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A theory of business ethics: A Habermasian approach to the normative analysis of capitalist business activity

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A theory of business ethics: A Habermasian approach to the normative analysis of capitalist business activity

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A THEORY OF BUSINESS ETHICS:
A HABERMASIAN APPROACH TO THE
NORMATIVE ANALYSIS OF
CAPITALIST BUSINESS ACTIVITY
by
D arryl Reed
A Dissertation Presented to the
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillm ent of the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
(Religion)
A ugust 1997
© 1997 Darryl Reed
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UNIVERSITY OF SOUTHERN CALIFORNIA
THE ORADUATE SCHOOL
UNIVERSITY PARK
LOS ANGELES. CALIFORNIA 90007
This dissertation, written by
......................................................
under the direction of hL& Dissertation
Committee, and approved by all its members,
has been presented to and accepted by The
Graduate School, in partial fulfillment of re
quirements for the degree of
DOCTOR OF PHILOSOPHY
Dean of
Date
DISSERTATION COMMITTEE
CjL
Chairperson
i f L .____
i . _________________________._______________
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for Ananya
k
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iii
Table o f Contents
List of Tables and Figures
| Abstract
i
1 Chapter 1: The Problem to be Investigated: The Development of a Critical Theory
j Approach to the Normative Analysis of Capitalist Business Activity
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j I. The Problem to be Investigated
II. Method
HI. Structure of the Dissertation
IV. Significance o f the Dissertation
Chapter 2: Critical Theory and Social Science Analysis: The “Rationality” of Capitalism
I. The Original Project of Critical Theory
A) The Background to Critical Theory - Weber and Lukics
B) The Origins of the Project o f Critical Theory
C) The Failure o f the Project o f Critical Theory
II. Accounting for the Failure of the Original Project
A) Hegel and the Philosophy o f the Reflection
B) Marx and the Philosophy o f Praxis
C) Horkheimer and Adomo and the Dialectic o f Enlightenment
III. Habermas' Reconstruction of Critical Theory
A) Critical Social Theory and the Dialectic of the Enlightenment
B) Reconstructive Science
C) Communicative Rationality
D) Lifeworld and System
E) The Critical Theory of Modernity
F) The Rationality of Capitalism
IV. Critical Theory and the Normative Analysis of Capitalist Business Activity
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Chapter 3: Critical Theory and Normative Analysis: Three Realms of Normativity 55
I. Communicative Action and the Justification o f Normative Theory 56
A) Communicative Competence and Validity Claims 57
B) A Theory o f Argumentation 59
C) A Justification Program for Normative Theory 61
D) Supporting Arguments - A Theory o f Moral Development 67
II. The Realm of Ethics 69
III. The Realm of Morality 72
A) The Claims and Limits of Moral Reasoning 72
B) The Critique o f Discourse Ethics 77
IV. The Realm o f Legitimacy 95
A) The Problematic o f Legitimating the Social Order in the
Modem World 96
B) A Discourse Theory o f Law and Democracy 98
C) Institutional Implications: Rights and the Rechtsstaat 101
D) Procedural Democracy & Deliberative Politics 105
V. The Relationship Between the Three Realms o f Normativity 107
Chapter 4: Legitimacy: Problematizing the Normative Relationship between
Capitalist Business Activity and Political Democracy 113
I. The Requirements and Demands of Legitimacy 116
A) The Basis for Extending the Analysis o f Legitimacy to Capitalist
Business Activity 117
B) The Requirements for Legitimacy 118
C) The Demands o f Legitimacy 171
II. Establishing the Conditions for Legitimate Law Within The Nation State 131
A) The Structural Power of Capital 133
B) The Problem o f Establishing the Conditions Necessary for
Legitimate Law 142
III. The Problem of Imposing Transnational Controls on Capital 152
A) The Structural Power o f Capital 152
B) The Problem o f Subjecting Transnational Capital to the
Conditions o f Legitimate Law 161
IV. Conclusion 204
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Chapter 5: Morality: Problematizing the Normative Relationship between
Capitalist Business Activity and the Common Good 2 1 0
I. The Requirements o f Morality 211
A) The Problematic o f Analyzing the Morality o f Business Activity 212
B) The Efficiency Claims o f the Basic Structures o f Capitalism 215
C) The Problematic o f Capitalism as a "Rational Choice" 222
D) Rejecting the Alternatives to Capitalism? 233
E) Conditions for the Moral Acceptability o f Capitalism 238
II. Respecting the Conditions for Morality 239
A) The Market Efficiency Condition 240
B) The Hierarchical Management Condition 251
C) The Distribution Condition 259
D) The Marginalization Condition 268
E) The Colonization Condition 280
III. Conclusion 288
Chapter 6: Ethics: Problematizing the Normative Relationship between
Capitalist Business Activity and the Good Life 294
I. Extending the Analysis o f Ethics to Capitalist Business Activity 295
A) Individual and Collective Ethical Agents 295
B) Firms as Ethical Agents 297
II. The Requirements and Demands o f Ethics 301
A) The Firm as Community 301
B) The Firm as Part o f a Larger Community 311
HI. Conclusion 313
Chapter 7: Conclusion 316
I. The Contribution of a Critical Theory Approach to Business Ethics 317
II. The Practicality o f a Critical Theory Approach to Business Ethics 321
A) The “Accessibility” and “Applicability” of a Critical Theory
Approach 323
B) The Question o f Motivation 324
C) Practical Aids for the Promotion o f Ethical Business Practices 327
D) Management Philosophy and Organizational Structure 328
E) Promotion of Change Through Political Mobilization and
Multilateral Action 329
Bibliography 331
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L ist o f Tables and Figures
Table 3.1: Characteristics of Practical Discourses
Table 3.2: Different Moments of Normativity
Figure 5.1: Prospects for Conformity to the Market Efficiency Condition
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Abstract
This dissertation elaborates a normative theory of business ethics from the perspective of
Habermasian critical theory. As such, this dissertation straddles two academic fields and seeks to
make a contribution to both. On the one hand, it seeks to extend critical theory by offering a more
explicit and systematic examination of the conditions for the normative acceptability of capitalist
business practice. On the other hand, it offers a more systematic and rigorous approach to the elabor
ation and grounding of normative theory than is the norm in the field o f business ethics. In making
I these contributions, it proceeds in the following manner. The first chapter explicates the general
problematic of developing a normative theory of business ethics from a critical theory perspective.
The second chapter investigates the potential “rationality” of capitalism as an economic system,
arguing that, despite some antipathy, Habermas’ critical theory of modernity provides an account o f
the rationality o f capitalism that is able to ground a normative theory o f business ethics. The third
chapter examines normative theory in the tradition of critical theory. On the basis of two Habermas
ian projects o f rational reconstruction, (viz., the theory o f discourse ethics and the normative theory of
law and democracy), a tripartite model of normativity is elaborated which distinguishes the realms o f
legitimacy, morality and ethics. The next three chapters investigate and establish the conditions for
the normative acceptability of capitalist business activity in each of these three realms. The fourth
chapter examines the normative relationship between capitalist business practice and political
democracy. In so doing, it elaborates the conditions for normative acceptability that legitimacy
imposes upon capitalist business practice. Similarly, the fifth chapter, in its investigation of the
relationship between capitalist business practice and the common good, delineates the conditions that
morality imposes upon capitalist business activity. Chapter six examines the relationship of the
ethical obligations of capitalist firms to conceptions of the good life, highlighting the contextual
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nature o f these demands vis-a-vis the universally valid demands of morality and legitimacy. Finally,
the concluding chapter examines the significance o f the present work for both critical theory and
business ethics.
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CHAPTER ONE
Statem ent o f the Problem to be Investigated:
T he Developm ent o f a Habermasian C ritical Theory Approach to
the Norm ative Analysis o f C aptialist Business A ctivity
As an academic field, the study of business ethics aspires to the status o f a disciple which
examines the full range of normative questions concerning business and economic activity, including
questions involving the normative acceptability of basic structures and practices (DeGeorge, 1991).
As such, it is possible to elaborate from within the confines of the field normative theories of business
ethics which are not only critical of specific forms of capitalist business and economic activity, but
may even challenge the normative acceptability of capitalism as a system. In recent years, normative
theories o f business ethics have been elaborated from most of the major traditions in Western
philosophy (e.g., utilitarianism, Kantian deontology, communitarianism, contract theory, etc.). None
o f the normative theories elaborated from these perspectives has seriously challenged the normative
acceptability o f capitalist business and economic activity. Not included in this list o f philosophical
traditions, however, are some of the most popular contemporary traditions in philosophy, most
notably German critical theory and postmodernism. These traditions are more conspicuous in the
literature o f business ethics by their absence than their presence.1 There are several reasons which
1 This is not to say that references to these traditions are entirely lacking, but they are relatively
scarce. While postmodernism has received some attention recently by the Business Ethics Quarterly,
which dedicated an entire volume to the topic, apart from this acknowledgment, its perspectives and
concerns have gone relatively unnoticed in the literature of business, ethics. Similarly, critical theory
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may help to explain the fact that business ethics has not been strongly influenced by the debates
which seem most salient to contemporary philosophy and philosophical ethics. One possible factor is
business ethics’ relatively recent emergence as an academic field. It may just be a matter of time
before debates in business ethics mirror the same range of positions as are evident in philosophical
ethics. Another possible explanatory variable is the geographic origins of these contemporary
philosophical schools. Whereas the development of field of business ethics has primarily occurred in
the United States, discourse ethics is rooted in German critical theory, while postmodernism, although
certainly not unknown to U.S. audiences, is also more closely associated with the European continent,
particularly France. It is most likely, however, that it is another factor, viz., the intellectual origins
and outlooks of these theories (in particular the less than receptive attitude towards capitalism that
they have demonstrated), which is most responsible for their failure to generate interests among those
working in the field of business ethics. Regardless o f the reason why, the fact is that while the field
of business ethics is in principle open to critical perspectives, in practice more critical views are not
represented in the field.
For their part, neither critical theory nor postmodernism have demonstrated any significant
interest in the normative analysis of capitalist business and economic activity. In the case of the
former, which is our primary concern in this dissertation, the critique o f capitalist society has
dominated its research agenda since its origins in Frankfurt in the 1930's. This critique of capitalism,
however, has involved a social science analysis, not a normative analysis. While clear normative
sympathies have always underlaid the research agenda of critical theory, the first generation of critical
theorists did not elaborate any formal normative theory or a systematic normative critique of capitalist
business and economic practice. One o f the reasons for this may have been a presupposition about
has not been totally ignored, but the occasional passing reference to this tradition in the literature is
almost inevitably in the form of an aside rather than the basis for a sustained analysis.
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the inherent normative unacceptability of capitalism (including the possibility o f its reform). More
recently, however, the situation has been changing with the second generation o f critical theorists.
Not only have they elaborated well-developed normative theories which make strong foundational
claims, but they have advanced positions that seem to leave the door open (it being a highly disputed
question as to how far open) concerning the potential normative acceptability o f capitalist business
and economic activity. This being the case, then not only should it be possible to elaborate a theory
j of business ethics from a critical theory perspective, but such a project should be seen as a natural
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| extension o f the concerns of critical theory.
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I. The Problem to be Investigated
This dissertation investigates the potential normative acceptability o f capitalist business and
economic activity.2 The goal of the dissertation is to establish under what conditions, if any, capitalist
business and economic activity might be deemed normatively acceptable. Insofar as this investigation
restricts itself to establishing the conditions under which capitalist business and economic activity can
be justified, it is rather limited in its scope. It does not, for example, attempt to analyze existing
practice and evaluate whether it conforms to the standards established. Neither does it seek to
provide practical guidance to managers and other actors to help them to conform to these standards.
2 A question of terminology needs to be addressed here. Critical theory makes a distinction not
common to other traditions in the field of ethics. It distinguishes between three normative realms,
viz., ethics, morality and legitimacy. In order to avoid confusion we will use the term normative as a
general term that includes all three of these realms (and correpsonds to the common usage of the
terms ethics and moraltiy). We will confine our use o f the terms ethics, m orality and legitimacy to
their more specific critical theory connotations.
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Nor does it investigate whether these standards are likely to be systematically attained. In short, this
investigation is purely theoretical in its scope. This is not to say, however, that it does not have
practical intent. Before any o f these other tasks o f evaluation and application can be undertaken, the
criteria and conditions for normative acceptability must be established. It is this logically prior task
o f establishing the criteria and conditions for the normative acceptability o f capitalist business and
economic activity that this dissertation investigates.
In undertaking this theoretical task of establishing criteria for the normative evaluation o f
capitalist business and economic activity, this work proceeds from within the tradition of German
critical theory. As such, this dissertation straddles two academic fields, viz., critical theory and
business ethics. Working at the intersection of these two traditions is not an uncontroversial
endeavour. Historically these two fields have not only not interacted with each other, but have been
perceived as having contradictory purposes. While more recent work in critical theory has helped to
dispel the notion of an inherent incompatibility between them (by leaving open the theoretical
possibility of justifying capitalist business practice), it cannot be denied that a strong tension between
the two fields o f study remains. Because o f the perceived antipathy and real tension between these
fields, it is important to clarify from the start the relationship of this investigation to both critical
theory and business ethics. This can be done by examining how and in what sense this dissertation
might be alternatively viewed either as a project o f critical theory or a project o f business ethics.
A Project o f Critical Theory - The defining characteristics o f critical theory are its self-
understanding as a philosophy of praxis and its method. Critical theory's self-understanding is as a
philosophy of praxis in the Enlightenment tradition. As such, it is a cognitive philosophy which holds
that reason has an emancipatory role to play in the creation of a free, self-determining society. For
his part, Habermas thematizes the self-under-standing of critical theory in terms of a commitment to
the continuation of the "project o f the Enlightenment." It is in this context that critical theory has
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focused its attention on the analysis of capitalist societies, i.e., in an attempt to determine how
capitalist business and economic activity may inhibit and/or contribute to the establishment of a truly
emancipated society. This dissertation, insofar as it is also concerned with the analysis of capitalist
business and economic activity and their effects on the possibility o f creating a truly emancipated
society, can be understood to share the self-understanding of critical theory. Where this dissertation
differs from the bulk o f critical theory analysis, however, is in the form o f its analysis of capitalism.
Critical theory has spent most of its considerable intellectual energy and resources upon the social
science analysis o f capitalist society. While there are strong normative sympathies and commitments
that clearly inform these analyses, there has been no systematic normative analysis of capitalist
society in general, and capitalist business and economic activity in particular.3 This dissertation, by
contrast, problematizes the normative analysis of capitalist society and capitalist business and
economic activity in particular. This focus on the normative analysis o f capitalist business and
economic activity is a logical extension of critical theory. The ground for it has been laid by the
elaboration o f a theory of discourse ethics (Apel, 1980; Habermas 1990, 1993) and Habermas'
normative theory of law and democracy (1996). The reason why this analysis is a logical extension
of critical theory has to do with the fact that, from the perspective of critical theory, there is an
integral relationship between reason, emancipation and normativity, (the explanation of which is
rooted in the theory o f communicative action and developed in chapter two).
3 For its part, the first generation of critical theory conducted little formal work on normative theory
and, therefore, did not possess the tools to undertake a systematic normative analysis of capitalism.
The second generation of critical theorists has paid more attention to normative theory, elaborating
not only a moral theory but also a normative theory of law and politics. While these theories provide
the analytical tools necessary for the systematic normative analysis of capitalist business and
economic practice, they have not yet been applied to that task.
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The basic concern which underlies critical theory method is the epistemological question of
how knowledge can be grounded in a postmetaphysical age. In addressing this problem critical
theory draws upon the tradition o f critique in German philosophy. Key figures in this regard are Kant
with his development of the technique o f transcendental critique and Hegel and Marx both of whom
j employed the tools of imminent and defetishing critique. First generation critical theorists such as
I
| Adorno used the tool of imminent critique against identity philosophies. In addition to the use of
imminent critique, second generation critical theorists such as Apel and Habermas have employed
(quasi-)transcendental critiques, most notably in their justification o f normative theory. Habermas
| and others have also employed a similar technique, viz., reconstructive science, in their attempts to
j
avoid any reliance upon metaphysical and ontological presuppositions. The current investigation
shares the methodological concerns of critical theory. By drawing as it does upon Habermas'
normative theories (which are elaborated as projects of reconstructive science) the present
investigation is also able to avoid strong metaphysical and ontological presuppositions in its project of
establishing criteria by which to evaluate the normative acceptability o f capitalist business and
economic activity. Insofar as this dissertation seeks to establish the conditions of possibility for the
normative acceptability of capitalist business practice (without recourse to ontological and
metaphysical presuppositions) it can be understood to represent a form o f critique in the tradition of
critical theory.
A Project o f Business Ethics - The field of business ethics can be understood to have two
basic functions. First, as a branch o f ethics, business ethics is concerned with the theoretical task of
elaborating and justifying normative criteria by which to evaluate business and economic activity. It
is generally acknowledged that this theoretical function can be undertaken from within (and across)
the horizons o f different traditions in philosophical (and theological) ethics. Evidence of this is the
fact that in recent years normative theories of business ethics have been elaborated from the
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perspective o f most major traditions in Western philosophy. Thus, the gamut o f normative
perspectives extends from Platonic points of view (Klein, 1993) to social contract theory (Donaldson,
1989; Keeley, 1995), from Aristotelian virtue theory (Solomon, 1993) to Kantian capitalism (Evan
and Freeman, 1988; Freeman and Gilbert, 1988) and from pragmatism (Michalos, 1995) to
contemporary communitarian or neo-Aristotelian perspectives (Horvath, 1995). What all these
j theories have in common is a concern for the elaboration and justification o f criteria by which to
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| evaluate business (and economic) activity. The present investigation also seeks to draw upon a
1 tradition of Western philosophy to establish criteria for the normative evaluation o f capitalist business
i
j and economic activity. As such it can also be conceived as a normative theory of business ethics
(even though it remains skeptical about the normative acceptability of capitalist business and
economic activity).
The second basic function o f business ethics relates to its self-understanding as a practical or
applied ethics. As a practical ethics, business ethics seeks not only to establish criteria for the
normative evaluation of business and economic activity, but also seeks to actively promote more
normatively acceptable practices. In its attempts to promote more normatively acceptable practices,
business ethics recognizes a range of necessary tasks; a pedagogical task (viz., how to educate actors,
especially management, about their obligations), a motivational task (viz., how to convince actors,
especially management, to take up its obligations), and tasks of application (viz., the concrete analysis
of specific cases, the provision o f practical guidelines and decision rules for actors, especially
management, etc.). The present investigation does not (directly) address these practical tasks of
business ethics. To the extent that this dissertation does not address these more practical tasks, it
might not be recognized by many as a work in the field of business ethics. There is a good reason for
abstracting from these concerns (for the time being), however, not only from the perspective of
critical theory, but also from the logic o f normative analysis. Before addressing the question of how
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more normatively acceptable business and economic activity might be promoted, the prior question is
whether capitalist business and ethical practices can be normatively acceptable at all. (In particular,
the question is whether capitalist business and economic activity systematically undermine the
conditions for their own normative justification.) Whereas for more traditional theories of business
ethics, this latter issue is never seriously raised, from the perspective of critical theory it remains a
very open question. Thus, it is only after establishing the theoretical possibility of justifying capitalist
business and economic activity that the more practical tasks of business ethics can be taken up.4
II. Method
As stated above the goal of this dissertation is to establish the conditions for the normative
acceptability of capitalist business and economic practice. The method that will be employed to
undertake this task is a form of critique rooted in projects of reconstructive science. We will proceed
in the following manner. First, we will argue that this investigation represents an natural extension of
the concerns of critical theory. To do this we will begin with an exposition o f the self-understanding
of critical theory as a social science tradition. We will then examine its analysis of capitalist society,
looking at key theories and analyses related to the concerns of the current project, viz., the critical
theory of modernity (Habermas 1984), the crisis tendencies of late capitalist societies (Habermas,
1975), etc. Next we will examine the self-understanding o f critical theory as a philosophy o f praxis.
This will provide the basis for the argument that the explicitly normative analysis o f capitalist
4As this work will argue that the normative acceptability of capitalist business and economic activity
cannot be ruled out out o f hand, in the final chapter some indication will be given o f the manner in
which a critical theory approach might address the more practical tasks of business ethics (and the
importance to critical theory of undertaking these tasks.)
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business and economic activity represents a logical extension of the concerns of critical theory. The
second step in our method involves the examination of critical theory's treatment o f normative theory
and the elaboration of a threefold model o f normativity. Here we will begin with an examination of
the notion o f communicative action and the foundational role that it plays in the development of
critical theory's approach to normative theory. Next we will elaborate a model o f normativity which
distinguishes three distinct normative realms, (viz., legitimacy, morality and ethics). This model is
grounded in two Habermasian projects o f rational reconstruction, viz., the theory of discourse ethics
(1990) and the normative theory o f law and democracy (1996). The third step in our method is the
elaboration o f the normative critique of capitalist business and economic activity. Here, we determine
the conditions for the normative acceptability o f capitalist business and economic activity in each of
the three normative realms. The elaboration these conditions, which is rooted in the Habermasian
projects o f rational reconstruction, draws upon works in economic theory, management theory,
political science, international relations and other related social science disciplines as well as works in
business ethics and other branches of philosophy. Finally, we conclude with some reflections on the
relevance o f this work both for critical theory and business ethics, and provide some indications o f
directions for future research projects.
III. The Structure of the Dissertation
The dissertation proceeds in the following manner. The second chapter examines the self-
understanding of critical theory, both as a social science tradition and a philosophy o f praxis, and how
its critique o f capitalist society is grounded in this self-understanding. It concludes by arguing that
the normative analysis o f capitalist business and economic activity is a logical extension o f the
concerns o f critical theory. The third chapter provides the theoretical grounding for the normative
i
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critique o f capitalist business and economic activity which is elaborated in the three subsequent
chapters o f the dissertation. On the basis o f two Habermasian projects o f rational reconstruction, viz.,
the theory of discourse ethics and the normative theory o f law and democracy, a tripartite model o f
normativity is elaborated which differentiates between the realms of legitimacy, morality and ethics.
The next three chapters establish the conditions for the normative acceptability of capitalist business
and economic activities in each of these three realms. The fourth chapter examines the conditions
that the demands of legitimacy impose upon capitalist business and economic practice. The fifth.
t
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I chapter elaborates the conditions that the demands of morality might impose upon capitalist business
| and economic activity. The sixth chapter examines the nature of the ethical obligations that capitalist
business and economic actors must confront and how they relate to conceptions of the good life. In
particular if focuses on the relationship of the demands of ethics vis-a-vis the demands o f morality
and legitimacy. Finally, the concluding chapter examines the significance o f the present work for
both critical theory and business ethics and suggests future lines of research.
IV. Significance of the Dissertation
This dissertation has significance both as a work in critical theory and as a work in business
ethics. In terms of critical theory, the main theoretical significance of this work is that its elaboration
of criteria for the normative analysis of capitalist business and economic activity represents a natural
extension o f the tradition. More specifically, it helps to clarify the basis o f the normative critique of
capitalism, which turns on the analysis of capitalism's ability to respect the conditions necessary for
democratic rule and to represent a generalizable interest. The practical significance of this work
derives from the fact that critical theory recognizes that, under certain conditions, capitalist business
and economic activity may be normatively acceptable. While individual actions in conformity with
1
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these conditions do not necessarily guarantee the normative acceptability of capitalist business and
economic activity, they do contribute, in their own limited way, to the possibility of a more
emancipated society (as is discussed in chapter two). Thus, to the extent that the elaboration o f these
criteria (under which capitalist business and economic practice may be normatively acceptable) is in
any way able to contribute to capitalist business and economic activity actually conforming to these
standards, then this investigation may contribute to the critical theory goal of promoting a more
emancipated society.
As a work in business ethics, this dissertation has some historical significance as the first
systematic application of critical theory to the field of business ethics. More important than this mere
fact of precedence, however, is the fact that, as a normative theory o f business ethics systematically
elaborated from a critical theory perspective, this dissertation is able to pose several challenges to the
field. First, in terms o f the form o f normative theory, this dissertation offers a much more systematic
and rigorous approach to the elaboration o f a normative theory of business ethics than is the norm in
the field. It is able to do so because o f the resources provided by critical theory, most notably the
theory o f discourse ethics and the normative theory of law and democracy. Insofar as critical theory
makes foundational claims and offers a trenchant critique of rival theories of contemporary ethics, its
injection into the realm of business ethics poses a challenge to rival theories of business ethics which,
in the past, have generally tended to deal with the problem of competing theories by ignoring them,
attacking "straw man" versions o f their arguments (Solomon, 1993) or appealing to the need for
"ethical pluralism" (Donaldson and Preston, 1995). Second, the injection of critical theory into the
realm o f business ethics also presents a challenge with respect to the use of social science analysis.
Critical theory offers an approach to social science analysis which is completely reflective in respect
to its method. Moreover, its method, which employs both lifeworld and systems analysis, is able to
combine both the internal perspective of the participant with the external perspective of the observer.
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This allows critical theory to approach the analysis o f capitalist societies in terms of the inter
relationship o f the conditions for social and systems reproduction. On this basis it is able to
incorporate the full range of effects of capitalist business practice into its normative analysis. Again
this contrasts sharply with most works in the field, which not infrequently fail to draw upon social
science analysis at all, let alone problematize their use o f it.s Another challenge, this one more
substantial than procedural, which critical theory poses to the field o f business ethics comes from the
strong link that it makes between political democracy and the normative acceptability o f capitalist
business and economic activity. While other theories clearly advocate democratic government, the
right to do business is generally not linked to political democracy per se. Rather it is rooted only in
respect for human rights. On the basis of a normative political theory (Habermas 1996) that grounds
the legitimacy of business activity in an act of popular autonomy, a critical theory approach to
business ethics links business and economic activity directly to our democratic sentiments and
subjects it to democratic control. This linking of the right to conduct business and economic activity
to democratic control represents a major challenge to liberal (and communitarian) theories o f business
ethics.
sOne example o f a failure to support an analysis by drawing upon the appropriate disciplines is a
recent work by DeGeorge (1993). A major figures in the field of Business Ethics, DeGeorge is able
to write a book on international business ethics without any economic analysis. For a critique of
DeGeorge see Enderle (1996).
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CHAPTER TWO
Critical Theory and Social Science Analysis:
The “R ationality” o f Capitalism
Critical theory has both a general and a specific referent. As a general term, critical theory
refers to any form o f social theory which is at the same time scientific, practical, normative and self-
reflective. The scientific character of critical theory refers to rigor in its social science analysis. Its
practical nature is comprised of the fact that its analysis of situations o f oppression frees agents to
address the sources of oppression. It is normative insofar as its analysis of oppression implies a
normative critique of the existing situation. It is self-critical to the extent that it provides an account
o f its own conditions o f possibility and transformative effects. As such the term critical theory could
be understood to apply to a range of thinkers and schools from Marx to many contemporary
postmodernists.
The more specific referent of critical theory is the tradition of social theory frequently
referred to as the Frankfurter Schule, the origins of which can be dated back to Max Horkheimer’ s
assumption o f the directorship of the Institute for Social Research at the J. W . Goethe University in
Frankfurt in 1930. The above mentioned characteristics of the general notion o f critical theory derive
from the self-understanding and work of the Frankfurt School, in which they exhibited a more
specific meaning and focus. The original goal of the tradition was to establish a multidisciplinary
historical materialism that could account for the contradictions of contemporary society through an
understanding of the interrelationships of developments in the economic, cultural and psychological
realms (Horkheimer, 1972). Their approach was "scientific” in terms of their commitment to
undertaking a multidisciplinary research program which was directed at the formation of social theory
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which encompassed the social whole. The "self-reflexivity" of the tradition was rooted in its
combining philosophical and social science analysis. It was most clearly expressed in its recognition
o f the social constitution of knowledge (especially as it is effected by the social relations o f a
capitalist society) and its use of immanent critique as a tool to address this problem. The "theory" o f
the Frankfurt School was "practical” in a particular sense that flowed from its self-reflexive stance.
Horkheimer argued that, insofar as knowledge in a class society was not only inevitably conditioned
by the social relations of production but was itself increasingly becoming a factor of production,
traditional theory, by failing to reflect upon its role in the process o f social reproduction, contributed
to the reproduction o f oppressive structures. Critical theory, however, by engaging in immanent
critique, was able to reveal rather than support structures of domination. Finally, critical theory was
inherently normative in that its primary goal as theory was not the increase of knowledge for its own
sake (a dubious prospect in a capitalist society) but rather the emancipation of society from
oppressive structures (Horkheimer, 1972).
Given this self-understanding of the tradition o f critical theory, the obvious question which
arises for this dissertation is how it could be possible to elaborate a cognitive normative theory of
capitalist business and economic activity in a manner which remains within the tradition. Clearly any
such cognitive normative theory, regardless o f the normative tradition on which it draws, needs to be
able to impute to capitalism a sense o f rationality. The difficulty that arises for a critical theory
approach is the legacy of Marxism. To state the obvious, Marxism has always questioned the ration
ality of capitalism. This is not to say that it has not valued capitalism for the "historic mission" which
it has to play o f forging the conditions for the transition to socialism. This appreciation, however,
does not remove the basic contradiction o f capitalism and the source of its irrationality, viz., the
private appropriation of the socially produced wealth. Critical theory has followed Marx in upholding
the irrational nature o f capitalism. Moreover, is has employed an historical materialist analysis to
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understand how the contradictions of capitalism can be dissolved. The key question, then, for
establishing the viability o f the project of this dissertation is to show how a critical theory approach
may get around Marx, as it were, to an appreciation o f the rationality of capitalism while still remain
ing true to the historical materialist tradition of critical theory.
We will address this question in four stages. First, we will examine the original project of
the first generation of critical theorists. Second, he will draw upon Habermas' critique of the
philosophy of the subject to provide an account o f the failure of the project of the first generation of
critical theorists. Next, an account will be given o f Habermas' attempt to reformulate critical theory
on an intersubjective conception of rationality and how this is able to produce an understanding o f the
rationality o f capitalism that is amenable to our needs. Finally, we will we demonstrate how this
conception of the rationality of capitalism is able to supply the basis for a normative theory o f
capitalist business an economic activity from a critical theory perspective.
I. The Original Project of Critical Theory
In this section, we shall examine the nature of the original project of critical theory as an
introduction to Habermas' attempt to go back to this original project and provide it with a firmer
theoretical grounding. The original project of the first generation of critical theorist was a reformu
lation o f historical materialism on the basis of a closer marriage o f philosophy with the social and
behavioural sciences. While the roots of this project clearly go back to Hegel and Marx, the more
immediate influences are to be found in Weber and Lukdcs. We start this section with a brief
account o f some of the relevant positions of Weber and Lukdcs concerning processes of societal
rationalization, in particular their accounts of the rationality o f capitalism. They are of significance
because o f their influence on how the first generation o f critical theorists framed the problem o f the
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rationality o f capitalism. We then move on to provide a short exposition of the original project o f
critical theory and its demise.
A) The Background to Critical Theory - Weber and Lukdcs
In his "Author’ s Introduction" to The Protestant Ethic Max Weber ([1920] 1958) formulates
a question which he now understands to have been the subject of most of this previous work. This is
the question of why "cultural phenomena" in non-European societies have not progressed as they
have in the West "in a line o f development having universal significance and value." Weber then
goes on to illustrate this claim of an Occidental rationality with examples including science, art, law,
education, the economy and the state. Weber, o f course, was not the first to understand European
modernization in terms of "rationalization." This theme emerged in the philosophy o f history in the
late eighteenth century and continued throughout the nineteenth century as well. It was also taken up
by nineteenth century social evolutionists. Weber's approach, however, shows little influence from
these sources. Trained in the tradition o f neo-Kantianism, Weber was sharply critical o f evolutionary
approaches, while his orientation towards empirical sociology owed little to the philosophy o f history
which he rejected in both its Hegelian and Marxist forms (Habermas, 1984). Rather, Weber sought to
take up the analysis of rationalization as a strictly empirical investigation, stripping it o f all the
teleological interpretative elements inherent in the philosophy of history and evolutionary analyses.
Herein lies one key similarity with the first generation of critical theorists who would also be keen to
purge their empirical analyses o f any evolutionary and philosophy of history presuppositions.
Weber’ s analyses o f rationalization processes, while extensive and perspicacious, remained
somewhat fragmented and confusing its categorization. For this reason, it is helpful to reconstruct it
in a more systematic fashion for reasons of exposition as Habermas (1984) has done. In his
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exam inations Weber investigated processes of both cultural rationalization (viz., science and
technology, autonomous art, modem legal and moral representations) and societal rationalization
(viz., the modem bureaucratic state, the capitalist economy). In terms o f societal rationalization,
Weber conceptualizes modem societies primarily in terms of the functional analysis of systems and
the development and differentiation of the modem state and the capitalist economy. In accounting for
the emergence of these systems Weber turns to previous processes of cultural rationalization, in
particular the ethical and juridical rationalism found in Protestantism and modem legal
representations. For Weber (1958), Protestantism (especially Calvinism) represents an important
process o f the rationalization of worldviews. The particular significance of Protestantism for the
emergence of capitalism and the rise of the modem state lies in the fact that it provides a motivational
basis for the methodical conduct of life. This motivational basis has direct and indirect workings on
the emergence of capitalism. On the direct side, Protestantism develops a notion of vocation which
encourages people to channel their energies into the worldly pursuits o f business and commerce. On
the indirect side, this motivational basis helps to influence the emergence of modem law and, thereby,
the modem bureaucratic state which, for Weber, were prerequisites for the emergence of capitalism
(1958; 1968). In these ways, then, Weber details how processes of cultural rationalization (viz., in
religion and law) are transposed into societal rationalization through the establishment o f more
rational institutional arrangements.
For Weber (1968) the rationality of capitalism and Western societies is understood primarily
in terms of their formal rationality, i.e., the extent to which conduct is organized according to
rationally calculable principles. In the case of modem capitalism, one key feature in its development
was the emergence o f modem accounting which allowed for the rational calculation of profits and
losses in terms of money. Weber, reflecting Marx, highlights several key factors which were essential
for the emergence of modem accounting, viz., the existence of a large mass o f wage labourers, an
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absence of restrictions upon market exchange, the use o f technology, the displacement o f economic
production from the household. These features o f modem capitalism, however, could not have
developed without the rational legal administration o f the modem state. The formal rationality of the
modem legal administrative system lies in the fact that individuals hold authority on the basis of
impersonal norms which are not rooted in tradition, but rather are based upon purposive or value
rationality. The specific institutional basis of the formal rationality of the legal administrative system
is modem bureaucracy. Weber analyses the rise of the modem bureaucratic state by drawing upon
the Marxist notion o f the appropriation o f the means o f production. The development o f the modem
state is directly linked to the expansion of the division of labour in the different spheres o f social life,
not only the economic realm. Thus, Weber is able to speak of the separation of the "means of
administration" from the ownership of administration (first from petty vassals by monarchs and later
from monarchs by democratic movements) as a process of rationalization (just as the separation of
workers from the means of production represents a form of rationalization in the economic realm).
The bureaucratic state exhibited a number of qualities (e.g., precision, speed, unambiguity, continuity,
strict subordination, etc.) relating to routinized tasks which provided it with efficiency advantages
over competing models and lead to its expansion. It was also these characteristics which made it an
essential complement to modem capitalism, allowing as it did for the timely and precise discharge of
economic tasks. In general, then, Weber conceived of capitalism and the modem state as the result of
interconnected rationalization processes which involved an expansion of the societal wide division of
labour. Their defining characteristic was their formal rationality (Weber 1968; Giddens, 1971).
Weber, however, also recognized that these processes of rationalization, while leading to
tremendous efficiency gains, had a less positive side. This he expressed by contrasting formal
rationality with substantial (or value) rationality (i.e., the application of rational calculation to the
promotion of definite ends or values). Enlightenment thinkers had hoped that the institutionalization
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of reason in the cultural, political and economic realms (through the diffusion of scientific
knowledge, the establishment of a republican form o f government, guarantees of personal liberties,
personal freedom in the economic realm for people to pursue their self-interest, etc.) would not only
lead to increased prosperity and freedom, but would also eliminate the influence of traditional
religion, prejudice and superstition and lay a new foundation for meaning in modem culture. Weber's
analysis o f these rationalization processes contradicts the original hopes of Enlightenment thinkers.
While these processes of rationalization have brought increased control over the physical and social
worlds, they have not been accompanied by a new basis for meaning, but rather a general loss o f
meaning, a "disenchantment" of the modem world. While the institutionalization of formal reason
has been able to displace traditional religious worldviews, it has not been able to offer any substitute
which can bring meaning and unity to life. This has lead to a "subjectivization" of ultimate ends. The
problem is that the formal reason on which modernity is based is instrumental (Zweckrationalitat).
While this form of reason is effective for getting us what we want, it cannot arbitrate between
competing ends. The result is a general loss o f meaning as traditional forms of meaning are lost in the
"disenchanting" process of cultural rationalization without being replaced by any forms of substantive
reason. This fact is related to another negative aspect of modernity. Not only is it characterized by a
loss of meaning, but also a loss of freedom. Because formal reason cannot arbitrate between
competing ends, the political realm and the legal system are ultimately grounded not in some
substantive rational will but in power. The situation in the economic realm is no better where it is
impersonal market forces that determine lifestyles. Thus, the institutionalization of reason which
Enlightenment thinkers anticipated would usher in a new realm of freedom has ultimately confined us
in an "iron cage" where reason is the Humean servant o f the arbitrary will of the powerful (Weber,
1958; 1968; Habermas, 1984).
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Georg Luk&cs was a contemporary of Weber and greatly influenced by his analysis of
rationalization. Lukdcs, however, was a committed Marxist and drew upon and interpreted the
insights of Weber from within a Marxist framework. For this reason, for Lukdcs the question o f
capitalism is not to be phrased primarily in terms o f its "rationality” (as it is for Weber) but rather in
terms of its "irrationality." Following Marx, Luk&cs understands the "irrational" nature o f capitalism
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way human labour is turned into a commodity, a fact which allows for the appearance o f an exchange
of equal values in the wage contract. Marx, of course, posits an end to the irrationality o f capitalism
through the revolutionary activity of workers, who, brought together through the capitalist
organization of the labour process, come to consciousness of their plight and the means for
overcoming it, grasping political power and socializing the means of production. Again, Lukacs
follows Marx in this scenario. The problem which comes to confront Luk&cs, however, is that the
revolutionary potential o f the working classes had not shown itself in the way Marx had predicted.
Some account needed to be given of this. It is in this context that Luk&cs takes up the question of
rationalization in relationship to capitalism.
In addressing the question o f rationalization, Luk&cs does so from the perspective o f the
Marxian concept o f "reification." For Lukdcs, the "commodity-structure" represents the basic form of
reification, the essence o f which he explains in the following manner: "Its basis is that a relation
between people takes on the character of a thing and thus acquires a 'phantom objectivity', an
autonomy that seems so strictly rational and all-embracing as to conceal every trace o f its
fundamental nature: the relation between people." (1968:83) Lukdcs argues that while commodity
exchange has existed for a long time, "commodity fetishism" is a specific problem o f the present age
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of capitalism as the commodity structure has become more dominant. In explicating the growth of
the commodity structure Luk&cs links it to a process of rationalization. "If we follow the path taken
by labour in its development from the handicraft via co-operation and manufacture to machine
industry we can see a continuous trend towards greater rationalization, the progressive elimination of
j the qualitative, human and individual attributes of the worker." (1968: 88) Here, in making an
| internal link between the principle o f rationalization ("based on what is and can be calculated') and
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reification through the medium of market exchange, Luk&cs sets himself apart from Weber for whom
i rationalization was a more general process. For Luk&cs, Weber had accurately perceived many of the
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| basic effects of reification in the form of a loss of meaning and a loss of freedom. He had also
correctly seen that processes of "rationalization" were not limited to the economy but occurred in
other social realms, most notably the bureaucratic state. What Weber had misunderstood, from
Lukacs' perspective, however, was causality. Weber, in seeing different processes o f rationalization,
had detached the phenomena of reification from their economic roots, from the mechanism of
exchange.
Marx had originally analyzed commodification in the realm o f the economy. Lukacs saw
that it was not only the labour power of workers that was being reified as industrial capitalism came
to dominance. "What is at issue, here," he states, "is the question: how far is commodity exchange
together with its structural consequences able to influence the total outer and inner life of society?"
(1968: 84) For Luk&cs, the answer is very far. He explains, in the terminology of neo-Kantianism,
that as modem capitalism has become characterized by commodity fetishism, commodity has become
the dominant "form o f objectivity," the model on which all other forms of objectivity and subjectivity
in bourgeois society are modeled. Thus, he states, "Not until the rise of capitalism was a unified
economic structure, and hence a— formally— unified structure of consciousness that embraced the
whole society, brought into being. This unity expressed itself in the fact that the problems of
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consciousness arising from wage-labour were repeated in the ruling class in a refined and
spiritualised, but, for that very reason, more intensified form." (1968: 100) For Lukdcs, the
commodity structure has extended itself to all aspects, of human life, reaching even into human
consciousness itself: "The transformation o f the commodity relation into a thing of'ghostly
objectivity* cannot therefore content itself with the reduction of all objects for the gratification of
human needs to commodities. It stamps its imprint upon the whole consciousness of man; his
qualities and abilities are no longer an organic part of his personality, they are things which he can
'own' or 'dispose' o f like the various objects of the external world. And there is no natural form in
which human relations can be cast, no way in which man can bring his physical and psychic 'qualities'
into play without their being subjected increasingly to this reifying process." By way of example,
Lukacs goes on to cite Kant's definition o f marriage as "the union of two people of different sexes
with a view to the mutual possession of each other's sexual attributes for the duration of their lives."
(1968: 100) It is this reification of consciousness which allows Lukdcs to account for the lack of a
revolutionary activity on the part of workers.
While Lukacs seems to paint a very bleak picture, he argues that this process of reification
can not only be overcome practically, but that a theoretical account of how this is possible can be
provided. The basic gist o f this account involves the notion that there exist immanent limitations to
rationalization. LukAcs develops this argument in a rather problematic, and unconvincing, fashion,
however, by drawing uncritically on the basic concepts of Hegelian logic. On the basis o f this logic
he argues that the process o f reification o f consciousness ultimately has to lead to its own overcoming
that results in a proletariat class consciousness.
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B) The Origins o f the Project o f Critical Theory
In his examination o f the question o f rationalization and reification within capitalist society,
LukAcs had provided an insightful explanation into a major problem confronting contemporary
Marxism. His understanding o f the manner in which this problem could be resolved, however, rooted
as it was in an appropriation o f Hegelian logic, seemed at odds with the question he was addressing.
This latter question, however, could be addressed from perspectives other than German idealist
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philosophy. It could also be taken up as an empirical investigation. This, in essence, was the
; approach that the first generation of critical theorists initially took. In his inaugural address in
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January 1931, "The State of Contemporary Social Philosophy and the Tasks of an Institute for Social
Research," Max Horkheimer laid out a new direction for the Institute of Social Research, one that
would move it away from its previous emphasis on historical work. While with characteristic
circumspection he was able to avoid referring to Marxism in his lecture, the basic aim of the new
research agenda was to address contemporary problems in Marxism. In his address, Horkheimer
began by noting how in the previous century the combination o f German idealist philosophy and the
development of science, technology and industry had given rise to the hope that the social whole
could be made be made less arbitrary and unjust towards individuals. This hope was not fulfilled,
however, and social philosophy has had to address itself to this issue again. Yet, current conceptions
o f philosophy were not adequate to the task. Philosophy now needed to join with the various
branches of the social sciences to address the key and common concern of the day, viz., the
relationship between economic life, processes o f psychic development in the individual and changes
in the cultural sphere of society. This was, of course, the old philosophical question of the
relationship between the universal and the particular. Now, however, to attain verifiable evidence the
question had to be posed on a more restricted basis in terms o f specific social groups and time
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periods. (O f particular importance in this regard was the study of the working class.) This requires a
detailed plan o f social science research organized on the basis of current philosophical questions and
involving the cooperation of philosophers, economists, sociologists, historians and psychologists. On
this basis the nineteenth century project of using science, technology and industry to make the social
whole less unjust and arbitrary towards individuals could be taken up again and with better prospects
for success. (Horkheimer, 1972; Wiggershaus, 1994:38-390)
Underlying Horkheimer conception of the proposed plan of work for the institute was an
understanding of the role o f theory more generally. This is first elaborated in Horkheimer’ s 1937
article "Traditional and Critical Theory" (1972). In contrasting traditional and critical theory,
Horkheimer portrays the former as based on a Cartesian model, while arguing that the latter must be
grounded in Marx's critique o f political economy. Thus, Horkheimer begins by tracing the origins of
traditional theory back to the emergence of modem philosophy and Descartes’ Discourse on M ethod.
He argues that the basic requirement of theory according to this traditional understanding "is that all
the parts should intermesh thoroughly and without friction." This standard o f harmony includes both
the "lack o f contradictions and the absence of superfluous, purely dogmatic elements which have no
influence on the observable phenomena." (1972: 208) In contrast, the critical model which
Horkheimer seeks to advance is concerned not with harmony but with the contradictions that Marxist
political economy reveals. In the light of Lukdcs and subsequent history, however, critical theory
cannot content itself with a mere application o f the materialism of the "critique of political economy"
to contemporary situations. Rather, it seeks to move beyond Marx by picking up on a basic
epistemological insight that Marx left undeveloped. While Marx knew early on that social knowledge
was clearly linked to social relations, he did not develop a theoretical account of this relationship
adequate for social science investigation. In distinguishing traditional from critical theory,
Horkheimer takes up this theme and problematizes it by running the critique of political economy
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through a Kantian filter. This results in an approach to theory that takes into account the "impurity"
o f rationality. Horkheimer argues that, insofar as modem science (and technology) has arisen in the
context o f capitalist development, it is not neutral but reflects the dominant interests of capitalist
society. This means that traditional theory, insofar as it does not reflect on its social origins and
function in the societal division o f labour, aids in the process of the social reproduction of capitalist
society. (It also clearly implies that, contrary to Marx’ s positive evaluation of the role o f science and
technology in the struggles o f the working classes, such developments were more likely to serve as
means o f repression.) For its part, critical theory can avoid any such (unwitting) collaboration in
reproducing capitalism, but only by sticking to a program of immanent critique.
C) The Failure o f the Project o f Critical Theory
In accord with the line laid down by its new director, the first research program which the
Institute undertook was a study o f the German working classes. Before any other further programs
could be taken up, the members o f the Institute were forced into exile with Hitler’ s ascension to power
in 1933 (Wiggershaus, 1994). The Institute first moved its base o f operations to Switzerland (where a
study on the family was conducted), but remained there only briefly before moving on to the USA.
The initial studies by the institute provided little support for Lukdcs thesis about an internal limit to
the process o f "reification of consciousness." Already in the early 1930s the leading members o f the
Institute had given up any illusions about the potential revolutionary character of the working classes,
a position which had been tangibly confirmed by the rise of Fascism throughout Europe. In addition
to the failure of the working class movement in Europe to counter the irrationality of Fascism,
Lukacs' thesis seemed to be further contradicted by the ability of capitalism in the US to bind the
consciousness of the masses to the status quo through the integrating powers o f mass culture. It was
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to the explanation o f these phenomena that Horkheimer and Adorno turned their attention in the early
1940s. In the Dialectic o f the Enlightenment ([1944] 1990), Horkheimer and Adomo take up the
issues o f antisemitism and the cultural industry as well as the more general problem o f Enlightenment
thought. Here, and in subsequent works, they radicalized Lukacs notion of "reification" to such an
j extent, that not only is any possibility of change denied, but even access to truth is lost.1 It is left to
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; aesthetics (mimesis) to keep hope alive. Rationalization has won out over reason. As a result any
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previous hope that Horkheimer and Adomo had for their project of a multidisciplinary historical
materialism is put to rest.
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II. Accounting for the Failure of the Original Project
The failure o f the first generation of critical theorist to achieve their original project has been
taken up and analyzed by a second generation, of whom the most notable figure is JQrgen Habermas.
Habermas' analysis puts this failure in the context of a much broader problem in modem philosophy
and social theory, the problem of grounding normativity in a modem world. The basic thesis that
1 In this work, while they are still working within the framework o f the question posed by Lukdcs,
(viz., the analysis of reification in capitalist society), they clearly move beyond him. In their analysis
of the culture industry, for example, the authors argue that "reification" has not only extended to the
cultural media, but has thereby been able to pervade the whole o f society. While this thesis by itself
does not go beyond Luk&cs, there is an important difference in where the source of "reification" lies.
For Luk&cs "reification" was clearly associated with the exchange mechanism and "reified conscious
ness" arises as a result o f this. Horkheimer and Adomo, however, have now come to locate the
source o f "reified consciousness" within the very structure of human reason as subjective or
identifying thought.
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Habermas advances is that this problem is not resolvable as long as it is addressed from within the
confines of a philosophy o f the subject. The philosophy o f the subject takes different forms, but what
is characteristic of them all is a non-intersubjective grounding. The origins o f the philosophy o f the
subject go back to the beginnings of the modem period and Descartes' attempt to ground knowledge
in the consciousness o f the isolated individual. It continued in this naive form o f a paradigm of
consciousness, which took the structure of human consciousness as given, up to the time o f Kant.
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formation of human consciousness. Hegel is also important for our present concerns for another
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| reason, viz., as being the first to formulate the problem o f modernity. In what follows we will
examine Habermas' critique o f both Hegel and Marx as a basis both for an account of the problems of
first generation critical theory and Habermas’ own reformulation of the project of critical theory.
A) Hegel and the Philosophy o f the Reflection
Hegel, Habermas claims, while not the first philosopher of modernity, was the first to
perceive modernity as a problem that merited philosophical reflection. This crux of the problem, for
Hegel, is how a modernity which is in the process of detaching itself from the norms o f the past can
generate normativity out o f itself. Characteristic of the modem age, for Hegel, is the structure of self
relation which he refers to as "subjectivity." The principle of subjectivity is understood primarily
through the concepts of freedom and reflection and has been established in history through such key
events as the Reformation, the Enlightenment and the French Revolution. Subjectivity has come to
determine the basic components o f modem culture in the form of objectifying science, a morality that
emphasizes the subjective freedom of individuals and the Romanticism of modem art. It has also
come to pervade religious life, the state and society. By the end of the eighteenth century these
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various cultural forms and social realms had not only become separated off from each other as
distinct area of activity, but had been "transformed into so many embodiments of the principle of
subjectivity." (1987:18) For Hegel, however, the essence of this modem world was best represented
by philosophy and Kantian philosophy in particular with its structure of a reflective knowing subject
which bends back upon itself in an effort to attain absolute self-consciousness.
Yet, while Hegel acknowledges Kant’s philosophy as the authoritative self-interpretation of
modernity, he felt that Kant failed to recognize the problematic character o f a major feature of
modernity and, therefore, left it unconceptualized. This problematic feature involved the various
differentiations that the principle of subjectivity itself had induced in modem society (viz., the
divisions in culture and the other social spheres), differentiations which Kant failed to perceive as
diremptions (Entzweiungen). The reason for this failure can be traced back to the fact that Kant did
not acknowledge the authoritarian side of self-consciousness, a feature that is grounded in the very
structure o f the self-relationship. Kant's failure to see these differentiations as diremptions also meant
that he did not perceive the need for unification. For Hegel this task of reconciliation is the key task
for philosophy in the modem world and becomes evident as soon as modernity conceives itself
historically, i.e., when it sees the need to create normativity out of itself. Moreover, it is in the
anxiety caused by this fact that modernity has to somehow stabilize itself on the basis of the very
diremptions that its own principle of subjectivity created that Hegel sees the origins of the need for
philosophy. Thus, in taking up his critique o f Kant, Hegel also seeks to address the larger problem of
the self-understanding of modernity and to respond to the crisis of the diremption o f life. In taking up
this task, philosophy is responding to the need for which it was objectively called forth. In this way
the critique o f subjective idealism becomes the critique of modernity as well. This task, however,
poses a daunting challenge for a critique must base itself only in the reflection that is finds in the
principle of subjectivity. The task facing Hegel, then, is "to develop the critical concept o f modernity
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through a dialectic residing in the principle o f the Enlightenment itself." (1987:21) The question to
be answered is "whether the principle of subjectivity and the structure of self-consciousness residing
in it suffice as the source o f normative orientations— whether they suffice not only for 'providing
foundations' for science, morality, and art in general but also for stabilizing a historical formation that
has been set loose from all historical obligation." (1987:20)
| Hegel takes up this task by first emphasizing the authoritarian side of self-consciousness
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that is conditioned. This results in a forced unification and expresses itself in the "positivity" of
contemporary religion and political institutions as well as in the philosophy of Kant which absolutizes
the self-consciousness o f human beings. As a result o f such forced unifications (between the
subjective and objective in knowledge, the identity o f finite and the infinite, the individual and the
universal, freedom and necessity in religion, state and morality) the world has suffered from false
identities. Hegel argues that while reason has to be thought of as the relation-to-itself, it does not
have to result in a forced identity. An unforced identity is possible, if, instead of imposing itself on
another as the absolute power o f subjectivity, reflection finds its existence in resisting all
absolutizing, i.e. in destroying the "positivities" that it brings forth. In this way Hegel is able to
develop the notion of an absolute subject that comes to constitute itself in the process of relating finite
and infinite together. In a further move Hegel incorporates Schiller’ s interpretation o f modem art into
the concept of the absolute spirit via the philosophy o f history. This allows Hegel to develop the
theses o f the sublation o f art in religion, of faith in philosophy and, eventually, the most problematic
o f all, of civil society in the state.
Two problematic features scuttle Hegel's enterprise of grounding modernity in itself. First,
there is a basic contradiction in the task in the manner in which it is conceived. Hegel must somehow
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explain by way of the same principle o f subjectivity, which was the source of the diremptions of
modem life, how these very diremption can be overcome. In doing so he must avoid relying on the
historical content of modernity (and succumbing to the very repressive tendencies that he criticizes in
(Cant). The young Hegel contravenes this interdiction by assuming an ethical community. The older
Hegel attempts to get around the problem by puffing reason up into an absolute spirit. In doing so,
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however, he ultimately has to deny to the self-understanding of modernity the critique o f modernity
■ itself as philosophy becomes absolved of this task by the guarantee of the rationality of history.
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Second, underlying this problem are the normative presuppositions o f the project. Hegel assumes the
need for an absolute reason that can reconcile the diremptions o f the modem age. This is an
extremely problematic assumption, but one which follows from the subject-object relationship
inherent in his philosophy of reflection. It is this presupposition which eventually expresses itself in
the absolute spirit and denies modernity the possibility of a self-critique (Habermas, 1987).
B) Marx and the Philosophy o f Praxis
By drawing upon Hegel's dialectical method to develop an historical materialist account of
modem society, Marx claimed to have stood Hegel on his head. From the perspective of the analysis
of the philosophy of the subject, a better metaphor might be Marx as a mirror image o f Hegel (insofar
as the philosophy of praxis is a reflection of the philosophy of reflection which does not move beyond
the limitations of the philosophy o f the subject). In expounding a materialist interpretation o f history,
Marx's understands the development of modem society to be based upon increasingly effective
exploitation of natural resources, technological advances and commercial development. In order to
account for this development, he must posit a different subject than the knowing subject o f Hegel, an
acting subject that is capable o f unleashing such productive forces. While in one sense such an acting
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subject stands in sharp contrast with Hegel's knowing subject, they share an important commonality
in that both involve a basic subject-object relationship. It is this fact that allows Marx to borrow
Hegel's form of modem philosophy and creates the effect of Marx as a mirror image o f Hegel. This
image is reflected first o f all in the form of the subject-object relationship. For Hegel, this
relationship involves a knowing subject who forms opinions— capable o f being true— about something
in the objective world. For Marx, the subject-object relationship involves an acting subject who
undertakes activities— capable o f being monitored in terms of success— that bring about something in
the objective world. The parallels also extend to the concept of a formative process which exercises a
mediating function through which the subject and object come into ever new constellations. In
Hegel's philosophy of reflection the self-formative process of the spirit is conceived as a process of
becoming conscious. In Marx's philosophy of praxis there is a self-formative process o f the species
which is conceived as a process of self-creation. This implies a further similarity in the form o f a
basic principle of modernity. For Hegel this is self-consciousness, while for Marx it is labour
(Habermas, 1987).
The labour principle enables Marx to derive the technical and scientific forces which have
characterized the modernization of society. In his concerns to incorporate the content of bourgeois
culture into modernity, however, Marx feels forced to elaborate the principle of labour in a particular,
and rather expansive, manner, viz., by assimilating it into the productive activity of the artist. In
doing so Marx effectively transfers aesthetic productivity into a species-life conceived in terms of
labour and, thereby, allows for a conception of social labour as the collective self-realization o f all
producers. This provides the basis for the critical distinction between the objectivation of essential
powers as a satisfied praxis (involving a circuit of extemalization and re-appropriation in which the
product o f labour returns to the subject) and alienation (in which this circuit is interrupted and praxis
remains impeded and fragmented). In the exemplary case of capitalist social relations, viz., wage-
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labour, it is the private appropriation o f socially produced wealth that interrupts the normal circuit of
praxis. By casting this asymmetrical exchange of labour power for wages in terms o f value theory,
Marx adds a moral element to the concept o f praxis in addition to its aesthedc-expressivist content.
Now alienated labour can be conceived as a deviation both from the natural-right model o f the
exchange o f equivalents and from the aesthetic model o f self-satisfying praxis. The concept o f praxis,
however, is also supposed to involve the notion of "critical-revolutionary activity." It is at this point
that the conceptual problems inherent in the model, begin to make their presence felt, in a similar
manner as they did in Hegel (Habermas, 1987).
As in Hegel, so in Marx there are in inherent problems in the formulation of the problem of
the dialectic o f the enlightenment which go back to the inadequately examined normative basis o f the
model. In Marx the form of the contradiction that arises is similar to Hegel, only that now it is a
different principle (the principle of labour as opposed to the principle o f subjectivity) which has the
unenviable task o f trying to explain how it can resolve the problem (viz., alienated labour) to which it
itself gave rise. The principle of labour, however, without recourse to intersubjectivity, has no basis
on which it can give an account of the critical-revolutionary praxis which it posits as the resolution of
the problem o f alienated labour. This paradoxical situation reflects a basic lack of clarity that has
surrounded the normative foundations of the philosophy o f praxis and its concept of reason, the
problems o f which have come to light in the history of Western Marxism. One such problem has to
do with the conception of modem industrial labour along the lines of traditional handicraft by the
young Marx. While this conception is later abandoned by Marx, the normative content o f this notion
of praxis remains incorporated in the labour theory of value. This leads to an ambiguity in the
concept o f labour (and its inherent purposive rationality) that is reflected in the differing evaluations
of modem technology as having an unambiguous potential for emancipation (Marx) and as an
effective means o f repression (Luk&cs, Marcuse). A second problem in the failure to adequately
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address the issue o f the complexity o f modem society, in particular the question o f whether the
steering mechanisms which allow for such complexity have independent functional value not related
to the class structure. If, as the theory of revolution seems to suggest, all reified social relations can
be brought back within the realm o f the life-world, then this de-differentiation of the complexity o f
modem economic life becomes an easy target for modem systems theorists who can easily portray the
alleged reconciling powers o f reason as so much illusion. Both of these difficulties, however, reflect
a more basic problem in the philosophy of praxis, and one which also affective the philosophy o f
reflection, viz., the conception o f reason. As Habermas explains:
The necessity for self-objectification is immanent in the structure of self-
extemalization, just as it was in the structure of the relation-to-self. Therefore, the
formative process o f the species is marked by the tendency for laboring individuals, in
proportion to their domination of nature, to gain their identity only at the cost of
repressing their own inner nature. To dissolve the self-entrapment of a subject-
centered reason, Hegel opposed the absolute self-mediation o f the spirit to the
absolutization of self-consciousness. Praxis philosophy, which abandoned this route
with good reason, is not spared from a corresponding problem; it is even more acute
for i t For what can it oppose to the instrumental reason of a purposed rationality
puffed up into a social totality, if it has to understand itself in materialist fashion as a
component and result o f this reified relationship— if the compulsion toward
objectification invades the citadel o f critical reason itself? (1987: 110-111)
C) Horkheimer and Adomo and the Dialectic o f Enlightenment
The original project o f critical theory as conceived by Horkheimer involved the
reformulation o f Marxist historical materialism to account for unresolved tensions within the
tradition. The fundamental problem which was confronting Marxism was the failure of the working
classes to become conscious o f the basic contradiction o f capitalism. As a result, a key aspect of
Horkheimer’ s approach was further extending the Marxist critique of ideology. Marx's elaboration of
a critique o f ideology was grounded in a basic epistemological insight concerning the relationship of
social knowledge to social relations, viz., that the ideas of the dominant classes tend to be the
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dominant ideas o f a society. Marx, of course, employed ideology critique to disclose how the manner
in which bourgeois ideals of rationality were incorporated into political and economic structures did
not served to advance a common interest, as claimed, but only the interests of the dominant classes.
The more general, normatively problematic situation that ideology critique uncovers is that theory is
frequently not adequately distanced from the context in which it is developed and, as a result, reflects
not only valid claims, but power. As such the critique o f ideology has an Enlightenment function of
unmasking theories with an "inadmissible mixture o f validity and power." With this form of critique,
enlightenment thought becomes truly reflexive for the first time as it turns in upon its own products,
i.e., theories.
Horkheimer and critical theory during the 1930s developed Marxism and the critique of
ideology in two significant ways. First, they developed a new approach to addressing the basic
problem confronting contemporary Marxism, viz., the failure of the working classes to come to class
consciousness. While Horkheimer and his collaborators adopted Luk£cs formulation o f the problem
in terms o f "reified consciousness,” they rejected Luk&cs resort to Hegelian philosophy of
consciousness to resolve the problem. Rather, as noted above, they sought to employ social science
analysis to account for this situation and the prospects for its resolution. Second, Horkheimer ([1937]
1972) sought to extend the critique of ideology beyond Marx's use o f it which was primarily limited
to the critique of bourgeois political and economic theory. More specifically, he sought to extend the
critique o f ideology into the realms of science and technology. As noted above, Horkheimer argues
that, insofar as modem science and technology have arisen in the context of capitalist development,
they are not neutral but reflect the dominant interests of capitalist society. This means that traditional
theory, insofar as it does not take into account the "impurity" o f rationality (i.e., does not reflect on its
social origins and function in the societal division of labour), aids in the process of the social
reproduction o f capitalist society. In making these contributions, critical theory during the 1930s
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remained Marxist and modem in orientation. Its Marxist orthodoxy is reflected in the facts that
Horkheimer still accepts the basic Marxian principle of labour while his analysis o f reification is still
carried out in the context o f the critique of political economy. The broader commitment to modernity
is revealed in the limited nature o f the critique of ideology which remains at the first level of
reflexivity, i.e., extended only to the critique of the rationality of theory (Habermas, 1987).
| In the 1940s Horkheimer and Adomo develop the critique of ideology in ways that move
; them to the edges of (and beyond) both the Marxist and enlightenment traditions. This movement
takes the form of their radicalizing ideology critique by extending it to a higher level o f reflexivity,
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' i.e., by turning it not only on theory, but on reason itself. The key work in which this is done is
Dialectic o f Enlightenment (1990). This work has a peculiar structure consisting o f a major essay,
two excursuses and three appendixes. While some, perhaps as a result of its format, find the work
somewhat disjointed, Dialectic o f Enlightenment presents a consistent argument. In the Introduction
the authors present the argument in the form of two theses, viz., "myth is already enlightenment; and
enlightenment reverts to mythology." (1990: xvi). This understanding of the relationship between
myth and enlightenment differs sharply from the standard Enlightenment treatment which tends to
view enlightenment as a liberating experience which enables us to gain mastery over and move
beyond oppressive myths (e.g., myths of origin). For Horkheimer and Adomo, however, myth and
enlightenment are intertwined for, while enlightenment allows us to attain some degree of mastery
over myth, ultimately enlightenment reverts back to myth. It is this Janus-faced relationship between
that myth and enlightenment that Horkheimer and Adomo refer to as "enlightenment." In this
process, humans driven by self-preservation are able to shape their own identity through domination
over the external environment, but only at the cost of repressing their internal nature. The ultimate,
and rather ironic, result o f the "dialectic of enlightenment" is, as Habermas points out, that "[rjeason
itself destroys the humanity it first made possible.” (1987: 110) The basic problem is that
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enlightenment seeks to gain mastery over nature and instinct through an instrumental understanding
o f reason. Horkheimer and Adomo, following Weber, argue that this domination o f instrumental
rationality is evident right up to and including the most recent products of reason resulting from the
separation of modem value spheres, viz., modem science, universal ideas o f morality, and
autonomous art. The problem, as Hume recognized nearly two centuries before, is that reason
| conceived in instrumental terms can provide no compelling criteria for evaluation. In the modem
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world this is reflected in the disempowering of reason is ail o f its various forms as Adomo and
Horkheimer argue in their essays on modem morality and the culture industry. The result o f the
disempowering of the various moments of reason, as Habermas describes it, is that "they regress to a
rationality in the service o f self-preservation gone wild. In cultural modernity, reason gets
definitively stripped o f its validity claim and assimilated to sheer power." (1987: 112) As a result,
Horkheimer and Adomo lapse into ethical skepticism and despair over the inability of reason to
provide "an escape from the myth of purposive rationality that has turned into objective violence."
(1987: 114)
There is an inherent paradox in the attempt o f Horkheimer and Adomo to turn ideology
critique in upon itself. As critique, ideology critique has the goal of unmasking, of disclosing the
untruth o f theory that claims to be true. When such critique moves beyond theory to take reason itself
as its object, what becomes disclosed is that reason has become assimilated to power and has lost its
critical force. The paradox lies in the fact that while providing the description of the self-destruction
o f the critical capacity o f reason, critique is at the same time declaring itself to be dead. In effect, it
"denounces the Enlightenment's becoming totalitarian with its own tools." (Habermas, 1987: 119)
Horkheimer and Adomo were aware of this contradiction, but were unable to move beyond it.
Instead o f attempting to provide a theoretical account o f the performative contradiction inherent in
their ideological critique turned upon itself, they adopted the strategy o f determinate negation on an
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ad hoc basis.2 As a result, Horkheimer and Adorno in effect give up on the project of the
Enlightenment (i.e., seeking to ground normativity through reason), while at the same time seeking to
retain its form (i.e., unmasking of untruth through critique). Such an unmasking could not be
sustained, however, on the basis of faith alone, while no possibility of grounding critique was possible
within the confines o f their Weberian understanding of rationality as instrumental reason.
Horkheimer and Adomo had taken the Weberian notion o f purposive reason and the differentiation of
value spheres to their logical conclusion. The result was despair concerning the power o f reason to
provide an account o f itself and, as a result, a profound pessimism concerning the project o f the
Enlightenment. Overcoming this impasse would required a paradigm shift involving the conception
of rationality. It is just such a paradigm shift that Habermas provides in his attempt to reconstruct
critical theory and redeem the project of the Enlightenment.
III. Habermas' Reconstruction of Critical Theory
The failure o f the first generation of critical theorists to fulfill their original goal o f
reworking Marxist historical materialism did not signify the end of the project. Rather, a second
generation o f critical theorists took up the task. The most influential representative o f this second
generation has been Jtirgen Habermas. Habermas confronts the unresolved project o f the first
generation head on. The basis on which he does this is a reconceptualization of the concept o f reason
itself. On this basis he is able to rework historical materialism and provide an account o f modernity
that moves beyond the inevitable pessimism of accounts rooted in instrumental conceptions o f reason.
In this section we will examine the new conceptualization of reason that Habermas elaborates as well
2 This is evident in such works as Adomo's Negative Dialectics (1973) where he seeks not so much to
overcome the contradiction as explain why we have to remain within this paradoxical state.
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as the theory of modernity and the resulting account o f the rationality o f capitalism which follow
from it.
A) Critical Social Theory and the Dialectic o f the Enlightenment
The Theory o f Communicative Action represents Habermas' attempt to reformulate critical
theory on the basis o f an intersubjective conception o f reason. In the "Introduction" Habermas
stresses the importance o f the role of rationality in social theory:
Every sociology that claims to be a theory o f society encounters the problem of
employing a concept of rationality— which always has a normative content— at three
levels: It can avoid neither the metatheoretical question concerning the rationality
implications o f its guiding concepts of action nor the methodological question
concerning the rationality implications o f gaining access to its object domain through
an understanding of meaning; nor, finally, can it avoid the empirical-theoretical
question concerning the sense, if any, in which the modernization o f societies can be
described as rationalization. (1984: xlii)
In developing his own approach to social theory Habermas seeks to overcome the inadequacies of
previous social theory with respect to these three questions in the following fashion. First, at the
metatheoretical level he develops a theory of communicative rationality which attempts to get beyond
the subjectivistic and individualistic premises inherent in other conceptions o f rationality. Second, at
the level of methodology, he develops a two-level model of society that distinguishes the lifeworld
from mediatized systems. This move is intended to allow for better access to the object domain by
permitting both for an internalist and externalist perspective and to serve as the basis for the
elaboration of a theory of social evolution. Third, at the empirical theoretical level, he develops a
critical theory of modernity that reveals distinct, but intertwined processes of rationalization in the
lifeworld and the systems aspects of society. On this basis he is able to argue that while
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modernization can be represent as rationalization, this rationalization has assumed a pathological
form.
In his attempt to reformulate critical theory on the basis of an intersubjective concept of
reason, Habermas (1984) is not undertaking social theory in the traditional sense. Rather, his task is
the development o f a "social theory concerned to validate its own critical standards." In taking up this
task, Habermas is simultaneously taking up the critique of modernity, seeking to succeed where Hegel
and Marx failed. His hope to be able to demonstrate that modernity can ground normativity in itself
rests on his reformulation of reason as communicative rationality, a move intended to get him beyond
the philosophy o f the subject and the problematic features of its inherent objectivation. In this
endeavour the principle o f communicative action is intended to serve as a normative principle in a
manner similar to that played by the principle of subjectivity for Hegel and the principle o f labour for
Marx. His goal is to show how the principle of communicative action can (where the principles of
subjectivity and labor could not) explain the rise of modernity, account for its continuing discontents
and point in the direction that the resolution of these discontents must and can take. Habermas'
assumption o f the dialectic of the Enlightenment, however, does not involve a resumption of Hegelian
(or anti-Hegelian) dialectics. While Habermas recognizes a role for philosophy in the elaboration of
critical social theory, philosophical reflection has been stripped both o f the idealist vestiges of the
philosophy o f history and its role of "judge" over the sciences. As such, he understands himself to be
continuing in the multidisciplinary historical materialist tradition o f critical theory. Before examining
how Habermas develops his critical social theory on the basis of the three tasks outlined above, it is
first necessary to mention a key methodological tool which he will employ in this endeavour, viz.,
reconstructive science.
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B) Reconstructive Science
Reconstruction science, a unique category introduced by Habermas, refers to those
disciplines which seek to provide a theoretical explication of intuitive knowledge. That is, they seek
to explicate the "know-how" that speakers and actors have about the conditions of validity for
different classes o f expression and performances. Insofar as they seek to explicate intuitive
knowledge, these sciences necessarily involve the investigator taking a performative attitude, i.e.,
adopting the perspective of a participant Among the disciplines that Habermas includes under this
rubric are theories of rationality and argumentation, epistemology and philosophy of science, logic
and metamathematics, formal pragmatics and theories of meaning, as well as ethics and theories of
action. While these disciplines differ from nomological (objectivating) science, Habermas claims that
they are still capable of producing some manner o f objective and theoretical knowledge: "To the
extent that rational reconstructions succeed in their search for very general conditions o f validity, they
can claim to identify universals and thus to produce a type o f theoretical knowledge.” (Baynes,
1994b: 149) Reconstructive science is not limited to the investigation of individual competencies, but
can extend itself to "the collective knowledge o f traditions." In so doing the object of its study
becomes "collective learning processes," the goal o f which might be, for example, the reconstruction
of the internal histories o f scientific disciplines.
Because reconstructive science attempts to reconstruct pretheoretical knowledge which is
accessible only through the adoption of a performative stance, its claims to universality have a
"transcendental" character which must be developed and clarified through philosophical
argumentation. Such philosophical argumentation is important in two key tasks. First of all, it allows
for the elaboration of pretheoretical knowledge is such a way that alternative theories o f explanation
can be shown either to be derivative of the explanation in question or to be utilizing portions o f it.
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Philosophical conceptualization, however does not endow the explanations o f pretheoretical
knowledge with any ultimate foundation or certainty. They retain the character of scientific
hypotheses and can be indirectly tested on the basis o f empirical theories. Secondly, philosophical
argumentation provides a "critical" dimension to rational reconstruction by allowing for the
identification o f deviant cases of belief and action. This is possible not only at the level o f the
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| evaluations, etc.), but also at the level of collective learning processes. At the latter level, "processes
! o f unlearning” can be identified "through a critique of deformations that are rooted in the selective
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buried over." (Habermas: 1987:400), In modem societies such processes of unlearning, which can
only be identified through the reconstruction of the goals or end states of highly abstract learning
processes that have become embodied in both the lifeworld and individual competencies, appear in
the form o f "systematic distortions of communication" (false consciousness) and unbalanced
processes o f societal rationalization (social reification). (Baynes, 1994b: ISO)
C) Communicative Rationality
Habermas (1984), as we have seen, argues that self-objectivation is immanent in both
structures o f extemalization (philosophy o f praxis) and relation-to-self (philosophy of reflection) and
is inevitably expressed in the form of an instrumental conception o f reason. Moreover, he links the
use o f such an instrumental conception o f reason to the inability o f previous theories o f society to
adequately account for the evolution and contradictions of modem societies. The key to overcoming
these problems, he believes involves a different conception of reason, one involving a new paradigm
o f rationality. One indication o f the need for a new conception o f reason and an insight into how it
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must be grounded is provided by the observation that the individual goal-oriented actions o f people
are socially organized. This observation is further supported by the experience of coming to
uncoerced agreement through discussion. On the basis o f such observations and experiences
Habermas posits the notion of a "communicative rationality" which he believes is inherent in the
practice of language. As such, communicative reason involves a shift from a paradigm of
consciousness to a paradigm of language. As a form o f reason, communicative rationality differs
from instrumental rationality in that its goal is not to attain a pre-given end, but rather to come to
mutual agreement While language can be used for instrumental purposes, Habermas acknowledges,
its inherent goal is coming to mutual understanding. In this way, communicative reason differs from
instrumental reason in that it involves a subject-subject and not a subject-object relationship. It is on
the basis of the intersubjectivity of this conception of reason that Habermas will attempt to develop a
critical social theory and demonstrate how modernity is able to ground normativity in itself. In order
to do this, however, he must give an account of communicative reason and substantiate the claim of
its priority over instrumental reason. This he attempts to do by developing a theory of communicative
rationality as a project of reconstructive science.
In developing a theory of communicative rationality as a project of rational reconstruction
Habermas (1984) looks to linguistics and the philosophy o f language in an attempt to explicate the
basic structures and fundamental rules that are necessary to leant and master a language. In
examining language from the perspective of the participant a key structure that emerges is the making
o f different types of validity claims (e.g., to truth, to appropriateness, to sincerity) which can be
contested by an interlocutor. One typical method for resolving validity claims involves the giving of
reasons. The resolution of validity claims on this basis results in an experience of mutual
understanding achieved through communication without coercion. It is this experience which
provides the basis for the notion of communicative rationality. The ability to come to understanding
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without coercion presupposes that the giving of reasons is capable of inducing intersubjective
recognition o f contestable validity claims. This possibility o f achieving mutual agreement points to a
further "reflective medium," a court of appeal as it were, for the resolution o f contested validity
claims which cannot be resolved on the basis o f an appeal to everyday routines, in this reflective
medium, i.e., argumentation, problematic validity claims are thematized. The cridcizability of
| validity claims allows for the identification and correction o f errors, i.e., learning. When such
learning takes place at the reflective level o f argumentation, there is the possibility for it to be
: incorporated in particular cultures and institutions within these cultures (a fact that makes
: communicative action a utilizable concept for social theory).
It is in the reflective medium that the non-instrumental nature of communicative action
becomes most apparent. Habermas explains what constitutes the non-instrumental character of the
rationality inherent in communicative action (i.e., action oriented towards uncoerced agreement) in
the following manner: "A communicatively achieved agreement has a rational basis; it cannot be
imposed by either party, whether instrumentally through intervention in the situation directly or
strategically through influencing decisions o f opponents." (1984:287) Rather, such an agreement
requires the assent of an other which can only be won on the basis o f a better argument. This
intersubjective basis of communicative rationality gives it an emancipatory characteristic. The fact
that the rationality is related to consent eliminates the repressive tendency that is inherent in
objectivating conceptions of rationality. Reason cannot be imposed.
This emancipatory character of communicative reason is guaranteed by two further claims.
First, Habermas (1984) is able to argue that there communicative action has a priority over
instrumental reason. This claim is to redeemed on the basis o f the argument that language could not
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have evolved except on the basis of communicative reason.3 This allows for an interpretation o f
instrumental forms of reason (as institutionalized in modem societies) as derivative o f communicative
reason, in the sense that they presuppose communicative reason. Second, and as a consequence o f the
previous argument, Habermas can refute the position o f Horkheimer and Adorno that access to reason
can become lost due to the distortions of reason through historical developments, the argument that
led them to seek recourse to the realm of aesthetics. Because communicative rationality is inherent in
the very structure of language we always have access to it, even if only at a pretheoretical level.
Thus, there is no need for a "regeneration" of reason through aesthetic experience.
D) Lifeworld and System
Habermas (1984) incorporates the notion o f communicative rationality into his development
of a social theory by elaborating a two-level model o f society which, for its part, serves as the basis
for a theory of social evolution designed to account for the emergence of modernity and its
discontents. The first level in this model is the Iifeworld which, as the "context-forming horizon"
within which social action occurs, is viewed as a necessary complement to a communicative-theoretic
account of social action theory. Habermas elaborates a multidimensional concept of the Iifeworld
which distinguishes three basic structures; culture, society and personality. He argues for an integral
relationship between communicative action and the Iifeworld; while the Iifeworld provides the
necessary background against which communicative action occurs, communicative action is essential
3This claim, as is generally true of the claims of reconstructive science, cannot be proven directly, but
remain falsifiable hypotheses. Ultimately, it is the empirical-theoretical fecundity of the research
programs based upon it that must give credence to the claims o f communicative rationality to
universal significance.
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for the production and reproduction o f the Iifeworld.4 Habermas believes the concepts o f
communicative action and Iifeworld to be general sociological categories that can account for the
variations across particular Iifeworld contexts. Moreover, the connection between communicative
action and the Iifeworld, combined with a phylogenic account of the genesis of communicative action
(as behaviour mediated by language and guided by norms), allows critical theory to move beyond the
subjectivist biases exhibited by other contemporary theories. The second level of the model is
provided by systems paradigms. Exchange economies and bureaucratic-administrative systems differ
from Iifeworld contexts in that interactions are not coordinated through norms and values, but rather
on the basis o f impersonal coordinating media. Under such circumstances actors take up
objectivating attitudes towards one another. This different logic of system aspects of society make
them more amenable to a functionalist analysis. Systems theory allows for the conceptualization of
these aspects of society as self-regulating systems in which actions are coordinated by means of the
functionalist interconnections o f their consequences.
For Habermas (1984) the two forms of analysis characteristic of Iifeworld and systems
perspectives are complementary and allow for the combination o f internalist and externalist
perspectives and the integration of social and systems reproduction analysis. Habermas' goal in
4McCarthy, in his introduction to The Theory o f Communicative Action, offers a succinct explanation
o f how this occurs: "To the different structural components of the Iifeworld (culture, society,
personality) there correspond reproduction processes (cultural reproduction, social integration,
socialization) based on the different aspects of communicative action (understanding, coordination,
sociation), which are rooted in the structural components o f speech acts (propositional, iilocutionary,
expressive). These structural correspondences permit communicative action to perform its different
functions and to serve as a suitable medium for the symbolic reproduction o f the life world." (1984:
xxvii)
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bringing them together is to develop a theory of social evolution that can account for the emergence
o f the characteristic features of modernity. By taking this task up as a project of reconstructive
science Habermas is able to account for processes of learning and development and, in the tradition of
Weber, to characterize these as processes of rationalization. Habermas, however, is better equipped
for the task o f elaborating a theory of social evolution than Weber was. On the basis o f the notions of
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[ communicative action and the Iifeworld, he is in a position to argue that just as there is not only one
| aspect o f reason, there is not only form o f rationalization process. Rather, processes of rationalization
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| emergence of the bureaucratic and economic systems as processes o f rationalization based upon
instrumental reason, what he failed to see was a corresponding rationalization o f the Iifeworld on the
basis o f communicative reason.
These processes of rationalization of the Iifeworld and systems aspects of society do not
occur mere in a parallel fashion. Rather, they are intertwined. For this reason, the evolution o f
society needs to be understood as an interrelated two-tiered process of differentiation. On the one
hand, there are processes o f differentiation that occur within both the Iifeworld and systems aspects of
society. The process of differentiation within the former can be understood in terms of a
“rationalization of the Iifeworld.” Here, the social functions o f cultural reproduction, social
integration and personality formation once fulfilled by religious symbolism and ritual practice are
increasingly carried out through communicative action . The result of this process (the
"liquidification of the sacred") is that social solidarity can increasingly only be secured through some
form o f normative consensus. This is illustrated by the critique o f traditional religion and the
emergence of philosophy in ancient Greece and the subsequent development of a rationalized legal
and moral system. Differentiation in the systems aspects o f society reveals itself through the
emergence of mechanisms that allow for higher levels of system complexity and increased adaptive
(
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capacity with respect to functions o f material reproduction. The efficacy o f these “delinguistified”
steering mechanisms (e.g., money) is based upon their ability to eliminate the standard Iifeworld
requirement for consensus formation, a generally cumbersome and time consuming process, and their
ability to “encode certain forms o f purposive-rational activity, symbolically generalize certain
categories o f rewards and punishments, and make it possible to exercise strategic influence on action
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| by non-linguistic means.” (1984: xxxii) These two processes o f differentiation are interrelated with
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! the rationalization o f the Iifeworld being a necessary condition for the institutionalization o f new
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| mechanisms o f systems integration.
On the other hand, a second process o f differentiation occurs across the lines o f system and
Iifeworld, a decoupling of system and social integration. In this process the original interlocking of
social integration and system integration characteristic of archaic societies gives way to a separation
of the mechanisms in the Iifeworld (which secure social solidarity through normative consensus) from
the mechanisms of the systems aspect o f society (which are designed to heighten system complexity
and adaptive capacity). As the individual spheres of action o f the system aspects of society (viz., the
organization of exchange relations and the institutionalization o f political power) become increasingly
independent, they take on the form of “quasi-autonomous” sub-systems directed by their own
“delinguistified” steering mechanisms. Thus, the emergence o f capitalism leads to the development
of an economic subsystem whose steering medium is money, while the development of the modem
state produces an administrative subsystem, the steering mechanism o f which is power. A key
Iifeworld requirement for this decoupling is the emergence of postconventional moral and legal
consciousness (Habermas, 1984).
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E) The Critical Theory o f Modernity
The decoupling of systems and social reproduction, o f Iifeworld and system, can be
understood to mark the emergence o f modernity. It is also what allows for the distortions of
modernity. The decoupling o f systems integration and social integration that occurs with the
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1 emergence o f the steering media allows for two possible lines o f influence between the Iifeworld and
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! the subsystems. On the one hand, the Iifeworld can be subordinated to the systemic constraints of
material reproduction as the steering media of the subsystems assert themselves in the realm o f the
Iifeworld. On the other hand, it is possible that the Iifeworld impose normative restrictions on system
maintenance. Habermas argues that, while the lines of influence are not predetermined, in actual fact
modernity has been characterized by the former relationship in which money and power have been
able to influence and determine decisions which should be made on the basis of rationally achieved
consensus. It is this fact that leads to the “paradoxes” or “distortions” of modernity. This manifests
itself not only in the privilege which political and economic elites are able to enjoy outside o f the
political and economic realms, but also in the “monetarization” and “bureaucratization” of everyday
life.5 Habermas' concern with the influence of the media of the subsystems outside of their
appropriate realm centers on the effects this has on social solidarity and the reproduction of the
Iifeworld, (i.e. on the process o f cultural reproduction, social integration and personality formation).
“Mediatization” of the Iifeworld, while not itself pathological, can become so. When systemic
mechanisms drive out mechanisms of social integration from realms in which they cannot be
replaced, mediatization becomes “colonization.” Such colonization, which can occur either by the
sAny number of examples could be invoked to illustrate this latter point. Perhaps, the most graphic
contemporary example of the logic of the market invading the Iifeworld is the issue of selling human
organs by living donors.
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domination of the economic or administrative steering medium, is the basis out of which crises can
develop and societies break down (Habermas, 1984). Elsewhere Habermas (1975) argues that late
capitalism is subject to such crisis tendencies and sets out the conditions under which a break-down
might occur in his theory o f legitimation crisis. Crisis, however, remains only a possibility, not the
ineluctable result o f modem rationalization.
Not only is crisis not inevitable, neither is it inevitable that the subsystems dominate the
Iifeworld. According to Habermas (1984), it is possible for the Iifeworld to impose normative
restrictions on system maintenance. Even in the present situation o f domination, the project of
I decolonization (i.e., an expansion of the areas in which action is coordinated through
communicatively achieved agreement and the development o f institutions in the Iifeworld which can
subordinate the steering mechanisms of the subsystems to communicatively achieved decisions)
remains a possibility. In more practical terms, Habermas conceives of this project as a “reflexive
continuation of the social welfare state.” Thus, Habermas wants to argue that it has not been the fact
of “rationalization” per se which leads to the paradoxes and the discontents o f modernity, but rather
the unbalanced fashion in which the different aspects of reason developed and were institutionalized.
The project o f decolonization represents the effort to bring the appropriate balance to the two
processes o f rationalization through the development of a more communicatively structured Iifeworld
that is better able to defend itself from colonization and secure social solidarity.6 This solution,
6 While Habermas focuses his analysis on the necessity of the defense of the Iifeworld from
colonization by the economic and political subsystems, others such as Cohen and Arato (1992:47Iff.)
go beyond him to make the claim that it is not only possible to defend the Iifeworld from colonization,
but also to inject democratic elements into the steering media. This can be done, it is argued, while
still maintaining respect for their basic manner of functioning. Such "discursive forms", it is held,
would act like sensors and further decrease the ability for and likelihood o f colonization of the life-
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however, has no historical certainty attached to it, but, like all projects o f rational reconstruction
remains a “practical hypothesis.”
F) The Rationality o f Capitalism
| Habermas has taken up his theory o f modernity not merely as social theory normally
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I conceived, but as a critique of modernity in the fashion of Hegel. That is to say, with the theory of
i communicative action, Habermas seeks to demonstrate how modernity is able to ground normativity
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| in itself. In this regard, the principle o f communicative action serves as a principle of modernity in a
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manner analogous to the principles of subjectivity and labour in Hegel and Marx. In order to fulfill
this task Habermas has to be able to demonstrate how the principle which has given rise to modernity
is at the same time able to count for its distortions and the possibility for moving beyond these
distortions. With the theory of social evolution (and the claim of the priority o f communicative over
instrumental reason), Habermas is able to provide an account of the emergence of communicative
action and how it leads to a process of rationalization o f the Iifeworld that is originally intertwined
and later decouples from a process of rationalization of the system elements of society. The principle
o f communicative action is also able to account for the distortions of modernity. It does this not in
the fashion o f Hegelian dialectics, but rather on the basis a project o f rational reconstruction that
depicts it as an uneven and incomplete process of societal rationalization. On the basis o f the notion
o f communicative action it is able to characterize this process of "social reification" as a "process of
unlearning" and, thereby as a distortion o f the process o f societal rationalization. Moreover, it is
world. In terms of the economic realm, for example, this might involve increased worker participation
in decision-making (both at the level o f the shop floor and the board o f directors), profit sharing, co
operative ownership of the means of production, etc.
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possible to provide an account of how these distortions can be overcome on the basis of the same
principle. While the formal conditions for the Iifeworld exerting control over the systems are worked
out in Habermas' (1996) normative theory of law and democracy (which we shall examine in the next
chapter), the underlying condition is provided by the fact that we have direct access to communicative
reason insofar as it is immanent in our everyday use o f language.
IV. Critical Theory and the Normative Analysis of Capitalist Business Activity
This chapter set out on the premise that a cognitive, normative theory of capitalist business
and economic activity must be able to presume the rationality o f its object. The initial concern was
that a school of radical social theory rooted in the tradition of Marx could not provide an account of
the rationality of capitalism that would serve our purposes. It now appears, however, that Habermas'
critical theory of modernity may be able to provides us with an account o f capitalism that, although
ambivalent in its evaluation, is adequate to our purposes. As we have just seen, Habermas perceives
capitalism to have emerged as the result o f an historical process of rationalization which has allowed
for increased system complexity and adaptive capacity in the economic realm. This increased system
complexity and adaptive capacity has contributed, in many varying ways, to improvements in the
standard o f living and quality of life in modem societies. (Whether comparable results are achievable
under alternative arrangements remains an open question.) On the other hand, Habermas argues that
historically the logic of the economic realm in capitalist societies has dominated both the Iifeworld
and administrative realms. This has resulted in systematic distortions of communication and social
reification. However, Habermas, unlike Lukdcs, does not see these results as inextricably and
exclusively linked to class relationships. Rather, they can be interpreted as the result of unbalanced
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processes o f rationalization. This allows for the possibility that the Iifeworld can take up a program
of decolonization and impose normative restrictions on the economic realm.
How this ambivalent evaluation o f the rationality o f capitalism allows for the elaboration of
a cognitive normative theory of business and economic activity from a critical theory perspective
requires a short explanation that anticipates the discussion o f normative theory in the next chapter.
From a critical theory perspective it is possible to distinguish three normative realms, the legitimate,
the moral and the ethical (Habermas 1990; 1996). The realm o f ethics involves questions o f the good
life. Critical theory holds that such evaluations are always relative to particular cultures. The realm
of morality is circumscribed by norms o f social interaction that can be agreed to by participants in a
practical discourse. As a theoretical construct, morality is concerned only with fairness o f the
conditions under which norms are chosen. As a practical tool for evaluation, morality is concerned
with whether basic norms o f social interaction can represent a generalizable interest. For its part, the
realm o f legitimacy is defined by the normative conditions necessary for the establishment and
maintenance of legitimate law. These conditions can be subsumed under the notions of principles of
the constitutional state and a system of rights. With respect to the first of these normative realms,
nothing general can be said about the normative acceptability o f capitalism. Such evaluations will
depend upon conceptions o f the good life which are always relative to individual cultures. As regards
the realm of morality, the normative acceptability o f capitalism can be evaluated indirectly in terms of
whether it could potentially represent a generalizable interest. Such an evaluation depends on the
perspectives of participants to a complex of issues that involve unknown probabilities (e.g., whether
the colonizing tendencies o f capitalism can be effectively controlled, whether alternative can be
developed) and subjective evaluations of possible trade-offs (e.g., between material goods and
increased participation). What can be stated is that, insofar as capitalism provides distinct advantages,
it may be possible to control its colonizing tendencies and there are no proven alternative, it is
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possible that people could freely agree to capitalism. Finally, as regards the third normative realm,
capitalist practice has clearly not lived up to the demands of legitimacy. There are, however, no
formal contradictions between capitalist practice and the conditions necessary for the generation and
maintenance o f legitimate law. Moreover, it has been argued that the potential exists that
communicative action can bring the colonizing tendencies of capitalism under control. Thus, it can
be argued that capitalism is potentially compatible with legitimate law. On the basis of its potential
compatibility with the demands o f legitimacy and its potential to represent a generalizable interest,
then, capitalism becomes a possible object for a cognitive normative theory from a critical theory
perspective. (It should be noted, however, that while capitalism is potentially justifiable, the extent of
its colonizing tendencies may make it possible in practice to justify it.)
While we have just argued that it is possible to elaborate a normative theory of capitalist
business and economic activity from a critical theory perspective, it may not be immediately evident
why it is important to take up such a task. From the perspective of critical theory, this question can be
restated in terms o f how this task relates to the interests of the tradition. As we have seen critical
theory initially understood its project as a multidisciplinary historical materialism concerned with the
analysis o f the social contradictions o f its day. Ultimately, however, the first generation was forced to
admit that it had not been able to fulfill its initial aspirations. Underlying the project of the first
generation of critical theorist were clear normative assumptions and commitments. While glimpses of
the normative content o f the tradition's self-understanding shone through in individual works and
projects, it was never systematically elaborated in a formal moral or normative political theory.
Habermas, the major representative o f the second generation of critical theorists, clearly sees himself
in the tradition o f critical theory and explicitly claims that his Theory o f Communicative Action
represents a return to the origins of the tradition. As we have seen, however, while his work may be
in line with the tradition, it clearly moves the tradition in a new direction with respect to its evaluation
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o f the rationality o f capitalism and modem societies. Habermas and others in the second generation
also go beyond the first generation in another significant way, viz., a much more explicit treatment of
the normative content of the tradition. Again, Habermas is the leading figure here with his
elaboration o f both a theory of morality and a normative political theory. It is these recent
developments which allow for an understanding of this work as a natural extension of the interests of
critical theory.
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CHAPTER THREE
Critical Theory and Normative Analysis:
Three Realms of Normativity
In the previous chapter we sought to demonstrate that it was possible to provide an account
o f the "rationality" o f capitalism that was serviceable for the elaboration o f a normative theory of
capitalist business and economic activity from a critical theory perspective. In the course o f this
argument the position was advanced that the notion of communicative action was able to serve as a
principle by which modernity was able to ground normativity in itself. The basis for this claim was
the ability of communicative action to ground a theory that could account o f the rise of modernity, its
distortions and the possibilities for overcoming these distortions without resorting to problematic
metaphysical or ontological presuppositions. In making this argument, however, we did not
adequately address the question of the link between being able to account for modernity (truth) and
being able to redeem it (normativity). Nor did we adequately account for how either of these claims,
to truth and normativity, are capable of justification. It is this latter task o f justifying normativity
which is the primary concern o f the present chapter.
Accounting for the link between truth and normativity requires establishing the connection
between epistemological and metaethical inquiries. From a critical theory perspective, there is an
internal link between these inquiries that is rooted in language. Critical theory is able to make this
connection by drawing upon a pragmatic analysis of language that examines an important structure of
speech acts, viz., validity claims. It is this common structure which provides the link between truth
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and normativity. Moreover, reflective analysis on the process o f overcoming disputed validity
claims, i.e., argumentation, provides the basis for achieving what have traditionally been the key tasks
of epistemology and metaethics, viz., the justification o f the possibility of universal claims to truth
and normativity. In making the distinction between different types o f validity claims and reflective
discourses, critical theory provides for a distinction between different types o f normative claims, viz.,
claims to goodness, rightness and legitimacy. The elaboration o f the nature of these three different
types o f normative claim is the task of this chapter. It is on the basis of these three moments of
normativity that over the next three chapters we will take up the analysis of the conditions for the
normative acceptability o f capitalist business and economic activity.
In examining the problem of justifying normativity we will proceed in the following fashion.
First we will investigate the justification program that Habermas employs in elaborating his theory of
discourse ethics (i.e., his theory of morality). The next three sections will examine, in turn, the three
realms o f normativity which a critical theory perspective distinguishes, viz., ethics, morality and
legitimacy. Finally, in the concluding section the question o f the relationship between these three
normative realms (including the possibility of competing normative obligations) will be taken up.
I. Communicative Action and the Justification of Normative Theory
The theory of communicative action, as we noted in the previous chapter, distinguishes
between the every day use o f language oriented towards reaching understanding and a reflexive form
o f communicative action which addresses the problem of contested claims. It is possible to derive
cognitive arguments for normative obligations from both of these aspects of the structure of language,
viz., communicative competence and argumentation. The former, however, is only able to provide a
very weak argument. A normative theory which aspires to grounding the possibility of universally
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valid norms must rely upon a theory o f argumentation. Habermas (1990) originally uses his theory of
argumentation (1984) to elaborate a "theory of discourse ethics" which seeks to redeem the possibility
o f universally valid moral norms. He later appropriates this justification program to ground his
normative theory of law and democracy as well (1996).
; In what follows, we will first examine the theory of communicative competence and show
how, in addition to providing a weak normative obligation, it is able to reveal a basic problem with
j previous attempts to ground a universal normative theory. We will then offer an account of
| Habermas' theory of argumentation. This not only serves to further clarify the relationship between
j truth and normativity, but provides the basis for understanding how universally valid normative
claims might be possible. In the next section, Habermas' justification program for normative theory is
investigated. This is a two step process which first involves the elaboration of a principle of
universalization, followed by the justification of this principle. Finally, we conclude this section by
looking at a supplemental argument that Habermas provides for his theory of discourse ethics.
A ) Com m unicative Competence and Validity Claims
The analysis of communicative competence seeks to establish the preconditions for all forms
of communicative action (i.e., all action oriented toward the attainment of mutual understanding
through uncoerced communication) to occur. As we noted in the previous chapter, in order to
understand how communicative competence is possible Habermas looks to the pragm atic analysis of
language. The reason for Habermas' preference for pragmatics is that programs o f rational
reconstruction, such as the analysis o f communicative competence, require the investigator to take a
performative stance. Pragmatics, which takes speech acts as its basic unit o f analysis, focuses on the
performative aspects of language. (Semantics, by contrast, in which the sentence is the basic unit of
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analysis, centers its analysis around the logical relationship between different parts of speech.) In
communicating through speech acts we make validity claims, e.g., claims to truth (i.e., there is a
correspondences between the speaker's representation of a phenomenon and the state of affairs in the
objective world), appropriateness (i.e., what the speaker says corresponds in a meaningful way to the
context), truthfulness (i.e., the speaker is sincere and not knowingly trying to deceive). In addition to
constative speech acts in which claims to truth are made, a variety o f different types of speech acts
can be distinguished (e.g., constative, regulative, expressive, etc.) as well as a corresponding range of
validity claims (e.g., effectiveness, rightness, goodness, etc.). The validity o f these different claims
can be accepted or contested by interlocutors. In the face o f such contestation, the rationality o f the
claim is based upon the fact that support can be offered in its favour, while the rationality of the
claimer is dependent upon the willingness to provide such support Thus, on the basis of the analysis
o f the speech-act, it is possible to derive a basic obligation to provide justification for the claims that
one makes in understanding oriented action. This basic obligation to provide justification for our
claims, insofar as it applies to our normative judgments, has some import with respect to grounding
universally valid normative claims. The basic implication o f this obligation with respect to our
normative judgments is that they must be general (i.e., not allow of the type o f expectations made by
first person dictators and free riders). This is a relatively weak argument, however, insofar as it does
not contribute to our ability to distinguish different conceptions of justice as more or less adequate.
While the theory of communicative competence is not able to ground a strong normative
theory, its distinction between different forms of speech acts and validity claims is not without
metaethical significance. Its import lies in the fact that it can provide an explanation of a fundamental
problem that has afflicted many previous attempts to ground universally valid norms. This was the
tendency to try to establish the validity of moral norms in terms of their truth. From the perspective
of critical theory it is possible to see how this was to make a categorical mistake. Claims to rightness
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(and goodness) are different from claims to truth in that the objects of these claims do no correspond
to an existing state o f affairs in the objective world but rather to culturally determined understandings
in a social world. The inevitable result o f making this categorical mistake was to be placed in the
dilemma o f choosing between the Scylla of relativism and the Charybdis o f a correspondence theory
o f truth (Habermas, 1993:26). A second relevant outcome o f differentiating a range of different
validity claims is that it provides for a distinction between different realms of normativity. In
particular, it is the claims to effectiveness, rightness and goodness that are of importance for, as we
shall see below, they underpin the distinction between ethics, morality and legitimacy.
B) A Theory o f Argumentation
In his attempt to ground a universal ethics, Habermas turns to the analysis o f argumentative
praxis, a reflexive form o f communicative action employed in the resolution of contested validity
claims. Habermas defines argumentation as “that type of speech in which participants thematize
contested validity claims and attempt to vindicate or criticize them through arguments.” (Habermas,
1984: 18). Habermas’ analysis o f argumentation represents another of his projects o f reconstruction
science. In reconstructing the modem notion of argumentation, Habermas distinguishes three aspects
o f argumentative speech which correspond to the traditional Aristotelian canon: (1) one which is
concerned with argumentation as process (rhetoric); (2) one which has as its object the procedures of
argumentation (dialectic) and; (3) one whose concern is the product of argumentation (logic).
Argumentation, then, is a complex undertaking operating from a number o f different perspectives
and, as Habermas notes:
.. .from each of these perspectives a different structure of argumentation stands out:
the structures of an ideal speech situation immunized against repression and
inequality in a special way; then the structures of a ritualized competition for the
better arguments; finally the structures that determine the constructions o f individual
arguments and their interrelations. At no single one of these analytical levels can the
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very idea intrinsic to argumentative speech be adequately developed. The
fundamental intuition connected with argumentation can best be characterized from
the process perspective by the intention of convincing a universal audience and
gaining general assent for an utterance; from the procedural perspective by the
intention of ending a dispute about hypothetical validity claims with a rationally
m otivated agreement, and from the product perspective by the intention of
grounding or redeeming a validity claim with arguments. Interesting enough,
! however, it turns out that in the attempt to analyze the corresponding basic concepts
in the theory of argumentation the separation of the three analytical levels cannot
be maintained. (1984:26)
Thus, the activity of argumentation requires that certain conditions have to be in effect in order for it
[ to be able to occur. To seriously engage in argumentation requires participants to presuppose that a
[ range o f conditions is guaranteed, e.g., equal rights to participate, absence of coercion in adopting
' positions, freedom of access, truthfulness on the part of all participants, etc. These conditions, which
can be formulated as ‘discursive rules,’ are ‘pragmatic presuppositions’ which participants must
always make when they enter into argumentation. As such, they constitute a form o f transcendental
constraint.
In addition to the different levels of argumentation, different forms of argumentation can be
distinguished according to the type of validity claims to be justified. Habermas (1984: 19-22),
initially enumerates the following types o f argumentation: (1) theoretical discourse (in which
controversial truth claims are thematized); (2) practical discourse (which seek to justify norms o f
action); (3) aesthetic criticism (which serves to justify standards of value); (4) therapeutic critique
(which seeks to clarify systematic self-deception), and; (5) explicative discourse (which thematizes
the comprehensibility, well-formedness or rule-correctness of symbolic expressions). While all of
these different forms of argumentation make validity claims, the nature of the claims differs. Some
forms of discourse (viz., theoretical, practical and explicative) make universal validity claims, while
others (viz., aesthetic and therapeutic) do not. Establishing the ability of theoretical and practical
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discourses to redeem universal claims to validity requires a program of justification.1 These
programs are similar in that they both proceed on the basis of an account o f the conditions under
which rational consensus can be achieved. It is this similarity that undergirds the link between truth
and normativity mentioned above. For our present concerns, however, an examination of the
grounding o f truth claims is not essential (Habermas, 1979). We need only to examine the program
of justification for normative theory.
C) A Justification Program fo r Normative Theory
It is the problem of grounding normativity, the metaethical Begrundungsproblematik, which
is the basic concern of discourse ethics. This problem has been depicted by Hans Albert (1985) as a
'Habermas understands ‘discourses’ as a special form of argumentation (in which ‘belief is
suspended’ in order to generate rationally motivated consensus on controversial claims) which make
universal validity claims. Theoretical, practical, and explicative discourses, then, differ from aesthetic
criticism and therapeutic critique with regard to the scope of their validity claims. The latter, to the
degree that they are necessarily related to one’s individual (or group) identity and self-understanding,
cannot make universal claims. Later, Habermas (1993) changes his terminology if not his position.
He distinguishes three different types of practical reason (viz., pragmatic, moral and ethical), each of
which has their own corresponding form of discourse. Two points are important to in this regard.
First, this change is apparently made to avoid the problem of grouping ethical issues under the
category o f aesthetics. Second while the substance o f the previous distinction between discourse and
other forms o f argumentation is upheld (i.e., that some forms o f argumentation imply universal
validity claims while others do not), Habermas tends to use the term discourse as synonymous with
argumentation (e.g., by speaking of ethical discourse). We will discuss the distinction between the
three forms o f practical discourse below.
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‘Miinchhausen trilemma,’ a formulation which consists of the contention that all attempts to ground
moral principles with universal validity must ultimately lapse into (I) an infinite regress, (2) a petitio
principii or (3) the dogmatic acceptance o f a first principle. Both Habermas and Apel recognize the
intractability o f that this problem has posed for ethics. They argue, however, that the problem is
insurmountable only within the context o f ‘semantic concept of justification’ which is based upon
deductive relationships between statements and the concept of logical inference. An adequate
solution is possible, however, but only in terms o f a ‘transcendental pragmatic’ argument. It is their
theories of argumentation which allow them to carry out such a ‘transcendental pragmatic’ grounding
for ethics. The basic form of such an argument has two steps. First, there is the elaboration of a
principle of universalization (which Habermas notes can be carried out in the manner of a Rawlsian
reflective equilibrium). Second, there is the justification of this principle of universalization. We
shall look at each o f these steps in turn.
I) The Principle o f Universalization
As noted above both Apel and Habermas argue that not only theoretical (scientific) but also
pragmatic discourses make universal validity claims. As Habermas (1990: 59ff.) points out, however,
the nature of these claims differ. While the former make claims to truth, the latter make claims to
rightness, which, for Habermas, are only ‘truth analogous’ validity claims. Because of the difference
between the two claims, redeeming claims to rightness in pragmatic discourse requires some
mediating principle (to play a role analogous to that which induction plays in theoretical discourse)
which can make consensus possible. In their search for such a moral principle all forms of
universalistic cognitivist ethics have looked to some variation of Kant’s categorical imperative to
fulfill this function. Apel and Habermas, too, rely upon such a principle. Habermas refers to his
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| version (a rule o f argumentation that makes agreement on practical discourses possible) as the
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principle o f universalization (U). (U) requires that for a norm to be valid it fulfill the following
condition:
!
A ll affected can accept the consequences and the side effects its general observance
can be anticipated to have for the satisfaction of everyone’s interests (and these
consequences are preferred to those o f known alternative possibilities for
regulation). (1990: 65)
Habermas’ version is similar to other forms of the Kantian categorical imperative in that they are all
designed to ensure that only those norms are accepted that express a general will. Where it differs,
however, is that it is formulated in such a way that it is not susceptible to ‘monological application.’
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This means that it presupposes, on the one hand, that there is a plurality of participants in
argumentation and, on the other hand, that all those affected are admitted as participants. For
Habermas normative claims are claims ‘about alternative ordering for the satisfaction of interests.’ It
is essential that moral argumentation involve a ‘real’ process of argumentation in which the
individuals concerned cooperate because only in this way can the universal validity of norms be
guaranteed. Real argumentation serves as a test o f reciprocity which respect to how individuals
interpret their needs (vis-a-vis others who may be potentially affected by their normative claims) by
allowing for the critical assessment of needs interpretation and, in particular, the questioning of
dominant interpretations of needs. Such a process of real argumentation ensures that the resulting
needs interpretations can be ‘universalized’ and thus represent ‘generalizable interests.’ Only such
‘generalizable interests’ can be the basis for a real consensus. An intersubjective process o f reaching
understanding allows for such real consensus insofar it is able “to give the participants the knowledge
that they have collectively become convinced o f something.” (1990:67). The reflexive nature o f the
agreement which results from such a process not only stands in obvious contrast to the ‘theory of
justice elaborated monologically by Rawls, but also reflects a different understanding o f the limits of
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; ethics. In contrast to Rawls, philosophical ethics for Habermas is merely able to tell us what justice
is. What justice demands must become known through an actual process of argumentation
(Habermas 1993: 48ff; White 1988: 50).
The principle o f universalization needs to be distinguished from the ‘principle of discourse
ethics,’ (D), which is the basic intuition o f discourse ethics.2 Habermas defines (D) in the following
manner
Only those norms can claim to be valid that meet (or could meet) with the approval
o f all affected in their capacity as participants in a practical discourse. (1990: 66)
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| The principle o f discourse ethics already presupposes, as Habermas notes, that the choice of norms
; can be justified. It is for this reason that the principle of universalization, the bridge principle, needs
to be justified. Once (U) is justified (by a transcendental pragmatic argument), then the transition to
(D) can easily be made for it involves no other normative content that that which is already expressed
in (U). It is to this justification that we now turn.
2) A (Quasi-) Transcendental Justification
As noted above, cognitivist theories of ethics are subject to the objection that they cannot
overcome the MUnchhausen trilemma. This objection would seem to require some justification on the
2Habermas (1996) later changes his position slightly. What he here refers to as the "principle of
discourse ethics" (D), he will later refer to as the "principle of discourse" (D). He then sees to other
principle as deriving from the principle of discourse, viz., "the principle of discourse ethics" (or, as he
also refers to it now, the "principle o f morality") which grounds the realm o f morality and the
"principle of democracy" which grounds the realm of legitimacy. We will discuss the relationship of
these two principles in a subsequent section.
(
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part o f cognitivists o f the moral principles upon which they base their theories. Yet, many modem
ethical theories (e.g., Rawls) do not provide such a justification, remaining content merely to offer a
reconstruction o f pretheoretical knowledge. Apel and Habermas, however, do not shy away from this
task. Habermas initially follows Apel’s (1980) refutation of the trilemma. This involves a
transcendental mode o f justification based upon a pragmatics of language. The basic strategy which
Apel pursues is to show that the skeptic, upon denying the possibility of grounding moral principles,
is necessarily involved in a ‘performative contradiction.’ Habermas sums up Apel’s argument in the
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; following manner
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The proponent asserts the universal validity of the principle of universalization. He
is contradicted by an opponent relying on the MOnchhausen trilemma. On the basis
o f the trilemma the opponent concludes that attempts to ground the universal validity
o f principles are meaningless. This the opponent calls the principle o f fallibilism.
But the opponent will have involved himself in a performative contradiction if the
proponent can show that in making his argument, he has to make assumptions that
are inevitable in any argumentation game aiming at critical examination and that the
propositional content o f those assumptions contradicts the principle o f fallibilism.
This is in fact the case, since in putting forward his objection, the opponent
necessarily assumes the validity o f at least those logical rules that are irreplaceable if
we are to understand his argument as a refutation. In taking part in the process of
reasoning, even the consistent fallibilist has already accepted as valid a minimum
number o f unavoidable rules of criticism. Yet this state of affairs is incompatible
with the principle o f fallibilism. (1990: 80-81)
Apel attempts to turn this refutation of the skeptic into a form of justification by demonstrating that
all forms o f argumentation are dependent upon on pragmatic presuppositions and that the principle of
universalization can be derived from the propositional content of these presuppositions via a process
of transcendental self-reflection. Therefore, because any subject capable o f speech and action
necessarily makes substantive normative presuppositions by engaging in discourse with the intention
o f critically examining a hypothetical claim to validity, they are necessarily involved in a
performative contradiction.
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It is at this stage that Habermas parts company with Apel. Habermas argues that Apel’s
argument only shows that the opponent is forced to accept the unavoidable rules of discourse as a
participant in discourse. It is by no means clear, however, that these same rules are valid for
regulating action outside of discourse. Apel has tried to bridge this gap by deriving basic ethical
norms directly from the presuppositions of argumentation. This, however, is not valid for, Habermas
argues, basic norms fall outside the jurisdiction of morality. They are substantive principles which
must be justified in practical discourses. The point is, however, that “in such practical discourses we
always already make use of substantive normative rules of argumentation. It is these rules alone that
transcendental pragmatics is in a position to derive.” (1990: 86)
In order to demonstrate this latter point Habermas, as noted above, distinguishes between
three levels of presupposition to argumentation: the logical level of products; the dialectical level of
procedures and; the rhetorical level of processes. It is the latter level which is most important for here
argumentative speech— in order to attain its goal o f rationally motivated agreement— must meet highly
improbable conditions. In this way it “presents itself as a form of communication that adequately
approximates ideal conditions.” (1990: 88) It is, thus, the rules of discourse governing the level of
process,3 combined with a ‘weak’ understanding of justification (i.e. one which does not already
prejudge the situation) which allows for the derivation of (U). Once (U) has been justified, as noted
above, then (D) follows inasmuch as it has no other normative content than (U) and (U) is a necessary
principle o f argumentation.4
3Habermas (1990: 87) offers the rules formulated by Robert Alexy (1978) as an appropriate
expression of these rules.
4The problem with previous attempts to ground discourse ethics is that they did not adequately
distinguish between rules, contents, and presuppositions of argumentation. Not only did they tend to
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Habermas initially categorizes the result o f the approach that he has adopted as a ‘weak
transcendental argument.’ It is weak in the sense that the rules o f discourse are not actually justified.
Rather, what is proven is the fact that there are no alternatives to the rules. This means that the
argument does not constitute a transcendental deduction in the Kantian sense and, thus, there is no
claim to a Letztbegrundung along the lines of Apel. The thesis remains a falsifiable hypothesis. In
Habermas' subsequent terminology, this argument is understood as a project of reconstructive science
and, as such, similar in nature to other key Habermasian projects (e.g., the critical theory of
modernity).
D) Supporting Arguments - A Theory o f Moral Development
To the degree that Habermas’ version o f the transcendental-pragmatic argument does not
offer a Letztbegrundung, it retains the character o f a probable hypothesis unless it is able to marshal
other arguments in its favour. One place where Habermas seeks such auxiliary support is another
project of reconstructive social science, viz., the developmental psychology of Lawrence Kohlberg.
Kohlberg’s project is o f interest to Habermas because of two claims which it makes. First, it argues
that there are universal forms beneath substantially different moral judgments. Second, it argues that
these different forms can be organized as developmental stages which reflect an increasing capacity
for moral judgment (with the more advanced stages characterized by postconventional procedural
criteria which correspond closely to those which Habermas elaborates in his reconstruction of
practical discourse).
collapse these but they also confused them with moral principles, i.e., the principles of a philosophical
ethics (Habermas, 1990:93-94).
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While Habermas is in general agreement with the broad lines of Kohlberg’s project, he finds
the argumentation in which the organization of the different forms o f moral judgment procedures are
justified as developmental stages deficient. He attempts to fortify this argumentation by
reconceptualizing (from the viewpoint of the theory o f communicative action) the notion o f‘social
perspectives’ upon which it is based. In doing so he constructs a scheme o f developmental logic
which serves to order different types o f interaction (e.g., interactions directed by external sanctions,
role behaviour, argumentation) according to the stages worked out by Kohlberg, but which are now
understood to be differentiated by several different dimensions (e.g., behavioural expectations, the
conceptions o f concepts such as reciprocity, authority, motivation). The increasing complexity of
these latter dimensions which grounds the differentiation o f stages, allows one to distinguishes
increasing mastery over different forms of interaction with full mastery culminating in ‘interactive
competence.’ Initially, on the basis of the theoretical vantage point of ‘interactive competence,’
Habermas sought to posit discourse ethics as a third and higher level (stage seven) of
postconventional morality. He later retreated from this stance, recognizing that any arguments for the
superiority of one form of postconventional ethics over another would have to be grounded in
philosophical argument not developmental psychology (Habermas 1990; White 1990: 58ff).
The role o f developmental psychology in the justification program of discourse ethics is, as
Habermas (1993: 1 IS) admits, a limited one. At best, it can serve as indirect confirmation or a
coherence test, one which can demonstrate that different theories which cannot be directly related do,
at least, not contradict each other at the metatheoretical level where different theoretical elements are
pieced together. As such, the developmental psychology investigations do give some credence to the
notion of a ‘postconventional morality’ which is universal and whose defining characteristic is
reciprocity.
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II. The Realm of Ethics
In his recently works, Habermas (1993) distinguishes three realms o f practical reason, the
pragmatic, the ethical and the moral. In making this distinction, Habermas draws upon classical
philosophy for an understanding of practical reason as that form of reason which confronts us with
the question, "What should I (we) do?" (1993:2) Where he differs from classical philosophy,
however, is in his contention that the meaning of the word "should" remains indeterminate until the
specific problem and the aspect under which it is to be addressed are further specified. Thus, it is on
this basis that he argues that practical reason admits of three distinct forms or uses (viz., pragmatic,
ethical and moral). While all of these uses of practical reason involve contestable validity claims that
can be tested in argumentation, they differ across a range of features (viz., the type o f validity claims
made, the goal o f the discourses employed to resolve contested validity claims, the aspect o f the will
that is targeted by the validity claim, the scope of the validity claim). Under this scheme, Habermas
understands ethical reason to pertain to questions of the good life, while moral reason, as discussed
above, involves itself with questions of procedural norms or "rightness." In order to explain this
understanding of the ethical realm, it is perhaps best to contrast ethical reason with pragmatic reason
(which, in turn, will be contrasted with the notion of moral reason in the subsequent section.)
Pragmatic reasoning involves situations where the goal of our actions is given (e.g.,
maintaining a car, playing chess, getting the maximum productivity out of workers). What is at issue
here are empirical questions and questions of rational choice. The validity claim that is inherent in
these actions is one of effectiveness, e.g., you ought to use 10/40 oil in your car (if you want it to
perform better), you ought to accept the Queen's gambit (if you wish to improve your odds o f
winning), you ought to pay your employees more than the market rate (if you want them to perform
optimally). Such validity claims, o f course, can be contested (e.g., it is better to use 10/30, it is better
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to decline the Queen's gambit, it is more efficient to pay workers only what the market requires). The
rationality o f our claims in these situations is determined by our ability to respond to such
contestations. In responding to criticism in these situations we engage in pragmatic discourses in
which the goal o f practical reason is "a recommendaton concerning a suitable technology or a reliable
program of action" (Habermas, 1993: 8). In such discourses the ought of the pragmatic
recommendations that emerge (e.g., you ought to pay your workers more than the market rate)
involves arbitrary choice ( Willkur), i.e., contingent attitudes and preferences. In such circumstances,
the ought of the imperative is directly linked to the subjects own interests and, as such, makes only
the weakest o f demands on the will. It is one instance of what Kant will call a hypothetical
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' ■ imperative.
In contrast to pragmatic reasoning, where the goal o f the action under deliberation is
assumed, ethical reasoning involves the value-oriented assessment of ends. More specifically, it
involves important value decisions that shape our identities and affect the course of our lives (e.g.,
whether I ought to use a car to go to work or the more environmentally friendly public transportation
system, whether I ought to study business or medicine, whether I ought to invest in the relatively less
profitable alternative energy stocks or more profitable defense industry stocks, etc.). Such questions
can be raised either by individuals (in relationship to their individual identities and life projects) or
groups (and their self-understanding and collective goals). The validity claim that is implicit in ethical
questions is that o f goodness. Habermas argues, however, that the substantive values that define the
lives and self-understanding of both individuals and groups and ground their conception of the good
life cannot be dissociated from given lifeworlds. This means that conceptions of the good are
inevitably relative to the identity of individuals and groups. The good cannot be defined outside of
the context of individual histories and lifeworld contexts. For this reason questions of ethics, i.e.,
questions of the good life, do not admit of universal judgments.
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The non-universal nature o f ethical judgments, however, does not imply that validity claims
raised by individuals (or groups) in relation to questions of ethics (e.g., being a doctor is the best
career choice for me) cannot be contested and defended in a rational discourse. A process of self
clarification through rational discourse is possible because individuals can only define themselves
i within an horizon o f life-forms which they share with others. "The capacity for existential decisions
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i or radical choice o f self," as Habermas explains, "always operates within the horizon of a life history,
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] in whose traces the individual can discern who he is and who he would like to become." (1993: 9) In
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' rational discourse with others we address the authenticity of our lives through reflection which
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• dissolves any illusions or self-deceptions that are playing a role in our appropriation of our own life
histories. These others, who partake in a shared lifeworld, can act as catalysts and impartial critics in
the process o f self-clarification and, in this way, aid us in a critical appropriation of our life history.
At the level o f the individual and individual life projects, the discourse in which the criticism and
defense of validity claims occurs may be labeled "ethical-existential," while the goal of such a
discourse is "advice concerning the correct conduct of life and the realization of a personal life
project." (1993:9) Such processes of self-clarification can also work at the level of communities
which have common traditions and shared life-forms.5 These discourses can be termed "ethical-
political" while their goal is the clarification o f a collective identity. Insofar as the "ought" that
emerges out of ethical discourses is conditioned by the telos o f the good life, it is directed towards
"the striving for self-realization and thus to the resoluteness (Entschlusskrafi) of an individual [or
group] who has committed himself to an authentic life.” (1993: 9) Again, the recommendations that
emerge from ethical discourses are not completely dissociated from the egos of the subject involved.
sIt needs to be noted that an important limitation of ethical-existential discourse is that it can be
confined within a distorted cultural tradition (e.g., Nazi Germany). In such situations authenticity
may not coincide with the demands of morality or legitimacy.
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For this reason a Kantian would also refer to these ethical "oughts" as hypothetical imperatives as
well. Clearly, however, they differ in normative import from the pragmatic "oughts" discussed above.
Whereas the latter impose, at best, obligations of prudence, the former involve demands of
authenticity which (insofar as they may require great sacrifices on our part) may force us to move
beyond narrower understandings o f the demands of prudence.
ML The Realm of Morality
In examining the realm of morality, the theory of discourse ethics makes a fundamental
distinction between questions of the good life (ethics) and questions o f justice or procedural norms
(morality). Above an account was given o f how discourse ethics seeks to ground the possibility that
such procedural norms could admit o f universal validity. The claim to universal validity as well as
the particular justification program o f discourse ethics are not uncontroversial. Therefore, in
addressing the nature o f moral reasoning, it is not enough to contrast it with the realm of ethics. In
addition, attention must be paid to the critique of discourse ethics and the Habermasian program of
justification. In what follows, we first offer a brief exposition of moral reason and indicate how
critical theory, although preserving the strong claim to universally validity, limits the scope and
powers o f traditional moral theory. We then go on to examine some o f the criticism to which the
theory o f discourse ethics has been subjected.
A) The Claims and Limits o f Moral Reasoning
A defining characteristic o f a critical theory approach to normative theory is its distinction
between ethical and moral reasoning. Whereas the former treats o f questions of the good life, the
latter is concerned with the proper procedures for regulating our interpersonal affairs and conflicts.
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t
j The validity claim that is raised by questions of morality is that o f rightness or (procedural) justice.
Again, such claims can be contested and defended in a rational discourse. The result o f such a "moral
discourse" should be "an agreement concerning the just resolution o f a conflict in the realm o f norm-
[
i regulated action.” (1993:9) This critical theory understanding of morality parallels Kantian
deontology in important ways. First, there is the concern with universal maxims that can guide
interpersonal relationships. Second, there is an emphasis on an autonomous will. The "ought" of
moral discourse is directed to the free will (Jreien Willeri) in the Kantian sense, i.e., the will of a
person who acts in accordance with self-given laws. Only such a will, which involves a complete
break from an egocentric perspective, can be said to be autonomous (i.e., completely open to
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| determination by moral insights). In addition to the similarities, a critical theory understanding o f
morality also differs in significant ways from the Kantian position. Kant conceptualizes the validity
o f norms in terms of an individual who conducts a universalizing test to see if he or she could wish
that everyone else act according to the same maxim. A critical theory approach, by contrast, holds a
norm to be valid only if everyone affected (not just one individual) can agree in a discursive process
that everyone else should act according to it. This intersubjective grounding of moral norms serves to
eliminate the problem of individuals holding competing conceptions of what conformity to the
categorical imperative demands. A second important difference between critical theory and Kantian
deontology is that morality no longer entails supererogatory demands. Critical theory is able to get
around this aspect of Kantian deontology because the calculation of costs is incorporated into moral
discourse through the requirement that all individual have the equal opportunity to decide if potential
norms are in their interests.
The strength of the theory of discourse ethics is clearly the fact that it is able to uphold the
claim o f universally valid moral norms. In defending this traditional aspiration of normative theory,
however, critical theory clearly abandons several other roles which normative theory has traditionally
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prided itself upon being able to fulfill, viz., providing guidance on questions of the good life,
motivating actors to conform to normative demands, adjudicating between competing types of
normative concerns. We will examine in turn each o f these lost roles as a prelude to examining the
criticism o f discourse ethics and the complementary role which a normative theory o f law and politics
plays to the theory of discourse ethics. The universalistic nature o f discourse ethics, as discussed
above, derives from its grounding in a theory o f argumentation which allows it to derive a procedure
for the generation of universally valid norms. The minimalist nature of discourse ethics primarily
refers to the fact that it largely restricts normative theory to the task of reconstructing the moral point
o f view and justifying its general validity. Stated in a more negative fashion, discourse course ethics
is not able to provide any substantial guidance concerning questions of the good life. The reason for
this limitation on the scope of normative theory has to do with a distinction between norms and values
and the understanding of what philosophical analysis can do in a postmetaphysical world. In a
modem world in which a plurality of life-forms exist, no one conception of ‘the good life’ can any
longer be defended as universally valid. As Walzer states the problem, any substantial conceptions of
justice are necessarily particular accounts. This means that the only possible way to generate
universally valid moral judgments must be on the basis o f a fair procedure. Discourse ethics, because
it is concerned with the possibility of a universal ethics, limits the realm of morality to questions of
universal judgments, i.e., to questions of procedural norms (justice). This limitation of the scope of
moral theory should not be seen as a ‘deficiency,’ however. It is merely the necessary constraint on a
postmetaphysical moral theory. Other normative questions involving values and the good life do not
admit o f universal validity. The reason for this, as we noted above, is that such questions of the good
life are necessarily defined in terms of one’s individual (or group) identity and self-understanding.
As we also noted above, this is not to say that there is no role for practical reason in addressing such
questions, but only that such answers do not admit o f universal validity. It is just that practical reason
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operates at a different level o f contextualization— the sphere of contextualized life-forms
(Sittlichkeit), rather than the universal realm of morality (Moralitat)— and, therefore, with less
authority.
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Table 3.1: Characteristics of Practical Discourses
Type of
Discourse
Goal o f the Discourse Type of
Validity
Claim
Scope of the
Validity
Claim
Type o f Will
Involved
pragmatic a recommendation
concerning a suitable
technology or a realizable
program o f action
effectiveness universal arbitrary
choice
ethical-
existential,
ethical-
political
advice concerning the
correct conduct o f life and
the realization of a life
project, clarification o f a
collective identity
goodness non-universal resoluteness
moral an agreement concemmg
the just resolution o f a
conflict in the realm of
norm-regulated action
justice universal free will
Another limitation of discourse ethics relates to the question of motivation. Classical
philosophy believed that it could provide an answer to the “Why be moral?” by pointing to an
inherent identity between rationality and self-interest. On a similar basis neo-Aristotelians such as
Taylor (1989) are able to hold that philosophy can contribute to the awakening of moral sensibility
and the overcoming of moral cynicism. Discourse ethics is less convinced of the ability of
philosophy to contribute anything in the way of an answer to this question. In a postmetaphysical
world, Habermas argues, where moral theory can no longer claim to know the telos the good life, it is
difficult to see how theories can motivate people to act morally when what is required by moral action
conflicts with their interests. In this way Habermas follows Apel in arguing that this question
"overtaxes’ philosophy in its postmetaphysical era:
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. . . the ethical existential process o f reaching an individual self-understanding and
the ethical-political clarification of a collective self-understanding are the concern of
those involved, not of philosophy. In view o f the morally justified pluralism o f life
projects and life-forms, philosophers can no longer provide on their own account
generally binding directives concerning the meaning of life. In their capacity as
philosophers, their only recourse is to reflective analysis o f the procedure through
which ethical questions in general can be answered. As to the propaedeutic task of
awakening the faculty of moral perception, philosophy is not in a privileged position
| when it competes with the rhetorically moving, exemplary representations o f the
f novelist or the quietly insistent intuitions of common sense. We learn what moral,
and in particular immoral, action involves prior to all philosophizing; it impresses
itself upon us no less insistently in feelings of sympathy with the violated integrity of
| others than in the experience o f violation or fear of violation o f our own integrity.
The inarticulate, socially integrating experiences of considerateness, solidarity, and
fairness shape our intuitions and provide us with better instruction about morality
than arguments ever could. (1993: 75-76)
I
This is not to say that moral theory has no role to play at all in motivating morality, but that it is only
a very weak role and one which varies from person to person. It is weak in the sense that to know
what is right is merely “to know that one does not have good reason to act otherwise.” It varies
because moral judgments can only exert influence on the basis of an appeal to rationality and the
extent to which rational motives influence action varies from person to person depending on
circumstances, interests and the institutions involved (1993: 128).
A final limitation of discourse ethics has to do with the relationship between the three forms
of practical reason and the problem of deciding how practical problems are to be addressed. The
problem here is that while ethics and morality constitute distinct normative realms (in that they have
their own logic and goals) there is also a sense in which they overlap. This overlap has to do with the
fact that the same issue may be treated either as an ethical or moral or pragmatic question. As an
example, take the case of an advertising executive who, in a situation in which her job is on the line,
is considering undertaking an advertising campaign that might be considered sexist in nature. Such a
person can consider this issue as a pragmatic question ("Will it work and help me save my job?"), an
ethical questions ("Do I want to be the sort of person who, although in normal circumstances would
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do otherwise, in a situation o f duress would be willing to make this type o f compromise?") or a moral
question ("Is it ever right for anyone to use sexist language and images?") This possibility of
approaching the same issue from different forms o f practical reason means that conflicts can arise in
public discourse about the form (i.e., pragmatic, ethical or moral) under which practical questions
should be treated. Moral discourse itself cannot resolve this question (Habermas, 1993). Critical
theory, however, is able to provide a resolution to this impasse. We will examine its solution in the
next section under the normative category of legitimacy. First, though, we turn to a discussion of the
criticism to which discourse ethics has been subjected.
B) The Critique o f Discourse Ethics
Discourse ethics has provoked much critical reaction. This reaction can be categorized in a
variety of different ways. First, there is the level at which the critique is undertaken. Some forms of
criticism (e.g., the MQnchhausen trilemma) are leveled against cognitivist approaches to ethics
generally. At a lower level of abstraction, some opponents direct their attacks against universal
ethics and, in particular, deontological approaches (e.g., communitarians). At a lower level still,
attacks are made against the particular ‘transcendental pragmatic’ approach which Apel and
Habermas employ. Secondly, critiques can be categorized according to the intellectual perspective of
the critic. Some critics, for example, are both antagonistic towards the project o f discourse ethics as a
universal ethics and skeptical concerning method (e.g., postmodems and most communitarians).
Others are more sympathetic towards its project of a universal ethics, but reject its specific approach
to pursuing it (e.g., traditional Kantians and some communitarians). Still others are in general
agreement with the project and the approach, but believe that particular formulations are questionable
(e.g., other critical theorists). Third, critiques can be organized around the specific topics within
f
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discourse ethics which they address (e.g., application, justification, the question o f the good, etc.),
with these critiques coming from both sympathetic or antagonistic perspectives and addressing both
discourse ethics specifically and deontological and cognitivist approaches to ethics more generally.
In practice it is difficult to make any sharp distinctions between these different approaches, but in
| what follows we have attempted to organize our analysis on the basis of individual issues raised by
| critics concerning discourse ethics.
| Our intent in examining some representative critiques is to demonstrate that while some of
i
i these objections point to real tensions in discourse ethics (although others are misplaced), they cannot
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be understood to amount to a refutation of the project of discourse ethics. Rather, such critiques can
!
be addressed from within the context of discourse ethics. Indeed, while much o f the misplaced
criticism o f discourse ethics come from opponents, many of the more cutting critiques come from
critics who continue to believe in the viability of the project of discourse ethics, albeit with some
modifications to the formulations of Apel and Habermas.
I) Universalization and Justification
One set of objections to discourse ethics focuses on the principle o f universalization (U) and
its justification. Objections to universalization as an approach to ethics are not new, of course.
Attacks against the categorical imperative as ‘inconsistent at best and empty at worst’ go back as far
as Hegel who argued that the moral law of itself could not give rise to any concrete moral maxims,
not without smuggling in unacknowledged assumptions. This same problem still afflicts
contemporary Kantian arguments. O’Neill (198S) has recoined it as the ‘dismal choice between
triviality and implausible rigorism.’ As seen from the perspective of an Apel or Habermas, the
fundamental quandary affecting Kantians is how they are to justify intersubjective moral validity on
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the basis of an egological moral theory which is premised upon an analysis of the rational structure of
action for a single agent. The problem, so posed, is unresolvable. It is for this reason that Apel and
Habermas, shift the question from the analysis o f what principles a single agent can will as a universal
maxim to what principles we can all agree upon as valid when we partake in a pragmatic discourse.
The question is whether this goes far enough to counter the objection of Hegel.
Benhabib, for one, argues that it does not. The communicative model represents an
important shift with regard to our understanding o f universalizability (from being a test of
noncontradiction to being a test of communicative agreement), on the one hand, and with regard to
the nature of the action involved (from strategic to communicative action) on the other. Still, it has
not solved the problem but merely pushed it from one procedure (viz., conceptual or volitional
coherence) onto another (viz., a definition of the conversational situation). The problem, as Benhabib
sees it, is that
.. .either models of practical discourse or the ideal communication community are
defined so minimally as to be trivial in their implications or there are more
controversial substantive premises guiding their design, and which do not belong
among the minimal conditions defining the argumentation situation, in which case
they are inconsistent. (1990:337)
Benhabib is not ready to give up on the project o f grounding a universal ethics however.
Rather, in contrast to the ‘Letztbegrundung' of Apel and the ‘weak transcendentalist argument’ of
Habermas, she seeks to develop an alternative construction o f the conversational model, one which
she believes will allow her to avoid the charges o f dogmatism and/or circularity. She characterizes
her approach as an ‘historically self-conscious universalism.’ Benhabib takes her cue from
Habermas’ critique o f Apel’s Letztbegrundung which understands the normative constraints o f the
ideal speech community as ‘disclosable’ via a process o f transcendental self-reflection. Whereas
Habermas argues that Apel’s strong claims for justification are neither tenable nor necessary,
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Benhabib goes on to bring the same charges against Habermas’ characterization o f these normative
constraints as ‘universal pragmatic presuppositions’ o f speech acts.
Benhabib argues that these ‘presuppositions’ do entail strong normative assumptions, the
content o f which she summarizes as two moral principles: (1) the principle o f universal moral
respect which requires that “we recognize the right o f all beings capable of speech and action to be
participants in the moral conversation,” and; (2) the principle o f egalitarian reciprocity which
requires that “within such conversations each has the same symmetrical rights to various speech acts,
to initiate new topics, to ask for reflection about the presuppositions o f the conversation, etc.” (1990:
337) Where she disagrees with Habermas is with regard to the status o f these presuppositions. She
argues that these principles are not “the only allowable interpretation of the formal constituents of the
competency o f postconventional moral actors,” nor are they to be understood as universal pragmatic
presuppositions. Rather, these principles are “our philosophical clarification of the constituents of the
moral point o f view from within the hermeneutic horizon of modernity” and they are arrived at by a
process o f ‘reflective equilibrium’ (1990: 339).
Despite the weaker grounding provided them, the acceptance of these principles does not
involve an ‘admission of dogmatism in favour of modernity,’ Benhabib argues, because this ‘dogma,’
can itself be questioned within the context of the conversation. Yet, while the racist or sexist can
challenge the two moral principles within the conversation, they cannot suspend them. The reason for
this is that the racist or sexist can only establish their position by force of the better argument and the
principles, insofar as they are pragmatic rules, are necessary for the conversation to continue. Thus,
the charge of circularity is also avoided insofar as the principles can be challenged within the
conversation, but not suspended. The effect of this is to place the onus on the critics o f egalitarian
universalism to show why some individuals should be (effectively) excluded from the conversation.
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8 1
After demonstrating that the principle of universalization as formulated by Habermas is
problematic, (insofar as it is not capable of serving as a procedure for testing maxims), Benhabib
argues that (U) is redundant anyway. The rules of argumentation (and their normative content
summarized in the principles o f universal moral respect and egalitarian reciprocity) combined with
the basic intuition of discourse ethics (D) are adequate to serve as a test of universalizability. In
changing tact, the major difference between her approach and that o f Habermas involves a shift away
from an emphasis on results and the notion of ‘consent’ to an emphasis on process and the notion of
‘conversation.’ As Benhabib expresses it:
We must interpret consent not as an end-goal but as a process for the cooperative
generation of truth or validity. The core intuition behind modem universalizability
procedures is not that everybody could or would agree to the same set of principles,
but that these principles have been adopted as a result of a procedure, whether of
moral reasoning or of public debate, which we are ready to deem “reasonable and
fair.” It is not the result of the process o f moral judgment alone that counts but the
process for the attainment o f such judgment which plays a role in its validity and, I
would say, moral worth. Consent is a misleading term for capturing the core idea
behind communicative ethics: namely, the processual generation o f reasonable
agreement about moral principles via an open-ended moral conversation. (1990:
345)
Benhabib goes on to demonstrate the superiority o f her formulation o f the principle o f
universalizability with respect to evaluating maxims. In doing so she also raises an important
consequence of shifting the burden o f the moral test from consensus to the notion of an ongoing
moral conversation. To this we now turn.
2) The Right versus the Good
Another issue in discourse ethics which is the source of much dispute is the relationship of
the ‘right’ to the ‘good.’ A number of different aspects o f discourse ethics’ understanding of this
relationship are the subject o f controversy. Here we shall limit our remarks to two, not unrelated,
H
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objections, viz., the grounding o f the priority o f the right over the good and the claim that the moral
realm is completely circumscribed by questions of justice alone.
A charge frequently brought by communitarians against deontoiogical ethics generally is that
they are not able to establish the priority of the right over the good. Charles Taylor (1989), for
example, argues that modem morality is based upon a selective understanding o f the modem identity.
Underlying the modem identity are ethical strata of competing fundamental goods and it is into this
foundation that modem principles of justice have sunk their roots. Once these roots are uncovered,
then it is no longer possible to retain the priority of the right over the good as the deontoiogical
distinction between questions of justice and the good life begins to blur. Similarly, Alisdair
MacIntyre ( I988)attacks the priority of the right over the good on the basis that there is no one
conception of rationality, but only competing forms o f rationality which are rooted in particular
contexts. Modem liberals are able to create the illusion of universalism only by their repudiation of
tradition. It is their failure to recognize that liberalism is itself a tradition which is inextricably tied to
a particular language and form o f life that allows them to absolutize their own standards o f rationality.
They are unable to perceive that all conceptions of practical reason and political justice can only be
understood from within the perspective that structures specific traditions because o f the bias of
international language games which lead them to believe that all utterances can be translated. It is
inevitable that in their ‘boundless cosmopolitanism’ they are unaware of what is inaccessible in alien
traditions. This bias in international languages means that the reflexivity o f modem worldview
cannot establish their superiority over traditional understandings of the world. Based upon
unacknowledged traditions themselves, they are no more than a (degenerate) form of world
interpretation.
Habermas responds to this attack on ‘modem ethics’ in a twofold manner. This first
approach is rather indirect and involves the use o f immanent critique not against the more limited
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position o f the communitarians vis-a-vis deontology, but rather against their stronger claims in favour
of a communitarian approach. Taylor, for example, not only argues that the modem identity is
grounded in conceptions of the good, but goes on to pursue the stronger claim that an ethics o f the
good, one which is both consonant with the modem identity and universal in aspiration, can be
defended. Habermas points out that the problem with Taylor’s project is that postmetaphysical
reflection does not have the cognitive resources to redeem it. The problem arises in Taylor’s claim
that three different traditions (the Christian notion of the love of God, the Enlightenment notion o f the
self-responsibility o f the subject and the romantic belief in the goodness of nature) have not only
created a modem identity, but that this self-understanding is ineluctable and authoritative for
modems. While Taylor may be able to offer an accurate description o f the modem identity, he is not
able to argue for the order of the constitutive goods. Rather he is force to seek recourse to art which is
thought to be capable of awakening our sense for the good. As Habermas points out, however, after
Adomo and Derrida, this is not only a role which art is ill-equipped to play, but it requires o f
philosophy that it limit its scope to aesthetic criticism and abandon any pretense of convincing on the
basis o f its own arguments (1993: 74).
In a similar fashion, Habermas also takes aim at MacIntyre’s stronger claims. The latter
does not only hold to the contextualist thesis that there is no such thing as a context transcending
rationality, but goes on to combine it with the antirelativist claim that productive communication is
possible across traditions. The problem here is to show how communication between alien cultures
can occur without resorting to the postulation o f some context-transcending rationality. MacIntyre
seeks to show how this is possible by developing a theory o f learning which allows learning subjects
to incorporate insights from alien traditions. This requires them either to judge these insights by the
standards of their own rationality or to adopt the new standards o f rationality of the (superior) alien
tradition, a feat which comes at the cost o f a transformation in their identities. MacIntyre is forced to
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acknowledge that there can be a ‘thicker,’ but not a complete translation (due to the lack of any zone
of rational overlap between the two traditions) and that some zones of untranslatability inevitably
remain. Habermas shows the inconsistency in MacIntyre’s approach by examining what it involves
o f the learning subject. He then goes on to trace back the problem in the model to a peculiar
asymmetry in the communicative situation in which “one side is viewed as capable of learning from
the other only from a perspective that remains bound to its own context,” or else “through subjection
to an alien perspective.” This latter problem, in turn, is seen as the inevitable result o f MacIntyre’s
restriction o f interpretative procedures to processes o f self-understanding.
This leads us to Habermas’ second approach to addressing the claims of the communitarians
concerning the indefensibility o f the priority of the right over the good. Here Habermas again resorts
to language theory to reassert the possibility of a procedural ethics. Against MacIntyre’s model o f
conversion, Habermas (citing Gadamer) argues that unprejudiced communication requires a
symmetrical relation and should be viewed as a fusion o f interpretative horizons. Communicative
processes aim not at the “false alternative between an assimilation ‘to us’ and a conversion ‘to them,”’
but rather at a convergence of perspectives rooted in a process of learning in which both sides must
reform their practices o f justification. Furthermore, Habermas argues, the basic concepts of “truth,
rationality, and justification play the same role in every language community, even if they are
interpreted differently and applied in accordance with different criteria.” This fact-provided that the
parties enter into unrestricted dialogue rather than persisting in fundamentalist claims to exclusivity—
provides a sufficient basis for grounding the same universalistic concepts of morality and justice in
situations in which there are competing forms of life and substantially different conceptions of the
good (1993: 105).
Implicit in the argument of the priority of the right over the good, as we have seen above, is
the claim that a minimal-universal ethics can be neutral with regard to the plethora of ethical life-
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forms in the modem world, a claim which communitarians reject. A related claim of this minimal-
universal ethics as elaborated by Habermas is that morality is completely circumscribed by
deontoiogical judgments concerning justice and rights. This latter position is rejected not only by
communitarian opponents but by such sympathetic commentators as Seyla Benhabib. Benhabib
argues that Habermas can offer two reasons to limit the moral realm to questions of justice:
First, Habermas assumes that only judgments of justice posses a clearly discernible
formal structure and thus can be studied along an evolutionary model. Judgments
concerning the good life are amorphous and do not lend themselves to the same kind
o f formal study Second, Habermas maintains that the evolution o f judgments of
justice is intimately tied to the evolution of self-other relations. Judgments of justice
reflect various conceptions o f self-other relations, which is to say, that the formation
o f self-identity and moral judgments concerning justice are intimately linked. (1990:
348-349)
Benhabib believes that both of these reasons are open to question. On the one hand, the first reason
concerning the formal nature o f judgments o f justice begs the question of why the moral realm is
limited to such formal matters. On the other hand, with regard to the second reason, it could be
argued that the development of self-other relations needs to be complemented by an examination o f
the development of self-understanding and, therefore, that the role of self-regarding virtues should not
be precluded from the realm of morality. In short, Benhabib wants to argue that placing justice at the
center o f morality restricts the domain o f moral theory and ‘distorts’ the nature of our moral
experience. As a alternative she promotes a ‘weak deontology’ in which questions of the good life
are not excluded a priori from the realm of moral argumentation.6 She argues that even if it is
unlikely that such discourses will not lead to conceptions of the good life equally acceptable to all, it
6It is possible to include such issues into moral debate, Benhabib argues, insofar as practical
discourses do not theoretically predetermine limits to be placed upon the realm of moral debate and
argumentation does require (in contrast to the Rawlsian original position) that we abstract from
everyday beliefs and attachments (1990: 349).
t
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is ‘crucial’ that questions of the good life be viewed as matters about which intersubjective debate is
possible. These objections lead into another area in which criticisms o f discourse ethics have been
raised.
3) The Moral Subject, Motivation and the Nature o f Morality
One objection to discourse ethics and other formalistic ethics which is raised by
communitarians concerns the treatment of what is involved in the making o f correct moral judgments.
On the objective side of the equation there are the moral and cognitive skills required for making
judgments. On the subjective side there is the question of motivation. A major concern in this regard
is whether discourse ethics is too demanding of situated moral subjects. A related question which
arises in this context is whether discourse ethics presents a distorted view o f what morality entails by
overemphasizing the role of moral judgments (to the neglect of moral emotions and character). We
will address these three concerns in turn.
Accounts by discourse ethics of the necessary conditions for discourse do not of themselves
allow us to understand how people actually make moral judgments. An explanation is required of
what is involved in contextualizing moral principles, that is to say discourse ethics needs to be able to
offer some account o fphronesis. Benhabib seeks to address this lacuna in the discourse ethics
account o f the moral world. In doing so, she first argues that the basis for the moral and cognitive
skills required for moral dialogue and discourse (conceived as a procedural model of conversation)
must be some form of representative thinking. She goes on to elaborate the moral skills (e.g., moral
narrative and imagination) required for making moral judgments on the basis o f an analysis of three
areas in which moral judgment are crucial in moral interaction (viz., “the assessing of one’s duties,
the assessment o f one’s specific course of action as fulfilling these duties; and the assessment of one’s
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maxims as embodied, expressed, or revealed in actions”)- In doing so, she demonstrates how this
same requirement o f representative thinking, which is the key to moral discourse, also provides the
basis for the skills required in moral judgment (1990:361).
The making of correct moral judgments, however, does not guarantee that such judgments
will be acted upon. This is a matter o f motivation and involves further questions about the nature of
the moral subject. One objection which relates to the question o f motivation we have already partially
addressed. This concerns the charge that discourse ethics does not adequately recognize the
significance of volition in moral life. As we have seen earlier, Habermas responds to this question by
arguing that the question of motivation in a postmetaphysical world cannot be addressed at the level
of moral theory. While moral theory has some contribution to make to motivation (insofar that to
know what is right is “to know that one does not have good reason to act otherwise”), this is at best a
very weak role and one which varies from person to person depending on circumstances, interests and
the institutions involved (1993: 128). The deeper sources of motivation are rooted in affective
psychological development which in turn are dependent upon socialization into forms o f communal
life which promote sensitivity to the claims of others. For this reason Habermas acknowledges that
like any other universalistic morality discourse ethics
. . . is dependent on a form of life which meets it halfway. There has to be a
modicum of congruence between morality and the practices of socialization and
education. The latter must promote the requisite internalization of superego controls
and the abstractness of ego identities. (1990: 207)
This tact, however, does not completely solve the problem. It can still be objected that the
demands which discourse ethics makes on people are too severe. To the extent that a strong gap
might exist between what is required of people by the criteria of discourse ethics and what they
initially perceive their interests to be, it can be argued that discourse ethics violates the very core of
individual identity by placing extremely severe constraints on what one can legitimately regard as part
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of one’s ‘ground project’ in life. As such, it may be contended, morality is alien to the identity and
interests o f particular individuals, imposing abstract standards on concretely situated individuals.
(White, 1988: 74)
To address this charge against discourse ethics it is important to first examine what it is that
discourse ethics requires o f individuals and what it does not. Then we can go to see if these demands
are excessive. What discourse ethics requires of individuals (in order that valid norms be established)
is that they adopt an impartial perspective with respect to needs and interests. This implies that they
must have a critical flexibility with respect to needs interpretation, i.e., they must be willing to modify
their needs interpretations in the face of alternatives which appear to have stronger claims to
universality. It is this need flexibility which would seem to put excessive strain on the personality
structure. Now, the question of what discourse ethics does not require of individuals can be set in the
context o f the limits of the demands for consensus. For Habermas it is not all evaluative
commitments that require consensual legitimation. Rather, consensus in only required with respect to
just norms o f social interaction. This means that the demand to adopt an impartial perspective on the
interests and needs of all affected does not extend to evaluative questions (e.g., questions of who one
is, what career one should pursue, etc.). Thus, Habermas believes, the vast majority o f our identity-
sustaining loyalties and evaluative commitments are not dramatically affected by the results of
practical discourse, although some such loyalties and commitments may need to be modified to the
extent that they come into conflict with moral obligations that we have towards others. In this way,
discourse ethics does not require of agents a radical ‘hypothetical attitude’ towards the forms of life
and the life history upon which their identity is constructed.
The demands placed upon the moral subject, so understood, do not appear to place
exorbitant demands upon the moral subject. It can also be shown, on the basis of Habermas’
understanding o f identity (“the symbolic structure which allows a personality system to secure
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continuity and consistency”), that these demands are also not so abstract. Habermas posits three
stages o f individual identity formation which correspond to the developmental levels in the realms o f
cognition (“natural identity”), interaction (“role identity”) and moral consciousness (“ego identity”).
The first two stages of identity are closely tied to a specific content with natural identity being defined
by a role within the family and the role identity bound to more abstract groups (e.g., occupational and
status groups). At the third stage o f identity, however, “role bearers [are] transformed into persons
who can assert their identities independent of concrete roles and particular systems of norms.” In this
way, identity at this stage is not characterized by new content, but an integrative capacity to construct
and maintain itself. This integrative capacity is especially important for individuals during times of
conflict in which their identity may be called into question. The fact that this challenge to identity
occurs during times of crisis highlights an interrelationship between individual and collective identity
which is based upon the fact that “the characteristics of self-identification must be intersubjectively
recognized, if the identity of the person is to be solidly based.” Now, while the familiar bases of
individual and collective identity are systematically undermined in modem industrial societies, the
cognitive infrastructure o f modem moral, legal and political traditions remains intact. What this
means, as White explains, is that “an identity which is both stable and in accordance with
postconventional criteria must be one increasingly tied to the experience of continually exercising
one’s integrative capacity in the context o f changes which cannot be brought into an easy
accommodation with the familiar basis o f modem identity.” This exercising o f integrative capacity
involves, among other things, flexibility with respect to needs interpretation. In this way, then, the
requirement of flexibility is not an abstract demand made upon individuals but “one which is
intimately related to concrete difficulties individuals face in managing contemporary social and
cultural pressure.” (1990:81)
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The second charge brought against discourse ethics is that it presents a distorted view of
what morality entails by overemphasizing the role of moral judgments to the neglect o f moral
emotions and character. Benhabib pursues this issue by drawing a distinction between ‘ethical
cognitivism’ and ‘ethical rationalism.’ She defines the former as “the view that ethical judgments and
; principles have a cognitively articulable kernel, that they are neither mere statements o f preference
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| nor mere statements of taste but that they imply validity claims.” (1990: 355) Ethical rationalism, on
i the other hand, is understood by Benhabib to be “a theoretical position which views moral judgments
| as the core of moral theory, and which neglects that the moral self is not a moral geometer but an
| embodied, finite, suffering, and emotive being.” Ethical rationalism, Benhabib argues, has two
objectionable consequences:
. . . first, by ignoring or rather by abstracting away from the embedded, contingent,
and finite aspects o f human beings, these theories are blind to the variety and
richness as well as significance of emotional and moral development. They are
viewed as processes preceding the “genealogy o f the adult moral self: they seem to
constitute the murky and shadowy background out o f which the light o f reason
emerges.
Second, the neglect of the contingent beginnings of moral personality and
character also leads to a distorted vision of certain human relationships and of their
moral textures, precisely because universalists and proceduralist ethical theorists
confuse the moral ideal of autonomy with the vision o f the self “as a mushroom.”
(1990: 356)
The charge which Benhabib then goes on to make, then, is that discourse ethics, a form of ethical
cognitivism, has also been presented as a form o f ethical rationalism. This is most evident in its
insistence on moral judgments as the core of moral theory. Such a position, however, is not tenable,
even within the confines o f a discourse theory. It is neither possible to uphold the separation of
justice and the good life, Benhabib argues (as we have already seen), nor the privileging of moral
judgment to the neglect o f moral emotions and character. She then goes on to reiterate how shifting
the emphasis of discourse ethics away from consensus towards conversation allows discourse ethics
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to present the moral point of view without resort to the fiction o f the homo economicus or homo
politicus.
Benhabib’s position here can be traced back to an earlier argument concerning Habermas’
appropriation o f Kohlberg’s work on moral development. While acknowledging that Habermas
comes close to ‘subverting’ the traditional bias of philosophy concerning the priority of moral
cognition (justice and rights) over moral affect (care and concern for the needs of other) by moving
needs interpretation to the center of moral discourse, Benhabib argues that he ultimately falls short of
doing so. The problem is twofold. First, Habermas emphasizes the ‘generalized other’ alone as
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obligation, entitlement) and moral feelings (respect, duty, worthiness) and a vision of the community
(as one of rights and entitlements). Second, the distinction between normative and aesthetic-
expressive discourses and the limiting of the debate about needs to the aesthetic-expressive realm cuts
off the most obvious escape route for defending this position. Specifically, it does not allow him to
“claim that the aesthetic-expressive discourse can accommodate the perspective of the ‘concrete
other,’ for relationships of solidarity, friendship, and love are not aesthetic but profoundly moral
ones.” (1986: 95)
It would seem, however, that Habermas has gone a long way towards overcoming such
objections in his more recent writings, especially in his work on practical reason (1993). Habermas
argues that although discourse ethics has a narrowly circumscribed conception of morality, it does not
have to exclude questions o f the good life from the sphere o f discursive problematization. The key is
a further explication by Habermas of the different roles which practical reason can play. He now
distinguishes between three different subjects of practical reason (the purposively acting, the
authentic self-realizing, and the one capable o f moral judgment), a move which allows for three
different types o f practical discourse (the pragmatic, the ethical and the moral) which examine
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different questions (the purposeful, the good and the just). This distinction helps to break down the
problem o f the exclusion o f certain questions of the good life from the moral realm. To the degree
that this distinction allows Habermas to portray discourses o f needs interpretation as ethical-
existential discourses involving practical reason, then the perspective of the ‘concrete other’ can be
incorporated because relationships o f solidarity, friendship and love can be understood as ethical
ones. The fact that the moral realm is still limited to questions o f justice does not constitute a
‘privileging’ in the sense that these questions are more important, but rather relates to the fact that
questions of justice emerge at a different level of contextualization (and, as a result, admit of
universal judgments). In this way, Habermas’ understanding of moral judgments as the ‘core of
moral theory’ does not imply an understanding o f the self as a “moral geometer.”
4) Application
A fourth, if not final, aspect of discourse ethics which has drawn the attention of critics is the
issue o f the applicability of (U). Wellmer (1991), for example, argues that (U) can offer us no guid
ance about what to do in concrete situations. If one takes the question “What am I (or we) to do?” as
the fundamental moral question, a question which necessarily arises in a context-dependent manner,
then (U), Wellmer contends, cannot lead to an unambiguous answer. Under the circumstances in
which actual moral questions arise, the difficulty of “determining the consequences and side effects
o f a universal observance of norms for each individual and, beyond that, o f finding out whether all
would be able to accept without coercion these consequences and side effects,” would be
insurmountable. (1991: 185)7
7Cited in Habermas (1993: 35).
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Habermas (1993) responds to this objection, first, by pointing out that Wellmer has “mis
represented” the role of (U) in the logic of argumentation. (U) operates to justify the norms that
underlie a specific practice. As such it belongs to justificatory discourses, which must be
distinguished from discourses of application, a distinction which Kant failed to make explicit.
Habermas then goes on to argue that while moral rules may claim validity with respect to an abstract
state o f affairs, determining “the right thing to do in the given circumstances” requires a two stage
process o f argument. First, there is justification, then there is the application of norms. Discourses of
application are necessary because during discourses of justification not all o f the consequences and
side effects o f the observance of a general norm can be anticipated (especially as circumstances can
change over time). For this reason prima fa cie valid norms must remain open to further interpretation
in the changed perspectives of discourses of application. In such discourses, the principle o f
appropriateness plays a role analogous to the principle o f universalization in discourses of
justification. Both principles together are necessary to exhaust the idea of impartiality. (1993: 35-
37).
A similar argument (and misunderstanding) is at work in some institutionalist thinkers.
LQbbe and Luhmann, for example, argue that discourse ethics is. not able to offer a realistic theory of
institutions. No public institutions, they point out, could operate under the heavy demands that would
be placed upon them by the constraint that decision making result in rational consensus. As Benhabib
(1990) remarks, however, while this objection is accurate, it is misguided. Two points need to be
made here. On the one hand, it needs to be noted that neither Apel or Habermas maintain that
strategic action has to be held to the criteria o f communicative action in all instances. Yet, on the
other hand, it should not be assumed that institutions need to run entirely according to strategic action
and that they cannot or ought not further incorporate elements of mutual and cooperative
understanding in their decision making procedures. This leads to the second point. The development
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of institutional arrangements does not arise at the level of moral argumentation because the decisions
concerning particular institutions will always have to take into account various contingent constraints.
What discourse ethics can and does offer, however, is criteria for evaluating existing institutional
arrangements. It does this in a particular fashion. While it is unlikely that there could ever be
consensus on the ‘general interest’ in modern societies, (and, therefore, there is no possibility o f
determining exact standards for measuring institutions), one can use the notion of the ‘suppressed
general interest’ to uncover underrepresentation and the exclusion of certain interests. As Benhabib
puts it:
. . . it is not so much the identification of the “general interest” which is at stake, as
the uncovering of those partial interests which represent themselves as if they were
general. The assumption is that institutions can function as channels of illegitimate
exclusion and silencing, and the task o f a critical discourse theory is to develop
moral presumption in favour of the radical democratization of such processes. (1990:
353)
Benhabib’s defense of discourse ethics and the role it has to play in analyzing institutional
arrangements is important, but it may still leave many uneasy or unsatisfied with the ability o f critical
theory to address the normative analysis o f institutional arrangements. For example, while it would
seem evident to many that Habermas does not imply that all institutions need to operate under the
constraints of reaching rational consensus, one could be forgiven for assuming that discourse ethics
implies that democratic legislatures should function on this principle. And, if not, what does critical
theory have to say positively about the way that the political realm should function? What this points
to is the fact that critical theory has lacked a normative theory of democracy and, as a result, has not
been able to adequately clarify its position on democratic institutions and the relationship of
democracy and morality. Fortunately, however, Habermas has taken up this question in a recent work
in a way which has direct significance for our project.
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IV. The Realm of Legitimacy
The term legitimacy when applied to the political sphere has two quite distinct senses. On
the one hand, there is a normative sense of the term which speaks of the moral or ethical acceptability
o f given political and legal entities (viz., systems, regimes, governments, institutions, constitutions,
etc.). On the other hand, there is a positive sense of the term which relates to the social science
analysis of the nature and degree of support which these political and legal entities have among
relevant constituencies (viz., different social and economic strata). Legitimacy in this sense is
primarily concerned with the ability of political entities to maintain social stability and, thereby, allow
for the social and material reproduction of the society. The empirical relationship between these two
forms o f legitimacy is a question of some dispute in the social science literature, specifically whether
normative legitimacy is necessary for positive legitimacy. In his concern with the notion of
legitimacy over the years, Habermas has primarily come at the question from the positive social
science sense of the term. In addressing the question in this way, however, he has variously hinted
and suggested at some link between the positive and the normative forms of legitimacy. Yet, it is
only in his most recent work, Between Facts and Norms, that he finally elaborates a complete theory
which explains his understanding of the connection. This work, which is undertaken as a project of
reconstructive science, is firmly rooted in the earlier theory of communicative action and draws upon
Habermas' distinction between three realm of practical reason, viz., the pragmatic, the ethical and the
normative. It is of particular significance for us because, by demonstrating how the normative realm
of legitimacy is able to incorporate all three forms of practical discourse, it provides the basis for a
normative evaluation of social institutions in a way which moral discourse alone does not allow.
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A) The Problematic o f Legitimating the Social Order in the Modem World
Habermas first addressed systematically the social science concept o f legitimacy in the early
1 970s. In Legitimation Crisis ( 1975) he develops an account o f the crisis tendencies o f modern
capitalist societies. Although, he sees the private appropriation o f public wealth as the basic
contradiction o f capitalism, contrary to more orthodox Marxist views, Habermas argues that
capitalism is not likely to suffer an economic crisis (i.e., a crisis due to inherent tendencies within the
economic mechanism itself such as the declining rate of profits) because in late capitalism
disturbances in capitalist growth are addressed through the administrative apparatus. Nor does he
think it likely that the overburdening o f the administration will necessarily give rise to a rationality
crisis (i.e. a crisis due to the inability o f the state to manage modem capitalism). Capitalism,
however, is very susceptible to a combination of two other forms of crisis, viz., legitimacy and
motivational crises. The former results from the government’s inability to retain mass loyalty and
compliance (which are necessary for the success of its steering o f the economy), while the latter
occurs because of a discrepancy between the motives which the state and the education and
occupational systems deem necessary and the motivation that the socio-cultural system is actually
able to supplied. What is interesting to note, for our concerns, is that legitimacy and motivational
crises are concerned primarily with the socio-cultural realm rather than the economic or
administrative systems. What is also important to note is that Habermas argues that these crises
tendencies may be avoided if there are changes in the capitalist system or if motivational processes
can be “uncoupled” from reason. Why this is interesting is because Habermas is linking social
stability primarily to conditions in the socio-cultural realm.
Habermas returned to the problem of guaranteeing social stability in the Theory o f
Communicative Action (1984). Here, in an attempt to problematize the conditions of social and
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systems reproduction in complex modem societies, Habermas joins a Iifeworld perspective with
systems theory analysis. On this basis he is able to argue that modem societies must be
communicatively integrated. More specifically, he states that while integration in the administrative
and economic subsystems occur through their respective steering media (viz., power and money), the
reproduction o f the Iifeworld can only be assured on the basis of communicative action. The
significance of this for our concerns is that it suggests an a strong link between positive and
normative legitimacy insofar as discourse ethics is also based upon communicative action. One
limitation of the work, however, is that while it explains how pathological forms of interrelationships
between the subsystems and the Iifeworld (viz., colonization) threaten social integration, it does not
develop an adequate understanding o f the institutional conditions under which non-pathological
relationships between the different realms are possible.
Given the requirement for communicative integration and the link of discourse ethics to
communicative action, one approach which would seem to recommend itself, at first glance, as a
possible solution to the problem o f communicative integration would be the promotion o f a form of
radical democracy which attempts to approximate as closely as possible the conditions o f the ideal
speech situation so as to enable a society wide discourse. This solution, in effect the institutional
ization of discourse ethics, suffers from serious problems, however (Habermas, 1996: 158). First of
all, it would greatly overtax communication in that the conditions of moral discourse (e.g., no time
limitations on the discourse) would frustrate participants and prove unacceptable. Moreover, as was
mentioned above, moral considerations are not selective enough to ground specific institutions and
programs, which inevitably involve pragmatic and ethical as well as moral considerations. Also, it
should be noted, it would not result in agreements effective for coordination. The problem remains,
then, o f how critical theory can help us to evaluate normatively specific institutional arrangements.
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B) A Discourse Theory o f Law and Democracy
In Between Facts and Norms Habermas (1996) takes up the most important question left
unresolved by the Theory o f Communicative Action, viz., how is it possible to resolve the tension
between the apparently conflicting requirements of Iifeworld and systems reproduction? More
specifically, the problem is how communicative integration o f the Iifeworld is possible while
respecting the need for agreements that are effective for coordination. In addressing this question,
Habermas also deals with the major tension left unresolved in his theory o f discourse ethics, viz., the
relationship between morality, democracy and social institutions. What enables Habermas to resolve
these questions simultaneously is the link that is provided by the demand that modem societies be
communicatively integrated and the role which law plays in modem societies. Thus, in elaborating a
discourse theory of law and democracy Habermas is able to respond to the charges made against the
theory of communicative action (viz., that it is blind in the face of the reality of institutions and that it
has anarchistic consequences) and also to clarify the relationship of discourse ethics to the evaluation
of social institutions.
In the Theory o f Communicative Action Habermas had already suggested that law might
serve as a possible solution to resolving the tension between the apparently conflicting requirements
of Iifeworld and systems reproduction. In Between Facts and Norms he thematizes this potential
resolution to the problem which he now characterizes in terms of a series o f tensions between facts
and norms (or “facticity” and “validity,” to render the German more literally). Habermas argues that
premodem societies were able to resolve the tension between facts and norms through the use of
strong institutions such as religion which fused the moments of facticity and validity together. In a
modem, disenchanted world, however, this option is no longer available and the tension between facts
and norms reveals itself in a number of different arenas. It is evident in communicative action itself
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insofar as it requires the counter-factual assumption o f the idealized conditions necessary for
discourse. There is also an internal tension in the law which both claims to reach judgments which
are rational and certain and requires that these orders can be coercively enforced. The legal system
also serves as the main resource for resolving an “external tension” in the political order between the
state’s claim to be legitimate and its reliance on the actual recognition it receives from the populace.
Tension also arises at the level of jurisprudence in the demand for decisions both to be right (i.e., in
accord with the demands of morality, social welfare, etc.) and to conform to existing statutes. These
tensions between facts and norms are inherent in a modem world in which the demands of system
reproduction seems to clash with the requirement for discursively grounded social integration.
Habermas finds the key to maintaining the various tensions through a sociological reconstruction of
modem law and democracy which reveals the normative elements inherent in these structures.
The basis of Habermas’ argument lies in the insight that modem law has the potential to
provide a solution to problems of social reproduction and integration in a modem world due to its
ability to act as a medium between communicative action and the demands of systems reproduction.
The form of law allows for stabilized behavioural expectations, not only in modem societies but in all
societies where the enforcement of legal statutes can be guaranteed (1996: 122). In modem societies
this function of law enables it to meet the demands o f complex subsystems insofar as it allows for
usable guidance for coordination. The problems arises, however, in that in a modem world claims to
legitimacy are subject to discursive validation and people will only submit to laws if they can be
rationally justified. In a modem society, non-discursively justified laws are subject to challenge in
ways that can affect system performance and threaten social stability. The problem, as Habermas
states it, is that, “In modem societies . . . the law can fulfill the function of stabilizing behavioural
expectations only if it preserves an internal connection with the socially integrative force of
communicative action.” (1996: 84). This means that the tension between facticity and validity in the
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law can only be overcome if the legal form is somehow linked to popular autonomy such that the
addressees of the law also feel that they are the authors of the laws that bind them.
For this reason, law must be understood in terms o f the existence of a self-legislating, legal
community which agrees to organize its common life on the basis of law. In such a community of
legal consociates C Rechtsgenossen), the legitimacy o f law requires that it be linked to processes of
communicative action. Habermas conceptualizes this demand in terms of a principle o f democracy:
“only those statutes may claim legitimacy that can meet with the assent (Zustimmung) o f all citizens
in a discursive process of legislation that in turn has been legally constituted.” (1996: 110) This
principle of democracy embodies a direct link between law and communicative action in that it is no
more than the discourse principle combined with the form o f law. The principle o f democracy
implies a system of rights necessary to guarantee the private and public autonomy of legal
consociates, for without such guarantees truly discursive self-legislation is not possible. Such rights
must be understood as originating from the notion o f a self-legislating, legal community. They are
rights which citizens must guarantee each other in order to be able to engage in the discursive
processes necessary for self-legislation.
The legitimation of the legal form, however, cannot be separated from the question o f the
legitimacy of the political order and the legitimation of political power. The medium o f law, insofar
as the processes for making and enforcing law must have a binding character, presupposes political
power and, more specifically, a state which has the ability to enforce laws and guarantee rights. The
power o f such a state, however, must itself be subjected to law, for otherwise there would not be a
legal community which governs itself on the basis o f discursive self-legislation, but rather only a state
which is able to operate on the basis of strategic action. This leads to the somewhat paradoxical
situation in which effective law requires a centralized political power which must itself be grounded
through law. Habermas approaches this problem o f justifying political power by reworking Arendt’s
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distinction between violence (Gewalt) and power (M acht), rechristening the latter “communicative
power.” In drawing upon Arendt’s understanding of power as emanating from the “human ability not
only to act, but to act in concert,” Habermas stresses the fact that this power emerges from common
convictions rooted in the intersubjective recognition o f validity claims. It is this grounding which
• enables communicative power to bring into being new laws. Law, for its part, is able to serve as a
medium by which communicative power can be transformed into administrative power and generate a
set o f principles for the constitutional state. It is on this basis that the “external tension” in the
political order between the state’s claim to be legitimate and its reliance on the actual recognition it
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C) Institutional Implications: Rights and the Rechtsstaat
It was noted above that the principle o f democracy implies a system of rights necessary to
guarantee the private and public autonomy of legal consociates. The connection is actually much
stronger, however. Habermas argues not only that the principle of democracy implies a system of
rights, but that this system o f rights must be understood as the inverse of the principle o f democracy
insofar as the principle o f democracy cannot be implemented except in the form of law. Thus, the
two can be said to be co-original (gleichursprunglich) and to reciprocally explain each other. Such
claims are made on the basis that they both proceed by way o f a logical genesis (logisch Genese)
through the “interpenetration” ( Verschrankung) o f the discourse principle and the legal form.
Underlying the claim to equiprimordiality and explanatory reciprocity is an understanding of rights
and liberties not as things which can be possessed, but rather as relations grounded in mutual
recognition. On this basis Habermas argues that the form o f law cannot be limited to the semantic
features of general abstract norms, but must be, as it has always been in bourgeois formal law,
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associated with the notion o f equal liberty for all. In undertaking to regulate their common life
through positive law, citizens must guarantee each other an equal right to liberty.
While the form o f law is tied to the notion of equal liberties, it alone cannot ground any
specific rights. The elaboration of a system of rights can only be undertaken by the political
sovereign making use o f the legal form in an exercise o f the citizens’ public autonomy. In this way,
the equiprimordiality o f the principle of democracy and the system of laws not only reflects the
mutual presupposition o f citizens’ private and public autonomy, but reconciles democracy and
individual rights in a way which does not subordinate one to the other. Habermas explains this point
succinctly:
The principle o f discourse can assume the shape o f a principle o f democracy through
the medium o f law only insofar as the discourse principle and the legal medium
interpenetrate and develop into a system of rights that brings private and public
autonomy into a relation of mutual presupposition. Conversely, every exercise of
political autonomy signifies both an interpretation and specific elaboration of these
fundamentally ‘unsaturated’ rights by a historical legislator. (128)
While it is not possible to derive any specific rights from the form of the law, Habermas
argues that there are certain categories of law which constitute a general schema or “unsaturated
placeholder.” While this general schema must be developed into a system o f rights in a “politically
autonomous” manner by citizens in the context of their own traditions and history, the schema
nevertheless has a universal character insofar as legal subjects must presuppose it if they are to
regulate their common life by means of positive law. The general categories which Habermas
elaborates are the following:
(1) Basic rights that result from the politically autonomous elaboration o f the right to
the greatest possible measure o f equal individual liberties.
(2) Basic rights that result from the politically autonomous elaboration o f the status o f
a member in a voluntary association of consociates under law.
(3) Basic rights that result immediately from the actionability of rights and from the
politically autonomous elaboration o f individual legal protection.
(4) Basic rights to equal opportunities to participate in the processes o f opinion- and
will-formation in which citizens exercise their political autonomy and through
which they generate legitimate law.
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(S) Basic rights to the provision of living conditions that are socially, technologically,
and ecologically safeguarded, insofar as the circumstances make this necessary if
citizens are to have equal opportunities to utilize the civil rights listed in (1)
through (4). (122-23)
’ The first three of these categories are private rights o f liberty designed to secure the autonomy o f
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the legal community interact with each other as “legal addresses.” The first category would
encompass the rights to freedom of speech, conscience and the person; the second the right to
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As such it contrasts in function with the first three in that it is designed to ensure not private, but
public autonomy. The fifth category, to which Habermas imputes a more derivative status, concerns
welfare rights which are necessary to ensure citizens effective opportunity to exercise the other four
categories of rights. Together these different categories safeguard the status of persons as members
of a legal community.
As previously stated, it is necessary that the mobilizing and securing of communicative
power, as well as the institutionalizing of the system o f rights, occur within the legal medium itself.
This fact has important implications for the nature of the state which is charged with the task of
ensuring compliance to collectively binding decisions. Habermas elaborates these implications in
terms of a set o f principles o f the constitutional state. More specifically, these principles elaborate
guidelines for the creation of the institutional framework necessary for the generation of
communicative power and the exercise of political power. These principles include popular
sovereignty, the guarantee of legal protection, the legality of administration, and the separation of
state and society (1996: 208fF.) (1) In the principle o f popular sovereignty, Habermas argues, “the
individual’s right to an equal opportunity to participate in democratic, will-formation is combined
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j with a legally institutionalized practice of civic self-determination.” (1996: 169) From the
perspective o f a discourse theory o f politics, the content of popular sovereignty must be elaborated in
terms of the principle o f the guaranteed autonomy o f public spheres (to allow for democratic
procedure), the principle o f political pluralism (to institutionalize competition between political
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parties) and the parliamentary principle (for the establishment of representative bodies for
deliberation and decision-making). (2) The guarantee o f legal protection is necessary to ensure that
the rights which citizens grant each other can be exercised. Its institutional implications involve both
the separation o f power in which the judiciary is kept distinct from the legislature and the principle of
binding the judiciary to existing law (1996: 172). (3) The principle of the legality o f administration
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administration decision-making. Habermas describes cognitive meaning o f this principle as
signifying that “the administrative power does not have its own access to the normative premises
underlying its decisions.” (1996: 173) In terms o f institutional arrangements it requires the separation
of the legislative and administrative branches o f government. (4) From a critical theory perspective,
the principle o f the separation o f state and society goes beyond the understanding o f the model o f the
bourgeois constitutional state in which it refers to the state’s limiting of its activities to guaranteeing
external and internal security, while all other functions are left to a self-regulating economic society.
Instead, it requires a civil society and a political culture which are (sufficiently) detached from class
structures. This is necessary to ensure that the unequal distribution of social positions and the
resulting power differentials which they create can only work to facilitate and not restrict the
formation o f communicative power. The restriction o f communicative power results when “the
disposition over social power provides some parties with a privileged opportunity to influence the
political process in such a way that their interests acquire a priority not in accord with equal civil
rights.” (1996: 175) This conversion of social power to political power (by businesses,
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organizations, pressure groups, etc.) can occur either through direct influence on the administration or
indirect influence through the manipulation of public opinion. Again, these principles are similar to
the system of rights in that whereas the latter elaborates categories of rights, but does not specify any
individual rights, the former do not prescribe any specific institutional design, but lay out guidelines
for such institutions.
D) Procedural Democracy & Deliberative Politics
While in explicating the system o f rights and the principles o f the constitutional state, we
have laid out conditions necessary for being authentic members of a legal community, the generation
of communicative power and the legitimate exercise of administrative power, some further
explication o f the dynamics o f how citizens actually govern themselves is in order. This can be done
by examining Habermas’ understanding o f the notions of procedural democracy and deliberative
politics. Habermas elaborates his model o f procedural democracy by way o f contrast with two other
models, viz., the liberal and the republican (or communitarian). In doing so Habermas seeks to
incorporate what he sees to be the strengths of both models while avoiding their pitfalls. On the one
hand, he accepts the liberal notion of politics as the mediation o f private interests, but rejects its
understanding of the political process primarily as the competition between and aggregation of
preferences. On the other hand, he adopts the republican notion of a self-organizing ethical
community, but rejects as unrealistic in a modem, pluralistic society, its vision in which citizens are
united in and motivated by a common conception of the good life.
In elaborating his model o f procedural democracy and law, Habermas understands procedure
not as the routine fulfillment of institutionalized procedures, but rather as a process of interaction.
The interaction involved is that which occurs both in the public sphere and between the
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communications of the public sphere (which are rooted in the private centers o f the Iifeworld) and the
formal institutions o f the organized political sphere (1996:492). This interaction is important
because it allows for the connection of law to communicative action. As Habermas explains it:
j A legal order is legitimate to the extent that it equally secures the co-original private
and public autonomy of its citizens; at the same time, however, it owes its legitimacy
to the forms o f communication in which alone this autonomy can express and prove
itself. In the final analysis, the legitimacy of law depends on undistorted forms of
public communication and indirectly on the communicational infrastructure of the
private sphere as well. This is the key to a proceduralist understanding o f law. (1996:
409)_
This focus on the interaction between the communications of the public sphere and formal institutions
< involves a shift away from the emphasis in most theories on formal structures o f politics and to civil
I society. The reason for this is that unlike the liberal model which focuses on the aggregation of
preferences, for Habermas preferences are not merely given nor are they all equal. People change
their preferences over time and in a modem society must be willing to give an account of their
preferences. Thus, while the procedural model o f democracy agrees with the liberal model that
politics is about the mediation of private interests, in “deliberative politics’' the goal is not merely to
aggregate preferences, but to allow for their transformation in light of and in response to the
considered opinions of others.
In order for the link between communicative action and law to be effectively maintained in
this process o f deliberative politics, two key conditions have to be met. First, a division o f labour
between the formal institutions of democracy and the communications of the Iifeworld must be
respected. In this division o f labour there is a certain primacy given to what Habermas calls the
“weak publics” (of civil society), insofar as it is they who have the responsibility for identifying and
interpreting social problems. The strong publics (formal institutions), on the other hand, while they
have decision-making responsibility, are subordinate to the weak publics insofar as they are to act on
the consensus/agreement which emerges out o f the discourse of civil society. Yet, while dominant in
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one sense, the weak publics/public sphere, for their/its part, must recognize the confines of its role.
Habermas, conceptualizing these limits under the notion of self-limiting democracy, argues that
democracy must focus on the legal realm. More specifically, he argues that the public sphere must
respect the autonomy of the sub-systems. It must not seek to impose democracy directly on these
spheres, but should seek to guide them only indirectly through the medium of law. Nor should the
public sphere seek to lay siege to and replace the formal political sphere. Rather, it is only to encircle
it with reason (1996:488; Baynes, 1994a: 217).
The second condition which must be met to ensure the link between communicative action
| and law involves the processes o f opinion- and will-formation in the public sphere. As stated above
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the fourth and fifth categories o f the system o f rights (and the principles of legal protection) are
intended to ensure that everyone whose interests are involved have and equal and effective
opportunity to make their interests known. It is not sufficient, however, merely that such rights be
guaranteed in law. It is also necessary that they are exercised, something which does not occur
automatically even with the formal recognition of the public autonomy rights and the guarantee of the
material resources requisite for their exercise. Thus, in a constraint similar to the dependency o f
discourse ethics on a form of life which meets it half way (Habermas, 1990: 207), the model of
procedural democracy and deliberative politics is dependent upon a “rationalized Iifeworld,”
including, a liberal political culture, which meets it halfway.
V. The Relationship Between the Three Realms of Normativity
In this chapter we have distinguished three different realms o f normativity.8 In doing so it
has been shown how they differentiate themselves on the basis o f several characteristics. These
8It could be objected that legitimacy does not constitute a moment o f normativity insofar as one can
raise the question of whether there are moral grounds for entering into a legal order (the question
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j include the reference group, the objects o f regulation, the discourses involved, the conditions for
establishing valid norms, etc. (see Table 4.2) In the discussion so far, we have adequately addressed
the question of the relationship between these three realms (especially between legitimacy and
morality) and the possibility of conflicting obligations between them. In this final chapter we will
take up these problems. First, we will examine the relationship between the realms o f legitimacy and
morality in terms o f their common relationship to the principle of discourse. Then we will account
for the possibility o f conflict normative obligations.
In the Theory o f Communicative Action Habermas argues that complex modem societies
must be discursively integrated, but failed to address the institution arrangements under which this
; could occur. In Between Facts and Norms he explains how law can act as a medium of
communicative action to allow for discursive integration in a way which respects the requirements of
systems reproduction. In this argument Habermas develops a reconstructive sociology of democracy
which uncovers the normative presuppositions of democratic practice (1996: 349). In this way
Habermas is able to show exactly how ‘positive' political legitimacy is (ineluctably) related to
‘normative’ political legitimacy. What needs to be explained further at this stage, however, is the
relationship of legitimate law, rooted in the principle of democracy, to morality, which is founded
upon the principle of discourse ethic. The short answer to this question is that law and legitimacy are
posed by rational natural law concerning the transition from the state of nature to civil society).
Habermas’ rather terse reply to such an objection provides a sufficient response: “Philosophy makes
unnecessary work for itself when it seeks to demonstrate that it is not simply functionally
recommended but also morally required that we organize our common life by means of positive law,
and thus that we form legal communities. The philosopher should be satisfied with the insight that in
complex societies, law is the only medium in which it is possible reliably to establish morally
obligated relationships o f mutual respect even among strangers.” (1996: 460)
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| to be seen as complementary to morality and not subordinate to it. Sociologically, Habermas argues,
“autonomous morality” and “enacted law that depends on justification” historically arise at the same
time, viz., with the modem challenge to the foundations of the societal ethos in which traditional law
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j and a conventional ethics were intertwined (1996: 106). For this reason it is perhaps not surprising
that they also deal with the same broad problems (as natural law theory is right in suggesting). What
is important for understanding their relationship, however, is that they refer to these problems in
different ways, i.e., they have different reference groups, different objects o f regulation, etc. (see
Table 4 .1). An important implication o f this fact is that basic rights are not to be seen as mere copies
of moral rights, nor is political autonomy to be understood as an imitation of moral autonomy.
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1 Rather, moral and civic autonomy are to be understood as co-original. Habermas theorizes this
relationship by reworking (D), the principle which states “Just those action norms are valid to which
all possibly affected persons could agree as participants in rational discourses.” (1996: 107)
Habermas had previously referred to (D) as the principle of discourse ethics (or morality) and now
renames it the "principle of discourse." Explaining that previously he had not adequately
distinguished it from the principle o f morality, (D) is now understood as a general principle which
applies to all action norms (prior to any distinction between moral and legal norms). Thus, the
principle o f morality and the principle o f democracy both derive from the discourse principle, but
without any relationship of hierarchical ordering. This in contrast to liberal treatments of democracy,
such as that of, say, Kant, in which the social contract (as a principle o f democracy) is subordinate to
the categorical imperative (a principle o f morality).
The co-originality and lack of hierarchical ordering between the principle of morality and the
principle o f democracy allows for a complementary relationship between morality and law. This
complementary relationship in premised upon the fact that morality, insofar as it involves the
“internal constitution o f a certain universalistic form o f argumentation” represents only a form of
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cultural knowledge, while law, as “an external, institutionalized procedure of legitimate legislation,”
is both a system of knowledge and a system of action (that has a binding character at the institutional
level). (1996: 106-7; Andersen, 1994: 94) This latter characteristic o f law allows it to offset certain
weaknesses of post-conventional morality (1996: 114-117). First, law unburdens legal subjects o f the
cognitive demands of a moral principle which requires them to take into consideration all of the
relevant considerations of a situation. Second, law, and the facticity of law’s enforcement, relieves
legal consociates of the motivational uncertainty which emerges from the fact that moral insight does
not guarantee the strength of will required by individuals to act against their own immediate interests.
Third, law is able to relieve individuals of the demands which are related to positive duties and which
can only be effectively met through cooperation or organization (e.g., preserving anonymous
neighbours from starvation). What allows law to perform this function is its ability to create a
“system o f accountabilities that refers not only to natural, legal persons but to fictive, legal subjects,
such as corporations and public agencies.” (1996: 117)
The final issue which needs to be taken up in this chapter is the possibility o f conflicting
normative obligations between the three realms. This question can be succinctly addressed in two
steps. First, as regards the relationship between legitimacy and morality, it can be stated that there is
a basic compatibility between their demands which can be traced back to their common grounding in
the discourse principle. Thus, although legitimate law has to take into account a wider range of
discourses than morality does and addresses issues at more concrete levels, because o f the roots o f the
principle o f democracy in the discourse principle, the demands which it makes should not come into
conflict with the demands of morality (1996:453). Second, there are two related factors that may
bring questions of ethics into conflict with the demands of morality and/or legitimacy, viz.,
incommensurate conceptions of the good life (such as arise in the case of abortion) and distorted
cultural traditions (e.g., interwar Germany). From a critical theory perspective, claims of legitimacy
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Table 3.2: Different Moments of Normativity
Morality Legitimacy Ethics
reference group - all natural persons - members o f a spacio-
temporally localized legal
community
- members of a
common Iifeworld
level of
accountability
- natural persons - natural, legal persons,
- fictive, legal subjects
- community members
- communities
object of
regulation
- interpersonal relation
ships and conflicts
between natural persons
who are supposed to
recognize one another as
members of a concrete
community and as
irreplaceable individuals
- interpersonal relation
ships and conflicts
between actors who
recognize one another as
consociates in an abstract
community first
produced by legal norms
themselves
- interpersonal
relationships and con
flicts between actors
who recognized one
another as members o f
a community who have
common traditions and
shared Iife-forms
norms involved - any norm for whose
justification moral
arguments are both
necessary and sufficient
- legal norms (an inten
tionally produced layer of
action norms that are
reflexive in the sense of
being applicable to
themselves)
- norms of interaction
whose justification
depend upon a given
Iifeworld context
practical
discourses
involved
- moral - ethical-political
- moral
- pragmatic
- ethical-existential
- ethical-political
conditions for
valid norms
- approximation o f an
ideal speech situation
- guarantee of the
preconditions for the
generation o f legitimate
law
- guarantee of
compliance by the state
- a common, non
distorted cultural
tradition
determining
principle (and
its function)
- principle o f morality (a
principle of argumen
tation for deciding moral
questions rationally)
- principle o f democracy
(to establish a procedure
for legitimate law
making)
motivation
required to
conform to
norms
- requires the reconcili
ation between duty and
inclination
- threat of sanctions
requires of addresses
only prudential
calculations (satisfied
with action that
outwardly conforms to
rules)
- requires the
reconciliation between
duty and inclination
conditions
necessary for
effective
functioning
- socialization processes
that meet it halfway by
engendering the
corresponding agencies
of conscience
- a rationalized Iifeworld
including, a liberal
political culture, which
meets it halfway
- enforcement
- individuals socialized
into a common
tradition and sharing
common values
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and morality take precedence over those based upon ethics. Ethical considerations are subordinate to
the demands o f morality not in the sense that moral questions are necessarily more important, but
rather because the judgments of morality admit o f universal validity. Similarly, questions of ethics
are also subordinate to the demands of legitimacy not because they are in some sense less important,
but because, unlike legitimacy, ethics does not provide a universalizable procedure are resolving
disputes.
The distinction between that we have made in this chapter between three realms of
normativity is important for our concerns regarding the normative evaluation of economic and
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business practices because it implies that there is no one single set of criteria or no one single
procedure for resolving normative issues. It could be argued form a critical theory perspective that
many of problems that have faced individual analyses and many of unresolved disputed in the field of
business ethics could be clarified to a large extent by making the categorical distinctions offered here.
While we cannot redeem this claim here, we shall try to do so in an indirect fashion over the next
three chapter in which we will take up the analysis o f the normative acceptability o f capitalist
business and economic activity from within the concerns of these three different normative realms.
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CHAPTER FOUR
Legitimacy:
Problematizing the Normative Relationship between
Capitalist Business Activity and Political Democracy
In the previous chapter we drew upon Habermasian critical theory to develop a model of
normativity which distinguishes three distinct moments, viz., the ethical, the moral and the legitimate.
The bases for the distinction between these different moments were elaborated (viz., the reference
group, the object o f regulation, the discourses involved, etc.) and the limits of each moment detailed.
In the present chapter we examine the normative acceptability of capitalist business and economic
activity from the perspective of one o f these moments of normativity, viz., legitimacy. In taking up
the question o f legitimacy we are examining an issue which has been frequently addressed, both from
normative and positive perspectives, in political philosophy and political science. This is the question
of the relationship between capitalism and democracy. Most attempts to address this question
acknowledge the existence o f a tension between capitalism and democracy. Depending on the
normative understanding of democracy involved, this tension may or may not appear resolvable. The
development of a normative theory o f capitalist business and economic activity makes sense only on
the condition that the tension between capitalism and democracy is, in principle, resolvable. This is
the basic question that this chapter seeks to address.
Two broad Habermasian theories underlie our investigation of this problem. The first,
Habermas' (1984) critical theory of modernity, provides an account of the rationality of modem
societies in terms of a distinction between Iifeworld aspects (oriented to social reproduction) and
systems aspects (oriented to material reproduction) o f society. In this account the emergence o f the
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capitalist economic system is portrayed as an (instrumentally) rational solution to problems of
increasing system complexity. From within this theoretical framework, the tension between
capitalism and democracy can be understood as arising from two basic characteristics of the capitalist
system. On the one hand, there is a basic tendency of the logic of the economic system to extend its
j influence beyond the economic realm and to mediatize and colonize the lifeworld and the political-
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| administrative system. Habermas is able to characterized this tendency as a "distortion o f modernity."
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j The resolution of this problem requires the instrumental reason of capital being brought under the
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I control of communicative action. A second Habermasian (1996) theory, the normative theory of law
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j and democracy, provides an account of how this is possible. Habermas argues that law can serve as a
medium through which the economic and administrative systems can be brought under the control of
communicative action while still respecting their systems logic. Law can serve this function if it
emerges as the result o f a deliberative process by a democratically elected body and reflects an act of
communicative power. As was explained in the previous chapter, Habermas elaborates the conditions
for the generation o f such "legitimate" law in terms o f a system of rights and principles o f the
constitutional state. It is here that the tension between capitalism and democracy is completed by a
second characteristic of capitalist production viz., the creation of substantial inequality and power
differentials. The structural power that accrues to capital as a result of the normal functioning of
capitalist production, enables capital to contest and potentially frustrate attempts to establish the
conditions necessary for the generation o f legitimate law. It is this in this tension between the
potential of legitimate law to impose communicative control over the systems logic of capital and the
ability of capital to employ its social power to oppose the generation of legitimate law that the
possibility of a normative theory of capitalist business and economic activity must be investigated.
In order to be able to elaborate a normative theory of capitalist business and economic
theory, it must be possible to demonstrate that this tension is in principle resolvable, i.e., that
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legitimate law can be established and function in such a manner that respects the system logic of
capital. On the one hand, if legitimate law is not capable o f controlling capital, then the. normative
acceptability o f capital is clearly called into question. On the other hand, if legitimate law can only
contain capital by substantially altering its logic, then we are no longer dealing with a normative
theory o f capitalism. While Habermas posits the possibility o f legitimate law being able to control
capital as a falsifiable hypothesis, he does not go far enough in his analysis the o f tensions involved.
There are two basic shortcomings in this regard. First, no systematic political economy analysis is
offered o f the problems involved in controlling capital through legitimate law. Second, the analysis
that is offered completely abstracts away from the international realm and transnational activities.
By addressing these short-comings of Habermasian theory, this chapter seeks to establish the
viability o f developing a normative theory o f capitalist business and economic activity from a critical
theory perspective. It is important to emphasize two points in relationship to this goal. First, this
chapter does not so much develop a practical ethics as provide the justification for pursuing the
development o f a practical ethics from a particular normative perspective. Thus, our concern here is
not to address the array of practical problems which confront individual capitalist firms with respect
to democratic practice, nor provide insights for practitioners into how these problems might be
addressed. Rather, it is to establish the potential viability o f addressing such issues at all. Second,
this chapter provides only a limited justification for a normative theory of capitalist business activity.
That is to say, while it seeks to establish the theoretical possibility that capitalist business activity may
be brought under the control of legitimate law (and the conditions for this), it does not necessarily
perceive this theoretical possibility as a likely development. In practice, in might be the case that
capitalist business activity can only be compatible with political democracy if it is substantially
altered in form.
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The argument will proceed in the following manner. In the first section, we will offer an
account of the problem o f subjecting capital to communicative action through legitimate law. Here
we will first elaborate the normative obligations that this would impose on capital and then examine
the demands that conforming to these obligations would impose on capital (in terms o f moral and
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| ethical resources and having to deviate from systems logic). Here we postulate the incorporation of
j the conditions for the generation o f legitimate law into actual law as the key condition for capital
being able to conform to the demands of legitimacy. In the two subsequent sections we then go on to
; examine the conditions and prospects for these conditions actually being incorporated into legitimate
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| law. This is done in a two step process with the second section focusing on the problem purely within
: the confines o f the nation state. The third section then relaxes this simplifying assumption o f an
autarchic state to addresses the complications that transnational activities pose for the task of
subjecting capital to the control of communicative action.
I. The Requirements and Demands of Legitimacy
Habermas' normative theory o f law and democracy elaborates the conditions necessary for
subjecting complex modem systems to the communicative control in terms of a system o f rights and a
series o f principles of the constitutional state. Our concern here is to examine the demands that these
conditions make upon capitalist firms and investigate the conditions under which capitalist firms can
be expect to conform to these demands.
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A) The Basis fo r Extending the Analysis o f Legitimacy to Capitalist Business Activity
The question of what the category of legitimacy means for the normative analysis of
business and economic activity can be related back to the understanding of legitimate law which was
j elaborated in the previous chapter. From a critical theory perspective the category of legitimacy as a
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normative concept refers in the first instance to law. The legitimacy of law is grounded in its
relationship to communicative action and, more specifically, in the fact that law is able to reflect an
act of public autonomy. The general conditions under which an act of public autonomy can be
reflected in legitimate law are elaborated in terms of a system of rights and a set of principles o f the
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constitutional state (in combination with the demand for a liberal political culture). A final condition
for the legitimacy of law is that it can be effectively enforced. Insofar as these conditions for
legitimacy can be met to varying degrees, judgments of legitimacy are not bipolar in character.
Rather, to the extent that the conditions are met, laws can be legitimate, less legitimate in varying
degrees or completely non-legitimate.
The category of legitimacy refers in the first instance to law because the notion o f legitimacy
is internal to law. That is to say, the source of legitimacy (viz., popular autonomy) is inherent in the
procedure necessary for the generation o f legitimate law. Legitimacy refers to the degree that law
reflects an exercise of popular autonomy. Yet, while the category of legitimacy originates with the
concept o f law, it can also be understood to extend to institutions, programs, policies, practices and
other entities which may be incorporated through legitimate law. Such entities are judged to be
legitimate (or not), not on the basis o f any inherent characteristics they possess, but rather in terms of
their relationship to law, the conditions for the possibility of the generation of legitimate law and,
ultimately, to acts o f public autonomy. We will draw upon this notion that other entities, in addition
to law, can be analyzed under the normative category of legitimacy to examine the basic object of
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j concern o f this chapter, viz., whether and under what conditions (the instrumental logic of) capitalist
business and economic activity can be brought under the control o f communicative action through the
medium o f (legitimate) law.
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B) The Requirements fo r Legitimacy
As we just noted, the normative concept of legitimacy may be extended to entities other than
law. Our primary concern in this regard is the legitimacy o f the capitalist firm and, secondarily, the
legitimacy of other related economic institutions, policies and practices. Our interest in the
legitimacy of the capitalist firm relates to the questions o f whether and how legitimate law might be
able to serve as a medium to bring capitalist business and economic practice under the control o f
communicative action. To this end, it is possible to distinguish a combination o f three different
requirements that the capitalist firm would have to fulfill in order to be considered legitimate, i.e., to
be subject to the control of communicative action through the medium o f legitimate law. These
requirements follow directly from the understanding o f legitimate law.
Respect fo r Legitimate Law - The key significance of legitimate law for our concerns is that
it is able to serve as a medium through which modem mediatized systems can be brought under the
control o f communicative action while respect is maintained for the logic o f these systems. A
fundamental demand of legitimacy for capitalist firms, then, must be respect for legitimate law. A
failure to respect legitimate law would clearly demonstrate that capitalist business practice is not
under the control of communicative action (as it is embodied in legitimate law). Such a violation of
legitimate law by a capitalist firm could be termed an illegitimate act, i.e., a failure to respect
legitimate law and, more fundamentally, the act of public autonomy that underlies it. More important
than individual violations, of course, is the question of whether there are systematic trends by
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capitalist firms to violate legitimate law. The concern here is two-sided. On the one hand, there is the
question of whether the social power which capital enjoys enables it to violate legitimate law with
impunity. On the other hand, there is the question of whether capital is able to refrain from acting in
i this way. An inability of the part of capital to refrain from using its social power to violate legitimate
i law would clearly call into question the compatibility of capitalist business and economic activity
with legitimate law.
Respect fo r the Conditions Necessary fo r the Generation o f Legitimate Law - A second
requirement that can be seen as necessary for capitalist firms to be deemed legitimate involves the
conditions necessary for the generation o f legitimate law, viz., the system o f rights and the principles
of the constitutional state (Habermas, 1996: I68ff). In order for the instrumental logic of capitalist
business activity to be brought under the control of communicative action through legitimate law, the
conditions necessary for the generation o f legitimate law must themselves be respected. Respect for
these conditions is in a sense prior to the demand of respect for legitimate law because, without these
conditions being respected, the legitimacy o f any law generated is called into question. Thus, the
failure o f capitalist firms to respect these conditions means that they are contributing to sustaining a
situation in which the generation of legitimate law is not possible. For this reason, the activity of
capitalist business operating in this fashion may be considered to be delegitimating. Such an
evaluation does not necessarily assess the culpability of the firm. There may be extenuating
circumstances that may excuse, if not justify such action on the part o f individual and collective
actors within firms. This evaluation, however, highlights the fact that such activity (whether
pardonable or not) undermines rather than promotes the possibility o f legitimate law. Thus, once
again, our concern is not so much with evaluating the culpability o f individual firms, but addressing
the question of whether capital in general is able to respect these conditions.
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Grounding in Legitimate Law - A final condition for legitimacy is that the firm must be
incorporated by legitimate law. From a critical theory perspective there are no rights apart from those
granted by the political community through legitimate law. While the notion o f legitimate law itself
presupposes the necessity o f some forms of rights (viz., rights to private autonomy and public
autonomy as well as some basic welfare rights), the right to conduct capitalist business is not among
them. Legal consociates may or may not want to allow capitalist business practice. They may prefer
that it be encouraged, tolerated, discouraged or prohibited. What they actually prefer, however, can
only be accurately determined through a process that leads to the generation o f legitimate law based
upon an act of public autonomy. By presupposing the conditions necessary for informed choice,
incorporation in legitimate law provides the assurance that there is popular support for capitalist
business practice. A lack o f grounding in legitimate law, however, does not necessarily imply a lack
o f popular support for capitalist business activity. That is to say, the existence of a situation in which
the conditions for legitimate law are not in place need not imply that the people are opposed to
capitalist business practice. What it does mean is that it is not possible to legitimate capitalist (or any
other form of) business practice through legitimate law under the existing conditions. Under such
circumstances, capitalist business firms and practice are non-legitimate, i.e., they are not incorporated
on the basis o f legitimate law. Whether they are also illegitimate (i.e., acting contrary to the will of
the people) and/or delegitimating (i.e., inhibiting the conditions necessary for the generation of
legitimate law) are separate questions. From a critical theory perspective, the key concern regarding
capitalist business practice in this regard is whether, under conditions of non-legitimacy (i.e., when
the conditions for legitimate law are not in place), capitalist firms can not only restrain themselves
from reinforcing such a condition of non-legitimacy, but respect the will of the people if they are able
to demonstrate that they do not wish (either temporarily for strategic purposes or more permanently
for moral or ethical reasons) capitalist businesses operating on their territory.
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C) The Demands o f Legitim acy
We have just argued that there are three basic requirements that capitalist firms must be able
to systematically meet in order for capitalist business and economic practice to be compatible with
legitimate law. Our concern here is to investigate what type o f demands conformity to these
requirements makes upon individual and collective actors in firms and whether these actors can be
expected to be able to consistently meet these demands. To the degree that these demand may
overtax the moral and ethical resources of actors within the capitalist firm, then the normative
acceptability o f capitalism is seriously called into question, the implication being a need to radically
modify the operation o f capitalist business practices (or even seek an alternative form of business
practice).
I) Respect fo r Legitimate Law
Individual and collective actors in firms may choose to obey legitimate law on the basis of
any o f the three forms of practical reasoning, viz., moral, ethical or pragmatic (Habermas, 1993).
Morally, such actors may be motivated to obey legitimate law because it is the right thing to do, i.e.,
to the degree that law is legitimate it represents the culmination o f a societal wide process o f
discourse which results in a fair compromise with regard to the interests o f all concerned. As such
legitimate law should be respected just because it is legitimate. Firms operating on this form of
motivation are acting autonomously, i.e., exercising a free will which is not constrained by
considerations other than what is fair. The individual and collective actors in firms may also obey
legitimate law on the basis o f a process of ethical reasoning, i.e., on the basis o f their self-
understanding of who they are and want to be (as individuals and as a collective) and how this
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decision would be in line with this concern. Firms acting on this basis exercise resoluteness, a form
of will through which actions are brought into conformity with one's understanding of one's
(individual and/or group) identity. Finally, firms may decide to obey legitimate law purely on the
basis o f pragmatic reasoning (i.e., on the basis of an arbitrary will). Here, firms exercise a purely
arbitrary will that is constrained only by their pragmatic calculation of the likely costs and benefits of
their decision. Such costs and benefits are generally calculated in terms o f tangible financial effects,
but may also include less tangible goods such as publicity (negative or positive), effects on company
morale, etc.
While in principle any o f these forms of reasoning may serve as the basis for obeying
legitimate law, in practice in a capitalist economic system the role of normative motivation cannot be
detached from pragmatic considerations. That is to say, in the absence o f pragmatic reasons (which
might be construed as objective interests) in obeying the law, the moral and ethical resources o f
individual and collective agents operating in a the "systems" environment o f the economy will
generally be overtaxed. It is here that the role of sanctions in legitimate law plays a key role. The
threat o f significant penalties backed up by a firm commitment by the state to prosecute violators
provides the necessary link between pragmatic and normative motivation (Habermas, 1996). If legiti
mate law is not effectively enforced, then the demands of obeying legitimate law for individual and
collective actors may sharply increase as competitors who violate the law are able to gain a
competitive advantage.1 Legitimate law, however, implies sanctions and enforcement. Under ideal
'From the perspective o f the firm, such competitive disadvantage leads to financial losses and may
ultimately result in bankruptcy, while for individuals an array of costs may be entailed (e.g., the loss
of a job, financial security, prestige, self-worth, etc.). The possibility o f incurring such costs may
place tremendous strain on the moral and ethical resources o f individuals who either may perceive
themselves to have other conflicting moral and ethical obligations (e.g., to provide for their families,
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j conditions, the combination of the severity o f sanctions and the rigor of enforcement would eliminate
any temptation to violate law as the probability of benefiting from such a violation would be so
remote as to make it an irrational choice for a "rational agent" For this reason, then, it is possible to
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argue that obeying legitimate law does not make particularly great demands on firms. To the
contrary, legitimate law makes conformity to the demands of communicative action a rational choice.
In the real world, however, law does not conform to the ideal standards of legitimate law.
Not only does law not always represent a fair compromise, but the sanctions imposed and the rigor of
enforcement do not (and cannot) always combine to provide a sufficient deterrent— that is to say, in
the parlance of game theory, that breaking the law could not be deemed an irrational act by rational
actors. Under these conditions, individual and collective actors in firms require more than pragmatic
motivation in order to be able to respect legitimate law. They must be able to draw upon some form
o f moral or ethical motivation. In situations o f relatively legitimate law (i.e., situations in which the
law does reflect a fair compromise to a large degree and the sanctions and degree o f enforcement
provide a significant deterrent), firms may not be subject to having to compete under a significant
competitive disadvantage (as other firms are likely to respect the law). Under these conditions,
individual and collective actors in healthy, competitive firms are not subject to extraordinary demands
(Habermas, 1993). If there are no other exogenous demands on the actors (e.g., financial difficulties),
they require the moral or ethical motivation necessary to abide by fair competition, but they are not
subject to any additional demands in the form of increased material insecurity or competing
normative obligations which might arise as a result of an unfair competitive advantage by
competitors. However, the less legitimate law becomes (i.e., the less it reflects a fair compromise, has
adequate sanctions and is enforced) and the more stress there is on actors from other sources (e.g.,
to provide employment, etc.) or may not be willing or able to accept the loss o f the material and/or
status goods involved.
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financial difficulties), the greater the demands that are made on their moral and ethical resources and
the less likely they are to respect the law.
2) Respect fo r the Conditions Necessary fo r the Generation ofLegitim ate Law
We have just argued that the demands o f obeying legitimate law (or even relatively
legitimate law) need not place excessive burdens on individual and collective actors in capitalist
firms. The situation is more problematic with respect to the conditions necessary for the generation
o f legitimate law, especially insofar as these conditions themselves are not incorporated into
legitimate law. While firms may generally be understood to have an objective interest in not obeying
law (in the sense that it does not result in an interest maximizing result), legitimate law provides them
with a competing objective interest (in the form o f not being prosecuted and suffering penalties)
which under ideal circumstances should outweigh the probable benefits o f not obeying the law.
Insofar as all firms are subject to this constraint, then any individual firm has an objective reason for
obeying the law and requires only a pragmatic motivation to do so. In the case of the demand of
respecting the conditions for the generation o f legitimate law (when these conditions are themselves
not incorporated into legitimate law), the situation is very different. Here firms generally have the
same objective interest in not obeying these conditions (i.e., doing so does not lead to an interest
maximizing result), but they do not have the off-setting objective interest that is present in the case of
legitimate law (i.e., the existence o f sanctions). Moreover, to the degree that other firms will not
respect these conditions, firms that do will most likely suffer some form of competitive disadvantage.
Under these conditions, firms will only respect the conditions for the generation of legitimate law if
they have strong subjective reasons for doing so (i.e., ethical or moral motivation) or there is some
other form of off-setting objective reason.
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Individual and collective actors within firms may have subjective interests (in the form of
moral or ethical reasons) for respecting the conditions (or some of the conditions) necessary for the
generation of legitimate law. Depending on the circumstances (e.g., the size of the costs, the strength
of character o f the individuals, other competing obligations, etc.), the moral or ethical resources of the
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actors involved may enable them to respect the conditions for legitimate law, even though this entails
substantial personal cost (and generally costs for the firm as well). While the degree o f moral and
ethical motivation obviously varies from individual to individual, key factors that facilitate actors
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| operating in accord with their moral or ethical reasoning are the support of senior management and
! how they organize production (Darley, 1996). It is, thus, not surprising that a prominent theme in the
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literature o f business ethics, the ethics o f leadership, stresses the important role o f top management in
promoting normatively acceptable behaviour within the firm (Ciulla, 1990). The importance o f the
role of top management, however, is not related to the normative insights or inspiring character that
they might posses (as many works suggest), so much as the power which they have to condition
behaviour within the firm through policy. By establishing a formal policy regarding the various
aspects of the conditions necessary for the generation o f legitimate law (e.g., in a code of corporate
ethics), management may offer support to employees to act upon their own moral or ethical
motivation (employees who might otherwise feel tempted to violate these conditions because of, for
example, performance standards or incentive structures within the firm). Similarly such a policy
might serve as a deterrent to those who otherwise might violate these conditions. Such formal policy,
as many commentators have pointed out, must be reflected in and not contradicted by the "corporate
culture" o f the firm (Hartman, 1996).
While individual firms may be moved by subjective considerations to respect the conditions
necessary for the generation of legitimate law, there is very little empirical evidence to suggest that
capitalists firms are generally motivated by such considerations. The recent boom in interest in
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business ethics and specifically in ethical codes by firms is itself telling in this regard. The initial
surge in interest in the 1970s as the result o f scandals by major defense industry contractors such as
Lochheed (Kotchian, 1977). As a result of their actions such firms were prohibited from bidding on
defense contracts. The development o f ethical codes and ethical training programs served as a
method for demonstrating reform within these firms and to regain the ability to tender bids on
lucrative defense contracts. The more general boom in interest in ethical codes which followed in the
1980s was largely induced by government legislation which made the establishment of codes and
ethical training programs a rational choice for firms. The legislation in question allowed firms to
reduce their legal liability for the actions of their employees if they have ethical codes and training
programs in place. As such, it has become not so much a question of "ethics pays" as "ethics means
you don't have to pay." In addition to the lack of empirical evidence supporting the likelihood of
firms being motivated by subjective factors, there are theoretical arguments that suggest that firms
cannot be expected to operate on this basis. As we already noted, Habermas offers an explanation of
how the demands of system logic firms provide little room for operating on this basis (Habermas,
1984; 1996). In Legitimation Crisis Habermas (1975) provides an addition argument against such a
possibility. Here, he advances the position that, while capitalism is dependent upon prebourgeois
values for its reproduction, it systematically undermines these values. To the degree that it is these
values which can provide the subjective motivation for conforming to the conditions necessary for
legitimate law, it cannot be expected that capital can consistently draw upon these values (while at the
same time undermining them).
In addition to subjective interests (in the form of moral or ethical motivation), firms may
have additional objective interests in conforming to (some of) the conditions necessary for the
generation o f legitimate law. These interests may have either a positive or a negative character to
them. On the negative side, other actors— both within and outside of the firm— may object to the firm's
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failure to respect the conditions necessary to the generation of legitimate law. Workers and
institutional investors such as pension funds, for example, might object to the violation of the private
autonomy rights of workers (Bies, 1996). To the degree that these actors (e.g., workers, consumer
; and other civil society groups) can adversely affect the performance of the firm (e.g., by work
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stoppages, boycotts) or they (viz., as shareholders) are in a position to affect company policy directly
(e.g., shareholder resolutions), their concerns can become an objective interest for management and
provide management with a pragmatic motivation for conforming to (some of) the conditions for
legitimate law . On the positive side, respecting the conditions for legitimate law may have salutary
j effects in terms of economic performance. Such effects may arise from better worker morale, better
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f relationships with key stakeholders (e.g., suppliers, distributors, investors), etc. This latter possibility
is a common theme in the field of business ethics and is succinctly summarized in the expression
"good ethics is good business."2 (Less sanguine commentators suggest that if this fortuitous
coincidence of ends actually existed there would be no need for business ethics.)
To the extent that internal and external actors have some interests in the firm conforming to
the conditions necessary for legitimate law and can provide the firm with objective interests for
conforming, there is room for bringing greater pressure to bear on firms. This can be done by the
various actors more fully exercising the abilities which they currently have (e.g., shareholder
resolutions, boycotts, etc.) or by acting through the state to obtain greater powers to pressure firms
(e.g., mandatory worker representation on the board of directors). While such measures may have a
2 In addition to the potential positive externalities o f conforming to the conditions necessary for
legitimate law, firms may be able to take steps that limit the costs that conformity may imply.
Nielsen (1996), for example, examines a variety o f different management approaches to dialogue
which may be effective for raising normative issues and controlling the costs of acting in a normative
acceptable manner.
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not insignificant effect on controlling capital, it is unlikely that they will be entirely effective in
getting capital to conform completely and to all the conditions necessary for the generation o f
legitimate law. There are two basic problems. First, while there are some clearly identifiable social
groups (e.g., workers) that have specific interests (viz., protecting their own liberty) in forcing capital
to recognize some o f the conditions for legitimate law (e.g., respect for private autonomy rights), the
effects of a failure to respect other conditions for the generation o f legitimate law may be more
diffuse in nature and less readily apparent (e.g., questionable lobbying practices, violations o f public
autonomy rights). Second, organizing opposition to capital can be very costly (in terms o f time,
energy, money) and difficult (e.g., getting access to information, developing effective strategies, etc.),
while capital tends to have money and resources in place to effectively oppose such efforts.3
While it is unlikely that capital will conform to (all of) the conditions necessary for the
generation o f legitimate law either out of subjective interests or out o f objective interested generated
by other social actors (e.g., through boycotts, shareholder resolutions, etc.), there remains one
additional method that might be able to constrain capital and force it to respect the conditions
necessary for the generation o f legitimate law, viz., legitimate law itself. That is to say, if the
conditions necessary for the generation of legitimate law can themselves be incorporated into actual
law (with appropriate penalties and enforcement), then capital could be provided with an effective
objective interest in conforming to these demands and their moral and ethical resources would not be
overtaxed. This solution to the problem, however, is not without its difficulties. What these
difficulties are and the likelihood and conditions for them being overcome are the subject of the next
3 The case o f Nestlg's marketing strategy o f infant formula in LDCs provides a telling example o f the
difficulties involved in opposing capital. For an account o f the Nestlg boycott see Kuhn and Shriver
(1991).
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two sections. Before turning to these, though, there is still one final demand of legitimacy that needs
to be discussed.
3) Respect fo r Acts ofP ublic Autonomy
In addition to respect for legitimate law and the conditions necessary for the generation of
legitimate law, a third demand can be identified, i.e., respect for acts of public autonomy. This
demand is implicit in the requirement o f respect for legitimate law and is the logical conclusion o f the
requirement of respect for the conditions necessary for the generation o f legitimate law. As such, it
does not generally arise as an independent demand on actors. There are, however, some situations in
which this may be the case. Perhaps the best known example might be the case of foreign firms
operating in South Africa under apartheid. Under such situations o f extreme non-legitimacy (i.e.,
situations without a democratically elected government, no assurance o f basic rights, etc.), it may be
still be possible that people would want to allow capitalist firms to continue operating not only
because they provide an important source o f income, but also because their operation may not be
normatively objectionable. That is to say, in terms of legitimacy it may be the case that such firms: I)
do not violate any existing legitimate law (i.e., any international agreements, any laws of their home
country for operating in non-democratic environments, etc.), and; 2) respect the conditions necessary
for the generation of legitimate law (e.g., by promoting the basis for a democratic culture through
their management strategies and organizational structures, by not engaging in questionable lobbying
activities, etc.).4 Yet, even if people acknowledge that firms generally operate in accord with
4Some firms operating in South Africa made claims of this nature, viz., that they were actually
promoting change and the possibility for democratic reform through their management policies and
practices (Donaldson, 1989).
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legitimate law and their form of operation does not directly undermine the conditions for the
generation of legitimate law (this being the most favourable interpretation o f the manner in which
foreign capital operated in South Africa under apartheid), there may exist strategic reasons for them
opposing the operation of capitalist firms. The problem is that a firm’s activity, even if it is not
i objectionable in itself, may contribute to sustaining a condition in which public autonomy cannot be
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f exercised. The reason for this is that the financial and other resources which the activity o f firm
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| generate may be appropriated (e.g., in the form o f tax revenues) and used to suppress the exercise of
[ public autonomy and enable a government to ignore pressures to conform to the principles o f the
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constitutional state. Thus, under circumstances in which people believe that there is a realistic chance
o f forcing change, it is possible that they may express in an act o f public autonomy their desire for
foreign firms to divest from their country until such time as democratic rule is established. Capitalists
firms would have a clear obligation to respect such an act of public autonomy on the part of people.
The question of concern here is whether capitalist firms can be expected to honour such an
obligation to respect acts of public autonomy that are made under such conditions (i.e., condition in
which they cannot be incorporated into legitimate law). The difficulties in this situation are parallel
to those o f the demands on firms to respect the conditions necessary for the generation of legitimate
law. First, firms may have an objective interest in not respecting such acts of autonomy (insofar as
conforming will not result in the maximizing of their interests). Moreover, in such situations there are
no sanctions grounded in legitimate law that provide them with an off-setting objective interest in
conforming to this demand. While it is possible that individual firms may be sufficiently motivated
by subjective interests to leave, it is unlikely, for reasons noted above, that this will be a general
disposition. It is also possible that civil society actors in foreign countries can seek to provide such
firms with objective interests in respecting such demands (e.g., through boycotts, encouraging
shareholder resolutions, etc.). It the case of South Africa, such efforts were instrumental in
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| "motivating" some corporations to withdraw (in combination with legal actions taken by national and
I local governments). However, it is also the case that it took many years of effort by civil society
groups before such tactics showed any significant effects. While such civil society mobilization is
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important, because of the tremendous power differential between firms and civil society organizations
and the difficulties of organizing such opposition, such movements cannot be expected to provide an
effective solution in all situations. Ultimately, it is only states that can provide firms with sufficient
motivation to respect the acts o f public autonomy in question, by imposing sanctions. If sanctions are
in place and enforced home countries, then firms can be expected to respect such acts of autonomy
(as the case o f South Africa tends to indicate).
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II. Establishing the Conditions for Legitimate Law Within The Nation State
We have argued above that while capital can generally be expected to conform to some of
the demands of legitimacy (e.g., respect for legitimate law), it will only conform to others (viz.,
respect for the conditions necessary for the generation o f legitimate law and respect for acts of public
autonomy), if these are themselves required by legitimate law (i.e., backed up by sanctions). The
question which then arises, however, is whether there is reason to believe that these latter conditions
can be incorporated into legitimate law. This is the question that we seek to investigate in this and the
following section.5 The basic problem to be confronted is a familiar one and revolves around two
facts. On the one hand, the incorporation o f the conditions necessary for the generation o f legitimate
5 We focus only on the primary question o f the conditions necessary for the generation o f legitimate
law. The question of respecting acts of public autonomy is a much less wide-spread situation and
more complicated in practical terms (i.e., evaluating what constitutes an act of public autonomy, etc.).
Moreover, the basic problem is very similar.
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law may not be in the interests o f capital. On the other hand, capital has resources which may enable
it to frustrate attempts to incorporate (some of) the conditions necessary for legitimate law into law.
The question, then, is whether social forces will be able to mobilize themselves in such a way so as to
overcome the structural power of capital and impose limits on capital in the form o f the conditions
necessary for the generation of legitimate law.
In investigating this question we will proceed in a two step manner. In the first step, we will
focus exclusively on the dynamics within the nation state, abstracting from the complexities which
the international economy and the nature o f the international state system pose for the resolution of
this issue. Here we first examine the structural power of capital and the nature of the resources that
this power provides capital to intervene in the political realm. For this analysis we will draw upon the
work of several authors, but most notably Robert Cox, who are generally identified as "neo-
Gramscians."6 On the basis of this analysis, we can then move on to examine the specific interests
that capital has in supporting or opposing particular conditions necessary for the generation o f
legitimate law as well as the success (or lack thereof) that civil society groups have had in pressuring
the state to incorporate these conditions into legitimate law. In a second step, undertaken in the next
section, we incorporate the problems that the international economy and international state system
6 There is a basic compatibility between the neo-Gramscian analysis of international political
economy and the tradition o f critical theory. The basis for this resides in their common relational-
structuralist approach to the analysis of historical change. The neo-Gramscian analysis is not only
compatible with such fundamental critical theory analysis as the critical theory of modernity, but its
helps to expand this analysis into a important field that Habermas and other critical theorists have not
adequately addressed, viz., international relations (and more specifically international political
economy). In so doing it also provides an important perspective for a critical theory of business ethics
to draw upon (Cox, 1992).
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pose for the possibility o f incorporating the conditions for legitimate law into (national) law. Again,
we proceed, by first analyzing the structural power of capital and examining the conditions under
which this power could be brought under the control o f communicative action.
A) The Structural Power o f Capital
The tension between capitalism and democracy results not only from the different logics of
the system and lifeworld, but also from the fact that the normal functioning of the economic system
generate substantial resources for capital, resource which capital can in turn use to inhibit attempts to
subject it to communicative control through legitimate law. An examination of the nature o f this
"structural power” of capital is necessary in order to understand the problems in and prospects for
controlling capital through the democratic process.
1) The State and the Structural Power o f Capital
Orthodox Marxism in its most rhetorical (and reductionist) moments conceived o f the state
in purely instrumental terms. The executive o f the state was no more than an instrument in the
service o f capital. Having no interests of its own nor any ambiguity in promoting the interests of
capital, it was "a committee for managing the common affairs of the whole bourgeoisie"(Marx and
Engels, [1848] 1967). While historically some states have offered a small degree of credence to this
characterization, in actual fact instrumentalism exists only as an ideal type opposed to its opposite,
viz., complete state autonomy. The problem with the notion of instrumentalism is that capitalist
business activity requires the cooperation of workers and other social classes and groups. While the
wage contract is able to provide the illusion of a free agreement, this illusion cannot be sustained if
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the interests o f workers and others are not accommodated to some degree. (While coercion can be
used to impose the wage contract, the costs o f coercion can be high.) Historically, capital (and
residual feudal powers) has been forced to give into the demands o f workers for inclusion in the
political process. Inclusion o f workers and other marginalized groups (viz., women, minorities) in the
political process has meant that the state cannot merely act instrumentally in the interests o f capital.
Even if it seeks to promote the interests of capital, the state needs some degree of autonomy in order
to promote the interests of capital in an effective manner.
The question o f the relationship between state and capital is, o f course, the key question of
state theory (and some traditions of political economy as well). For neo-Gramscians, the key to
answering this question is a proper understanding of the notion of structure and its relationship to
agency. Cox understands historical structures to be “persistent social practices, made by collective
human activity and transformed through collective human activity.” (1987:4). As such, historical
structures do not exercise agency, nor do they determine human action in a mechanical way. Rather,
they “constitute the context o f habits, pressures, expectations and constraints within which human
action takes place.” (1986: 217). This context is defined by the interaction o f three different
categories of forces, viz., material capabilities, ideas and institutions. In the interaction between these
three categories, no one category is understood to be dominant or exercise uni-directional causality.
Rather, the lines of force can only be established by the study of particular cases. The context which
historical structures represent are at the same time both limited and complete. They represent, as it
were, “limited totalities,” i.e., they do “not represent the whole world but rather a particular sphere of
human activity in its historically located totality.” (1986:220) In examining the question of the
structural power of capital and how it enables capital to influence the state, we focus our attention on
two such types o f historical structures and the interrelationships between them (viz., production
relations and forms of state).
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2) Productions Relations, Social Structures o f Accumulation and the State
Work undertaken in a social context involves production relations (e.g., subsistence
agriculture, peasant agriculture, household production, self-employment, co-operative ventures, open-
labour-market relations, centralized collective bargaining, etc.). Each o f these forms involves a
relation o f power, some being more coercive, some more equitable. In almost all societies work is
carried out on the basis of different forms of connected production relations These interconnected
forms of production relations are, in a sense, the basis on which states are founded. These production
relations not only generate resources that can be transformed into other forms o f power (e.g.,
financial, administrative, ideological, military, police), but they also provide the key ground on which
different social groups distinguish themselves in terms of their interests. In short, production relations
can be understood to provide the material and social basis for all forms of state (Cox, 1986: 6).
This dependence of states upon production relations must be understood as a logical priority,
however, and not as these production relations necessarily having historical precedence. That is to
say, forms of production relations do not necessarily arise independently of state activity. Indeed,
most major forms o f modem production relations have been ushered in, if they were not created by,
the state (e.g., the liberal state's role in the transition from mercantilism to competitive capitalism, the
Bolshevik state's creation of central planning, the Fascist state's development of state corporatism).
Thus, the state cannot be seen as a mere reflection of production relations, the development o f which
is sparked by technological change. Rather, the state must be seen as potentially having a much more
active role in developing forms o f production relations. The state also plays a very active role in
determining the relationship between the different forms o f production relations in a society,
generally establishing or acknowledging one form as dominant. The fulfillment of this task of
determining the relationship between the different forms o f production relation results in what
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Gordon (1980) has termed a "social structure o f accumulation." In such structures o f accumulation
(e.g., Fordist, post-Fordist) the extraction of the surplus generally flows from lower or weaker forms
o f production (e.g., household production, self-employment) to stronger or dominant modes (e.g.,
. industrial production). These structures of accumulation also specify the basis for the class
structure.7
3) Forms o f State
While the state is able to influence the class structure by ordering the relationship between
different forms of production relations, the form that the state can take is itself dependent upon the
class structure o f a given society. This does not imply that a dominant class can or will exert
instrumental control over the state, only that the agents o f the state recognize what a particular class
structure makes possible and what it precludes. Thus, class structure defines the nature o f the state
not so much by specific manipulation of state policies as by imposing a "general understanding o f the
tasks and limits of the state." (Cox, 1987:6) It is, as it were, that “a particular configuration o f social
forces defines the limits or parameters o f state purposes, and the modus operandi o f state actions,
defines, in other words, the raison d ’ etat for a particular state.” (1987: 105) To the degree that these
configurations may be comparable in different states in a given historical period it is possible to
distinguish “forms o f state” which share a common raison d ’ etat. Such forms o f state (e.g., the
liberal state of the nineteenth century, the nationalist-welfare corporatist state, the fascist corporate
state, the neo-liberal corporatist state, etc.) can be understood as historical structures.
7In accord with Marx, Cox (1987: 6) understands class dynamically, i.e., a class in not merely a social
group with a common relationship to the means of production, but one which has come to recognize
and organize its common interests relating to its position in the relations of production.
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To state that class determines the form o f state and that agents o f the state acknowledge the
limits o f possibility that a class structure establishes for state activity, does not imply that all political
actors (including, perhaps, the different agents of the state itself) accept these limitations.8 Rather, as
Cox points out, to lay bare the configurations o f social forces upon which state power rests (what
j Gramsci referred to as an historic bloc) is to "demystify the state and open the possibility of
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| constructing an alternative historic bloc and thus an alternative state." (1986:6) On the other hand,
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j however, it is also the case that a dominant class may be able to dominate state structures to such a
| degree that other actors not only acknowledge the limits of possibility o f a the existing form of state,
| but accept them. Under these conditions, the state can be said to be hegemonic.
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4) Structure and Agency
In defining forms of state in terms of historic blocs, neo-Gramscians like Cox offer a
conceptualization o f the state as part o f a larger state-society complex. This understanding of a state-
society complex is important in that it allows an elaboration of the context in which action by the state
and other actors occurs. As structure, the state-society complex both constrains and guides action. It
is, however, individual and collective agents seeking to promote their own interests that act, interact
and bring about change. Individuals and collective actors may be influenced by the constraints which
structures impose to work within the logic of the structure, but they may also decide, at some cost, to
8Such opposition of elements o f the state can be understood in terms of Poulantzas' (1980) notion of
the state as a contested terrain, i.e., the state itself as a site of class struggle. This character of the state
as a contested terrain becomes most evident when left leaning governments take power and are
confronted by more conservative elements in other state sectors (e.g., Chile under Allende, France
under Mitterand).
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work against a structure. These two factors, the constraints of structure and agency, are the key to a
theory of the politics of the state. These factors can be thematized in terms o f the notion of “political
articulation,” i.e., how interests are organized and institutionalized (Cox: 1986).
The interests of different individuals and groups can be expressed in terms o f policy
preferences, with the particular preferences o f individuals and groups reflecting their position in a
particular structure (e.g., form of production relations). In the competition between individual and
collective actors seeking to promote their own interests, the state plays a key role as mediator. This is
not to say that the state is a neutral (or unified) actor in the process of mediation. Individuals and
collective actors within the various sectors of the state (viz., the legislature, the judiciary, the
executive, the bureaucratic administration) may have their own objective or subjective interests that
they wish to promote. The factors involved in determining which of the various competing different
policy proposals actually wins out are numerous, but will inevitably include the unity of the coalition
supporting it, the material resources which can be marshaled to support it, the institutionalized
political resources upon which it can draw, etc. In promoting interests through policy preferences,
material resources or political contacts alone may not be enough. Better organized opponents with
fewer resources can at times be more effective in promoting their interests. More generally this is to
say that structure, in and of itself, does not bring about results. Structure, however, does gives some
interests a distinct advantage over others. Some actors (e.g., oligopolistic capital), due to the
resources which they are able to draw upon, are very capable of "articulating" their interests while
others (e.g., non-organized, menial labour) are much less adept (Cox 1986).
5) The Structural Power o f Capital
The structural power o f capital in the political realm, then, can be understood in terms of its
ability to articulate its interests by drawing upon the resources that accrue to it through its position in
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the social structure o f accumulation. Capital tends to enjoy a significant advantage over other actors
with respect to three types of resources. First, it has access to greater material resources than other
actors. The exercise o f capital's material resources is perhaps most evident in two related activities,
viz., electoral politics and lobbying. While capital may not be directly or entirely responsible for the
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monetarization o f the electoral politics, it is clearly in the best position to take advantage o f this
phenomenon. Capital consistently outspends other social groups (e.g., labour, environmental groups
etc.) by substantial amounts (Kaufman et al., 1996). This monetarization o f politics serves as an
effective barrier to entry into the political realm as only those capable o f raising large sums of money
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into the selection o f elected officials, a bias that naturally tends to operate in the interests of capital.
Even when regulations are put in place to limit the role of money in electoral competition, capital has
proved very adept at getting around such rules as the recent controversies in the US around "soft
money" indicate. As with electoral politics, so with lobbying. Again, while capital is not the only
social group that violates the principle of the separation of state and society in this area, it is capital
which historically has "monetarized" the lobbying process and which has been in the best position to
advance its own interests through such activities (Bimbaum, 1993). The financial resources of capital
not only enable its lobbyists to wine and dine legislators, but also provide capital with the ability to
marshal (and generate) facts to support the worthiness of its cause. In lobbying, as in electoral
campaigns, capital does not always act in a unified manner as different sectors of capital have
different interest determined by their size, the sector of the economy in which they operate, their
relationship to international markets, etc. The various groupings of capital, however, may and
frequently do have common interests with respect to a range of issues (e.g., government spending,
taxation, regulation, monetary policy, etc.) Their material resources enable them, in ways that other
agents cannot, to ensure that their concerns are given serious consideration (Kaufman et al., 1996).
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Another, perhaps less obvious, way in which capital's material resources can be used to further its
interests in the political realm involves its ability to effect the general state of the economy. The key
factor in the exercise o f such power is control over investment. Capital can choose to invest not only
out o f pure market considerations, but also out o f strategic political considerations. It may refuse to
invest to send a message to a government or even as an attempt to oust a particular government.
Capital can, in effect, go on strike, e.g., in Allende's Chile, in Mitterand’ s France (Cox, 1994).
A second aspect of the structural power o f capital involves the institutionalized political
resources upon which it can draw. Capital tends to have a major advantage here vis-a-vis other actors
due to its formal and informal contacts with different sectors of the state. In terms of its formal
contacts, capital in its role as a "business expert" frequently serves as a consultant in the process o f
policy formation for the legislative and executive branches as well as various bureaucratic
departments. While these relationships tend to become especially close during times of national
emergence (especially during war), in normal times as well various branches o f the state may work
closely with capital. A clear example o f this are the "iron triangles" that emerged in the post-war US,
in which capital, the bureaucratic apparatus and legislative sub-committees operated like cartel
management rather than serving their ostensible function of regulation in the interest of the public
good (McConnell, 1966). In terms o f informal contacts between capital and the state, such contacts
may be rooted in any of a number of bases. They may be grounded in a common class background
which has allowed for social contacts (e.g., common schools, associations, clubs, etc.) between
business and government leaders (Miliband, 1969). They may also be based upon previous formal
contacts or, in the case of the legislative and executive branches, through previous lobbying and
campaign activities. Another basis for such "informal contact" involves the "revolving door" practice
in which former government officials take positions as consultants or lobbyists for capital, while
business executives accept administrative positions or seek elected office.
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A third aspect o f the structural power of capital involves the realm of ideas and the ability of
capital to not only to develop but effectively promote an ideological position. Capital, of course, is
not the only social force capable o f elaborating an ideological position (i.e., a broad interpretative
framework capable o f integrating the relationship between the various social realms) and may
elaborate different forms of ideology. In advanced democratic capitalist states, however, some form
of political pluralism has tended to be the dominant form of political ideology. Such positions tend
to: I) place a strong emphasis on individual rights (including the right to private property); 2)
understand democratic political competition along the lines of a competitive market model in which
competing political entrepreneurs vie for the favour of political consumers; 3) conceive of the state as
a neutral actor seeking to promote a common good (as expressed by the preferences of the voters),
and; 4) portray a capitalist market economy not only as an efficient solution to the problem of
production, but as a guarantor of political liberties (Camoy, 1984: 33ff). The structural power of
capital, however, is expressed not so much in its ability to elaborate an ideological position as in its
ability to propagate it. It is aided in this task by its material resources (including its control over large
sectors o f the media) as well as its institutional and sociological connections to the state apparatus
(especially through the propagation of this perspective through the educational system): To the extent
that the ideological position of capital becomes widely accepted throughout the various sectors of the
state an civil society, as was noted above, the state in question can be said to be hegemonic (Cox,
1987). The existence of such a hegemonic state may have important advantages for capital. On the
one hand, it does not so much have to exert itself to have its interests represented by the state, so
much as the state actively takes up the interests o f capital. On the other hand, it does not have to
defend its privilege from attack by civil society groups as these groups (especially big labour)
perceived their interests to be aligned with those o f capital as "What's good for GM is good for the
country."
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B) The Problem o f Establishing the Conditions Necessary fo r Legitimate Law
With respect to the category of legitimacy, two basic concerns combine to call into the
question the potential normative acceptability o f capitalist business and economic practices. The first
of these concerns involves motivation. Capital can be understood to have objective interests defined
by the instrumental logic of the system within which it operates (and generally expressed in the short
hand term o f "profit maximization"). These interests may in many respects run counter to the
establishment o f the conditions necessary for the generation o f legitimate law. The second concern
involves means. Capital's structural power provides it with resources that may allow it to effectively
block moves by civil society groups to establish the conditions necessary for the generation of
legitimate law. To the extent that capital has both motivation and resources to oppose the
establishment o f the conditions necessary for the generation of legitimate law, the key question
concerning the potential o f capitalist business and economic activity for living up to the demands o f
legitimacy becomes whether civil society (in cooperation with those elements o f capital that have the
subjective resources and motivation to work against structure) can out organize capital to establish
these conditions.
From a critical theory perspective, whether civil society can out organize capital and impose
communicative controls on it in the form of legitimate law remains an open question. That is to say,
only time will be able to provide an answer to this question. What we can do here, however, is
examine the various conditions necessary for the generation o f legitimate law to see where problems
are most likely to arise in the attempt to institute these conditions in law. In taking up this task we
will examine three related issues. The first of these involves the interests that capital has in
conforming to or opposing the specific conditions necessary for the generation o f legitimate law. The
second is the degree to which these conditions have already been met and what type o f efforts have
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been made to try and meet them. The third issue involves the question o f how potential opposition
from capital might be overcome. The short answer to this latter question, as we have already
intimated, is that such opposition can only be overcome by superior organization on the part o f civil
society groups (which will, of course, seek to use the state to make changes).
I) The System o f Rights
Private Autonomy Rights - The basic categories o f private autonomy rights (viz., equal
liberty, freedom o f association and legal protection) are formally recognized by most states in the
world today. These basic forms of rights, while they did not emerge as universal rights without
struggle by marginalized groups, are generally well protected in Western capitalist democracies.
Such rights can readily be seen not only as compatible with capitalist business and economic activity,
but as extremely important— if not absolutely essential— for it. Moreover, claims to such rights can
provide a normative justification for the right to conduct capitalist business practice, while their actual
existence can have an important legitimating function for capitalism. On these grounds, a basic
compatibility between capitalist business activity and private autonomy rights can be upheld. In
short, capitalism in modem developed economies has little reason to oppose private autonomy rights
and many reasons to favour them.
Yet, while capital has no reason to oppose private autonomy rights in general, it does have
an interest in curtailing them in one particular setting, viz., the workplace. There are some possibly
valid concerns (e.g., safety considerations) that capital and society in general may have for not
respecting the same rights (e.g., the right to privacy) in a place o f employment as it does in other
situations (Boatright, 1995). Whether some private autonomy rights should be restricted in the
workplace, however, cannot be understood as a matter to be decided at the discretion of management.
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Any limitations on private autonomy rights need to be decided through the legislative process.
Capital, however, frequently seeks to limit the private autonomy rights o f its employees. In doing so
capital may be motivated by societal wide interests. It may also be motivated by less universal
concerns, viz., cost cutting and efficiency concerns. Capital, for example, may seek to restrict private
autonomy rights as a way to increase work discipline (e.g., through surveillance) or to decrease costs
(e.g., by screening potential employees for health problems, union sympathies, etc.). While such
tendencies to restrict private autonomy rights on the job are inherent in the logic of capitalist business,
they are in theory controllable by more adequately formulated legislation (backed up by appropriate
sanctions) which clearly distinguishes the extent to which and conditions under which private
autonomy rights can be restricted on the job.
Welfare Rights - Capitalist firms (and governments who associate themselves with the
interests o f capital) have an ambivalent set of interests with respect to welfare rights. On the on hand,
the guarantee o f such rights (or the provision of programs without a constitutional guarantee) can
have an important legitimating function which can help to secure social stability by attaching workers
loyalties to the state. It was this insight that led Bismarck to initiate conversations with Lasalle as
early as 1863 and to the implementation o f a social insurance programs a decade later (Cox, 1987:
173). Developed capitalists states, however, to the extent that they reflected the interests of capital,
were not generally willing to implement social welfare reforms until social stability was seriously
threatened. Thus, even though there was some pressure for such measures, especially after World
War I as the working classes ceased to be merely a latent social force, the developed capitalist states
were able to put off reforms as the threat to social stability did not seem imminent. It was only in the
wake o f the crash of 1929 that the developed capitalist states felt threatened enough to implement
significant social welfare reforms. The implementation o f such programs, however, served its
intended function as labour in the developed capitalist countries came to an agreement with capital
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mediated by the state. In the most developed capitalist countries this agreement took the form o f a
new state formation, tripartite corporatism.9 Under tripartite corporatism, developed capitalist
countries were able to afford relatively extensive social welfare programs (most notably Germany and
the Scandinavian countries) while maintaining strong, competitive economies.
On the other hand, the guarantee o f welfare rights, although having an important stabilizing
function which enables capitalist business activity to continue relatively uncontested by social
opposition, also has costs for capital. Some o f these costs are general in nature and come in the form
o f employer contributions for employment based social programs as well as generally higher tax rates
on corporate profits to cover the costs o f other non-employment based social programs. Other costs
may be incurred by specific sectors (e.g., health care industry) depending upon the form o f
intervention which the state employs to provide programs (e.g., state or private provision o f services).
The instrumental logic of capital leads it whenever possible to pressure the state to retrench. As such
capital tends to favour targeted as opposed to universal programs, minimal benefit levels and
programs paid out o f general tax revenues. Moreover, it argues, on the basis that the best strategy for
guaranteeing adequate levels o f welfare is not the extensive provision o f social programs but a strong
economy, that it is more advantageous to society as a whole to have low corporate tax rates.
Thus, while capital can be forced to accept the guarantees of social welfare necessary to
allow individuals to participate in the political process, it constantly seeks to undermine such
provisions when possible. This dynamic is in evidence in the shift from a tripartite corporatist state to
the hyper-liberal form (e.g., the UK under Thatcher, the USA under Reagan) which has dramatically
cut back on the provision o f social welfare programs, while favouring the interests o f capital, e.g., by
initially during the Depression, there was a national tripartite corporatism. In the post-war period
with the establishment of U.S. hegemony in the world order, tripartite corporatism took on a neo
liberal form (Cox, 1986).
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cutting corporate tax rates, privatizing state-owned industries, etc. (Cox, 1987) What this means for
our present concerns is that, while the guarantee of a right to a minimal level o f social welfare
necessary for participation in the political process is not incompatible with a capitalist economy, it
can only be maintained by a mobilized civil society that counters capital's tendency to undermine
such guarantees.
Public Autonomy Rights - From a critical theory perspective the category of public autonomy
rights includes not only freedom of expression, but the equal opportunity to affect public opinion- and
will-formation. O f particular importance in this regard is access to the media and the equal ability to
influence the school curriculum. The possibility of guaranteeing such public autonomy rights in a
capitalist society implies that the state may need to take strong measures to control privately owned
media and/or to promote alternative forms o f media (either state or public). Capital as a whole and
some sectors of capital in particular have little interest in such intervention by the state. Privately
owned media may be adversely affected financially by regulatory measures aimed directly at them
(e.g., public access provisions, stricter oligopoly control). They may also be affected in an adverse
fashion by the promotion of alternative sources of media (e.g., by increased competition for audiences
and advertising dollars). Less directly, capital as a whole may be affected by such state intervention
to the degree that it gives marginalized and disaffected groups a greater ability to address the privilege
of capital and attack a dominant ideology that fosters the interests of capital. As regards the education
system, capital has frequently benefited under hegemonic states from the promotion of an ideological
bias in the curriculum which affirms its privilege. More recently it has not only taken a more active
approach in trying to influence the curriculum (in an effort to develop a potential workforce for itself
that is more suited to the global marketplace), but has even sought direct access to the classroom to be
able to advertise its wares (Bowman, 1996:148).
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While all developed capitalist countries do regulate privately controlled media and promote
alternative forms o f media (e.g., state-run television and radio, support for public television and radio)
to some degree, the extent o f such activities falls far short o f what would be required to guarantee an
equal ability to affect public opinion- and will formation. Similarly, there is little interest taken in
promoting more democratic input into the school curriculum. Without such guarantees, however,
capital and the political forces associated with it have a tremendous advantage in promoting their own
ideological positions, an advantage which not infrequently leads to the establishment of hegemonic
control. Improvements in these areas can only occur on the basis o f civil society mobilization. While
it is not inconceivable that such mobilization can ultimately be successful in establishing a right to
public autonomy, there is little reason for hope given that such mobilization will inevitably encounter
strong opposition from capital (and social groups sharing their ideological perspective), an opposition
which will be able to draw upon the material and institutional advantages that capital's structural
power provides.
2) Principles o f the Constitutional State
The Guarantee o f Legal Protection and the Legality ofAdm inistration - In developed
capitalist countries, the basic principles of the constitutional state have been incorporated into law to a
large degree. In particular, the guarantee of legal protection and the legality o f administration are
well established. Capital, for its part, in developed Western democracies has virtually no interest in
opposing these latter two principles. To the contrary, it could be argued that respect for such
principles is beneficial to the practice of capitalist business. Where capital does have a strong interest,
however, involves the definition o f its own status under the law (i.e., with respect to its liability and
the degree o f legal protection that it can expect under the law). The reason for this is that different
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definitions o f the legal status o f the firm (and the role o f management) can greatly affect the interests
o f capital. In the US, capital has benefited from the development of a "doctrine o f corporate
individualism” within US constitutional law (Bowman, 1996: 8). This has not only granted
; corporations the legal rights and capacities o f contracting individuals, but also political rights, e.g.,
the right to free speech (First National Bank vs. Bellottf). Moreover, by transforming a collectivity
into an individual, the personification of this legal fiction paved the way for rulings against any social
responsibility of corporations, portraying them not as trusts but private contracts (Kaufman et al.,
1995; Bowman, 1996).
Popular Sovereignty - The principle of popular sovereignty is more problematic with respect
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j to the interests o f capital than the previous two principles. From a critical theory perspective the
content o f popular sovereignty must be elaborated in terms of the principle o f the guaranteed
autonomy of public spheres (to allow for democratic procedure), the principle o f political pluralism
(to institutionalize competition between political parties) and the parliamentary principle (for the
establishment o f representative bodies for deliberation and decision-making). (Habermas, 1996) In
some advanced capitalist democracies these latter two aspects of popular sovereignty are only
partially respected, often for reasons which have historically been to the advantage o f capital and
other privileged groups and to the disadvantage of marginalized groups. First, with regard to the
principle o f political pluralism, there may be strong barriers to entry into the political arena, a
phenomenon most evident among developed countries in the two party system in the US. Second,
concerning the parliamentary principle, two problematic phenomena are in evidence. On the one
hand, the institutional arrangements of many countries (e.g., the UK, Canada) still retain the vestiges
o f aristocratic privilege (e.g., in the form o f unelected upper chambers). On the other hand, the
formulas for representation (e.g., first-past-the-post, minimum floors) discriminate against small
parties and in favour o f the dominant parties which have historically been more closely associated
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with the interests of capital. All o f these tendencies work in favour o f the maintenance of status quo
(and against the possibility of establishing the conditions for legitimate law in law).
To the extent that capital benefits from the existing structures, it has little interest in reforms
that would bring them more in line with the conditions necessary for the generation of legitimate law.
The possibility o f such reforms in these areas, however, is not beyond the realm of conception. In
Canada, for example, the move from a non-elected to an elected upper chamber is already in process.
Moreover, capital in other countries (e.g., Germany) has proven its ability to coexist with
representational formulas (e.g., proportion representation) which allow for better representation of
minority views (e.g., Greens). As is the case with several of the other reforms required for the
institutionalization of the conditions for legitimate law, however, mass mobilization will be required
and it will face strong opposition from capital and entrenched political forces.
The Separation o f Stale and Society - In the model o f the bourgeois constitutional state the
notion of the separation of state and society refers to the norm that the state is to limit its
responsibilities to guaranteeing external and internal security, while all other functions are left to a
self-regulating economic society. From a critical theory perspective, however, the principle o f the
separation o f state and society entails the demand that the unequal distribution of social positions (and
the resulting power differentials which they create) only work to facilitate and not restrict the
formation o f communicative power. A restriction on communicative power results when “the
disposition over social power provides some parties with a privileged opportunity to influence the
political process in such a way that their interests acquire a priority not in accord with equal civil
rights.” (Habermas, 1996: 17S) Insofar as capital tends to have the most social power at its
disposition and, therefore, the greatest potential for advancing its own interests through the use of
social power, it is not generally in the interest o f capital that the principle o f the separation o f state
and society be incorporated into law.
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In our discussion o f the structural power of capital above, we noted three ways in which
capital is able to make use of the structural power deriving from its material resources, viz., the
"monetarization" of the electoral processes, the "monetarization" of the lobbying process and the
strategic use o f investment decisions. All of these uses o f the structural power o f capital represents a
violation of the principle of the separation o f state and society. Capital's ability to violate the
principle o f the separation o f state and society in the first two o f these ways can, in principle, be
controlled in a relatively straightforward manner through the use of law itself. More restrictive
campaign spending laws and lobbying regulations could, in principle, effectively de-monetarize the
electoral process and lobbying practices.1 0 Such types of laws are not without historical precedence.
In the US, for example, the Tillman Act of 1907 forbade corporations and banks from making
monetary contributions to election campaigns while subsequent legislation in 1910 and 1911 required
disclosure o f campaign contributions and set limits on campaign spending (Kaufman et al., 1996: 98).
Current laws are much less stringent in the US The adoption and enforcement of laws adequate to
ensure respect for the principle of the separation of state and society would require mass civil society
mobilization in order to overcome the interests not only of capital, but also o f (incumbent) politicians
who, as a group, benefit from such practices (though not without some ambivalence).
While the conditions for the solution to the first of these two types o f violation o f the
principle of the separation o f state and society is relatively straight-forward (if not easy to achieve),
controlling the ability of capital to influence state policy through its power over investment decisions
poses a much more intractable problem. The basic problem here is that in democratic market
economies governments are dependent upon capitalist firms for economic performance, while capital
can choose to make business decisions out of strategic political motives as well as for purely business
consideration that are based upon market indicators. More specifically, capital can choose for
10For an account of the activities of U.S. capital in these two areas see Bowman (1996: 18ff.).
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political reasons (e.g., to damage the popularity of a government and hurt its chances for re-election,
to gain concessions on proposed legislation) not to invest under economic conditions in which it
otherwise normally would invest. In this way capital is able to use its social power to influence public
policy and political choices in ways which ordinary citizens are not. While capital is not able to
refrain from investing forever, it does not have to. Merely refusing to invest for relatively short
periods of time may be sufficient for it to achieve its goals. Often even the threat o f such action is
sufficient While, in theory, a government might seek to oppose capital by waiting it out, in practice
this proves extremely difficult (especially given the other aspects of capital’s structural power, in
particular its ideological power). The position of capital is strengthened even further when it is able
to use the option o f flight as a bargaining chip against national governments (or sub-national
governments as has occurred on a large scale in the United States during the 1970s and 1980s with
the flight o f capital from the rust belt to the sun belt). (Green, 1984). With such tactics, capital is
frequently able to gain significant concessions from states in a range of areas (e.g., tax rates, labour
law, environmental standards, infrastructure improvements, etc.). The point here is not that capital
does not require inducements to invest under some conditions, but rather that capital is able to use its
social power to raise these levels of inducements to artificially high levels. While the ability of
capital to demand such concessions can (potentially) be controlled in the case o f intra-country capital
flight in a relatively straight-forward manner (viz., by national standards and policies), the ability to
control capital strike is much more difficult as there is no other mechanism than inducements by
which to prompt capital to invest. While a government might try to outwait capital during such a
strike, it is a very risky tactic for a government— especially one in the middle of a recession— not to try
and "prime the pump" in the period leading up to the polls. Moreover, even if states could find a
method to effectively address the problem of capital strike, capital in the real world has another
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option, inter-country capital flight. This problem, as we shall examine in the next section, may be
even more difficult for governments to address.
ID. The Problem of Imposing Transnational Controls on Capital
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The fact that capital operates not only within the confines o f individual states but across
states— in an international realm lacking a system of governance corresponding to the constitutional
state— makes it much more difficult to bring it under the control o f communicative action. It is the
| nature o f these problems and the possibility of resolving them that are addressed in this section.
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A) The Structural Power o f Capital
In the previous section we examined how capital was able to convert resources that accrued
to it through the relations o f production into other forms o f power (e.g., financial, administrative,
ideological, etc.) that could then be used to promote its interests in the political realm. In that
discussion we abstracted from the influence of a third form of historical structure, viz., world orders.
Insofar as the nature of the world order conditions the relationships between the form o f state and
social relations (as well as being conditioned by it), we did not adequately address the dynamics
between production relations and the form of state in our previous discussion. It is important to look
at these dynamics now, in order to understand the complications involved in the attempt to impose
communicative control over capital when it operates across national boundaries. O f particular
concern here are the changes that have occurred in the world system over the last two to three
decades, changes which have served to substantially increase the structural power of capital.
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1) World Orders and the Dynamics o f Change
C ox defines a world order as “the particular configurations of forces which successively
define the problematic o f war and peace for the ensemble o f states (1986:220). From the nineteenth
century on world orders have to be understood in terms o f two basic features, the world economy and
the international state system. During this time the state system has been the more dominant of these
two features and has, in a sense, determined the nature of the world economy. The nature o f this
determination relates to a primary distinction between different types o f world orders, viz.,
hegemonic and non-hegemonic. The international state system, just like an individual state, can be
understood as a contested realm. At times, however, one state may achieve a particular form of
dominance over others, viz., hegemony. Cox explains the significance o f this form of dominance
where the dominant state creates an order based ideologically on a broad measure of
consent, functioning according to general principles that in fact ensure the continuing
supremacy of the leading state or states and leading social classes but at the same time
offer some measure or prospect of satisfaction to the less powerful. In such an order,
production in particular countries becomes connected through the mechanisms o f a
world economy and linked into world systems of production. The social classes o f the
dominant country find allies in classes within other countries. The historic blocs
underpinning particular states become connected through the mutual interests and
ideological perspectives of social classes in different countries, and global classes
begin to form. An incipient world society grows up around the interstate system, and
states themselves become internationalized in that their mechanisms and policies
become adjusted to the rhythms of the world order. In nonhegemonic phases of the
world order these tendencies are reversed. (1987: 7)
World orders, then, are intricately connected to the two other forms of historical structure discussed
previously, viz., production relations and forms of state. The key links here are political articulation
and the politics o f states, especially large, dominant states. In the international arena, large states
(especially “hegemons”) are generally able to promote their agenda more effectively that smaller
states. The agenda o f these large states, however, does not reflect some abstract national interest, but
rather is determined by the interests of well placed domestic actors. Under the post-war Pax
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Americana, for example, this has meant that the interests o f multinational corporations, which have
been particularly well articulated within the US, have been projected into the international realm
(through a variety o f multilateral economic agreements and institutions).
The flip side o f this relationship between the domestic and the international realm is that the
influence o f large, powerful states on the world economy constrains the economic space of smaller,
dependent states. As a result, such states are often confronted with difficult policy choices.
Depending upon the configuration of domestic forces and the perception o f interests, the result may
be either bold changes in domestic policy in an attempt to adapt to the new global structures or
merely defensive posturing which seeks to protect established interests as best it can. In both
' instances, however, smaller states are forced to react to conditions that they did not create. This
means that key domestic actors, while the may be powerful within the state, will have little or no
ability to influence policy beyond the domestic realm due to the relative impotency o f their state in
the international arena. Smaller and less powerful states can pursue do have one option, however,
viz., attempt to band together to protect or promote common interests (e.g., the group of non-aligned
nations). Such attempts have met with only limited success, however, for, among other reasons, the
institutional structures of the international state system is designed to favour the interests of its most
powerful members (e.g., the right o f veto in the U.N. security council, the non-binding nature of U.N.
General Assembly resolutions, etc.). (Cox, 1992)
The possibility o f change in world orders can be accounted for by conflicts and
contradictions which arise between the three different forms o f historic structures. Referring to the
work of E. H. Carr, Cox is able to provide in succinct form one example of how change can occur:
Changes in the organization of production generate new social forces which, in turn,
bring about changes in the structure of states; and the generalization o f changes in the
structure of states alters the problematic of world order. For instance, as E. H. Carr
(194S) argued, the incorporation o f the industrial workers ( a new social force) as par
ticipants within western states from the late nineteenth century, accentuated the move
ment of these states toward economic nationalism and imperialism (a new form of
state), which brought about a fragmentation of the world economy and a more con-
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flictual phase of international relations (the new structure of world order). (1986: 220-
221)
In Production Power and World Order (1987), Cox offers a more systematic account of the dynamics
between these three different type of historical structures in the context of an analysis of how three
major structures o f world order came into existence, viz., Liberal Internationalism (1789-1873), The
Era o f Rival Imperialisms (1873-1945) and the neo-liberal Pax Americana (post World War II)- In
so doing, he documents how each of these new worlds order is characterized by new forms of state
(e.g., liberal states, national corporatist states, neo-liberal corporatist states), new historic blocs and
new configurations of production relations (workshop production, assembly-line production,
Fordism). (The resulting complex of the types of three historical strictures may be understood as a
world system.) Our present concern, however, is with the most recent changes that have been
occurring in these forms of historic structure and, in particular, how the power of capital has been
augmented by these changes.
2) The New Emerging World Order and the Structural Power o f Capital
As we have just noted, Cox argues that the emergence of a new world system (a complex
historical structure) comes about as the result of contradictions and conflicts within and between
simpler historical structures (social forces, forms o f state and world order). Cox dates the end o f the
last coherent world system, in which there was a (quasi-)hegemonic world order in the form o f the
Pax Americana, to around the mid-1970s. The problem with trying to analyze the new world system
is that it is still emerging. Yet, while no definitive characterization is possible, some account of the
changes that are occurring can be offered. This can be done by examining in turn the change that has
occurred in each type of historical structure.
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While there is rarely ever any one independent starting point from which to date a particular
historical process, perhaps the first key factor that should be isolated in the current process has been
the shift in the organization of production from a Fordist to a post-Fordist model. Cox (1994)
describes the basic aspects of the model:
j The large integrated plant employing large numbers of semi-skilled workers for the
| mass production o f standardized goods became an obsolete model of organization.
| The new model was based on a core-periphery structure of production, with a
| relatively small core of relatively permanent employees handling finance, research and
I development, technological organization, and innovation, and a periphery consisting o f
dependent components of the production process.
While the core is integrated with capital, the fragmented components of the
j periphery are much more loosely linked to the overall production process. They can
1 be located partly within the core plant, e.g., as maintenance services, and partly spread
| among different geographical sites in many countries. Periphery components can be
called into existence when they are needed by the core and disposed of when they are
no t Restructuring into the core-periphery model has facilitated the use of a more
precariously employed labour force segmented by ethnicity, gender, nationality, or
religion. It has weakened the power of trade unions and strengthen that of capital
within the production process. It has also made business less controllable by any
single state authority. (1994: 47)
The key components of this practice were first developed in Japan and implemented domestically.
The model first expanded its geographic range by being adopted in other countries. Then, technical
improvements in transportation and developments in communication made the transnationalization of
this processes increasingly feasible. This has ultimately allowed for the internationalization o f
production (as well as the internationalization of finance). The shift from Fordism to post-Fordism
represents a change in the historical structure o f social forces.
The change in the structure o f social forces emerged in connection with, and was facilitated
by, changes in the neo-liberal form o f state that characterized the dominant states in the post-war era.
The origins of this change in the form o f state can be traced back to the period o f 1968-75 (Cox,
1994). This was the time when the Bretton Woods agreement broke down, the time o f the first “oil
shocks” and the time when the phenomenon o f “stagflation” first appeared. These factors both
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instigated and enabled capital to more effectively exert its structural power and led to the disinte
gration o f the neo-liberal historic bloc (based on a tripartite corporatism involving government,
oligarchic capital and big labour). During this period, the economic problems which arose provoked
a re-evaluation o f the hierarchy o f economic concerns in the US (and other industrialized countries as
well). Inflation became perceived as a less benign phenomenon, especially as capital in the US began
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; to suffer a profit squeeze (which was attributed to the power of organized labour and international
j competition). Concern also arose over restrictions (by organized labour) on management’s ability to
organize production. At the same time, fiscal crises were being traced back to excessive government
involvement in the management o f the economy. This re-evaluation occurred in large part due to
ideological attacks by unofficial agencies such as the Trilateral Commission and the Bilderburg
conferences and was later endorsed by official bodies such as the OECD. It served to undermine the
legitimacy of state welfare and labour movements, and spelled the end o f the unwritten social contract
o f the post war neo-liberal corporatist state (Cox, 1986).
Since then no new form of historic bloc can be yet said to have emerged, but two different
directions in the former neo-liberal states can be distinguished. One direction, which forebodes a
“hyperliberal” form o f state, is embodied in the more confrontational tactics employed in the UK by
Thatcher and in the US by Reagan. This approach, which clearly renounces tripartite corporatism,
promotes a clear separation between state and economy. As such it has actively sought to promote a
change in the sphere o f production (through privatization, deregulation, etc.). In its search for a new
basis of legitimacy for this new order, it has turned to a populist appeal to traditional values (with
subliminal traces of racism involved). The other broad direction which has emerged, a state-capitalist
approach (e.g., Germany, Japan), is characterized by a more consensus based approach to adjustment
to the realities o f the emerging new global economy. It still finds a strong role for the state in the
form of industrial planning and as a mediator between the principle social forces o f production whose
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participation is essential for the implementation of an industrial policy. Two basic policies dominate
the policy. On the one hand there is the promotion of international competitiveness through a
combination of exposure o f sectors of the economy to international competitive pressures, while
supplying subsidies and orientation to innovation. On the other hand, there is a linking o f the
“balancing of the welfare o f social groups” to the pursuit of competitiveness. As such, there is a
dualism in this model between a competitively efficient, world market oriented sector, on the one
hand, and a protected welfare sector on the other (Cox, 1986). These two emerging directions in
forms of state already have had significant differences on the populations which live under them,
differences which may become even more pronounced in the future. They also have important
implications for the nature o f the emerging world economy, in particular in relationship to the degree
to which it will be regulated and controlled. The degree to which one set o f implications will win out
over the other is being determined in the struggle over the new world order and, in particular,
between the attempts to reassert and constrain US hegemony.
The changes in the structure of production relations and the form o f state have resulted in
(and were influence by) changes in the two majors features o f the world order, viz., the world
economy and the international state system. The same factors that instigated and enabled capital to
exert its structural power in the direction o f economic liberalization in the domestic arena also led to
the promotion o f a more liberal agenda in the international economy. These developments in turn
helped to accelerate the shift from Fordism to post-Fordism both within and beyond national borders.
With the collapse o f the Soviet Union, the last major obstacle to the abilities of transnational capital
and the dominant Western states to promote a global, neo-liberal economic order was eliminated.
The recent establishment o f a new World Trade Organization (WTO) is symbolic o f the direction of
change.
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While the there is no single body that controls or directs the new world economy, this does
not mean that it functions without any guidance. Despite the lack of an official power structure, there
is, nonetheless, a phenomenon that Cox and others (Rosenau and Czempiel, 1992) have described as
governance without government.
There is a transnational process of consensus formation among the official caretakers
of the global economy. This process generates consensual guidelines, underpinned by
an ideology o f globalization, that are transmitted into the policy-making channels o f
national governments and big corporations. Part o f this consensus-formation process
takes place through unofficial forums like the Trilateral Commission, the Bilderberg
conferences, or the more esoteric Mont Pelerin Society. Part o f it goes on through
official bodies like the Organization for Economic Co-operation and Development
(OECD), the Bank for International Settlements, the IMF and the G-7. These shape
the discourse within which policies are defined, the terms and concepts that
circumscribe what can be thought and done. They also tighten the transnational
networks that link policy-making from country to country. (Cox, 1994: 49)
This increased centralization o f control over policy expresses itself in a key characteristic of the
international state system in the emerging new world order, viz., an “internationalization” of the state.
Cox describes the effects o f this centralization o f control:
Its common feature is to convert the state into an agency for adjusting national eco
nomic practices and policies to the perceived exigencies o f the global economy. The
state becomes a transmission belt from the global to the national economy, where
heretofore it had acted as the bulwark defending domestic welfare from external
disturbances. Power in the state becomes concentrated in those agencies in closest
touch with the global economy— the offices o f presidents and prime ministers,
treasuries, central banks. The agencies more closely associated with domestic clients—
ministries of industry, labour ministries, etc.— become subordinated. (1994:49)
The fact that this internationalization o f the state has occurred across the gamut o f existing
state forms indicates another significant change in the new world order that is emerging, viz., a shift
in the balance of power between the international state system and the world economy. Globalization
(characterized by the internationalization of production and finance) has fundamentally changed the
world economy such that it is no longer based on international economic relations, i.e., transborder
economic flows subject to control and regulation by the state. The state system is now constrained by
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the world economy as much as it is able to constrain it. This relationship is reflected at the level o f
the individual state and the firm. Whereas before firms could set conditions under which firms could
operate on their territory, now the relationship is more one o f diplomacy in which the two parties
bargain, as states would with other states (Strange, 1994). While the internationalization of the state
and a decreasing ability of the state system to control the world economy represent two important
aspects o f the emerging new world order, other aspects remain undetermined. The most significant of
these is the question o f leadership and, in particular, US hegemony. While some commentators see it
as still stable, others are less certain and some even speculate on what might replace it (e.g., an
oligarchy based upon the same principles, a new hegemon, etc.). Thus, while a shift in the historical
structure o f the world order is clearly occurring, the exact nature o f its final form has not yet been
determined.
While the final character of the new world order is not entirely clear, one fact is certain,
however.. Capital has become more powerful in each o f the new forms of historical structure. In the
realm o f production relations, capital in developed countries has been able to demand and receive
major concessions from labour. It has been able to do this on the basis of claims of "competitive
pressures" that are backed up by the threat of flight. With respect to the form of state, capital's
position has also been strengthened (especially in the hyperliberal form of the state in the US, and the
UK) as the state has deregulated, shifted the tax burden from firms on to individuals and promoted
the ideology o f the need for increased "competitiveness." Finally, in the world order, the relationship
between the system o f states and the world economy has shifted from being a one-way domination to
one o f mutual ability to constrain, while the internationalization o f the state has given capital new
"bargaining power" with which to extract concessions from states.
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| B) The Problem o f Subjecting Transnational Capital to the Conditions o f Legitimate Law
In the previous section we looked at the problems of subjecting capitalist business to the
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control o f communicative action. At the time we abstracted away from the problems associated with
the existence of a global economy (most notably, capital's power to undermine the ability o f the state
to impose controls on it by flight or the threat of flight). Having briefly examined recent changes in
different forms of historical structures and how they have increased the structural power o f capital, we
are now in a position to take up the question of the possibility of subjecting capital to communicative
control in what is rapidly becoming an integrated global economy. This question is of fundamental
importance, because without effective transnational control of capital, then the conditions for
!
legitimate law cannot be effectively implemented at the level of the nation state and the viability of a
critical theory of business ethics is called into question.
In addressing this question of the possibility of controlling capital, it is necessary to proceed
on the basis o f existing legal-political models. Speculating about utopian solutions is self-defeating as
their inability to provide an adequate theory of transition means that they beg the very question that
they are intend to answer (viz., how to control capital). Two models suggest themselves, on the one
hand, the international state system and international law and, on the other, the European Union and
European law. The former has obvious significance as both the dominant model and most extensive
system o f transnational and intergovernmental relations. The latter, for its part, exhibits the highest
degree o f economic integration and supranational control of any regional organization (Bennett,
1995). In investigating these two transnational legal-political systems, we are not concerned with the
degree to which they already mirror or can evolve into a transnational version of the constitutional
state. That is to say, our primary goal is not to evaluate these political-legal systems in terms of the
criteria o f legitimate law, a test that they would surely fail. To the extent that they must reflect some
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| of the characteristics of the constitutional state in order to be able to effectively control capital, some
obvious deficits will be pointed in this regard. Our primary concern, however, is whether these
systems offer any realistic potential for imposing some basic controls on capital that will enable
i nations states to more effectively establish and enforce the conditions necessary for the generation o f
legitimate law. This could conceivably be done with something less that a "United States o f Europe"
or a world federation (Smith, 1994).
I) International Law and the International State System
In the previous section it was noted that the structural power of capital and its objective
interests (understood, in terms o f system logic, as the maximization of profit) created serious
problems for the incorporation o f the conditions necessary for legitimate law in law itself. It was
argued, however, that it was still possible in principle for civil society to out-organize capital in the
process o f electoral competition and use the existing institutions of the constitutional state establish
these conditions in legitimate (aw. The situation confronting those who would impose limits on
capital at the international level is quite different. In the nation state, legitimate law is generally
understood to emerge from a process o f public deliberation by a democratically elected legislature
embedded in a larger constitutional state. In the interstate system, however, there are no institutions
o f governance that correspond to those o f the constitutional state. Nor is law understood to emerge as
a process o f democratic deliberation. The question that is to be investigated here is how these facts
affect the prospects for subjecting capital to the control o f communicative action.
The Institutional Basis o f the Interstate System - The current institutional basis o f the
interstate system dates back to the immediate post World War II period and the founding of the
United Nations system by the dominant states of the victorious side (viz., the USA, UK, USSR,
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| France and China).11 Several key features have characterized the system from its inception. First, the
primary purpose o f the system is considered to be the promotion of international peace and security
; (with the promotion of international economic and social cooperation as well as human rights
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officially as secondary and tertiary goals). Second, the system was built around the principle o f the
sovereignty o f the nation state.12 As such, the U.N. was never intended to be a form of world
government, but rather a forum for resolving disputes (especially disputes involving international
security) and promoting cooperation between nation states. Third, the system reflects the interests o f
the dominant states and the power relations between them. These characteristics are evident in the
institutional arrangements of the U.N. system.
There are six main organs in the U.N. system (viz., the security council, the general
assembly, the international court of justice, the secretariat, the economic and social council, the
trusteeship council) as well as an array of specialized agencies, organizations and programs. In
planning the system, the dominant powers conceived of the security council as the supreme organ o f
the system. By granting themselves permanent membership and veto power in the security council
(as well as a veto over any changes to the charter), the major powers preserved for themselves the
decision-making power on all substantive issues, most notably decisions about interventions to
maintain peace and security. At the same time, they also ensured that their own sovereignty could not
1 'France was not a participant in the Dumbarton Oaks conversations o f 1944 at which the basic
structure of the U.N. system was agreed to, but was later invited to join as one of the sponsoring
members of the U.N. (Bennett, 1995:48fF.)
12This emphasis on sovereignty was not a new characteristic for the international state system. It
extended back through the previously failed League of Nations all the way to the very origins of
modem international law, where it was originally rooted in the interests o f local princes (Henkin,
1995).
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be infringed upon in any way. While smaller states objected to these provisions, they had little option
but to accept them (and a basic limitation on their sovereignty in the form of compliance with
Security Council decisions). The powers of the General Assembly, meanwhile, were limited to the
passing of non-binding directives, research and investigation, election of non-permanent members o f
the security council and the admission of new members. For its peut the International Court o f Justice
retained the basic statute and limited mandate of its predecessor, the Permanent Court o f International
Justice. Only states are able to bring cases before the Court, while a case may not be heard unless all
the states involved agree to the case being submitted. (The Court is also authorized to provide
advisory opinions on legal questions when petitioned by the Security Council and the General
Assembly.) Finally, the Economic and Social Committee (ECOSOC), established as a principle organ
of the U.N. at the insistence o f smaller countries, has the primary responsibility for fulfilling the
secondary and tertiary goals o f the U.N., viz., the promotion o f international economic and social
cooperation and the promotion o f human rights. Its basic functions involve deliberations and
recommendations, the generation o f research and reports, and coordination. While dominated by
smaller, less powerful nations who can pass resolutions by a simple majority vote, ECOSOC is
dependent upon the good will o f more prosperous states for funds to carry out its programs.
ECOSOC serves as the coordinating body for a range o f specialized agencies affiliated with
the U.N. that are involved in research programs. Among these are the two primary institutions o f the
international economic order that were originally agreed to by the major capitalist powers at the
Bretton Woods conference (1944) and later incorporated as specialized agencies of the U.N. The
first o f these, the International Bank for Reconstruction and Development (IBRD), more commonly
know as the World Bank, was established for the purpose of providing funds for long-term economic
development The second institution, the International Monetary Fund (IMF), was intended to
provide shorter-term credit as well as establish a code of conduct concerning international financial
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affairs. A third body, to coordinate and oversee the regulation o f trade, was also envisaged at the
time. It was not possible to come to an agreement on the nature o f this body, however. In its stead,
the interested parties came to a temporary agreement in the form o f the General Agreement on Tariffs
| and Trade (GATT) in 1947. It was only in 1995 with the inauguration o f the World Trade
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Organization that the original vision o f Bretton Woods was brought to fulfillment. In joining these
institutions, member states are required to relinquish certain aspects of their sovereignty.
The Nature o f International Low - International law is the law o f the international state
system and presupposes the sovereignty o f individual states.1 3 It differs from the law of liberal
democratic states in a number o f important ways. Three such differences that relate to the
I presupposition of state sovereignty are o f particular importance for our concerns, viz., the conception
o f law, the subject of law, and the provisions for enforcement. We will briefly examine each in turn.
The basic understanding o f law at the international level differs significantly from the common
conception of law within liberal democratic states. In the latter, law emerges as the result o f public
deliberations carried out by a democratically elected legislative body, the members o f which are
supposed to be accountable to their constituents. There is formal equality in representation and in the
ability to participate in the political process. The passage of a bill through proper procedure makes it
13Sovereignty literally refers to the locus o f political authority in society and as such has no
implications for relations between states. What is generally understood by sovereignty in
international relations is a complex o f characteristics attributed to states. Henkin (1995:10-12)
distinguishes the following: independence (i.e., a discrete entity); equality (in status, rights,
responsibilities, etc.); autonomy (i.e., not subject to external authority), "personhood" (i.e., a legal
person with rights, obligations and powers to own property, make contracts, etc.), territorial integrity
and authority (i.e., inviolability o f the domain and authority within it), and; impermeability (the
obligation o f other states to treat it as a monolithic entity).
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binding upon all residents of the land, whether they (through their representatives) have consented to
it or not. Enforcement is executed through the combination o f a judiciary and a police force. In the
international realm, however, law is grounded either in international treaties or custom which is
understood to reflect some degree o f consent (or, better, lack of dissent).14 That is to say,
international law is based upon contract and consent Most typically it takes the form o f a contract
which has emerged as the result of a (bilateral or multilateral) bargaining process between states.
There are no public deliberations involved, no legislative body, only bargaining sessions between the
parties to the contract The contract may include provisions for its enforcement. Typically (except in
matters o f international peace and security), a party is considered subject to a law only if it has
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formally consented to it an understanding rooted in the presupposition o f state sovereignty.
International law, based upon contract and consent in the manner that it is, is clearly open to
normative critique on a number of grounds. Our concern here is not so much to undertake a
systematic normative critique, but to indicate some of the problems which serve to make it an
ineffective vehicle for controlling capital. Two points in particular need to be highlighted. On the
one hand, there is the question of the process(es) through which international agreements are
negotiated and become law. International law is frequently characterized as being grounded in
consent. What is generally meant by this is that parties to international agreements are not forced to
l4Article 38 o f the World Court statute, which has been signed by most countries, actually lists four
sources o f international law, viz., treaties and other international agreements, international custom and
"general principles o f law recognized by civilized nations,” judicial opinions, and the writings o f "the
most highly qualified publicists." Of these only the former two are sources o f law in the sense that
they are manners in which rules or principles become international law. The latter might more
accurately be referred to as evidence of law (Henkin, 199S: 27). Some commentators express the
opinion that UN resolutions will likely be added to this list in the future (Snow and Brown, 1996).
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| sign them and are (generally) not held accountable if they do not sign them. The problem with this
depiction, of course, is that it entirely abstracts away from the process through which agreements are
arrived at and the constraints under which the parties labour. The processes through which
international agreements are negotiated (and the resulting agreements themselves) inevitably reflect
the power relationship between of the participants. Indeed, it is not an uncommon practice for
dominant parties to work out an agreement among themselves before hand and present it to others as
a fa it accompli (as in the case of the founding of the U.N. as well as the major international economic
institutions). Insofar as dominant parties are generally able to impose their will (to varying degrees)
on weaker parties, the decision by weaker parties to accept agreements made under such
1 circumstances is more accurately characterized as acquiescence than consent. Other less powerful
states have few options but to join the major economic institutions of the world economy on the
conditions laid down by the dominant capitalist powers, just as they had few options but to join the
United Nations on the basis o f the conditions laid down by the four major allied powers at the end of
the war. That this form of dominance by major states has characterized international law generally,
and the realm o f international economic law in particular, is conceded even by mainstream
international relations theorists.1 5 To the extent that such dominant powers share or support the
interests of capital, the potential for controlling capital is clearly limited. On the other hand, there is
the problem of recalcitrant actors. Because international law is binding on actors only if they have
consented to it, there is no effective formal method for addressing problems where an actor
lsGilpin, for example, is able to state that "international law was imposed on the world by Western
civilization, and, it reflects the values and interests of Western civilization" (1981: 35-36). He is
further able to acknowledge that it was the two successive hegemonic regimes o f Great Britain and
the United States that imposed "the rules of the liberal international economic order" (1981: 144-45)
on the basis of their importance in the world economy and their military power.
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| (especially a dominant actor) refuses to conform to measures necessary for a solution to a common
problem (e.g., environmental protection).
A second distinguishing feature of international law is the fact that it is the state that is both
the subject (author) and the object (addressee) of law. International law is generated by states and
addresses itself (almost exclusively) to states. It is the law of an international community of states, as
it were, composed not o f individuals but sovereign states that are all (formally) equal. Again, there
are normatively problematic aspects o f this feature of international law (e.g., the fact that non-
democratic states are generally granted the same rights to participate in the formation o f international
agreements as those states having democratically elected governments). Our primary concern,
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1 however, is with the manner in which this characteristic inhibits the potential o f international law to
be used to control capital. The major problem in this regard relates to the historical fact that the state
formations o f capitalists states have largely been dominated by capital. This has meant that in
international negotiations, the representatives of capitalists states have generally promoted the
interests of capital over those of other groups. Moreover, to the extent that the major capitalists states
have been able to dominate the processes of international negotiations, it is the interests of capital that
have been most consistently inserted into international law. The other side of this problem is that the
near exclusive role granted to the state in international law deprives dissenting voices within states of
any alternative channels by which their interests may be represented. While there is some possibility
o f joining with dissenting voices in other countries or even with dissenting states, such strategies do
not provide them with any real influence to the degree that they do not contribute to a solution to the
more basic problems o f the international state system, e.g., the "slowest boat problem," the lowest
common denominator problem," and the power differentials among states (Glover, 1994).
A third key characteristic o f international law that is related to the principle o f state
sovereignty and distinguishes it from national law involves the problem of compliance. Within nation
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states, the notion o f law enforcement implies a functioning judicial system and an effective police
force. International law, however, is not generally characterized by effective institutions in either of
these areas as states have not been willing to accept the limitations on their sovereignty that such
institutions would imply. (For this reason it is more appropriate to speak o f compliance with respect
i to international law than enforcement.) As regards the issue o f the judiciary, the basic problem is that
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| there is no global judicial system. While there is the ICJ, its effectiveness is limited, as we noted
| above, by the facts that it has a narrow focus (on issues of peace and security), it is only states that are
| entitled to bring cases and states need not accept its jurisdiction. There also exists a range o f different
! tribunals linked to specific international agreements and policy areas (e.g., the WTO). As a condition
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of being a party to such agreements, members are generally required to submit to the decisions of
such a tribunal. This, however, raises the second problem of compliance, viz., enforcement. There is
no global police force. While the Security Council does have the authority to enforce decisions of the
ICJ, it has never done so (and would only do so in cases o f international peace and security). Nor are
there any specific police forces capable of enforcing the decisions of specific tribunals. This lack o f a
policing authority means that compliance must generally depend upon some combination o f internal
motivations (i.e., moral or ethical motivation) or external inducements. As we have argued above,
there are limits to the role that internal motivations can play in the context of systems logic. For this
reason the burden of compliance falls upon external inducements, which in practice means some form
of "horizontal enforcement."16 What this means, in an international states system with substantial
1 6 Perhaps the most common form of such enforcement involves retaliation (or the threat of
retaliation) by the victim. This method has its limits, however, especially when substantial power
differentials exist in favor o f the offender. Retaliation can be more effective when it involves allies
(who may be associated with the victim through some form o f regional bloc), though organizing and
maintaining the support of such allies may prove difficult (especially to the extent that it involves
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j power differentials, is that the effectiveness of enforcement of a given policy regime is generally a
function not only o f the costs of enforcement but also o f the interests of dominant countries in a
particular policy regime being enforced, the latter in turn a function o f the interests of the dominant
i domestic social forces in enforcement. In practice this has resulted in a situation in which dominant
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states have been able to create relatively strong "policy regimes" in those areas where capital's
interests are most at stake, e.g., finance (IMF), trade (WTO), etc.17 The IMF, for example, requires
members not only to submit to its regulations, but accept international determinations, submit to
international remedies and not enforce exchange contracts involving foreign currencies that are
contrary to established controls. This latter requirement requires member states, in effect, to
participate in enforcement measures against other countries (Henkin, 1995: 152) Meanwhile where
the interests o f capital are not as strong or run counter to agreements, enforcement measures tend to
significant costs to them, e.g., lost economic opportunities, domestic political opposition, etc.).
Enforcement can also be initiated by general political bodies or movements (e.g., the U.N. embargo
on South Africa, the U.S. led boycott of the Moscow Olympics in protest over the invasion of
Afghanistan, reaction to Tiananmen square, etc.), but is still subject to the problem of maintaining
support when individual members may have grounds to defect, e.g., so as to be able to maintain close
economic ties, as in the case of China (Henkin, 1995: 195.).
I7The problem o f enforcement is a key issue in international relations theory. Some liberal theorists
have developed the notion of "international policy regimes" to theorize this problem. According to
this school, arrangements among nations concerning common areas o f interest (e.g., security, trade
and economic development, the environment, etc.) are understood to constitute "international policy
regimes" (Krasner, 1983). For an account of the major policy regimes which affect international
business, see Preston and Windsor (1992). For a critique o f the notion of international policy
regimes, see Strange (1983; 1988).
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be much weaker (e.g., environmental agreements, commonage agreements) or policy regimes are not
created at all (e.g., foreign direct investment). (Spero and Hart, 1997:126; Glover, 1994)
Controlling Capital through International Law and the International State System - In the
previous section we examined the question o f the possibility of establishing the conditions for
legitimate law within the confines of the nation state. There it was argued that, although there were
tremendous difficulties in establishing these conditions due to the structural power o f capital, in
principle, most of these conditions could be established through the mobilization o f civil society and
the enactment o f legitimate law. The one condition which seemed most immune from this possibility,
due to the ability o f capital to strike and flee, was the principle of the separation o f state of state and
society. Now, we need to examine whether controls can be placed upon capital so that it cannot
undermine the establishment of the conditions for the generation of legitimate law in individual states
and, more specifically, if such controls can be established through international law and the
international state system. In addressing this question three types of control can be posited as
necessary for limiting capital from using its structural power (viz., minimum standards, linking
economic cooperation to political democracy and establishing fair procedure in the management of
the global economy). In what follows we will explain the necessity of each o f these types of control,
examine some attempts that have been made in these directions and evaluate the limits of these
strategies within the context o f international law and the international state system. This discussion is
obviously not meant to be exhaustive, but rather illustrative of the problems involved in trying to
control capital through the international state system and international law.
Minimum Standards - A first condition necessary for controlling the structural power of
capital is the establishment at regional and global levels of minimum standards concerning a variety
of issues (e.g.„ wages, labour conditions, environmental protection, tax rates, etc.). Such minimum
standards, which are necessary at national levels to ensure both the welfare and autonomy rights of
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individuals, have been institutionalized to some degree in all developed states. Without such
minimum standards at the national level, the structural power of capital in the relations o f production
enables it to bid down the cost of labour to unacceptable levels (i.e., levels which do not provide
labour with sufficient welfare and threaten its autonomy rights). The problem which arises in the
present global economy characterized by interstate flows o f capital is that a relative shortage of
capital (and access to technology which is controlled by capital) and less than perfect markets make it
difficult for nation states to set (and enforce) such minimum standards (Bowman, 1996). Capital not
only has a range o f investment options, but the costs to it o f exercising such options have been
reduced dramatically by the introduction of new technology and organizational methods, (i.e., there is
increased capital mobility). Only the establishment o f minimum standards at regional and global
levels can ensure that capital is not able to use its oligopolistic market position to bid down the social
costs of doing business to unacceptable levels. In short, such standards are necessary for limiting the
structural power of capital in production relations (i.e., limiting its ability to bid down the cost of
labour directly, an ability which has sharply increased with the emergence o f a post-Fordist
production paradigm) and its power vis-a-vis the state (i.e., limiting its ability to violate the condition
o f the separation o f state and society and, more specifically, its ability to inhibit the state from
imposing minimum standards by threatening to move elsewhere).
The prospects for establishing (and enforcing) such minimum standards through the U.N.
system and international law cannot be deemed to be good. As regards such U.N. structures as the
General Assembly and ECOSOC, where there is more o f a political will to address such questions, the
basic problem is that the resolutions of these bodies are not generally considered to be a part of
international law. Even then it has proven difficult and in some cases impossible to pass resolutions
or establish voluntary codes that would establish even the principle of minimum standards in key
areas. ECOSOC, for example, has been trying to address the manner of operation of MNEs for more
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than twenty-five years. While it was able to establish an agency for addressing this issue, objections
by the dominant capitalist states have made it impossible to agree upon even a voluntary code o f
conduct for MNEs. In those fora where international law can be established, (e.g., international
economic organizations, international summit meetings, etc.), the situation is no better. Even in areas
where common action is clearly required (e.g., the environment) or there is sufficient political
organization such that issues cannot by totally ignored (e.g., workers rights), dominant capitalist
states are able to steer the agenda in ways that favour the interests o f capital. A variety of methods
are used to do this. If standards are established, they may be vague or unenforceable "targets."
Agreements may also not include (or forces individual states to set) targets at all, as was the case with
the Rio agreement on the emission of green house gases (Glover, 1994:280). Also, key aspects o f
agreement can be made optional or conditional, as was the case in NAFTA.1 8
Linking International Economic Cooperation to the Conditions fo r Legitimate Law - A
second condition for limiting the structural power of capital is the forging o f a link between
participation in the global economy and political democracy. Capital operating in non-democratic
regimes is problematic in two basic ways. First, there is the possibility that the activities o f foreign
firms serve to prop up non-democratic regimes and, thereby, deny the people of the countries in
question their basic rights not only to private autonomy, but also public autonomy (and minimum
levels o f welfare). Second, the existence o f such regimes and capitals' operation in them may have
deleterious effects on the people and governments of third states. In particular, it may serve to inhibit
the ability of such actors to control capital within their own borders. Insofar as such non-democratic
18In NAFTA this was done through "side agreements" on the issues of labour and the environment.
By giving national legislatures the option of accepting the main agreement while not adopting the side
agreements, NAFTA effectively eliminated the establishment o f minimum standards for labour and
the environment (Collingsworth et al., 1994).
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regimes are able to provide a lower cost option for capital (by suppressing labour, not respecting the
environment, etc.), other states may only be able to compete by dropping the price that they charge
capital to do business. In this way, the participation of non-democratic regimes in the global
economy can (not only contribute to their continued disregard o f the rights o f their own people, but
also) inhibit the establishment of minimum standards and enable capital to effectively violate the
principle o f the separation of state and society.
It is, in principle, possible to work through the international states system and international
law to put pressure on non-democratic governments by linking economic participation to democratic
reform. The case o f South Africa— in some sense a success story and perhaps the case in which the
UN has exerted the most pressure for reform— illustrates the limitations inherent in such a strategy.1 9
The white South African government’ s treatment of its non-white populations was an issue that was
repeatedly raised in the United Nations system, from its origins until apartheid was finally abolished.
What is significant is that the dynamics of the issue remained constant almost throughout the more
than forty year span, with the issue being raised by representatives from LDCs and meeting resistance
from developed countries. Over time the LDCs passed a variety o f (non-binding) resolutions in the
General Assembly ranging from the expulsion of South Africa from the U.N. to arms embargoes and
economic sanctions. The major capitalist powers consistently refused to support such measures and
vetoed them when they were introduced in the Security Council. As early as 1962, for example, the
General Assembly called for economic sanctions. The Security Council refused to support such a
measure, calling instead only for a voluntary arms embargo. While fourteen years later in 1977 the
security council would finally move to replace the ineffective voluntary embargo with a mandatory
one, the dominant capitalist countries were still not willing to support economic sanctions. In 1977,
1 9There are other cases where the U.N. has acted more decisively (e.g., Iraq), but these have been
cases o f international security (and have been initiated by dominant powers).
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for example, a proposal was put forward in ECOSOC calling for MNEs to cease further investments
in South Africa and gradually disengage from the country. While ECOSOC was finally able to adopt
the resolution, the vote was split clearly along South-North lines (Bennett, 1995:285). Even when
the dominant capitalist countries were finally forced by domestic pressures to put mild restrictions on
MNEs operating in South Africa in the mid-1980s,20 they still refused to support multilateral action
through the U.N.21 As late as 1986 the US and the UK were able to veto a proposal in the Security
Council calling for limited economic sanctions voting against South Africa (while France abstained).
The problem that African countries and other LDCs had in using the U.N. to address the
issue o f apartheid in South Africa clearly relates to the fact that the U.N. system has no real structures
20PopuIar pressure for withdrawal in the US and other Western states goes back to the 1960s and
1970s. The World Council of Churches issued its "Time to Withdraw" in 1973, urging investors to
either sell their share in firms doing business in South Africa or work for withdrawal o f the firms.
Subsequently, a number of US religious organizations adopted similar measures (Oden, 1985:43). It
was only in 1986, however, that the US passed the Comprehensive Anti-apartheid Act prohibiting any
new loans by US registered MNEs and their subsidiaries to the government o f South Africa and any
new investments. It was joined in this action by Canada, the European Community, the
Commonwealth and the Nordic countries who enacted similar measures. Although it considered
stronger legislation, the US Congress decided not to require divestiture or impose sanctions (Spero
and Hart, 1997: 123).
21There was, of course, never any question o f the LDCs being able to operate through the multilateral
economic institutions (e.g., the IMF or GATT) to exert pressure on South Africa. While it is possible
in principle to uses these agencies and agreements for such purpose, in practice opposition by
dominant states makes this impossible. The US, for example, prevented the inclusion o f a "social
clause" in the most recent GATT session (Collingsworth, 1994).
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o f (democratic) governance. It is not possible for even an over-whelming majority to force dominant
states to take action, while a single dominant state is able to scuttle all attempts to take collective
action. Thus, the only condition under which democratic reform can be promoted through the U.N.
system is if all permanent members o f the Security Council see it as being in their interest. The case
| o f South Africa exhibits two basic features of dominant capitalist states, however, that indicate why
[
| such agreements are unlikely. First, dominant states have generally not been as concerned with
I promoting democratic reform as they have been with maintaining economic relationships. The
j current case o f China (e.g., the unwillingness o f major capitalists countries to support a resolution in
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| the General Assembly condemning China's human rights record, the US government’s continuing
decision to offer MFN status to China, etc.) further illustrates the degree to which the interests of
capital are able to insert themselves in the international realm at the expense o f the promotion of
democratic reform and human rights. Second, although in the post-war era there has been a strong
shift to multilateralism with respect to the regulation o f the global economy, the dominant states (and
the US in particular) have tended to favour bilateral relationships in areas o f foreign policy,
development aid and questions o f human rights. The reason for this is that it allows for a greater
amount of freedom in promoting their "national interest" (as reflected in the concerns of the dominant
classes).
Democratizing the Management o f the Global Economy - A third condition for limiting the
structural power o f capital is a reform of the manner in which the management o f the global economy
is undertaken, in particular the ability of hegemons and other major powers to dominate the making
o f the rules of the game. As was noted above, capital is able to assert its interests into the global
economy through the activity of dominant states and their control over the management o f the world
economy. This occurs through a variety o f formal economic institutions (viz., IBRD, IMF, WTO)
and political associations (e.g., G-7, OECD) and entails all aspects of international economic activity
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(e.g., finance, trade, FDI, development aid, etc.). (Teeple, 1995) The major problem with capital's
influence at this level for our concerns is that it further enhances its ability to effect the policy of the
state. More specifically, in the most recent development in the world order there has been, as we
noted above, an "internationalization o f the state" involving a sharp diminution o f state autonomy as
governments seek to adjust national economic practices and policies to the perceived exigencies of
the global economy (Cox, 1987). This requires states not only to develop policies designed to attract
FDI, but even to enter into bargaining processes with individual firms (a clear violation of the
| separation o f state and society). This development has had significant consequences for states
throughout the world. Many commentators have noticed an increasing "third worldization” of the
developed world (e.g., increased income polarization, cuts in social spending, less secure employment
prospects, marginalization, etc.) as states increasingly adopt neo-liberal economic policy. Meanwhile,
among LDCs there is increasing concern about the closing off of development possibilities as
development planning is reduced to the Ricardian strategy o f comparative advantage.22
22Schwartz (1994) distinguishes between Ricardian and Kaldorian development strategies. Whereas
the former relies almost exclusively on comparative advantage and stresses free trade, the latter is
more interventionist and relies on industrial policy to promote industrialization and associated goals.
Schwartz argues that all successful industrial late comers— both the first wave back in the nineteenth
century (e.g., Germany, Sweden, etc.) and more recent waves (e.g., the NICS)— have relied on the
Kaldorian strategy. The only successful examples of the Ricardian strategy involve those few
countries (e.g., OPEC members such as Saudi Arabia, Brunei, etc.) that have large quantities of key
natural resource that is in relatively short supply. To the degree that most LDCs due not have the
appropriate resources to successfully follow a Ricardian strategy, the elimination of the Kaldorian
strategy amounts to a sentence o f permanent peripheralization in the global economy.
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i LDCs have not always passively accepted the rules imposed by the dominant capitalists for
the global world economy. From the start o f the post-war order they have fought to assert their
interests and exert some influence in the development of international economic policy. Such
assertiveness was evident early on in the talks on the formation o f a new trade agreement as Latin
America countries sought to radically amend the original proposal for the Havana Charter (and later
declined to join the GATT agreement which failed to include provisions that addressed their
interests). Later in the 1960s the newly formed United Nations Conference on Trade and
Development (UNCTAD), established primarily through the efforts o f a group o f seventy-seven 77
LDC (G-77), proposed the creation o f a new international trade organization to replace GATT. Such
! initiatives were rejected by the developed countries, though some minor concessions were made in
the form o f a Generalized System of Preferences (GSPs) which granted LDCs lower tariffs of imports
to developed countries (Balaam and Veseth, 1996: 317). The most ambitious attempt of the LDCs to
address the question o f how international economic policy is generated occurred in the debate in the
1970s around the proposal for a "new international economic order" (NIEO). It was the Sixth Special
Session o f the UN General Assembly in 1994 that issued the call for the NIEO. Its broad goal was to
place development at the top of the international agenda. Among its six principle demands were
reform o f the decision making procedures in the major international institutions and increased
economic sovereignty for LDC (including the ability to regulate MNEs and access to Western
technology). While the developed nations were eventually able to successfully oppose these
demands, initially, at least, they had to pay some attention. The reason for this was that the possibility
that LDC might be able to back up their demands with economic clout. The call for the NIEO
occurred in the wake o f the OPEC oil embargo of 1973 and the possibility of further action (viz., the
formation of more cartels, an increased in nationalization of foreign Arms, etc.) deleterious to the
interests o f the developed countries could not be totally discounted. The major joint action
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undertaken was the establishment o f the Brandt Commission to look into the problem. For its part the
European Union took up the issue by negotiating the Lome Convention with a group o f forty-six
African, Caribbean and Pacific (ACP) countries. The agreement provided for increased foreign aid
and increased control over this aid, as well as preferential access for goods from ACP countries
(Spero and Hart, 1997:227). The US, less concerned about the threat and under less domestic
pressure to act, did not respond at the time. Nor was it required to later as subsequent attempts to
apply economic pressure by the LDC (in the form of new cartels) proved unsuccessful. Without
economic power behind it, the call for changes in the decision-making processes of international
economic institutions went unheeded and there was no way to force the issue through the interstate
system or international law. By the 1990s all talk of the NIEO had died.
2) European Law and the European Union
In the wake of the near total destruction of their economies in the Second World War,
several o f the countries o f Western Europe joined together to promote economic recovery through
greater economic cooperation and integration. Several bodies were founded for this purpose, the
European Coal and Steel Community (ECSC) in 1952, the European Atomic Energy Community
(EURATOM) in 1958 and the European Economic Community (EEC) also in 1958. The goal in
forming these organizations was the creation of a customs union which would, after a period of
transition, be transformed into a common market. In attempting to promote greater economic
integration, the European states involved recognized that there would be the need for supranational
political and legal institutions which could coordinate the development, implementation and
enforcement o f economic policy aimed at integration. The basic institutional framework for this new
political-legal realm was agreed to in the founding document of the EEC, the Treaty o f Rome (TOR).
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; This founding document has been understood as a form o f Lockean social contract in which the
member countries, while understanding the need to concede the new political-legal structures some
degree o f autonomy in order to carry out their assigned tasks, also sought to keep these institutions
dependent upon the member states themselves (Newman, 1996: 30-31). This has meant an inevitable
tension in the dependence-independence relations between the principle institutions of the o f the
Community (viz., the Council of Europe and the European Commission). In 1967 the EEC, the
ECSC and EURATOM bodies merged into the European Community (EC). This change of name
indicated an evolution o f the community in the form of an intention to move beyond strictly economic
concerns.
Whether and the degree to which the Community should move beyond the concerns of
economic integration remains a debated question within the Union. Two aspects of this question have
been o f particular concern, viz., whether the EU should take a greater role in developing (and
harmonizing) social policy and, beyond this, whether economic integration should be accompanied by
increasing political integration. The EU has being moving, albeit somewhat tentatively, in both these
directions with the most significant changes being introduced through the Single European Act
(SEA), implemented in 1987, and the Treaty on European Unity (TEU), commonly known as the
Maastrich treaty, which was implemented in 1993. The political-legal structure which has emerged
through this on-going process o f evolution is quite distinct. While the institutional arrangement o f the
EU clearly does not have a one to one correspondence with the constitutional state, it does share many
commonalities with it, commonalities which distinguish the European Community and European law
from the international state system and international law. The question which we are interested in
exam ining here is not primarily whether the EU itself conforms (or could conform) to the principles
o f legitimate law, but whether it can provide a basis for a form o f supra-national law that is more
adequate to the task of controlling capital and allowing for the incorporation of the conditions for
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legitimate law within nation states. In addressing this question, it is only possible to provide a brief
account o f the EU and European law (and their evolution over the years). We will do this by first
looking at the institutional basis o f the EU. We will then examine the nature of European law, noting
how it contrasts with international law. We will then be in a position to investigate the potential that
the EU and European law have for controlling the structural power o f capital and enabling the
establishment of the conditions for legitimate law in the member states o f the EU.
The Institutional Basis o f the European Union - The European Union, which came into
existence with the adoption o f the Maastrich Treaty in 1993, represents a further development o f the
economic (and political) union of European states that began in the early post-war period. In
particular, it is a direct extension o f the European Economic Community (EEC) which came into
existence in 1958, later (1967) being renamed the European Community (EC). The institutional basis
o f the EU was set out in the founding document o f the EEC, the TOR, and consists o f the European
Commission, the President o f the European Commission, the Council of Ministers, the European
Council (not originally provided for in the Treaty of Rome), the European Parliament (EP), the
European Court of Justice (ECJ) and the Economic and Social Committee (ESC). This institutional
array differs substantially in form from that o f the international state system and, in important ways,
more closely approximates the constitutional state. There is, however, no one to one correspondence
between the institutions of the EU and those o f liberal democratic constitutional states.
The Council o f Ministers is the legislative body o f the EU, but also exercises some executive
functions. It is composed o f cabinet ministers who are appointed by member governments, each of
which its allotted a number reflecting the country's population.23 (A recent addition to the EU,
closely associated with the Council of Ministers, is the European Council. It consists of
23The number of councilors is not based upon strict proportional representation, with a bias existing
in favour o f the less populous countries.
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institutionalized summit meetings between the heads of member states, meeting that are called by the
Council of Ministers at least every six months. This institution emerged as a method for addressing
the problems that Ministers had with taking decisions on substantial issues.) The main task o f the
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1 Council of Ministers is to approve (or reject) proposals that are sent to it by the European
Commission. While in the initial years of the EEC, a unanimous vote was required by the Council in
order for a proposal to be adopted, the TOR mandated a switch to qualified majority voting (QMV) in
1966 (the final year o f the transition period from the customs union to the common market) for issues
necessary for economic integration. This recognition by the founders of the impracticality o f a
system requiring unanimity ran up against problems, however, due to French intransigence. The
• resulting compromise gave member states the ability to exercise a de facto veto on issues involving
"very important interests," the so-called "Luxembourg compromise" (Calingaert, 1996:77-78). The
difficulties caused by this failure to move to QMV (in particular, the recalcitrant stance o f the UK in
the 1980s) were among the key factors in the adoption o f the Single European Act (SEA) in 1985.
With implementation in 1987, this act widened the original scope of issues not requiring unanimous
support and made QVM a reality.
The European Commission, which is empowered to initiate, supervise and implement
legislation, is the chief executive and administrative institution of the EU (though in practice its
executive functions are shared with the Council to a large degree). It consists of Commissioners
appointed by member states (two from the larger states and one from smaller states) as well as a
President (who is appointed by agreement among the member governments). The President o f the
Commission is responsible for assigning portfolios, leading policy initiatives and representing the EU
to international organizations (e.g., the G-7). In fulfilling their duties Commissioners are to operate in
the interests o f the EU and not their individual states. While individual commissioners (and their
cabinets) are responsible for the preparation o f proposals, the Commission as a whole must agree that
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proposals are in a presentable state before they are sent on to the Council. In developing policy
recommendations in many areas it is required to consult both the European Parliament and the
Economic and Social Council before sending proposals on to the Council (Calingaert, 1996;
Newman, 1996).
The European Parliament, for its part, is more a consultative than a legislative body. The
TOR originally assigned it a supervisory role over the Commission and the Council, the right o f
participation in legislative process and some budgetary powers. Although its members were initially
appointed, since 1979 it has been an elected body with electoral competition running along party
lines. Over the years the EP has sought to expand its own powers and has had some limited success
in this regard with the adoption of the SEA in 1987 and the Maastrich Treaty in 1993. The SEA
instituted a new "Cooperation Procedure" which allowed for a new two-reading procedure in
Parliament in which the EP can choose either to uphold, reject or amend Council decisions. If upheld
by the Commission, the Council can only reject the EP's actions on the basis o f a unanimous vote
(Calingaert, 1996: 79; Newman, 1996: 174). Under the SEA the EP also attained the right to ratify
association agreements and approve the ascension o f new members. The Maastrich Treaty also
granted the EP some new powers under its "co-decision" procedure, but these were limited in nature
and fell far short of the EP's demand for "equal rights and equal weight in the legislative process” and
the extension o f QMV to (almost) all legislative decisions in Council. (Newman, 1996: 177-84)
In addition to the advisory role of the EP, the EEC treaty provides for an advisory body to be
made up of various interests groups, viz., the Economic and Social Committee. The composition of
the committee is to ensure appropriate representation from social and economic groups. The practice
has been that one third o f the seats of the ECS go to employer's groups, another third to
representatives of labour and the final third to other categories (e.g., farmers, consumers, dealers,
etc.). The three primary functions of the ESC are to represent the opinions o f various economic and
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social groups proposed legislation and general policy priorities, to provide a forum for dialogue
between these different social groups, and to serve as a channel of information both for professional
groups and the public at large on EU matters (Budd and Jones, 1993). The Commission is required to
consult the ESC concerning proposals relating to a variety o f issues. Although not officially an EU
institution, the ESC functions as such. It has its own secretariat and is organized along the lines o f a
parliamentary assembly (with specialized committees and plenary sessions).
Finally, the European Court of Justice serves as the supreme court of European law.
Composed of thirteen judges who are appointed for six year terms, its functions are to resolve
disputes between member governments and EU institutions as well as disputes between EU
institutions. It also serves as a court of appeal against European Commission rulings and decisions.
Its decisions are binding and take precedence over those on national courts. It has the ability to
impose fines both on member states found to be in contravention of European law as well as on other
legal entities, e.g., business firms (Calingaert, 1996; Newman, 1996).
The Nature o f European Law - Just as the institutional arrangement of the European Union
differs substantially from the U.N. system, so too is European Law significantly different from
international law. These differences can be examined in terms of the three characteristics of
international law that were distinguished in the previous sub-section (viz., its state-centeredness, its
grounding in contract and consent, and its lack o f an effective enforcement system). As regards the
first of these characteristics, it can be readily stated that European law is not as state-centric as
international law. Two characteristics distinguish it from international law in this regard. On the one
hand, European law recognizes a supranational authority that can enact legislation that it is binding on
member states, even if they do not consent. This statement needs to be qualified, o f course, as most
areas in European law do in fact require the consent o f member states. It is only areas relating to
economic integration that supranational authority exists. In other areas (e.g., social policy industrial
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relations policy) individual member states retain their veto power. Historically, this has meant that
law in these areas (and in economic policy too up until 1987) has been established on the basis o f the
lowest common denominator principle as recalcitrant states (most notably the UK throughout the
1980s and 1990s) have been able to block legislation that otherwise has overwhelming support. The
SEA also represented a move to extend plurality voting to other areas by incorporating issues of
health and safety under QMV. This was a limited extension of QMV, however, and member states
still retain veto power over most issues. Meanwhile, the compromise in Maastrich which has allowed
the UK to "opt out" of the "social chapter" of the TEU has only muddied the waters about how and
whether supranational control can be extended to other policy areas. On the other hand, European
law also differs from international law in that it involves a wider range of actors in the process of
developing law. The preparation o f legislative proposals, for example, is not carried out by the
representatives of states (seeking to advance the interests o f their own state in a bargaining process),
but rather by the European Commission (which ostensibly seeks to advance the common interests o f
the Union on the basis of fair compromise). Moreover, other non-state actors, through the EP and the
ESC, have structurally guaranteed opportunities for input into legislative proposals. These latter
opportunities are significant in that they allow for increased cooperation o f social groups across
national borders, cooperation that may enable them to limit capital's use o f its structural power. In
addition, it should be noted that the EU has moved in the direction of giving a greater role to sub
national regions in recent years (Newman, 1996: 109ff.). Finally, with respect to the judicial system,
the European system of law differs from international law in that it is not only nation states that have
recourse to the ECJ. In addition to the ability of the institutions of the EU to take case directly to the
ECJ, individuals and groups have access to the ECJ as a court of appeal.
A second difference between European and international law involves the understanding o f
law itself. International law, as we have indicated above, differs from the law o f liberal democratic
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states in some fundamental ways. The former is based upon contract and consent. Law typically
takes the form o f a contract which has emerged as the result o f a (bilateral or multilateral) bargaining
process between states (which may or may not have democratically elected governments). Little
attention is paid to the power differentials between the parties to the contract or the bargaining
process through which it was arrived a t If the parties have consented to it, they are considered liable,
while those parties which have not consented to it, cannot be held to its standards. There is are no
public deliberations involved, no legislative body, only bargaining sessions between the parties to the
contract The contract may include provisions for its enforcement The latter, meanwhile, is based
upon public deliberations carried out by a democratically elected legislative body, the members o f
which are supposed to be accountable to their constituents. There is formal equality in representation
and the ability to participate in the political process. The passage of a bill through proper procedure
makes it binding. The consent of all parties in not required. Enforcement is executed through the
combination of a judiciary and a police force. For its part, European law lies somewhere in between
these two conceptions, demonstrating characteristics o f both in a somewhat unstable balance.
In its origins, European law is clearly closer to international law. Like most international
economic institutions (e.g., IMF, IBRD, WTO) the logic of the founding agreement of the EEC, the
TOR, reflects not only a contract mentality, but a specifically Lockean form of social contract In the
contract, the participants (viz., the member states) agreed to establish a form of regulation (viz.,
European Law) involving a limited legal-political complex (the institutional array of the EEC) in
order to ensure that their common purposes (the creation of a common market) could be attained. In
developing the institutional design for the new legal-political system, the participants to the contract
sought to ensure, on the one hand, that the new institutions had the requisite degree of power and
autonomy necessary for their task, and, on the other hand, that these institutions remained in a state of
dependency. Like states, generally, the contracting parties to the TOR were reluctant to cede any
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; aspects o f their sovereignty. One significant way in which the TOR differed from Lockean
presuppositions, however, was in its recognition of the existence of power differentials among the
contracting parties (based upon their different sizes and resources endowments), differentials that
could allow the Community to work primarily in the interests of its stronger members. The TOR
sought to compensate for this by providing smaller countries disproportionately large representation
in the Council, the Commission and the EP, while still recognizing that the larger population of larger
states entitled them to a greater say in the formation of law. This provision, which reflects a concern
about the fairness o f the process through which decisions are arrived at, represents a significant
deviation from the practice o f international law in which no concessions are generally made to allow
<
for the power differentials between contracting parties (Newman, 1996).
Another provision of the TOR also distinguishes it from international law. This is the
allowance for QMV. While states must accept limitations upon their sovereignty as members o f
international economic agreements (e.g., WTO), this generally only take the form o f subjecting
oneself to the authority of an arbitration panel. The QMV provision of the TOR went beyond this,
however, as member states agreed to subject themselves not only to arbitration based upon laws to
which they had consented, but even to subject themselves to laws to which they had not consented.
While it must be noted that the QMV provision was so restrictive (and some member states so
intransigent) that in practice the EEC ran on the basis of consent until 1987, in principle the members
states were willing to move beyond the principle of consent and subject themselves to the authority
of a supranational body. Recent moves to extend QMV, while still quite limited in nature, move
European law more in the direction of the law of liberal democratic nation states.
Another area in which European law has traditionally been closer to international law but
may be changing involves the actual decision-making processes). Two aspects of this problem are
most relevant, the operating procedure of the major EU institutions and their composition. As regards
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the question o f procedure, it is the Council that is the chief decision-making organ of the EU.24
While frequently referred to as a legislative body, the Council has traditionally exhibited few
characteristics o f a democratic legislature. Most significantly with respect to the question o f
procedure, it has always been highly secretive. There are no open meetings, no public deliberation as
it were. In this way, the activities of the Council more closely resemble the bargaining sessions that
are typical o f negotiations in multilateral economic institutions such as the WTO.25 The Council is
not the only EU institution to be criticized on this account. The Commission has also come under
attack for its lack o f "transparency." Following the problems around the approval of Maastrich
Treaty, the Commission responded by introducing some substantial changes designed to increased the
transparency o f its dealings (including its relationships with business and other interest groups). The
Council for its part offered only the most insignificant of changes (Newman, 1996: 183ff., 198). As
regards the question of composition o f the Council and the Commission, the major concern that has
been raised involves the fact that they are not democratically elected, a concern which has come to be
known as the "democracy deficit.” Again in this regard the EU institutions more closely resemble
international economic institutions (in which representatives are also appointed by member states)
than liberal democratic bodies. While this problem has received significant attention in recent years,
it is highly improbable that either of the two bodies in question will be subjected to democratic
elections. A more likely scenario, and the one most widely recommended, is an expansion o f the role
24The Council is able to enact two types o f legislation. Directives when passed by the Council pass
directly into the national law of member states. Regulations passed by the Council must be
incorporated into the law of member states through normal parliamentary procedure (Andersen and
Eliassen, 1993: 44).
2SFor a discussion of the difference between the bargaining process within the EU and other
multilateral bodies see Hayes-Renshaw and Wallace (1997).
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o f the EP in the legislative process. As we noted above, some minor changes in this area have already
been made. Further steps in this direction have the potential to move European law further away
from international law and closer to the conditions for legitimate law. Whether such steps will be
taken remains an open question, one that will be decided in large part on the ability of civil society to
mobilize itself against entrenched political interest that have the backing of capital.
As in the conception of law, so in the question of enforcement European law occupies a
space between international and national law. As we noted above international law differs
dramatically from the law of nation states in that there is no effective equivalent either o f the judiciary
o f nation states or their domestic police forces. In the place o f a comprehensive judicial system,
individual policy areas are regulated by specific institutional arrangements to which contracting
parties agree as a condition of the broader contract. These may or may not involve some form o f
tribunal to which states can bring complaints about lack of compliance. There is generally no
independent prosecuting authority that can bring complaints. In lieu o f a police force, parties to the
policy regimes have to develop and rely upon inducements to encourage compliance. This means that
the effectiveness o f compliance becomes directly related to the interests of the dominant states (and
the dominant classes within these states) as they are in a position to most effectively promote
compliance. It is with respect to its judicial system that European law most distinguishes itself from
international law. In European law the ECJ sits as a supreme court and hears cases across the hill
range o f European law (not just matters of peace and security like the ICJ). It is a supranational body
(again unlike the ICJ) and does not require the consent of parties to hear a case. Its decisions are
binding and take precedence over those of national courts. Also in contrast to the courts and tribunals
of international law, the ECJ is accessible to entities other than states. Not only EU institutions can
bring cases, but individuals and corporations can also take complaints to ECJ (and the Commission)
over non-compliance to EU law (Andersen and Eliassen, 1993:61). For its part the ECJ can also take
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| action against non-state actors, e.g., imposing fines on business firms. In addition to the ECJ, the
Commission also has important roles in the European enforcement system, especially as an overseer
of the implementation o f EU law. The Commission submits an annual report on the implementation,
consults with states concerning the adequacy o f the integration of EU law into their domestic law,
makes recommendations and, if not satisfied, can send cases to the ECJ. Where European law more
closely resembles international law is in its lack o f a supranational sanctioning authority. This
enables member states to violate EU law when they feel an issue is of significant national importance
(e.g., Greece's embargo of Macedonia, Germany's ban on British beef, France's ban on waste imports
from Germany, etc.). In the absence o f a supranational sanctioning body, other members are forced
I to accept such actions or use some form o f diplomatic negotiations to resolve the problem (Calingaert,
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1996: 94-5).
Controlling Capital Through European Law and the European Union - We have argued
above that the European Union and European law differ in significant ways from international state
system and international law. The question that needs to be addressed now is whether these
differences have allowed or will permit the implementation o f the measures posited in the previous
section as necessary for controlling the structural power of capital. These measures include the
establishment o f minimum standards, linking economic cooperation to conditions for legitimate law
and the democratization o f transnational economic policy. Again, our concern with these measures is
not primarily with regard to them allowing for legitimate law at a supranational level, but rather as
necessary conditions for nation states being able to effectively incorporate into domestic law (and
enforce) the conditions necessary for the generation of legitimate law.
Minimum Standards - The question o f the possibility of the establishing minimum standards
is one which flows naturally out of the EU's history and its debates over social policy. Within the
TOR itself there are several articles on social policy which would seem to indicate if not a
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requirement for, the potential importance of, establishing minimum standards in social (and
environmental) policy. In addition to establishing a general goal of promoting "improved working
conditions and an improved standard o f living for workers" (Art. 117), the Treaty charges the
Commission which the task of promoting improved cooperation between member states in a range of
matters relating to the "social field" including employment, labour law and working conditions,
vocational training, social security, prevention o f occupational accidents and diseases, occupational
hygiene, the right of association and collective bargaining (Art. 118). While the Commission was
disposed to move in some of these areas, there was relatively little action taken towards establishing
minimum standards (or in the realm o f social policy generally) during what might be considered a
first phase (1957-1969). There were two principle reasons for this lack of movement. On the one
hand, the boom economy of the 1960s made social policy less of an imperative for the member states,
who in any case were not inclined to take action in the area o f social policy. On the other hand, the
more activist position adopted by the Commission was perceived by members as too closely aligned
with labour unions. This lead to an almost complete breakdown in communication between the two
sides by 1966. The compromise that was eventually worked out shifted the initiative for social policy
from the Commission to the Council and restricted the Commissions contact with the Trade Unions
and Employers’ Association (Newman, 1996: 80).
The 1970s saw increased attention paid to issues o f social policy and a more active role by
the Commission as the 1966 compromise was superseded. With an impetus from Willie Brandt, who
had argued for the necessity of a set of social policies as a counter balance to the effects o f increased
economic integration, the Council called upon the Commission in 1972 to draw up an action program.
The resulting (non-binding) action that was adopted by the Council in 1974 consisted of forty
concrete proposals designed to promote full employment, improve liming and working conditions
with an eye to harmonization of standards, and increase the involvement o f management and labour
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in the (economic and social) decisions o f the community and the role o f workers in the activities of
the enterprise (Newman, 1996: 81-82). As these directives were non-binding and few resources were
allocated for them, the results were "mixed" at best. In the early 1980s the first Mitterand
government tried to promote a similar initiative in social policy (as a complement to its program of
economic expansion).26 This attempt was undermined by resistance from the UK which, in addition
to a general ideology predisposition against such policies, was blocking all EU legislation in an
attempt to change the basis o f its financial obligations to the community (Calingaert, 1996: 95).
The movement for increasing the role of social policy was given a lift with the appointment
o f Jacques Delors to the Commission and his subsequent declaration that the goal o f the Community
was not only to move towards an Economic and Monetary Union but also a "Social Europe." The
first substantial movement in this direction came with the implementation o f the SEA in 1987. The
most significant aspect o f this piece of legislation as regards the setting o f minimum standards
involves the area of health and safety. The SEA established the regulation o f health and safety as an
area(along with as other matters necessary for the attainment of the single market) to be governed by
QMV. This was done over the objections of the UK (which sought to have it considered as a matter
o f social policy and therefore requiring unanimity) and the vigorous lobbying activity o f capital
(Gorges, 1996). This establishing of health and safety matters as a supranational concern has allowed
for the implementation o f common minimum standards on working matters and related issues (e.g.,
maternity leave).
26The objectives o f proposal circulated by the Mitterand government included making employment as
a key EU issue, increasing the "social dialogue” between employers and employees (at the
Community, national and workplace levels) and improving cooperation on social protection (Wise
and Gibb, 1993: 146).
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A further move in the direction o f minimum standards, although a limited one, came with the
adoption the Social Charter in 1989. The charter, adopted as a "solemn declaration” rather than a
binding directive due to British opposition, sought to define the social rights of EC citizens as
• freedom o f movement of EC citizens within the Community;
• equitable wages sufficient to enable a decent standard of living;
• rights for part-time and temporary workers;
• improved living and working conditions involving the progressive Community-
wide harmonisation of holiday periods and so on;
• adequate protection for both of these in and out of work;
• freedom o f association and collective bargaining;
• the right to vocational training;
• equal treatment for men and women;
• adequate participation for employees in the affairs o f the companies that employ
them;
i • satisfactory health and safety at work;
• protection of children and adolescents at work;
• proper retirement pensions; and
• the integration of disabled person into the world of work (Newman, 1996: 84)
The action program that the Commission produced to implement the Social Charter was not
particularly radical. It did not, for example, after lobbying by Ireland and Portugal, involve the
establishment of minimum wage levels. Moreover, it explicitly excluded action in the area o f rights
to association and collective bargaining, arguing that member states retained responsibility in these
areas. Still, despite the relatively tame nature o f the program, implementation progressed only slowly
and with significant resistance (with the UK, for example, vetoing a directive guaranteeing part-time
workers protection from unfair treatment by employers). (Newman, 1996: 85)
The next development in this area came with the Maastrich Treaty in 1993. The TEU is not
important for making advances in social policy as the Maastrich agreement proposed little new policy
in this area due to British intransigence.27 Instead, the other eleven governments affirmed in the
27 It did, however, clarify the policies that could be introduced by unanimity and those that only
required only a qualified majority (Newman, 1996: 85-86).
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"social chapter” of Maastrich their desire to implement the Social Charter on the basis o f the acquis
communautaire. What is significant about Maastrich is the fact that the UK was able to "opt out" of
the social chapter agreement. The acceptance of this action by the UK involves a significant change
in the nature of the policy approach o f the EU in the form of a shift from uniformity to differentiation.
To some it appears to be an acknowledgment that in the future all policies and treaties would not
necessarily apply to all states (Calingaert, 1996). This resolution in the Maastrich Treaty to the
problem of British intransigence was obviously not entirely satisfactory to the other nations involved
who feared that the UK would be able to use their "opt out" to under-cut them by maintaining a low-
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| wage, unregulated economy. Such incidents as the decision o f Hoover in 1993 to relocate from
Brittany to Scotland have only served to confirm these fears. Clearly, such "opt out" conditions
undermine the possibility of establishing minimum standards. While the new Labour government in
the UK may provide a practical resolution to the current problem (which is what many o f the other
member states were hoping for in 1993), some see this incident (along with recent proposals for a
"multispeed Europe" and the UK's advocacy of a "multilevel Europe”) as an indication that
uniformity will be difficult to maintain in the future (Newman, 1996: 208-9). Such a development
obviously could undermine the further expansion of minimum standards to other policy areas.28
Linking Economic Cooperation to the Conditions fo r Legitimate Law - This condition can be
examined with respect to the internal and external relationships of the community. It is with respect
to the former that the EU has the strongest record as it makes a direct link between economic
cooperation and political democracy through its membership criteria. Full parliamentary democracy
(along with European location and a market economy based on private property) is laid down by the
Treaty of Rome as a condition for admission. This condition has been understood to serve both as a
reward for countries making the transition to democracy, (e.g., Greece, Portugal and Spain in the
28For a discussion of environmental issues in this context see Andersen and Eliassen (1993: I ISff.).
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1970s and 1980s) as well as an incentive for countries to continue on with democratic reforms (as in
the current cases of the countries of Central and Eastern Europe). In the latter cases the Community
has indicated further political (and economic) conditions that would be necessary for these countries
to be considered "ripe" for EU membership (Csaba, 1995). Perhaps the most significant additional
political criterion has involved the establishment of treaties between different Eastern and Central
European states concerning the treatment of ethnic minorities. Hungary, for example, has recently
established such treaties with Romania and Slovakia. As a reward for this (and other political and
economic reforms) Hungary was admitted to the OECD, while indications have been given that it
(and other states that are politically and economically "riper," viz., the Czech Republic and Poland)
will most likely be granted EU membership early in the new millennium, probably in 2001. Such
membership requirements clearly distinguish the EU from the major multilateral economic
institutions (viz., the IMF, IBRD, GATT, WTO).
In relationship to other states, apart from a few isolated incidents such as the actions taken
against South Africa (Spero and Hart, 1997:23), the EU has not directly linked economic cooperation
to political democracy (although the Lomd Conventions do make certain demands on the ACP states
in terms o f labour rights). The EU does have the mechanisms in place for making such links,
however. "Political cooperation," while it is only mentioned in a treaty for the first time in the SEA,
extends back to a Council decision in 1969. From this time the process of European political
cooperation (EPC) came to consist of a whole series o f regular meetings ranging from annual summit
meetings of heads o f state through semiannual meetings of foreign ministers and quadrennial
meetings o f a working committee, down to meetings o f working groups composed of mid-level
officials. The SEA increased the frequency of these meeting, brought the Commission in on these
activities, required the EP be kept informed and charged the Commission and the Council with seeing
the external policies o f the EC and the EPC be consistent. Moreover, the SEA documents the
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agreement o f the member states "jointly to formulate and implement a European foreign policy."
(Calingaert, 1996:68) Maastrich formalized this goal further by establishing a Common Foreign and
Security Policy as the second of the "three pillars" of the EU. It also moved political cooperation
beyond its previous non-binding machinery. Now, the Council decides, on the basis o f a unanimous
vote, whether a matter should be a subject o f joint action. It then determines the scope o f the action,
its direction, means, etc. This development in political cooperation allows for a closer link with the
EU's economic responsibilities, viz., multilateral and bilateral trade negotiations and development
assistance (Smith, 1994). Whether or not the EU will seek to link economic cooperation to political
democracy more systematically in the future is unclear (though, given its record vis-a-vis China, one
could speculate that this is unlikely). What is important to note, however, is that it has the
mechanisms in place for doing so. Now it is just a question of political will.
Democratizing the Management o f Transnational Economic Policy - Asserting democratic
control over the management of international economic policy, as we noted above, is hindered by
three interrelated factors. First, there is the general reluctance of states to cede any aspects o f their
sovereignty. This expresses itself both in the institutions of the international state system and
international law. Second, there is the fact that there are substantial power differentials between
states. This has allowed the dominant capitalist states to establish multilateral economic institutions
that reflect their interests (often at the expense o f the interests o f LDCs). Finally, there is the fact that
capital has been able to insert its interests into the international realm through dominant states. These
three characteristics (viz., the reluctance o f states to cede sovereignty, power differentials between
states and the ability of capital to assert its interest through dominant states) are also evident within
the EU. They exist, however, in a much different context, one that serves to moderate them, permits
other actors greater play and allows for evolution in the direction of greater democratic control
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(Hayes-Renshaw and Wallace, 1997:264-5). We will examine these characteristics in turn to see the
prospects that the EU holds out for greater democratic control over economic (and related) policy.
The reluctance of European states to cede their authority to supranational institutions is
evident as far back as the origins o f the Union. In the period leading up to the formation of the EEC,
the trade unions, who had been generally supportive of economic integration, proposed a European
political union with transnational democratic structures (in line with the vision of many o f the original
initiators and advocates of European unity such as Jean Monet). It was felt that only in this way the
adverse social effects of economic integration could be adequately addressed. This proposal was not
even on the agenda of the states, however. From the start they were clear that the primary focus of
the EEC (as its name reflected) was to be economic integration and that there were willing to cede
power only to the degree that it was necessary for economic integration. Thus, there was not any
question of a political union. The national governments would have the predominant role in
determining policy through the Council o f Ministers. Other supranational institutions (viz., the
Commission, the EP, the ECJ) were granted power only to the degree that they were necessary for
developing and implementing the policy necessary for economic integration. Draft versions o f the
TOR did not even include a role for interest group participation in policy making. For its part, social
policy was o f decidedly secondary interest, a concern only in relationship to economic integration.
As in other matters (e.g., foreign policy), member states jealously guarded their control over this area
(Gorges, 1996: 79-80). The "intergovernmental" character o f the EEC was reflected in the veto power
which member states were granted by the TOR. This power was extended to all matters during the
transition period from the customs union to the common market. After this time, QVM was to be
introduced, but only on issues necessary for economic integration, not in areas o f social and industrial
policy. This strong intergovernmental approach— which guaranteed that social policy would be
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| decided on the least common denominator principle— clearly favoured the interests o f capital who
were vehemently opposed to any supranational authority for social policy,
j While this general reluctance to relinquish any aspect of state sovereignty has continued
[ throughout the history o f the Community, some concessions have been made or attempted in the
direction of more supranational control. One important instance of this has been the decision to
include issues of health and safety as a matter for QMV. Another has been the attempt to change the
TOR (stymied by the UK) to incorporate the Social Charter. There has also been a significant
broadening of the scope of the Community's common activities to include political as well as
economic integration. This is most clearly reflected in Maastricht three pillars, viz., economic and
! monetary union (EMU), a common foreign and security policy (CFSP), and justice and home affairs
(JHA). Again, the hesitancy o f members to cede aspects o f their sovereignty is reflected in the fact
that the second and third pillars have been incorporated as areas of intergovernmental affairs. There
have already been some calls, however, to transform these areas into supranational matters.
(Germany, for example has proposed that the second pillar, common foreign and security policy,
become subject to QMV). Thus, although member states in the EU have tended to guard their
sovereignty, they have proven willing to cede some aspects o f it to supranational authorities (and to
expand the areas in which they are willing to develop common policy on the basis of consensus).
While this was originally done for the purpose of creating a common market, it has been moving in
directions that may take it beyond strictly economic matters to other related areas, viz., social policy,
foreign policy, environmental policy, etc. Whether it will continue further in the direction o f a
"Social Europe" and "political integration" remains to be seen, but it can at least be argued that the
potential for greater supranational cooperation exists— a cooperation that could serve to limit the
structural power of capital and allow for greater democratic control over economic (and related)
policy at a supranational level (Gorges, 1996; Hayes-Renshaw and Wallace, 1997).
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There exists between the member states of the EU substantial power differentials based upon
both size (large vs. small) and levels of economic development (rich vs. poor). While the range o f
such differentials is relatively small compared with the range in the international state system as a
whole, it is still substantial (and will increase with the admission of states from East and Central
Europe in the not too distant future).29 The key concerns here are the degree to which these
differentials inhibit the possibility of democratic control over economic policy. It could be argued
that there are several characteristics of the EU which make these differences less significant than they
are in the international state system generally. First, as regards the differences between large and
small states, two factors lessen the ability o f states to dominate policy on the basis of their size. On
the one hand, smaller states have been granted disproportionately large representation in the Council,
Commission and Parliament. On the other hand the power o f veto serves as an effective means by
which they can protect their interests.30 Second, as regards the differences between rich and poor
states, the member states of the EU have committed themselves (in the SEA and TEU) to promoting
"economic and social cohesion." As part o f this commitment they have agreed to sharply increased
expenditures for the "cohesion states" (viz., Ireland, Spain, Portugal and Greece), this in return for the
tatter’s support for the EC92 program and the European Economic Area (EEA). For their part, the
cohesion states, acting as a collective, are able to use the power of veto even in cases of QMV
(Calingaert, 1996:91). All this is not to say that smaller and less powerful states do not have
29The ratio between the PCI of the richest and poorest Community members, for example, is
approximately four to one (Calingaert, 1996: 90).
30Portugal and Ireland, for example, were able to inhibit the introduction of a minimum wage in the
Maastrich Protocol. Portugal was also able to hold up an agreement on the Uruguay round until its
concerns about textiles were addressed. Greece, for its part, has held up the customs union with
Turkey for several years.
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| legitimate concerns about larger, more developed states who clearly exercise greater influence in such
| areas as the choice o f the Commission President and in Council negotiations generally.31 What is
interesting (and perhaps telling), however, is that the debate about the "democracy deficit" has not
! focused at all upon power differences between states. Rather it has centered on the lack o f
transparency of the major Community institutions (viz., the Council and the Commission) and the fact
that they are not democratically elected (Newman, 1996; Calingaert, 1996).
The interests o f capital may be inserted into the European (and world) economy as a result of
direct action by capital (through interest representation and lobbying) and/or indirect influence on the
part o f capital (viz., the nature of state formations and ideological power). Throughout most o f the
history of the Community, capital (and other groups as well) have spent most of their energy lobbying
at the level of national governments (either as individual firms, through sectoral bodies or through
horizontally organized peak associations). The reason for this has been the strong intergovernmental
character o f the EU which guaranteed member states an effective veto even on economic issues up
until the implementation of the SEA in 1987. This meant the most important decisions on business
matters affecting firms were generally taken at the level of national governments. Moreover, business
was generally confident that the EU was not in a position to introduce extensive social and industrial
31 Small countries, for example, were upset by what the saw as the high-handedness o f France and
Germany in promoting Belgian prime minister Jean-Luc Dehaene as Delors successor as Commission
president, an issue subsequently made moot by the UK's veto (Calingaert, 1996: 89). Some countries
have also expressed concern that it is the interests of Germany that have been establishing the pace
and form o f monetary union. More generally, after the collapse of the Soviet Union and
reunification, there was concern in some quarters that Germany might assume hegemonic status
within the EU. For its part, Germany has sought to downplay such fears and avoid any appearance of
hegemonic ambitions. (Newman, 1996: 63)
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i relations policy (while the most effective strategy for countering such moves was to lobby a member
government to veto the unwanted legislation). This is not to say that capital did not participate in
lobbying activities at the European level during the earlier decades o f the Community.32 Indeed, it
| had a presence nearly from the start of the EEC.33 Yet, it was only in the mid-1980s that activity at
j this level really began to blossom (and started to take on the characteristics of the US lobbying
!
' system). The underlying reason for this was the revitalization o f the EU under the Presidency of
Delors. Several factors in particular made lobbying at the EU level more important at this time. First,
| and most importantly, the establishment o f QMV meant that capital could no longer count on any one
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! state being able to protect its interests. Second, the Commission and, to a lesser extent, the EP began
<
to take on more prominent roles in the developing and approving legislation. Third, a much greater
volume and wider range of legislation (e.g., industrial relations, environment, etc.) was emerging
from Brussels. In the lobbying game (especially when played according to US mles) capital has a
clear advantage over other groups. Few other interest groups, for example, can afford to maintain
permanent representations in Brussels. While the EU has taken some measures that provide support
32They were, for example, particularly active in opposing the Vredling proposal which would have
incorporated German style industrial relations policy into the EC (Andersen and Eliassen 1993;
Gorges, 1996).
33 Members of different national level horizontal business interest associations (BIAs), joined
together in 1958 to establish the dominant Community level, horizontal BIA (UNICE). Various other
horizontal BIAs were also established along with Community level sectoral BIAs (FEBIs). (Gorges,
1996:51).
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for non-business groups in their efforts at interest representation lobbying activities,34 so far it has
done little to regulate lobbying activity (Andersen and Eliassen, 1993: 39; Hayes-Renshaw and
Wallace, 1997). In principle, however, it does have the power to regulate lobbying in a manner that
would not allow capital to violate the principle of the separation of state and society.
Besides the direct lobbying activities of firms, the interests of capital get injected into the
European (and world) economies through the closely connected combination of the state formations
j of member states and the ideological power of capital. The problem of state formation, as we
I mentioned in the previous section, refers to the ability o f capital of articulate its interests through a
| particular state. Throughout the 1980s and 1990s the UK has served as an effective conduit for the
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1 interests of capital, attempting to block all forms of social and industrial relations regulation, while
promoting neo-liberal economic policies. While the increase in QMV has diminished the ability of
individual states to obfuscate joint agreements in the realm o f economic policy, the British "opt out"
on the Social Chapter means that policy in other areas (social and industrial relations, environment,
etc.) may still be dictated by the lowest common denominator. As a result, effective controls on
capital will still require sufficient civil society organization and support within each member state of
the EU. While, as we noted in the previous section, such a mobilization of civil society remains
possible at the level of nations states, clearly the demand that it occur simultaneously across the
complete spectrum of member states increases the difficulty o f controlling capital within the
Community.
A closely related problem is the growing ideological power o f capital, which enables it to
portray neo-liberal policy options as the only effective method to promote competitiveness and
34The Commission, for example, offers financial support for the European Trade Union Institute
(ETUI), a fact which UNICE, the main community level employers’ organization, finds objectionable
(Gorges, 1996:92).
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growth in the global economy.35 Historically the power of neo-liberal ideology was reinforced by the
unsuccessful attempt of the first Mitterand government to promote an expansionist solution to the
economic crises o f the 1970s and early 1980s. Since then, the dominant wisdom has shifted against
Keynesian interventionism to such a degree that neo-liberal policies are perceived to be the only
effective manner for promoting job creation. This leads to the assumption o f an inevitable trade-off
between promoting employment (through neo-liberal policies designed to increase competitiveness)
and social protection, a position clearly evident in the EU’s 1993 White Paper (Newman, 1996). It is
in this context that capital's interests naturally get inserted into the European economy in such areas as
monetary union. O f particular importance here are proposals for the creation of a strong, independent
central bank. Such a move, which would effectively limit the ability of governments to use
macrostabilization policy (e.g., to promote full employment, redistribute wealth), not only clearly
favours the interests o f capital, but can now be justified on the basis o f its ability to promote
economic growth and create jobs.36 In the previous section, we mentioned the problems involved in
controlling the ideological power o f capital and indicated some o f the measures necessary to combat
it in order for people to be able to exercise their rights to public autonomy. In principle such
measures can be taken by state governments and do not need legislation at the EU level. For its part,
the EU has not addressed this issue in any substantial way.
3SFor an enlightening account o f the role that "ideas" have played in the gradual acceptance o f neo
liberal policy approaches in Latin America see Bierstecker (199S). For an account of the role that
ideology has played in the promotion on neo-liberalism in the US, see Bowman (1996).
36 For its part, the EU does not have the structures to implement standard Keynesian macroeconomic
policy and programs designed to ensure full employment and steady growth. While the European
Social Fund does serve these purposes to some degree, it is relatively small in size and limited in
scope (with respect to macrostabilization policy).
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IV. Conclusion
In this chapter we have sought to address an old question (viz., the relationship between
capitalism and democracy) from within the confines o f the normative perspective o f Habermasian
critical theory. More specifically, we have drawn upon Habermas’ critical theory of law and
democracy to understand how capitalist business activity might be brought under the control of
communicative action in such a manner that the basic logic o f the system is respected. This is a
question which Habermas does not examine in any detail. In an attempt to address this question we
formulated some basic conditions under which capitalist business activity could be considered
"legitimate" (viz., respect for legitimate law, respect for the conditions necessary for the generation of
legitimate law and respect for acts o f public autonomy). These conditions provided us with more
concrete proposals for determining whether capitalist business practice can be subjected to the
authority o f communicative action. In addressing this question, we have focused almost exclusively
on the most critical of these three conditions (viz., respect for the conditions necessary for the
generation o f legitimate law), arguing that capital can only be expected to fulfill these conditions if
they are themselves are incorporated into law. This means that the normative acceptability of
capitalist business practice is linked to the possibility o f establishing the conditions necessary for the
generation o f legitimate law in actual law. The major obstacles to realizing this possibility are the
social power of capital and the fact that (some of) these conditions are opposed to the objective
interests o f capital.
We went on to argue that, while there were significant practical obstacles to establishing
some o f the conditions necessary for legitimate law in actual law, in most developed capitalist states
civil society groups have been able to pressure governments into establishing many of these
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conditions (to some substantial degree). It was further argued that it was possible, in principle at
least, to establish (with sufficient civil society mobilization) most of the other conditions. The main
exception was the condition of the separation of state and society. The major obstacle confronting
implementation here was capital mobility. The economic feasibility of flight (combined with capital's
control over technology and the situation of relative scarcity) means that individual states ultimately
cannot control capital. They must attract or lure capital, bargain with it and induce it. The problem
here, from a critical theory perspective, is that this puts capital in a position to systematically violate
the principle o f the separation of state and society. On these grounds it was then argued that the
normative acceptability o f capital must finally rest upon the possibility of some form of international
legal-political organization being able to impose controls on transnational capital. We then posited
three key tasks that such a system must be able to fulfill in order to control capital (viz., establishing
minimum standards, linking economic cooperation to political democracy and democratizing the
control o f international/regional economic policy). The two most viable candidates (viz., the
international state system and international law, and the European Union and European law) were
then examined with respect to their potential for fulfilling these tasks. It was the European Union
which exhibited the most potential for being able to control capital.
The greater potential o f the EU and European law to control capital consists o f two basic
factors, viz., the establishment of supranational controls over economic policy necessary for
integration and the movement to extend cooperation and supranational control beyond issues of
economic integration (e.g., to social and industrial policy, foreign policy, etc.,). Supranational control
over economic policy is a key condition for more democratic control of economic policy, while the
extension o f supranational control into areas of social policy and foreign policy would lay the basis
for establishing effective minimum standards and linking economic cooperation to political
democracy. For the most part, this potential has remained just that, potential, as states have been
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| reluctant to cede their sovereignty in these areas. Thus, while there have been agreements in principle
for increased cooperation in these areas, they remain matters o f intergovernmental rather than
supranational control. This dramatically reduces the potential for cooperation that could serve to limit
; the power o f capital as the vote o f only one state can scuttle potential agreements. Thus, while the
formal powers to take action necessary to control capital are in place, so far they have been
effectively exercised in only one area (viz., health and safety). While movement around the social
charter indicates the possibility for further extending theses powers into other areas, this remains a
very open question.
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I The prospects o f further cooperative action being taken to restrain capital involves two
related, but conceptually distinguishable issues. First, there is the question of whether the institutional
structures o f the EU will continue to evolve in the direction o f increased cooperation and
supranational structures. Functionalist theory (Mitrany, 1967) has long stressed the tendencies for
economic integration to break down political barriers as supranational organizations are increasing
required for efficient achievement of collective goals. While this did not occur in any major fashion
during the first quarter century o f the Community, some have seen the recent moves to deepen and
widen the EU as inevitably resulting in a shift o f power to EU institutions such as the Commission
and Parliament at the expense of member states (Smith, 1994). On the other hand, the prospects for
further development in the direction of supranational authority are clouded by several factors. As we
have noted, there is the general reluctance of states to cede their sovereignty. A further potential
problem is the fact that the membership of the EU has been diversifying in terms of levels of
economic development. This started with the ascension first o f Ireland in 1973 and then of Greece,
Spain and Portugal in the 1980s. The incorporation o f Central and Eastern European states will take
diversity to new levels. Such diversity has the potential to make the attainment of common
agreements more difficult and may force a shift from an "ever closer union" to a multi-tiered Europe
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I (Newman, 1996). Such a development would undermine both the possibility of establishing
minimum standards and establishing democratic control over economic policy and, thereby, the
potential for controlling capital. Another factor which may inhibit greater cooperation and
i supranational control is strong national identification (Hodgson, 1993). Such identification (evident
in the debates around Maastrich as well as the ascension o f the Nordic states) can be used by state
governments as a justification for retaining exclusive control over social policy, foreign policy, etc.
Second, there is the question of whether the structural possibilities for cooperation that exist
(and those that may be developed) will actually be used to control capital or will serve to further the
( interests of capital. The problem here is that capital itself is not opposed to supranational controls.
i
To the contrary there is a strong movement for supranational controls as this would standardize
regulation and eliminate the ability of individual governments to impose extra costs or constraints on
capital (Bennett, 1996: 294-5). Capital has a very limited agenda with respect to supranational
control, however. It wants it limited to economic policy and it wants to ensure a specifically liberal
approach will be adopted. So far the EU has tended to provide capital with what it wants in these
regards. Simplified regulations on mergers (an ostensible move in the direction of global anti-trust
measures) are already in place, while there is movement in the direction o f creating a strong European
central bank (which would inhibit the efficacy of individual countries’ ability to use Keynesian
macroeconomic policy tools).
If there is room for doubt concerning the prospects o f the EU imposing the forms of control
on capital that would be necessary to enable individual European states to subject capital to the
constraints of communicative action through their domestic law, then it is hard not to be skeptical
about the potential o f the EU model spreading to other parts of the world and helping to control
capital there. Still, to the degree that the EU has been increasingly perceived in many societies as an
effective model for the management of capitalist society (Smith, 1994:464), it is possible to speculate
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that imitation may rcilow ;r. the other regional organizations, especially as the new global economy
further incrc-ares regional economic integration Whether this might lead to increased political as well
as economic integration remains unclear, h o w e v e r . In some regions, (e.g., North America and East
Asia) th_- existence of a strong hegemonic power undermines the likelihood of political integration
i and virtually Aim mares the possibilities for imposing meaningful controls on capital. In other regions
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(e.g., I.arin America. Africa) there may be more potential. In such areas the EU might serve not only
as a model, but may be ?.hk- to e:.courage developments in thus direction through policy measures and
agreements, e.g., the Lome Conventions (though the WTO has greatiy restricted the possibility for the
I preferential standards that the Lome Conventions entailed). Still, states in such organizations as the
i
GaU have jealously clung to the traditional privileges of state sovereignty (while the OAS has tended
to serve as a vehkue for the L : c. to txercise its hegemonic power in the region). A further potential for
the SU ~odei t-~ have influence involves l i ~ ability to speak as a common voice for Europe in larger
international institutions (e.g.. IMF, WTO, etc.) and agreements (e.g., Rio Summit). Until now,
however, th“ limited predilection tn~ die EU has demonstrated for imposing control on capital in
such fora (e.g.. support for a "social clause" in GATT, targets for green houses gases in the Rio
agreement, etc.) have not c o m e to much as its proposals have been consistently frustrated by
or.poi i i ' C C l f r O : V i the U>.
Wiiiir: the prospects cr bnnging capital under communicative control through legitimate law
uo not look promising (especially in the short to medium run), the potential still remains. Thus, a
minimum claim that ca. be made with respect to die project of developing a critical theory approach
to business cthics A il;at it is not self-eontnidiciory Whether it is worthwhile to develop such a
theory is a distinct question, but cue for wh’ch reasons can be put forth. Insofar as capitalist business
activity is potentially justifiable and supported by great numbers of people, it is important to address
i’ ne question of the conditions fur the tegitiniacv of capitalist business activity. This provides
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supporters not only standards by which to measure their own actions (with respect to the question of
legitimate law), but also a realization of the need for structural change in order for capitalism to be
able to live up to acceptable normative standards (i.e., the conditions for legitimate law). Even if one
does not advocate capitalism, the task of trying to hold it to the standards of legitimate law is
important. To the degree that efforts to do so are successful, they also provide increased possibilities
for promoting alternative forms of production relations (including efforts involving the state
promotion o f these alternatives). Yet, legitimacy is only one of three normative moments. Unless
capitalist business activity is also justifiable within these other two moments, the question of its
potential legitimacy becomes a (theoretically) moot point.
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CHAPTER FIVE
Morality:
Problematizing the Normative Relationship between
Capitalist Business Activity and the Common Good
In the third chapter we drew upon critical theory to develop a model of normativity which
distinguishes three distinct moments, viz., the legitimate, the moral and the ethical. In the previous
chapter we examined capitalist business practice from the perspective of the first of these moments,
viz,, the legitimate. In chanter we move on to examine the potential normative acceptability o f
capitalist business activity from the second moment, viz., morality. The basic question around which
this investigation revolves is the ability of capitalist business activity to represent a generalizable
interest. There is a prim a facie tension between the capitalist business system and the notion of a
generalizable interest (or common good). This tension consists o f the fact that capitalist business
practice is non-democratically controlled and results in substantial inequality in the distribution o f the
social product. In order to be able to elaborate a normative theory o f capitalist business and economic
practice, it must be possible to demonstrate that this tension is in principle resolvable, i.e., that
capitalism can represent a generalizable interest. In taking up the question of morality, once more
two Habermasian theories are of particular relevance. The first of these is, one again, Habermas'
(1984X critical theory of modernity in which he provides an account o f the rationality of modem
societies. The second is Habermas' theory of discourse ethics (1990; 1993) which provides the basis
1 ™ - v a l i d norms.
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In examining this question o f the potential of capitalism to represent a generalizable interest
we will proceed in the following fashion. In the first section we will begin by addressing the question
of how the concept o f morality can be extended to the analysis of capitalist business activity. We
then go on to elaborate a series o f conditions that capitalist business practice would have to fulfill in
order to be able to represent a generalizable interest. In the second section, we investigate the
prospect for capitalist business practice conforming to the these conditions. Once again, our concern
here is not so much to investigate particular problems that are of immediate interests to managers of
firms and others involve in business. Rather, it is to establish the fact that such questions can be
meaningfully treated at all from a critical theory perspective.
I. The Requirements of Morality
From a critical theory perspective, the concept of morality has a relatively restricted domain,
pertaining only to those norms that can be consented to in a rational discourse. Such a restricted
conception of morality may appear to have limited applicability for the realm o f business practice. In
what follows we will argue that, while the concept of morality is limited with respect to its ability to
supply criteria for the evaluation o f specific policy proposals and institutional arrangements, it has
relevance for the normative analysis of the basic practices and institutions o f capitalist business
practice. The basis for this relevance is provided by the use of this conception o f morality as a tool of
critique. More specifically, it will be argued that from the perspective of this conception o f morality,
it is possible to establish a series o f conditions that capitalist business would have to meet in order to
be able to represent a generalizable interest.
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A) The Problematic ofAnalyzing the Morality o f Business Activity
Discourse ethics, as we have seen, defines morality in terms of the potential universal
validity o f norms. From this perspective, valid norms demonstrate two characteristics. First, they
emerge as the result of a rational consensus from a discourse in which all affected are able to
| participate. Secondly, since such discourses involve the needs interpretations of the participants and
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[ can only be resolved on the basis of consensus, any valid norm must represent a “generalizable
j interest.” Because morality exhibits these two characteristics, discourse ethics can, in principle, be
)
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1 used either to try and generate valid norms by achieving consensus on universal interests or as a
critical test for uncovering non-generalizable interests. It is clearly the latter option that Habermas
intends and which we will draw upon. As such, discourse ethics is best understood as a tool for
investigating what Benhabib (1986: 312) calls the “suppressed general interest,” i.e., the partiality or
bias involved in interests which claim to be universal. An important application of discourse ethics,
then, would be the uncovering of non-generalizable interests in the actual practice o f capitalism.
Such a task, while clearly important to our concerns, can only represent a part o f our present
endeavor, however. Our primary concern is not strictly a critique of capitalist business practice, but
an examination into its potential normative acceptability. More specifically, with respect to the
category o f morality our concern is whether capitalism is capable of representing a generalizable
interest. For this purpose we need to employ discourse ethics in a slightly different manner.
As we just mentioned, the fact that valid consensus implies a generalizable interest permits a
moral analysis o f capitalist business in terms o f a suppressed generalizable interest This fact
however, allows for another, complementary approach to the analysis o f the morality of business and
economic activity. Starting with given entities, in this case the basic structures o f the capitalist
economy (viz., markets, private ownership o f the means of production and hierarchical production
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relations), an analysis can be elaborated from the conditions of possibility. This is to say, if one can
establish the basic conditions under which the functioning of these structures could be the subject o f a
rational consensus, then these conditions can be used to investigate the potential o f a capitalist
economy to represent a generalizable interest.1 This is the approach that is adopted here. In the
present section, we will take up the first o f these two tasks, viz., the establishment of conditions under
which capitalist business activity might be compatible with a generalizable interest. In the following
section(s), we provide an analysis o f the demands that fulfilling these conditions would make on
firms, how the activity of other actors might moderate these demands as well as other actions that
might be necessary for these conditions being m eet
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The prim a facie problem involved in arguing that capitalism is capable of representing a
generalizable interest involves two o f its inherent characteristics, viz., its non-democratic decision
making processes and its inegalitarian distribution of the social product2 Without the presence o f
[In addressing the question o f the potential morality of capitalism, (i.e., the possibility that capitalism
might represent a generalizable interest), it is only possible to posit the conditions for morality in the
form o f abstract norms. Discourse ethics hold, as we saw in chapter three, that, generally, it is only
possible to establish consensus on abstract principles and not specific institutional arrangements and
policies. The reason for this is that as greater specificity of detail is demanded, pragmatic arguments
(involving strategic and tactical considerations) take on a greater role, while community specific
ethical values are more likely to clash. Thus, questions of the moral acceptability o f capitalist
business practice must restrict themselves to the elaboration of relatively abstract basic principles and
analyses based upon these criteria.
2A range o f arguments have been advanced over the years (individually and in concert) that serve to
justify these characteristics of capitalism. These include libertarian appeals to strong property rights
(Nozick, 1974), various forms o f contract theory (Locke, [1690] 1975; Rawls, 1971), the desirable
i _ _ _ _ _ _ .
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some off-setting advantages, it is difficult to imagine how people could consent to these features of
capitalism. The most obvious off-setting advantage that capitalism promises, o f course, is greater
material prosperity than under alternative arrangements. The basic issues concerning the morality of
capitalism, then, are whether capitalism can indeed offer offsetting advantages in the form o f material
goods and whether people (in particular the least well off under capitalism, e.g., workers, the
unemployed) would prefer these advantages over a more democratically controlled and egalitarian
| economic system. This question gets complicated by the fact that capitalism is not a simple entity.
| While all capitalist economies are characterized by the existence of three basic structures (viz.,
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i markets, private ownership o f the means o f production and hierarchical production relations), the
function of these structures can be modified (through regulation) and their initial effects altered
(through redistribution). Thus, the question of the potential morality of capitalism involves two
related questions. First, there is the question of whether those least well off under capitalism could
agree to (some form of) capitalism over more egalitarian and democratic alternatives (e.g., market
social and political benefits of capitalism (Novak, 1982), neo-classical arguments of marginal
productivity, utilitarian theory, etc. From a Habermasian perspective, the normative political
arguments used to justify capitalism are unconvincing for, as we saw in chapter three, the discourse
theory o f law and politics does not acknowledge strong property rights (like libertarians), nor does it
give a priority to liberty rights over public autonomy rights (like contractarians). The positive
political claims of some liberal theorists (viz., democratic government is only compatible with a
capitalist economy) are also unconvincing. Empirical research rooted in theoretical traditions
compatible with critical theory argue quite a different line. Rueschemeyer et al. (1993), for example,
argue that capitalism has at best been ambiguous with respect to political democracy, its major
contribution coming primarily from its eroding o f the power of feudal forces who tended to be the
strongest opponents of democracy.
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socialism). The second question, then, is, in opting for capitalism over non-capitalist alternatives,
what conditions would the least well off impose before consenting?
In attempting to answer these questions we begin with economic theory and a brief
examination o f the performance/efficiency claims o f the basic structures o f capitalism. This provides
! the basis for understanding the potential benefits that capitalism might be able to provide to offset its
| more problematic characteristics. We then move on to examine these less positive aspects of
I
capitalist business practice, noting also the measures that have been taken to address them. These
problems include not only capitalism’s inherent non-democratic nature and inegalitarian distribution,
but several other troublesome features that undermine a potential claim by capitalism to represent a
generalizable interest. Next we offer a brief account o f the basic alternatives to capitalism and an
argument as to why it might not be irrational for the least well off under capitalism to reject these
alternatives. Finally, on the basis of the problems o f capitalism and the measures implemented to
address them, we offer a series of conditions under which capitalism might be morally acceptable,
i.e., represent a generalizable interest.
B) The Efficiency Claims o f the Basic Structures o f Capitalism
In its evolution capitalism has taken on a variety o f forms as a result of changes in
technology and the organization of production (e.g., mercantilism, putting-out, manufacture,
industrial capitalism) as well as interventions (and withdrawals) by the state (e.g., laissez-faire,
tripartite corporatism, neo-liberalism, etc.). Still, throughout all of these changes three basic
structures have characterized capitalism, viz., allocation and distribution through markets, private
ownership o f the means o f production and hierarchically organized production relations. We will
briefly examine the performative claims o f each o f these institutions in turn to see how they might
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contribute to allowing capitalism to represent a common good. In doing so, we are not concerned
with empirical problems which might serve to moderate these theoretical claims or call them into
question. Such problems with be examined in the following sub-section.
Markets - A key characteristic o f capitalism is that the allocation and distribution o f all
inputs (e.g., resources, labour, capital) and products (e.g., commodities, services) occurs through
markets. The basic efficiency (performance) claims for markets were first systematically laid out in
neo-classical economic theory.3 There are both static and dynamic efficiencies to markets. The basic
static efficiency of markets involves the fact that they guarantee Pareto Optimal outcomes (i.e.,
exchanges will occur until an equilibrium state is reached where no one can any longer be made better
off through an exchange without someone else being made worse off). In additions to this static
efficiency, markets generate two types of dynamic efficiencies. The first o f these, diachronic
efficiencies, occur through the existence of markets over time. They include reduced transaction
costs (as more efficient entrepreneurs who can bring buyers and sellers together at less cost gain a
larger market share), reduced costs o f production (as those who fail to adopt more efficient
production methods are unable to compete4) and the creation of a market for information (as
3 In elaborating their theory, neo-classicais begin with the presupposition o f "perfect markets." There
are several basic conditions for perfect markets: 1) full information is available and its cost is zero; 2)
contracts and property rights are established and stable and their cost of enforcement is also zero; 3)
individuals are rational, i.e., able to order their preferences and choose appropriate means to attain
them; 4) transactions costs are zero; S) products are undifferentiated, and there are sufficiently large
number o f buyers and sellers such that everyone takes prices as given. (Buchanan, 1985: 14-15).
4In perfectly competitive markets, the price at which a good sells equals its marginal cost. This
means that economic profit (i.e., the rate of profit above the average rate of profit) is equal to zero.
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producers, consumers and entrepreneurs all need information). The second type o f dynamic
efficiency, productive efficiencies, relate to the competitive nature o f the market Under perfect
competition firms are forced to set the price of their goods at the their marginal cost This means that
economic profits equal zero. This state of affairs results in two productive efficiencies, viz., growth
and innovation. Market competition stimulates growth by allocating resources to those who use them
most efficiently. Because profits equal zero under competitive capitalism, firms that are not efficient
producers are soon forced out o f the market, while their capital stock is distributed to more efficient
producers who can make better use o f it. Market competition also stimulates innovation (in both
products and production techniques). This occurs because under conditions of perfect competition
the only way that a firm can make any (economic) profit is through the introduction o f new or better
products or more efficient production methods. Since these profits can only be maintained in the
short run (as competitors imitate success, driving profits back down to zero), there is a constant
incentive to innovate (Buchanan, 1985). For consumers this means not only cheap goods, but also a
wide selection of goods which is constantly expanding. Not only are consumers offered a wide range
of products, but, the notion of consumer sovereignty argues, it is consumers themselves (through their
consumption choices) who determine exactly what products are produced. There is one other
significant productive efficiency of competitive markets, viz., full employment. Because under
competitive conditions all markets clear, everyone is able to find a job and, as a result, all available
labour power is put to use.
Private Ownership - A second key structure o f capitalism is private ownership o f the means
o f production. Private ownership can take a number o f forms, (e.g., individual, partnerships,
corporate) and contrasts with a variety of other ownership forms that are in principle compatible with
Thus, those producers that do not adopt cost saving measures will eventually be forced out of the
market
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a market economy (e.g., state ownership, co-operatives and worker-controlled firms). Our concern
here is primarily with the dominant form o f private ownership in modem capitalist economies, viz.,
capitalist corporations.5 In order to examine the efficiency claims in favour of private ownership of
the means o f production it is necessary to mention several key rights that distinguish private
ownership from other forms of ownership: 1) the right to purchase and sell shares; 2) the right to
appropriate the surplus (profit) that the firm generates (in the form of dividends), and; 3) the right to
control the use of the productive assets and the production process (which in the case of corporations
is generally addressed under the notion of shareholder democracy). Under a system of private
ownership, any individual is able to purchase or sell shares and (generally) enjoys the three ownership
rights just elaborated.
Four related claims can be made in favour of private ownership o f the means of production,
all relating to the motivation that private ownership provides actors operating in market economies.
The first and most basic efficiency claim in favor of private ownership is that it promotes productive
investment which serves as a necessary engine for growth. It is the right to appropriate the surplus of
the firm’s activities that provides the motivation necessary for investors’ initial decision to invest and
also their subsequent decisions to reinvest the company’s surplus.6 A second efficiency claim in
5The basic efficiency advantage of joint stock companies over individual ownership is that they
allows for the pooling of resources. This claim is relatively uncontroversial and was accepted by
Marx, Hilferding and other critics of capitalism (Sawyer, 1989: 175). It should also be noted here
that capitalist economies are characterized not by the exclusion of other forms of ownership (e.g.,
state, cooperative), but by the dominance o f private ownership and, in particular, in the form of
corporations.
6As an argument in favour of private ownership, this ability to promote growth is most effective when
contrasted with state ownership. It appears to be less effective when private ownership is compared
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favour o f private ownership is that it stimulates innovation (which in turn may stimulate growth).
Private ownership stimulates innovation (either by individual entrepreneurs or through the
establishment of research and development departments in firms) because, as we noted above,
innovation allows for the possibility of (economic) profit Under competitive market conditions
profits equal zero. By introducing innovations (either in products or production processes), however,
firms are able to generate profits, at least in the short-run until competitors are able to copy their
innovations. Another related efficiency claim developed in favour of private ownership relates to
capital markets. Most economists feel that a capital market is essential for an efficient allocation o f
resources in an economy as it facilitates the allocation of productive resources to the most efficient
producers. To the degree that a capital market provides significant efficiency gains, this would be a
strong argument against an economy based upon either state-run firms or cooperatives firms. A final
efficiency claim in favour o f private ownership relates specifically to corporations and the right to
control the production process (shareholder democracy). In modem corporations, unlike partnerships
and individually owned firms, management and ownership are to a large degree separated. This
means that the interests o f management and the interests of ownership may diverge. More to the
point, in attempting to maximize their own interests (rather than shareholders'), management (often in
collusion or tacit agreement with the Board) may operate the firm in ways which are not efficient.
This phenomenon has become known in the literature as the “principle-agent problem.” A similar
situation arises with respect to state-run industries. While both states and shareholders (through the
Board of Directors and shareholder resolutions) have the ability to direct management, privately
owned firms have an important advantage over state-run firms. This is the fact that stakeholders have
a very specific interest (viz., profit) that provides them with the motivation necessary to supervise
with cooperative and worker-controlled forms of ownership as in both these cases owners also have
an incentive to invest.
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management and force it to operate the firm in an efficient manner.7 State bureaucrats (and
politicians), having no ownership rights, lack the same motivation to supervise management and
promote efficiency.8
Hierarchical Management Structure - Capitalist management, like other forms o f modem
' bureaucracy, tends to be organized in a very hierarchical fashion. In the case o f capitalist production
relations, this notion of hierarchy can be broken down into several distinct characteristics.
Specifically, the capitalist management order has traditionally been: 1) centralized (with regards to
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(with respect to the form o f decision-making, from the level of the shop floor to the board room).
While these features have always been characteristic of capitalism, justifying them was not a
7There are some serious questions about the ability or desire of shareholders to exercise any real
influence on large corporations. See, for example, Nader and Seligman (1983). The ability of
shareholders to control management is not a new topic in the management literature, going back to
the work o f Berle in the 1930's. The locus classicus is Berle and Means ([1932] 1968).
Contemporary agency theory dating from the 1970s has tended to formalize the investigation of the
“principle-agent problem” through the use of game theory. For a recent treatment of some o f the
ethical issue related to agency theory, see Bowie and Freeman (1992). See also Kaufman et al.
(1996).
sAgain, while there is an intuitive appeal to this argument insofar as it is directed against state-run
firms, this appeal loses some o f its common sense luster when the argument is directed against
cooperatives and worker-controlled firms, where it might be more difficult to explain why
cooperative members and worker-owners would not be motivated to maximize profits. See Estrin
(1994) and Hansmann (1996).
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particular concern o f early theorists. This may have been due to the fact that ownership and
management were to a large extent combined in earlier forms o f capitalism. Significantly, the laissez-
fa ire model itself does not assume hierarchical management relations and, indeed, has little to say
about the organization o f production at all (Sawyer, 1989). As capitalist enterprises grew and the
joint stock company emerged, however, the way was paved for a separation of management and
ownership. The lack o f a direct link between hierarchical production relations and market efficiencies
(as is claimed in the case o f private ownership) means that any efficiency claims for professional
hierarchical management must be developed on some other basis.
There are two basic arguments that capitalist management is able to advance to justify
hierarchy. First, there is the appeal to the efficiencies of an effective chain of command. This line of
argument, while relatively uncontroversial in a sense, is of limited value in justifying hierarchy.
Clearly, allowing all parties to provide input and/or making all decisions on the basis of some form of
discursive agreement would be a costly and time-consuming process that could not be justified in a
large organization. It is generally recognized, even in the most democratic o f worker controlled
firms, that some form o f hierarchically organized chain of command is inevitable. What is at issue
here are two points. On the one hand, there is the nature o f the chain o f command (e.g., the degree of
specificity o f the commands, the delineation of the possibilities for input, etc.) and whether the degree
of hierarchy that it entails can be justified. On the other hand, there is the question of democratic
control at the top level o f decision-making. The question at issue here is whether greater democratic
control by workers (and possibly other stakeholders, e.g., local communities, civil society groups,
etc.) at the level of the Board of Directors would necessarily involve inefficiencies. This question
relates to the second approach to justifying the hierarchical structures o f capitalist management, viz.,
an appeal to expertise. To substantiate claims to expertise management is able to appeal to
professional qualifications as well as the empirical record of capitalism management It is beyond the
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scope o f present concerns to delve into the empirical debates about the relative efficiency of
hierarchical management structures in any detail, (though we shall address some of the concerns
raised about the claims made in favour o f hierarchical management below). Rather, our purpose has
involved the more limited task o f establishing the nature of the efficiency claims that might be used to
| justify hierarchical management structures.
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| C) The Problematic o f Capitalism as a "Rational Choice"
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In order for capitalism to be able to represent a generalizable interest it must be capable of
being the subject o f a rational consensus. There are two inherent characteristics of capitalism that
might seem, at first glance, to call into question this possibility, viz., its non-democratic decision
making process and its inegalitarian distribution of income. Yet, to the degree that capitalism may be
able to offer greater material benefits than alternative arrangements (e.g., market socialism), people
may actually prefer the mix of benefits that capitalism provides (e.g., higher income, greater
selection and quality of consumer goods) over that o f alternative arrangements (e.g., greater income
equality, greater control in the workplace). In making this choice, however, people would not
compare capitalism with its alternatives merely on the basis of the theoretical arguments advanced in
its favour by neo-classical economists. (Nor would they necessarily share the “possessive
individualist” presuppositions o f neo-classical economists concerning human nature.) Rather, they
would look at capitalism as it actually functions. In doing so they would discover a range of
problems which might make capitalism less appealing than it appears through the lens o f neo-classical
theory. Any decision to consent to capitalism, therefore, would only be rational to the degree that
these problems were taken into consideration and any particular advantages resulting from them were
linked, to the degree possible, to a generalizable interest In what follows we examine five basic
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characteristics o f capitalism that tend to make capitalism incompatible with a rational consensus and
note some o f the measures that have been taken to address these problems.
I) Im perfect Markets
Actual markets are do not fulfill the conditions of ideal markets (e.g., there is not perfect
information, transaction costs do not equal zero, enforcement costs do not equal zero, etc.). As a
result a variety of problems arise which not only call into question the efficiency claims made on the
basis o f ideal markets, but the ability of markets to represent a generalizable interest. First o f all,
there are monopolistic and oligopolistic tendencies in capitalist economies. The basic effects of
monopoly and oligopoly are a reduction in the quantity of goods produced and a higher price for
consumers (while the monopolists and oligopolists earn economic profits without providing any
benefits in the form o f innovation). Such a situation, it is universally acknowledged, does not
represent a generalizable interest. A second problem with actual markets is the existence of
externalities. Most notable in this regard is the problem of environmental pollution. By producing
(negative) externalities (e.g., by polluting), firm are able to impose part of the costs o f their doing
business upon third parties (in the form of health problems, diminished opportunities for aesthetic
pleasure, etc.) and/or on society as a whole (in the form of cleaning up environmental contamination,
subsidizing medical costs, etc.). A third major problem of actual markets involves the fact that some
markets do not regularly clear. O f particular concern in this regard is the labour market. Non
clearing labour markets not only mean economic hardship for individual (potential) workers and their
dependents, but also entail opportunity costs for society as a whole in the form of unused labour
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potential. For capitalists, however, unemployment represents a boon in the form of decreased
pressure on labour costs.9
To the degree that these problems o f actual capitalist markets work entirely in the favour of
capital and against the interests o f consumers and labour, the latter could not consent to such a
situation. To agree to such a state o f affairs would be irrational if there are measures that could be
taken to address the problems in question. Because such measures do exist, workers (and others)
could only consent to a market economy with the provision that measures are taken to address the
problems in question. That this is the case, is confirmed by the actual practice o f developed capitalist
democracies. All Western democracies have anti-trust legislation in place to control the monopolistic
tendencies o f capital. They all have environmental regulations in placed designed to deal with the
problem o f externalities. They all use macro-stabilization policy and specific job creation programs
to address the problem o f unemployment, as well as providing unemployment insurance and welfare
programs to deal with the effects of unemployment that the individual jobless must bear.
2) Unjustified Hierarchy
The hierarchical (i.e., centralized, non-participatory, non-democratic) nature o f capitalist
management (and the associated privileges that management and professionals enjoy) cannot always
be justified on the basis of efficiency. Recent trends in management theory acknowledges this point,
9An additional problem with markets is that they do not generally provide for public goods (e.g.,
utilities and infrastructure, defense, etc.). This problem was acknowledged as early as Smith and is
generally conceded even by neo-classical economists. For this reason it need not be addressed in
detail here.
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at least with respect to participation and decentralization.1 0 To the extent that a critical theory
approach does not accept strong property rights claims, expertise (leading to increased efficiency) is
the only plausible argument that might be used to justify non-democratic control. For its part,
management seeks to ground its claims to such expertise in professional qualifications as well as the
historical record. Questions have raised, however, about both o f these sources of justification. On the
one hand, the relevance (and objectivity) o f professional qualifications have been called into question
(Young, 1991). On the other hand, the argument has been advanced, both in the mainstream literature
as well as from more radical perspectives, that expertise does not guarantee efficiency gains. More
main stream economists base such an argument on the fact that the interests o f managers do not
necessarily coincide with those of stakeholders (not to mention workers and the general public).
(Berle and Means, 1967). As a result of this non-coincidence o f ends, managers may make decisions
(e.g., reorganizing production, introducing new technology) that do not result in any increase in
efficiency, but merely serve to promote the interests of managers (e.g., reinforcing their position
1 0 The potential sources of increased efficiency which come with increased participation and
decentralization are two. One the one hand, the increases in information (and the ability to act on it at
the local level) allow for more efficient trouble-shooting (and thereby to increased quality control,
etc.) as well as increased innovation (in production methods and product design). On the other hand,
there are motivational benefits which may result from allowing workers and lower level management
to become more involved in decision-making (e.g., less antagonistic work relationships, greater
assumption o f responsibility, etc.). Mainstream economists tend to shy away from democratic
reforms, however. Blinder’s (1990: vii) comments, for example, are typical: “Whatever compensation
scheme is used, meaningful worker participation, beyond labour representation in boards o f directors,
enhances productivity.’’ cited in Rogers and Streeck (1995: 4).
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within the firm).11 More radical economists, go beyond this argument to contest the relationship
between efficiency and expertise on the basis of alternative definitions of efficiency which focus not
on accounting costs but the actual factor of production involved in production (Sawyer, 1989). From
this perspective, management decisions that maximize profit for capital do so by ensuring the lowest
cost solutions and not the greatest technical efficiency.1 2 To the degree that hierarchical management
does not provide efficiency gains, then it works purely in the favour of management (and capital) who
are able to appropriate advantages for themselves without providing any particular service in return.
If hierarchical management does provide some efficiency advantages, it might be rational for
workers to consent to it. It would be rational for them to consent, however, only to the degree that
they share in the efficiency gains that such hierarchical management structures produce (and to the
degree that their share in these gains outweighs their preference for greater participation in the control
of the firm). It would not be rational for workers to accept hierarchical management if it did not
contribute to efficiency gains, however. That workers generally do prefer to have greater as opposed
to lesser control over their workplace is indicated by their attempts to promote such measures (e.g.
1 1 As noted above, Adolph Berle is most closely associated with this argument among mainstream
economists. The general prescription offered is more effective shareholder supervision o f capital,
which may or may not be seen as requiring tighter regulatory control in favour o f shareholders.
Others contest the thesis that there are strong conflicts of interests between managers and
shareholders. For a discussion o f the literature, see Sawyer, (1989).
12Marglin (1974), for example, argues that early capitalist (in the putting out system and factory
system) did not increase productivity at all (as managers) but only increased accumulation by forcing
workers to work longer than they otherwise would have. Similarly, the introduction (and choice) of
technology by modem managers has not always been taken with an eye to improving efficiency, but
maintaining and increasing control over workers and ensuring a role for professional managers.
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worker council legislation in the EU) as well as the efficiency gains achieved following the
introduction of such measures (e.g., the recent adoption o f more participatory Japanese style
management techniques by US auto firms).
| 3) Income Distribution
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! Income distribution in capitalist economies tends to be highly inegalitarian. Neo-classical
theory argues that this distribution merely reflects the marginal contribution of different factors o f
production (viz., capital, management, skilled labour, unskilled labour) and tends to assume that this
distribution is fair. Even if one accepts the notion that in principle markets distribute income
according to marginal productivity, there are still two serious problems with such an argument. On
the one hand, market imperfections would call into question the degree to which income is actually
distributed according to marginal productivity. On the other hand, individuals start with, to use neo
classical terminology, different initial resources bundles (e.g., talent, wealth, opportunities for
education, etc.). The advantage that different starting points grant to some individuals would clearly
call into question the equity of the system, if not the notion o f marginal productivity itself. Thus,
imperfect markets and unequal initial resource endowments tend to operate in the favour o f capital
(without them providing any corresponding efficiency benefits). A more basic criticism o f capitalist
income distribution involves a challenge to the notion that income is distributed through the markets
according to marginal productivity. A variety of schools o f radical political economy advance this
position (Sawyer, 1989).1 3
I3Marxists, for example, generally argue that income distribution is determined not by the market but
through the struggle between capitals and labour over how the surplus will be divided between
profits and wages. In this struggle, the structural power o f capital provides it with an advantage that
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While it is possible to imagine that workers may be willing to accept significant income
differentials if they contribute to efficiency and are necessary to maintain system performance, it
would be irrational for them to accept such differentials if guarantees were not in place to ensure that
these differentials can be justified on the basis o f efficiency. Thus, it is clearly not rational for
workers and others to consent to a market distribution o f income in the face o f imperfect markets and
unequal initial resource endowments (and the questionable assumptions o f marginal productivity). To
do so would be to accept an uneven playing field and an unequal distribution not based upon
| contributions to efficiency.14 Even in the face o f (relatively) equal initial endowments and perfect
! markets, it could be argued that it may not be rational for workers to accept capitalist market
' distribution. The fact that capitalism may be more productive than competing systems does not mean
that labour would accept the income distribution that markets (even perfect markets) provide.
Workers and others will not be satisfied with the fact that capitalism is more efficient than feudalism,
state-socialism or market socialism if they do not share in the benefits themselves (Dahl, 1993:78).
While it may be enough for liberal economists (Hicks, 1939; Kaldor, 1939) to evaluate performance
on the basis that the gains o f the winners be enough to compensate losers in principle, real people will
demand that such compensation be guaranteed in practice (Sen, 1987:33). Thus, it might still be
rational for workers to agree to an initial market distribution o f income, but only if there are
provisions for a subsequent redistribution through the tax system (to ensure that they are at least as
well off as they would be under their next best alternative). Again, empirical evidence exists for the
fact that it would be irrational for workers to consent to actual market distributions o f income. This
enables it to extract the major part of the surplus from labour. This is to say that wages are politically
determined by the class struggle.
1 4 This fact has long been acknowledged even by liberal economists. This was the reason that J.S.
Mill ([1848] 1987), for example, advocated an extremely steep tax rate on inheritance.
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comes in the form o f the progressive tax systems (and the social welfare programs that they support)
in developed capitalist countries.
4) Marginalization
In capitalist societies, some social groups, most notably women and visible minorities, have
become or have remained marginalized.15 While the degree of marginalization in given capitalist
societies is disputed, its existence cannot be denied. Marginalization may be understood in terms of
two phenomena, viz., unemployment and the distribution o f positions and rewards. In capitalist
societies, the burden of unemployment is not evenly distributed. A number of groups suffer
disproportionately high levels of unemployment Among them are young people, the elderly, single
mothers and disabled people. The groups most adversely affected, however, tend to be racial
minorities (with particular populations within these groups being especially vulnerable, e.g., the
young, single mothers). (Young, 1991) The inequitable distribution of positions and rewards within
capitalist society is evident in a number o f phenomena, especially the sexual division o f labour
involving low paid “caring professions” (e.g., health care, child care) and segregated job markets in
which menial, low paid labour is disproportionately taken up by visible minorities (Edwards, 1979).
The flip side o f this marginalization is that these affected groups have trouble advancing even when
they are able to break out of segregated labour markets, suffering pay inequities, fewer opportunity
for advancement, etc. A number of factors might contribute to an account of the causes of
marginalization (differing skill levels, socio-economic background, uneven distribution o f child-
rearing burdens, unequal opportunities for education, cultural values, prejudice, etc.). What tends to
distinguish neo-classical (and other mainstream) theories from more radical analyses is the question
15For a discussion on the concept of social groups, see Young (1991).
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of whether marginalization can be understood to be endogenous to capitalism or not, i.e., not only
whether marginalization works in favour o f capital (or not), but is promoted by capitalism. For its
part, neo-classical analysis argues that discrimination in labour markets is an irrational phenomenon
and must be traced back to exogenous causes (e.g., prejudice). More radical political economy
analyses, however, argue that capital not only benefits from marginalization, but encourages it.
Regardless of whether marginalization is understood to be endogenous to capitalism or to
occur exclusively as a result of exogenous factors, it would not be rational for people to consent to a
system in which they are (likely to be) discriminated against if there are measures available to address
the problem. To accept capitalism without measures to correct for marginalization would clearly not
be in the interests o f those groups that are most susceptible to marginalization. (Nor can it generally
be argued that there are any efficiency gains to marginalization itself that could be redistributed to
cover the costs o f marginalization.) That marginalization is contrary to a generalizable interest and
cannot be consented to is attested to by the existence o f measures to address the problem. Primary
among these are affirmative action programs (in business, education, the government, etc.) and pay
equity and anti-discrimination legislation as well as educational and support programs. All developed
capitalist countries have such measures in place, although to varying degrees.
5) Monetarization and Colonization
As a system, capitalist business activity can be understood to be directed by the logic of an
impersonal steering mechanism, viz., money. In previous chapters it was argued that there is a
tendency for this logic to extend itself into other realms. In the previous chapter we examined these
tendencies in relationship to the "monetarization" of the political and administrative realms. The
problems raised by the "monetarization" of these realms was analyzed under the normative category
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of legitimacy. There are two other areas where the monetarizing logic of capitalist business activity
also raises serious normative concerns. To the extent that monetarization in these areas may result in
situations and effects to which the actors involved could not rationally consent, the problems raised
can be analyzed in terms o f the normative category o f morality. The first of these areas involves the
treatment of labour. In capitalism, firms tends to conceive of and treat labour just as they do
j inanimate factors o f production.16 This tendency flows directly from the logic o f the system. Within
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| production process in order to maximize profits. From the perspective of system logic, labour
represents just one more cost which needs to be minimized (while from the perspective of labour
attempts to minimize costs can result in potentially unacceptable results, e.g., unhealthy and
dangerous working conditions, dehumanizing work processes, sub-subsistence levels of
remuneration). The second tendency towards monetarization involves the extension o f market
relations ever deeper into lifeworld and the monetarization of areas of life that were previously
regulated by norms and values.
In both of these areas, "monetarization" p er se may not be problematic from the perspective
of morality. That is to say, the parties involved could rationally consent to some aspects o f the
l6The classical treatment o f this problem by Marx is elaborated in terms of the "commodification" of
labour. This tendency is also reflected in the language of both mainstream economics (e.g., the
lumping of labour along side of capital and land as a "factor” o f production) and management theory
(e.g., the notion of "human capital," "human resources"). As Dachler and Enderle (1989) point out,
the ways we conceive o f labour (e.g., as human resources, human capital) and how to organize it
(viz., human resource management) are not neutral, but involve epistemological perspectives which
can demean the value o f labour and lead to policies and actions which do not adequately respect
workers as human beings.
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monetarization o f the labour process (i.e., the treatment as labour as a factor o f production) and the
extension o f market relation-ships into lifeworld activities and relationships (e.g., allowing people to
sell their blood rather than relying on a system based on donations). In practice, however, there will
be limits to the extent o f monetarization to which people can consent. In the case o f labour, the limits
of consent will be determined by the preference o f labour for participation and autonomy (over
consumption) and by structural factors (e.g., the rate o f unemployment) which may drive down the
returns to labour (i.e., the mix of wages, benefits, health and safety precautions, etc.) to unacceptable
levels. Empirical evidence for the existence o f such limits exist in the form o f minimum wage rates
and benefit levels, health and safety standards, etc. In the case of the monetarization o f the lifeworld,
two considerations will determine the limits to which people can consent. On the one hand, the
extension of monetarization into some relationships and activities (e.g., the adoption process,
surrogate motherhood, organ donations, etc.) will clash with the particular conceptions of the good
life that some people and communities hold. On the other hand, while people may have no particular
objections to the specific activities and relationships that are being monetarized, the cumulative
effects of monetarization may be problematic. In replacing communicative action, monetarized
relationships may drive mechanisms o f social integration out o f realms where they cannot be
replaced. To the extent that this occurs (i.e., colonization), monetarization not only threatens the
prospects for social reproduction generally, but is also likely to have adverse effects on system
performance. Again, empirical evidence is available in all modem societies to confirm that people
could not consent to a completely monetarized society. Such evidence includes laws against selling
oneself into slavery and the sale of body parts, the prohibition o f prostitution, etc.
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D) Rejecting the Alternatives to Capitalism?
The question o f whether people could consent to capitalism is a two-fold question. The first
part of the question involves the alternatives to capitalism. The second part concerns the conditions
j that people would want placed upon capitalism before consenting to it The answer to this latter
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[ question must also be addressed because if there are forms of socialism that can live up to the claims
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1 to capitalism. The question of alternatives to capitalism is an involved subject and it is beyond the
scope of our present project to go into it in any detail as our interest is primarily in examining the
conditions necessary for justifying capitalism (and not in justifying socialist alternatives). Still, a
cursory summary o f some o f the potential reasons why workers (and others) might reject the
alternatives to capitalism is in order. Following this we can return to the question of the conditions
under which capitalism might be able to represent a generalizable interest.
Socialist alternatives to capitalism can be divided along the line of whether they involve the
use of markets or not, i.e., market and non-market models. Real-existing socialism (sic) as developed
in the Soviet Union and spread to Soviet satellites involved central planning by the state and state
control o f the means o f production. There were two fundamental weakness with the Soviet model of
planning, viz. the inability to attain and process information and the incentive structure. These
weaknesses let to a series of inefficiencies including production bottlenecks, poor quality control, lack
of innovation, weak labour discipline, etc. While the Soviet model was capable o f producing at levels
that not only met basic needs, but provided a wide array o f Western consumer goods (e.g.,
refrigerators, washing machines, cars, etc.), the quality, quantity and at times even the price o f these
goods were insufficient to satisfy consumers who looked longingly to West. Apart form the Soviet
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model there are no other existing models of non-market socialism. There have been a variety of
theoretical models developed, however. Devine (1988), for example, has elaborated a model
involving central planning. Albert and Hahnel (1991) have taken a different tact, offering a model of
decentralized planning based upon input form individual households which is aggregated through
local meetings and councils. It is not necessary to offer any extended comment on these models here.
It is enough to note that it would not be irrational for people to be suspicious o f the claims of these
non-market models, especially given the problems involved with the Soviet model and the general
I suspicion o f non-market models even by the vast majority of avowed socialists these days.1 7 To the
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■ degree that people are risk adverse and/or favour consumption over the possible benefits of
participation that these alternative claim to provide, capitalism (especially to the degree that its major
shortcomings can be addressed through regulation and redistribution) might represent a very rational
alternative.
A more attractive alternative might be some form of market socialism. While market
socialism exists primarily in the form o f theoretical models, there have been experiments at different
levels (e.g., the national level in the case of the former Yugoslavia, the regional level in the case of
the Mondragon cooperative network, and the level of the firm in the case o f individual cooperatives
and worker-owned businesses) that can be understood to represent a form o f or be compatible with
market socialism to some degree. The theoretical models distinguish themselves along three main
axes. The first of these is the ownership form (viz., state, social, cooperative or worker controlled).
The second is the extent o f market activity (e.g., limited to finished goods and labor or extending to
unfinished goods, debt and equity markets as well). Thirdly, there is the management structure (e.g.,
professional management, Iabour-management). The first well developed theoretical formulations of
a market socialism model was elaborated back in the 1930’s by Lange and Taylor ([1938] 1964).
l7Schweickart (1993), for example, refers to the model of Albert and Hahnel as “quite mad.”
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Their model limited the use of markets to consumer goods and labour, while inputs and investment
funds were centrally allocated. More recently, a number o f different models o f market socialism have
been elaborated. Yunker (1992), for example, advocates a model that, in effect, nationalizes capitalist
firms but offers not major changes to the management or market structures. Under this model,
| formerly capitalists firms are basically operated in the same fashion as previously, but with the profits
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I now going to the state instead of private shareholders. While some supporters might argue that
| organizing worker-owned firms as corporations undercuts the efficiency arguments generally directed
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j against this worker-owned firms (Blair, 1995), a key shortcoming o f this "pragmatic" model is its lack
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o f a theory o f transition. For their part, Roemer1 8 and Schweikart offer more radical models.
Roemer proposes a "bank-centered market socialism” in which firms are associated in financial
groups which are monitored by a government bank. Shares o f these firms are distributed among the
government bank, workers in the firm and the other firms in the association. The model also has
provisions for investment planning. Insofar as the firms are not democratically run by workers, but
the distribution o f profits and investment decisions are decided directly through the political system,
this model may be best represented as a form of "democratic socialism." The model that Schweikart
(1993) elaborates is similar to the of Roemer is many ways (e.g., the role for investment planning),
but provides greater autonomy to firms (e.g., to retain profits) as well as to workers who own the
firms and directly elect managers. For these latter reasons, Schweikart's model that can be best
characterized as a form of “economic democracy.”
Again, it is not possible here to comment in detail on the range o f available models, nor is it
necessary. Two general comments will suffice for our purposes. First, market socialist models claim
to offer a variety of advantages over non-market models and/or capitalism, advantages which vary in
18Roemer has developed his model through collaboration over a number o f years and with different
colleagues. See, foe example, Roemer (1989; 1992) and Bardhan and Roemer (1992).
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accord with their position on the three main axes noted above. As regards markets, the more
extensive market activity that the models allow for, the more closely they will be able to capture the
market efficiency gains of capitalism (while restrictions on markets may provide benefits in terms of
equity).1 9 As regards ownership, the greater the degree o f decentralization (i.e., cooperative and
worker-controlled ownership), the more closely the model comes to mimicking the motivational
advantages of private ownership (while, the more centralized ownership is, the greater social equity is
likely to be). As regards management, to the degree that management structures reflect the
hierarchical model o f professional management, they can claim any efficiencies o f hierarchy (while
the closer they come to a worker management model, the less justification they need in terms of
efficiency). Second, as we noted above, models o f market socialism can point to different historical
examples to bolster their claims o f competitiveness, especially to the degree that they ground their
models in these existing examples Hansmann, 1996) .
1 9O f particular concern to many in this regard is the existence of a capital market. The former
Yugoslavia from the mid-1960s to the early 1970s represented the closest approximation to a socialist
market economy with a capital market. In this model, however, there was social ownership and not
worker-ownership. That is to say, that while the workers were able to control the production o f the
firm they did not have the right to sell the firm or its assets. Some argue that it was the fact that rights
and responsibilities were based upon employment (rather than ownership) that led to some o f the
problems which were encountered, e.g., a lower than expected propensity to reinvest the surplus.
There are different interpretations about the degree of success of the experiment and why there was a
retreat from the “labour managed market economy” to “self-management social planning” in the mid-
1970s as well as the significance o f the experiment (Brus and Laski, 1991: 87ff.). See also Stallaert
(1994), who argues for common property on grounds of both efficiency and justice.
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While most market socialism models claim not only to be more democratic and more
equitable, but also more efficient than capitalism, there are several reasons (depending on the exact
nature o f the model) why these claims might be rationally doubted or rejected. One major concern
with market socialism involves its potential for innovation. Meade (1972), for example, has
developed an argument that claims the most rational course of action for cooperatives and worker-
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| controlled firms is a risk-averse strategy (due to their inability to spread their risk in the same fashion
| that capitalist owners do by investing in different firms and sectors). Other major concerns include
i the principle-agent problem (for models involving professional management) and the inefficient
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allocation o f capital (especially for models which do not allow for or restrict debt and equity
markets). Moreover, while there have been limited examples o f moves in the direction o f market
socialism, the lack o f any existing system and the potential costs and uncertainties involved in
transition may serve as arguments in favour of the existing system (or channeling efforts into reform
of the existing system). Finally, the fact that worker owned firms not infrequently revert back to a
more traditional private ownership model may, understandably, raise questions in the minds of some
about the efficiency claims o f worker ownership.20 Thus, while it would probably be irrational for
workers to reject models of market socialism (to the extent that they promise a better deal all around)
if there were no uncertainties concerning their claims, to the degree that there may be trade-offs and
there is uncertainty, it may still be rational for workers (especially to the degree that they are risk
averse and have a preference for consumption over participation and workplace control) to opt for
capitalism (especially to the degree that it is possible to modify its worst effects through regulation
and redistribution).
20For a discussion o f the variety o f possible causes o f this phenomenon, see Hansmann (1996).
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E) Conditions fo r the Moral Acceptability o f Capitalism
The second part of the question concerning the possibility o f a consensus on capitalism
involves the restrictions that people would want to place on capitalism before consenting to it. We
indicated above five major problems that undermine the claim that the actual functioning of
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j capitalism represents a generalizable interest. We also indicated that historically measures have been
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j taken to address these problems. On the basis of the fact that these problems reflect a suppressed
)
generalizable interest and that there are measures that can be taken which would help correct the
1 situation, it is possible to posit a series o f conditions that would be necessary for capitalism to
represent a generalizable interest. These include the following:
1) The Market Efficiency Condition - in their operations and outcomes actual markets must
provide efficiency gains that approximate the standards of ideal markets;
2) The Hierarchical Management Condition - all hierarchical aspects o f production relations
must be able to be justified on the basis o f efficiency gains;
3) The Distribution Condition - the social product must be distributed in such a fashion that
everyone partakes in the efficiency gains that the basic structures o f capitalism promise,
while no one is allowed to extract (economic) rent;
4) The Marginalization Condition - the problem o f marginalized social groups must be
effectively addressed;
5) The Colonization Condition - the monetarizing and colonizing tendencies of capitalism
must be effectively brought under control.
These conditions are necessary, but not sufficient conditions for capitalism representing a
generalizable interest.21 The additional essential condition, as we noted above, is that those involved
2 1 It should be emphasized (again) that these conditions represent rather abstract norms for the
guidance of economic production and distribution. Questions of morality arise only at a rather
abstract level as the more concrete decisions become, the less possibility there is for consensus (as
culturally specific values and differences over pragmatic evaluations come into play). Thus, while
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(most notably workers) prefer the mix of benefits (including the certainty) that capitalism is able to
provide vis-a-vis the benefits that the next best option (e.g., market socialism) would likely be able to
provide. In the following sections we will investigate each o f these conditions in turn, examining the
demands that they make on firms, the conditions under which firms may be expected to conform their
practices to these conditions and the additional arrangements that may be necessary for these
conditions to be fulfilled.
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| II. Respecting the Conditions for Morality
|
The five conditions elaborated above represent the demands that capitalist business would
have to meet in order to represent a generalizable interest. The concern that arises with respect to the
development o f a critical theory approach to business ethics is whether (and under what conditions)
capitalist business practice would be able to fulfill these conditions. To address this question, we will
look at each o f the five condition in turn, examining three basic considerations. The first of these
considerations involves the question of whether capitalist business practice can (and is likely to) meet
these conditions of its own accord. The second consideration involves the roles that government
might play in prompting capitalist firms to fulfill these conditions and/or addressing these problems
directly themselves (and their likelihood of fulfilling these roles). The third consideration involves
the complications that transnational activity may raise for the fulfillment o f these conditions.
these conditions provide a basis for a moral analysis of capitalism business activity, the actual
policies, programs and institutional arrangements that could fulfill them may vary significantly.
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A) The Market Efficiency Condition
Neo-classical economics advances efficiency arguments for markets that amount to the claim
that capitalism can represent a common good. Here we examine three empirical tendencies which
contradict the assumptions of ideal markets and, thereby, tend to undermine neo-classical claims to
efficiency, viz., monopolistic tendencies, the existence of externalities and non-clearing labour
markets. We begin by examining the sources of these problems in the system logic o f capitalism and
the prospects that capital might be able to operate in accord which the efficiency claims o f markets.
We then go on to consider what roles the state may be able to play in controlling capital and assuring
that markets operate efficiency. Finally, we investigate some o f the complications that are raised by
transnational economic activity.
I) The Firm
In the previous section we highlighted three major problems relating to markets that called
into question their efficiency claims. The first of these was the monopolistic or oligopolistic
tendencies o f capitalism. Most major capitalist economies are characterized by a dual structure
consisting o f oligopolistic sectors (e.g., the automobile industry, the food processing industry, the oil
industry, the telecommunications industry, etc.) composed o f large (generally multinational)
corporations and competitive sectors composed of small and medium sized firms. As we saw in the
previous section an essential element of the logic of the market is that competition (between firms
seeking to earn profits) produces gains for consumers in terms of price and product selection. In ideal
markets, in order to be competitive firms must sell their products at the level of their marginal costs
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and, thus, make no profit.22 Market competition does allow for profits, but they are always short term
and only come about as the result of innovation which generates new products or more efficient ways
of producing. By linking profit to innovation, the market harmonizes the self-interest o f profit-
seeking firms with those of the rest o f society (i.e. consumers) and thereby allows for a generalizable
interest. In the real world, however, innovation is not the only strategy available to firms, as least not
| for oligopolies.
»
! Miles (1993) makes this point by comparing three different paradigms o f profit strategy.
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| The first o f these, “competitive forces,” has been advanced by the well-known management guru,
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Michael Porter (1980) and highlights the importance o f the structure of the market in determining the
profitability o f both firms and industries. The general advice offered is that firms not only should
choose markets which they perceive to have favourable structures, but they should also attempt to
change these structures (by, for example, raising barriers to entry or mobility, differentiating products,
etc.) so that they can achieve a position in which they are protected from competitive forces. The
logical conclusion of this strategy is the development of a monopoly position. The second general
approach which Miles distinguishes is the “strategic conflict*’ school. Informed by the insights of
game theory, this strategy is concerned with bettering one’s position in oligopolistic markets. On the
assumption o f a zero-sum game, firms are advised to find the solution which maximizes their gains
vis-a-vis that o f their competitors. Firms “win” to the degree that they are able to deceive other firms
and/or restrict their actions. Again, the logical goal is to achieve profits through the development of a
monopoly position. The third paradigm which Miles identifies is the “resource-based” strategy.
From this perspective, profits are to be generated not on the basis of the firms position within a
market, but rather on the basis o f its specific capabilities and resources. By identifying their own
22 Again, we are referring here to “economic profit.” This term refers to any profit above the average
rate of profit which is necessary to induce investment
*
! _________________________________________________________
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strengths and weaknesses firms are better able to develop unique competencies. This allows them to
produce more efficiently and/or develop new products and services.
O f these three approaches to profit, it should be clear that the first two violate the condition
of market efficiency. It is only the third approach, the resource-based strategy, which operates in
i accord with the spirit of market competition and, as a result, is able to redeem a claim to representing
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| a generalizable interest. Yet, what is the likelihood that capitalist firms will conform (exclusively) to
[ this third strategy? Several factors mitigate against firms committing themselves to such a strategy.
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j First, it goes against what has been referred to as the “classical” conception o f the firm (Brummer,
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| 199 l)which understands the sole goal of the firm to be the maximization o f profits (Friedman, 1970).
Second, to the extent that this goal has been internalized by senior management, the situation will not
even be perceived as involving a moral problem. Third, while firms may be tempted to pursue a
“resource-based” strategy for objective reasons (i.e., on the basis that it will be profitable), such a
strategy is not necessarily incompatible with a market limiting strategy.23 Fourth, while oligopolistic
markets are less than fully competitive, firms in such markets still face competition. As a result, such
firms may fear that by not operating on the basis of competition-limiting strategies, they themselves
will be put at a competitive disadvantage and loose their market share (Herman, 1983). Finally, it is
more difficult for moral (and ethical) considerations to be raised in large firms where the
bureaucratized structure tends to eliminate any considerations other than profits (Herman, 1983).24
23It is quite common for new firms that have established their success on innovation to subsequently
seek to restrict competition while continuing to innovate (e.g., Microsoft).
24While this has changed to some degree with the business ethics movement, the issues that can be
raised generally do not extend to the profit strategies of the firm. This question of firms operating on
normative principles in ways that oppose their bottom line is certainly not new, with most religious
traditions having various teachings on the conduct of business. In the management and business
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Thus, while it remains possible in principle that (oligopolistic) firms may follow a profit strategy
based upon innovation for moral reasons, it is quite unlikely that they would choose this option of
their own accord, i.e., if they are not forced to do so by market forces or they are not pressured to do
so by the government (e.g., regulation, moral suasion) or civil society groups.
I A second major problem that undermines the efficiency claims o f market economies is the
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I presence of externalities, especially pollution. In order for market economies to represent a
| generalizable interest, externalities would have to be eliminated. There are two ways which firms
1
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| could address this problem. On the one hand, it is possible to cease producing externalities (e.g.,
j pollution free production methods, biodegradable or recyclable packaging, etc.). On the other hand,
they could internalize the costs o f the externalities that they produce and compensate the victims. As
both these solutions involve significant costs (especially in the short run) for firms, they have
objective interests in not undertaking such measures and in opposing measures by government to
impose them (Herman, 1983: 401). While collective agreements between firms might help to
eliminate the costs by passing them on to consumers in the form of higher prices (e.g. the costs of
more environmentally friendly packaging), they are individually unlikely to take such action due to
the assurance problem.25 For their part individual firms may take measures, but will likely only do so
to the degree that most of the costs involved can be recouped through marketing (and pricing) their
ethics literature this issues has been taken up under the notion o f corporations having a “conscience.
Berle (19S4) raised this notion back in the 1960s, asserting (if not arguing) that management would
be forced to operate in a socially responsible manner by societal groups. One o f the strongest
advocates o f the notion of a corporate conscience in the business ethics literature is Kenneth
Goodpastor. See, Goodpastor and Matthews (1982).
2sFor an account of how collective action by firms can help to overcome compliance problems, see
Buchanan (1996).
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products in ways that exploit consumer preferences for environmentally friendly or socially
responsible goods. To the degree that the market for such goods may be limited, this strategy is
unlikely to be widely adopted (in the absence o f other incentives).
A third major area of concern with respect to market efficiency involves the problem of non
clearing markets and, in particular, the labour market. There are a number o f reasons why labour
markets tend not to clear including the costs o f labour mobility and restrictions on labour moving
across borders. For their part, economic liberals tend to stress government policies (e.g., minimum
wage levels, employer contributions to unemployment insurance programs, costs associated with
regulatory schemes, etc.) as the reason why labour markets do not clear. Whatever its sources,
unemployment is clearly not a problem that firms alone can effectively address. While firms are
frequently blamed by the public for their employment practices (i.e., for not hiring more workers
when they are making high profits and for laying off workers during times o f economic downturn),
such behaviour merely accords with system logic.26 This same logic is reflected in the trend toward
“down-sizing” over the past decade. To the extent that corporations can earn larger profits by
decreasing staff, they will and they do. (Similarly, to the degree that they can control costs by
limiting the ability of labour to organize, e.g., by flight or introducing technological change, they
will). While such policies by firms have contributed substantially to high unemployment and
underemployment levels over the past decade or more, it is not realistic to expect firms to operate in a
different manner of their own accord (i.e., out o f moral or ethical reasoning). Individual firms
experience competitive pressures to undertake such actions. Moreover, they do not generally
perceive themselves to have any obligation (or ability) to contribute to a solution to the problem of
26Again, the larger and the more bureaucratized the firm, the more likely that such decisions are to be
made. Worker owned firms and cooperatives such as in Mondragon tend to have a much better
record in retaining workers during times o f economic downturn (Whyte and Whyte, 1988).
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unemployment. If markets do not clear, they are not to blame and they have no responsibility apart
from acting in accord with system logic, i.e., maximizing profit (Friedman, 1962).
2) The Role o f Government
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j While their potential effectiveness is often debated, there are a variety of types o f “market
[ rules” that governments can (and do) use to attempt to ensure that actual markets operate in accord
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| with the efficiencies o f ideal markets. The first (and least controversial) o f these are market
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j constituting rules. They include measures for the enforcement of contract, ownership rights, etc.
Second, there are market complementing rules. These involve changes in different areas (e.g., forms
of ownership, financing) that allow markets to operate more efficiently. Third, there are market
emulating rules which are designed to address naturally-occurring imperfections in markets, viz.,
public goods (e.g., defense, education), natural monopolies (e.g. utilities), externalities,
unemployment, etc. Such rules are designed to mimic the normal outcome of competitive markets in
situations in which market competition cannot be efficiently maintained.27 Fourth, there are market
preserving rules which are designed to ensure that markets continue to function as they are supposed
to (i.e., that they remain competitive). Among the most significant of these are anti-trust regulations
and insider-trading rules. Finally, there are m arket lim iting rules through which government restricts
markets altogether in some areas (e.g., human organs, sexual relations, children being given up for
adoption, hazardous materials, etc.), or places limits on the conditions under which other activities
can occur. Most important in the last regard are the various restriction on labour markets (e.g.,
27 In addition to natural imperfections, the de fa c to imperfections in labour markets require
government to respond by developing programs to address the results of such imperfections, e.g.,
unemployment insurance, job (re-)training programs, etc.
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minimum wage, health and safety standards, limits on the hours worked per week, etc.)- In addition
to market rules, government can establish a range of other programs that seek to supplement markets,
e.g., unemployment insurance, job-creation and job-training programs, the provision of public goods,
etc.
| While all governments use these various types of market rules to some degree, depending
| upon their ideological commitments and the political and economic pressures to which they are
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I subjected, the combinations they employ can vary. Despite the differing combinations o f policies that
' have been employed, Western capitalist governments have on average not been very successful in
I
' getting actual markets to approximate ideal markets. As regards the oligopolistic tendencies of
markets, anti-trusts law have either been relatively lax or have been interpreted in ways which have
allowed wide latitude for oligarchies and the concentration of economic power through
conglomerates. In virtually all capitalist economies a large number of major sectors are controlled by
oligarchical production (Bowman, 1996). Similarly, regulations designed to control externalities
have been very weak and, consequently, ineffective. Even when relatively stringent laws are enacted,
large oligarchical sectors are frequently able to successfully lobby for watering down the standards
and/or attaining delays in their implementation (e.g., the automobile and oil industries lobbying
against stricter emission standards). Finally, as regards the inefficiencies of the labour market,
Western governments have tended to tolerate high rates of unemployment. Rather, than vigorously
attack unemployment, they have generally given preference to the fight against inflation 28 The
failure of governments to make actual markets conform more closely to the results o f ideal markets, is
28This, not coincidentally, is also the option preferred by (most sectors of) capital who favour it for
two basic reasons. On the one hand, capital has the most to lose by the value of wealth being eroded
by inflation. On the other hand, high unemployment relieves pressure on wage rates, driving down
the costs of production (and helping to boost profits).
I ________________________________________________________________________
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not necessarily due to a lack o f will (though in many instances it has been). Even when governments
are motivated to address the problem, the structural power of capital may be so great as to allow it to
undermine any efforts by the state at imposing discipline. In such circumstances, even strongly
motivated progressive governments are forced to cut their losses and seek some form o f
accommodation with capital.29
In short, the basic situation regarding the ability o f capital to operate in accord with the
efficiency claims of markets is the following. While there are three basic factors that can prompt
firms to act in accord with the efficiencies of the market, the large oligopolies that dominate capitalist
economies are less likely to be influenced by these factors to act in accord with the logic o f the
market than are small and medium-sized firms. The first o f these factors is market discipline itself
(i.e., the pressures that arise from having to operate in competitive markets). Small and medium
sized competitive firms are forced by such discipline to innovate in order to earn profits. Oligopolies,
however, are by definition less subject to market discipline than firms in competitive situations and
are capable o f pursing profit strategies that are not in accord with the efficiency claims o f markets.
Second, individual and collective actors within firms may have moral (or ethical) motivations to
comply with the logic o f the market. The smaller and less bureaucratic the firm, the more possible it
is for moral considerations to arise and affect policy. Because oligarchies tend to be large and highly
bureaucratized, it is much more difficult for moral considerations to arise and influence fundamental
company policy (Herman, 1983). Third, government (and to a much lesser degree civil society
actors) may be able to force or induce firms to operate in accord with the logic of the market. Small
firms with little political clout generally have few options but to accept government regulations.
Large oligopolies, however, as we saw in the previous chapter, are able to exert great influence over
29For an analysis o f the factors involved in this problem and the role that civil society support can
play, see Offe (1996).
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the public policy process both directly through lobbying activities and indirectly through participation
in electoral politics and their ideological power. The result o f all this is that, while it is theoretically
possible that capitalist firms might choose (on the basis o f moral motivation) or be prompted (by
market discipline or government action) to act in accord with the efficiency logic o f markets,
capitalist firms generally have strong objective interests (e.g., earnings) tor not doing so, while the
largest firms are the least inclined and most difficult to prompt to act in this fashion (figure 5.1).
3) Complications o f Transnational Activities
The transnational activities o f capital complicate the problem o f promoting market efficiency
for two fundamental reasons. First, transnational activity, especially the ability to move production
off-shore, has greatly altered the balance of power between the state and capital. As was discussed in
the previous chapter, the increases in capital mobility that have occurred over the last couple of
decades have provide firms with greater bargaining power vis-a-vis states and have made it much
more difficult for states to regulate (and tax) capital. While this is true both o f developed capitalist
countries and LDCs, the latter tend to be particularly vulnerable and incapable o f forcing MNEs to
operate in accord with market efficiency. In order to attract capital, such states are willing to provide
MNEs not only with a wide range o f subsidies (e.g., infrastructure support) and tax breaks, but in
some instances they have been willing to grant them virtual monopoly access to their markets
(Schwartz, 1994).
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s _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
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Figure 5.1: Prospects for Conformity to the Market Efficiency Condition
/uncompetitivtv
Unregulated,
Morally
^concerned .
Regulated/'-
'unconcern^
/Competitive/
Unregulated,
Morally
^unconcerned
'''Uncompetitive^
Unregulated,
Morally
l unconcerned .
Market D is ci p l in e| |
i _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
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The second complication of transnational activities involves the fact that there are no
effective international bodies that are capable of forcing or inducing transnational capital to operate in
accord with the logic o f market efficiency. While there are a range of multilateral agreements and
international organizations that deal with transnational economic activities, they cannot or will not
impose such discipline on capital for reasons discussed in the previous chapter (viz., the influence of
capital through dominant states on the international state system). Thus, for example, while the major
capitalist states have done much to liberalize trade in recent years (at the behest of MNEs), they have
done nothing to ensure that international markets remain (or better, become) competitive. LDCs have
been raising the issue o f international anti-trust legislation for nearly forty years, yet there has been no
moves made in this direction.30 As we saw in the previous chapter, a similar situation holds with
respect to international environmental controls. While there have been various international summits
held and agreement passed, the dominant capitalist states (especially the U.S.) reflecting the interests
of capital, have consistently undermined all efforts to established effective controls that would hold
states (and capital) responsible for their production of externalities.
The inability or, better, unwillingness of international bodies to ensure that market discipline
is maintained in transnational economic relations can be related directly back to the nature of the
international state system and the influence, as we saw in the previous chapter, that transnational
capital itself has been able to exert over this system through dominant states (which tend to see their
interests closely aligned with those o f capital, especially those of their own domestic capital). This
failure of international bodies to serve as an effective mechanism for promoting market discipline
raises serious questions about the ability of capitalism to live up to the demands of morality. The
30The recent EU legislation on mergers has been viewed by some as a first step in the direction of
international anti-trust regulation. Others, however, see it merely as facilitating the concentration of
capital by allowing firms a more efficient process for undertaking mergers (Bowman, 1996).
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possibility of controlling transnational capital cannot be entirely discounted, however. While, the
international state system has certainly proved ineffective, it is possible, as we argued in the previous
chapter, that other forms o f supranational control might be developed (e.g., along the lines o f the EU).
Still, this possibility would seem to be remote at best in the foreseeable future.
B) The Hierarchical Management Condition
In the previous section it was argued that workers would only agree to professional,
hierarchical management structures if they could be justified on efficiency grounds and if it could be
shown that professional management has particular expertise which enables it to increase efficiency.
Here we will not question this latter assumption, though as we noted above it is open to dispute on a
number of grounds. Rather, conceding the possibility of managerial expertise, we will take up
another issue which may call hierarchical management into question. This is the question o f how
hierarchical management operates. While hierarchical management may allow for improvements in
efficiency, it is not necessarily the case that all aspects o f hierarchy can be justified on this ground.
Nor is it immediately evident that management can be expected to restrict its use o f hierarchical
structures to developing and implementing policies that improve efficiency. The basic question to be
investigated at the level o f the firm, then, is whether hierarchically organized professional
management can be expected of its own accord to promote efficiency and limit its use o f hierarchy to
promoting efficiency. After examining this question we will move to investigate whether the state
can be used to restrict the use of hierarchical management structures to those practices which can be
justified on efficiency grounds. Then, we will examine the complications caused by the transnational
activity o f capital.
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I) The Firm
Before examining the capability of professional management to limit its use of hierarchical
structures to those practices that can be justified on the grounds o f efficiency, two clarifications need
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promised efficiency increases. The first of these involves the understanding o f efficiency, while the
second concerns the potential costs that such increases may involve. The basic understanding of
! productive efficiency is relatively uncontroversial. It consists o f the notion that a greater output can
be achieved with the same amount of (or fewer) inputs or, conversely, the same (or greater) output
can be achieved with fewer inputs. What is controversial is whether the inputs are to be calculated in
terms of units of factors o f production (e.g., labour hours) or in terms o f their monetary value (e.g.,
the wage bill). If the latter is the case, then if management is able to drive down the cost of labour, it
follows that efficiency has been increased (despite the fact that the same amount o f goods have been
produced with the same amount of resources). If, however, efficiency is calculated in terms of the
raw units o f the factors o f production, then there has been no increase in efficiency in this case. That
is to say there has been no increase in the social surplus. What has occurred is a redistribution of the
social surplus from labour to capital (and/or consumers depending on whether capital is forced by
market pressures to pass on some of the saving from lower wage costs to consumers in the form of
lower prices for goods). Clearly, labour will not see the latter as an improvement in efficiency. Nor
would it be rational for it to accept hierarchical management if this is the only type o f efficiency gain
that it is capable o f providing. Such a form of efficiency gain is clearly not based upon any
managerial expertise, but rather on the social power of capital.
Another controversial aspect of the ability o f management to increase efficiency involves the
fact that such increases may have adverse effects which are not accounted for. What is controversial
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here is the fact that one group (viz., labour) assumes the burden of the adverse effects while another
group (viz., capital) is able to appropriate the bulk o f the gains (through profits). A prime example
involves the management strategy of trying to improve efficiency through increasing the intensity of
work. While capital is able to increase profits through such a strategy, labour may endure heavy costs
' (e-g -> physical ailments, stress, etc.) without any compensation (e.g., increased wages, benefits).
Again, such efficiency gains are not based upon managerial expertise, but rather the structural power
j of capital. Clearly, labour cannot consider such gains efficiency gains nor accept hierarchical
| management if this is the only manner in which it increases efficiency. Labour could only accept
• hierarchical management in such situations if there is an arrangement whereby it is able to negotiate
with management for fair compensation. Collective bargaining, in principle, provides such a vehicle
for negotiation. In practice, of course, collective bargaining alone proves to be a less than fair
arrangement as it generally occurs in the context of power differentials that favour the interests of
capital, while the majority of workers (who do not belong to unions) have no access to the procedure.
In general, then, labour could only consent to hierarchical management if the efficiency gains
involved constituted real increases in the social surplus (and not mere redistributions of the surplus to
capital) and there were formal means for addressing any adverse effects o f the efficiency gains (to
ensure that the affected parties were somehow able to negotiate compensation).
The situation involving the potential of management to use hierarchical structures to act only
on the basis o f productive efficiency, then, is similar to the potential o f firms to act in accord with the
efficiencies o f ideal markets. In both instances, conformity is possible if there is an adequate level of
moral (or ethical) motivation, but generally runs counter to the objective interests o f the firm, viz.,
maximizing profits.31 Pursuing this latter interest may involve increasing efficiency and general
31 There are three basic positions which have been advanced with respect to the decision-making
tendencies o f professional managers. The first position argues that the have virtually no latitude as
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social utility (by rationalizing the production process in ways that result in greater output with less
input). However, this goal may also be served by using hierarchical structures in ways that do not
result in any increase in productive efficiency, but rather merely drive down the price of labour (e.g.,
deskilling, sub-contracting, threats to flee, increased surveillance, introduction of technological
change, introduction of part-time workers, etc.). Management can only be expected to restrict its
attempts to maximize profit to methods that increase social utility if it faces effective pressure from
labour (i.e., if unions are able to stand up to management and resist its various direct and indirect
efforts to drive down the price of labour and impose other costs on labour without compensation).
While a variety o f factors determine the ability of labour to stand up to capital (e.g., the extent of
unionization, the nature of the workforce, the market structure, etc.), generally the structural power of
capital gives it a tremendous advantage in such encounters (King, 1990).
What this means specifically with respect to hierarchical management structures is the
following. Management will only decentralize, increase participation and allow for autonomy and
democratic control to the degree that it serves its interests (in maximizing profit) or it is forced to do
so (by labour pressure). Generally, while decentralization and increased participation may be in the
interests of (and actually initiated by) management depending upon a range of factors (e.g., product
lines, market structure, workforce demographics, etc.) moves in the direction of democratic control
(or shared decision-making) are strongly resisted and rarely initiated by management. The cases of
most decisions are technically determined by objective factors over which they exercise no control.
The second position argues that management has substantial latitude in decision-making and can uses
this to promote broader social interests (as well as profits). The third position also see management as
having significant latitude, but argues that management will inevitable exercise their power to further
their own interests (the principle-agent problem). For a discussion o f these different positions, see
Sawyer (1989).
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Japan is paradigmatic in this regard. Japanese firms have become well-known for their development
o f a particular form of worker participation, viz., quality control circles (QCCs). The first interesting
aspect about QCCs is that they were initiated by management. There were two key factors which led
management to introduce more participatory schemes beginning in the 1960s and continuing through
to the 1980s. On the one hand, there were a number o f developments in the labour market, including
a relative scarcity of labour, increasing levels o f education and improving standards of living. All
these development meant that labour was less willing to accept and remain in dull, routinized blue
collar jobs. On the other hand, technological development in the 1960s saw Japanese firms moving
from labour intensive production into high-technology fields. Such changes make supervision both
more important and more costly for management. QCCs address both o f these problems
simultaneously. It enlists ordinary workers in a range o f the traditional managerial activities
(especially in the detection o f quality control problems and their solution) while providing them with
greater autonomy and the possibility for self-development. Decentralization and worker participation
have become institutionalized in Japan not only because they provide increased efficiency, but also
because they pose no threat to management From the start management has initiated and controlled
the process. It has been able to ensure that participation has not spread in the direction o f shared
decision making or other more radical demands (Tsiganou, 1991: 104-105).
2) The Role o f Government
Because of its objective interest in profit maximization (and competitive pressures),
management cannot be expect to run firms only in accord with efficiency claims that increase social
utility. Nor can it be expected to promote decentralization, participation and democratic decision
making processes to the degree that they are equally as efficient as hierarchical alternatives. (This is
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particularly true o f democratic decision-making.) While they may be forced to make concessions in
such areas under some circumstances (e.g., tight labour markets, extensive unionization, etc.), they
will generally resist all such moves, both through short and medium term strategies (e.g., threats,
incentives) as well as through longer term solutions (e.g., by introducing technological and
organizational change that undermine the ability o f workers to organize). It is possible, however, that
if labour is able to organize itself in the political realm, firms can be forced to conform to these
demands (o f only using hierarchy structures to promote real efficiency gains) by the state.32 The
ability o f labour to use the state in this fashion is best exemplified by the case of the Scandinavian
countries (especially, Sweden and Norway) and to a lesser extent by the case of Germany.
In Germany the contemporary model of industrial relations, the origins of which stretch back
to the Weimar republic, is known as the “codetermination.” This model takes two basic forms. The
first, more extensive form, "special codetermination" (Q ualifizierte Mitbestimmung), is limited to the
iron, steel and mining industries. It allows workers equal representation both on the supervisory
boards o f firms as well as on the management boards. The second form of codetermination extends
to other industries and the public sector. It is more consultative (than participatory) in nature,
operating through work councils (at the plant level) and one third representation on the supervisory
boards o f companies (but with no representation on the management boards). Representation on
supervisory boards is primarily of importance for workers in that it provides them with an important
source o f information. It does not, however, enable them to directly influence decision-making nor
allow them to deter management from making key decisions about technology, work organization,
32Another, less direct way that government can help to promote increased participation is through
promoting increased worker ownership in firms. An important vehicle for this is the creation o f
Employee Stock Ownership Plans (ESOPs). For a discussion o f these, see Blair (1995), Hansmann
(1996).
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etc., that ultimately serve to undermine the power o f labour (without necessarily providing any net
social gain). Without equal representation on the management board (as the notion o f
codetermination would seem to imply), such battles can only be fought through collective bargaining
in a situation in which labour is at a definite disadvantage vis-a-vis management. In general,
“codetermination” is better characterized as a system o f joint consultation than joint determination. It
has served to integrate and accommodate labour rather than as a vehicle for labour to ensure that
participation and democratic decision-making are extended (Tsiganou, 1991).
In Scandinavia the system o f industrial relations has moved beyond a system of joint
consultation to ensure greater rights to participation and control. In the case of Sweden, this
development occurred in the context of a history of collaborative relationships between labour and
capital in which labour basically acknowledged the right of management to manage (including control
over investments, technological change etc.) in exchange for material benefits (directly through
employment and indirectly through the welfare state). During the I970’s, however, a series of laws
were passed that moved Sweden in the direction of joint determination. These included bills covering
security of employment (1974), worker protection (1974), the work environment (1976), worker
representation on Boards (1972, 1977), and joint determination (1976). The effect o f this series of
acts was to give labour an effect voice in such issues as investment policy, technological change (and
the role of workers in implementing such policy in the workplace), employment policies as well as
expanding shop floor participation rights and the role o f autonomous work groups). The experience
of Scandinavia countries such as Sweden and Norway demonstrates the possibility o f labour using the
state to ensure that hierarchical management is limited to the promotion of real efficiency gains. It
also illustrates, however, how difficult it is for labour to impose controls on capitalist management. It
was only the special confluence o f conditions in the Scandinavian countries (viz., high levels of
unionization, a strong egalitarian, social democratic culture, the absence of competing political
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fissures, etc.) that has enabled labour to proceed as far as it has in controlling management.33
(Tsiganou, 1991)
3) Complications o f Transnational Activities
Transnational activity undermines the ability o f labour to force management to restrict its use
of hierarchical structures to measures that result in increased social utility. This occurs in two ways.
On the one hand, the threat of capital flight means that labour’s power vis-a-vis capital in collective
bargaining is diminished. On the other hand, labour is also less able to use the power o f the state to
control capital as capital can avoid direct state regulation by moving production offshore (while free
trade pacts have served to limit the ability of governments to indirectly counter such moves, e.g., by
imposing import duties).34 In the international state system, there is no effective mechanism for the
33 Even then, labour has been opposed by capital and suffered defeats, not only in its efforts to further
extend forms in the direction of economic democracy (e.g., the defeat of the Meidner plan in
Sweden), but also in recent moves by employers to undermine national level collective bargaining
(Locke, 1995).
34While there has been a general shift in power in industrial relations with respect to labour vis-a-vis
capital (both directly and mediated through the state), there are still significant differences which
affect how labour is treated. Locke (1995:23) illustrates this point with respect to the competitive
strategies that firms are likely to choose in different countries, viz., "differential high-value added
approaches" vis-a-vis "cost-based approaches" (which "are expected to lead to a downward spiral of
wages, working conditions, and labor standards and to reinforce adversarial relations at the
workplace."). The choice of the latter strategy, Locke argues, is closely correlated with "weak
institutions, low levels o f unionization, decentralized bargaining structures, and a limited
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development of cooperative industrial policy.35 The only instance o f a relatively effective regional
body capable o f developing and implementing regional industrial policy is the EU. The major move
which it has taken in this regard has been the Social Charter and, in particular, the provision on work
councils (Newman, 1996; Calingaert, 1996). This is a relatively weak tool for controlling capital,
- however, insofar as it leaves individual states to decide the nature of worker councils (which leaves
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| open the possibility that they provide labour only with consultative powers). For their part states
j could seek to use national legislation to control the behaviour of their MNEs in other countries (viz.,
( best practice laws) in much the same way as corrupt practice laws in the U.S. and Sweden prohibit
MNEs registered in those countries from engaging in bribery and other questionable practices. There
have, however, been no such moves by any states.
C) The Distribution Condition
We argued in the previous section that in order for a non-egalitarian distribution scheme to
represent a generalizable interest, two basic conditions have to be m et On the one hand, everyone
must be assured that they share in the efficiency benefits that are associated with the non-egalitarian
distribution system. In particular, the system would have to assure them that everyone would be at
least as well off as under their next best alternative. On the other hand, disproportionate shares of
income must be justifiable on the basis o f productive efficiency. If inequalities are not the result of
some productive contribution (i.e., if they result from rent seeking behaviour), then there is no reason
governmental role in labor market affairs." (199S: 24) The US and the UK represent the extreme
cases of the preference for this strategy.
35 The ILO does seek to promote change in this area, for reasons explained in the previous chapter, it
is limited by the basic structure of the interstate system (Bennett, 199S).
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why people would agree to them. In what follows we will first examine the factors that make it
unlikely that unregulated capitalist business activity will conform to this condition. We will then
explore the possibility that the state may be able to guarantee that this condition is met. After this, we
will look at the complications that arise due to the existence of transnational economic activity.
I) Firm Level
Within firms, the social surplus that is produced is allocated to owners, management and
workers in unequal shares. Whether this distribution is determined purely through the market
mechanism (reflecting marginal productivity) or on the basis of power relations and decision-making
processes within the firm is a subject o f dispute with the fields of economic and political economy.
What is undisputed is that workers are the ones who tend to receive the smallest share of the social
surplus. As a result, workers would be concerned with ensuring that the shares o f owners and
managers are justifiable in the sense that they reflect an actual contribution in the form o f the
production o f a larger (and more efficiently produced) social surplus which enables workers to be
better off than they would under alternative arrangements. More specifically, workers would want to
ensure that the shares that management and owners receive are only as disproportionately large as is
necessary for their contribution to be maintained.) We examine the implications o f these concerns of
workers with respect to owners and mangers in turn, before addressing the question of redistribution.
Neo-classical theory argues that under perfect competition income is distributed to the
various owners (viz., capitalists, landlords and workers) of the factors of production (viz. capital,
land and labour) in accord with their marginal productivity. Further, neo-classicals tends to assume
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that the owners o f the factors of production are entitled to the shares that they receive.36 In deciding
upon whether to consent to capitalism, workers are unlikely to be swayed by such claims about the
equity o f marginal productivity. As rational agents, their concern will be whether appropriating some
part of the profit will increase or decrease their overall income. This will depend upon the effects o f a
lower profit rate upon the propensity of capitalist owners to invest and the consequent effects that this
would have on productivity. To the degree that the propensity of capitalists to invest is not
completely inelastic, some degree of profit sharing would inevitably be beneficial to workers (who
would demand profits be shared to the point that their income is maximized). For their part,
capitalists can be expected to resist any profit-sharing schemes, at least in zero-sum games, as the
gains of workers are their losses. Insofar as profit sharing might be expected to have positive effects
on productivity and profits (e.g., by improving worker morale and the willingness o f workers to
cooperate with management), owners would not be opposed to profit sharing in principle.37 They
36 As such, neo-classical economic analysis o f marginal productivity involves empirical claims and
does not justify the actual distribution of the social surplus. An additional normative premise is
required to justify the allocation. In the case o f capital, the traditional justification given is that
capitalist owners merit their return on the basis o f abstinence, i.e., for delaying the gratification of
consumption to a future date (Mill, [1848] 1987; Bohm-Bawerk, [1896] 1975). This premise
presupposes that a parallel exists between the disutility of labour that workers experience in the
production process and the capitalist’s disutility of delayed gratification. While labour may
acknowledge that some incentive is required to induce investment (and inducing investment is in their
interest), it is unlikely to accept the questionable parallel between its own disutility of labour and the
capitalist’s disutility of delayed gratification (Sawyer, 1989).
37In actual practice, numerous firms provide profit sharing (and, more frequently, performance
bonuses). Another way in which profit sharing can occur is through worker participation in
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would, however, seek to set an absolute limit at the level where workers are receiving more o f the
profits than the increase in profits generated through the increase in productivity due to profit sharing.
Labour’s concerns with management’s share o f the social surplus are basically two. The first
is of a more practical nature, involving management’s potential to abuse its de facto power. The
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I theory o f “shareholder democracy” justifies the handing over o f the operation of the firm to
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professional management on the grounds that shareholders still retain ultimate control o f the firm and
can force management to act in accord with their interests (viz., profit maximization). In actual
! practice, it is frequently the case that management has effective control over all aspects o f the firm
! through its de fa cto ability to control the selection of the Board of Directors (Nader and Seligman,
1983). This phenomenon (the principle-agent problem) enables senior management to avoid the
discipline o f the market and to a significant extent establish their own levels of remuneration. This is
particularly true of senior management in U.S. corporations, as comparisons with the levels of
remuneration o f executives in other countries reveals (Blumberg, 1983). Under such arrangements it
is not infrequently the case that senior management receives salary increases and bonuses even when
company performance has declined. This propensity of management (to try to ensure increases in its
remuneration that are not linked to market conditions or performance) constitutes rent-seeking
behaviour. Such rent-seeking behaviour not only implies direct losses to shareholders and labour (to
the extent that they too participate in profit sharing), but also indirect losses in the form o f adverse
effects on productivity. Clearly, as part of its consenting to capitalism, labour would demand that
management be subjected to the control of “shareholder democracy” such that its remuneration reflect
market discipline and verifiable contributions to performance (Kaufman et al., 1996).
ownership (e.g., ESOPs). In the US, such programs have developed some degree of popularity
among firms as a method of inducing investment because of the tax breaks that have been associated
with them (Russell, 1989).
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The second concern o f labour with respect to management’s level of remuneration involves a
more theoretical objection to the notion o f marginal productivity. While it is relatively undisputed
that (ideal) markets do allocate income between productive firms in accord with their contribution to
the fulfillment o f (effective) demand, there are serious objections that can be raised with respect to the
possibility of determining the individual contributions that have been made to fulfilling the demand
(Sawyer; 1989: 80.). That is to say, the neo-classical assumption that wage rates reflect marginal
contribution is just that, an assumption, because it is not possible to effectively measure the
contribution o f different forms of labour in a common venture. More to the point, it is not possible to
measure and distinguish the contribution o f management fiom the contribution o f labour. What is
clear, however, is that the contribution of both labour and management are necessary for production.
Thus, to the extent that individual contributions cannot be effectively determined, it would clearly be
unacceptable to labour that management should receive all or even disproportionate benefits for
increased performance. For this reason, labour would not be willing to accept wage levels determined
purely by the market. Rather, it would want to assure that its remuneration is linked to the
remuneration o f management. This might take the form, for example, of a maximum factor for wage
differentials.38 Management (and most likely capitalist owners as well to the degree that it might
drive wages up) could generally be expected to oppose such policies. This is confirmed by the fact
that, while they are a standard feature of cooperatives, there are few examples o f capitalist firms
having adopted such measures voluntarily. Yet, while capitalist firms cannot be expected to adopt
38That such conditions would be demanded by workers is confirmed by the practice o f producer
cooperatives which generally limit salaries in this fashion. In Mondragon, for instance, the current
factor differential is six, having recently been raised from three to allow the cooperatives to retain
skilled workers who could otherwise command a much higher price in the capitalist labour market
(Whyte and Whyte, 1988).
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such policies voluntarily, it is possible that they could be forced to conform to this aspect o f the
distribution condition through legislation. Sweden, for example, imposes such restrictions on
capitalist firms (without any apparently grave effects on productivity).
Under capitalism, in the absence o f redistribution there will inevitably be people (e.g., the
long-term unemployed and under employed, those not able to compete in the job market due to
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t reasons o f age or disabilities, etc.) who would probably be materially better off under an alternative
| arrangement (e.g., market socialism). For this reason, capitalism could only be consented to if there
were provisions which ensured that such people were as well off as they might expect to be under
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i their next best alternative. There are, of course, problems estimating what the next best alternative
would be able to provide. While it is not possible, or even necessary here, to answer this question
with any degree o f precision, some minimal standards can be posited on the basis of actual
practices.39 It can be expected at least that basic needs could be met for food shelter and clothing as
well as the provision o f basic social services (health care, education, etc.). Thus, before consenting to
capitalism people could be expected to demand, at a minimum, that redistribution occur at least to the
39State socialist countries, though problematic as alternative models for a variety o f reasons,
demonstrated at least that it is possible for non-market alternatives to provide fiill-employment, a
wide range o f social welfare programs and Western consumer goods. A more appealing, but less
extensive example might be the cooperative federation of Mondragon which has demonstrated that
cooperatives can compete in a wide variety of economic sectors (including the financial sector),
provide more secure employment and are capable o f forming the basis for a strong regional economy.
The simple point to be made here is that while capitalism has historically proved to be the most
dynamic engine for economic growth, alternatives forms o f economic organization exist that could
probably be developed and expanded to ensure not only that basic needs are met, but a relatively
affluent standard o f living could be maintained.
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degree necessary to provide these basic goods and services for everyone. While capitalist firms
would clearly be expected to contribute to such redistribution (as they are in actual capitalist
societies), they obviously cannot be expected to take on the direct responsibility for such
redistribution which would have to (and in fact does) occur through the tax system. Capitalist firms
j may be expected to resist (e.g., through lobbying efforts) and evade (e.g., by incorporating in tax
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| havens, by questionable accounting procedures, etc.) attempts to force them to participate in
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j redistribution. They are likely to do so to the degree that the probable costs o f such attempts at
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! avoidance are less than the probable benefits. With adequate enforcement by the state, however,
! capitalist firms can, in principle, be forced to contribute their fair share to redistribution.
2) Role o f Government
It is government that has the key role to play in ensuring a fair distribution of income and
redistribution of the social surplus. Governments have a variety of policy tools at their disposal with
which to promote these ends. In terms of affecting the income distribution, governments can impose
limits on salary differentials within firms, in addition to setting minimum wage and benefit levels.
They can also mandate or offer inducements for profit sharing schemes and employee ownership
programs (ESOPs). With respect to redistribution, welfare states have long relied on a progressive
income tax system to fund transfer payments and finance a range of social programs that serve to
ensure that basic minimums are met. (They can also use the progressive income tax system and steep
heredity taxes to ensure that it is entrepreneurial skill and managerial ability rather than inherited
wealth and privilege that determine the distribution of management and board positions as well as the
ownership structure). Governments have also taken measures to develop public insurance programs
(especially for unemployment and health care). Thus, it is clearly not the technical means that set the
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limits on the ability o f government to ensure that the basic conditions for an acceptable distribution of
income under capitalism are maintained. Rather, these limits, as we saw in the previous chapter, are
determined by the structural power o f capital and the ability of civil society to organize itself. While
capital has objective interests in opposing redistribution, a critical theory perspective is able to argue
that, in principle, civil society has the potential to organize itself and use the state to control the
structural o f capital. As was previously mentioned, however, the expansion o f the global economy
(and recent changes in forms of state) have made it much more difficult for civil society groups (and
states) to impose effective controls on capital. The result has been an increase in income polarization
in many developed states (especially the UK and the US) over the last two decade. The size of the
increase in income polarization is closely correlated with the withdrawal o f the state from the
provision o f social services and the adoption o f neo-liberal economic policies (King, 1990; Danziger
and Gottschalk, 1995; Atkinson, 1996; Mills, 1996).
3) Complications o f Transnational Activities
Transnational activities by firms complicate the issue of (re)distribution and make the
problems involved in securing a fair distribution of income more intractable. First, operating in the
international economy provides firms with increased possibilities for "evading" taxation and, thereby,
not paying their fair share o f the burden o f redistribution. Two measures are most significant in this
regard, viz., incorporating off-shore in tax havens and the use of transfer prices which enable firms to
shift their taxable income to countries where it is taxed at a lower rate. Second, increased capital
mobility has also provided firms with a greater ability to "lobby" and negotiate with states concerning
their part o f the burden o f redistribution. In developed capitalist countries, firms have been able to
use concerns about international competitiveness to argue that reduced tax burdens were necessary for
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them to be able to compete with foreign firms in international markets. They have also used the
threat o f shifting production offshore (and the consequent loss o f jobs) to lobby for lower taxes and
other concessions. In the US and the UK, (where these tactics were most successfully employed
during the 1980s and 1990s, due in no small part to the governments’ general disposition towards the
plight of business) the results have included a much less progressive tax system, a shift in the tax
burden from firms to individual taxpayers, sharp cuts in social spending and dramatic increases in
income polarization and poverty (Rima, 1996). MNEs have also been able to use their structural
power in LDCs, where states are forced to offer a wide range o f incentives (e.g., tax holidays,
infrastructural improvements, market control) to induce them to invest.40 These measures in effect
absolve firms of the responsibility for participation in redistribution, without necessarily ensuring that
the firms will provide any substantial economic gains. In the increasingly global economy, the only
possible way of effectively addressing this issue is through international or supranational controls on
corporations (McClintock, 1996) 41 For reasons explained in the previous chapter, however, the
40 All countries offer a mix o f incentives and disincentives for foreign investors. The question of the
effectiveness of such incentives is a question of some debate in the literature. Some analyses, e.g.,
Guisinger (1986) define the problem in terms of a “prisoner’s dilemma.” According to such an
analysis, while individual countries do not necessarily gain by offering incentives alone (because
other conditions may also have to be met, e.g., adequate levels o f skill labour, infrastructure, etc.),
they may definitely lose by not offering incentives (e.g., “tax vacations”). Moreover, depending on
their ability to meet other conditions for investment, they may feel pressurized to offer above average
incentives to invest.
41 In principle, another alternative to increased direct control over MNEs is redistribution through the
international state system (e.g., foreign aid). For the same reasons that democratic reform o f the
international economic regulation is unlikely, however, so is the possibility that developed states
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international state system has not taken any action that would bring transnational capital under
democratic control.42 All it has been able (or willing) to do is establish voluntary guidelines for
multinational behaviour 43
: D) The Marginalization Condition
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| In capitalist economies some social groups are marginalized. It was argued in the previous
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; section that members o f social groups who stand a strong likelihood o f being marginalized in a
would tax MNEs and redistribute the proceeds to LDCs in an equitable manner (as the politicization
and traditionally low levels o f foreign aid attest).
42The reasons why less powerful states in particular would benefit from a more democratic system are
obvious. In addition to being able to force it to pay its fair share o f the tax burden, by cooperating
they could also impose greater market discipline on international capital, eliminate its ability to
negotiate concessions for investing, require it to engage it technological transfer, etc.
43Over the years codes seeking to guide the practices of MNEs have emerged from a range of
sources. Windsor (1994:171) lists the following:
(I) private parties (corporations, stakeholder groups, trade associations, or coalitions of
such entities); (2) individual governments (the US and Swedish foreign corrupt prac
tices acts); (3) bilateral inter-govemmental negotiations (tax treaties, trade agreements,
etc.); (4) multilateral intergovernmental consultation (the EC coordination processes or
the OECD guidelines); and (S) global intergovernmental consultation (the U.N. Code,
the WHO Code, the ILO Declaration, and the GATT and UNCTAD processes).
While some authors speak o f such codes as having moral authority (Frederick, 1991), from the
discourse ethics perspective we have elaborated, such morality authority means little if it is not
backed up by effective enforcement. Without effective enforcement, individual actors cannot be
expected to conform (the assurance problem).
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capitalist economy could not consent to such an arrangement unless they could be assured that the
problem of marginalization would be eliminated. In what follows we will first examine the factors
which condition whether the activity o f capitalist firms is likely to reinforce (or reverse) economic
m arginalization. Next we will consider the role that government might be able to play in promoting
! the elimination o f marginalization. Finally we look at the complications that transnational activities
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| I) Firm Level
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In capitalist economies some social groups are economically marginalized. Different aspects
o f economic marginalization can be distinguished with respect to basic distinctions in the labour
market. First, some social groups are marginalized in the sense that they suffer disproportionately
high levels of unemployment (marginalization within the labour force). Second, some social groups
are marginalized in the sense that they tend to be overly concentrated in less prestigious and/or less
well-paying occupations, while under-represented in more prestigious and better-paying professions
(marginalization in the division of labour). Third, some social groups are marginalized in the sense
that the tend to receive lower levels o f remuneration and opportunities for career advancement within
their chosen occupations (marginalization within occupational groups). Members o f such social
groups might be able to accept capitalism despite the fact that it is characterized by significant levels
o f unemployment and a division of labour in which some occupations are less well paid, less
prestigious and receive fewer benefits. They could do so on the basis of the belief that capitalism is
more productive than available alternatives and that redistribution could make those at the bottom as
well off as under alternative arrangements. They could not, however, consent to a situation in which
they clearly did not have an equal opportunity to compete and, as a result, were much more likely to
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be unemployed, stuck in the less desirable range o f the division of labour and receive a lower salary
and fewer benefits than (equally qualified) colleagues.
For this reason, it is important to examine two key questions concerning the relationship
between capitalist business activity and marginalization. First, there is the issue o f whether the
activities of capitalist firm tends to reinforce existing patterns of marginalization or work to break
them down. Second, there is the question of whether capitalist firms might be able to take more
| active measures to either try and reverse marginalization (if its activities normally reinforces it) or
speed up the rate at which marginalization might be overcome (if its effects are already moving in this
j
' direction). It is not possible here to offer an extensive examination of the empirical evidence, which
is, in any case, mixed. Rather, what can be done is to isolate the factors which affect the decision
making of capitalist firms and determine the likelihood of their activities reinforcing or reversing
existing patterns of marginalization. The most obvious factor that can determine whether a firm's
activities reinforce marginalization is the existence of racial and/or gender prejudice. To the degree
that such prejudice leads actors in capitalist firms to make decisions (e.g., preferring white males over
more qualified women or minority candidates) that are not in accord with their objective interests
(viz., profit maximization), neo-classical economists would consider such prejudice to be “irrational.”
In addition to such overt forms of prejudice, three other factors can be distinguished that determine
whether the activities of capitalist firms are likely to reinforce or reverse marginalization. First, there
are the objective conditions which determine the rationality (i.e., costs and benefits) of the different
policies options (that may contribute to or help reverse marginalization). Second, there is the
inevitably subjective nature of the process through which decision-makers interpret the “objective”
factors in order to come to a rational decision. These include the individual and collective
interpretative frameworks o f the decision-makers, which may include racial and gender biases which
are endemic in the society. Third, there are the subjective interests or motivations which actors might
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have to address the problem. In what follows we offer a brief analysis on the basis of these conditions
o f the prospects for firms reinforcing or reversing each o f the three aspects o f marginalization
distinguished above.
M arginalization within the Labour Force - Racial minorities tend to suffer
disproportionately high rates of unemployment (Rima, 1996). In addition to overt prejudice on the
part of employers, there are also other more objective factors which can help account for this.
Primary among these factors are lower levels o f formal qualification (though for some specific groups
other factors may figure more prominently, e.g., language problems and unrecognized qualifications
in the case of new immigrants, geographical isolation in the case of some indigenous peoples). Lower
levels o f formal qualifications frequently reflect a variety of unfavourable circumstances (e.g.,
poverty and related social problems, poorer quality educational opportunities, etc.), that can be linked
back to structural and historical injustices. For firms, however, such considerations do not generally
come into play. Firms do not usually conceive of themselves as having contributed to
marginalization and its root causes nor having the responsibility to address them. Rather, they
understand themselves to contribute to society only indirectly through pursuing their own objective
interests. In this instance, their objective interests lie in getting the best qualified employees (at a
given price). To the degree that non-minority employees are on average better qualified, they will be
preferred over minority candidates. The problem for minorities may be further exacerbated by the
distribution o f decision-making positions and the existence of endemic biases in the dominant culture.
To the degree that non-minorities dominate decision-making and may be influenced by endemic
cultural biases, then it is not merely the objective fact that minorities are less qualified, but also a
tendency for non-minority decision-makers to perceive them as less qualified (or reliable) that will
contribute to their marginalization (Schulman, 1996). Such subjective perceptions, however, will
pass as an objective interest on the part o f the firm, reinforcing the situation o f marginalization.
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Firms could take measures to help overcome such effects o f endemic bias (e.g., cultural sensitivity
programs, etc.), but this would be conditioned on their first recognizing that such a bias exists and
then perceiving it as a problem worth addressing (i.e., deciding whether the costs o f addressing the
problem would be recouped by increased performance). Yet, even if the objective interests of firms
j do not require that they address the problem o f marginalization, decision-makers in firms may have
| subjective interests (i.e., moral or ethical motivations) in trying to ameliorate the situation. Such
| motivation, however, will generally be circumscribed by the objective interests of the firm (viz.,
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! profit maximization). Thus, any efforts to address the problem of marginalization (e.g., preferential
hiring) will have to be justified on objective grounds. Whether or not this is possible will depend
upon a range o f factors affecting the costs o f such measures (e.g., recruiting costs, effects on
employee morale, etc.) and the benefits (e.g., better public image and community relations, etc.). The
limited number o f empirical examples of firms voluntarily adopting affirmative action programs,
however, would seem to indicate that the combination of motivation to address the problem and
competitive solutions may be in relatively short supply.
M arginalization within the Division o f Labour - Racial minorities and women tend to be
disproportionately concentrated in less-well paying and/or less prestigious occupations and,
conversely, under-represented in better paying and more prestigious professions. In addition to overt
(irrational) racial and gender prejudice, there are a number of other variables that might contribute to
this skewed distribution within the division o f labour. On the supply side o f the issue, the socio
economic factors noted above that make minorities less competitive on average may again play a role
in their choice o f occupation. In addition, there is a related process of occupational channeling in
which the educational and vocational systems tend to direct minority (and lower income students)
disproportionately toward trades and away from professional careers (Chunn, 1991). In the case of
women, the process o f channeling, which has tended to direct women in largely disproportionate
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numbers into the “caring professions,” has been reinforced by strong cultural stereo-types and norms
about what constitutes “women’s work” (Crompton and Sanderson, 1990). Firms do not generally
have a direct role in influencing the make-up o f the division of labour on the supply side, though they
may exert some indirect influence, especially through their advertising practices.44 Firms, however,
do play a very direct role in deciding who within the existing applicant pool gets hired (a power
which may redound back upon the make-up of the applicant pool). Again, in addition to more overt
forms o f gender and racial prejudice, there are object factors and subjective perceptions which may
lead firms to favour non-minority candidates over minority candidates and males over females.45
With respect to minority candidates, to the extent that less advantageous starting points might be
reflected in their being less well qualified on average, firms will have objective reasons for hiring
disproportionately fewer minority candidates. However, even if minority candidates are equally (or
even more) qualified, the subjective evaluation o f their qualifications (broadly understood) by non
minority decision-makers may result in their being under-rated (Shulman, 1996:260) 46 A similar
^ In particular, large corporations have been accused in the past with perpetuating stereo-types of
women and their roles in society. It is not inevitable, however, that firms play such a conservative
role. Depending upon what sells their product (and whom they are trying to sell it to), firms may also
seek to undermine stereo-typical images of women and minorities.
4sThe flip side o f this is a tendency to higher women and minorities (especially recent immigrants and
illegal workers) for more menial positions. To the degree that such groups are less likely to organize
themselves (and drive up wage and benefit levels), firms have an objective interest in preferring them
over candidates from other social groups.
46One part o f the argument in favour of government intervention involves the claim that increasing
the percentage o f minorities and women in decision-making positions may help to counteract the
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dynamic may also work in the case o f women. To the degree that women tend to bear a larger burden
o f child-rearing and other domestic chores and frequently sacrifice their educational and career
interests for their husbands, this may result in their being less qualified than males on average. To the
degree this is so, capitalist firms have an objective interest in hiring fewer women. But, even if
I women are not less qualified, two factors may work against them. On the one hand, despite being
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j their actual qualifications and capabilities of women (Phillips and Taylor, 1980). On the other hand,
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| the fact that women do tend to share the burden o f domestic responsibilities may imply higher costs
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; and other disadvantages for firms (e.g., disruption of work during maternity and parental leave, less
willingness to work overtime, etc.). This again provides firms with an objective interest in preferring
male workers. For these reasons, it can be expected that, in the absence of other moderating factors,
firms (in which the majority o f decision-makers are white males from privileged backgrounds) will
tend to hire disproportionately small numbers of minorities and females for more prestigious and
well-paying jobs (and this may further discourage women and minorities from entering some
professions). Again, it is possible that decision-makers within firms may have some subjective
interests in addressing this aspect o f the problem of marginalization. However, the empirical record
does not demonstrate decisive moves in this area in the absence o f other incentives or motivations.47
subjective bias in decision-making, which naturally occurs when the voices of minorities and women
are excluded from the decision-making process.
47 Again, part o f the argument in favour of government intervention involves the notion that
increasing the percentage o f minorities and women in decision-making positions may help to increase
the level o f motivation that exists to address the problem. For a discussion o f the notion that women
may tend to act more "ethically” in business, see Clark and Barry (1997). For a discussion o f gender
equality is different countries, see Carroll and Gannon (1997) and Rhoodie (1989).
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M arginalization within Occupational Groups - Women and visible minorities tend to receive
lower salaries and fewer benefits than white males within given occupational groups (Rima, 1996;
Amott and Matthaei, 1996). They also tend to receive fewer promotions and fail to rise as high in
organizations as white males (the phenomenon of the "glass ceiling"). Again, accounting for these
discrepancies may involve not only (irrational) racial and gender prejudice, but also the same
; objective factors noted above (viz., lower qualifications on average) and the same bias in the
| subjective evaluation of these “objective” factors. Also, in the case o f promotions, the same types of
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consideration arise, as noted above, concerning the potential extra costs which women might cause
the firm due to the tendency to assume the bulk of domestic responsibilities. As regards salaries,
firms have an objective interest in keeping the salaries o f employees as low as possible (while
maintaining performance and retaining employees). Thus, if management is somehow more able to
limit the salaries and benefit levels of women and minorities (than those of white males), it is only
“rational” for them to do so. On the other hand, if management is motivated to address this aspect of
the problem of marginalization, they also have a range of options which they may employ. These
include pay equity policies, affirmative action programs as well as support services (e.g., child care)
which can help women with the “double burden” that they bear (Rhoodie, 1989). Again, the adoption
of such policies requires both the motivation to address the problem and practical solutions which
tend to involve no (or few) extra costs that are not off-set by performance gains. For their part, civil
society groups may help to increase the cost to firms (and, hence, their motivation to address the
problems) o f discriminatory practices and/or not adopting affirmative action programs. This may
involve the use of shareholder resolutions, publicity campaigns, boycotts, etc.
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2) Role o f Government
While capitalists firms cannot generally be expected to take effective measures to address the
problems o f marginalization, it might be possible for government to take actions that could effectively
resolve the problem. Such government action would have to be bifocal in nature, seeking to establish
the conditions under which everyone would have an equal opportunity to compete in labour markets
while attempting to influence the decision-making processes of firm’s such that they have an
objective interest in their activities contributing to the overcoming rather than the reinforcement of
marginalization. As regards the first o f the tasks, governments would need to confront the problems
from three directions. First, it is necessary to ensure that those at the lower end of the socio-economic
spectrum have their basic needs adequately met (viz., food, shelter, clothing, personal security, etc.)
as well as access to educational facilities and opportunities on a par with those available to the rest of
society. Western governments have met this challenge to differing degrees through their welfare state
policies.48 Recent neo-liberal policies, however, have tended to endanger the progress of the past as
income polarity and poverty levels have risen in many developed countries over the past two decades
(Clark, 1996; Danziger and Gottschalk, 1995). Second, it would be necessary to address any endemic
cultural biases and stereo-types that reinforce the channeling of minorities and women into lower-
paying and less prestigious professions. Third, it would be necessary to curtail the privilege o f the
elite in order to ensure that their sons and daughters do not have an unfair competitive advantage.
48In the US, specific campaigns have been undertaken (e.g., the Great Society) to target poverty,
especially among racial minorities. For a positive evaluation o f the success o f the Great Society
programs in reducing poverty, see Schwarz, (1983). For an account of the effects of improved
educational opportunities on decreasing the earnings gap o f African-Americans between 1960-1980,
see Card and Krueger (1992).
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This would imply such measures as a progressive tax system, a very steep inheritance tax, the
elimination o f privileged access to elite educational facilities (e.g., the elimination of preferences at
elite universities for “legacies”), etc. Such measures, of course, are generally opposed by members of
more privileged groups and classes who have generally be able to protect their privilege and wealth
(Inhaber and Carroll, 1992).
As regards the task of influencing the decision-making processes o f firms so that they tend to
contribute to the elimination of marginalization, governments can adopt any (or all) of three basic
approaches. First, they may offer firms direct incentives (e.g., subsidies, tax breaks) to adopt policies
(e.g., affirmative action) and practices (e.g., providing child care) or to participate in government
programs (e.g., targeted job creation programs) that serve to alleviate marginalization. Second, they
make the adoption of such policies and practices a condition for participation in some economic
sectors, especially bidding on government contracts. Third, they may establish laws and regulations
(e.g., anti-discrimination legislation, pay equity provisions, affirmative action programs, child care
provision, etc.) that force firms to adopt measures that contribute to overcoming marginalization.49
While governments have the power to take the types of measures noted above, whether they are likely
to take them depends on a variety o f factors. O f particular importance are the cost of these measures
to capitalist firms, the degree of the structural power of capital within the society and the state of the
49In the US, for example, Title VII o f the US Civil Rights Act o f 1964 protects citizens for
employment discrimination on the basis of race, color, national origin, religion, sex, age and
disabilities. In 1991 it was extended to cover expatriates in the employment of US MNEs. As
regards affirmative action programs, the US, government has been willing to take more aggressive
measures with regard to the civil service, while relying more heavily on incentives and voluntary
programs for the private sector. This helps to account for the fact that minorities (especially African-
Americans) are, on average, much more likely to work in government positions (Shulman, 1996).
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economy, as well as the strength o f civil society groups (i.e., the degree and density o f organization)
and their cohesion (which will be determined by the number and lines of political fissures and likely
influenced by the cultural and racial diversity o f a society). Again, the empirical record indicates that
states vary considerably in the degree to which they take measures to address the problem o f
j marginalization with traditional social democratic states (viz., Sweden, Norway, Finland) being the
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3) Complications o f Transnational Activities
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Transnational economic activity raises two basic complications with respect to the issue of
marginalization. First, for reasons explained in the previous chapter, the ability of firms to operate
across national borders (in the absence o f supranational authorities) tends to limit the ability o f states
to take actions that could address the problem o f marginalization. On the one hand, the
internationalization of production and finance has made it more difficult for governments to regulate
firms. On the other hand, the greater bargaining power of firms (and the need of states to compete to
attract capital) has forced states (or given them the excuse) to cut spending and allocate fewer
resources to programs that could help to eliminate some of the objective factors that lead firms to
reinforce rather than reverse marginalization (Cox, 1986; 1994).
Second, transnational activities raise the issue of marginalization at two new levels. On the
one hand, there is a marginalization within the global economy as some states are largely excluded
from integration into the global economy. On the other hand, marginalization occurs in the form of
an international division o f labour. These two phenomena have strong parallels with the situations of
marginalization in the domestic economies of developed capitalist states. The failure of some states
to be integrated into the global economy parallels the failure of minority groups to be integrated in
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domestic economies in several ways. First, LDCs may exhibit objective characteristics (e.g.,
relatively uneducated workforce, poor infrastructure, geographical isolation, small domestic markets,
political instability, etc.) that make them less attractive to capital (as sites for investment) in the same
way that some minority groups in domestic economies have objective characteristics (e.g., lower
levels o f education and technical training, etc.) that make them less appealing to domestic firms (as
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| employees). Such objective factors help to account for the fact that the great bulk o f FBI goes to
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| developed states or the upper rung o f LDCs (Schwartz, 1994). Second, while these objective
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| characteristics o f LDCs may be related to historic injustices (especially the effects o f colonialism) in
the same way that objective disadvantages o f minorities in nation states may be, capitalist firms do
not take such factors into consideration when making their investment decisions. Similarly, there are
parallels between the situation of LDCs in the international division of labour and that of minority
groups and women in the domestic division o f labour. Whereas the latter are overrepresented in
occupations that require less education and/or are pay less well (and under represented in more
prestigious and better paying professions), the economic activities of LDCs tend to be concentrated in
more labour intensive and low technology industries (e.g., agriculture, assembly work, etc.) which
tend to have lower profit margins. Moreover, just as the overrepresentation of minorities and women
in secondary markets is linked to historic injustices (viz., racism, patriarchy), the position o f LDCs in
the international division of labour has been affected by historic injustice (especially in the form of
colonization). Again, however, capital does not make investment decisions on the basis o f their
contribution to overcoming historic injustices.
Where the parallels break down between domestic and transnational forms o f
marginalization is with regard to the different manner in which economic activity is regulated. In
Western capitalist states, the economic realm is ultimately subject to the control o f the democratic
state. This means that the marginalized can, in principle, hold the government accountable through
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the electoral process, while there are mechanisms already in place that the state can use to address the
problem o f marginalization. In the international realm, however, economic policy is not formulated
and adopted through a democratic process, but rather through a combination o f formal and informal
processes and organizations which reflects the interests of the dominant Western states and capital in
' these states. Two basic conclusions flow from this lack o f democratic control over international
i economic policy. First, such a situation can hardly represent a generalizable interest and be consented
| to by LDCs. Under such circumstances, only the most fortuitous coincidence o f ends (as occurs in
neo-classical models) could allow the dominant Western states' control over the international
economy to be acceptable to LDCs. In the real world, such a coincidence does not exist. To the
contrary, to the extent that the recent liberalizing trends in international economic policy have
basically restricted LDCs development options to a Ricardian strategy (Schwartz, 1994), it could be
argued that Western dominance is serving to reinforce marginalization. The second conclusion that
flows from the non-democratic nature of the decision-making procedure o f international economic
policy is that, to the degree that it allows capital to inject its interests into the international economy
through the dominant capitalist states, these states (to the extent that they associated their interests
with those o f their domestic MNEs) will be unlikely to change the system. As a result, it is unlikely
that the problem of marginalization will be effectively addressed until pressures (e.g., economic
pressure by LDCs, political pressure by domestic populations) can be brought to bear that would
make in it the interests o f the dominant states to act (i.e., increased economic clout by LDCs or
domestic pressure on Western governments).
E) The Colonization Condition
In the second chapter the critical theory argument that capitalism demonstrates tendencies
towards monetarizadon and colonization was elaborated. This tendency involves the extension of the
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instrumental logic o f the market into non-economic realms (viz., the public and private realms of the
lifeworld and the administrative and political realms) and aspects o f the economic realm which need
to be insulated from this logic (viz., labour relations). Above it was argued that capitalism could not
be the subject o f a rational consensus if these tendencies o f capitalism were not kept in check. In the
previous chapter, the tendency of capitalism towards the monetarization and colonization o f the
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| political and administrative realms (e.g., lobbying, influence pedaling, etc.) was examined. Here, the
problem needs to be addressed with respect to the treatment of labour in the workplace and the
i lifeworld. In what follows we will address this problem by first looking at how capitalism tends to
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! monetarize and colonize these realms (especially through their "human resource" and advertising
' practices) and the factors which determine whether such monetarization and colonization are in
capital interests (or not). We will then go on to examine the role that government may be able to play
in inhibiting the monetarizing and colonizing tendencies of capitalism as well as the complexities that
transnational activities cause concerning this issue.
I) Firm Level
As was noted above, one problematic form o f monetarization involves the tendency of
capital to conceive o f and treat labour as a mere factor of production. The most problematic aspect of
this tendency involves the fact that in attempting to maximize profits, capital has an objective interest
in minimizing the costs o f all inputs, including labour. The key concern here is whether this interest
of capital will involve driving the price o f labour down to unacceptably low levels both in terms of
remuneration (e.g., less than subsistence wages) and in terms of risks (e.g., health and safety
considerations). While in the case of skilled and professional workers, this is unlikely to be the case,
the prospects for unskilled labour may be less sanguine. There are two reasons for this. First, the
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more skilled labour is, the greater the price (in terms of wages, benefits, working conditions, etc.) it
can generally demand due to its relative scarcity. This means that skilled and professional workers
will generally be relatively well remunerated and not subjected to high health and safety risks. The
price of unskilled labour, however, which tends to be more abundant, may well be driven below
acceptable levels in imperfect markets. Second, the more skilled labour is (and the more creativity
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? of work. For this reason, it is more likely to be in the interest of capital to offer skilled labour greater
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autonomy and attempt to influence its performance by incentives. With unskilled labour, however,
supervision is less problematic and management is in a better position to increase its profits by
increasing the intensity of work. Generally, then, while the labour o f both skilled and unskilled
workers may be "commodified" under capitalism, it is usually not as easy for, or in the interests of,
management to drive down the costs o f skilled and professional labour to unacceptably low levels.
For this reason, it is possible to imagine that skilled and professional labour (if it has a strong
preference for consumption) could consent its own commodification due to the much higher level of
benefits which naturally accrue to it do to its position in the division of labour. The situation is
somewhat different with unskilled labour, however. Because it naturally receives a lower price and it
is easier to control, capital has a greater ability to drive down the cost o f unskilled labour to
unacceptably low levels. While tight labour markets might inhibit it from doing so, it is generally the
case that the market for unskilled labour is not as tight as for more skilled labour. This means that
capital's interest in minimizing costs will tend to drive down the price of unskilled labour to levels to
which workers could not rationally consent.50
30While it is possible that firms might agree to pay acceptable wages out of moral considerations, this
has become less likely under post-Fordist production. The reason for this is that under post-Fordism
larger firms, which might be able to afford to pay more and may be more concerned about public
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A second form o f monetarization consists of the ever deepening extension o f market
relations into the lifeworld. This involves not only the development of new markets and products, but
the creation o f a consumer culture which progressively pushes out or commercializes traditional
sources o f meaning and alternative understandings o f the good life. In principle, such a development
might be compatible with the demands o f morality if it could be shown that such changes were
undertaken voluntarily and truly reflected people's preferences. The neo-classical notion of
"consumer sovereignty" reflects such a line o f thought, arguing that capitalist firms only respond to
what consumers demands. Such a position is hardly able to account for the fact that capitalist firms
spend billions of dollars per year in advertising, however. As Galbraith (1967) and others have
effectively argued for some time, persuasive, mass advertising does not respond to demand, but rather
creates it. Moreover, mass advertising does not merely create a demand for individual products, but,
in concert with other social institutions in capitalist societies, promotes a consumer culture by
undermining the ability o f individuals to critically reflect on their interests, beliefs, aims and desires
(Lippke, 1995: 103). There are two questions that arise with respect to such practices. The first is
whether consumers could be understood to consent to such practices by advertisers. To the degree
that such practices are deliberately manipulative and undermine people's ability to exercise their
autonomy, the answer is clearly no. The second question is whether capitalist firms could be
expected to restrict their advertising practices to "informational advertising." Again, the answer is no.
To the degree that persuasive advertising creates new markets and increases profits, capital has an
perceptions, have to a large extent sub-contracted out the problem. That is to say, they tend to sub
contract out low-paying, labour-intense work to smaller, local contractors. Such contractors may be
more prone to attempting to drive down the price of unskilled labour to unacceptable labour insofar as
they operate in a more competitive environment with smaller profit margins and generally do not
have the same visibility and concern about their public image that larger firms may have.
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objective interest in using it.51 There is no indication that capital would consider restricting its use
o f persuasive advertising. To the contrary, the use of persuasive, mass advertising has continued to
grow both in the developed capitalist countries and in LDCs as MNEs have expanded their activity
(Lippke, 1995).52
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While there is little reason to believe that capital could be expected to control its
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monetarizing and colonizing tendencies o f its own accord, it is possible that the state could intervene
and impose restrictions on capital. Indeed, with regard to the health, safety and well-being o f labour,
the state does regulate capital's use o f its "human resources” in a variety of areas. Western capitalist
states all provide labour with rights to organize unions and engage in collective bargaining. They
establish minimum wage laws and unemployment insurance programs. They also establish health and
safety standards. While the adequacy o f the specific standards (and the enforcement programs) of
some governments are open to question, in principle, the basic institutions for effectively controlling
the worst effects of monetarizing tendencies in this area are in place. Whether they can be maintained
51A distinction is frequently made between "informational" and "persuasive" advertising. Informa
tional advertising which limits itself to providing consumers with relevant information about products
is obviously easier to justify than persuasive advertising (Lippke, 199S).
S2Moreover, as the recent practices o f the tobacco industry demonstrate, capitalist firms not only
refuse to voluntarily eliminate persuasive advertising, but even in the face o f intense social pressure
they refuse to limit their use o f the most objectionable forms of such advertising (viz., that targeted
towards children).
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at appropriate levels depends on the ability o f capital and labour to assert their interests in the political
arena.
As regards the problem of controlling the monetarization and colonization o f the lifeworld,
the issue o f controlling capitalist advertising poses a practical problem which also raises a broader
question about the possibilities for controlling colonization and the normative acceptability of
capitalism. States can and do control advertising in a variety o f ways. They restrict the advertising
o f certain goods (e.g., tobacco products, alcohol) and services (e.g., legal services) in some media.
They pass truth in advertising and other consumer protection laws. Generally, however, they do little
to control persuasive mass advertising. Part o f the problem may involve the obvious practical
problems involved in trying to limit capital to "informational" advertising (viz., determining the
boundaries between persuasion and information). More could certainly be done, however, to limit the
number of sites available for advertising, which have been incessantly expanding to the point were
the average North American is exposed to thousands of advertisements per day (Lippke, 1995). Also,
on the supply side, states could also do more in the area o f promoting non-commercial media options
(e.g., subsidies for public and state media) as well as encouraging consumer protection groups. It has
also been proposed that states do more along the lines o f promoting critical skills in school so as to
help insulate children in particular from the effects of advertising (Lippke, 1995: 119). These latter
approaches, represent a more defensive strategy with respect to the issue o f advertising, while the
former a more pro-active formula.
This same dichotomy occurs within critical theory with respect to the question of the
colonization o f the lifeworld generally. On the one hand, Habermas tends to favour an approach,
characterized as the ‘defense o f the lifeworld,’ that places the emphasis upon enabling the lifeworld to
organize itself so as to impede the encroachment of colonizing tendencies. From this perspective, two
factors are important. First, it is necessary to guarantee the possibilities for effective control over the
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economic realm by establishing the conditions for the generation of legitimate law, viz. the system of
rights and the principles o f the constitutional state. Second, the promotion o f a liberal political culture
and active participation in the political realm is required. Such measures, if effectively undertaken,
would serve to limit and dissipate the worst effects of the colonizing tendencies of the economic
( realm. A second, more radical approach argues that in order to maintain the dominance o f the
lifeworld over the economic subsystem it is necessary (and possible) to go beyond a ‘defense o f the
lifeworld’ and inteiject democratizing elements in the subsystems themselves. This can be done,
Cohen and Arato (1992:471 ff.) argue, while still maintaining respect for the basic manner of
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functioning o f the subsystems. Such “discursive forms” would act like sensors and decrease the
ability for and likelihood o f colonization o f the lifeworld.53 If critical theorists such as Cohen and
Arato are correct in arguing that only the injection of “democratizing elements” can effectively
eliminate the colonizing tendencies o f capitalism, then to the extent that these elements transform the
basic structures of capitalism so as to make it other than capitalist, any claims to morality on the part
of capitalism are obviously undermined.
3) Complications o f Transnational Activities
The analysis of the monetarizing and colonizing tendencies o f capitalist business activity is
not substantially complicated by the inclusion of transnational economic activity in that the problems
that arise are basically the same. What is frequently different, however, is the extent of the problems
and the possibilities for effectively addressing them, especially in LDCs. With respect to the
53 In terms o f the economic realm this might involve, for example, increased worker participation in
decision-making (both at the level of the shop floor and the board of directors), profit sharing, co
operative ownership of the means of production, etc.
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problems o f labour, a variety of conditions increase the likelihood that capital will drive down the
price (and working conditions) o f labour to intolerable levels. These include higher unemployment
rates (implying few options for unskilled labour), generally lower wage rates (that frequently hover at
the subsistence level or below), industries with low profit margins and weak states that are unable (or
unwilling) to enact and/or enforce adequate labour laws. With respect to the problems caused by
capitalist advertising, the situation is complicated to the extent that controlling such monetarizing and
colonizing tendencies may require not only concerted activity by an organized civil society, but also
substantial resources to carry out the fight. To the extent that there are fewer resources and civil
society may not be as easy to organize (especially in the absence o f democratic rule) in LDCs,
controlling monetarization and colonization becomes much more difficult. Perhaps, the best example
of this problem is the Nestld infant formula case. What is significant about this case for our present
concerns is that while the dispute focused on a practice in the developing world, it took almost world
wide organization at the level o f civil society to develop any effective opposition to the practice. It is
clear that without the pressure brought to bear by civil society groups in developed countries (e.g., the
boycott o f Nestld products), a resolution to the problem, if it did occur, would have taken much
longer.54
In additions to the specific issues, like the Nestld case, there is a more general concern about
the broader effects o f mass advertising on local cultures. This problem is often expressed in terms of
cultural imperialism by Western nations, especially the US (Young, 1991). While the charge of
cultural imperialism is easy to uphold, it is in a sense only a symptom o f a more general problem,
viz., the marketization o f culture. The fact that it is "Western" culture that is being imposed is only a
reflection o f the fact that Western capital is dominant. (If Western capital were to be convinced that
other cultural forms would sell, they would market them as well.) The key concern of capital is
54For an account o f the Nestld boycott see Kuhn and Shriver (1991).
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creating global markets for its products. The specific form that these products (and their advertising)
take is in some sense incidental. The point is that they need mass advertising to create global
markets. Thus, the cultural imperialism that occurs with transnational economic activity in LDCs is a
particular form of the more general phenomenon o f the promotion of a consumer culture (which
drives out or commercializes traditional forms o f meaning and alternative conceptions o f the good
j life). The major differences are that the process is occurring at a more accelerated rate in the LDCs
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(which may be less capable o f controlling the process), while the particular cultural forms underlying
i this commercialization are less familiar.
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III. Conclusion
While liberal political theory arose with Hobbe's denial o f a common good, liberal
economic theory has frequently attempted to assert that capitalist business practice does (or can)
represent a generalizable interest. While this claim was mostly implicit in Smith's conception of the
"invisible hand" o f the market, it took a more explicit form when translated into neoclassical general
equilibrium theory. While Keynes and other later advocates of capitalism were less sanguine about
the self-equilibrating tendencies of markets, they continued to believe that capitalism, albeit with
governmental involvement in redistribution and regulation, had the potential for representing a
generalizable interest. Habermasian critical theory, in particular the critical theory o f modernity, also
allows for this possibility. Habermas, himself, however, does not examine in any detail what this
would require.
In this chapter we have attempted to investigate, from within the confines o f the normative
perspective of Habermasian critical theory, this question o f the ability o f capitalism to represent a
generalizable interest. Our purpose in doing so has been to determine whether it is possible to
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elaborate a theory o f capitalist morality (as part o f a larger normative theory o f capitalist business
practice) from a critical theory perspective. In answering this question we have argued that while it is
possible that capitalism might be able to represent a generalizable interest, it is very unlikely that in
practice it could. There are two main reasons why this is so. The first o f these reasons involves the
problematic nature o f a necessary assumption. In order for capitalism to represent a generalizable
interest, all those involved would have to prefer it over its rivals (e.g., market socialism). To the
degree that the alternatives are more democratic and more egalitarian, capitalism would have to
provide offsetting benefits (e.g., more and better consumption goods) that would be preferable to
everyone involved. This clearly does not seem to be the case, as the existence o f socialist parties and
cooperative movements would seem to attest. Still, it could be argued that either such people have
misjudged their own preferences or they have not accurately evaluated the capabilities of socialist
alternatives or they are lying about their preferences.
Yet, even, if people could consent to capitalism over socialist alternatives, they could only
do so if capitalist business practice conformed to the conditions which were elaborated above.
Without conforming to these conditions, capitalist business practice could not represent a
generalizable interest and could not be the subject of a rationally motivated consensus. In this chapter
we have attempted to show the extreme unlikelihood that capitalism could conform to these
conditions due to the fact that these conditions are generally in opposition to capital's objective
interests (viz., profit maximization), while there is restricted room for capitalist firms to draw upon
subjective motivation to conform to these conditions (especially as the culture of capitalist business
practice tends to undermine rather than encourage such subjective motivation). Further, we have
argued that while the state can, in principle, force capitalist business practice to operate in such a
fashion (or can take actions itself such) that these conditions are met, in practice its ability to do so is
qualified by the ability o f capital to exercise the various aspects o f its structural power (discussed in
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the previous chapter). Its structural power enables capital not only to exert influence over the state,
but also to inject its interests in the international realm through dominant states. While historically
labour and marginalized groups have been able to use the state to impose some controls on capital,
increased capital mobility in recent years have drastically undermined this ability. As a result, in the
absence o f democratically controlled institutions that can effectively regulate transnational economic
activity, there is virtually no possibility that capitalism can be forced or induced to operate in accord
with the conditions necessary for it to represent a generalizable interest.
Given the unlikelihood that capitalist business practice can fulfill the conditions necessary
for it to represent a generalizable interest, two obvious question arise: 1) In what sense can one speak
of a moral theory o f capitalist business practice from the perspective of critical theory? and; 2) What
is the practical importance o f such a project? Beginning with the first o f these two questions, we can
start by reiterating the fact that from the perspective of critical theory, moral theory is essentially a
metaethical endeavor concerned with the possibility of justifying universal norms. The practical
application of moral theory, however, relies not on actual discourse, but the fact that in order for
norms to be universal, they must represent a generalizable interest. In this way, moral theory at the
level of "practical ethics" inevitably takes the form of a critique o f existing practice. We have argued
that the moral theory o f capitalist business practice can take the form o f a critique from the conditions
of possibility (i.e., the conditions under which capitalism could represent a generalizable interest).
These conditions have been laid out in this chapter. While, we have argued that it is unlikely that
these conditions can be fulfilled, especially under the present circumstances, it still remains possible
that these circumstances can be altered and that capitalism can come to approximate these conditions
much more closely than it currently does. This point leads into the practical importance of a critical
theory approach to business morality.
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The practical importance of developing a moral theory of capitalist business activity flows
from two basic facts. On the one hand, there is the fact that capitalism exists (and is likely to remain
the dominant economic system for the conceivable future). On the other band, there is the fact that
capitalism is in principle justifiable. These two facts allow a moral theory o f capitalist business
practice an important role for a number of different and possibly overlapping reference groups. First,
it must be acknowledged that large numbers o f people accept (if not actually support) capitalist
business practice. While a critical theory approach acknowledges that such acceptance is in principle
justifiable, it also argues that in practice such an acceptance may be uncritical, reflecting the
ideological power o f capital and its strong advocacy o f the status quo. A significant, potential
contribution of a moral theory o f capitalist business activity from a critical theory perspective is that it
may help to provoke a more critical stance towards capitalist business practice.55 If a more critical
55Two aspects o f a critical theory approach are o f particular importance in this regard. First, critical
theory holds capitalism to standards that are not entirely foreign to it. As we noted above, capitalist
economic theory has frequently attempted to argue that it represents (or has the potential to represent)
a generalizable interest. This ability of critical theory to confront capitalism on its own terms
provides it an important entree into societal discussions that tend to presuppose capitalism as the only
alternative. Second, a critical theory approach is able to separate out questions that are not generally
capable o f resolution on the basis of consensus and that may serve to sidetrack the key issue of the
standards to which capitalism should be held. From a critical theory perspective, much o f the
opposition to capitalism from the left can be understood to involve questions of ethics, i.e., context
dependent norms and values (e.g., the importance o f labour as an activity, the importance of
autonomy in the workplace, the importance o f income equality, etc.) that are tied to specific lifeworld
processes of identity formation. Distinguishing such ethical questions (which do not admit of rational
consensus) from moral questions (involving potential generalizable interests) enables a critical theory
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stance can help to bring the practice of capitalist business closer in line with a generalizable interest,
then it has practical import to the degree that such changes may represent significant increases in the
quality o f life for millions o f people. From a critical theory perspective, the advances o f the welfare
state must be acknowledged (while its reflexive continuation and expansion represent progress, not
co-optation).
I A second reference group for whom a moral theory of capitalist business practice is
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and who are confronted in their daily lives by concrete moral problems. A critical theory approach
may be o f significance for them in several ways. First, it can offer them more adequate standards by
which to evaluate and respond to specific situations as well as long term goals for which to strive.
Second, it can provide them with an acknowledgment that many o f the moral dilemmas which they
may face do not admit o f entirely satisfactory solutions under existing conditions. While this does
not remove the anguish involved in making difficult decisions, it can help to relieve unnecessary (and
often paralyzing) feelings o f personal guilt. Moreover, it can lead to the realization that institutional
and structural change are necessary in order for more satisfactory solutions to be consistently
available. It may also provoke efforts to promote such change.
A third reference group for whom a moral theory o f capitalist business practice is important
are those people who believe that capitalism is not, in practice, justifiable, but who accept the premise
that change is only likely to occur gradually. For such people a moral theory of capitalist business
practice can still have value to the degree that holding capital more accountable provides greater
possibilities for promoting change. That is to say, holding capitalist business practice more
responsible may have evolutionary importance for the struggle to move beyond it. While individuals
approach to provoke those who accept capitalism to hold it to higher standards, without attempting to
force on them (non-universal) standards which they do not share.
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will have to decide where to place their energies in the struggle to move beyond capitalism (viz.,
developing alternative institutions and practices or controlling and regulating capitalist institutions
and practices), the different tasks may be seen as complementary and having different strategic
importance in different historical conjunctures.
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CHAPTER SIX
Ethics:
Problem atizing the Norm ative Relationship between
C apitalist Business A ctivity and the Good Life
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j In the previous two chapters we examined capitalist business practice from the perspective of
two different normative moments, viz., legitimacy and morality. This involved an investigation o f the
normative relationship between capitalist business practice and political democracy, on the one hand,
and the common good, on the other. We now move on to offer an analysis of capitalist business
practice from within the confines of a third normative moment, viz. ethics. Here the relationship to
be taken up is that between capitalist business activity and questions of the good life. Critical theory
is much more limited in the analysis that it can provide from the perspective of this normative
moment. More specifically, it cannot provide any substantive analysis o f ethical issues which
confront the firm. The reason for this has to do with the fact that questions of ethics (i.e., questions of
the good life) are ineluctably contextual. What critical theory can provide, however, is a formal
analysis o f the relationship between capitalist business practice and questions of the good life. This is
task which this chapter attempts takes up. We proceed in a two step fashion. First, we examine the
basis on which ethical analysis can be extended to the realm of capitalist business practice and, in
particular, the grounds on which capitalist firms might be considered ethical agents capable of
assuming ethical obligations. Second, we go to examine the nature of the ethical obligations that
capitalist firms take on and the prospects for them living up to these obligations.
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I. Extending the Analysis o f Ethics to Capitalist Business Activity
Critical theory defines the realm o f ethics in terms o f questions of the good life. Questions
of the good life admit of agreement only within communities sharing common lifeworlds
presuppositions. As a result, they are inevitably contextual. To the degree that ethics is limited to
inevitably contextualized questions o f the good life and presupposes an identification with a specific
community, capitalist firms (whose activities are primarily oriented by system logic rather than
ethical values and norms) might seem immune to ethical obligations. This, however, is not
necessarily the case. In what follows we will discuss how capitalist firms might be considered ethical
agents and how they might assume ethical obligations.
A) Individual and Collective Ethical Agents
Discourse ethics, as we have seen, defines ethics (Sittlichkeit) in terms o f the inevitable
contextuality o f questions of the good life. Questions of the good life are inevitably contextual
because they are necessarily defined in terms of one’s individual and group identities. The
contextuality o f questions of ethics means that ethical discourses differ from discourses of morality.
Ethical discourses involve questions of identity and authenticity. They concern what Charles Taylor
(1989) refers to as strong preferences, that is questions about the self-understanding, the character and
the way of life of people. The normative dimension of ethical discourse is best characterized as
authenticity, i.e., acting in accord with whom one is, professes to be or seeks to become. As an
obligation, authenticity is not imposed upon us from the outside as universally binding (as the
demands o f legitimacy and morality in some sense are), but rather arises from within and confronts us
with specific demands that cannot be separated from our own life history. An important implication
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o f this contextuality is that ethical norms do not admit o f universal validity. This is not to say that
there cannot be valid ethical judgments. In ethical-existential discourses we address the authenticity
o f our lives through reflection which dissolves any illusions or self-deceptions which are playing a
role in our appropriation o f our own life histories. This process of self-clarification allows room for
discourse insofar as individuals can only define themselves within an horizon o f Iife-forms which
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they share with others. These others who partake in this shared lifeworld can act as catalysts and
impartial critics in the process of self-clarification. In this way there is a critical appropriation of
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| one’s life history. It is because o f this relationship to an individual history and given contextualized
! Iife-forms that ethical judgments do not admit o f universal validity.
As individuals we all have an interest in being able to form our own identity and choose our
own life projects. Our identities and life projects, however, do not emerge out of a vacuum but rather
develop within a given lifeworld context which we share with others. We are members of
communities (often o f many overlapping communities), which can themselves be understood to be
ethical agents. Like individuals, communities have identities that are defined by their values,
traditions and histories. Like individuals, the members o f communities can also engage in processes
o f self-clarification about their (collective) identity. Discourse at this level (i.e., ethical-political
discourse) concerns the authenticity of the communal identity. To the degree that communities have
identities and engage in ethical discourse, they can also be understood to be ethical agents having
collective responsibilities. There are, of course, obvious differences between individual and
collective agents and the process of ethical discourse. Discourses at the level of communities, for
example, may be much harder to bring to a successful conclusion than at the individual level. This is
due to the facts that shared Iife-forms do not always entirely overlap within a community (as they do
in individuals) and that the identity of the community (i.e., values, traditions, etc.) can be contested.
Still, despite such problems, it is possible to speak of communal identity and collective responsibility,
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just as it is meaningful to talk about communities being more or less authentic (insofar as their
collective acts are in accord with their commonly affirmed identity).
B) Firms as Ethical Agents
Ethics is inextricably linked to communal identity, both for individuals and collective actors.
For this reason, in order to be able to speak about capitalist firms as ethical agents and the ethical
responsibilities of firms, it is first necessary to establish the relationships of firms to community.
There are two basic approaches to this question. First, the firm itself can be understood as a
community which has its own identity, norms and values. This notion of the firm is not entirely new,
having antecedents in related metaphors (e.g., the firm as an extended family). The emergence of the
contemporary notion in business ethics o f the firm as a community is closely linked with the "cultural
turn" in management theory (Reed, 1992: 11). A greater appreciation o f the role that subjective
factors play in effective management has lead some management theorists (and consultants) to
develop the notion that individual corporations had (or could develop) specific organizational or
business cultures (Porter, 1982). Davis (1984) offers a standard definition of (business) culture as
“the pattern of shared beliefs and values that give the members o f an institution meaning, and provide
them with rules for behaviour in their organization.” According to this definition, most firms would
always have had some sort o f culture. What is new with the recent cultural turn is the increased
interest in corporate culture, particularly in the notion o f culture as a way of managing. This
development has arisen in large part to the demands o f a changing economy (e.g., the need for
increased flexibility, the problem o f getting highly skilled employees to cooperate, etc.) and the
decreasing viability of previous models o f management (which viewed the problematic of
management in terms o f order or domination rather than culture). (Reed, 1992) While firms that seek
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to manage through culture do not necessarily stress the ethical nature o f the values that they profess or
overtly claim that the firm constitutes a community (Soler, 1990), by claiming (or trying to encourage
the adoption of) shared values and traditions, they might be understood to be tacitly acknowledging
the existence o f a community based upon a shared identity and ethical responsibilities.
; While the notion o f organizational or corporate culture was originally a "positive"
management tool developed by management theorists, it was subsequently adopted by business
ethicists and business ethics consultants. In doing so they have highlighted the normative nature of
organizational culture and have argued that a shared culture can constitute firms as communities
(Solomon., 1993). On this basis the various actors within the firm (viz., employees, management,
shareholders) are understood to be (potentially) members of a common community who have shared
values (embodied in the corporate culture) and a common goal (the good of the corporation). This
notion of the firm as a community (propagated both by management theorists and business ethicists)
has not gone unnoticed in the actual practice o f business. Many firms have not only adopted the
language o f corporate culture, but understand the firm to constitute a community and explicitly
acknowledge the existence of ethical responsibilities. Such acknowledgment frequently takes the
form o f a mission statement or an ethical code in which the firm elaborates its understanding of its
responsibilities to different "stakeholders" as well as its guiding norms and values (Murphy, 1995).
Whether firms (or the management o f some firms) overtly conceive of themselves as a
community or only do so tacitly (e.g., when they adopt a "management by culture" strategy), in either
instance it can be argued that they take on a basic ethical obligation o f authenticity, i.e., living up to
the values and norms that they profess. This, however, is not the only aspect of their ethical
obligations. While critical theory argues that questions o f the good life are inevitably contextual, it
also recognizes that not all forms of community and conceptions o f the good life are admissible. At
issue here is the nature o f the identity o f the community and the manner in which it has been formed.
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Both o f these features may be questionable from a normative point of view. Habermas (1993) speaks
o f this general problem in terms o f "distorted cultural traditions" (e.g., Nazi Germany). This
concern, which we may call the "goodness" o f the community, involves the nature o f the community
itself and implies a second formal criterion (besides authenticity) for evaluating ethical behaviour. In
the case of the finn, the major aspect o f this concern involves the hierarchical, non-democratic
decision-making structures o f firms and the potential that these may have for manipulation. Such a
concern, however, does not only befall capitalist firms. It extends to a range o f other communities
(most notably religious communities) which, despite their non-democratic decision-making
structures, are generally not considered as particularly distorted (certainly not on the scale o f Nazi
Germany). To the degree that such communities accept the principle o f political democracy and their
activities are grounded in, or safe guarded, by legitimate law, it could be argued that their particular
cultures are just that, theirs. Hartman (1996) makes this type o f argument by drawing of the work of
Hirschman (1970) to elaborate the characteristics of a "good community." Following Hirschman, he
designates these characteristics exit, (i.e., the freedom to opt in or out), loyalty (i.e., a sense of
community that enables people not to act as "narrowly selfish utility maximizers") and voice (i.e.,
freedom to participate in the discussion o f the values that unite the community). From this
perspective, to the extent that firms are able to reflect these three characteristics, it is possible to argue
that they constitute "good communities" (even if they do not have democratic decision-making
structures).
A second understanding of the relationship of capitalist business to community, posits firms
as "corporate citizens" who are part o f a larger community (e.g., neighbourhood, city, state, etc.).
According to this line of argument, firms may be understood to be similar to other collective actors
(viz.., civil society groups) which operate within a community. For their part firms frequently
identify with communities and have extensive interactions with them in a variety o f areas beyond
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those related to the primary function as productive enterprises (viz., as employers, taxpayers,
advertisers, etc.). These include participation in community development and service projects,
sponsorship of culture programs and charity work, etc. Much of this activity, of course, to the degree
that it is consciously designed to improve sales and profits, can be understood to have parallels to the
internal policies o f "management by culture.” As such it might be deemed "public relations by
culture" (or "public relations by ethics"). To the extent that firms present themselves as having
common values and norms with the community at large, it can be argued that they take upon some
ethical responsibilities to live up to these values. For their part, communities may also perceive the
actions (and advertisements) of firms to be an indication o f their membership in the community.
Such perceptions of firms as being a part o f a local community (as well as their having ethical
responsibilities) may vary depending upon a number o f factors, e.g., the importance o f the firm for
the local economy (e.g., company towns), the size o f the community is question (e.g., small company
towns vis-a-vis large metropolitan areas), the length o f the relationship, past history, etc. Moreover,
to the extent that the type o f local communities with which firms identify (viz., towns, cities, states as
opposed to religious or ethnic groups) tend to be diverse (ethnically, culturally, religiously, etc.), they
are less likely to have a strong, shared identity and commonly held norms and values. To the degree
this is so, it will be harder to identify specific ethical responsibilities that firms may have. Still, to the
extent that firms apparently do identity with local communities (either tacitly or explicitly) and
communities with them, then it is possible to argue that firms can be part of the larger community
and, in principle, may have ethical (in addition to moral and legitimacy) responsibilities towards it.
In short, then, firms can be understood to be ethical agents to the degree that they understand
or represent themselves (tacitly or explicitly) as a community or as part of a larger community with a
shared identity and common values and norms. As ethical agents, firms assume two basic ethical
responsibilities. The logically prior of these two responsibilities requires of firms that they ensure
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that the communities that they constitute (or are a part of) are "good communities" (i.e., that they are
characterized by the features o f exit loyalty and voice). The second demand that ethics places upon
firms is that they act "authentically" (i.e., in accord with their professed, common values and norms).
Q. The Requirements and Demands of Ethics
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| To the degree that firms can be understood to be communities themselves or members of
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! larger communities, then it is possible to argue that they can be ethical agents that have ethical
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! obligations to their members and/or the larger community. From a critical theory perspective, the
precise nature of these obligations cannot be defined as they will depend upon the norms of the local
community and the precise relationship o f the firm to this community. Formally, however, the nature
of these obligations can be delineated in terms o f "goodness" (i.e., ensuring that the community
exhibits the characteristics o f a "good community") and "authenticity" (i.e., acting in accord with the
norms and values of the community). In what follows we will examine more closely the nature of
these requirements and the demands that fulfilling them make upon different actors in the firm,
especially management.
A) The Finn as Community
The ethical issues surrounding the firm's internal relationships can be organized around two
basic questions, viz., their "goodness" as community and their "authenticity." The question of the
"goodness" of firms, as we discussed above, involves the substantial question o f the nature of the
identity of the community (i.e., its values, norms, traditions) and how it has been formed. The
salience of this question for business ethics arises from the shift in management practice to
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"management by culture." To the extent that this shift involves the promotion o f values by
management, it can be understood to impose ethical responsibilities on firms (and management in
particular). In addressing the question of such ethical responsibilities, a critical theory approach is not
able to offer positive criteria about ethical norms and values due to their inevitable contextuality. It
can, however, offer a critique of distorted traditions (based upon their compatibility with demands of
legitimacy and morality). More specifically, it was argued above that, to the degree that democratic
governance is not an essential trait, the good community can be said to be characterized by three
features, viz., exit, loyalty and voice. The key questions, then, with respect to the "goodness" o f the
firm (as a community) is whether corporations are able (and likely) to ensure that these three traits are
adequately reflected in their cultures. Let us consider each in turn.
Workers in democratic countries are generally guaranteed the right to exit through some
form of constitutional guarantee. The actual ability of workers to "exit" from an economic enterprise,
however, does not exactly parallel the ability of citizens to associate and disassociate with other civil
society groups. This is due to the need that workers have to maintain themselves and their families as
well as their limited options for doing so. According to neo-classical economic theory, in perfect
labour markets the ability to exit is not only guaranteed but there is no unemployment and there are
no transaction costs involved in changing one's place of employment. In the real world, however, the
situation is quite different. The existence o f unemployment and transaction costs mean that workers
may be taking a substantial risk in choosing to exit from a firm which they find ethically
unacceptable. The degree o f risk is conditioned by a variety of factors including the position o f the
worker in the division of labour, the unemployment rate, costs associated with leaving (e.g., the loss
of pensions, benefits, etc.), the nature of the social safety net, etc. For their part, individual firms are
limited in their individual ability to influence the labour market and bring it closer into harmony with
ideal markets (though acting as a collective they may have substantial influence over policy, as was
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discussed in chapter four). To the degree that they are able to exert influence, however, firms have an
objective interest in not supporting policies that would make actual labour markets more closely
conform to the ideal (as this would drive the cost of labour up) and tend to act in accord with these
objective interests (e.g., by supporting macroeconomic policies that give priority to the fight against
inflation over the fight against unemployment).
Hartman defines loyalty in a fashion that directly links it to community (viz., a sense of
| community that enables people not to act as "narrowly selfish utility maximizers"). Moreover, he
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| claims that loyalty within the firm has important efficiency benefits which may help the firm and
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increase total social utility (1996). The question is whether the different actors within the firms will
be able to demonstrate such loyalty. If Hartman is correct in his assertions that the firm and society as
a whole both benefit by loyalty, then it would seem that loyalty should be a relatively easy
characteristic for the firm to cultivate and for ail members of the firms (viz., workers, management
and shareholders) to exhibit. Unfortunately, however, this does not seem to be the case as not only is
there an assurance problem, but, different actors may have different (objective) interests in being
loyal themselves and having others act loyally. Loyalty on the part of workers has a range of
important advantages for the firm (e.g., lower turnover rates, lower training costs, better cooperation
with management, lower surveillance costs, etc.). For these reasons management may seek to
cultivate a sense of loyalty among workers. This may involve a variety of techniques, e.g., attention
to working conditions, incentive programs (e.g., profit sharing, performance bonuses, etc.), appeals to
existing values (e.g., craftsmanship, patriotism, etc.), etc. The potential for success of such strategies
has, perhaps, been best illustrated in Japanese corporations. Japanese workers are generally perceived
to be particularly loyal (and productive), as workers cooperate much more closely with management,
take on greater responsibility and are willing to make sacrifices for the firm (Tsiganou, 1991). In
such cases, loyalty on the part of workers may flow naturally from the perception o f being treated
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fairly and with respect To the degree that it does, loyalty may make relatively small demands on
workers. On the one hand, if they perceive that they are being treated fairly, workers do not feel
exploited and will be more likely to cooperate. On the other hand, while loyalty may imply greater
effort and responsibility on their part, workers may not experience this as burdensome. Rather, to the
degree taking on greater responsibilities and working hard are consistent with their personal-
identities, workers will experience these as positive (if they occur in the context o f a sense of mutual
respect). O f course, once the experience o f being treated fairly disappears, loyalty is likely to
decrease.
The situation is different with management, however, in that loyalty may imply significant
costs for managers. The ability of management to take decisions on other than strictly utilitarian
grounds inevitably varies with their own ethical motivation and resources. To the degree that they are
motivated, management may take a range o f decisions not based upon purely utilitarian
considerations (e.g., layoff policies, working conditions, etc.). Insofar as such decisions are in the
interests o f labour, they may have a positive effect on creating loyalty and improving efficiency. To
the degree this occurs, then there exists a fortuitous coincidence in which management does well by
doing good (and their behaviour is reinforced). However, there are many instances in which potential
management decisions based upon loyalty (e.g., not relocating offshore to take advantage of cheaper
labour) will entail substantial costs. In these circumstances management must act against strong
objective interests in order to express loyalty. The objective interests of managers are closely related
to maximizing profit (at least under competitive conditions and effective shareholder democracy) as
this is the primary criterion on which their performance is evaluated by shareholders. Moreover, to
the extent that shareholders prioritize profits over all other considerations, even if management seeks
to express its loyalty in such cases (viz., to workers) it will not matter much as they will likely be
replaced by a new management team willing to work more closely in line with strict utilitarian
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calculation. Thus, while management may have ethical motivations and be willing to act upon them,
there are distinct limits to loyalty as the higher the stakes (i.e., the costs) are, the less likely
management will be to express loyalty (and the more likely it is that they will be replaced if they do).
The situation o f shareholders parallels that of management in that loyalty may or may not be
in their objective interests. Whether such loyalty is in their objective interests will depend upon the
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| type of issues involved (e.g., environmental protection, protecting jobs, etc.) as well as a range of
| attending circumstances. Generally, as with the case of management, there is no guarantee of a
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fortuitous coincidence o f ends that will align loyalty with the objective interests o f shareholder. Yet,
even if loyalty may not be in their objective interests, shareholders may still express loyalty on the
basis of subjective motivation. This can be done in either of two basic ways. First, they may attempt
to use their ownership powers (viz., to elect board members, to pass shareholder resolutions) to
influence the manner in which management operates the firm. Their ability to do this is limited by
the extent that "shareholder democracy" is supported by legal arrangements that actually allow
shareholders to control the firm. As we discussed previously, this is not always the case as
management is frequently able to exercise effective control over the firm (Nader and Seligman,
1983). This lack of shareholder democracy (along with a lack of interest by many shareholders in
ethical issues) has meant that corporate responsibility movements have had relatively little success in
introducing shareholder resolutions (Oden, 1985). It has been argued, however, that there is much
greater potential for shareholders to impose control over management and force it to operate in accord
with ethical concerns. The primary cause o f this optimism is the large percentage of shares controlled
by institutional investors (especially pension funds). Kaufman et al. (1996), for example, argue that
with recent organizational advances which have cut down the costs to investors of obtaining
information, ethical investors have the potential for drastically changing the balance of power in firms
between shareholders and management. While there may be some intuitive reason to believe that
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institutional investors such as pension funds will be more inclined to act upon ethical concerns, the
potential o f institutional investors to influence the firm has so far largely remain in potens. The
second manner in which shareholders may seek to express loyalty is by divesting from traditional
companies and reinvesting their funds in "ethical firms." To the degree that ethical investments
provide the same rate of return as traditional investments, they make relatively small demands on
investors. Whether in fact they do, however, is a disputed issue, complicated by disagreements over
the proper criteria to be employed for comparison.1 Still, ethical investing has ground tremendously
over the last two decades, with the most popular form being portfolio investments which screen for
particular ethical issues (e.g., the environment, treatment of labour, animal rights, etc.). Yet, despite
its tremendous growth over the last two decades ethical investment accounts for a small fraction of
total funds invested.2
The third characteristic o f a good community that Hartman posits is voice. This
characteristic is controversial in its understatement. That is to say, voice implies only the freedom to
participate in the discussion of the values that unite the community, but requires no guarantees o f
democratic decision-making for the determination of what norms and values become officially
recognized and promoted. If this limited vision o f what constitutes a good community is accepted,
then it is possible that capitalist firms could meet the standard. That is to say, it is possible, in
principle, that capitalist corporations could have firm-wide discussions that could serve as the basis
for the shared understanding of their common culture (and their shared norms and values).
Management, reflecting on these discussions, could both elaborate a normative statement on the basis
lThe most systematic attempts to compare the performance of socially responsible firms has been
undertaken by Good Money Publications. See, for example, Lowry (1991).
2Moreover, concerns have been raised about the "ethical character" o f many of the firms that market
themselves in this manner. See, for example, Entine's (199S) critique of the Body Shop.
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o f these discussion (i.e., code of ethics or mission statement) as well as develop its business plans
incorporating the shared norms and values that emerge from such discussions. If this were to occur,
then workers might feel that they have a voice in the firm and might experience the firm as (more of)
a community.
In actual practice this is not how the process o f the development of corporate culture occurs.
It does not proceed from the bottom up but rather from the top down. This is generally acknowledged
both in the management literature and the business ethics literature (and without any hint o f apology).
In discussing the key to the generation o f corporate culture, Deal and Kennedy provide a typical
management account which leaves little doubt about who the primary agents are:
Values are the bedrock of any corporate culture. As the essence of a company’s philo
sophy for achieving success, values provide a sense o f common direction for all em
ployees and guidelines for their day-to-day behavior. These formulae for success
determine (and occasionally arise from) the types o f corporate heroes, and the myths,
rituals and ceremonies of the culture. In fact we think that often companies succeed
because their employees can identify, embrace, and act on the values of the
organization How do values come to be shared in a company? Through the
reinforcement provided by all the other elements o f the company’s culture, but
primarily by the culture’s lead players— its heroes. (1988: 2 1)3
The business ethics literature does not generally differ in its evaluation of the role of senior
management, and the CEO in particular, in generating and promoting the corporate culture. Indeed, a
whole area o f business ethics, the ethics o f leadership, is in large part devoted to such questions
(Ciulla, 1994 ).
To the degree that workers are not generally consulted on how the "corporate culture" is to
be generated and what constitutes it, they have no voice (and the extent to which the corporation
represents a "good community" is called into question). This failure on the part of management to
offer workers (and, in some instances, shareholders) a voice may be rooted in the objective interests
3Cited in John Donaldson (1992:202).
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of management. Workers, for example, may prefer different values (e.g., solidarity, equality,
democracy) than the ones that management tends to favour (e.g., responsibility, loyalty,
achievement). If this is so, then discussions about the firm's culture may result in divisive
confrontations rather than leading to a common understanding of shared values. Moreover, it is not
only the case that workers generally have no voice when it comes to the elaboration o f the corporate
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I they prefer (and hold to be in the interest o f the company). Hartman, drawing on Frankfurt (1981),
i describes this problem in terms of first- and second-order desires (1996: 13 Iff.). First-order desires
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can be understood as unreflected desires (e.g., wanting a cigarette) while second- (and other higher-)
order desires (including values) involve desires about desires (e.g., wanting not to want a cigarette).
Culture can influence our higher-order desires and help to determine what makes us happy. This is
true not only o f broader societal culture, but also o f corporate culture as Hartman explains:
Culture at its most powerful works on our second-order as well as our first-order
desires: it causes one to want, consciously or not, to be a certain sort o f person with
desires, tastes, and projects o f a certain kind. One may even make a planned or con
certed effort, through self-binding for example, to become the sort o f person that the
right people in the organization respect To the extent that the workplace has replaced
other community institutions, organizations accumulate greater power to socialize. We
think o f religion as teaching people to strive to be a certain sort o f person, to try and
have the right dispositions. Now corporate culture performs that function. It should
not be surprising, therefore, that corporate cultures are supported by myths, symbols,
and rituals, much as religious groups are (1996: 152-53).
The basic concern here is that firms with strong corporate cultures may not respect the autonomy of
workers, but rather seek to manipulate them. Firms do this by seeking to change the second-order
desires o f employees. Rather than take the second-order desires (i.e., values) o f employees as given
and seek ways to motivate them (first-order desires) to cooperate on this basis, firms with strong
corporate cultures actually attempt to change the second-order desires o f employees (especially
through their ability to establish what counts as success within the organization). If individual
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autonomy can be understood as the ability to act upon one's higher-order desires (as Hartman
suggests), then practices and policies designed to change the higher-order desires o f workers (other
than rational discourse) involve a clear attempt to undermine their autonomy.4 Thus, firms not only
have an objective interest in not providing workers with a voice in the determination of the corporate
culture and its values, but they may also have an objective interest in trying to impose foreign values
upon workers in ways that undermine their autonomy. To the degree that employees do not so much
embrace the values and norms of the organization as have them forced upon them, such values and
norms function primarily as labour discipline devices rather than providing the basis for a "good
community" with a shared identity.5
Following on from the question of the ability o f firms to form "good communities" (i.e., to
ensure the traits o f exit, loyalty and voice), there is the second criterion for evaluating firms ethically,
viz., authenticity (i.e., the ability o f firms, and especially management, to live up to the values and
norms that help to constitute their shared identity as a community). Again, this situation also involves
the basic tension between the system logic o f the firm (and the objective interests of management and
shareholders in profit maximization) and ethical obligations (which may require firms not to act on
the principle o f profit maximization). The level o f tension here will be moderated by four basic
factors (besides the degree of subjective motivation o f management and shareholders). First, there
4It is Japanese firms that are probably the most vulnerable to such charges, though with the "cultural
turn" in management theory (and the shift to "management by culture") the practice has become wide
spread in the West as well. It is also Japanese firms (and the productivity increases which they have
achieved) that best illustrate the objective interests that management has in employing such a strategy
(Tsiganou, 1991; Hartman, 1996).
sThe title o f a recent book by Wexley and Silverman (1992) may be suggestive in this regard,
Working Scared.
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may be long term benefits to acting ethically (e.g., increased worker loyalty and productivity). To the
degree that this is the case, then firms will be more likely to adopt policies that are in accord with
their values but entail short-run losses (e.g., retain workers rather than laying them off during
downturns in the economic cycle). Second, if they are financially healthy, firms may be more likely
to act in accord with their own ethical values. Economic pressures can put increased strain on actors
and tempt them to act contrary to norms and values that they might otherwise respect. Third, the
existence o f alternative strategies that could improve (already healthy) profit margins may increase
the temptation of firms to operate contrary to their espoused values. This latter temptation has
become a major issue in the post-Fordist global economy as financially healthy firms increasingly
shift production off-shore to take advantage o f lower wage rates and other cost advantages (e.g.,
lower regulatory standards). While such moves are in perfect conformity with system logic, it is not
clear that they are always in accord with the image that firms like to promote o f themselves or the
values that they profess. Fourth, the degree o f publicity that specific issues receive may affect how
firms respond. In high profile issues (e.g., the Tylenol tampering case), firms may be more willing to
act in accord with their professed values than in less visible cases.6 Generally, however, while firms
may act on ethical motivation, they are likely to do so only to the degree that it does not threaten
profit margins in any substantial way. The reason for this is that, while management may see the firm
as a community, it conceives of it first and foremost in terms of system logic as an economic
enterprise with the goal o f profit maximization. There are, of course, some high profile exceptions to
this tendency, but they remain the exception to the rule.7
6See, for example, Hartley (1993) who compares Johnson and Johnson's handling o f the Tylenol case
with their questionable pricing practices for a cancer drug.
7Many of these exceptions (e.g., Ben and Jerry's, The Body Shop, etc.) are first generation firms
effectively controlled by founders who are not subject to strong pressure by other stockholders to
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B) The Firm as Part o f a Larger Community
As argued above, firms may have ethical obligations to larger communities (e.g., towns,
cities, states, etc.) as well as to the members o f the firm itself. The formal character of these demands
. are the same as those which the firm has as a community, viz., ensuring the goodness of the
i community and acting authentically. Similarly the same tension arises with respect to the firm
I fulfilling these demands, viz., between the objective interests of the firm in profit maximization and
the possibility that ethical demands may require operating on other than strictly utilitarian calculus.
There are some significant differences between the two situations, however, which make firms even
less likely to respond to potential ethical responsibilities at this level. The first major difference
between ethical demands as they arise at the level of the firm and within the larger community is that
in the latter instance the exact nature o f these demands may be much more difficult to establish. The
primary reason for this, as was noted above, is that the larger communities with which firms tend to
identify are geographically-identified communities (viz., cities, states). To the extent that such
communities may exhibit a great range o f diversity (e.g., ethnically, culturally, religiously), it will be
less likely that they will have clearly identifiable, shared ethical values and norms. In the presence of
a very diffuse sense of community, it is very difficult to isolate particular ethical obligations of
community members. Rather, there are usually contested positions leading to a situation that can only
maximize profits. Moreover, they have been able to carve out market niche's for themselves among
ethically concerned consumers. This strategy has allowed them "to do well by doing good," a fact
which has meant that their commitments to their professed values have not been seriously tested.
Whether this strategy could be universalized is very much open to question. Recently, a number of
such ethically concerned companies have joined together to form the first trade organization for
socially responsible firm, Business for Social Responsibility (Makower, 1994).
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be effectively resolved through the political process and some form of fair compromise. A second
major difference between ethical demands at the level o f the firm and the larger community involves
the ability o f firms to take effective action. This is particularly true of demand o f ensuring the
features o f a good community. At the level o f the firm, management is capable to a large extent of
j ensuring the features o f exit, loyalty and voice (at least with respect to workers). At the level of the
I larger community, firms obviously have a more limited ability (and role) in guaranteeing these
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| features o f a good community. Their basic options are limited to dissociating themselves with those
! aspects o f the larger community which are ethically questionable (and providing a counter-example
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within the firm).
Because of these two characteristics of the firm's relationship to the larger community (viz.,
a more diffuse sense of community and its more limited ability to take effective action), firms are less
likely to recognize and accept ethical obligations to the larger community than they are within the
firm. This is not to say that firms will never be confronted by local communities making strong
claims about their ethical responsibilities. The case o f plant closing is a prime example o f an ethical
issue where local communities are often united on the issue of the firm's ethical responsibilities.
Communities may also be easily united on the issue of the ethical responsibilities o f firms with
respect to some environmental concerns. Nor is it to say that firms will never accept ethical
responsibilities. They will continue to accept ethical responsibilities to the degree that doing so is in
their objective interests or sufficient subjective motivation exists within its decision-making bodies.
Rather, it is to argue, two points. On the one hand, diverse communities will only rarely be able to
agree on ethical issues. As a result, firms will even more rarely perceive themselves to have ethical
responsibilities as they will not feel an ethical obligation if there is no consensus within the
community, while they may also contest the fact that they have an obligation even when the
community is relatively united on this point. On the other hand, firms are still unlikely to take on
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ethical obligations if doing so requires that they act against their objective interests.8 To the degree
that civil society groups (vis-a-vis workers) may be less well organized and capable of exerting
pressure on the firm in ways that would bring the firm's objective interests in line with its ethical
obligations (e.g., boycotts), firms will again be less likely to act on ethical obligations at the level of
the community than at the level o f the firm.
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In this chapter, we have argued that firms can and do take on ethical responsibilities. They
do so by representing and understanding themselves as communities and/or members o f larger com
munities. As such, there is a strong element o f choice in their assumption of ethical responsibilities.
To the degree that firms choose not to identity as a community or as part of a larger community, they
remain free of ethical obligations (though not o f moral and legitimacy obligations). However, this
option has become less practical for firms. Due to changes in the global economy, a fundamental
shift in management practice has occurred as firms increasingly adopt a strategy o f "management by
culture" (and "public relations by culture”). In adopting such a strategy (which places heavy
emphasis upon values and norms) firms either tacitly or explicitly take on ethical obligations. While
the substantial content o f these obligations cannot be determined apart from the specific context in
which firms operate, the formal nature o f the responsibilities can be expressed in terms of obligations
8Mitchell (1989), for example, argues that firms' interests in issues of "corporate responsibility" do
not derive from a sense of normative obligation, but rather have a very pragmatic grounding, viz., as a
strategy for combating legitimacy deficits (and ensuring that the state does not take strong moves that
will run counter to the interests o f capital). Moreover, he argues, this strategy is not a recent
development, but has been consistently utilized throughout this century by (US) capital.
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to act authentically (i.e., in accord with one’ s professed values) and to ensure the "goodness” o f the
communities (i.e., guarantee the traits of exit, loyalty and voice). We have pointed out that a variety
of objective factors condition the tension between the objective interests o f the firm (in profit
maximization) and the demands o f ethics. We have further argued that, while some firms may be
able to act against their objective interests, in general capitalist firms will respect their ethical
obligations only to the degree that they do not require substantial sacrifices with respect to the bottom
line. Thus, in the absence of any firm guarantees o f compatibility between profit margins and ethical
behaviour, firms cannot generally be expected to live up to their ethical obligations.
One major difference between the realm o f ethics and those o f morality and legitimacy
involves the significance o f this tendency of capitalist firms not to live up to their normative
obligations. In the case of ethics, the failure or inability of firms to live up to their ethical obligations
does not threaten the normative viability o f capitalism as a whole in the same way that their inability
to fulfill their moral and legitimacy obligations does. The reason for this is that, if firms do not live
up to their own ethical norms and values or those o f the larger community, the community has a
method for addressing this problem. It can incorporate these norms and values into legitimate law
and use the coercive power o f the state to ensure that firms comply. For this reason, in a critical
theory framework ethical concerns are subordinate to questions of morality and legitimacy. Ethical
considerations are subordinate to issues of legitimacy and morality in another way as well, viz., in the
case o f conflicting demands. Where the demands o f morality conflict with conceptions o f the good
life, the universal demands of morality must be understood to take precedence over any individual or
group obligations deriving from non-universal conceptions o f the good life.9 Similarly, ethical
9Again, it is important to note that this distinction between ethics and morality does not imply a
‘privileging’ of moral questions in the sense that they are more important than ethical questions, but
rather relates to the fact that questions of justice (i.e., morality) emerge at a different level of
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concerns are subordinate to the demands of legitimacy in that ethical concerns are only one of the
types o f consideration which (along with pragmatic and moral concerns) are incorporated into the
discursive process o f generating universally binding legitimate law.
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contextualization than questions of the good life (i.e., ethics) and, as a result, admit o f universal
judgments. To the degree they admit of universal judgments, then any ethical judgment which
contradicts a valid moral judgment is obviously called into question.
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CH APTER SEVEN
C onclusion
The goal of this dissertation has been the elaboration o f a normative theory o f business ethics
from a critical theory perspective. More specifically it has focused on the normative theoretical task
o f establishing the conditions under which capitalist business and economic activity might be deemed
normatively acceptable. The claim was made in the introduction that such a project could be
alternatively viewed either as a project of critical theory or a project of business ethics. This work
may be understood as a work in critical theory insofar as it is theoretically rooted in critical theory,
draws upon critical theory methodology and addresses an issue o f key importance to critical theory
that has not been systematically investigated (viz., the normative acceptability of capitalist business
practice). This dissertation also clearly falls within the discipline o f business ethics. While this work
extends to the boundaries of the discipline, it undertakes a task which is acknowledged as one o f the
fundamental concerns of the field, viz., the elaboration o f normative criteria by which to evaluate the
normative acceptability of capitalist business activity. In this conclusion we will briefly summarize
the nature of the contribution which this dissertation has made to each of these fields.
As a work in business ethics this dissertation must be considered incomplete. The field of
business ethics entails not only the theoretical task o f elaborating the criteria for the normative
evaluation of business and economic activity, but, as a "practical ethics," is particularly concerned
with the promotion o f more normatively acceptable business practice. This dissertation has left this
latter question largely unexamined. While it is not possible to venture into this question in great
detail here, neither can it be left completely ignored. For this reason we also offer in this conclusion
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some indication of how a critical theory approach can live up to the aspirations o f business ethics to
be a "practical ethics."
I. The Contribution of a Critical Theory Approach to Business Ethics
As we have stated previously, this dissertation operates at the intersection of critical theory
and business ethics and seeks to make a contribution to both fields. The basic contribution that this
work makes to the field of critical theory involves the fact that it extends critical theory analysis in a
direction in which it had previously not advanced very far but which is of critical importance to the
tradition. More specifically, it develops a systematic framework for the normative analysis of
capitalist business and economic activity. Critical theory has always been concerned with the critical
analysis of capitalist societies from an Enlightenment perspective. Moreover, there has always be a
strong normative commitment underlying its analysis. Habermas incorporates both of these aspects
of the tradition in characterizing the self-understanding of critical theory in terms of a commitment to
the continuation of the "project o f the Enlightenment" It is in this context o f continuing the project
of the Enlightenment that critical theory has focused its attention on the analysis o f capitalist
societies, i.e., in an attempt to determine how capitalist business and economic activity may inhibit
and/or contribute to the establishment o f a truly emancipated society. In taking up this question,
however, critical theory has spent most o f its intellectual energy and resources upon the social science
analysis of capitalist society. First generation critical theory, for example, did not elaborate any
systematic normative theory (either moral or political theory). Second (and third) generation critical
theorists have paid more attention to normative theory, especially Habermas who has elaborated not
only a moral theory, but also a normative theory of law and politics. This concern with normative
theory, however, has not been systematically directed to the normative analysis o f capitalist business
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and economic activity. As a result, the normative analysis of capitalism from a critical theory
perspective has remained largely implicit (in its social science analysis) and/or fragmented (in
analyses of individual aspects and effects o f capitalist business practice). It is this situation that this
dissertation has sought to address.
In our attempt to develop a more systematic framework for the normative analysis of
capitalist business and economic activity, we have examined three basic aspects o f the problem. First,
we have attempted to elaborate a series of formal conditions under which capitalist business practice
could be normatively acceptable. In doing this we have drawn upon the Habermasian distinction
between legitimacy, morality and ethics. This allowed us to distinguish three different sets of criteria
(corresponding to these three different normative realms) by which to evaluate capitalist practice. In
elaborating these conditions, we argued that from a Habermasian perspective the potential normative
acceptability o f capitalism, while dubious, cannot be ruled out out of hand. The underlying basis for
this argument involved two key considerations. On the one hand, from a critical theory perspective
capitalism can be understood as rational in some sense, (viz., as an instrumentally rational solution to
the steering problems of complex modem society). This acknowledgment o f the rationality of
capitalism combined with the potential of political democracy to impose communicative controls on
capitalist activity allow for the possibility that capitalism can respect both the demands o f legitimacy
and morality. On the other, many o f the traditional normative objections to capitalism by the left
(e.g., alienation) are based upon strong ontological presuppositions (e.g., concerning the importance
of productive labour, the desirability o f participation in the workplace, etc.). To the extent that such
ethical values are not universal and people may prefer increased material benefits over these values,
then capitalism may also not be objectionable from an ethical standpoint. It is the ability to
acknowledge the potential normative acceptability of capitalism that allows for the elaboration of
theory of business ethics from a critical theory perspective.
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319
The second aspect o f the problem that we addressed involved the obstacles to capitalist
business living up to the conditions under which it could be normatively justified. Here, we have
sought to bring normative critical theory into interaction with compatible social theory and empirical
analysis. In particular, we have drawn upon radical political economy to argue that under current
conditions there are fundamental oppositions between the objective interests of capital and its
fulfilling the conditions for normative acceptability. It was also argued that capitalist firms were
unlikely to possess the subjective normative resources to act against their objective interests. As a
result, it was concluded that there were few prospects o f capitalist firms living up to their normative
obligations. These limited prospects imply serious problems for the justification of capitalist business
practice unless reforms to the system can be made which will promote more normatively acceptable
behaviour.
The third aspect o f the problem which we addressed was the nature of the reforms that would
be necessary in order to bring the objective interests o f capitalist firms into line with the conditions
for their normative acceptability. In particular, the need for fundamental changes in the international
state system and/or the development of effective regional political organizations was highlighted.
While capital is likely to oppose such reforms and not much hope can be held out for them in the
short or medium run, it can still be argued that working for such reforms is important even if one does
not advocate capitalism. The reason for this is that such efforts do not serve to reinforce the power of
capital or undermine the development of alternatives to capitalism. Rather, insofar as the reforms
indicated serve to bring capital more closely under the control of communicative action, they work to
limit the power o f capital and promote greater democratic control over economic decision-making
(whether this power is exercised to harness capitalism or promote more participatory alternatives).
As regards the contribution of this dissertation to the field of business ethics, two aspects can
be distinguished. First, this dissertation claims to provide a more adequate account o f the normative
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obligations o f capitalist firms than those o f rival theories elaborated from other normative traditions.
The major manifestation o f this superiority is the distinction that critical theory makes between the
three different normative realms o f legitimacy, morality and ethics. This distinction allows for greater
conceptual clarity with respect to the different types o f obligations firms have with respect to
questions o f political democracy, the common good and the good life. The basis o f this claim to a
more adequate account o f the normative obligations o f capitalist firms is rooted in the contention that
normative critical theory has significant advantages over rival normative theories, on the one hand,
and a better integration o f social theory and political economy analysis, on the other. These
contentions provides the basis for the second (potential) contribution o f the dissertation to the field of
business ethics, viz. the promotion o f a more critical stance.
Historically, the field of business ethics has been rather uncritical in two key areas, viz., its
elaboration o f normative theory and its use o f social science analysis. As regards the first of these
two issues, the elaboration o f normative criteria in the field of business ethics has frequently
proceeded on the basis o f ad hoc lists o f principles and values, while the justification of these criteria
has entailed little more that appeals to common sense and tradition (Lippke, 199S). Moreover,
normative theorists in the field have generally tended to deal with the problem o f competing theories
by ignoring them, attacking "straw man" versions o f their arguments (Solomon, 1993) or appealing to
the need for "ethical pluralism" (Donaldson and Preston, 1995).1 By contrast, the critical theory
approach which we have elaborated has been able to offer a foundationalist position with a strong
justification program. Moreover, it has been able to address the shortcomings o f other contemporary
'Some significant progress has been made in the last couple of years, as more critical theoretical
approaches have emerged. See, for example, Hartman (1996) and Lippke (1995). The critical tone of
these theories all tends to be restricted, however, insofar as they tend to argue a Rawlsian position
without confronting the major critics o f Rawls in any substantial way, most notable Habermas.
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philosophical traditions (viz., Rawlsians, neo-Aristotelians, postmoderns). As regards the use of
social science analysis, this dissertation has drawn heavily upon social theory and political economy
analysis to provide an account of the problems that inhibit firms from acting in accord with their
normative obligations. A key aspect o f social theory done from a critical theory perspective is its
I methodological commitment to combining the internal perspective o f the participant with the external
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j perspective of the observer through its use o f lifeworld and systems analysis. This allows critical
l
; theory analyses to approach the analysis o f capitalist societies in terms of the interrelationship of the
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) conditions for social and systems reproduction. On this basis it has been possible to incorporate the
full range o f effects o f capitalist business practice into our analysis. Again this contrasts sharply with
most works in the field, which frequently fail to draw upon social science analysis at all, let alone
problematize their use of it.2
n. The Practicality of a Critical Theory Approach to Business Ethics
As noted above, in elaborating a normative theory of business ethics we have addressed only
one o f the two major concerns of the field. The aspect that we have failed to examine is the
"practicality” of the critical theory approach that we have developed. It is beyond the scope of our
present concerns to address this issue in any detail, but it is necessary to provide some comments
which may indicate the manner in which a critical theory approach could be developed to address the
more practical concerns of the field. We will do this by examining some of the key concerns of
business ethics as a "practical ethics." Before proceeding, however, one caveat needs to be added.
2A major figure in the field like DeGeorge (1993), for example, has been able to write a book on
international business ethics with no political economy analysis whatsoever. For a critique, see
Boatright (1995).
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Many people, especially business practitioners, will not perceive a critical theory approach
as particularly "practical.” The underlying reason for this perception has to do with the rather
exacting nature o f the normative criteria by which a critical theory approach evaluates the normative
acceptability o f capitalist business practice. As we have noted throughout this work, it would be
extremely difficult for capitalist firms to live up to the normative criteria that have been developed in
this dissertation. This is due not only to a lack o f subjective motivation on the part of decision
makers, but also to structural features of the global economy and interstate system which do not allow
individual states to effectively regulate capital. Under such conditions, where structural change is
necessary for ensuring the possibility of adequate solutions (which will not overtax the normative
resources o f firms), it may not be possible to provide managers with simple decision-making tools or
methods with which they can adequately address their immediate problems. To the extent this is the
case, managers (who tend to want such simple decision-making tools for all circumstances) will not
perceive a critical theory approach as particularly practical. Moreover, insofar as the structural
reforms that a critical theory approach advocates will be difficult to implement, managers— to the
degree that their ideological perspective allows them to sympathize with such a perspective at all-
will most likely perceive a critical theory perspective not only as not practical, but utopian. However,
there is a sense in which the critical theory perspective may be understood as practical. If the
normative criteria o f a critical theory approach are accepted and if it is acknowledged that there is a
need for structural reform in order for firms to be able to live up to these criteria (as has been argued
throughout this work), then working towards such reforms is the only "practical" way to promote
normatively acceptable capitalist business practice. It is this latter understanding of "practicality" that
underlies any specific claims that a critical theory approach to business ethics may advance with
respect to its status as a "practical ethics."
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323
A) The “Accessibility” and “Applicability” o f a Critical Theory Approach
One question which frequently arises concerning the practicality on a given theoretical
approach to business ethics— often in the form o f an accusation against specific ethical theories,
especially utilitarianism and deontology— is whether the normative theory drawn upon and the
principles proposed are “accessible” (i.e., comprehensible) and “applicable” (i.e., relevant) to actual
business practitioners, especially managers (Solomon, 1993; Donaldson and Dunfee, 1994). As this
is a complex question, we will examine each o f the charges in turn. Starting with the issue of
“accessibility” the first point that needs to be clarified is what “accessible” (comprehensible, etc.)
means. Clearly, it seems quite unrealistic to expect managers to read the primary literature which
grounds the specific normative stance advocated (e.g., Kant, Mill, Rawls, Habermas). What is at
issue is whether the basic framework and principles can be elaborated in such a manner that they and
their implications can be clearly understood by managers. (This, o f course, requires a realistic
estimation o f the time that one can expect managers to expend in learning moral theory.) It is not to
be expected that managers will need to or want to understand the subtleties o f the justification
programs which support these theories, but it should be possible to provide some comprehensible
treatment of the basis of the theory and principles. It is not clear that some specific moral theories are
so much more difficult to expound in this fashion than others that they become “inaccessible” to
managers. The basic principles of utilitarianism or Kantian deontology, for example, are relatively
straight forward and not essentially more difficult to explain that a communitarian or contractarian
conception of ethics. The same holds true for the theory which we have elaborated. The basic
distinction between three different moments or areas of normative concern are easily explained (in
terms of a generalizable interest or common good, concern for democratic rule and questions o f the
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324
good life). Similarly, the criteria elaborated for evaluating economic and business activity are clear
(e.g., the conditions for the generation of legitimate law) and the reasons for them readily understood.
The charge o f “inapplicability” against some theories seems to have greater thrust, especially
when it is directed against pure forms o f utilitarianism or Kantian deontology (which seem
particularly well suited to serve the role of “straw man” in which they are placed). The general
critiques o f these theories need not be repeated here. Suffice it to say that the single dimension in
which these theories analyze ethical issues and the solutions they provide for resolving them do not
meet with our intuition that moral problems are more complex than the these theories portray them to
be. Clearly most managers would feel uncomfortable about having to choose between these two
theories to resolve the normative issues that confront them. The critical theory perspective which we
have elaborated clearly is not susceptible to the charge o f “inapplicability” in the way that these
theories are. To the contrary, it is extremely applicable for managers because it distinguishes
different types o f normative issues (in which individuals and organizations have different
responsibilities), it recognizes that an adequate resolution o f these problems may be beyond the power
o f individual managers or firms, and it provides an analysis o f the systemic problems which must be
addressed to allow for effective resolutions of the problems in the long term. In this way our critical
theory approach, by providing conceptual clarity to managers about the nature of the issues involved
and what is required for effectively dealing with them in the long term, can be seen as a practice-
oriented theory (and lends some support to the claim that there is nothing more practical than a good
theory).
B) The Question o f Motivation
Another practical task which business ethics often assigns itself is the motivating o f more
normatively acceptable behaviour. Business ethicists may adopt either or all o f three basic strategies
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in taking up this challenge. One approach is to confront arguments that assert that there is no room
for ethical considerations in the practice o f business. Such arguments tend to be of two basic types.
A more general argument is that o f ethical egoism which asserts that there is basically no possibility
of ethics at all. A more specific argument, and one with business people more readily identify,
involves the portrayal of business as a system that is governed by objective economic laws and allows
people in business no latitude to inject normative considerations (Michalos, 1995). A critical theory
approach to business ethics is able to follow this basic strategy and provide arguments both against
ethical egoism and the “economistic” interpretation of business. As regards the latter, the strength of
a critical theory approach lies in its ability to recognize the constraints that structures place upon the
latitude of business activity, while portraying such structures as themselves malleable and subject to
human control through the political process. As such, this approach to motivation is primarily
negative in character in that it only provides a refutation of the position that there is not room for
normative considerations in business.
A second approach to motivating more normatively acceptable behaviour in business, and in
some sense the flip side of the first approach, is to use rational argumentation in support of the
advantages of being "ethical." In its crudest form, this type of argument is summarized in the notion
“ethics pays.” Business consultants in particular have promoted this idea, at times almost portraying
it as an “iron law.” There are more moderate (and defensible) versions of this argument that hold
ethics in business “tends” to pay. Such positions acknowledge not only that there may be short term
losses, but that there are no guarantees that being ethical will not result in lower than average returns
to shareholder (or even bankruptcy). This more restrained version o f the argument is an almost
perfect appropriation of Aristotelian virtue theory transposed to the level of the corporation. Here,
corporate profits (the analog o f individual happiness) are not pursued directly, but emerge indirectly
as the result of normatively acceptable business practice (a virtuous life), but not in inevitable fashion
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as our business (life) is always subject to misfortunes beyond our control which may disrupt the
natural order. Thus, there is a rational argument that normatively acceptable business practice has
benefits both at the level of the firm (viz., profits) and o f the individual (viz., happiness). A critical
theory approach can accept the basic lines of this more modified version of the argument and provide
an integrated analysis o f the reasons why ethics tends to pay (i.e., the efficiency gains which come
about as the result o f more normatively acceptable practices as well as possible increases in demand
for products produced in a normatively more acceptable fashion). A critical theory approach,
however, contextualizes and thereby modifies this argument by incorporating into its analysis the
problems of power inequalities and structural constraints. This allows it to argue, as was pointed out
in the fifth chapter, that while (certain aspect of) ethics might pay for large MNEs (that are publicity
sensitive and have highly educated workforces that need to be induced to produce), for the smaller
firms that subcontract with MNEs (and which have much lower profit margins and less educated
workforces) "ethics” is frequently a luxury that they cannot afford.
A third approach frequently adopted to promote more ethical business activity involves the
attempt to inspire more normatively acceptable behaviour through a vision o f the business world (and
its relationship to questions of the good life). This approach tends to rely more upon an appeal to pre
existing background presuppositions than rational argumentation. It can be a very effective tool. A
critical theory approach does not offer any specific inspirational vision of business activity and the
good life (though is favours some over others). It does, however, provide for the treatment of these
issues as normative questions in the realm of ethics. Moreover, it offers an explanation of why this
approach to motivating people to behave in a normatively more acceptable fashion often tends to be
more effective than rational argumentation. As both Habermas and Apel point out, philosophy has a
limited role in answering the question why one should act in a normatively acceptable manner. At
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best, it provides an argument that there is no good reason not to do so. Habermas’ articulation o f this
point bears repeating:
.. .philosophers can no longer provide on their own account generally binding
directives concerning the meaning of life. In their capacity as philosophers, their
only recourse is to reflective analysis of the procedure through which ethical
questions in general can be answered. As to the propaedeutic task o f awakening the
faculty o f moral perception, philosophy is not in a privileged position when it
competes with the rhetorically moving, exemplary representations o f the novelist or
the quietly insistent intuitions o f common sense. We learn what moral, and in
particular immoral, action involves prior to all philosophizing; it impresses itself
upon us no less insistently in feelings of sympathy with the violated integrity of
others than in the experience o f violation or fear o f violation o f our own integrity.
The inarticulate, socially integrating experiences o f considerateness, solidarity, and
fairness shape our intuitions and provide us with better instruction about morality
than arguments ever could. (1993:75-76)
C) Practical Aids fo r the Promotion o f Normatively Acceptable Business Practices
As part of their attempt to promote more normatively acceptable business practices, business
ethicists (in collaboration with people in business) have developed different types o f practical aids to
help in guiding conduct. Most prominent among these have been decision-making models and ethical
codes. Decision-making models have been elaborated by theorists working out a variety o f different
normative perspectives (Solomon, 1994; Donaldson, 1989) and as a result vary widely. Some of
these models include substantial principles while others are more purely procedural. Some are
elaborated in the context o f a developed ethical theory, others are merely posited on the basis of
“common sense.” The critical theory perspective that we have developed is also capable o f
generating a decision making model. Indeed, to a large extent, this is the basic project o f discourse
ethics. Here we do not need to go through the exercise of adapting the basic model of discourse
ethics to a form which is more appropriate for use in business firms. It is enough to refer to an
existing model elaborated from a critical theory perspective that has already been used in such
corporate giants as Levi-Strauss (Brown, 1990; 1996).
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328
Ethical codes refers to statements produced by firms that elaborate the self-understanding of
the firm about such issues as its mission, values, responsibilities, etc. These statements vary widely in
form (e.g., "mission statements,” “ethical codes,” “statements o f principles,” etc.). In some countries,
there are very practical reasons for issuing such statements (and developing supplementary programs
to implement them). In the US, for example, the existence o f such a statement (backed up by a
program to promote compliance) can help to substantially limit corporate liability. Insofar as such
ethical codes reflect the individual self-understanding o f firms, it is not possible to artificially develop
a code here on the basis o f a critical theory perspective. It should be evident, however, that the
critical theory approach that we have elaborated is capable o f serving as a theoretical guide for the
elaboration o f such codes (though, for reasons indicated above is likely to be selected by firms for this
purpose).
D) Management Philosophy and Organizational Structures
Another aspect o f the practicality of a critical theory approach concerns its attention to the
questions of organizational structure and management style. A critical theory approach is able to
acknowledge that different management styles and organizational structures may be more efficient in
recognizing ethical issues earlier and capable of dealing with them more efficiently (both in terms of
normative and positive criteria). More specifically, a critical theory approach is able to draw upon the
work of more progressive management theorists and business ethicists (Steinmann and LOhr, 1992;
Nielsen, 1996) who argue that a "decentralization o f management" and the “democratization o f
critical consciousness” may help to raise and address ethical issues earlier on in the business process
and allow for solutions which better take into account the interests o f all affected parties. The basis
for these benefits are better mechanisms of interest representation which: 1) promote cooperation and
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329
a greater exchange o f relevant information; 2) facilitate issues being addressed early on in decision
making processes (before large sunk costs become a factor); 3) provide motivational advantages
(which contribute to increased efficiency), and; 4) encourage the generation o f more innovative
solutions for addressing problems. The critical theory approach which we have elaborated also
I recognizes that changes to management and organization structures alone will not allow for the
l satisfactory resolution of all issues. It does suggest, however, that some normative issues can be more
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effectively addressed (and some effectively circumvented) through changes in management style and
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organizational structure.
E) Promotion o f Change Through Political Mobilization and Multilateral Action
A final manner in which our critical theory approach to business ethics is practical relates to
its understanding that the effective resolution o f ethical issues may require action that does not
originate from within the firm. There are two key points to be emphasized here. First, a critical
theory approach recognizes that firms (either individually or collectively) may not be in a position to
adequately resolve the ethical issues which confront them due to the structural nature of these
problems (or a lack o f motivation on the part of decision-makers). Second, business ethics from a
critical theory perspective does not address itself only to the firms and those directly involved in the
activities of firms (viz., shareholders, management, employees). Rather, the critical theory approach
which we have developed perceives all members of society as having both interests in the activities of
firms (as shareholders, employees and consumers, but also as citizens) and responsibilities (as
citizens) to address the ethical issues which firms alone either cannot or will not address themselves.
From a critical theory perspective, the appropriate forum for addressing these issues is the political
realm. This can take the form o f regulation o f the basic structures or, if need be, alteration o f the
( _______________________________________________
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330
basic structures. A critical theory perspective also recognizes that in a global economy an adequate
resolution of issues may not be possible at the level o f the domestic political realm. Because o f the
transnational nature o f many of the normative issues confronting firms, multilateral action is
frequently required in order to provide for effective solutions. Part of the practicality of a critical
theory approach is that it recognizes this reality and probiematizes it. Only on this basis can effective
strategies and tactics be elaborated for addressing the problems that inhibit more normatively
acceptable business practice, (strategies and tactics which will ultimately have to be developed by
mobilized citizenries working in cooperation through democratic states).
i
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331
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Creator Reed, Darryl William (author)

Core Title A theory of business ethics: A Habermasian approach to the normative analysis of capitalist business activity

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Publisher University of Southern California (original), University of Southern California. Libraries (digital)

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