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Business Ethics

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Business Ethics ­MGT610
VU
LESSON 18
RICARDO & GLOBALIZATION
Ricardo's Assumptions
Ricardo's ingenious argument has been hailed as the single "most important" and "most
meaningful" economic discovery ever made. Some have said it is the most "surprising" and
"counterintuitive" concept in economics. It is, without a doubt, the most important concept in
international trade theory today and is at the heart of the most significant economic arguments
people propose today when they argue in favor of globalization. Ricardo makes a number of
simplifying assumptions that clearly do not hold in the real world, such as that there are only
two countries making only two products with only a fixed number of workers. But these are
merely simplifying assumptions Ricardo made to get his point across more easily and Ricardo's
conclusion could still be proved without these assumptions.
There are other assumptions, however, that are not so easy to get around. First, Ricardo
assumes that the resources used to produce goods (labor, equipment, factories, etc.) do not
move from one country to another. Yet today multinational companies can, and easily do, move
their productive capital from one country to another. Second, Ricardo assumes that each
country's production costs are constant and do not decline as countries expand their production
or as they acquire new technology.
Third, Ricardo assumes that workers can easily and unreservedly move from one industry to
another. Yet when a company closes down because it cannot compete with imports from
another country that has a comparative advantage in those goods, the company's workers are
laid off, suffer heavy costs, need retraining, and often cannot find comparable jobs.
Finally, and perhaps most importantly, Ricardo ignores international rule setters. International
trade inevitably leads to disagreements and conflicts, and so countries must agree to abide by
some set of rules and rule-setters.
Marxism and its influence on Markets and Trade
Karl Marx offers the most critical view of modern private property and free market institutions.
Marx claims that free-market capitalism necessarily produces extremes of inequality. Since
capitalist systems offer only two sources of income­owning the means of production and
selling one's labor­workers cannot produce anything without the owner of the productive
forces. But owners do not pay the full value of the workers' labor; they pay workers what they
need to subsist, keeping the rest for themselves and gradually becoming wealthier as a result.
The result for workers is increased alienation. Rather than realizing their human nature and
satisfying their real human needs, they are separated from what is actually theirs in four ways:
1. In capitalist societies, the products that the worker produces by his or her labor are
taken away by the capitalist employer and used for purposes that are antagonistic to
the worker's own interests.
2. Capitalism forces people into work that they find dissatisfying, unfulfilling, and that is
controlled by someone else.
3. Capitalism alienates people from themselves by instilling in them false views of what
their real human needs and desires are.
4. Capitalist societies alienate human beings from each other by separating them into
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Business Ethics ­MGT610
VU
antagonistic and unequal social classes that break down community and caring
relationships namely the Bourgeois and proletariat.
Conclusion
Though utilitarians claim that people would be lazy without private property, Marx counters
that by this argument the bourgeois owners should long ago have wasted away: they do not
work, while those who do cannot acquire any real property.
The real purpose of government, according to Marx, is to protect the interests of the ruling class
of owners. The forces of production of a society­its substructure­always have, historically,
given society its class and its superstructure (or government and popular ideologies). Those in
power promote the ideologies that justify their position of privilege. This view of history is
called historical materialism.
The result of unrestrained free markets and private ownership will be a series of disasters for
working people, leaving them immiserated. Three general tendencies will combine to bring this
about:
First, modern capitalist systems will exhibit an increasing concentration of industrial
power in relatively few hands. As self-interested private owners struggle to increase the
assets they control, little businesses will gradually be taken over by larger firms that
will keep expanding in size.
Second, capitalist societies will experience repeated cycles of economic downturns or
crises. Because workers are organized into mass assembly lines, the firm of each owner
can produce large amounts of surplus.
Third, Marx argues, the position of the worker in capitalist societies will gradually
worsen.' This gradual decline will result from the self-interested desire of capitalist
owners to increase their assets at the expense of their workers.
Though many of Marx's predictions have turned out to be correct, the immiseration of workers
has not occurred. Still, many claim that unemployment, inflation, alienation, and false desires
do characterize much of modern capitalist society.
Defenders of free markets counter that Marx makes an un-provable assumption that just means
equality or distribution according to need. They claim that justice really means distribution
according to contribution (which requires free markets). Even if private ownership causes
inequalities, defenders of free markets still maintain that the benefits of the system are greater
and more important than the incidental inequalities.
Whether the free market argument is persuasive depends ultimately on the importance one
gives to the rights to liberty and property as opposed to a just distribution of income and
wealth.
Conclusion: The Mixed Economy
Which side, free markets or government intervention, will ultimately win? Neither the collapse
of the Soviet Union nor the rise of strong collectivist governments like Japan proves one side or
the other. Indeed, it may be the case that neither side by itself presents a complete picture of
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Business Ethics ­MGT610
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how the modern economy ought to run.
Many economists now advocate retaining the market system and private property while
modifying their workings through government regulation, a mixed economy that attempts to
remedy the deficiencies of a free market system. Such policies can be very successful, as they
have been in Sweden, Japan, Norway, and many other countries. Even though the U.S. is more
successful economically than most other countries, studies do indicate that mixed economies
have some advantages.
New technologies are also firing the debate over the balance between Lockean private property
and collective ownership. Modern technologies, especially computers, create new forms of
intellectual property that, unlike other types of property, can be copied and consumed by a
number of different individuals at once. Locke's view, and the view of some utilitarians, is that
the mental labor that creates the property creates the property rights over that product.
Socialists point out that artists, writers, and thinkers have always created works without any
financial incentive.
Should new scientific and engineering discoveries be protected as private property? Should
these things be shared by the society that made their discovery possible? The debate continues.
Still, though critics of Marx contend that Marxism is dead, many socialist trends and theories
remain influential. Locke and Smith's form of capitalism has the upper hand, but many
nevertheless maintain that a mixed economy comes closest to combining the utilitarian benefits
of the market economy with a proper respect for human rights, caring and justice.
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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