Ethics Quiz 2
Capitalism Facet #2: Competition
- Free markets need (fair) competition -- It is what drives prices down and quality up over the long run -- re-allocate capital toward its most in demand uses capitalist ideal: multiple sellers meeting multiple buyers in free, transparent exchange monopolies (google) and monopsonies (amazon) are bad monopsony = 1 buyer, many eager sellers - "thou shalt not collude with competitors to fix prices"
Adam Smith
- Original theorist of capitalism -18th century Scottish thinker -wealth of nations -mercantilism (merchants exporting raw good, bring back gold. run a massive trade surplus. bring less get more gold) -- does not operate in this way anymore -capitalism: growing the pie, not necessarily the slice grow YOUR wealth by helping others
5 facets of capitalism: Adam Smith
- Self Interest - Competition - Efficiency - Division of Labor - Pricing
Capitalism Face #4: Division of Labor
- Specialize in what you're good at to enable self-interested coordination and collaboration between individuals and amongst teams Benefits: - efficiency - specialization - increased production Limitations: - "becomes as stupid and as ignorant as it is possible for a human creature to become" --> kills creativity and ability to problem solve and use talents
Capitalism Facet 3: Efficiency
- The market mechanism of capitalism tends to promote corporate efficiency - also supports social efficiency - Greater efficiency in the allocation of scarce productive resources leads to better social well-being in the aggregate - a version of market-based consequentialism
Friedman: FREEDOM TO
-Focused on FREEDOM TO: -deception -fraud -coercion -regulation -non-democratic decision making -thinks that a society that maximizes freedom from will also maximize freedom to - if you are free from outside interference, will you be free to live your richest, fullest, best life?
Milton Friedman
-Laissez-faire, free market theorist - one version of capitalism that emphasizes minimal government intervention, a light regulatory framework, and individual decision-making -domain of market --> as big as possible domain of rights --> as small as possible (enforces individual rights) -emphasizes/draws out 2 exchange conditions implied by Smith (transparent information, voluntary exchange) FRIEDMAN = FREEDOM
Sandel: Non-Market Morality and the Markets
1. BUT the value of some goods is altered or destroyed when they are bought or sold (friendship, civic duty) 2. Subjective preferences should not always determine what people can buy and se;; (libertarian freedom tends to exploit the weak) -- shouldn't be for sale: votes, kidneys, plasma, sex, children 3. Sometimes, equality (protected by rights_ makes society better off than efficiency --> paying for access to democratic institutions (Congress or the Supreme court)
Both Milton Friedman and Ed Freeman are worried about traditional Corporate Social Responsibility (CSR) (e.g., businesses giving money to charities). However, their reasons are different. What is Milton Friedman's reasoning? What are some examples Friedman would give of illegitimate CSR? What is Ed Freeman's reasoning? What are some examples Freeman would give of illegitimate CSR?
1. There is no such thing as corporate responsibility, only individual responsibility. (stealing money from shareholdersLack of individual Freedom) 2. Corporate values cannot be separated from economic ones. No space for. its just business
New Belgium Brewing changed its legal corporate form to become a Public Benefit Corporation. It also invested the time and resources to join the community of Certified B-Corps (a program administered by B-Lab). What are the advantages and drawbacks of this commitment? What would Adam Smith say? What would a shareholder theorist like Milton Friedman say? (Dig deep. Get nuanced.) What would a stakeholder theorist like Ed Freeman say? (Dig deep. Get nuanced.)
1. advantages-allow company to communicate its values to its customers-help company identify, manage, and make progress towards its goals-become a part of a business community with the same goals 2. he would say that it is impossible to simultaneously advance one's own economic well-being while at the same time ignoring the desires and wishes of others. 3. he would say that NBB's only responsibility is to maximize profits, and they are taking the shareholders money and spending it, which is wrong. 4. he would say that you cannot separate social responsibility from business and they are doing the right thing.
Laisse-faire market ethics tend to assume
1. that the activity of buying and selling does not diminish the value of things being bought and sold 2. that "all values are merely subjective preferences, not open to reasoned argument" 3. that efficiency makes society better off - and free, transparent market exchange is the best way of promoting efficiency
How does Sandel challenge each of these assumptions?
1. the value of some goods is altered or destroyed when they are bought or sold 2. subjective preferences should not always determine what people can buy and sell 3. sometimes equality makes society better off than efficiency
Different accounts of the purpose of the firm correlate with different images or metaphors for what a firm is.
1.) The machine 2.) The social network 3.) The animal
What are the three assumptions that 'market morality' makes, according to Sandel?
1.the activity of buying and selling doesn't diminish the value of of the things being bought and sold 2. that all values are subjective preferences and not open to reasoned argument 3. the efficiency makes society better off/ free, transparent market exchange is the best way of promoting efficiency
Adam Smith suggests that self-interest is most conducive to social well-being when it is NOT consciously coordinated to achieve that well-being by market participants. Does Ed Freeman agree? Why or why not?
A stakeholder approach takes smiths capitalism and insists that were better off if were intentional about recognizing the self interest of other selves through our own self interest
Many organizations in Silicon Valley have struggled to attract and retain female engineers. This dynamic has led to a self-perpetuating 'bro culture' in many tech companies. Some groups are seeking to offset this trend by promoting diversity initiatives aimed at drawing historically-underrepresented people into technical roles. Given his shareholder approach to the firm, Milton Friedman would likely see these social responsibility efforts as: Misguided, assuming they are simply aiming to create more equal workplaces even if it were to mean bypassing the best talent. Worthwhile, assuming that greater diversity will improve the quality of the workplace for all employees without dramatically increasing costs to consumers or dramatically decreasing profits for shareholders. Worthwhile, assuming they are simply aiming to improve the quality and reduce the price of their product to generate additional profits. A&C only All of the above
A&C only
Did Smith like it or not? Why?
Adam Smith didn't like it because it puts sin/ greed over enlightened self-interest which leads to the breakdown of the invisible hand.
Friedman vs. Smith
Adam Smith: - Social well being is driven by broad self - interest (justice) - ethical business is about empathy -focus on the social potential inherent in doing business well -business rules are like bar rules Friedman: - Social well being is driven by individuals expressing their freedom -ethical business is all about competition, as long as you compete by the rules -business rules are like boxing rules
According to Milton Friedman, "Neither the manufacturer nor the government should force consumers to pay for enhanced safety to protect themselves." If you were to debate Friedman on this position, which of the following examples could be used to refute his view that the market will effectively address the issue of consumer safety? Failing brakes harm other drivers and the market but consumers have no way of knowing which cars' breaks are safest. Consumer care products' ingredients lists have become so complex that it is difficult for consumers to determine on their own the safety risks associated with a product's use. In air travel, consumers cannot voluntarily choose air travel based on the safest aircraft because most airlines' aircrafts are made by the same few companies, resulting in little consumer choice. All of the above A & B only
All of the above
Multinational corporations (MNCs) engage in business across national boundaries in different ways. Nike, for example, does not directly employ workers to make shoes. Rather, Nike designs shoes, and hires firms in other countries to make them. Nike, like other MNCs, especially in consumer-facing industries, is often held responsible for poor working conditions in its suppliers' factories abroad. In the 1990s, Nike was subject to sharp criticism for the labor practices of its suppliers and has since audited, monitored, and improved working conditions in its suppliers' factories. This example demonstrates which of the following: The power of information in the market The effectiveness of consumer influence An effective division of labor consistent with Smith's capitalism All of the above A & C only
All of the above
Which metaphor goes with a self-organizing company view? Explain the metaphor. What is one company that exemplifies this image?
Animal
Friedman's free market theory advocates for the pursuit of individual economic freedom, free from moral considerations. True False
B (FALSE)
Does Adam Smith think that markets are places that follow the same moral rules as apply to our relationships with friends, family, etc.? Or are they places that follow the rules of a different 'game'?
BAR RULES: follow the same moral rules
How does the General Economy challenge capitalism's traditional starting point in scarcity?
Bataille posits that the starting point in economic life's abundance as opposed to scarcity.
Capitalism: The Basic (Moral) Equation
Broad self-interest + transparent competition in an efficient economy [division of labor + market pricing]=Growth of social wealth = Becoming better together* *Key assumption: wealth is a good proxy for well-being.
Does Adam Smith think that markets are places that follow the same moral rules as apply to our relationships with friends, family, etc.? Or are they places that follow the rules of a different 'game'?
Business rules are like bar rules. (Same moral rules as apply to our relationships with friends/family)
How does Ed Freeman answer the Big Question of this module ('What do businesses owe society?')?
Businesses owe to society what society gives to a business and to improve well-being and prosperity (parent/ child relationship)
How might Ed Freeman extend an answer to the question 'What do kids owe their parents?' into an answer to the question 'What do businesses owe society?'
Businesses owe to society what society gives to a business and to improve well-being and prosperity (parent/ child relationship)
What makes markets moral spaces?
Compare the case for market institutions to the moral case for democratic institutions. The efficient satisfaction of needs makes markets moral institutions.
How does Milton Friedman answer the Big Question of this module ('What do businesses owe society?')?
Competitively valued products- produced and delivered legally, transparently and freely Since free-market capitalism leads to the freest -- and thus, best-- society for individuals UTILITARIAN
Corporate governance exists to ensure that value is generated through high-integrity interactions with different stakeholder groups. Name at least five of these groups.
Customers, employees, shareholders, board, suppliers, executives, etc.
Division of Labor: What is it and what does it do?
Div of Labor is the division of production into different stages to allow people to specialize at a certain task to create efficiency
Does Friedman think that democratically-elected governments have the right to redistribute money to those who need it?
Friedman believes that taxation to redistribute money is good to maintain the social legitimacy of capitalism, but that the problem lies in how the taxes are used.
Which of these two forms of freedom does Friedman focus on?
Friedman focuses on freedom from deception, fraud, coercion, regulation, and non-democratic decision
How does Friedman's commitment to freedom make him skeptical of traditional Corporate Social Responsibility efforts (like businesses making charitable donations to local community non-profits)?
Friedman thinks that all values are personal to the individual and only they can be responsible.
In what ways is Friedman different from Adam Smith?
Friedman thinks that social well-being is driven by expressing freedom, Smith thinks its driven by broad self-interests. Friedman thinks that ethical business is about competition, Smith thinks its about empathy. Friedman adheres to more boxing rules, whereas Smith adheres to bar rules
Milton Friedman: Role of Govt. In a Free Market
Govt. can also be crucial for maintaining the stability fo the social order and the social legitimacy for capitalism by taxing to provide a basic social-safety net. Taxation by a democratically legitimate govt. is NOT inherently problematic (problem is how the taxes are spent) (cash payouts are WAY better than food stamps or section 8 housing, which limit recipient's negative freedom -- freedom from interference) - When we lack options, we lack freedom from (implicit) coercion -Govt. is essential for protecting individual marketplace rights by protecting our freedom from coercion -Therefore, it is legitimate for govt. to: --enforce and modify rules that protect the vulnerable from manipulation or control by others -guarantee transparency -mediate marketplace disputes But Friedman argues that we are normally best off when the govt. avoids telling business how to do their business: - minimal govt. intervention (tech companies resisting GDPR) -light regulatory frameworks (banks resisting Dodds-Frank) -Fight for Fifteen? NO
Efficiency: according to Smith, what is the ethical case for efficient markets?
Greater efficiency in the allocation of scarce productive resources leads to better social well-being in the aggregate.
Adam Smith
Hates minimum wage
What is the key question capitalism asks?
How can we produce most efficiently the stuff that people want? AKA How do we solve the problem of scarcity?
Zappos has a unique, avant guard approach to it organizational design called 'Holacracy.' This approach enables self-management and evolutionary adaptation of the firm by focusing on roles instead of job titles. What is the case for and against CEO Tony Hsieh's decision to push the company to adopt this design? How is Zappos different from a traditional shareholder-driven company? How is Zappos different from a traditional stakeholder-driven company? What are some of the ethical benefits and risks of this design?
Hsieh hopes holacracy will help employees operate more like entrepreneurs and less like cogs in a bureaucratic structure. He also thinks this new team approach could help create unlikely collaborations that could leadto more innovation and creativity in the organization. The changeover has not been without obstacles. In addition to losing experienced employees (including former managers), the new approach continues to cause confusion among employees who were use to seeking advice and direction from their supervisors—who are now gone or who are now co-workers in the flat organizational structure. Also, in the coming year, former managers who have new roles at the company will, in all likelihood, experience pay cuts because their responsibilities as managers have been eliminated in the new team approach. Some critics say there is little or no motivation for people to stay at Zappos if there is noopportunity for advancement up the corporate ladder.
Friedman: Role of Govt. In Free Market
In the marketplace: -individuals express their freedom through their buying and selling decisions In politics: - individuals express their freedom through democratic action (voting) - In general, society is best off if the domain of the marketplace can be as large as possible - consistent with its free, transparent functioning -when individuals democratically express their political freedom by limiting their own marketplace freedom, everyone needs to respect that decision As a consistent libertarian, Friedman doesn't neatly fit out partisan political categories
What moral rules apply to marketplace conduct?
It depends on the philosopher. For Friedman the marketplace functions similar to a boxing match (in that you are allowed to do things that would not be acceptable in other settings). Freeman, on the other hand, sees the marketplace as similar to a bar (in that you should act with the normal moral rules that govern day to day conduct).
How is Smith's 'invisible hand' related to self-interest?
It describes how the unintended social net benefit comes from one individual's self interest
Corporate Governance: What are the specific functions/responsibilities of each division?
Led by the Board and C-Suite Focus on generating long-term value with the highest integrity Shareholders: •Elect members to board of directors •Vote on referenda Board of Directors: •Oversee CEO and C-Suite •Oversee auditor •Select board candidates •Respond to shareholder concerns •Define corporate mission/vision Executive Team (CEO, CFO, COO, etc.): •Apprise board •Produce financial statements •Plan strategy •Hire management •Define internal org structure •Identify and manage risks •Develop operating plans and budgets Operate effectively and ethically
According to Friedman, what are the three essential conditions for a free market transaction?
Legal, Informed, Voluntary Exchange
Friedman-Free Market Transactions
MUST be L.I.V.E: -Legal (must comply w/ the law, may not be illlegal) -Informed (materially relevant information available and transparent. no misleading, deceptive, or fraudulent info) -Voluntary Exchange (both parties must be able to opt in or out, illegal, monopolistic, or anti-competitive behavior prohibited)
Which metaphor goes with a shareholder view? Explain the metaphor. What is one company that exemplifies this image?
Machine - Shareholder
Michael Sandel and the Moral Limits of the Market
Market exchange is great at resolving the (moral!) question of what things traded on them are worth Key Idea: Sometimes, the positive freedom to do something good (or not do something bad) is best protected by reducing negative freedom (from coercion/limitation) - individuals (and society) are often better off when their ability to make (bad) choices is limited Sandel: better to increase penalties for drunk driving in order to get # of drunk drivign deaths down even though it limits freedom
What purposes do markets serve?
Market's enable greater freedom of choice in products and services through the voluntary exchange of goods and services.
Equality vs. Efficiency
Marketplace (domain of monetary value as a reflection of personal values) MORE EFFICIENT Government/Civic Spaces (Domain of rights as a reflection of universal human value) MORE EQUAL
Pricing: What market dynamics, for Smith, should set the prices of goods?
Markets should set the pricing of goods based on supply and demand fluctuations. Pricing will assume and communicate information to allocate scarcity.
Should companies be free to do things that probably will NOT return value to shareholders? What would Milton Friedman say? Why? Does this approach exemplify a broader or narrower concept of self-interest? What would Ed Freeman say? Why? Does this approach exemplify a broader or narrower concept of self-interest?
Milton Friedman: No! Edward Freeman: Yes! But Freeman acknowledges that there are good and bad ways of doing so. Freeman's line of thinking aligns more with broad- Put thought into the needs of others
What is a business practice that exemplifies narrow self-interest?
Misleading customers about a product for one's own gain (Faire Festival)
Friedman and the Ethical Logic of Putting Shareholders First
NOT "let's make the rich even richer because it'a awesome to be rich!" It IS: society is best off when people are free to do what they want with what is theirs Including: -Shareholders' freedom to invest -Employees' freedom to work -Customers' freedom to buy -Vendors' freedom to partner If you're free to take it or leave it - and you're choosing to take it - the presumption is that you're choosing what you think is best for you If everyone chooses what is best for them, we're most likely to maximize the overall utility for the most people possible at the lowest cost.
Does Milton Friedman think that markets are places that follow the same moral rules as apply to our relationships with friends, family, etc.? Or are they places that follow the rules of a different 'game'?
No, he thinks its more like a boxing match.
What is moral licensing? How does Merck (arguably) exemplify this phenomenon on the corporate level?
Past moral behavior makes people more likely to do potentially immoral things without worrying about feeling or appearing immoral do something good means taking a break to now do something bad Merck: lots of credit for river blindness and was easier to turn head about findings of vioxx.
What is a business practice that exemplifies broad self-interest?
Recognizing a need in the marketplace and creating a bargain that is beneficial to both parties
Pricing & Rent-Seeking
Rent Seeking --> enlarging one's slice of the pie without enlarging the pie - extracting value from an economy without producing any goods or services for others in exchange for that value -- one method: creating a problem you then charge people for you to solve -greed over self-interest leads to inefficient allocation of resources and the breakdown of the invisible hand (market failures) -Rent -seeking factors that sustain high prices: -lobbying -patent manipulation -Rx -monopolistic behavior -digital titans -restraint of trade - tariffs and the price of scotch artificial scarcity: trade groups lobby to keep it hard to become a dentist, vet, pilot, etc. so that their salaries can be higher (they are scarce)
What Do Businesses Owe Society?
Respect and care for each group touched by the business
Which value does the domain of government tend to promote?
Sandel believes that the government has a crucial role to play in determining what does/ doesn't belong in a marketplace
Why less negative freedom produces more positive freedom (Sandel)
Sandel: the govt. have a crucial role to play in determining what does and doesn't belong in the marketplace -Businesses and individuals should not be complete free to determine what they exchange - limits negative freedom to promote positive freedom -(laws defining certain categories of drugs as illegal) -- these laws reduce your freedom from coercion in order to promote your freedom to live a life free from addiction Reward: protecting people from others and from themselves (drunk driving laws) Risk: (paternalism)
What is the flow of authority for ensuring ethical practice and values alignment in a typical publicly-traded company?
Shareholders:-Elect the,Board of Directors:-Hire the,CEO:-Hire and Manage the,Executives:-Hire and Manage the,Workers:
Capitalism Facet 5: Pricing
Should be set by market (not government). as such, pricing: -fluctuates -is driven by supply and demand -assumes and communicates information - At a fixed level of supply, increasing demand = raising prices - as supply increases, price drops - as supply decreases, price increase Natural Price: - Covers rent, wages, and cost of capital - rents/land/resources/IP wages: cost of labor -cost of capital gains, dividends, etc. prices must be at or above the natural price
In contemporary business culture, which approach to the purpose of the firm is more dominant: shareholder or stakeholder?
Stakeholder
Which metaphor goes with a stakeholder view? Explain the metaphor. What is one company that exemplifies this image?
Stakeholder - Network
According to stakeholder approaches (pioneered by Ed Freeman) what is the purpose of the firm? How does corporate governance serve that purpose?
Stakeholder approach •A broader view of the purpose of business, founded on a structured, interdependent view of social collaboration •Market-based deontology •Purpose of the firm: taking care of each person who touches your business in a way that fairly reflects their relationship to your business. Overcoming the separation thesis (how do you practice corporate citizenship and social/environmental responsibility through your core business ops?)
Case #1: Merck, Mectizan, and Moral Licensing Should Merck have invested millions of dollars of R&D money to create Mectizan? What would a shareholder theorist say? What would a stakeholder theorist say?
Stakeholder: yes, because it helped their customers and gave back to society Shareholder: no because it did not benefit shareholders or maximized wealth
Case #2: Salesforce, 1t.org, and Climate Change Should Salesforce have committed its CRM platform to support the 1 trillion tree initiative, while also promising to plant 100 million trees itself? What would a shareholder theorist say? What would a stakeholder theorist say?
Stakeholder: yes, benefitting society Shareholder: no, does not maximize wealth because they're doing it for free and is cost heavy
Apple was forced to reduce the price of its iPhone 10 in some markets because sales at the product's original ~$1000 price point were slower than the company had projected. How would Adam Smith analyze this decision? Supply is greater than demand, reflecting weak consumer interest. Demand is greater than supply, reflecting weak consumer interest. The iPhone is a scarce product, and there is less demand for products that are scarce relative to more readily-available alternatives. The iPhone is widely available product, and there is greater demand for products that are readily available, relative to scarce alternatives.
Supply is greater than demand, reflecting weak consumer interest.
Milton Friedman
Taxing citizens to provide a cash payment for the poor to meet their basic needs in the marketplace is good minimum wage bad
What are three distinctive contemporary models for a socially-responsible business? Be sure you can describe each one. Be sure you can give an example of an actual business that represents each model.
The Civil Corporation: •Civil corporations (as we're using the term in this class): are large enterprises trying to leave a positive legacy by supporting long-term social and environmental goals through core business competencies—even if doing so can't be justified by return on financial investment. •Civil corporations typically issue a sustainability report—but might not do enterprise-level integrated reporting and accounting. •Civil corps typically don't have a principled system in place to optimally balance—from the top down—the firm's social, ecological and financial returns. The Triple Bottom Line Corporation •TBL=Triple Bottom Line: Profit + People + Planet •TBLs have a principled accounting and management system in place to optimally balance the firm's financial, social, and environmental returns. •Going beyond sustainability reporting to integrated reporting systems •GRI, SASB, TFCD, etc. •TBL firms might be Certified B-Corps—or they might use some other process to quantify, benchmark, and manage for the best balance between their triple impact goals •Examples: Danone Social Enterprise: •Social enterprises are for-profit businesses whose reason for being is to meet a social or environmental impact goal normally met by charities/the government •Strategy: drive profit + reinvest profit into a social mission or cause •Social enterprises are not non-profits •Greystone Bakery's Open Hiring
What are the advantages to the consumer of a market-based price system?
The advantages are that if the market determines the price, it ensures that it is fair for consumers because it is based around consumer demand.
What is corporate governance?
The formal system of accountability, oversight, and control, which helps to ensure ethically and socially responsible behavior within business organizations
What is the key question that the General Economy poses (in contrast with capitalism's key question)?
The key question for Bataille is figuring out optimal ways to get rid of wealth (or spend it) rather than how we ought to save it. This contrasts with capitalism in how we should best solve for scarcity.
According to shareholder approaches (pioneered by Milton Friedman) what is the purpose of the firm? How does corporate governance serve that purpose?
The purpose of the firm is to maximize shareholder's wealth (investors and owners). Corporate governance helps achieve this through policies enforced by them that align with maximizing wealth.-Ex: Walmart, low cost, low educated employees etc. The agency problem (how do you align the interests of owners and managers?)
What is capitalism?
The social institution in which private capital is organized in an ad hoc fashion by the exchange relationships between commodity-seeking consumers and capital-seeking producers, all of whom are trying to satisfy their desires.
Imagine that you inherit some wealth. You are trying to decide how to use the money. You want to use the money to do something good for yourself. But you also want to use it to do something good for others. Adam Smith would say that: These two desires are incompatible because self-interest is always at odds with altruism. These two desires are incompatible because your interest in others is always just a self-deceptive guise for selfishness. These two desires are compatible because fulfilling your self-interest in the marketplace is one of the most effective ways of serving the interests of other selves. These two desires are compatible because whatever is best for others is always what is best for you, too.
These two desires are compatible because fulfilling your self-interest in the marketplace is one of the most effective ways of serving the interests of other selves.
What is the difference between freedom from and freedom to?
To be free is to be able to choose, control, and direct one's own life. Freedom from is to be free is a lack of obstacles.
What is the common idea running through Ed Freeman's ten strategies for managers seeking to implement a stakeholder approach in their companies (cf., 'Company Stakeholder Responsibility')?
Transparency, treat business how treat family and friends
The U.S.D.A. has no legal authority to demand a recall of salmonella-tainted poultry. Yet, in 2011, Cargill, fearing consumer backlash, voluntarily recalled 18,000 tons of ground turkey that was associated with a nationwide outbreak of drug-resistant Salmonella Heidelberg. Doing so resulted in one of Cargill's "weakest quarters" ever for its business, resulting in an 88% decrease from the $832 million earned during the same period a year earlier. Cargill's decision is consistent with Adam Smith's notion of self-interest. True False
True
Wells Fargo Bank allowed its employees to open more than 2 million unauthorized accounts, sticking customers with almost $2.5 million in unwarranted/unauthorized fees. It seems the underlying cause for the unauthorized accounts with customers' money was a sales culture that provided an incentive structure that rewarded employees by the number of products they sold. Some employees would falsely tell customers that certain products were only available as a package with other products, such as additional accounts, insurance, or retirement plans—a practice known as "bundling." The above example is inconsistent with free market principles. True False
True
What are some ways in which human beings spend their economic excess?
Wars, extravagant lifestyles, and entertainment.
Many organizations in Silicon Valley have struggled to attract and retain female engineers. This dynamic has led to a self-perpetuating 'bro culture' in many tech companies. Some groups are seeking to offset this trend by promoting diversity initiatives aimed at drawing historically-underrepresented people into technical roles. Given his stakeholder approach to the firm, Ed Freeman would likely see these social responsibility efforts as: Misguided, assuming they are simply aiming to create more equal workplaces even if it were to mean bypassing the best talent. Worthwhile, assuming that greater diversity will improve the quality of the workplace for all employees without dramatically increasing costs to consumers or dramatically decreasing profits for shareholders. Worthwhile, assuming they are simply aiming to improve the quality and reduce the price of their product to generate additional profits. A&C only All of the above
Worthwhile, assuming that greater diversity will improve the quality of the workplace for all employees without dramatically increasing costs to consumers or dramatically decreasing profits for shareholders.
What is the 'separation thesis' according to Ed Freeman? Why is he skeptical of this thesis? How does Freeman evaluate whether or not a business is a responsible corporate citizen?
You cannot separate the social responsibility of a business from how a business does business Its wrong to separate business ethics from society in general extension on how he treats one another. Its wrong to separate business ethics from society in general An extension on how he treats one another
In what ways is Friedman similar to Adam Smith?
both are capitalists and value good social outcomes
Which one does Adam Smith favor?
broad self-interest
Self-Interest: What is the difference between broad (or enlightened) self-interest and narrow self-interest?
broad self-interest is taking into account every individual with empathy (all in this together :) ). Narrow self-interest is focusing on the benefit of one's self and ignoring the well-being of others.
What does the General Economy have to do with philanthropic giving?
energy (wealth) should be recycled rather than hoarded or wasted?
What are two specific worries that Sandel has about the marketplace putting a monetary value on civic goods or privileges that contribute to human dignity?
extrinsic motivation (money) can corrode out good intrinsically motivated behaviors such as patriotism or volunteerism.
How does he imply that these two forms are related?
freedom to is protected by regulated freedom from (positive and negative rights)
What is the risk of going below the 'natural price'?
going below the natural price is unsustainable
Is Sandel more worried about the marketplace encroaching on human rights or human rights encroaching on the marketplace?
he is more worried about the marketplace encroaching on human rights
How would a shareholder theorist like Milton Friedman evaluate NBB's business model? (Dig deep. Get nuanced.)
he would say that NBB's only responsibility is to maximize profits, and they are taking the shareholders money and spending it, which is wrong.
What would Adam Smith say about NBB's approach to modeling economic self-interest?
he would say that it is impossible to simultaneously advance one's own economic well-being while at the same time ignoring the desires and wishes of others.
How would a stakeholder theorist like Ed Freeman evaluate NBB's business model? (Dig deep. Get nuanced.)
he would say that you cannot separate social responsibility from business and they are doing the right thing.
How might traditional CSR be related to the phenomenon of moral licensing?
if a company does good, then they may feel more justified when making unethical decisions.
For Friedman, what makes the free market free?
markets are free when individuals can use their resources in their own way
What are some forms of anti-competitive behavior?
monopolies/ monopsonies
What, according to Smith, is the 'natural price'?
natural pricing means that people pay no more or less than what's sufficient for rent, wages, or the cost of capital.
Would Friedman consider the case of a parent buying a $500 EpiPen for their allergic child a free market transaction? Why or why not?
no because that demonstrates a monopoly and charged an unfair price.
According to Sandel, should marketplace participants always have the freedom to decide what is and isn't allowed for sale on the marketplace?
no it shouldn't have freedom because people need to be protected from harming themselves
What are some of the human costs (and potential moral drawbacks) of the division of labor?
people doing monotonous work leads them to become stupid and ignorant
What does sacrifice in the General Economy mean?
sacrifice isn't about tradeoffs but about offering life
Invisible Hand
self interest and competition work together to regulate the marketplace
According to Smith, what are the five ingredients of capitalism?
self-interest, competition, efficiency, division of labor, pricing
Do people have any responsibility to companies? How would a shareholder theorist answer this question? How would a stakeholder theorist answer this question? How would a self-organizing theorist (like Frederic Laloux) answer this question?
shareholder: people are responsible for their values are should accordingly in the marketplace stakeholder: people have a responsibility to act with others self-interests as well as their own self organizing: people have a responsibility to demonstrate what they want to see from a company?
Is Adam Smith pro-business? Anti-government? Explain.
smith rejects government in the marketplace and believes it should only serve 3 functions: protect borders, enforce civil law, engage in public works
For Smith, what is the moral case against anti-competitive behavior?
that it is a sin to obstruct competition
What is the General Economy?
the general economy has "excess" of energy available to it. This extra energy can be used productively for the organism's growth or it can be lavishly expended.
Which value does the domain of the marketplace tend to promote?
the marketplace is good at resolving what things are worth
Why does Friedman want the domain of the market to be as large as possible and the domain of government to be as small as possible (assuming that both are still able to function properly)?
the marketplace should be the domain of monetary value as a reflection of personal values, which creates more efficiency. The government reflects rights as a reflection of universal human value and creates equality. The government should only be there to check the marketplace as the marketplace creates more efficiency.
What macroeconomic changes were happening in Adam Smith's day that prompted (what was then) his revolutionary new theory of the morality of capitalist markets?
the shift from mercantilism to a new social vision of capitalism
What is rent-seeking?
trying to extract value from the market without enlarging the pie
Corporate Governance: What are its three main divisions in a typical business?
•Accountability •Close alignment of workplace decisions with a firm's strategic direction •Oversight •A supervisory system of checks and balances to minimize opportunities for misconduct •Control •The process of enforcement for auditing and improving organizational decisions and actions
