Important slides of management chapter.pptx

Important slides of chapter 3

1. Professional Ethics HU-223 Instructor Dr. Ehsan ul Hassan

2. The Market and Business Chapter 3 Dr. Ehsan ul Hassan

3. Course Summary 3 Business Ethics – Concept & Cases by Manuel G. Velasquez Part One Basic Principles CHAPTER 1 Ethics and Business Describes what business ethics is in general. CHAPTER 2 Ethical Principles in Business Describes several approaches to business ethics which together furnish a basis for analyzing ethical issues in business. Part Two Market & Business Part Two Market & Business CHAPTER 3 The Business System: Government, Markets, and International Trade Discusses the ethics of the market system as a whole: Its moral justifications, strengths and weaknesses. CHAPTER 4 Ethics in the Marketplace Looks at the ethics of particular practices within the market system, like price-fixing, predatory pricing, bribery and market concentration

4. The system a society uses to provide the goods and services it needs to survive and flourish. Societies that rely on traditional communal roles and customs to carry out basic economic tasks. Traditional based societies An economic system based primarily on a government authority making the economic decisions about what is to be produced, who will produce it and who will get it. Command economy An economic system based on primarily on private individuals making the main decisions about what they will produce and who will get it. Market Economy 4 Producing goods and services, which requires determining what will be produced, how it will be produced, and who will produce it. Distributing these goods and services among its members, which requires determining who will get what and how much each will get. Basic Tasks of Economic System Social Devices of Economic system Economic System

5. Free Markets and Rights John Locke 5 Free Markets and Utility Adam Smith Free Trade and Utility David Ricardo Criticizing Markets and Free Trade Karl Marx Business System Free Market Free Trade Markets in which each individual is able to voluntarily exchange goods with others and to decide what will be done with what he or she owns without interference from government. Free trade is a free market policy followed by some international markets in which countries' governments do not restrict imports from, or exports to, other countries.

6. John Locke: Free markets & Rights 6 If there were no governments, human beings would find themselves in a state of nature.” In this state of nature, each individual would be the political equal of all others and would be perfectly free of any constraints other than the law of nature. Law of Nature Right to liberty Right to property Locke does not demonstrate that individuals have “natural” rights to life, liberty, and property. Locke’s natural rights are negative rights and he does not show these override conflicting positive rights. Locke’s rights imply that markets should be free, but free markets can be unjust and can lead to inequalities. Criticism on Lockean Rights Every man has a property in his own person. Nobody has a right to but himself. The labor of his body, and the work of his hands, are properly his. Whatsoever he removes out of the state that nature has provided and left it in, if he has mixed his labor with and joined to it something that is his own, will makes it his property. This labor being the unquestionable property of the laborer, no man but he can have a right to what that [labor] is once joined to, use it, sell it, destroy it, etc.

7. Adam Smith: Free markets & Utility 7 Market competition ensures the pursuit of self-interest in markets advances the public’s welfare which is a utilitarian argument. Government interference in markets lowers the public’s welfare by creating shortages or surpluses. Hayek and von Mises argued governments should not interfere in markets because they cannot have enough information to allocate resources as efficiently as free markets. Smith assumes a system of private property (like Aquinas defends with the utilitarian argument) that private ownership leads to better care and use of resources than common ownership. Aquinas’s Property concept Free markets and private property will produce greater benefits than any amount of government interference could. When private individuals are left free to seek their own interests in free markets, they will inevitably be led to further the public welfare by an invisible hand. Every man is more careful to procure what is for himself alone than that which is common to many or to all. Human affairs are conducted in more orderly fashion if each man is charged with taking care of some particular thing himself. A peaceful state is ensured to man if each one is contented with his own.

8. Criticism on Adam Smith 8 Smith’s Argument Rests on unrealistic assumption that there are no monopoly companies. Falsely assumes that all the costs of manufacturing something are paid by manufacturer, which ignores the costs of pollution. Falsely assumes human beings are motivated only by a self-interested desire for profit. Unlike what Hayek and von Mises said in support of Smith, some government planning and regulation of markets is possible and desirable. Human beings regularly show a concern for the good of others and constrain their self-interest for the sake of rights of others. It is not necessarily “rational” to follow the rule “give away as little as you can for as much as you can get.” If human beings often behave like “rational economic men,” this is not because such behavior is natural, but because the widespread adoption of competitive market relations forces humans to relate to each other as “rational economic men.”

9. The Keynesian Criticism 9 Without government intervention, the demand for goods may not be high enough to absorb the supply. The result is unemployment and a slide into economic depression. Keynes said Smith wrongly assumes demand is always enough to absorb the supply of goods as households forego spending, demand can be less than supply, leading to cutbacks, unemployment, and economic depression. Government spending can make up for such shortfalls in household spending, so government should intervene in markets. But Keynes’ views were challenged when government spending did not cure high unemployment but created inflation. Keynes’ Criticism on Smith Demand Supply Government can prevent excess savings through its influence on interest rates, and it can influence interest rates by regulating the money supply: The higher the supply of money, the lower the rates at which it is lent. Second, government can directly affect the amount of money households have available to them by raising or lowering taxes. Third, government spending can close any gap between aggregate demand and aggregate supply by taking up the slack in demand from households and businesses

10. The Utility of Survival to the Fittest 10 Spencer claimed that just as competition in the animal world ensures that only the fittest survive, so free competition in the economic world ensures that only the most capable individuals survive and rise to the top. Economic competition produces human progress. According to Charles Darwin: Various species of living things were evolving as the result of the action of an environment that favored the survival of some things while destroying others. “This preservation of favorable individual differences and variations, and the destruction of those which are injurious, called natural selection or the survival of the fittest.” The environmental factors that resulted in the survival of the fittest were the competitive pressures of the animal world. Herbert Spencer Evolution operates in society when economic competition ensures the fittest survive and the unfit do not, which improves the human race. If government intervenes in the economy to shield people from competition, the unfit survive and the human race declines, so government should not do so. Spencer assumes those who survive in business are “better” people than those who do no t. Views of Herbert Spencer

11. David Ricardo: Free trade & Utility 11 Adam Smith’s in, “The Wealth of Nations”: It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. The tailor does not make his own shoes but buys them from the shoemaker. According to David Ricardo: Even if one country has an absolute advantage at producing everything, it is still better for it to specialize and trade. 100 Barrels of Wine 100 Rolls of Cloth Cost in Man-years Cost in Man-years England 120 100 Portugal 80 90 Wine Cloth England 100 barrels 100 rolls Portugal 100 barrels 100 rolls Total Output 200 barrels 200 rolls Wine Cloth England 220 rolls Portugal 212 barrels Total Output 212 barrels 220 rolls Wine Cloth England 102 barrels 114 rolls Portugal 110 barrels 106 rolls Total Output 212 barrels 220 rolls Ricardo makes a number of simplifying assumptions that clearly do not hold in the real world. Ricardo assumes that the resources used to produce goods do not move from one country to another. Ricardo assumes that each country’s production costs are constant and do not decline as countries expand their production. Ricardo assumes that workers can easily and without cost move from one industry to another. Ricardo also ignores international rule-setters. Criticisms of Ricardo

12. Marx: Criticizing Markets & Free trade 12 Marx believed that it was the nature of a human being to be self-determined and able to satisfy one’s true needs, i.e., to be in control of one’s life, and able to fulfill one’s true human needs. Capitalist’s Alienation Capitalist systems offer only two sources of income: Capitalism alienates workers from their own productive work. Capitalist societies alienate workers from the products of their labor. Capitalism alienates workers by giving them little control over how they must relate to each other and by forcing them into antagonistic relationships with each other. Capitalism alienates workers from themselves by instilling in them false views of what their real human needs are. Capitalist societies come to see everything in terms of their market prices. Capitalism and its unregulated free markets, produce inequalities of wealth and power. Alienation: The condition of being separated or estranged from one’s true nature or true human self. Sale of one’s own labor Ownership of means of production

13. Purpose of Government; Historically 13 Social superstructure A society consists of the materials and social controls it uses to produce its goods. A society’s government and its popular ideologies. Forces of production: The materials (land, labor, natural resources, machinery, energy, technology) used in production. (Proletariat) A society’s government and its ideologies are designed to support its ruling economic class, which is created by its relations of production, which in turn are shaped by its forces of production. Relations of production: The social controls used in producing goods (i.e., the social controls by which society organizes and controls its workers). (Bourgeoisie) Economic Substructure Control based on ownership of the materials Control based on authority to command “Marx claims that the ruling class created by the economic substructure inevitably controls this superstructure.”

14. Replies to Marx’s Criticism 14 Immiseration : The combined effects of increased concentration, cyclic crises, rising unemployment, and declining relative compensation. Capitalism concentrates industrial power in the hands of a few who organize workers for mass production. Mass production in the hands of a few leads to surplus which causes economic depression. Factory owners replace workers with machines which creates unemployment; they keep wages low to increase profits. The only solution is a revolution that establishes a classless society where everyone owns the means of production. Marx’s claims that capitalism is unjust are not provable as he didn’t explain how distributive justice be determined. Justice requires free markets as it should be based on contribution. The benefits of private property and free markets are more important than equality. Free markets can encourage community instead of causing alienation. Immiseration of workers has not occurred; instead their condition has improved. Immiseration of Workers

15. The Mixed Economy 15 Mixed economy: An economy that retains a market and private property system but relies heavily on government policies to remedy their deficiencies. Government transfers (of private income) are used to get rid of the worst aspects of inequality by drawing money from the wealthy in the form of income taxes and distributing it to the disadvantaged in the form of welfare payments or social services. Minimum wage laws, safety laws, union laws, and other forms of labor legislation are used to protect workers from exploitation. Monopolies are regulated, nationalized, or outlawed. Government monetary and fiscal policies attempt to ensure full employment. Government regulatory agencies police firms to ensure they do not engage in socially harmful behavior. Policies of Mixed Economy Property system & Intellectual Property rights (IPR) Intellectual property Nonphysical property that consists of knowledge or information such as formulas, plans, music, stories, texts, software, etc. Copyright A grant that indicates that a particular expression of an idea is the private property of an individual or a company. Patent A set of exclusive rights granted by a sovereign state or intergovernmental organization to an inventor or assignee for a limited period of time in exchange for detailed public disclosure of an invention.