The Roman writer Publilius Syrus once wrote that “Everything is worth what its purchaser will pay for it”. This encapsulates the businessman’s mindset on a free market, as producers seek to market their product at the highest price consumers are willing to pay. On the other end of the transaction, the concept of homo economicus teaches us that the consumer always aims to maximise utility from a purchase in a perfectly rational, self-interested manner. 

In recent decades the concept of homo economicus has been increasingly contested. Zig Ziglar, an American author, summed it up when he argued “People don’t buy for logical reasons. They buy for emotional reasons.” It is argued that consumers not only buy products to fulfil material requirements, but to grant greater personal satisfaction. Part of this satisfaction could come from the idea of making an ‘ethical’ purchase, where the consumer buys into the idea that a product carries moral benefits to themselves or society as a whole. These benefits, however, could be profound or largely insignificant. This raises the question: is it right for businesses to market their goods and services as ‘ethical’ in order to charge a premium?

One argument might focus on maximising the freedom of the market and individual liberty. If people are freely willing to pay a premium for a product that is ‘ethical’, and they derive greater satisfaction from buying that product, some might argue that producers have every right to charge extra. Even if the moral benefits of the product are disputable, as long as consumers are under the placebo that they are making a difference, then they can derive greater satisfaction from their purchase. An example might include organic agricultural produce, whose supposed nutritional benefits, while disputable, are enough to grant greater consumer satisfaction in many cases. Hence, the higher prices for organic food are arguably justified.

It is also important to note that ethical products often require higher standards in their production, such as fair-trade practices or sustainable sourcing. These practices require additional investment and can result in higher costs. A prime example is the supermarket chain Waitrose, which is known for its higher prices. This is partly due to the emphasis it places on sustainability and ethical practices. It has been awarded multiple accolades for its animal welfare programmes, with the NGO Compassion in World Farming awarding it the ‘Best Retailer in Europe’ award for its farming standards. Waitrose has also partnered with charities such as Fareshare to reduce food waste and redirect surplus food to those in need. 

Waitrose is also a member of Fairtrade, which helps producers in developing countries by setting a minimum price for certain goods. The extra profits earned by producers go into Fairtrade premiums, which fund community projects like healthcare centres and schools. In 2022 Waitrose generated more than £2.3 million in Fairtrade Premiums. It also launched a project with ASOPEP, a Fairtrade cooperative in Colombia, whose coffee goes into the John Lewis and Waitrose café blend. These are just a few examples of a company that makes genuinely ethical products, justifying higher prices to account for higher costs of production.

If the companies which practice sustainable sourcing earn greater profits, they can invest even more into ethical production practices while expanding their operations. Other firms may follow their lead and adopt sustainable practices of their own. In this way the entire supply chain can be made more sustainable and environmentally friendly, and thus it can be argued that higher profits earned by ethical business practices incentivise positive social change.

On the other hand, it is often argued that companies market their goods and services as ‘ethical’ in order to guilt people into buying, or else to take advantage of the human desire to feel charitable and good. This argument is fundamentally tied up in the long-running debate surrounding the nature and purpose of advertising. The American economist George Stigler, a Nobel laureate in Economics, praised advertising as a “powerful tool in competition” that “provides valuable information about a product”. However, others have noted that advertising often goes beyond conveying simple facts about the product, and instead tries to influence the way consumers think and feel. In his book The Affluent Society Harvard economist John Kenneth Galbraith argued that advertising convinces people to buy products they do not actually need, a hypothesis he called the Dependence Effect.

Thus, it is possible to find examples where companies have attempted to market themselves as ethical despite operating in unethical ways. An example is Volkswagen, which heavily advertised its environmentally-friendly diesel cars in the early 2010s. That was until 2015, when the ‘Emissionsgate Scandal’ was exposed to press; it turned out that VW had been using software to cheat emissions testing, and that their cars were in fact producing over 40 times the permitted amount of pollutants. Falsely marketing a product as environmentally friendly is known as ‘greenwashing’ and has become increasingly prominent in recent years. Arguably, if companies gain extra profit by deceiving consumers, they are only incentivised to continue their unethical business practices. Moreover, it is clearly unethical in itself to try and exploit consumer concerns on issues such as poverty and the environment to sell a product. Those who believe that firms will always be inherently selfish might doubt the possibility of any company adopting truly ethical practices, except in an attempt to appeal to consumers.

Finally, some might argue that more expensive ‘ethical’ goods and services can price out poorer consumers, leading to accessibility issues. This could undermine the broader societal impact that ethical sourcing is designed to have. For example, Fairtrade coffee is typically up to 14% more expensive than the natural market price. Those in favour of sustainable sourcing argue that the price increases are minimal compared to the benefit they bring to poor producers around the world. But the debate will always be influenced by people’s perspectives on the extent to which companies should cater to the needs of domestic consumers over foreign producers. 

In conclusion, if a company makes real and tangible ethical improvements they have every right to charge a premium and earn greater profit. While price hikes should be balanced with the need to cater to less affluent consumers, if ethical practices are rewarded with higher profits, entire supply chains can be revolutionised. This in turn can contribute to a fairer and more equal world.