3.3 CRITICAL ASSESSMENT OF THE CLASSICAL MODEL: THE UTILITARIAN DEFENSE
The classical model of corporate social responsibility has been seriously challenged on a variety of grounds.5For our purposes, we can focus on the ethical challenges and examine, in turn, those challenges directed at the utilitarian defense and then those directed at the private property defense.
The utilitarian defense of the classical model returns us to the discussion of utilitarianism found in chapter 2. Utilitarian ethics can be thought of in terms of means and ends, of acts and consequences. Managers are assigned a certain role within a free market economy because, by filling this role, they contribute to the production of beneficial consequence. Seen in this way, we can raise two general types of challenges: those that focus on the adequacy of free markets as means to the end of maximally satisfying consumer demand, and those that focus on the appropriateness of these ends legitimate ethical goals. More simply, is the free market an adequate means to our ends, and are the ends ethically approach.
Economists are familiar with variety of situations in which the pursuit of profit will not result in a net increase in consumer satisfaction. In fact, such situations are called market failures precisely because in these cases markets fail to do what they were designed to do. We can mention three general cases of market failures that are familiar examples from economics.
Externalities such as pollution and resource depletion are perhaps the best known examples of markets failing. Externalities provide examples of efficiently externalities would be such things as air pollution, groundwater contamination and depletion, soil erosion, and nuclear wastes disposal, The costs of such problems are borne by parties (e.g., people downwind, neighbors, future generation) who are not a part of the exchange between seller and buyer. Such parties are said to be external parties, the exchange price does not represent an equilibrium between true costs and benefits. Suck external costs(or benefits) mean that market exchange will not achieve the optimal distribution fail to achieve their intended result. If we with to attain that optimal distribution, the market will need to be regulated and controlled so as to internalize these externalities
A second examples of market failure occurs in the case of public goods. There are many social goods – clean air, groundwater, ocean fisheries, scenic views, friendly and supportive neighborhoods and communities, or safe streets for examples for which no pricing mechanism exist. Without an economics price, no means are provided for markets to ensure that these goods get allocated to those who most value them. Thus, There is no guarantee that markets result in the optimal satisfaction of the public interest in regards to