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Today’s Topics

Today’s Topics. Markets, Market Assumptions, The Invisible Hand Corporations and Social Responsibility. Markets, Market Assumptions, And The Invisible Hand. The Market Society (17th Century). Emphasis of individualism (autonomy) The sovereign consumer The law of supply and demand.

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Today’s Topics

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  1. Today’s Topics Markets, Market Assumptions, The Invisible Hand Corporations and Social Responsibility

  2. Markets, Market Assumptions, And The Invisible Hand

  3. The Market Society (17th Century) • Emphasis of individualism (autonomy) • The sovereign consumer • The law of supply and demand

  4. Supply and Demand • Elasticity of supply and demand • Price elasticity • Marginal costs and marginal benefits (utility at the margins)

  5. The Market Society (17th Century) • Emphasis of individualism (autonomy) • The sovereign consumer • The law of supply and demand • Markets, essentially unregulated businesses, benefit society

  6. Business is to be considered as an autonomous and independent activity because it will then serve society • Robert Solomon

  7. Markets and Freedom • Free markets are possible only within a broader context of FREEDOM • Freedom allows capitalism to work

  8. Economic and Political Freedoms • Which take priority?

  9. Marx and Capitalists Agree on the Importance of Freedom • Capitalists emphasize the freedom of individuals to pursue their own ends through the operation of markets • Marx emphasizes the freedom of an individual from coercive market forces

  10. Markets, Market Assumptions, And The Invisible Hand

  11. Market Assumptions • Perfect Information • Perfect Competition

  12. Competitive Markets are Characterized By: • Low costs of entry • Low costs of exit • Absence of monopolies

  13. Market Assumptions • Perfect Information • Perfect Competition • Mobility Factors • Firms Maximize Profits, Consumers Maximize Utility • Consumer Preferences are Exogenous • Few, If Any, Externalities

  14. Markets, Market Assumptions, And The Invisible Hand

  15. The Invisible Hand • Individuals, seeking their own self interest, providing good products at a fair price, are guided by an invisible hand to promote the public interest

  16. Theories of Corporations and Social Responsibility • Goodpaster & Matthews—Corporations and Conscience • Friedman--Maximize profit • Freeman—Stakeholder Model • Brenkert--No Social Responsibility • Bowie—New Thinking about Corporations

  17. What is a Corporation? • A social institution, legally recognized • A collection of people organized for a shared purpose • An artificial legal person with legal rights and duties • The corporate veil (shields investors from liability)

  18. Agency, Identity and Responsibility • Can corporations be morally responsible for actions? • Can corporations ACT in a morally relevant sense?

  19. Action and Agency are Prerequisites for Moral Responsibility • Without an intentional action, we do not assign moral blame

  20. Methodological Individualism (Nominalism) • The behavior of a complex organization can be reduced to the behavior of the persons who are parts of the organization • If this view is correct, and can be applied to corporations, the notion of corporate responsibility makes no sense

  21. Actions Require Intentionality • How do corporations form intentions? What does it mean to speak of corporate intent?

  22. Does Moral Responsibility Require a Unity of Intentional State and Physical Action? • IF we can make sense of corporate intentions, is the agent who acts on the intention the one who formed it? Does this matter?

  23. Corporations Belong to the Owners (Investors) • What is the balance of power between directors, managers, and stockholders?

  24. Goodpaster and Matthews • The Corporate View of Corporate Responsibility p. 147/148 • Corporate responsibility is un-American. It is wrong for a private business to try to impose its view of the good life on society through exercising economic pressure.

  25. It is wrong to expect organizations to conform to ordinary principles of morality. Honesty, courage, sympathy, considerateness, and integrity are not in the corporate vocabulary. Ladd, p 148

  26. Goodpaster and Matthews Reject the Corporate Model • “A corporation can and should have a conscience. The language of ethics does have a place in the vocabulary of an organization.”

  27. Different Senses of “Responsibility” • Blame • Obligation • Trust and reliability

  28. The Moral Point of View Uses the 3rd Sense--Trust and Reliability

  29. The Essential Elements of Trust and Reliability • Rationality • Respect

  30. Corporations are capable of rationality & respect, so they can be trustworthy and, hence, morally responsible.

  31. Three Arguments Against Moral Responsibility That Don’t Work: • The invisible hand • The hand of Government • The hand of Management

  32. Objections and Replies (1, 2, 6, 7)

  33. Only Individuals Can Be Held Morally Responsible • We extended legal rights and responsibilities to corporations, why not moral ones, too? • We DO criminally prosecute some corporations

  34. Profit Is the Categorical Imperative of Business and Ethics is Counter Productive • Morality is a constraint on, not a replacement for, profit

  35. But We Aren’t Even Clear About Individual Responsibility • We have made progress and there is a wide degree of moral agreement • Developing a vocabulary and set of ethical concepts for corporations is a big step forward

  36. Why Isn’t Faith in the Morality of the People in the Corporation Enough • Morality needs to be structured and directed • A collection of individually moral people may act immorally

  37. Friedman and the Stockholder (Shareholder) Model of the Corporation

  38. “Corporate Responsibility” is a misnomer • Only individuals have responsibilities • “Corporate social responsibility” is shorthand for the obligations of managers and executives

  39. Corporate Managers Work for The Shareholders--Its Their Money That is at Risk

  40. The Obligation of Managers is to Maximize Profits for Shareholders within the Basic Rules of Society • --p.156

  41. “Corporate Social Responsibility” Is an Attempt to Have Managers Act Contrary to the Interests of Shareholders

  42. “Corporate Social Responsibility” Is: • A disguised tax • Fundamentally socialist • Anti-democratic

  43. Two Basic Defenses of the Anti-Responsibility Position Don’t Work • The Promissory Argument • The Agency Argument

  44. The Promissory Argument • Managers promise to maximize shareholder profit • Does not fit the facts of modern economic life • No agreement, or contact, between shareholder and corporation • Contents of “promise” are not at all clear • A past promise does not bind the future

  45. The Agency Argument • Managers are the agents of the shareholders • Wrong as to • Law (the managers are not, legally, agents) • Assumptions about facts of corporate life (who really selects directors)

  46. Freeman--The Stakeholder Theory • A direct challenge to Managerial Capitalism (Friedman) • Stakeholders are those who have a stake in or claim on the firm • Kantian Theory--Stakeholders must be treated with dignity and respect

  47. In Whose Interest and for Whose Benefit Should the Firm Be Managed? • Managerial Capitalism--stockholders ONLY • BUT--Externalities, Common Goods, Free Riders, Tragedy of the Commons

  48. Stakeholder Theory of the Corporation • Principle of Corporate [respect for] Rights • Principle of Corporate Effects Managers MUST take account of stakeholder interests

  49. Stakeholder Theory • Respects stakeholder autonomy and dignity • Broadens the sphere of relevant parties to a corporate decision

  50. The Corporation Should be Managed for the Benefit of its Stakeholders

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