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Business Ethics January 31, 2010

Posted by Dwight Furrow in Dwight Furrow's Posts, Ethics.
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Capitalist theory asserts that businesses in a competitive environment will follow ethical norms and be honest, fair, and diligent, if  they aren’t ethical, consumers will not do business with them. Thus, consumer protection legislation is unnecessary.

Whatever modicum of plausibility this view had should have been thoroughly shattered by recent experience—but the theory persists nevertheless.

So how would this theory account for the behavior of the European airline Ryanair?

The Irish Times

RYANAIR HAS appeared in the bottom 10 of an “ethical ranking” of 581 companies, based on environmental performance, corporate social responsibility and information provided to consumers. … Ryanair is ranked 575 on the latest list, just ahead of Occidental Petroleum, US tobacco company Phillip Morris and oil giant Chevron. At the bottom is Monsanto, chiefly known for genetically modified foods.

Henry at Crooked Timber notes:

The company prides itself not only on being perceived as having no social conscience, but as having a reputation for screwing its customers as systematically and mercilessly as possible. Which other airline’s CEO would announce that he wanted to charge passengers to use the toilet as a publicity stunt? Clearly, Ryanair thinks that this reputation is a money spinner for them (it is quite deliberately cultivated), and they have indeed made quite a lot of money. But why (if they are right) would a reputation for shafting your customers be a commercial asset for a consumer-oriented business in a relatively competitive sector? The standard economic account doesn’t seem to provide much insight. Help me out here.

Apparently, there are plenty of customers out there who think being disreputable and unscrupulous is a sign of a good business that can get you to your destination cheaply and safely. Morality is a sign of weakness, inefficiency, and woolly thinking so Ryanair is their kind of outfit.

There is a market for everything; ain’t capitalism grand?