Presentation at the International Congress on The Ethical Dimensions of Development:

The New Ethical Challenges of State, Business and Civil Society

Brazil, July 3-4, 2003
Ethical Challenges: Old and New
Amartya Sen
I am very sorry to miss the meeting and it is only a second best to be able to communicate
on the basis of this videotape and its screening there. But I would like to say how
privileged I am to be present in this slightly disembodied form for this meeting. The title of
my talk is, Ethical Challenges: Old and New.
1.
Euclid, the great geometer, told Ptolemy, There is no 'royal road to geometry.
New ways of solving problems must be constantly sought, rather than stopping and finding
some royal road and sticking to it. New methods and approaches are needed, partly for a
better understanding of old problems, but also for taking note of fresh problems that we
have to face in a perpetually changing world. What applies to a foundational subject like
geometry applies with even greater force to the understanding of economic, social and
political problems. The demands of public po1icy and of socia1values cannot but be
geared to the need to face new problems and to address old problems in new forms.
Consider the challenges of trying to bui1d a good economy. There are many
determinants of the success of an economy. How well an economy does in achieving
efficiency, or equity, or rapid advancement, depends on a great many influences. It
depends on knowledge, technology, enterprise, financial and business institutions,
productive skill, qualities of leadership, as well as efficient monetary and fiscal systems,
good trade policies, fair provisions of social security, and other public policies. For many
centuries, economists of great distinction - from Adam Smith and David Ricardo to John
Maynard Keynes and Kenneth Arrow - have been trying to achieve a better grip on these
problems. If we have reason to go beyond what we have learned from them, it is part1y
because no knowledge is ever complete and no understanding ever perfect. We can build
on what we have learned from them, but, then, we have to go further.
But that is not all, since the problems to be addressed also change over time,
demanding new approaches and fresh outlooks. The world around us is not standing still.
This conference, therefore, is right to focus on what it calls new ethical challenges of state
and society. (I only wish I could actually join you in this conference in Brazil!) The "new
ethical challenges of state and society covers, however, a very large territory, since new
challenges to state and society come in immensely different ways. Also, the domain of
ethics is wide as well, and its likely social relevance very extensive. I must, therefore,
concentrate on a few examples to illustrate my main points (the two or three that I will try
to make in this talk). I will not try to vacuum clean the whole ethical carpet.
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2.
While being on the look out for new adversities as well as fresh opportunities, we
must also bear in mind the fact that new challenges may well be, at least in many cases,
nothing but old challenges in a new dress, or in somewhat altered form. Sometimes very
old problems reappear in such a new form that it becomes absolutely essential to look at
them afresh, rather than relying on what has already been well discussed and well
understood.
Let me begin with the basic economics of mutually beneficial exchange, which
many economists see as the central economic issue, and which can certainly be seen as
the classical mainstay of a successful economy. Efficient working of an economy is, to a
great extent, conditional on the use of business contracts, negotiations and trust between
each other. Whether we consider exchange, or production, or distribution, we must take
note of the fact that different people have to arrive at agreements with each other, and must
have confidence in the implementation of these agreements.
Is there any role of ethics, in particular, business ethics, here? Many economists
have traditionally seen no such need. Indeed, there is no difficulty in understanding that
when a contract is voluntarily made between two parties, it must be in the interest, in a
broad sense, of each party to have the entire contract honored. This is, of course, the
reason that motivates the contract. Since the contract is in the interest of each, it may be
natural to ask: why worry about ethics? Surely, so this misleading argument runs, selfinterest alone will do the job well enough. Ethics is not needed.
This argument, deceptive as it is, is sometimes attributed, wrongly as it happens, to
the impeccable authority of the father of modern economics to Adam Smith himself.
Perhaps the most widely quoted aphorism in economics is Adam Smiths remark about the
butcher, the brewer and the baker, very often quoted in this discussion. As Smith put it:
It is not from the benevolence of the butcher, the brewer, or the baker that we
expect our dinner, but from their regard to their own interest. We address ourselves, not to
their humanity but to their self-love.1
The reasoning here is sensible and also insightful. The butcher, the brewer and the baker
want to earn money from us, and we, the consumers, want the meat, the beer and the bread
they have to sell. The exchange benefits us all. But it would be a total non sequitur to
suggest that this reasoning shows that there is no problem in making sure that the contracts
would be fully honored, without any enforcement or monitoring and without the
commitment that comes from ethical behavior. In that particular sentence, Adam Smith
was talking about motivation for exchange, and in that context, he was quite right to say
what he did say. But for the success of implementing a contract, mere motivation cannot be
1

Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776, republished,
London: Dent 1910), vol. I, p. 13.

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enough. The actual operation and fulfillment of contracts, and their successful use in
economic expansion require a great deal more.
We must take note of several distinct problems in the successful operation of
contracts, all of which deserve attention. First, even though it is better for each party to
have the fulfillment of the contract as a whole rather than nothing, it may be still in the
self-interest of each party to cheat a little in adhering to his or her own part of the
understanding, provided it does not endanger the other sides full observance of their side
of the commitment. The temptation to partially renege or partially under-fulfill what was
promised may be present in many occasions, and the reason for this is not hard to see.
However, if both sides try to take a narrow and limited view of how to do better,
even better, than the full fulfillment of the contract, the whole process of contractual
behavior and the resulting economic efficiencies may be gradually undermined. In
avoiding this problem, business ethics play a very major role, in demanding that individual
contractors do not try to weaken the hold of contractual behavior through the selfinterested temptation towards partially reneging on what has been agreed earlier.
Second, in addition to the problem of partial reneging, there can be circumstances
when a party to the contract, a business firm or an individual working for a business firm,
may want a total reneging of an agreed understanding. While a contract may have been in
the interest of each at the time of contracting, this situation can change, in the future, by the
time the agreement is meant to be put into effect. When the time comes to deliver what was
promised, the conditions and circumstances can well be different. So one party or the other
may no longer want, differently from before, the contract at all by the time the agreement
is meant to be put into practice. Unlike in the last case, when each party wanted the
contract but tried to dilute his or her own commitment partially, in this second case, one of
the parties may simply want to forget about the contract altogether. This may induce the
party that wants to drop out of the agreement to question the binding nature of the
agreement perhaps on the grounds of some legal loophole, or on the basis of some
alleged conditionality that has not been met.
Can these problems not be prevented through adequate monitoring and
enforcement? Certainly, good monitoring can help, and so can effective enforcement.
However, neither of the functions is easy, both because complete specification of contracts
is hard to achieve (most business contracts are partly implicit), and also because
verification of compliance may be hard to ascertain, with particular difficulty in detecting
the exact sequence of events in which two sides may sequentially depart from their
respective promises. It may be very hard to determine who actually began breaking the
contract.
There is, in fact, a trade-off, to some extent, between moral codes of conduct and
the need for detailed and exacting monitoring. When business morality is highly
developed, the details of a contract may well be automatically obeyed, making compliance
that much easier. Nothing can help mutual confidence as much as the presence of an active
and appropriate climate of business ethics. While some monitoring is always needed, it has
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to be more extensive and more assertive when business morality is not well developed, and
when the parties constantly seek ways and means of doing even better than was anticipated
in the nature of their contract.
That is a big problem for many developing countries trying to enter the world of
global commerce or to prosper in it; from Russia, China and India, to Brazil, Argentina and
Chile; [this] has been well recognized for a long time. There has also been much
discussion of problems faced by countries with deep infiltration of crime and of systematic
corruption, for example, in the Mafia-linked business climate in parts of Italy. What is,
however, a new twist in the old problem, is the massive evidence of corruption and
deception that has emerged in the very well established business world of the United States
and Europe. We have seen in the last couple of years startling exposures of thoroughly
unscrupulous behavior in business, completely out of line with what was promised, and the
uncovering of astonishingly crooked practices at the very highest level of commerce. We
have also seen the powerful impact that such corruption and shady business behavior may
have on the performance of the very well established grand economies of America and
Europe, and how this could affect stock markets right across the globe.
A whole lot of revelations covering enterprises from Enron to WorldCom, have
competed with each other to provide proof of the wide need for more forceful monitoring
and financial scrutiny, as well as for much greater application of business ethics. The
relevance of ethics to economic discipline in general and to development in particular,
which has always been clear enough to people who have bothered to think about these
issues critically and with an open mind, has now suddenly become the staple of
conversations even among very hard-headed financial gurus, not to mention the general
public. Even the orthodox centers of business training, such as the Wharton School or the
Harvard Business School, seem to take them seriously, now what more evidence do we
need to be sure that business ethics has arrived in the real world!
3.
The butcher-brewer-baker example has a very limited reach for two distinct
reasons. First, it deals only with the motivation for exchange, and not with other things
values, monitoring, enforcement, - that may be needed to make the contracts of exchange
survive and prosper. This limitation, I have already discussed. I turn now to a second
limitation. The example of the butcher-brewer-baker deals only with exchange and not
with other activities, which are also vital for economic success. It leaves out of account
such crucial exercises as production and distribution.
Production would tend to require team spirit and collaborative work on the factory
floor. Even the motivation needed for successful production can be very different from
what is needed for exchange. This requires the difficult task of generating effective
cooperation at the work place despite considerable conflicts of interest (combined with
some partial congruence of interest). The importance of dutiful activity, unsupervised
reliability, and a concern for efficiency can hardly be overstated in discussing the
determinants of economic productivity. Whether we attempt to understand the deep
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production problems in, say, the reforming experience of [the] former Soviet Union and
East Europe, or try to explain the long-term Japanese economic success in raising
production and productivity, or try to understand the contemporary difficulties of the same
Japanese economy in terms of financial and economic systems that has gone from one end
to the other, we cannot get very much insight from the alleged fecundity of the butcherbrewer-bakers desire to exchange. It tells us nothing.
Indeed, business behavior can be seen to be among the productive assets that an
economy and a society can have. Whether we describe it as a productive moral
sentiment, (to use an old-fashioned expression), or as a part of social capital, (to use a
concept that has been much in use recently), the immense contribution of business morality
and ethical behavior to economic success is very hard to dispute. These connections have
been well brought out and confirmed by empirical studies of the role of social capital. As
Bernardo Kliksberg has noted: the more social capital there is, the more long-term
economic growth, less criminality, more public health and more democratic governance
there can be.2
4.
The success of social living is greatly dependent on what people will do for each
other spontaneously. This can profoundly influence the working of the society, including
the care of its less fortunate members as well as preservation and guardianship of common
assets, which is very important for the environmental side of economic policies.3 The sense
of closeness to others in the community can be a major asset for that community. The
advantages flowing from solidarity and supportive interactions have received much
attention recently through the insightful work of Robert Putnam and others. They have
brought out powerfully how social success, including in the quality of public services and
community-based activities, may crucially depend on the sense of solidarity and identity
within a community.4
However, there is a problem here too, in so far as an identity-based reasoning can
have both positive and negative features, there is also a need to scrutinize whether a sense
of identity of this kind can really be seen as capital, in the sense of being a general
purpose resource, as capital is taken to be, (it can be used for any purpose), that helps
promote the different types of objectives that people may sensibly have. The same
sentiments and inclinations can actually work in opposite directions, depending on the
2

Bernardo Kliksberg, More Ethics, More Development, English translation by Pan American
Health Organization, from La Nacion Line, 2002.
3
See Elinor Ostrom, Governing the Commons: The Evolution of Institutions for Collective Action
(Cambridge: Cambridge University Press, 1990), and The Comparative Study of Public Economies
(Memphis: P.K. Seidman Foundation, 1998); and Robert Putnam. The Prosperous Community:
Social Capital and Public Life, American Prospect, 13 (1993).
4
See Glenn Lowry, A Dynamic Theory of Racial Income Differences, in P.A. Wallace and A.
Lamond, eds. Women, Minorities and Employment Discrimination (Lexington, MA: Lexington
Books, 1977); Robert Putnam, The Prosperous Community: Social Capital and Public Life (1993);
and Robert Putnam, R. Leonardi, and R.Y. Nanetti, Making Democracy Work: Civic Traditions in
Modern Italy (Princeton: Princeton University Press, 1993).

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nature of the identities involved and how their implications are read. For example,
solidarity within a particular group, for example, long-term residents of a region, can go
with a less than friendly view of non-members of that group, such as new immigrants. The
influence of the same community-centered thinking can be both (1) positive for intracommunity relations, (that is within community relations), and (2) negative in generating
sustaining exclusionary tendencies, including violence against people from other
communities, or anti-immigrant sentiments and actions, as can be observed in some
regions of impeccable within community solidarity. For example, some recent studies in
Germany bring out that those districts of Germany, where social solidarity is strongest are
also the districts in which the targeting of Turkish immigrants and others residing that are
not ethnically German is strongest, so there are two sides of it that one must consider.
Community-based ethics, which enhances social solidarity or what is called social
capital, can have dichotomous features, since a strong sense of group affiliation can have
a cementing role within that group, while encouraging rather harsh treatment of nonmembers, seen as others who do not belong. If this dichotomy is right, then it may be
problematic to treat social capital as a general-purpose asset, (as capital, in general is
taken to be), rather than as an asset for some relations and a liability for others. If a
particular sense of identity has positive contributions to make in some context but negative
in others, then there is a need to treat it as a contingent good, as a conditional good,
rather than an unconditional social capital. Since the possibility of exclusion and
victimization of some socially targeted groups, such as minorities, or immigrants, or even
women, are increasingly more serious and more brutal in the contemporary world, greater
note must be taken of them in the study of so-called social capital, which has become an
extensive, if somewhat ad hoc, discipline. This conference, by the way, is partly sponsored
by the Inter-American Initiative on Social Capital. There is a deep and complex ethical
issue here, which is very exciting to pursue, I think, and which has been somewhat
underestimated in the literature so far, on the ecumenical or general merits of the ethics of
social capital.
A somewhat similar point can be made about multiculturalism, which may solidify
the sense of recognition and needed pride of neglected cultures, and yet can also make
them less universalistic and less open to constructive interaction. The tension between
gender equity, (that is, fairness to women) and multiculturalism, (in the form of giving
recognition to particular customs or particular groups), which some of these customs are
quite anti women and gender unfair, the tension between them has received some attention
especially in feminist literature, also belongs to this general class of problems of diverse
consequences of the ethics of identity. It is right that these tensions should receive more
attention.
5.
The success of an economy lies not merely in overall production and aggregate
opulence, the equity and justice of distribution are important too. It is obvious that in a
supporting equitable arrangement within the economy, we have to spare a thought

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specifically about the underdogs of society. For this exercise to be well directed and
fruitful, social interest in distributive justice cannot but be critically important. 5
Interpersonal relations and concerns across country borders go far beyond
international interactions in many different ways. To illustrate, a feminist activist in
America who wants to do something to remedy particular features of womens
disadvantages in, say, Sudan, would tend to draw on a sense of affinity that need not work
through the sympathies of the American nation as a whole, for the predicament of the
Sudanese nation. Her identity as a fellow woman, or as a person (male or female) moved
by feminist concerns, may be more important in this particular context than her citizenship,
in this case American citizenship. And the feminist perspective may well be introduced in
an exercise of global ethics without it being subsequent to national identities.
Even the broad identity of being a human being may have the effect, when fully
seized, of broadening our viewpoint correspondingly. The imperatives that we may
associate with our humanity may not be mediated by our membership of smaller
collectivities such as specific nations, or for that matter, cultures, or civilizations, or
communities. Indeed, the normative demands of being guided by humanity or by
humaneness can build on our membership of the wide category of human beings
irrespective of our particular nationalities, or sects, or tribal affiliations, traditional or
modern.
Behavioral correlates of global commerce, global culture, global politics, global
philanthropy, and even global protest movements draw on direct relations between human
beings, with their own standards, and their respective inclusions and priorities related to a
variety of classifications. The inclusion of global protesters in this list may appear
surprising to some, since the protesters often present very awkward slogans based on
limited information, and often over-rapid analysis. And yet there can be no question that
the protesters are concerned with a kind of ethics, in which differences in nationality,
culture, class, race and gender, are overcome. The crudity of economic analysis does not
obliterate the profundity of the interest in global ethics. It is certainly easier to correct
faulty economics, (as an economics teacher, I have to say that [it is] not a hard thing to do,)
than it is much harder to generate a new ethical concern when it does not exist.
The new challenges of the contemporary world not only demand that we reexamine old issues (for example the role of the market) in new light, but also that we
address new ethical issues that have been brought to prominence by the interactive world
in which we live (including the demands of un-segmented global ethics). Even though
these concerns raise difficult ethical as well as economic issues, we cannot really escape
these questions in the contemporary world. Let nothing defeat us in this modest
recognition.
I wish you, again, a wonderful conference on an extremely important subject! I am
privileged to be able to speak to you. Thank you very much.
5

I have tried to discuss these issues in Development as Freedom (1999).

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