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Ethics in Economics

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Table of contents

  1. Ethics
  2. Learning to act ethically
  3. Ethical dilemma
  4. Conclusion

Ethics

According to Rendtorff (2016), ethics plays a significant role in economic debates. While the field of economics tends to focus on welfare outcomes, ethical consideration is of great importance as they also influence the success of a business. The economic paradigm is facing a crisis of legitimacy with the many dimensions of unethical issues. The global financial crisis and the collapse of Enron, among other cases, are believed to have occurred from the immorality of the economic world. The assumption that in economics, individuals only act in their economic self-interest and will conduct unethical behaviours if they are going to gain financial benefits is partially correct. We cannot conclude that all economist behaves unethically, but we do have examples such as the collapse of corporations like Enron that have resulted from unethical economist behaviors. Other dishonest instances in economics are regarding paying taxes. While there is tax evasion, which is immoral and illegal, there is also tax avoidance, which is unlawful and unethical (Braam, 2019). The act of avoiding taxes forcefully through creative arrangements that are not approved by the state is wrong. Scandals such as the Panama Papers in 2016 and Swiss / HSBC leaks in 2015 are examples of how large corporations have ease of tax avoidance through global financial systems (Olivier et al., 2019). Corporations are conducting tax games by transferring incomes between jurisdictions to take advantage of weak tax laws. The use of tax avoidance can lead to little or no corporate tax being paid. Failure to pay taxes as required by law leads to a decrease in government revenue, which negatively affects the citizens of a country (Crawford & Crawford, 2019). Moreover, it is unfair for corporations to use resources of one country and transfer the profits to another, hence leaving the native land in a disadvantaged position. In general, many people in business tend to act unethically.

Learning to act ethically

We can teach ethics in schools and colleges. Dramatic changes occur in adults between the age of 20 and 30. In this stage, people develop problem-solving strategies, including those of dealing with ethical problems. The changes are associated with how one discerns the society and its role in the community. The scope of these changes is associated with the years spent in formal education (Parker et al., 2016), and cautious educational efforts to affect the awareness of moral glitches and to inspire how people reason is effective (Parker et al., 2016). Mizzoni (2018) argued that an individual’s conduct is affected by their moral perception and rulings and their capability to deal with ethical problems is not formed all at once. There are three phases of growth in the capacity to think morally. First is preconventional, where children, ascertain what is right or wrong based on what they are taught by their parents or guardians. The next phase is conventional, in this phase teenagers adopt moral norms from those around them. The last stage is post-conventional, in which people past adolescent develop moral values that differentiate right and wrong from a collective point of view. These moral values are those that appeal to any rational individual since they take into account the interest of everyone affected by their decisions. Mizzoni (2018) argued that many factors, such as education could inspire an individual's growth in these phases of development. Mizzoni (2018) found that when individuals took courses in ethics, they were forced to perceive problems from a universal viewpoint. Therefore, ethics can be taught in colleges and schools, as they have been found to have a positive impact.

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Ethical dilemma

An ethical dilemma is a state whereby one has to make a choice between two, deeds that have conflicting consequences. Based on the principles of utilitarianism ethics, when faced with an ethical dilemma, one should analyze the implications and the outcome of the act to determine if it will create happiness. One common ethical dilemma in the accounting and auditing field is receiving a gift from their clients. For instance, if an auditor receiving an expensive watch as a gift from a client, auditing might seem harmless. On the surface, it portrays a reward for an excellent working relationship between the auditor and the client. However, the gift could imply that the client is bribing the auditor from disclosing some information regarding the company. Using utilitarianism ethical philosophies, the auditor should analyze the consequences of their actions and determine whether they will bring happiness to many people. Accepting the gift will make the auditor and the client happy. However, if the auditor agrees with the present, they will be unduly influenced by the client to hide some information regarding the company and its management to the users of financial statements. Giving an incorrect audit will help the client and management to conceal illegal transactions or hide the right and fair value of the company's economic performance. Failure to disclose such matters will give users of financial statements misleading information. When the users of these statements make decisions based on incorrect financial statements, they are likely to lose their investments. Suppliers may issue credit to corporations that are not creditworthy and lose their funds. Therefore, based on authoritarianism, the decision is not to accept the gift and conduct the audit using due diligence as required by the law. The auditor should also disclose all material information regarding the audit and indicate whether the audited statements present an accurate and fair view of the corporation's financial position and performance.

Conclusion

Ethics is an integral part of every society as it creates peace and harmony. In the auditing and accounting profession, ethics help in acquiring investor and other stakeholders’ confidence, and it motivates investors to invest in the stock market, hence increasing the availability of funds for corporations. Utilitarianism principles of ethics help auditors to determine what is right and wrong, and thus enable them to make the right decisions when faced by an ethical dilemma. In economics, ethics are also important as it leads to business success. Ethics should continue being taught at all levels to create a more moral society.

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Ethics in Economics. (2022, Jun 09). Edubirdie. Retrieved March 3, 2024, from https://edubirdie.com/examples/ethics-in-economics/
“Ethics in Economics.” Edubirdie, 09 Jun. 2022, edubirdie.com/examples/ethics-in-economics/
Ethics in Economics. [online]. Available at: <https://edubirdie.com/examples/ethics-in-economics/> [Accessed 3 Mar. 2024].
Ethics in Economics [Internet]. Edubirdie. 2022 Jun 09 [cited 2024 Mar 3]. Available from: https://edubirdie.com/examples/ethics-in-economics/
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