This resource can either be a tangible asset like forests and Thought Experiment Consider a town where there is no crime. So no one has “learnt” to protect their belongings from others. One day, there comes a rogue element in the town, stealing fruits from others’ gardens. What is the cost of this behavior? CLC Economic cost of installing Anti-theft devices in each house Social cost of loss of lifestyle in the town due to the trust deficit caused by a single rogue element rivers or a very intangible asset of a system that is trust and integrity.
The Other Schools of Thought Disillusioned by the inherent selfishness that Capitalism promotes some leaders like Marx have proposed an entirely new order in the society -?? an order that will promote equality and social justice. Inspired by the description of how capitalist systems would systematically exploit the labor force, as described in literature such as “Dads Capital”, many leaders and country heads dad an attempt to change the system.
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They built socioeconomic structures that would give ownership of all financial assets to the state in an attempt to distribute the wealth in a more equitable way. This model looked so ideal that many countries followed to adopt this model thinking this would be the panacea to all the problems they were facing. In a few decades it was clear, however, this model had its own problems. While this system took away the incentives to act in selfishness among individuals it was not able to prevent their dreams of a better life.
Individuals who wanted to work harder than the average person and dreamt to live a utter life faced a brick wall Two interesting facets of the human psychology came out after through these alternative structures: 1 . Taking away ownership from people also tended to take away the motivation to innovate. People who were ethical and conscientious started resenting the benefits others were drawing out of the system without putting much effort. Due to a virtual guarantee of employment and livelihood it took away the incentive of hard work. It tended to bring down the productivity and creativity of people. . Some people continued to find ways to rise above the common masses. They dreamt of better lifestyle and luxury’. Since the system did not have a direct route toward these aspirations, these people resorted to unethical means and methods to reach their objectives. It wasn’t too long then that the “socialist” societies started adopting “capitalist” methods to reignite their flagging economies. V Why did these systems fail? One compelling reason could be these systems were not able to kindle the inherent sense of conscientiousness in people.
Having set the background that most modern societies depend on open markets or market forces to progress (irrespective of their formal classification) we set out to explore how these systems can be bettered for he common good. Doing Well by Doing Good A very interesting phenomenon has started emerging in the developed nations. Companies have started noticing their customers are not only more loyal to them when they are perceived as more ethical and responsible, but they are even ready to pay a premium to be assured of such behavior. How is this explained?
How is that customers are ready to pay a higher price for a product when it has been sourced in an ethical and responsible way? Clearly customers are not involved into the procurement phase of the business and they are not connected with the comma nineties with which the seller is partnering with. Some anthropologists have attempted to explain it using Amasses hierarchy of needs. They argue that when humans fulfill their lower needs of Physiology, Safety, Social, and Esteem they try to move up to the highest level that is selfsameness.
In other words, application of this hierarchy would imply the rich and wealthy would go for altruism and spend on products that are ethically and sustainable sourced. Empirical data and observation provides a different perspective though. Consumers from across various socioeconomic segments of the society have come forward in their support for ethically and sustainable sourced products. A big example is the Fair trade movement that has gained high traction from customer around the world. Fair trade as a movement is dedicated to create better working conditions and to promote sustainability of the environment.
It is especially active in commodities and products that are exported from developing economies for domestic consumption or for export in the international market. One reason why this campaign seems to be so successful is because it appeals to the core values people that crave for Goodness, Social justice and an egalitarian society. Naturally we find comfort with the brands that just onto offer value for money, but are closer to our value system. With increased awareness of the widening of the rich poor gap and the gaping hole in the Ozone layer, consumers are no longer content in measuring utility with value for money.
They want to part of the movement that aspires to reverse the changes that were made earlier on the planet, reverse the exploitation brought on by people through imperialist motives. Having studied the leverage of incorporating Ethical Business practices in the consumer market let us now examine what influence can these have on the Job Market. Doing Good in the Job Market 4% workers say it is “critical” or “important” that the company they work for is ethical 82% say they would prefer to be paid less but work for a company with ethical business practices than receive higher pay at a company with questionable ethics.
Ethics in the Job Market 80% cite disagreement with the ethics of fellow employees, a supervisor or management as the most important ethical reason for leaving a job 56% workers define their current company as having an ethical culture This data is published by independent research released by Larkin, a leading provider of governance, ethics and compliance management applications and services. The data clearly shows that employees would much rather work for a company that they perceive as ethical and remain there if that perception is not broken.
Apart from the joy and satisfaction of running an ethical company, this provides clear Financial incentives for the management/promoters of a company in running it in high standards, the most obvious being Talent Retention – talented and creative people tend to care less for compensation and more for a fair and transparent system Reduced cost of Turnover – due to low attrition, the company does not have to spend on Damage control PR exercises, recruitment and Selection costs, ND additional training for new joiners.
Getting the Investors on Board Continuing the trend of consumers and employees, Investors who form the other vertex of the trinity have shown increasing propensity to invest in firms who they consider run their business ethically. Apart from the good reputation it generates, it also helps save costly regulatory penalties and litigation costs when the companies fall foul of unethical activities. It is perhaps no wonder then, that most successful and long running company sees like GE are also the most ethical. Viii ix Case Study: The consequences of Unethical Business Practice: Ford Pinto
The Ford Management discovered a vital design flaw in the car model Pinto. The risk was rare but could fatalities: a rear end collision could cause life threatening injuries or even death. Ford did a cost Benefit Analysis. Taking statistical data into consideration they figured that payments due to Death and Injuries would be less than fixing the Design Defect. The difference was a good US 88 Million. What did the management do? The Ford Management went ahead with the Defective Car with full knowledge they were putting their customers’ and their families’ lives in danger.
This was revealed in Internal many memos that were revealed in the subsequent lawsuits. Immediate consequences: A 13-year old passenger in “Sandra Gillespie” 1 971 Pinto Struck from behind; exploded; badly burned over 90% of his body; 20 years reconstructive surgery Awarded $1 25 million in punitive damages $124 million profits made since Ford Pinto’s introduction Consequences of Unethical Behavior: Long lasting Bad Reputation of Company Loss of Investor Confidence Financial Loss Ethics – more important than Profits… N a Capitalist World We thus show that Ethics plays an important role in the Capitalist methods of doing business – because . It helps create a good impression and helps avoid legal and regulatory hassles 2. When a company runs on fairness and sound values, it is able to provide transparency thus boosting investor confidence 3. Current and new stakeholders would want to be associated with a company that takes the high moral road We thus show that in a capitalist system too, Business Ethics is fundamental to the success and sustainability of the business.
There are serious short term and long term consequences if a company is found to practice unethical behavior in its Dealings with any of its stakeholders – be it the stakeholders in TTS External Environment, or the members in the Internal Environment. Investors Consumers Employees Business Teeth CICS Measuring Ethics Performance – the Triple Bottom Line Having established the need for Business Ethics in the Capitalist structures, we discuss in brief a framework that can be used to monitor and measure the Ethical and Responsibility Quotient of an organization.
Social scientists have talked about creating Social Capital Markets x, and what might be the best way to measure “goodness” of an organization. One such concept is the Triple Bottom Line. Introduced in 1 994 by John Lexington, the founder of a British consultancy called SustainAbility, John proposed that companies monitor and disclose two additional AS in their balance sheet in addition to the existing ‘P’ that is Financial Profit. These are people’s account -?? to what extent is the company focused not just toward its customers but the people it works with, namely employees, suppliers, and other people that are affected by its operations.
Planet Account – a measure of the environment sustainability of its operations, including how much is the company doing to restore the balance it is inherently tilting as a result of its operations. Profit People Triple Bottom Line Planet To this end, the TAB can be looked upon as a Balanced Scorecard that ensures a high score only when the all three aspects of the trinity are worked on. It is however, not easy to assign comparable scores to actions and events instigated by the company. But it can serve as a useful guide on which direction the system should be thinking.
Governments and regulators in both the developed and developing worlds have started exploring similar frameworks to regulate and/or incentive organizations. Going by the trend it is a matter of time by when these will be become regulations. Conclusion Through the course of this discussion we have discussed how capitalism blinded by Short Term Profits as goals has been blinded. The rift between the rich and the poor has only widened in the recent decades, much to the detriment of the society and the environment.
We argued how the two schools of thought – the Homo Economics seem to be at odds with the Homo Sociological in their approach – one touting the outcome to control behavior whiles the latter advocating behavior as the end goal. We went on to explore a few alternative systems that were proposed by thought leaders and eventually implemented. We observed such systems ere not too successful in providing social justice and equality because they depended on external instruments of controlling unethical behavior.