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Ethics and Law in Business and Society Lecture Series SEAN D. JASSO, PHD © 2020 OUR OVERARCHING AIM HELPING YOU NAVIGATE THE COMPLEXITIES OF A DYNAMIC ENVIRONMENT QUESTION…. UCR - WINTER 2020 Government ARE YOU GOOD? A Dynamic Environment Business Society First – Government • political philosophy • politics • rule of law • democracy • The Social Contract voluntary agreement among individuals, by which society organizes itself and its resources to ensure mutual protection and welfare and to regulate the relations among its citizens  Hobbes: 1588-1679  Locke: 1632-1704 tyranny  Rousseau: 1712-1778 • political economic systems  Jefferson: 1743-1826 • the social contract  Madison: 1751-1836 1 Second – Society Federalist 51 1788 – Feb 6, 1788 “IF MEN WERE ANGELS, NO GOVERNMENT WOULD BE NECESSARY. IF ANGELS WERE TO GOVERN MEN, NEITHER EXTERNAL NOR INTERNAL CONTROLS WOULD BE NECESSARY” Third – Business • • • pluralistic • society’s needs – universal principles • governments views of society’s needs differ • society is ‘best’ when it is free • • Western, American, Industrial, Developed “society” – look to markets for prosperity and value – under the rule of law Guiding Questions Foundations • • economics, political economic systems the business enterprise – solutions, jobs, products, services, innovations, progress Markets • what is the nature of the corporation • what does society want from the corporation • what is the responsibility of the corporation • what is the morality of the firm what is the morality of the market • competitive, global, strategic • • require guidelines, boundaries, regulations • where is your moral development • what are the rules of the game • hence, “ethics and law” ETHICS – TYPES ON ETHICS & MORALS IDEAS BY WHICH WE LIVE  Descriptive / Positive – what is right?  Normative / Natural Law / what ought to be right?  Conventional / Principled / what is your character? 2 TOWARD THE ETHICAL LIFE ETHICS GREEK FOR ETHOS – ONE’S MORAL CHARACTER IN ESSENCE – HOW WE ACT A JOURNEY OF MORAL DEVELOPMENT MORALITY LATIN FOR MORALIS – ONE’S CUSTOM OR MANNER (VERY SIMILAR) IN ESSENCE – HOW GOOD OUR CONDUCT IS AND OUR STANDARDS ABOUT CONDUCT IN GENERAL ETHICS, THEREFORE, IS THE FORMAL STUDY OF THOSE STANDARDS OR CONDUCT BY WAY OF CODES, RULES, PRINCIPLES, POLICIES – AND IN THE END, OUR HABITS MORALS AND ETHICS Conscience – one’s inner sense of right and wrong - for believers – God’s presence in man MORALS THE MOTIVATION BASED ON IDEAS OF RIGHT AND WRONG – MORALS ARE FAR MORE ABOUT GOOD AND BAD THAN OTHER VALUES WE MIGHT JUDGE OTHERS MORE STRONGLY ON THEIR MORALS THAN ON THEIR VALUES VALUES ONE’S PRINCIPLES OR STANDARDS OF RIGHT BEHAVIOR – ONE'S JUDGMENT OF WHAT IS IMPORTANT AND RIGHT IN LIFE Consider MORALS as within your conscience Consider ETHICS as the rules to support your conscience 3 ON VALUES ON MORALS Values are our fundamental beliefs. They are the principles we use to define that which is right, good and just. Values provide guidance as we determine the right versus the wrong, the good versus the bad. They are our standards. Consider the word “evaluate”. When we evaluate something we compare it to a standard. We determine whether it meets that standard or falls short, comes close or far exceeds. To evaluate is to determine the merit of a thing or an action as compared to a standard. Morals are values which we attribute to a system of beliefs, typically a religious system, but it could be a political system of some other set of beliefs. These values get their authority from something outside the individuala higher being or higher authority. Many of us find our values are strongly influenced by our sense of morality right as defined by a higher authority. Yet we refrain from citing that authority because doing so may seem less rational and more emotional to others who do not share our belief system. ON ETHICS Ethics is about our actions and decisions. When one acts in ways which are consistent with our beliefs (whether secular or derived from a moral authority) we will characterize that as acting ethically. When one’s actions are not congruent with our values - our sense of right, good and just - we will view that as acting unethically.  Defining what is ethical is not an individual exercise however. If it were then one could have argued that what Hitler did was ethical since his actions conformed to his definition of right, fair and good. The ethics of our decisions and actions is defined societally, not individually.  PRINCIPAL RESPONSIBILITIES OF VALUES 1. 2. 3. 4. 5. Religious Values – profession of faith Cultural Values – cultural norms Legal Values – judicial systems Professional Values – business etiquette Philosophical Values – general wisdom On Moral Reasoning Lawrence Kohlberg (1927-1987) Thesis – moral reasoning is the foundation of one’s ethical behavior Approach to moral development – psychology 4 The Ethics Checklist 1. 2. 3. 4. ON BEING GOOD 5. 6. ‘HOW AND WHY’ 7. 8. 9. 10. 11. ON THE GOOD It is no easy task to be good. For in everything it is no easy task to find the middle ... any one can get angry --that is easy-- or give or spend money; but to do this to the right person, to the right extent, at the right time, with the right aim, and in the right way, that is not for every one, nor is it easy; that is why goodness is both rare and laudable and noble. Is the outcome moral – is it right Is the behavior ethical – is it good What ethic is being tested Is it legal Does it fit the culture of the nation/organization Will it negatively impact your stakeholders Will it negatively impact your reputation Will it look bad in the media Can you sleep at night Can you live with it – how’s your conscience? How will it impact your spouse and children WHY BE GOOD? Elevate the Absolute Knowledge of the Good Excellence of Character Preeminence of Achievement Sustain the Right The Life Well Led Aristotle HOW TO BE GOOD? On VIRTUE RIGOROUS PRACTICE OF VIRTUE KNOWLEDGE OF THE GOOD WE ARE WHAT WE REMEMBER A trait of human character that is valued as being good in and of itself – or universally understood to be a value of goodness 5 ARISTOTLE’S VIRTUES – in between excess and deficiency 1. 2. 3. 4. 5. Courage Justice Generosity Pride Temperance Truthfulness 7. Wittiness 8. Friendliness 9. Modesty 10. Righteous Indignation 6. Where does good come from? Forthcoming  Toward Where does being good take us?  the Philosophy of the State Virtue, Duty, Utility, Justice  Toward Governance Introduction to Corporate Governance  Introduction to Corporate ‘Social’ Responsibility   Introduction Policy  to the Rationale for Public Market Failure – in brief 6 Kant’s Central Lessons     Our purpose – to will  decisive action or choice toward the good  reason – our intellect to govern our free will – in essence, we know the good Our destination – moral law –  what makes goodness is one’s possession of a will determined by a universal, moral law  a good will must be good in of itself & not in virtue with any thing else – even one’s happiness Greatest Contribution to Moral Philosophy – System of the Categorical Imperative Great Work – Critique of Practical Reason, 1788 Stanford's Great Source on Philosophy - Kant Our method – categorical imperative –  the unconditional command of conscience  in essence, we must be willed to be good  Imperative – because it is a command to exercise our wills toward action  Categorical - absolute in virtue applying to us unconditionally driven by our reason/rationality to do right by duty Kantian Ethic – Duty  what is singular about motivation by duty is that it consists of bare respect for lawfulness – Kant’s ‘ethics checklist’ or ‘categorical imperative’  Act only according to that maxim by which you can at the same time will that it would become a universal law.  Act in such a way that you always treat humanity, whether in your own person or in the person of any other, never simply as a means, but always at the same time as an end.  So act as though you were, through your maxims, a law making member of a kingdom of ends. Immanuel Kant 1724-1804 Kaliningrad, Prussia  Kant’s Burning Questions – • What makes a person good • What is moral law • How do we achieve the highest good • What is good will Aristotle’s Central Lessons  Our purpose – eudaimonia – happiness through flourishing  Our destination - aretê –excellence of intellect and character  Our method – ethics – or, the knowledge, aim and enduring habituation toward the highest good  Aristotelian Ethic – virtue   384 BC – 322 BC Athens, Greece Stanford's Great Source on Philosophy - Aristotle  a life of virtue yields aretê Ethics is not theoretical, but a life of practice Great works –  Nicomochean Ethics  The Politics  Oikonomos – The Management of the Household  Our Purpose – universal liberty - from egoism (self interest) to utility (collective welfare)  Our Destination – aggregate  Our Method – utility  Greatest Contribution to Moral Philosophy –  Mill’s Central Lessons Aristotle  Aristotle’s Burning Questions – • What is happiness • What is a life lived well • What character traits are • What is the essential nature of an activity  needed • What excellences are worthy of honor and recognition • Why study ethics Proportionality Doctrine – duty and right action is defined in terms of universal promotion of happiness Millian Ethic – utilitarianism   happiness driver of modern public policy John Stuart Mill 1806-1873 London, England  What is the role of the individual in society • What is the role of the state upon individual liberty • How does society achieve universal happiness Greatest Contribution to Moral Philosophy  Advances modern liberalism  Great Work – On Liberty, 1859, Utilitarianism, 1863 Mill’s Burning Questions – • Rawls’ Central Lessons Our Purpose – social cooperation – the tenet of liberal thought Our Destination – social justice – cooperative policy should be free and fair  Our Method – Justice as Fairness – by way of  John Rawls   Enduring Questions 1921-2002 United States the veil of ignorance free and equal citizens achieve cooperation  Can you have equality at the expense of excellence?  Principle One – equal basic liberties to all  Does economic redistribution minimize prosperity?  Principle Two – fair equality of opportunity to all for political & economic leadership  Does aggregate happiness curtail individualism?  Is society generally good? Rawlsian Ethic – social justice to achieve social justice, redistributive public policy aims to level opportunity  Greatest Contribution to Moral Philosophy   Liberal Public Policy  Great Work – A Theory of Justice, 1971  • Rawls’ Burning Questions – How can society achieve collective happiness • What is the nature of justice  Why do ‘good’ people do bad things? • What is ultimately fair  Who are your moral heroes  What is the right thing to do? 7 So…… SO, WHAT IS THE RIGHT THING TO DO? Toward the Philosophy of the State SOCIAL CONTRACT THEORY - FORTHCOMING Jasso’s Governance Framework Good Governance ON GOVERNANCE Ethical Covenant TOWARD GOOD GOVERNANCE Governance What is it… “the system that defines the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders, and other stakeholders, and spells out the rules and procedures for making decisions of corporate affairs” Moral Charter Governing What Purpose of the Corporation  Created by individuals and a legal entity of the state  Limited liability  Harness resources – maximize scale and scope  Maximize wealth creation for itself by providing competitive value for its stakeholders 8 Structure of Governance On Corporate Purpose Board of Directors “PROPERLY DEFINED, CORPORATE PURPOSE SHOULD RARELY, IF EVER CHANGE” – RICHARD ELLSWORTH  Council of “elders”  Set Moral Framework  Legally required  Set corporate mission, vision  Hire / fire CEO and senior executives  Control top management  Represent shareholder interests … stakeholder  Review use of major resources  Sarbanes Oxley Compliance BOD’s Responsibilities The Importance of The Board of Directors ON BOARDS, CEOS AND STRATEGY The Board’s Central Responsibilities  CEO Performance Evaluation and Executive Compensation   Generic CEO Evaluation Criteria  Bottom-line impact  Operational impact  Leadership Effectiveness Governance is not Management 1. CEO Selection 2. Oversight, Compliance, and Risk Management 3. Strategy Development 4. Responding to External Pressures and Unforeseen Events 5. Maintaining High Performance of the Board Itself The Board’s Central Responsibilities  Responding to External Pressures and Unforeseen Events  Best Practices  Think strategically about executive compensation  Integrate compensation decisions with succession planning  Competitive benchmarking is limiting – performance is key  Understand how executives view compensation  Communicate with major shareholders  Carefully select, monitor and evaluate board advisers – NYSE required board self-evaluation process Demands for CSR and Shareholder Accountability  Globalization  Loss of trust  Civil society activism  Institutional interest in CSR – perception is reality   Movement toward “socially responsible investing” Other Pressures  Hostile Takeovers  Crisis management 9 The Board’s Central Responsibilities  Creating a High-Performance Board  Seven practices to ensure value growth 1. Effective boards set the moral framework 2. Effective boards own the strategy 3. Effective boards built the top executive team 4. Effective boards link reward to performance 5. Effective boards focus on financial viability 6. Effective boards match risk with return 7. Effective boards manage corporate reputation 8. Effective boards manage themselves ON CORPORATE RESPONSIBILITY WHAT IS THE RESPONSIBILITY OF THE CORPORATION? Guiding Questions TO WHOM OR WHAT IS THE CORPORATION ACCOUNTABLE? WHO IS THE BENEFICIARY OF CORPORATE SUCCESS? ACCOUNTABILITY IN ETHICS AND GOVERNANCE, ACCOUNTABILITY IS ANSWERABILITY, BLAMEWORTHINESS, LIABILITY, AND THE EXPECTATION OF GIVING EXPLANATION FOR YOUR ACTIONS RESPONSIBILITY BEING IN CHARGE OF OR OWNING A TASK - EXPLANATIONS NOT ALWAYS OWED ACCOUNTABLE, BUT NOT RESPONSIBLE …. CEOS MAY CLAIM ACCOUNTABILITY FOR THE DOWNFALL OF THE FIRM, BUT THEY ARE NOT DIRECTLY RESPONSIBLE FOR THE FRAUDULENT BEHAVIOR OF THEIR SUBORDINATES 10 Drucker’s three dimensions of the corporation 1. an economic institution 2. a human organization 3. an embodiment of values THE CONTEMPORARY PERSPECTIVE OF RESPONSIBILITY SHAREHOLDER – STAKEHOLDER – CONSTITUENT CSR - perspectives The American Corporation  CSR – self regulation within the business enterprise • the company town – mid 1800s  CS Responsibility – obligation, accountability • the corporate giants – Carnegie, Rockefeller  CS Responsiveness – action, activity • the corporation as investment – 1920s  CS Performance – outcomes, results • the corporation as victim – 1930s  Corporate Citizenship – stakeholder impact • the corporation as war machine – 1940s • the corporation as the new economy – 1950s-1970s • the corporation as social advocate – 1980s • the corporation as innovator – 1990s • the corporation as leviathan – 2000s   Proactive measures upon society, environment and general public interest triple bottom line – ecological, social, financial 11 The Social Responsibility of Business is to Increase its Profits by Milton Friedman The New York Times Magazine, September 13, 1970. Copyright @ 1970 by The New York Times Company. Critics of CSR  Milton Friedman – 1962  Peter Drucker – 1971  Archie Carroll – 1980s When I hear businessmen speak eloquently about the "social responsibilities of business in a free-enterprise system," I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free enterprise when they declaim that business is not concerned "merely" with profit but also with promoting desirable "social" ends; that business has a "social conscience" and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are–or would be if they or anyone else took them seriously–preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.  Profits  Social  Four impact The discussions of the "social responsibilities of business" are notable for their analytical looseness and lack of rigor. What does it mean to say that "business" has responsibilities? Only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but "business" as a whole cannot be said to have responsibilities, even in this vague sense. The first step toward clarity in examining the doctrine of the social responsibility of business is to ask precisely what it implies for whom. levels  Economic, legal, ethical, philanthropic PHILANTHROPIC Desired Be good corporate citizens. ETHICAL Expected Obligation to do what is right and fair. Avoid doing harm. LEGAL Required Obey the law. Law is society’s codification of right and wrong. ECONOMIC Required Be profitable. The Foundation on which all others rest Carroll’s Pyramid of Corporate Social Responsibilities Stages of Stages of Corporate Citizenship - Mirvis and Googins Stage One Elementary Stage Two Engaged Stage Three Innovative Stage Four Integrated Stage Five Transforming Jobs, Profits, Taxes Philanthropic Stakeholder Management Sustainability Change the Game Strategic Intent Legal Compliance License to Operate Business Case Value Proposition Market Creation/Social Chg Leadership Lip Service, Out of Touch Supporter, In the Loop Steward, On Top of It Champion, In Front of It Visionary, Ahead of It Structure Marginal: Staff Driven Functional Ownership Cross-Functional Coord. Org. Alilgnment Mainstream: Business Driven Issues Management Defensive Reactive Policies Responsive, Programs Pro-Active Systems Defining Stakeholder Relations Unilateral Interactive Mutual Influence Partnership Alliance Multi-Organization Transparency Flank Protection Public Relations Public Reporting Assurance Full Disclosure EMPLOYEES GOVERNMENT Citizen Concept BUSINESS COMMUNITY OWNERS CONSUMERS Stakeholder View of the Firm 12 RONALD MCDONALD'S HOUSE  Fred Hill, a player for the Philadelphia Eagles, had a daughter suffering from leukaemia, which prompted the team to raise in excess of $100,000 dollars to support the hospital. This was met with much gratitude from Dr Evans and her team but also with a request for another $32,000 to fund a house in which the families of the children in the hospital could get proper rest, away from the ward.  In turn this request was met by Ed Rensi, an area manager for McDonald's. The company was using the Eagles' players as part of an advertising campaign and offered to donate the proceeds from their 'shamrock shake' to the cause. In return Ed asked that the house be known as the Ronald McDonald House. So it was, that on 15 October 1974, the first Ronald McDonald House opened its doors. In the intervening years Ronald McDonald House Charities has spread across the world, forming new and independent branches in over 50 regions and countries. McDonald’s Doing Good Walmart (Founded in 1962) 01 02 The fortune 500 forces of good Retail Industry 03 04 Total Net Income 9.862 billion USD (2018) Revenue = 500.343 billion USD Total Operating Expenses = 478.094 billion USD Number of Employees 2.2 Million Associates Around the World Stocks/Dividends Stock Price = $94.80 Dividends = $0.52 per share (Quarterly) Charitable Contribution 1.08 billion USD Exxon Mobil (Founded in 1999) 01 Charitable Contributions U.S. donations went to organizations including the National Teacher of the Year program, hospital aid group Children’s Miracle Network, the Salvation Army, United Way and food bank America’s Second Harvest. 02 Impact on Education Walmart to offer employees a college education for $1 a day. Walmart, the country's largest private employer, announced that it will pay for its workers to go back to school — as long as they get degrees in business or supply-chain management. Other Interesting Facts About 75% of our store management teams started as hourly associates, and they earn between $50,000 and $170,000 a year. Walmart is investing $2.7 billion over two years in higher wages, education and training. Total Net Income 19.71 billion USD (2018) Revenue = 238.883 billion USD Total Operating Expenses = 223.584 billion USD Number of Employees 69,600 employees worldwide Energy Industry 03 04 Stocks/Dividends Stock Price = $72.29 Dividends = $0.82 per share (Quarterly) Charitable Contribution 268 million USD 13 Berkshire Hathaway (Founded in 1839) 01 Charitable Contributions ExxonMobil gives to charities in 9 different causes: arts ands culture, civic and community, health and environment, higher education, pre-college education, women’s economic opportunity, workforce development, and united appeals and workplace giving. Impact on Education In 2017, ExxonMobil provided $41.5 million worldwide to colleges, universities and other organizations that support higher education. ExxonMobil’s higher education initiatives focus on supporting programs that improve teaching and learning in STEM fields. Other Interesting Facts When Ebola broke out in Nigeria the company helped fight the outbreak. It provided assistance to the Nigerian government in terms of equipment, vehicles and personal protective equipment. It also sent across medical personnel and a specialist team from the Baylor College Of Medicine to educate Nigerian officials. Multiple Industries Total Net Income 44.940 million USD (2018) Revenue = 239.289 billion USD Total Operating Expenses = 213.395 billion USD 02 Number of Employees 03 Stocks/Dividends 04 367,700 employees worldwide Stock Price = $309,180.00 Dividends = None Charitable Contribution 3.4 billion USD Apple (Founded in1976) 01 Charitable Contributions Since 2006, Buffett has donated over $30 billion to charity, of which $24.5 billion went to the Gates Foundation. When Buffett explained his decision to donate much of his wealth to his family’s foundations and Gates in 2007, he told shareholders that he believes in giving his excess wealth to people who are “energized, working hard at it, smart.” Impact on Education 02 Berkshire Hathaway does not directly work with Universities or provide funding for any; however, their charitable donations to the Gates Foundation is indirectly supporting a global initiative to make education more accessible for everyone. 03 Other Interesting Facts Berkshire Hathaway is a very big supporter of wind power. In fact, Berkshire Hathaway’s MidAmerican Energy was the number one owner of wind-generated power among US entities which are rateregulated. Tech Industry 04 Total Net Income 59.531 billion USD (2018) Revenue = 265.595 billion USD Total Operating Expenses = 194.697 billion USD Number of Employees 132,000 employees worldwide Stocks/Dividends Stock Price = $165.52 Dividends = $0.73 per share (Quarterly) Charitable Contribution 100 million USD UnitedHealth Group (Founded in 1977) 01 Charitable Contributions Apple donated $5 million to Hand in Hand to help Hurricane Harvey and Hurricane Irma victims. Additionally, Apple donated $5 million to the American Red Cross, including $3 million from the company and ongoing contributions from employees and Apple customers donating through iTunes and the App Store, according to CNN Money. Impact on Education Apple University is a training facility of Apple Inc., located in Cupertino, California. This corporate university is designed to instruct personnel employed by Apple in the various aspects of Apple's technology and corporate culture. It is mainly a training facility of Apple Inc. Other Interesting Facts Apple became the first American public company to surpass $1 trillion in value. 02 Total Net Income 11.986 billion USD (2018) Revenue = 226.247 billion USD Total Operating Expenses = 208.903 billion USD Number of Employees 270,000 employees worldwide Healthcare Industry 03 04 Stocks/Dividends Stock Price = $270.37 Dividends = $0.90 per stock (Quarterly) Charitable Contribution Specific Value Unknown 14 McKesson (Founded in 1833) 01 Charitable Contributions UnitedHealthcare and Optum businesses are donating $500,000 to help residents of California recover and rebuild from the devastating fires in Butte, Ventura and Los Angeles counties. Impact on Education The Diverse Scholars Initiative works to create a more relevant health workforce, particularly in underserved communities, by increasing the number of primary care health providers ready to meet future health care needs. Other Interesting Facts In 2018 alone, UnitedHealth Group employees volunteered over two million hours to help build healthier communities. Since 2005, our giving program has donated $308 million. Medical Supplies Industry Total Net Income 67 million USD (2018) Revenue = 208.357 billion USD Total Operating Expenses = 205.436 billion USD 02 Number of Employees 03 Stocks/Dividends 04 78,000 employees worldwide Stock Price = $124.97 Dividends = $0.39 per share (Quarterly) Charitable Contribution 1.2 million USD CVS Health (Founded in 1963) 01 Charitable Contributions McKesson pledged $100 million to create a new foundation that will combat drug abuse and addiction. The company said the money will be used for educating patients, caregivers, and providers; addressing policy issues; and increasing access to opioid-overdose medications. 02 Impact on Education McKesson does not have a foundation directed towards higher education; however, over 80 CE courses, meet-ups and workshops, are offered at McKesson ideaShare event where attendees uncover various topics in healthcare. 6.622 billion USD (2018) Revenue = 184.765 billion USD Total Operating Expenses = 174.718 billion USD Number of Employees 203,000 employees worldwide Other Interesting Facts More than 200,000 physicians utilize McKesson's technology and services, and 76 percent of hospitals with more than 200 beds are McKesson customers. Total Net Income Retail Healthcare Industry 03 04 Stocks/Dividends Stock Price = $65.96 Dividends = $0.50 per share (Quarterly) Charitable Contribution Specific Value Unknown Amazon.com (Founded in 1994) Total Net Income 01 Charitable Contributions For more than a decade, CVS’s Project Health events have provided more than $6.40million worth of free health services to patients in underserved communities around the country. 02 Impact on Education CVS has four fully operational store and pharmacy training locations that support the development of colleagues and partnering community agencies. Other Interesting Facts CVS Health is well-known as a pharmacy business. But in recent years, it has moved to rebrand itself as a health care company, including expanding its MinuteClinic brand to over 1,100 locations and nixing tobacco products from its stores. Retail Industry 03 04 3.033 billion USD (2018) Revenue = 177.866 billion USD Total Operating Expenses = 173.760 billion USD Number of Employees 613,300 employees worldwide Stocks/Dividends Stock Price = $1,670.43 Dividends = None Charitable Contribution 100 million USD 15 AT&T (Founded in 1983) Total Net Income 01 Charitable Contributions Amazon has made a $2 billion philanthropic commitment to two areas: funding existing nonprofits that help homeless families and creating a network of nonprofit preschools in underserved communities. 02 Impact on Education Once employees have been with Amazon for a year, they only need to cover 5 percent of tuition and fees. Amazon covers the rest and also reimburses 95 percent of textbook costs. Full-time employees are eligible for $3,000 in tuition assistance a year. Other Interesting Facts AmazonSmile allows its users to support charities of their choice when they shop at smile.amazon.com. The AmazonSmile Foundation donates 0.5% of the purchase price of products eligible for AmazonSmile purchases. 29.450 billion USD (2018) Revenue = 160.546 billion USD Expenses = 136.683 billion USD Telecommunications Industry 03 04 Number of Employees 273,210 employees worldwide Stocks/Dividends Stock Price = $29.37 Dividends = $0.50 per share (Quarterly) Charitable Contribution 35 million USD General Motors (Founded in 1908) 01 Charitable Contributions The company’s key philanthropic program is AT&T Aspire, a $350M commitment to education, helping students succeed in school, the workforce and in life. Impact on Education 02 2020 Goal: We will invest resources, develop initiatives and collaborate with stakeholders with the goal of increasing the U.S. high school graduation rate to 90% by 2020. -3.864 billion USD (2018) Revenue = 145.588 billion USD Total Operating Expenses = 134.885 billion USD Discontinued Operation = -4.212 billion USD Number of Employees 180,000 employees worldwide 2025 Goal: We will invest resources, develop initiatives and collaborate with stakeholders to close the skills gap by increasing the number of Americans with high-quality post-secondary degrees or credentials to 60% by 2025. 03 Other Interesting Facts 2025 Goal: AT&T will enable carbon savings 10 times the footprint of our operations by enhancing the efficiency of our network and delivering sustainable customer solutions. Total Net Income Automotive Industry 04 Stocks/Dividends Stock Price = $39.09 Dividends = $0.38 per share (Quarterly) Charitable Contribution 31 million USD Charitable Contributions GM pledged to give $30 million in annual donations to focus on global development and education in science, technology, engineering and math. Impact on Education GM has partnered and helped four new programs in their college initiative: code.org, black girls code, institute of play, and digital promise. Other Interesting Facts General Motor is the only company in the top 10 of the Fortune 500 with a female CEO. See a theme…… VOLUNTEERING – YOUR COMPETITIVE ADVANTAGE – A LIFE IN SERVICE 16 So what and now what… Advancing your competitiveness Preparing For the Leader of Tomorrow  First - Are you good?  Now – Do you serve?  Does Your Volunteer Resume Match Your Professional Resume?  How Many Service Hours Did You Give Last Year?  Did You Give to Your Most Important Organizations – Time/Money/Resources  What’s Your Plan – What’s Your Pledge  Results – Stronger Firms, Stronger Communities, Stronger Souls. Ethics and Law in Business and Society Lecture Series SEAN D. JASSO, PHD © 2020 UCR - WINTER 2020 Toward the Philosophy of the State SOCIAL CONTRACT THEORY Guiding Questions  Why Laws? What is Constitutional Law?   Why Ethics?  What is the Rule of Law?    What is Public Policy? Rationale for Public Policy MARKET FAILURE GOVERNMENT FAILURE What is the Rationale for Public Policy? How Does the U.S. Government Govern?   How Did it All Start? How Does it All Really Work? 17 The Milestones The Sarbanes-Oxley of 2002 The Gramm-Leech-Bliley Act of 1999 (Repealing the Glass-Steagall Act of 1933) The Patriot Act of 2001 The Emergency Economic Stabilization Act of 2008 (TARP) The American Recovery and Reinvestment Act of 2009 The Patient Protection and Affordable Care Act of 2010 The Tax Cut and Jobs Act of 2017 ● ● ● ● ● ● ● Rationale for Public Policy FIRST – PUBLIC POLICY DEFINED       The decisive action to solve problems of civic life The product of civic governance The various rules, regulations, and laws that aim to solve problems and re-direct social behaviors to some equilibrium The statement of a society’s morality embodied in non-negotiable law The embodiment of a society’s priorities – moral, economic, political The rules. WHEN DID WE LEARN ABOUT MARKET FAILURE Among the Founding Thinkers – School of Social Choice and Welfare  Vilfredo Pareto (1848 – 1923) – Pareto Optimality – at least one person is made better off and not one person is made worse off – in this case with a policy implementation  Kenneth Arrow (1921 – 2017) – Arrow’s Theorem – it is impossible to rank a community’s preferences - majority rule  Francis Bator – 1958 - The Anatomy of Market Failure - The Quarterly Journal of Economics, Vol. 72, No. 3 (Aug., 1958), pp. 351-379 – the modern framework – information asymmetry, public goods, monopoly  David Weimer and Aidan Vining –Policy Analysis: Concepts and Practice, 6th Ed. Routledge, 2017 – simply the ultimate tool for the trade since 1989  Market Failure  Government Failure ON MARKETS – FUNDAMENTALS  Free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay  Free markets allocate demand for goods to the sellers who can produce them at the least cost  Free markets produce the quantity of goods that maximize the sum of quantity of consumer and producer surplus  The market price is the markets demand curve  We look to markets for solutions – products, services, labor, factors of production, and investment  The more competitive and global a market, the more transparent, exposed and self-regulated it must be  When markets over or under produce, can’t self-regulate through negotiation over time they create externalities – negative and positive - causing “market failure” MARKET FAILURES – CAUSES AND TYPES On the assumption of ‘competitive markets’ – Markets yield an inefficient output of resources often negatively impacting society Types  information asymmetry Monopolies  public goods   18 Market Failure - Impacts POSITIVE EXTERNALITY MODEL Public Good – monopoly Information Asymmetry – fraud Monopoly – stagnation, idleness Externality – positive, negative NEGATIVE EXTERNALITY MODEL 19 RATIONALE FOR PUBLIC POLICY = MARKET FAILURE       Reconciles conflicting claims on scarce resources Establishes incentives for cooperation and collective action that would be irrational without government involvement/influence Prohibits morally unacceptable behavior Protects the activity of a group or an individual Promotes activities that are essential or important to government Provides benefits (with costs) to citizens PUBLIC POLICY TYPES FOUNDATIONS OF PUBLIC POLICY      Distinguishes what government intends to do and what they actually do Government in-action is just as important as government action Multifaceted – not created by single actors or in a vacuum Pervasive – not just rules, regulations, executive orders – it’s unlimited It is political   Redistributive – re-balancing disbursements   Substantive – what government intends to do  Procedural – how something can be done   Regulatory – rules from the state Distributive – government disbursements Collective policy – goods given to all Private policy – individual beneficiaries or payers   Liberal – state-centered Conservative – market-centered GOVERNMENT FAILURE – A PUBLIC CHOICE THEORY Rationale for Public Policy Public Choice – explains that public policy outcomes often conflict with public opinion, public awareness, preferences of the general public, and the economic forces of markets – uses economic theory to rationalize political science Consequences – Government Failure Market Failure Government Failure    When policies veer away from traditional institutional norms, electoral mandates, and industrial market forces Economic consequences – crowding out, monopoly, public goods Social consequences – institutional change, politicization of economic and social norms 20 PUBLIC CHOICE THEORY – CENTRAL FIGURES WHEN DID WE LEARN ABOUT GOVERNMENT FAILURE James Buchanan (1919 – 2013) and Gordon Tullock (1922 – 2014) The Calculus of Consent: Logical Foundations of Constitutional Democracy – 1962 – the basic premise:  The importance of the individual in collective decision-making  The aim of Pareto optimality  The costs of majority rule (high external and decision costs)  The zero-costs of unanimous rule (high decision costs)  Aim of constitutional change yield real/permanent civic improvements  A rigorous pursuit of market-based public policy  Anything other is “government failure” Among the Founding Thinkers – School of Public Choice Theory  Knut Wicksell (1851 – 1926) 1896, Studies in the theory of Public Finance – foundational work on business cycles – influences Keynes and Schumpeter  Central Figures  Duncan Black (1908 – 1991) – studies in Condorcet voting turnouts  Ronald Coase (1910 – 2013) – Coase Theorem – transaction costs and property rights  Kenneth Arrow (1921 – 1917) – Arrow’s Impossibility Theorem  Anthony Downs (1930 – ) An Economic Theory of Democracy (1957) – Rational Choice Theory | voter distribution favors centrist policies  Mancur Olson (1932 – 1998) The Logic of Collective Action: Public Goods and the Theory of Groups (1965) – rational choice theory – individual self-interest eclipses group interests GOVERNMENT FAILURE TYPES AND IMPACTS     Crowding Out – government spending encroaches on private sector Logrolling – process of legislative vote trading Pork Barrel Spending – earmarks for spending in constituencies Rational Ignorance – cost of educating on issues outweighs the benefits POLICY ANALYSIS – U.S. LEGISLATIVE MILESTONES The Sarbanes-Oxley of 2002 The Sarbanes-Oxley of 2002 What problem did the law aim to solve? ● Improve quality of financial reporting, and reduce information asymmetry for investors in U.S. Capital Markets ● Increase the strength of corporate governance through a number of mechanisms What are the lasting benefits and costs? ● What were the politics that shaped the law? ● In response to accounting scandals, such as WorldCom and Enron, the SOX of 2002 was enacted by the U.S. Congress to restore investor confidence. ● Between 1997 - 2002 accounting irregularities rose each year, which resulted in companies losing billions in market capitalization ● The GAO fully endorsed the implementation of more oversight on the accounting profession ● Sections 302 and 404(a) require assessment, reporting, and certification of the effectiveness of a company's internal controls over financial reporting ● Section 404(b) requires external auditors to verify these internal controls for financial reporting and asses their effectiveness Was the law effective? ● ● ● Cost Benefit Section 404 does not show an impact on reducing information asymmetry SOX reduces undervaluing a IPO, so there is minimal price adjustment due to reduced information asymmetry SOX reduces overinvestment and risk taking by overconfident CEOs ● After SOX, overconfident CEOs’ acquisitions create significantly more value ● ● ● ● ● Even though Section 404 does not reduce information asymmetry it is believed to be the control factor, which can answer why section 302 does reduce information asymmetry ● ● ● Section 302 does reduce information asymmetry ● The issue of cost versus benefit is not yet settled. While the SEC’s Office of Economic Analysis in a 2009 study acknowledged the high cost of implementing internal control requirements, it also suggested that the benefits outweigh the costs without providing any hard evidence to support the claim Significant increase in compliance costs Direct cost of a company going public post-SOX is an increase in the underwriting fee and other expenses related to the public offering In-direct costs associated with updating company systems to comply to SOX requirements pulling attention from top management away from operation and investment decision-making SOX directly benefits credit ratings of Firms Price adjustments for an IPO is significantly reduced due to SOX SOX audit costs increase with size; however, the unit SOX audit cost decrease with size, so large firms benefit from economies of scale Section 302 causes a firm's trading volumes to increase, bid-ask spread to decrease, and price volatility to decrease according to the sample firms used in the research proving investor confidence in accordance to the law Where is the law today? ● SOX is still the current law today; however, continual research is necessary to understand any current breakdowns in the governing and auditing systems to reduce any future risks 21 The Sarbanes-Oxley of 2002 The Gramm-Leech-Bliley Act of 1999 What problem did the law aim to solve? Goals Difficulties Improve quality of financial reporting ● ● Supreme Court case on constitutionality of SOX with SEC oversight rather than the President Significant increase in compliance costs Status Today Possibility of a Policy Change ● Remove barrier between commercial and investment banks to allow banks to be involved with the insurance industry ● Increase the value of the financial service industry ● Reduce government intervention and rely on corporate governance mechanisms to oversee the actions of financial institutions Small arguments have been made in regards to the increase in cost to comply with the law; however, the policy is well supported in the current growing economy Low: The confidence for shareholders created by the improvement in financial reporting outweighs the cost associated with compliance. There is no immediate need to change the current policy ● Modernize the financial servicing industry and permit its growth What were the politics that shaped the law? Glass-Steagall aimed to increase faith in financial institutions, but halted their growth - Bankers tried to erode the Glass-Steagall Act well before 1999 by attempting mergers and gaining rights to underwrite by the Federal Reserve ● Five major events happened in 1999 The House approved to revamp the financial services industry Glass-Steagall was facing a veto vote - Lack of an agreement ○ House-Senate- and the White House reach a compromise regarding Glass-Steagall ○ Congress overwhelmingly approves of a financial servicing overhaul ○ President Clinton Signs financial services bill. ● Reduce Information Asymmetry ● Pulling attention from top management away from operation and investment decision-making to comply with policy Highly supported by all shareholders because it provides the transparency needed to provide confidence in all publicly traded firms ○ Low: The reduction of information asymmetry provided by SOX has improved investor and firm relations because of transparency in financials which in result has improved valuations of IPO. There is no immediate need to change the current policy ○ Was the law effective? Gramm-Leech-Bliley Act of 1999 helped increase the stock value of banks ● Banks with smaller boards, lower levels of insider ownership, fewer annual board meetings, and more independent boards experienced more positive shareholder price reactions and should benefit more from passage of the GLB ● Some blame the financial crisis on the passage of the Gramm-Leech-Bliley Act of 1999 ● The Patriot Act of 2001 The Gramm-Leech-Bliley Act of 1999 What are the lasting benefits and costs? Cost ● ● ● Benefit ● ● ● What problem did the law aim to solve? Credited with creating the concept of “too big to fail” in the financial institutions “Too big to fail” is cited as one of the primary factors amplifying the 2008 financial crisis Contributed to the rise of an era in which financial behemoths combined different services that generated high levels of risk. ● To prevent future terrorism plots by strengthening current federal anti-money laundering laws ● Detect national security threats and identify terrorist networks What were the politics that shaped the law? ● Insurance companies benefit from the rise in competition associated with the Act Bank stocks begin increasing in value Deregulation caused mergers that created larger, more diverse financial institutions during the period 1999 to 2007 ● Phone data collection does not violate the First or Fourth Amendment since the government is conducting the program in good faith ● On May 8, 2015, the U.S. Court of Appeals for the Second Circuit held the language of this section could not plausibly be interpreted as authorizing bulk surveillance, though it did not rule on whether the program would be constitutional even with statutory justification ● Bulk collection of phone metadata has minimal value - no terrorist plots have been prevented in result of metadata collection ● Overloads data for analysts to derive important information needed Where is the law today? Still the current law. Under scrutiny due to the economic recession of 2008. ● The Emergency Economic Stabilization Act of 2008 (TARP) The Patriot Act of 2001 What are the lasting benefits and costs? What problem did the law aim to solve? ● Cost ● Benefit ● ● ● Reduces privacy of U.S. citizens Congress intended section 215 to be uniquely "flexible" and "broad” to justify bulk surveillance on domestic telephone metadata Prevention of terrorist activity Reduction in money-laundering activities Response to the 9/11 terrorist attack Was the law effective? Aim to stabilize the economy, preserve homeownership, protect taxpayers, provide no windfalls for certain executives, and strengthen oversight What were the politics that shaped the law? ● ● ● The autumn of 2008 witnessed what was probably the most extensive and prolonged breakdown of the US credit mechanism that has occurred since the establishment of the banking system. The deadweight losses from bankruptcies, foreclosures and job losses are significant. In February 2009, the number of unemployed persons increased by 253,000 to 12.5 million Beginning in the second week of September 2008, a series of events indicated that the US financial sector was in the midst of a severe crisis On Monday, September 15, Lehman Brothers submitted the largest bankruptcy filing in history. On Tuesday, September 16, the US government nationalized the American International Group (AIG) after the insurance firm experienced sharp losses and potential downgrades related to the writing of credit default swaps. ○ On Wednesday, September 17, a few large money market funds “broke the buck,” which effectively meant losses on deposits that were supposed to be close to riskless. In the midst of the financial market turmoil ○ On Friday, September 19, initial news reports suggested that “the federal government is working on a sweeping series of programs that would represent perhaps the biggest intervention in financial markets since the 1930s.” ○ ○ Where is the law today? ● Section 215 authority for the Patriot Act expired; however, a new program was enacted into law under the USA Freedom Act requiring the metadata be held by phone companies Was the law effective? ● The impact of the EESA on executive compensation is ambiguous ● The effect of wage caps, as provided within the EESA framework, on the volatility of pay-for-performance at firms with qualified plans is ambiguous ● Several indicators of distress among homeowners with mortgages have shown improvements since the height of the housing crisis, and evidence suggests that recent loans are less risky than those originated before the crisis ● Nearly 1.8 million mortgage loan modifications were completed in 2010, and this number has steadily decreased since that time ● No reportable noncompliance for fiscal year 2017 with provisions of applicable laws, regulations, contracts, and grant agreements 22 The Emergency Economic Stabilization Act of 2008 (TARP) The American Recovery and Reinvestment Act of 2009 What problem did the law aim to solve? What are the lasting benefits and costs? Cost Increased U.S. Debt Increased the magnitude of the 2008 Financial Crisis ● ● Benefit Executives are not allowed to receive severance pay wherever the government takes over a firm In 2009, Treasury announced that as many as 3 million to 4 million borrowers who were at risk of default and foreclosure could be offered a loan modification under HAMP Extension of various tax exemptions for middle-class Americans. ● ● ● Where is the law today? ● ● As of August 2015, performance audits of the TARP programs have resulted in 72 recommendations to Treasury. Of the 72 performance audit recommendations, Treasury has implemented 59, or approximately 82 percent In December 2015 Congress mandated that the MHA program in EESA be terminated on December 31, 2016. ● Provide a monetary boost ● Create jobs ● Seed the beginning of a green-energy infrastructure What were the politics that shaped the law? ● Despite healthy corporate earnings, an employment rate that has slowly rebounded since the financial crisis of 2008, and the outpouring of high-tech distractions from Silicon Valley, many people have an aching sense that there is something deeply wrong with the economy. ○ Slow productivity growth is stunting their financial opportunities ○ high levels of income inequality in the United States and Europe are fueling public outrage and frustration in those left behind, leading to unprecedentedly angry politics Was the law effective? ● The stimulus energy investments were “a bit of a disaster,” says Josh Lerner, a professor at Harvard Business School ● Even some of the stimulus’s greatest apparent successes now seem to be less effective than originally hoped. Steven Chu, a Nobel Prize– winning physicist, was named secretary of the Department of Energy in early 2009 and implemented many of the bill’s most ambitious efforts to boost energy R&D ● The investment in broadband development does not show a clear benefit in a increased adoption of use ● The process of collecting and processing information necessary to comply with these requirements affected program implementation ● Increased federal guidance eliminated the impact of experiential capacity by the end of the second year of the program ● The Great Recession proved significantly deeper than forecasters had predicted, when the American Recovery And Reinvestment Act was enacted, but as new information became available, Congress did little to alter the fiscal stimulus in response, other than to continue some expiring provisions. ● The bottom line is that the environment rapidly changed after major new stimulus legislation had been put in place, but Congress’s response was slow and not proportionate to the new information. That left the economy in a deeper recession than it otherwise might have experienced if the problem of policy drift had been formally addressed in ARRA The Patient Protection and Affordable Care Act of 2010 The American Recovery and Reinvestment Act of 2009 What are the lasting benefits and costs? Cost A heavy debt load that forces cutbacks in services or a rise in taxes can make it difficult to compete in state markets The affordability of a state’s debt can affect not only its fiscal sustainability but also its economic competitiveness, as states compete with each other to attract or retain residents and business investment based, in part, on the public services they offer and the taxes they levy Government intervention into green energy solution may increase the chance of failure if experts are not running the initiative ● ● ● Benefit Approximately $90 billion went toward “clean energy activities” The ARRA was designed to inject $840 billion into the U.S. economy $7.2 billion was allocated for expanding access to broadband services throughout the nation A total of $130 billion was allocated to the construction industry to be spent on various projects, which included various transportation systems, new construction and renovation of government facilities, and housing construction ● ● ● ● What problem did the law aim to solve? ● ACA is intended to prevent the uninsured from catastrophic medical expenses which not only devastate individual credit ratings, but also lead to bankruptcy and home foreclosures ● The Affordable Care Act was implemented with dual goals of comprehensive coverage and cost containment for a healthcare system that has long battled issues of adverse selection What were the politics that shaped the law? ● The ACA was supposed to be tied to the federally mandated Medicaid program, which would assist state pools in providing insurance for those who couldn’t buy health insurance in the market ● Anywhere from thirty-eight to forty-eight million Americans do not have health insurance for a number of reasons Was the law effective? ● The benefits will primarily go to Americans living in the lowest-income deciles and will reduce income inequality ● Following CoOportunity Health’s placement in rehabilitation in late December 2014 and ordered liquidation in February 2015, a series of 11 other CO-OPs ceased operations during the year as did four more in 2016. The closings were attributed to various combinations of the following factors: ○ Limited enrollment, Higher than expected medical claims, High administrative costs, Plans priced too low, High priced health insurance plans, Financial Management, Lack of experience, Lack of diversification, Lack of federal funds, Flawed Risk Adjustment Formula, Limited sources of external capital ● The risk corridors shortfall has been directly implicated in the failure of eight CO-OPs, seven of which failed in October. These seven CO-OPs were in serious financial jeopardy as a result of the risk corridors shortfall as well as other factor ● The ACA did reduce the number of uninsured citizens, at least for a period of time. On the other hand, many of the CO-OPs formed as a result of the act have failed, and others continue to experience unfavorable operating results, raising questions about their financial viability. ● On June 28, 2012, the United States Supreme Court upheld the constitutionality of most of the ACA in the case National Federation of Independent Business v. Sebelius. However, the Court held that states cannot be forced to participate in the ACA’s Medicaid funding. Since the ruling, the law and its implementation have continued to face challenges in Congress, in federal courts, and from some state governments Where is the law today? ● Currently still impacting U.S. economy today. Most recent economic stimulus package in the U.S. The Patient Protection and Affordable Care Act of 2010 The Patient Protection and Affordable Care Act of 2010 What are the lasting benefits and costs? Cost ● ● ● Benefit ● ● ● Employee mandate for firms with 50 or more employees UnitedHealth, Highmark, Blue Cross and Blue Shield of North Carolina, and Health Care Service Corp. have reported losses of approximately $720 million, $590 million, $400 million, and $240 million, respectively, resulting from mispricing of exchange business An individual mandate requires all individuals not covered by an employer sponsored health plan, Medicaid, Medicare, or other public insurance program to secure an approved private insurance policy or pay a penalty ACA prohibits insurers from denying coverage to individuals regardless of pre-existing conditions, and a partial community rating requires insurers to offer the same premium to all applicants of the same age and geographical location without regard to gender or most pre-existing conditions (excluding tobacco use) Minimum standards for health insurance policies are established; no more junk insurance can be sold by private insurance companies Workers with smaller firms could get health coverage in ACA-mandated public exchanges where they could not be denied coverage for pre-existing conditions, premiums would not vary with health status, subsidies would be available for those with income below 400 percent of the federal poverty level, and in many cases there would be more plan choices than smaller employers are typically able to provide Goals Comprehensive Coverage Difficulties ● ● Cost Containment for a Healthcare System ● ● Where is the law today? ● Still current law. ● Individual Mandates no longer part of ACA law after Trump passed new Tax Act of 2017 Status Today Possibility of a Policy Change Supreme Court decision regarding the constitutionality of the ACA Bad implementation of Policy Change Even though the ACA had a bad rollout of policy implementation, the policy has provided healthcare coverage to more Americans. The comprehensive coverage aspect of the ACA is highly approved by the public Low: The coverage provided by the ACA helped cover more Americans with health insurance than previous systems, so a policy change regarding the comprehensive coverage of the ACA will be unlikely to change Supreme Court ruled that States cannot be forced to participate in the ACA’s Medicaid funding Major financial losses for large Healthcare companies due to mispricing. The rise in premiums is a general concern for the stability of the policy in the long-term. The removal of the individual mandate by the Trump administration will impact the funding of the Healthcare system High: Removal of individual mandates will reduce the funding needed to sustain the ACA, so a policy change for Healthcare is a high possibility to stabilize the rising Healthcare costs 23 The Tax Cut and Jobs Act of 2017 The Tax Cut and Jobs Act of 2017 What are the lasting benefits and costs? Cost What problem did the law aim to solve? ● ● Designed to cut taxes on businesses and individuals ● ● ● ● Stimulate the economy and create jobs ● Tax cuts will increase the U.S. debt by $1.5 trillion Tax reduction minimizes state budgets, which is critical impacts public health funding Lower-income taxpayers struggling to hold on to their health insurance will likely be hurt by the tax legislation Implementation of the Act by the IRS is estimated to cost $495 million in fiscal years 2018 and 2019 Increases risk of a recession in the next decade What were the politics that shaped the law? ● Benefit After the passage of the 1986 Tax Reform Act, other countries began to reduce their corporate tax rates to become more globally competitive ● Academics, practitioners, and government officials have started a dialog on U.S. Corporate Tax Reform in order to reduce the burden placed upon U.S. corporations ● Many U.S. corporations recognize significant profits overseas and defer taxes on such earnings indefinitely while the profits remain invested overseas, thereby sheltering income from U.S. tax. Currently, $2.1 trillion dollars, including $966 billion dollars from the Dow 30, is parked outside of the U.S. tax jurisdiction ● ● ● ● ● Was the law effective? ● ● ● Smaller S corporations and other pass-through entities will enjoy a lower marginal rate, giving them a $250 billion tax break through 2025 when this cut expires along with the rest of the tax cuts for individuals The law reduces the maximum tax rate on corporate earnings— which, at 35%, had been relatively high compared with those in other high-income countries —to a flat rate of 21% Raises the standard individual deduction and the child tax credit Elimination of the individual mandate will reduce federal expenditures by $318 billion over the 10-year budget window The deficit-financed tax cuts will act as a fiscal stimulus, temporarily pumping up growth Lower marginal corporate tax rates reduce businesses’ after-tax cost of capital, which incentivizes them to invest more, adding to their capital stock and ultimately increasing their productivity and the economy’s growth IRS implementation of new tax code will be crucial for the success of the Tax overhaul in 2018 The Trump administration has not nominated a new commissioner. Assistant Secretary of the Treasury for Tax Policy, David J. Kautter has been assigned double duty, serving both in his tax policy role and as acting IRS commissioner Where is the law today? ● Current Law. Implemented December 22nd, 2017. The Aristotelian Nation THE SOCIAL CONTRACT WHAT IS THE ROLE OF THE STATE IN A SOCIETY TOWARD AN UNDERSTANDING OF CIVIL SOCIETY The Enduring Issues of a free Civilization • self / national preservation • human / social flourishing • Rights – entitlements of behavior – governed • Liberty – right to self ownership  The Politics – elaborates our fullest available analysis of how humans can most completely develop and reveal their political nature – that is, as self-governing, republican – beings  Preconditions? – for such a social existence to flourish we must be concerned with the quantity, sophistication and urban concentration of the citizenry  Requirements? Intellectual and moral desire to belong to a political community and share in the ongoing debate over what is just and important in life – hence, politics is the highest science and among the highest good Article One, Section 8 “The Congress shall have the Power … to regulate Commerce with foreign Nations, and among the several states, and with the Indian tribes…” - US Constitution, 1789 Protect the markets Enable efficient markets Bolster trade markets Strengthen capital markets ** Prosperous Society ** 24 THE LAW FROM A BILL, TO A LAW, TO THE COURT Statutes at Large is available online: •Volumes 1-125 (1789-2011) http://heinonline.org/HOL/Index?index=statdocs&collectio n=statute •Volumes 1-18 (1789-1875) http://memory.loc.gov/ammem/amlaw/lwsllink.html •Volumes 1-64 (1789-1951) http://legisworks.org/sal/ •Volumes 65-125 (1951-2011) http://www.gpo.gov/fdsys/browse/collection.action?collectionCode= STATUTE •Volumes 109-Current (1995- ) http://www.gpo.gov/fdsys/browse/collection.action?collectionCode= PLAW (Make sure you select the Public Law menu). Laws are bound together in a publication named Statutes at Large. They have citations that look like: •P.L. 107-110 ( the 110th public law passed in the 107th Congress) •115 Stat. 1425 (volume 115 of the Statutes at Large, page 1425) Both formats refer to the same law, in this case the No Child Left Behind Act of 2001. It is easiest to use the second format, 115 Stat. 1425, to find the law. Note - before 1957 each law was called a "chapter". A citation would like: Tennessee Valley Authority Act, ch. 32, 48 Stat. 58 (1933). 25 Laws are bound together in a publication named Statutes at Large. They have citations that look like: P.L. 107-110 ( the 110th public law passed in the 107th Congress) 115 Stat. 1425 (volume 115 of the Statutes at Large, page 1425) Both formats refer to the same law, in this case the No Child Left Behind Act of 2001. It is easiest to use the second format, 115 Stat. 1425, to find the law. Note - before 1957 each law was called a "chapter". A citation would like: Tennessee Valley Authority Act, ch. 32, 48 Stat. 58 (1933). US CODE WEBSITE Part of the assignment asks for the implementation. The next bullet states, "Act, Code, Agency, etc." You have been working with a public law. That law can amend earlier laws by adding, or deleting, provisions. The result is gathered in the United States Code, which is abbreviated "USC". Laws are separated into 53 different subjects, such as bankruptcy, commerce and trades, or patents. Each subject area is called a "title." Look in the margin of a law for a citation such as 20 USC 6301. That translates as Title 20 of the United States Code, section 6301. (Replaced by the Every Student Succeeds Act - 2015) 26 The Big Question WHAT IS LIFE LIKE IN THE STATE OF NATURE? 27 Non est potestas Super Terram quae Comparetur ei There is no power on earth to be compared to Leviathan – or The Matter, Forme and Power of a Common Wealth Ecclesiasticall and Civil 1651 Two Treatises of Government: In the Former, The False Principles and Foundation of Sir Robert Filmer, And His Followers, are Detected and Overthrown. The Latter is an Essay concerning The True Original, Extent, and End of Civil-Government JOHN LOCKE (1632-1704)  Ethics of Rights  Two Treatises of Government, 1689  Inalienable Rights "Any single man must judge for himself whether circumstances warrant obedience or resistance to the commands of the civil magistrate; we are all qualified, entitled, and morally obliged to evaluate the conduct of our rulers. This political judgment, moreover, is not simply or primarily a right, but like self-preservation, a duty to God. As such it is a judgment that men cannot part with according to the God of Nature. It is the first and foremost of our inalienable rights without which we can preserve no other." 28 The state of nature has a law of nature to govern it, which obliges every one: and reason, which is that law, teaches all mankind, who will but consult it, that being all equal and independent, no one ought to harm another in his life, health, liberty, or possessions Second Treatise, 2, 6 the United States THE FOUNDING On U.S. National Governance  The Big Questions – • How does the state balance power? • What does Constitutional really mean? • How does the government create law? • How does government implement law? • Does law change or evolve? The Federalist Papers October 1787 – August 1788  The Goal – Ratify the Constitution  The Strategy – A Literary Debate   85 Essays countered by anti-federalist essays  A rigorous, philosophical argument articulated in a free press designed to generate a debate among citizens  The only social contract born from a people on how to govern themselves Overarching Aim  Create a united nation of independent states  Create a federal government with central power 29 Federalist 1 Hamilton Federalist 10 Madison - November 22, 1787 October 28, 1787  It has been frequently remarked, that it seems to have been reserved to the people of this country, by their conduct and example, to decide the important question, whether societies of men are really capable or not, of establishing good government from reflection and choice, or whether they are forever destined to depend, for their political constitutions, on accident and force  There are two methods of curing the mischiefs of faction: the one, by removing its causes; the other, by controlling its effects.  There are again two methods of removing the causes of faction: the one, by destroying the liberty which is essential to its existence; the other, by giving to every citizen the same opinions, the same passions, and the same interests.  It could never be more truly said than of the first remedy, that it was worse than the disease. Liberty is to faction what air is to fire, an aliment without which it instantly expires. But it could not be less folly to abolish liberty, which is essential to political life, because it nourishes faction, than it would be to wish the annihilation of air, which is essential to animal life, because it imparts to fire its destructive agency. Toward Democracy  John Locke (1632-1704) – the fundamental political question is not whether to have or not to have collective action – but rather, what sort of political action. Hence, political legitimacy comes from the authority of the engaged citizenry  Robert Dahl (1915 - ) – the fundamental political assumption is not that the U.S. has remained democratic because of its Constitution; rather, it is more plausible to suppose that the Constitution has remained because the United States is essentially democratic How – the political and economic traditions as well as institutions which underwrite a well-functioning, competitive democracy Federalist 1 The Federalist Papers The Cornerstone of American Political Philosophy Federalist 51 Introduction The Structure of the Government Must Furnish the Proper Checks and Balances Between the Different Departments Independent Journal Independent Journal Wednesday, February 6, 1788 James Madison Saturday, October 27, 1787 Alexander Hamilton It has been frequently remarked, that it seems to have been reserved to the people of this country, by their conduct and example, to decide the important question, whether societies of men are really capable or not, of establishing good government from reflection and choice, or whether they are forever destined to depend, for their political constitutions, on accident and force “IF MEN WERE ANGELS, NO GOVERNMENT WOULD BE NECESSARY. IF ANGELS WERE TO GOVERN MEN, NEITHER EXTERNAL NOR INTERNAL CONTROLS WOULD BE NECESSARY” 30 The U.S. Constitution Constitutional Law  September 17, 1787  Ratified March 4, 1789  Becomes the supreme law of the land  George Washington, Inaugurated 1st President of the United States under the Constitution  Since ratification, amended 27 times  April 30, 1789 – March 4, 1797  First ten – Bill of Rights, 1791  13 – abolish slavery, 1865  14 – defines U.S. citizenship, 1868  15 – prohibits denial of suffrage based on race, 1870  16 – establishes federal income tax, 1913  19 – women’s suffrage, 1920  26 – voting age at 18, 1971  27 – on congressional salaries, 1992  The U.S. Constitution is the cornerstone for holding government accountable to the governed  Anchors the American political culture and tradition  The Constitution is the only unchanged social contract in human history: 1789 – now  What is the reason for such the enduring contact?  What does it mean to preserve, protect and defend the Constitution?   Moral conscience of the founders – roots in inalienable rights – clarity of property rights grounded in law – first in human history To save the nation To the Finish The U.S. System of Governance MORAL CHARTER CHECKS AND BALANCES DEMOCRATIC REPUBLIC CONSTITUTIONAL  Charters of Freedom - The Declaration of Independence, The Constitution, The Bill of Rights  Teaching American History Well – Would You?  Aristotle – virtue ethics – would likely chose switching the track over the fat man – why…the virtuous person is morally required to make a decision – remember we are concerned with whether moral decisions are about “outcomes” or the “manner in which we achieve them” – so, by tossing a fat man off the bridge, you use murder and might save the five…if you switch the track you a guaranteed to save the five – collateral damage is the sixth man.  Mill – utilitarian ethics – all that matters are the end results – the consequences. Save five, kill one. Simple. Greatest amount of good. The problem, however, is the problem of intent – you just murdered an innocent man.  Kant – duty ethics – the only intrinsic good in the world is to do good – we have a duty to the good as prescribed by universal law – a categorical imperative whereby our actions are taken without regard to the end – we have a duty to the law and rational beings (the fat man and the 6th man) – hence, Kant would let them all die – killing the fat man or changing the track implies a means to an immoral end – preserving universal law is our highest duty. It is no easy task to be good. For in everything it is no easy task to find the middle ... any one can get angry --that is easy-- or give or spend money; but to do this to the right person, to the right extent, at the right time, with the right aim, and in the right way, that is not for every one, nor is it easy; that is why goodness is both rare and laudable and noble. Aristotle 31 Ethics and Law in Business and Society Lecture Series SEAN D. JASSO, PHD UCR - WINTER 2020 32 1. On Market Failure – We said that the rationale for public policy is either market failure and/or government failure. Address the following with this rationale in mind: a. Define market failure from the perspective of the economist and government failure from the perspective of the political scientist (recall public choice theory). i. Which definition best fits the policy problem of the law you are studying for your final paper? Explain why. b. Market failures are most commonly identified with negative externalities. Provide an example and theoretical illustration/model of this phenomenon as well as a pro and con of government regulation as a corrective measure . c. Lastly, provide an example of a public good and explain why it is framed within the theory of market failure. Be specific. 2. On Public Policy – We defined public policy as problem resolution of civic affairs of a nation, state, or city. a. Referring to the policy you are studying for your final paper, select one of the policy foundations as well as one of the policy types discussed in lecture (see slides) that best describes the policy goal. b. Building upon the policy goal, discuss the political feasibility of the following: i. What are/were the political hurdles in passing the bill into law? ii. Identify the major benefit and major cost associated with this law. iii. Is this law financially feasible – can it pay for itself? c. American politics has always been about the competition of ideas about what people really want. Referring to the policy you are studying, identify the characteristics of whether your policy is liberal or conservative – or, perhaps it is neither. Explain. 3. On the Philosophy of the State – Civil society has been characterized by the theory of the social contract initially formalized by Thomas Hobbes and John Locke: a. How do the two philosopher’s visions of the social contract differ? Explain in detail i. Does your law show evidence of Leviathan reaching into the American public policy domain? b. Identify the following characteristics of the American social contract: i. How did the Federalist Papers influence the ratification of the Constitution? i. What is meant by “if angels were to govern men …” ii. How does the U.S. government balance power? iii. How does a bill become a law? iv. How is a law implemented? v. How is the constitutionality of a law affirmed? 4. Would You Kill the Fat Man? a. Discuss the trolley experiments Spur and Fat Man with specific reference to how the two have distinct differences within the Doctrine of Double Effect. Additionally, these two thought experiments shed light on each of our philosophers’ approach to ethics – Aristotle, Kant and Mill. i. Of the three philosophers, who do you think would and who would not kill the Fat Man? Explain in detail. ii. Finally, trolleyology teaches us the importance of having a set of values and ethics from which to refer when making decisions – especially vital decisions. What can our lessons from the trolley teach us about becoming an effective and moral manager? Pull from the book to support your response. Exam Question 1 On Market Failure – We said that the rationale for public policy is either market failure and/or government failure. Address the following with this rationale in mind: • a. Define market failure from the perspective of the economist and government failure from the perspective of the political scientist (recall public choice theory). • i. Which definition best fits the policy problem of the law you are studying for your final paper? Explain why. b. Market failures are most commonly identified with negative externalities. Provide an example and theoretical illustration/model of this phenomenon as well as a pro and con of government regulation as a corrective measure. c. Lastly, provide an example of a public good and explain why it is framed within the theory of market failure. Be specific Slide Deck Page 18 Slide Deck Page 19 Slide Deck Page 19-20 Slide Deck Page 20-21 Exam Question 2 • On Public Policy – We defined public policy as problem resolution of civic affairs of a nation, state, or city. • a. Referring to the policy you are studying for your final paper, select one of the policy foundations as well as one of the policy types discussed in lecture (see slides) that best describes the policy goal. • b. Building upon the policy goal, discuss the political feasibility of the following: • i. What are/were the political hurdles in passing the bill into law? • ii. Identify the major benefit and major cost associated with this law. • iii. Is this law financially feasible – can it pay for itself? c. American politics has always been about the competition of ideas about what people really want. Referring to the policy you are studying, identify the characteristics of whether your policy is liberal or conservative – or, perhaps it is neither. Explain. Slide Deck Page 20 Exam Question 3 • On the Philosophy of the State – Civil society has been characterized by the theory of the social contract initially formalized by Thomas Hobbes and John Locke: • a. How do the two philosopher’s visions of the social contract differ? Explain in detail • i. Does your law show evidence of Leviathan reaching into the American public policy domain? b. Identify the following characteristics of the American social contract: i. How did the Federalist Papers influence the ratification of the Constitution? i. What is meant by “if angels were to govern men …” ii. ii. How does the U.S. government balance power? iii. iii. How does a bill become a law? iv. iv. How is a law implemented? v. v. How is the constitutionality of a law affirmed? Exam Question 4 • Would You Kill the Fat Man? • a. Discuss the trolley experiments Spur and Fat Man with specific reference to how the two have distinct differences within the Doctrine of Double Effect. Additionally, these two thought experiments shed light on each of our philosophers’ approach to ethics – Aristotle, Kant and Mill. • i. Of the three philosophers, who do you think would and who would not kill the Fat Man? Explain in detail. • Ii. Finally, trolleyology teaches us the importance of having a set of values and ethics from which to refer when making decisions – especially vital decisions. • What can our lessons from the trolley teach us about becoming an effective and moral manager? Pull from the book to support your response. Slide Deck Page 31 Exam Two • Monday and Wednesday next week! • Bring 1 blue book each day!!! • Same procedure: • Line up outside at 7:30, wait for TAs to collect blue book and bring you in • Grab a writing table - look behind the curtains if they run out from the bins • If you remember: • Write on the front pages only (preferably in pen!) • Underline key points and write question number in the margins • Draw a picture or leave a note! ☺ • TIPS • Use outside sources in answers (ex. Articles, readings, videos, lecture, discussion material, etc.) • Write legibly • Answer all parts of questions The Trolley Problem • https://www.youtube.com/watch?v=vfIdNV22LQM • Group Reflection • How do you choose? Why? Would You Kill the Fat Man? Would You Kill the Fat Man? The Trolley Problem a nd W hat Your A ns wer Tells Us a bout R ight a nd Wrong David Edmonds Princeton University Press Princeton and Oxford Copyright © 2014 by David Edmonds Requests for permission to reproduce material from this work should be sent to Permissions, Princeton University Press Published by Princeton University Press, 41 William Street, Princeton, New Jersey 08540 In the United Kingdom: Princeton University Press, 6 Oxford Street, Woodstock, Oxfordshire OX20 1TW press.princeton.edu All Rights Reserved Library of Congress Cataloging-in-Publication Data Edmonds, David, 1964– Would you kill the fat man? : the trolley problem and what your answer tells us about right and wrong / David Edmonds. pages cm Includes bibliographical references and index. ISBN 978-0-691-15402-2 (hardcover : alk. paper) 1. Ethics. 2. Thought experiments. 3. Churchill, Winston, 1874–1965—Miscellanea. I. Title. BJ1012.E34 2013 150--dc23     2013012385 British Library Cataloging-­in-­Publication Data is available This book has been composed in Electra and Syntax Printed on acid-­free paper. ∞ Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 To Liz, Isaac, and Saul (an undiscriminating fan of wheels, trains, and trolleys) “Clang, clang, clang” went the trolley “Ding, ding, ding” went the bell “Zing, zing, zing” went my heartstrings From the moment I saw him I fell. —­H ugh Martin and Ralph Blane, “The Trolley Song,” 1944 (sung by Judy Garland in Meet Me in St. Louis) Contents List of Figures Prologue Acknowledgments Part 1 xi xiii xv Philosophy and the Trolley Chapter 1 Churchill’s Dilemma 3 Chapter 2 Spur of the Moment 8 Chapter 3 The Founding Mothers 13 Chapter 4 The Seventh Son of Count Landulf 26 Chapter 5 Fat Man, Loop, and Lazy Susan 35 Chapter 6 Ticking Clocks and the Sage of Königsberg 44 Chapter 7 Paving the Road to Hell 57 Chapter 8 Morals by Numbers 69 Part 2 Experiment s and the Trolley Chapter 9 Out of the Armchair 87 Chapter 10 It Just Feels Wrong 94 Chapter 11 Dudley’s Choice and the Moral Instinct Part 3 108 Mind and Brain and the Trolley Chapter 12 The Irrational Animal 127 Chapter 13 Wrestling with Neurons 135 Chapter 14 Bionic Trolley 153 Contents Part 4 The Trolley and It s Critics Chapter 15 A Streetcar Named Backfire 169 Chapter 16 The Terminal 175 Appendix Ten Trolleys: A Rerun183 Notes193 Bibliography205 Index213 x Figures Figur e 1 Spur9 Figur e 2 Fat Man 37 Figur e 3 Lazy Susan 40 Figur e 4 Loop41 Figur e 5 Six Behind One 55 Figur e 6 Extra Push 64 Figur e 7 Two Loop 65 Figur e 8 Tractor Man 98 Figur e 9 The Tumble Case 99 Figur e 10 The Trap Door 140 Prologue The levity of the examples is not meant to offend. —­P hilippa Foot This book is going to leave i n its wake a litter of corpses and a trail of blood. Only one animal will suffer within its pages, but many humans will die. They will be mostly blameless victims caught up in bizarre circumstances. A heavyset man may or may not topple from a footbridge. Fortunately, almost all these fatalities are fictional. However, the thought experiments are designed to test our moral intuitions, to help us develop moral principles and thus to be of some practical use in a world in which real choices have to be made, and real people get hurt. The point of any thought experiment in ethics is to exclude irrelevant considerations that might cloud our judgment in real cases. But the experiment has to have some structural similarities with real cases to be of use. And so, in the forthcoming pages, you will also read about a few episodes involving genuine matters of life and death. Making cameo appearances, for example, will be Winston Churchill, the twenty-­ fourth president of the United States, a German kidnapper, and a nineteenth-­century sailor accused of cannibalism. Thought experiments don’t exist until they have been thought up. Books covering philosophy tend, rightly, to focus on ideas, not people. But ideas do not emerge from a vacuum; they are the product of time and place, of upbringing and per- Prologue sonality. Perhaps they have been conceived as a rebuttal to other ideas, or as a reflection of the concerns of the moment. Perhaps they reflect a thinker’s particular preoccupation. In any case, intellectual history is fascinating, and I wanted to weave in the stories of one or two of those responsible for the ideas on which this book is based. There is a reason why the crime at the heart of this book, the killing of the fat man, has never been fully solved, philosophically: it is complicated . . . really complicated. Questions that, at first glance, appear straightforward—­such as “When you pushed the fat man, did you intend to kill him?”—­turn out to be multi-­dimensional. A book that attempted to address every aspect of all the fraught issues raised by the killing would be ten times the length of this one. In any case, although some of the intricacies can’t be avoided—­indeed, they provide much of the scholarly excitement—­my aim was to write a book that did not require readers to hold a philosophy PhD. When I first came across the trolley problem I was an undergraduate. When the fat man was introduced to philosophy I was a postgraduate. That was a long time ago. Since then, though, what has reignited my interest has been the perspective brought to bear on the problem from several other disciplines. My hope is that the text that follows will give some insight into why philosophers and non-­philosophers alike have found the fat man’s imaginary death so fascinating. xiv Acknowledgments This is a dull bit for the reader, b  ut a welcome opportunity for the author—­the acknowledgment of debts. And I have a trolley load of people to thank. First, to numerous philosophers: I’ve conducted many interviews or had many meetings with academic philosophers about the book, and have also drawn on relevant material gathered through my work with the BBC, Prospect, and especially Philosophy Bites (www.philosophybites.com). These philosophers include Anthony Appiah, Fiery Cushman, Jonathan Haidt, Rom Harré, Anthony Kenny, Joshua Knobe, Sabina Lovibond, Mary Midgley, Adrian Moore, Mike Otsuka, Nick Phillipson, Janet Radcliffe Richards, Philip Schofield, Walter SinnottArmstrong and Quentin Skinner. Second, thanks to another set of philosophers who have read part or all of the manuscript. No doubt there are still errors in the book, but that there aren’t more of them is down to Steve Clarke, John Campbell, Josh Greene, Guy Kahane, Neil Levy, John Mikhail, Regina Rini, Simon Rippon, Alex Voorhoeve, and David Wiggins (and Nick Shea, for helping me decipher Professor Wiggins’s handwriting). Third, thanks to those who assisted with material for the biographical section—­Lesley Brown, M.R.D. Foot (who, sadly, has passed away), Sir Anthony Kenny, and Daphne Stroud, a former tutorial partner of Philippa Foot’s.  acknowledgmentsacknowledgments Fourth, I appreciate assistance I received from journalists at the BBC and Prospect. Colleagues at the BBC were crucial during this book’s germination stage. Jeremy Skeet helped to commission a two-­part BBC World Service series on the subject, which was presented by the estimable Steve Evans, an economist with an insatiable curiosity, who would have made an excellent philosopher. For the past few years I’ve been contributing philosophy articles to Prospect, in which some of this material was given a first airing. James Crabtree (now of the Financial Times) and the former editor, David Goodhart, commissioned articles on subjects that other periodicals would shy away from. If it’s possible to plagiarize one’s own work, then I’m guilty in one or two places of doing so. The chapter on experiments in philosophy relies on some of the research done for an interview, co-­written with Nigel Warburton, on the X-­ Phi movement. And I’ve also written for Prospect on enhancement as well as on the trolley problem itself. Fifth, to the team at Princeton University Press: Hannah Paul and Al Bertrand were patient and encouraging throughout the writing process—­people always express similar sentiments about their editors in the acknowledgment section, but this time it’s really true. Copyeditor Karen Verde, illustrator Dimitri Karetnikov, and press officer Caroline Priday made up an excellent team. Hannah Edmonds, as usual, played the role of proofreading long-­stop, brilliantly catching grammatical and spelling infelicities that had slipped through others. Sixth, thanks to my agents at David Higham, particularly Laura West and Veronique Baxter. Seventh, my referees’ input was much appreciated. Princeton approached two academics to read the manuscript. I was fortunate in that both of them are moral philosophers of international standing and both chose to waive their anonymity. xvi Acknowledgments Roger Crisp, a professor at Oxford, made numerous useful suggestions, as did Jeff McMahan, of Rutgers and Princeton and one of the world’s leading specialists in this area. Eighth, gratitude to Julian Savulescu, Miriam Wood, Deborah Sheehan, Rachel Gaminiratne, and others at Oxford’s Uehiro Centre for Practical Ethics, for providing me over the past several years with such an hospitable academic base. Likewise, to Barry Smith and Shahrar Ali from the Institute of Philosophy. Ninth, thanks to Britain’s finest Indian restaurant, the Curry Paradise, for fueling the brain. Finally, several friends merit a special mention. For the past six years, Nigel Warburton has been my partner-­in-­crime on the Philosophy Bites podcast. As of May 2012, our interviews have had 18 million downloads: more important, the series has been tremendous fun and has given me a wonderfully broad philosophical education. I also want to acknowledge two non-­ philosophers. John Eidinow (with whom I’ve written three books) and David Franklin, a law scholar, are very clever chaps indeed. Both read the entire manuscript and made countless invaluable comments. The book is dedicated to Liz, for her loving kindness and her gentle toleration; to Saul, who has trumped my trolley preoccupations with his toy-­train obsession; and to Isaac, the most delightful of way stations, born some time between chapters 7 and 8. xvii Pa rt 1 Philosophy and the Trolley C h apt e r 1 Churchill’s Dilemma At 4:13 a.m. on June 13, 1944, there was an explosion in a lettuce patch twenty-­five miles south-­east of London. Britain had been at war for five years, but this marked the beginning of a new torment for the inhabitants of the capital, one that would last several months and cost thousands of lives. The Germans called their flying bomb Vergeltungswaffe—retaliation weapon. The first V1 merely destroyed edible plants, but there were nine other missiles of vengeance that night, and they had more deadly effect. Londoners prided themselves on—and had to some extent mythologized—their fortitude during the Blitz. Yet, by the summer of ’44, reservoirs of optimism and morale were running dry,—even though D-­day had occurred on June 6 and the Nazis were already on the retreat on the Eastern front. The V1s were a terrifying sight. The two tons of steel hurtled through the sky, with a flaming orange-­red tail. But it was the sound that most deeply imprinted itself on witnesses. The rockets would buzz like a deranged bee and then go eerily quiet. Silence signaled that they had run out of fuel and were falling. On contact with the ground they would cause a deafening explosion that could flatten several buildings. Londoners tempered their fear by giving the bombs a name of childlike inno- Chapter 1 cence: doodlebugs. (The Germans called them “hell hounds” or “fire dragons.”) Only an exceptional few citizens could be as phlegmatic as the poet Edith Sitwell, who was in the middle of a reading when a doodlebug was heard above. She “merely lifted her eyes to the ceiling for a moment and, giving her voice a little more volume to counter the racket in the sky, read on.”1 Because the missiles were not piloted, they could be dispatched across the Channel day or night, rain or shine. That they were unmanned made them more, not less, menacing. “No enemy was risking his life up there,” wrote Evelyn Waugh, “it was as impersonal as a plague, as though the city was infested with enormous, venomous insects.”2 The doodlebugs were aimed at the heart of the capital, which was both densely populated and contained the institutions of government and power. Some doodlebugs reached the targeted zone. One smashed windows in Buckingham Palace and damaged George VI’s tennis court. More seriously, on June 18, 1944, a V1 landed on the Guards Chapel, near the Palace, in the midst of a morning service attended by both civilians and soldiers: 121 people were killed. The skylight of nearby Number 5, Seaforth Place, would have been shaken by this explosion too. Number 5 was an attic flat overrun by mice and volumes of poetry: there were so many books that additional shelves had had to be installed in what had originally been a bread oven, set into the wall. There was a crack in the roof, through which could be heard the intermittent growl of planes, and there were cracks in the floor as well, through which could be heard the near constant roar of the underground. The flat was home to two young women, who shared shoes (they had three pairs between them) and a lover. Iris was working in the Treasury, and secretly feeding information back to the Communist Party; Philippa was researching 4 Churchill’s Dilemma how American money could revitalize European economies once the war was over. Both Iris Murdoch and Philippa Bonsanquet would go on to become outstanding philosophers, though Iris would always be better known as a novelist. Iris’s biographer, Peter Conradi, says the women became used to walking to work in the morning to discover various buildings had disappeared during the night. Back at the flat, during intense bombing raids, they would climb into the bathtub under the stairs for comfort and protection. They weren’t aware of it at the time, but matters could have been worse. The Nazis faced two problems. First, despite the near miss to Buckingham Palace, and the terrible toll at the Guards Chapel, most of the V1 bombs actually fell a few miles south of the center. Second, this was a fact of which the Nazis were ignorant. An ingenious plan presented itself in Whitehall. If the Germans could be deceived into believing that the doodlebugs were hitting their mark—or, better still, missing their mark by falling north—then they would not readjust the trajectory of the bombs, and perhaps even alter it so that they fell still farther south. That could save lives. The details of this deception were intricately plotted by the secret service and involved several double agents, including two of the most colorful, ZigZag3 and Garbo.4 Both ZigZag and Garbo were on the Nazi payroll but working for the Allies. The Nazis requested eyewitness information about where the bombs were exploding—and for a month they swallowed up the regular and misleading information that ZigZag and Garbo provided. The military immediately recognized the benefits of this ruse and supported the operation. But for the politicians it had been a tougher call. There was an impassioned debate between 5 Chapter 1 the minister for Home Security, Herbert Morrison, and Prime Minister Winston Churchill. It would be too crude to characterize it as a class conflict, but Morrison, who was the son of a policeman from south London and who represented a desperately poor constituency in east London, perhaps felt more keenly than did Churchill the burden that the operation would impose on the working-­class areas south of the center. And he was uneasy at the thought of “playing God,” of politicians determining who was to live and who to die. Churchill, as usual, prevailed. The success of the operation is contested by historians. The British intelligence agency, MI5, destroyed the false reports dispatched by Garbo and ZigZag, recognizing that, were they ever to come to light, the residents of south London might not take kindly to being used in this way. However, the Nazis never improved their aim. And a scientific adviser with a stiff upper lip, who promoted the operation even though his parents and his old school were in south London (“I knew that neither my parents nor the school would have had it otherwise”), estimated it may have saved as many as 10,000 lives.5 By the end of August 1944, the danger from V1s had receded. The British got better at shooting down the doodlebugs from both air and ground. More important, the V1 launching pads in Northern France were overrun by the advancing Allied forces. On September 7, 1944, the British government announced that the war against the flying bomb was over.6 The V1s had killed around six thousand people. Areas of south London—Croydon, Penge, Beckenham, Dulwich, Streatham, and Lewisham—had been rocked and pounded: 57,000 houses had been damaged in Croydon alone. Nonetheless, it’s possible that without the double-­agent subterfuge, many more buildings would have been destroyed— 6 Churchill’s Dilemma and many more lives lost. Churchill probably didn’t lose too much sleep over the decision. He faced excruciating moral dilemmas on an almost daily basis. But this one is significant for capturing the structure of a famous philosophical puzzle. That puzzle is the subject of this book. 7 C h apt e r 2 Spur of the Moment How are they free from sin who . . . have taken a human life? —Saint Augustine A man is standing by the side of a track w  hen he sees a runaway train hurtling toward him: clearly the brakes have failed. Ahead are five people, tied to the track. If the man does nothing, the five will be run over and killed. Luckily he is next to a signal switch: turning this switch will send the out-­of-­ control train down a side track, a spur, just ahead of him. Alas, there’s a snag: on the spur he spots one person tied to the track: changing direction will inevitably result in this person being killed...
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Question 1
Market failure is an unwanted effect that impacts the economy negatively since due to the
lack of maximum allocation of resources. In this regard, markets for consumer goods and services
yield inadequate outputs from the existing resources. It impacts consumers and even
businesspersons negatively since society turns their attention to the government in the face of a
market failure. In this regard, society expects the government to formulate policies and laws that
govern the allocation of resources on a global or national scale. From a political science standpoint,
market failure results as a result of an overemphasis on the advancement of the interests of the
private sector at the expense of suboptimal utilization of existing resources (Zerbe, 2019). All in
all, the phenomenon can be described as a situation where the aggregate demand for goods and
services is not analogous to the quantity supplied. In the economy, there is a supply deficit since
the market demand cannot be met effectively. Social governance equates to social capital; market
failure occurs when this capital breaks downs due to situational factors.
In an economy, existing products in the market do not have takers creating suboptimal
conditions for the same. As a result, loopholes arise in the market, and powerful entities or
persons can manipulate them to gain a competitive advantage. In the end, monopolistic
tendencies start to emerge in the market. Well-structured market environments are characterized
by oligopolistic tendencies where they are multiple suppliers in the supply chain. The high
number of suppliers in a particular industry in the market ensures a constant flow of goods in the
market. Failure to meet the required level of oligopolistic structures causes a market to fail.
In political science, politics plays an integral part in the regulation of markets of a
particular nation. Countries that have sound political systems are reflected in the efficiency of

QUESTIONS
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their markets. Government failure emanates when lawmakers cannot create effective policies and
laws related to taxation, subsidies, global warming, and pollution. In this regard, governments
that try to intervene to solve market challenges only create more problems in the economy.
Government intervention only creates tradeoffs of misallocation of the available resources since
it is likely to create laws that certain individuals and entities (Redmond, 2018). From the
perspective of public choice theory, existing p...


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