Canadian Business and Society

ETHICS, RESPONSIBILITIES, AND

Fifth
SUSTAINABILITYAND
Edition

CHAPTE
R2
Ethics
and
Capitalism
Prepared By:
Renée Majeau, NAIT

© 2020 McGraw-Hill Education Limited 2-1

 Learning Outcomes
1. Enumerate and discuss the eight fundamentals of a
capitalist business system.
2. Define the right of private property and identify ethical
implications associated with it.
3. Explain individualism and economic freedom and the
related ethical implications.
4. Define equality of opportunity and elaborate upon the
ethical implications for business.
5. Describe the competition fundamental and link ethical
implications to it.
6. Understand profits and the associated ethical implications.

© 2020 McGraw-Hill Education Limited 2-2

 Learning Outcomes
Cont’d…
7. Link the work ethic to ethical implications.
8. Define consumer sovereignty and understand related
ethical implications.
9. Explain the role of government in a capitalist business
system and what the ethical implications are in this system.
10. Define Canadian capitalism, and recognize that capitalism
exists in different forms around the world.
11. Recognize the challenges to presenting the case for the
ethics of capitalism.

© 2020 McGraw-Hill Education Limited 2-3

 Introduction to
Fundamentals of Capitalism
• Canadian economic system largely composed of
business enterprises operating in a market system
• Theory of capitalism examines eight elements:
1. Right of private property
2. Equality of opportunity
3. Competition
4. Individualism and economic freedom
5. Profits
6. Work ethic
7. Consumer sovereignty
8. Role of government
© 2020 McGraw-Hill Education Limited 2-4
 The Right of Private
Property
• The legal right to own and use economic goods, for
example land and buildings
• Ethical implications:
 Uneven distribution of wealth
 Use of taxation to redistribute wealth
 Intellectual property  umbrella term for patents, copyrights,
trademarks, industrial designs, etc.

© 2020 McGraw-Hill Education Limited 2-5

 Individualism and Economic
Freedom
• The individual, and not society or a collective, is
paramount decision maker in society
 Assumes that individual is inherently decent and
rational
• Economic freedoms  exist when the business
system operates with few restrictions on its activities
• Ethical implications:
 Is communitarianism more important?
 Consider unions and co-ops
 To what extent should economic freedoms exist?

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 Equality of Opportunity
• Assumption that all individuals or groups have an
even chance at responding to some condition in
society
• Ethical implications:
Difficult to achieve in capitalistic system
Wealth created not distributed equally
Gap between the poor and the rich
Male versus female income disparity
How to increase equity and fairness in business
system?

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 Competition
• Condition in a market system in which many rival sellers
seek to provide goods and services to many buyers
 Ensures corporations provide goods and services desired
by society
• Ethical implications:
 Oligopolies or monopolies can be created
 More difficult for some firms to enter certain industries
 Corporations might engage in anti-competitive activity

© 2020 McGraw-Hill Education Limited 2-8

 Profits
• Excess of revenues over expenses; closely associated
with competition
• Corporations compete for profits
• Ethical implications:
Profits sometimes viewed with disdain or as immoral
Taxation of excessive profits and the rates of
inflation redistribute profits

© 2020 McGraw-Hill Education Limited 2-9

 The Work Ethic
• A code of values, or a body of moral principles,
claiming that work is desirable, a natural activity, and
good in and of itself
• Ethical implications:
Government programs and society’s expectations have
influenced individuals’ attitudes toward work
Individuals now expect that more will be done for
them, by governments and corporations
 Better working conditions
 Fringe benefits
 Salaries
Desire to consumer is driving force

© 2020 McGraw-Hill Education Limited 2 - 10

 Consumer Sovereignty
• Consumers have and exercise power over producers
through the decisions they make in purchasing the
goods and services provided by corporations
• Ethical implications:
Consumers not always aware of alternative products
available
Consumers’ preferences are shaped by advertising
Producers have power to ignore consumer wishes

© 2020 McGraw-Hill Education Limited 2 - 11

 Role of Government
• Laissez-faire approach (“leave us alone”)  minimal
involvement of government
• Ethical implications:
Government now an influential stakeholder in
business
Governments restrict capital movements and natural
resource sales, impose product standards, prevent
businesses from shutting down plants
Legislation governs treatment of employees

© 2020 McGraw-Hill Education Limited 2 - 12

 Canadian and Other Forms
of Capitalism
• Capitalism  economic system that allows for private
ownership of the means of production (land, labour, and
capital)
Assumes economic decision making is in hands of
individuals or enterprises that make decisions expecting
to earn a profit
Canada does not have pure free-enterprise system
Different forms of capitalism exist throughout world

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 Common Forms of
Capitalism
• Consumer capitalism  government involvement is
limited, open borders and profit mentality exists (e.g.
Canada, Britain)
• Producer capitalism  emphasizes production,
employment and statist policies (e.g. France, Japan)
 Social market economy  regulated capitalist market
with generous social welfare (e.g. Germany)
• Family capitalism  extended clans dominate business
activities and control capital flows (e.g. Thailand,
Indonesia)

© 2020 McGraw-Hill Education Limited 2 - 14

 Common Forms
of Capitalism Cont’d…
• Frontier capitalism  fundamentals of business being
introduced; capitalism in its beginning stages (e.g.
Russia, China)
• State capitalism  economic system in which
governments manipulate market outcomes for political
and social purposes
 Does not result in most efficient use of resources

© 2020 McGraw-Hill Education Limited 2 - 15

 Ethics of Capitalism:
The Challenges
• Greed
• Economic downturns
• Business failures
• Income and wealth inequality
• Corporate crime and wrongdoing
• Stagnant incomes vs. increasing CEO salaries
• Damage to the environment
• Reliance on market system that seldom works perfectly

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 Capitalism as an Ethical
System
• Pros for capitalism:
 System that produces wealth, promotes prosperity, and provides
greater human well-being than other economic systems
 Allows creative and productive forces to operate
 Cooperation is encouraged despite competitive market
 Respects freedoms, including right for individuals to pursue
happiness
• Assumption exists that moral individuals operate the
business system and that they are in the majority
• Strong system of moral behaviour and integrity is
necessary

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 Summary
• Eight elements of Canadian capitalism: the right of private
property; equality of opportunity; competition; individualism
& economic freedom; profits; the work ethic; consumer
sovereignty; and the role of government. (LO 2.1)
• The right of private property facilitates the operation of
business, but some in society resent a few acquiring large
amounts. (LO 2.2)
• For capitalism to be acceptable to most, it must allow for
equality of opportunity to share in economic well-being even
though the results are not the same for everyone. (LO 2.3)

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 Summary Cont’d…
• To ensure that capitalism is regulated in the best interests of
stakeholders, competitive rivalry must exist. The difficulty is
that even in Canada’s form of capitalism competitive markets
do not exist. (LO 2.4)

• Individualism encourages people to participate in a capitalistic

system. Some resent the focus on individuals and believe the
economy should be directed more by governments. (LO 2.5)

• In theory, when profits become too high in an industry, more

businesses are attracted. Due to market imperfections such as
barriers of entry, this sometimes does not occur. (LO 2.6)

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 Summary Cont’d…
• To ensure that capitalism is regulated in the best interests of
stakeholders, competitive rivalry must exist. The difficulty is
that even in Canada’s form of capitalism competitive markets
do not exist. (LO 2.4)

• Individualism encourages people to participate in a capitalistic

system. Some resent the focus on individuals and believe the
economy should be directed more by governments. (LO 2.5)

• In theory, when profits become too high in an industry, more

businesses are attracted. Due to market imperfections such as
barriers of entry, this sometimes does not occur. (LO 2.6)

© 2020 McGraw-Hill Education Limited 2 - 20

 Summary Cont’d…mary

• The work ethic influences the ethics and responsibilities of a

corporation. (LO 2.7)

• The output of capitalism should be determined consumer

choice, however, this is restricted by various business
practices and some government regulations. (LO 2.8)

• Government role in a capitalistic system, should be only to

protect stakeholders unable to defend themselves and to
provide the infrastructure for the market system to operate
effectively. (LO 2.9)

© 2020 McGraw-Hill Education Limited 2 - 21

 Chapter Summary Cont’d…y

• Capitalism exists in several forms and the way it

functions changes; however is does operate most of
the time with moral standards. (LO 2.10)

• The ethics of capitalism involve several challenges,

but an argument can be made that it is a moral system.
(LO 2.11)

© 2020McGraw-Hill Education Limited 2 - 22