1.1 Question 1
The free market perspective is defined as an economic system whereby the majority of production and distribution are controlled by individuals under private ownership (Shaw & Barry, 2010). This perspective is supported by Adam Smith??™s laissez-faire, which promotes an unregulated market relation, and free competition best promote the total social good. The idea is that when people are free to pursue their objectives without restriction, the invisible hand of the market will correct any market failures and ultimately result in the best for the society (Shaw, 2010; Elliot, 1990). John Stuart Mill??™s economic philosophy was one aligned with the free market. However, in contrast to Adam Smith??™s view, J.S. Mill supports government intervention based on utilitarian grounds; the intervention would bring the greatest good for the greatest number. He contends that this intervention is a more efficient and productive capitalist system (Shaw, 2010).
Shaw (2010) identified four main elements of capitalism, namely: companies, profit motive, competition, and ownership of private property. Capitalism permits the creation of companies by individuals, and these organisations exist as a separate legal entity. Adam Smith supports free competition, as he believes that the pursuit of self-interest is socially beneficial (Shaw, 2010). Profit-motive is in tandem with the pursuit of self-interest. Lastly, capitalism enables the production and distribution to be operated by individuals; as such, they require private ownership of the means to production, such as factories, offices, vehicles, land, and offices (Shaw, 2010).
On the other hand, David Cameron??™s ideals match the elements identified by Shaw. In his speech, he is quoted as saying:
???We wont build a better economy by turning our back on the free market??¦well do it by making sure that the market is fair as well as free. While of course there is a role for government, for regulation and intervention…the real solution is more enterprise, competition and innovation??? (Cameron, 2012, p.1).
Formation of more enterprises is spurred by self-interest. Motivated by profit, an open competition environment would allow for innovation to develop and be marketed. David Cameron is also quoted as saying, ???open markets and free enterprise can actually promote morality??? (Cameron, 2012, p.1). From his point of view, capitalism is ethical and does not violate any rights. The classical moral justification of capitalism professes John Locke??™s philosophy in the natural right to property; when individuals put in effort, they deserve the equivalent amount or product of their labour (Ishay, 2008). David Cameron (2012) explains this as the creation of a direct link between contribution and reward, between effort and outcome. Under this philosophy, people have fundamental rights to property, which also forms the basis of the capitalist system. However, this may violates John Stuart Mill??™s utilitarian grounds, as an absolute free market may not bring about the greatest good for the greatest number, but instead result in inequality. The criticisms of a free market economy are numerous, with the main criticisms being: i) poverty and inequality, as there is a focus on wealth accumulation. ii) Humans are acquisitive, and look out for self-interest, iii) the imperfection of the market (Bassiry & Jones, 1993).
The criticism of capitalism is that it often results in poverty and economic inequality. Defenders of the capitalist system often blame the government for interfering with the free market economy. The next criticism focuses on the human nature; the capitalism system assumes that human beings are rational, and make the soundest decisions, which is often not the case (Ariely, 2009). The third criticism is that the distribution of wealth is not efficient under and capitalist system. Concentration of property and resources falls in the hands of the few. For example, Proton Berhad receives some form of government protection which prevents a true open free market for the automotive industry to develop. Arguments for this point consider the alternative to capitalism; socialism, for example in North Korea the government controls nearly the whole nation??™s resources and power. Many would agree that under a capitalist system, there is a fairer opportunity and better distribution of income.
Under DeGeorge??™s six models of capitalism, Adam Smith??™s free market ideals fall under the first category. The lack of government role in business may not bring about the greatest benefit for the society as a whole. The profit motive may also result in unethical behaviour, such as the scandals of Enron and WorldCom. The utilitarian approach spans to the other end of DeGeorge??™s six model of capitalism, in which the government interventions are prevalent. While DeGeorge emphasise that there is no one best society or system, capitalism provides a sustainable infrastructure for development. David Cameron??™s view of capitalism combines benefits of both; he has a vision of social responsibility, which ???recognises that people are not just atomised individuals, and that companies have obligations too??? (Cameron, 2012, p.1). He also believes that a true capitalist system will allow everyone to benefit from the market.
1.2 Question 2
1.2 Evaluate the system using Milton Friedman??™s and Norman
Bowie??™s neo-classical models of corporate social responsibility
(CSR). Make recommendations on the way forward for a more
???sustainable??™ market economics. (Guide 750 words)
Market failures are an inescapable fact of economic life. Market failures are irreversible as is climate chang
Herman Daly makes a convincing case for economic developmentreplacing economic growth
Milton??™s Friedman??™s narrow view of corporate social responsibility says that organisations should maximize profit; the only responsibility of a business is to make money for its owners. However, Milton Friedman says that profit maximisation should be achieved in a honest manner, without deception and fraud. Markets that do not follow this principle are deemed to fail in achieving its economic ends (Friedman, 1970). Milton Friedman??™s perspective of corporate social responsibility is rationalised by Adam Smith??™s law of the invisible hand. Organisations should structure their policies and activities to maximise profit, as it is a businesses??™ natural economic function. If a business is allowed to maximise profit without considering for the society??™s interest, then greatest economic good for everyone in the society will result (Shaw, 2010).
The second support for Milton Friedman??™s view of CSR puts society??™s interest under the responsibility of the government. Governments should regulate businesses to insure that it performs in a socially responsible manner, as organizations themselves, in the pursuit of their own interest, will not act in a socially responsible way. Thus the role of the government is to regulate through laws and regulations for the benefit of society (Shaw, 2010). The third argument rationalizes that businesses are operated for profit, and decisions made are based on monetary values. Thus, to place them in a position to make morally sound decisions may cause them to perform inefficiently (Jensen, 1998).
In contrast, the broad view of corporate social responsibility believes that businesses have a far greater role than profit maximization; their responsibilities extend to that of the employees, consumers, and the societies as a whole. Corporations operate at society??™s expense, and should in return take care of the society. The stakeholder model says that businesses should refrain from unethical or immoral conduct, as they contribute actively to the social good (Jensen, 1998). Norman Bowie for example, arguing on Kantian grounds that beyond following the law, organizations have moral duties not to inflict harm, even if it is within the legal framework (Bowie, 2005). Keith Davis argues that businesses have vast social power in employment and plays a role in environmental pollution, thus the organizations should be socially responsible towards the consequences in its pursuit of self-interest (Keith, 1977).
For a more sustainable market economics, Konosuke Matsushita, the founder of Panasonic says that businesses should serve the society as its primary objective. ???While servicing the society, profit will automatically be obtained??? (Mustapha, 2010, p.1).
* Business should make the service to society as its objectives,
* While serving society profits will automatically be obtained.
Keith, D. (1977) ???Managing Corporate Social Responsibility???. Little, Brown & Company Inc.: Boston.
Mustapha, H. (2010) “Progress Through Moral Strength”, TheStar Online. thestar.com.my/columnists/story.aspfile=/2010/11/30/columnists/ikimviews/7527041. [Viewed 2nd May 2012].
Bowie, E. (1998) “A Kantian Theory of Meaningful Work”, Journal of business Ethics, Vol.17: pp.9-10.
Jensen, M. (1998) “Self-Interest, Altruism, Incentives, and Agency Theory”. Foundation of Organizational Strategy. Harvard University Press.
Friedman, M. (1970)??? The Social Responsibility of Business is to Increase its Profits???. New York Times Magazine. http://www.umich.edu/~thecore/doc/Friedman.pdf. [Viewed 2nd May 2012].
Bowie,N. (2005) ???Contemporary Issues in Business Ethics???, DesJardins & McCall: California.
To invite corporations to base their policies and activities on anything other than profit making is to politicize businesss unique economic function and to hamper its ability to satisfy our material needs.
If corporations are permitted to maximize their profits without taking society??™s interests into account, then the greatest economic good for everyone in the society will result.
Norman Bowie argues that ???ethical customs??? also contain the duty of acting morally and avoiding harm, even when this is not prohibited by law.
?Bowie states that if a business obeys environmental laws it will be accepted by the society.
?Bowie found out that most consumers are not willing to pay more money for environmentally friendly products. Furthermore consumers are not keen to conserve resources or recycle.
Triple Bottom Line
The dominant paradigm views economics as being value-neutral, even as economists from Adam Smith and John Stuart Mill to Milton Friedman and Paul Krugmanare known for their research into political, social and not just economics
?A more adequate model must recognize that economic, ecological and ethical concerns are all directed at the same question: What are the best ways for human beings to live and flourish within the biosphere that is their only home
?Corporate Social Responsibility (CSR) must be assessed on all three criteria: Economic, Ecological & Ethical ??“???The Three Pillars of Sustainability??? or ???The Triple Bottom Line???.
2.0 Introduction: Walmart
Walmart??™s net revenue in 2010 was reported at $419 billion US dollars, rivalling the gross domestic product of other countries such as Malaysia and Norway (Payne, 2012). Employing over 1.5 million people worldwide, Walmart is ranked as the world??™s largest company. However, Walmart has received numerous criticism in its corporate social responsibility and ethics (or lack of) for many reasons; displacing smaller businesses, carbon footprint left behind as a result of the pursuit in low cost production, and cases of employee discrimination. Without a doubt, the pursuit of low cost will certainly result in unsustainable practices to an extent, but at the same time those large companies that are setting a role model will create a huge positive impact on other organisations (Izzo, 2011). One of the effects of the pursuit in low cost is the formation of sweatshops. Ciment (2006) defines sweatshops as a producer whom treats its employees in an inhumane manner, violating the moral obligations of an employer towards an employee. However, this does not address what exactly are the moral obligations of an employer towards an employee, but it provides a context from a moral perspective for the following discussion on sweatshops.
2.1 Walmart and Sweatshops
The case of Walmart purchasing clothing manufactured in Bangladesh made by sweatshops highlighted the moral obligations of organisations towards its suppliers (Gogoi, 2008). Workers in Walmart??™s sweatshop were made to work in 19 hour shifts, and getting paid only USD$20 a month (Gogoi, 2008). These arduous working conditions are not unique to Walmart??™s suppliers, as the intense growth and outsourcing of production by organisations such as Nike resulted in reliance of contractors in third world countries such as China and Indonesia for its manufactured goods. In order to satisfy the organisation??™s need for low cost production, some of these sweatshops abuse human rights, underpay their employees, and even employ child labour (Arnold & Bowie, 2003). However, there are arguments made by ethic philosophers regarding the issue of sweatshops; Ian Maitland (1997) argues that sweatshops ???constitute for many less developed countries an important rung on the ladder to economic development??? (Marcoux, 2008, p.1). On the other hand, DeGeorge (1993) says that home country working conditions needs not be applied to host countries of sweatshops.
2.2 Arguments Supporting Sweatshops
DeGeorge??™s argues that if MNCs are to provide the same working condition and remuneration, then it would have little or no incentive to relocate their manufacturing overseas. This would result in loss of opportunity in jobs for the potential host countries. Furthermore, if the MNCs pay above than market average wages, they would distort the local labour market with an artificially high wage that does not correlate to the local??™s standard of living (Arnold & Bowie, 2003; DeGeorge, 1993). Sweatshops offer employment opportunities. If the host country increases the minimum wage sweatshops, they may simply relocate to another alternative location with a better prospect. This would lead to loss of investment and job creation, and also a lower gross domestic product of the host country (Myerson, 1997). Despite the low wages and arduous working conditions in sweatshops, there is no shortage of job applicants. Many sweatshop employees commented that alternative choices and other job prospects are bleak (Maitland, 1997). In the face of such circumstances, sweatshops pose as a way for locals to survive (Maitland, 1997).
Sweatshops offer an improvement from their previous condition; before sweatshops, the population survives through subsidence farming and have no jobs or future to look forward to (DiLorenzo, 2006). Everyone starts work at a young age, and many children die from starvation or malnutrition. In this case, sweatshops provide job opportunities for the local population. In a research conducted in 11 countries, 80% of the sweatshops pay higher than market rate wages. For example, in Honduras, almost 50% of the working population live on $2 a day; in contrast, sweatshops pay $13.10 a day. This case applies to many other neighbouring regions, such as Cambodia, Haiti, and Nicaragua. In the case of child labour, if sweatshops do not employ them they might die of starvation given the low productivity of their parents (DiLorenzo, 2006). For example, after the Child Labour Deterrence Act was introduced in 1997, an estimated reported figure of 50,000 children lost their jobs in the garment industry around Asia, leaving ???many to resort to jobs such as stone-crushing, street hustling, and prostitution??? (Bellamy, 1997, p.60). Rather, sweatshops provide an improvement over subsistence farming and similar arduous manual labour, or even trash picking, prostitution or starvation (Myerson, 1997; DiLorenzo, 2006). This is supported by the stakeholder theory, which argues that every person or group participating in a firm??™s activities do so to obtain benefit (Freeman, 1984). In this case, the employees obtain financial benefit, despite the arduous working conditions.
The employees in a sweatshop are free to quit or look for another alternative anytime. The sweatshops do not offer any repercussions on employees who quit, as there is no shortage of job applicants. They stay because the job opportunity is more attractive than any alterative available (Maitland, 1997). Compared to developed countries the wages and working conditions may seem terrible, but when compared to the local working conditions and wages the sweatshops offers an attractive alternative.
Economist Jeffrey Sachs commented that, ???my concern is not that there are too many sweatshops, but there are too few??? (Myerson, 1997, p.1). His concern was that sweatshops bring about technological transfer, which benefits the local industries in the long run. Furthermore, comparative advantage is gained from being able to perform the same job for a lesser wage. Furthermore, unlike in the developed countries, sweatshops are not replacing high-skilled labour. Sweatshops have benefitted countries that were in similar state in the 1960s, such as Taiwan and South Korea. The transfer of technology gave them comparative advantage, which were used to develop their own industries (Theodore, 2002).
2.3 Arguments against Sweatshops
As sweatshops provide the nation with potential investment and enhances the nation??™s gross domestic product through its production, governments often are in favour of sweatshops and may cause the overlook certain working condition or wage issues which could otherwise been discussed until a consensus is reached (Maitland, 1997). For example, Walmart??™s Bangladesh sweatshops pays its workers a monthly rate of $20, which is below the nation??™s imposed minimum wage of $24 a month (Gogoi, 2008). However, due to the fact that Walmart brings about investment and job opportunities, the authorities closes an eye to such issues. In truth, Walmart could simply relocate its sweatshops to China and the losing end would still be Bangladesh (Gogoi, 2008).
Sweatshop workers are often subjected to verbal, sexual or physical abuse by their employers. As the local job opportunities are bleak, sweatshop workers often do not really have a choice in order to survive. Sweatshop operators take advantage of this and abuse them daily; as a result, the sweatshop employees may suffer from psychological abuse, working under abusive supervision and have no legal protection against such abuses. The employees are also coerced into working overtime without extra remuneration; if they do not comply, they are simply fired and replaced. Despite the higher pay, often such abusive working environment does not justify that the better than local remuneration will provide a better well-being in the long run While working in a sweatshop is by the choice of the locals for their own survival, it still does not make th abusive environment ethical. This also proves that sweatshops a means to an end; as sweatshops are formed to obtain production under the lowest cost possible in order to maximize profit, they have no regards for their employees (Maitland 1997, DiLorenzo, 2006).
2.4 Conclusion: Sweatshops and Ethics
Kants categorical imperative defines that we should not treat a rational being merely as a means but always as an end in itself. Despite the fact that all employees??™ regardless of whether they are a sweatshop or not, are used to as a means to obtain profit, it becomes immoral and unethical when employees are seen as merely tools and abused to obtain profit.
From the utilitarian point of view, we must consider the consequences of raising wages and pressuring the MNCS such as Walmart to abolish workshops, and determine the effect it will have on everyone. For example, if Walmart closes its sweatshop in Bangladesh, the local population would lose their jobs, and may not be better off. The stakeholder??™s theory explains that employees of a sweatshop benefit from the financial remunerations (Hunt & Vitell, 2006).
Walmart stresses corporate social responsibility, but their action on the other hand does not reflect this. There are cases of Walmart putting down trade unions, and also their sweatshops are found to be abusive. CSR should promote the public??™s interest, community growth and development, and also to eliminate malpractices that may harm the public. By not providing the necessary and proper working conditions for sweatshop employees, Walmart and many other MNCs operating sweatshops are not performing their CSR as how it should be.
In conclusion, sweatshops are unethical; despite Walmart??™s sweatshops offering job opportunities, the abusive working environment does not justify the employees being treated as an end in itself. Kant??™s categorical imperative states that we should not treat a rational being merely as a means to an end. In addition, the corporate social responsibility of Walmart should apply to the case of sweatshops as well. .
Walmart should revise their sweatshops, as to obtain the lowest possible costs in production and be ethical in the sense that its employees are not mistreated or abused. Most of the issues with sweatshops do not revolve around the case of paying low wages, but on the working conditions. Walmart may earn marginally less, but to become ethical they should conduct routine checks on the sweatshops to ensure that the working hours are fair, the working environment is just (i.e. proper ventilation), and lastly, the employees are not sexually, verbally, or physically abused.
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