Sadat (IT) Academy

Dr. Gary H. Jones




1.  Free Market Theory

BUSINESS (assumptions):

CONSUMERS (assumptions):

Problems with Free Market Theory
a.  Most business are not on equal footing with consumers; they have more power than consumers
b.  Because of this power imbalance, the "invisible hand" often does not work. Businesses, for example, may get away with producing and selling unsafe products
c.  Although this theory pays attention to what is legal and illegal, it pays little attention to what is morally right or wrong
d.  This theory tends to ignore the long-term view of things.  Pollution, for example, may not harm people today, but may be very harmful over time--after ten or twenty years
e.  In their pursuit of profit, businesses may not only exagerrate claims of benefit for their products and servies, but engage in deception of the consumer

2.  Corporate Social Responsibility Theory

3.  Social Contract View of Business (this is a compromise view of the two theories above; very similar to the Stakeholder theory we have discussed before)

Businesses must strike a balance between their responsibility to shareholders (free market) and their reponsibility to consumers (social responsibility).

Beyond the profit motive, businesses have a moral obligation to society.  Specifically:

1. Businesses have a social role of "trustee for society's resources."  Businesses must wisely serve the the interests of all their stakeholders -- not just owners, consumers, or labor.
2.  Businesses shall operate as a two-way open system--with open receipt of inputs from society and open disclosure of its operations to the public
3.  Social costs as well as benefits of an activity, product, or service shall be calculated and considered (including, to the extent practical, the long-term costs).
4.  The social costs of each product or service shall be priced so that the consumer pays for the effects of his consumption on society
5.  Business institutions as "citizens" have responsibilities for social involvement in areas of their competence (expertise) where major social needs exist.

Businesses have the duty:
a.  to inform customers truthfully and fully about a product or service: its content, purpose, and use
b.  to not misrepresent or withhold information about a product or service that would interfere with free choice
c.  to not take advantage of consumers through use of fear or stress
d.  to take "due care"  ("due diligence") to prevent any possible foreseen injury or harm to consumers because of a product's design or production

Consumers have related rights under the Social Contract view, including:
a.  The right to safety
b.  The right to free and rational choice
c.  The right to truthful information, and easy access to that information
d.  The right to file a complaint to a company that will be heard and acted upon (if valid)
e.  The right to be cmpensated if harmed by a company's product or service