Ideas with Impact
UNB Faculty of Management

The intersection of morality and economics: a case for regulating some goods in the market

Author: Faculty of Management

Posted on May 28, 2021

Category: Faculty Highlights , Faculty

As part of their degree requirements, business students are introduced to the ongoing debate between economists and policymakers about whether markets should be open or regulated. Should all goods be available in the markets or should some, especially those that are potentially harmful, be regulated or even banned? Capitalists will argue that if consumers are willing to pay for certain goods, they should be available; moral and social interests have no role in the marketplace. Many policymakers and ethicists will disagree.

UNB business ethics professor, Dr. Jeff Frooman, recently published a ground-breaking article in Business Ethics Quarterly, that provides a capitalist argument for regulating capitalism. His paper crosses ethical concerns with capitalist considerations to argue “there is room within capitalism for regulation” and he identifies three goods to support his case: bluefin tuna, heroin and bottled water.

It is not difficult to understand the moral argument for banning these goods: bluefin tuna is an endangered species so should be protected; because it is highly addictive, heroin is harmful, even life-threatening to consumers;  and water is a requirement for human life so should be available for little to no cost. However, what is the capitalist or economic rationale for banning such goods?

Economists generally agree on a set of properties to identify what constitutes a market good. There are some goods traded in the marketplace, including the three noted above, that violate this definition. Goods that violate these properties “are not the types of goods that the capitalist market is well suited to handle. Such products are morally suspect—they need to be examined carefully and most likely either banned from an open market or only allowed into the market with restrictions.”

Environmentalists have their argument for banning bluefin tuna from the market which makes sense, but capitalists don’t care about the environment. What economists observe about bluefin tuna is this: consumers have increasingly prized it as a status symbol as it becomes more and more uncommon, and thus it becomes more expensive. Thus, bluefin tuna is known as a “Veblen good.” No matter how high the price is, more people who can afford will buy it.

“The market for blue in tuna is a bi-product of human behaviour to want more of a status good the higher it costs,” says Frooman, “and because of this, bluefin tuna doesn’t behave like a normal good. (For “normal” goods, the more expensive they become, the less people them.) Bluefin tuna is suspect and this provides a capitalist argument for either regulating it or outright banning it.”

In the case of addictive drugs like heroin, “economic theory is not concerned with social issues. People are free to choose what they want to spend their money on; it is not our place to tell them what they can and cannot do.”

But there is a solid economic argument for regulating goods like heroin. With normal goods, the more you have of something the more, eventually, you start to not want it. “Think of ice cream, for example. The more you have of it, the less likely you are to go out and buy still more. In the case of heroin, however, addicts want the drug to the exclusion of everything else. There is nothing else you can offer them that will satisfy them. There is no saturation level. This doesn’t fit the kind of good the market was designed to handle.”

There is also a capitalist argument against the sale of bottled water, Frooman suggests. Humans require at least four litres of water per day to exist. “When deprived of water, people die. It doesn’t work like a normal good because it’s not a good, it’s a necessity.”

At the time he was writing this paper, Frooman notes, residents in Canada’s Six Nations reserve in Ontario had to pay for bottled water because their water was not potable. There was moral outrage about this around the world when this story broke in the media. “Hard core economists would say this is just how the market works. But no, this not what the market was designed for. Capitalists agree that the preferences associated with goods have certain properties. Some goods, like bottled water, violate these properties. This is a good economic reason why bottled water should not be sold in an open market. Instead, it should be provided by a public utility.”

Arguing the ban and regulation of goods like bluefin tuna, heroin and bottled water from a moral perspective is not sufficient. Frooman’s goal is to provide a capitalist, economic reason - to use capitalism to regulate capitalism.”

Frooman admits this may seem oxymoronic, and while his immediate audience for his paper is academics, he is ultimately targeting practitioners, many of whom are familiar with capitalist theory.

“It is about convincing those involved in capitalist markets and who, through their actions, personify its principles—managers and investors, and also regulators and policy makers—why, qua capitalists, they ought not sell bluefin tuna, for instance. This is why I find using capitalist theory as a starting point and deriving from it moral rules regarding firm actions to be such a potentially powerful approach and why I have sought to ground rules for regulating goods in economic market theory.”

Frooman’s paper, “Where MLM Intersects MFA: Morally Suspect Goods and the Grounds for Regulatory Action,” was published in Business Ethics Quarterly (December 2020).  After completing a five-year term as President of the Society for Business Ethics, Frooman shared the contents of this paper during his presidential address last August at the annual conference.

The line of argument in Frooman’s paper is unique and is something he will incorporate into the business ethics courses he teaches at UNB. “My research animates my teaching; that is, my teaching evolves out of my research.”

PHOTO: In a recent article published in Business Ethics Quarterly, Dr. Jeff Frooman provides a capitalist argument for regulating capitalism using heroin, bluefin tuna and bottled water to support his case.

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