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Ethical Issues in Capitalism and Market
Ethical Issues in Capitalism and Market
In capitalism business organisations are treated like a person or at least like a separate and
distinct entity. (Ex: Expressions like the company thinks that, From the companys
viewpoint, As far as the company is concerned). Capitalism permits the creation of
companies or business organisations that exists separately from the people associated with them.
Today the big companies we are familiar with IBM, Ford, AT&T, General Electric
are, in fact, corporations. Like you or me, a corporation may enter into contracts and may sue or
be sued in courts of law. It may even do things that the corporations members disapprove of.
2.
Profit Motive
Those commodities and services produced under capitalism are expected to yield
maximum profit. Hence, what to produce and how much to produce are determined by
individual profit rather than by social benefit. It is the profit motive which induces businessmen
to make the optimum use of the factors of production. Thus, profit motive is the mainspring of
all economic activity under capitalism.
3.
Competition
The producers compete with one another to get the consumers choice or in selling the
commodity as much as they can through advertisement. They may cut the price or improve the
quality of the product or offer other concessions to the purchasers. There is competition among
the workers for jobs. It may also be pointed out that perfect competition is rare in capitalism. In
the real world there is monopolist competition. The producers generally combine to form
monopolies or oligopolies to maximize their profits by charging the maximum price they can.
4.
Freedom of Enterprise
A very outstanding feature of the capitalistic order of the society is economic freedom.
This freedom implies three things: a) freedom of enterprise, b) freedom of contract, and c)
freedom to use ones property. Everybody is free to take up any occupation that he likes or start
any business he likes and to enter into contracts or agreements with his fellow citizens in a
manner most profitable to him.
5.
It is the price mechanism which facilitates the functioning of capitalism. It is the price
which equates the demand and supply of commodities and factors of production. A higher price
is also a warning to the consumers to cut down their consumption.
8.
Under capitalism the consumer has been compared to a king. His whims, prejudices and
desires seem to rule the world of production. The rationale of all economic activity is the
satisfaction of the consumers wants.
MORAL JUSTIFICATION OF CAPITALISM
The proposition that capitalism is a morally acceptable system is very much open to
debate. Whether we decide that capitalism is morally justified will depend, at least in part, on
which general theory of justice turns out to be the soundest. The defenders of capitalism have
sought to justify their system based on the following theories: 1. the argument that the moral
right to property guarantees the legitimacy of capitalism, and 2. the utilitarian-based economic
argument of Adam Smith.
1. The Natural Right to Property
A common defense of capitalism is the argument that people have a fundamental moral
right to property and that capitalist system is simply the outcome of this natural right.
2. The Utilitarian Argument
Another, very important argument defends capitalism in terms of the many economic
benefits the system brings, claiming that a free and unrestrained market system, which exists
under capitalism, is more efficient and more productive than any other possible system and is
thus to be preferred on moral grounds. Adam Smith in the The Wealth of Nations argues that
when people are left to pursue their own interests, they will produce the greatest good for all.
MERITS OF CAPITALISM
1.
Automatic Working
It does not require any central directing authority for its functioning. It functions automatically
through the price-mechanism.
2.
Under capitalism the entire manpower resources of the country (labour and entrepreneur) work
the hardest and most efficiently. In this way, the national output increases and economic
development is accelerated.
3.
People under capitalism have the right to hold property and pass it on in inheritance to their
heirs. Owing to this right, people save a part of their income so that it can be invested to earn
more income. The rate of capital formation increases when savings are invested. This
accelerates economic growth.
4.
Capitalism encourages innovation and technological progress and the optimum use of resources.
It is thus conducive to economic growth and prosperity.
5. Optimum Utilization of Resources
In capitalism every producer and entrepreneur tries to use the productive resources at his disposal
in the most economical manner in order to make maximum profit.
6.
Just System
The richest reward under capitalism goes to the ablest, the most daring as well as the most
prudent entrepreneur. A man who takes the initiative and shows extraordinary resourcefulness
make the highest profits.
7.
Democratic
The consumers control gives the system a democratic touch. Nobody likes that his consumption
should be dictated by some superior authority. In the capitalist economy the consumers consume
what they like and not what is supplied to them.
CRITICISM OF CAPITALISM
The major defenses and merits of capitalism have not persuaded critics that it is a morally
justifiable system. Their objections to capitalism are both theoretical and operational.
Theoretical criticisms challenge capitalisms fundamental values, basic assumptions, or inherent
economic tendencies. Operational criticisms focus more on capitalisms alleged deficiencies in
actual practice, in particular, on its failure to live up to its own economic ideals.
The following criticisms are a mix of both theoretical and operational concerns:
1.
Inequality
Economic inequality exists in capitalist society. The disparity in personal incomes is enormous;
a tiny minority of the population owns the vast majority of the countrys productive assets and
the vast majority of the society continues to be married by poverty and homelessness. With
divisions of social and economic class comes inequality of opportunity. Some critics of
capitalism go on to maintain that aside from inequalities of income and ownership, the inequality
inherent in the worker-capitalist relationship is itself morally undesirable.
2.
Critics of capitalism contend that capitalism breeds oligopolies that eliminate competition and
concentrate economic power in the hands of a few.
As early as the middle of the 19 th century, the German philosopher and political economist Karl
Marx (1818-1883) argued that capitalism leads to a concentration of property and resources and
thus economic power in the hands of a few. High costs, complex and expensive machinery,
intense competition, and the advantages of large scale production all work against the survival of
small farms, said Marx. Many see proof of Marxs argument in todays economy. Since the
industrial revolution the economy has come to be dominated by a relatively small number of
enormous companies that can conspire to set prices, eliminate competition and monopolize an
industry. The food industry is a perfect example, with four or fewer firms controlling the vast
majority of sales of almost any given product. Increasingly multinational in character the giant
corporations like Microsoft frequently do business around the globe, disavowing allegiance to
any particular nation. Today more than a quarter of the worlds economic activity comes from
the 200 largest corporations.
3.
Marx argued that as the means of production become concentrated in the hands of the few, the
balance of power between capitalists (Bourgeoisie) and labourers (Proletariat) tips further in
favour of the bourgeoisie. Because workers have nothing to sell but their labour, said Marx, the
bourgeoisie is able to exploit them by paying them less than the true value created by their
labour. In fact, Marx thought, it is only through such an exploitative arrangement that capitalists
make a profit and increase their capital. And the more capital they accumulate, the more they
can exploit workers.
Again because of the unequal positions of capitalist and worker, labourers must work for
someone they must do work imposed on them as a means of satisfying the needs of others. As
a result, they must eventually feel exploited and debased.
4.
Wasteful Competition
The economic decisions made by individual entrepreneurs and producers under capitalism are
based on their self interest and not from the point of view of good of the society. The producers
produce those commodities and in such quantities that the difference between price and cost is
the maximum so that their profit is maximized. However necessary and useful the commodity
may be the producers will not produce it if price does not exceed the cost. Social welfare is
ignored altogether.
6.
The recurrence of the trade cycles, due to over-competition and over-saving resulting in over
production, must be considered one of the bitterest fruits of capitalism. Booms are followed by
slumps and when there is depression there is large scale unemployment.
7.
Capitalism lays undue emphasis on property rights as against human rights. Money, not man,
rules the world and debases humanity.
8.
Malpractices
The malpractices of big industrialists and businessmen include payment of handsome salaries to
influential directors, the large scale evasion of fiscal laws, luxurious living at nations cost and
persistent generation of black money through secret deals and stealthy transactions. The
unpleasant side of capitalism has been thoroughly exposed by the scandals circulating about the
big business personalities.
9.
It also happens under capitalism that perfect and free competition ceases to prevail and instead
big combinations of powerful producers and monopolies emerge against whom it becomes
difficult for an ordinary entrepreneur to compete. These big monopolies come to control the
market on account of the huge resources that they command and small producers are squeezed
out. Also the big businesses control many types of businesses and industrial concerns at the
same time. Hence there is lot of concentration of economic power in a few hands.
Growth-responsibility Expectation
Business must realise that the best way to survive and grow in the long run is to operate
profitably by serving customers responsibly. The social expectation is that the bigger the
organisation grows, greater are the responsibilities it is expected to assume.
2.
If an organisation expects to conduct its business in the long term, it will require a loyal brand of
customers, repeat customers, customers with goodwill. This goodwill cannot be bought, begged
or borrowed it has to be earned. And it can be earned only when organisations behave
responsibly; when they discharge social responsibility.
3.
To build up a reputation of a good, friendly company they should engage in socially approved
activities like giving away scholarships to deserving students and donating products to the
weaker sections of the society.
4.
Give-Take relationship
Since business exists and operates within the society, take so much from the society, it also owes
something to the society. To keep the balance even, it needs to give back something to the
society, to do something for its benefit.
MAJOR SOCIAL RESPONSIBILITIES OF BUSINESS
1. Optimum Utilisation of Scarce National Resources
All business firms have the moral obligation to utilize the scarce national resources of the
country in an optimum way and not to waste, misutilise, damage or cause to deteriorate the
resources at its disposal. Since many uses can be made of the same natural resources, hence
options must be carefully chosen to find out which uses will serve the country better and result in
social welfare. Moreover what proportion of the wood should be used for what purpose must
also be ascertained. Because, whatever wood is used in one industry, that amount of wood is
denied to other industries. Hence the industry to which the scarce natural resource is being made
available, must make a moral commitment to utilise this scarce resource to its optimum level,
and not to waste or misutilise it in any way. It must remember at all times that what is made
available to it, is being denied to others.
2. Responsibility Not to Make Losses
Economic performance and social performance are both necessary to become a socially
responsible company. A loss making organisation cannot generate revenue for its shareholders,
cannot keep its welfare commitments to its employees and ultimately drives its workforce into
the unemployment market. If organisations did not make profits and went out of business,
thousands of people as well as the economy would suffer drastically. Thus organisations have a
social responsibility to make profits. A company has to work out a method for integrating profits
and social good. It cannot make money at any cost, neither can it be a caring company, but
unprofitable.
iv)
v)
vi)
vii)
viii)
ix)
x)
xi)
xii)
xiii)
xiv)
xv)
xvi)
xvii)
Making goods and services easily available in the marketplace and not
resorting to artificial scarcities;
Not indulging in hoarding or black-marketing and thereby swindling the
public;
Not making false, misleading and exaggerated claims in its advertisements;
Providing accurate and relevant and timely information to creditors and
suppliers;
Making prompt repayment of loans and other borrowings;
Abiding by the rules, regulations and the laws of the country;
Paying corporate taxes, duties and other dues honestly, promptly without any
cover-ups or cheatings;
Not bribing public servants and corrupting the democratic structure of the
country;
Not buying political favours to sway decisions in its favour;
Maintaining fair business policies, decisions and activities;
Not selling secondhand or used products as new;
Not resorting to planned obsolescence of products and spare parts, in order to
gain a continuous market for its products;
Not procuring business or trade secrets of competitors through espionage,
bribery or in any other way;
Not deliberately make the organisation sick so as to avoid many of its
obligations and escape from its responsibilities.
One of the vital social responsibilities of business is to safeguard the health and physical
safety of consumers using the products of the company. Many pharmaceutical as well as
cosmetic manufacturers neglect to take enough protection to uphold consumers health. Let us
take some examples in point: Most of the liquid medicines are deteriorating even though they
are well within the date of expiry due to poor quality of the product, seal (caps or closures),
packaging and storage conditions. Many cosmetics and toiletries contain a cocktail of chemicals
which cause irreversible damage to the skin, nails, hair and eyes and sometimes cause skin
diseases and even cancer. Deodorants contain aluminum, zinc, zirconium salts, formaldehyde
and alcohol and these may cause rashes and infection of the sweat glands by blocking them by
trapping bacteria deep in the fat layers under the skin surface. Strong shampoos damage hair and
causes hair loses. It erodes hair, causing each strand to become thinner and weaker.
LIMITS OF SOCIAL RESPONSIBILITY
The social responsibility actions of businesses are limited by cost, efficiency, relevance
and scope. As a result of these constraints, actions fall short of public expectations.
1. Cost
Social responsibility costs money. Whether a company desires to adopt a village, donate to a
college or school, build hospital, maintain parks or undertake relief operations in times of
calamity, it costs money.
2.
Efficiency
Social responsibility affects efficiency adversely. Being obliged to the employees, say a
company runs its plant, even if it is incurring losses every year. Its efficiency goes down and its
ability to compete is lost.
3.
Relevance
According to several critics, business has no obligation to society. The only obligation is to run
the business successfully. Social responsibility is irrelevant.
4.
Societys problems are too massive, too complex, and too deep seated to be solved by even the
most socially conscientious company or even by all companies acting together.
CONCLUSION
2.
3.
4.
5.
Fair employment practices, including avoidance of child and forced labour and
avoidance of discrimination based on race, gender, national origin or religious beliefs
and respect for the right of association and the right to organise and bargain collectively.
Responsible environmental protection and environmental practices.
Compliance with U.S. and local laws promoting good business practices, including laws
prohibiting illicit payments and ensuring fair competition.
Maintenance, through leadership at all levels, of a corporate culture that respects free
expression consistent with legitimate business concerns, and does not condone political
coercion in the workplace; that encourages good corporate citizenship and makes a
positive contribution to the communities in which the company operates; and where
ethical conduct is recognised, valued and exemplified by all employees.
In adopting voluntary codes of conduct that reflect these principles, US companies should serve
as models, encouraging similar behaviour by their partners, suppliers and subcontractors.
BUSINESS ETHICS IN THE MIDDLE EAST
There are many negative stereotypes of the level of Business Ethics in Middle East.
According to the people of Middle East business does not go with ethics and the western norms
of Business Ethics do not apply in the Middle East. To them business and ethics are
contradictory terms. Business Ethics is not institutionalized in the Academia in the Middle East.
There are no Business Ethics initiatives in the private sector. None of the local companies have
ethical codes although there are some beginnings among firms involved in multinational
business. There are no business initiatives against corruption even though, with the growth of
business, white collar crime is on the increase in all countries. With few exceptions, there are
also no business initiatives in the training of employees or managers on Business Ethics.
Most governments in the Middle East have agencies whose specific purpose is to combat
corruption among government officials.
For example: the central Audit agency and
Administration Control Agency in Egypt, the State Comptroller and Ombudsman and special
police units to combat white collar crime in Israel. These agencies which focus on corruption in
government administration have direct relations to Business Ethics in so far as business is
sometimes involved as culprits in the use of corruption for promoting its interests.
The Berlin-based Transparency International Organisation and Gottingen University
recently published the results of an international poll, conducted in 54 countries using its
corruption Perception index. The 54 countries were rated on corruption defined as the misuse of
public power for private benefits. These misuses include bribing public officials, taking
kickbacks in public procurement or misusing public funds. The 54 countries were ranked
according to their corruption index score from 1 (most corrupt) to 54 (least corrupt). The scores
ranged from 0 (highest level of corruption) to 10 (lowest level). The scores and rank order for
the five countries of the Middle East included in the survey are listed below:
Country
Kuwait
Egypt
Turkey
Jordan
Israel
Score
2.58
2.86
3.54
4.89
7.71
Rank
8
14
22
25
41
INDIA
In India more and more companies are emerging with formal statements of values or
beliefs. Some of the stated values are:
1.
2.
3.
4.
5.
6.
7.
8.
Competitive ability
Clear objectives
Taking advantage of change
Simple organisation
Committed people
Openness
Responsibility
Quality
ENGLAND
The following conceptual beliefs are attached with the ethics of British business
organisations:
1.
2.
3.
4.
5.
6.
group for the welfare of the other members of the group. Cooperation among group members is
considered to be essential to ensure the welfare of the group.
The third principle, found common among all cultures, is that just as man takes from
society, so also is man indebted to society in the same measure.
The fourth principle is the principle of fairness. This principle is the foundation of the
concept of equality and justice in a culture.
The fifth principle is the principle of integrity and honesty.
The sixth principle is the principle of human dignity.
These principles are a part of every major religion, social philosophies and ethical systems.
These principles are almost like natural laws of human survival and development; and they are a
part of the human consciousness.