10091416Topic8TheMoralDimensionsofanEconomicSystem

8/13/2019 10091416Topic8TheMoralDimensionsofanEconomicSystem

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INTRODUCTIONHave you ever heard the term economic system? An economic system is anongoing process where people exchange material goods and personal services insupport of a wide range of human interests.

The moral dimensions of an economic system, in which resources are accessedand manipulated while goods and services are exchanged and distributed, arespecified by what it does for people.

In this topic, we will look into these components: economic system, employmentand wages, ranking and rating, and ethical implications for performanceappraisal.

TTooppiicc8

The MoralDimensions ofan Economic

System

8

By the end of this topic, you should be able to:

1. Define economic system;

2. Explain the effects of performance appraisal on the ethicaldimension;

3. Explain four ethical guidelines for performance appraisal; and4. Compare between affirmative action and preferential treatment.

LEARNING OUTCOMES


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TOPIC 8 THE MORAL DIMENSIONS OF AN ECONOMIC SYSTEM 113

ECONOMIC SYSTEM8.1

Everyone has to access physical resources to satisfy their physiological,psychological, technological, aesthetic, intellectual and spiritual needs to developas human beings. Here, the economic system provides the much needed access.

Resources are given generously in nature; no one has a sole title to any of them.The needs, ability and willingness of individuals to expend their efforts dictatehow the products of resources are generated and distributed. Thus, it is notmorally required that everyone has the same or equal share of resources. What isrequired is that all human beings, have equal opportunity to access and use theavailable resources and that each person has the right a minimum share of theresources.

A morally sound economic system will ensure the following:

Fairness in the access to resources and the exchange and distribution of goodsand services

Prohibit any man-made obstacles like discrimination on irrelevant groundsthat interfere with anyones access to resources

No single group of people in the system has a disproportionate share ofresources; everyone has a right to a fair share

The society, in which the economic system operates, has an obligation to use itsgovernment and social agencies to reallocate resources whenever they areunjustly distributed among its members.

Did you know that how well employees are paid usually depends on how wellthey are rated by their employers? All employees are subject to a formal orinformal appraisal process. Large companies customarily establish ranking andrating systems that compare employees in a business unit and award merit paytreatment to those judged to be doing better jobs and contributing more for theorganisation.

SELF-CHECK 8.1

In your words, define the term economic system.


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TOPIC 8 THE MORAL DIMENSIONS OF AN ECONOMIC SYSTEM114

EMPLOYMENT AND WAGES8.2

Are you aware of the importance of having a good manager? Figure 8.1 shows

the criteria of a good manager although it is portrayed in a sarcastic manner.Why do you think it is essential for an organisation to have a good manager?

Figure 8 1:How to be a good managerSource: http://geekandpoke. typepad.com/geekandpoke/images/2008/02/19/goodmanager.jpg

Good managers will attract capable people into the business, keep their turnoverlow, secure their loyalty to the company and its objectives, and maintain andincrease their productivity level wherever possible.

A business that wants to keep good employees will have to offer competitivesalaries along with health insurance coverage, savings and pension plans as partof its basic wage package. To motivate and satisfy employees, managers alsoneed to do the following:


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(a) Provide them with on- and off-the-job training;(b) Give them effective job performance feedback;(c)

Allow them to participate in decision-making affecting the structure andobjectives of their jobs and how their performance on those jobs will bemeasured;

(d) Provide opportunities for them to move to higher-paying positions withmore responsibilities; and

(e) Provide them with safe working conditions.Although the mentioned practices constitute good management, they have amoral dimension as well. A companys managers may ignore or abuse them inthe interest of the companys bottom line. These actions are morally wrong

because they involve some form of injury or injustice to individuals, or failure togive them due respect.

In the following subsections, we will look into these aspects:

(a) The moral right to employment(b) Fair hiring practices(c) Affirmative action and preferential treatment(d) Wages(e) Equal pay for equal work(f) Equal pay for comparable work(g) Share of the return on resources

SELF-CHECK 8.2

List the factors that indicate good management. Discuss briefly oneach factor.

8.2.1 The Moral Right to Employment

What moral claims and rights do employees have against their employers as faras employment is concerned? Are you aware of what has been happening inAmerica for the past ten years in terms of employment? Many American plantsand industries decided to shut down or relocate their operations or downsizetheir workforce. Apart from putting thousands of people out of work, many of


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the affected employees had to start over with new employers, perhaps in totallydifferent careers. Aside from economic loss, some of them also suffered a severepsychological blow to their self-esteem.

Figure 8.2 clearly illustrates the effects of the shutting down, relocating anddownsizing of American plants and industries.

Figure 8 2: Effects of shutting down, relocating and downsizing of American plantsand industries

Some might argue that the people involved in these shutdowns, relocations andforce reductions also suffered a violation of their legal right to employment.However, the question is whether such a moral right can be shown to exist andexactly against whom it may be asserted.

All of us are born into some kind of economic system which may range from therelatively simple practices of primitive tribes to complex transactions in highlyindustrialised, technology-oriented societies. Most of us, who are in highly

industrialised countries, get our access to material resources by way of a joborby work, instead of farming or hunting.

As argued earlier, every human being has a moral right to acquire and use someshare of material resources to ensure they live at a decent level of physical andpsychological well-being. It seems to follow that if most people are subject to aneconomic system in which a job is the means to obtain resources, then they havea moral right to the job; the economic system owes them employment.


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In a capitalistic economic system, like in the United States, the private sectorprovides most of the job opportunities. Hence, the responsibility of actualisingthe moral right to employment falls on the private employers.

In relation to the above sentence, how will you answer the following question?

Are all businesses morally obligated to employ some minimum number ofpeople to achieve a satisfactory level of employment in the society in whichthey operate?

The answer is No. The society highlighted in the question has adopted aneconomic system whose very nature requires extensive freedom in itscommercial enterprises in order to generate a maximum level of materialprosperity for its members.

In a capitalistic system, this freedom includes the right:

(a) To hire and keep on the payroll those employees who are needed in orderto meet the demands of a particular business

(b) To operate efficiently at a satisfactory level of profitIt also seems to include taking on only those people whose education, skills andpersonality traits are judged as best-suited to the operations the business engages

in. One of the assumptions being made here is that the option to live under thecapitalistic system can be shown to be freely chosen by the members of a society,either through some direct democratic process or by an indirect social contract.

In other words, by continuing to live under the system without political protest,they indirectly indicate their preference for it. Given this assumption, thefreedom of employers to hire and retain employees as they see fit means that nomember of the society in which they operate has a moral claim on any specific joboffered in the private sector.

8.2.2 Fair Hiring Practices

In relation to fair hiring practises, these would be the viewpoints given by theethical theorists:

(a) The Natural Law MoralistThe natural law moralist (or anyone committed to a rights-based moraltheory) would point out that screening practices based on race, gender,age or religious preference are immoral and violate the right of anyone to

be treated with dignity. Consequently, employers would ensure not to


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discriminate on characteristics that have nothing to do with theindividuals job performance.

(b) The UtilitarianThe utilitarian wouldcome to the same conclusion adopted by the naturallaw moralist, although his judgement would be dependent upon theoverall consequences of these practices.

(c) The Cultural RelativistThe cultural relativist would argue that if there are no laws againstdiscrimination, then hiring and promotion policies would have to followwhatever customs acceptable to that particular society.

We have looked at the viewpoints adopted by the respective ethical theorists inrelation to fair hiring practises. Now, let us move on to another related aspect the anti-discriminatory practices. Read the following question carefully:

Are employment agencies morally wrong if they comply with anti-discriminatory practices but refuse to send minorities or other applicants oninterviews for positions they are qualified to fill? would their cooperation beformal or material in this instance?

Let us look at the viewpoints presented by the ethical theorists in relation to the

above question:

(i) The Natural Law MoralistThe natural law moralist wouldconsider it formal since the agencies haveagreed to become an extension of the clients employment office and areperforming a direct act of discrimination that is morally wrong in itself.

(ii) The UtilitarianThe utilitarian, on the other hand, would likelyweigh the consequences forthe agencies concerned such as the possibility of losing clients by refusing

to cooperate in anti-discriminatory practices. He would also attempt todetermine if a better state of affairs would result from compliance.

(iii) The Cultural RelativistThe cultural relativist would approve compliance with an employerswishes if discrimination is an accepted social practice and not against thelaw.


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8.2.3 Affirmative Action and Preferential Treatment

There are many interpretations for the term affirmative action and one of them

is as follows:

Affirmative actionmay range all the way from setting specific numbers ofminorities to be moved into positions over a given time period. Theproportion of the positions they hold begins to approach their numericaldistribution in the general population, to establishing the overall principlethat employment and promotion opportunities are open to all, regardless ofgender, race, religion, age or disability.

It is very likely that both natural law and utilitarian moralists would agree thateveryone should have an equal opportunity to compete for any job he or she isqualified to do and would endorse this sense of affirmative action. Meanwhile,cultural relativists would fall back on societys customary practices and wouldnot unreservedly agree to the idea of equal opportunity.

Now, let us move on to explore another important term which is in contrast toaffirmative action. Have you ever heard the term preferential treatment orpopularly known as setting quotas? Preferential treatment is the practice of

hiring or promoting members of the minority groups in preference to those fromthe non-minority groups.

Preferential treatment commits the very offence they are supposed to remedy,namely, selection of a person purely on the basis of characteristics which havenothing to do with his performance in a function or job. Setting specific quotasfor minorities can be regarded as an immoral act.

Below are aspects that need to be implemented in order to curb the issue ofpreferential treatment:

(a) Adopting a going-forward policy of equal opportunity(b) Selecting people solely on the basis of their qualifications for a position

unless a persuasive case can be made for instituting otherwise

(c) Following preferential treatment for a definite period of time


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Figure 8.3 shows clearly the distinction between affirmative action andpreferential treatment.

Figure 8 3: Comparison between affirmative action and preferential treatment

8.2.4 Wages

When it comes to wages, most commonly, employees might look into questionssuch as:

(a) What wages are employees morally entitled to?

(b) Are they entitled to a certain level of benefits in addition to basic wages?

Employees wages are generally determined by the job market; whatever it takesto attract and keep the productive people. Let us look how wages differ when itcomes to large and small businesses:

(a) In larger industries, it is commonly assumed that competitive salariesinclude basic wages and bonuses plus assorted benefits like paid holidays,vacations, sick days, medical and dental insurance, savings and pensionplans.

(b) However, in smaller businesses, wages are very often simply what anenterprise can afford to give; bonuses and benefits may or may not be partof the package.

Employment is the employees access to a fair share of material resources, so atminimum, their jobs should provide wages and benefits at a level that will assurethey live in some minimal but decent set of conditions.


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In any case, since it is not possible to require a particular business to pay wageshigher than it can legitimately afford, what these people cannot earn towardstheir minimally decent standard of living needs to come from the government as

a matter of distributive justice. That amount will be based on appropriateeconomic statistics, such as what it takes to sustain a family of four.

ACTIVITY 8.1During the 1997 economic crisis in Malaysia, many organisationswere forced to downsize their businesses; thus resulting in manyworkers losing their jobs.

Discuss the above statement in relation to the moral right to

employment.

8.2.5 Equal Pay for Equal Work

The principle of equal pay for equal work is currently established as part ofUnited States labour law. This principle states that people performing the samekind of work must be paid the same salaries as well. However, the principle isnot taken into consideration when the employees can do the work faster or more

efficiently than other employees; which justifies paying them more. Race, gender,age and handicaps have no bearing on pay treatment where equal work isconcerned.

Does social justice require that employees with dependents (with familymembers that need to be taken care of) be paid more than people with nodependents (single people) but who are doing the same amount of work?

(a) It is unlikely that such unequal treatment would ever be accepted in theUnited States

(b) Single people would surely argue that an employer only has to pay themarket wage for a particular job and is not in the business of caring forsocial justice

(c) If distributive justice is at issue, then the obligation falls on the society.Special welfare or family-subsidy programmes might be necessary and theresponsibility should be shared by everyone in the community on anequitable basis


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8.2.6 Equal Pay for Comparable Work

In recent years, the notion of equal pay for comparable work has influenced

some states in the United States to pay civil servants the same salaries if it can bedemonstrated that jobs involving different responsibilities, such as tree trimmersand lorry drivers, require the same relative levels of education, skill, knowledgeand experience.

Do you think that equal pay for comparable work is a requirement of justice? Theanswer is No as the market is still the most efficient allocator of jobs. Eventhough skill and knowledge requirements may look the same for many jobs,other factors (e.g. long working hours, varying risk factors and physicalenvironment) also have to be considered.

What is morally required is that no class of people is excluded from obtainingthese high-paying jobs on irrelevant grounds. This approach to determiningsalaries came about because women have for years been paid lower wages formany kinds of work which require the same skills and knowledge like their malecounterpart. If women were excluded from these jobs just because of theirgender, then this discriminatory practice has to be corrected in order to giveequal opportunity for women.

ACTIVITY 8.2

What is your opinion on "Equal pay for equal work and Equal payfor comparable work? Discuss with your coursemates.

8.2.7 Share of the Return on Resources

There is a relationship between the amount of material resources a company usesand its obligation to distribute the return realised from those resources to thesocietys members. That return does not depend solely on the amount ofresources used, but also on how well a company manages them and howproductive its workers are.

Managers and workers, then, have the right to a fair share of the return inproportion to their contribution to the enterprises success. Top managers usuallythink they make the biggest contribution and, as a result, expect to receive the

biggest share of wages and bonuses paid by the enterprise.


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Shareholders, of course, have the right to a fair share of their companies return.They have first claim on the returns and the right to the largest share. Theshareholders, through their investment, are simply accessing resources and are

entitled to a fair share of the return on those resources.

SELF-CHECK 8.3

In relation to fair hiring practices, explain the viewpoint of thefollowing ethical theorists:

(a) The natural law moralist;(b) The utilitarian; and(c) The cultural relativist.

RANKING AND RATING8.3

How well employees are paid generally depends on how well their supervisorsthink they are doing their jobs. While performance on the job and potential foradvancement are not the same thing, a person who is able to handle increasedresponsibility will probably not move up in the company without performingwell in his current assignment.

All employees are subject to some kind of performance appraisal be it formal orinformal. Let us see how appraisal works in small and large organisations:

(a) Informal AppraisalIn small businesses, employers generally are able to observe theperformance of their employees directly and the appraisal process is notvery complex.

(b) Formal AppraisalLarge companies, particularly those with many people in management,grade, rank and rate employees in various units of the business againsttheir co-workers. Those deemed better performers than others at the samelevel in the unit generally receive better pay.


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ACTIVITY 8.3

What are some of the criteria used by higher management in

measuring employees performance?

ETHICAL IMPLICATIONS FORPERFORMANCE APPRAISAL

8.4

People express their dignity and worth as individuals through their work. Theirwork provides them with a means to achieve personal goals and contribute totheir own well-being, as well as the well-being of their family and society. Theformal or informal public recognition of their work received from the variouscommunities to which they belong, is a powerful constituent of their self-imageand of who they are. No opinion is more important to them than what theiremployers think of their work performance.

Managers have a duty to prepare sound performance appraisals. If employeesquestion the fairness of their remuneration, their morale and performance will beaffected. However, there is also a moral dimension to this responsibility. Weneed to consider the impact which appraisals have on the persons beingevaluated and on their perception of their self-worth as measured by what their

supervisors think of them.

The companys appraisal plan which outlines the ground rules for preparingperformance evaluations constitutes a moral contract with employees because itis a promise. It normally stipulates that how well an individual meets thestandards established in the plan will determine how much he or she will bepaid. A supervisor, who fails to follow the appraisal plan, acts unjustly towardhis subordinates who have a right to be judged in line with their provisions andstandards.

To ensure ethical treatment of employees in the appraisal process, somefundamental guidelines need to be observed. Although the guidelines shown inTable 8.1 may seem like basic good management skills, it is important to bearthem in mind because they directly affect human beings whose dignity requiresthat they be treated justly and with respect.


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Table 8 1: Key Ethical Guidelines for Performance Appraisal

Guidelines ExplanationSet theobjectives

Subordinates need to have clear and concrete objectives set outfor the appraisal period, and they need to provide their owninput to these objectives.

Get thefeedback

Employees have the right to get feedback on their performanceon a regular basis. It would be unfair to wait until the end of theappraisal period to tell someone that he or she is performingpoorly. A subordinate whose performance is poor orunsatisfactory has to be made aware of the fact. It would be

unkind and unjust to let a person think that he or she is doing agood job when that is not the case.

Use validcriteria

Performance must be measured against valid criteria. It wouldbe unjust to knowingly measure an employees performanceusing a plan which does not apply in some significant respect tothe operation being managed.

Have theessentialinformationon

subordinate

Only those who have a good knowledge of what an employee isdoing should be allowed to rate his or her performance.Supervisors need to bring adequate anecdotal information on asubordinates accomplishments and failures to ranking and

rating sessions. Employers who fail to make a respectable casefor subordinates by relying on half-remembered details fromincidents occurring during the appraisal period may cause theiremployees to lose out in the competition for merit pay treatmentwith their co-workers whose employers can support-well ontheir performances.

Have theright forimprovement

Subordinates have a right to counselling, coaching and trainingto help improve their performance.


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Now, let us try to do the exercise below.

EXERCISE 8.1

1. What moral claims and rights do employees have against theiremployers as far as employment and wages are concerned?

2. Conduct a comparison between affirmative action andpreferential treatment.

3. What factors need to be taken into consideration whenevaluating an employees performance?

4. Performance appraisal systems have an ethical dimension. Doyou agree with the statement? State your reasons.

5. Indicate some ethical guidelines for performance appraisal.

An economic system is an ongoing process where people exchange materialgoods and personal services in support of an entire range of human interests.

If managers want to hire and retain productive and loyal employees, theyneed to offer competitive salaries and benefits, adequate training andfeedback on performance, opportunities for promotion, a fair way ofremedying injustices without fear of reprisal and safe working conditions.

Managers and their agents are obliged to follow fair hiring practices, and toavoid discrimination against people on grounds of gender, race, age anddisabled status when those characteristics are irrelevant to the job.

Affirmative action deals with employment and promotion opportunitiesbeing open to all, regardless of gender, race, religion, age and so forth.

Preferential treatment is the practice of hiring or promoting members ofminority groups in preference to those from non-minority groups.

Managers, workers and shareholders have a claim to a fair share inproportion to their effort to use resources efficiently and productively in theenterprise.


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All employees are subject to a formal or informal appraisal process. However,performance appraisal systems have an ethical dimension. People expresstheir dignity and worth through work; formal and informal public

recognition of their work affirms their self-worth.

There are several key ethical guidelines in relation to performance appraisal: Have the right for improvement;

Get the feedback;

Use valid criteria;

Have the essential information on subordinate; and

Set the objectives.

Affirmative action

Cultural relativist

Economic system

Employment

Equal pay

Fair hiring practices

Material resources

Natural law moralist

Performance appraisal

Preferential treatment

Utilitarian

Wages

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