Course Syllabus | LH's Virtual Office | Chapter 6 Outline

Business Ethics: Concepts & Cases: Chapter 6 Objectives and Overview
The Ethics of Consumer Production and Marketing

Learning Objectives

  1. Appreciate the nature and extent of costs imposed by consumer product malfunction and misuse.
  2. Understand the basis and main claims of the laissez faire approach and the "false assumptions" criticism of this approach.
  3. Understand the centrality of the question of who is responsible for consumer protection; how three main contending theories -- contract, "due care," and social costs -- respond to this issue; how the theories relate to each; and their ideological affiliations.
  4. Understand the basics of the contract view; the four main moral duties of businesses to customers, compliance, disclosure, true representation, and no undue influence; the moral basis of these duties; and the "unrealistic assumptions" that critics charge against the view.
  5. Understand the distinction between explicit and reasonably implied claims and Sturdivant's summation of the the key types of implied claims as concerning reliability, service life, maintainability, and safety.
  6. Understand the basics of the "due care" view; how manufacturers responsibilities extend to the three areas of design, production, and information; and the three problems chiefly alleged against this view.
  7. Understand the idea of "strict liability"; the basics of the social costs view; the utilitarian defense of the view as internalizing external costs; and the four problems critics chiefly allege against this view.
  8. Understand the extent and nature of advertising; moral issues concerning its social effects, effects on consumer desires, and effects on consumer beliefs; and the duties of authors and media, and the rights of audiences, in these regards.

Overview

Consumer product malfunction and misuse take a large toll: of the more than more than 19 million serious accidental injuries and 93,000 accidental deaths recorded in the U. S. in 1995, for instance, more than half involved consumer products.  In addition to these primary costs, additional costs to consumers due to deceptive selling practices and shoddy construction, are very considerable.  The laissez faire approach holds that thanks to consumer sovereignty, product safety features consumers want and are willing to pay for will be produced; but the assumption underlying this approach -- that consumer markets are, approximately, perfectly competitive -- doesn't hold true.  Perfect information and rational agency conditions are especially ill satisified in consumer markets.  Consumers are commonly ill informed, due to deceptive marketing, or simply due to lack of information and expertise.  Consumers also often make irrational choices, given the information they possess, due to irrational fears, irrational trust, and fallacious probability estimates.  Furthermore, given the prevalence of oligopoly conditions in consumer markets, as throughout the economy, the extent to which such markets have the requisite openness and distribution to work as the laissez faire approach anticipates is questionable.  Finally, the dimension of the problem, itself, speaks against the adequacy of the laissez faire approach.  Three views emerge offering answers to the question of where responsibility for consumer protection lies: the contract view, the "due care" view, and the social costs view.  Iin the order just listed, these three views depart further and further from the laissez faire approach.  The contract approach leaves responsibility mainly with the consumer: caveat emptor -- "let the buyer beware" -- is the watchword of this approach.  At the other extreme, the social costs approach places responsibility for consumer protection entirely on the producer: caveat vendor -- let the seller take care -- is the watchword here.  The "due care" approach seeks a middle ground, acknowledging more care to be due from the vendor than under the contract approach, while still apportioning considerable responsibility for consumer protection to consumers themselves.

On the contract view of businesses' duties to consumers, when a customer buys a product they (either implicitly or explicitly) enter into a "sales contract" with the vendor: the vendor freely and knowingly agrees to give the buyer a product with certain characteristics, and the consumer freely and knowingly agrees to pay the vendor a certain sum of money for the product.  Out of this agreement arise a duty on the part of the vending firm to supply a product with the specified characteristics, and a corresponding right of the consumer to receive such a product.  The moral authority of contracts being rooted in the free agreement of the parties explains why three moral conditions limit contractual obligation:  full knowledge (of the terms), faithful representation (of the situation), and absence of undue influence.  From these three conditions four main moral duties of businesses to consumers arise: a duty of compliance with the terms of the contract; a duty of disclosure regarding the nature of the product; a duty of true representation of the nature of the product and the terms of the agreement; and a duty not to exercise undue influence in persuading the customer to enter into the contract.

The duty to comply is the most basic among the duties of businesses to consumers: it includes, beyond the duty to live up to any claims the vendor expressly made which induced the consumer to buy, any reasonably implied claims which formed the customer's understanding of what they were purchasing and led them to freely contract to buy it.  Sturdivant distinguishes the four main types of implied claims as concerning, reliability, service life, maintainability, and safety.   Reliability concerns whether the product will function as the customer has been led to expect: notably, under this heading, where devices have many interdependent components, producers have a responsibility to insure all components have very high degrees of reliability.  Service life concerns the length of time the product will continue to function effectively in the manner in which the customer has been led to expect: under this heading the customer is expected to understand that service life will depend on use (wear and tear); manufacturers and sellers are expected to reliably abide by the terms of their explicit guarantees; and sellers who know that a product will become obsolete have a duty to correct any mistaken beliefs the buyer may entertain on this score.  Maintainability concerns how easily the product can be kept in operating condition and repaired: under this heading businesses, again, are expected to abide by the explicit terms of their warrantees and to make good on implied claims -- implied by the seller and reasonably understood by the buyer -- of continued maintainability after warrantees expire.  Product safety concerns the degree of risk associated with using the product.  Here, since no product is absolutely risk free, acceptable known levels of risk is the operative concept.  Here the seller has a duty to provide a product with a level of risk no higher than they have expressly or implicitly represented to the customer, which the customer has freely and knowingly agreed to assume.  The duty of disclosure is a duty of the seller to inform the buyer of both the terms of the contract and to provide any information about the product that might reasonably influence the customer's purchase decision: this includes risks, on all accounts, and on some (more stringent accounts) performance characteristics, costs of operation, product ratings, and applicable standards, besides.  The duty of true representation is to the duty of disclosure as omission to commission:  nondisclosure is not telling; misrepresentation false telling.  A seller misrepresents a product or agreement when they represent it in a way intended to get the buyer to believe something about the product or agreement that the seller knows to be false.  Misrepresentation may be implicit as well as express and includes such tactics as brand name lookalikes, fronting expensive ingredients, fictitious "regular" pricing, charging higher prices than advertised, "bait and switch" tactics, and paid testimonials.  The "no undue influence duty" is a duty of the seller not to coerce the buyer's decision to buy.  Undue influence is exercised, typically, when the seller plays on a buyer's emotions to extract an agreement that they buy would not agree to if thinking rationally: in this connection the seller has a duty not to exploit the fears, stress, gullibility, immaturity, or ignorance of the buyer.

The chief criticism of the contract theory is that it is based on unrealistic assumptions.  Principally the following three: (1) that manufacturers who really know the product enter into direct agreement with the customer; (2) that sales contracts naturally provide protection to the customer; and (3) that buyer and seller meet as equals in the sales agreement.  In reality, critics contend, (1) that there are usually many levels of middle-merchants who may know even less about the product than the customer; (2) that sales contracts, through the use of disclaimers, serve more to nullify than to provide protection to customers; and, perhaps most importantly, (3) that buyer and seller are very far from being equal "adversaries" in the negotiation of sales.  Customers have less knowledge of the product and may have to rely on sellers for information.  They are further disadvantaged with regard to their understanding (and their ability to affect) the terms of the contract, allowing sellers to dictate terms favorable to themselves that the buyer may have little choice but to accept.

The due care theory is based on recognizing the disadvantaged position consumers are in vis a vis sellers:.  Huge differences of size and resources between individual consumers and giant corporations aggravates the disadvantages stemming from individuals' lesser knowledge of the products and understanding of contracts cited above.  Consequently, consumers' interests are extremely vulnerable to harm by manufacturers and vendors.  Manufacturers and vendors, therefore, have a duty to take special care consumers are not harmed by their product.  This duty goes beyond the duty of the manufacturer to deliver a product that lives up to express and implied claims (which exists on the contract view) to include a further obligation to exercise "due care" to prevent consumers from being injured by the product. even if the manufacturer expressly disclaims such responsibility, the manufacturer who fails to exercise due care is negligent.  The manufacturer has a positive duty to take due care to make sure the product is as safe as possible, and the consumer has a corresponding right to products -- in the design, manufacture, testing, and labeling of which -- due care was taken.  In general the manufacturer's responsibilities extend to three areas: design, production, and information.  Design responsibilities include ascertaining whether the product design poses hidden dangers; anticipating and incorporating all technologically feasible safety features and ascertaining whether products remain safe and useful throughout their intended service life and beyond.  Production responsibilities include elimination of faulty units, detection of weaknesses, avoidance of cost cutting "shortcuts" that may compromise the final product, and exercise of quality control over materials.  Information responsibilities include clear, simple, and prominent labeling of products with warnings about hazards posed by their use and misuse, taking into account the capacities of the individuals who will use the product.  Manufacturers of potentially hazardous products, additionally, should not oppose reasonable regulation to help safeguard users against these hazards.  One problem with the due care approach -- as with care ethics -- is the vagary of the notion of "due care".  Additionally, critics from the left complain that the due care approach leaves the problem of  unforeseeable risks unaddressed.  Critics from the right, on the other hand, complain the approach is too paternalistic and that decisions regarding acceptable levels of risk are best left to consumers themselves.

The social costs theory imposes strict liability for costs to consumers due to the malfunction or misuse of consumer products on those products' manufacturers and vendors.  On this view, the manufacturer should pay the costs of any injuries sustained through the use of the product even when the manufacture has taken due care in the products design and manufacture, and in informing customers about the risks, and in instructing them in the proper use, of the products.  Under strict liability absence of negligence or lack of knowledge are not excusatory.  Only the resultant harm matters: the only relevant considerations in assessing liability are whether the product caused the injury, and the extent of the injury.  In particular, evidence of misuse is inadmissible.  Utilitarians defend the social costs view as the most effective means of internalizing external costs of production since injuries resulting from products -- even if unavoidable -- are part of the products total social cost.  Internalizing the costs, it is argued would lead to fairer distribution of costs, market prices that more truly reflect total social costs, and safer products.  Critics of this approach content it violates violates basic principles compensatory justice in holding firms responsible for unforeseeable and unavoidable harms; that it won't reduce the number of injuries because product users, being absolved of all responsibility, will be more careless in their use of the products; and insurance providers, in particular, critics argue, will be unfairly impacted.

Advertising is a massive multi-billion-dollar-a-year industry whose costs are ultimately borne by consumers.  Though consumer surveys show a high degree of disapproval of advertising, nevertheless, it seems advertising works to attract consumers to advertised products.  Defenders of advertising generally appeal to its informative function.  The question is whether advertising, on balance, is beneficial or a waste.  While some of its defenders would like to define advertising as informative, this is misleading: the primary function of advertising is to sell the product, not to inform.  Thus Velasquez (p. 343) offers what would seem to be a more accurate and honest definition according to which an advertisement is a communication between sellers and potential buyers addressed to a mass audience and intended to induce some members of that audience to buy some product from the seller.  Three principle issues regarding the morality of advertising are (1) its social effects, (2) its effects on consumer desires, and (3) its effects on consumer beliefs.

With regard to its social effects the most frequently heard criticisms of advertising are (1) that it degrades people's tastes and values; (2) that it encourages excessive consumption and thus wastes valuable resources; (3) and that it helps create and sustain monopoly and oligopoly power.  With regard to tastes, much advertising is strident, intrusive, repetitive, and vulgar: thus, critics contend, it debases our aesthetic sensibilities.  Worse yet, it debases our moral values by inculcating and reinforcing materialistic conceptions of happiness and success.  It is debatable whether peoples tastes and values are so malleable, or advertising so powerful, as this criticism presumes. With regard to waste, some contend that advertising is a seller's cost that adds nothing to the utility of the product.  Defenders of advertising counter that it provides benefits in the form of information about available products and produces a beneficial rise in the demand for all products.  Different critics, in turn, offer two different rejoinders.  Some say advertising doesn't affect total consumption: it only shifts consumption from one product to another.  Others say it does increase total consumption, and that's a bad thing in light of long range concerns about resource depletion.  Needless to say, these two rejoinders conflict with each other: the first says increasing consumption is a good thing, but advertising doesn't do it; the second says is does increase consumption, and that's bad.  Finally critics contend that the resources available to large corporations give them unfair advantages when it comes to advertising, and thus advertising helps consolidate monopoly and oligopoly control of markets.  Defenders of advertising say there is empirical evidence that it does not have this effect.

With regard to advertising's affects on consumer desires, the central criticism is that advertising is manipulative; that it creates desires in people for the sole purpose of absorbing industrial output, without regard for whether it is in people's interests to consume more of these products.  John Galbraith formulate his version of this criticism on the basis of his distinction between physiological desires and psychic desires.  Physiological desires, being physically based, are finite, and difficult to manipulate: psychic desires, being psychologically based, are virtually unlimited, and easily manipulated.  According to Galbraith, advertising manipulates psychic desires; and this is exploitative insofar as it is done without regard for the interests or welfare those whose desires are being thus manipulated.  Furthermore, such manipulation undermines consumer sovereignty: rather than production being molded to fit human desires, advertising molds human desires to serve the needs of production.  Though Galbraith's criticisms may be flawed by their dubious assumptions about the manipulability of psychic desires -- again, it is debatable whether peoples tastes and values are so malleable, or advertising so powerful, as this criticism presumes -- nevertheless, some advertising is clearly intended to manipulate us in morally questionable ways.  Such morally questionable advertising attempts to arouse a psychological desire for the product without the consumer's knowledge or in ways which interfere with the consumers' abilities to weigh whether purchase of the product is in their best interests.  Such advertising is exploitative in that it attempts to circumvent conscious reasoning and hence to undermine the rational agency of the consumer in order to induce the consumer to do what the advertiser wants, regardless of what is in the consumer's best interests.

With regard to its affects on consumer beliefs, while advertising can be used to communicate truths, as its defenders insist, frequently advertising is used to hide the truth, or even communicate falsehoods.  Such deceptive advertising is arguably wrong on both Kantian and utilitarian grounds.  On Kantian grounds such advertising may be seen to reprehensibly violate consumer rights to rational self-determination: lying, furthermore, is a paradigm example of a nonuniversalizable act.  On Utilitarian grounds it may be said that deceptive advertising breeds a more general mistrust of communication, leads to wrong (hence more costly, less beneficial) choices, and interferes with the beneficial workings of market by undermining rational agency.  Advertising, like all communication involves three terms -- author, medium, and audience.  In light of the immorality of deceptive advertising, its authors have a moral duty not to deceive: in the case of vulnerable audiences, such as children, this includes a duty not to exploit their vulnerabilities.  The media have a similar duty to insure that the advertisements they transmit are not misleading, again taking special care to insure that the vulnerabilities of children and other impressionable audiences are not being exploited.  Audiences, correspondingly, have a right not to be deceived and, in the case of the especially vulnerable audiences, not to have their special vulnerabilities exploited.


 Course Syllabus | LH's Virtual Office | Chapter 6 Outline