Part III: The Market and the Business

Presented by: Elyssa I. Del Campo Krizzia Mae D. Navarro Jerica Mae J. Lim Katherine M. Nadongga Kim Villaflor

Introduction
Industry Policy Should govnt regulate and coordinate the activities of business firms? Or; Should business firms be left to pursue their own interests within unregulated markets? Should the business system be a planned economy or shoult it be a free market economy?

Ideology
It is a system of normative beliefs shared by members of some social group. It expresses the groups answers to questions: about human nature, about the basic purpose of our social institutions, about how society actually function and about the values society should try to protect.

Business Ideology
Is a normative system of beliefs on these matters, but specifically one that is held by business groups such as managers.

Two important ideologies:

INDIVIDUALISTIC COMMUNITARIAN

The role of government is limited. Purpose: to protect property, enforce contracts, and keep the marketplace open so that competition among firms may be vigorous and as free as possible.

The role of government is prestigious and authoritative, sometime authoritarian. Purpose: to define the needs of the community over the long as well as the short, and o see that those needs are met.

Two main ways to solve a fundamental economic problem that all societies face:
1.) Command System 2.) Market system

Command system
a single authority makes the decisions about what is to be produced, who will produce it , and who will get it.

Free market system

Individual firms -- each privately owned and each desirous of making a profit make their own decisions about what they will produce and how they will produce it. Two main components: a private property and a voluntary exchange system.

Pure market system

It is where there would be no constraints whatsoever on the property one could own and what one could do with the property one owns, nor voluntary exchanges one could make.

The two main arguments that are usually advanced in favor of the free market system are:
FREE MARKETS AND RIGHTS: JOHN LOCKE THE UTILTY OF FREE MARKETS: ADAM SMITH

FREE MARKETS AND RIGHTS: JOHN LOCKE

It derives from the idea that human beings have certain natural right that only a free market system can preserve. Right to freedom and Right to private property

FREE MARKETS AND RIGHTS: JOHN LOCKE

If there were no governments human beings would be in a state of nature free of any constraints other than the law of nature: Being all equal and independent no one aught to harm another in his life, health, liberty or possessions. Because the state of nature is dangerous, individuals organize themselves in political bodies to form governments with power that is limited only to protect these very basic rights.

FREE MARKETS AND RIGHTS: JOHN LOCKE

LAW OF NATURE, according to Locke, teaches each man that he has a right to liberty and that, consequently, no one can be put out of this [natural] estate and subjected to the political power another without his own consent. Lockes views on property rights have been very influential in America.

FREE MARKETS AND RIGHTS: JOHN LOCKE

Lockes view that labor creates property rights has also been influential in USA. Lockes view that when a person creates a thing he acquires property rights over that thing underlies many laws regarding property and ownership.

Criticisms of Lockean Rights:

The assumption that individuals have the natural rights Locke claimed they have. * If humans dont have the overriding rights to liberty and property then the fact that free markets will preserve the rights doesnt mean a great deal.

Criticisms of Lockean Rights:

The conflict between these Lockean rights and the principles of justice. *Individualistic assumptions and their conflicts with ethics of caring: Locke assumes that people are individuals first, independent of their communities. But without caring relationships no human could survive.

Criticisms of Lockean Rights:

The conflict between these negative rights and positive rights. *why should negative rights, i.e., liberty take precedence over positive rights?

* Free markets create unjust inequalities.

THE UTILTY OF FREE MARKETS: ADAM SMITH

It rests on the utilitarian argument that unregulated markets and private property will produce greater benefits than any amount of regulation could.

THE UTILTY OF FREE MARKETS: ADAM SMITH

According to Smith, when private individuals are left free to seek their own interests in free markets, they will inevitably be led to further the public welfare by an indivisible hand. The indivisible hand, of course, is a market competition.

THE UTILTY OF FREE MARKETS: ADAM SMITH

Supply and demand according to this view will allocate resources efficiently. The best thing for the government to do is to do Nothing. The market on its own will advance public welfare giving people what they want at for the lowest possible cost. A system of private property is necessary for a free market system.

Criticisms of Adam Smith:

No one seller can control the price of a good: *This is not true today, as many industries are monopolized to some extent. Manufacturers will pay for all resources used to produce a product : *When a manufacturer uses water and pollutes it, some one else pays for it.

Criticisms of Adam Smith:

Humans are motivated only by a natural selfinterested desire for profit: *This, say his critics, is clearly false. Many humans are concerned for others and act to help others, constraining their own selfinterest. Market systems make humans selfish and make us think profit motive is natural.

Keynesian Criticism:
Keynes argued that without government intervention, the demand for goods may not be high enough to absorb the supply and the result will be rising unemployment and a slide into economic depression.

Government can influence the propensity to save through its influence on the interest rates.

Keynesian Criticism:
Government spending can also close the gap between aggregate demand and aggregate supply by taking up the slack in demand from households and businesses. Keynes arguments became less convincing though, after stagflation of 1970s. It has been replaced by a post-Keynesian school of thought, which argues for even more governmental intervention in the market.

The utility of survival of the fittest: Social Darwinism

Economic competition produced human progress. If governments were to interfere in this process , they would also unintentionally be impeding human progress.

Weak firms must be weeded out by competition.

The utility of survival of the fittest: Social Darwinism

Survival of the fittest means survival of the best. The fallacy which modern authors call naturalistic fallacy, implies , of course, that whatever happens naturally is always the best.

Marxist Criticisms
is the most influential critic of the inequalities that private property institutions, free markets and free trade are accused of creating. According to Marx, capitalist systems offer only two sources of income: sale of ones own labor, and ownership of the means of production. The workers are forced to sell their labor to the owner for a wage.

Marxist Criticisms
Those who own the means of production (bourgeois) become wealthier and workers (proletariat) become relatively poorer. In Marxs view capitalism alienates the lower working classes by not allowing them to develop their productive potential, nor real human needs.

The real purpose of government

says Marx is to protect the interest of the ruling class of owners.

Two main components:

1.) economic substructure 2.) social superstructure

Is a society consist of the material and social controls that society uses to produce its economic goods

It is consist of its government and its popular ideologies.

The real purpose of government

The forces of production of the society (its economic substructure) always have, historically, given the society its class and its social superstructure (or government and popular ideologies).

Those in power promote the ideologies that justify their position of privilege. This view of history is called Historical Materialism.

Immiseration of workers
The result of unrestrained free markets and private ownership will be a series of disasters for working people, leaving them immiserated.

Immiseration of workers
3 general tendencies will bring this about: A.) Increasing concentration of industrial power. B.)Repeated cycles of economic downturns. C.)The position of the worker in capitalist societies will gradually worsen.

Immiseration of workers
Though many of Marxs predictions have turned out to be correct, immiseration of workers has not occurred. Still many claim that unemployment, inflation, alienation and false desires do characterize much of modern capitalist society. Defenders of free markets claim that justice really means distribution according to contribution.

Immiseration of workers
Even if private ownership creates inequalities, defenders of free markets still maintain that the benefits of the system are greater and more important than the incidental inequalities. Whether the free market argument is persuasive depends ultimately on the importance one gives to the rights to liberty and property, as opposed to a just distribution of income and wealth.

Conclusion: The Mixed Economy

Many economists now advocate retaining the market system and private property while modifying their working through government regulation, a mixed economy that attempts to remedy the deficiencies of a free market system.

Conclusion: The Mixed Economy

New technologies are also firing the debate over the balance between Lockean private property and collective ownership. Modern technologies create new forms of intellectual property that can be copied and consumed by a number of different individuals at once.

Conclusion: The Mixed Economy

Though critics of Marx contend that Marxism is dead, many socialist trends and theories remain influential. Locke and Smiths form of capitalism has the upper hand, but many nevertheless maintain that a mixed economy comes closest to combining the utilitarian benefits of the market economy with a proper respect for human rights, caring and justice.

*END*