflict with welfare maximising objective. In this case, a policy
trade-off that achieves something of both of these desiderata will be a
welcome decision.
● When every problem is solved and the deck is clear, it is time to take a

firm decision by taking into confidence all those that matters. However,
once the confidence is reposed on the manager by all, and something happens by chance, he
will perhaps be excused. Those who matter will not mind and those who mind
will not matter.
● Once the ethical decision is made, implement it as soon as possible.

Justice delayed is justice denied. More time may mean more cost and sacrifice, and
also more uncertainty.

TEN GENERAL ETHICAL TESTS TO ENSURE GOOD DECISIONS

The following ten ethical tests are short tests to ascertain the ethical nature of business decision-
making. The first six of these tests have been articulated in the Centre for Business Ethics at
Bentley College (Weiss, 2009, 989). The present author has slightly modified some of the

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questions to make them more clear. The last four additional tests have been devised by 320 the
present author of this book. If the answer to all the test questions are positive (yes), it can be said
that the business decision has been or will be good.

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Test Questions
1. Is your decision right (as per ethical rules, legal tests and professional ethics)?
2. Is your decision fair (justified/non-discriminatory)?
3. Is your decision not harmful to anybody?
4. Will you be comfortable if your decision is published on the front page of the local
newspaper?
5. Can you ask your child to take the same type of decision in future?
6. How should a third party feel about your decision?
7. Is your decision helpful to the society?
8. Does your inner voice support your decision? (Gut-feeling Test)
9. Will you like if everybody makes similar decision?
10. Is your decision pro-poor or pro-common people?
Points 7 and 10 are particularly important for an ethical business decision. In this context, what
Mahatma Gandhi said about public policy-making is immensely relevant. Gandhi makes it clear
that whenever a policy-maker is in doubt about the usefulness of his policy he should consider its
possible impact on the poor and the common people of the society.
Let us quote him:

Whenever you are in doubt, or when the self becomes too much with you,
apply the following test. Recall the face of the poorest and the weakest man
whom you may have seen, and ask yourself if the step you contemplate is
going to be of any use to him. Will he gain anything by it? In other words,
will it lead to swaraj for the hungry and spiritually starving millions?... Then
you will find your doubts and your self melting away.
(Gandhi, August, 1947, Vol. 8)

Gandhi’s reference to swaraj here should be interpreted as economic freedom. Spiritually

starving millions should refer to those people who have no knowledge about the right kind of life,
liberty and common code of ethics.

Summary
A good intention is the pre-requisite for ethical decision-making in business. It should come
from the heart and not just from the head. It is instructive to note that some business concerns
are basically moral, some immoral and some are amoral. An immoral company is neither moral
nor immoral, it is just indifferent. It follows the minimalist strategy and does not bother about
morality or immorality. The matters of ethical decision-making, individual factors and organiza-
tional values become immensely important. If the company has a value-oriented corporate culture
and pronounced ethical stance as can be seen from its mission and vision statements, the process
of ethical decision-making becomes rather easy. If the ethical base or intensity is strong, its
ethical superstructure will be sprawling and expanding.
Just like the ethical intensity, personal predisposition is also an important deterministic factor
in ethical decision-making. Some of the factors in this context which smoothen the work of

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ethical decision-making are elderly employees, female workers, education level of workers and 322
the
volume

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323
of corporate profit are all positively correlated to ethical decision-making. If the corporate sector
is based on rules that are ethically favourable, then those rules can go a long way in ethical
decision- making. Personal values like the sense duty, good citizenship, love for fairness and
justice and caring for others can facilitate the work of ethical decision-making without tears. In
this context, Michael Josephson’s six pillars of character that include responsibility, respect and
so forth can be helpful for ethical decision-making. Krolick model of decision-making is based on
four distinct modes. The individualistic mode is based on self-interest, altruist mode gives a
philanthropic approach, and the pragmatist mode is concerned with practical solutions.
The stage of ethical development of the decision-makers is critical in the process of decision-
makings. Kohlber has discussed six stages of cognitive ethical development. In this process, the
first stage is based on reward and punishment and the evolution goes on changing till it settles at
some universal stage of ethical development through learning and experience. The decision-
makers may be influenced by end-based theory or morality, or duty-based principle, virtue-based
principle, common-good principle, care-based principle, right-based principle or justice-based
principle. An ethical business decision may be based on a particular principle or a combination of
a few principles (ethical pluralism).
Be that as it may, there are some practical constraints in ethical decision-making. Some of
these are lack of ethical orientation, amoral nature of the company, lack of ethical culture and so
forth. A framework can be devised to make corporate ethical making a success. There are ten
general tests to ensure good ethical decision-making by a company. These tell us that if the
decisions are fair and just, rights-based, not harmful to anybody, can be universalised, should be
imitated by all and can be publicised, helpful to the society, to be liked by all in general, is pro-
poor and the inner voice supports it, then it is a good ethical decision.

Key Terms
Immoral and amoral Corporate Culture Gut Feeling
Ethical Intensity Ethical Pluralism Test Free Rider
Ethical Base and Integrity Public Goods
Superstructure

Test Your Knowledge

1.State whether the following statements are True or False
(i) Justice delayed is justice denied.
(ii) Kohlberg has developed a six-stage theory of moral development.
(iii) The first stage of moral development in the Kohlberg model is marked as punishment
and reward.
(iv) According to Krolick, there are four modes of making decisions.
(v) In general, women are more ethical than men.
(vi) Ethical intensity is the degree of importance of the ethical issue related to the decision-
making.
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324
(vii) Duties correspond to rights is upheld by the justice-based model.
(viii) There are five fundamental ethical models.
(ix) Pragmatists are concerned with the practical solution of a problem.
(x) Idealists are lovers of rational principles or rules.
2.Fill in the blanks
(i) According to , the highest knowledge is the knowledge of good and
evil, the knowledge of the wisdom of life.
(ii) There are basically the following three types of business concerns, namely, ,
, and .
(iii) In making ethical decisions, the factors involved in any business are and
.
(iv) Just as an organization is influenced by , in the same way, an individual
in a company, either the employee, employer or the stakeholder, is influenced by this.
(v) In a system of hierarchical management based upon leadership ethics is
the first pre-requisite for ethical business decision-making.
(vi) A has to perform many social responsibilities including social welfare,
environmental protection, conservation of resources and sustainable development of the
country.
(vii) According to the Krolick model, four modes of making individual decisions in business
are , , and .
(viii) is a philosophical and a philanthropic approach to decision-making.
(ix) principle holds that a policy or action is ethically good or correct if
such an action produces the greatest good for the largest number of people.
(x) Duties correspond to rights, is upheld by the model.
3.Choose the correct option
(i) In his Practical Reason, who observed that no action is good in itself?
(a) Immanuel Kant (b) Max Weber
(c) Aristotle (d) Plato
(ii) John Rawls gives some special concessions to those people who have already been
exploited and who do not have even the basic goods for survival. This is called the:
(a) Capitalism (b) Difference Principle
(c) Both (a) and (b) (d) None of these
(iii) Who are concerned with the practical solution of a problem?
(a) Altruists (b) Capitalists
(c) Pragmatists (d) None of these
(iv) First stage in moral development is marked by a system of:
(a) Divide and Rule (b) Punishment and Reward
(c) Both (a) and (b) (d) None of these
(v) In the Stage Four of moral development we have consideration of duties, where the firm
becomes:
(a) Deontological in nature (b) Ontological in nature
(c) Epistemological in nature (d) None of these

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325
(vi) The principle which was made popular by Jeremy Bentham and John Stuart Mill in the
nineteenth century is:
(a) Universalism
(b) Utilitarianism or Consequentialist Principle
(c) Both (a) and (b)
(d) None of these
(vii) According to which principle all persons should be treated with respect?
(a) Universalism
(b) Utilitarianism or Consequentialist Principle
(c) Both (a) and (b)
(d) None of these
(viii) That any decision or action is justified if it encourages certain virtues, like honesty,
integrity, sincerity, self-control, fairness, sacrifice, trust, truthfulness, and so forth, has
been upheld by the:
(a) Justice-based model (b) Virtue-based model
(c) Rights-based model (d) All of them
(ix) Those who are not paying to use the public goods are:
(a) Free Riders (b) Suppliers
(c) Both (a) and (b) (d) None of these
(x) That duties correspond to rights has been upheld by:
(a) Justice-based model (b) Virtue-based model
(c) Duty-based model (d) Rights-based model

Review Questions
1. Explain critically the four popular modes of business decision-making.
2. What are the basic determinants of ethical decision-making in business?
3. What preliminary Ethical Tests will you perform to ensure that a particular decision is
ethical?
4. Is it possible to apply Kohlber’s theory of cognitive moral development in the case of
business decision-making? Explain fully your view.
5. Write note on Krolick’s four modes of decision-making.
6. Decision-making depends on the corporate culture and ethical base or intensity. Do you
agree with the statement? Give reasons in support of your answer.

Web Links
1. http://philosophy.lander.edu/ethics/ethics.papers.s00/paper9.html
[The Difference between the Amoral and the Immoral]
2. http://jobfunctions.bnet.com/abstract.aspx?docid=900417
[When Personal Values Conflict with Ethical Decision-making]

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 Ethical Decision-Making in Business
326
3. http://www.decision-making-confidence.com/personal-values-and-decision-making.html
[Personal Values and Decision-making]
4. http://en.wikipedia.org/wiki/Kohlberg%27s_stages_of_moral_development
[Kohlberg’s Stages of Moral Development]
5. http://www.ethics.org/resource/plus-decision-making-model
[Six Steps to Ethical Decision-making]

References
Barry, V. (1986), Moral Issues in Business, Wadsworth, Belmont, CA
Farrell, O.C and Ferrell, Linda (2001), “Role of Ethical Leadership in Organizational Performance”,
Journal of Management Systems, Vol.13
Gandhi, Mahatma (1947), “A Note from the facsimile of Mahatma, given the Collected Works of
Mahatma Gandhi”, Govt. of India, Publication Division, New Delhi, Vol. 8.
Gandhi, Mahatma (1930), “Duty of Disloyalty”, Young India, 27 March
Ghosh, B. N. (2010), Managerial Economics and Business Decisions, Ane Books, Delhi
Krolick, Stanley (1987), Ethical Decision-Making Styles: Survey and Interpretive Note, Addison-
Wesley, USA
Mcdevitt, R. and Van Hise, Joan (2002), “Influence of Ethical Dilemmas of Increasing Intensity”,
Journal of Business Ethics, Vol. 40
O’Fallon, Michael, J. and Butterfield, K.D. (2005), “A Review of the Empirical Decision-Making
Literature: 1996-2003”, Journal of Business Ethics, Vol. 59
Peterson, D. et al.(2001), “Ethical Beliefs of Business Professionals: A Study of Gender, Age and
External Factors”, Journal of Business Ethics, June
Petrick, J.A. and Quinn, J. F. (1997), Managerial Ethics: Integrity at Work, Sage Publications,
USA
Rawls, John(1971), A Theory of Justice, Cambridge, MA
Weber, James and S. Seger (2002), “Influence upon Organizational Ethical Subclimates: A Repli-
cation Study of a Single Firm at Two Points in Time”, Journal of Business Ethics, Vol. 41,
November

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 PART THREE

Corporate Governance:
Principles and Practices

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 CHAPTER
16
Corporate
Governance:
Principles, Issues and

L E A R N I N GO B J E C T I V E S

This chapter will help the reader to understand

■ The meaning and distinction between corporate management and corporate governance
■ Historical background, nature, characteristics and purposes
■ Importance, theories, mechanism and principles
■ Codes of practices, structure, shareholders’ rights and protection
■ Issues, elements of bad corporate governance, principal-agent problem
■ Globalization and corporate governance, emerging trend and the OECD principles

INTRODUCTION
One of the most serious misconceptions of our times is the belief that all countries are equally
ethical or unethical. It is not really so. Conceivably, there are three types of countries:
● Pre-ethical countries

● Ethical countries

● Post-ethical countries

One should consider UK, USA and some other developed countries as pre-ethical in the sense
that they have never seriously embraced ethicality in business ever since the inception of
corporate capitalism, though they are now becoming more aware of it. Some writers (e.g., Bob
Garratt, 2003)

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324
have mistakenly considered America in the post-ethical category. This is indeed misleading.
These developed countries are yet to seriously think about ethics in business and they did not
have any such tradition or historicity either in national life or in corporate life. Many of the Asian
countries like India, China and Japan can and should be included in the post-ethical category.
They had in the past a long-drawn tradition of ethics, religious ethos and morality in every walk
of life but now with the advent of the philosophy of neo-liberalisation, these countries are drifting
away from the tradition. It is indeed empirically difficult to designate a country as completely
ethical in the true sense of the term, though conceivably such a categorisation is possible, as
conceptual noumenon permits it. On the empirical plane, some of the Arabian countries and
perhaps Malaysia are at some ethical stage of development, although there are minor aberrations.
But if one is interested in locating a perfectly ethical country, perhaps one will be disillusioned,
and it will be like chasing the will-o-the-wisp. So let us resist the temptation.
The present chapter aims at analysing some important ethical issues in corporate governance
in general and seeks to elaborate on many other peripheral issues, problems, recent changes and
trends related to corporate governance.

WHAT IS CORPORATE GOVERNANCE?

Corporate governance is the coordination and maintenance of a set of relations that promote the
interests of stockholders and stakeholders of a business corporation. A few representative defini-
tions are given as under:
“It is a system by which companies are directed and controlled.” (OECD)
“It is a set of relationships between a company’s management, board, shareholders
and stakeholders.”
“It is a system of social institutions that influences the process of strategic investment
in corporations that revolve around three decisions: investment, returns and control.”
“Corporate governance is defined as holding the balance between economic and
social goals and between individual and communal goals. The governance is there to
encourage the efficient use of resources and equally to require accountability for the
stewardship of those resources” (Cadbury Committee: Choudhury, 1992).
World Bank has given two definitions of corporate governance (1999):
From public policy perspective, “it is about nurturing a company with accountability
in the exercise of power and control over the company” and from the perspective of
the corporation, “corporate governance is relations between owners, management
board and stakeholders”.
In the eyes of law, a corporation is a legal entity; it is a system or mechanism through
which a relationship is maintained and promoted in such a way that leads to individual
profit without corresponding individual responsibility.

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DISTINCTION BETWEEN CORPORATE MANAGEMENT
AND CORPORATE GOVERNANCE

At this stage, it is imperative to clearly understand the fundamental distinctions between

corporate governance and corporate management. Governance is a type of exoteric directions and
control over business based on the internal relationship among shareholders, board and the
managerial staff. These directions are given to control the trajectory of the company so that it can
move in the desired way as wanted by the owners and the shareholders. Corporate management
has a limited periphery and functional areas to concentrate on those activities as suggested by the
board. But corporate governance has had a broader vista and navigates around the globe. There
are certain defined jobs to be done by corporate managers but in the case of corporate
governance, the responsibility is multifarious. In a sense, corporate management is a static
concept, but corporate governance is essentially a dynamic concept. Corporate governance is
concerned with an open-ended system, but corporate management works within the periphery of a
close-ended system where manipulation of any type is not permitted. After all, corporate
governance aims at doing the right things but corporate management is concerned about doing the
right things.
The basic distinctions between corporate management and corporate governance are shown
in the following figure. S.C. Das has elaborated on this topic (Das, 2008, p.42–3). However,
Table 16.1 presented here is a slightly modified version of Das’s schema.

Table 16.1 Distinction between Corporate Management and Corporate Governance

Corporate Management Corporate Governance
● Corporate management implements the order ● Corporate governance gives the order
● Corporate management is more esoteric ● Corporate governance is more exoteric
● In corporate management, power is delegated
● Board is empowered in corporate governance
● Corporate management is a static concept
● Corporate governance is a dynamic concept
● Corporate management works in a close-ended
system ● Corporate governance works in an open-
ended system
● Corporate management is job performer
● Corporate governance is job designer
● Corporate management decides “how to go”?
● Corporate governance decides “where to go”?
● Corporate management need not be innovative
● Corporate governance has to be innovative
● Corporate management is more a stereotyped
function ● Corporate governance is more challenging
and exciting job
● Corporate management is to do things right
● Corporate governance is to do the right things

HISTORICAL BACKGROUND OF CORPORATE GOVERNANCE

The term ‘corporate governance’ is a recent vocabulary in the corporate world that came into
being and is being increasingly relied on after a series of unfortunate events in Japan, UK, USA

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and Asia. The enactment of Foreign and Corrupt Practices Act in 1977 in the United States was
perhaps the embryonic beginning of the concept of corporate governance. However, many
failures in the business world in the 1980s compelled the United States to be more serious in the
matter of corporate management. The Treadway Commission Report (1987) made many
important recom- mendations for the better internal management of business companies through
proper auditing and control. Subsequently, the Committee of Sponsoring Organization in its
report in 1992 provided a framework for the ideal functioning of corporations and their
management. However, the corporate sector experienced many scams and scandals in the
beginning of the new millennium, and the result was the historical enactment of Sarbanes—Oxley
Act of 2002 that laid down some principles for the strict compliance of the corporate sector in
America.
On the other side of the world, Japan experienced many downturns and low returns in business.
The downturns were seen to be because of failures of the corporate sector. In the same way, the
United Kingdom experienced many frauds and scandals in the corporate sector since the intro-
duction of globalization in the 1980s. It was realised by corporate pundits that there was
something fundamentally wrong in the corporate sector. The Asian financial crisis of 1997 also
put the blame on the inefficient corporate governance in the East Asian economies. All these
experiences put together suggested that poor corporate governance was the real culprit; hence,
there started an organized movement in the business world to formulate certain principles and
policies to put the corporate world on sound footing. The Cadbury Committee in England
provided some principles in 1992, the Organization for Economic Cooperation and Development
(OECD) (1999) also formu- lated certain ideal principles for the improvement of corporate
governance. In India, the attempt to introduce and improve the corporate governance went into
several directions. In 1997, the Confed- eration of Indian Industries (CII) prepared a code for
corporate governance. Subsequently, the Kumar Mangalam Birla Committee (1999) with the
auspices of the Securities and Exchange Board of India (SEBI) introduced standard listing
agreement to be followed by all the listed companies in India under Clause 49. Now all the listed
companies in India have to follow the (SEBI) code. It has been accepted in principles by all that
corporate governance is crucial not only for the success of international business but also for
bringing about uniformity in the international standard and corporate behaviour. The uniformity
is the essence of a globalized system that offers a level playing field for international business
interactions.

NATURE, CHARACTERISTICS AND PURPOSES OF CORPORATE GOVERNANCE

The broad structure of corporate governance consists of a four-fold interconnected system. These
are, the shareholders (owners) at the top, the Board of Directors next, and then the corporate
management and at the bottom end, the employees. The key elements in corporate governance are
supervision and internal controls, transparency and accountability, disclosures, risk management,
removal of asymmetric information system, and the maintenance of safety and product quality.
Environmental protection and social responsibility are accorded special importance in recent
years.
Corporations are legal entities and wield enormous political and economic power. In many

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instances, they have been instrumental in regime changes. In the eyes of law, corporations 327
are

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328
personalities with many rights, power and authorities. They also influence law making that seem
to have far-reaching impact on the industrial development of a country.
In a corporation type of business, there is a separation between ownership and
control. The company is managed not by owners but by the Board of Directors. The Board
directs the manager as to how to run the company. The most unique feature of a corporation is the
limited liability of the owners.
There are several responsibilities and duties of a corporation. The following are the basic
respon- sibilities and duties of a corporation:
● Duties towards its own employees, suppliers, customers and shareholders. In all these cases,

corporations are morally bound to further the interests of these groups of people.
● Economic duties of corporations include the earning of profits for shareholders and

adequate returns on the investment made by investors. It is the duty of corporations to expand
production and supply of useful commodities for the satisfaction of consumers’ demand.
These corpora- tions also contribute to the general economic growth and development by
creating a right kind of investment, adequate job opportunities and the growth of trade and
commerce through the development of modern technology.
● Corporations have also some social duties to perform. They have to undertake and perform

social responsibilities of developing social capital, social infrastructure, social

institutions and social goods. All these are supposed to enhance the social welfare of a
country.
● One of the important responsibilities of corporations is to protect, develop and prevent the

deterioration of environment by doing and not doing certain types of activities.

● Corporations are supposed to perform certain ethical duties towards its employees and

customers. These include employees’ welfare schemes, improvement of working condi-

tions and environment and allow them the fundamental corporate freedom and human rights
without prejudice. The duties towards customers include supply of goods and services that
are healthy, safe and hygienic.
A corporation is footloose and can function in the global market. As pointed out earlier, a
business corporation is an engine of growth and is welcome for creating export surplus,
saving and investment and industrial growth in a developing country.

Objectives of Corporations
There are many purposes of corporations. However, only the most crucial purposes are briefly
discussed as under:
● To produce goods in a way that reduces cost through advantages of internal and

external economies and also economies of scope so that it can enhance the market
share and maximize profits.
● To make the investment cost-effective and profitable. The basic purpose of corporate

gover- nance is to run the business efficiently and effectively.

● To create employment opportunities and to develop both soft and hard skills.

Corporate governance tries to create high quality manpower to run businesses efficiently.
● To encourage healthy competition in business, creation of competitive skill and

technology.
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329
● To protect environment from damage and destruction.
● To carry on some social and moral responsibilities.

● To innovate ways and means for better performance and image.

Joseph Schumpeter has shown that innovation can be carried on in five different
ways (Ghosh, 2004, p. 88) the introduction of new goods, introduction of new methods or
techniques of production, opening of new markets, exploration of new sources of raw materials
and the reorgani- zation of industry. A corporation is always engaged in newer and newer type of
innovation for its survival and growth and indirectly helps the human society.

Importance of Corporate Governance

The following are the main points of importance of corporate governance:
● Accountability and transparency encouraged by corporate governance are

essential for capital market development in LDCs (less developed countries). All
these ensure investors’ confidence and can help overall investment climate in a country. In
the Harrod-Domar type model, economic growth is positively linked with investment.
A developing country can gain much in terms of quantitative growth through the
development of a good system of corporate governance.
● Enhanced corporate productivity and efficiency through good corporate governance

ensures economic growth with social justice and development. Thus, it not
only improves the economic conditions of people but also enhances social welfare.
● A disciplined and controlled corporate governance can considerably reduce

financial turmoil and can ensure financial stability, both of which are crucial for
economic growth and development. In the past, many corporations failed not because of
their products and services but because of their bad corporate governance.
● A good corporate governance can considerably reduce corporate fraud and corruptions.

In such cases, not only is public confidence raised but also the national prestige is enhanced.
● Competitive product and factor markets can be promoted and sustained by corporate gover-

nance (Meisel, 2004). This is beneficial not only for corporations but also for the society.
This can ensure allocative efficiency in the management of scarce resources.
● A good corporate governance is necessary for successful international business as

it increases confidence, product quality, prices, social responsibility and environmental

protection.
● A better social responsibility generated by a good corporate governance can

enhance social development, social welfare and public image and

confidence. All these can help the corporations to build social capital and trust.
● A good corporate governance ensures environmental protection and a
sustainable devel- opment. This not only reduces the public cost but can also ensure
better human health.
● An ethically inspired CG ensures employees’ welfare and consumers’

welfare and is in favour of the stakeholders’ interests. A good corporate

governance does take into account the welfare of all the stakeholders and thereby ensures
justice and fairness to all concerned.

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● A good corporate citizenship is a sort of national pride and asset. It330 is
beneficial in many ways to the society, employees, stakeholders and of course, the nation.
There seems to be

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331
a direct and positive nexus between the number of good corporate citizens and the socio-
economic development of a country.

THEORIES OF CORPORATE GOVERNANCE

Since the 1970s and until now, many theories have been proposed by scholars and specialists in the
area of corporate governance (Abdullah and Valentine, 2009). Basically, these theories look at
different perspectives of corporate governance and none of them is holistic. In what follows, we
will briefly analyse the fundamental propositions of each of the prevailing theories. We choose
here seven important competitive theories.

Agency Theory
This is one of the most popular theories of corporate governance which is based on economic
concepts. While the shareholders are looked upon as the owners (principals), the managers and
board of directors are considered as the agents of the company. Thus, it is the bounden duty of
the agents to look after the interests of the owners and maximise profits on behalf of them. There
is, thus, a separation of ownership from the management. However, in such a case, there is the
problem of conflict of interests. The objectives of the owners are not the same as the objectives of
the manager. While the managers are interested in maximizing their utility functions that include
pay, power and perks, the owners are interested in getting a high return on their investment. Thus,
there is an obvious principal-agent, which is discussed in detail later in this chapter.

Stewardship Theory
The theory is based on the basic ideas of psychology and sociology. It posits that the duty of a
steward is to protect and maximise the stock of wealth of the shareholders, and by doing so they
get their own rewards, just in the case of parable of talents in the Bible. In fact the utility function
of a steward is maximised only through the maximisation of the shareholders’ interest. Thus,
there is a positive nexus between the interests of these types of people in the corporate
governance system. There is no contradiction or conflict; rather, the two utility functions have the
same point of conver- gence. In a corporate set-up, managers and executives are stewards. When
the organization as a whole is successful, all the participants are also satisfied. This is the basic
essence of this theory. As a matter of fact, when all parties works in unison, and the CEO is also
the Chairman, the trans- action cost is likely to go down. It looks forward to the Japanese
model of corporate governance where there is a cordial functional relation and the convergence of
all the interests.

Stakeholders’ Theory
This theory is based on the perception that a corporation for its effective function has to forge a
number of relations with different classes of people including suppliers, consumers, employees,
government, and so on. All these different classes of people are the stakeholders of the
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organization. 332

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333
The basic purpose of any corporate organization is to create wealth not only for the owners but
also for the stakeholders. Donaldson and Preston (1995) strongly argue that, this theory focuses
on managerial decision-making for the benefit of all the parties concerned. The theory derives its
concept from organization theories and sociological human behaviour that seem to suggest that
mutual help and cooperation enriches the community and organization in many ways.

Transaction Cost Theory

Every type of transaction has its own cost to a firm. These days, firms are so varied, diversified
and large that they become substitutes for markets in the matter of allocation of resources. In
many cases of corporate organization and structure, it is possible to determine the price and the
volume of production. The transaction theory suggests that by varying the size of the firm, its
production structure, technique and resources allocation methods, a firm can change the
transaction cost. The theory implies that managers are opportunists and arrange transactions in
their favour through many methods and manipulations (Williamson, 1996). However, this does
not imply that they have to be selfish or they alone enjoy the benefits of a reduced transaction
cost. The theory makes an important point that it is the basic purpose of corporate governance to
make the cost the lowest, reap the economies of scale and make the company highly competitive
and contestable.

Dependency Theory
The dependency theory looks at the possibilities of development and growth of a company. In this
context, the role of board of directors can hardly be exaggerated. The directors always try to
invent innovative ways and means to access new resources and make the firm more and more self-
sufficient and competitive. In this context, the outside directors can impart valuable advices that
may reduce the transaction cost. The directors can be business specialists, experts, economists,
politicians, social workers, teachers, and so forth. The theory suggests that whatever be the nature
of direc- torship (insider or outsider), it is the duty of these directors to gather newer and newer
resources for the betterment of the company. The dependency is about the procurement of
resources.

Political Theory
It explains the involvement of government in the governance of corporations. The purpose is to
get the voting support from shareholders. Having this objective in mind, the government in
countries and in many situations participates or directs corporate decision-making, and in such a
situation, the allocation of corporate power, profit and privileges are all determined by
government rules, regulations and favours. In many countries of our times, some governments
exert strong pressure, power and influence in corporate governance. Perhaps the best example is
the corporate gover- nance in China. An authoritarian government is more powerful than a
democratic government in the matter of corporate governance.

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Ethical Theory of Corporate Governance
Theory, as the name suggests, is concerned with that type of governance which is ethically
justified and is based upon fairness and justice for all the parties. Ethical corporate governance
distinguishes between right and wrong and concentrates on the right type of governance without
hate and harm. It tries to eliminate all types of discrimination on the basis of caste, colour and
creed. The gover- nance is clean, accountable and transparent. It is a system of value and virtue-
based management. It follows an ethically justified code of governance. The mission and vision
of the company fully manifests the importance of ethics and morality in the management of the
company. The post- modernist theory in this regard also depends considerably on the inner voice
and gut feeling while confronted with dilemmas and challenging situations.
While concluding this part of the discussion, it needs to be pointed out that none of the theories
mentioned here is complete and that every theory has its own perspective and limitations. Hence,
a holistic theory must take into account all the points of view and considerations.

MECHANISM OF CORPORATE GOVERNANCE

The mechanism of corporate governance works in two ways: control and promotion. The mechanism,
therefore, can be called the mechanism of controlled expansion. The mechanism of control aims
at reducing various types of inefficiencies and irregularities. The control mechanism works
in the following ways:
● Control of executives. In order to make such controls effective, the controlling

authority (may be Board of Directors) has to have access to all the

necessary information stock.
● The monitoring by the Board of Directors can be made effective through

regular meetings of the Board of Directors to identify the areas of potential conflicts,
mismanagement and problems. Once the problems are identified, they can be solved by
discussions and appropriate actions.
● The control mechanism encompasses both internal and external
controls. The internal control mechanism works through the Board of Directors’, internal
audit committee and other personnel who can provide intelligence about the operational
efficiency or otherwise of the company, and the level of compliance with laws and
regulations. Internal auditing is an important controlling mechanism to look into the veracity
of financial reporting and the financial status of the firm.
● The provision of eternal and independent auditing is also an important mechanism to

authen- ticate the reports of internal auditing system. Sometimes, the internal auditing
system may be engaged in window dressing without caring for the actual status of the
company. In such a case, independent external auditing is very helpful. Statutory auditing is
a good controlling mechanism for checking the corporate financial mismanagement.
● Another mechanism of control over inefficiency is to introduce the system of efficiency-

based remuneration for executives and employees. It should combine a system of

incentive and punishment for the assigned work.

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● Overall, a system of checks and balances at all the levels of the company is what is
urgently needed for the success of a company. For this purpose, a committee may be
constituted by indicting some honest insiders and outsiders. The basic duty of such a
committee will be to observe study and report against certain abnormalities and
irregularities.
● In any country, government regulations can be a good mechanism for

controlling many odd practices and aberrations.

● In India, Companies Act (1956) and SEBI (1992) form an important part

of controlling mechanism.
● A proper code of conduct for the managers and directors of a company can indeed go

a long way as a controlling mechanism. A code of conduct is both principle of corporate

governance and also of corporate mechanism to guide all the activities and duties.
Having said all this, it needs to be mentioned that a fool-proof corporate mechanism is
necessary to control all those inefficiencies which also arise out of moral hazards and
adverse selection. Moral hazards occur when the agent becomes too much dependent
on a particular person (may be his boss or supervisor). Since he thinks that his boss will do
everything, he becomes inactive and inefficient. A wrong or adverse selection may occur
when a person has been selected wrongly because he might have suppressed any relevant
information. In both these cases, there may be a corporate inefficiency that needs to be
eliminated. Corporate governance mechanism, in order to be effective, must be
made free from political interference and control. In particular, ineffi- ciency due to
adverse selection is very likely to emerge because of political pressure to accommodate sub-
standard people in the corporate sector.

PRINCIPLES OF CORPORATE GOVERNANCE

Principles of corporate governance consist of those guidelines which are formulated to make the
governance more efficient, competitive and socially acceptable too. The following are some of
the major principles of corporate governance:
● The first and foremost principle of corporate governance is to have a system which is

perfor- mance oriented. It must perform well in terms of economy and

efficiency.
● It must be based on a comprehensive code of conduct for the participants. Such

a code should have ethical basis, and should address the issues relating to work ethics,
performance, duties and responsibilities.
● Corporate governance should remain, at all cost, free from political interference.

● Honesty and integrity on the part of all concerned should be the cornerstone of

corporate governance.
● Corporate governance should be based on all types of disclosures and transparency.

There should be no information asymmetry.

● Accountability and responsibility both individually and severally need to be the

basis of corporate governance. Proper punishment must be there for every type of
aberration.

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● There should be proper recognition of the rights of every type of 336
shareholders, both large and small, and they should be treated on the basis of equality.

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337
● The Board of Directors should be properly constituted keeping a balance
between the directors coming from both inside and outside. The directors
should be properly qualified, experienced, skilled and committed. They must know their
roles, duties and responsibilities.
● The external auditors should be independent and must be selected on the basis

of their experience, qualifications, impartiality, honesty and integrity.

● It is necessary to have a clear dividend policy. It should be based on some type

of market logic and the prevalent competitive condition.

● Corporate governance principles these days cannot remain silent about safety and

environment. Social safety and environmental sustainability or promotion

should be ensured by the governance system.
[The aforesaid principles should be read with the following ten suggested principles of good
corporate governance. The reader is also advised to get acquainted with the OECD principles
discussed at the end of this chapter and also the Caux Principles analysed in Chapter 20].

Ten Principles of a Good Corporation

A good corporate company works on the basis of the following ten principles:
● It maintains a balance between economic efficiency and social responsibility.

● It is considerate and ethical to its employees, stakeholders including customers and

suppliers. Its products are safe and it creates no negative externality.

● Its ethical norms and codes are incorporated in its missions and visions.

● Its policies are environment-friendly. It also protects the environment.

● It proves to be excellent in achieving all those objectives for which it is established. All its

dealings are based on justice and fairness.

● It makes socially responsive works and investment.

● It makes a compromise or trade-off between profit and the social welfare.

● It works in the best interest of the shareholders who are its owners. It observes all relevant

rules and regulations.

● It is not involved in any scam or scandal, and enjoys good social reputation.

● It is based on timely disclosures of all information and practices, accountability and trans-

parency.
It has been found from experience that a good corporate company follows all the common
principles which are prescribed by international organizations and committees like OECD and
Cadbury Committee, among others.

CORPORATE GOVERNANCE CODES AND PRACTICES

Corporate governance codes and principles are used synonymously, and we have discussed the
principles adequately in this chapter. However, to discuss the practices of these principles or
codes, we need to briefly mention these codes once again at the cost of repetition. In the
following discussion, an attempt is made to present some important corporate governance codes
and real- world empirical practices. It is found from experience that there is a gap between the
precept and the practice.
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338
● Board of Directors should be constituted in a balanced manner by bringing in outside
and independent directors. The Board should also appoint competent non-executive
directors. The function and duties of the board will contribute to the company’s strategic
plans and to staff the key committees. The board should have frequent meetings, preferably
four times a year. The board is responsible and accountable for the actions it performs. The
board should also manage three important committees. These are audit committee,
nomination committee and remuneration committee. If necessary, the board will seek for
independent professional advice.
Practice: The board is not often balanced and the members do not function in responsible
manners. The so-called independent members are not often independent. The number of board
members is also not specified and often some of the members are not skilled or experienced
enough. The board meeting is not very frequent and advice, in many cases, is not taken from
independent experts.
● Every shareholder should have the voting right and all types of shareholders should be

equally treated.
Practice: Although shareholders are given the right to vote, they are not always treated equally.
In many instances, minority shareholders are discriminated against.
● Financial reporting, disclosure of information should be at the optimum level.

Practice: It is not so and information asymmetry persists at all levels. The quality of
information is also not up to the standard.
● Accountability and transparency should be exemplary.

Practice: Both these areas are hazy and deficient.

● Audit and remuneration committees should be independent and efficient.

Practice: The internal audit system more often than not is engaged in window dressing.
The remuneration system is often not based on performance and productivity.
● Corporate governance should recognise the importance of an implicit social contract and

must discharge corporate social responsibility.

Practice: This is not often done by all companies; even if they do, their performance
remains inadequate and insignificant.
● Shareholders’ returns should be maximised.

Practice: In many companies, because of separation of ownership and management, the

managers do not always work in the best interest of the shareholders.

STRUCTURE AND PROCESSES OF CORPORATE GOVERNANCE

Corporate governance may have different structures and processes depending on the political,
economic, social, institutional and the stage of development of a country. Corporate gover-
nance needs many participants including the shareholders, investors, suppliers, banks, and many
committees to function. But the role of Board of Directors is pivotal. It manages the whole show

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339
and it is appointed by the shareholders of the company. Since the role of the board is central, it is
necessary to give it a closer look.

Board of Directors and its Committees

Several issues are involved in the case of Board of Directors. Some of these will be discussed in
the next section. However, it is necessary to understand a few common provisions:
● The board will appoint a managing director or CEO.

● The board will consist of executive and non-executive directors. Executive directors will

hold management positions.

● Some directors are independent, some are outsiders and some are insiders.

● In any system of all-executive board, there is no separation between ownership and

management. But this is being replaced gradually by the majority executive board where
there is such a separation.

Duties and Responsibilities of Board of Directors

Since the Board of Directors is the heart and soul of corporate governance, it is empowered with
many duties and responsibilities of which the following are crucial:
● It works as a friend, philosopher and guide for the whole company. It gives direction,

defines the company’s strategy and plans and ensures that management translates those
plans into action.
● It appoints independent directors.

● One of the important responsibilities of the board is to ensure that shareholders’ interest is

given the top priority.

● It gives direction and supervises the critical activities of the company.

● It is responsible for the maintenance of accountability and transparency.

● Monitoring the overall activities of the company (and also that of the CEO) is an important

function of the board.

● The fiduciary duties need to be performed with loyalty and good faith, and care and circum-

spection.
● It has been pointed out by many experts that the Chairman and the CEO should not be the

same person, as there may be a concentration of power, and it is argued that power corrupts
itself. However, there is no denying the fact that for the best functioning of the company
their roles should be complementary and not competitive.
● The board has to ensure that for the smooth functioning of the organization, the flow of

infor- mation is optimum and there is no asymmetry anywhere. There should be a maximum
flow of information for all concerned.
● The board draws critical action plans and programs and formulates policies for fulfilling

corporate social responsibilities which are now regarded as an essential corporate objective.
● The Board ensures the availability of financial resources.

● It approves annual budgets.

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● It fixes up salaries and compensation.
● The board is obviously involved in all types of crucial decision-making processes. The
board conducts frequent meetings and makes plans and resolves issues.
● The board makes sure that the company is based on ethical principles and it is supposed to
give ethical leadership at different levels.
● The board appoints various critical committees and functions through them. The major
committees are: audit committee, remuneration committee and nomination committee.
These will be discussed at some length in the following section.

Governance Committees
In standard corporate governance practices, there the following three Committees which are helpful
to carry out the functions of the Board of Directors:

Audit Committee
This is one of the most crucial committees of Board of Directors. It generally consists of three
independent and non-executive members. The committee meets regularly, not less than twice
a year. It is appointed by the board and is responsible to it. The audit committee has a number
of functions and recommendations to make, including the scope, the method and the procedure
of auditing, resolving conflicts in financial matters, audit fees and change or reappointment of
members, systemic review of the financial system, interim and final accounts, and so forth. It is
an independent committee and has considerable leverage in maintaining checks and balances.
The committee is supposed to settle disputes that arise between the team of external auditors and
the management. The committee takes a neutral stand. It is supposed make important financial
disclo- sures which are helpful for the company to understand its financial strength and for the
investors to know about the real worth of the company. In some cases, it is a practice to engage
both internal and external auditors to evaluate the financial position of a company.
Remuneration Committee
This committee has to frame policies regarding all classes of people working in the company. It
should be an independent committee that will assess the material contribution of people before
fixing up the remuneration. It is a very important committee that may bring loss or gain to the
company. Hence, it is of much interest to the shareholders. It is accepted on all hands that
remuneration should be based on performance or productivity. But since some types of corporate
performances are not amenable to accurate measurements, there may remain a gap. A system of
incentive or bonus may go a long way in the improvement of performance scale. It has been the
tradition in many companies that non-executive directors are paid a fixed amount every month. In
most cases, remuneration is based on the existing rule plus the change in the cost of living index.
Apart from this, it needs to be appreciated that there should be a clear-cut policy of reward and
incentive to attract best talents in the company. Gary Becker, Nobel laureate in Economics, has
rightly pointed out that people work because of incentives and if the incentive is not adequate, the
work cannot be satisfactory.

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Nomination Committee
The committee selects non-executive directors. It works on an ad-hoc basis. The committee is
usually chaired by the CEO. The selection process is supposed to be based on merit through a
proper interview. Some independent search firms help to find out competent persons. Basically,
they are professional people and, if utilised properly, they can perform the value-added role. In
many cases, the shareholders take some interest in the selection of right persons. Many of the
independent members do not get sufficient opportunities to show their worth and expertise.

SHAREHOLDERS’ RIGHTS AND PROTECTION

Many international committees in their guidelines and recommendations have emphasised the
importance of shareholders’ rights and also of their protection. The following discussion is based
on the outlines of OECD Committee’s guidelines and also some general opinions expressed by
experts. Shareholders have the right to:
● Participate and be informed about some fundamental changes in the corporate governance,

such as amendment in the statute, sale of corporation and the like

● Right to secure ways of registering ownership and transfer of shares

● Obtain timely information about important meetings. Right to information has been statu-

torily accepted by the government in many countries

● Since some important communication about the functioning of the company reaches the

share- holders very late, they have the right to ask the company about its communication
policy
● Voting in general meeting

● Elect board members

● Have a fair share in profit

● To be informed about the capital structure and other vital information so that their degrees

of control can be made effective

● Know the rules for the acquisition of corporate control in capital market and also mergers

● All shareholders have equal rights to be treated equally. They are not to be discriminated

against
● Remove directors

● To sue for the wrongful acts of the company

● Know about dividend policy and the time of their declaration

● Inspect annual reports, investment registers, books or records and many other critical

documents
● Preferential rights to purchase shares

● Appeal to the Company Law Board, if necessary

● To get information about the remuneration of directors. In this context, it is the right of

share- holders to know about the company’s policy of remuneration

● Get information about auditing, and financial and non-financial disclosure by the company

The shareholders are the owners of the company and they have the legal property rights in all
cases. They have the statutory rights to know about the decisions on their assets and investment,

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the policy decisions in the matter of investment, problems encountered, if any, and the future
prospects.

Shareholders’ Protection
The interest of the shareholders can be protected in many ways. One of the most pragmatic ways
is to appoint the Board of Directors which is reasonable, controllable and follows corporate
ethics. The methods are generally suggested for the protection of shareholders.
● Institutional shareholders are usually more protected than the small or ordinary

shareholders. The problem for the small shareholders is information asymmetry. So,
if the governance system can ensure that information will be easily available for all types of
shareholders, then small shareholders can get a good degree of protection.
● The legal system can be of much help in ensuring shareholders’ protection. In many

countries, legal reforms have been undertaken for this purpose. The security laws may
complement corporate laws and laws of torts.
● Strict disclosers at all levels will enable the shareholders to know many things in

advance and they can, therefore, be armored with types of protective practices.
● The accounting and auditing system must be based on transparency and
accountability. Any type of window dressing must be severely punished and rooted out.
● The government may introduce many types of public enforcement

systems and control at the corporate level. This may include the financial position of
the company, its liability and assets structure, outstanding debt, market goodwill, and so on.
Certain crucial disclosures may be made legally mandatory.
● Legal enactment may also reduce or completely eliminate the expropriation by

insiders.
This may be made a punishable/non-bailable offence.
● Many researchers have analysed the importance of making and
publishing an anti-di- rector index to show the trajectory of company
performance. This can be linked with the removal action/clause of directors.
● It is necessary to have shareholders’ control on the trading of shares, its

method and impact. Some sort of hedging activities, if wisely done, can protect the financial
interest of the shareholders to some extent.
● The agency cost (discussed later in this chapter in detail) is a constant source of stress

for the shareholders. Their interest can be enhanced by controlling the agency cost. There
are many ways of controlling such a cost. First, to introduce more stringent legal rules.
Second, the Board of Directors can be entrusted with the duties of suggesting ways and
means to control such costs. Third, effective incentive system or compensatory rules may be
framed with the consent of shareholders.
● It is suggested by us that the shareholders should institute a cell, like the

Company Intel- ligence Bureau to collect and disseminate all information critical to
the interest of share holders and their protection.
In many countries, because of the separation of ownership and control in the corporate sector,
whatever is happening inside the company may not be known forthwith by the shareholders, and

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therefore, they cannot get a clear picture of the company’s activities. On paper, the company may
look hunky dory, but in actual practice, it may be on the verge of collapse, as the cases of
corporate crisis in the United States reveal. Many such calamities may be averted through the
company intel- ligence bureau and the interests of the shareholders may be protected to a great
extent at the same time.

ISSUES IN CORPORATE GOVERNANCE

There are hosts of issues in corporate governance. These issues are broadly divided into two
categories: structural and ethical issues. The following discussion will address both these issues.

Structural Issues
● One such structural issue is the composition of Board of Directors. The proportion
of executive and non-executive directors has remained an important issue in corporate
governance.
● What should be the proportion of independent Directors in the Board? J.J. Irani
Committee thinks that one-third of the directors can be independent. But the SEBI
recommends that 50 per cent of the directors should be independent. It is not really the
quantity but the quality of directors which matters most.
● Should there be a few big shareholders or a large number of small
shareholders scattered over the whole country? No concrete answer is yet available on
this issue.
● Should there be more insider or outsider ownership? There is no consensus
over this issue.
● Should a corporation depend on more on small or on large creditors? No
agreement is arrived at on this issue.
● Who should be given more priority? Should there be a priority given to the
interests of shareholders (Anglo-American model)? A coordinated model gives more
priority to workers, managers, suppliers and customers (Continental Europe and Japanese
model).
● Another interesting issue is the gender issue. Empirically, women Directors are
found to be less in number and it is tantamount to gender discrimination in corporate
governance. The issue has not been settled in a unique way to be acceptable to all the
corporations.
● Remuneration of Directors is another debatable issue. Some will favour high
remuner- ation and some low. What is fair is a reasonable package of remuneration
depending on the qualifications, experience and value-added of the Director. All Directors
should not be paid an equal amount of remuneration.
● An issue concerning the role of the CEOs. In the face of corporate scandals and
scams, many people think that the days of celebrity CEOs are over. Some experts
go as far as to suggest that the post of CEOs should be abolished, and an experienced and
qualified manager can be an important alternative for better corporate governance.
● Another issue is the degree of government control that is desirable. Opinion
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differs on this issue, and many are in favour of minimal control. It should be instructive344
to
note that in the

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345
case of India, after the introduction of liberalization, the role of the government has become
minimal, although in some matters, legal tentacles are still strong.
The proper answer and settlement of all the above issues are difficult in actual practice.
Corporations are of different types and nature, and hence, they should not follow the same
structure or administrative model.

Ethical Issues
There are basically four ethical issues in corporations and depending on these issues, they can be
classified into the following types:
1. Overly Unethical Corporations
2. Half-heartedly Ethical Corporations
3. Ethically Indifferent Corporations
4. Ethically Constrained Corporations
● The first type of corporations does not bother about ethical core values

and perhaps they have none. Even if on papers they have some core values, they do not
follow these values and more often than not are engaged in unethical activities. The
unethical corporate practices are very well-known today and are connected with the failures
of many corporate houses in America. Some of these unethical practices can be briefly
discussed as under:
■ Making fraudulent investment, falsification of accounts, insider trading, corruption and

bribery, showing inflated profits to attract investors, drying up the company by claiming
high salary, incidental expenses, entertainment and hotel bills, personal medical
expenses, false travel documents, breach of company’s trust, dishonesty of different
types, fictitious transactions, non-disclosures of many material facts and figures,
manipulating facts and figures, financial irregularities, embezzlement of company
funds, breach of confidential information, misappropriation and malpractices, grant of
heavy compensation, and so on. More often than not, such corporate houses do not
practice the General Accepted Accounting Principles (GAAP), although they are
advised to do so.
■ The list above is a very conservative one and many more malpractices can be added to

this. The corporate world in the USA, UK, Japan, Korea and many other countries has
been experiencing serious scams and scandals since long. For instance, the non-
disclosure of vital financial information was instrumental in the case of Enron failure.
Corporate scandals were the basic reason for the failure of many corporate houses in
recent years in the United States. The US administration was ultimately forced to enact
the Sarbanes- Oxley Act (2002) to investigate into the problems of auditing in the
country.
● India also does not lag behind in corporate scandals. A few examples will make the

statement clear. The Harshad Mehta scam and the case of ITC are well-known to every
Indian. About 50 per cent of the listed companies in the Bombay Stock Exchange have
recently been suspended for trading due to non-compliance of the requirements for legal
listing. There are other well- known scams like land scams, sand scam, cooperative bank
scams, cooperative sugar factory scams, capital market scam and the like. The insider
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trading scam is a very old story in India that dates back to 1950s. These scams 346
are
perpetrated with the connivance of insiders and

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347
outsiders who are professional con men. However, the travesty is that Indian financial institu-
tions, unlike their foreign counterparts, are not interested in protecting the rights of investors
in the face of scams and scandals. They remain monastically aloof. Bob Garratt believes that
the 1980s and 1990s witnessed a continuous decline in the corporate value system in India
too (2003). Indian business values are being influenced by the American corporate values
and there is a strong demonstration effect. What is true is that it is very easy and
tempting to imitate the bad values and the internalisation of good ethics always takes a
much longer time. But once a particular ethical choice is made by a person of authority its
effect spreads a long distance. Thus, we can have a positive ethical multiplier effect
or a negative ethical multiplier effect. A corporation is ethically bad from head to
foot when its manager or CEO is unethical. Both these effects percolate or trickle down the
whole organization. Neoliberal globalization that encourages corporate capitalism does not
seem to be sustainable any more in the long run; it has become unstable, unethical and
unpopular. It spreads the market philosophy of valuation that justifies anything in the name
of ethical relativity. Many of the developing countries including India which are in the
process of capitalism integrated in the era of globalization are likely to experience more of
these unethical corporate dynamics in the near future, unless such trends are kept under
control through good corporate governance.
● The ethical corporations combine both the worlds of good and bad ethics half-

heartedly.
Most of the corporations in our times are of this type. Thus, we find many good works of Coca
Cola, Hindustan Unilever Pvt. Ltd., Reliance Industries, Polaroid, Dr. Reddy’s Laboratories
Ltd., Wockhardt Ltd., Ranbaxy Ltd., Honda Motorcycles and Scooters India Ltd., and so on.
But at the same time, they are not free from some criticism either for not doing adequate or
for doing something which may not be beneficial for the society or the customers. Their
approach is not ethical commitment or regularity in behaviour. Sporadically, they do some
good work and also some questionable works too. However, the motivation remains
important, and as per the utilitarian principle, if they have done greater benefits to a larger
number of people than they have harmed, their works will still be considered as ethical by
many experts.
● Ethically indifferent corporations do not have any compelling ethical

value premise. Even if they have some ethical codes or values accepted officially, they
do not follow such codes of ethical behaviour. They remain indifferent. Perhaps they do not
have enough ethical motivation or culture in the organization.
● Ethically constrained or challenged corporate bodies are many in

number in devel- oping companies. They have the mind to do something good for
the society and the country. However, they have many practical constraints and limitations.
These limitations arise out of financial constraints, lack of proper ethical guidance and lack
of experience, unresolved ethical dilemmas, organizational conflicts and family feuds. The
family feud in the Reliance Group of Industries in India was instrumental in their stock
value crash in 2005.

WHY SOME CORPORATIONS OVERLOOK ETHICS?

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Ethical aloofness or ethically bad companies are so due to several reasons. Some of these are: 348
● Managerial persona is not ethical.

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349
● Some are compelled to be unethical due to a bureaucratic pressure for bribery/corruption.
● Some of the companies have no ethical codes or core values to follow.
● Some do not like to have transparency or accountability for some ulterior motive.
● Some corporate managers do not know that ethical or social responsibilities bring more
benefits in the long run that exceed the short-run cost.
● Some are motivated by short-term gains, and crash competition in many unethical ways,
cheat consumers by putting the burden wholly on them (caveat emptor), produce shoddy
and adulterated goods, cheat investors by giving wrong information. They are ignorant
about the fact that ethical investment is a trust and builds social capital that may sustain
corporate relations for a long time to the best advantage of the corporate house. The basic
reason for all the ethically bad business corporations stems from greed and rapacity.
● Ethical dualism or dichotomy is sometimes responsible for many unethical practices. There
is always a tug-of-war in the human mind about the good self and bad. When the bad (may
be extreme greed) overpowers the good self (like benevolence and common good), the
company does bad works, although it may not always a bad concern ethically.
● The principal-agent problem is a structural feature of corporate governance and it is often
related to many undesirable and unethical issues in corporate. Let us have a close look at the
issue.

THE PRINCIPAL-AGENT PROBLEM (PAP)

In the case of corporate governance, which covers essentially a complicated and vast area of gover-
nance, the shareholders (principals or owners) cannot look after the day-to-day administration,
management and policy making. This type of work is entrusted to hired managers (agents). There
are basically two reasons for hiring agents for corporate/business management. First, the
corporate owners (shareholders) may not have the time to manage the corporation and they might
not have the necessary information. Information asymmetry is one of the crucial reasons
for the appointment of agents. Second, the owners may not have the expertise to run the
business in a very effective manner. Thus, corporate governance is done by a delegated authority.
There are several benefits of having the agents (managers):
● The business can run efficiently with expert guidance and management. The managers are

supposed to be experts in their fields. They manage financial assets on behalf of investors
and manage companies on behalf of shareholders.
● This may lead to cost reduction and more profits.

However, the PAP system is not free from demerits. The following are the major
problems of the PAP (Ghosh, 2001, 271):
● The agents are posted with more updated information, which, depending on the motive of

the agent, may or may not be shared with the owners (principals). So the information
asymmetry always persists.
● The objectives of the principal may be different from that of the agent. The agent may like

to maximize his own pay and perk and may want to encourage nepotism and favouritism.
He may like to maximise his own utility functions at the cost of the company and the
society. This

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may increase cost. This is sometimes known as the Agency Cost. The agent may not bother
much about the true interest of the owner.
● Given the fixed pay, the agent may practice rent-seeking (to earn some extra bucks by

unethical and illegal means).

● PAP system ultimately may develop what is called the moral hazard problem. In such

a case, because of information asymmetry, the principal has to depend too much on the
agent and may lose all controls over the company and its strategic matters. He becomes a
dependent personality.
PAP problem persists because it is difficult to know whether or not the hired agent is doing the
work in the best interest of the principal. Monitoring may be expensive, and the cost may
be more than the benefits.

How Can the PAP be Minimised?

The following suggestions, if carried out properly, may reduce the PAP:
● Performance evaluation of the agent is necessary. It may be in terms of hours of work

or the result obtained.

● Extra pay may be granted for extra performance. It is necessary to have an

incentive system.
● A scheme of profit-sharing may be introduced.

● The manager may not be given extra cash but some shares of the company so that he

feels that he is also the owner.

● It is a better to have a contracting system of payment rather than fixed pays. The

piece rate system of pay is suggested by many experts.

● It is imperative to resort to financial and non-financial disclosures, and the company

accounts must be audited by independent statutory auditors.

It has been noted that the Agency problem has been the pivot of all financial scams and failure
in many advanced and developing countries including India. Thus, in corporate governance, the
PAP assumes a critical role.

Globalization and Corporate Governance

Globalization which started in the 1980s has, in many ways, affected the nature of corporate gover-
nance in all types of economies both developed and developing. Some of the effects of
globalization and the new directions that it gives to corporate governance will be discussed in this
section.
● Never before in the history of corporate governance, factors like environment,

social and governmental matters were as critical as they are now during
the period of globalization. Many recent surveys at the international level come out
with the observation that these factors are critical to investment performance across the
world. In particular, environment policy is exerting a considerable influence on the
government policy and corporate strategy. In inter- national business, many host countries
do not allow those MNCs which are polluting the atmosphere and making the development
unsustainable in character.
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351
● People are becoming more conscious about corporate liabilities and
undesirable conduct by MNCs and other business houses in the host
country as well. There are many examples of corporate liabilities including the violation
of environmental laws and human rights. All these send the signals to foreign business
corporations to improve the image and behave properly through suitable changes in
corporate governance strategy and behaviour.
● Globalization affects both insiders and outsiders, and outsiders are more
significant as a new capitalist class in the development of poor LDCs.
This class benefits more from the removal of cross-border restrictions on the movement of
capital. However, the full dose of benefits can be realised only by those companies which
have efficient corporate governance.
● The Global Sullivan Principles (1999) advised eight crucial changes in
the behaviour of the international companies to accept the social
responsibilities and all these have been incorporated in the corporate governance strategies of
those companies which have subscribed to the Sullivan Principles (see Chapter Twenty for
the Sullivan Principles). These principles have given stress on human rights, social justice,
environmental protection, and economic opportunities for all the workers. In the age of
globalization, these are becoming increasingly critical for corporate governance in all
countries.
● The Tripartite Declaration by the International Labour Organization
(ILO) has given a clear picture of international laws, employment
practices, the impact of MNCs on the domestic governance and also
various effects produced by MNCs on the wages, working conditions,
safety and health status of workers in developing countries. It has also
suggested various ways to improve the labour market practices during the period of
globalization. All these suggestions are necessary to be incorporated in corporate
governance in our times to improve the image of corporate governance.
● Less developed countries are deprived of full flow of capital abroad. Capital is flowing more
from the less developed countries to developed countries than the other way round (Lucas,
1990). This is a paradox but true. One of the reasons why LDCs cannot
get the full flow of financial resources is because of poor corporate
governance in such countries. In fact, bad investment also leads to poor
returns. Thus, globalization compels these countries to have better corporate
governance.
● Corporate governance during globalization is being influenced by both external and internal
investment dynamics, but external factors, depending upon the degree of globalization of the
country, seem to play a more important role. There is a positive correlation
between the degree of globalization and the importance of the external
factors and, to some extent, changes in corporate governance is
imperative.
● Financial integration brought about by globalization will yield higher
output in the LDCs. But the full capitalist market integration will be
reaped only when the corporate governance is efficiently implemented. The
salutary effect of globalization will not be realised by badly managed international
corporations that have no good governance.
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● There are definite corporate liabilities with regard to inappropriate 352
conduct by corpora- tions working abroad. For instance, many local governments
have enacted laws for dealing with and punishing those foreign companies which violate
human rights and environmental laws. These laws have become more stringent in the late
stage of globalization.
● Corporate governance in the wake of globalization has necessitated and
put more emphasis on different types of corporate disclosures. There is no
doubt that disclosure has

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reduced investment risks and increased returns. But financial disclosures have also increased
the cost on insiders in the form of liability for improper or misleading disclosures.
Therefore, obviously, insiders oppose any law that encourages disclosures but outsiders
fully support such laws. Thus, globalization, which accompanies capital mobility, is seen to
have upset the relative balance of power relations between the insiders and the outsiders
within the domestic political economy of corporate governance.

THE EMERGING TREND IN CORPORATE GOVERNANCE

● Globalization has increased both the opportunities and the risk of international business.
They are now more vulnerable to external pressure and circumstances. Recurrent interna-
tional financial crises, recession and scams have made the corporate sector more cautious
and careful. It is now the time to concentrate on two types of corporate governance
strategies, viz., to keep an eye on the coffer of the company and also to be very vigilant in
the matter of company management.
● In many countries including India, the role of the Board has been made more elaborate by
making management more accountable through the Audit Committee.
● Another recent trend in the area of corporate governance is the increasing use of
newer and newer technology and communication system. This has
considerably reduced the problem of information asymmetry.
● There is now a growing trend of more external candidates becoming CEOs. These CEOs
will have a shorter tenure than internal CEOs.
● There is now a trend to give greater compenzation to CEO. However, some expert
committees have recommended the abolition of the post of CEO. So, regarding the position
of CEOs, things are yet in a fluid stage.
● Following many international business scams and scandals, many authorities are insisting
upon the promulgation of corporate governance codes in both private and
public sector organizations.
● In spite of RTI (Right to Information) Act in India in 2005, informers and whistle blowers
are being harassed. Recent recommendations are in favour of protecting the
whistle blowers to make the corporate governance more streamlined and
trouble free.
● All forms of corporate disclosures are now the trend. Disclosures will make
things more transparent. In the list of disclosures, there are also disclosures of executive
remuneration and compenzation.
● A recent trend in corporate governance is to make Audit, Nomination and
Remuneration Committees more neutral by bringing in independent
directors. This will, perhaps, make business activities more transparent and increase
accountability.
● Many corporations are now looking for a market for corporate governance
services. Such services are going to be outsourced in the near future. This may decrease cost
and increase efficiency.
● To trade the outstanding common stocks, corporations are resorting to a
shift towards free float indexes.
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354
● All countries, especially India, are engaged in reforming company laws
and tax laws in accordance with the requirements of industrial growth and new
responsibilities towards corporate governance.
● Corporate social responsibility (CSR) has now been accepted as one of the
most important activities of all types of corporations and is one of the agreed tasks of
corporate governance all over the world.
● The growth of socially responsible investment is a new trend in corporate
governance. This leads to a more organized control and desirable investment opportunities.
● One of the most important emerging trends in the corporate governance now is the
acceptance of a globalized standard of corporate governance. These standards as
norms are already set by the OECD. Many of the world countries have opted for this
standard in recent years.

OECD PRINCIPLES OF CORPORATE GOVERNANCE

These principles were codified in 1999 and further revised in 2004. The six fundamental principles
(shown in Table 16.2) were all agreed upon by the members of OECD. These principles are
accepted by all member countries and also by some non-member countries.

Table 16.2 OECD Principles of Corporate Governance

1. There should be a strong basis for an effective corporate

government [Rule of law and division of responsibilities are
important]
2. Rights of shareholders and key ownership functions
[It is necessary to always protect the rights of the shareholders]
3. Equal treatment of all shareholders
[National and foreign shareholders should be treated equally and there should be a forum to address the
violation of their rights]
4. Role of shareholders in corporate governance
[They should have active cooperation in maintaining sound enterprises, in job creation and in
promoting financial sustainability]
5. Disclosure and transparency
[There should be timely and accurate disclosures on all important matters like financial situation,
ownership and governance]
6. Responsibilities of the Board
[Include strategic guidance of the company, effective monitoring of management and Board’s access to
shareholders]
Source: Adapted from www.oecd.org

Summary
Corporate governance is the coordination and maintenance of a set of relations that promote
interests of the shareholders and stakeholders of a business corporation. Corporate governance is

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an open-ended system of governance where there is a separation between ownership and control.

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356
Perhaps the enactment of the Foreign and Corrupt Practices Act in 1977 in the United States is
the beginning of corporate governance. Under corporate governance, a company is managed by
the Board of Directors. The most unique feature of a corporation is the limited liability of owners.
The purpose of corporate governance is to enhance the productivity of the company, create more
employment opportunities and increase the returns on shareholders’ investment. Accountability and
transparency encouraged by corporate governance are essential for the capital market
development. Good corporate governance tries to keep a balance between economic efficiency
and social respon- sibility, and it works in the best interest of the shareholders who are its owners.
Corporate governance is based on a number of theories like agency theory, stewardship theory,
political theory, transaction theory, stakeholders’ theory, dependency theory and ethical theory.
Each of these theories gives attention to a particular dimension of corporate governance. The
mechanism of corporate governance works in two ways: control and promotion. The mechanism,
therefore, can be called the mechanism of controlled expansion. The mechanism of control aims
at reducing various types of inefficiencies and irregularities. Many international committees in
their guidelines and recommendations have emphasised the importance of shareholders’ rights
and also of their protection. The interest of the shareholders can be protected in many ways. One
of the most pragmatic ways is to appoint the Board of Directors which is reasonable, controllable
and follows corporate ethics.
Principles of corporate governance consist of those guidelines which are formulated to make
the governance more efficient, competitive and socially acceptable. Corporate governance codes
and principles are used synonymously.
Corporate governance may have different structures and processes depending on the political,
economic, social, institutional and the stage of development of a country. Corporate gover-
nance needs many participants including the shareholders, investors, suppliers, banks, and many
committees to function. But the role of the Board of Directors is pivotal. It manages the whole
show and it is appointed by the shareholders of the company. It works as a friend, philosopher
and guide for the whole company. It gives direction, defines the company’s strategy and plans
and ensures that the management translates those plans into action.
There are many issues in corporate governance. These are basically structural and ethical
issues. The structural issues are concerned with the Board of Directors, its composition,
proportion of independent members, functions, and so on. Ethical issues are related to different
types of ethically stationed companies. Some are overtly unethical corporations, some are half-
heartedly ethical and some are ethically indifferent corporations whereas some are ethically
constrained. Some corpora- tions are ethically conscious but cannot perform ethical acts because
of many constraints like lack of ethical orientation, lack of funds, lack of commitments on the
part of employees or manager, and so forth. Principal-agent problem is one of the serious
problems in corporate governance. The manager, who is an agent, has his own utility functions
which may be against those of the owners of the company.
Globalization has, in many ways, affected the nature of corporate governance in all types of
economies, both developed and developing. Never before in the history of corporate governance,
factors like environment, social and governmental matters were as critical as they are now during
the period of globalization. Corporate governance in the wake of globalization has necessitated
and

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357
put more emphasis on different types of corporate disclosures. Globalization, which accompanies
capital mobility, is known to upset the relative balance of power relations between the insiders
and the outsiders within the domestic political economy of corporate governance.
Globalization has increased both the opportunities and also the risks of international business.
They are now more vulnerable to external pressure and circumstances. Recurrent international
financial crises, recession and scams have made the corporate sector more cautious and careful. It
is now the time to concentrate on two types of corporate governance strategies, namely, to keep
an eye on the coffer of the company and also to be very cautious in the matter of management of
the company.

Key Terms
Pre- and Post-Ethical Export Surplus Moral Hazard Problem
Societies Allocative Efficiency Agency Cost
Social Capital OECD Principles of Rent-seeking
Export Surplus Corporate Governance Transaction Cost
Corporate Capitalism Negative Externality Checks and Balances
External and Internal Sarbanes-Oxley Act of Moral Hazards
Economies 2002 Demonstration Effect
Economies of Scope Caveat Emptor

Test Your Knowledge

1.State whether the following statements are True or False
(i) Corporate governance works in an open-ended system.
(ii) Foreign and Corrupt Practices Act in the USA (1977) marks the beginning of corporate
governance.
(iii) In corporate governance, there is a separation of ownership and control.
(iv) In practice, the Board is often not balanced and does not work in a responsible manner.
(v) There is no agency cost in corporate governance.
(vi) Globalization, which accompanies capital mobility, has never upset the relative balance
of power relations between the insiders and the outsiders within the domestic political
economy of corporate governance.
(vii) Corporate Governance is only concerned with the top level management, primarily the
Board of Directors.
(viii) The growth of socially responsible investment is a new trend in corporate governance.
(ix) There is now a trend to give a greater compensation to the sales executives.
(x) It is a better to have a contracting system of payment rather than fixed pays.
2 . Fill in the blanks
(i) As per the OECD principles, corporate governance is a system by which companies are
and .

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358
(ii) Corporate governance works in an system.
(iii) In a corporation type of business, there is a separation between and
.
(iv) Corporations must perform social responsibilities to develop capital.
(v) In the model, economic growth is positively linked with investment.
(vi) When all parties work in unison, and the CEO is also the Chairman, the
is likely to go down.
(vii) The theory explains the involvement of governments in the governance
of corporations.
(viii) One of the mechanisms of control over inefficiency is to introduce the system of
for executives and employees.
(ix) Corporate governance mechanism, in order to be effective, must be made free from
interference and control.
(x) In standard corporate governance practices, there the following three Committees which
are helpful to carry out the functions of Board of Directors, namely, ,
and .
3.Choose the correct option
(i) Which one of these is the crucial reason for the appointment of agents?
(a) Bribery (b) Absenteeism
(c) Information Asymmetry (d) None of these
(ii) Given the fixed pay, the agent may practice to earn some extra bucks by unethical and
illegal means?
(a) Bribes (b) Rent-seeking
(c) Both (a) and (b) (d) None of these
(iii) As per SEBI recommendations, what percentage of Directors must be independent?
(a) 50% (b) 55%
(c) 49% (d) 51%
(iv) The Sarbanes-Oxley Act was passed in the year:
(a) 2001 (b) 2000
(c) 1999 (d) 2002
(v) The Indian Companies Act was passed in the year:
(a) 1956 (b) 1955
(c) 1954 (d) 1957
(vi) Which theory looks at the possibilities of development and growth of a company?
(a) Principal-Agent theory (b) Dependency theory
(c) Transaction Cost theory (d) None of these
(vii) Which theory is based on the perception that a corporation for its effective function has
to forge a number of relations with different classes including suppliers, consumers,
employees, government, and so on?
(a) Principal-Agent theory (b) Dependency theory
(c) Stakeholder’s theory (d) Transaction Cost theory

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(viii) Who has shown that innovation can be carried on in five different ways?
(a) Karl Marx (b) Joseph Schumpeter
(c) Adam Smith (d) Max Weber
(ix) As per SEBI, which clause introduced standard listing agreement to be followed by all
the listed companies in India?
(a) Clause 28 (b) Clause 40
(c) Clause 49 (d) Clause 48
(x) The enactment of which Act in the US was perhaps the embryonic beginning of the
concept of corporate governance (CG)?
(a) The Oxley Act (b) Foreign and Corrupt Practices Act
(c) Both (a) and (b) (d) None of these

Review Questions
1. Elaborate on the major OECD principles for corporate governance.
2. Discuss the emerging trend in the corporate government.
3. What do you think is the impact of globalization on corporate governance?
4. Distinguish between corporate management and corporate governance.
5. What are the major issues in corporate government in the world today?
6. Why is corporate government important in a country?
7. What are the essential features of a good corporate government? Elaborate your answer.
8. In corporate governance, there is always a gap between the precept and the practice. Explain
your point of view.
9. Explain the basic theories of corporate governance. Which one is the best theory, according
to you, and why?
10. Explain the basic mechanism of corporate governance.

Web Links
1. http://en.wikipedia.org/wiki/Corporate_governance [Corporate Governance]
2. http://www.eurojournals.com/mefe_4_07.pdf
[Fundamental and Ethics Theories of Corporate Governance]
3. http://www.weil.com/wgm/cwgmhomep.nsf/Files/Gregory-Aug01DM/$file/Gregory-
Aug01DM.pdf [The Globalization of Corporate
Governance]
4. http://www.oecd.org/dataoecd/32/18/31557724.pdf
[OECD Principle of Corporate Governance]
5. http://www.scu.edu/ethics/publications/submitted/hurst/comparitive_study.pdf
[Corporate Ethics, Governance and Social Responsibility: Comparing European
Business Practices to those in the United States]
6. http://www.virtusinterpress.org/additional_files/book_corp_govern/contributors.pdf
[Corporate Governance]

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References
Abdullah, H. and Valentine, B. (2009), “Fundamental and Ethics Theories of Corporate Gover-
nance”, Eastern Finance and Economics
Choudhury, Adrian (1992), Report of the Committee on the Financial Aspects of the Corporate
Governance, Gee and Co., London
Das, S.C. (2008), Corporate Governance in India: An Evaluation, Prentice Hall, New Delhi
Donaldson, T. and Preston, L.E. (1995), “The Stakeholder Theory of the Corporation”, Academy
of
Management Review, Vol. 20, #1
Garratt, Bob (2003), Thin on Top: Why Corporate Governance Matters and How to Measure and
Improve Board Performance, Nicholas Brealey, London
Ghosh, B.N. (2001), From Market Mailure to Government Failure, Wisdom House, UK
Ghosh, B.N. (2004), Development Economics: Principles, Practice and Policy, Wisdom House,
Leeds (UK)
Lucas, Robert (1990), “Why Doesn’t Capital Flow from Rich to Poor Countries?”, American
Economic Review, Vol. 80, #2, pp. 92-96
Meisel, Nicolas (2004), Governance Culture and Development, OECD Publications, Paris
Sen, Dilip Kumar (2005), “A Report Card that Does not Impress”, Business Line, 27 January
Special Correspondent (2003), “Foundation for Corporate Government”, The Hindu, 3
September. Williamson, O. (1996), The Mechanism of Governance, Oxford University Press,
Oxford
World Bank (1999), “Corporate Governance: Framework for Implementation” available at the
WB website

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CHAPTER
17
Corporate
Social
Responsibility

L E A R N I N GO B J E C T I V E S

This chapter will help the reader to understand

■ Corporate social reporting
■ Meaning, types of corporate social responsibility (CSR) and the role of CSR
towards society, employees, government
■ Stakeholders and consumers
■ Nature of CSR, CSR principles and strategies, and models of CSR
■ Best practices of CSR
■ Need for CSR and the debate
■ CSR: the Indian perspective
■ Sachar Committee report
■ CSR programmes of some Indian companies

INTRODUCTION
We start off the discussion of this crucial chapter on business ethics with the following two
observa- tions of Adam Smith’s magnum opus, the Wealth of Nations:
“It is not from the benevolence of the butcher and brewer that we get our food and
drink, but because of their selfishness.” and “When the people of the same trade meet,
the conversation ends in conspiracy against the public, or in some contrivance to raise
prices.”

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It is interesting to note that Adam Smith, who was a strong supporter of free market
mechanism for the growth of capitalism, himself accepted the fact that business people are selfish
in nature and they hatch conspiracy against the public to maximize profits by raising prices.
These two facts put together, generate the need for some social responsibilities of business. The
amassing of wealth through sheer greed by exploiting the public makes a strong case for
corporate social responsi- bility (CSR). The idea of CSR is not very old. It started as an organized
movement and a code of business conduct in the 1960s in the United States. In the 1970s, the
code was formally approved and accepted. It was an overall reaction against corporate dishonesty
and scandals in many countries including both developing and the developed ones. The present
chapter will discuss various issues connected with CSR and will make an attempt to illustrate the
Indian scenario with reference to the Sachar Committee Report.
Corporate social responsibility is a gesture of showing the company’s concern and
commitment towards society’s sustainability and development. Corporate social reporting is a
method of commu- nication to the society about the company’s desired action or the action
actually performed by it. The reporting can be done in many ways, through public media, website
and television network. The reporting is done for the purpose of public awareness and also for
getting the feedback. On the basis of such feedbacks, the company can mould, change or partially
or wholly modify its contem- plated CSR plan. The reporting has triple bottom lines that can
be expressed by the three Ps (profit, people and planet). Firstly, the reporting may be about
profit and its share in the social work. Secondly, the reporting may be about the people being
helped or the workforce being engaged in the social work, and thirdly, the reporting may be
about the planet or environment, its protection and sustainable development that can be facilitated
by the contemplated social work or the work that has actually been undertaken. Social reporting
can go hand in hand with CSR or can be done just before the contemplated social work.

WHAT IS CORPORATE SOCIAL RESPONSIBILITY (CSR)?

CSR is the responsibility of the corporate sector to contribute to some activities that increase
social welfare. The following are a few important definitions of CSR.
CSR “refers to the obligations of businessmen to pursue those policies, to make those
decisions or to follow those lines of actions which are desirable in terms of the objec-
tives and value of our society”. (Bowen, p. 6).
CSR “is the ethical behaviour of a company towards society”.
CSR “is the continuing commitment by business to behave ethically and contribute to
economic development while improving the quality of life of the workforce and their
families as well as of the local community and society at large”.

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CSR “is understood as the obligation of decision-makers to take actions which protect
and improve the welfare of society as a whole along with their own interests”.
The Research and Policy Committee of the United States defined CSR in the following way:
“Private business functions by public consent, and its basic purpose is to serve
constructively the needs of society to the satisfaction of the society” (Webb, Ch. 28).

TYPES AND NATURE OF SOCIAL RESPONSIBILITIES

CSR can be understood in both micro and macro perspectives. In the micro perspective,
it is the responsibility of one business unit or company; in the macro perspective, CSR
encompasses the whole gamut of corporate social activities where the entire corporate sector is
engaged, and also in some cases, the involvement of government is ensured.
There are the following three basic constituents of CSR:
1. One part of CSR is to supply socially necessary products, create employment opportunities
and contribute towards a sustainable economic development.
2. To make the desirable social changes and respond to the changing values and priority
patterns of the society.
3. Actively contribute towards the improvement of social environment and discontinue or
inter- nalise all the negative externalities (harmful impact).
There are basically the following five types of social responsibilities:
1. Responsibilities towards the Society
2. Responsibilities towards the Government
3. Responsibilities towards Employees
4. Responsibilities towards Shareholders
5. Responsibilities towards Consumers
Table 17.1 highlights the various types of social responsibilities.
Apart from the aforesaid five basic areas of CSR, some minor areas are also taken note of by
many authorities. For instance, Joseph W. Weiss (2009, pp.126-140) considers ethical
advertising as a part of corporate social responsibility. As a matter of fact, unethical
advertising has become so problematic for consumers that they feel cheated by the business
houses (for a detailed discussion on unethical advertisement, see Chapter 11).

Nature of Social Responsibility

CSR is an ethical issue and, therefore, is normative in character. CSR will be different for
different types of business institutions and also for different levels of society. There is no
straightjacket formula for CSR. In a sense, CSR is a relative concept.

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Table 17.1 Types of Social Responsibilites

Responsibilities towards ● Obey rules and regulations
Government: ● Regular payment of taxes
● Cooperating with the Govt. to promote social values
● Resisting bribery and corrupt practices
● Cooperating with the Govt. for economic growth and
development
● Cooperating with the Govt. for promoting R and D
● Not to take advantage of loopholes in business laws
Responsibilities towards Society as a ● Carrying on business with moral values and ethical
whole: standards
● Prevention of environmental pollution
● Minimizing ecological imbalance
● Implementing the strategy of sustainable development
● Making the use of appropriate technology
● Contributing towards the development of social health,
education and cultural milieu
Responsibilities towards Consumer: ● Supplying socially harmless products
● Supplying the quality, standard, as promised.
● Providing good and services at reasonable prices
● Providing efficient timely after-sales services
● Resisting black-marketing and profiteering
● Maintaining consumers’ grievance cell
● Trying to improve the quality of products and reduce
prices over time through competition
● To work for the survival and the growth of the concern
Responsibilities towards Shareholders: ● To build reputation and goodwill of the company
● To ensure a reasonable rate of return over time
● To remain transparent and accountable
● To provide a healthy working environment
Responsibilities towards Employees: ● To grant regular and fair wages
● To provide regular welfare services
● To provide training and promotion facilities
● To provide reasonable working standard and norms
● To provide efficient mechanism to redress workers’
grievances
● Proper recognition of efficiency and hard work

All firms do not follow the same pattern of CSR. Much will depend on the circumstantial
matrix of the firm. There are basically four types of situational positions of CSR, and
depending on the internal and external pressure points, a firm may select one of the following
options relating to CSR:
1. Legal and socially responsible

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2. Legal but socially irresponsible

3. Illegal but socially responsible
4. Illegal and socially irresponsible
The behavioural pattern that a business firm will follow is a function of many factors, both
internal and external (Dalton and Cosier, 1982, pp. 19–27). CSR may be started as a proactive or
a reactive situation. When CSR is the practice or the firms are compelled to do it, then there is a
natural tendency to finance that by raising the prices or following many other unethical ways.
This method of collecting money for CSR is often described as the Reverse Robinhood
Effect. Thus, when a firm is taking CSR, it does not follow that it is basically ethical in all its
approaches.
Very often, there seems to be a trade-off between ethical CSR and unethical business
practices. It is a common knowledge for many in recent years that a business firm performing
many ethical functions is also the firm which is engaged in many types of anti-social activities
and scandals.
There is a definite continuum based on the different stages of performance of CSR by business
firms. At every stage or phase of this continuum, there is an inner urge on the part of the firm to
remain ethical as far as possible. Thus, we have the following stages of the continuum of CSR:
Ethical Responsibility → Legal Responsibility → Economic
Responsibility→ Communitarian Responsibility → Humanitarian
Responsibility
Needless to add that there is a continuum of CSR, and the stages may not be followed in the
same sequence as given above. One type of responsibility may not follow the other exactly in the
same way, one may precede the other. For instance, communitarian responsibility may precede
the economic responsibility. But on an empirical plane, the five-stage continuum is the general
rule rather an exception.
From the concept of continuum of CSR, one transcends to the models of CSR.

CSR PRINCIPLES AND STRATEGIES

There are, indeed, many CSR principles and strategies. In this section, some of the important
principles and strategies will be briefly explained as under:
● One of the best principles for discharging corporate social responsibility is to have respect

for human rights. This respect should be explicitly shown in the public.
● It is necessary to have respect for the differences of views on CSR subject,

methods, time, and so on. The final decision is to be based on merit of the case and the
temper of the time.
● Diversity and non-discrimination should be the guiding principle.

Discrimination based on caste, class, colour, creed and gender in the CSR has to be avoided
at all cost.
● The CSR activities should make some social contribution and create some social

utilities which are liked by the local people and which will be useful for them.
● It is always better to enter into a dialogue with the society/community before

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undertaking any CSR activity. This can give some important insights regarding the
contemplated project, its use and implementation.
● The CSR project should be based on creativity and self-realisation both for the
corporate sector and the local community. The involvement of the community must be
ensured.

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● Fair dealings and collaboration with the participants in the CSR project should
be an important principle at all times.
● The initial impact of the project needs to be evaluated on the basis of feedback from the
community. This will help the feed-forward process while continuing the project.
● The CSR strategy should be proactive and it should try to replace the bad environment by
a better alternative. The project must make some positive value-added.
● The basic strategy of any successful SCR project will be the long-run economic and
social development of the community where the project is to be located.

MODELS OF CORPORATE SOCIAL RESPONSIBILITY

There are a few models available on CSR. In this section, these will be discussed and the outline for
a new model will be provided.
1. Friedman Model
2. Ackerman Model
3. Carroll Model
4. Environmental Integrity and Community Health Model
5. Corporate Citizenship Model
6. Stockholders and Stakeholders Model
7. Towards a New Model of CSR

Friedman Model
Milton Friedman, a renowned economist, is of the view that to ask a businessman to contribute
towards social development is to ask him to steal from the shareholder’s money to perform social
responsibility. According to Friedman, a businessman has no duty other than developing his
business. If he looks after his business well, he is performing a social as well as a moral duty.
Friedman, perhaps, develops the idea of Kantian deontic philosophy by saying that one should
perform his duty well as is required by his profession. So, a businessman has no other social
responsibility to perform except to serve his shareholders and stockholders. This view has been
made clear by him at many places (1962 & 1973).

Ackerman Model
Robert Ackerman and Robert Bauer developed a model in 1976. The model has emphasised on the
internal policy goals and their relation to the CSR. This model depicts four critical stages to arrive
at the evaluation of the social performance audit stage. The four stages involved in CSR are
briefly explained below:
The first stage is marked by the identification of the project that will be chosen for social
delivery. It also formulates strategies for the project. The top managers of the company get to
know the most common social problem and then express a willingness to take a particular project
which will solve some social problems.

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The second stage is devoted to the intensive study of the problem by hiring experts and
getting their suggestions to make it operational. Till this stage, the company does not declare the
adoption of the project. It is not made public. The intention to take up the project remains only
internal to the firm.
The third Stage is very critical for the project as it is not only made public but is also
imple- mented. However, at the initial stage, the work for the social project goes on very slowly
until the company gets advised by the public body (government). Ackerman advises the managers
to take up the project actively and work hard at the early stage so that managerial discretion can
play its proper role over the entire period of the social project.
The fourth Stage is the stage of evaluation. In this stage the needs of the society are
considered vey minutely and problems and issues are addressed.
In the Ackerman model, there is an explicit recognition of various types of learning
strat- egies for the fulfillment of the project. There are specialized learning, administrative
learning, organizational commitment and institutionalisation of the project philosophy, and also a
systematic evaluation of the firm’s performance of the social responsibility.
There are basically six strategies in the adoption of CSR:
First, the firm shows reluctance to adopt any social work or project (rejection strategy).
Second, the firm vehemently opposes any CSR based project unless and until the pressure
comes from external sources. This strategy is called adversary strategy.
Third, in the case of resistance strategy, the firm works slowly and tries to show that it
cannot carry on corporate social responsibility due to a lack of certain factors. However, if the
firm is pressurized by the government, then it yields and accepts the project.
Fourth, once the CSR is accepted the firm follows the compliance strategy and tries to
finish the project.
Fifth is the accommodation strategy. This strategy helps the firm to accommodate the
requests of the shareholders or Government agencies to work in certain ways for the fulfillment
of CSR.
Sixth, is the proactive strategy to go ahead with the project and complete it according to
the priority pattern of the firm.

Carroll Model
It is one of the most popular models developed by A.B. Carroll in 1991. The mode is based on the
idea that there are four levels of social responsibility. These are:
● Philanthropic

● Economic

● Legal

● Ethical

The philanthropic requirement necessitates good works including donation, gifts,

helping the poor and so on, so that the goodwill of the company is spread out in the community.
These activities are not required by the business but it promotes social welfare and goodwill.
Ethical responsibility requires that the firm is following certain moral standards and ethical
values to deal with its stake- holders including the employees, customers, suppliers and the like.
At the very basic level, each firm has an economic responsibility to maximise net profits so
that it can pay reasonably well to provide returns on the investment, to pay the shareholders and
other investors. This is an essential
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social responsibility. Another social responsibility is to remain legal by abiding the laws of
the land. Every firm needs to obey the government rules and regulations relating to their
business activities.

Environmental Integrity and Community Health Model

This model has been recommended by corporate firms in recent years in the United States
(Redman, 2005). There is a hidden business agenda inbuilt in this model. Business people believe
that if the corporate sector can positively contribute to the environmental integrity and human
health, there will be greater opportunities for the expansion of business in general and this will, in
turn, maximise profits. Healthy people can work more and earn more. So, consumers’ spending
will increase and so will the profit. Therefore, in the same form CSR is beneficial for the
corporate sector. What then is required is the socially responsible investment portfolio, and a good
relationship with the community which is always beneficial for the business. Thus, CSR in a
particular form is welcome.

Corporate Citizenship Model

The model posits that when a business behaves in a way that satisfies philanthropic, legal and
economic responsibilities well in the corporate world, it is entitled to corporate citizenship
(Maignan et al. 1999, p. 457). To be a corporate citizen, a corporate firm has to satisfy four
conditions: consistently satisfactory and sustainable economic performance, ethical actions
and behaviour beyond the minimum requirements of law of the land, and voluntary social actions
that enhance the reputation of the company. A particular firm’s commitment to corporate
citizenship requires the fulfillment of certain social responsibilities. Such a citizenship stems from
a particular type of philosophy, and depending on the extent to which it is followed by a firm, it
may or may not qualify to have a corporate citizenship.

Stockholders and Stakeholders Model

The model (see Figure 17.1) discusses (Buono and Nichols, 1990) two types of social orientations
of a firm towards its economic stockholders and social stakeholders. There are two types of
motives
ORIENTATION

Stockholder Model Stakeholder Model

Fig Self-
MOTIVES

1 2
ure Productivism Progressivism
17.
1
3 4 Moral
Philanthropy Ethical Idealism

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interest

Duty

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that underlie these two orientations. These motives are: self-interest and moral duty. Productivism
and philanthropy are the two orientations of the stockholders. Progressivism and ethical idealism
are the orientations of stakeholders. Productivists believe that the only mission of a corporation is
to maximise the self-interest (profit). They are motivated by the idea of free market ethics and it
is argued that free market generates many important social advantages, as was the view of Adam
Smith.
Philanthropists who entertain stockholders’ views propose that helping the poor and the needy
can be justified in terms of morality. However, their motive towards CSR is dominated by moral
obligations and not self-interest. But, they believe that the primary social duty of a corporation is
to obtain profits.
In the stakeholder’s model the dominant ideas are progressivism and ethical idealism. To
ethical idealists, the line of demarcation between business and society is rather thin, and they
believe in the sharing of corporate profits for humanitarian activities. According to ethical
idealists, CSR is justified when business corporations support stakeholders’ interests.
Progressivists are of the opinion that although corporate behaviour is basically motivated by self-
interest, yet there should some scope for a social change that can transform the society towards
becoming more humanistic. Progressivists are in favour of enlightened self-interest where,
in spite of self-interest, socially good works can be undertaken. It is interesting to note that each
of the four modes of the model (see Fig. 19.1) explain social responsibilities in terms of different
systems of beliefs.

Towards a New Model of CSR

An outline of a model of CSR will be discussed here. This model will concentrate on two critical
factors that make the undertaking of CSR possible or impossible. These two factors are: a
company’s financial capability and its ethical rooting or its absence. Obviously, the financial
prowess of a company is a positive function of its net profit such that the higher the net profit, the
higher is the financial capability of a company to undertake CSR. However, it is not alone the
financial capability that makes the undertaking of CSR a reality. There is another factor, the
ethical rooting.
If the company is ethically rooted and it is explicitly recognised in its mission/vision
statements, the organization can and does undertake CSR.
Precisely, there are five stages in an organizational continuum that determines the time
span of CSR, if at all undertaken. These five stages (processes) are:
● ethical rooting,

● identification of CSR project,

● policy design and

● decisions.

● implementation of the project and, ethical/social auditing (evaluation).

In order to decide whether or not a CSR will be undertaken, the interaction between two
factors will be decisive: the ethical rooting and the financial capability of the company. If the
ethical rooting and financial capabilities are strong, most probably, the corporation will undertake
CSR. One must assume in this case the absence any negative externality influencing the decision
about the project. If one arranges the information in a matrix form (shown in Fig.17.2), one can
get the following four situations:
1. CASE I: Ethical Rooting Strong + Financial Capability Strong: CSR Undertaken (+)
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ETHICAL ROOTING

Strong Poor

FINANCIAL CAPABILITY STRONG CSR (+) CSR (–)

POOR CSR (–) CSR (–)

Figure 17.2

2. CASE II: Ethical Rooting Strong but Financial Capability Poor: CSR Not Undertaken (−)
3. CASE III: Ethical Rooting Poor but Financial Capability Strong: CSR Not Undertaken (−)
4. CASE IV: Rooting Poor + Financial Capability Poor: CSR Not Undertaken (−)

BEST PRACTICES OF CSR

There is no unique and ideal practice of CSR. It is conditioned by many political, social, institu-
tional, economic and cultural issues. It is a type of community investment and a process of
creating social capital. Social capital is the sum of social goods relations that a society
generates in the course of its development. Social capital depends on social institutions and their
interactions. It is a critical dimension of non-human wealth and social trust. The best type of CSR
will create and augment the social stock of capital and relations. The best CSR practices should
have the following characteristics:
● First of all, it is necessary to set a feasible, viable and measurable goal. Limit the

CSR project according to resource availability. Initially it should be a short-term project.

The wastage should be minimised.
● It should build a lasting relationship with the community. This can be done by

cooper- ation, partnership and understanding. Cooperation with NGOs can also be very
helpful in this direction.
● That CSR practice is the ideal which retains the community core values and yet

makes social progress at a perceptible rate.

● The impact of the CSR needs to be assessed from time to time through

discussion and opinion survey. It is better to undertake a life cycle assessment of the
product that is created.
● Reporting the impact through the media and publicity is essential for a good CSR

project. The report can be pasted on the website and feedback can be requested.
● The project should create community awareness and the community itself should be

motivated in various ways to undertake similar future projects. In many instances, the
corporate sector can share with the community, the technology needed in such cases.

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● It is one of the best practices to engage the shareholders in the project. They
must be taken into confidence and their suggestions and advices should be followed.
● The best practice is to have a project which is sustainable. In this context, one can
study the sustainability management system by making a framework to ensure that all the
social, political and economic issues are simultaneously addressed. There can be the use of
sustain- ability issues mapping system whereby it is possible to know which factors go
together and which do not. This knowledge can go a long way in the successful
implementation of the project.

NEED FOR CORPORATE SOCIAL RESPONSIBILITY

CSR has been accepted as one of the basic responsibilities of businesses throughout the world. The
need for CSR has been felt by different sections of society like the consumers, employees,
government, suppliers and stakeholders. Some of the major CSRs are briefly discussed below:
● Socially safe and clean type of investment can reduce the social cost and, therefore

can help in the generation of some savings. CSR is helpful for building up a trouble-free
business which will not harm the interest of the social classes. Socially responsible
companies are favoured by customers, investors and government.
● Socially responsible corporate sector can enhance the performance of
employees and can create innovative people by treating them well and by introducing
many schemes of proper incentives for the employees who are efficient and more
productive.
● Social responsibility is a type of investment that will yield fruits in the long run.

It should be appreciated that there is no contradiction between CSR and long-run

profitability of a business concern.
● CSR can lead to industrial peace through cooperation between capital and labour

and peaceful negotiation of industrial disputes. In this way, it can save a lot of trouble,
resources and energy in the area of industrial management. CSR can also enhance the
productivity of the employees by different schemes of rewards and incentives. The
economy of high wages is now accepted as one of the methods of increasing corporate
productivity.
● The most important argument in favour of CSR is that it improves the public image

of the company, which is the social goal of the corporate sector. In the corporate world,
image is everything and that image can be made brighter and brighter by carefully chosen
CSR programmes.
● There is some moral justification for the adoption of CSR by the corporate sector.

Such responsibilities create a better world which is indirectly helpful for the growth of the
corporate sector. The corporate sector works in social environment, so it is the moral duty of
the sector to perform some social responsibilities.
● It has been empirically found to be true that the companies performing social

responsibilities and maintaining ethical behaviour in business can generate more

profit than those who are unethical and anti-social. Profiteering and black-marketing do
not pay in the long run for creating goodwill and sustainability of the company.

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● The adoption of CSR satisfies the stakeholders, employees, stockholders, suppliers and
consumers.
● By taking up CSR projects, a company can avoid government regulations and

control and legal complications. Every year many unethical companies have to pay
a large amount of money as fines for adopting certain unethical practices. A company which
is ethically motivated can avoid monetary loss.
● CSR programmes can reduce pollution, enhance health status of the people

by producing and selling quality products which are made by techniques that are
not harmful to people and environment. In this way, the social welfare of the people can be
maximised by the CSR programmes. Many companies nowadays have the practice of
internalising the (negative) externalities.

CORPORATE SOCIAL RESPONSIBILITY: THE DEBATE

Whether CSR is good or bad for a company is not evaluated by people in the same way. Some
experts argue that CSR is not necessary for the corporate sector. It will do more harm than good if
the business people are asked to implement it. That view is the classical view adopted by, among
others, Adam Smith and Milton Friedman, both of whom are renowned economists. However, on
the other end of this spectrum, there are experts who observed that CSR is a reality in modern
times, and it cannot be neglected anymore by the corporate sector. In the discussion hereafter, we
will present briefly the views of both these groups.

ARGUMENTS AGAINST CSR

● The basic responsibility of any business concern is to maximise profit and to ensure a good
return on the investment made by shareholders. So, if CSR is introduced, the
fundamental principle of business gets violated. Business and ethics cannot go
together.
● The adoption of CSR programmes will be expensive for business houses, and
if money is dissipated in this way, the allocation of scarce resources cannot be done in an
economically efficient way. So, the efficiency of businesses may be jeopardised. The pursuit
of social respon- sibility cannot be a goal of business houses because it will dilute the
economic efficiency and productivity of the corporate sector.
● Business people are not efficient and trained experts in carrying on CSR projects which are
basically related to social issues. Therefore, the projects will not be successful.
● Legally or morally, the corporate sector cannot be held accountable for the
non-perfor- mance of CSR.
● CSR involves ethical and social responsibility. These are not the special areas of
any business.
● Managers are different from shareholders (owners). So, to ask managers to perform CSR is
to induce them to steal away the shareholders’ money. Managers are not
empowered by the owners to spend any money for social development.

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ARGUMENTS IN FAVOUR OF CSR

● Corporate houses are social institutions. Therefore, they have got some moral and
social obligations to undertake some welfare-oriented programmes.
● Social classes and stakeholders expect profit-making business houses to do something
for the society. They have the resources, capability and competence.
● The expenditure on CSR is a sort of investment and it becomes profitable in the
long run. It is a common knowledge that the companies which are socially and ethically
motivated are also good companies in terms of profits. In India, there are many such
companies which are well-respected in the corporate world, such as Tata, Birla, Reliance,
Hindustan Unilever, and so on. These companies are not only very well-established and
profitable but are renowned for their CSR programmes.
● There is no contradiction between CSR and profit-maximisation hypothesis,
as we have already discussed earlier. It has been found that for the survival of a company in
a meaningful way depends, to a great extent, on its honesty, sincerity, social
contribution and ethical behaviour.
● By adopting CSR programmes, a company can avoid many legal complications. A
company which is regularly paying taxes and obeying other rules and regulations can work
peacefully without any loss of money on many unwanted legal problems.
● CSR projects create a better impression in the minds of not only the stakeholders
but also the people in the society. This better image can be helpful for the growth of the
company in the future.
● The corporate sector should return a part of the wealth that it has earned from
the society through business. According to Gandhi, the capitalists are the trustees and they
should distribute a part of the wealth for social development and welfare.
● It can be said against the conservative arguments put forward by Milton Friedman that even
if the basic duty of a business man is to look after his business, he cannot remain aloof
from many necessary ethical, moral and legal issues which are involved
in day-to-day businesses. Thus, indirectly Friedman agrees that knowingly and
unknowingly a business man does perform some social responsibilities.

CSR: THE INDIAN PERSPECTIVE

While discussing the Indian scenario of CSR, we will concentrate only on the Sachar Committee
Report and also on the brief accounts of CSR programmes of some Indian companies.

Sachar Committee Report

The Sachar Committee was a High-Powered committee appointed in 1978 to look into many issues
concerning Indian companies, and one of these issues was the Corporate Social Responsibility.
The committee made many important observations and suggestions on the issue of CSR. It
observed that “in the development of corporate ethics, we have reached a stage where the
question of the social responsibility of (private) business can no longer be scoffed at or taken
lightly”. It adds, “The
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company must behave and function as a responsible member of society… The company must
accept its obligation to be socially responsible and to work for the large benefit of the
community”.
The Committee exemplified many instances of responsible and irresponsible corporate social
behaviour. In this context, the committee suggested that it is not only the profit which should give
a good social image of a company but it will have to pass many tests for proving that it is a
socially responsible company. In order to be a socially responsible company, the Committee
suggested openness in corporate affairs and behaviour. This means that each company
must show account- ability and adequate disclosure of vital information to the stakeholders of the
company including the workers, shareholders, consumers and creditors.
As for the ethical responsibility of Indian companies, the Committee observed that the
situation is complex and no clear-cut conclusion can be drawn because the scenario presents
many types of company activities and attitudes. For instance, the attitude of some big companies
is different from that of small and medium companies. The attitude of big companies seems to be
better. Many big companies have been spending regularly towards the social welfare activities
and secondly, the private profit is partly spent out for the welfare of the workers of those
corporate houses. These companies are aware of CSR projects and do regularly carry on some
projects. Thus, many business houses in India have established social institutions like schools,
colleges, charitable hospitals, research and technology institutes, and infrastructure and institutes
of higher learning. However, in the context of a vast country like India, whatever has been done
appears to be inadequate.
In India, there are many social areas in which the corporate sector has not made significant
contributions. These areas are environmental pollution, water pollution and safety of the working
class inside the factory. In this connection, one should not forget about the Bhopal Gas tragedy
which cost thousands of innocent human lives not only inside the factory but also polluted the
social environment outside in a severe manner. Many more social problems can be cited to prove
the socially irresponsible behaviour of many business houses. These include rampant exploitation
of labour, racial and gender discrimination at the working place, unsafe working conditions and
inhuman working atmosphere including long hours of work without any fans or air-conditioner,
without proper sanitation, and so on.
Another tendency in the corporate world is the use of money power to buy favours from
bureau- crats and politicians. Corruption and bribery are the natural channels for getting things
done for the sake of the business. India is the third most corrupt nation in the world.
However, it should be noted that the business houses are not alone responsible for the escalating
corruption index in India.
While some of the large corporations are involved in immoral and unethical practices to
promote their businesses, the medium and small-scale industries are engaged in adulteration,
fraud like weighing scale cheating, imitating the brand names and mixing uneatable things with
the products they sell. Thus, water, milk, and many types of spices and some medicines are all
contaminated. Many people occasionally die by taking illicit liquor and many children become
sick by drinking adulterated milk or taking contaminated or expired medicines. This is a very
common scenario in India. Since people are very poor, the victims cannot take legal actions
against the businesspeople who are involved in this type of heinous crime. In the name of
business, in many cases, people earn money through social crimes. However, there are still some
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business houses which are ethically motivated in India.

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Many suggestions have been offered by the Sachar Committee for making the business houses
more socially responsible. Some of these suggestions are discussed below:
● It is necessary to introduce social accountability of the business houses towards the public.

● It is necessary to establish business firms in rural areas in a socially responsible way.

● The social responsibility can also be judged by the employment policy of the company

towards the physically challenged and the weaker sections of the population.
● It is necessary for companies to submit regularly social reports regarding the social

respon- sibilities that they have performed during a particular period of time. The social
report should be made mandatory.
● The social responsibility of a company is also to be judged by the interest it takes for the

social welfare of its employees, social welfare of the people involved in the area
where the company is located and many other welfare enhancing programmes like adult
literacy programme, road building programmes, public works programmes, and so on.
The Committee is of the opinion that the Company Act should be amended in a suitable
manner so that every company will be compelled to send a social report along with the
director’s report to indicate all the CSR activities carried out by it every year.
It is gratifying to note that in the 1980s, a significant trend was noticeable in the area of CSR in
India. Among others, the TISCO invited many experts to prepare a social audit for the
company and the findings were made public. In recent years, it is observed that many established
Indian companies are motivated by philanthropic considerations and regularly spend a significant
amount of their earnings on CSR. A brief discussion on CSR activities of some well-established
companies in India will be given in the following section.

CSR Programmes of some Indian Companies

Many Indian companies are motivated by CSR programme. Perhaps the foremost in the area of
CSR in India are the Tatas. It has many types of social activities and programmes. In the year
2007, the company was awarded Andrew Carnegie Medal of Philanthropy by the Carnegie
Corporation of the Unites States. From the very outset, the Tatas mixed philanthropy and human
relations in the conduct of business and the same trend has been continuing over the years.
TISCO has been a pioneer in discharging CSR and has been increasing social welfare in various
areas including rural development, social welfare of the tribal people and agricultural
development. The company is making sustained efforts in this direction.
Hindustan Unilever Ltd. has been actively involved in various types of CSR programmes.
These programmes include social development and community welfare, promotion of basic
education, infrastructural development and the creation of educational and health institutions. It
gives basic care to HIV-infected patients on a regular basis, provides shelter and education for
abandoned handi- capped children and terminally ill patients. The programme HUL also involves
Asha Daan which provides homes for infants, destitute, men and women, and HIV-infected
patients. The programme named Ankur teaches many children the income-generation skills
including cookery and painting. The programme at Coimbatore named Kappagam provides
shelters to mentally and physically challenged children. HUL is also involved in the purchase of
diagnostic equipments for Shankara
Eye Society which provides free eye care for the poor people of Coimbatore. Apart from all these,

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HUL is also involved in the development of many village areas in U.P., Gujarat and Tamil Nadu.
It has many community development projects at various places in India. Also, the rural education
programme is one of the important CSR programmes of HUL. It has also taken up projects on
energy conservation, water management and afforestation. It was awarded the good corporate
citizenship award in the year 2000–01 by the Bombay Chamber of Commerce and Industry. The
award was for the holistic approach to CSR activities taken up HUL.
In the same way, many other companies in India like Asian Paints, Colgate Palmolive, the Gas
Authority of India, ICICI Bank, Gujarat Ambuja Cement, Orchid Chemicals and
Pharmaceuticals, ASAIL company, Raymonds, TVS Groups, Wipro, Satyam Computers, NTPC
Ltd., Infosys, BHEL, Dr.Reddy’s Laboratories, TITAN Industries, MRF Tyre, Godrej Group,
Ford India, Birla Group of Industries, Escorts Ltd., ITC and Times of India, to name a few, are
engaged in CSR projects of various types for social welfare in India on a regular basis.

Summary
The idea of CSR is rather new. It started as an organized movement and a code of business
conduct in the 1960s in the United States. In the 1970s, the code was formally approved and
accepted. It was an overall reaction against corporate dishonesty and scandals in many countries
including both developing and the developed ones. CSR is a gesture of showing the company’s
concern and commitment towards a society’s sustainability and development. CSR reporting is a
method of communicating with the society of the company’s desired action or the action actually
performed by it. On the basis of such feedbacks, the company can mould, change or partially or
wholly modify its contemplated CSR plan. The reporting has triple bottom lines that can be
expressed by three Ps (profit, people and planet).
CSR is an ethical issue and, therefore, is normative in character. CSR will be different for
different types of business institutions and also for different levels of society. There is no straight-
jacket formula for CSR. In a sense, CSR is a relative concept.
There are, indeed, many CSR principles, strategies and models. One of the best principles for
discharging corporate social responsibility is to have respect for human rights. This respect
should be explicitly shown in the public. There should also be non-discrimination and social
capital formation. Most of the models (except the Friedman model) emphasise on the
commitment and ethicality of the company. The model presented by the present author lays more
stress on the ethical rooting and the financial prowess of the company. There is no unique and
ideal practice of CSR. It is conditioned by many political, social, institutional, economic and
cultural issues. It is a type of community investment and a process of creating social capital. CSR
has been accepted as one of the basic responsibilities of businesses throughout the world. The
need for CSR has been felt by different sections of society like consumers, employees,
government, suppliers and stakeholders.
The Sachar Committee is of the opinion that the Company Act should be amended in a suitable
manner so that every company will be compelled to send a social report along with the director’s
report to indicate all the CSR activities carried out by it every year.
It is gratifying to note that in the 1980s, a significant trend was noticeable in the area of CSR in
India. Among others, the TISCO invited many experts to prepare a social audit for the company

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and the findings were made public. In recent years, it is observed that many established Indian
companies are motivated by philanthropic considerations and regularly spend a significant
amount of their earnings on CSR.

Key Terms
Social Responsibilities of
Social Report Principles and Strategies of
Business
Social Audit CSR
Reverse Robinhood Effect
Corporate Social Best Practices of CSR
Sachar Committee Report
Reporting Social Capital
Corporate Citizenship Model

Test Your Knowledge

1.State whether the following statements are True or False
(i) According to Adam Smith, human beings are essentially selfish in nature.
(ii) Smith says that when people of the same trade meet, the conversation ends in
conspiracy against the public.
(iii) CSR started as an organized movement in the 1960s.
(iv) Corporate social reporting has four bottom lines: profit, people, planet and price.
(v) CSR is not an ethical issue.
(vi) The CSR practices create and augment social stock of capital and relations.
(vii) The Sachar Committee Report suggested openness in corporate affairs and behaviour.
(viii) The programme named Ankur teaches many children the income-generation skills
including cookery and painting.
(ix) India is the most corrupt nation in the world.
(x) The Sachar Committee suggested closeness in corporate affairs and behaviour.
2.Fill in the blanks
(i) Corporate Social Responsibility can be understood in both and
perspectives.
(ii) is of the view that to ask a businessman to contribute towards social
development is to ask him to steal from a shareholder’s money to perform social respon-
sibility.
(iii) In the strategy, the firm vehemently opposes any CSR based project
unless and until some pressure comes from external sources.
(iv) are of the opinion that, although corporate behaviour is basically
motivated by self-interest, yet there should some scope for social change that can
transform the society to be more humanistic.
(v) CSR is a type of community investment and a process of creating .
(vi) The economy of is now accepted as one of the methods of increasing
corporate productivity.

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(vii) The Committee was a High-Powered committee appointed in 1978 to

look into many issues concerning Indian companies, and one of these issues was the
Corporate Social Responsibility.
(viii) India is the most corrupt nation in the world.
(ix) The TISCO invited many experts to prepare audit for the company and
the findings were made public.
(x) In the year 2007, the TATA group was awarded the by the Carnegie
Corporation, US.
3.Choose the correct option
(i) Which programme in Coimbatore provides shelters to the mentally and physically
challenged children ?
(a) Ankur (b) Asha
(c) Kappagam (d) Asha Daan
(ii) The Wealth of Nations was written by:
(a) Karl Marx (b) Adam Smith
(c) Theodore Roosevelt (d) None of them
(iii) According to which Committee should an organization submit regular social reports:
(a) Sachar Committee (b) Kumaramangalam Birla Report
(c) Both (a) and (b) (d) None of these
(iv) Which capital is the sum of social goods relations that society generates in the course of
its development?
(a) Labour Capital (b) Social Capital
(c) Money Capital (d) All of them
(v) How many stages are there in an organizational continuum that determines the time
span of CSR?
(a) 5 (b) 4
(c) 6 (d) 3
(vi) Who entertains the stockholders’ views propose that helping the poor and the needy can
be justified in terms of morality?
(a) Progressivism (b) Philanthropy
(c) Ethical Idealism (d) None of these
(vii) In the Ackerman Model, which stage is marked by the identification of the project that
will be chosen for social delivery?
(a) The first stage (b) Third stage
(c) Both (a) and (b) (d) None of these
(viii) The method of collecting money for CSR by raising prices or following many other
unethical ways is often described as the:
(a) Reverse Effect (b) Reverse Robinhood Effect
(c) Boomerang Effect (d) All of them
(ix) The Triple Bottom Line consists of:
(a) Profit, People, Planet (b) Profit, Peace, Pace
(c) Pace, Profit, People (d) None of these

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(x) The Carroll Model was developed in the year:

(a) 1992 (b) 1900
(c) 1993 (d) 1991

Review Questions
1. What is corporate social responsibility? Who determines that responsibility?
2. Is corporate social responsibility a legal issue or an ethical issue? Explain your view.
3. Why should business people have social responsibilities?
4. What is the need for CSR?
5. Write a note on CSR in India.
6. Write note on the Corporate Citizenship Model.
7. Write a note on the CSR programmes of Indian companies.

Web Links
1. http://en.wikipedia.org/wiki/Corporate_social_responsibility
[Corporate Social Responsibility]
2. http://www.sesec.org/pdf/7/SESEC7_Grodman.pdf [Corporate Social Responsibility]
3. http://www.csr-weltweit.de/uploads/tx_jpdownloads/csr_russi_memorandum.pdf
[On Principles of Corporate Social Responsibility]
4. http://www.basisboekmvo.nl/files/Three%20models%20of%20corporate%20social%20
responsibility%20-%20implications%20for%20public%20policy.pdf
[Three Models of Corporate Social Responsibility]
5. http://www.qfinance.com/contentFiles/QF02/g1xtn5q6/12/0/best-practices-in-corporate-
social-responsibility.pdf [Best Practices in Corporate Social Responsibility]
6. http://www.asiabusinesscouncil.org/docs/BSR.pdf
[Corporate Social Responsibility: Business Solutions to Global Challenges]

References
Ackerman, Robert and Bauer, R. (1976), Corporate Social Responsiveness: The Modern
Dilemma, Reston Publishing Co., VA
Bowen, H.R. (1953), Social Responsibility of Business, Harper and Row, New York
Buono, A. F. and Nichols, L.T.(1990), “Stockholders and Stakeholder Interpretation of Business’
Social Role”, in Hoffman, W.M. and Moore, J. (Eds.), Business Ethics, McGraw Hill, New
York
Carroll A. B. (1991), “The Pyramid of Corporate Social Responsibility”, Business Horizons, July-
August
Dalton, D.R. and Cosier, R.A. (1982), “Corporate Social Responsibility”, Business Horizons,
Vol. 25
Friedman, Milton (1962), Capitalism and Freedom, Chicago University Press, USA

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 Corporate Social Responsibility 374

Friedman, Milton (1973), “The Social Responsibility of Business is to Increase its Profits”,
New York Times Magazine, 33, 13 September
Maignan, Isabelle et al. (1999), “Corporate Citizenship”, Journal of the Academy of Marketing
Science, Vol. 27
Redman, Elizabeth (2005), “Three Models of Corporate Social Responsibilities”, Roosevelt
Review, Summer
Webb, Samuel (1976), Managerial Economics, Houghton Mifflin, Boston
Weiss, Joseph. W. (2009), Business Ethics: Concepts and Cases, Cengage Learning, New Delhi

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 Corporate Social Responsibility 375

CHAPTER
18
Corporate
Governance
in India

L E A R N I N GO B J E C T I V E S

This chapter will help the reader to understand

■ History and evolution of corporate governance in India
■ Basic features, structure and standards of corporate governance in India
■ Defects of corporate governance system in India
■ Corporate governance reforms in India on the basis of recommendations of various committees
■ World Bank on the corporate governance in India
■ Role of government to ensure corporate ethics in India
■ Contemporary issues in corporate governance in India

INTRODUCTION
Immanuel Kant once spoke about the possibility of monkeys becoming men, Goethe wrote about
the metamorphosis of plants, Erasmus Darwin and Lamarck had also propounded the theory that
species had evolved from the simpler and lower forms to a more mature and higher form (Durant,
1961). In fact, the middle of the nineteenth century was permeated with the spirit of evolution and
metamorphosis. In the 1850s, Herbert Spencer made a seminal contribution to the origin of
species

Note: Ms. Sumana Shome, Lecturer at George College of Management, Kolkata, has written a few sub-topics including
Committees of the Board, the SEBI, the Birla Committee Report and the Companies Act of 1956.

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through his explanation of the theory of evolution, and that made him one of the most popular
figures of his time. Evolution has remained a powerful explanation of the origin and growth of all
species. Science has provided pretty convincing pieces of evidence from various fields of study,
to substantiate and sustain this point of view. The most critical idea of Spencer was the
suggestion that the theory of evolution could be applied to every field of epistemology and study,
including organizational and institutional changes. It is indeed so. The growth of corporate
governance in India is a case in point. Corporate governance in India is the outcome of a long
process of evolution, metamorphosis and refinement. This is clear from the history of corporate
governance in India.
In the wake of failures of many corporate houses in the United States, UK and other countries,
and also with the liberalization of the Indian economy in 1991, Indian government and corporate
houses became more concerned with the need for strong corporate governance. It was realized
that such a type of corporate governance will enable the Indian companies to be more interna-
tional and that the capitalist integration during the period of globalization will necessitate strong
corporate governance. Several committees and institutions felt the immediate need to refurbish
the system of corporate governance in India to make it more powerful. The contributions of the
Confederation of Indian Industries (CII), the Securities and Exchange Board of India (SEBI) and
the Kumarmangalam Birla Committee Report (2000), among others, are noteworthy in this
context. The Government had also set up a National Foundation for Corporate Governance
(2003). It is looking after the problems that stand in the way of good corporate governance in
India (The Hindu, 2003). In what follows, is an attempt will be made to present the historical
evolution of corporate governance in India in a brief manner.

HISTORY AND EVOLUTION OF CORPORATE GOVERNANCE IN INDIA

The evolution of corporate governance in India has a long history that dates back to the days of
the British era. Basically, the period of development of corporate governance in India can be
decom- posed into the following four distinct periods:
1. British Period (1850–1955)
2. Period of Controlled Development (1956–1990)
3. Liberalization Period: the First Phase (1991–1999)
4. Modern Period (2000 till date)
The aforesaid periodization is based on the temporal progress of corporate governance. The
ancient period (British period) is marked by the working of the Managing Agency System
(MAS). It was, perhaps, suitable for a family based system of corporate businesses.

British Period
The MAS was the embryonic beginning of corporate governance in India. It had several
character- istics:
● It was a system of providing managerial and financial prowess.

● It was a contractual system of management that very often led to the success of the

company.

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● It provided expertise, financial advice and advice for company growth.

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● The system of interlocutory directorship was helpful to some extent for many types of inter-
linkages among companies.
● It created an atmosphere where, in spite of the absence of high quality managerial talents,

companies could work successfully and could attract investors and all types of shareholders.
However, although the system was successful in its own way, it had many serious limitations.
The system was not very progressive and was much dependent on the state policy and rules. It
suffered from lack of transparency and accountability. As a result of all these, the MAS had low
efficiency and lack of dynamism (Goswami, 2002). But it was instrumental for the expansion of
the industrial base during the British period. This is evident from the growth of private business
enterprises in different parts of India and also the growth of different region-wise business
classes. The MAS had the following three serious limitations towards the growth of corporate
governance in India:
● The MAS did not make any attempt to protect the shareholders’ rights.

● It did not make any serious attempt to maximise the shareholders’ returns or values.

● It led to a concentration of the managerial and economic power.

After the independence of India, an attempt was systematically made to develop the industrial
sector through the Industrial Policy Resolution Act of 1948. This was indeed an attempt to
develop a system of partnership capitalism between the state and the private sector. The Industrial
Devel- opment Regulation Act of 1951 was a new development that provided a legal basis for the
formal development of the method of licensing system in India. It is instructive to note that from
1951 onwards, the country imposed many types of rules and regulations for the growth of the
private sector industries.

Period of Controlled Development

The Industrial Policy Resolution of 1956 and the Company Law of 1956 were in favour of creating a
regime of controlled growth of the private sector. But they hastened the demise of the MAS and
imposed many restrictions on import and export. But for the first time, investors’ interest was
sought to be protected. The stock market was not developed in India. In the absence of a
developed stock market, three all-India development finance institutions, namely, the IFC, IDBI
and ICICI became the main sources of finance for companies (Chakravorty, 2005). Different
types of protec- tionism developed, licensing system became more complicated, tax belt was
made more tightened, bureaucratic red tapism gained upper hand and corruption started appearing
in various ugly forms. The accounting morality was relegated to the background and the growth
of corporate governance received a heavy jolt. The directors were merely rubber-stamping bodies
devoid of any efficiency or dynamism.

Period of Liberalization
In this period, the Securities and Exchange Board of India (SEBI) (1992) made a number of provi-
sions to encourage the growth of corporate governance in India by protecting investors’ rights
and creating the ground rules for corporate governance. The attempt to introduce and improve
the corporate governance went into several directions. In 1997, the Confederation of Indian

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Industries (CII) prepared a code for corporate governance. Subsequently, the Kumar Mangalam
Birla Committee (1999) with the auspices of the SEBI introduced a standard listing agreement to
be followed by all the listed companies in India under Clause 49. Now all the listed companies in
India have to follow the SEBI code. It has been accepted in principle by all that corporate
governance is crucial not only for the success of international business but also for bringing about
uniformity in the international standard and corporate behaviour. The uniformity is the essence of
a globalized system that offers a level playing field for international business interactions.
But many types of ethical deficits or failures, since the past several years and their aftermaths,
had an adverse impact upon the trustworthiness and goodwill of the organizations. Prior to such
events, the credo of corporate governance, per se, never was so important an area. The corporate
scenario in India had been stagnant till the early 90’s. With the opening of the doors, i.e., liberal-
ization in 1991, the goals and positions of the Indian organizations had changed a lot. The reform
programme in the Indian economy started to make a steady progress since 1994. India is one
of the largest emerging markets with respect to market capitalisation. India instituted the Anglo-
American type of corporate governance with a one-tier system having a board composed of both
the inside and outside directors that include a CEO as the chairman to manage the company.
Thus, this period witnessed the formal installation of corporate governance in India with
responsibility and transparency which became essential in the wake of liberalization and
globalization of the Indian economy.
In today’s world, there has been a growing dialogue between the different stakeholders about
corporate governance as a result of which there is a growing concern as to how it must evolve to
cope up with the dynamic and global nature of the Indian capital markets—the principal stake-
holders being the shareholders, the Board of Directors, suppliers, customers, employees of the
organization, the creditors and the community at large.
In India, the ambit of corporate governance has faced a paradigm shift, owing to some big
institu- tions laying emphasis on how corporate bodies should be run and thereby laying down
regulations for fulfilling the same. In the year 1996, the Confederation of Indian Industries (CII)
took a special initiative, with the core objective of developing corporate governance, which
would be adopted and followed by the Indian companies – be it the private sectors, or the public
sector, other financial institutions and banks and every other corporate entities. This initiative
from CII had its roots in the public concerns with a special reference to the interests of the
investors (emphasising upon the small investors) as well as towards the promotion of
transparency amongst the businesses and the industries. Keeping such noble ambitions and
viewpoints in mind, a National Task Force was set up during April 1997 with the primary
objective of presenting the draft, which would highlight on the guidelines, the codes and
directives of corporate governance. It is essential to achieve global standards of corporate
governance to help converge the interests of the stakeholders and rebuild investor confidence in
big corporate houses. With the Independent Directors Dialogue (IDD), a first of its kind initiative
in India, there exists a network of the Independent Directors, with the primary objective to
develop insights and suggestions into the foray of the functioning of the Indian as well as global
financial markets, which would further help in strengthening relationships amongst the leading
companies of the world and their directors. The internal factors within an organization rely

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largely upon the external macro environment comprising the legislatures and the overall market
commitments, along with a strong organizational culture that promotes and safeguards organiza-
tional policies and processes.

Modern Period
The modern period is marked by several fundamental changes in the area of corporate
governance. It is not difficult to appreciate that most of the far-reaching changes in the
CORPORATE GOVER- NANCE started in the first few years of the present century (2000
onwards). For instance, the SEBI amendments took place in 2000, 2001, 2003 and 2004. The
amendment in 2004 is perhaps the most important amendment as it superseded all the earlier
circulars in some important respects. Since the year 2000, the SEBI has been enunciating various
new principles of corporate governance based on the recommendations of different committees
appointed for this purpose. The SEBI amendments were made to improve on the standard of
CORPORATE GOVERNANCE in India by changing many issues relating to the composition,
strength and the size of the board, remunerations, disclo- sures, financial reporting, accounting
standards, board meetings, performance evaluation, code of conduct, ethical issues and
transparency. In the same way, many company amendment acts were also introduced in India
since 2000. For instance, the Company Amendment Act of 2004 permits the passing of
resolutions by the postal ballot system.

SALIENT FEATURES, STRUCTURE AND STANDARDS OF CORPORATE

GOVERNANCE IN INDIA
Some of the basic issues connected with the structure and standard of corporate governance in
India are as under:
● As pointed out earlier, India follows a single-tier majority inside board system as a

corporate governance rule. The system is similar to that of UK and Japan and unlike
Germany.
● India mainly follows the family-based insider system of ownership. Majority of

equity shareholdings (about 40 per cent) are with the family controlled large business
houses.
● Regarding the sources of finance, India depends more on the internal capital market

than on the external sources.

● The capital market and stock exchanges in India are not as well-

developed as in other developed capitalist countries.

● Commercial banks in India make insignificant contribution in the area of corporate

gover- nance.
● In India, the minority investor’s rights and creditor’s rights are not as well-protected

as in many other advanced countries.

● The SEBI came out with some crucial provisions and preconditions for the listing of the

companies under clause 49. The compliance of this clause will make a lot of
improvement in the standard of performance of the listed companies.
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 Corporate Governance in India 378
● While the holdings by the small investors are negligible, there are significant cross-holdings
among different companies.

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 Corporate Governance in India 379

● The appointment of independent directors is mandatory. The proportion of such directors

may be 50% or one-third of the total board members of the listed companies.
● Shareholders have the right to seek redressal for the violation of their rights.

● The performance of the state-owned enterprises is discouraging.

● The Audit Committee must have a majority of independent directors and it should function

as per the rules laid down by SEBI and the Companies Act.
● Lack of transparency in reporting and disclosures.

● There is a high degree of concentration of control rights as given by the ownership system.

● The possibility of a hostile take-over by the big business houses is present.

● Liberalization of rules and restrictions, relaxation of licensing rules, increased competition

and reduction in import tariffs and the opening of the economy as per the rules of global-
ization have created new incentives for both domestic and foreign companies. All these
have also triggered expansion of the capital market in India.
● The SEBI has also, through various amendments, introduced many development-oriented

features in corporate governance which are comparable with the standards of corporate
governance in developed countries. However, the progress is on the way and Indian
corporate governance has a long way to go to catch up with the ideal standard.
The following committees are important in the Indian corporate governance system:

Committees of the Board

Audit Committee
● The Board would meet at least twice a year and must comprise minimum 3 directors who
are non-executives.
● Financial reporting must be done in a transparent manner to review the interim and final
accounts.
● Impartial discharge and redressal of disputes between the management and the external
auditors. There must be a proper auditor work plan.

Remuneration Committee
● A reward policy to retain and motivate talent.
● The performance packages to be linked with the shareholder’s interest.
● Executive remuneration to be closely monitored.
● The annual reports must reflect the clear objectives of the company.
Nomination Committee
● It is to be addressed by the chairman of the organization where the non-executive directors
are appointed.
It is revealed that many of the principles of OECD code have been used in India such as
banning of insider trading, appointment of a grievance committee to look into shareholders’
discrimination, redressal for the violation of shareholders’ rights, provision of annual independent
audit and special requirement of objective decisions of board members, and so on (Sen, 2005).
However, India has a long way to go to catch up with the Western countries in the matter of
corporate governance.
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 Corporate Governance in India 380

Figure 18.1 depicts a schematic diagram of corporate governance.

Corporate Governance

Shareholder The
s Board

Manageme
nt

Committee
s

Audi Nominatio Remuneratio

Employees Stakeholders t n n

Society
Capital
Market
Governme
nt

Superviso Directio
n n

Accountabili Transparenc
ty y

Figure 18.1 Schematic Diagram of Corporate Governance

MAJOR DEFECTS OF CORPORATE GOVERNANCE IN INDIA

The major defects of corporate governance in India are:
● Lack of professionalism on the part of directors.

● Institutional investors are not active.

● Independent directors are not really independent.

● Accounting practices are not free from criticism.

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● Shareholders’ participation is poor.

● Indian bond market and stock markets are not well-developed.
● The practice of whistle blowing is not yet a norm in India. The SEBI proposed it, yet many
of the corporate houses did not pay any attention to it.

IMPROVEMENT IN CORPORATE GOVERNANCE IN INDIA

Many attempts have been made to improve the corporate governance system in India from time to
time. In the following discussion, some of these improvements will be highlighted.

Corporate Governance Reforms: The SEBI and its Role

The Securities and Exchange Board of India (SEBI) was established on April 12, 1988 which
became fully autonomous in 1992. The sole responsibility encompasses the wide arena of the
development and regulation of financial markets. It is the country’s surveillance mechanism to
keep an eye over the securities and financial markets reign. To keep a harness over the company’s
functioning within the vast macro environment, SEBI has introduced strict measures and
guidelines towards corporate governance norms and codes for publicly listed companies in India.
The ‘closed’ economy of India was liberalised in the year 1991 to achieve and enhance the full
potential of Indian stock markets in order to attract huge investments from foreign institutional
investors (FII). Hence, it became mandatory for the regulatory body to introduce a series of stock
market reforms in our country. SEBI had a dual objective: that of promoting as well as protecting
the interests of small time investors and to regulate and develop the overall Indian stock markets.
In 1992, the Bombay Stock Exchange (BSE), the leading stock exchange in India, witnessed the
largest scams of the decade, the Harshad Mehta scam, was an eye-opener of its kind. It had been
felt unanimously by the market and financial analysts that had the SEBI given powers to control
the investors and the investing norms, then perhaps such a scam would not have had happened.
Hence, it became the duty of the Government of India to introduce the SEBI Act, 1992, and
confer special powers to it so as to create an iron-hand in regulating the financial markets. From
April 1, 2001 onwards, SEBI has asked the entire Group (A) companies to submit a corporate
governance report in addition to their annual reports. This has been incorporated as one of the
recommendations of the Kumar Mangalam Birla Committee Report on Corporate Governance.
Keeping this in mind, SEBI constituted a Committee on Corporate Governance under the
Chair- manship of Mr. N.R. Narayana Murthy. The Committee comprised representatives from the
investor associations, chambers of commerce and industry and stock exchanges. They laid down
some basic recommendations as given below:
● The audit committees of the publicly listed companies must furnish half yearly and quarterly

financial statements as relating to statement of compliance with the governing laws.

● The companies must disclose the methodology of the accounting standards followed by it.

● The policies laid down must be prepared with the primary objective to assess and manage

risks.
● Every member of the Board must be trained on the business model followed.

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● There must be a written code of conduct for the executive management which would be
posted at the company website for public view.
● There should not be any nominee directors, and if any, must be appointed by the share-
holders.
● The compensation paid to the non-executive directors of the company must be approved by
the shareholders in general meetings.
● Any unethical practice observed by any personnel must be communicated to the audit
committee directly, without necessarily informing their superiors.
● The companies must make an affirmation that they have provided protective measures to
‘whistle blowers’ from any sort of unfair employment practices.

Clause 49 of the SEBI

● The clause 49 of SEBI has been introduced with a view to enhance and strengthen the power
of the independent directors who are the members of the Board.
● The clause 49 of SEBI was amended on the August 26, 2003, which had made it mandatory

for every public company listed on an Indian stock exchange to sign.

● It has been pronounced that every company is required to comply with the requirements of

corporate governance, and that this should be primarily done through increasing powers and
responsibilities of the Board members, making them more accountable and also by consoli-
dating the powers of the Audit Committee.
● The aim of such changes is to make the Indian companies more strong in the light of rapid

globalization and industrialization.

The primary concerns of the amended Clause 49 can be summed up as follows:
● Board of Directors The board of directors is required to frame a code of conduct for all

the board members and senior management and each of them have to annually affirm and
establish an overall compliance with the code.
● Independent Directors shall be 1/3 to ½ depending upon whether the Chairman of the

board is at a non-executive or an executive position.

● Non-Executive Directors The total tenure of the office of non-executive directors is

now limited to three terms of three years each.

● Audit Committee shall be responsible for the financial statements and the draft audit

report of management discussion and analysis of financial condition and the result of
operations. Also for the reports of compliance with laws and risk management, as well as
management letters and letters of weaknesses in internal controls issued by statutory and
internal auditors/ appointment, removal and terms of remuneration of the chief internal
auditor.
● Subsidiary Companies shall comprise of 50% non-executive directors and 1/3 and ½

of independent directors depending on whether the chairman is non-executive or executive.

● Disclosures. The issues to be disclosed are contingent liabilities, the basis of related

party transactions, risk management matters and also the proceeds from initial public
offering as well as the remuneration of directors.
● Certifications. Any certification would be inclusive of the review of the necessary

financial statements and director’s report, the overall established and maintained internal
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 Corporate Governance in India 383
controls.

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 Corporate Governance in India 384

Every matter must be disclosed to the audit committee, regarding the accounting policies and
standards that are followed by the company during a financial year.
● Whistle Blower Policy must be communicated to every employee and whistle blowers

should be protected from unfair treatment and termination.

Birla Committee Report

The crucial context of the Birla Committee Report’s relevance is a fact that the issue of corporate
governance has been given importance by the public in the recent past since it is one of the
yardsticks that shape the growth and the future of our capital markets and our economy. The
financial crisis in emerging markets has been a growing concern. Though some progressive firms
have laid down the principles of corporate governance in their organization, there have been
certain high-profile financial statements reporting failures even by the firms in the developed
economies. Thus, the issues relating to corporate governance are an inevitable outcome, which
emphasise on the fact that the financial markets are a pre-eminent source of capital. This has led
to the belief that corporate governance is a pre-requisite for efficient market discipline. Many
short- and long-term investors have suffered the wrath of unscrupulous management decisions.
Also, not much was done to redress the grievances of the investors (such as delay in transfer of
shares, delay in the dispatch of share certificates, etc.) and the SEBI received a large number of
investor complaints. Every knowl- edgeable and well-informed investor keeps the faith on well-
managed companies and responds positively to them. One of the merits of such an organization is
that every process is systematized, which allows the Board and the top management take
decisions independently, be innovate and creative to nurture their business, while remaining in an
environment of accountability. Thus, corporate governance maintains high prioritisation in times
of highly fluctuating capital markets and hence becomes an inevitable mechanism of investor
protection. There are many models of corporate governance which have been in practice. But
there is not a single feasible framework of corporate governance which would fit all
organizations. To solve and protect investor’s interests, SEBI appointed a Committee on
corporate governance on May 7, 1999, under the chairmanship of Mr. Kumara Mangalam Birla
(member of the SEBI board) to set and raise the standards of corporate governance with the
following primary objectives:
● To improve the standard of corporate governance in the listed companies, relating to trans-

parency of the exact information and the duties and responsibilities of the independent and
outside directors.
● To prepare the draft of the best corporate practices.

● Surveillance measures within companies to safeguard insider trading.

● The recommendations of the Birla Committee Report have been specially laid down keeping

in mind the Indian organizations. The basic premise is to ensure the commitment of the
Board members in managing the body corporate transparently in order to maximise long-
term share- holder value.
The areas that have been highlighted for standardising the principles of corporate governance
are:
● The Committee has looked upon the importance of the issue of corporate governance from

the macro point of view of the stakeholders, which is also one of the prime concerns of
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SEBI. They both echo the demand for ‘good’ corporate governance in organizations by
prospective investors, which would enable them to know about the companies in which they
have invested.
● Every company must reflect, in their annual reports, the sequence in which they have incor-

porated corporate governance overall in line with the Committee’s recommendations.

Powers have been given to SEBI to write to the regulatory and government bodies to
incorporate such recommendations in their framework.
● Intimation of information in the Director’s reports about the utilisation of funds, the

variance in the projected and actual use, including the cash/fund flow statements, as well as
providing the quarterly financial results and also dispatching balance sheets to every house
and an abridged version to the shareholders.
● Compliance to rules and regulations as a measure to monitor share transfer issues and also

the allotment of preference shares at market prices and also providing the exact information
and disclosure of price sensitive information.
● The Board requires setting up independent Audit committee for a more credible disclosure

of financial information.
● Consolidated statements must be provided on behalf of the subsidiaries wherein they have

51% or more of the share capital.

● There must be interest on the part of the shareholders in the appointment of directors or

auditors.
● The norms laid down by SEBI must be strictly followed.

Government Machinery: Companies Act (1956)

● The centre has full powers to enforce the Act through the Department of Company Affairs,
established under the Ministry of Finance.
● Basically, it is a quasi judicial body which exercises its powers with government.
● The members shall not be more than 9 and must be represented by the GOI with one
Chairman.
● Members shall have all the powers of the civil court in handling and enforcing inspection.
● The appeals are laid before the High Court whose jurisdiction is binding.
● The Registrar of Companies must be furnished with all the information for records and
documentation—the Advisory Committee must advise the Company Law Board.
● The High Court has full powers to sanction amalgamations and allow investigation into
company affair.

Department of Company Affairs

For the improvement in the corporate governance, the Department of Company Affairs (DCA)
proposed the following changes in 2000, among others:
● A code of behavior for the public sector companies

● Proper disclosures

● Greater role of non-executive, independent directors

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● More transparency in accounting and reporting.

● Highest and toughest standard of corporate governance from the listed companies.

THE WORLD BANK ON THE CORPORATE GOVERNANCE IN INDIA

Interest of the World Bank in the development of corporate governance became evident after
the financial crisis of 1997. From the experience of the East Asian financial crisis, it became
apparent that the quality of corporate governance is an important determinant of financial strength
and viability. In fact, researchers found an inverse correlation between the quality of corporate
governance and the currency depreciation (see, Johnson et al., 2000). The crisis in these miracle
economies manifested itself first in the form of currency depreciation. The economies of the
south east Asia could not properly manage the huge surge of capital inflow. Although capital
inflow is conducive to economic growth, it may evidently generate the problem of
macroeconomic vulner- ability and unsustainability, and in such a situation, the occurrence of
financial crisis is not an uncommon possibility (Ghosh, 2003).
Corporate governance is inextricably related to corporate macroeconomic fundamentals. A
proper analysis of the corporate macroeconomic fundamentals of the East Asian economies will
show that, in many ways, these fundamentals were rather weak (see Ghosh, 2000). A few
examples will make the statement clear.
● Heavy borrowing by these countries to expand exports and upgrade their technology created

high leverage (debt/equity ratio).

● The profitability (returns) on investment also declined.

● Poor corporate governance allowed poorly performing firms to have a high share of finance.

● The ratio of private sector credit to Gross Domestic Product was explosively high.

● Wages exceeded productivity.

● Capital-output ratio started going up meaningless efficient use of capital.

● Most of these economies experienced over-heating (actual growth rate exceeding the

warranted growth rate).

● Short-term Debt/Reserve ratio was abnormally high.

● The real exchange rate appreciated considerably and the export slowed down.

● The current account deficits were outrageously high and there was significant outflow of

capital.
● The banking crisis and the currency crisis went hand in hand. The lent out of huge amount

of money to the political bosses or their cronies without adequate collateral, ultimately lead
to the non-performing loans getting considerably increased. The banks encountered moral
hazards and adverse selection problems.
From the aforesaid factors, it is rather safe to conclude that the performance of the corporate
sector was not at all satisfactory and blame squarely rests on the poor corporate governance. The
East Asian crisis was, in the teleological sense, a crisis of confidence. The investors lost
confidence in the corporate governance, banks lost confidence in the promise given by the
government to them, people lost confidence in the government and the domestic currency and the
international lenders lost confidence in the domestic banking system.

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The financial crisis taught the lesson of vulnerability of the market system, of corporate gover-
nance and the fact that unless the corporate macro fundamentals and governance are strong, the
economy becomes vulnerable to crisis and speculative attacks. The assurances given by the
governments, the blind faith in the automatic adjustment power of the market are all big hoaxes.
The random failures and bankruptcies of well-known corporate houses brought to the surface the
grim fact that corporate business practices were based on a shaky foundation, and the main reason
was the lack of strong corporate governance. The banks did not even know the sterilization
practices necessary in the context of a large inflow of foreign capital.
The World Bank made a timely reminder in the G7 Meeting in 1998 that unless the standard of
corporate governance is improved, financial crises may be recurring phenomena. The World
Bank suggested a number of measures including granting of loans, technical advice and
assistance and formulated a code of corporate governance. The World Bank endorsed the OECD
principles of corporate governance and asked every developing country to implement those
principles. It also laid down that unless these principles are strictly followed, no financial help
will be granted either from the International Monetary Fund or the World Bank. This was evident
in the cases of World Bank loans to Malaysia, South Korea and Thailand (Vittal, 1997). Many
developing countries engaged themselves in structural and institutional reforms and some even
went so far as to develop their own corporate codes for better corporate governance. All of them
were influenced by the empirical fact that, in the days of globalization, unless the standards of
corporate governance are improved, they cannot expect to attract a substantial amount of FDI for
their economic growth and development.
James Wolfensohn’s address (1998) to World Bank-IMF Annual Meeting indicated that
sustainable development in India needs good governance, competitive market, sound financial
sector and internationally accepted accounting and auditing standards among others. According to
the World Bank, for a country like India, governance issue remains important because it is related
to poverty reduction and development-enhancing factors.
While evaluating the performance of India in the area of corporate governance, the World
Bank observed that India could do better in some areas, although it mostly followed the OECD
principles (World Bank, 2004). The contribution of the nominee directors from financial
institutions is one such area. The Bank was critical about the enforcement of laws and
regulations, pertaining to stock listing in major exchanges in India, and also about insider trading
problem and violations of many contracts. The Bank asserts that there have been thefts of
investors’ funds in some cases, and the Board of Directors has been largely ineffective in India in
monitoring the actions of the management. It is observed that while norms have been developed
for listed companies, the problems of other private business concerns have remained mostly
neglected. The bigger challenge for India is the proper and effective implementation of these
normative rules, as most prudent norms can be hoodwinked by corrupt practices (Reddy, 2002).
This is, indeed, a serious concern for the success of corporate governance in India because in both
depth and range, corporate scandals and scams are rising at an alarming proportion both in the
private and the public sectors.
In this context, it is pertinent to reflect on the Corruption Perception Index of 2010. A few
years ago, India and China’s positions were the same in the corruption index. However, the latest
figure shows that India is now more corrupt than China. Needless to add, corporate corruption in
India is on the rise and that may impinge on the performance of corporate governance unless
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some drastic actions are in the offing.

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ROLE OF GOVERNMENT IN ENSURING CORPORATE ETHICS

The role of the government in ensuring corporate ethics has now become more challenging and
complicated. This is especially because of two compelling reasons. First, many of the Indian
indus- tries are participating in the global scenario, and second, corporate governance scams and
scandals are on the rise. These factors are themselves contradictory in nature in the sense that
globalization needs a more stable, ethical and standardised business practices and governance,
and scandals and scams are sure to corrode the international business of the country. Many
analysts observe that the neo-colonialist market-based system of globalization that many
developing countries are practicing is incrementally becoming a source of instability, inequality
and uncertainties. For instance, the Indian capital market is suffering from different types of
uncertainties. Capitalism has its own evils and limitations.
However, in spite of the inherent limitations of the market-based system, attempts are being
made in India to improve the performance of the corporate governance through various ways
some of which will be briefly discussed in this section. Some of the measures taken in India have
been outlined in the Prime Minister of India’s address at the inauguration of the Corporate Week
in India (December 14, 2010). The following are the major highlights of the actions being taken
by the government to ensure corporate ethics in India:
● The blacklisting of non-performing and corrupt corporate organizations has been identified

and appropriate legal actions are in the offing.

● The Vigilance Commission is very active in instituting actions against all types of corporate

corruptions.
● The important ways to ensure ethicality of corporate organizations, including transparency,

accountability and disclosures have been formally ensured through various laws, and
practices. On paper it seems that the whole process is hunky dory.
● The appointment of appropriate corporate committees and their statutory functions are

ensured by corporate laws and regulations like SEBI, Companies Laws, and so on.
● The government is ensuring widespread investors’ education programmes to ensure that

they know their rights and duties and contribute to the ethical development of corporations.
● For the solution of environmental issues, the government has circulated various guidelines

for their implementation at the desired level.

● The motto that the corporate governance should be based on good means with good ends

has been propagated at the national level.

● The government has a gamut of enabling regulatory framework to guide corporate gover-

nance in India. The updating of company laws, introduction of limited liability partnership
and capital market regulations are cases in point.
● The government has also provided guidelines for the internal financial reporting standard.

● The appointment and functions of auditors have been standardised and measures to

eliminate window-dressing have been put in order.

● An important step in the direction of ethical functioning of the corporate system is the legal

recognition of the importance of human rights at all levels.

● The importance of whistle blowing has been formally recognized and the whistle

blowers are being given legal protections.

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● An important step in the direction of ethical corporate governance is the introduction of

the enactment of right to information at all levels. This is sure to eliminate information
asymmetry which is supposed to be the main cause of corporate scams and scandals.
At the governmental level, there is an active attempt to provide an enabling environment for
better corporate governance. It provides a level playing field to the private sector free from fear
and favour. It is also encouraging firms to remain engaged in corporate social responsibilities.
The government rules, regulations and laws are all in favour of improving the ethical standards of
corporate houses. However, much will depend on the implementation of these rules. Moreover, it
is instructive to note in this context that corporate ethics essentially depends to a significant
extent on the ethical culture and ethical intensity, and these cannot always be ensured by
legislations and mandatory compulsions.

CONTEMPORARY ISSUES IN CORPORATE GOVERNANCE IN INDIA

Some major general issues in corporate governance have been explained in Chapter 16. The present
discussion needs to be supplemented by the explanation given in Chapter 16.
● Perhaps the most serious issue in the corporate governance in India is the issue of ethicality.

Corporate scams and scandals are increasing day by day in both depth and
range. There is no simple solution to this growing menace. Unless the corporate sector is
ethically conscious and concerned, the ethical deficit cannot easily be tackled.
● Related to the aforesaid issue is the question of the nature of corporate governance. Should

it be ethical governance or effective governance? These two things are different.

Corporate houses measure their success and efficiency in terms of the amount of profit they
earn at the end of the year. This quantitative and acquisitive mindset is difficult to change.
Perhaps it will be more meaningful to induct some directors from the philanthropic
organizations like the Ramakrishna Mission and Bharat Sevashram Sangha, and so forth. A
proportion of directors should be women as they are considered to be less selfish and more
objective.
● One of the sources of unethical practices is the information asymmetry

and lack of communication among the decision-makers. This leads to sub-

optimal level of disclosures, hiding of critical information, lack of transparency and
accountability. The board must be supplied with all necessary information, and once the
directors are empowered to know the in and out of the company functioning in all details,
they can be made responsible for the debts and bad debts of the company and the financial
vulnerabilities of the company, if any. This can save a company from the impending
financial turmoil.
● The model of corporate governance that is best suited to India is still a matter

of debate. No model is proved to be flawless. A mixture of good points of different types

of models and an amalgam of the eastern and the western models may be tried. The crucial
point is the suitability of the model for the Indian milieu.
● Many questions are raised about the board of directors. What should be the

number of directors? What should be the proportion between the inside and outside directors
and how many independent directors should be the ideal? Many of these questions are
meaningless.
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Perhaps the number is not so important as the quality and capability of directors. As a matter of
fact, there is nothing like a fully independent director for all time to come. After a period of
time, the independent director does not remain independent. He may have a party affiliation,
an ideology and a personal bias. What matters is the international level expertise and profes-
sional integrity of the director and his decision on merit and objectivity. The whole issue is a
pseudo issue. The question of having 50 per cent or 30 per cent independent directors is
more question-begging than problem solving. However, some sort of numerical balance
should be maintained.
● A clear-cut separation of powers is not specified in many cases of

corporate governance in India, and, therefore, there are unnecessary power

struggle and showdowns. Let us take a couple of examples. The authority of SEBI
and that of the Ministry of Company Affairs (MCA) are not well-defined. What appears to
be appropriate is that while the SEBI will look into the market-related matters of the listed
companies and the issues connected with compliance, the MCA must be given the power to
legislate. At present, the SEBI assumes some of the legislative authorities of company
management. This needs to be changed for better corporate governance. Another example
will show that the banking sector (RBI) does not have any compelling authority over the
auditors. The RBI does not possess the penal power. It is necessary to demarcate the power
to either the Department of Company Affairs or the Reserve Bank of India.

Summary
Corporate governance in India is the outcome of a long process of evolution, metamorphosis and
refinement. The evolution of corporate governance in India has a long history that dates back
from the days of the British period. Basically, the period of development of corporate governance
in India can be decomposed into four distinct periods: The British Period (1850–1955); the Period
of Controlled Development (1956–1990); the Liberalization Period: the First Phase (1991–1999)
and the Modern Period that started since 2000. This periodisation is based on the temporal
progress of corporate governance. The ancient period (British period) is marked by the working of
the Managing Agency System (MAS). It was not a progressive period. Since the 1950s, through
industrial regula- tions and controlled development, attempts were made to develop corporate
governance in India. However, the growth of corporate governance was stifled by different types
of controls and restric- tions. However, with the advent of globalization and in the wake of
failures of many corporate houses in the United States, UK and other countries, and also with the
liberalization of the Indian economy in 1991, Indian government and corporate houses became
more concerned with the need for strong corporate governance. It was realised that such a type of
corporate governance will enable the Indian companies to have more international presence and
the capitalist integration during the period of globalization will necessitate strong corporate
governance. Several committees and insti- tutions felt the immediate need to refurbish the system
of corporate governance in India to make it more powerful. The contributions of the
Confederation of Indian Industries (CII), the Securities and Exchange Board of India (SEBI) and
the Kumarmangalam Birla Committee Report (2000), among others, are noteworthy in this
context. The Government also set up a National Foundation

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for Corporate Governance (2003). It is looking after the problems that stand in the way of good
corporate governance in India. India has been following the Anglo-American system having a
single tier model buttressed by the OECD principles of corporate governance.
The SEBI has, through various amendments, introduced many development-oriented features
in corporate governance, which are comparable with the standards of corporate governance in
developed countries. However, the progress is on the way and the Indian corporate governance has
a long way to go to catch up with the ideal standard. Still there are many defects in the
CORPORATE GOVERNANCE system, such as lack of professionalism, lack of transparency
and accountability, and so forth. While evaluating the performance of India in the area of
corporate governance, the World Bank observed that India could do better in some areas,
although it mostly followed the OECD principles. There are many disconcerting issues in the
corporate governance of India like unethical practices, power struggle, information asymmetry,
and so forth.
At the governmental level, there is an active attempt to provide an enabling environment for
better corporate governance. It provides a level playing field to the private sector free from fear
and favour. It is also encouraging firms to be engaged in corporate social responsibilities. The
government rules, regulations and laws are all in favour of improving the ethical standards of
corporate houses. However, the bigger challenge for India is the proper and effective implemen-
tation of the normative rules, as most prudent norms can be hoodwinked by corrupt practices.

Key Terms
SEBI Clause 49 of SEBI Adverse Selection
Birla Committee Report Companies Act of Non-performing Loans
Corporate Ethics 1956 World Bank on Crisis of Confidence
Company Affairs Indian
Managing Agency Corporate
System Governance Moral Hazards

Test Your Knowledge

1.State whether the following statements are True or False
(i) Indian capital market is highly developed.
(ii) Indian financial system is equally good as that of any developed country.
(iii) Indian corporate governance system is based on a two-tier system.
(iv) The practice of whistle blowing has not been formally recognized in India.
(v) Indian corporate governance system is similar to that of Japan and UK in many ways,
and unlike that of Germany.
(vi) The Indian Companies Act was passed in the year 1955.
(vii) The evolution of corporate governance in India has a long history that dates back from
the days of the British period.
(viii) No women shall be nominated as members of the Board of Directors.

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 Corporate Governance in India 393
(ix) The importance of whistle blowing has been formally recognised and the whistle
blowers are being given legal protections.

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 Corporate Governance in India 394

(x) The appointment and functions of auditors have been personalised and measures to
eliminate window-dressing have been put in order.
2.Fill in the blanks
(i) The clause of SEBI had been introduced with a view to enhance and
strengthen the power of the independent directors who are the members of the Board.
(ii) As per the SEBI Report, the total tenure of the office of non-executive directors is now
limited to terms of three years each.
(iii) As per the Birla Committee Report, consolidated statements must be provided on behalf
of the subsidiaries wherein they have % or more of the share capital.
(iv) The East Asian crisis, was in a teleological sense, a crisis of .
(v) address (1998) to World Bank-IMF Annual Meeting indicated that
sustainable development in India needs good governance, competitive market, sound
financial sector and internationally accepted accounting and auditing standards, among
others.
(vi) Some of the measures taken in India have been outlined in the Prime Minister of India’s
address at the inauguration of the in India.
(vii) An important step in the direction of ethical Corporate Governance is the introduction
of the enactment of at all levels.
(viii) One of the sources of unethical practices is the asymmetry.
(ix) The British Period spanned from to .
(x) The ancient period (British period) is marked by the working of MAS or otherwise
known as .
3.Choose the correct option
(i) The Corporate Week in India was held on:
(a) December 14, 2010 (b) December 14, 2008
(c) January 4, 2010 (d) October 6, 2006
(ii) The World Bank made a timely reminder in the:
(a) G8 meeting (b) SAARC meet
(c) G10 meeting (d) G7 meeting
(iii) The DCA can be otherwise known as:
(a) District Council Association (b) Democratic Council Association
(c) Department of Company Affairs (d) None of these.
(iv) The Clause 49 of SEBI was amended on:
(a) 15th August, 2000 (b) 26th August, 2003
(c) 26th January, 2007 (d) 14th February, 2008
(v) From which date onwards did SEBI ask the entire Group (A) companies to submit a
corporate governance report in addition to their annual reports?
(a) April 1, 2001 (b) March 1, 2000
(c) Both (a) and (b) (d) None of these
(vi) Kumar Mangalam Birla Committee was set up in:
(a) 2000 (b) 1999
(c) 1998 (d) 2001

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(vii) The Period of Controlled Development was between:

(a) 1956-1990 (b) 2000-2010
(c) 1900-1947 (d) None of these
(viii) Who in the 1850s made a seminal contribution on the origin of species through his
expla- nation of the theory of evolution, and that made him the most popular figure of
his time?
(a) Erasmus Darwin (b) Herbert Spencer
(c) Both (a) and (b) (d) None of these
(ix) Industrial Policy Resolution Act in India was developed in:
(a) 1948 (b) 1949
(c) 1950 (d) 1947
(x) The Industrial Development Regulation Act was passed in:
(a) 1948 (b) 1951
(c) 1947 (d) 1950

Review Questions
1. Elaborate on the main features of corporate governance in India.
2. Discuss the guidelines laid down by SEBI to enhance the issues relating to corporate gover-
nance.
3. What do you think are the major defects of corporate governance in India?
4. What are the major issues in corporate government in India today?
5. Why is corporate government important in a country like India?
6. In corporate governance, there is always a gap between the precept and the practice. Explain
your point of view by citing examples from India.
7. What does the Birla Committee Report emphasise on the various aspects of corporate gover-
nance?

Web Links
1. http://www.cfr-cologne.de/download/workingpaper/cfr-08-02.pdf
[Corporate Governance in India]
2. http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/20024.pdf.
[Corporate Governance in India: Current Status & Recommendations]
3. http://www.oecd.org/dataoecd/6/47/1931364.pdf
[Decreasing divide between Corporate Governance and Corporate Social Disclosure]
4. http://www.law.virginia.edu/pdf/olin/conf07/event_study.pdf
[Can Corporate Governance Reforms Increase Firms’ Market Values?: Evidence from India]
5. http://www.jains.com/Company/financial/bs07/corporate%20goveranance%20report.pdf
[Corporate Governance Report]
6. http://www.nfcorporate governanceindia.org/pdf/UBS_for_website.pdf
[The Effects of Ownership Structure on Corporate Governance and Performance:
An Empirical Assessment in India]

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References
Chakravorty, Rajesh (2005), Corporate Governance in India: Evolution and Challenges, College
of Management, Georgia Tech. USA, Unpublished
Durant, Will (1961), The Story of Philosophy, Pocket Books, New York
Ghosh, B.N. (2003), “Capital Inflow, Growth Sustainability and Financial Debacles”,
Managerial Finance, Vol. 29
Ghosh, B.N. (2000), “Financial Crisis in the MIT Countries: Myths and Realities”, Economia
Internazionale., Vol. LIII
Goswami, Omkar (2002), “Corporate Governance in India” in Taking Action Against Corruption
in Asia and Pacific, Ch. 9, Asian Development Bank, Manila
Johnson, S. et al. (2000), “Corporate Governance in the Asian Financial Crisis”, Journal of
Financial Economics, March
Reddy, Y.V. (2002), “Public Sector Banks and the Governance Challenges”, BIS Review,
#25 Sen, Dilip Kumar (2005), “A Report Card that Does not Impress”, Business Line, 27
January
Special Correspondent (2003), “Foundation for Corporate Government”, The Hindu, 3 September
Vittal, N. (1997), “Board and Directors in Public Sector Enterprises”, Management Review, (IIM-
B),
January-March
Wolfensohn, James (1998), “Address to World Bank-IMF Annual Meetings”, Washington
World Bank (2004), Report on the Observance of Standards and Codes (ROSC): Country Study
Appraisal: India, Washington

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CHAPTER
19
Models of Corporate
Governance: A Global
Perspective

L E A R N I N GO B J E C T I V E S

This chapter will help the reader to understand

■ Anglo-American model of corporate governance
■ The Anglo-American vis-à-vis the Franco-German model
■ Corporate governance in America
■ Corporate governance in Japan
■ Corporate governance in Germany
■ Corporate governance in transitional and developing economies

INTRODUCTION
When Socrates was sentenced to death and was given a cup of hemlock to drink, he told his
friends and admirers, “I am going to die and you are to live; only God knows which one is
better”. This statement, though uttered altogether in a different context, does, still, make a sense
in the case of the models of corporate governance. Some models are dying out and some new
models are going to appear on the surface, and no one knows which one is really better.
Indeed, there are bewildering varieties of models of corporate governance. Some of these
models are based on single-tier system, some on two-tier system; some models give more
importance to the banking system and some do not; some models are market-oriented and some
are based more

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393
on interpersonal relations; some models are more traditionalistic and some are more liberal; some
take more care about the shareholders, some do not pamper them; some depend too much on
cross- shareholdings, some remain indifferent; some encourage individual shareholdings, some do
not; some are based on more of institutional holdings and some are not. But the adoption of LPG
model of development (liberalization, globalization and privatization) has made different models
to be rather uniform in a way: all of them are conscious about their global impact and interaction.
In the present chapter, only a few models will be analysed briefly taking into account their
salient features, recent challenges and changes that are in the offing. To be precise, we will
discuss five different models which encompass the perspectives of some transitional and some
developed countries.

ANGLO-AMERICAN MODEL OF CORPORATE GOVERNANCE

The Anglo-American model is perhaps as old as the history of capitalism. However, it never so
aggressively introduced but earlier than 1980s. As a matter of fact, the Anglo-American model
does not always carry the same connotation everywhere. The actual shape of the model depends
on the intensity and nature of capitalism. It is basically a capitalist model of corporate
governance. The coordinated or hybrid model of corporate governance has been adopted by
Europe and also by Japan. It mixes up some classic elements of the Anglo-American model with
a better consideration for the people who are associated with corporate governance. These people
are workers, suppliers, managers, customers and community. It may be called an enlightened
Anglo-American model. In fact, there are as many types of the Anglo-American model as there
are varieties of capitalism. The adoption of the model is based on the regional and historical
conditions of the country and its stage of capitalist development. These two factors can also
determine the precise nature of the model and intensity of capitalism that needs to be fused with
the model. A classic variety of the Anglo- American model is embedded with pure capitalistic
principles of governance.
The Anglo-American model of governance became more prominent in the 1980s when neo-
liberal globalization started capturing the whole world with its market-based policy of unification.
It was the time that witnessed the end of geography and the beginning of a new history of
capitalist expansion with the policy of liberalization, privatization and globalization. The LPG
model has been well-publicised by America and the international organizations, including the
World Bank and the IMF. Many developing and transitional economies adopted this policy and
were integrated with the capitalist world in order to accelerate their quantitative rate of growth. In
a bid to do so, they adopted the Anglo-American model of governance.
A few important features of the Anglo-American model can now be briefly enumerated as
under:

Salient Features of the Anglo-American Model

● The model gives a topmost priority to the interest of the shareholders. Its objective is to
increase shareholders’ value and wealth.

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● The model is based on the philosophy of the separation of ownership and control.
● It adopts a single-tier governance system.
● A system of corporate governance that adopts the Anglo-American model is governed by
the Board of Directors (BOD). The Board chooses the manager or CEO. The CEO can also
serve as the Chairman.
● The Chief Executive Officer (CEO) in this type of model becomes extremely powerful,
although he needs the approval of the Board for all his official actions and policies.
● The BOD is selected by the shareholders and its members are responsible to them.
● The BOD can be a mixture of both, the inside and outside directors.
● The BOD has the responsibility to govern while the Managing Director has the
responsibility to carry on the routine management functions.
● Both the BOD and the CEO are to act according to the satisfaction of the shareholders.
● The maximisation of shareholders’ value implies professional management with utmost
integrity, transparency and accountability by all concerned.
● This model of governance is a disclosure-based system. All types of disclosures related to
the business including information and data are given a crucial importance.
● The model is based on market logic with its emphasis on the principle of profit maximi-
zation.
● It emphasizes the role of capital market in disciplining the company. Market-orientation also
implies capabilities and contestability to withstand any competition and win the competitive
battle.

Advantages of the Anglo-American System of Governance

The following are the main advantages of this model of corporate governance:
● It is a clear-cut market-base model where everything is calculated by the criterion of profit

which a businessman adores. The terms are very clear and conspicuous and objective.
● It is believed that this type of corporate governance increases efficiency and productivity of

the company and there is no diversion.

● It is growth-oriented and stands for the expansion of income, output and employment.

Therefore, it contributes to positive macroeconomic fundamentals.

● Since it is a disclosure-based system, theoretically, there is little chance of things to go

wrong. There is no information asymmetry.

● It leads to more of innovation and cost reduction. These are made possible by profit

incentives. As Gary Becker, the Nobel Laureate, says that people work because of
incen- tives.

Does the Anglo-American Model Work?

It is pointed out by many critics that the Anglo-American model does not properly work in all types
of economies and under all institutional systems. It is not a universal panacea or the most
desirable form of corporate governance. It has a number of constraints and limitations (see for
details, Clarke, 2009). Some of these limitations are singled out as under:

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● It is a selfish type of profit-maximising model. It does not consider any philanthropic or
social responsibilities in its agenda. It is alienated from the society, workers, suppliers,
customers and so forth and their interest.
● The separation of ownership and management does create a serious problem of clash or
conflict which may not be on surface but in a covert form, and this robs the model much of
its claimed advantages. The principal-agent problem created by this model remains a source
of a potential undercurrent of conflict.
■ Under this system, it is possible for the CEO to be enormously powerful and he can

play ducks and drakes with the company. He can build his own empire for increasing
his power, prestige, pay and perks.
■ The consequence of the adoption of the Anglo-American model has been egregiously

bad in many economies that adopted this model. It has excessively increased income
inequalities (Clarke, 2009).
■ The model has a proclivity to depend too much on the equity markets. In such a case,

as the experience shows, the impact of any financial shock may be very damaging. Most
of the countries that were using this model could not save themselves from the financial
crisis that hit the East Asian economies in 1997.
■ It is now realised that a market-based model is not, for many reasons, an ideal model

of corporate governance. Market has no power of automatic adjustment and correction.

It needs guidance and direction. It was wrongly believed earlier by the neoclassical
economist that a market always adjusts itself. It is, therefore, an ideal caretaker. But in
Joan Robinson’s words: who takes care of the caretaker?

Anglo-American vis-à-vis Franco-German Model

In view of the aforesaid demerits of the Anglo-American model of governance, many countries
are inthe favour of adopting the Franco-German Model in lieu of the Anglo-American model. The
Franco-German model is based on the philosophy of industrial partnership of all the people who
are associated with governance mechanism. This model also gives importance to non-
shareholders, banks and community welfare. In future, the Franco-German model has the
potentiality of being used as a viable and sustainable model of Corporate Governance.
What then is the status of the Anglo-American model? There was once a craze for the adoption
of the Anglo-American model among the developing countries during the new testament of
global- ization in the middle of the 1980s. However, after the global financial crisis of 1997, the
US financial crisis of 2008, and the collapse of many corporate giants as an aftermath of financial
and accounting scams and scandals in the western world in 2000s, some countries are becoming
hesitant to adopt the model in total. The model has, in many ways, become counterproductive.
However, the countries which have already opted for the model cannot back out now. There is,
thus, a tussle between the two opposing forces—the one adopting the AA model which is based
on the new liberalization, privatization and globalization philosophy and the other which opposes
the neocolonialist market-oriented approach to internationalisation. Probably, sooner or later a
more enlightened model of Corporate Governance based on a trade-off between the Anglo-
American model and the Franco-German model may be worked out.

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Finally, it needs to be pointed out that the Anglo-American model of corporate governance has
seen the best of times, it has also seen the worst of times; it has witnessed the height of
popularity, it has also witnessed the period of dejection; it has experienced the era of success, it
has also experienced the era of failures; it has remained the spring of hope, it has also remained
the winter of despair. In fact, history has shown mysterious ways of bypassing many narrow
convictions about corporate governance.

CORPORATE GOVERNANCE IN AMERICA

Historical Perspective
The interest and concern with the corporate governance in America go back to the nineteenth
century. This observation is made by Sarbanes-Oxley Act of 2002. As a matter of fact, after the
Wall Street Crash of 1929, the business people of America became more interested in
understanding the nitty- gritty of corporate governance. The Great Depression of the Thirties was
a worldwide phenomenon and it taught people many lessons about the fragility of business
organization and culture, and especially of the free market capitalism. Then many changes were
made in the corporate structure in America to rebuild the confidence in corporate governance and
culture.
However, since the late 1970s, corporate governance has been a subject of intense debate
(Hamilton, 2005). These debates concentrate on the following major issues:
● Rule vs. discretion of the Board of Governors.

● Corporate social responsibility: its need and extent.

● The protection of rights of the shareholders.

The shareholders want to exercise their legal rights of corporate ownership and increase the
value of their wealth. But even now, these rights have not become absolute.
In the 1990s, the dismissal of CEOs in many corporate business houses by the Board of
Directors created consternation in America and once again the subject of corporate governance
became more interesting and challenging.
In 2000s, the massive bankruptcies of many well-established corporate houses including Word
Com, Enron and Tyco International, among others, shook the confidence of the people in
corporate governance and corporate scholars have been trying to identify the causes and fix up
the responsi- bility of such failures. It is the general notion that the callousness of the BOD is the
fundamental cause of corporate failures in America.

Sarbanes-Oxley Act (2002)

The year 2002 saw the passing of a historic act known as the Sarbanes-Oxley Act (SOA). The
fundamental objective of SOA is to control malpractices in the corporate governance. The SOA
provides the following important provisions to control and improve corporate governance in the
United States:
● Accounting firms are prohibited from providing consultancy services to their client firms.

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● Corporate penalty has been increased up to twenty years of imprisonment for a corporate
fraud.
● The CEOs who certify false accounts are liable to be punished for a maximum period of 20

years along with fines that go up to $5 million.

● Accounting profession will be under strict scrutiny by an independent five-member private

sector board which will have both disciplinary and legal power.
● In order to highlight the conflict of interest, new rules will be framed for financial analysts

by the Security Exchange Commission.

● The Act has also extended the time period for engaging in law suits by defrauded investors.

The SOA has been a welcome act by the American corporate world in mitigating many of the
troubles that the corporate sector experiences. The Act is very broad. It even makes provisions for
the ideal ethical practices of a corporate house (Tipgos and Keefe, 2004). As a matter of fact, in
the United States, the basic problem is the conflict of interest between the widely-dispersed share-
holders and the powerful managers. The BOD is independent; but it has mostly failed to maintain
the shareholders’ interest. The shareholders cannot elect the BOD of their choice.

Salient Features of Corporate Governance in America

The following are the major important features of the US model of corporate governance:
● Capitalist principles and free-market mechanism are explicitly recognised.

● Accountability and transparency are practiced in corporate governance.

● Minority shareholders’ interests are protected by laws.

● Proxy voting system by mail is an important feature in the corporate governance.

● One share, one vote is the established rule.

● Shareholders appoint the Board members and CEOs.

● Professional managers control the company. There is a separation between the management

and ownership.
● Audit companies have independent directors.

● Disclosure of important corporate information and data are encouraged. This reduces infor-

mation asymmetry.
● Large shareholders are also actively and regularly monitored.

● Role of banks in corporate governance is not crucial as the capital market remains very

strong.
● Single tier system prevails (with significant majority of outside directors).

● The Board has three important committees, namely audit committee, compensation

committee and nomination committee.

● The Board has the following functions to perform:

■ Oversee the management and control activities.

■ Compliance of laws.

■ Oversee corporate social responsibilities

■ Review company’s financial performance and allocation of resources

■ Approve company’s business plans

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● Institutional shareholders hold major shares in US corporations
■ Management takeover of a company in the United States is a common phenomenon in

the corporate world. This is supposed to be a good sign as the company is taken over by
that type of management which is more competent.
■ An important feature of the US corporate governance is the freedom granted to the

entrepreneurs to perform best in a competitive environment, and in this context, the

laws of the country are not at all harmful but, on the contrary, helpful in many ways.
The entrepreneurs have many opportunities to be dynamic and innovate in the corporate
world of the United States.
■ The two most critical challenges of the American Corporate Governance are (Das,

2009, p.86): (1) How to make the Directors more efficient, effective and independent?
(2) Should the CEO also work as the Chairman?
Although no consensus is achieved on these two (1 & 2) important issues, many analysts feel
that it is better to separate the functions of CEO from those of the Chairperson (see Cadbury
Report, discussed earlier in another chapter). As for the first issue posed above, there are
recommendations by many committees and the Sarbanes-Oxley Act of 2002 is also relevant. The
Cadbury Committee Report (1992) has also made some specific recommendations on both these
issues.

CORPORATE GOVERNANCE IN JAPAN

Corporate governance model in Japan is different in many ways from the western models practiced
in the United States. The point will be clear from the discussion of the salient features of the
corporate governance model in Japan. For instance, unlike in America, profit is not the final word
in the Japanese model. Not that profit is loved less but that growth and the size of the company
are loved more. Japan can boast of its special and unique system of corporate governance (Monks
and Minow, 2001).

Salient Features
The Japanese model of corporate governance is based on a number of traditional ethico-moral and
cultural considerations. In such a context, the following features become crucial as the sustainable
basis of corporate governance:
● Companies are based on family type relationship and ties. Such a relationship permeates

among the management and the workers, among the workers themselves and with other
companies.
● Every decision is based on a consensus and a general approval.

● The concept of obligatory relation and performance play an important role in corporate

governance.
● Japan has a culture of tolerance and respect for the traditional values and methods of settling

disputes.
● While in the United States, capitalist principles and market calculus guide all corporate

actions and reactions, in Japan, communitarian calculus is given more importance.

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● The concept of profit is less important but the concept of market share is more important.
● Government has an important role to perform in the matter of corporate regulation and

controls.
● The process of decision-making is dominated by the “bottom up consensus procedure”.

In such a case, the decision is virtually influenced by the grass roots level people and
organizations.
● The control of the market mechanism is almost conspicuous by its absence.

● The corporate governance scenario does not experience much of hostile take-over unlike in

the United States.

● Many companies are seen to agree on mergers for mutual benefits.

● The Japanese system of corporate cross-shareholding (known as Keiretsu) by banks and

affiliated companies minimises the risk of hostile take-over which is so very common in
America.
● Industrial activities and capital flows are controlled by the government, and capital

market does not have any crucial role to play, although the Japanese capital market is broad
and resilient. The stock market is active but it has a limited role in the allocation of
funds.
● The rights of both the shareholders and the creditors are protected in Japan.

● Although institutional shareholders constitute 60 to 80 per cent of the shareholder, their

influence on corporate governance and management is minimal.

● The Board of Directors is elected by the shareholders. The Board gives directions,

makes policies, appoints company executives and oversees the implementation of

policies.
● The Directors are mostly “insiders” and they are primarily interested in the growth

of the company and the interest of the employees, not basically the interest of the share-
holders. The corporate governance is based on a single-tier system.
● The statutory auditors are appointed by the shareholders.

● Short-term trading of shares for temporary gains is very unusual in Japan.

Factors Contributing to the Effectiveness of the Japanese Corporate Governance

The Japanese model of corporate governance is marked by a fairly good standard of performance
and operational efficiency. The following few factors can be said as responsible for the practical
effectiveness of the Japanese corporate governance:
First, the internal networking system is highly coordinated.
Second, the whole system of corporate governance, though based on a formal standard, is
guided and protected by many informal consideration and institutional linkages.
Third, the inter-linkages among families, corporate institutions, bank, and the unity between
the employers and the employees based on mutual respect and gratitude go a long way in
upholding the corporate values and virtues.
Fourth, the cordial relationship between the government and the corporate sector has proved to
be a beneficial shock-absorber for the corporate sector in Japan.
Fifth, the ethics of care and compassion with communitarian welfare and consideration has
made the Japanese corporate governance system more meaningful socially. That is why the

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corporate social responsibility has been very fruitful

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Recent Challenges and Trend in the Corporate Governance in Japan
A few challenges and changes are noticeable in the corporate governance system of Japan. Some
of these are highlighted as under:
● Capital market deregulation has enormously changed the financial structure of Japan. Since

the days of globalization in the 1980s, Japan has been experiencing a substantial amount of
capital inflow, and the corporate financing, therefore, does not have to depend on the
domestic banking system. Equity financing rather than debt financing from banks has
become prominent.
● Since the 1990s, legal reforms have put more emphasis on the shareholders’ rights and

their indirect or direct liaison with the corporate sector. This has made possible the impor-
tance of shareholders in corporate activities. It is felt that from now onwards, there will be a
welcome nexus between the shareholders and corporate governance.
● In many ways, corporate social responsibilities have enormously increased for the

mainte- nance of environmental integrity and ecological balance. Public health is

another area of growing importance to which the corporate sector is becoming more and
more committed.
● To make the corporate governance more transparent and accountable, the appointment

of a three-member Audit Committee has been made mandatory for every company.
These three members will consist of internal auditor, statutory auditor and a full-time
auditor.
● Many attempts are being made to wipe out corruption in the area of corporate governance.

One of the sources of potential corruption is the dangerous link between

politicians/bureaucrats and the company. Legal reforms have now made possible to curb
bureaucratic tentacles.
● Information asymmetry has been wiped out in the corporate governance of Japan.

Thanks to globalization, for the availability of all types information for a better corporate
governance.
● With the help of experts, Japan was able to formulate corporate governance codes in

May 1998. These codes give more importance to progress with social harmony, formation
of independent committees and inclusion of more outside Directors. The Japanese corporate
governance is now poised to be more holistic and inclusive unlike the western models.

CORPORATE GOVERNANCE IN GERMANY

There are many distinct commonalities and also differences between the corporate governance
systems in Japan and Germany. Both the countries were battered by the devastating impact of the
Second World war, and both of them were engaged in economic reconstruction works aiming at
achieving long-run stability and growth of their economies, and in this endeavour, it was
necessary to have an efficient system of corporate governance. Just the concept of familial
relationship is the basis of everything in Japan, in the same way, the concept of industrial peace
and harmony is the building block of the German system. Many points of similarities and
differences in corporate governance will be apparent as we proceed to discuss the salient features
of the German system of corporate governance.
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Salient Features of German Corporate Governance
● German corporate governance system is a two-tier system. There is a supervisory board
(called Aufsichtstrat) and also an executive board (called Vorstand). For all public limited
companies (AG) and private limited companies (Gmbh) having more than 500 workers, it
is mandatory to have both the Supervisory Board (SB) and the Executive Board (EB). The
members of the supervisory board are elected by the shareholder and partly by the
employees. The SB consists of professional people and it also appoints the EB. Thus, in
practice, SB is a more powerful and dominating board, although EB is entrusted with all
managerial functions and enjoys a high degree of autonomy. The SB monitors the
functioning of the EB.
● There are possibilities of clash of interests and conflicts between the SB and EB in the
German system. However, actual confrontation is much reduced in practice by the veto
power of each board member.
● Important decisions are arrived by the joint discussions of both EB and SB.
● Directors of Boards can access information from the internal as well as external sources,
chamber of commerce, academic institutions and trade and investment associations.
● The German institutional set-up does not generally approve of a high turnover rate of
Directors because that may lead to instability and many other operational obstacles.
● There is, in every firm employing more than 5 workers, a Work Council which works as a
consultative machinery.
● While individual persons are not much encouraged to hold stocks and buy shares, corporate
cross-holding of shares is a common feature in Germany. This is similar to Japan. This
prevents hostile take-over in many cases. There are of course anti-takeover laws in
Germany.
● Commercial banks holding a large proportion of shares on behalf of the private shareholders
along with their own shares become a source of domination, and controlling power. Banks
plays an important role in purchasing, selling and underwriting of shares. Banks also render
professional advice to many large organizations on market-related strategic issues.
● There is a strong personalized relationship between the corporate sector and the banking
sector in the German set-up.
● Systemic protection is extended to lenders, shareholders and employees in the area of
corporate governance.
● Unlike in Japan, institutional shareholding is not very high in Germany. It is only around
30% of the total shares, whereas it is about 80% in the case of Japan.
● German stock market does not witness the presence of individual households who are
excited about buying and selling of stocks. It does not have the normal oomph for the
fear of tax bite.
● On the whole, German system of corporate governance is more or less efficient in terms of
performance and accountability. But the auditing system is far from perfect. The auditors
work on the principle of commercial prudence rather than on fairness, facts and truth. This
has resulted in a huge stock of unaccounted wealth.
● The government takes an active interest in corporate governance in Germany. It makes sure
that the long-run objectives arrived at by consensus are achieved for the sake of efficient
corporate governance. It also takes care of R&D and other facilities and infrastructural
devel- opment for a better industrial growth and the sustenance of industrial democracy
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which is the cherished goal of the government.

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Contemporary Challenges and Changes
So many different types of changes are taking place in the CG of Germany (see, Prasad, 2009,
234-5). Some of the major contemporary changes are listed as under:
● In 1997, the Task Force that was especially empowered to look into the problems and

prospects of CG in Germany suggested that it is necessary to make Germany a renowned

financial centre in order to attract foreign capital to make the capital market stronger and
resilient.
● The New Code of Governance has been proposed by professionals and experts in order to

improve the CG system. The basic tenets of this code are the following:
■ More of corporate disclosure is needed.

■ More professionalism should be introduced in CG.

■ Easy voting process will be more helpful.

■ Merit rather than seniority of SB members is to be emphasised.

■ Pay and perks of Board members should be based on performance.

■ More accountability and transparency will be imperative for the system.

Contemporary Changes in Corporate Governance since 2000 (Monks and Minow,

2001):
● The German model of CG is poised for a structural change from an inward-looking policy to
an outward-looking policy in every matter.
● Employee’s stronghold in SB is going to be reduced. This will minimise the political inter-
ference and gun-boat diplomacy in governance.
● Laws are being enacted to encourage foreign investment in Germany.
● It is accepted by many experts that for Germany, the Anglo-American model will be more
suitable.
● After the takeover of Mannesmann by the UK’s Vodafone, the German government has
become more cautious to preserve and improve on the German system of CG. A few steps
have been taken in this direction. First, the government has abolished the capital gains tax
on the equity sales. It is believed that this measure will reduce the cross-holding system and
will lead to the modernization of the area of CG. Second, it is directly encouraging foreign
investment through various ways and means to reduce the stronghold of the banking system
to some extent.

CORPORATE GOVERNANCE IN TRANSITIONAL AND

DEVELOPING ECONOMIES
It is, indeed, difficult to discuss about the precise practice and the stage of development of corporate
governance in the developing and transitional economies (DTEs). Since there are political,
economic, social, institutional and structural differences among these countries, the same type of
corporate governance model may not also be blindly applied to them. The point is well-illustrated
by the Federation of Korean Industry’s criticism of the OECD’s codes of corporate governance.
The FKI expressed the opinion that the blanket approach to the application of western standard of
accounting was not suitable for Korea. Be that as it may, in the analysis of corporate governance
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in these countries, we will tangentially touch upon the cases of the Asian and far eastern TDEs.
Before we start off, it is imperative to clear out the concepts of the developing and transitional
economies.
Developing economies are those economies which are on the path of development but not fully
developed yet. Transitional economies are in the process of economic transition and have
travelled a long way towards the stage of a fully developed state. The East Asian economies
including Malaysia, Thailand, Philippines, Brunei, Taiwan and South Korea are all called
transitional economies. There are also transitional economies in Russia, Africa, and Latin
America as well. They are more developed than ordinary developing countries. The differences
between these two types of developing countries are in degrees and not in kind. For the purpose
of discussion here, all the three types of economies such as developing, transitional and emerging
economies will be treated as synonymous, although strictly speaking they are not. This is done
here for the purpose of analytical simplicity.

Contemplated Advantages of Corporate Governance

The concept of corporate governance is relatively new to DTEs. However, through the
international demonstration effect, they have learnt the advantages of and the need for having a
good corporate governance in the context of liberalised economies. It should be noted that these
countries in South East and Far Eastern regions are wedded to the capitalist path of development
and they have already opened up their economies since 1980s, the take-off period of liberalization
and globalization. These countries have become more conscious and concerned about corporate
governance after the onset of the Asian Financial Crisis of 1997. Many of these countries were
themselves affected by this financial crisis. To be precise, most of these countries explicitly
recognised the importance of good corporate governance because of its contemplated advantages
as early as in 1999 during the period of the crisis.
Some of the advantages of corporate governance as they contemplated are discussed as under:
● A proper system of corporate governance can in many ways reduce the risk of investment,

whether foreign or domestic, and if the risk of investment can be reduced, these countries
could expect much more investment. As a matter of fact, all these countries were receiving a
substantial amount of FDI.
● A good management and governance can also enhance the performance of a company in a

substantial manner, and this may improve the access to capital markets for liquidity and
financing problems.
● A good corporate governance can also reduce the hold of politics in all decision-making

processes. Decision-making on the basis of merit which is an ideal situation will be possible
under a good and neutral corporate governance.
● It is possible for a good system of corporate governance to protect and enforce share-

holders’ right as a whole and especially of the minority shareholders.

● A properly conducted corporate governance can prevent asset stripping which occurs

after mass scale privatization. Many of these countries were using privatisation as an
instrument of liberalisation without controlling its disadvantages.
● Another advantage of corporate governance is the better prospect of marketability of

goods and products in a more organized way. The bottlenecks can be minimized.
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● It is possible for a well-governed company to find active owners (shareholders/partners)
and experienced and seasoned managers.

Steps Taken by Some DTEs in 1999–2000

In the year 1999, the Stock Exchange of Korea formed a committee to look into the possibility of
application of the Cadbury model of corporate governance in the case of Korea. In the same year,
the Ministry of Finance of Korea, instituted a Corporate Governance Reforms Committee. The
Committee did a commendable work formulating a code of governance for the large Korean
companies. Another epoch-making step in the direction of better corporate governance was the
decision in Korea that 50% of the Board of Directors will be independent.
In the case of Thailand, steps were taken after the financial crisis of 1997 to reform corporate
governance. In this direction, some mandatory and voluntary approaches have been followed.
The mandatory provisions include all the legal aspects of governance, and attempts to improve
minority shareholders’ rights, accountability and auditing standard of international level.
Voluntary approach involves the introduction of best practices in every area related to corporate
governance, including the performance of BOD, managerial performance, and performance of all
the necessary committees. An Institute has also started functioning for imparting training to the
Directors of important companies. However, it is pointed out by some experts that the attitude of
the government is very favourable for the improvement of corporate governance.
Taiwan initiated the process of reforms of corporate governance in the year 2002 and adopted
the advice of the World Bank. It instituted a corporate governance association to make recom-
mendations for the betterment of the corporate governance system. In all the areas of corporate
governance, it has been following the corporate governance principles of developed countries
with regard to the capital market reforms, appointment of audit committee, and the BOD.
For Hong Kong, it was formally recognised that only 2% of the companies had Audit
Committees. This recognition led to an improvement in the system of corporate governance and
subsequently the pacific economic Cooperation Committee instituted in a formal way operation
of corporate governance.
The following nine rules were formulated by Asia Pacific Countries (APCs) in the year 1999
for better corporate governance:
● Accounting and auditing practices of an international standard are to be introduced.

● A better disclosure system was necessary for corporate governance.

● More active role of the shareholders in the affairs of the company was necessary.

● The interest of the minority shareholders should be protected.

● The process of proxy votings will be simplified.

● The Board must consist of outside directors and the chairperson should also be an outsider.

● There must be an institute of directors in every member country for the discussion of

corporate governance problems and for their operational efficiency through an interchange
of ideas and experience.
● The number of directors must be increased and there should be a substantial proportion of

outside directors.
● There should be training programmes on a regular basis on the topics related to corporate

governance.

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The progress of corporate governance in the case of Malaysia has been noteworthy. A code
of Governance was formulated in the year 2000. The country also formulated a capital market
master plan and financial a market master plan in during the same year. It has accepted the single-
tier system of governance and it is specified that the CEO is the chairman of the BOD.
In the case of China, the government gave a top priority to the development of the stock
market as early as in 2000. However, the development has not been satisfactory. Two very
important problems in the corporate governance are: lack of separation between ownership
and management, and lack of transparency. The structure that some companies follow is govern-
ment-led relationship-based structure. China is very eager to catch up with the west in respect of
corporate governance, but does not suitably change its institutional structure.
The tight administrative policy of the government has been hurting the further development
of the stock market. The Chinese corporate governance model is a control-based model where
political and institutional factors play a very decisive role. The business forms which are
deviating from the set rules are doing better in the stock market. A great economist of China has
remarked that “China’s stock market is worse than a casino. At least in a casino, there are rules.”

What these Countries Really Needed?

The DTEs wanted to have many important changes in their countries to have an ideal system of
corporate governance (CIPE, 2000). The following are some of their desiderata:
● They very badly needed the technical and professional know how.

● They wanted more protection for the shareholders’ rights.

● They wanted to establish on firm footing property rights and true ownership.

● They wanted to reduce cross-shareholdings by banks and companies.

● They wanted to have a mechanism that could eliminate vested interests.

● They needed a system of dismantling insider controls and trading.

● Accounting and financial system reforms.

● They wanted a rule-based system that could promote good corporate governance and cordial

relationships with all the concerned participants.

Problems in Instituting Corporate Governance of International Standard in DTEs

There are tons of problems in the way of instituting a world standard corporate governance in
DTEs.
The problems in these countries are not the same or similar. However, there are some
common- alities of problems (McGee, 2009). Some of the major common problems are discussed
as under:
● There is no clear-cut code of conducts and guidelines which are followed by the DTEs.

There is often no unanimity in the acceptance of some of the existing guidelines. Some are
in the favour of Caux principles, some opt for OECD principles and some would like to
follow the World Bank guidelines. There are often conflict of interest and differences of
opinion so that the final decision is often stalled.
● There are often fights between the different interest groups in many types of critical

decisions. These may relate to appointment of directors (insiders and outsiders), managers,
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and decisions 408

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whether there will be a single tier system or not, whether the interest of shareholders will be
the sole objective or not, appoint of auditors, and many other issues relating to corporate
governance. The bickering often goes beyond the company level and is mixed with party
politics, and there is no easy solution.
● The Board of directors is often not reliable and the members have political influence. Corruption

is rampantly prevalent and it is indeed difficult to remove auditors and board members even
if they are corrupt.
● Under the existing situation, all types of desirable disclosures and transparency are not in

the offing. Rampant information asymmetry is a serious problem. Underdeveloped countries

very often do have an underdeveloped information system.
● It is indeed difficult to change the age-old system of auditing and accounting. These

countries do not have the experience or exposure of an international standard of auditing and
accounting practices.
● Capital markets in these countries are more illiquid than liquid. Capital market is narrow

and underdeveloped and many types of new instruments are conspicuous by their absence.
● There is often inefficiency in the allocation of resources. This may be because of a lack of

fool-proof studies or of new types of situations which are not experienced before. Global-
ization and liberalization have created many new types of risks and uncertainties the impact
of which is difficult to gauge.
● Diverse ownership after privatisation in many of these countries poses many new types

of problems. So, the same type of formula-based corporate governance cannot often
tackle these new problems.
● Vested interests and political interference often create obstacles in the way of financial,

administrative and labour market reforms. India is a burning example of this situation.
Due to the trade union pressure and democratic delays, labour, market reforms are not
perhaps possible in India, and workers sometimes are to be paid more than their
productivities, thus causing loss to companies.
To conclude the discussion, it needs to be pointed out that the DTEs have been trying since the
beginning of this new century to reform their corporate governance system which was earlier
almost non-existence or on a shaky foundation. In recent years, the concern for an efficient
corporate governance has been intensified by the fear of corporate failures, scams and scandals in
many capitalist countries.
However, incremental changes are visible in many DTEs. Some of these countries are
following the World Bank guidelines, some the CIPE (Centre for International Private Enterprise)
advice and some are resorting to an admixture of OECD and Caux Principles. Although in
principle they have accepted the need for changes in corporate governance, none can expect a
miracle or quick-fix in terms of desirable results in this direction. This is so because any change
in corporate governance involves political, economic and institutional changes.

Summary
There are bewildering varieties of the models of corporate governance. Some of these models
are based on single-tier system, some on two-tier system; some models give more importance to

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the banking system and some do not; some models are market-oriented and some are based more
on inter-personal relations; some models are more traditionalistic and whereas some are liberal;
some take more care about the shareholders, some do not pamper them; some depend too much
on cross-share holdings, some remain indifferent; some encourage individual shareholdings, some
do not; some are based on more of institutional holdings and some are not. But the adoption of
liber- alization, globalization and privatization has made different models rather uniform in a
way: all of them are conscious about their global impact and interaction.
The Anglo-American model is perhaps as old as the history of capitalism. However, it was
never so aggressively introduced but earlier than 1980s. In fact, there are as many types of the
Anglo- American model as there are varieties of capitalism. It is pointed out by many critics that
the Anglo-American model does not properly work in all types of economies and under all
institu- tional systems. It is not a universal panacea and the most desirable form of corporate
governance. It has a number of constraints and limitations. Therefore, many countries are in
favour of adopting the Franco-German model in lieu of the AA model. The Franco-German
model is based on the philosophy of industrial partnership of all the people who are associated
with the governance mechanism.
In the American model, capitalist principles and free-market mechanism are explicitly recog-
nized; accountability and transparency are tried to be practiced in corporate governance; minority
shareholders’ interests are protected by laws; proxy voting system by mail is an important feature;
one share, one vote is the established rule; shareholders appoint Board members and CEOs;
professional managers control the company. There is a separation between the management and
ownership; audit companies have independent directors; disclosure of important corporate infor-
mation and data are encouraged; large shareholders are also actively and regularly monitored;
role of banks in corporate governance is not crucial as the capital market remains very strong;
single tier system prevails.
The Japanese system is different in many ways from the American system. Unlike in America,
profit is not the final word in the Japanese model. Corporate governance is based in Japan on
family ties and relations. All decisions are based on general consensus. Community value is given
more importance. There is the practice of cross-shareholding and there is not much of hostile
take-over. Industrial activities are controlled by the government. The German system is based on
a two-tier system. Directors can access all types of information; corporate cross-holding of shares
is a very common practice. Commercial banks have dominating and controlling power, and there
is a person- alised relation between the corporate sector and the banking sector. In the German
model, the stock market is not dominated by individual households and the government takes
active interest in the development of the corporate sector.
The concept of corporate governance is relatively new to developing and transitional
economies. However, they have now learnt the advantages of and the need for having good
corporate gover- nance in the context of liberalised economies. These countries have become
more conscious and concerned about corporate governance after the onset of the Asian Financial
Crisis of 1997. Many of these countries were themselves affected by this financial crisis. To be
precise, most of these countries explicitly recognised the importance of good corporate
governance because of its contem- plated advantages as early as in 1999 during the period of the
crisis. Corporate governance in these countries is in the process of evolution and they are trying
either to follow the established interna- tional principles or are in the midst of making their own
rules.
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Key Terms

Sarbanes-Oxley Act Macroeconomic Financial Crisis

Wall Street Crash of 1929 Fundamentals Principal-Agent Problem
Work Council Hybrid Model of Corporate
Cross-holding of Shares Governance
Two-tier System of Corporate Enlightened Anglo-American
Governance Model

Test Your Knowledge

1. State whether the following statements are True or False
(i) The Anglo-American model is a capitalist model of corporate governance.
(ii) The Franco-German model is based on the philosophy of industrial partnership.
(iii) The fundamental objective of Sarbanes-Oxley Act (2002) was to control malpractices in
corporate governance.
(iv) The American model of corporate governance is a two-tier system.
(v) The Japanese system of corporate cross-holding (keiretsu) by banks and affiliated
companies minimises the risk of hostile take-over.
(vi) The German system of corporate governance is a two-tier system.
(vii) In most of the developing and transitional economies, vested interests and political
inter- ference are very common in corporate governance and practices.
(viii) Unlike in America, profit is not the final word in the Japanese model.
(ix) For Hong Kong, it was formally recognised that only 4% of the companies had audit
committees.
(x) It is accepted by many experts that for Germany, the Japanese will be more suitable.
2. Fill in the blanks
(i) The model is perhaps as old as the history of capitalism.
(ii) The Liberalization, Privatization, Globalization model can be otherwise extended as
, , and .
(iii) The Anglo-American model adopts a tier governance system.
(iv) The model is based on the philosophy of industrial partnership of all
the people who are associated with the governance mechanism.
(v) of a company in the United States is a common phenomenon in the
corporate world.
(vi) Information asymmetry has been wiped out in the corporate governance of
.
(vii) corporate governance system is a two-tier system.
(viii) It is accepted by many experts that for Germany, the model will be
more suitable.

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 Models of Corporate Governance: A Global Perspective
412
(ix) A properly conducted corporate governance can prevent asset stripping which occurs
after mass scale .
(x) Taiwan initiated the process of reforms of corporate governance in the year
.
3. Choose the correct option
(i) Who said the famous words, “I am going to die and you are to live; only God knows
which one is better”?
(a) Socrates (b) Plato
(c) Aristotle (d) None of them
(ii) The Enlightened Anglo-American model is primarily:
(a) A hybrid model (b) A globalized model
(c) Both (a) and (b) (d) None of these
(iii) Which model gives topmost priority to the interest of the shareholders and its objective
is to increase shareholders’ value and wealth?
(a) German model (b) Indian model
(c) Anglo-American model (d) None of these
(iv) Which model is based on the philosophy of industrial partnership of all the people who
are associated with the governance mechanism?
(a) Anglo-American model (b) Franco-German model
(c) Indian model (d) All of them
(v) After which incident did the business people of America became more interested in
under- standing the nitty-gritty of Corporate Governance?
(a) Wall Street Crash, 1929
(b) Formation of the Bill Clinton government
(c) Both (a) and (b) (d) None of these
(vi) The fundamental objective of which Act is to control malpractices in the Corporate
Gover- nance in America?
(a) The Parliament Act (b) Sarbanes-Oxley Act
(c) Both (a) and (b) (d) None of these
(vii) While in the United States, market calculus guide all corporate actions, in Japan they
have:
(a) Differential Calculus (b) Financial Calculus
(c) Communitarian Calculus (d) None of these
(viii) The Japanese system of corporate cross-shareholding by banks is known as:
(a) Shitsuke (b) Seiri
(c) Seiso (d) Keiretsu
(ix) The supervisory board in the German Corporate Governance is called:
(a) Aufsichtstrat (b) Keiretsu
(c) Both (a) and (b) (d) None of these
(x) The executive board in the German Corporate Governance is called:
(a) Aufsichtstrat (b) Vorstand
(c) Keiretsu (d) None of these

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 Models of Corporate Governance: A Global Perspective
413

Review Questions
1. Compare and contrast the corporate governance systems in Japan and the United States of
America. Which one is better according to you and why?
2. Compare and contrast the corporate governance systems in Germany and Japan. Which one
of them you do not like and why?
3. The Anglo-American Model has proved to be both good and bad. Discuss.
4. Outline a model of ideal corporate governance suitable for a developing country like India.
5. What are transitional economies? Enumerate the problems of these economies to have a
system of good corporate governance.

Web Links
1. http://www.accountant.org.cn/doc/acc201005/acc20100505.pdf
[An Analysis on Corporate Governance]
2. http://www.banffexeclead.com/Newsletter04/PDF/Leadership%20Acumen%2021%20
V2%20Models%20of%20Corporate%20and%20Board%20Governance.pdf
[Models of Corporate/Board Governance]
3. www.lsf.lu/eng/content/download/646/3350/file/E4_Mullineux.pdf
[Is there an Anglo-American Corporate Governance Model?]
4. http://finance.wharton.upenn.edu/~allenf/download/Vita/Japan-Corporate-Governance.pdf
[The Corporate Governance Model of Japan: Shareholders are not Rulers]
5. http://www.law.kyushuu.ac.jp/programsinenglish/conference2007/conference/puchniak.pdf
[The Japanization of American Corporate Governance? Evidence of
the
Never-Ending History for Corporate Law]
6. http://www.ecgi.org/codes/documents/japan_cgf_j.pdf
[Corporate Governance Principles: A Japanese View]
7. http://www.finance.uni-frankfurt.de//wp/509.pdf
[Corporate Governance in Germany: An Economic Perspective]

References
CIPE (2000), Instituting Corporate Governance in Developing, Emerging and Transitional
Economies: A Handbook, USA
Clarke, Thomas (2009), “A Critique of the Anglo-American Model of Corporate Governance”,
CLPE Research Paper #15/09, University of Technology, Sydney
Das, Subhas Chandra (2009), Corporate Governance, Prentice-Hall of India, New Delhi
Hamilton, R. (2005), “Corporate Governance in America”, Journal of Corporate Law, Vol. 25,
#2 McGee, R. W. (2009), Corporate Governance in Transition Economies, Springer, USA
Monks, R.A.G. and Minow, N. (2001), Corporate Governance, Blackwell, UK
Prasad, K. (2009), Corporate Governance, Prentice-Hall of India, New Delhi

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414
Tipgos, M.A. and Keefe, T.J. (2004), “A Comprehensive Structure of Corporate Governance in
Post-Enron Corporate America”, CPA Journal

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 CHAPTER
20
Ethics and
International

L E A R N I N GO B J E C T I V E S

This chapter will help the reader to understand

■ Why international business (IB) is growing so fast?
■ Ethical issues in IB
■ MNCs and unethical IB practices
■ Cross-cultural ethical dilemmas and IB decision-making
■ Do’s and don’ts in IB
■ Global values, codes and principles for IB
■ Caux principles, Sullivan principles, global compact and DeGeorge’s ten principles of IB

INTRODUCTION

Alice asked the Cat: “Would you tell me please which way I ought to go from here”?
Cat: “That depends a good deal on where you want to go to”.
Alice: “I don’t much care where”.
Cat: “Then it doesn’t matter which way you go”.
(Lewis Carroll, Alice in Wonderland)
The above conversation between Alice and the Cat is very relevant for the businessman who
wants to venture into international business. Success in international business needs proper
direction, aim

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and focus. It requires proper planning for products, places, prices and presentation. In the days of
globalization since the 1980s, most of the companies are going global and virtually there is now
the end of geography. The global economy has enormously expanded to the tune of $ 35 trillion
and is being operated by more than 100,000 multinational corporations (MNCs). The world is
more flat now and technological and communication gap and information asymmetry are fast
disappearing. Abundant capital flows across countries are also creating opportunities to go global
in search of a lucky break for business. Some developing countries, like Brazil, Russia, India and
China (BRIC countries) are doing better than other developing countries in international business.
The Schumpeterian theory of innovation is becoming a reality now in less developed countries
(LDCs) and they are navigating in the international arena for better business, international market
share and goodwill. Joseph Schumpeter has classified five different forms of innovation (See
Ghosh, 2004, pp. 88–89):
● The introduction of new goods

● The introduction of new method or technique of production

● The opening of markets

● Exploration of new sources of raw materials, and

● The reorganization of an industry

Needless to add, all the aforesaid forms of innovation can and are growing through
liberalization and globalization in recent years, and international business in this context has
become extremely beneficial.
However, with the increasing complexity and volatility in the global business, the ethical
issues, dilemmas and dissensions have also become very problematic. This chapter will discuss
some of the major unethical issues in international business, the negative impacts of MNCs,
cross-cultural problems and challenges, international codes, values and principles, and some
general guidelines for doing international business.

WHY IS INTERNATIONAL BUSINESS GROWING SO FAST?

Several factors are responsible for the unprecedented growth of international business in the
present century. Most of these factors are associated with the growth of globalization since the
1980s of the last century. Globalization stands for unification and integration of many factors the
totality of which is immensely useful for the growth of international business (IB) (see
Friedman, 2005). Some of these factors and forces can be discussed here briefly as:
● World trade has been growing very rapidly over the years. Regional trading nations are

now joining the international trade game to expand their economies and to realize a higher
rate of economic growth. International trade has been found to be contributing to economic
growth in many stagnant or slow economies of less developed countries. Trade is still now
regarded as the engine of growth. Over the last 25 years or so, world trade has grown more
than three times.
● The growth of trade is facilitated by the availability of capital through international sources

like the World Bank, IMF and many other multilateral sources. The introduction of many
facilities for the expansion of free trade and the abolition or minimisation of tariffs has also

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significantly contributed to the expansion of global trade. The declaration of the WHO that it
will create a framework of predictability and stability for the expansion of trade and
commerce among nations is an additional factor giving incentive to less developed
countries.
● The expansion of the knowledge sector has been able to create a large stock of high quality

workforce in many developing economies and it has been possible to carry on innovation,
technological development and productivity gain and cost reduction. The increased cross-
country mobility of the high quality workforce has been responsible partly for the flow and
cross-fertilisation of news ideas and innovation. All this has contributed to new product
devel- opment through better processes and techniques.
● Technological development and its rapid spread over the countries has significantly changed

the method and techniques of production. Also, production can now be done just in
time. Better technology has produced several advantages including minimisation of cost and
time and better quality of products, which are all very essential for comparative advantage at
the international level.
● Globalization has annihilated the distance, information asymmetry and communication

gap. Thanks to the growth of information technology and internet, businessmen can, within
no time, gather the information on trade volumes and values, currency values, trade
facilities and barriers, potential demand, and so on regarding trade with a particular country,
or about the trend in international trade. The efficiency of search engines and that of Google
particu- larly has been a boon to IB across the world.
● The digital devices, mobile phones, email facilities, SMS, instant messaging, and so on

are helping the trading people to take almost immediate decisions in the matter of trade.
Digitalisation of information technology is a significant contributory factor for the growth
and exchange of knowledge about trade. Cross-country phone calls, which are an index of
the degree of globalization, have enormously expanded these days.
● Outsourcing or subcontracting is now possible on a large scale among the manufacturing

and trading countries. Thus, cheaper materials and inputs can be procured from any part of
the world for the sake of the growth of export promoting and/or import substituting
industries. This has contributed towards reduction in cost structure.
● The off-shoring of production through the relocation of manufacturing plant is now

possible, and that makes possible the use of cheap local labour that significantly reduces
operation costs. In this way, the product cycle can be divided into several parts and each one
can be located to the area where raw materials and labour are cheap and abundant in supply.
● The supply chain system has also undergone a tremendous structural change. Several

countries and world trading centres can now be connected in the supply chain to make time
and cost savings possible.
● International demonstration effect has intensified the demand for foreign commodities

and branded products. Globalization seems to have brought about some unification and
homogeneity in consumers’ culture. The increasing demand for foreign goods as a result
also of increased real per capita income has called for a sustained increase in trade and
commerce. For instance, the wave of Westernization that dominates the cultural
transformation of the developing world has been increasing the demand for American pop
songs, coke culture and American goods.

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Most of the aforesaid factors have created a situation of horizontal convergence that has
brought companies, customers and places much closer at the international level. Moreover,
the success of the western capitalist countries in the realm of growth and development
has attracted many Asian economies to the western model of capitalist development, and
especially the East Asian countries like Malaysia, Indonesia, Philippines, Thailand and the
Tiger economies have not only emulated the western model but have also been integrated
with the western capitalist world. This has once again resulted in various types of trade
interactions in these countries.

ETHICAL ISSUES IN INTERNATIONAL BUSINESS PRACTICES

There are many unethical practices in international business (IB). No one is very sure whether or not
these practices are the causes or the effects of globalization, nor can one vouch for the fact that
these practices are all brought about by MNCs in different countries. But in varying degrees,
these unethical practices are still continuing. In what follows, an attempt will be made to briefly
discuss some of the major unethical practices in IB in different countries:
Human rights violation is rampant in IB all over the world. These violations come in the form
of abuses of foreign workers, abnormally low wages, use of child labour, inhuman working
condi- tions in factories, long hours of work, violation of many basic rights to employees,
maltreatment of women and child labourers, and the basic right to organize themselves to solve
their own problems is denied to factory workers. The ILO estimates that not less than 250 million
children in the age group of 5–14 years are working in developing countries.
Prevalence of racial and sexual (gender) discrimination is another very fundamental ethical
issue in IB. Some scholars will consider this as a form of violation of human rights. Be that as it
may, it is a hard fact that in many countries, labour is hired on the basis of race and religion.
Thus, in Saudi Arabia Hindu labourers are not generally favoured and, similarly, in Malaysia and
Indonesia Chinese workers do not have good opportunities to be employed in factories. Even
inside a country, son of the soil theory is always favoured. In Germany, Turkish immigrant
labourers who have been working there since long are not given citizenship although the country
needs such labourers.
In some countries, like in some Arabian nations, women are not hired for running businesses.
In the Middle East, companies may simply refuse to negotiate with foreign saleswomen. Sexual
harassment, moral harassment and mobbing are well-known in many countries including Europe
(Human Rights Project Report, 2007). Minorities are also discriminated against in countries like
Bangladesh, Sri Lanka and Indonesia, among others.
Bribery and kickbacks are normal practices in IB. However, in some countries, they more
acceptable than in others. Bribery is an unethical practice because it breeds injustice and, in some
cases, misallocation of resources. A study by Keston Joan has revealed that bribery payments are
estimated to be $ 1 trillion in the world (Keston, 2007). The opinions of many consumers and
businessmen in different countries think that bribery has increased over the years. Transparency
International which studies the prevalence of corruption in world countries found that in many
countries 30 to 50 per cent of the consumers paid some form of bribe money in Cameroon,
Cambodia, Paraguay and Mexico, and in many other countries less than 30 per cent was the bribe

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payment (Transparency International, June 2005). In 2007, the Transparency International found
that one of the most corrupt countries in the world was Somali followed by Iraq, Haiti, Tonga,
Uzbekistan, Chad, Sudan and Afghanistan. Officially, the United States’ Foreign Corrupt
Practices Act (FCPA) does not allow bribe to be given to foreign firms. However, it permits small
grease payments to ministerial or clerical government employees. Although bribe is not permitted
in many countries, small gifts which are genuine, transparent and does not attach any condition is
permitted by the OECD principles.
Selling of harmful products. Although banned in many advanced countries, these are still
continuing in LDCs. Genetically engineered products are banned in many countries and labelling
of such food products has been made compulsory in USA and EU. The supply of tobacco
products is decreasing in USA but their exports are increasing in LDCs. Baxter International’s
defective kidney dialysis filters killed ten people in Spain, in the 1970s, Nestle’s infant formula
proved to be fatal for children in Africa, and ConAgra Foods supplied raw beef in America that
caused E. coli infection to many people. All these are common news items. Many countries are
now trying to prevent the entry of such harmful goods to their countries.
Price discrimination being practiced in many countries is an unethical issue if it reduces
competition and goes against the poorer section of the society. Many vitamins producing
companies in USA and EU overcharge consumers, and it is a great business. Prices are increased
through monopolization and gouging. Gouging is a situation where very high prices are charged
from the customers for a limited period of time. Anyways, unfair prices are invariably unethical.
Dumping is another form of unethical international business practice where domestic
consumers may be charged more and foreign customers are charged less for a limited period. It is
unethical because competition is thwarted and prices are artificially set just to capture a vast
market. Many LDCs have been experiencing dumping by food MNCs who are supplying food
items to these countries and thereby ruining the ago-based producers and the agricultural
activities.
The use of child labour is rampant in many developing countries, including India, Pakistan,
Bangladesh and these labourers are exploited in drug selling, trafficking, prostitution and crime
rings (ILO: 101 Report). Many international companies use child labour and pay them almost
nothing for keeping the cost of production very low. Once, USA refused to buy Indian carpets
because they were made by using child labour. The use of child labour is morally degrading and
is a form of exploitation.
Violation of Intellectual Property Rights is unethical and costs every country substantial
losses. It demoralizes the creators and innovators. According to one estimate, the loss to the
United States on this account amounts to $250 billion per year and costs about 750,000 jobs (as
quoted in Weiss, 2009, p. 252). India and China, among other countries, are in the US list of
intellectual piracy (of music and software). Imitation of branded products is a regular
phenomenon in LDCs. In India, China, Brazil and Africa, downtown streets are flooded with
imitation articles like Adidas sneakers, Rolex watches, Ferrari jeans and the like at throw away
prices. The Houghton Mifflin Publisher came to know that counterfeit textbooks are being
published in India for world distri- bution (Ferrell et al., 2003, p. 257).
A study suggests that the original innovators must make suitable changes in the products to
make imitation practically difficult (Gupta and Wang, 2007).

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Pollution of natural environment is also an unethical business practice resorted to by many
MNCs today. Most of the pollution is done by foreign firms in the name of business and devel-
opment in LDCs. As international business interactions and industrial growth rate are going up,
the volume and intensity of pollution are also increasing rapidly. In some cases, like in Mexico,
anti-pollution laws are very stringent and legal sanctions are imposed on polluting firms. At
present, Australia is regarded as the largest greenhouse emitter. Many countries are now
implementing anti-pollution laws but some countries just do not pay any heed. For instance, Israel
is accused of defying international convention by dumping toxic waste in the Mediterranean.

MULTINATIONAL CORPORATIONS (MNCS) AND UNETHICAL

INTERNATIONAL BUSINESS
Most of the instances given in the preceding discussion show the involvement of some MNCs
throughout the world. Chapter 6 of this book has already given some account of the evils of some
MNCs (readers are advised to read Chapter 6 in this context). This section gives a summary of
some additional points relating to MNCs:
● MNCs transfer jobs from high wage to low wage countries. They use labour-saving devices

and create unemployment. They bring down the wages to the minimum and practice what is
known as race to the bottom. This is unfair to the uneducated labour force at the bottom.
Critics maintain that MNCs exploit the labour markets of host countries.
● In many cases, they work in collusion with the local government and hire and fire labourers

whenever they want. In this way, in Myanmar, they used forced labourers to complete some
national projects (Waldman, 2002)
● MNCs also exploit the capital markets of the host countries. Their huge borrowing

leaves the capital market empty, and local capitalists cannot borrow from these markets.
● MNCs do not share the cost of social development in the host country.

● MNCs create many negative externalities while carrying on production in less

developed countries. However, they do not internalise the bad effects and do not pay
any compen- sation.
● Some consumers’ products produced by MNCs for the less developed countries do not

contain the label for consumers’ safety and warnings. The Bhopal gas tragedy in India and
Nestle’s marketing of powdered milk in Africa and Firestone tyre crisis in Venezuela pose
questions on the safety standard and controls by MNCs.
● MNCs have also been found to be associated with illegal lay-offs, corporate crimes, exerting

political influences in many countries (Ghosh, 1985). They have also been found guilty of
supporting the racial regime of the then South Africa.
● MNCs are said to have a control over their core technology which is never transferred.

● MNCs, very often, exert considerable influence on a country’s capital market and limit

the local government’s ability to access capital and resources. This process intensifies the
dependency of the less developed countries on developed countries.
● They also, through many types of scholarships, fellowships and grants, lure away the stock

of high quality workforce from the developing countries. This phenomenon is often termed
as

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skill drain or brain drain. This hampers the development process of the less developed
countries.
● The above discussion does not intend to blame MNCs across the board. We cannot deny

some important and beneficial roles that MNCs have been making in developing countries.
In this respect, the contributions of Nike, Cadbury, Patagonia and many others are
undoubtedly praiseworthy.

CROSS-CULTURAL ETHICAL DILEMMAS AND INTERNATIONAL BUSINESS (IB)

● There are many types of dilemmas in IB. A serious dilemma in IB is the cultural dichotomy.
The culture of the domestic country of the businessman may not be the same as that of the
host country. For instance, the social and business culture in India and Saudi Arabia is not
the same.
● Body language also conveys different meanings in different cultures. For example, nodding

of heads up and down may mean different things to different countries. In Albania, it means
“no” but in USA, it means “yes”.
● Religious taboos may also prove to be dangerous at times in the context of international

business. For instance, a Hindu trader may feel offended when he is offered beef preparation
for a dinner in a Muslim country.
● The perception of time is also not the same in different countries. American firms put more

values on promptness but Indian firms approach the concept of time in a relaxed way
(Ferrell, et al. 2003, p. 240).
● The cultural value of one’s own country may not be suitable for another country where one

is doing business and the imposition of the cultural standard of the domestic country will
tantamount to cultural imperialism which may not work at all in IB. The Americanization or
what is called the McDonaldisation of culture has evinced a lot of protests from the cultural
fundamentalists in many less developed countries (Ritzer, 2004). So, a further extension of
business in this front needs to be done with more care and circumspection.
● Another form of ethical dilemma is the acceptance of the principle, “when in Rome do as

the Romans do”. In doing so, a businessman may be going against his moral standard or the
established law and may even be committing some moral vices. Thus, if a Muslim business
executive is asked to take wine in USA, and he drinks for the sake of business, he will not
be able to excuse himself for the moral lapse if he is a staunch Muslim. Thus, cultural
relativism may involve dilemmas in IB.
In many cases of IB, the basic problem is to resolve the ethical dilemmas. The global legal or
regulatory standards are not so problematic as the ethical and cultural dilemmas. For instance,
supposing laws in the host country are silent, in such a case, is it ethically rational to charge high
prices for a monopoly product, or to resort to dumping, to exploit labour or to take advantage of
the loopholes of laws? These are all ethical issues. Since these issues are crucial in IB, many
organiza- tions and institutions have formulated ethical values, codes and principles that can be
followed by business people for conducting international business. These will be discussed in the
last section of this chapter. It is now imperative to know a few Dos and Don’ts in IB.

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Do’s and Don’ts in International Business
It is instructive to bear in mind that in the case of successful international business, there is no
universal standard that can be uniformly applied in all countries under all circumstances. Even
international business ethics or morality does not provide standardized short-cut code of conduct
for businessmen that can be followed universally. Very often, personal judgment and decision
making skills are of immense value. Having said that, one can in a very general way, specify a
few points that are to be followed in IB. The following are the twenty most important Dos and
Don’ts for IB.
Do’s for International Business
● Under all situations, respect and protect Human Rights.
● Always follow the law of the land even if you do not like them.
● Respect and obey Govt. orders and codes of behaviour.
● Use an objective criterion for negotiations as far as possible.
● Use a solution (just like the Nash equilibrium) that will benefit all the parties involved. Nash
equilibrium is a set of strategies such that no one of the participants in the game can
improve his gain, given the strategies of other participants.
● Use peaceful process of settlement of disputes, if any.
● Understand the business environment, the people, the core values, culture, tradition and the
society.
● Respect the religion of the country.
● Build interpersonal relationship with customers, employees and suppliers.
● Maintain honesty, integrity, accountability and transparency.
Don’ts for International Business
● Do not use dirty tricks for favourable negotiations.
● Don’t be rude, over-smart or opportunist.
● Don’t boast of your culture and trivialize the culture of the host country.
● Don’t cross the cultural limit and taboos.
● Don’t pollute the environment.
● Don’t pick up quarrels unnecessarily with the local employees. Grant them whatever is right.
● Don’t do any work that offends the people, employees, consumers and government.
● Don’t offer or accept bribes.
● Don’t practice discrimination in price fixation and treatment of employees.
● Don’t produce or circulate harmful, unsafe and dangerous product.

Ethical Decision-Making in International Business

In making ethical decision, one needs to make a compromise. This may involve sacrificing, to
some extent, your own absolutist ethical standard. You may have to accept the relative ethical
values or standard. There are many styles of ethical decision-making. There are basically the
following Five

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modes of ethical decision-making in IB. George Enderle (see Donaldson, 1989) talks about the
first four methods given below. The last one is put forward by Donaldson.
1. The method of Ethical Relativism: The idea is to follow the ethical norm of the host
country.
2. Imperialistic method: In this case, the firm applies its domestic ethical standards and
norms.
3. A method of compromise: This involves the solution of an ethical issue on the basis of
shared values of the home and host countries. The best solution is the one that brings a
win-win situation for both the parties.
4. Cosmopolitan global method: In this case, the company follows the international/global
standard. It does not bother about the host or home country standard.
5. Donaldson’s hyper-norms method: According to this method, for a good decision-making it
is imperative to follow some universal absolutist norms consisting of some fundamental
rights and duties. There are various such rights like human rights, right to personal security,
right to have freedom, right to equality, and so on.
Having said all this, it is instructive to note that a good ethical decision-making should also
take into account the universal ethical values, company mission/vision and professional ethics. A
good international company should also care for economic responsibility of making a reasonable
amount of profit, environmental responsibility of keeping it clean and social responsibility of
enhancing the social welfare of host country people. These triple bottom lines are increasingly
becoming popular among successful international business houses.

GLOBAL VALUES, CODES AND PRINCIPLES FOR INTERNATIONAL

BUSINESS
In the face of many unethical international business practices and cross-country variations in
business morality and ethics, many authorities have formulated certain global values, codes and
international business principles. The basic purpose of the present section is to elaborate on a few
of such values and principles.

The Caux Roundtable Principles (CRP)

The Caux roundtable principles were adopted in 1986 and were first published in 1996. Some
senior business executives of a few countries including Japan and United States organized a
roundtable conference at Caux in Switzerland and adopted some principles. These principles are
popularly known as the Caux Principles (for details, see www.cauxroundtable.org). These
principles were formulated so that moral capitalism can work simultaneously with the neo-liberal
globalization. It is believed that the laws of market are necessary but are not sufficient for a
responsible business conduct. Hence, some ethical principles are necessary for international
business.
Three Ethical Foundations of CRP
● Living and working together for mutual advantages (Kyosei in Japanese language)

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● Respect and protection of human rights and human dignity
● Respect for stewardship.
The following Seven Principles were formally adopted as CRP:
1. Respect shareholders beyond shareholders.
2. Contribute to the economic, social and environmental development.
3. Build trust by observing the letter of the law.
4. Respect local rules and conventions.
5. Support responsible globalization through open and fair trade, reform measures, and so on.
6. Respect the environment.
7. Avoid illicit activities in business.

Stakeholder Principles
● Customers: Treat them well and provide them with the highest quality product and services.
Assure respect for human dignity in marketing, advertisements and dealer network.
● Employees: Take employees’ interest seriously. Help improve their working and living
condi- tions. Encourage employees for suggestions, new ideas and treat them with dignity.
Provide safety in work environment and job security.
● Owners/Investors: They deserve fair and competitive return on their investment. Provide
them information on the company performance. Protect and show growth in the assets
provided by them.
● Suppliers: There should be a mutual respect with suppliers and sub-contractors. Maintain
long-term business association and develop them to be equally competitive as the parent
company in quality and competitiveness.
● Competitors: Fair business competition will help enhance quality and value for customer
money. This should also promote competitive behaviour in socially and environmentally
beneficial activities.
● Communities: Corporates have a responsibility to respect human rights, democratic insti-
tutions, society at large and support public policies and practices that promote human
development though harmonious relations between business and other segments of society.

Global Sullivan Principles of Social Responsibility of Business

The Sullivan principles were developed by Leon Sullivan of General Motors in 1977. Many firms
throughout the world now subscribe to the Sullivan principles. There are mainly the following
eight such principles.
As a company which endorses the Global Sullivan Principles we will respect the law, and as
a responsible member of society we will apply these principles with integrity consistent with the
legitimate role of business. We will develop and implement company policies, procedures,
training and internal reporting structures to ensure commitment to these principles throughout our
organi- zation. We believe that the application of these principles will achieve greater tolerance
and better understanding among peoples, and advance the culture of peace (for details, see
www.the sullivan- foundation.org). Accordingly, we will:

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● Express our support for universal human rights and, particularly, those of our employees,
the communities within which we operate, and parties with whom we do business.
● Promote equal opportunity for our employees at all levels of the company with respect to
issues such as colour, race, gender, age, ethnicity or religious beliefs, and operate without
unacceptable worker treatment such as the exploitation of children, physical punishment,
female abuse, involuntary servitude or other forms of abuse.
● Respect our employees’ voluntary freedom of association.
● Compensate our employees so as to enable them to meet at least their basic needs and
provide the opportunity to improve their skill and capability in order to raise their social and
economic opportunities.
● Provide a safe and healthy workplace; protect human health and the environment and
promote sustainable development
● Promote a fair competition including respect for intellectual and other property rights, and
not offer, pay or accept bribes.
● Work with governments and communities in which we do business to improve the quality
of life in those communities – their educational, cultural, economic and social well-being
and seek to provide training and opportunities for workers from disadvantaged backgrounds.
● Promote the application of these principles by those with whom we do business.

The Global Compact

The Global Compact is an international forum which works under the aegis of the United
Nations. The Global Compact was formed under the initiative of the then UN Secretary General
Dr. Kofi Annan in July 2000. It was advised that companies operating internationally and also big
corpora- tions should be the members of Global Compact. The basic purpose of Global Compact
is to make these business houses self-sufficient to resolve many problems that become apparent
during the period of globalization in the context of cross-cultural ethics and problems. Annan
hoped that a proper observance of Global Compact will ensure a more sustainable and inclusive
global economy. All global companies should set up their business in consonance with the
philosophy of Global Compact so the corporate social responsibility and sustainable development
become the critical core values of these companies (see www.unglobalcompact.org).
There are the following Ten Principles of the Global Compact:

Human Rights
1. Business should support and respect the protection of internationally proclaimed human
rights.
2. Companies make sure that they have no complicity in human rights abuses.

Labour Standards
3. Business should uphold the freedom of association and the effective recognition of the right
to collective bargaining.

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4. The elimination of all forms of forced and compulsory labour.
5. The effective abolition of child labour.
6. Eliminate discrimination in respect of employment and occupation.

Environment
7. Business should support a precautionary approach to environment challenges.
8. Undertake initiatives to promote greater environmental responsibility, and
9. Encourage the development and diffusion of environment-friendly technologies.

Anti-corruption
10. Business should work against corruptions in all its forms including extortion and bribery.
The Global Compact is a voluntary initiative, but is has become popular amongst international
business companies. More than 700 international companies have become its members and are
doing well.
Apart from these three well-known principles and international codes there are some other
values and codes of conduct formulated by many researchers and analysts. In this context, the
following Ten principles suggested by DeGeorge will be briefly enumerated (DeGeorge, 1993,
pp. 114-21).
DeGeorge’s Ten Principles of International Business Ethics
● Look at the problem from different perspectives like national (legal policy), international,
industry and organizational perspectives. Use the technique of ethical displacement, if
necessary. This means the searching for clarification at the higher level than the personal.
● Use publicity against all types of unethical practices. This will generate pressures against

immorality.
● Use the rule of proportionality. This means that the punishment should be proportional to

the harm done and the gain to be obtained.

● Use the principle of accountability. The people who have done wrong or harm, should be

made accountable. You should also be accountable for your action.

● Be ready to pay the cost imposed on you by unethical people through their organized

strategy.
● Act with moral courage based on your values, ethical principles and morality.

● If necessary as a method of retaliation, use restraint and apply minimum force.

● Do not violate your norms and values and never use unethical means to win over a

situation.
● Use your moral imagination (or inner voice) while responding to an unethical

opponent.
● Work jointly with others to create new social, legal and public institutions to respond to

immoral actions and behaviour.

Having understood different global values, codes and principles, it needs to be emphasised that
many international companies are now trying to understand the implications of these codes and
principles and are showing more response and interest in global social responsibilities in carrying

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on international businesses, and some of these business houses are preparing their own core
values that can prevent future ethical dilemmas and cross-cultural conflicts. These companies
need to perform some balancing actions that will satisfy the local norms, universal international
values, the business norms and the personal ethical standards.
The real problem remains in the operation or implementation of different types of values in
actual practice and there may arise ethical conflicts because some operational terms do not have
the same connotations. For instance, liberalization, globalization or democracy means different
things to different people. Virtues like honesty and sincerity are adored by all but their
implementation becomes problematic because their meanings may vary when contextualised
under different situa- tions or cultures. To cite just one example, pride is a great virtue in a Greek
society but not in India. A reconciliatory approach to decision-making is indeed pretty difficult in
practice at the interna- tional level mainly because of the fact that cultures and values are
inherently different in essence. However, there is still some hope in the sense that there appears to
be some agreement on the need for a set of core values for successful international business.

Summary
Success in international business needs proper direction, aim and focus. It requires proper
planning for products, places, prices and presentation. In the days of globalization since the
1980s, most of the companies are going global and virtually there is now the end of geography.
Several factors are responsible for the unprecedented growth of international business in the
present century. Most of these factors are associated with the growth of globalization.
Globalization stands for unification and integration of many factors the totality of which is
immensely useful for the growth of international business. Many factors and forces including the
unprecedented expansion of trade, capital mobility, technological development, expansion of
knowledge, expansion of communication facilities, possi- bilities of outsourcing of men and
materials have helped to expand international business.
However, there are many unethical practices in international business. None is very sure
whether or not these practices are the causes or the effects of globalization, nor can one vouch for
the fact that these practices are all brought about by MNCs in different countries. But in varying
degrees, these unethical practices are still continuing. Some of these practices are: human rights
violation, bribery and kickbacks, prevalence of racial and gender discrimination, the use of child
labour, selling of harmful products, dumping, violation of intellectual property rights and
environmental pollution. Some of the MNCs, no doubt, are engaged in unethical business
practices.
There are many types of dilemmas in IB. A serious dilemma in IB is the cultural dichotomy.
The culture of the domestic country of the businessman may not be the same as that of the host
country. For instance, the social and business cultures in India and Saudi Arabia are not the same.
There are indeed many cross-country differences in terms of religious taboos, body language and
cultural perspectives. There is a tendency of some countries to impose their culture on other
countries (cultural imperialism). However, the business people have to make a compromise in
many instances and accept the truth-value of cultural relativism. They follow the dictum: when in
Rome, do as the Romans do.

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In many cases of IB, the basic problem is to resolve the ethical dilemmas. The global, legal or
regulatory standards are not so problematic as the ethical and cultural dilemmas. For instance,
suppose laws in the host country are silent, in such a case, is it ethically rational to charge high
prices for a monopoly product, or to resort to dumping, to exploit labour or to take advantage of
the loopholes of laws? These are all ethical issues. Since these issues are crucial in IB, many
organiza- tions and institutions have formulated ethical values, codes and principles that can be
followed by business people for conducting international business.
In this context, seven principles have been formulated by the Roundtable Conference at Caux
in Switzerland (Caux principles), eight principles are developed by Leon Sullivan of General
Motors, ten principles formulated by the UN and ten principles of IB by DeGeorge.
Needless to say, many international companies are now trying to understand the implications
of these codes and principles and are showing more response and interest in global social respon-
sibilities in carrying on international businesses, and some of these business houses are preparing
their own core values that can prevent future ethical dilemmas and cross-cultural conflicts. These
companies need to perform some balancing actions that will satisfy the local norms, universal
inter- national values, the business norms and the personal ethical standards.

Key Terms
Cultural Imperialism Flat World Gouging
Cultural Relativism Brain Drain Dumping
Tiger Economies Sullivan Principles Compact Principles
International Demonstration Caux Principles Nash Equilibrium
Effect Triple Bottom Ethical Displacement
Horizontal Convergence Lines Win-Win
Situation

Test Your Knowledge

1. State whether the following statements are True or False
(i) Genetically engineered products are banned in many countries.
(ii) Gouging is a situation of charging high prices from consumers.
(iii) Body language matters. Nodding of heads up and down in Albania means “no” but in
USA, it means “yes”.
(iv) The Transparency International (2007) found that one of the most corrupt countries in
the world was Somali followed by Iraq, Haiti, Tonga, Uzbekistan, Chad, Sudan and
Afghanistan.
(v) The Houghton Mifflin Publisher came to know that counterfeit textbooks are being
published in India for world distribution.
(vi) The Global Compact is a voluntary initiative, but is has become popular amongst
interna- tional business companies.

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(vii) The GC was formed under the initiative of the then UN secretary General, Dr.
Manmohan Singh, in July 2000.
(viii) The Caux roundtable principles were adopted in 1986 and were first published in 1996.
(ix) The perception of time is also the same in different countries.
(x) MNCs transfer jobs from high wage to low wage countries.
2. Fill in the blanks
(i) According to Friedman, stands for unification and integration of many
factors the totality of which is immensely useful for the growth of international
business.
(ii) is still regarded as the engine of growth.
(iii) International effect has intensified the demand for foreign commodities
and branded products.
(iv) Prices are increased through monopolisation and .
(v) The many types of scholarships, fellowships and grants, lure away the stock of high
quality workforce from developing countries. This phenomenon is often termed as
.
(vi) A serious dilemma in International Business is the .
(vii) The Americanisation or what is called the has evinced a lot of protests
from cultural fundamentalists in many countries.
(viii) In Relativism, the idea is to follow the ethical norm of the host country.
(ix) CRP can be otherwise expanded as .
(x) The is an international forum which works under the aegis of the
United Nations.
3. Choose the correct option
(i) Officially, which organization does not allow bribe giving to foreign firms in the US?
(a) United States’ Foreign Corrupt Practices Act (FCPA)
(b) The MRTP Act
(c) Both (a) and (b)
(d) None of these
(ii) A study by has revealed that bribery payments are estimated to be $ 1 trillion in the
world?
(a) Adam Smith (b) Karl Marx
(c) Max Weber (d) Keston Joan
(iii) Which theory is becoming a reality now in less developed countries?
(a) The Schumpeterian theory of innovation
(b) Marxian theory
(c) Both (a) and (b)
(d) None of these
(iv) JIT can be otherwise known as:
(a) Just in Theory (b) Job in Time
(c) Job in Theory (d) Just in Time

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(v) What is known as a situation where very high prices are charged from customers, may
be for a limited period of time?
(a) Gouging (b) Zipping
(c) Zapping (d) None of these
(vi) What involves the solution of an ethical issue on the basis of shared values of the home
and host countries?
(a) Cosmopolitan global method (b) A method of compromise
(c) Both (a) and (b) (d) None of these
(vii) According to which method, for a good decision-making it is imperative to follow some
universal absolutist norms consisting of some fundamental rights and duties?
(a) Cosmopolitan global method (b) A method of compromise
(c) Donaldson’s Hyper-norms method (d) None of these
(viii) The Caux Roundtable Conference was held in:
(a) Germany (b) Switzerland
(c) India (d) America
(ix) Living and working together for mutual advantages, in Japanese, is called:
(a) Seiri (b) Shitsuke
(c) Kyosei (d) None of these
(x) How many principles are there in the Global Compact?
(a) 20 (b) 12
(c) 8 (d) 10

Review Questions
1. Enumerate the important reasons for the rapid growth international trade and business in
recent years.
2. What are the evil effects of MNCs in developing countries?
3. Enumerate the major ethical issues in international business practices.
4. What ethical dilemmas a businessman faces in conducting international business? Suggest
some ways and means to make ethical decisions in the context of these dilemmas.
5. What international guidelines, codes and principles can help a businessman to conduct
business in an international environment?
6. What important factors will you keep in mind in doing global business?
7. Supposing there are cross-cultural conflicts, how do you propose to carry on international
business?

Web Links
1. http://www.eurojournals.com/irjfe_26_08.pdf
[Globalization and International Marketing Ethics Problems]
2. http://www.aabri.com/manuscripts/09279.pdf
[International Business Ethics: Strategies and Responsibilities]

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3. http://www.c2principles.org/Fireworks/The%20Caux%20Round%20Table%20
Principles%20for%20Business.pdf [The Caux Round Table Principles for
Business]
4. http://en.wikipedia.org/wiki/Sullivan_Principles [Sullivan Principles]
5. http://www.greenleaf-publishing.com/content/pdfs/jcc11kell.pdf [The Global Compact]

References
DeGeorge, R. (1993), Competing with Integrity, Oxford University Press, New York
Donaldson, T. (1989), The Ethics of International Business, Oxford University Press, New
York Ferrell, O.C. et al. (2003), Business Ethics: A Case Perspective, Cengage Learning, Delhi
Friedman, Thomas (2005), The World is Flat: A Brief History of the Twenty-First Century,
Farrar, Straus and Giroux, USA
Ghosh, B.N. (2004), Economic Development: Principles, Practice and Policy, Wisdom House,
UK
Ghosh, B.N. (1985), Political Economy of Neocolonialism in Third World Countries, Sterling
Publishers, Delhi.
Gupta, A.K. and Wan, Haiyan (2007), “Business Insight: How to Get China and India,” Wall
Street Journal, Eastern Edition, April 28
Keston, Joan (2007), “Doing Business Overseas? Let us Talk about Corruption”, Local
Techwire.com
Ritzer, G. (2004), The McDonaldization of Society, Pine Forge Press, California
Transparency International (2005), “Global Corruption Barometer 2005”, http://www.transparency.
org/policy
Waldman, Peter (2002), “Unocal to Face Trial over Links to Forced Labor”, Wall Street Journal,
June 13
Weiss, J. W. (2009), Business Ethics: Concepts and Cases, Cengage Learning, Delhi

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Cases
1. Jesus Forgives the Immoral Woman
2. China’s One-Family, One-Dog Policy
3. Students Protest Over Fees Hike
4. High-Handedness of Microfinance Institutions
5. Muslim Women and Divorce Laws
6. Paid News Scandal and Unethical Journalism
7. Adarsh Housing Society Scam
8. Endosulphan and the Kasargod Tragedy
9. Outsourcing Students’ Homework at Low Costs
10. The Gita: Some Ethical Issues
11. A Story of Love, Revenge and Remorse
12. Is Mercy Killing Unethical?
13. Secrets of Credit Card Theft
14. Is There Full Religious Freedom in India?
15. The Impact of the WTO
16. Economic Growth and Income Inequality
17. Democracy, Development and Labour Market Reforms
18. Nestle’s Infant Formula Controversy
19. Labour Market Dynmaics of the Arab World
20. Empowerment of Women in India
21. Ethical Dilemma of a Police Officer
22. Child Sex Trade in Asia
23. Second Freedom Movement against Corruption in India
24. Globalization and Human Health
25. Globalization: Some Ethical Issues

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CASE 1. JESUS FORGIVES THE IMMORAL WOMAN

Jesus Christ was a teacher who always told simple parables in his teachings. He is the Son of God
for Christians, and for the Jews too he was the long-expected messiah. But he was the son of a
carpenter named Joseph belonging to Nazareth. Even after performing lot of miracles and
teaching the word of God, the Pharisees (high priests of Jews) found it difficult to accept him as
the Son of God. Jesus went on teaching and performing miracles and a large crowd always
followed him, apart from his disciples. The poor and oppressed found comfort from him and
never stopped following Jesus whether in seashores, mountains or even remote villages. For, they
found relief in his words and teachings. This provoked the Pharisees. This was because they felt
his presence was something that damaged their so-called status in the society. Hence they were
eager to trap him.
One day Jesus Christ went to the Mount of Olives, a place near Jerusalem. It was early in the
morning and he found the usual crowd eager to listen to him. He was a man of compassion and
started teaching them. An angry mob intruded his speech by wildly pulling a woman by her hair
in front of Jesus. This group was led by some Pharisees with a secret aim to trap him. The rule
among the Jews, laid by Moses was that any man or woman caught for adultery should be stoned
to death. But Jesus always said, “I have come to save the sinners” which was something never
acceptable for the Pharisees. Thus, he would undermine the Law of Moses, and Pharisees could
trap him for going against the Law. The mob had elders and the youngest as well. They yelled:
“this woman was caught in the act of adultery”. Saying this, they brought her to Jesus. Jesus
never bothered about them and was busy scribbling on the ground. “Master, she had done wrong
and which is a shameful act; she has been caught for adultery”. Jesus understood their secret
intentions and asked them, “What does your law say?” They answered, “Master, our law, the Law
of Moses, says us that she should be stoned to death”, and what do you say”? They continued
tempting him, “What do you say?” expecting an immediate reaction from Jesus. Their curiosity
increased, when Jesus stooped down scribbling on the ground with his finger. He acted as if he
never heard them.
The time went on, the absolute silence with few whispers gained momentum into sort of
murmurings but Jesus went on scribbling, testing their patience. Jesus did not utter a single word;
the mob was getting impatient and continued with the same question. As time passed by, he stood
up, looked at the Pharisees with a penetrating stare and said with authority, “The most innocent
among you can throw the first stone”. He again stooped down and continued scribbling.
When they heard what Jesus said, a shiver ran down their spine as his words had pricked their
conscience. They were spellbound. Gradually they started leaving one after another. They finally
realized that no one can stand in front of God almighty who can read their minds and no one is
worthy of judging their fellow beings.
While all of them left, the woman, still trembling looked up at Jesus. She saw the compassion
in his eyes, when he asked her “Woman, are they all gone”?
“Yes master, they left”, said the woman.
He then asked, “Did they not condemn you?” She
answered politely “no one, Lord”.
Her timid looks revealed that Jesus would punish her; but was rather relieved when Jesus said,
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“I do not condemn you either, go in peace. But do not indulge in sin anymore”. She left him
with a peaceful new heart, and reassured of a new hope in life that Jesus gave.
Jesus came to this world for preaching love, peace and forgiveness. Christianity is the religion
of redemption and reform. Jesus was a reformer and his aim was to show the correct way, reveal
the truth and give new lives to the people. He was of the opinion that one should hate the sin but
not the sinner. In all his actions, Jesus followed this noble ideology.
Source: Contributed by Ms. Shruthi Francis, Union Christian College, Kerala

Questions
1. Why did Jesus save the woman in spite of her guilt? Was it ethically proper for a person like
Jesus to save her? Explain your views.
2. Justify the actions of Jesus in terms of principle of care ethics.
3. Why Jesus did not listen to the request of the mob to stone the woman to death as per the
Law of Moses?

CASE 2. CHINA’S ONE-FAMILY, ONE-DOG POLICY

Like India, China is burdened with teeming millions, although it has a much larger land area.
From the very beginning, the Chinese government realized that in order to ensure a higher per
capita income growth, what is essential, is to reduce the population size. Hence it adopted a
drastic population policy of one family one child.
For decades, families in China have had to carefully adhere to the strict guidelines of the One
Child Policy. In the sprawling metropolis of Shanghai, this controversial and unpopular rule will
soon be expanded to an unlikely member of Chinese households—their four-legged residents.
A draft “One Family, One Dog” law being reviewed by the city’s legislature will now limit
dog-owners to raising only one dog at home. The draft cited Shanghai’s high population density
and limited living space as the reasons behind the proposal, the China Daily reported on
Thursday.
With a growing middle class, an increasing number of Chinese, particularly in more affluent
cities, such as Shanghai, have become pet owners, a once reviled bourgeois attribute in the days
of Mao Zedong. China now has a booming pet industry with more than 5,000 pet products
according to one report, and a generation of pet-owners who spare no means in grooming and
doting over their animals. Unsurprisingly, the draft law has evoked strong criticism from
Shanghai residents, who say the measures are impractical in a city with few dog shelters and
resources for residents to turn to. However, in spite of their disagreement with the proposed, the
people cannot do much because of the nature of the government. Unlike India, China is not a
democratic country.
The draft law, in some sections, reads strangely similar to family planning regulations. Those
breaking the law will be fined 1,000 Yuan, or around Rs. 7,000 (far less than the average 20,000
yuan or Rs. 1.4 lakh families have to cough up for a second child). If dogs have puppies, owners
will have to give them away to government-approved agencies.

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“The rule is unfair and just doesn’t make any sense”, Shanghai resident Jessie Zheng, who
owns a 7-year-old Pomeranian, told The Hindu over telephone. “The only valid argument is the
question of limited space in Shanghai. But if homes are big enough, there should be no issue. And
most importantly, this is a question for families to decide, not the government”.
The only silver lining for dog owners like Ms. Zheng is that the draft law brings down the high
registration costs pet owners currently face. In China, dogs have to be registered with the local
government—a license costs around 2,000 Yuan (Rs. 14,000). As a result of the high costs, most
dog owners do not register their pets (and only walk them at night). According to official figures,
Shanghai has 800,000 dogs, though only a quarter are registered.
The One Dog Policy, expected to take effect next year (2011), ironically comes into force just
as the city begins moving away from the One Child Policy. Faced with an ageing problem, the
Chinese Government last year began encouraging couples who are both only-children to have a
second child. Ms. Zheng, an only child, said the One Dog Policy was unfair on humanitarian
grounds too. She said, “Dogs need dog-friends too”. It is pointed out by many that, like the policy
of one child, one family, the policy on dogs is a also not going to be a sustainable policy.
Source: Adapted from The Hindu. November 12, 2010

Questions
1. Why is one-dog policy unfair on humanitarian ground?
2. What are the basic objectives of China’s one-family, one-dog policy?
3. Analyse the possible consequences of such a policy.

CASE 3. STUDENTS PROTEST OVER FEES HIKE

All capitalist countries are selling education and it is a big business. But the students have to bear
the brunt every time the fees are increased. The fee hike is frequently made and the most affected
are the students from the Third World countries. In November 2010, students in the UK actively
protested this practice. Thousands of angry university students stormed the Conservative Party
headquarters in Central London smashing windows and hurling burning objects into the building
as a protest against planned cuts to higher education funding and increase in tuition fee turned
violent. Several people, including one policeman, have been taken to hospital with minor injuries.
The Milbank Tower, where the Conservative Party offices are located, was virtually taken over
by slogan shouting demonstrators some of whom climbed on to the roof of the building amid
fears that violence could spread.
While trying to tackle the situation, the Police blamed a minority of “troublemakers”. The
National Union of Students (NUS) also condemned the violence describing it as “despicable”.
“I’m disgusted how a minority of troublemakers have hijacked a peaceful protest”, said NUS
president Aaron Porter. Trouble was also reported to be brewing outside the offices of Liberal
Democrats, coalition partners of the Conservatives. Some 30,000 students and teachers were
taking part in the protest described as the biggest show of student power in recent memory. The
march started peace- fully but took a violent turn when it reached the Conservative Party Offices.

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“It was all peaceful – they were just shouting but now there are hundreds outside, smashing
the windows, big eight foot windows of the tower have been smashed, there’s glass flying every-
where”, said Sky TV as protesters threw sticks, bottles and other missiles. Speaking before the
public, Mr. Porter said the proposed increase in tuition fee and cuts in education funding were
“utterly unacceptable”. “We are taking to the streets in unprecedented numbers to tell politicians
that enough is enough”, he said accusing the government of abdicating its responsibility. In the
Commons, Liberal Democrat leader and Deputy Prime Minister Nick Clegg was involved in
angry exchanges with the opposition Labour Party over the proposed fee increase. Mr. Clegg who
opposed tuition fee in opposition was accused of opportunistic u-turn for supporting the increase.
For the second time in two weeks, Britain was hit by a wave of angry student protests marked
by clashes with police and sporadic incidents of violence. They were protesting against proposed
cuts in higher education funding and increase in university tuition fees. In London, demonstrators
vandalized a police van, hurled wooden poles, bottles and other missiles as they tried to break
through police barriers around Whitehall, where government offices are located. At one stage,
tension amounted as students lit a fire on the road leading to Downing Street and threw fire-
bombs. Two police officers were injured while several arrests were made.
Effigies of the Liberal Democrat leader and Deputy Prime Minister Nick Clegg were burnt to
show their anger against his “U-turn” on his election promise to oppose the tuition fee increase.
There were plans to demonstrate outside the Lib Dem headquarters but police were reportedly
determined not to allow a repeat of what happened two weeks ago when students attacked the
Conservative Party headquarters. “There is a consensus to prevent further criminal damage and
we will look to disperse anyone being held as soon as we can and when we can to ensure no
further criminal damage will be committed elsewhere,” police said in a statement. Invoking the
“Spirit of the 1968 protests”, organizers warned of an “unprecedented wave of students
“occupied” university campuses and staged “sit-ins” in many parts of the country.
Some of Britain’s most famous universities, including Oxford and Cambridge, were affected
with students taking out marches and protesting outside government buildings. Leader of the
National Union Students Aaron Porter said he was opposed to any violence. “There are no
conditions in which violence is acceptable. We saw a couple of weeks ago the anger that students
had with regard to the government’s proposals and tomorrow is another opportunity for students
to show what they think about those proposals. From my perspective I think it’s really important
that the campaign continues its momentum and we continue to hold the government to account,”
he said. The protest is still continuing and no solution is in the offing.
Source: Adapted from The Hindu, November 11 and 25, 2010

Questions
1. Is it morally right to make a violent protest against fee hike? Explain your views.
2. Do you think that such a fee hikes are justified? Explain.
3. Is it a moral issue or a political issue in Britain now?

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CASE 4. HIGH-HANDEDNESS OF MICROFINANCE INSTITUTIONS
All India Democratic Women’s Association (AIDWA) is doing a good job by bringing to surface
the cases of gender exploitation and discrimination in India. Among the several resolutions
passed by the Association (AIDWA) in Kanpur, one of the most important ones was on the need
to regulate microfinance institutions (MFIs), which are exercising an iron grip on poor women
debtors in several states of the country. The resolution drew attention to the “spate of suicides as a
result of the harassment and strong-arm tactics employed by commercial and profit oriented
corporate MFIs for loan recovery”. Taking advantage of the failure of banks to meet the credit
needs of the poor, “This new breed of moneylenders is luring women to form Self Help Groups,
and then charging them exorbitant rates of interest—as high as 48–60 percent. Whatever little
collectivism has been generated by the SHGs has been systematically destroyed in the process”.
It highlights the situation in Andhra Pradesh, where “32 MFIs are reported to have given loans
worth Rs. 25,000 crore to 40 per cent of the poor women in the State. Unable to meet their
forcible demands for loan recovery, more than a hundred people have committed suicide in the
last three months”. The ordinance promulgated by the Government of Andhra Pradesh is an eye-
wash as it does not put a cap on the interest rates that MFIs can charge. The resolution calls for an
immediate Central law to cap interest rates charged by MFIs, and to regulate their operations; to
file criminal cases against MFIs engaged in extortionist practices; to cap interest rates from banks
to SHGs at four per cent and cap loans given by MFIs to not more than two per cent above the
banks interest rates to MFIs; and to expand cheap credit facilities through direct banking to
SHGs.
The MFIs are run by corporate money-lenders and they are not less exploitative than village
money-lenders. This was the observation of the Vice President of the Orissa Unit of AIDWA,
described the credit situation in her State. The AIDWA unit in Orissa surveyed 600 SHGs in
12 districts of the State, including those that have taken government loans; those that have taken
loans from government and MFIs; and those that borrowed only from MFIs. The last category
accounts for 70 per cent of the SHGs surveyed.
An empirical survey revealed that MFIs had penetrated deep into villages and towns. While on
paper, the rate of interest is a flat 10 per cent, the interest charged is on the entire principal
through the repayment period, with cuts made from the principal amount under several heads—
such as processing fee, bank charges, agreement charges, membership charges and so on. “The
compounded interest is never less than 52 per cent, and we found that on the last 10 rupee
installment, the interest is 525 per cent!” Measures of recovery are harsh. Agents operate through
the head of the SHG the debtor belongs to, and take away her every possession. “Bilashini Behra
from Bhubaneshwar took loans from three MFIs, each successive one to pay the previous. She
committed suicide because she could ultimately not repay”, said Ms. Praharaj.
“The Central government, with the view that this can attract Foreign Direct Investment, has
moved a Bill on MFIs”, said Rajya Sabha MP Brinda Karat. “There is no cap on interest, so that
women’s savings can be taken control of, destroying the autonomy of SHGs”. The Andhra
Pradesh Chief Minister told the AIDWA delegation that he had instructions from the Centre that
there should be no cap on interest rates. No one knows the motive of the central government on
this issue. The matter needs further investigation.
Source: Adapted from The Hindu, November 12, 2010
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Questions
1. What are the major problems in the microfinance institutions in India?
2. Are the actions of microfinance institutions morally justified?
3. What remedial measures, you think, are necessary to eliminate the problems?

CASE 5. MUSLIM WOMEN AND DIVORCE LAWS

Does the Islamic law (the sharia law) discriminates against women? The matter is controversial
particularly when the question of talaq (divorce) is concerned. It is said that a married Muslim
woman can be divorced by uttering the word “talaq” thrice by the husband. “The triple talaq is a
sword hanging over the heads of married Muslim women”, said Sehba Farooqui, secretary of the
Delhi State Unit of the All India Democratic Women’s Association (AIDWA), in her introduction
to the resolution on the practice of triple talaq passed by the 9th national conference of the organi-
zation on Wednesday. “A minor disagreement can result in talaq”. Drawing attention to a case
where a wife was recently divorced through online chat, the resolution highlighted the “iniquity
and absurdness” of a practice that is affecting thousands of Muslim women in the country today.
The Darul-Uloom-Deoband upheld the husband’s right and issued a fatwa against the wife. The
AIDWA resolution argues that not only is the practice of triple talaq discriminatory and unjust
towards the wife and thus against constitutional principles, it is also contrary to Islam. “Triple
talaq said in one sitting is a part of one interpretation of the Koran. Actually, the Koran
proscribes it”, argues Ms. Farooqui. “There is another interpretation that talaq should be given
over the three-month period, and we are urging that this pro-woman option be exercised”.
Triple talaq, according to the resolution, has been proscribed or limited in a number of
countries across the world, for example in Pakistan, Indonesia, Iraq, Turkey and Tunisia, and that
it is only in India that Muslim men have untrammeled freedom to utter talaq thrice. AIDWA sent
a repre- sentation against the practice signed by 20,000 Muslim women to the central government
and the Muslim Personal Law Board, but this was ignored. The occasion was also marked by the
release of a book entitled ‘Muslim Women: AIDWA’s Interventions and Struggles’, a collection
of articles, reports and documents on the many levels of discrimination faced by Muslim women:
in the personal sphere, as victims of communalism and terrorism, and as a section deprived of
basic rights of citizenship.
But there are some exceptions. The contrast in the status of Muslim women across the country
is vividly illustrated by the experiences of Tajwar Sultana, an activist who lives and works in the
crowded by-lanes of the Jama Masjid area of Old Delhi, and 35-year-old Parveen Akhtar from
west Tripura, who is an elected member of the Zilla Parishad. “There is absolutely no practice of
triple talaq in my State”, said Ms. Akhtar with a laugh, adding that Muslim women have come
forward significantly into the political space. “In the Ashabadi Panchayat of Baksanagar block of
the nine members, eight are Muslim and one Hindu. The State Government has introduced many
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Is Talaq Uttered on Cell Phone Valid?
Talaq uttered thrice by a Muslim man on mobile phone will be considered valid even if his wife
is unable to hear it all the three times due to network and other problems, a fresh fatwa has ruled.
This ruling was given by the Darul Tfta, the Fatwa Department of leading Sunni Islamic seminary
Darul Uloom Deoband, in reply to a question posed by a man. He had asked that in case no
witness was present when he uttered talaq over the phone, would it be considered valid? “I
angrily said talaq thrice to my wife over cell phone but she claimed that she didn’t hear it even
once, and nobody was around. Please tell me whether the talaq has taken place,” he asked.
The Darul Ifta is of the opinion that, “If you have said talaq thrice to your wife, it is valid.”
The fatwa said women would be free to marry after her iddat period (three months after divorce)
is over. It is not necessary that the wife hears it or witness is present for the talaq to take place,
the fatwa ruled. In October, the seminary had ruled that saying talaq thrice even in jest was valid
as per Islamic law. A youth, in his query, had said that while chatting with his wife over the net
he had playfully typed talaq thrice. The problem is that many young married Muslim people do
not really know how talaq is executed. The youth said he was living happily with his wife and
wanted to live with her in future as well and he disapproves his action. The Darul Ifta, in its reply
said once talaq was said thrice, it amounted to a divorce. It did not matter whether the man had
enough knowledge of Islam or not. As per the ruling, the woman would be required to complete
the iddat period after which she could marry another person. She would be then required to
divorce her second husband and go through the iddat period again. “Only then would she be
allowed to remarry her former husband.” Another question implicit in this remarriage is: Will the
former husband accept her when she is already married to someone else? This is indeed a big
question.
Source: Adapted from The Hindu, November 11 and 16, 2010

Questions
1. What are the major ethical issues involved in talaq (divorce)?
2. Is this process of talaq justified by Islamic laws?
3. Do you think that the Muslim women are discriminated? Explain your views.

CASE 6. PAID NEWS SCANDAL AND UNETHICAL JOURNALISM

Corruption in the field of journalism is not unknown. But the recent trend in paid journalism is
suspected to be professionally unethical as it distorts news and makes it in favour of somebody
or against someone else. It is anti-democratic in nature. The “paid news syndrome” in the media
should be resisted as part of a larger struggle for democratic rights because corruption in the
media directly affects the health of democracy. The struggle has to be waged in the context of
media’s corporatization, monopolistic trends and structural decline. These views emerged at a
day-long seminar on “Abridging Freedom and Fairness of the Media: Combating Challenges”,
organized by the Rajasthan Working Journalists’ Union, the People’s Union for Civil Liberties
(PUCL) and the Human Rights Law Network here on Sunday.

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While delivering the Keynote address, P. Sainath, Rural Affairs Editor of The Hindu, said that
the paid news scandal, unearthed during the Assembly elections in Maharashtra last year, had
exposed a full-fledged industry that was out to integrate journalism into it, blowing apart all
values, principles and ethics of news writing.
Mr. Sainath observed that, “For the corporate world, everything including the news is a
commodity. With newspaper space purchased for publicity in the garb of news, politicians break
the electoral expenditure limit without inviting action, and the media evade tax and develop a
political cloud”. He regretted that even as statutory bodies, such as the Press Council on India
(PCI) and the Election Commission, had initiated a probe into the scandal, the mainstream media
was still silent on the issue. “This is a matter of shame. It exposes the corporate media which has
blacked out the racket”.
It is sometimes believed that the media have “structural compulsions to lie” because of heavy
investments made by them in the market. The Election Commission had created a paid news
and money power division and the Central Board of Direct Taxes had deputed a senior officer to
look into the matter, he said. The Securities and Exchange Board of India (SEBI) is also closely
monitoring the new trend. “The choice is clear. Either we finish paid news, or paid news finishes
us”, said the journalist, making a reference to the PCI “suppressing” a 72-page report of a two
member sub-committee on the subject identifying the perpetrators of the crime. Mr. Sainath said
the PCI, as the moral guardian of journalism, was expected to take a bold stand on the issue. He
said while the media’s independence was at stake in the country, the suicide of 2 lakh farmers in
Maharashtra, Karnataka, Andhra Pradesh, Madhya Pradesh and Chhattisgarh between 1997 and
2008 received very little coverage in the mainstream media. “Evidently, the media universe has
changed”, he observed.
Painful Struggle
In order to make media reporting true, comprehensive and balanced, it will be necessary to take
steps going beyond self-regulation, such as anti-monopoly legislation, mandatory SEBI
guidelines and democratization of media. He also sought citizens’ support to the progressive
sections of media and creation of an increased public space in the media. Speakers in other
sessions highlighted instances of attempts to curb freedom of expression, the state and big
business interests exploiting the media, extremist groups silencing the voice of criticism and
curbs imposed by the media houses on the professional life of their staffers.
Source: Adapted from The Hindu, November 15, 2010

Questions
1. What is paid journalism scam?
2. Is it morally right to have a system of paid news? If not, why not?
3. How does it violate the principles of journalistic ethics?

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CASE 7. ADARSH HOUSING SOCIETY SCAM
Scams and scandals have now become part and parcel of the Indian society, economy and polity.
The housing scams of 2010, however, have emerged as one of the biggest enemies of the Indian
armed forces. Even as the muck from the Rs. 295-crore Sukhna land scam is yet to be washed off,
many top officers have yet again brought shame to the uniform by acquiring flats built in the
name of the Kargil war widows. But, as more names surface in the Adarsh Housing Society scam,
a disturbing question haunts the Army headquarters in Delhi: How was the Defence Ministry
unaware of the whole deal? The scam comes a major embarrassment for Defence Minister, A.K.
Antony, who recently pledged to rid the armed forces of impropriety. A red-faced Army chief,
General V.K. Singh, has apparently issued strict warnings to commanders to ensure such
incidents do not occur in their sectors. However, Singh refused to divulge details, “As far as we
are concerned, the inquiry is on, and I would not like to comment beyond this, as it may hamper
the inquiry”, he said.
The Adarsh housing scam involves precisely two issues: one is the unethical and illegal
behaviour on the part of the recipient of the houses which they are not entitled to, and the
bigger question is about the disproportionate assets of some defence personnel. For instance, it is
said that even a junior commissioned officer of the army owns an Adarsh flat worth more than
Rs. 2 crore. While the Centre was reviewing the scam, Defence Minister A.K. Antony sought
reports from the Army and the Navy. According to the Defence Ministry, there has been no
communication from state about the land or the construction of the 31-strorey, 104-flat building
in Colaba. “We were never approached by anybody about the land”, said Ministry Spokesman
Sitanshu Kar. Incidentally, the building overlooks sensitive defence installations, including a
naval airbase.
There are many big bosses involved in this scam. Among the 37 defence personnel who have
been allotted flats in the building are two generals, one former chief of Navy staff, three
lieutenant generals, three major-generals, one vice-admiral and five brigadiers. Four successive
general officers commanding of the Pune-based Sothern Army Command and Major-General R.
K. Hooda, currently posted at the Army headquarters, too, own Adarsh flats. But, many of the
officers claimed that they had no inkling the land was meant for Kargil widows and rued the mess
up. The three former service chief-General N.C. Vij and General Deepak Kapoor, and Admiral
Madhavendra Singh-were among the first to surrender their flats.
Adarsh Society President, Brigadier (retd) M.M. Wanchu, cited a defence communication and
stated the land belonged to the state government. “It was subsequently allotted to the society… it
is clarified that defence has nothing to do with the land in question”, he said. Wanchu also
dismissed reports that while allotting the land, the State Government had stipulated that it was
reserved for Kargil war widows or a girls’ hostel. But defence ministry sources told The Week
that in the original application submitted in 1999–2000, Adarsh promoters asked for land in the
name of retired and serving defence personnel.
Kargil was mentioned for the first time in a letter (June 2000) to Chief Minister, Ashok
Chavan, who was then state Revenue Minister. Also, in many communications, it was mentioned
that the society had many officers who took part in Operation Vijay. Thereon, the cause of Kargil
martyrs was repeatedly used to gain permissions and benefits. Major-General (Retd) T. K. Kaul’s
role has now come under the scanner since he was the sub-area commander in Mumbai when
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was initiated. As new skeletons fall out each day, the stench is getting nauseating. How long will
the Defence Ministry remain tightlipped? How long will the housing society remain ‘Adarsh’?
Source: Adapted from The Week, November 14, 2010

Questions
1. Explain the basic ethical issues involved in Adarsh Housing Scam?
2. Who do you think is morally responsible: the distributor of flats, the receiver of flats or
anybody else? Explain.
3. How do you propose to solve the situation and punish the guilty?

CASE 8. ENDOSULPHAN AND THE KASARGOD TRAGEDY

For the last so many years, the people working in the plantation site and in the neighbouring areas
of Kasargod (Kerala) have been suffering from the harmful effects of endosulphan. The
organochlorine pesticide Endosulfan, sprayed extensively in the plantations of Kerala Plantation
Corporation, is one of the major reasons for the abnormal health conditions including physical
deformities and mental retardation found among people in 11 panchayats of Kasargod district,
according to a study.
A study conducted in the ‘2001–2005’ period by three experts reveals that the abnormality
among people is high in areas close to the plantation where Endosulfan was sprayed. Through
geographic mapping, cluster areas of abnormal health conditions were indentified and a study was
conducted to identify any association between pesticide exposure and health hazards. In the study
that covered the entire Kasargod district, abnormal health problems were found in 11 panchayats
and the ‘number of cases’ was high in four panchayats including Badiyadukka, Enkamaje,
Coomanagedge. “For the case-control study, primary data for 221 cases, 176 unmatched controls
and 189 ‘age and sex’ pair-matched controls, were collected and analysed. Exposure
measurement was through two variables—residential proximity of the parents to the Endosulfan
sprayed plantations and occupa- tional handling of pesticides by either of the parents”.
In a paper presented before experts in a conference at Tanzania, Dr. Sukumaran told that the
found a link between ‘Endosulfan spraying’ and mental and physical abnormality of people in
the Kasargod district, was proved by a major section of the academic community through scien-
tific studies. “The spraying of Endosulfan using helicopters caused direct contamination of water
resources and entered the body”, he added. The fact that, endosulphan has damaging effects on
human health, has not been accepted as true by many people. The controversy was ongoing for
quite some time in the past. However, its use of the chemical has now been banned in Kerala and
the Govt. of India is also ordered its discontinuation in the country.
Source: Adapted from Indian Express, November 14, 2010

Questions
1. Explain the adverse health impact of Endosulphan spray?
2. Who is to be morally blamed and why?
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CASE 9. OUTSOURCING STUDENTS’ HOMEWORK AT LOW COSTS
Everybody has heard about outsourcing of some company works and essential inputs but outsourcing
of students’ homework is a new phenomenon of this century. This is being openly practiced in
developed countries, including the European nations. Outsourcing of jobs to low-cost destinations
has been a prickly issue for some time now, but Australian academics are worried over a new
trend—of students outsourcing homework to their counterparts in India, Pakistan and Egypt.
With the cheap rate prevailing in developing countries of India and Pakistan (@$2 for 100
words), high school and university students in Australia have found out ways to outsource
homework projects. An increasing number of websites are offering to write essays, term papers or
dissertation writing services, the Sunday Herald said in a report. The websites offer “fixed-price”
services or allow students to put work out to tender, promising to tailor their work to display
different levels of expertise.
The outsourcing is available not only for doing homework but also for doing many small odd
jobs which are labour-intensive in nature. Matt Barrie, founder of a website designed to put small
businesses in touch with affordable labour in emerging economies, has found homework assign-
ments are often put through his site, the paper said. “We get them all the time and, as a lecturer,
I really don’t approve, but kids will be kids—they will always find away to cheat”, he said. And
some young people in countries like India and Pakistan, among others, are finding it a lucrative
option to earn respectable pocket money. “It is my part-time job, I get work from all over the
world, including Australia, the US and the UK”, said Mohammed Ali Khan, 23, a graduate from
Pakistan, who is churning out essays and papers for high school and university students charging
$2 per 100 words.
Is the outsourcing of homework for students unethical? This is controversial. Some experts
will say that if the students understand what is written, they can learn rather than copying from
elsewhere. So the learning process continues. However, many are of the opinion that students
themselves should do the homework and not get them outsourced. Such an attempt will
jeopardize the very meaning of education based on learning by doing. However, others agree to
differ on this issue.
Academics say it is a worrying trend. “The trend towards custom-produced work at such low
costs, particularly at university level where lecturers may not know their students as well as in
high school, is extremely worrying because it is much harder to spot”, says Mary Bluett,
Victorian branch president of Australian Education Union. Australian Education Minister Bronwyn
Pike said: “Students who submit purchased work risk being caught and facing severe
consequences.”
Source: Adapted from the Press Trust of India, Melbourne, November 14, 2010

Questions
1. When the outsourcing of students’ home assignments makes all parties happy, why it is
considered as immoral? Explain.
2. Under what ethical principles, such outsourcing becomes immoral?
3. How, according to you, the situation can be tackled forever?

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CASE 10. THE GITA: SOME ETHICAL ISSUES
The Bhagavad Gita is a Hindu scripture and contains the essence of many Upanishads and the
teachings of Vedanta. It is said that Lord Krishna is the divine milkman, milking the cow of the
Upanisahds to yield milk for Arjuna and also for the entire humanity at large. It is set in the
battle- field of Kurukshetra at the very beginning. It is a war between the Kauravas and the
Pandavas. In the war, Lord Krishna assumes the role of Arjuna’s friend and charioteer. He is also
the philosopher and guide. Arjuna along with his four brothers had to fight the battle against their
Kauravas cousins to regain their lands and titles that were immorally and unlawfully taken away
by them. The Pandavas did not ask for half of the kingdom which was their rightful share, but
only asked for five villages for the five brothers. The Kauravas did not agree to given even a
small piece of land without fighting. This was the main cause of war between the Kauravas and
the Pandavas.
However, when Lord Krishna positions his horse-drawn chariot in the midway between two
armies on both the sides, Arjuna becomes flabbergasted and is not want to fight the battle as the
commander for the Pandavas. However, Lord Krishna insists Arjuna to fight the battle with the
courage of a warrior (kshatriya). He tells Lord Krishna that he is not prepared to kill his own
cousins, uncles, teachers and his maestro who taught him archery. Arjuna’s heart is greatly
troubled as he has to kill many of his own people and relatives. Arjuna at this stage confronts an
ethical dilemma between duties as a warrior and the ethics of care and compassion. Lord Krishna
asks Arjuna to fight the right kind of battle and not to be a coward. He says it does not matter who
gets killed, for people will have to die sooner or later. It is the mortal body which perishes and not
the soul. Krishna asks Arjuna to fight (to perform the assigned duty) as a duty, and to perform the
assigned duty is everybody’s religion. One should perform his duties without any desire for the
fruit of the action and its reward. This is one of the fundamental teachings of the Bhagvad Gita.
Arjuna wants to know why he should fight a battle like this between close relatives. He wants
to know more about his duty, about the sin that he commits by killing his people and what
happens when one dies and leaves this world, and so on. Lord Krishna answers all his questions
and shares the spiritual knowledge with Arjuna.
Lord Krishna explained to Arjuna that there is no point at this stage to think about your sin if
you kill your kith and kin. The Lord says, “Giving up all dharmas, come to Me alone for refuge; I
shall free you from all types of sin”. Having said this, the Lord dispels all doubts from the mind
of Arjuna who ultimately gets ready for fighting the battle.
Source: B.N. Ghosh, Teaching Materials on Business Ethics, IMT, Punnapra, Kerala

Questions
1. Is it ethically right for Lord Krishna to persuade Arjuna to fight a battle with his close
relatives? Explain.
2. They say to forgive is divine. Is it not ethically more graceful to forgive the wrong-doers,
particularly when they are your close relatives? Give your views in terms of the ethics of
care and compassion.
3. Lord Krishna asks Arjuna to give up all religions. Does it not mean that the Gita is an anti-
religious book, and teaches people to be atheist? Elucidate your point of view.

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CASE 11. A STORY OF LOVE, REVENGE AND REMORSE
At long last, in the early fifties of his life, Biren got an appointment in a Singapore-based company
as its Director with a lucrative package. He joined the firm and within a very short time, he
carved out niche for himself as a polite, amiable, respectful and professional person. Biren used to
visit his family and friends in India once in a year for a month or so. He wanted to take with him
his wife and his only son, Babul, but since his son was appearing for the civil services
examination and the wife was working in a private college, they did not want to accompany him.
Rima, his wife is a beautiful and a highly educated and sophisticated lady. Biren and Rima had an
inter-caste marriage and both were happy and contented.
In Singapore, Biren had to appoint a lady, Mira, to do household chores, washing and
especially cooking Indian food. Mira first told Biren that she was a divorced woman. However,
gradually she disclosed that she was married but her husband left her soon after the marriage as
he was a drug addict. She was young and pretty but her life was miserable and lonely. Biren by
nature is a sympa- thetic person and his sympathy for the poor girl, Mira, gradually turned into
love quite unknowingly and rather unconsciously. Mira loved him more than Biren’s love to her.
She considered his love as the anchor of her life. Mira knew that Biren was a married man with a
grown-up son. But that did not deter her love to Biren.
A woman perhaps has a better faculty of introspection than that of a man. In the course of time,
Rima started doubting her husband and asked him to resign and come back to India. Biren wanted
to stay there for a few more years as per the contract and of course for the money that he was
getting from his company. He told Rima that after coming back to India, he will have no good job
to fall back on.
Biren bought a very expensive house in the name of Rima and presented her with a new and
dainty car. Rima was temporarily happy once again. As time passed by, there grew a faint hope in
the mind of Mira that, since Biren is so considerate and nice to her, may be one day he would
marry her and would permanently settle in Singapore. A romantic and innocent mind often does
not brook the convoluted world of reality but always simplifies it to accommodate her dreams.
She hardly knew that Biren cannot permanently stay in Singapore on a contractual job.
Next year, as usual, Biren came to visit his family and found that his house was cordoned off
by private security guards, and he was not permitted to enter his house. Rima left the house by
putting a note to her neighbour saying that somebody from Singapore had written to her that
Biren would come to India with his new wife (Mira) to take away all his bank balances. Hence,
she had withdrawn all his money by forging his signature. As the house was in the name of Rima,
Biren was dispossessed of the house.
Biren has now virtually become a pauper. He came back to Singapore with a broken heart.
He has lost everything—his family, his love and his material possessions. He resigned from his
job and came back to India. Mira heard about all these and did not want to put him into further
trouble. She blamed herself by saying that all these happened because of her. She knew that being
a foreigner; she cannot stay with Biren forever in India as his wife. For a Hindu, a second
marriage is an offence. She asked Biren to go to India and compromise with his wife and forgive
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Biren now stays with a family as a paying guest. His wife, Rima, stays alone in her house and
the son who is a senior civil servant, visits her occasionally. He did not approve of her mother’s
cheating on his father. Mira’s husband is now almost a normal person, and they now live together.
However, she never told her husband about her relationship with Biren. She never loved her
husband. She still loves Biren and hopes to be united in the next life.
Rima now hates Biren and she says she has taken revenge by making him a pauper. Biren feels
that he is completely misunderstood; he never married anybody and still loves Rima as ever
before. He made several attempts to make a compromise but Rima is a stubborn lady. Biren only
wishes that before taking all drastic actions, Rima, who has stayed with him for thirty years,
should have just spent thirty minutes to discuss the whole issue and the rumour. Mira is lonely
with her husband; Rima is alone and Biren is forlorn and dejected feeling occasionally sad,
remorse and guilt in his mind. Who is at fault?
Source: B.N. Ghosh, A Collection of Short Stories (Unpublished)

Questions
1. Who is the guiltiest character in this episode?
2. Why did Rima take the revenge? Do you think that the forgery she committed is morally
right?
3. What is your opinion about the character of Mira? Where is she ethically wrong?

CASE 12. IS MERCY KILLING UNETHICAL?

Mercy killing is suggested by many in the cases of those patients who are terminally ill and have
been suffering from excruciating pain and discomfort for long. Mercy killing is also called eutha-
nasia. One widely-accepted definition of euthanasia is “a deliberate intervention undertaken with
the express intention of ending a life, to relieve intractable suffering.” It’s also simply called
“mercy killing.” Again, euthanasia itself may include voluntary, non-voluntary, involuntary and
active or passive kinds. In India, despite a long ongoing debate and a few landmark legal
precedents, any form of euthanasia amounts to criminal homicide punishable by law. A major
apprehension among those who are against any form or mercy killing is that, if legalized, some
instances could be disguised murders, especially of the sick and elderly, which the perpetrators
could get away with.
The Supreme Court (1994) had proclaimed that the right to life provided in the Constitution
might bring into its purview the right not to live a painful life. This in effect temporarily made
suicide no longer an offence, and would by extension have legalized assisted suicide, which is
what euthanasia usually is. But in 1996, while dealing with another case, the Supreme Court
reversed its earlier judgment and made suicide once again a punishable offence. Even so, in
practice, the police and the legal system generally deal leniently with those who unsuccessfully
attempt suicide, because such people are usually depressed of suffering deeply in some way. But
any kind of assisted suicide-including shocking, stray instances reported of sati, the ancient,
outlawed practice of widows committing suicide with the assistance of relatives on their
husband’s funeral pyre, does not get such sympathy.

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A history was made by the Supreme Court again in 2009 when it admitted a petition filed on
behalf of Mumbai nurse Aruna Shanbaug, now 62, who has been lying in a semi-comatose state
since 1973 after she was raped and strangled by a hospital employee. In many countries,
voluntary euthanasia is legal such as in the Netherlands, Switzerland, Belgium, Luxembourg
and in the US states of Oregon and Washington. In Australia, euthanasia was legalized
temporarily in the Northern Territory in 1997. Since then, there have been 12 attempts to legalize
euthanasia in Australian state parliaments, all of which have failed. England and Wales are taking
the first step to consider passing a law on assisted dying. According to a recent online news report
in the British Medical Journal, a 12-member commission will consider if such a law is
required, and submit a report in October next year. Assisted dying involves a doctor prescribing a
life-ending dose of medication to a mentally competent, terminally ill adult at his request. It is the
patient who admin- isters the medication himself.
Some countries are trying to legalize assisted dying. Assisted dying is very different from
eutha- nasia. In the case of euthanasia, the life-ending medication is administered to the patient by
a third party, usually a doctor. On the other hand, assisted dying refers to providing assistance to
someone to die. Former Lord Chancellor Charles Falconer, who will head the commission, was
reported as saying to the BMP that the idea for the commission came from Dignity in Dying, a
national campaign and member organization that is striving to make this legal. Money for the
commission was raised by Dignity in Dying. Despite this, Lord Falconer has made it explicitly
clear that the members will act independently and that the commission will not be influenced by
anybody. Currently, it is illegal in England for doctors to help terminally-ill and mentally
competent patients to die. While terminally-ill people can travel to Switzerland and resort to
assisted dying, people in England who had helped the patient to travel to Switzerland can be
punished. Apparently, Lord Falconer had tabled an amendment in the House of Lords to provide
legal protection to those who had helped terminally-ill patients to travel abroad for an assisted
dying. His attempt failed, though.
Switzerland is not the only country that has legalized assisted dying. The State of Oregon in the
U.S. was the first in the world to legislate assisted dying way back in 1997. Citizens there had
voted for the “Oregon’s Death with Dignity Act” in 1994, but immediate implementation was
delayed due to legal hurdles. There have been 460 patients in Oregon who had died by taking
advantage of the Act between 1998 and 2009.
In the New England Journal of Medicine, it is reported that there were totally 23 patients who
received legal prescriptions for lethal medications between January 1, 1998 and December 31,
1998 in the State of Oregon. Of the 23, only 15 patients actually took the lethal medications and
ended their lives. Washington State emulated Oregon and voted for assisted dying in November
2008. Eleven people used prescribed medicines to end their lives within six months after the State
law permitted assisted dying. Three countries—Belgium, Luxembourg, and the Netherlands have
legis- lated assisted dying. Voluntary euthanasia is forbidden in Switzerland. But Article 115 of
the Swiss Penal Code exempts people who assist someone to die, provided they have acted with
entirely honorable motives. France and Spain are looking at the possibility of amending the
existing law to permit assisted dying. The policy of Dignity in Dying is to work towards
legalizing assisted dying so that terminally-ill patients have a choice and control over the timing
and manner of their deaths.

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“The dying person (adult) suffering at the end of their life, will be given the option to
substitute a bad death with a good death,” its website states. There are some basic requirements
for a patient to become eligible to receive a prescription for lethal medication from a doctor. For
instance, the patient must make two verbal requests to his doctor separated by at least 15 days,
and should also provide a written petition. The doctors should confirm the diagnosis and
prognosis of the disease. The patient should be mentally sound. If the patient’s judgment is
impaired by his mental state, even depression, he becomes ineligible. The doctor should inform
the patient of the possible alter- natives such as palliative care, pain control and et al. However, is
it ethically correct?
Source: Reader’s Digest, October 2010 and The Hindu, November 28, 2010

Questions
1. Explain the meaning of mercy killing and why it is done.
2. What do you think should be the conditions for assisted dying? What is the difference
between mercy killing and assisted dying?
3. How do you propose to eliminate abuses of such laws as mercy killing/assisted dying?

CASE 13. SECRETS OF CREDIT CARD THEFT

Misuse of technology makes it possible to steal someone’s credit or debit card. The subsequent
passage will highlight the same.
You should watch your back while in queue at the supermarket I’ll hold my phone like I’m
looking at the screen and photograph your card as you’re using it. Next thing you know, I’m
ordering things online-on your money. Those letters and newspapers piling up at your door
indicate you are away. And there could be card numbers and bank numbers I can use.
In this context, one important tip is: check your bank and credit card balances at least once a
week because a lot of damage can be incurred in the 30 days between statements. In Europe,
credit cards have an embedded chip and require a PIN, which makes it more difficult to hack. Not
here, and so I can duplicate the magnetic stripe technology with a cheap machine.
If a bill does not show up when it is supposed to, do not breathe a sigh of relief. Start to
wonder if your mail has been stolen. You throw away the darnedest things-pre-approved credit
card applica- tions, old bills, expired credit cards, bank deposits slips, and crumpled-up job or
loan applications with all your personal information.
You may see something that looks like it does not belong to the ATM or sticks out from the
card slot and you walk away. That’s the skimmer I attached to capture your card information and
PIN. It is advisable that you ask your bank to stop banks from sending you preapproved credit
offers? You’re making it way too easy for me. I use your credit cards all the time, and they never
check your signature. You will give me a lot of trouble if your credit card has your picture on it.
My things will be easy if you have a debit card that does not require a PIN when you buy
something from a shop. You know, it’s secure only at the ATM. I can call the cell phone service
provider, pose as you, and say, “Hey, I thought I paid this bill. I cannot remember—did I use my

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Visa or Master Card? Can you read me back that number?” It’s unbelievable how much they’ll
tell me.
I should give you thanks for using your debit card instead of your credit card. Hackers are
constantly breaking into retail databases, and debit cards give me direct access to your bank
account. (Why, if you used only a credit card you could contest the charge and refuse to pay up.) I
love that new credit card that the courier boy left at your door. I write down the numbers and put
it back. Then your card is as good as mine.
Source: Reader’s Digest, October 2010

Questions
1. How is credit card theft made possible?
2. Is there any difference between the procedures of credit card theft and debit card theft?
3. What precautions should one take to pre-empt such thefts?

CASE 14. IS THERE FULL RELIGIOUS FREEDOM IN INDIA?

In spite of the good intentions and the secular atmosphere of the country, religious freedom of
minorities cannot be fully protected in India. Although legal protections against violations
of religious freedom exist in India, corruption and lack of trained police, the laws were never
enforced, according to a United States State Department report. In the International Religious
Freedom Report 2010, the State Department said despite government efforts to foster communal
harmony, extremist groups continued to view “ineffective investigation and prosecution of attacks
on religious minorities” as a signal that they could commit such violence with impunity.
However, the report did not completely clear the government of all responsibility for acts of
violence relating to religion, in particular suggesting that law enforcement and prosecution was
weak due to a “low police to population ratio, corruption, and an overburdened and antiquated
court system”. It argued that some State and local governments also limited religious freedom by
maintaining or enforcing existing anti-conversion legislation and by not efficiently or effectively
prosecuting those who attacked religious minorities. In particular, it noted that there were active
anti-conversion laws in six of the 28 States—Gujarat, Orissa, Chhattisgarh, Arunachal Pradesh,
Madhya Pradesh, and Himachal Pradesh.
The report specifically criticized the persecution of minority groups in Pakistan. It makes clear
that in Pakistan, Christians, Sikhs, and Hindus reported governmental and societal discrimination
in the country. The manifestation of this discrimination ranged from defining as illegitimate the
children born to Hindu or Christian women even after they converted to Islam after marriage.
An extensive list of incidents across Indian states, in which religious freedoms had been
attacked, is prepared in the report. Most entailed attacks by private citizens and groups on
religious minor- ities and their organizations. However the report also noted some positive
developments relating to religious freedoms. In particular it praised the National Foundation for
Communal Harmony for providing assistance for the physical and psychological rehabilitation of
child victims of communal, caste, ethnic, or terrorist violence.

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The report praised the Andhra Pradesh government for allocating approximately $5.89 million
for the Andhra Pradesh Christian Finance Corporation; the Gujarat High Court for directing the
State government to resolve the issue of restoring mosques and dargahs destroyed or damaged
during 2002 Gujarat riots; the Central Government for announcing an increase of $32 million to
the National Minorities Development Finance Corporation for finding programs for minority
welfare. Overall the national government, led by the United Progressive Alliance, continued to
implement an inclusive and secular platform, the report said.
Source: Adapted from The Hindu, November 19, 2010

Questions
1. Cite some incidents in which religious freedom of minorities in India has been curtailed.
2. There are anti-conversion laws in some Indian states. Do you think that such type of law is
ethical?
3. What should the Government of India do to ensure full religious freedom to minorities?

CASE 15. THE IMPACT OF THE WTO

China’s entry into the World Trade Organization (WTO) in 2001 has made it more active in the
field of international trade through interactions with other less developing countries (LDCs).
Long before joining the WTO, China lowered its tariff rates on several occasions and realized the
need for convertibility of the Chinese currency (RMB).
After becoming a member, it has cut the average tariff level of over 5000 imported goods from
15.3 per cent to 12 per cent. China is opening its agricultural goods and general goods markets,
as well as services markets. It is expected that all these will boost foreign investment in China.
But it will not be an unmixed blessing for China. The import bill now is likely to be much higher
than before. So, if China is not able to constantly increase its exports, its current account balance
of payment may pose a problem as in other developing countries. The downside of its entry to the
WTO is that there would be an expanded pressure of neo-liberal globalization and western
influence in China, which may affect its traditional taboos and culture. China also actively
participates in the activities of the Asian-Pacific Economic Cooperation Organization and plays a
very decisive role in all its policy making processes. China’s role in bilateral trade relations with
many developed countries including the USA, the EU, Russia and Japan are strengthened every
year.
India’s experience with the WTO is not a happy one. Before the introduction of agricultural
liberalization in India, agricultural commodity prices were lower than their international market
prices. Hence, exports of farm products from a country like India were rather a lucrative
proposition for the peasants, and as farmers are price responsive, they used to increase production
for exports. This trend continued in the first phase of globalization in the 1980s. But the trend
reversed since the 1990s, particularly after the so-called special and differential treatment of the
less-developed agricultures by the WTO. The typical LDCs studied by the FAO showed a rise in
the export of agricultural products based on their performance in the early phase of globalization
of the 1980s; nut in the 1990s, in spite of the WTO’s special and differential policy, the imports
of agricultural products as a result of subsidy-induced price fall in the international market,
increased several times in these developing countries (FAO, 2000).
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Since the prices of agricultural products have become lower in the international market, Indian
farm product exporters have become much poorer. This has led to widespread protests, frustration
and even farmer’s suicides. The growing economic problem has now become a human problem.
In Indian, agricultural exports as a percentage of total exports went down from 30.7 (1980–81) to
19.4 (1990–91) to 15.4 (1999–2000) to 13.5 (2000–2001). The situation is quite opposite of what
was expected. The large amount of imports has created two adverse problems: export-import
imbalance and fall in the prices of domestic food products. Although exports went up by 83 per
cent, the import of agricultural products in India escalated to 168 per cent. This export-import
imbalance in India has been responsible for a structural adjustment that led to lower compound
rates of growth of food grains production in India. There has grown some sort of apathy towards
the agricultural sector as it is not remunerative any longer. Kulaks are shifting to other business in
the non-agricul- tural sector; city-ward migration has been increasing and, employment in
agriculture, mining and quarrying, and community and personal services has indeed decelerated.
Source: B.N. Ghosh, A Tale of Two Economies: Development Dynamics of India and China,
Nova Publications, New York, 2009

Questions
1. India’s experience with the WTO is not a happy one Explain why.
2. What do you think will be the likely impact of China’s entry in the WTO?
3. How has Indian agriculture been affected by the WTO’s policy? Explain.

CASE 16. ECONOMIC GROWTH AND INCOME INEQUALITY

There are many basic common factors and forces that shape the pace of industrialization in India
and China, which are found to be primarily responsible for the spurt in income inequalities. These
common factors are: structural transformation favouring capital and technology-intensive method
of production, concentration of economic power and growth of monopolies, growth of capitalism
and cronyism. Inequalities in educational opportunities have led to income inequalities in both the
countries. In the field of education in many rapidly developing south-east Asian countries, there
are both intra-racial and inter-racial inequalities. For instance, in the field of higher education in
Malaysia, most of the Bumiputra students are from the richer section and the children from poor
Bumiputra community constitute only a negligible proportion. Even in countries like Singapore
where there are officially declared equal opportunities for education, the children from the lower-
income groups do not have the same effective equal opportunities for higher education for many
reasons of which lower income is the most predominant. When income levels are different,
effective opportunities and choices cannot be the same. Higher education can be afforded only by
the rich people. In recent years, the rich Malays have a higher share of subsidies at the secondary
and tertiary level of education compared to the poor Malays. A higher rate of human investment
by the richer class has been largely responsible for the wider income inequalities in these fast
growing market economies where there are better opportunities and higher income prospects for
the more skilled and professional workers.

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A paradigm shift in the production process from labour-intensive (lower value added) to
capital (technology)-intensive (higher value added) mode of production made the unskilled
labourers, who are generally from the low-paid working class, alienated and rejected in the labour
market. This was evident in Malaysia, South Korea, China and Singapore. The small-size of the
economy of Singapore could ensure full employment of the labour force although at a relatively
low level of income, but higher human capital investment by the elite class was responsible for
wider gaps in wages and salaries. This was also true for the Malaysian economy where the pay
difference between ordinary workers and skilled (professional) workers were much higher in the
1990s and the early years of the new century (almost ten times) than what it was in the 1960s and
1970. Moreover, some countries like South Korea, Singapore and Malaysia imported qualified
labour from abroad, and it adversely impacted on the wage and employment of local labour.
Various types of structural adjustments needed by these economies for achieving higher rates of
economic growth were not in favour of the poorer class, and these intensified income inequalities.
In China and South Korea, the vertical growth of big industrial conglomerates led to
concentration of wealth and growth of monopoly power in a few hands. The returns to assets and
land became abnormally high, and the income inequalities between the owners and non-owners of
assets became wider and wider.
In Hong Kong, politico-economic reasons compelled the movement of labour-intensive
manufac- turing operation to China. The policy of deindustrialization reduced labour demand and
wages. The structural transformation trivialized the importance of the manufacturing sector in
Hong Kong and the working force had to fall back mostly upon the low-paid services sector. It
needs to be appreciated that services occupations in less developed countries, unlike in developed
countries, are poverty and low-income induced. As a result of the occupational shift in Hong
Kong in favour of low-paid tertiary jobs, labour force participation rate appreciably fell and
labour income was reduced. The income inequalities were aggravated as an offshoot. However, in
Taiwan, the restruc- turing in the manufacturing sector was not much against the interest of the
working class as there was more or less a balance between industrial and services employment.
But since structural adjustment led to declining manufacturing employment, some labourers lost
more lucrative jobs, and income inequalities increased, albeit to a moderate degree. The policy of
egalitarianism which is the fundamental basis of the development philosophy of Taiwan is
perhaps responsible for a moderate upswing in income inequalities.
Source: B.N. Ghosh, A Tale of Two Economies, Nova Science Publications, New York, 2009

Questions
1. How does capitalist industrialization lead to the aggravation of income inequality? Explain
the process.
2. Analyse the reasons for the growth of income inequalities in the newly emerging economies
in recent years.
3. Is the growth of income inequality ethically bad? Give your views.

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CASE 17. DEMOCRACY, DEVELOPMENT AND LABOUR MARKET REFORMS
It is said that labourers in India are argumentative and rather unrelenting. The violent opposition by
workers against the proposed privatization of civil aviation and banks, the Hero Honda episode in
Gurgaon, and the practice of gherao (confinement of higher officials) that started in the past are
not stray incidents but bespeak of definite behaviouristic attitude of workers in work places.
Indian labourers are more conscious of their rights, and they are often supported by political
parties. The fluid labour market situation characterized by overt and covert unemployment and
underem- ployment of various types with very low opportunity cost of labour reduces it to be a
victimized class with a high degree of nuisance value. This class is vulnerable to be sold out in
the hands of politicians and pressure groups. Indian workers are often used and misused for the
purpose of disruptive activities. Even on flimsy grounds, the workers resort to strikes and
violence which generally hamper production and growth. The working class is low productive
and repugnant to progressive changes in the dynamics of production and in labour market
relations.
The capitalist principle of “hiring and firing of labour” is not simply applicable in India. Over
the years, Indian labour has been able to develop a system of countervailing power on the basis of
strong trade unionism in very profession and occupation. Even the state in India does not want to
repress labour. This is mainly because of two specific reasons. First, such an action goes against
the election politics, and second, it violates the fundamental principles of democracy which India
adores. The tradition of having too much of democracy in every type of action and decision
creates in labour a proclivity to wage a plucky battle everywhere for his or her rights. Jawaharlal
Nehru once described Calcutta as a “city of processions”. Media people often describe Kerala as
hartal’s own country. Even Mahatma Gandhi advised labourers to fight for their rights through
strikes, non-cooperation and civil disobedience. In the case of a choice between cowardice and
violence, Gandhi advised people to be violent. Indian labour is highly sensitive and potentially
violent, a factor which discourages multinationals corporations (MNCs) to work in India.
In fact, the growth of India’s manufacturing sector is somewhat stifled by rigid labour laws,
which are among the most restrictive in the world (The Economist, February 2007, p.67). It is
indeed very difficult for a firm that employs more than 100 labourers to fire workers without of
permission of the central government which is unable to amend the laws without the support of
the communist party of India, on which the central coalition has to heavily rely. In theory, it is
possible to have a flexible situation in this regard in different states. However, in practice, the
rules of the central government are tacitly followed, and the regional trade unions always cling to
such laws as are in their favour. If the Indian manufacturing sector is to really expand, the first
thing it must do is to introduce suitable labour market reforms without further delay.
Source: B.N. Ghosh, A Tale of Two Economies: Development Dynamics of India and China,
Nova Publications, New York, 2009

Questions
1. Indian labour is highly sensitive and potentially violent. Do you agree with this statement?
Give reasons for your answer.

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2. Why is the capitalist principle of hiring and firing of labour is not applicable in India?
Explain.
3. What do you mean by labour market reforms? Why are such reforms not possible in India?
Explain.

CASE 18. NESTLE’S INFANT FORMULA CONTROVERSY

Nestle, S.A., is the Swiss conglomerate which once dominated the marketing of Infant formula in
the Third World, or less-developed countries (LDCs). Other companies also marketed infant
formula in LDCs, but Nestle was the major company. In the 1970s, Nestle became involved in a
controversy over the morality of selling infant formula in the Third World and of using specific
promotional and marketing techniques considered immoral by some. The basic allegation against
Nestle and the others was that in these Third World countries, infant formula was likely to be
misused and therefore, might lead to malnutrition, diarrhea, and death. Also, it was claimed that
Nestle’s aggressive marketing tactics encouraged women to choose bottle feeding, thus resulting
in a decline in breast feeding, which is safer and healthier, particularly in the Third World. Poor
sanitation, impure water, inadequacy of water supplies, and inability to read, comprehend, and
follow directions resulted in disease and malnutrition. Mothers, who were poor, tried to save
money and thus over-diluted the infant formula to make it go further. One of the worst marketing
practices entailed the use of “milk nurses”—women dressed as nurses’ uniforms who walked the
halls of maternity wards urging mothers to get their babies started on formula. In reality, these
women were sales representatives employed by the companies on a commission basis.
Although several companies were engaging in these questionable marketing practices, the
Swiss conglomerate Nestle was singled out by a Swiss social activist group in an article published
in 1974 entitled “Nestle Kills Babies”. Around the same time, an article appeared in Great Britain
entitled “The Baby Killers”. From this point on, a protracted controversy developed with Nestle
and other infant formula manufacturers on one side and a host of organizations on the other side
filing share- holder resolutions and lawsuits against the company. Among the groups that were
actively involved in the controversy were church groups such as the National Council of
Churches and its Interfaith Center on Corporate Responsibility (ICCR), UNICEF, the World
Health Organization (WHO), and the Infant Formula Action Coalition (INFACT). Nestle was
singled out because it had the largest share of the world market and because it aggressively
pushed sales of its infant formula in devel- oping countries, even after the WHO developed a
sales code to the contrary. In 1977, INFACT and ICCR organized and led a national boycott
against Nestle that continued for almost 7 years. More than 70 American organizations,
representing churches, doctors, nurses, teachers, and other professionals participated in the
boycott. These groups mounted an international campaign aimed at changing these objectionable
marketing practices in the LDCs. In 1984, after spending millions of dollars resisting the boycott,
Nestle finally reached an accord with the protesters.
Source: Adapted from http://en.wikipedia.org/wiki/Nestl%C3%A9_boycott, accessed on July 11,
2011.

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Questions
1. What was the controversy about Nestle’s baby food formula?
2. Why was Nestle alone singled out for this offence while many others were producing the
same type of product?
3. How was the case settled by the company?

CASE 19. LABOUR MARKET DYNAMICS OF THE ARAB WORLD

The labour market in the MENA region is going through the convoluted process of transition.
Such a transition has been basically affected by a couple of problems involved in the labour
market dynamics. First, there are rising rates of unemployment and underemployment. Sound, it
has been noticed that a large number of expatriate workers are producing deleterious effects on
the macroeconomic balances in the Gulf region. The capital outflow in the form of remittances by
the expatriate workers at present amounts to $13 billion a year (ILO 2004:19). All these have
prompted two policy changes—to replace more and more foreign workers from the region and to
increase the participation of the domestic labour force. However, the nationalization drive has
been creating many problems in Saudi Arabia. This is particularly true for the local female
workers.
Arab labour market dynamics has to be understood in the context of the psyche and ethos of
the Arab world in recent years. In this connection, one can talk about three different emerging
trends. First is the attempt to introduce modernization in some of the Arab countries. Second is
the arabi- zation of the labour market in almost all countries, especially in Saudi Arabia, and the
third is the overriding influence of the process of Islamization. The labour market arabization has
differential impacts on the gender dimension of the labour force. The saudization strategy was
able to increase the employment of local labour by about one million, and between 1983–1999,
this helped to increase the employment of native labour in the private sector too. Evidently, this
has positively helped the female labour force in achieving a higher LFPR and income. In the case
of arabization of the labour market, the demand for local labour is likely to increase and possibly
the wages will look up too. This will spurt the supply of labour and perhaps the overall labour
force participation rate will also go up in sympathy. But if the general philosophy of Islamization
becomes overwhelming, it may not increase the labour force participation rates of women except
in some modernized GCC countries. Thus, the average gender wage gap may not narrow down in
future. In fact, the chasm may increase as it is likely to boost the local wages for male labourers
following the arabization move. Whatever are the prospective advantages, if at all, in store for
female labour force, they are likely to be swamped out by the intensification of the Islamization
process. Thus, there are some sort of counterproductive roles of the processes of Islamization and
modernization of the Middle Eastern labour market for the women labourers. Since the Arab
world valorizes religion and trivi- alizes all other aspects of life and society, none can be very
sanguine about the fate of women in the labour market. Things will depend on the relative
strength of these two opposing forces. However, it needs to be appreciated that labour market
dynamics in these countries is not influenced so much by economic factors as by cultural,
religious and traditional idiosyncrasies.
It is too early to comprehend the precise nature and impact of such a structural change on the
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relative gender wages and employment in different countries of the Middle East. As against
456the

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probable gains in gender employment and FLFPR(Female Labour Force Participation Rate), one
should place side by side the negative effects of open wars, civil wars and sanctions, which are
being experienced by countries like Iraq, Algeria, Lebanon, Sudan, West Bank and the Gaza
Strip. The ILO study predicts that during 2003–2015 the labour force in the MENA region will
grow at the annual rate of 2.6 per cent per year, bringing in four million new work force every
year into the labour market. What is critical for the absorption of this labour force is the high rate
of growth of these economies. But the bad news is that for so many years, these economies have
been growing at the rate of only around four per cent per year. None can reasonably expect that
this rate will suddenly jack up, and unless economic growth spurts significantly, the labour
market dynamics for the Arab women is likely to be hovering around the status quo ante.
However, there seems to be a silver lining. In the MENA region, only about one third of the
labour force gets regular employment, and the unemployed women workers constitute a huge
untapped resource that can be used for boosting productivity and the tempo of economic growth,
only if the labour market discrimination and socio-cultural tradition against the women are
eliminated, and the employment maximization policy of the native labour force, both male and
female, is accepted as the top priority on the time table of action programmes.
Source: B.N. Ghosh, “Gender Disparities and Labour Market Dynamics in the Middle East”,
Unpublished Paper, 2010

Questions
1. Many structural changes are taking place in the Arabian labour market. Elaborate on this.
2. Is there any labour market discrimination against Arabian women? Explain
3. Islamization and arabization will have different impact on the female labour force. Explain
why?

CASE 20. EMPOWERMENT OF WOMEN IN INDIA

In recent times the concept of women empowerment has gained primacy in contemporary social
science discourse as well as in action sociology. This stems from the realization of the relative
failure of development as an instrument of change and the failure of welfare state in safeguarding
and protecting weaker sections from inherent and artificial mechanisms of exploitation and
domination. As a result of this understanding and as an effort to find new alternatives in altering
the existing inequities in terms of social positioning, economic status and psychological
dispositions, gender studies evolved as a powerful social framework.
Theoretically these studies have their roots in a definite model of feminist literature to which
we identify as the “third of wave of feminism”. Exemplars of this branch of feminist thought
believe in multiculturalism, cultural pluralism and cultural relativism. They believe that each
geographical and ecological niche is specific and peculiar and thereby distinct from others. This
tendency and characteristic is not only particular to ecology only but also have decisive
preponderance in social ambience. It unflinchingly recognizes the futility of universal feminism in
ameliorating the drudgery and oppression of women across the face of the globe. It has also
realized the inability of universal

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feminism as an emancipator project as well as a vantage point of women liberation. On the
contrary it focuses on the differences and specificities existing among various sections of women
in various parts of the world. This paradigm underscores the inherent and accomplished
differences among women as well as the heterogeneity of women as a group. This estimation has
encouraged in taking up specific local problems by specific and indigenous groups of activist to
operate individually and as autonomous groups. Maitrayee Mukhpadhya emphasized that women
in India did not constitute a homogenous group and thus the problem they faced in development,
varied in degree and kind along with the variation in class and community background. It is true
that women in India do not constitute a homogeneous group and suffer from multiple maladies
most of which are located in their specific and particular domain and its eradication or relief lies
only in a comprehensive understanding of that particular locale and its frailties. The tribal
women, the women of street, middle-class women competing with each other in the status ladder,
upper-class women fighting for individual autonomy and poor and illiterate rural and urban
women striving for economic and social autonomy provides various juxtaposing and paradoxical
realities uncommon to any encap- sulating grouping.
Shabana Azmi and late Protima Bedi’s fervent pleas for individuality of women, Medha Patkar
and Vandana Shiva’s ecofeminism, Vina Majumdar and Neera Desai’s erudite social feminism,
Indira Gandhi and Sarojini Naidu’s feminist activism as well as Sushmita Sen and Aishwarya
Rai’s cosmetic feminism has very little to do with millions of women fighting for individual and
just human rights across the labyrinth of lane and by lane of vast landscape of Indian peninsula.
Therefore it is imperative and essential to have definite trajectories and strategies to solve typical
and archetypal problems of separate and by and large autonomous women groups.
In this context, one must strive to understand the benefits and limitations of indexes of women
empowerment largely proposed by United Nations Development Programme (UNDP)’s Human
Development Index (HDI) which uses Gender Empowerment Index (GEI) to measure Gender
Development Index (GDI). Considering the difference in the degree and kind regarding to the
male responsibility and attitude in India and life styles, life worlds and worldviews of men in
India one ought to take a symbiotic perspective of men-women relationship and feminism. The
concept of empowerment needs to be interpreted and understood within the strict parameter of
these competing realities. Empowerment is defined as the strategy and policy of enabling the
underprivileged for participating in the process of decision-making.
The process of empowerment has three dimensions namely economic, social and political.
Economic empowerment refers to the policy rather the adoption of affirmative and protecting
strategy in providing economic and employment opportunities to women. But this seems very
difficult in India considering the rate of unemployment, gigantic population strength and low
per capita income as well as over increasing income disparity graph despite the boom in the IT
industry and fat forex (foreign exchange) reserve in the aftermath of liberalization. Poverty and
unemployment continues to trouble Indian planners and experts day in and day out and it
automati- cally rules out and sustained freebies for women in employment and economic
opportunities that will jeopardize the ongoing economic development programs. Political
empowerment of women has been introduced in India since early 90’s in the form of
decentralization of power and in the program of power to people. The Panchayati Raj and
Nagarpalika Bill incorporated in the 78th and 79th Constitutional amendment has given a new
lease of life to many a women across the
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country, paving the way for their participation in decision-making and political development of
the nation. Though the result has not been as encouraging as it should be in terms of qualitative
change in attitude and aptitude of men and women at least it has opened new vistas and doors for
a new beginning. It has been a silent revolution. Now, the question comes of social empowerment
that is the empowerment of women in social sphere where they spend most of their time. Social
empowerment refers to the enshrinement of the principles of equality, equity and dignity in social
relationships particularly in gender relationships. This is an attempt to engender the society about
gender relationship and this should be achieved not through the legislation but through the inner
realization and gradual change of mind. This attitudinal change and change of perspectives
towards our social counterparts is possible only when a holistic transformation of life and
worldviews are necessarily changed. Efforts should be made in the direction of including these
perceptual changes in the perspective of social praxis.
The problem with this paradigm is that the slightest possibility of attitudinal change is
trampled by the leviathan patriarchal social order. Even the traditional instruments and agents of
change like education have miserably failed in arresting and eradicating these structural malaises.
Education system (both traditional and modern) is in fact infested by a powerful approach, which
has meticu- lously propagated both covertly and overtly a sense of difference and inferiority
between the two sexes. It stems from the sinister and faculty belief that gender differences are
natural corollary of their between differences. Therefore, there is an urgent need to transform the
pedagogical practices and direct it towards a positive goal. We must ensure proper and quality
education for our future generation and present genre through various techniques and end the
existing impasse over the role and position of women in society, their condition and
competencies, their rights and responsi- bilities.
Source: B.N. Ghosh and Parvesh Chopra (Eds.), Gender and Development, Wisdom House, 2002

Questions
1. The concept of universal feminism is practically futile. Why?
2. Discuss the benefits and limitations of HDI, GDI and GEI.
3. What are the different gender empowerments in India? Explain why gender empowerment
has not been successful in India?

CASE 21. ETHICAL DILEMMA OF A POLICE OFFICER

For almost a week, the front page of all newspapers has highlighted the terrorist attacks on Taj
Hotel and surroundings in Mumbai. It was shocking news to the world. Mr. Mathew, the Police
Commissioner of Mumbai, could not make it to home all these days. He was busy co-ordinating
the security of citizens and the arrest of the terrorists from the moment of attack.
Despite all the police force deployed and the added military support, nothing could he do to
save the hostages. Many including VIPs were killed in the bomb blasts. This was almost
unavoidable since the terrorists had infiltrated the Taj Hotel, despite its tight security, taking
different strategic positions unknown to the force outside. They blasted bombs in different floors
of Taj at a time, not

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to let anyone escape. Many, the terrorists as well, were seriously injured. The injured terrorists
were the only source that helped Mr.Mathew to find out the mastermind behind this attack.
Mr.Mathew had his entire mind and efforts on this investigation, and using all possible
evidences, traced the terror-leader from Thane, a township near Mumbai. He did not wait, and
made the arrest of the devil, named Shera. Suddenly Mr. Mathew became the talk of the town.
The heart of India was with him, and he became an icon in the police department and media as
well. He felt relieved after the arrest of Shera, as this fellow was a threat to the nation in coming
days.
From the very moment of attack on Taj, Mathew had been away from home. His wife and,
daughter Keya, were awaiting his arrival any moment after the arrest of Shera. Their glowing
faces expressed how proud they were to have him as the man of their home. Mrs. Mathew told
Keya, the chatterbox, not to disturb dad for the moment and instead get ready for school. He
looked almost exhausted, after a week’s hectic job. Keya being a very sensible girl, told dad, “I
have lot of things to tell you. My friends and teachers are praising you to the sky’s limits, and I
am so proud of you dad”. Telling this, she waved her hands and moved away to the school van
that just arrived.
Mrs. Mathew served him some breakfast, when he reached the table after bath. He had his
food, and went to sleep. How long he slept he couldn’t recall. His sleep was interrupted when his
panicked wife handed the phone over to him. A serious voice from the other end penetrated his
soul with the words which no father wants to listen to. “Look! Your daughter Keya is with us,
don’t worry, she is perfectly all right”. The word of assurance transformed into threat later as
follows; “Our mind may change if you ignored what we tell next”.
“Think practically. We want our Shera back. We are not concerned about the other members at
the hospital. We need Shera, as Keya is to you”. He answered nothing, since he felt a big blank or
void ahead. The other end interrupted his silence “You want Keya, we want Shera; so think, think
practically, don’t be over-smart; we will call you in the evening” Thus ended the first episode of
his nightmare. Although not a single word was uttered by Mathew, his wife could read every line
of conversation from his panicked face. With a loud cry she fainted. Mathew laid her on the bed.
He stared at his uniform. His thoughts wandering to the days he became an IPS officer. He
recalled how confident he was in that uniform. It was a dress that assured protection to the
fellows around him. His wife, a proud young woman during their marriage, now lay down
helpless. “No! My family must be safe, and should never suffer because of this uniform”.
At this stage, the police officer confronted with an ethical dilemma in his mind. One the one
hand, there is the call for duties and on the other, there is the responsibility of safety of the family
in accordance with the ethical principle of care and compassion. Which one he should choose?
His eyes wandering through the showcase got hooked on the medals he received and the
pictures of excellent service awards with people around respectfully gazing at him. Suddenly he
could see millions of citizens looking helplessly at him through those photos. “No! I can’t release
Shera, the Lucifer is going to kill many innocent people from my nation”.
His wife turned to the side and started crying again. “Keya, my child! Keya, where are you?”
His face blushed and a ray of sympathy looking at his wife flushed the eyes already red after
sleepless nights, and the anger against the terrorist. No doubt, he was in utter dilemma.
Once again his eyes gazed at the photos on the wall; the Police force marching and saluting the
minister with him standing nearby at the Republic Day parade where thousands of excited Indians
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watching him receiving best service medal form the President. His eyes stopped moving
461further

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when watching the smiling face of Mahatma Gandhi. He felt a sort of assurance about what he
has decided. He put on the uniform, and nodded at his guard, and in seconds, his vehicle moved
to the head quarters. The busy traffic gave way to his vehicle that moved forward with a strong
decision that nobody could stop.
Source: Contributed by Ms. Shruthi Francis of Union Christian College, Kerala

Questions
1. What is an ethical dilemma? What ethical dilemma is involved in this case?
2. How did the Police Commissioner solve his dilemma? Why did he choose not to release the
terrorist? Justify his decision in terms of ethical principles (deonticism and utilitarianism).
3. Do you think that the Police Commissioner took the right step by neglecting the ethics of
care?

CASE 22. CHILD SEX TRADE IN ASIA

One of the important features of globalization is that it has annihilated distance between different
countries and communication has also been made easier. This facilitated not only human
interaction but also illegal trades involving human beings. One such trade is the child sex trade. In
recent years, the child sex industry has expanded in India and across Asia. “The situation is
serious and ever-changing,” says Vitit Muntarbhorn, a professor of law in Bangkok, and a long-
time UN human rights special reporter. “There is a press-down-pop-up phenomenon: even as the
sexual exploitation is tackled in one country, it may emerge insidiously in another. Generally,
there is a very big gap between policy and implementation.” Says David Feingold, the
international coordinator for HIV/ AIDS and trafficking at UNESCO, “Compared to ten years
ago, the trafficking in children for sex has worsened in Cambodia, for instance.
But there are some countries like Thailand, where the situation has improved, opines Sunitha
Krishnan, General Secretary of Prajwala, a Hyderabad-based anti sex-trafficking organization,
“Out of the estimated 20 lakh women being trafficked in India, at least five lakh are children.”
Since sex with children is illegal and clandestine, no one knows for sure how many are involved.
“It is impossible to give accurate figures, and there has never been a concerted national effort to
keep track of those involved. Numbers are obtained from some brothels, but counting the children
trafficked through hotels or on the streets is impossible,” explains Krishnan. However, the US
State Department, too, estimates that up to 5 lakh Indian children under age 16 are exploited in
the sex trade. A research by Reader’s Digest estimates that close to 10 lakh children are involved
in the sex trade across Asia. Three developments have led to this situation:
● Greater demand for child sex from Asian men

● Widespread corruption

● Indifference of law enforcing agencies

It is the strong belief of some people that sex with children, and especially with virgins,
because they believe that it will bring them good health, long life and good luck. In many parts of
India, where daughters are often seen as a liability by their families, it’s easy for the sex trade to
thrive.
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“Parents are tricked into giving their children to traffickers. Uncles and brothers sell them,”
explains Roma Debabrata, trustee, Stopindia, a Delhi-based NGO who rescues child victims and
women.
India is the pathway for children being trafficked from Nepal and Bangladesh to neighbouring
countries and the Gulf region. The Ministry of Home Affairs estimates that 90 percent of India’s
sex trafficking is internal. A 2003 study done by the Institute of Social Sciences, Delhi, the
National Human Rights Commission (NHRC) and UNIFEM, the United National Development
Fund for Women, showed that the maximum number of sex workers under 16 were found in
Bihar’s brothels, while the largest number of Indian brothel owners obtained women and girls
from Andhra Pradesh. NHRC reports that abusers in India generally face little risk of arrest:
“Insufficient or adequate laws, poor enforcement, ineffective penalties and minimal chances of
prosecution, all play a role in perpetuating trafficking.”
An organization in Sri Lanka, known as South Asia Partnership International (SAPI) states that
“managers of guest houses provide tourists with anyone they ask for. The most wanted are young
girls and boys.” Maureen Seneviratne, who runs Protecting Environment and Children
Everywhere, (PEACE), estimates that in the areas where her Colombo-based NGO works, up to
6000 children are being forced to work as prostitutes at any given time. In the recent years, few
paedophiles have been arrested and prosecuted. The situation in Thailand is a little better.
Thailand now has laws protecting all children from exploitation. In reality, however, Thai
Children have received greater protection, while the trafficking of children in neighbouring
countries continues unabated.
How can the outrageous situation of child sex trade be eliminated? In this context, Chutikul, a
former Thai cabinet minister who now works as chairperson of the government’s Sub-Committee
on Combating Trafficking in Children and Women observes that,
“Three Ps and three Rs are the key elements in the fight against trafficking”. The three Ps are:
Prosecution, Protection and Prevention; the three Rs are: Rescue, Repatriation and Recovery.
However, the progress in this matter is not satisfactory. This is so because such trafficking is
transnational and without active regional cooperation, nothing substantial can be expected to be
achieved.
Source: Adapted from Reader’s Digest, New Delhi, September 2007

Questions
1. Explain the three important reasons that are responsible for child sex trade in Asia.
2. Discuss magnitude of the problem of child sex trade in Asia.
3. What remedies do you propose to eliminate the child sex trade?

CASE 23. SECOND FREEDOM MOVEMENT AGAINST CORRUPTION IN INDIA

The recently held Commonwealth Games (CWG), witnessed unprecedented corruption. Let us
review some of them. The graph of Indian character during the last couple of months has had an
amazing run—from notches down its Y-axis to a spectacular rise above and a steeper fall way
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below its starting point. The run-up to CWG was marked by rains, dengue, delay, corruption,
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roads, dirt and filth strewn all over the city. The foreign press and the Indian media wrote off the
CWG, citing Indian inefficiency to host a major sporting event. The loathsome pictures flashed
on BBC website and gleefully reprinted by the Indian media were meant to show that India lives
only in gutters. No one questioned whether this kind of reporting was the erstwhile empire’s way
of striking back? For nearly six weeks, we ground our noses in muck and filth and looked
gleefully at the CWG as ‘Corruption Wealth Games’ played in a Hall of Shame. Passively, we
accepted the sobriquet ‘corrupt’ for ourselves and painted our shame in all its stains! India-
bashing had reached an incredible proportion.
When we thought we had arrived at the nadir, the Indian jugaad came into play. The stains
faded away and India preened itself on ceremonial hosting, graduating with honours at the end of
an 11-day extravaganza. Our athletes lifted the Indian morale to show that all is not lost in
corruption and India still can shine. As the Indian flag went up 101 times, the graph peaked
higher on the Y-axis. But even before the victory bugle sounded the last post, the first post was
heard to mark the start of the investigations. The euphoria of the nation’s sporting success did not
last even 24 hours as reports about the Games scam amounting to a staggering Rs. 8,000 crore
started coming in. With the graph rapidly descending into a bottomless pit, India shaming
eclipsed India’s momentary hours of shining.
Worse was to follow. The Adarsh scam showed how former defence officers were defenceless
before greed and graft. The spectrum scam put all the rest in the shade! Is it possible to retrieve
the graph after its hellish descent into the dark vaults of shame? The famed Indian jugaad now
pejoratively stands for Indian ingenuity for corruption. One should be an outright optimist or be
gifted with self-delusion to affirm that the CVC, the CAG, and the CBI put together can erase
the odium of corruption! Let us admit that there is a distinct malaise—an insatiable greed for
money—afflicting our society. The vulgar display of riches and the glamorous lifestyle of the
ultra rich picturized daily on page 3 of our newspapers and on TV screens are the sources of
vaulting ambition among the middle class to become instant-rich by any means. The media which
are aware of their reach and influence present a picture larger than life, shirking their
responsibility to provide their audience a broad sociological, psychological and truthful
understanding of all issues.
The efforts of our policymakers to liberalize our economy and bring about egalitarian
capitalism have not yielded the expected dividends; on the contrary, they have unshared in crony
capitalism among many of the corporate biggies and inflected the middle class to dream big and
seek unhealthy satiation through graft and corruption. The politicians have gained the most by
their (ab)use of power and a clever distribution of largesse to those select few who can return
their favours in equal measure. To live and let live is their mantras the politicians package
humanity into politics, but not politics into humanity. How to regain our honour and dignity in the
world polity? Can we return the graph up on its axis once more? Our only hope rests on the
middle class that has always been the backbone of our society. Gandhiji during the freedom
movement mobilized the middle class to sacrifice its dependence on the colonial masters. Today,
we need a second freedom movement against corruption. The middle class should sacrifice its
greed that is far greater now than before and build a corruption-free society that values the
elegance of a life of simplicity. Can India shaming turn into India shining? Only if the middle
class rises and says, “yes, we can”.
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Source: Adapted from Hema Raghavan’s article in The Hindu, November 28, 2010 466

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Questions
1. What are the large scams and scandals that affected India in the last quarter of 2010?
2. What are the basic reasons of corruption in India? How can we regain our lost honour and
dignity?
3. Do you think that a second freedom movement will be necessary to fight against corruption?

CASE 24. GLOBALIZATION AND HUMAN HEALTH

Globalization has brought about environmental degradation in general. It has escalated the rate of
haphazard industrialization and urbanization in developing countries and thereby increased the
tempo of environmental pollution like air, water and soil pollution. This has not only impacted
adversely the human health but also reduced the production of healthy food and fibres. In recent
years, global food and financial crises are working in tandem to increase the food prices and
decrease its avail- ability to the poor; overall, the food security of many countries is at stake.
Frequent recession and financial debacles have increased the vulnerability of local/national
governments, and public health services are getting more and more neglected in the agenda for
action. The structural adjustment policies (SAP) unleashed by the international financial
organizations have played ducks and drakes with the lives of poor people in Asia, Latin America
and Africa. A large number of people of these continents are not really living but somehow
existing. A cursory glance at the following chart will give a fairly good idea of the deleterious
impact of globalization on human health.

Globalization and Human Health

Changes due to Globalization Direct/Indirect Impact on Human Health

1. Increased Cross-border mobility Increased drug-trafficking/contrabands.
2. Modern sophisticated weapons and Increased terrorism and loss of lives and dangers
chemical devices to health
3. Cross-border mobility and improvedCommodification of women and trafficking in
communication and travelling women and girls (cross-border sales and
purchase) and transmission of venereal
diseases including HIV AIDS
4. Change in food culture (coke culture: fast, Escalated cardiovascular diseases, obesity and
fatty and junk food) glucose imbalance
5. Increased trade in food articles Dumping of unhealthy, contaminated and infec-
tious food articles
6. Structural adjustment programmes Reduced expenditure on health, aggravated
unleashed by the World Bank and the poverty, unemployment, and disrupted social
IMF, (the two great agents of security and safety nets for the poor,
globalization and liberalization) Indirectly, deterioration of human health
(Contd.)

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(Contd.)
7. Environment degradation through excessive Increased tempo of air, water and soil pollution
rate of industrialization and Urbanization, affecting human health in various ways.
through harmful industries and vehicular
traffic
8. Increased rate of global warming, climate Produces respiratory disorder, less production
change, ozone depletion and green house of food and fibre because of natural disasters.
gasses
9. Food and financial crises and increased Human health indirectly affected.intensified
frequencies of recession. unemployment, poverty, malnutrition and under
nutrition.
10. Pauperization of state/local governments Reduced spending on public health services.
due to loss of income arising out of Private sector-dominated health care market
liberal- ization and increased indebtedness and the working of drug MNCs have escalated
in and outside the country prices and inequalities in the distribution of
health goods and services.

Although globalization has reduced the world into a virtual workshop, the occupational safety
is not yet introduced at the factory level in many countries. Over 500 million of the three billion
global workers are from India, and it should take initiatives to introduce occupational safety
measures at workplaces where they are absent. The main concern of the WHO is to focus on
small and medium scale industries and unorganized industries where ordinary workers and
women labourers are not given any protection. The WHO emphasizes that each and every country
must evolve its own cohesive national plan to promote occupational health. The office of the
WHO in the Southeast Asian region disclosed that about 2.2 million lives are lost every year
because of work-related accidents and the largest number is from Southeast Asia (The Hindu,
September 20, 2007). In India, only one per cent of fatal accidents and 0.1 per cent of non-fatal
accidents are reported to the ILO. Under-reporting means that less importance is accorded to the
issue; it also implies that factory managers want to play safe and do not like to tarnish the image
of those industries/factories to avoid public criticism and legal actions in many cases. Work-
related human problems in factories and firms are either suppressed or minimized in private
sector industries and in privatized firms.
Source: B.N. Ghosh, Rich Doctors and Poor Patients, Wisdom House, UK, 2010

Questions
1. How does globalization affect human health? Explain the mechanism.
2. Globalization goes against the poor working class. Do you agree? Explain your views.
3. Suggest some ways and means to reduce the adverse impact of globalization on human
health.

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CASE 25. GLOBALIZATION: SOME ETHICAL ISSUES
Several characteristics of modern globalization are quite apparent in our times. It is a program of
binding all individuals, institutions and nations into a common set of market relations. These
relations, needless to say have their own laws of motion. It is also a calculated economic strategy
of the capitalist economies and institutions to reinforce capitalist process of growth for these
countries. Globalization is a means to extract surplus through the exploitation of cheap labour,
HQM and resources of the Third World. It is the last stage of and the last attempt to ensure
capitalism to survive. A few salient features of globalization are given as under.
First, globalization of capitalism is sure to intensify economic inequalities on only between
developed countries (DCs) and less developed countries (LDCs), but also between the capitalist
and labour classes in a state. Capitalism is based on the philosophy of production efficiency but
neglects distributional equity. Under globalization, capital will get more and labour will get less,
much less than the value of its marginal productivity. So, there may be the perpetuation of
relative poverty and inequality.
Second, unequal competition between DCs and LDCs in various fields of economic activities,
for example, banking in LDCs, would lead to more harm to LDCs in the form of unemployment,
contraction, recession, and so on. In the face of better technology and capital-intensive methods
of operation of DCs. LDCs would not be able to compete effectively, and their income, output
and employment will fall. On the other hand, MNCs will gain substantially. Thus, there would
not only be more dependency but also more poverty and backwardness in LDCs. The unequal
competition generated and perpetuated by globalism is the most detrimental dimension of this
phenomenon for LDCs.
Third, there would be more exploitation of labour, for the DCs will relocate their production
centres to LDCs for minimization of labour costs. And in the face of the introduction of high-tech
production, labour demand is likely to go down. Thus, there may be proletarianization and immis-
erization of labour. At the other extreme, due to the monopoly-monopsony relation in the market,
surplus value from labour is likely to increase. MNCs will have higher degrees of concentration
and centralization of capital, and these will virtually capture the market for capital and
consumption goods in LDCs.
In fact, since the introduction of globalization in the late eighties of the last century, the
pauper- ization of workers in U.S.A. and England has intensified, and living standards of Eastern
Europe have fallen between 30 and 80 per cent. The calorie intake in many LDCs has also
substantially fallen between 1979–80 and 1995–97 (FAO Statistics, 1999).
Fourth, neo-liberal ideology like privatization and deregulation unleashed by globalism has
been creating much dislocation. Privatization has converted public monopoly into private
monopoly. It has led to excessive price escalation without corresponding quality improvements in
many countries; but it has not led to new product development or development of new predictive
forces. It has brought about massive transfer of wealth from the public sector to rich private
capitalists. It has unnecessarily absolved the public sector of its responsibility towards social
reproduction. It is no wonder, therefore, that the World Bank has declared public health not as a
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Finally, the capitalist-free market principle propagated through globalization is not able to
eradicate crises. As a matter of fact, a capitalist economy is prone to have periodic recessions and
crisis. Evidently, the inflow of capital in the absence of well-regulated and well-disciplined
capital markets may create havoc on LDCs. The Asia crisis in the Nineties of the last century is a
case in point. Nevertheless, under such a situation, global players can bring home their capital
safe or even with some speculative profit but domestic economies of the affected countries are in
peril.
All these will shoe that globalization is likely to give rise to unequal competition between DCs
and LDCs where the latter would be adversely affected. Thus, it would be better for LDCs not to
be carried away by the western slogan of globalization. It would be necessary to slowly open up
their economies for deregulation and liberalization. Behind the philosophy of globalization are
the immense possibilities of exploitation of cheap and innocuous resources of LDCs: high quality
workforce, skilled and semi-skilled labour, natural resources and the environment of LDCs which
are priced much lower than the average world market price in such countries. The race to the
bottom goes hand in hand with globalization.
It is necessary at this stage of world development for LDCs to be more selective in their choice
of capital inflow, to impose some sort of tax on speculative capital movement, to restrict the
outflow of physical capital and high quality workforce, to raise the labour standard, to fix decent
minimum wages in collaboration with the ILO, and improve the capabilities of human being
through appro- priate entitlements and empowerment policies. Globalization, after all, is a neo-
colonialist strategy devised to extract surplus by the West from the Rest.
Source: B.N. Ghosh, Managerial Economics and Business Decisions, Ane Books, Delhi, 2010

Questions
1. Why is globalization unethical? Explain.
2. How does globalization discriminate against the Third World countries?
3. How is globalization working against the developing economies?

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 Glossary

Accountability: Assuming responsibility for any work done or action taken.

Aesthetics: The study of the nature of beauty. According to Kant, it is the study of sensation.
Affirmative Action: A direct action program that can improve loads of affected people.
Alienation: A process of distancing a person from either a product produced by him, or from a
family or from the system itself. In a capitalist system, this aloofness happens to labour.
Allocative Efficiency: It is a way of efficiently allocating the resources. This is done by
making marginal cost equal to price and also by paying a factor of production a
remuneration which is exactly equal to its marginal productivity.
Amoral: Not following any moral rules.
Anthropomorphism: An interpretation of what is not human in terms of human. Thus, God is
sometimes interpreted in terms of human features and qualities.
Anti-consequentialist: A person who thinks that it is not the consequence that is important
but more important is the process of doing an act. Robert Nozick was an anti-
consequentialist.
Apollonian: Anything having the beauty of Apollo. It is sometimes distinguished from the
romantic and emotional qualities of Dionysus.
A posteriori: A process of logical reasoning where one can deduce logical conclusions from
empirically observed facts.
A priori: A process of logical reasoning where one can deduce particular conclusions from the
given general or universal premises.
Aristotle’s Theory of Golden Mean: According to Aristotle, it is a virtue to follow the
middle path because it requires some restraints or control of greed. The middle course lies
between excess and deficiency. Moderation in everything is a virtue to enjoy life and is the
secret of a good and happy life.
Attribute: Characteristic quality. It may be one of the aspects of an object or reality.
Behaviourist: A person who depends on the empirical behaviour of things or objective
behaviour of people to analyze a situation or phenomenon by ignoring intuitive or
introspective behaviour or qualities.
Benchmarking: It is the process taking the best performance as the standard reference.
Blue Chip: This is considered as a riskless form of investment in shares.
Bottom-up Approach: It is a process of decision-making from the grass roots level and the
idea goes upward to the higher ranking people. It is opposite to the top-down approach.
Brain Drain: A situation of massive and constant migration of high quality workforce from
a developing country. This slows down the pace of economic and social development.
Calvinism: A Christian philosophy which says that salvation of a man is predestined which can
be achieved only by the grace of God who is omnipotent.

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Capitalism: An economic system where the capitalist owns the means of production, exploits
labour, generates surplus value and gradually increases the capital intensity in production to
make the system more competitive, and everything is regulated by the market forces of
supply and demand.
Categorical Imperatives: According to Kant, categorical imperatives are some categorical
ethical acts which must clear two tests. First, a person’s reasons for acting in a particular
way should be the reason which will induce others to act exactly in the same way
(universalizability), and second, you should perform your duty on others in such a way that
you will like others to perform their duties on you in exactly the same way (reversibility).
Causality: The process of discovering the cause-effect relationship of a phenomenon.
Caveat Emptor: This means that buyers should beware. It is their responsibility to choose the
right product. The sellers cannot be held responsible.
Charvaka Philosophy: The philosophy of gross hedonism which teaches that the best life is
the life of sensual pleasure: eat, drink and be merry.
Clause 49: Provides certain conditions for companies which want to be listed with the stock
exchange. Such companies have to follow the SEBI’s stipulations.
Cognitive Disequilibrium: It occurs when one does not understand the behaviour of another
group in relation to his own group. In the situation of cognitive disequilibrium, one feels the
need to pass on to another stage of moral development, as Kohlberg maintains.
Competitive Advantage: A factor (or a group of factors) that allows a company to produce
at the cheapest rate compared to the cost of production of other producers of the same
product.
Compliance: Acting on the basis of given mandatory directions and instructions.
Concept: A term or an idea having specific meaning in a particular context.
Consciousness: A quality of being aware of something within oneself.
Consumers’ Sovereignty: This implies that consumers are the kings. They decide what to
produce and their choice is the basis of all productions under capitalism.
Cooperative Conflict: A situation where the purpose of the conflict is to improve the
overall condition. For instance, a conflict in a family is a cooperative conflict.
Corporate Citizenship: The recognition of consistently good, morally commendable and
socially responsible works of a corporate body.
Corporate Governance: It is a system of directing and controlling business corporations
through certain well-organised rules and regulations.
Cosmology: A branch of metaphysics that deals with the nature of the universe. It also may
mean the study of the natural order of the universe.
Cost-Benefit Analysis: An analysis based on a comparative study of all costs and all
benefits. In general, a decision is taken in favour of the project which yields net benefit over
costs.
Culture: It is the totality of shared beliefs, attitudes and values of a group of people at a
particular place and time.
Customization: It implies the design and development of a product that meets the requirement
of a particular class or type of customers.
Cultural Imperialism: A situation where a person (or a company) considers his own culture
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as superior and imposes it on others. 467

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468
Deism: The doctrine that accepts the existence of a supreme power or creator, and also the
belief in natural religion.
Demonstration Effect: The effect that is produced in the matter of consumption or habit by
imitating others.
Deontic Philosophy: A doctrine popularized by Kant. It says that it is most important to
perform one’s own duties first.
Determinism: A theory or doctrine that tells that the occurrence of a phenomenon is causally
deter- mined by some antecedents, preceding events or natural laws.
Dialectic: A logical process of reasoning that explains the involved history, relations, growth,
evolution and future of a phenomenon based on the thesis, anti-thesis and synthesis. This is
used extensively in the Hegelian philosophy.
Disinvestment: Reduction in investment by selling the whole or a part of the existing project.
It is a sort of negative investment.
Dumping: It is the practice of exporting goods to another country at a price which may be
lower than the cost of production; this is done with the purpose of capturing the market in
the long-run.
Economies of Scope: A situation when a reduction in per unit cost of production is possible
by extending the product lines. For instance, suppose a company has a high reputation in
making one product for children like, baby oil. It can then increase the scope of its activities
by also producing baby shampoo, baby massage oil and so on. The increase in scope
reduces the per unit cost of production.
Egoism: The ethical theory that considers self-interest as the basis of all morality.
Engineering Efficiency: A situation where fewer inputs are used to produce an output.
Enlightened Capitalism: A type of capitalism which is motivated by the feeling of doing
something good to the society and the working class.
Enlightened Self-interest: It is not complete self-interest but some feeling for the social
devel- opment that induces a person to do good works.
Epicurean (Hedonist): A person who believes that sensual pleasure is the best ideal to be
achieved, and therefore, practices it.
Epistemology: The study of beliefs and knowledge.
Essence: The most crucial and characteristically significant dimension of an object or substance.
Ethics: The study of what is right or good human conduct. It is also regarded as the science of
moral judgment.
Ethical Absolutism: The idea that although ethical questions are basically relative in essence,
yet there are some ethical issues or principles which are universally true. For instance, truth,
kindness, honesty etc. are everywhere adored and taught as the correct ethical principles. It
is in this sense, that some ethical principles can be regarded as absolute.
Ethical Audit: It is a system of audit that studies the business system, its, structures,
procedures and policies to assess whether or not the system is complying with the standard
that it has publicly declared.
Ethical Base and Superstructure: A situation where everything fundamentally based on
an ethical foundation and the superstructure built on it has also an ethical basis.

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469
Ethical Dialectics: It is an interrelated dimension of ethical dilemma which can explain
ethical conflicts and their nature and ontology.
Ethical Dichotomy: The use of two types of ethical standards—on may be personal and the
other may be organizational, or one may be international and the other may be local.
Ethical Dilemma: A mental state, where a person is unable to decide as to which alternative
out of the two should be chosen.
Ethical Displacement: A technique of solving ethical dilemmas by searching for
clarification and solution at a higher than the personal level.
Ethical Dualism: A practice where a firm is sometimes behaves ethically and sometimes their
actions turn out to be unethical.
Ethical Intensity: The importance or relevance of an ethical issue to the decision-maker or to
the organization.
Ethical Multiplier: The effect of an ethical or unethical act has a cascading effect that
spreads over a wider area and also continues for a long time.
Ethical Relativism: The theory that the same standard or principles of ethics are not
universally applicable.
Ethical Pluralism: It is an attempt to integrate all the theories and principles of ethics to
explain fully a particular situation or phenomenon.
Ethical Syllogism: It is the logical process of drawing conclusions from the two given
propositions which are ethically and empirically correct.
Externality: External influence which may be good or bad.
Fatalism: The view that everything that is happening in human life is due to karma done in the
past or has been done now. The reward and punishment are predestined and cannot be
changed by human beings.
First Cause: The self-created ultimate source of all being and the beginning of series of causes
which are correlated with God.
Four Critical Principles of Ethics: These are—ego-based principle (or psychological
principle), rule-based principle (such as categorical imperatives), end-based principle (like
consequen- tialism or utilitarianism) and care-based principle. The last one is the golden
rule of ethics.
Free Rider: A person who enjoys a public good without making any payment.
Gini Coefficient: A method of measurement of inequality, where the value lies between zero
and one. The higher the value of the coefficient, the greater is the inequality.
Globalization: A global movement that seeks to unify habit, culture, technology, method of
production and behaviour in all the areas of life including business and trade practices in the
world. It is an integrative process and is measured by the total trade/GDP or FDI over GDP
ratio.
Gouging: The practice of charging high prices.
Grey Market: In this market, the players are not from the organized sector but are dealing with
goods which are locally produced and such goods are not very reliable in terms of quality
and durability.
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470
Gut-Feeling Test: To test the ethicality of an action or decision on the basis of what the mind
says (inner voice).
Halal and Haram: According to Islam, certain things by themselves are impure and should
not be used by Muslims. These are called haram. Some practices are pure and can be used,
and they are called halal goods or practices.
Hedging: It is a method that minimizes the risk of investment under uncertain situation.
Hedonism: A philosophy which believes that sensual pleasure is the best ideal to be achieved,
and therefore, it is practiced.
Heuristic: A problem-solving or exploratory method of research.
Horizontal Convergence: It is said that the process of globalization brings companies,
customers, and countries very close to one another. This process is called horizontal
convergence.
Idealism: A theory that ultimate reality lies in a realm that transcends the phenomenon. It also
means that the essential nature of reality lies in consciousness, reason or ideas. In the case of
ethics, these ideas are basically moral ideas.
Ideation: A mental process of forming ideas or thoughts.
Instrumentalism: The doctrine that ideas are instruments of action and that their
usefulness determine their truth value.
Immiserization of the Proletariat: Relative deterioration of the economic conditions of workers.
Immoral: Something (some action) against the principle of morality.
Insider Trading: It is the trading of shares of a company by a person, generally an insider,
who has all the confidential information about the company. This is an illegal activity.
Intermediate Goods: The goods which are used as inputs for the production of final goods.
Intuitionism: It is a metaphysical doctrine that says that it is not the reason but our intuition
that explains the reality of a thing or phenomenon. Gandhi used to call it inner voice. In the
case of ethics or moral philosophy, it is said that human beings have first order disposition
to know what is right and what is wrong.
Karoshi: Over-work and lack of any rest.
Liquidity: It is the readiness of purchasing power. It also means the convenience with which an
asset can be converted into cash. Cash is the most liquid asset.
Logic: The study of reasoning and the ideal method of arguments, thought and analysis.
Market Islam: An evolution of Islamic theological thinking that permits to market certain
halal products to earn income and win the competition. For instance, the use of non-
alcoholic beverage in Muslim countries produced by them.
Materialism: The doctrine that matter is the only reality and determines every relation as in
the analysis of Marxism.
Materialistic Dialectics: It is a condition where historical change or development is
explained as an interaction of material forces. These forces interact with each other and
produce a new system.
Merit Goods: These are goods like education and health, which are very essential for the
society. Hence, the government permits classification of these into different categories to

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facilitate their consumption by different sections of the population. 471

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472
Meta Ethics: It is the study of the origin and meanings of different ethical concepts and precepts.
Metaphysics: It is the study of not the ideal form or feature but of ultimate reality, and the
inter- relations between mind and matter.
Moral: Ethical or something supported by moral principles.
Nash Equilibrium: It is a set of strategies such that none of the participants in the game can
improve his pay off (gain), given the strategies of other participants. In this type of game,
for each player there is equilibrium from where he will not like to move because this is the
best.
Naturalism: The philosophy as enunciated by Adam Smith and others that the whole world is
governed by some natural forces and laws.
Negative Externality: A situation when undesirable external factors produce adverse effects
on health, income, environment or social cost.
Negative Journalism: Presentation of facts in a very crude manner without any decency or
ethical consideration.
Nirvana: A state of mind in Buddhism and Jainism that says that when ignorance is
dispelled by enlightenment and knowledge, the mind attains perfect bliss and happiness and
it is not disturbed by anything. It is a state, where the mind is devoid of desires and achieves
mental equilibrium.
Nivritti: It is the proclivity of mind to refrain from empirical pleasure and enjoyment.
Niyama: It includes purity of thoughts and deeds, contentment, austerity, regular study of sacred
scriptures and a constant awareness and the remembrance of the divine power.
Noumenon: It refers to something which is conceivable but not knowable. According to Kant,
a thing-in-itself is capable of being expressed by thought but cannot be practically
experienced. Thus, in many cases, we can think about something through our mental faculty
but not as a phenomenon in the real world.
Ombudsman: An official whose job is to settle organizational disputes and to give proper
guidance so that such disputes can be avoided.
Ontology: It is the essence of being. It is sometimes interpreted as the nature of a thing.
Opportunity Cost: The cost (value) of relinquished alternatives. It also means the value of an
alternative that is available.
Outsourcing: Getting certain things (functions) done from outside.
Parables of Talents: The Bible cites many parables to show that those who are talented and
can make good use of the resources are rewarded by God. Thus, productive occupations are
exalted.
Pantheism: The doctrine that equates God with all the forces and laws of nature. It also means
the worshipping Gods from different creeds and cultures.
Percolation Effect: A trickling down phenomenon from top to bottom.
Pluralism: The doctrine which holds that there are more than one type of reality and plurality
of entities.
Policy Trade-off: A situation where all policies cannot be implemented at the same time,
hence, a part of a policy is to be sacrificed in order to accept something of an alternative
policy.
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Polytheism: A system where many types of Gods are worshipped. 473

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474
Positivism: A method of study or enquiry that applies objectivity and scientific methods in
drawing conclusions.
Pragmatism: The doctrine that the meaning of an idea must be sought in their practical or real
efficacy.
Pravitti: The tendency to pursue a life of pleasure and enjoyment.
Predatory Pricing: Very level of pricing or penetrating pricing.
Price Rigging: A manipulation to increase or decrease the price
level. Prolegomena: An introduction or preface.
Public Goods: Public goods are those goods which can be simultaneously consumed by all,
without reducing the utility of anyone else, like public roads. It can be consumed without
making immediate direct payment.
Puritanism: A system of belief that says that all callings are divine in nature (including
business) by performing those duties a person can make his life worth living.
Race to the Bottom: A practice encouraged by MNCs to reduce the wage level of low-
skilled and manual workers, particularly in developing countries.
Realism: The philosophical idea that objects of sense perception or cognition exist
independently of the mind. Realism is concerned with facts and reality and not imagination
and vision.
Regulatory Capture: A process in which the regulators the law-enforcing agencies are
captured by bribing them.
Reserve Army of Labour: The unemployed labour force is referred to as the reserve army
of labour.
Reverse Discrimination: A process whereby in the name of elimination discrimination
against a class, another class is discriminated for a long time in an unfair manner. Thus, in
the name of removing the discrimination against the low-caste people, the high-caste people
may be unnecessarily penalized by depriving them of certain opportunities in the job
market.
Reverse Robinhood Effect: Collection of money immorally or unethically to perform
social responsibilities.
Reverse Utilitarianism: A situation which involves smallest harm or injury to the smallest
number of persons.
Samadhi: It is the final stage of yoga where the mind is completely absorbed in the thoughts of
the object.
Scholasticism: The medieval philosophy that separates speculation from objective reality.
Social Audit: A system of audit that identifies the social performance or responsibilities of
a business firm.
Social Capital: It is a collection of non-human wealth and includes institutions, organizations,
social cooperation and trust.
Social Ostracism: An act of separating a person from the mainstream normal social
interactions. It is a punishment for a person. It is like social boycott.
Soft Skill Development: Development of different dimensions of human personality like
speaking, presenting, walking, dressing and so on.
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Spirituality: It is the quest for finding out the real meaning and purpose of life. 475

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476
Spread Effect: The impact of an action or a phenomenon is not static confined to a particular
place, but it spreads and circulates.
Subjective: An individual experience being conditioned by personal mental characteristics.
Substance: Ultimate reality that underlies all outward manifestations, structure and change.
Surrogate Advertisement: A situation where a product is not advertised directly but with
the help of something that well-accompany the use of the product. For instance, bottles of
whisky are displayed in a dinner party advertisement.
Sustainable Development: A development which can sustain itself. It is a situation where
the human consumption of the natural capital is much lower than the replenishment
capacity. The cost of development is lower than the benefits of development.
Sweat Shop: A place of production where the working condition is inhuman as there are no
basic facilities like fans, sanitation, pure drinking water and so on.
Teleology: It is the study of end or consequences of a theory or policy.
Theist: A believer in the existence of one God supposed to be the creative source of man.
The Triple Bottom Line: It is a test to know whether or not a company is creating value for
its shareholders and for the society. These triple elements are: social, economic and environ-
mental dimensions.
Top-down Approach: It is a method of decision-making from the highest position (rank) and
that percolates down for implementation.
Transcendental: Beyond the realm and reach of the senses.
Transparency: It refers to openness in dealing without confidentiality.
Universalism: The belief that fundamental business practices and ethics are applicable every-
where.
Utilitarianism: The doctrine saying that a particular action or policy is justified if it brings
greatest happiness to greatest number of people. It is based on the concept of net utility
maximi- zation.
Value-based Management: It is a type of management where human values like honesty,
integrity, reliability, trust etc. are given more importance than anything else.
Voluntarism: The doctrine that will is the most important force for any action, experience in
the real world. It also means the system of doing something based on volition or will.
Whistle Blowing: It is a method public protest to expose the unethical act of management or
an employee.
Window-dressing: A method of manipulation to display wrong things as right. Thus, there
may be window-dressing in the balance sheet to wrongly inflate the value of assets and
bring down liabilities to attract investors.
Win-Win Situation: A situation of interactions of two persons or companies where both the
parties gain.
Yama: It includes fivefold action like non-violence, truth, honesty and so on that regulates the
behaviour with others around a person.

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478
Index

Accountants 256 British code of advertising practice 225

Ethical dilemmas 257 British Medical Journal 445
Professional ethics 256 Brundtland Commission report 141–142
Acquired mental disposition 25 Buddhism 35, 154
Adarsh housing scam 439 Ethics 154
Advaita Vedanta 158 Four noble truths 155
Pravitti and nivritti 159 Noble eight fold path 155
Aesthetics, definition of 4 Standard and morality 156
Air pollution 132 Buren, Van 215
Allocative efficiency 72 Bureaucracy 89
American business ethics 287 Niskanen model 89
Anderson, Arthur 229 Rent-seeking 90
Anti-conversion legislation 447 Burns, J.M. 266
Antony, A.K. 439 Business decisions ethical models 311
Aquinas, St. Thomas 26, 189 Business ethics characteristics 290
Arab world business ethics 295, 298 Business ethics, definition of 188, 200, 218
Aristotle 13, 25–26, 29, 34–36, 39, 64, 83, 216, Approaches to 196
243–244, 258 Contemporary development 191
Aristotle’s theory of golden mean 34–35 Evolution 189
Asia crisis 464 Five dimensions 192–193
Asian financial crises 407 Five directions 194
Attitudes 24, 29 Importance 195
Components of 24–25 Nature 192
Australian Education Union 441 Need and purpose 194
Azmi, Shabana 455 Objectives/purposes 194
Popular myths 198
Bains, J.S. 74
Relation, with ethics 188
Baker, Lynne Rudder 18
Scope 193
Baran, Paul 174
Sources of 196
Barrie, Matt 441
Business Standard 229
Becker, Gary 336
Butler, Rhett 83
Beliefs 18
Formation of beliefs 19 Calvin 244
Bentham, Jeremy 37, 39 Cambridge University 434
Birla Committee report 381–382 Care 103, 113, 116–117
Birla, Kumara Mangalam 381 Ethical care organizations 115–116
Bowen, Howard 272 Ethics 114–115
Brain drain 236 Ethics of care 103
Brigham University 132 Genesis of care 106–108
British Broadcasting Corporation 136 Types 103–104

479
 Index 480

Carr, Albert 47–48, 64 Need 362

Carroll, Lewis 17 Principles and strategies 356
Categorical imperative 41 Types and nature 354
Criticism 42 Corruption index 88
Kantian categorical imperative 45 Corruption perception index 293
Chartered Accountant Act 256–257 Covey, Stephen 267
Charvaka ethics 157
Criticism 158 Daily Mail 217
Child labour 217 Das, S.C. 325
Child sex industry 458 Debt financing 400
China Daily 432 Democracy, ethical issues in 87–88
Chinese business ethics 293–294 Deontological theory 14
Churchill, Winston 223 Dharma sutras 150, 165, 179
Clegg, Nick 434 Dickens, Charles 121, 292
Climate change 130–132 Dignity in dying 445
Convention on climate change 134 Duties 44
Coase, Ronald 141 Classes 44
Code of ethics for engineers 253 Kantian theory 44
Ethical dilemmas 255 Robert Nozick’s ideas 45
Professional engineers 254
Cognitive ethical development 309–310 Economic development 124
Cognitivism, definition of 13 Economic growth 126, 142, 144, 236, 449
Confederation of Indian Industries 326, 375, 387 Economist, The 451
Indian economy 375 Emotional aspect 24
Confucius 189 Employees rights 270
Consumer ethics 226–227 Enlightened egoism 40
Major issues 227 Enron company 229
Core values 208 Environmental changes 123
Corporate citizens 215 Environmental degradation 144
Corporate culture 304 Environmental pollution 124, 137
Corporate governance 324, 328, 346, 373, 383, Agents of pollution 130–132
387, 396 Bhopal gas tragedy 136–137
Anglo-American model 393 Chernobyl disaster 136
Difference with corporate management 325 Ethical issues 128–129, 140
Importance 328 Impact 129–130
Improvement 379 Management 141
Issues 339 Social cost 138
Mechanism 331 Environmental protection 142
Principles 332 Environmental protection agency 136
Structure and processes 334 Equity financing 400
Theories 329 Ethical absolutism 10–11
Trends 345 Ethical dialectics, interpretations of 214
Corporate social responsibility 353, 363, 367 Ethical dichotomy 291
Best practices 361 Ethical dilemmas 208
Critical view 363 Cause and sources of 210–211
Models of 357–361 Characteristic features of 209

480
 Index 481

Resolution of 211 Gender discrimination 10

Types of 210 Gilligan, Card 7–9, 14
Ethical non-cognitivism, definition of 14 Gilligan, Carol 117
Ethical pluralism 13–14 Gita 60, 62, 111, 150, 152, 160, 244, 269, 442
Ethical pluralism, principle of 47 Ethics 162
Ethical relativism 10 Global compact 421
Criticism 10 Ten principles 421–422
Ethical relativism, definition of 4 Global environment 126
Ethical values 215 Major issues 126–127
Ethics, definition of 4–5, 33, 284 Global governance 90
Book on ethics 35–36 Globalization needs 90
Branches 5 Globalization 90–91, 94, 97–98
Critical principles 12–13 Criticism 93
Difference with morality 506 Neo-colonial globalization 98
Modern ethics 5
Salient features 92
Moral standards 6–7
Global market 327
Nature 11–12
Global Sullivan principles 420
Nicomachean ethics 64
Gone with the Wind 83
Objectives 12 Good corporation principles 333
Principle of ethics 104–105 Good employer, qualities of 233–234
Scope 11–12 Governance 86
Externality, definition of 138 Great depression 396
Negative externality 138–140 Greek philosophy 34–35
Family planning 432 Greek society 28
Financial management 227–228 Green development 142, 145
Food and Agricultural Organization 130, 448
Hartley, Robert 196
Foreign direct investment (FDI) 236, 435
Harvard School of Public Health 132
Four castes 152–153 Hedonic theory of wage 109
Franco-German model 395 Hicks, Sir John 195
Free market competition 190 Hindu, The 78, 130, 229, 277, 433–434, 437, 448
Free market economy 46
Hippocratic oath 250
Free market philosophy 190
Hugo, Victor 102
Friedman, Marilyn 107–109, 117
Human resource management 230, 238
Friedman, Milton 206, 218
Challenges 231
Gandhi, Indira 455 Ethical dilemmas 232
Gandhi, Mahatma 19, 60–62, 128, 66–170, 180, Paradigm shift 231
244, 267, 311, 316, 451 Unethical practices 233
Concept of justice 169 Human values 246
Criticism 178–179 Hume, David 37
Gandhain ethics 167–168, 170, 178 Huntington 284
Human vices and sins 173
Indian business ethics 289
Non-violence 167, 170
Indian Factory Act (1948) 235
Sarvodaya 170, 179
Indian ethics 150
Satyagraha 170, 178, 180
Indian penal code 210

481
 Index 482

Industrial democracy 401 Kipling, Rudyard 284

Industrial development 290 Kohlberg, Lawrence 7, 9, 14, 106
Industrial revolution 244, 256, 258 Kreps, Theodore 272
Inference (or conclusion), definition of 9– Krolick model 308–309
10 International business 412, 417–418 Krolick, Stanley 308
Ethics 422 Kumar Mangalam Birla Committee 326, 375,
Unethical practices 414 379, 387
International Environmental Organization 134
International Labour Organization 344, 414 Law of Tort 217
International Monetary Fund 384 Leader, definition of 265
International slave trade 91 Strong ethical leaders 267
Islamic system 59 Types 265
IT industry 236 Legal profession 251
Major challenges 236 Bar associations 252
Salient features 236 Ethical dilemmas 251
Unethical practices 237 Professional ethics 251–252
Lerner, A.P. 74
Jainism 153 Libertarian theory 58
Ethical principles 153–154 Logic, definition of 4
Triple commandments 154 Lord Buddha 110, 154–155
Japan business ethics 285 Lord Krishna 111, 152, 160, 162, 269, 442
Group ethics 280
Japanese economy 285 MacIntyre, Alasdair 26
Jesus Christ 19 Management of environmental problems 127–128
Joan, Keston 414 Manu Smriti 150, 165, 179
Josephson, Michael 306 Four objectives of life 151–152
Journalism 247, 258 Four stages of life 150–151
Ethical dilemmas 247 Marketing management 224
Ethics 247–248 Ethical dilemmas 224
Justice, concept and theories of 48 Marketing ethics 225
Definition 49 Unethical practices 225
Gandhian concept 60, 62, 169 Market Islam 290
Islamic theory 63–64 Market power 95
John Rawls theory 55 Marshall, Alfred 38
Marxian theory of justice 52 Marx, Karl 63, 190
Natural justice 62 Mehta, Harshad 228
Pure justice 61 Mehta, Pradeep 77
Satanic concept 61 Mercy killing 444
Socialist theory of justice 54 Metaphysics, definition of 4
Theories 51–52 Midgley, Mary 106
Types 49–50 Mill, John Stuart 37, 39
Monopoly 73, 79
Kama Sutra 152 Difference with perfect completion 73
Kant, Immanuel 11, 14, 41, 45–46, 59, 64, 204, Ethical issues 76
302, 311, 372 Measurement 74–75
Karat, Brinda 435 Regulations 75

482
 Index 483

Montreal protocol 127 Petty, William 189

Moral development 7, 14 Philosophical theory of reversibility 103
Carol Gilligan’s theory 8–9 Physician duties 251
Kohlberg’s Stage theory 7 Plato 19, 25–26, 34
Kohlberg’s theory vs Gilligan’s theory 9 Political economy of growth, the 174
Similarities 9 Politics 89
Stages of morality development 7–8 Polluted cities worldwide 133
Moral hazards 117 Population growth 144
Moral value 19, 29 Pork-barrel politics 88
Multinational capitalism 95 Poverty cycle 122
Unethical practices 95–96 Press Trust of India 441
Multinational corporations 416 Princeton University 18
Murthy, N.R. Narayana 379 Principle-agent problem 342
Muslim women 436 PAP minimize suggestions 343
Principle of deontology 40
Naidu, Sarojini 455
Principle of equity 59
Nehru, Jawaharlal 451
Principle of universalism 41
Neoclassical school 37–38 Principle of universalizability 56
New code of governance 402 Principles of medical ethics 250
News management 246 Prisoner’s dilemma model 170–171
Nicomachean ethics 35 Professional ethics 245
Lessons 36 Protestant ethic, the 189
Nicomachus 35 Public sector economics 50
Noddings, Nel 107 Pure competition 70
Non-cognitivism, definition of 13
Nozick, Robert 45–46, 58, 63–64 Quaranic theory 59
Occupational Safety and Health Act 235 Rawls, John 63, 308
Oligopoly 76, 79 Reader’s Digest 446–447, 458
Ethical issues 78 Right, definition of 43
Oliver Twist 121, 292 Negative rights 43
One child policy 433 Positive rights 43
Operation Vijay 439 Types 43–44
Organization structure 264 Roosevelt 223
Ethical implications 264 Ross, W.D. 35, 46
Oxford University 434 Seven prima facie duties 46
RTI Act 277
Panchayati Raj 455 Rule of law 86
Parables of talent 189
Patanjali 161 Sachar Committee report 364–366
Patanjali sutra 161 Sainath, P. 438
Eightfold path of Yoga 161 Satyagraha 63
Patkar, Medha 455 Self-help groups 435
Perfect competition 70–72, 79 Sen, Susmita 455
Ethical issues 72–73 Sexual harassment 216–217
Perfect competition market 70, 79 Shakespeare, William 150

483
 Index 484

Shareholders’ rights and protection 337–339 University of Kansas 191

Shiva, Vandana 455 Utilitarianism 36
Singh, V.K. 439 Comparison with consequentialism 42
Six personality traits 306 Concept 37
Smith, Adam 11–13, 40, 77, 190, 206, 215, 218,
Limitations 39
352
Social audit 272 Value-based management 268–270
Social justice 19 Values 19, 29
Socrates 34, 149, 189, 392 Characteristics 21
Soft skill development 231 Classification 20–21
Spinoza 149
Conflict of 23
Spirit of capitalism 189
Individual values 21
Sunday Herald 441
Significance 19
Supreme Court 444
Sources 21–22
Surplus value 53
Surrogate advertisement 226 Types 20
Sustainable development 141–142, 145, 175–176 Values and business 22
Four connotations 142 Varnashram dharma 27
Optimum pollution 143 Verbal expression 25
Sustainable environmental development 143 Virtue, definition of 25, 29
Classification 27
Taj hotel attack 456 Concept 27
Taka, Iowa 285 Criticism 28
Tata, JRD 292 Moral virtue 25
Technology transfer 97 Nature 27
Teleological theory 39–40
Ten Commandments 5, 26, 34, 41 Wealth of nations, the 77, 352
Ten ethical tests 315–316 Weber, Max 189
Theory of moral sentiments, the 11, 13, 206 Welfare economics 37
Theory of consequentialism 39 Wells, H.G. 226
Theory of relations 60 Whistle blowing 274
Theory of utilitarianism 25 Justification 275
Through the looking-glass 17 Precautionary measure 275
Treadway Commission report 326 Protection 270
Women empowerment concept 454
UN world summit 142
Work ethics 245
Unethical business practices 216–217
World Bank 126, 383, 388, 393
Unethical financial practices 228
Unethical working conditions 235 World Development Report 133
United Nations Organizations 95 World Health Organization 132–133, 136, 452,
United Progressive Alliance 448 462
Universal ethical principles 8, 41 World Medical Association codes 250
World Trade Organization 92, 448

484