Achieving Social and Economic Equality by Unifying Business and Ethics: Adam Smith as the Cause of and Cure for the Separation Thesis

Date01 May 2018
DOIhttp://doi.org/10.1111/joms.12322
Published date01 May 2018
Achieving Social and Economic Equality by Unifying
Business and Ethics: Adam Smith as the Cause of and
Cure for the Separation Thesis
Scott L. Newbert
Baruch College
ABSTRACT Adam Smith’s famous argument that self-interested decisions will ultimately
improve social welfare seems inconsistent with the social and economic inequality
characterizing Smith’s time and today. I contend that these inequalities are the result of
Smith’s failure to explicitly situate the economic man he describes in The Wealth of Nations
within the broader social context he articulates in The Theory of the Moral Sentiments, an omission
which has since given rise to the separation thesis, which states that business decisions have no
moral content and moral decisions have no business content. In response to this modern-day
Adam Smith problem, I integrate Smith’s notions of sympathy, intimacy, and justice into a
unification thesis that articulates how individuals might balance their self-interested and
benevolent motives. By reuniting the discourses of business and ethics, this research may
inform contemporary theories of business ethics and provide normative guidance for
managers.
Keywords: Adam Smith, benevolence, inequality, self-interest, separation thesis, sympathy
INTRODUCTION
To see that many of our ideas have long roots is important in an era which imag-
ines that everything worthwhile was thought up yesterday. (Werhane, 2006, p. 403)
Almost two and a half centuries ago, Adam Smith (1994) argued that firms are impor-
tant contributors to the welfare of the societies in which they operate due to the central
role they play in the distribution of wealth. Although early economists tended to equate
advancements in social welfare with greater aggregate utility (Bentham, 1789), because this
Address for reprints: Scott L. Newbert, Zicklin School of Business, Baruch College, City University of New
York, One Bernard Baruch Way, New York, NY 10010, USA (scott.newbert@baruch.cuny.edu).
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C2017 John Wiley & Sons Ltd and Society for the Advancement of Management Studies
Journal of Management Studies 55:3 May 2018
doi: 10.1111/joms.12322
type of utilitarian thinking allows for inequalities that can undermine social, economic,
and political stability, scholars have argued more recently that social welfare improves
when utility increases (or at least does not decrease) for all individuals (Samuelson, 1938)
such that the resulting social arrangement reflects some measure of equality (Sen, 1992).
Unfortunately, because the decision model adopted by managers of most firms during and
since Smith’s time has been limited to a very narrow understanding of Smith’s thinking,
we have yet to realize the broad-based social and economic prosperity that he envisioned.
To date, most explanations of equality have focused on the role played by markets
and institutions (Morris and Western, 1999), with Cobb’s (2016) as one of only a few
studies to both highlight the firm as a major determinant of inequality and develop
theory to explain the process by which firms contribute to this end. While laudable for
its novel approach, Cobb’s (2016) study lacks prescriptive advice as to how managers
themselves might combat social and economic inequality via the decisions they make in
their roles as agents of the firm. Noting the ‘’tradeoffs and competing claims to resources
and outcomes’ stemming from the tension between their firms’ social and economic
goals, Sundaram and Inkpen (2004, p. 370) ask, ‘what decision criterion should a man-
ager adopt as a guideline?’ I seek to answer this question herein. Yet, rather than merely
consider what might enable managers to mediate conflicting stakeholder interests (the
basis of Sundaram and Inkpen’s (2004) question), I intend to propose how managers
might actually serve those interests in a way that enables them to lead successful firms
that contribute to social and economic equality.
I begin by arguing that the general perception that conflict exists among the interests
of managers and those who are affected by their decisions is due to the widespread
acceptance of the separation thesis, or the belief that business decisions have no moral con-
tent and moral decisions have no business content (Freeman, 1994). I contend that the
genesis of the separation thesis is the claim by neoclassical economists, citing Smith’s
(1994) An Inquiry into the Nature and Causes of the Wealth of Nations (WON), that economic
decisions should be made solely on the basis of self- interest, devoid of any ethical con-
cern for others (Friedman, 1970). Notwithstanding the pervasiveness of this perspective,
it misinterprets Smith’s thought. By viewing WON in the context of Smith’s (1976) ear-
lier book, The Theory of the Moral Sentiments (TMS), we see that Smith actually viewed busi-
ness and ethics as two sides of the same coin.
As Werhane (2010, p. 696) notes, ‘Adam Smith wrote some 230 years ago that ethics
and economics ...are intricately intertwined’. She argues, therefore, that we must ‘reex-
amine [WON] in light of Smith’s moral psychology developed in TMS and his treat-
ment of rights, property and jurisprudence in [Lectures on Jurisprudence] (LJ)’ (1991, p. 13),
as ‘rereading Smith ... forces us to question some traditional assumptions about demo-
cratic free enterprise’ (2000, p. 196). A central conclusion she draws from all of her writ-
ing on Smith is that the prevailing ‘managerialist preoccupation with shareholder value
is challenged, if not completely refuted, by taking seriously the social character of
Smith’s complex vision of commerce” (Bevan and Werhane, 2015, p. 327). Echoing
Werhane’s view, Sen maintains that by ‘overlooking everything else that Smith said in
his wide-ranging writings and concentrating only on [WON], the father of modern eco-
nomics is too often made to look like an ideologue. He is transformed into a partisan
exponent of an ethics-free view of life which would have horrified Smith’ (1993, p. 47).
518 S. L. Newbert
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C2017 John Wiley & Sons Ltd and Society for the Advancement of Management Studies

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