class: middle, title-slide # Business Ethics — Ethics and Economics ## The Nature of Capitalism ### Dennis A. V. Dittrich ### 2022 --- layout: true <div class="my-footer"> <span><img src="img/tcb-logo.png" height="40px"></span> </div> --- # Introduction .row[.col-7[ Basic historical and conceptual categories are presented for understanding the socioeconomic framework within which business transactions occur and moral issues arise Moral problems related to the free enterprise system and capitalism are identified * How can capitalism increase wealth without creating moral issues? * Does capitalism enhance societies, or tarnish them? ]] --- class:middle .row[.col-7[ .question[ What exactly is the nature of the economic system called _capitalism_? ] ]] --- # Capitalism and other economic systems .row[.col-6[ **Capitalism** An economic system in which the major portion of production and distribution is in private hands rather than the government, operating under what is termed a “profit” or “market” system **Socialism** The polar opposite of capitalism, an economic system characterized by public ownership of property and a planned economy **Worker control socialism** A hybrid market-oriented socialism ] .col-6[ **Economic system** The way a society organizes business and money, such as capitalism, communism, socialism, and feudalism. Economic systems should be distinguished from _systems of government_. **Systems of government** The way a society organizes justice, redistributes wealth, and provides nonprofit services for citizens, such as democracy, aristocracy, monarchy, and oligarchy. ] ] <br/> .row[.col-7[ ] .col-5[ You can learn more about this in **_Comparative Economic Systems_** ]] --- # Capitalism has many different forms .row[.col-7[ Capitalism has historically evolved from the Renaissance through several stages – **mercantile** , **industrial** , **financial** , and **state welfare** . Many believe we are now at a new stage, **globalized** capitalism, involving reliance upon foreign labor and services, joint ventures in overseas companies, outsourcing, etc. Capitalism is constantly changing as new socio-economic and political conditions arise. ]] --- # Key Features of Capitalism .row[.col-6[ **Companies** Capitalism permits the creation of companies or business organizations that exist separately from the people associated with them. **Profit motive** The profit motive implies a critical assumption about human nature – that human beings are economic creatures who recognize and are motivated by their own monetary interests. ] .col-6[ **Free market** An economy without government interference other than to protect people's property, contracts, and right to noninjury **Competition** In his famous treatise on political economy, **An Inquiry into the Nature and Causes of the Wealth of Nations ** (1776), Adam Smith explained how free competition makes individual pursuit of self-interest socially beneficial. **Private property** Capitalism requires private ownership of the major means of production (factories, warehouses, offices, machines, trucking fleets, land, etc.) ]] --- # Capitalism: The company .row[.col-7[ _It’s not in the company’s interests..._ _The company thinks that..._ _From the company’s viewpoint..._ _As far as the company is concerned..._ All of us have heard, perhaps even used, expressions that treat a business organization like a person or at least like a separate and distinct entity. Such personifications are a basic characteristic of capitalism: Capitalism permits the creation of companies or business organizations that exist separately from the people associated with them. ] .col-5[ .question[ We take the existence of companies for granted, but some experts believe that it is not church or state but the **company** that is “_the most important organization in the world._’’ Do you think that companies are the most important organizations in the world today? ] ]] --- # Capitalism: The profit motive .row[.col-6[ The profit motive implies and reflects a critical assumption about human nature: Human beings are basically economic creatures who recognize and are motivated by their own economic interests. ] .col-6[ .question[ What do you think about this argument? Are we basically economic creatures? Or do we have other motives? Given that the profit motive is a modern notion, according to the text, is this an accurate reflection of how we _should_ be motivated, even if we are economic creatures? ] ]] --- # Moral Justifications of Capitalism ### The natural right to property .row[.col-6[ One basic defense of capitalism rests on a supposed natural moral right to property. Utilitarians deny the existence of such rights. Other critics doubt that this right entitles one to have a system of property rules and regulations identical to the one we now have in the U.S. ] .col-6[ **Natural rights** Rights are moral entitlements that obligate others. If I have a right to life, then others are obligated not to kill me. Natural rights are rights we have regardless of our contracts or agreements. Some philosophers have argued that capitalism is justified because of our _natural right to property_. ] ] --- # Moral Justifications of Capitalism ### The natural right to property .row[.col-7[ If we have a natural right to property, that doesn't mean that no other moral considerations are relevant. A right to property can conflict with our right to autonomy and living a decent life. For example, capitalism is compatible with “wage slavery”—being forced to work in horrible conditions because it's necessary for survival. ] .col-5[ .question[ 1. Is our right to property absolute? 2. What moral considerations can conflict with our right to property? ] ]] --- # Moral Justifications of Capitalism ### The natural right to property .row[.col-7[ A natural right to property can imply that we have a right to own natural resources and means of production, but that doesn't mean the government (or community) doesn't have a right to own these things. Not everything in the entire world needs to be owned by private interests. ] .col-5[ .question[ Should the government or community share ownership of natural resources or the means of production? ] ]] --- # Moral Justifications of Capitalism ### The natural right to property .row[.col-7[ According to Locke, it's wrong for the wealthy to horde their wealth (resources, means of production, and money) without leaving enough for others, but capitalism doesn't require the wealthy to do so. Capitalism often creates famines precisely because people have been taking the world's resources without leaving enough for others. ] .col-5[ .question[ 1. Should the wealthy be allowed to take everything for themselves without sharing? 2. How much do they have to leave for others? 3. Does it harm anyone when the wealthy hoard their money? 4. Are the wealthy “leaving enough for others” right now? ] ]] --- # Moral Justifications of Capitalism ### Adam Smith’s concept of the invisible hand .row[.col-6[ In his **Wealth of Nations** , Smith argues that when people are free to pursue their own economic interests, they will, without intending it, produce the greatest good for all. His argument rests on the premise that human beings are acquisitive and have a natural propensity for trading. ] .col-6[ **The law of supply and demand** Smith argued that a market left to itself is regulated by the mechanism of supply and demand. The high demand for certain types of goods in one area of the market will eventually by offset by supply in another area. The law of supply and demand is equally applicable to the standard of wages. ]] --- # Moral Justifications of Capitalism ### Adam Smith’s concept of the invisible hand .row[.col-5[ Smith assumes that people are **rational** and **well-informed**. Rational and well-informed people will buy the best products from the most ethical businesses at a reasonable price rather than shoddy products from unethical businesses at overly high prices. <br/> .question[ 1. How rational or informed must people be for the invisible hand to function? 2. How rational and informed are people? ] ] .col-7[ 1. Being a well-informed consumer is nearly impossible now that assessing the quality of products requires unusual levels of expertise that most people can't be reasonably expected to attain. 2. Being informed about the unethical practices of businesses often requires investigations that are rare and costly because we shouldn't just rely on hearsay and rumors, which are anecdotal and fallacious forms of evidence. 3. Being an informed consumer concerning available information can require a large investment to time that we can't reasonably expect of consumers. ]] --- # Moral Justifications of Capitalism ### Adam Smith’s concept of the invisible hand .row[.col-7[ Smith's _invisible hand_ argument requires the assumption that we have a “free market” but we've never had a free market and such an ideal is unlikely to occur in the near future. The subsidies, tariffs, and tax loopholes enjoyed by large corporations give some corporations an unfair (?) advantage over the competition. The wealthy are able to get a helping hand from governments through political contributions and bribes. The actual capitalistic systems that exist are not compatible with Smith's invisible hand, and the wealthy are unlikely to ever stop seeking advantages. ] .col-5[ .question[ 1. How well can the invisible hand function without a free market? 2. How free of a market do we have right now? ] ]] --- # Criticisms of Capitalism ### Two types of criticism .row[.col-7[ Critics raise both theoretical and operational objections to capitalism. 1. **Theoretical criticisms** challenge capitalism’s fundamental values, basic assumptions, or inherent economic tendencies. 2. **Operational criticisms** focus more on capitalism’s failure to live up to its own economic ideals. ]] --- # Criticisms of Capitalism ### Inequality .row[.col-6[ Critics argue that poverty and inequality challenge the fairness of capitalism and its claim to advance the interests of all. ] .col-6[ Defenders of capitalism respond in three ways: 1. By blaming government for interfering with the market 2. By arguing that the capitalist system can be internally modified by political action 3. By arguing that the benefits of the system outweigh its weak points ]] --- # Criticisms of Capitalism ### Human nature and capitalism .row[.col-7[ Capitalism wrongly assumes that human beings are rational economic maximizers. Capitalism offers us no higher sense of human purpose. Capitalism operates on the assumption that human beings find increased well-being through ever greater material consumption. ]] --- # Criticisms of Capitalism ### Competition isn’t what it’s cracked up to be .row[.col-7[ Capitalism breeds **oligopolies** – concentrations of property and resources (and thus economic power) in the hands of a few **Corporate welfare** programs often shelter businesses from competition. Critics contend that cooperation, rather than competition, leads to better individual and group performance. ] .col-5[ **Subsidies** Tax breaks, resources, and money given by the government (or other organization). Both social welfare and _corporate welfare_ are forms of subsidies. ] ] --- # Criticisms of Capitalism ### Exploitation and alienation .row[.col-7[ Karl Marx argued that as the means of production become concentrated in the hands of the few, the balance of power between capitalists (**bourgeoisie**) and laborers (**proletariat**) tips further in favor of the bourgeoisie. Because workers have nothing to sell but their labor, the **bourgeoisie** is able to **exploit** them by paying them less than the true value created by their labor. In his “Economic and Philosophic Manuscripts” (1944), Marx explains the notion of **alienation** as the separation of individuals from the objects of their creativity. This separation in turn results in one’s separation from other people, from oneself, and ultimately from one’s human nature. ] .col-5[ **Alienation** Becoming a stranger to humanity—one's own humanity and the humanity of others. Karl Marx argues that capitalism causes people to lose an understanding of what it means to be human and they no longer see themselves or others as being fully human. **Exploitation** is when a capitalist sees her workers as being a “means to her ends.” They are to be “used” by her to make a profit and their needs are not important to her. ]] --- # Moral Justifications of Capitalism .row[.col-6[ Justifications for capitalism aren't generally enough to fully justify it because there are many objections to capitalism. We must consider both arguments for and against capitalism to decide if it's justified. We need to compare _alternative economic systems_ to capitalism to see if anything else is better. The arguments for or against capitalism are inconclusive until we can find out which economic system is most _justified_. ] .col-6[ .question[ 1. Are any justifications for capitalism convincing? 2. Are any objections to capitalism convincing? 3. What form of capitalism is best? 4. How does capitalism stack up to the alternatives? ] ] ] --- # Today’s Economic Challenges ### The decline of American manufacturing .row[.col-7[ Whereas manufacturing accounted for 27 percent of GDP in the mid-1960s, it has fallen to about half that. For the first time since the Industrial Revolution, manufacturing employs less than 10 percent of the U.S. workforce. In 2007, the number of factory jobs hit a fifty-seven-year low. Critics worry whether the U.S. can prosper without a strong manufacturing base. ]] --- # Today’s Economic Challenges ### Outsourcing jobs .row[.col-6[ “As a percentage of gross domestic product, manufacturing in the United States has declined by more than 50 percent since the 1960s.” Since the 1980s, many U.S. manufacturers have closed or curtailed their operations and becoming marketing organizations for other producers, usually foreign. The result is the evolution into a new kind of company, one that does little or no manufacturing. The firm may perform a host of profit-making functions, but lacks its own production base. ] .col-6[ Instead, it **outsources** , buying parts or whole products from other producers, both at home and abroad. Over 1.3 million manufacturing jobs have moved abroad since 1992. * Outsourcing has affects white-collar jobs. * About 54 percent of the 1,000 largest U.S. companies outsourcing or planning to outsource white-collar jobs. * At least 300,000 white-collar jobs may flow overseas every year through 2015. * This would mean a total loss of 3.4 million jobs. ]] --- # Today’s Economic Challenges ### Outsourcing jobs .row[.col-7[ Economists disagree about whether outsourcing benefits America overall. Some economists argue that the economy is hurt by the massive job losses that result. Some economists argue that a country should produce for the world market those goods in which it has a **competitive advantage** . ]] --- # Today’s Economic Challenges ### The U.S. trade deficit .row[.col-7[ America today imports twice as much merchandise as it exports. Our relentlessly growing trade deficit is now over $700 billion annually, equivalent to almost 6 percent of GDP. With this deficit the country’s reliance on foreign borrowing has increased, and foreign creditors now provide two-thirds of America’s net domestic investment. Today we owe the rest of the world about $3 trillion—twice what we owed in 2000. ]] --- # Today’s Economic Challenges ### Changing attitudes toward work .row[.col-7[ Americans now work 20 percent more than in 1970. But the American work ethic is disappearing: 1. Only one in three persons believes that hard work pays off in the end. 2. People are less interested in work than in looking out for themselves. 3. With increased education, we are rearranging our ideas about what we want from life. 4. People want meaningful and challenging work that offers us autonomy and self-development. ]] --- # Today’s Economic Challenges .row[.col-6[ 1. The decline of manufacturing and related problems posed by the outsourcing of jobs 2. Business’s obsession with short-term results 3. Changing attitudes toward work. 4. ...] .col-6[ .question[ Which of these challenges do you think is the most pressing and significant? What other challenges do you think face the Western Industrialized World today? ] ]]