FINGERHUT’S PRICE STRATEGY

Fairness and Distributive Justice

Justice and Moral Equality • Justice means that we need to treat all people as “moral equals.” • It recognizes that people are different in many ways, but we need to treat them as the same when it comes to morality.

• However, this does not mean that we need to treat all people in exactly the same way.

• The key is to determine what is a morally relevant difference to decide that we can treat people differently.

Sameness and Difference • Moral equality requires that organizations and individuals do not treat people differently on the basis of morally arbitrary features.

• This leads to a major issue—what’s a morally arbitrary feature? • In general, we see “immutable characteristics” as morally arbitrary: • Race • Sex • Age • Religious preference (this one is debated, with some arguing that religion is something which is easily changeable, and others arguing this is not).

• Sexual orientation (this one is debated as well, with some arguing that sexual orientation is something we are born with, and some arguing it is not).

What about things we aren’t “born with?” • We generally are asking the question of whether this is something someone can do something about, e.g., can their choices lead to better or worse outcomes (although even that is debated—as we will see!).

• So, many philosophers have argues economic class is immutable since class is a construct of society, but others say we can change our class through our choices.

• Familial relationship to those in power—anti-nepotism, basically—is generally seen as arbitrary as well, but, again, is it?

So, how can we treat people differently? • One of the key questions of justice is determine under what circumstances it is OK to treat different people differently.

• Is it OK to treat your family differently than a stranger? • Is it OK to give special parking to the disabled? • Is it OK to punish a criminal?

Types of Justice • Retributive Justice: this is what we often think of as “criminal justice.” People being held accountable and punished for violating the rights of others.

• Compensatory Justice: this is what we generally think of as justice in the civil court system. Make sure that those who infringe on the rights of others have to give fair recompense to those who are harmed.

• Distributive Justice: this is the most common form of justice in business ethics. This is ensuring that society allocated benefits and burdens in a way that treats people as moral equals. This is the one we are concerned about in this course. • We can look at this both at a large societal level, but also in smaller ways as well, e.g., if you have 5 applicants and 1 job opening, who gets it?

Distributive Justice • Distributive justice involved treating people as moral equals in the assignment of right and responsibilities.

• The problem is, of course, that moral equality has many different interpretations.

So, how do we consider people to be “moral equals?” • Libertarianism: equal respect for rights • Merit & Desert: equality of opportunity • Utilitarianism: equal consideration of interests • John Rawls: The Difference Principle/Justice as Fairness • Ronald Dworkin: Initial equality of resources • Amrtya Sen: equality of capabilities • Equality of welfare (economic satisfaction, not like the welfare system)

• Equality of access to resources

LIBERTARIAN JUSTICE

Equal Respect for Rights • Libertarianism: distribution of rights and responsibilities is just if, and only if, it respects people’s natural rights to ”self ownership.”

• Self-ownership: ownership of your own body, own labor, and your thoughts. These are negative rights—in other words, others shouldn’t interfere with these without your permission.

John Locke

Locke & Property Rights • Locke believed that “Though the earth, and all inferior creatures, be common to all men, yet every man has a property in his own person: this nobody has any right to but himself. The labor of his body, and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state of nature hath provided, and left it in, he hath mixed his labor with, and joined to it something that is his own, and thereby makes it his property…at least where there is enough and as good, left in common for others.”

Libertarian Argument for Private Property Rights • All people have equal natural right of self—ownership to their labor.

• People who “mix” their labor with something un-owned come to own it, as long as they leave enough, and as good, for others.

• Therefore, people have a natural right to their initially acquired property.

• This property right incudes the right to give, sell, or trade. • Therefore, people have a natural right to any property that they have acquired by initial acquisition or by just transfer from others.

• Property rights are distributed justly when they are acquired in these two ways.

Weakness • Actual property rights mostly acquired by force. • Mixing is a metaphor—and perhaps not a good one? What if I take a can of soup (which I own) and pour it in the ocean, do I now own the ocean? If you mix the pollution your company emits with the atmosphere, do you then “own” it, and therefore have responsibility for it?

• Leaving enough and as good for others doesn’t work. At this point what isn’t owned? Is it really possible to leave “enough and as good?” • Replace mixing metaphor with producing compensating value for others.

• Value produced by specialization and the division of labor, not by individual effort. People rarely produce value on their own!

UTILITARIAN JUSTICE

Equal Consideration of Interests • Equal Consideration of Interests: a distribution is just, if and only if, it assigns the same weight to everyone’s interests in the aggregation of interests for purposes of utilitarian maximization.

• This is an indirect or “rule” utilitarian theory: it claims that equal consideration of interests will lead to the equality of resources because the diminishing marginal utility of income.

Total and Marginal Utility • Total utility: the sum of all the utility produced by the consumption of those goods or services.

• Marginal utility: additional utility gained through the consumption of one additional unit of that good or service.

• Law of Diminishing Marginal Utility: as the consumption of a given good increases, the marginal utility produced by the consumption of one additional unit of the good tends to decrease.

For Example… • For example, imagine you go out drinking on Friday night. That first drink is awesome and you’re feeling good and having a good time since you had a long week. The second drink is pretty good too. The third’s OK, but it’s getting in to the evening now and you’re feeling pretty buzzed. By the 6th drink now you’re passed out puking out behind Streets.

Drinks 0 1 2 3 4 5 6

TU 0 3 5 6 6 4 0

MU 0 +3 +2 +1 0 -2 -4

Argument for the Equality of Resources • Imagine we live in a limited world of drinks, and two people who are drinking. How do we distribute the drinks in a fair way?

• In this example, we have only 4 drinks to distribute. So how do we maximize totally aggregate utility? Well, we have to do the math. This assume people get the same utility functions out of drinks!

Person A Person B A TU B TU AU

4 0 6 0 6

3 1 6 3 9

2 2 5 5 10

1 3 3 6 9

0 4 0 6 6

Weaknesses • People can have unfair preferences—one person can like drinks more than another.

• People can also be jealous of other people—they can have their pleasure taken down by the pleasure of others.

• So this leads to the problem of it being hard to calculate properly here.

EQUALITY OF OPPORTUNITY, WELFARE, & RESOURCES

Equality of Opportunity • Equality of Opportunity: a distribution is just if and only if it assigns positions in society according to morally relevant criteria such as ability or merit and not according to morally arbitrary such as race or gender.

• People should get benefits based on ability and past performance.

• This is typically the one we strive for in business—giving positions of power to those who have the greatest ability and performance.

Problems with Equality of Opportunity • Aren’t ability, effort, merit, and desert determined by factors that are arbitrary from a moral point of view? • Genetic lottery • Family background • Lucky decisions • Even effort can be determined by background!

• How should benefits be distributed to positions? • In other words, this isn’t telling us how these benefits should be distributed to the positions. Should the CEO make 1,000,000x the salary of the lowest worker? 100x? 10x? 5x

• Usually we’re figuring it via marginal contribution—what does the individual in that position bring to the firm, marginally?

Desert & Marginal Contribution • What sort of marginal contribution does, say, a CEO bring? • Obviously the CEO of a big corporation has a lot of business knowledge and experience they can bring to bear on a problem, and that’s awesome.

• But would they really be able to do that job without the people under them? Now just their VPs, but all the way down to the janitors—if no one was taking care of the physical plant, then customers wouldn’t want to come to the office, clients would be lost, and the CEO would be spending his or her time scrubbing out bathrooms.

• In addition, this leads to an issue of the order in which employees are hired in. The 1st employee, technically, brings the most to the firm because there was 0 first. But if the first employee is doing a low level job and the second is doing a high level one, the marginal contribution isn’t actually reflective of what they are doing.

Equality of Welfare • Equality of welfare: distribution of property rights and resources is only just if and only if the result is that everyone has the same level of welfare, or preference satisfaction.

• How do you measure welfare? • What about expensive tastes? This seems to say that we should give more resources to those who like expensive things.

Equality of Resources • Strict equality of resources: distribution of property rights in resources is just if and only if it results in everyone having the same amount of resources.

• Everyone gets everything exactly the same. • This solves a lot of problems—there are no measurement problems, there are no comparison issues, there is no expensive tastes problem, everything is equal!

• That said, few people—if anyone—holds this view. Why? It doesn’t account for any sort of motivation to do anything.

THE DIFFERENCE PRINCIPLE

The Difference Principle • John Rawls proposed in this 1971 book A Theory of Justice, that “all social primary goods—liberty and opportunity, income and wealth, and the bases of self-respect—are to be distributed equally unless an unequal distribution of any or all of these goods is to the advantage of the least favored.”

• The difference principle says a distribution of rights and responsibilities is jut if and only if everyone receives the same resources unless an unequal distribution results in the least well-off receiving more than in the strictly equal distribution.

Strengths • Distributes measurable income and wealth • Avoids leveling down problem—because the least well off are getting more from these unequal distributions

• Creates incentives for people to contribute—so long as the least well off are better off, then doing things that contribute to the society are rewarded

Weaknesses • No extra shares for natural handicaps • Doesn’t hold people responsible for their choices. • It creates incentives because those that contribute more get more.

• However, there’s a free rider problem—you don’t have to do anything and still can’t fall beneath the “floor.”

Initial Equality of Resources • Initial Equality of Resources: a distribution of rights and responsibilities is just if and only if it is the result of people’s free choices after an initial strictly equal distribution or resources couples with insurance against natural handicaps.

• Ambition sensitive: initial strictly equal distribution of resources. After this, people’s choices determine their fair shares. Equal “starting gate.”

• Endowment insensitive: a hypothetical insurance market provides extra resources to those with higher costs due to natural handicaps

Strengths • Incentives • Responsibility for choices • Insurance against natural disadvantages

Weaknesses • Distribution will depend on both choices and luck • Presupposes individual production rather than specialization and division of labor

• Extremely complicated in actual application

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