Critique of British Prime Ministers attack on the free market - Essay Example

? Sustainable Management Futures Critique of British Prime Ministers attack on the Free Market The free market theory postulates that there should be numerous participants within the same market engaged in the buying and selling of numerous and varied products. All such producers have the opportunity to take part in production activities and, therefore, share the profits present in legitimate business ventures and the consumers are deemed to have full information about prevailing market conditions. Furthermore, it argues that the ultimate gain is to consumers who enjoy the benefits of increased product diversity as well as competitive and affordable pricing on the same; in that the prevailing prices are a consequence of a “push and pull” forces of demand versus supply respectively. These ideal conditions of the free market form the basis and support for an economic practice that has become synonymous modern day trade under the banner of capitalism. For perfectly competitive markets, the ideal economics of a “free market” exist. This was the prevailing economic theory of the period of 1960-80. However, the current trends in economics suggest that big markets hardly operate under perfect competitive conditions since primarily; households are conscious about the markets; producers curve out their market shares therein effectively seeking profit and shutting out other competitors. Most markets in both the UK and the US are not “free markets” but oligopolies where a few firms control a large portion of the market (Hoetzlein). It is however unfortunate that the ideals of the free market are increasingly been used by politicians and technocrats alike as a rallying cry for free healthcare, reduced taxes, unregulated interest rates and deregulation of the aggregate economy. This has led to the erosion of the very fundamentals designed to optimize welfare to the consuming public of which they claim to be pursuant. The basic argument for the proponents of free market policies is in opposition to governmental interference in business operations and instead in favor of a natural restoration of balance within the economy. The ability and willingness to freely engage in exchange of commodities would therefore suffice in creating a natural order within the market that favors all parties involved. It is based on such an understanding that the British Prime Minister, David Cameron faults the previous regimes over their apparent apathy in regard to the exercise of free market policies. The prime minister argues that previous regime’s turbo-capitalism policies have turned a blind eye on corporate excesses plunging the economy into anarchy and violating the fundamental purposes for which it (the government) was formulated. Most apparent under his attacks on previous regimes policy of “letting capitalism rip” is the impact on oligopolies of necessity goods such as healthcare, utilities and housing. Such are the goods that are most pertinent to the civilian population as they are needed to survive; items with which households are unable to exert price elasticity. He condemns the previous regimes for denying the citizenry the enjoyment of these basic amenities at the expense of corporate greed and profit making. The recent global financial crisis has served to further the underlying weaknesses in the free market theory (Kwak). The world financial crisis is viewed as a banking crisis arising from the uncontrolled and misinformed deregulation of the United States’ financial market. This is because the world’s reserves are largely in the US currency (Roberts). Nowhere else than in the developed countries in Western Europe were the effects of the crisis mostly evidenced. However, most unfortunate is the fact that the role of most hard core free market theorists in this collapse seems to have evoked little or no interest. This further evokes questions to mind as to whether the crisis is over and if the supposed recovery is truly on course? Although many point to information asymmetry, growing moral hazard and agency costs as perforating factors within the free market fabric and thus contributing to the current financial crisis. Few seem to focus on the direct and intentional role of the heirs of early free market campaigners like Von Hayek and Milton Friedman in creating market distortions that eroded the assumptions under the free market theory. In the years leading up to the crisis, depository institutions in the UK followed the stance of participants within the greater US financial markets in providing complex products and pushing for deregulation of government control over them via capital market authorities. To what end? These pro-market forces used such complexity to jam the wheels of free market economies and thereby reducing competition in the pursuit of profit maximization. The sweeping attack by corporate on comprehensible contracts also served to shake the foundations of capitalism. The skewing and complication of contractual terminologies weakened the basis for regulation by stretching the idea of free choice in a market where most derivative instruments were not priced beforehand and whose compositional distinction as between good and bad securities was hard to establish due to the fallen regulations, a crisis loomed heavily and was inevitable. So then, can it be argued that the collapse of free market theory was purposely orchestrated by the few economic moguls of the world? Or that the passing of time in the absence of a concomitant change in conditions of the market both in regard to capitalism and regulation naturally prophesized doom for the developed economies? If this be the case, does it therefore offer a legitimate case for government to be engaged in the regulation of commerce whether it is in the form of local, regional or international bodies? Most importantly, to what extent can government exercise its role-is it regulatory, supervisory or outright participation?- and which measures can it put in place to prevent itself from creating bottle-necks to free international trade? The answers to these basic and many other questions regarding free trade may possibly lie within the realm of ethics and good corporate governance; considering how modern-day commerce heavily depends on the management’s in policy formulation and implementation within these two areas. Corporate Social Responsibility for Sustainable Market Economics Corporate social responsibility (CSR) refers to the concept of doing business in a way that is responsible to how it impacts both socially and environmentally to areas where the business exists. It concerns a deliberate effort to incorporate responsible practices into the daily operations of the business firm. Earlier forms of corporate social responsibility were identified to be mainly driven by philanthropic tendencies; businesses and individuals within the corporate world felt a need of “giving back” to the communities around them(N. E. Bowie). Sustainability, on the other hand, regards the selection and application of policies that are both socially and environmentally sound to ensure the success of a business as a going concern. Perhaps rightly so, that out of the profits made from the consumption behavior of the communities around the business, a show of gratitude was not only a way of recognizing the presence of the community and getting “in touch” with it but more so a means of safeguarding future profitability by locking in the community. This is the view of most classical economists regarding corporate social responsibilities. It is according to this innate purpose that Milton Friedman identifies as the motive for corporate social responsibility efforts. The firm exists solely to make and realize profits for its stakeholders. In this view, corporate social responsibility would include all efforts engineered towards exploiting stakeholders and their resources in a bid to ensure profitability for the firm and as such, for the stakeholders too. However, since, under the system of free markets, the underlying agent for choice (which is at the crux of capitalism as an ideology) is the entering into of contractual agreements, and then it would imply that under Milton Friedman’s model, corporate social responsibilities would regard undertakings to maximize the returns to the stakeholders under the confines of the law. Legislation by the law and internal regulations by the firm would, therefore, spell out the extent to which the firm can ethically and morally pursue its purpose and objectives. He argues that taking care of the concerns and interests of the stakeholders is self-fulfilling since in so doing the stakeholders become increasingly motivated. This increases their productivity and, as a consequence, the efficacy and overall profitability of the firm is increased. At the centre of the neoclassical approach to corporate social responsibility, is that the firm should pursue profits but not at the extent of causing any harm. Neoclassical theorists postulate that the formation of corporations under capitalism was to seek and enjoy profits by recognizing the individual’s right and justice. Norman Bowie’s model argues that although the firm is required to honor the minimum moral obligation, far and beyond this is its expectation by “ethical customs” to do so even where not expressly prohibited by law. He gives an example of capitalism reward for organizations that are accepted by the society as those which obey environmental laws. Furthermore, he identified that although most consumers are neither keen on environmental conservation nor willing to pay extra for the purchase of environmentally-friendly goods, the same consumers will easily shun down organizations that do not uphold environmental laws. Therefore ethics would direct the firm’s to consider-in the absence of obligatory powers-formation of best policies and implementation of best practice. It carries with it the “assurance” of continued support from the society and thus a promise of profitability unto the foreseeable future. Although the classical and neoclassical theorists differ in principle with regard to corporate social responsibilities with the former advocating for an ‘anything for profit” approach while the other rooting for a freely conscience approach even where not prescribed by law, they both seem to agree at least in one part that it is not de facto the purpose of the firm to do good. Organizations do not run charitable operations’ unless of course in the case of those specifically set up for this purpose. The neoclassical argue that, under capitalism conditions of free markets, the firm is not a charity organization; the role of providing equilibrium welfare for the people rests with the government. Should business attempt to take over this responsibility, then government shall in return take over business (Zanda). For sustainable market economics, a convergence must be made as between the pursuit of profitability and growth and the general welfare of the consumers. This often would take the form of a trade-off between these two opposite objectives. Such a comprehensive model must be aligned to take cognizance over ecological, economic and ethical concerns; and that all are together driven towards answering the manner of human coexistence within a world of limited and diminishing resources. The transition must be carried out with the realization that all conflict of interests can be eliminated if not minimized significantly. Therefore, for this to happen, the ideal conditions of a free market should be at play with a focus on economic development, as opposed to economic growth. The pace of economic growth should match the resource generation by the earth (N. Bowie). Corporate social responsibility by BP Introduction The British petroleum company has its founding dating as far back as 1866 in Philadelphia where under the name ARCO it was established to store and ship oil and oil products. It was not until the early 1923 that the name BP was adopted, and its French based operations adopted the now famous green and yellow. The growth of the firm’s operations was boosted by the full swing of the automobile age during this decade. The growth of the firm has seen numerous mergers as well as exploration contracts that have served to strengthen the firm’s hold over the petroleum industry as the firm sets its eyes on emerging markets such as Turkey and Libya. The purposes of the organization over the years have become well diversified as between exploration and distribution of both oil and natural gas. Moreover, other renewable sources of energy have also become a part of its business portfolio e.g. generation of low-carbon power. This has placed the organization as one of the world’s leading oil and gas companies globally with earnings in excess of $375 billion annually according to 2011 released financial statements. Its presence is felt in over 100 countries and providing employment to 83 400 employees globally (www.article13.com). With such a global outlook, it leaves little room for awe as to how the firm has attained hold on the oil and alternative energy industries. Discussion For such a large enterprise and operating in a multi-million dollar industry, the impacts of corporate social behavior are very crucial both in determining the direction of the multinational corporation as well as in determining and influencing the community's acceptance towards its presence. However, the pertinent risks involved within the oil industry seems to have reared its ugly head within the last decade with catastrophic consequences both to the financial performance of the firm but also in regard to the environmental impacts and especially within the maritime surrounding. The decade has seen the highest number of maritime oil spills by tankers which have left a serious ecological impact on the mangroves and the coral life that is a wonderful addition to the maritime community. Other human damages to the pipeline on land and the rise of armed, militant groups in production sites have meant that the company continues to incur heavy operational costs, and thus affecting its returns to its shareholders. British Petroleum Company has also been at the center and scrutiny of climate change advocates over its environmental as well as its social performance. According to the classical such as Milton Friedman, the company should concern itself with the supply and demand chain alone so as to maximize its shareholder, which also is a conglomerate of various international subsidiaries. We are fully aware of the billions the top management teams rake in the form of end year bonuses. This is a direct contradiction to the meager earnings of the worker at the pump station who attends to long and tedious working hours serving the rising numbers of consumers. Is there a moral ground for such extremes? (Baum, Bowie and Johnson). Moreover, in response to the intense pressure by climate change lobby groups and environmental protection activists and agencies over transparency and responsibility in their environmental obligations, BP has embarked on an ambitious social innovation project with the sole aim of causing no harm to the environment where it operates. Most encouraged is the move especially in light of the fact that oil and natural gas production are two of the most potent causes of atmospheric pollution through release of carbon gases, oil spills and explosions at oil rigs notwithstanding. How? The organization plans to do this through a combination of energy efficiency, waste product control and bio diversity. This seems to resonate deeply with the neoclassical thought of organizations pursuing profitability at no harm to other stakeholders. At the inception of this bold plan, was the reassertion of BP’s relationships with the society through a fresh statement of values that the firm considers core to its structure and operations (Banks). Some of these include trust and mutual value. The company has incorporated a fresh approach in which it asserts that, for sustainability of the firm unto the future, the society around it must also thrive. Social investment provides the most appropriate avenue through which the firm can be with the impact of business on society and can similarly empower the residents to be self sufficient through value addition on top of the product sale. To this end schools, hospitals, social halls and other infrastructural projects are identified and prioritized by the relevant team in conjunction with the particular communities. On its part, the organization plans to cut down significantly carbon emissions in two ways: Firstly through its own operational activities. By improvising and adopting new technology for drilling and excavating for the minerals and also in the refining of the crude oil, to cut down on its 1.298 billion tones of green house gases. Another challenge is in the reduction of emission by the products? It wants to achieve this through pioneering research into alternative energy such as wind and solar power. Partnerships with the private sector, governments and universities have meant that there is a concerted effort in the sharing of information and developments that further serves to enrich the knowledge base on emerging fuel sources. However, things are not as peachy as put down in the BP policy papers. Any rational household will bear testament to the fact large multinational corporations practice the cut-throat free market policies as proposed by radical followers of Friedman’s theory such as Levitz. Due to their enormous financial base sometimes outmatching budgets of several less developed countries combined, multinational oil corporations have enough muscle to dictate whether or not state enforcing agencies can indeed follow through and take a tough stance against such corporate for any deviations that cause socio-environmental damages. If the recent oil spills in the ocean are anything to go by, the oil companies merely clean up the viscous fluid and go scot free without facing other steeper repercussions such as payment for the destruction of the ecology. The destruction of corals and breeding grounds for fish and other aquatic life are no light matter even where such firms have cleaned up the spills. Conclusion In this light, BP presents itself as a member of the prestigious club of global innovators and progressive firms. Its focus in regard to ecological considerations and that of the welfare of the community where it operates helps to strengthen the bonds between producer and consumer. This relationship unto the future is very critical in light of the fact that oil business is typically a venture for life i.e. oil and natural gas extraction is a long-term operation that may stretch over several decades. More, however, still needs to be done to ensure that the increased expansion in operations and subsequent multiplications in profitability trickles down to the average citizenry as reflected (commonly) through a downward effect at the pump prices, increased welfare for the many operational level employees who toil long hours and numerous challenges to administer to an ever rising demand and greater community outreach programs and initiatives. Reference As You Sow Foundation, 2011. Corporate Social Responsibility. 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