Chapter 4

• Capitalism

  • an economic system that operates on the basis of profit and market exchange
  • the major means of production and distribution are in private hands
• Corporate Internal Decision (CID) Structures

  • established procedures for accomplishing specific goals
• Narrow View of Corporate Responsibility: Profit Maximization

  • businesses have no social responsibilities other than to maximize profits
  • believe that management's fiduciary duty is to maximize stockholder wealth and outweighs any other obligations and it also obligates them to focus on profit maximization alone
• Broader View of Corporate Responsibility: Corporate Social Responsibility

  • businesses have obligations in addition to/besides pursuing profits
• Externalities

  • the unintended negative (or in some cases positive) consequences that an economic transaction between two parties can have on some third party
• The Invisible Hand

  • Adam Smith claims that when people are left to pursue their own interests (in a free-market), they are led by an invisible hand which produce the greatest good for all
• 2 Arguments that Support Capitalism

  1. The Natural Right to Property
  2. Adam Smith's Invisible Hand
• Criticisms of Capitalism

  • It inevitably leads to inequality and poverty

  Ex: exploitation/alienation in order to maximize profits and minimize costs

  • Humans are not "economic maximizers"

  AKA: should not use people as means

  • Competition

  Between companies on who can get more profits
• Important Features of Capitalism

  • They are legal persons with rights and responsibilities
  • The individuals who incorporate (turned the business into a company) are only financially liable for the organization's debts up to extent of their investments
  • Individual responsibility is thus diffused
  • Although specific individuals might be liable for illegal activity, everyone else is only liable up to the extent of their investments
  • They are publicly registered
• Theoretical Criticisms

  • challenge capitalism's fundamental values, basic assumptions, or inherent economic tendencies
• Operational Criticism

  • focus more on capitalism's alleged deficiencies in actual practice (as opposed to theory)
  • in particular, on its failure to live up to its own economic ideals