THE FIRST HALF OF CHAPTER III is concerned with the fundamental logical distinction between “is” and “ought,” the second half, largely with the implications of this distinction for the organization and operation of democratic governments. For this reason, the chapter is probably of greatest interest to readers concerned with public administration, where the debate of the relation of policy to administration has a long history in which the is-ought distinction plays a central role.
However, the fundamental question of who is to establish the basic goals—the basic “oughts”—of an organization arises in organizations of all kinds, private and non-profit as well as public. In public administration the discussion of goal-setting focuses upon the responsibility of administrators to legislatures and voters; in business management, it focuses upon the responsibility of employees and executives to stockholders; in the management of private non-profit organizations, it focuses upon the role of boards of trustees in their relations with management and with clients (e.g., in educational institutions, students, alumni, donors).
1. “IS’S” AND “OUGHTS”
My reference in the second paragraph of Chapter III to logical positivism as providing the philosophical foundation for a treatment of “is” and “ought” has proved to be a red herring that has confused some commentators. Logical positivism is today widely thought to be a discredited philosophical position, and its name is now more often applied as a disparaging epithet than as a term of description. I have no desire to defend logical positivism, but would simply observe that the chapter’s entire argument goes forward just as well if we replace “logical positivism” by “empiricism,” or if we simply refrain from labeling the argument as belonging to any particular philosophical school.
The fundamental point is that you can’t get an “ought,” by any man-
initial premises. No amassing of knowledge about how the world really is can, entirely by itself, tell us how the world ought to be. For the latter, we must be willing to say what kind of a world we would like to have; we must posit some values that go beyond the facts.
When we start a line of thinking with an “ought,” say, an organizational objective or goal, then that “ought” infects all of the following conclusions, which become, in the language of Chapter III, “ethical statements admixed with factual elements.” Moreover, the “ought” that constitutes an organizational objective is usually already thoroughly mixed with factual elements. “We ought to introduce a new, cheaper, product line” presumably means that in fact there is a good market for such a line, and if we introduce it, we will increase our profit (the organizational objective).
If an objective is challenged, it is defended by pointing to some more fundamental objective toward which it is directed, and to the belief (a supposed fact which may or may not be valid) that accomplishing the former objective will contribute toward reaching the latter one. The fire department fights fires in order to reduce fire losses (fire fighting does, in fact reduce losses), in order to conserve valuable assets (buildings are valuable and useful), and so on—ending the chain, perhaps with final values like virtue, truth, and beauty.
I hope these brief comments will dispel any remaining confusion about the is-ought distinction, and make it less controversial.
2. “FACTUAL” DOES NOT NECESSARILY MEAN “TRUE”
The term “factual premise” does not mean an empirically correct statement but a belief, that is, an assertion of fact. The assertion may or may not be supported by evidence, and such evidence as exists may be of greater or lesser validity. Human decision-making uses beliefs, which may or may not describe how the world really is. We call such beliefs, whether true or false, “factual premises.”
3. TECHNOLOGY AND TECHNOCRACY
The rapidly growing role of technology in our world over the past century has made it more and more difficult for T. C. Pits—the common person in the street—to judge correctly the technical issues that are central to many, if not most, important decisions. One can pick examples almost at random from the daily press: What are the health effects of var-
It is sometimes suggested that we turn the decisions over to “experts” who really know the facts and can calculate their implications. Of course the fallacy of this technocratic solution to the problem is obvious. Because most decision premises mingle facts with values, we cannot turn the decisions wholly over to the experts without delegating to them the choice of values as well as the calculation of consequences. Chapter III introduces this problem, especially in its application to public organizations.28 I will make a few additional comments on the issue here as it applies to private organizations, both for-profit and non-profit. More will be said about this aspect of it in later chapters and their commentaries.
4. THE AUTONOMY OF PRIVATE ORGANIZATIONS
The fact-value distinction raises two questions for private organizations: first, who shall choose the basic values at which an organization will aim and how will the chooser enforce the choice; second, how can compatibility be maintained between the goals chosen and pursued by a private organization and the goals that might be desired by the society in which the organization operates?
The usual answer to the first question is that, subject to the limits laid down by law, the owners choose the basic values of private for-profit organizations, and the trustees choose those of non-profit organizations. This raises a new question: how do the owners and trustees enforce their choices? A substantial literature examines the extent to which stockholders actually can and do control corporate policies in the face of the temptations managers may have to reap personal advantages from their positions. The same question arises for non-profit organizations, but it has probably not been investigated as thoroughly. Beyond recognizing that the issues are important, a lengthy discussion of them is largely beyond the scope of this book.29
Neoclassical economics answers the second question, compatibility of the goals of a private organization with the goals of its society, with the claim that, in an environment of f ree competitive markets, the organization that wishes to maximize its profits, or even to survive, has no choice but to produce as efficiently as possible those goods and services that consumers in the society choose to buy. Free markets and perfect competition force responsiveness to social values as expressed in the behavior of consumers, weighted by the buying power of each. They leave little choice of values to the private organization.
Even putting aside questions of income distribution, and consequent differences in individual buying power, in any real society this answer requires considerable qualification. Any departure from perfect competition gives leeway to organizations to choose between different values, and drives a wedge between profit maximization and achievement of the values that are expressed in the market. Equally serious, the presence of “externalities”— consequences of organizational activities that are not reflected in market prices—also encourages activities that contribute to profits to the detriment of other social values. The classical case of a negative externality is the smoke that a factory disperses over its surroundings. Similarly, activities producing “positive externalities”—benefits conferred on the community that are not reflected in market prices—are discouraged by the market mechanism.
Of course, activities producing negative externalities can be banned by legislation, taxed, or otherwise regulated (and those producing positive externalities subsidized), but the presence of externalities undermines the simplicity of markets as a universal means for social control of private organizational activity. It remains a fact, however, that the ability of organizations, for-profit or non-profit, to exercise power over a society, and to substitute their own values for the values of others, is severely restricted if they must rest on their own financial bottoms—if they may spend only such funds as they can acquire by offering their goods and services to the members of the society, and, in doing so, must compete with other organizations in the same position.
The presence of imperfections in a system of intermixed competition and monopoly, together with the complications created by negative and positive externalities, guarantee that a modem society will be a composite system which includes markets, large and small organizations, and a wide variety of legal and other governmental regulations and interventions. The possibility of such interventions creates, in turn, typical new problems: for example, organizations may be relieved, by subsidies and bailouts, of the consequences of their own improvidence. That this is not an imaginary danger is clear when we recall the bailouts of the Chrysler Corporation and the building and loan associations, and the long-maintained agricultural subsidies in our own society. Social organization is neither a simple nor an exact science.
Source: Simon Herbert A. (1997), Administrative Behavior, Free Press; Subsequent edition.