MGT 255: ETHICS
Chapter 3
BUSINESS Systems:
Command vs. ‘Free Market’ vs. ‘Mixed Economy’
Adam Smith, John Locke,
Herbert Spencer, J.M.Keynes, Karl Marx
What is an Economic System?
Production and Distribution of Goods
Who makes decisions ?
How much?
Tradition-based System
Communal/ tribes
Traditional roles
Authority decide what, who to produce and
who gets it
Function is to define needs of community; for
short- as well as long-term (planned)?
Command System
Communitarian
Role of government is often authoritarian
Single authority decides what, who to produce and
who gets it
Function is to define needs of community for short-
as well as long-term (planned)
Example Soviet Union (world‘s second largest
economy in 1960s, being only no. 6 in 1928)
Free Market or Capitalist System
Individualistic Character
Limited role of government, no centralized
power and government plans
Role of government is to protect property,
enforce contracts, keep market place open for
competition,
Intervention only in case of safety and
national crisis (i.e. wars)
Free Market or Capitalist System
(cont‘d)
Based on ideas by John Locke (from ‘rights
perspective’) and Adam Smith (from
‘Utilitarian’ perspective)
Three main components
Private Property
Voluntary exchange
Little intervention from government (Tobacco,
Prostitution, Bankruptcy)
Locke
Humans have “natural rights” with liberty and
property being the most important
Humans are individuals first, communities
come second
Law of nature (‘perfect freedom’) vs. state of
nature (rules to oversee ‘perfect freedom’)
Political body to protect our lives and
property
The Utility of Free Markets:
Adam Smith
Free Markets and private property maximize
“benefits” (self-interest and competition)
Investments and risks are rewarded
Consumers get exactly what they want at the
lowest possible prices, resources are
efficiently employed
Prices depend on scarcity vs. greater supply
Adam Smith
‘Invisible Hand’: Market competition serves
society
No government interference
Critics of Free Market Economy
(J.M.Keynes)
Free Marketers are motivated only by self-interest, desire for
profit but humans are concerned for others and help each
other
Market system makes humans selfish and greedy
(employment and salaries)
Government can interfere to make economy more efficient
(taxes, subsidies)
Government looks for long-term gains not immediate profits
Government watches over the power of big/ oligopolistic
companies (price-fixing)
Social Darwinism
Spencer:
“Inconvenience, suffering, and death are the penalties
attached by nature to ignorance as well as to
incompetence…” (handicapped, old)
Economic competition produces human progress; if
government interferes than human progress slows
down
Aggressive business practice in a competitive world
leads to “survival of the fittest” (=survival of the
best), weak firms have to disappear to keep economy
healthy
Marx’ View of ‘Capitalism’
Marx witnessed first hand the exploitation & misery
caused by capitalist industrialism during 19th century
Karl Marx holds that private companies & free
markets lead to inequality
Capitalist systems offer only two sources of income:
One’s own labor
Ownership of means of production (capital)
Workers are not paid what their labor is worth, but
what they need to subsist and owner will keep
surplus and becomes wealthier
Marx’ View of ‘Capitalism’:
Alienation
Capitalism alienates the working class by denying them the
opportunity to develop their productive potential and satisfy
their real human needs
Loss of control of production (compete with machines)
Alienates from one’s own activity (exhausting,
unfulfilling, like machines)
Alienates people from one another (class system: have vs.
have-nots; no movements between classes)
Incentive to work?
Marx’ View of ‘Capitalism’:
Government
According to Marx, governments have
traditionally protected the interests of the
ruling economic elite
It is a myth that they protect freedom and
equality for owners and for non-owners/
wokers
Marx’ View of ‘Capitalism’s’Future
Three General Tendencies:
Industrial power will become increasingly
concentrated
Repeated cycles of boom and bust
Position of workers will gradually worsen with
rising unemployment and declining wages
The ‘Mixed’ Economy
Post-Communist Era:
What about the success of more collectivistic economic
systems like Japan and Germany?
Workers/ unions are represented by 50% on company boards
Welfare systems with free healthcare, free education, generous
un-employment benefits; paid maternity leave
Tries to remedy deficiencies of a free market system by
limited government interference (subsidies, regulation)
The ‘best of both worlds’?
Globalisation and Business Systems
Can systems be ‘globalised’ or are cultural
differences to big?
Sega vs. Accolade
Console/ software maker vs. software maker
Is console Sega’s private property?
Different opinions:
John Locke ?
Adam Smith ?
Karl Marx ?
