Utilitarian Principles

in Business

Presented To…

Md. Russell IqbalCourse Instructor of BUS 315 : Business Ethics

Presented By..

• Farzana Alam Tarana 781• Puja Pradip Roy 786 • Shakila Rahman 787 • Afra Nouare Rumi 789 • Waliza Farhana 1268• Afrin Nahar Siddiquee 1477 17th Batch BBA Program

Utilitarianism

Origin…• Proposed by the

English philosopher-reformer Jeremy Bentham (1748-1832) in his book ‘Principles Of Morals And Legislation'

Bentham definition…

• Greatest good for the greatest

number

• “The greatest happiness or

greatest felicity principle”

• Happiness or Pleasure

• Satisfaction of Preferences

Principles of Utility… Recognizes the fundamental role of

pain and pleasure in human life

Approves or disapproves of an action on the basis of the amount of pain or pleasure brought about

Equates good with pleasure and evil with pain

Asserts that pleasure and pain are capable of quantification (and hence 'measure').

Development…• Developed by the

English philosopher-economist John Stuart Mill (1806-73) in his 1863 book 'Utilitarianism.'

Mill’s Modification…

Not the quantity of pleasure, but the quality of happiness that is central to utilitarianism

The calculus is unreasonable ;qualities cannot be quantified (there is a distinction between 'higher' and 'lower' pleasures)

utilitarianism seeks to promote the capability of achieving happiness (higher pleasures) for the most amount of people

Definition…Moral worth of an action is determined solely by its usefulness in maximizing utility and minimizing negative utility as summed among all human beings.

Utilitarian Principles Holds…

“An action is right from an ethical point of view if and only if the sum total of utilities produced by that act is greater than the sum total of utilities produced by any other act the agent could have performed in its place.”

….Dishonesty / theft

Dishonesty / theft is always wrong but if it produces more good consequences than any other act...

…..Dishonesty/theft is morally right for that particular situation.....

Utilitarian Organization

A utilitarian organization is a formal organization that is created in order to achieve practical ends.

Examples… Universities

Hospitals

Business organizations

Government

Utilitarianism in Economics…

Different Economic Systems

Traditional EconomyCommand EconomyMarket

EconomyMixed Economy

Traditional Economy

Family or Community based Economic System that relies on custom and ritual to make its choices.

Everyone shares equally in goods and services

Command Economy

• Centrally Controlled Economy where the Government makes all decisions.

• Government decides what is best for the people

Market Economy Individual or

Consumer based Economic System that relies on the consumption choices of consumers. 

Tends to increase consumer utility

Mixed Economy Economic System

that incorporates some Governmental involvement into a Market Based Economy.

Intended to maximize welfare of the societal beings.

So…

Utilitarianism principle is the central theme of any of the economic systems.

Business Implications…

Utilitarian Principles in Business

Utilitarianism may be employed in any business decision-making process that seeks to maximize positive effects and minimize negative outcomes.

The cost-benefit analysis is most often used – it is a good decision making tool.

Utilitarian Principles in Business

• Using utilitarianism, would consider

The good and bad consequence for everyone the action would affect,

Treat everybody as having equal rights,

No bias towards self,

would use it as an objective, quantitative way to make a moral decision.

In Business....

….Income Tax

• Progressive taxation system where, those who earn more pay more and vice versa.

• Represents the extra money to economy by rich.

….Income tax

But in a bigger picture, no extra money brought into the economy by the rich and neither is there a financial deficit owing to the low income of the not-so-rich.

So…

Utilitarianism is an idea that becomes the underlying determinant of political as well as economic decisions actions..

….Airlines Industry

• In deep inside…

• Utilitarianism exist in Airline Industry…

….Airlines Industry

• Business class passengers pay a premium price to get all the luxuries of that class that the airline offers.

….Airlines Industry

• And in economy class though passengers are traveling for the same amount of time as business class are getting less luxury facility.

Reason Behind…

….Business class are actually used to ease out the burden of deficit that the airline would have to bear to allow the economy class passengers the opportunity for air travel at a lower price….

This case utilitarianism principle plays discriminatory pricing strategies of companies when pricing products for different customer segments having different income levels.

Consequence…..

In a way, the machineries of taxation and discriminatory pricing work upon the principles of utilitarianism

ultimate outcome is the high net worth people of the society part with a portion of their extra income .

• So that the lower income strata of the society also get access to the various civil amenities.

•

Criticisms of Utilitarianism…

Is utility for the same action of different people can be measured or

compared?

Two employees working in same position with same responsibilities & same fringe benefit..

But may have different satisfaction about the job…

Are all benefits and cost tractable to measure?

• Can the value of life or health be measured….

• …Expensive system installed in workplace that eliminate hazardous gas…workers inhale that…

• It may cause earlier death of some workers…

•

Is the measurement adequate?

• Many of the benefits and costs of an action cannot be realizably predicted..

• ..Information gathered by costly scientific research … the future value of the information cant be measured…

What is to be counted as cost and benefit?

…Oil made from by hunting whale to make medicine….

…saves human live and destroys ecological balance, whale may extinct…

Is social ethical Dilemma is Answered Clearly?

A bank must decide to extend a loan to a manager of local bar or to a old home when the loanable amount is limited.

Are all goods equivalent to each other?

Noneconomic goods ≠economic goods…

….Freedom, quality, beauty is not equivalent to pizza, CD..

≠

Is Good for maximum Creating Loss To Minimum Always

Good?

Death of 1 people can save lives of another 4 people…

…As the 4 people will be donated the organs of the death person….

Case of Ford Pinto…

…Case of Ford Pinto

• In early 1960s Ford marketed a low-cost subcompact ‘Pinto’-cost less than $2000-weight less than 2000 pounds-brought to the market in 2 years

…Case of Ford Pinto

• Styling required that gas tank be placed behind the rear axle

• After crash- test, it was found that when struck from rear at 20 miles/hour or more

- The gas tank would rupture

- Gas would spray out and into the passenger compartment

- Possibly burn any trapped occupants

…Case of Ford Pinto

• Managers decided to go ahead with production because of

Design met all applicable legal and government standards

The car was comparable in safety to several other cars

Cost of modifying Pinto would not be balanced by benefits

…Case of Ford Pinto

• Total no. of autos = 12.5 million

• Cost per unit of auto to modify gas tank = $11

• Costs: $11 * 12.5 million

autos = $137 million

• Modification would prevent 180 burn deaths, 180 serious burn injuries & 2100 burned vehicles

• Benefits:(180 deaths*$200,000)

+(180injuries*$67,000)+(2100 vehicles* $700) = $49.15 million

…Case of Ford Pinto• For the production of

unmodified Pinto, in the following decade in fiery incidents involving Pintos

At least 60 persons died At least 120 persons

suffered burns over large areas of bodies

Many requiring years of painful skin grafts

Costing Ford millions in compensation

Criticisms of the Case…• The Ford Motor Company “weighed the risk of harm and

the overall cost of avoiding it.”Leggett, (1999)

Ignored ethical principles and abused the moral aspects of utilitarian principle

Actual costs to correct matters were over-estimated andwould have been nearer to $63.5 million. Though these did not equate to the benefits, Ford avoid a moral duty as a huge corporation to bear the cost of $15 million

Should We Absolutely use

Utilitarian Principles

in Business ???

…Utilitarian Principles in Business

• Evaluation of good and bad consequences provides one way of ensuring that companies consider the morality of their actions

• Which suggest that utilitarianism can be a positive influence for ethical business practice

QUERIES….???