Introducing the moral foundations of capitalism in undergraduate business law and ethics courses using Kelo v. City of New London.

AuthorDove, Laura Rae
  1. Introduction

    Business law and ethics courses are typical core curriculum requirements in US colleges and schools of business (AACSB 2013 Standards; Miller and Crain 2011). Even where business ethics is not a standalone course, it is frequently covered in business law and legal environment courses (Allison 1991; Miller and Crain 2011). Many textbooks on these subjects briefly address profit maximization theory but otherwise devote little attention to the nature of free enterprise capitalism (see Clarkson, Miller, and Cross 2015; Cross and Miller 2014; Ferrell, Fraedrich, and Ferrell 2012; Melvin and Katz 2014; Reed et al. 2013; Trevino and Nelson 2014). In effect, many textbooks conflate profit maximization with the system of free enterprise in which it is to operate.

    Addressing this shortcoming is essential given the misconceptions that many students develop long before college about what motivates businesspeople and drives business activities. Polls demonstrating Americans' distrust of business are ubiquitous (Ferrell, Fraedrich, and Ferrell 2013), and the media's portrayal of businesspeople as villains has been well-documented (Trevino and Nelson 2014). Even more worrisome studies suggest that business students frequently harbor more cynical attitudes regarding business than the general public does (Trevino and Nelson 2014). Business ethics educators cannot expect students to develop a strong sense of legal and ethical duty when students are inundated with the message that by choosing careers in business, they must be greedy, amoral, and soulless.

    This paper presents a teaching case for use by instructors of undergraduate business law, legal environment, or business ethics courses using the Supreme Court's 2005 decision in Kelo v. City of New London. The teaching case is designed to contextualize profit maximization theory within the bounds of free enterprise capitalism, which by definition requires the rule of law and the protection of individual rights. Exploring the underlying principles of free enterprise is an ideal way to address the challenges business students (and their instructors) face. (1)

    Section 2 outlines the relationship between free enterprise capitalism and business ethics and explore how typical law and ethics texts inadequately explore the moral foundations of free enterprise capitalism. Section 3 summarizes Kelo. Section 4 provides teaching notes, including a description of my use of this case in class, student feedback, and suggested discussion questions. Section 5 concludes.

  2. Business Ethics and the Nature of Free Enterprise

    Many textbooks address free enterprise capitalism solely by explaining profit maximization. Typical descriptions of profit maximization reinforce students' negative perceptions of business. For instance, two major business law and legal environment textbooks note that while many people consider the idea that corporations are designed solely to make profit "greedy or inhumane," the theory remains valid--but only because it results in efficient outcomes (Clarkson, Miller, and Cross 2015; Cross and Miller 2014). Other law and ethics textbooks present the pursuit of profit as an obstacle to ethical behavior (Mann and Roberts 2012; Reed et al. 2013; Trevino and Nelson 2014).

    These sterile descriptions of profit maximization theory ignore the context within which profit maximization is to be pursued. Free enterprise capitalism is based on voluntary exchange and the cooperation of individuals (Friedman 1962). Coercion, force, and fraud are anathema to free enterprise. Individuals are free to pursue their own goals, so long as they respect the rights of others while doing so. Far from being an amoral or immoral system, free enterprise is premised on the dignity and rights of the individual.

    Once students view themselves as participants in such a system, they begin to understand that recognizing the rights of others is not at odds with profit maximization. Free enterprise capitalism presumes that the goal of maximizing profits is pursued within the bounds of the rule of law (Friedman 1962, 1970). Because the rule of law and the freedom to choose are fundamental requirements, profit maximization is limited by these underlying assumptions; it is not a free-for-all with no moral grounding.

    The teaching case presented here introduces students to these concepts in a novel and memorable way designed to elicit students' misconceptions about profit maximization as a limitless, amoral pursuit. This process allows the instructor to introduce the moral foundations of free enterprise capitalism as the context within which profit maximization operates...

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