Returning to Rawls: Social Contracting,

Social Justice, and Transcending the

Limitations of Locke Richard Marens
ABSTRACT. Agenerationago, the field of business ethics
largely abandoned analyzing the broader issue of social
justice to focus upon more micro concerns. Donaldson
applied the social contract tradition of Locke and Rawls to
the ethics of management decision-making, and with
Dunfee, has advanced this project ever since. Current
events suggest that if the field is to remain relevant it needs
to return to examining social and economic fairness,
and Rawls approach to social contracting suggests a way to
start. First, however, the field needs to discard the weaker
and counterproductive aspects of its Lockean legacy:
Lockes hostility to government activism and his indiffer-
ence with regard to outcomes for the bulk of society.
Donaldsons and Dunfees social contracting approach is
not suited to, nor was it designed to, analyze or resolve
broad issues of social and economic justice. Their postu-
lated network of communities upon which they rely is
problematic in a number of ways, and while they take the
legal and political status quo into account, their method
does not deal with the historical reality that, as the eco-
nomic and social environment changes, promoting greater
justice requires new and sometimes coercive government
interventions. Rawlss work, however, does acknowledge
the historically demonstrable necessity of using the power
of government to help to achieve desirable social outcomes.
While he rejected Mills methodology, Rawls was inspired
by the earlier philosophers concerns for social justice at a
time of major economic change. The field would do well to
follow the example of both men in this respect.
KEY WORDS: Donaldson, Dunfee, economic justice,
Locke, Mill, Rawls, social contract, Whig
Introduction
In the early 1980s, an earlier generation of writers on
business, or corporate, social responsibility found
themselves increasingly out of fashion. While there
were differences in the perspectives among the var-
ious academics, businessmen, and think tank scholars
who had debated the topic, virtually all had endorsed
some sort of pluralistic arrangement in which the
business community would be held in check by the
countervailing power of government, responsible
unionism, and other institutions (e.g., Bowen, 1953;
Chamberlain, 1973; Dale, 1960; Davis, 1967; Dodd,
1954; Heald, 1970; Johnson, 1971; Jones, 1983;
Levitt, 1958; Selekman, 1958). However, during the
late 1970s, American corporate management
responded to the economic chaos of the time by
uniting and mobilizing to rollback taxation, regula-
tion and unionization (Clawson et al., 1998; Edsall,
1984; Ferguson, 1995), and was no longer interested
in listening to lectures on the need to share social
power (Maloot, 1978). The purge of the mildly-
Keynesian Center for Economic Development sent a
warning to the eld that needed a new way to talk to
executives about their social responsibilities if they
were going to be listened to all (Clark, 1979;
Domhoff, 2001; Frederick, 1981).
Donaldson was the rst to point to such a way in
Corporations and Morality (1982). He advocated a
social contract approach to dening the ethical
responsibilities of business, an approach that con-
ceded the autonomy of executives to make decisions
but argued for restraint, not because of law or
countervailing power, but because of ethical con-
siderations. In this work, Donaldson applied the
thought experiment methodology of the social
contracting tradition to talk about the ethical
Richard Marens is an Assistant Professor in Management at
California State University, Sacramento. He has published
articles on shareholder activism, management history, em-
ployee ownership, corporate law, and the evolution of Catholic
Social Teaching. He is currently researching the social role of
nance from both historical and contemporary perspectives.
Journal of Business Ethics (2007) 75:6376 Springer 2007
DOI 10.1007/s10551-006-9238-7
responsibilities of businesses without having to
depend on either advocating politically unattainable
constraints upon management or the universal
adoption of some single system of ethical standards.
Along with Thomas Dunfee, Donaldson elaborated
and rened this heuristic in a series of articles (e.g.,
1991, 1995a, b) that culminated in their 1999 book,
Ties that Bind. The book has earned well-deserved
praise for its success at framing ethical quandaries in
terms that managers can understand and appreciate
(Conroy, 1995). Others (Gauthier, 1985; Keeley,
1988) have also applied their own versions of vol-
untary social contracting to the organizational and
business environments. However, as Bowen and
others demonstrated long ago, business ethics is a
subject that covers a great deal more than the
morality of executive decision-making or how vol-
untary relationships should be shaped between
individual actors. For those interested in using ethics
to analyze and make recommendations regarding
broader issues of social and economic justice, Rawls
himself showed that the social contract approach
provides a powerful tool for analysis.
Business ethicists have not ignored the role that
law plays or can play in establishing ethical prac-
tices. There have been endless debates, for exam-
ple, over the obligations imposed by duciary
duties, and Ties that Bind itself points to law as a
source for uncovering community norms and val-
ues. However, with a few notable exceptions (e.g.,
Werhane and Radin, 2004), few business ethicists
over the last generation have advocated changes in
the legal environment are an appropriate tool to
raise ethical standards or promote social justice. Yet
the need for doing so was predicted some 75 years
ago by Dodd in one of the seminal works of the
eld in which he concluded:
It may well be that any substantial assumption of social
responsibility by incorporated businesses through
voluntary action on the part of its managers can not
reasonably be expected. Experience may indicate that
corporate managers are so closely identied with
prot-seeking capital that we must look to other
agencies to safeguard the other interests involved, or
that the competition of the socially irresponsible makes
it impracticable for the more public-spirited managers
to act as they would like to do, or that to expect
managers to conduct an institution for the combined
benet of classes whose interests are largely conicting
is to impose upon them an impossible task and to
endow them with dangerous powers. (Dodd, 1932:
1162).
In 2005, this warning reads as prophetic. There are
pressing issues of business ethics that are too wide-
spread and intractable to be solved one executive, or
even one rm, at a time. In the United States, such
issues would include a generation of stagnant com-
pensation (Mishel et al., 2003), endless and seem-
ingly ubiquitous nancial scandal (Partnoy, 2003), an
excessive dependence on the part of so many busi-
nesses on military Keynesianism (Melman, 2001),
and the diversion of enormous sums of money into
the political system to inuence outcomes (Clawson
et al., 1998; Ferguson, 1995). Fortunately, John
Rawls, the contemporary philosopher credited with
reviving the social contract tradition, provides a
sophisticated if preliminary model for analyzing how
the state might create and enforce laws to promote
social justice (Barry, 2002; Hsieh, 2005; Lessnoff,
1999). Surprisingly, though he is so frequently dis-
cussed in the business ethics, this aspect of his work
has been largely neglected. One can read through
the greater part of a vast business ethics literature that
has cited Rawls without realizing he was an advocate
of property owning democracy [that] tries to
disperse the ownership of wealth and capital, and
thus to prevent a small part of society controlling the
economy and indirectly political life itself (1999b:
xivxv).
Saying this is not meant to imply that social
contracting is without value as an element of a
heuristic intended to inject ethics into voluntary
decision-making, or that all scholars must embrace
Rawls personal concerns. Certainly it is legitimate
to attempt to offer guidance to agents whose
autonomous decisions often have vast economic and
social impact. Still, over the last generation, the eld
of business ethics has largely neglected the other side
of this issue: What obligations and constraints ought
to be imposed upon such agents in order to protect
the rights of recipients (Hendry, 1999). Yet, this
second perspective is embedded in Rawls difference
principle, and he emphasizes it even more explicitly
in his later writings (1999a, b, 2001).
If business ethicists have largely ignored Rawls
substance while embracing his methodology, some
of the fault may lie with the legacy of John Locke.
64 Richard Marens
When Donaldson brought social contracting into
business literature, he relied most heavily on Locke
among the classical formulators (1982), and the
subsequent literature has followed suit, making little
use of the perspectives of Hobbes (except for
Gauthier, 1985), even less of Rousseau, and largely
ignoring more obscure gures in the social contract
tradition such as Grotius and Fichte. Whether
intentionally or not, when scholars do make use of
Rawls, they neglect those aspects of his work that
explicitly conict with Lockes approach, specically
Rawls concern with broadly egalitarian conse-
quences and his reliance on governmental power to
promote greater social justice. While Rawls
acknowledges his debt to Locke with regard to the
methodology behind the procedures he advocates
for forming social contracts, Rawls focus on the
institutions that distribute unequal life chances to the
members of society was hardly something he had
inherited from his methodological predecessor
(Barry, 2002: 23).
This is not to claim that the eld has treated
Lockes views with anything approaching religious
reverence. When Donaldson (1982) introduced so-
cial contracting to the business ethics literature, he
explicitly pointed to the lack of nuance in Lockes
views on property. Furthermore, virtually any
thorough discussion of the Second Treatise inevitably
concludes that Lockes treatment of the central issue
of consent was woefully inadequate (e.g., Heeley,
1995). But two other limitations of Lockes Second
Treatise seem to have survived intact, perhaps be-
cause abandoning them would have not be looked
upon with favor by the intended consumers of the
elds output.
The rst of these was awarding precedence to
voluntary social agreements over the establishment
of government, thus reversing the actual historical
order of events in order to serve Lockes political and
personal needs. Donaldson (1982) acknowledged
Lockes obvious historical inaccuracies, but he dis-
misses Lockes ignorance of the early history of the
nation-state as insignicant to his purpose. This
dismissal, however, misses the point of the criticisms.
The problem with Lockes account of the origins of
government is not that he was unaware of the
precedents with regard to Egypt or Sumer, but that
he was disingenuous with regard to the then recent
English history of property rights, including events
that occurred within his own lifetime, events that
clearly demonstrated that property rights were
established by coercive acts of government (e.g.,
Dunn, 1984; Laslett, 1967; MacPherson, 1962;
Wood, 1992).
There is a second weakness of Locke that, because
it has been emulated by modern businesses ethics,
has held back the development of the eld. That is
his neglect of the outcomes of his social contracting
process for population it was supposed to benet.
Rawls (1971: 3032), himself, while rejecting formal
utilitarianism, points out that all rational ethical
systems are, by denition, concerned with conse-
quences, though the specic consequences aimed for
by various ethical theorists do, of course, differ
dramatically. They certainly do not have to be the
ones that primarily concerned Rawls: broad political
participation and fashioning an economic system that
generated both wealth and fairness (Hsieh, 2005).
However, the consequences that did matter to
Locke, the political and economic rights of English
landowners, not only differed from those embraced
by Rawls, they emphasized values that are virtually
incompatible with Rawls focus on the creation of
new constraints and obligations through the agency
of a redistributionist state. As a result, theorists
who wish to apply the social contract to problems of
social and economic justice in the manner of Rawls
must rst shed Lockes class biases and self-serving
reading of history.
It is my contention that eld has recapitulated
Lockes blind spots because business ethicists have
ignored George Santayanas famous warning to those
who refuse to study the past that they are con-
demned to repeat it. Business ethicists may occa-
sionally make use of intellectual history, but they
almost never apply either biographical studies or
social and economic history to help to illuminate and
assess those ideas on which the eld is based. Perhaps
this historical approach the analysis of ideas has been
neglected because of a partial association with Marx,
who was certainly a pioneer in this area. Yet many
scholars, from Max Weber to Ferdinand Braudel to
Douglass North, have managed to place intellectual
developments within their historical context without
also endorsing the fundamental principles of Marx-
ism, suggesting that avoiding historical analysis
because of a possible Marxist taint is simply
unwarranted.
Social Contracting, Social Justice, and Transcending the Limitations of Locke 65
Whatever the reason, this neglect is unfortunate,
and not merely because it results in ignoring a
potentially useful tool. To remain unconcerned with
the inuence of time and place, does not mean
rejecting history at all, but rather requires a tacit
acceptance of a supercial great man theory of
intellectual history in which the writings of impor-
tant thinkers are treated as self-contained within a
tradition, thus precluding the possibility of ltering
their reading through an understanding of the
personal interests, blind spots, and social biases of the
author. This refusal is especially problematic when
the writing itself is unclear as to meaning or logically
inconsistent, as certainly is sometimes the case for
Lockes Two Treatises. A historically oriented
approach should make it easier to separate whatever
is useful and insightful in Lockes work, from what
is demonstrably self-serving, subjective, or even
bigoted.
The rest of this article will use this historical
methodology to examine these issues of the negative
inuence of Locke on modern ethical thinking. The
rst section will discuss in more detail exactly where
and why Locke was disingenuous. The second
shows that metaphorically, Locke indeed did cor-
rectly identify the more-or-less voluntary formation
of an important social contract, but the elite and
violent nature of this contracting hardly gives
guidance to those who wish to construct a social
contract, as Rawls did, that will operate to promote
justice and cooperation between the classes, com-
munities, and interest groups of the modern world.
The third section uses the case of employee relations
in the United States to show the practical limits of
Donaldsons & Dunfees system of voluntary social
contracting with regard to generating social justice,
limits that can only be understood and overcome by
abandoning Lockes limitations. I conclude by
pointing out that if social contracting is going to
provide a tool for generating social justice, it needs
to replace Lockean distortions with the more real-
istic approach of Rawls with regard to understanding
and remedying social inequities.
Locke the polemicist
It is misleading to defend Locke, as Donaldson did,
by arguing that Locke aimed to discover the
moral foundations of government, implying some
dispassionate mental exercise on his part. Locke did
not create a thought experiment in the manner of
Rawls in order to understand better what laws made
the most ethical sense or achieved the greatest
possible degree of social justice. He gave voluntary
agreements causal and chronological priority ahead
of government in order to justify the destruction of
two Stuart monarchs. Locke was heavily involved in
the political pamphleteering of his time, and what he
aimed to do in the Treatises was to develop a theory
of government that justied the extreme Whig
positions of his friend and patron, Lord Shaftsbury,
while simultaneously excluding the lower orders of
society from political participation (Tarlton, 1981;
Wood, 1992). As Thompson (1987: 276) has put it,
[a] very real fear of Popery was set against an almost
equally strong abhorrence of civil disorder.
Although it was rst published in 1689, right after
the Glorious Revolution, Lockes First and Second
Treatises on Government were written over a period of
several politically contentious years during the 1670s
and 1680s (Laslett, 1967). They were designed to
serve two political purposes. The more general
purpose was to theoretically justify Whig political
aims by legitimizing a political system dominated by
the owners of commercially productive property,
whether agricultural, mercantile, or (pre-industrial)
manufacturing (Wood, 1992). A more specic
purpose for Locke was to defend his patron Ashley
Cooper, the rst Lord Shaftsbury, and his radical
position urging the removal of James Stewart from
the succession, a position that was controversial even
among Whigs. Ashley Cooper risked his life arguing
that a royal heir with Catholic and absolutist sym-
pathies disqualied himself because he posed a threat
to the property rights of his subjects (Haley, 1968;
Laslett, 1967).
Locke defended both positions by claiming that
property rights were the product of voluntary
agreements that predated government, which itself
was founded to protect these agreements. He
thereby rationalized as defensive acts the two
English revolutions of his age, both of which were
led largely by rentiers, people very much like
himself in social and economic status (Cranston,
1957; Wood, 1984). In reality, modern property
rights were a relatively recent phenomenon in
Lockes time (Reid, 1995). Furthermore, they were
66 Richard Marens
produced, not by voluntary agreement among so-
cial actors, but by a series of political struggles and
violent upheavals that included the conscation of
Catholic Church property, the abolition of the
Churchs judicial role, the passage of the earliest
enclosure acts, and the judicial usurpation of cus-
tomary rights to make uses of land that had long
been held by many commoners, as well as the
overthrow of two Kings with absolutist pretensions
who might have interfered with these shifts in the
legal structure (Hoskins, 1976; Lachmann, 1987;
Neeson, 1996; Wood, 1999). Locke, well-educated
and well-connected, could not have been entirely
ignorant of the political, legal, and violent events
that drove the creation of those property rights that
he, himself, enjoyed (Wood, 1984). For example,
the abolition of the Court of Wards charged with
enforcing feudal obligations, called by one impor-
tant historian possibly the most important single
event in the history of English land-holding, oc-
curred in 1660, when Locke was 28 years old
(Ogg, 1955: 56).
This recent and quite public history in Lockes
day strongly suggests that he knew that the creation
of early modern property rights was not remotely the
product of voluntary and mutually benecial
agreements among the members of some pre-gov-
ernmental commonwealth. Moreover, these rights
were not only not generally benecial to the entire
English population, they were actually the source of
enormous suffering for many. It is not as clear from
his writings that Locke took notice of this suffering
or attributed them to changing relationships to
property, but others certainly did, and eye witness
accounts range from Saint Thomas More in the early
as the 16th century (Maynard, 1947) to the agron-
omist Arthur Young in the late 18th (Neeson, 1996;
Porter, 1982).
The point here, however, is not that Locke was
surprisingly ignorant or dishonest, but that he was
disingenuous for personal and political reasons. Like
virtually all polemicists of the time, Whig propa-
gandists sought to deny any intention to alter the
supposedly ancient constitution of English politics
and sought to portray their opponents as the radically
dangerous innovators (Thompson, 1987). And also
like any other political grouping, English Whiggism
encompassed a variety of viewpoints, and Lockes
friend and patron, Ashley Cooper, First Earl of
Shaftsbury, held some of the partys most extreme
positions.
As suggested by his double-barreled surname,
Shaftsbury was heir to two important new families
that had risen to prominence and large landholdings
under the Tudors in the usual manor: service to the
monarchs, acquisition of Church lands, and insti-
tuting improvements on these same lands (Haley,
1968). Shaftsbury himself became built on his
ancestors successes by becoming one of the largest
commercial farmers in England, in part by taking
advantage of opportunities available to a successful
Roundhead general in acquiring Cavalier hold-
ings (N. Wood, 1984). Although contemporaries did
not regard him as a particularly religious individual,
and he took no part in the numerous intra-Protes-
tant disputes of that century, Shaftsbury was known
for his rabid-anti-clericalism, an attitude he shared
with Locke (Miller, 1973),. Ultimately, he was
willing to risk the Tower and even his life in an
effort to organize opposition to the succession of the
future James II, and he went into exile, along with
Locke, never to see the Glorious Revolution he
helped to instigate (Haley, 1968).
This near fanaticism probably had social, rather than
religious, roots. As a rst generation lord and a scion of
families that had arisen on a wave of anti-Catholic and
anti-Absolutist policies, he likely perceived James as a
threat to his familys relatively recent rise, and so will-
ingly believed the most paranoid Whig fears concern-
ing the ascension of a Catholic and pro-French
monarch, including James supposed intension to re-
turn conscated land to his beloved church (Ashcraft,
1977). Locke, who shared Shaftsburys political views
as well as his household, was certainly inuenced by the
older and more worldly Shaftsbury (Cranston, 1957;
Dunn, 1984; Haley, 1968; Laslett, 1967). He therefore
rationalized on behalf of both his patron and their
shared worldview by creating the ction of govern-
ment originating by voluntary agreement for the ex-
press purpose of protecting pre-governmental property
rights, a position that would deny legitimacy to any
government that threatened those very rights it was
allegedly created to protect. Thanks to Lockes slight-
of-hand, the almost rabidly revolutionary Shaftsbury
and his allies were transformed into the protector of a
venerable communitarian tradition threatened by a
tyrannical monarch in violation of the very social
contract that had granted him his throne.
Social Contracting, Social Justice, and Transcending the Limitations of Locke 67
Locke the Elitist
The problem that Lockes social contract poses for
modern business ethics, however, is not that Locke
wrote clever lies, but that it contains a kernel of truth
but a truth that works against any useful application
of the idea of social contracting in a modern and
increasingly democratic world. It is, indeed, possible
to nd the formation of an implicit social contract
regarding the political rights of at least some of the
English during the course of the 17th century, but
this was an inherently non-egalitarian contracting
process restricted to the holders of property
(Ashcraft, 1980; Gough, 1957; Wood, 1992). Since
Lockes justication of government was the
protection of property, it is not surprising that Locke
restricted the franchise to freemen, a term that, in
its 17th century usage, applied only to that minority
of individuals who owned either a commercial
capital or sufcient agricultural property to support
themselves, approximately one-fth to one-third of
the adult male population (Becker, 1992; Ogg,
1955).
One might argue that an extended oligarchy that
included every squire and merchant in the kingdom
represents a democratic step up from the political
dominance of a royal court and a handful of aristo-
cratic families and their clients, and in some respects
this is true. We should not, however, lose sight of
the implications of this implied social contract for
the excluded classes. As Fabian Philipps, a 17th
century Tory, charged with some glee, Whigs who
raised the banner of freedom on their own behalf
were hypocrites, and the liberty they sought was to
exercise pocket tyrannies over their own employees
and tenants, as well as the consumers of their goods
(Ashcraft, 1977). Modern scholarship support Philips
claim to a degree, since royal and clerical courts, out
of a mix of religious scruple and a desire to check the
ambitions of the gentry, had traditionally been more
sympathetic to the traditional rights of the peasantry
than the local courts of the early modern period
headed by those gentlemen agricultural improvers
that Locke lionized (Lachmann, 1987; Ridley,
1983).
Certainly, if the attitudes Locke expressed in his
writings were typical, then these lower orders
needed all the protection and they could nd from
the commercial property owners of England.
Locke did not necessarily set out to restrict the
franchise in his political writings; he simply did
not see the need to even consider expanding it as
universal male suffrage was simply not on the
agenda of those who exercised political rights.
Lockes famous passage from the Second Treatise
displays how invisible the interests of the nascent
English working class was for him: Thus the grass
my horse has bit, the turf my servant (italics mine)
has cut; and the Ore I have diggd in any place
where I have a right to them in common with
others, become my property (Locke, 307, 1698/
1967). When he did write of the conditions of the
lower orders he tended to be dismissive and
unsympathetic. Although one may nd the
beginnings of trickle-down economics in his
claim that an American Indian chief is clad worse
than a day labourer in England (Locke, 315,
1698/1697), this passage was primarily a defense of
colonialism, not a peon to the virtues of broad
economic prosperity. In Money, Interest, and Trade
(1696: 34) he is skeptical about the egalitarian
spread of prosperity to the working poor, noting
that: First therefore the Labourers, living gener-
ally from hand to mouth. . . may well have en-
ough to buy victuals, cloaths, and tools: All of
which may very well be provided, without any
great sum of money lying still in their hands.
While this last comment might be excused as
no more than a realistic assessment, when he did
pass moral judgment on the victims of the trans-
formation of English property rights, his callous-
ness and lack of sympathy could scarcely have
been more pronounced, as for example, in this
excerpt from his proposals to reform the Poor
Laws:
If the causes of this evil (the multiplying of the poor
and resulting tax increases to support them) be well
looked into, we humbly conceive it will be found to
have proceeded neither from scarcity of provisions nor
from want of employment for the poor . . . and it can
be nothing else but the relaxation of discipline and
corruption of manners; virtue and industry being as
constant companions on the one side as vice and
idleness are on the other. (Locke, 1697: 380).
Nor can Lockes blindness be attributed to unfairly
and anachronistically applying modern standards of
social justice to a 17th century English country
68 Richard Marens
gentleman. A century and a half earlier, Thomas
More had found sufcient compassion and insight
into the then new social and economic transforma-
tion to write:
Your sheep that were wont to be so meek and so small
eaters, now . . .become so great fevorers . . . they eat
up and swallow down the very men themselves. They
consume, destroy and devour whole elds, houses and
cities. . . . Noblemen and gentlemen . . .not contenting
themselves with the yearly revenues and prots, that
were wont to grow to their forefathers and predeces-
sors of their lands . . .leave no ground for tillage, they
enclose all into pasture; they throw down houses; they
pluck down towns, and leave nothing standing . .
.[while] the husbandmen be thrust out on their own,
or else either by coven or fraud, or by violent
oppression ... they be compelled to sell all; by one
means or another they must needs depart away, poor
silly wretched souls, men, women, husbands, wives,
fatherless children, widows, woeful mothers with their
young babes .(Maynard, 1947: 84).
A full century after Lockes comments about the
plight of the poor being self-inicted, the seminal
agricultural reformer Arthur Young could echo
More, albeit less poetically, that nineteen out of
twenty enclosure bills, the poor are injured most
grossly . . . the poor in these parishes may say with
truth parliament may be tender of property; all I
know is, I had a cow, and an act of Parliament has
taken it from me (Porter, 1982: 229).
One can then nd an implicit social contract
voluntarily forged among the citizens of 17th
century England commonwealth to guarantee the
economic and political freedom of the implicit
contract signatories. This agreement to protect lib-
erties was as much at the expense of the welfare of
the lower orders as they were limits on the power of
the monarch and his court. A recent analogy can be
found during the late 1970s, when American cor-
porate executives put aside many long standing dif-
ferences in order to work cooperatively to reduce
their common regulatory and tax burdens they felt
an oppressive government had imposed upon them.
They did this by rst organizing or strengthening
their own community in organizations such as the
Business Roundtable and the Conference Board,
and then extending this consensus view of the
proper role of government by founding, funding or
pressuring think tanks, policy groups, media, and
politicians of both major parties (Burris, 1992;
Callahan, 1999; Clark, 1979; Clawson et al., 1998;
Domhoff, 2001; Edsall, 1984). Just as the efforts of
the earlier English Commonwealth won the liberty
to seize common land and control the labor of the
local poor, the new social contract forged between
corporate executives successfully defeated, limited,
or even rolled-back regulations and their enforce-
ment in areas such as minimum wage rates, union
organizing, employee health insurance, taxation of
capital and higher income brackets, and (most
recently) overtime and bankruptcy protection
(Clawson et al., 1998; Domhoff, 2001; Palley, 1998).
It needs to be emphasized that regardless of the
intentions of the revolutionaries, the Whig revolu-
tions of the 17th century ultimately did create the
conditions necessary to improve the living standards
and politically emancipate the rest of the population.
Still, even if in hindsight, one could reasonably argue
that these gains eventually arose from resistance to
royal absolutism and the securing of property rights,
they came despite the general opposition of the
property-owning classes, and the resulting conicts
were contentious, often violent and involved
countless interventions on the part of government
on side or another and sometimes to mediate
(Neeson, 1996; Rule, 1986). When the concept of a
social contract was employed in these struggles, it
was not offered up as a tool to ameliorate grievances
with the voluntary cooperation of elites, but to unite
and organize the aggrieved in opposition. Often this
resistance was mobilized, not by some forward-
looking reformist ideology, but what Calhoun
(1982) calls reactionary radicalism, an essentially
Lockean argument that some economic or political
elite was abusing the rights granted by some vener-
able social contract to the aggrieved.
A similar pattern can be found in the United
States, where, as much because as despite a
founding revolution and constitution inspired by
Lockean ideals (Bailyn, 1967), the extension of
various political rights as well as a more egalitarian
sharing of prosperity had to be demanded over and
over again through agitation, violence, and political
conict by those who had been left out. One can
argue, for example, that a social contract was even-
tually forged in the United States that shared pros-
perity between workers and employers during the
Social Contracting, Social Justice, and Transcending the Limitations of Locke 69
bulk of the 20th century, but the backdrop to the
tacit and explicit agreements between the relevant
stakeholders was the willingness of these same
stakeholders to resort to violence and state coercion
to achieve their goals. Industrialization in the United
States led to the worlds highest living standards for
the industrial working class through most of the 20th
century, but before this was achieved, the parties rst
had to confront one another through the bloodiest
labor episodes in the industrialized world (Taft &
Ross, 1969). The history of the American worker
until the mid1970s is the history of generally ris-
ing levels of compensation, but it is also the history
of violence at Lowell, Coeur DAlene, Cripple
Creek, Homestead, Pullman, Tompkins Square,
Ludlow, Matawan, and River Ridge, to name just a
few of the bloodlettings that eventually led to
sharing, compromise, and any number of state
and federal regulations of the employment
relationship.
Social contracting theory and promoting
social justice
If Britain and the United State experiences are typ-
ical, there is a Rawlsian element to the evolution of
economic institutions and the provisioning of social
justice. Social arrangements that can be accurately
labeled social contracts did emerge in the centuries
since Locke, but at least in part because of state
interventions that mandated or at least encouraged
them. In the real world, threats of disorder, violence,
or even revolution played much of the role Rawls
assigned to his Veil of Ignorance, an impetus for
social actors to look past their immediate interests.
Those government interventions that resulted were
generally consistent with Rawls expectations that
governments needs to redistribute property, income,
and opportunity to a degree in order to promote
social justice. In his later writings, Rawls made this
point increasingly more explicit (Rawls, 1999a, b,
2001, Hsieh, 2005), perhaps because he perceived
economic outcomes in the United States were
growing increasingly unjust after the 1971 appear-
ance of the rst edition of A Theory of Justice and the
promotion of a new (militarized) version of laizzes-
faire ideology shortly thereafter (Barry, 2002).
Governmental policies that functioned as part of
social contracts were restricted over the centuries to
attempts to regulate the employment relationship.
Scholars have long established that that the role of
corporations in American society was explicitly de-
ned and constrained in the 19th century by the
private and political interaction of groups prepared
to ght it out in private and political arenas. As
Dodd and others have shown (Dodd, 1954; Hartz,
1948; Roy, 1997; Seavoy, 1982), the evolution of
incorporation in 19th century United States was in
large part the product of political compromises
between economic elites and individual proprietors,
farmers, and artisans, the former promising the latter
groups that they would share in both the new
property rights generated by general incorporation
and the resulting prosperity that would follow the
legitimization of this new business form. These
accounts may not have used the language of social
contracting, but the processes and outcomes
chronicled certainly possess strong Rawlsian
elements. In a similar fashion, Bowen and other
scholars in the post-war generation argued that
business leaders would have to share prosperity,
respect the countervailing power of other groups,
and respect the independence of government in
order to protect and secure, not only the general
health of society, but the future of business as well
(e.g., Bowen, 1954; Chamberlain, 1973; Dale, 1960;
Johnson, 1971; Selekman, 1958).
These insights were only possible because these
scholars avoided Lockes limitations: his high
expectations for the efcacy of voluntary and
implicitly peaceful social arrangements, his intention
to limit governmental power to intervene, and an
almost studied blindness with regard to actual out-
comes for the bulk of the population. This is not to
suggest that the kind of voluntary heuristic advo-
cated by Donaldson and Dunfee and others are
without value simply because they are not incon-
sistent with Lockes basic methodology. The point
here is that both history and contemporary problems
suggest that business ethicists concerned with
promoting social justice need to follow Rawls
where he veers radically away from Locke and
toward the direction of Dodds call for some forms
of government intervention to rectify social
injustice.
70 Richard Marens
It is difcult to see how social justice could be
obtained through voluntary agreement, or even a
series of voluntary agreements, within a complex
global economy that features widely divergent
interests and perspectives and massive differences
in power and access to resources. Voluntary social
contracting approaches, such as Donaldsons and
Dunfees, that remain consistent with Lockes
methods, may help to guide decision-making among
those executives who seek such guidance, but it does
not offer, and probably are not intended to offer,
a method for analyzing and evaluating changes in the
relationship between business activity and the
promotion of social and economic justice.
The volunteerism of Donaldson & Dunfee
(1999) depends in part of the existence of a con-
stellation of communities from which to extract or
deduce local norms and values. Yet, as a practical
matter, it is not easy to identify those organizations
that can be said to legitimately function as norm-
generating communities, according to Donaldson
and Dunfees own requirements of informed
consent, freedom from coercion, channels for voice,
and a realistic option of exit for its members. This is
not simply the practical problem of deciding how
much of each of these attributes an organization
needs to possess in order to be considered a com-
munity (Keeley, 1995). In the United States at least,
the more immediate problem is nding any business
of signicant size and importance that voluntarily
treats its employees as if they were members of a
community. (Whether this search would be easier
in other societies because of a different legal regime
or cultural expectations is left to other scholars
better informed to make such a judgment See, e.g.,
Jacoby, 2004).
Ironically, and in true Orwellian fashion there
have been countless references in recent years to a
new social contract between employees and em-
ployer, which seem to imply that changes in the
employment relationship are the product of some-
thing akin to a social contracting process within a
community (Hammonds, 1996; Maxwell et al.,
2000; McKinleyet al., 1998; Meister, 1998). The
phrase social contract is, in fact, used as euphe-
mism for the unilateral repudiation on the part of
management of any previously implied contract, and
it is has been suggested that this reects management
imitating what a corporate raider would do to the
rm (Lazonick, 1992; Useem, 1993). In much of the
same way, Locke abused the phrase social contract
to obfuscate how the English landlords treated so
many of their own tenants in the manner of a
conquering army, abolishing traditional rights and
repudiating what was left of a feudal social contract,
one which had been based on the balance of power
between longbow and lance, and mediated in
practice by a universal church.
In asserting that American businesses are no
longer analogous to communities, this is not simply
a reection of the more backward sectors of the
economy driven to draconian, and often brutal,
measures to keep costs low, such as Wal-Mart
closing departments or even entire stores to avoid
unionization (Barber, 2005), or Tyson buying a
sausage plant and then reducing compensation as
soon as it becomes legally possible (Dresang, 2003).
Anti-communtarian policies have seemingly
become the broad norm even in sophisticated rms
and industries, which no one would think to
analogize with sweat shops, or workhouses, let
alone plantations. High-end manufacturer Xerox
unilaterally repudiated a famous union-management
cooperative agreement in order to please investors
(Holusha, 1993). Motorola, long heralded in the
literature for its commitment to ethics, became the
rst large company to impose random drug testing
despite the protests of many of its employees
(Ferguson, 1990), and it has since joined so many
others in closing plants in the United States while
opening them in China (Andrews, 2004). We can
nd similar repudiations of commitments to
employees in the computer world, rms, for
example, that use severance pay to pressure laid-off
employees to train their Indian replacements
(Armour, 2004). This attitude has spread to
Microsoft, the most successful American company
over the last generation and a beneciary of tens of
billions of public investment into computer hard-
ware and software (Newman, 2002). Just months
after sending a representative to the 2003 meeting
of the Society of Business Ethics, Microsoft
repudiated its implicit contract with its employees
by instituting cutbacks in a number of employee
benets, including stock purchasing, health insur-
ance, and vacation time. When employees
exercised their voice to complain that the annual
savings under the new plan were only a thousandth
Social Contracting, Social Justice, and Transcending the Limitations of Locke 71
of the companys 50 billion in cash reserves, CEO
Ballmer informed them that that money rightfully
belonged to the stockholders, a group which,
coincidentally enough, includes those who made
this decision (Peterson, 2004).
It might be argued that American business is
actually highly diverse, and I have cheery-picked
examples to prove my point. However, a look at
macro-trends suggest that these examples repudiate a
general repudiation of any shared norms of com-
munity in favor of a largely zero sum strategy in
which top management interests are served by keep
compensation costs down for other employees. That
executive compensation has exploded in recent years
is hardly news, along with perks meant to increase
security, such as golden parachutes and special pen-
sion plans walled-off from the companys general
pension fund (Schultz, 2004). What is discussed less
often is that hourly compensation in the United
States peaked in the 1970s, and the historical pattern
of broadly sharing of gains in productivity has largely
come to an end, with the share going to capital
(which includes stock options) well-above its his-
torical norm (Mishel et al., 2003).
One factor in this shift is the decline of unioni-
zation rates and the countervailing power of those
unions which have survived. The Wagner Act,
which legitimized American collective bargaining,
was in many ways a classic piece of Rawlsian legis-
lation, empowering one group with the explicit
hope that this would benet the society in general,
including the business community through the
resulting Keynesian stimulation (Domhoff, 2001).
While the causes of the decline of unionization are
complex, top management, while perhaps divided
on other issues, has shown a solidarity that would
have impressed Marx in their efforts to accelerate
this decline, both through political action and in
workplace-oriented strategies (Bronfenbrenner, 1994;
Edsall, 1984; Mills, 1979). These tendencies are not
likely to be reversed without new government
interventions to either strengthen traditional union
rights or generate new forms of employee voice and
countervailing power.
Furthermore, even when a community can be
identied according to the standards of Donaldson
and Dunfee, it is difcult to nd an example where
the norms and standards it generates leads to posi-
tive consequences in terms of Rawlsian social
justice, without also nding extensive government
involvement in the process. A case in point is in-
sider trading and the nancial sector, which Dunfee
(1991) identies as a community capable of
generating real world social contracting. Labeling
the nancial industry a community does makes
more sense than calling most large businesses
communities, since the members of this group are
far more homogeneous with regard to interests,
world view, education, social interconnections, and
economic circumstances, thus making it far more
likely that they will share goals, beliefs, and atti-
tudes (1991: 32). The reality, however, is that even
in this environment where one could expect to
nd a social contract characterized by a reasonably
free consensus on shared norms, it is difcult to see
how the resulting norms and values worked to
prevent socially destructive behavior once govern-
ments presence was reduced. Almost as soon as
regulations were no longer vigorously enforced
while calls for new ones for new nancial instru-
ments went unheeded, once the courts and Con-
gress protected many failures of due diligence from
legal liability and prosecutors nailed virtually no
one for malfeasance, the result was not effective
self-policing by participants through voluntary so-
cial contracting, but a nearly endless parade of
deceiving and looting of outsiders (Partnoy, 2003).
Conversely, once government did intervene by
creating new laws and enforcing old ones more
vigorously, much of this unethical and destructive
activity appeared to stop.
The point here is not that Dunfee was wrong
about his characterization of the nancial commu-
nity. Rather, the point is that in terms of conse-
quences for the rest of the society, whatever social
contracting and norm creation occurred proved
largely irrelevant without the active involvement of
government. In times such as our own, certainly an
age of economic anxiety, issues of social justice
become more signicant than those of personal
ethics, and social contract theorists will have little to
contribute unless they identify those blindnesses they
inherited from Locke and move to a more Rawlsian
attitude with regard to outcomes and government
intervention.
In the employment sphere, for example, neither
empowered voice or realistic exit just happen.
Their presence or absence are strongly affected by
72 Richard Marens
government policies with regard to facilitating the
expression of voice, protecting its use, and providing
for an economic environment that allows alternate
employment opportunities for those who choose to
exercise exit. Many different kinds of governmental
interventions can work toward these ends and some
might prove more appropriate or realistic than
others. A short list would include stronger labor
laws, raising the cost of dismissal and layoffs, the
right of employees to participate in management
through such organs as works councils, and
employment scal and monetary policies that
encourage high levels of employment. The optimum
mix of these is uncertain and open to disagreement
as to their intrinsic worth, and well-meaning policies
can backre or work at cross purposes to each other.
Still, as scholars we need to recognize the general
need for government involvement and study real
world outcomes across various societies. In doing so,
we would follow Rawls expressed intention to put
all citizens in a position to manage their own affairs
and to take part in social cooperation on a footing of
mutual respect under appropriately equal condi-
tions (Rawls, 1999b: xv).
Here the revolutionary side of Locke, not to
mention the much neglected Rousseau, might
provide inspiration. Donaldson appraised the classic
social contract tradition as a tradition of social
change and reform (1982: 40). If so, it is not reform
as we tend to understand the term today: incre-
mental changes in the status quo initiated from
above by the more far thinking members of the
establishment. Rather, the social contract tradition is
one of being a tool of the disaffected attempting
to rally serious, sometimes violent, opposition to
absolute monarchs in France and England, or
George III and Parliament in the colonies. In the
modern world, there are myriad opportunities to
employ social contract theory as a tool to overcome
perceived injustice, and the employment relation-
ship in the United States provides an excellent
example.
Donaldson and Dunfee argue that German and
Japanese companies hold obligations to follow any
clearly established mandatory norms of their nation-
states (1999: 248). It is consistent with what they
state to add that actors within a given society also
have an obligation to respect the voice of other
groups in both the formation of these norms and
with regard to their modication when they are no
longer appropriate. Cultural differences are
undoubtedly important in creating norms, and it is
doubtful that the fairest, most Rawlsian survey of
American workers would reproduce either the
Japanese or German employment systems to any
precise degree. That does not, however, mean that
because it is now normal for so many American to
have little job security, rights to severance pay,
workplace representation, or health insurance cov-
erage, these absences are the product of community
values, let alone the outcome of some social con-
tract. Political voice is crucial in the formation of
mandatory norms, and if there are serious obstacles
in the way of expression of political voice, such as
undemocratic constitutional provisions or the use of
money to promote particular candidates or ideas,
then the results can hardly be accepted as the
product of social contracting. As Rawls, himself,
put it, the conditions for a fair agreement on the
principles of political justice between free and equal
persons must eliminate the bargaining advantages
which invariably rise within background institu-
tions of any society as the result of cumulative
social historical and natural tendencies (1999a:
400).
Conclusion
Social contracting has a long venerable tradition,
and, as often noted, John Rawls deserves a great deal
of credit for reviving that tradition and adapting it to
the problems faced by the modern world (Lessnoff,
1999). However, for all the use of Rawls in the
literature, his efforts to develop ways to grapple with
problems of social and economic justice have not
been sufciently developed by the eld, despite their
obvious relevance to current difculties in the rela-
tionship between business and society. Instead, over
the last generation, business ethicists have focused
primarily on the ethics of managerial decision-
making. Social contracting, along with other ap-
proaches, has been brought to bear on this issue, and
the work of Donaldson and Dunfee might represent
the most thorough, subtle, and sophisticated appli-
cation of the concept toward that end.
If the eld wishes to remain relevant, however,
it needs to once again begin to examine the
Social Contracting, Social Justice, and Transcending the Limitations of Locke 73
relationship between business practices and broader
social outcomes, and Rawls has provided a per-
ceptive and rigorous way to start. Before it can
proceed, however, the eld must rst discard the
baggage it has inherited, consciously or not, from
the worse features of Lockes work, his insistence
on limited government and his general indifference
to outcomes for the general population. Why these
features have stuck, while others, such as his jus-
tications for rebellion, have not, is difcult to say.
It might be because corporate executives, the in-
tended audience for a great deal of business ethics
writing, are not interesting in empowering gov-
ernment to rectify unpleasant outcomes generated
by business activity. Or perhaps it is assumed that
considering consequences smacks too much of
utilitarianism, a school of ethical thinking largely
disfavored by business ethicists. If the latter is the
actual explanation, then it is worth repeating that
Rawls, himself a critic of utilitarianism, was careful
to point out that merely trying to predict and
weigh outcomes does not by itself amount to
utilitarianism.
It is pertinent to this issue to point out that
throughout his writings, Rawls expresses a degree of
admiration for John Stuart Mill. Rawls approval of
Mill was not so much for his methods or abstract
principles, both of which he frequently criticized,
but for his overall concern for social justice, and he
cited him approvingly with regard to his stance on
such issues as restricting inheritance and promoting
workplace democracy (Rawls, 2001). Mill was, in
fact, one of a handful of 19th century philosopher/
reformers in the formative years of the industrial
revolution, a group that would include Bishop
Ketteler, whose work provided the inspiration for
Rerum Novarum, and the seventh Lord Shaftsbury,
a tireless advocate for child labor legislation. These,
and similar activist intellectuals were not united by
any formal allegiance to a particular branch of phi-
losophy, but by their shared concern for making
their societies fairer for all. They were typically
willing to accept the progressive elements of eco-
nomic change in their time, but unwilling to either
ignore the costs of these changes for the least pow-
erful members of society or to abandon the possi-
bility of using the power of government in trying to
ameliorate these negative consequences. In many
ways, Rawls was their descendent, if not in
methodology, then in intention. We would do well
to carry on the lineage.
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76 Richard Marens