free markets perspective, examine the ethics and morality of ‘let capitalism rip’ allegation made by British Prime Minister David Cameron. (Guide: 750 words)
The competence or incompetence of free markets and the implications of resource allotment to agents in an economy continues to be a passionately debated topic within economic and political circles. “In reality, markets are prone to inefficiencies when a number of factors arise” (Mendes, n.d.). A key principle of the free market philosophy is that businesses should focus exclusively on maximising shareholder value and not allow other considerations, apart from compliance with the law, to intrude on their business activities. This is what governments over the past 30 years have lived by. And that’s what still protects big business from having to pay for its own excesses. The speculative banks, the oil companies, the private equity and hedge funds, all steal from the tax payer with total impunity. Occasionally, there’s a coincidence of events hitting the headlines together, shouting out the criminal injustice of what is permitted to go on (Pearson, 2010).
Free-market economists have sufficiently established and documented the fact that free enterprise is the most proficient and industrious way to supply for people’s economic needs and wants. The easy but powerful logic of supply and demand is indisputable, and even the critics of the free market recognize that the unseen hand of self-interest can produce and dole out goods and services without any necessitate for central planning and control. Yet, the persistent critics and opponents have succeeded in compelling much of the globe that there is something menacing or corrupt about the free market and private enterprise. Even when they recognize its efficiency, they claim that free enterprise is in some way unjust or intrinsically exploitive. Even when they concur that the free market is prolific, they dispute that it produces the wrong goods, like too much advertising or too many lavish goods, and not enough public goods like education (Foldvary, 2011).
Adversaries of free markets frequently condemn the disparities of wealth that may consequence from it. One principle which they will generally agree with is the moral fairness of man, that all human beings are equivalent in human rights. Moral equality means that no one may assert to be morally better to others, and that no one may compel their beliefs, values, and desires on another, for those of one person have equal position with those of anyone else. This means that if one person thinks that certain goods should be fashioned, he has no moral right to force another to obey with this personal belief. “Each person has his own unique personality and his own needs and desires, and moral equality implies that each person has the equal right to decide how he should live, including how he will work and what he shall buy and sell” (Foldvary, 2011).
Consequently, the fundamental moral principle well-suited with moral equality is that no one may compel their personal will on another. One may use force only in self-protection. Otherwise, compulsion is morally wrong, and that implies that people have the right to do whatever does not coercively hurt others. Actions which do not compel others are morally right, or at least not incorrect, from society’s point-of-view. “For example, if someone sells cigarettes, he could be accused of selling something harmful to health, but since their purchase is voluntary, it is not coercive and thus not wrong” (Foldvary, 2011).
Of the numerous issues that often separate economists, the one which is probably most contested is the degree of government intervention in the economy, as seen through its numerous manifestations, such as the extent of public spending as a percentage of gross domestic product (GDP), the amount of labor and financial market regulation, the configuration and level of taxation (direct and indirect taxes). “The degree of government intervention in an economy is usually measured in terms of public expenditure as percentage of GDP. In the OECD, in 2009, this degree ranged from 34% (Korea) to 56% (Sweden). Yet, government intervention can also take the form of legislation and regulations, not illustrated by the size of its expenditure” (Lombard, n.d.).
The view has been, over many years, that considerable government intervention is harmful to economic growth, and therefore to overall standard of living. Unlike developing countries, where defence is typically the major appearance of government expenditure, for most developed countries, the greatest share of government spending is allocated to social welfare measures like cash social services including unemployment and sickness benefits, pensions and family allowances, education, health, and low-rent accommodation. This focus on equity deliberations needs to be funded by taxation, which is then professed by free marketeers as causing inefficiencies through disincentives to work, to enterprise, or, for those who are not directly recipients of government generosity, through a decrease in their standard of living (Lombard, n.d.).
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. (Guide 750 words)
The present financial meltdown is the consequence of under-regulated markets founded on a philosophy of free market capitalism and limitless economic growth. The fundamental trouble is that the underlying assumptions of this philosophy are not consistent with what is known about the actual state of the world. “The financial world is, in essence, a set of markers for goods, services, and risks in the real world and when those markers are allowed to deviate too far from reality, “adjustments” must ultimately follow and crisis and panic can ensue. To solve this and future financial crisis requires that we reconnect the markers with reality” (Costanza, 2009).
The conventional vision of the economy is founded on a number of assumptions that were fashioned during a period when the world was still comparatively empty of humans and their built infrastructure. In this bare world context, built capital was the restrictive issue, while natural capital and social capital were plentiful. It made sense, in that context, not to be concerned too much about environmental and social externalities since they could be assumed to be comparatively small and in the end solvable. It made sense to center on the growth of the market economy, as measured by GDP, as a main means to improve human welfare. It made sense, in that circumstance, to think of the financial system as only marketed goods and services and to think of the objective as increasing the quantity of these goods and services produced and used (Costanza, 2009).
But the world has changed considerably. It is now a world fairly full of humans and their built capital infrastructure. In this new circumstance, it is important to first remember that the objective of the economy is to sustainably advance human well-being and quality of life. One has to remember that material utilization and GDP are merely means to that end, not ends in themselves. People have to recognize, as both ancient wisdom and new psychological research reveals that material use beyond real need can in fact reduce well-being. It is important to understand what really does add to sustainable human well-being, and distinguish the considerable contributions of natural and social capital, which are now the limiting factors in a lot of countries. “We have to be able to distinguish between real poverty in terms of low quality of life, and merely low monetary income. Ultimately we have to create a new model of the economy and development that acknowledges this new full world context and vision” (Costanza, 2009).
The modern new economics movement has gathered growing momentum over the last few years and during that time, new economics principles have crystallized. They include:
methodical empowerment of people as opposed to making and keeping them dependent, as the foundation for people centered development methodical conservation of resources and environment, as the foundation for environmentally sustainable improvement progress from a wealth of nations model of economic life to a one-world model, and from today’s inter-national financial system to an ecologically sustainable, decentralizing, multi-level one-world economic system reinstatement of political and ethical factors to a central place in financial life and thought admiration for qualitative values, not just quantitative values respect for feminine values, not just masculine ones.
These ideologies are pertinent to every area of economic life and thought, and to every level ranging from personal and household to global and every feature, such as lifestyle choices and organizational goals (Robertson, 2005).
An open, international economy requires a global frame-work. Values and rules which have been proven at both the national and European level within the structure of a social and market-oriented system of values and financial rules must also be applied globally. These principles set up a link between freedom and responsibility for the benefit of all. They must be enhanced, particularly in the area of the financial markets, and reinforced within the system of international trade. What is necessary is the growth of the legality, implementation and cooperation of international institutions as well as the formation of integrative forums for cooperation. Political compe-tition and political contribution within nations encourage eco-nomic expansion and a stable international social and economic order. Only a framework of this kind can make sure the supply of necessary information by independent media and associations. Consensus and commitment by the politi-cal, economic and social actors to the reconciliation of interests in both the national and international context are the prerequisites for affluence for all (Guidelines for Prosperity, Social Justice and Sustainable Economic Activity, 2009).
Corporate Social Responsibility (CSR) is the accountability of an organization for the impacts of its choices and activities on society, the environment and its own affluence, known as the triple bottom line consisting of people, planet, and profit. Not only do accountable, sustainable and translucent approaches help construct brand and reputation, they help make stronger the community and therefore the marketplace. A solid business plan, entrenched into the business culture, reflecting organizational values and objectives through strategic CSR application, will help to fabricate a sustainable and lucrative future for all (What is Corporate Social Responsibility, 2012).
Wal-marts recent corporate social responsibility activities have been rocky of late. The retail giant has made headway with its renewable energy program from Colorado to Louisiana, local food supplies and worker commitment. On the other hand though, Wal-mart’s critics have been quick to point out that what they have been promising has been falling short of what they are actually doing (Kaye, 2012).
Wal-mart has set down four strategic goals in order to help them attain their corporate social reasonability goals. The strategies include:
1. Becoming a truly global company
2. Solving business challenges
3. Leading on social issues
4. Keeping their culture strong (Beyond 50 years: Building a sustainable future, 2012.).
Over the past several years, Wal-Mart also has been going through a key alteration and committing itself to progressive strategies in the area of corporate social responsibility, predominantly when it comes to the products it sells and key efforts to support energy conservation. The latest proposal that Wal-Mart has announced is a five-year plan to decrease unhealthy levels of salts, fats and sugars in numerous amounts of its packaged foods and to lower prices on healthier products such as fruits and vegetables. Wal-Mart is vowing to cut salts by a fourth, to get rid of industrially added trans fats and to decrease added sugars by ten percent. The company also is planning to come up with a seal that will be placed on healthier foods, rating those products by their amounts of sodium, fat and sugar content. “The massive company, with 8,500 stores in fifteen countries, is the world’s largest corporation by revenue with over $400 billion in sales for 2010. Wal-Mart is planning to use its enormous purchasing clout to force food suppliers such as Kraft, whose total Wal-Mart sales amount to roughly 16 per cent of its business, to make its foods healthier as well” (The United States Of Wal-Mart And Corporate Responsibility, 2010).
The alterations will not take place overnight. In fact, they will be slowly phased in by 2015 so the company can conquer technical issues and to give its consumers an occasion to change their eating habits. This is just the latest key initiative undertaken by the Bentonville, Arkansas giant. “A little more than five years ago, Wal-Mart announced it would implement a host of environmental measures to increase energy efficiency” (The United States Of Wal-Mart And Corporate Responsibility, 2010).
“The energy initiative included spending $500 million a year to increase fuel efficiency in Wal-Mart’s truck fleet by 25% over three years, to decrease greenhouse gas emissions by 20% in seven years, to reduce energy use at stores by 30% and to cut solid waste from U.S. stores and Sam’s Clubs by 25% in three years. Wal-Mart’s philanthropic agency is donating $2 million to food banks around the country to fund energy-efficiency programs” (The United States Of Wal-Mart And Corporate Responsibility, 2010).
Wal-mart is dedicated to incorporating sustainability throughout its international supply chain and daily operations. Sustainability has been a worldwide priority of Wal-mart since 2005. They have committed to three major goals in order to fulfill their commitment. These include:
1. To be supplied 100% by renewable energy
2. To generate zero waste
3. To sell products that maintain the world’s resources and the environment
In October, 2008, Wal-Mart brought its top suppliers together in Beijing for the Sustainability Summit, outlining a sequence of aggressive objectives and expectations to build a more environmentally and socially responsible international supply chain. “Wal-Mart is cooperating with its top 200 supplier factories to reach the goal of 20% energy efficiency improvement by 2012. In February, 2010, we announced a goal to eliminate 20 million metric tons of greenhouse gas (GHG) emissions from our global supply chain by the end of 2015. This is the equivalent of taking more than 3.8 million cars off the road for a year” (Wal-mart China Factsheet, 2012).
In 2010, Wal-Mart announced its international sustainable agriculture goals. They focused on three broad areas, with precise goals and commitments to help gauge progress.
1. Support farmers and their communities. By the end of 2015, Wal-mart will buy and sell internationally food sourced directly from one million small, medium local farmers
2. Produce more food with less squander and fewer resources. Wal-mart will invest one billion in its international fresh supply chain to help distribute fresh, quality food with a longer shelf life to its consumers by the end of 2015
3. Sustainably source key agricultural products (Wal-mart China Factsheet, 2012).
Wal-Mart’s sustainability initiatives in China are aligned with the Chinese government’s ecological, social and power objectives. And it is completely aligned with the company’s international sustainability goals. Wal-Mart China’s sustainability goals and key programs mainly include:
1. Building energy competent stores and becoming the best-in-class sustainable retailer in China. By utilizing LED lighting as general lighting, using energy-saving refrigeration, installing heat recovery systems, and turning down lighting during off-peak hours. As designed, by the end of 2010, they had achieved:
a 40.16% decrease in energy use in new proto stores, exceeding its original goal of 40% reduction in energy use.
a 54.17% water use lessening in new proto stores, exceeding its original goal of 50% reduction in water use.
They currently also have a goal to reduce green house gas by 20% by 2013.
2. Sell sustainable products. In 2011, Wal-mart established 81 bases in 23 provinces engaging over 810,000 farmers. Wal-mart’s Direct Farm Program started in 2007. They helped farmers better adjust to market conditions, encouraged them to choose consistent and scaled production methods, and provided directions on ways to conserve the environment in production activities. These proposals not only augmented farmers’ income, but also helped Chinese customers get the benefits of fresh, safe, delicious, reasonably priced and sustainable produce. In December 2008, Wal-mart was picked by the Ministry of Commerce and the Ministry of Agriculture as one of the first companies for the pilot Direct Farm program.
3. Build a world-class, high-value sustainable supply chain. Since the start of the project in October 2008 by Wal-mart and the Administrative Centre for China’s Agenda 21 (ACCA21), a public organization under China’s Ministry of Science and Technology, the needs investigation of suppliers training has been carried out; CEO training and a number of technical training meetings have been held; lead clean production audits have been finished in four companies in the food, clothing, electronics, and toy industries; project outcomes have been looked at; and the advertising and promotion on the outcomes of the project has been triumphant through the making of publicity materials. “After nearly six months of clean production audits, the four pilot enterprises achieved lower power consumption per unit of product by 6.4%, 9%, 6.9% and 11% respectively, completing 32%, 45%, 34.5% and 55% of their sustainable development goals in 2012 respectively, which lays a solid foundation to achieve their overall goal of saving 20% by 2012. 65 programs have been developed through pilot enterprise programs, 56 of which have been carried out with a total investment of about RMB 1.79 million and an economic benefit of about RMB 5.12 million” (Wal-mart China Factsheet, 2012).
Wal-Mart is aware that consumers are demanding healthier foods, cheaper prescriptions and are more apprehensive about global warming and greenhouse gases. The company also comprehends there are profits to be had out of dropping the energy consumption at its stores, using less fuel in the carrying of its products, producing goods in a more competent manner and generating less waste. Through fashioning these initiatives, Wal-Mart has figured out a method to be a good corporate citizen, give customers great deals and still make a lot of money (The United States Of Wal-Mart And Corporate Responsibility, 2010).
Another benefit to Wal-Mart’s moves are that its competitors, other retail companies will be forced to follow suit or they will not be able to continue competitive pricing which would consequence in the loss of market share to the already huge Wal-Mart. Of course the company still faces many negative condemnations. There are estimates that 7 seventy percent of its workers reportedly leave the company within the first year because of low salary and a poor work environment (The United States Of Wal-Mart And Corporate Responsibility, 2010).
Over the past decade Wal-mart has totally changed its image from a slippery, unethical wheeler-dealer to one that is serious about its CSR actions. Wal-Mart’s CSR initiatives are pushing the chain into new light, as it pushes itself into a new way of doing business. The greening of Wal-Mart began around 2006 under the direction of CEO Lee Scott, who declared that he would alter the way business is done. He said at that time that he understood the impact it would create if the world’s largest retailer changed the way it does business. Since then he has enhanced the energy efficiency of trucks, stores and reduced wastes pretty much across the board (CSR Efforts: The slow greening of Wal-Mart, 2010).
Skeptics on the other hand, dispute that the size of the chain makes energy efficiency hard to monitor. They also argue that the baseline for monitoring proposed alterations remains blurred. However, the point remains that when a larger retailer starts setting ethical principles, the smaller supplier will have to conform to keep their custom. This is something that Wal-mart has certainly changed and for this reason one cannot totally reject its sustainability initiatives (CSR Efforts: The slow greening of Wal-Mart, 2010).
It appears that Wal-mart is on the right track and it is hoped that they will continue their forward progression. Their pledge to corporate social responsibility has impacted many other companies in that it has forced competitors to keep up and suppliers to change in order to continue to do business with Wal-mart. In the end this has been very beneficial to consumers and communities alike and will continue to be beneficial as time goes on, as long as Wal-mart continues to support the commitment that they have made.
Beyond 50 years: Building a sustainable future. 2012. [ONLINE] Available at: http://www.walmartstores.com/sites/responsibility-report/2012/pdf/WMT_2012_GRR.pdf. [Accessed 12 July 2012].
Corporate Criminality and the Free Market Philosophy. 2012. [ONLINE] Available at: http://www.gordonpearson.co.uk/08/corporate-criminality-and-the-free-market-philosophy/. [Accessed 13 July 2012].
CSR Efforts: The slow greening of Wal-Mart. 2010. [ONLINE] Available at: http://www.justmeans.com/CSR-Efforts-slow-greening-of-Wal-Mart/34672.html. [Accessed 13 July 2012].
Foldvary, F.E. 2011. Is the Free Market Ethical? [ONLINE] Available at: http://www.thefreemanonline.org/features/is-the-free-market-ethical/. [Accessed 13 July 2012].
Kaye, L. 2012. Walmart 2012 CSR Report: Focus on Waste, Renewables, Local Food. [ONLINE] Available at: http://www.triplepundit.com/2012/04/walmart-2012-csr-report-focus-waste-renewables-local-food/. [Accessed 12 July 2012].
Lombard, M. n.d. [ONLINE] Government Intervention in OECD Member Countries: Equity at the Expense of Efficiency? Available at: http://strategytank.awardspace.com/articles/Free%20Market%20Efficiency%20-%20Conditions,%20Desirability,%20Optimality.pdf. [Accessed 13 July 2012].
Mendes, G. n.d. [ONLINE] Free Market Efficiency Conditions, Desirability, Optimality. Available at: http://strategytank.awardspace.com/articles/Free%20Market%20Efficiency%20-%20Conditions,%20Desirability,%20Optimality.pdf. [Accessed 13 July 2012].
Robertson, J. 2005. [ONLINE] A Report for the European Commission. Available at: http://www.jamesrobertson.com/book/neweconomicsofsustainabledevelopment.pdf. [Accessed 13 July 2012].
The United States of Wal-Mart and Corporate Social Responsibility. 2010. [ONLINE] Available at: http://paymarcommunications.com/the-united-states-of-wal-mart-and-corporate-social-responsibility/. [Accessed 12 July 2012].
Wal-mart China Fact Sheet. 2012. [ONLINE] Available at: http://www.wal-martchina.com/english/walmart/index.htm. [Accessed 12 July 2012].
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