Business Ethics - Chapter 4

Exploitation

Allows capitalists to make a profit and increase their capital.

To review:

Capitalism has gone through several stages: mercantile, industrial, financial, and state welfare. Now we are in a globalized capitalism stage.

Hollow Corporation

Companies that in past years were identified with making goods of all sorts are now likely to produce only the package and the label.

Criticisms of Capitalism

Critics argue that poverty and inequality challenge the fairness of capitalism and its claim to advance the interests of all.

Competition isn't what its cracked up to be

Critics contend that capitalism breeds oligopolies that eliminate competition and concentrate economic power.

Competition is not a good

Critics contend that cooperation leads to better individual and group performance. Also, they contend that competition often precludes the more efficient use of resources that cooperation allow.

Human Nature & Capitalism

Critics say that capitalism rests on the premise that people are basically acquisitive, individualist, and materialism and it reinforces these human tendencies. Consequently presents no higher sense of human mission or purpose.

Mercantile Capitalism

Emerged after Fugers time. Capitalism that is based on mutual dependence between state and commercial interests. Says that economic health of a nation is determined by the bullion (precious golds, metals, silver) it possess and that therefore the government should regulate production and trade with the goal of encouraging exports while keeping out imports, the building up the nation's bullion reserves. A prudent nation should strive to be economically sufficient while using sea power, if it can, to control foreign markets and establish colonies for the benefit of the mother country.

Industrial Capitalism

Emerged due to the emphasized importance of competition and open markets and of freeing trade and production from government oversight. Trade between nations was now seen as mutually beneficial, and national wealth and prosperity were no longer identified with the bullion. Industrial capitalism is associated with large scale industry.

Worker control socialism

Individual firms respond to a market when deciding what to produce and acquiring the necessary factors of production. It is a hybrid, market-oriented form of socialism.

Under the decline of american manufacturing

Outsourcing jobs & US trade deficit

Outsourcing

buying parts or whole products from other producers both at home and abroad.

Key Features of Capitalism

1. Companies - capitalism permits the creation of companies or business organizations that exists separately from the people associated with them. 2. Profit Motive - is central to capitalism; it assumes that economic self-interest motivates human beings 3. Competition - is what stops people from bleeding society dry. 4. Private Property - central to capitalism; it requires private ownership of the means of production.

Today's economic challenges

1. The decline of American manufacturing and the related problems posed by the outsourcing of jobs and the growing U.S. trade deficit. 2. Businesses's obsession with outsourcing jobs. Now it is not just low-level blue collar jobs. Highly skilled and educated foreigners work for far less than their American counterparts. This helps with U.S. profitability. 3. Changing attitudes toward work.

Two Arguments for Capitalism

1. The moral right to property guarantees the legitimacy of capitalism. 2. The utilitarian based economic argument of Adam Smith.

Karl Marx

19th CENTURY CRITIC OF CAPITALISM He argued that workers are exploited by capitalism and inevitably experience alienation.

Comparative Advantage

A country should focus on producing for the world market those goods in which it has a comparative advantage - the goods it can produce at a lower opportunity costs than other countries can.

Adam Smith's concept of the invisible hand

A second argument for capitalism is that it is the most efficient and productive economic system. That is basically a utilitarian consideration. It says that the free and unrestrained market system that exists under capitalism is more efficient and more productive than any other possible system and is thus to be preferred on MORAL GROUNDS. Individuals, by pursuing their own interests, will, without intending it, produce the greatest economic benefits as if guided by AN INVISIBLE HAND. NO GOVERNMENT INTERFERENCE.

Free Competition & Laissez Faire

ADAM SMITH - is the regulator that keeps a community activated only by self interest from degenerating into a mob of ruthless profiteers. When traditional restraints are removed from the sale of goods and from wages and when all individuals have equal access to raw materials and markets (the doctrine of lassies faire which means let people do as they choose), we are all free to pursue our own interests. In pursuing our own interests, however, we come smack up against others similarly motivated. If any of us allow blind-self interest to dictate our actions, for example by price gouging or employee exploitation, we will quickly find ourselves beaten out by competitors who chafe less or pay better wages. Competition regulates individual economic activity. Ultimately competition makes individual pursuit of self-interest socially beneficial.

The natural right to property

According to Locke, when individuals mix their labor with the natural world, they are entitled to the results. Utilitarians reject the whole idea of the natural right to property as fiction. They say that there is no natural right that things be owned privately, or collectively, or in anyway whatsoever. The moral task is to determine which property system has the greatest utility.

Financial Capitalism

As industrialization increases, do did the size and power of business. The large sums of capital necessary could be raised only through a corporate form of business in which risk and potential profit were distributed among numerous investors. Financial Capitalism is characterized by pools, trusts, holding companies, and the interpenetration of banking, insurance and industrial interests.

U.S. Trade Deficit

As the US continues to run an enormous trade deficit, its foreign borrowing keeps increasing - with risky consequences according to some economists. We are the worlds largest debtor nation.

Corporate Welfare

Assists business and protects it from competition. Example is tax breaks: 55% of large US corporations during a 7 year period had at least one year of paying no tax at all.

Oligopoly

KARL MARX said that capitalism leads to oligopolies. A concentration of property and resources, and thus economic power, in the hands of a few.

Exploitation and Alienation

Karl Marx argued that as the means of production becomes concentrated in the hands of the bourgeoise (capitalists) and laborers (proletariat) the balance of power tips in favor of the bourgeoisie. Because the workers have nothing but their labor the bourgeoise is able to exploit them.

Short-term focus

Makes the U.S. unimaginative, inflexible and ultimately uncompetitive.

Exclusive Focus on the Short Term

Many observers believe that American corporations are too focuses on short term performance. This obsession can lead to fraudulent behavior.

Changing Attitudes Toward Work

People's attitudes about work are changing, and some work that the famous American work ethic is disappearing.

State welfare capitalism

The government plays an active role in the economy, attempting to smooth out the boom-and-bust pattern of the business cycle through its fiscal and monetary policies.

Inequality

There is profound economic inequality that exists in our capitalist society. Divisions of social and economic class comes inequality of opportunity. Responses: 1. A few extreme supporters of capitalism simply deny that it is responsible for poverty and inequality. Rather, they say government interference with the market causes these problems. 2. Moderate defenders of capitalism concede that in its pure laissez fair form, capitalism does nothing to prevent and may even foster inequality and poverty. 3. Defenders of capitalism argue that the benefits outweigh this weak point.

Capitalism

can be defined as an economic system that operates on the basis of profit and market exchange in which the major means of production and distribution are in private hands. US is capitalist. All manufacturing firms are privately owned, including those that produce military hardware for the government. No one dictates what or how much of anything will be produced. Emerged in the Renaissance in Europe in the 15th & 16th centuries. Before capitalism there were guilds - i.e. you would ask the shoe maker to make you shoes. Weaving was also big; Hans Fugger was a weaver turned banker. His company actually amassed profits which was a rarity. He was encourage dby profit motive.

Theoretical criticisms

challenge capitalisms fundamental values, basic assumptions or inherent economic tendencies.

Operational Criticisms

focus on capitalisms alleged deficiencies in actual practice (as opposed to theory) in particular on its failure to live up to its own economic ideals.

Profit Motive

implies and reflects a critical assumption about human nature: that human beings are basically economic creatures who recognize and are motivated by their own profit interests.

Socialism

is an economic system characterized by public ownership of property and a planned economy. Under socialism a society's productive equipment is owned by public bodies. It depends on centralized planning rather than on a market system for both its overall allocation of resources and its distribution of income. The soviet Union was socialist.

Alienation

the separation of individuals from the objectives they create which in turn results in ones separation from other people, from oneself, and ultimately from one's human nature. The concept that a worker puts his life into a project/object and then his life then no longer belongs to himself but to the object... The alienation of the worker in his product means not only that his labor becomes an object, assumes an external existence, but that it exists independently, outside himself, and alien to him, and that it stands opposed to him as autonomous power. In Marx's view, when workers are alienated they cannot be truly free.

Work ethic

values work for its own sake, seeing it as something necessary for every person. It also emphasizes the belief that hard work pays off in the ends and is thus part and parcel of the American Dream. Attitudes have shifted. There is a growing expectation that work should provide self-respect, nonmaterial rewards, and substantial opportunities for personal growth. Also there is increased demand for individual rights, justice and equality.

Globalized capitalism

what many believe we are in currently. The worldwide scale of capitalism leads many contemporary commentators to believe this. Internet, satellites, cell-phones, and other technological advance has lead to the integration of economies in many countries and this is called globalization.