OVERVIEW
Nature of Capitalism
Concept of Business
Interaction of Business, Government, and Society
NATURE OF CAPITALISM
Introduction
-Capitalism is a system of production and trade based on private property facilitated by the law, state, and market institutions.
-Capitalists operate on a profit motive and the market allows for efficient use of scarce resources to generate higher returns on these investments.
-The evolution of the market economy has also seen alterations in the capitalist system.
Historical Background
-Capitalism emerged during the Renaissance or the Enlightenment era in Europe between the fifteenth and sixteenth century
-It has undergone several changes since its evolution:
Mercantile capitalism : national wealth and power best served by exports and collecting precious metals; government encourage foreign trade, discourage imports, promote national supremacy
Industrial capitalism: development of large scale industry with sound financial base; technology for mass production; expanding markets for cheaply manufactured goods; large and willing labor force
Financial capitalism:as merchants competed in offering low prices, the need for financial assistance arose and they had to depend on financial institutions for that
State-welfare/managed capitalism: government plays an active role in regulating economic activities to smooth out the economic cycle
Key Features of Capitalism
-Company: artificial being, invisible, intangible, existing only in the contemplation of the law (Marshall, 1900)
-Profit motive: companies are motivated to seek profit-maximization in the forms of money and other assets
-Private Property: private ownership of the major source of production and distribution
-Accumulation of Capital: risk of investing wealth in order to generate profits
Moral Justifications of Capitalism
natural right to property - capitalism allows people to own as much or as many properties as they are capable of as long as they are legal
concept of the invisible hand - the invisible hand would be able to satisfy the conflicting and unlimited human demands through efficient resource allocation and that it is the best way to ensure that the wants of everyone in a society is catered for
structured and efficient production processes - it provides the public with necessary goods and services, which otherwise would have been produced inefficiently
Criticisms of Capitalism
-Inequality- disparity in personal income; ownership; opportunity and worker-capitalist relationship
-Human nature and capitalism- reinforce the human tendencies of being materialistic, individualistic and acquisitive
-Breeding of oligopolies- concentration of property, resources and economic power in the hands of a few
-Exploitation and alienation- increasing profit through exploiting workers
-The act of alienation can be seen in two ways:
==>the relationship of the worker to the product of labor as an alien object which dominates him
==>the relationship of the worker to his own activity as something alien and not belonging to him
-Overlook ethical issues- unbridled competition and exploitation may lead cyclical instabilities of overproduction, layoffs, recession, depression, political and economic disparity
CONCEPT OF BUSINESS
-The business system members are interdependent, and each has equal importance
-The purpose of business is to acquire more profit, accumulate capital for the owners and ensuring economic well being of society
-Within its sphere, business’ role is to operate in line with the public policy and generate wealth and well being of society- create healthy competition, alternative methods of production, high quality at lower prices
INTERACTION OF BUSINESS, GOVERNMENT, AND SOCIETY
The relationships between businesses and the government as well as the society can be understood and explained from the viewpoints of three different concepts of social responsibility:
-Unitarian Views
-Separatist Views
-Integrative Views
Unitarian Views
-The bottom line for this view is that moral claims based on socio-spiritual values should be directly applied to businesses as business activities are one of the activities of the human community that directly impact on the environment and the people.
-The religious or socio-spiritual authority will determine grounds for evaluating the morality of actions as well as the social responsibility of corporations.
-Islamic ethics is one example of moral approach that practices the unitarian view.
-The downside of this view is that the interpretation and perception of values and their priorities tend to be conflicting depending on who has more power to decide.
Separatist Views
-This view of business evolved as a result of the ideas of Adam Smith on the role of business and self-interest in generating social welfare.
-The separatist looks at business as a completely independent system and separated from the socio-spiritual spheres of the society
-It believes that business people do not have to comply with moral or socio-spiritual standards as they only need to abide by legal and market rules in accomplishing their goals.
-Dismiss the application of moral appeals to business.
-Acknowledges self-interest motivation through the institution of market
Integrative Views
-This view combines the responsibilities of or the need for businesses to adhere to the socio-spiritual values and also legal and market rules.
-The integrative view is a manifestation of the stakeholder view of social responsibility.
-Implicit in the integrative view is the idea that business is not only about profit making but it is also part and parcel of the society in which it exists
-Although different spheres have different goals and ideals, there is unity in terms of goals and ideals at the level of universality - issues of social justice, environmental degradation etc.
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