Chapter 1: The study of Business, Government and Society (GBS)

How Institutions Support Markets

- Judicial - Cultural
+ Substantive law: determine rights, + Family institutions; e.g., holiday events.
responsibilities (e.g., contract interpretation, whose + Religious institutions; e.g., church.
fault in accident). + Educational institutions; e.g., FTU, high school.
+ Procedural law: provides dispute resolution
processes (e.g., statute of limitations).
Stakeholder
- An entity/ person benefitted or burdened by the actions of a corporation/ person/ other entity or whose actions
may benefit or burden the corporation/ person/ other entity.
- Can be determined by answering “yes” to either/ both questions: Is there a benefit to/ burden on either party?
- Primary Stakeholder: impact of relationship with entity or person is “mutually immediate, continuous, and
powerful”, including: Stockholders (owners: partners), Customers, Employees, Communities, Governments.
- Secondary Stakeholder: the relationship is less immediacy, benefit, burden, or power to influence, including:
Media, Competitors, Suppliers (vendors), Trade associations, Political interest groups, Creditors, Unions,
Political parties, Religious groups, Earth’s biosphere, Future generations, The poor, Educational institutions.
Chapter 2: The Dynamic Environment
Deep historical forces at work
Industrial Revolution (IR)
- Traditionally, societies relied on subsistence economies and perhaps then some trade.
- Industrial revolution occurs due to a mixture of conditions:
+ Sufficient capital, labor, natural resources, ideas, institutions permitted social mobility and encouraged
individual initiative.
+ Political & personal liberties provide opportunity to be creative: people and businesses free to take risks
necessary to advance & improve - risk failure to get ahead.
- Countries experienced Industrial Revolution: Great Britain (early - mid 19 th), US & Western Europe (mid -
late 19th), JP & Soviet Union (1st half of 20th), other Asian countries (2nd half of 20th).
- Astounding economic growth, production of material things, and provision of services.
- Many changes in the US - Eli Whitney’s invention of the cotton gin (patented in 1794)
+ Great increase in production of “clean cotton” (used to make clothing).
+ More slaves needed → slaves shifted “upper South” - “deep South” →much money made in slave trade
(e.g., Natchez, Mississippi).
+ All of this was designed to meet increased demand for textiles in Great Britain.
Technology
- 1450s: printing press invented → Immediate commercial success in publishing (able to publish more books).
- Positive side effect: facilitated free market of ideas
+ Luther: wider distribution of his ideas which gave rise to the Protestant Reformation.
+ Galileo: arrested in Italy (Roman Catholic) for heretical ideas of astronomy but published in Holland
(Protestant).
- Five “waves of innovation”
+ 1st (late 18-mid 19th): water power, textiles,  Steam engine cut travel time for transatlantic
iron. voyages → increased immigration EU to U.S.
nd
+ 2 (2nd half of 19th): steam, rail, steel.  New labor underclass (Irish, Italians) replace
African slaves, new political idea (communism).
 + 3rd (1st half of 20th): electricity, chemicals, + 5th (1990-present): digital networks, software,
internal-combustion engine. new (social) media, biotechnology.
th nd th
+ 4 (2 half of 20 ): petrochemicals, electronics,
aviation.
Chance
- “chance, accident or random occurrence”
- COVID-19: businesses flourished (home-delivery services, drive-through fast-food restaurant); others failed
(buffet restaurants, fast-food restaurants inside malls); reassessed business model and methods (reduced office
size & “hybrid” work schedules; online courses offered at universities).
- Unsuccessful assassination on U.S. President Ronald Reagan 1981 (bullet less than one inch from his heart) -
he went on to lead the charge which helped cause the downfall of the USSR and Iron Curtain.
Six External Environments of Business
Government
- Governments help (through stimulus packages, tax breaks) and hinder (through regulations burden) business.
- Two long-term global trends in government
+ Expansion of government activity & spending. + Increased number of democracies.
 U.S: 1913 - 8% GDP, 2027 - estimate 39%  Overall decrease in authoritarian governments
(Vietnam 21.5% in 2028). and increase in democracies since 1900.
 Increased social welfare programs; e.g., Great  In 1900, no full democracies since no country
Depression, Great Society. with complete suffrage.
 More business regulation to protect  1950: 22 democracies; now: 123 democracies.
consumers; e.g., products liability, insider
trading.
2.2. Legal
- Three branches of U.S. federal government
+ Legislative (Congress): statutes.
+ Executive (President): treaties, executive orders, administrative agencies and regulations.
+ Judicial (Courts): common or case law.
+ “Checks and balances”: e.g., when Congress passes a statute & courts decide whether statute is
constitutional.
- Is judicial branch “ahead” of other branches in that courts will do what politicians afraid to do: e.g., School
desegregation, Rights for those accused of crimes, Interracial and same-sex marriage.
- Legal trends hinder business
+ Steady growth in complexity and quantity of + Constant evolution of the law: e.g., T.J. Hooper
case law, statutes, regulations, legal requirements. case, Legalization of same-sex marriage in various
+ Expansion of legal protections for stakeholders. states, Supreme Court decision.
Chapter 3: Business Power
- Power: one’s ability to act or to compel another to act in accordance with one’s wishes.
- Business power: + Hire undocumented immigrants not eligible to
+ this ability in the context of business. work - keep costs prices down (not help
+ “legitimate” when used for the common good. immigrants).
+ different in different societies at different times. + Factories: civilian → wartime goods in WW2.
- Power used for the common good:
Levels of Business Power
- Surface level: power is direct cause of visible, immediate changes.
- Deep level: shapes society by changes of industrial growth; unpredictable, slow to emerge, more significant.
- Economic power: company’s ability to influence due to control over resources/property
+ Surface: investors may gain if company releases new product (or lose if it fails).
+ Deep: companies create wealth over time to raise living standard in industrialized countries.
- Legal power: company’s ability to influence laws of society
+ Surface: big companies outspend opponents to win in court or get favorable outcome in a dispute.
+ Deep: laws developed in accordance with big companies’ needs and desires.
Story of the Railroads - The railroads’ impact on the U.S.
- Creation of uniform time zones to replace hodgepodge of time zones throughout U.S.
- Observance of Christian Sabbath diminished due to need to use railroad equipment seven days per week
(return on investment) - erosion of traditional religious values and practices.
Two Perspectives on Business Power
Dominance Theory: Based on the dominance model - negative view of business
- Business, due to control of wealth, is preeminent in U.S. society.
- Business power is excessive & inadequately checked; acts in own interest which harms society.
- Case study “The Rise and Decline of Powerful Corporations”, “J.P. Morgan and the Panic of 1907”
- Corporate asset concentration: - Elite dominance: Individuals with wealth &
th th
+ 19 - 20 Century: mergers led to concentration position act in undemocratic ways to control the
of assets in few hands. U.S.
+ Railroads: transportation more efficient → + “power elite”: U.S. society has three levels
motivated companies grow from regional to  Small number of elite people in charge of
national. economic, political and military arenas.
+ Sherman Antitrust Act of 1890 used to break up  Lieutenants (high corporate management and
huge companies (Standard Oil, American Tobacco politicians): carry out elite’s policies.
Company).  Masses.
Pluralist Theory: Based on the countervailing forces model - positive view of business
- Business power is disciplined: subject to checks by markets, gov, unions, special interest groups, public
opinion.
- Business can benefit society; Business can have great/ little/ no influence in different situations.
- Power is diffused by groups & institutions influence → no has overriding power; each check & balance others.
- U.S. is amenable to pluralism:
+ History of democratic values due to no history + Constitution encourages pluralism: free speech
of oppression by feudalism or authoritarian gov; in & association, due process, equal protection under
fact, many fled other countries to escape law.
oppression. + Market constrained by need to make decisions
+ Large population in vast geographic area founded in quests for cost reduction & consumer
engaged in many occupations (diversity). satisfaction.
- Case Study - John D. Rockefeller and the Standard Oil Trust
Chapter 4: Critics of Business
Introduction to and Origins of Critical Attitudes Toward Business
- Critics of business base their arguments on the following concepts:
+ Place profit above “good” values (honesty, truth, justice, love, piety, aesthetics, tranquility, respect for
nature)
+ Emphasize profit vs. honesty and profit vs. tranquility.
+ Economic development puts a strain on society.
- Greeks & Romans (agrarian societies): Profit-seeking - inferior motive; Commerce - excess, corruption,
misery.
+ Plato: insatiable appetites exist in every person but could be controlled by acquiring inner values.
+ Aristotle: believed in benign form of acquisition consisting of getting things needed for subsistence.
+ Epictetus and Marcus Aurelius: truly rich person had inner peace rather than money or property.
- Middle Ages: Roman Catholic Church was dominant in Europe
+ Roman opposed profit-seek (Christian persecution). + St. Thomas Aquinas - influenced by Aristotle
+ St. Augustine: material wealth had fixed supply;  Just price vs. market price.
to become rich, person would sin by accumulation  Condemnation of usury.
violating natural equality of creation.  Commercial activity proved stronger than
+ Love of material things pulled soul away from fear of prison or hell.
God (“no one can serve two masters”).
- Modern World
+ Protestant ethic: Work hard → way to serve + Capitalism: Free market harnessed greed &
God. protected people from abuses.
 Earning great wealth through hard work + Industrial revolution
showed God’s approval.  Techno development: Rapid social changes.
 Prosperity doctor: how favor you are to God.  Faster-paced, greater emphasis on material
 Remove traditional religious suspicion of and things, and abuse of people and nature.
antagonism toward material wealth.
American View Toward Business
Colonial Era (pre-Revolution)
- Colonists: ppl seeking religious, political freedom. - Colonists migrated to the interior of the North
- Many colonists were sponsored by investors to American continent, farming and land speculation
seek valuable commodities (gold, furs, timber started.
products).
Young Nation (late 18th Century)
- Farmers dominant, 90% economy: agriculture. - Thomas Jefferson
- Alexander Hamilton + Unsuccessfully opposed industrial growth trend.
+ Industrial growth would increase national + Felt manufacturing was corrupt and God had
power. placed “genuine virtue” on farmers.
+ Sought to promote manufacturing and finance.
19th Century Through the Civil War
- Steady economic growth fueled by improved transportation systems (turnpikes, canals, railroads).
- “Utopias” were reaction to increased prominence of capitalism (e.g., New Harmony) but capitalism survived
and “utopias” (communism?) did not.
Post-Civil War Era Through the 1920’s
- Populism - radical advocacy + Wanted to cure social ills through gov
+ Gov ownership of railroad, telegraph, telephone regulation.
companies. + Achieved populist agenda (e.g., passage of 17th
+ Direct election of U.S. Senators. Amendment require direct election of U.S.
+ Abandon gold standard; considered to be Senators).
radical. - Socialism
- Progressive movement - more mainstream + Wanted collective ownership of property in
classless society.
 + Many early unions grounded in Socialist
doctrine and rhetoric.
Great Depression
- “Perpetual prosperity” belief shattered by economic disaster caused by corporate negligence and fraud.
→Securities regulation laws passed by Congress.
- Populist thought and rhetoric reemerged.
World War II
- Support for business rebounded due to patriotism since most industries very involved in war effort.
- Negated populist thinking since people were reluctant to criticize the “arsenal of democracy.”
- WW2 - 1950s: patriotism strong (ardent opposition to communism thought to be “anti-American.”)
The 1960’s
- “The Collapse of Confidence” led by 4 movements: Civil rights, Consumer rights, Environment, Anti-VN
War.
- 4 Movements: business contributed to social ills (racism & sexism, consumer fraud, pollution, war
profiteering).
- Business made a comeback as President Reagan elected in 1980.
Late 20th Century to the Present
- New Progressives: business had too much power and inordinate legal rights, and was inherently immoral.
- Ralph Nader - “Unsafe at Any Speed” (1965) and Presidential candidate (2000 and 2004).