The Diminished Outcomes Fallacy (2004 Dec)

by Barry A. Liebling

Some “ethicists” assert that a sure sign that a business activity is morally wrong is that someone realizes Diminished Outcomes. All that has to be shown for an action to be unethical, according to this view, is that someone is worse off as a consequence. For example, a large retailer moves into town and consumers choose to shop there instead of at retail stores that have been in town for a long time. An observer guided by the Diminished Outcomes notion might say that the large retailer has “harmed” the owners of established stores and is morally culpable.

When interventionists are intent on taking command of private business policies they often invoke “Diminished Outcomes” as their justification. We cannot let a large retailer move into this community, they say, because it will adversely affect the success of existing businesses. They assume that existing businesses have a right to be shielded, by governmental force, from new businesses that might be more attractive to consumers.

A typical rejoinder to the interventionists is that they are not looking at the big picture. The naive defender of free enterprise will argue that while the small store might lose business to the large retailer, consumers will on balance benefit since they can buy merchandise more cheaply. Furthermore, the large retailer will hire people from the town, resulting in more jobs for the local residents. Notice that the naive free enterprise defender accepts the Diminished Outcomes test but contends that the large retailer’s negative effect on the small store is cancelled by positive effects on consumers and on new employees. The mistake is to concede any legitimacy to the Diminished Outcomes test.

In fact, judging businesses according to whether anyone has Diminished Outcomes is not tenable since this incorrectly labels nearly every action as corrupt.

Think about the nature of business actions, and you will see that everything you do leads to Diminished Outcomes for someone. If you were to take the test seriously, you would be paralyzed. All of your moves – as a business professional or as a consumer – will diminish or enhance someone’s economic outcome. There is no escape. To act is to have an effect on your – and other people’s – prosperity. If a new restaurant opens in your neighborhood and you decide to eat there, you are enhancing the outcome of the new restaurant while “Diminishing” the success of other restaurants you might have gone to instead. If you stick with established familiar restaurants you are having a “Diminishing” effect on the new restaurant. Stay home and prepare your own food, and you are “Diminishing” sales from all restaurants.

The correct way to look at business decisions and distinguish moral from immoral ones is to focus on individual rights. Detecting violations of individual rights is the proper standard for condemning corrupt actions. Everyone continually goes through episodes of being better off or worse off. The moral issue is that everyone’s individual rights should be respected, and no one’s should be violated.

Briefly stated, you are supposed to act honestly and deal by mutual consent. Acting honestly entails saying what you believe to be true to your trading partners, having good reasons for your beliefs, and crafting your communications to be understood accurately. Dealing by mutual consent means that both you and your trading partners act by free choice, not in response to force or threat of force.

Returning to the previous examples, we see that the owners of the large retailer have the right to enter a town – providing they can buy or lease the real estate legitimately and hire willing employees. They have an obligation to respect everyone’s rights. It is not their responsibility to assure that any businesses that have been in town for a long time remain profitable. Of course, the success of the large retailer is not guaranteed. The residents of the town may, or may not, decide to shop at, or work for, the large retailer.

When a new restaurant opens in your neighborhood you have a new option. You are free to go to any restaurant where the terms are mutually satisfactory both to you and the restaurant management. It is not your problem to worry about the success of either new or old restaurants. That is the responsibility of the business owners, who are taking a calculated risk and may succeed or may fail in their business venture.

When you hear the charge that a business decision is not ethical check to see if individual rights are being violated. Respect for individual rights is the proper standard for judging right from wrong. Focusing exclusively on whether someone is worse off is a mistake since all actions, moral and immoral, are likely to lead to someone having Diminished Outcomes.

*** See other entries at in “Monthly Columns.” ***

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