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Business Ethics

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Business Ethics ­MGT610
VU
LESSON 15
FREE MARKET & PLANNED ECONOMY
FREE TRADE THEORIES
Economic Freedom: Idea, Performance, and Trends
Economic freedom is characterized by the absence of government coercion or constraint on the
production distribution, and/or consumption of goods and services beyond the extent necessary
for citizens to protect and maintain liberty itself. Thus, people are free to work, produce,
consume, and invest in the ways they choose. The Economic Freedom Index approximates
the extent to which a government intervenes in the areas of free choice, free enterprise, and
market-driven prices for reasons that go beyond basic national needs. Presently, countries are
classified as free, mostly free, mostly unfree, and repressed. Determining factors include: trade
policy, the fiscal burden of the government, the extent and nature of government intervention in
the economy, monetary policy, capital flows and investment, banking and financial activities,
wage and price levels, property rights, other government regulation, and informal market
activities. Over time, more and more countries have moved toward greater economic freedom.
Countries ranking highest on this index tend to enjoy both the highest standards of living as
well as the greatest degree of political freedom
The explanatory power of the theories of absolute and comparative advantage is limited to the
demonstration of how economic growth can occur via specialization and trade. The concept of
free trade (a positive-sum game) purports that nations should neither artificially limit imports
nor artificially promote exports. The invisible hand of the market will determine which
competitors survive, as customers buy those products that best serve their needs. Free trade
implies specialization--just as individuals and firms efficiently produce certain products that
they then exchange for things they cannot produce efficiently, nations as a whole specialize in
the production of certain products, some of which will be consumed domestically, and some of
which may be exported; export earnings can then in turn be used to pay for imported goods and
services. This chapter examines the ethical aspects of the market system itself--how it is
justified, and what the strengths and weaknesses of the system are from the point of view of
ethics. It begins by discussing the economic conditions in the U.S. at the close of the 20th
century, when proponents of industrial policy were urging the government to help declining
industries and their workers to adjust to new economic conditions. Others urged caution,
advising the government to "avoid the pitfalls of protectionism." This dichotomy illustrates the
difference between two opposite ideologies, those who believe in the "free market" and those
who advocate a "planned" economy.
These two ideologies take different positions on some very basic issues: What is human nature
really like? What is the purpose of social institutions? How does society function? What values
should it try to protect?
In general, two important ideological camps, the individualistic and communitarian viewpoints,
characterize modern societies. Individualistic societies promote a limited government whose
primary purpose is to protect property, contract rights, and open markets. Communitarian
societies, in contrast, define the needs of the community first and then define the rights and
duties of community membership to ensure that those needs are met.
These two camps face the problem of coordinating the economic activities of their members in
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Business Ethics ­MGT610
VU
two distinct ways. Communitarian systems use a command system, in which a single authority
decides what to produce, who will produce it, and who will get it. Free market systems are
characteristic of individualistic societies. Incorporating ideas from thinkers like John Locke and
Adam Smith, they allow individual firms to make their own decisions about what to produce
and how to do so.
Free market systems have two main components: a private property system and a voluntary
exchange system. Pure free market systems would have absolutely no constraints on what one
can own and what one can do with it. Since such systems would allow things like slavery and
prostitution, however, there are no pure market systems.
Free Markets and Rights: John Locke
John Locke (1632-1704), an English political philosopher, is generally credited with
developing the idea that human beings have a "natural right" to liberty and a "natural right" to
private property. Locke argued that if there were no governments, human beings would find
themselves in a state of nature. In this state of nature, each man would be the political equal of
all others and would be perfectly free of any constraints other than the law of nature--that is,
the moral principles that God gave to humanity and that each man can discover by the use of
his own God-given reason. As he puts it, in a state of nature, all men would be in:
"A state of perfect freedom to order their actions and dispose of their possessions and
persons as they think fit, within the bounds of the law of nature, without asking leave, or
depending upon the will of any other man".
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Table of Contents:
  1. INTRODUCTION:Business Issues
  2. INTRODUCTION (CONTD.)
  3. THEORY OF ETHICAL RELATIVISM
  4. MORAL DEVELOPMENTS AND MORAL REASONING
  5. MORAL REASONING:Arguments For and Against Business Ethics
  6. MORAL RESPONSIBILITY AND BLAME
  7. UTILITARIANISM:Utilitarianism: Weighing Social Costs and Benefits
  8. UTILITARIANISM (CONTD.):rule utilitarianism, Rights and Duties
  9. UNIVERSALIZABILITY & REVERSIBILITY:Justice and Fairness
  10. EGALITARIANS’ VIEW
  11. JOHN RAWLS' THEORY OF JUSTICE:The Ethics of Care
  12. THE ETHICS OF CARE:Integrating Utility, Rights, Justice, and Caring
  13. THE ETHICS OF CARE (CONTD.):Morality in International Contexts
  14. MORALITY IN INTERNATIONAL CONTEXTS:Free Markets and Rights: John Locke
  15. FREE MARKET & PLANNED ECONOMY:FREE TRADE THEORIES
  16. LAW OF NATURE:Theory of Absolute Advantage, Comparative Advantage
  17. FREE MARKETS AND UTILITY: ADAM SMITH:Free Trade and Utility: David Ricardo
  18. RICARDO & GLOBALIZATION:Ricardo’s Assumptions, Conclusion
  19. FREE MARKET ECONOMY:Mixed Economy, Bottom Line for Business
  20. COMPETITION AND THE MARKET:Perfect Competition
  21. PERFECT COMPETITION
  22. MONOPOLY COMPETITION:Oligopolistic Competition
  23. OLIGOPOLISTIC COMPETITION:Crowded and Mature Market
  24. OLIGOPOLIES AND PUBLIC POLICY:Ethic & Environment, Ozone depletion
  25. WORLDWATCH FIGURES:Population Year, Agriculture, Food and Land Use
  26. FORESTS AND BIODIVERSITY:The Ethics of Pollution Control
  27. THE ETHICS OF POLLUTION CONTROL:Toxic Chemicals in Teflon
  28. THE ETHICS OF POLLUTION CONTROL
  29. THE ETHICS OF POLLUTION CONTROL:Recommendations to Managers
  30. COST AND BENEFITS:Basis of social audit, Objectives of social audit
  31. COST AND BENEFITS:The Ethics of Conserving Depletable Resources
  32. COST AND BENEFITS:The Club of Rome
  33. THE ETHICS OF CONSUMER PRODUCTION AND MARKETING:DSA Comments
  34. THE ETHICS OF CONSUMER PRODUCTION AND MARKETING:Should Consumers Bear More Responsibility?
  35. THE CONTRACT VIEW OF BUSINESS' DUTIES TO CONSUMERS
  36. THE CONTRACT VIEW OF BUSINESS' DUTIES TO CONSUMERS:The Due Care Theory
  37. THE SOCIAL COSTS VIEW OF THE MANUFACTURER’S DUTIES
  38. ADVERTISING ETHICS:The Benefits of Advertising, The harm done by advertising
  39. ADVERTISING ETHICS:Basic Principles, Evidence, Remedies, Puffery
  40. ADVERTISING IN TODAY’S SOCIETY:Psychological tricks
  41. ADVERTISING IN TODAY’S SOCIETY:Criticism of Galbraith's Work
  42. ADVERTISING IN TODAY’S SOCIETY:Medal of Freedom
  43. ADVERTISING IN TODAY’S SOCIETY:GENERAL RULES, Substantiation
  44. ADVERTISING IN TODAY’S SOCIETY:Consumer Privacy, Accuracy
  45. THE ETHICS OF JOB DISCRIMINATION:Job Discrimination: Its Nature