Philosophy of Business - Development of Management Theory and Philosophy

Development of Management Theory and Philosophy

It is a somewhat curious truism that despite the fact that business touches nearly every aspect of our lives, few thinkers have shown an interest in it from a rules or philosophical perspective until relatively recently. Indeed, few philosophers can be said to have paid much attention to the business enterprise, itself, prior to the latter part of the 20th century. Many philosophers tended to look askance at commercial activity, believing, as Plato did, that only the worst sort of people are involved in such matters. Plato is not unlike many academics throughout history, even today, who tend to think of business as a necessary evil in society, and not as something worthy of serious philosophical consideration.

Although there have been few "philosophers of business", per se, business and economics has not developed in a vacuum. It is built on many tacit philosophical principles and assumptions that we can examine. As a general rule, business practitioners and theorists tend to accept the principles that are current in their society. In the European Middle Ages, for example, the dominant Christian influence resulted in a pricing practice known as just price, and in the Enlightenment the dominant view of economic decision making was one of rationality.

The formative years in the development of the modern philosophy of business and economics was the 17th and 18th century. At that time, thinkers like Hobbes, Locke, Rousseau, Shaftesbury, and Smith created the intellectual foundation upon which modern business and capitalism was built. A basic principle subsumed within business practice and economic theory alike is the notion of free will. Thomas Hobbes, John Locke, and Jean-Jacques Rousseau all accepted that we are free moral agents, able to make decisions, control our own destiny, and engage in a social contract. This notion would later be celebrated in the idea of the entrepreneur, someone that freely decides to pursue a risky venture in the hope of receiving great rewards. It is also at the core of utility theory, a model of consumer behaviour in economics in which consumers freely choose what to purchase.

Another philosophic principle that would become part of business theory and practice is rationality. The general philosophic predilection of the enlightenment was that people were fundamentally rational. Philosophers such as René Descartes and Spinoza had built whole systems of thought on this assumption. Capitalism would do the same. For two hundred years economics was founded on the assumption of Homo economicus. This assumption has recently been challenged by Herbert A. Simon, among others.

Another key philosophic assumption is atomism. It was John Locke's view of society as an aggregation of independent, autonomous individuals, rather than Jean-Jacques Rousseau's vision of society as an organic collective that would become an integral part of business philosophy. The key ethical unit is the individual. Social institutions are merely constructs that individuals can use for their own purposes. Many years later, Milton Friedman used this assumption in arguing that corporations have no moral responsibility because, he contended, they are not individuals capable of responding to moral claims. Only the individuals within the business enterprise have a moral responsibility.

Modern business practice and theory developed in the age of scientific discovery, and this gave it a mechanistic orientation. In particular, Newton had just discovered classical physics. This would influence business and economics in ways that we are just beginning to understand. Early writers dealing with economic topics, such as Adam Smith, borrowed many of their techniques and terminology from classical physics. They would use terms like "equilibrium", "labor force", "elasticity", and "income accelerator". Today a few theorists are starting to question the mechanistic approach and model business on biological principles or chaos theory. Newton's law of inertia has found its way into marketing where it is claimed that consumers will continue in their current state unless they are encouraged to act otherwise. Thus advertising is claimed to perform the valuable role of helping people experience a more variegated and interesting life.

John Locke also contributed an important attitude towards the private ownership of property. He claimed that individuals have certain inalienable, natural rights. One of these is the right of ownership. He said that if we toil on the land and mix our sweat with the soil, we become the rightful owners of the land. This argument was extended to other assets including the factors of production, a conclusion that many, including Karl Marx, would challenge.

Another key concept that underlies modern business is ethical egoism. This states that the core moral obligation is to oneself. Thomas Hobbes saw all action as motivated out of self-interest. A group of philosophers including Mandeville, Butler, Shaftsebury, Hutcheson, and Smith (sometimes referred to as the "enlightened self-interest school") developed this into one of the core concepts of modern business theory. Bernard Mandeville claimed that private vices are actually public benefits. In The Fable of the Bees (1714) he laments that the "bees of social virtue are buzzing in mans bonnet". Civilized man has stigmatized his private appetites and the result is the retardation of the common good. Bishop Butler claimed that pursuing the public good was the best way of advancing one's own good since the two were necessarily identical. Lord Shaftesbury turned the convergence of public and private good around, claiming that acting in accordance with one's self-interest will produce socially beneficial results. An underlying unifying force that Shaftesbury called the "Will of Nature" maintains equilibrium, congruency, and harmony. This force, if it is to operate freely, requires the individual pursuit of rational self-interest, and the preservation and advancement of the self. Francis Hutcheson also accepted this convergence between public and private interest, but he attributed the mechanism, not to rational self-interest, but to personal intuition which he called a "moral sense". Adam Smith developed a version of this general principle in which six psychological motives combine in each individual to produce the common good. He called it the invisible hand. In The Theory of Moral Sentiments, vol II, page 316, he says: By acting according to the dictates of our moral faculties, we necessarily pursue the most effective means for promoting the happiness of mankind. Since Smith's time, the principle of the invisible hand has been further incorporated into economic theory. Léon Walras developed a four equation general equilibrium model which concludes that individual self-interest operating in a competitive market place produce the unique conditions under which a society's total utility is maximized. Vilfredo Pareto used an edgeworth box contact line to illustrate a similar social optimality.

A link can also be made between utilitarianism and the fundamental principles of the philosophy of business, however this is more theoretical than practical. Economists use utility theory to model human actions. Like Jeremy Bentham, modern economists assume that people are hedonists, that is they prefer more satisfaction to less satisfaction. The amount of satisfaction can be expressed in terms of the utility a person derives from the satisfaction. Social welfare functions used in modern welfare economics are an outgrowth of John Stuart Mill's utilitarian calculation of obtaining the greatest good for the greatest number. The grounding of business principles on teleological ethics has been challenged by many deontological philosophers. John Rawls' maxmin criterion also provides an alternative.