Commercial Capitalism: Positive and Negative Societal Effects - Report Example

Commercial Capitalism: Positive and Negative Societal Effects Submitted Introduction Capitalism is commonly defined as an economic system that is based on the private ownership of capital goods with the intent of gaining profit. It is characterized by capital accumulation, competitive markets, price system, and promotional initiatives. Its known variants include laissez-faire, welfare capitalism, and state capitalism. As claimed by most historians, capitalism became dominant after the demise of feudalism in the Western regions. Commercial capitalism, in this regard, is often described as an expression of individual freedom that is epitomized by the voluntary agreement between two parties regarding an exchange of goods or services. The interplay of supply, demand, and price mechanisms forms part of what is commonly called as free or capitalist markets. While commercial capitalism is regarded as a key influencer in creating innovation and in fuelling economic growth, its negative socio-cultural implications are recognized. As a result, state regulations are developed to guide the various activities in the free market. In this regard, this paper aims to shed light on the positive and negative effects of commercial capitalism on society and culture. To put proper order in the discussion, this paper will be divided into three parts. The first part will take a close look at the negative sides of commercial capitalism by banking on its effects on human freedom and markets. On the other hand, the second part will emphasize on the positive sides of commercial capitalism by: (1) revisiting the role of companies in a social context; (2) defining shared value and its importance in addressing the social responsibility issues that most companies face; and (3) stating the proper approaches toward creating shared value. Lastly, this paper will conclude the examination by providing a summary of the main points presented. Commercial Capitalism: Negative Societal Effects A. On Human Freedom As stated in the article The Capitalist Market: How it actually Works, capitalism and markets have an ambiguous relationship to the two types of human freedom: negative and positive (The Capitalist Market: How it actually Works 2). As a background, negative freedom means freedom from coercion. “Individuals have negative freedom when no one directly commands them to do things against their will, and when they have the autonomy to direct their own actions unless they voluntarily agree to follow the orders of someone else” (The Capitalist Market: How it actually Works 2). In a different light, positive freedom pertains to the actual capacity of people to do things: ‘freedom to’ rather than ‘freedom from’. As such,”a person has greater positive freedom if he or she can do more things, and has greater capacity act in the world” (The Capitalist Market: How it actually Works 2). With this, it can be said that the negative effects of commercial capitalism on human freedom are centered on its ethical setbacks. Firstly, the power relations within capitalist firms influence the development of restrictions on individual autonomy and self-direction. Since private ownership is epitomized by the owner’s freedom in deciding how his property is to be utilized, it becomes a basis for conferring authority on owners to direct the actions of their employees The Capitalist Market: How it actually Works 2). Secondly, massive inequalities of wealth and income can also be created by commercial capitalism. Such inequalities reward the ruling elite with greater capacity to control the course of their lives through immense freedom while members of the middle to lower classes have less chance of getting a better life (The Capitalist Market: How it actually Works 2). B. On Markets The negative effects of commercial capitalism on human freedom can be summarized into five: markets and information; concentrated economic power; negative externalities; and short-time horizons. Firstly, companies have the capacity to hide pertinent information from customers in order to maintain repeat purchase or build loyalty with their products. Unfortunately, such scenario deprives the customers with freedom of choice. Secondly, concentrated economic power highlights capacity of the ruling group to accumulate wealth at the expense of small players. Because of this scenario, monopolization of the market occurs, reinforcing the barrier to entry and strengthening the power of the big-time players. Thirdly, negative externalities are the direct or the indirect effects of the company’s operations that are intended to lower down costs to maximize its profit. Such externalities include pollution, employee injustices, and non-compliance to state and national laws (Harman 1). Lastly, short-time horizons emphasizes on the capacity of commercial capitalism to encourage short-term investment perspective. Commercial Capitalism: Positive Social Effects Despite the negative effects of commercial capitalism, Harvard Business Review’s article entitled Creating Shared Value emphasized that “companies must take the lead in bringing business and society back together; and the solution lies in the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges” (Porter & Kramer 4). Such thinking is based on the idea that businesses must be able to relate company success with social progress in order to contribute in the overall development of human civilization. The concept of ‘shared value’ has been developed in response to the classical view on the role of companies in society—that a requirement for social improvement imposes a constraint on the corporation (Porter & Kramer 4). In this regard, “firms have taken the broader context in which they do business as a given and resisted regulatory standards as invariably contrary to their interests” (Porter & Kramer 4). On the contrary, shared value not only recognizes the social harms or drawbacks that frequently create internal cost for the company such as wasted energy and costly accidents, but more importantly solves such issues through innovating its operating methods and management approaches. As a result, the company is able to increase its productivity and expand its markets. A. Roots of Shared Value Concept As further claimed in the article entitled Creating Shared Value, the competitiveness of a company and the health of community are closely related since “a business needs a successful community, not only to create demand for its products but also to provide critical public assets and a supportive environment, while community needs successful businesses to provide jobs and wealth creation opportunities for its citizens” (Porter & Kramer 4). Thus, there is a need for companies to be conscious of its role in the community—not just to serve its business needs but to also ensure a healthy relationship with its external stakeholders (Mackey 2). B. Creating Shared Value Creation shared value can be done in two major approaches: re-conceiving products and markets; and redefining the company’s value chain. Firstly, re-conceiving products and markets highlights the need for companies to evaluate the relevance of their products to their target markets, and then invent ways on how to revitalize the attributes of their products. For example, “food companies that have traditionally concentrated on taste and quantity to drive more and more consumption are now refocusing on the fundamental need for better nutrition” (Porter & Kramer 7). Through this mindset, whole new avenues for innovation open up, leading to the development of shared value. The process of re-conceiving products and markets begins with an identification of all the social needs, benefits, and harms that could be obtained from the products. As a result “An ongoing exploration of societal needs will lead companies to discover new opportunities for differentiation and repositioning in traditional markets, and to recognize the potential of new markets they previously overlooked” (Porter & Kramer 7). On the other hand, redefining the value chain of the company entails the proper approach to social issues through a revamping of the company’s operation systems (Porter & Kramer 8). For one, energy use and logistics whether they fall under processes, transportation, buildings, supply chains, distribution channels, or support services. In effect, energy utilization is enhanced in a company through better technology, recycling, cogeneration, and other practices (Porter & Kramer 9). Resource use is another component in redefining the company’s value chain and it pertains to the new ways of utilization of water, raw materials, and packaging, as well as expanding recycling and reuse (Porter & Kramer 9). As such “by increasing access to inputs, sharing technology, and providing financing, companies can improve supplier quality and productivity while ensuring access to growing volume” (Porter & Kramer 10). List of References Harman, Chris. The Rise of Capitalism. International Socialism Journal, 2004. Web. 9 Apr. 2013. . Mackey, John. Conscious Capitalism: Creating a New Paradigm for Business. FLOW, 2007. Web. 9 Apr. 2013. . Porter, Michael & Kramer, Mark. Creating Shared Value. Harvard Business Review, Feb. 2011. Web. 9 Apr. 2013. . The Capitalist Market: How it Actually Works. Aug. 2009. Web. 9 Apr. 2013. . Read More