Sadat (IT) Academy
Dr. Gary H. Jones
Ethics
LECTURE NOTES
FREE MARKET, SOCIAL RESPONSIBILITY,
AND SOCIAL CONTRACT
1. Free Market Theory
BUSINESS (assumptions):
- Businesses have freedom of entry into the market place
- There is a balance of power between businesses and consumers
- The primary concern of business is to make a profit (the "bottom
line")
- The primary stakeholders are the shareholders (owners of shares
of stock; that is, the stockholders)
- Companies are concerned with employees, the community, and the
environment only to the extent that such concern will increase profit
- Business, then, is driven primarily by the Utilitarian ethical
principle (cost/benefit)
- The is minimal need for government regulation
- The market is guided by the "invisible hand" (businesses are
created,
grow, and die according to consumer demand; if a product is unsafe,
consumers simply will not buy it)
CONSUMERS (assumptions):
- Consumers have full and complete information (about products and
services)
- Consumers have freedom of choice
- Consumers make rational (logical) choices (not emotional ones)
- Again, there is a balance of power between consumers and companies
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
- There is an imbalance of power between businesses and
consumers.
Businesses have grown so large and influential that they, the
corporations, have more power than consumers.
- The most important stakeholders are the consumers (not the
shareholders); therefore, businesses should put consumer interests and
safety first when designing, delivering, and servicing products.
- Consumer choice is not always rational (logical and thoughtful);
sometimes choice is based on emotions and feelings. Therefore,
businesses should take care not to deceive when appealing to these
emotions
- Businesses have a responsibility not only to consumers (and not
only to
shareholders), but also to their employees, the community, and the
environment. This concern is not only driven by the profit
motive, but
also by a sense of what is right and wrong. Not only by
Utilitarian
principles (cost/benefit), but also by Justice (fairness), by
Universalism (a sense of duty to do what is morally right), and even
Human Rights.
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