Session_7_-_Cht3R

Session_7_-_Cht3R - The Market and Business Session 7...

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Unformatted text preview: The Market and Business Session 7 Chapter 3 Business Ethics Concepts and Cases, 6th ed. By Manuel G. Velasquez Richard Trevisan Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 1 Session 7 objectives Review John Locke's position on government, people and free exchange of property Understand Adam's Smith's views on free markets. Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 2 The Market and Business Let's examine the ethical aspects of the market system itself. How justified? What strengths and weaknesses of the system are there from the viewpoint of ethics? Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 3 The Market and Business At the close of the 20th century, proponents of industrial policies were arguing for the government to help declining industries and employees deal with new economic conditions. Others urged government to "avoid the pitfalls of protectionism." Herein lies the opposing sides that we will study. Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 4 The Market and Business Individualistic societies promotes a limited government role whose role is to protect property rights, contract rights and open markets. Communitarian societies define needs of the community first and define the rights and duties of community membership to ensure needs are met. Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 5 The Market and Business Communitarian systems use a command system. Free market systems are characteristic of the individualistic societies. This approach uses the thinking of John Locke and Adam Smith. Free market systems have two components 1. Private property system 2. Voluntary exchange system. Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 6 3.1 John Locke 1632 1704 http://en.wikipedia.org/wiki/John Locke 7 John Locke Generally credited with developing the idea that human beings have natural right to liberty and private property. If there were no government, each man would find themselves in a state of nature. Free from any constraints except that imposed by nature. Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 8 John Locke Nature teaches us we have a right to liberty but because the state of nature is so dangerous, individuals organize themselves into a political body to protect their lives and property. Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 9 John Locke John Locke's views on property have been very influential in the U.S. The fifth amendment to the constitution even quotes Locke directly. Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 10 Fifth Amendment to the U.S. Constitution "...nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation." http://www.house.gov/house/constitution/amend/html 11 John Locke Locke argues that Nature grants property rights, not the government. He also contends that labor creates property rights. Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 12 Free Markets John Locke's views on the right to private property have had a profound influence on the U.S. institutions of property. American law has been written for individuals to have absolute right to do whatever they want with their property and the Government has no right to interfere or confiscate private property. Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 13 Free Markets critics of Locke have stated: The assumption that individuals have natural rights is unproven. Why should negative rights such the fifth amendment take precedence over positive rights? Free markets create unjust inequities, and people with no property, or cannot work, will not be able to live. Locke assumes that people are individuals first, independent of communities. But humans are born dependent on others. Without caring relationships, no human can survive. Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 14 3.2 Free markets and Utility: Adam Smith Adam Smith Economist and Philosopher 1723 1790 http://www.lucidcafe.com/library/96jun/smith.html 15 Free markets and Utility: Adam Smith "Smith laid the intellectual framework that explained the free market and still holds true today. He is most often recognized for the expression `the invisible hand,' which he used to demonstrate how selfinterest guides the most efficient use of resources in a nation's economy, with public welfare coming as a byproduct." http://www.lucidcafe.com/library/96jun/smith.html 16 Free markets and Utility: Adam Smith "To underscore his laissezfaire convictions, Smith argued that state and personal efforts, to promote social good are ineffectual compared to unbridled market forces." http://www.lucidcafe.com/library/96jun/smith.html 17 Free markets and Utility: Adam Smith Question What normative theory did Adam Smith rely on to make his argument. velasquez, M.G. cited in Heller, V.L. (2006) Instruactors's Manual 18 Free markets and Utility: Adam Smith Smith held that free markets, ensure that buyers will buy what they need at the lowest prices and business will attempt to satisfy these needs. Competition forces sellers to drop their prices as low as they can and to conserve resources while producing what consumers want. velasquez, M.G. cited in Heller, V.L. (2006) Instruactors's Manual 19 Free markets and Utility: Adam Smith Smith's theory is that supply and demand will allocate resources efficiently. When the supply is not enough, buyers will bid the price upward until it rises above what Smith called the natural price. velasquez, M.G. cited in Heller, V.L. (2006) Instruactors's Manual 20 Free markets and Utility: Adam Smith When that happens, other producers will enter the market for that scarce commodity, drawn by the profit. This produces more product and the shortage disappears, thereby lowering the price once more. This is what is called social utility. Government should do nothing, the marketplace will take care of everything. velasquez, M.G. cited in Heller, V.L. (2006) Instruactors's Manual 21 Free markets and Utility: Adam Smith Although Smith did not speak much about private property, it was a key assumption of his argument. Free markets cannot exist without the system of private property. velasquez, M.G. cited in Heller, V.L. (2006) Instruactors's Manual 22 Critics of Free markets and Utility: Adam Smith Critics of Smith state that today, many of the industries are monopolized to some extent, so it isn't correct to say that "no one seller can control the price. Saying that "the seller will pay for all of the resources needed to produce a product" isn't correct, e.g., a polluter. Not all humans are motivated by self interest, there are many who act to help others, constraining self interest. velasquez, M.G. cited in Heller, V.L. (2006) Instruactors's Manual 23 Adam Smith Reviewing what we just learned, how does Adam Smith defend free markets on utilitarian grounds? velasquez, M.G. cited in Heller, V.L. (2006) Instruactors's Manual 24 Adam Smith What should the government do to advance the public welfare according to Smith? velasquez, M.G. cited in Heller, V.L. (2006) Instruactors's Manual 25 Reading Discussion Milton Friedman's Social Responsibility of Business is to Increase Profits Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 26 Reading Discussion 1. Does Friedman's position (regarding the executive) exempt the corporation from more than profit concerns? 2. Friedman calls the "contemporary crop of reformers" ..."preaching pure and unadulterated socialism." Do you agree or disagree? Explain! Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 27 Reading Discussion 3. Is there anything flawed in Friedman's position when he says "...it is not in the interest of his [executives] employers to ... reduce [ing] pollution beyond the amount that is required by law in order to contribute to the social objective of improving the environment?" 4. Friedman states that "social responsibility involves the acceptance of the socialist view that political mechanism, not market mechanisms, are the appropriate way to determine the allocation of scarce resources to alternative uses." Do you agree or disagree and why? Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 28 Reading Discussion 5. Friedman's argument so far seems to advance profit over "social responsibility" programs, but is it still wrong for the executive to resist if the stockholders insist on some socially responsible program over profit?" 6. Do you believe that we have a free and open market? Give examples. Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 29 John Locke What is an ideology in general? What are the two main types of ideologies (normative theories) most relevant to business activity in the U.S.? Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 30 John Locke What are the distinctions between "free market" and "command" systems? What components are necessary for each? Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 31 John Locke The components necessary for a free market system is non regulation by the government allowing its citizens to freely trade goods The components necessary for a command system is a government authority to make economic decisions and individuals motivated to put forth the effort to serve society (punishments and rewards) . Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 32 John Locke How does John Locke define the state of nature and the law of nature? Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 33 John Locke How do these ideas lead us to private property and the limitation of government power? Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 34 Video Exercise View ABC News Segment: AIDS in Africa Case: GlaxoAmitKline, BristolMyers Squibb, and AIDS in Africa, p.158 Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 35 Review of Learning Objectives Reviewed John Locke's position on government, people and free exchange of property Understood Adam's Smith's views on free markets. Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 36 References Heller, V.L. (2006) Instructor's Manual. Upper Saddle River, NJ: Pearson Prentice Hall Velasquez, M.G. (2006) Business Ethics Concepts and Cases. Upper Saddle River, NJ: Pearson Prentice Hall Velasquez, M.L. cited in Heller, V.L. (2006) Instructor's Manual 37 ...
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