Ch 4/5: Capitalism and Corporations

Question 1

Capitalism
1. System
2. Product / Ownership

Answer 1

1. Economic system operating on profit and market exchange.
2. Major Means of production and distribution owned privately

Question 2

Four Features of Capitalism

Answer 2

Company exist separately from the people associated with them
Profit Motive
Competition
Private Property

Question 3

Corporation

Answer 3

Legal Person with prescribed rights and legal obligations. Publicly registered, Limited Liability

Question 4

Free Competition

Answer 4

Self-interest regulator. Without it, people exploit others, create monopolies. Healthy competition forces businesses to offer better prices/quality. Prevents system going into chaos or be greed-driven

Question 5

laissez faire

Answer 5

French meaning “to let [people] do [as they choose]”). No Government

Question 6

Capital

Answer 6

money that is invested for the purpose of making more money

Question 7

Arguments for Legitimacy of Capitalism - (2)

Answer 7

1. Natural Property Right (Utilitarian disagrees)
2. Invisible Hand (Utilitarian Agrees)

Question 8

Arguments for Legitimacy of Capitalism - Adam Smith’s Invisible Hand

Answer 8

Self-interested actions in a free market can unintentionally benefit society as a whole. The hand guides each person’s individual and private pursuit of wealth. Results in the most beneficial overall organization and distribution of economic resources.

Question 9

Theoretical Criticisms of Capitalism

Answer 9

challenge fundamental values, basic assumptions, or economic tendencies

Question 10

Operational Criticisms of Capitalism

Answer 10

focus on capitalism’s alleged deficiencies in actual practice (as opposed to theory)

Question 11

Criticism of Capitalism - Inequality and Poverty (2)

Answer 11

challenges the fairness of capitalism’s claim to advance the interests of all.

Political policies to reduce inequality are unlikely to be carried out in Capitalism country.

Question 12

Criticism of Capitalism - Human Nature: Capitalism wrongly assumes (2)

Answer 12

• human beings are rational economic maximizers
• well-being comes from greater material consumption

Question 13

Materialism (2)

Answer 13

• highest sense of human purpose
• Human beings find increased well-being though more consumption

Question 14

Oligopolies

Answer 14

Concentration of property and resources, and economic power, in the hands of a few.

Question 15

Corporate Welfare

Answer 15

Provides extra assistance, protection from competition

Economic Subsidies, Social Benefits, Protection against Tariffs

Question 16

Exploitation

Answer 16

Workers sell their labour, Capitalist exploits them by paying less than value of labour produced and retains profit

Question 17

Alienation

Answer 17

Workers don’t own or control what they make. Work is repetitive, controlled by others, they are not treated with care. People’s labours are reduced to working just to survive. Work creates competition, not cooperation.

Question 18

Corporate Internal Decision (CID)

Answer 18

Established procedures and frameworks within a company for making and implementing decisions, policies, and activities that affect corporate goals.

Question 19

Corporate Moral Agency (CMA)

Answer 19

If Corporations can be considered moral agents, they can also make moral decisions, and bear moral responsibility distinct from their internal individuals

Question 20

Corporate Punishment

Answer 20

Whether or not corporations are moral actors, the law can fine them, monitor and regulate their activities, and require the people who run them to do one thing oranother

Question 21

Diffusion of Responsibility

Answer 21

no particular person, or persons, are held morally responsible for corporate actions.

Question 22

Limited Liability

Answer 22

owner’s personal assets are protected. Only responsible for their share value. Suing people can only go after business assets.

Question 23

Narrow View of Corporate Responsibility

Answer 23

Business has no social responsibilities other than to maximize profits within the game of the free economy

Question 24

Broader View of Corporate Responsibility
(Social Entity /Stakeholder Model)

Answer 24

Businesses have other obligations beyond profit, such as to consumers, society, stakeholders, employees. Must act morally, refrain from socially undesirable behaviour, contributing to public good.

Question 25

Externalities

Answer 25

Unintended negative (or positive) consequences that an economic transaction between two parties (one being corporation), can have on a third party

Question 26

Fiduciary responsibility

Answer 26

1. Corporate managers look after the interests of shareholders 2. Corporation should be run entirely for stockholder's benefit. That shareholder interests always take priority over the interests of others.

Question 27

Narrow View - Who Controls the Corporation?

Answer 27

Stockholders control the company with the shares they own/hold in it

Question 28

Argument Against Stockholders Owning Corporate Company (3)

Answer 28

1. Owners are volatile when they sell their share. 2. Owners of shares rarely interact with managers of companies or make executive decisions 3. Management picks BOD not shareholders

Question 29

Argument 1 in support of Narrow View of Corporation - Invisible Hand

Answer 29

If businesses are permitted to seek self-interest, their activities will inevitably yield the greatest good for society as a whole and will be led by an invisible hand.

Question 30

Why is the Invisible Hand (Narrow View on CSR) viewed as unrealistic? (3)

Answer 30

1. Externalities ignored 2. Markets don’t always correct failures or over perform 3. Not all stakeholders are protected by the market

Question 31

Argument 2 in support of Narrow View of Corporation (Let-Government-Do-It Argument)

Answer 31

The government is the appropriate institution to handle public welfare (social and environment problems), NOT private businesses. Government provides incentives.

Question 32

Why is the Let-Government-Do-It Argument (Narrow View on CSR) viewed as unrealistic? (3)

Answer 32

1. Laws and regulations typically come after problems arise, not before 2. Many social/environment issues are caused or influenced by corporations 3. Businesses lobby governments and can influence laws in their favour.

Question 33

Argument 3 in support of Narrow View of Corporation (business-can’t-handle-it argument) 1. What is it 2. Reasons for the opinion (2)

Answer 33

1. corporations are the wrong group to be entrusted with promoting the well-being of society 2. I) lack necessary expertise, II) impose their materialistic values on society

Question 34

Reasons against 'Corporations Lack Necessary Experience' (2)

Answer 34

I) Businesses have the know-how, talent and resources to effectively address social problems. II) Other professional practices have moral responsibilities going beyond their technical expertise, so business shouldn't be an exception

Question 35

Reasons against 'Corporations Will Impose Their Materialistic Values on Us' (2)

Answer 35

I) Already has immense social power, promotes consumerism/materialistic values, influences political system II) Already uses its position to propagate view of humanity/good life

Question 36

State Welfare Capitalism

Answer 36

government plays an active role in the economy, attempting to smooth out the boom-and-bust pattern of the business cycle through its fiscal and monetary policies

Question 37

Globalized Capitalism

Answer 37

worldwide scale of capitalism, international trade, economies of countries becoming integrated

Question 38

Profit Motive

Answer 38

human beings are economic creatures motivated by their own economic interests

Question 39

According to Karl Marx the act alienation of practical human activity and labour can be considered from what 2 aspects

Answer 39

1. Relationship of the worker to the product of labour as an alien object that dominates him 2. Relationship of labour to the act of production within labour