Justifying the Star System: Rights

In evaluating the ethics of the star system, three arguments are commonly mounted in favor of respecting vast wealth disparities:

1. The rights argument
2. The social welfare argument
3. The fairness argument

The rights argumentArrayed to defend the ethical respectability of the star system, it affirms that disallowing accumulations is a violation of human freedom. defends the respectability of wealth concentrations by affirming that not allowing those accumulations is a violation of human freedom. From this perspective, all ethics centers on individual opportunity: right and wrong is about guaranteeing that free individuals can pursue whatever goals and as much money as they like on the way to finding their own happiness. Concerns about society’s overall welfare become secondary and derivative.

Ethics that make freedom the highest value can be used in a thought experiment inspired by the philosopher Robert Nozick to produce a substantial defense of an economic star system. It goes this way:

1. Imagine that everyone in our society has the same income, everything goes forward as perfect equality, and no one complains.
2. Next, imagine that NBA superstar Kobe Bryant proposes a new contract with his team. It stipulates that the ticket price for every home game will go up five dollars, and that extra five bucks goes directly to him.
3. The team owners say, “No.”
4. Kobe says, “I’m going to quit, and go get a job as a gym teacher at the school near my house.”
5. The owners change their mind.
6. Some season ticket holders, angry at the new price, cancel their purchase, but most say, “Yeah, it’s worth an extra five dollars to see Kobe.”
7. A total of 17,500 people fit into the Forum, the Los Angeles basketball arena where Kobe Bryant plays, and he plays forty-one games there each year.
8. Kobe pockets an extra $3,590,000. Annually.

Does anyone have a problem with this? Is there someone who didn’t agree to the arrangement, to this new society where one guy—Kobe Bryant—is suddenly a lot richer than everyone else? Is there someone who’s being forced to do something they don’t want to do? Is anyone else being denied the chance to renegotiate their own contract or search for a different job? Are there any legitimate grounds someone can stand on to launch a complaint?

Further, if someone does complain, if they say Kobe shouldn’t have proposed the new contract, the owners shouldn’t have agreed to it, or the spectators shouldn’t have ponied up the extra money, then isn’t the complaint itself unethical? Isn’t anyone launching those criticisms really just trying to limit the freedom of someone else?

The rights-based argument affirming the star system’s respectability is powerful and hard to stop once it gets going. If you buy the premise—if you accept that business ethics is fundamentally about ensuring the right to individual freedom—it’s nearly impossible to break the chain of arguments against those who’d try to limit the choices Kobe Bryant and his adoring fans can make, no matter how much wealth piles up for the one player.

Moving the argument over to a broader consideration of the American star system, something like the Kobe Bryant thought experiment actually happens with respect to Hollywood celebrities, especially within the cash-break-zero reality currently gripping the movie capital. Big-name actors are essentially saying that they want a dollar (or whatever the relevant number is) from everyone who pays to see their movie. In this case, as in the Kobe example, the owners of the enterprise are perfectly free to find different actors if they don’t like the terms of the deal they’re being offered. And on the consumer side, moviegoers entering a theater are free to look up at the listings and choose another show if they don’t like the idea of padding the pockets of a particular Hollywood celebrity. Moviegoers are also perfectly free to walk out of the theater and redirect their entertainment dollars at museums, vacation travel, web browsing, or a novel. The list is interminable, and as long as it is, it becomes difficult to deny ethical acceptance to the movie attraction that’s making one star incredibly rich.

Justifying the Star System: General Welfare

The utilitarian argumentDefends the star system as ethically acceptable by claiming that the general welfare can be served by wealth imbalances in society. defending the star system as ethically acceptable affirms that the general welfare can be served by wealth imbalances. If moral good and bad only reflect whether the general welfare is served, the argument builds this way:

1. Breakthrough developments of consumer goods are encouraged by a star system because it allows inventors to reap a significant portion of the economic reward.
2. Breakthrough developments can positively impact social welfare incrementally (Apple’s iPad), and sometimes be revolutionary (the invention of the assembly line).
3. The broad social happiness provided by these breakthroughs outweighs unhappiness attributed to giant wealth imbalances. (This is especially true if the imbalances are sufficiently great to preclude envy in the terms Aristotle proposed.)

This argument may be formulated slightly differently as a hypothetical question. Imagine you could have one of these two lives:

1. A typical middle-class European or American today. You’re far from rich but you can always afford decent food and a night out here and there. You’ve got a car that doesn’t break down too much. There’s a microwave to make popcorn in the kitchen, a TV in the main room, and some clothes you like in the closet. On the other hand, you need to go to work in the morning and clean grime out of the shower occasionally.
2. King of England. In 1600. You never have to clean the shower, but then again, the shower hasn’t been invented. There are no flush toilets either. You get whatever clothes you want, but they better be warm since there’s no heat for your castle except the fireplace. You don’t have a microwave, and even if you did, there’s no electricity to run it. You get from place to place fairly well on the country’s best horse.

This is a hard choice: live better in objective terms in the present or better in subjective terms in the past. It’s a way of asking, “What’s more important: how well you live, or, how well you live relative to everyone else?” There’s no right or wrong response here. This is a question that’s as much about psychology and economics as it is about morality. However, if you go for the first, you’re leaning toward the utilitarian argument justifying wealth imbalances. As long as those imbalances are functioning to encourage life-improving innovations, then the stark economic inequalities they leave in their wake become acceptable.

Justifying the Star System: Fairness

The fairness argumentDefends the star system as ethically acceptable by claiming that extraordinarily high levels of responsibility merit extraordinarily high levels of compensation. justifying the star system is increasingly persuasive as technological advances allow communication and operational organization to cover the globe instantly. That has opened the way for single individuals to amass tremendous responsibilities in vast organizations and then claim that it’s only fair that their reward be equally massive.

Only fifty years ago the largest department and grocery stores in the United States were mostly local concerns; crossing one or two state lines was a big deal. Of course expansive companies including the telegraph transmitter Western Union (which now specializes in international money transfers) and the Ford Motor Company have been around for more than a century, but neither compares in size, reach, or number of employees to today’s Walmart. With more than two million workers spread across the globe, CEO Michael Duke holds management responsibilities dwarfing the ones known by corporate heads in the past. To the extent that’s right, if it’s true that Duke’s responsibilities are astronomically high, then shouldn’t he receive a wage commensurate with the difference?

The fairness argument favoring the star system—at least in those cases where high salary reflects high responsibility—is that it would be arbitrary and unequal to simply put a lid on managers’ compensation if there’s no corresponding lid on the size of management responsibility. Concretely in Walmart’s case, a store manager overseeing the work of, say, a hundred employees makes about $100,000. By that logic (the business pays $1,000 of salary for every employee managed), Michael Duke, who oversees the work of two million people, should make about $2 billion. That’s a hundred times what he actually makes.

When Walmart wanted to open a store in Chicago recently, a local alderman complained about the CEO’s salary this way: “How can you go to bed at night and sleep knowing you make this kind of money?”Alice Gomstyn, “Walmart CEO Pay: More in an Hour Than Workers Get All Year?,” ABC News, July 2, 2010, accessed June 9, 2011, http://abcnews.go.com/Business/walmart-ceo-pay-hour-workers-year/story?id=11067470.

One response allowed by an argument appealing to fairness is that it’s difficult for CEO Duke to sleep because he’s making so little. His wage is massively unfair in its paltriness.

Criticizing the Star System: Social Welfare

In evaluating the ethics of the star system, these arguments are commonly mounted against respecting vast wealth disparities:

• The social welfare argument
• The duty to beneficence argument
• The virtue argument

The social welfare argumentSet against the star system, it’s the argument that extreme wealth disparities are ethically reproachable because of the emotional turmoil they cause within a community. against the star system is the most obvious and commonly cited, it’s that, essentially, Aristotle is wrong and wealth differences—especially extreme disparities—are ethically reproachable because of the emotional turmoil they cause within a community. While it may be true that allowing vast wealth accumulation motivates innovators and managers to perform exceptionally well, and while their work may benefit society significantly, the upside fails to outweigh the human cost of the resentment. The social rancor of inequality isn’t worth the benefits provided by highly paid innovators.

Criticizing the Star System: Duty to Beneficence

The beneficenceThe requirement to help others when doing so requires no unreasonable sacrifice of one’s own interests. argument against the star system operates from the duty to help others when doing so requires no unreasonable sacrifice of our own interests. Most discussions of beneficence revolve around acts. For example, if a man is drowning in a lake and you don’t know how to swim, you have no responsibility to jump in. But if you’re Michael Phelps in exactly the same situation, then the duty to save the flailing man applies.

Transposing the discussion into monetary terms, one basic question is, “At what point does my accumulated money translate into a responsibility to charity?” If a woman works a few overtime hours to buy a new pair of boots for the upcoming winter, there’s no clear duty to share the cash with a neighbor in similar circumstances. By contrast, when Alice Walton (daughter of Walmart founder Sam Walton) who’s worth $18 billion walks down a street near her home outside of Forth Worth, Texas, she’d have a hard time convincing those passing by that she couldn’t establish, say, a generous college scholarship program for society’s neediest members without suffering any tangible loss. Probably, most people at the very top of the wealth pyramid could dedicate large chunks of cash to charitable causes without severely denting their quality of life. In these circumstances, the duty to beneficence becomes pressing.

With respect to the star system, it’s important to note that beneficence doesn’t form an argument against high incomes or even astronomical wealth accumulation; it does, however, argue against the maintenance of large disparities. A society oriented by the duty to beneficence would, in other words, tolerate a star system, but only a fleeting one, a reality where people could make tremendous amounts, but not without feeling a charitable responsibility (or something similar) that would significantly diminish the economic gap separating them from the general population.

Criticizing the Star System: Virtue

Virtue ethics eschews reliance on social outcomes (the utilitarian model) as well as strict rules for action (the duty model). Instead, decisions are left in the hands of those who’ve been taught to think and be virtuous, with the key to virtue frequently being located as those actions that take a middle road between extremes.

A virtue argumentSet against high wealth concentration, it recommends that formulas for wealth distribution avoid extremes. against wealth concentration begins by locating extreme situations. At one pole, the star system grows exponentially. Market rules function without reserve, and traditional wealth-redistribution measures are scuttled. The progressive income tax, for example, is replaced by a flat charge for all citizens. (The justification: everyone uses roads and other services more or less equally, so they should all pay the same tax dollars). Further, social attitudes could be adjusted. The idea of earning huge amounts and accumulating even more usually elicits both respect and also suspicion of greed. That could be changed: schools and other institutions could be adjusted to teach that getting extremely rich is an unmixed good, and suspicions by others of greed is nothing more than cloaked envy.

Toward the other extreme, there’s the vision of a broadly equitable society. Redistributive taxation is heightened. In Denmark, for example, the highest earners pay an eye-popping 68 percent of their salary. On top of that, estate taxes paid on an individual’s death could be hiked to ensure that money doesn’t build up over successive generations. Then, on the social level, attitudes could be bred in our schools, churches, and similar institutions that any significant wealth difference above the mean is worrisome, and their possessors aren’t admirable so much as ugly hoarders. These combined economic and social actions would almost certainly reduce wealth differences across the social spectrum.

Next, and building above this foundation of extremes, the virtue ethicist would navigate a moderate course. Redistributive measures undertaken by the government may not reach the 68 percent taxation rate, but they wouldn’t allow the wealthy to use accounting tricks and similar measures to drop their total payments to levels comparable with what middle class individuals pay. Then, with respect to social attitudes, a balanced sense of pride and shame would need to be instilled in the community, one that granted successful entrepreneurs like Bill Gates respect for their accomplishments, but one that also taints his (or anyone’s existence) when that wealth reaches a point where it’s enough to hire six million struggling Hollywood actors for a year.