Business ethics is really about social responsibility. There is no clear demarcation between the two concepts. The idea of a firm acting ethically within the market can be boiled down to the firm taking itself to be more than a profit-making machine. The firm should, basically, become a promoter of community enterprises, charitable giving and good labor relationships.
The Problem
In the context of the free market, business ethics and its social component seem extraneous. The very fact that the firm is providing a needed service at a cost the consumer is willing to pay is already an ethical relationship. The utilitarian ethics of Adam Smith and the entire free market tradition hold the market itself as a web of relationships of supply and demand. The ethical content of the market is found in the price, that is, the marker of equilibrium between the consumer and the firm. In essence, market ethics is based on the negotiation of buyer and seller in an environment of competition. The ethical behavior is something generated by this environment and, therefore, becomes a creator of social happiness and contentment.
The Issue
The existence of a free market and contractually negotiated prices does not guarantee a better life for all stakeholders. A firm is a part of a broader community, whether it likes it or not. The existence of competition can permit firms to offer shoddy products at below-market prices to take advantage of bad economic times and consumer insecurity. This is a market-permitted function --- because the consumer is voluntarily buying the stuff, after all --- but it is not an ethical function, because it takes advantages of consumers, who, in this case, are tightly constricted in their choices.
The Myth
Smith's famous model of supply and demand forcing a firm's ethical behavior exists only in a thought experiment called "perfect competition." It is a theoretical model and does not reflect the day-to-day relations of a firm and the surrounding community, including its own workers. One element of "perfect competition" is total information: All consumers have all the information they need to make informed choices. In the real world, consumers have --- at best --- partial and possibly distorted information. Consumption choices can be based on impulse, commercial manipulation, fads, social class or just to feel good for awhile. Firms can take advantage of these well-known noneconomic factors in consumption by holding that fashionable people "must" have a certain gadget. Firms, especially retail firms, are partially responsible for this noneconomic function in consumption that can prey on the weak, insecure and bored.
The Potential
Social responsibility in the free market revolves around treating consumers as subjects, not objects of manipulation. Advertising and retail manipulation are examples of treating consumers as objects who can be herded to a certain movie, buy the "right" pair of jeans or buy the "right" CD. The very structure of retail advertising revolves around just this sort of manipulation. To hide behind a purely theoretical idea of the "sovereign, rational consumer" making decisions solely based on economic rationality is a classic example of unethical behavior and the even worse justification.
