Ethics and Morality of Let Capitalism Rip Allegation Made by David Cameron - Assignment Example

Q 1.1. Using your knowledge of the free markets perspectives examine the ethics and morality of ‘let capitalism rip’ allegation made by British Prime Minister David Cameron. The concept of business ethics and corporate social responsibility has always been debatable, especially among the various schools of thought that have different perspective over the same. Now the debate originates from the fact that not all business organizations behave in a socially responsible manner. At the same time this debate is exaggerated by an argument that it is not the job of business organizations to be concerned about social issues. The remarks by the Prime Minister should also be seen in similar context. In order to analyze his allegation on Labour Party for being responsible for ‘let capitalism rip’, it become imminent to first understand the free market perspective and its case against corporate social responsibility. The free market perspective advocates that the job of a business organization is to create wealth for the stakeholders. However, it incorporates this by abiding to the guiding principle of the shareholders who work to serve their own interest. On the contrary, the corporate social responsibility view suggests business organization to take into consideration the social issues prevalent in the society. The free market theory designates the business to create wealth by providing products and services. According to its perspective, “There is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profit so long as it stays will the rules of the game, which is to say, engages in open and free competition, without deception or fraud.” (Friedman 1962). Giving away money for any activity other than that associated with increasing the wealth of the shareholders is considered as a self imposed tax. At the same time, this perspective discourages the managers who are executing the business on behalf of the shareholders, to give away money for any untoward cause like corporate social responsibility. It is not that the free market is against any social development. In fact, free markets and capitalism have been at the centre of economic and social development. The modus operandi however is derived through its guiding principle. The social development would happen through increased standard of living of the working class. The standard of their living could be increased by higher wages. Now higher wages can be achieved if the organizations make good profit and a part of it is shared as incremental wages to the deserving employees (Blinder, 1987). The free market claims to contribute to the effective management of scarce resources. The school of thought favoring free market accepts that at times market fails, but while advocating regulation to avoid the same, it puts the onus on the government and rules out any self regulation. Moreover, it is also advocates minimal regulation just to avoid any market failure as in its views, regulations create unnecessary barrier for entry to the market. The view pertaining to free market validates its stand with certain arguments. Accordingly the this theory, the socials responsibility is automatically served by creating wealth for the shareholders which then percolate down to increase the standard of living. The moment a business organization is starts focusing on the social goals, its primary purpose of doing business is diluted and the process of wealth creation is hindered which deprives the society in other way. Further, in the free market where costs are transparently passed on to the consumer, the additional cost of social responsibility would burden the end user more and the very purpose of corporate social responsibility goes for a complete toss (Swasy, 1988). Another critical argument put forward by the free market advocates is that if business tales up social obligations, what will be left for government to do. More so, the common man will have no incentive to work hard as he can reap benefits of social welfare by merely sitting idle. Thus the distribution of resources will not be efficiently carried out. Though, these are extreme views of the free market theory against taking up the corporate social responsibility, the point Prime Minister was making has more valid ground. The allegations he is making are valid in the sense that the world economy cannot just do away with capitalism. Ripping it apart would ultimately bring the state of null. The government cannot run business and take on the social responsibility at the same time. Moreover, expecting the same from working class would also leady to anarchy. Q 1.2. Evaluate the system using Milton Friedman’s and Norman Bowie’s neo-classical models of corporate social responsibility (CSR). Make recommendations on the way forward for a more ‘sustainable’ market economics. As mentioned earlier also, the concept corporate social responsibility has been dealt with various perspectives. One of the most talked and most criticized one is by the classical view postulated by Milton Friedman. According to him, the very purpose of the corporation is to make profits for its stockholders (Friedman, 1962). Down the line, came to so called neoclassical view postulated by Norman Bowie. The essence of the neoclassical view was that the business organization is there to make a profit but at the same time it should not be inflicting any harm in doing so (Bowie, 1982). In other words, a business entity while making profits has to honor the rights and justice for an individual. Regardless of the vast scope of managerial obligations, an advocate of classical and neoclassical view would try to bring the stakeholder theory under his or her umbrella. According to the view, though a manager should worry about the rights and interests of the society, it should more focus on the core business for which he or she is being paid. If not, then the productivity of the manager will fall resulting in the fall of profit for the organization. The neoclassical theorists can be viewed as an enlightened classical theorist. While classical manager only needs to manage the resources of the company for making desired profit, a neoclassical manager is concerned with the health, safety, and family needs (day care) of employees. A classical manager might succeed in short run, it definitely fails in long run. Thus a neoclassical manager would help protect the profit and even enhances the profit of the business in long run as the morale and productivity of the work force is maintained (Rawls, 1971). If at all there is a social convention which requires organization to respect a moral minimum, then a Friedmanite manager would be duty bound to obey it. To the extent that the moral minimum involves duties to not cause avoidable harm, or to honor individual stakeholder rights, or to adhere to the ordinary canons of justice, then the Friedmanite manager has these duties as well. Even if Friedman didn't emphasize the manager's duties to law and general ethics, the existence of the duties are consistent with Friedman's position. As a matter of fact, the compatibility of the classical theory with compliance to ethics and morality is challenged by some of Friedman's most well-known followers. It has been advocated very strongly that ordinary morality is inapt for the business (Carr, 1968). The classical theory should not be seen just as a concept advocating “anything for profit”. The view was to segregate the roles for associated parties and to stick with it. The decorum if maintained, leads to a situation where each party excels in its own responsibility and the society as a whole is automatically benefited (Friedman, 1970). But at the same time, this ideal situation can hardly be emulated in the real world. The game is viewed as a zero sum game by many who either try to save their loss or try to make profits at the cost of other. Thus the equilibrium breaks. Hence the need comes for an enduring effort which not only confines to its own world but also respects the welfare of other around. There comes into picture the neoclassical view. However, the corporate social responsibility is a concept so vast in itself that defining its scope is rather impossible. The welfare of other around becomes a subjective issue. If strictly adhered to, then even an enticing advertisement of any product which exaggerates the benefits derived from it, can be called a unethically misleading the end user who is a stakeholder in the whole process. Thus the concept of corporate social responsibility itself can become dangerous (Levitt, 1958). The practicality of efforts is important to be analyzed before getting judgmental about the theories behind it. Any theory on corporate social responsibility cannot lead to win-win situation of all the associated parties. Moreover, sticking to any one view would also not lead to any solution. The solution never lies in extremes. It has to be somewhere in the right mix of contrasting thought process. The society, the business and the government has some role to play. Till the time, these forces confine to their duties, the system will work perfect. The moment trespassing starts, the anarchy will prevail. 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