Chap 1: Introduction Type of issue : (a) Bribery - create a conflict of interest Bribery is used to manipulate people by buying influence. The offering, giving, receiving, or soliciting of something of value for the purpose of influencing the action of an official in the discharge of his or her public or legal duties. Bribes create a conflict of interest between the person receiving the bribe and his or her organization This person has a fiduciary interest to the organization The bribe creates a private interest that is likely to conflict with the organizations interest (b) Coercion - controls people by force or threat. a compulsion; constraint; compelling by force or arms or threatIt may be actual, direct, or positive, as where physical force is used to complete action against ones will or implied, legal or constructive, as where one party is constrained by subjugation to another to do what his free will would refuse (c) Deception - manipulates people and firms by misleading them. the act of deceiving; intentional misleading by falsehood spoken or actedKnowingly and willingly making a false statement or representation, expressed or implied, pertaining to a present or past existing fact (d) Theft - act of stealing, d taking of property without the owners consent. the act of stealing, the taking of property without the owners consent (e) Unfair Discrimination - unfair treatment or denial of normal privileges to persons. Unfair treatment or denial of normal privileges to persons because of their race, age, sex, nationality or religionA failure to treat all persons equally when no reasonable distinction can be found between those favored and those not favored IMPORTANCE OF ETHICS in business: essential for long-term business success. Unethical behaviour distorts d market system; leads to an inefficient allocation of resources. Conditions for effective market system: (a) d right to own and control private property (b) freedom of choice in buying and

selling goods and services (c) d availability of accurate information concerning those goods and services Macro effect of unethical behaviour:

Micro perspective: Ethics is closely associated with trust. Most people will agree that in order to develop trust, behaviour must be ethical. While ethical behaviour is not sufficient to gain trust, it is necessary. Trust: (a) expectation of technically competent performance and (b) expectation of fiduciary responsibility (represent d interests o d business when deals with external stakeholders). Two norms are widely accepted in business dealings (1) Commitments are to be honored in almost all situations; one does not welsh on a deal (2) One ought to produce a good product and stand behind it (3) Business would not run smoothly if business people could not trust one another. Fundamental elements of trust: (a) Predictability - eliminate surprises that are not usually welcome in business environment (b) Dependability - provides assurance that one can be counted on to perform as expected (c) Faith - is d belief that one will continue to be predictable and dependable.

We would increase productivity and reduce stress We would not spend 50% of our day managing poor performance and dealing with people conflicts

We would not be fixing things because others failed to take responsibility.

We would not be dealing with so many upset customers We would understand that we are all working together in a shared environment

So what are the issues?

Lack of understanding of what values are Feeling obliged to have organisation values so people pay lip service

Results in truisms, blandness People matter We will act with integrity For-get-me-not

And once we have written them down Committed them to a plaque on the wall, then We forget about them Sort of like yesterdays wall paper Because the values dont mean anything

Values need to live and be part of our every day behavior People need to understand them Values define who we are, how we behave and how we

perform at work Five Key Stages

Define the values with consensus Define the behaviours with consensus Communicate Re-enforce Deal with Consequences Consensus

Everyone being part of a common cause is critical Cant impose values - everyone has to be part of creating them Values can not be developed by the senior management team

on an away day People need to know why there are organisational values They need to be able to sign up to them Let the weeds emerge!!...Then deal to them

Define the values & behaviors

Values guide how we interact with one another, how we perform, how we think.

Values are about who we are and all we do. People need to know how to apply them at work For example: People Matter Playing our part in creating a great workplace Replying to internal emails within 24 hours Communication

Make a plan Values will not change over night because you developed some it will take time to change a culture and that is what values are mostly about - culture change

Put together a robust plan- introducing new activates throughout the year

Make sure the values are expressed in everyday language Keep communicating the values as an ongoingproject Communicate.

Email, intranet posters, brochures, internal publications- speeches.

Make sure new people in the organisation know about them induction, manuals, pledge cards

Value people recognize people and reassure them that they are valued and the job they do is valued- it is worth doing well and that is all part of your values!

Live the values tell people they have a right to expect others to as well Reinforcement

Place a visible premium on identifying exemplary behavior that support the values

Endorse it promptly and publicly Relate with these behaviours as this is the way we do things around here.

Provide simple guidelines on practical implementation Get the CEO to send them a card acknowledge work in the staff meetings call by someone's desk and say hey.. Well done!

Encourage peer recognition Consequences

It is equally useful to remind people when they are not living the values- providing we are

Accept that sometimes people may have been using best intentions but..

Show we are not blaming but raising awareness Are honest and fair Make space for the views of others Treat people with respect So if it is that easy why doesnt it always work?

Values too conceptual and people dont know what to do Ongoing implementation, re-inforcement and correction can be challenging and many stop at the initial implementation

People will need training in coaching, mentoring and role modeling to encourage and develop values and behaviors in others. This is often a BIG job.

We forget what matters .

And we don't do what David Lange told Sir Edmund Hilary to do when he appointed him to High Commissioner of India Do what you think is right he told Sir Ed and that was the motto this great man of integrity did for the four years he served in India. Tips to Values work

Put time effort and budget into making values meaningful Ensure values are championed at the top level but owned by everyone

Ensure that the values are lived by those with management responsibilities

Communicate values with vigor and emery Reward values evident activity promptly and publicly Encourage peer nominations Build your values into the recruitment process Build you values into performance assessment Chap 2: Approaches to business ethics Ethic of care: an ethic that emphasizes caring for concrete well being of those near to us. Ethic of virtue: an ethic based on evaluations of the moral character of persons or group. Course of action would have the most beneficial consequences and the fewest harms, at least in comparison to the results of abounding referred to as a consequentialist approach to ethics and, more specifically, as a utilitarian approach. Utilitarianism: a general term for any view that holds that actions and policies should be evaluated on the basis of the benefits and costs they will impose on society. Specifically, utilitarianism holds that the morality right course of action in any situation is the one that, when compared to all other possible action, will produce the greatest balance of benefits over costs for everyone affected. Hence, the term utilitarianism is used for any theory that advocates selection of that action or policy that maximizes utility. Utilitarianism is not a theory of calculated selfishness: it is a theory that says that we should strive to do what is best for everyone in society, and that we do what is best for everyone

when we take into account all the benefits and harms that everyone will bear as the result of our actions. The utilitarianism principle holds that: an action is right form an ethical point of view, if and only if, the sum total of utilities produced by the act is greater than the sum total of utilities produced by any other act the agent could have performed in its place. The utilitarian principle assumes that we can somehow measure and add together the quantities of benefits produced by an action and often measure and subtract from those benefits the quantities of harm the action will produce. Three mistakes to watch out for when using utilitarianism. The first, the principle says that the right action for a particular occasion is the one that produces more utility than any other possible action, it does not mean that the right action is the one that produces the most utility for the person performing the action. Rather, an action is right if it produces the most utility for all persons affected by the action, including of course, the person who performed the action. Second, to think that the utilitarian principle requires us to consider only the direct and immediate consequence of our actions. Instead both the immediate and all foreseeable future costs and benefits that each alternative will provide for each individual must be taken into account, as well as any significant indirect effects. Third, the principle does not say that an action is right so long as its own benefits outweigh its own costs. Instead, it says that the right action is the one whose combined benefits and costs outweigh the combined benefits and costs of every other action the agent could carry out. In other words, utilitarianism holds that to determine the morally right action in any given situation, we must compare the utility of all of the action that one could caryy out in that situation; only then can we determine which action will produce more utility than any of the others. How we should behave in a particular situation according to utilitarianism First, I must determine what alternative actions or policies are available to me in that situation. Second, for each alternative action, i must estimate the direct and indirect benefits and costs that the action will probably produce for each and every person affected by the action in the near future.

Third, for each action i must subtract the costs from the benefits to determine the net utility each action. Fourth, the action that produce greatest sum total of utility must be chosen as the ethically appropriate course of action. Cost Benefits analysis: a type of analysis used to determine the desirability of investing in a project by calculating whether its present and future economics benefits put weight its present and future economic costs. If monetary benefits of a certain public project exceed the monetary costs and if the excess is greater than the excess produced by any other feasible project, then the project should be undertaken. In this form of utilitarianism, the concept of utility is restricted to monetarily measurable costs and benefits. Efficiency: operating in such a way that one produces a desired output with the lowest resource input. It can mean different things to different people, but for many it means operating in the manner that produces the most from a given amount of resources, or that produces a desired output with the lowest resource input. Such efficiency is precisely what utilitarianism advocates because it holds that one should always adopt the course of action that will produce the greatest benefits at the lowest cost. Measurement Problem One major set of problems with utilitarianism is centered on the difficulties of trying to measure utility. One problem is this: how can the utilities different actions have for different people be measured and compared as utilitarianism reuires? If we cannot know which actions will produced the greates amounts of utility, then we cannot apply the utilitarian principle. Second problem is that there are certain kinds of benefits and costs that seem impossible to measure. Because we cannot predict all of the future benefits and costs of an action, there is no way we can measure them. Third, it is unclear exactly what should count as a benefits and what should count as a cost. This lack of clarity is especially a problem when we are dealing with controversial things on which different people place very different values. Fourth, this utilitarian assumption that all benefits are measureable implies that the benefits can be traded for equivalents of each other. Non-economic goods: goods, such as life, love, freedom, equality, health, beauty, whose value is such that it cannot be measured in economic terms. Problem with Rights and Justice

First, utilitarianism has led us to approve an act of murder that is an obvious violation of an individuals most important right. Second, utilitarianism looks only at how much utility is produced in a society and fails to take into account how that utility is distributed among the members f society. Right and Justice Justice: distributing benefits and burdens fairly among people. Rights: individual entitlements to freedom of choice and well-being. The concept of a Right Legal right: an entitlement that derives from a legal system that permits or empowers a person to act in a specified way or that requires others to act in certain ways toward that person Moral rights or human rights: rights that all human beings everywhere posses to an equal extent simply by virtue of being human beings. Characteristics of Rights a. A right is an individuals entitlement to something b. Right derived from a legal system confer entitlements

only on individuals who live where that legal system is in force

c. Moral or human rights are entitlements that moral norms confer on all people regardless of their legal system.

Moral Rights a. Can be violated even when no one is hurt b. Are correlated with duties others have toward the person

with the right. c. Provide individuals with autonomy and equality in the

free pursuit of their interest. d. Focus on securing the interests of the individual unlike

utilitarian standards which focus on securing the aggregate utility of everyone in society.

Negative rights: duties others have to not intefere in certain activities of the person who holds the right. Example: if i have a right to privacy, this means that every other person, includingmy employer, has the duty not to invade my private affairs. Positive rights: duties of other agents (it is not always clear who) to provide the holder of the right with whatever he or she needs to freely pursue his or her interests. Example: if i have a right to an adequate standard of living, this does not mean that others must not interfere; it also means that if i am unable to provide myself with an adequate income,

then i must be provided with such an income (perhaps by the governemnt) Contractual Rights and Duties: the limited rights and correlative duties that arise when one person enters an agreement with another person. Contractual rights and duties are distinguished, first, by the fact that they attach to specific individuals and the correlative duties are imposed only on other specific individuals. If i agree to do something for you, everyone else does not acquire new rights over me, nor do I acquire any new duties toward them. Second, contractual right arise out of a speciic transaction between particular individuals. Unless i actually make a promise or enter some other, similar arrangement with you, you do not acquire any contractual right over me. Third, contractual rights and duties depend on a publicly accepted system of rules that define the transactions that give rise to those rights and duties. Morality in business is costly. Why? A morally responsible company must pay special attention to product safety, environmental impact, truthful advertising, scrupulous marketing, and humane working conditions. Relationship between ethics and a profit-oriented business (1) Weak version - good ethics results in good business; moral businesses practices are profitable by Robert F. Hartley's. Arguments: will have an economic advantage only in d long run some not economically viable ex: retaining older workers inefficient. Moral business practices that are good for business depend upon what at that time will produce a profit. Any overlap that exists between morality and profit is both limited and incidental. (2) Strong version - good business results in good ethics. In a competitive and free market, d profit motive will in fact bring about a morally proper environment. The role of consumers demands. Weakness: it assumes that consumers or workers will demand d morally proper thing. Conclusion: not every moral business practice will simply emerge from d profit principle as suggested by either d weak or strong views.

Conclusion: not every moral business practice will simply emerge from d profit principle as suggested by either d weak or strong views. Developing moral judgement:

In theory, a business could address these three concerns by assigning corporate attorneys and public relations experts to escort employees on their daily activities. Alternative businesses turn to philosophers to instruct employees on becoming moral. Sources of ethics:

Moral obligations in business are restricted to following d law. Most universal aspects of Western morality have already been put into legal system. Moral principles beyond what the law requires ~ supra-legal principles - appear to be optional. .. Unreasonable to expect businesses to perform duties for which appear to be optional. Unreasonableness only apply in societies that do not have a strong external source of morality. For Muslim country apply law plus Sharia while Chinese usually apply Confucianism. Strictly following legal approach to business ethics may indeed

prompt businesses to do the right thing, as prescribed by law. Even in the best legal context, the law will lag behind moral condemnation of certain unscrupulous, yet legal business practice. It applies only to countries whose business-related laws are morally conscientious. The situation may be different for some developing countries with less sophisticated laws and regulatory agencies. Morality must be introduced as a factor that is external from both the profit motive and the law. Broad moral principles: (a) Harm principle: businesses should avoid causing unwarranted harm (b) Fairness principle: business should be fair in all of dir practices (c) Human rights principle: businesses should respect human rights (d)

Autonomy principle: businesses should not infringe on d rationally reflective choices of people (e) Veracity principle: businesses should not be deceptive in their practices. Conclusion: The three approaches to business ethics have limitations. Following any will bring us closer to acceptable moral behaviour. Close attention to profit motive and the moral interests of consumers might generate some morally responsible business decisions. Find additional moral guidance by looking at the laws that apply specifically to businesses. In gray areas that are not adequately addressed profit motives and the law, we can turn for guidance to a variety of general and specific moral principles. Chap 3: Ethics of Capitalism Globalization: the process by which the economic and social systems of nations are connected together so that goods, services, capital, and knowledge move freely between nations. Globalization has connected nations together so that goods, devices, capital, and knowledge increasingly flow freely between them. These are carried by ever faster and cheaper transportation and communication systems, and these flows are facilitated by free trade agreements and international institutions like the WTO and IMF. Economic System Economic system: the system a society uses to provide the goods and services it needs to survive and flourish. This system must accomplish two basic economic tasks; a. Producing goods and services, which requires

determining what will be produced, how it will be produced, and who will produce it.

b. Distributing these goods and services among its members, which requires determining who will get what and how much each will get.

Basic Methods to Make Choices: (a) Tradition (b) Command System (c) Market System - to Key Components: Private property and Voluntary exchange.. Tradition based societies: the system a society that rely on traditional communal roles and customers to carry out basic economic tasks. Command economy: an economic system based primarily on a government authority (a person or a group) making the

economic decisions about what is to be produced, who will produce it, and who will get it. Market economy: an economic system based primarily on private individuals making the main decisions about what they will produce and who will get it. Free markets: markets in which each individual is able to voluntarily exchange goods with others and to decide what will be done with what he or she owns without interference from government. Ideology: a system of normative beliefs. A persons ideology: Colors perceptions and Influences actions. Spectrum of Ideologies: (a) Individualistic - Each person responsible for themselves. Role of government limited: Protect private property, Enforce contracts (b) Communitarian - Role of government broad: Define needs of society and ensure needs are met. Ex: it takes a village to raise a child Fundamental Choices: What goods and services should be produced? How should d goods and services be produced? Who should get d goods and services? FREE MARKETS AND UTILITY: ADAM SMITH Adam Smith 1776: D Wealth of Nations Some societies do better than others not because of access to natural resources or exporting more than importing (Mercantilism) Capitalism - utilitarian perspective. Capitalism is ethical on utilitarian grounds - private property and unregulated free markets produce d greatest net social benefits of any socioeconomic system: laissez-faire. Limited role of government: Protect private property, Enforce contracts. .. Government regulation of business is unethical on utilitarian grounds. The free market, coupled with private property, ensures that the economy tis producing what consumers want, that prices are at the lowest levels possible, and that resources are efficiently used. The economic utility of societys members is thereby maximized. Invisible hand: according to Adam Smith, the market competition that drives self-interested individuals to act in ways that serve society. According to Adam Smith

i. Market competition ensures the pursuit of self-interest in markets advances the publics welfare which is a utilitarian argument.

ii. Government interference in markets lowers the publics welfare by creating shortages or surpluses.

Criticisms of Adam Smith i. Rests on unrealistic assumption that there are no

monopoly companies. ii. Falsely assumes that all the costs of manufacturing

something are paid by manufacturer, which ignores the costs of pollution

iii. Falsely assumes human beings are motivated only by a self-interested desire for profit

iv. Some government planning and regulation of markets is possible and desirable.

John Locke (163to1704): Rights perspective; Humans have natural rights - Liberty (freedom) and Private property. without government, humans would be in a state of nature. Freedom: Free of all human-made laws Property: Resources combined with work. Common fear: theft of freedom or property. Government is invented to protect freedom and liberty. Capitalism is ethical on rights grounds - based on liberty and private property. Government regulation unethical - infringes on liberty and private property. Critics of John Locke: ARE d liberty and property rights of d buyer and seller d only relevant rights? Ex: cigarette. If there are rights at stake in addition to d liberty and property rights of d buyer and seller, then government regulation might be justified to protect all d relevant rights. In Lockes State of Nature: i. All persons are free and equal ii. Each persons owns his body and labour, and whatever he

mixes his own labour into iii. Peoples enjoyment of life, liberty, and property are

unsafe and insecure iv. People agree to form a government to protect and

preserve their right to life, liberty, and property.

Criticisms of Lockean Rights Weaknesses:

a. Locke does not demonstrate that individuals have natural rights to life, liberty, and property

b. Lockes natural rights are negative rights and he does not show these override conflicting

c. Lockes rights imply that markets should be free, but free markets can be unjust and can lead to inequalities

d. Locke wrongly assumes human being are atomistic individuals.

Herbert Spencer (18to01903): Social Darwinism - based on Charles Darwins Theory of Evolution: natural selection / survival of d fittest. Idea of survival of d fittest to societies - Some individuals are better than others. Free competition helps ensure only d most capable survive and rise to d top. Government should not interfere. If government helps d weak, they survive, pass on their characteristics, and society is thereby weakened. Karl Marx (18181883): witnessed Industrial Revolution - application of power-driven machinery. Sources of Income: (a) Bourgeoisie - owners of d means of production (b) Proletariat - people who have to sell their labour. Competition for jobs among the proletariat keeps wages at subsistence levels Meanwhile, the bourgeoisie earn profits. Workers became alienated from their (i) products: workers lost control of the products of their labor (ii) own work: workers lost control of how they did their jobs (iii) themselves: workers were taught false views of their needs and desires (iv) each other: workers were kept fighting amongst themselves (divide and conquer). Karl Marx Theory of History: (1) Economic Substructure (a) Forces of Production: land, labor, raw materials, technology, etc. (b) Relations of Production: methods of social control; in Capitalism, control is based on ownership; creates d social classes. (to) Social Superstructure: government and ideologies. Karl Marxs Conclusions: Role of government in capitalism - protect the wealth and power of the bourgeoisie. Rich get richer, poor get poorer .. Unfair. Solution: replace control based on ownership with control based on authority ex. Hire experts to control resources based on whats best for society as a whole.

Mixed Economy: Use property rights and d market system to create wealth. But limit d actions of property owners with government regulations. Ex: Property rights with zoning laws, Tax, Pollution and Safety regulations, Welfare laws. Government Regulation: (a) Utilitarian: Correct externalities (b) Rights: Protect rights (in addition to liberty and property rights of buyer and seller) (c) Justice: Ensure fairness (d) Care: Care for people. Intellectual Property Rights: (1) Private property view (a) Utilitarianism: private ownership creates incentives (b) Rights (Locke): creator has the right to decide use. (2) Socialist view - Creativity doesnt require incentives. Common good best served by public ownership. Chap 4: Ethics in the market place. If free markets are justified, it is because they allocate resources and distribute commodities in ways that are just, that maximize the economic utility of societys members, and that respect the freedom of choice of both buyers and sellers. These moral aspects of a market system depend crucially on the competitive nature of the system. Anticompetitive practices morally uncertain monopoly and oligopoly. Perfect Competition: a free market in which no buyer and seller has the power to significantly affect the prices at which goods are being exchanged. Pure monopoly: a market in which a single firm is the only seller in the market and which new sellers are barred from entering. Oligopoly: a market shared by a relatively small number of large firms that together can exercise some influence on prices. Free markets are moral because they allocate resources and distribute commodities (i) in ways that are just (ii) that maximize economic utility (iii) that respect d liberty of both buyers and sellers. Under perfect competition, "no buyer or seller has the power to significantly affect the prices at which goods are exchanged."

Features of perfectly competitive markets: (i) Distribution: numerous buyers and sellers, none of whom has a substantial market share (ii) Open: buyers and sellers are free to enter or leave d market (iii) Full and perfect knowledge: each buyer and seller has full and perfect knowledge of each others' doings (iv) Equivalent goods: goods being sold are similar enough that buyers don't care whose they buy (v) Unsubsidized: costs of producing or using goods is borne entirely by d buyers and sellers (vi) Rational economic agency: all buyers and sellers act as egoistic utility maximizes; try to buy (or produce) as low as possible and sell as high as possible (vii) Unregulated: no external parties such as government regulate the P, Q, or quality of goods. Note: 1-2 = openness and distribution -- d "basic conditions" 3-6 = "idealizing conditions" 7 = non regulation - a measure of how free d market (a) all real economies are mixed, mixing; free market elements and command elements (b) regulative admixtures justified by appeal to social utility, distributive justice and rights (especially positive or welfare rights). Self-regulation: d basis for d alleged moral benefits of competitive markets - SS/DD theory. Equilibrium in Perfectly Competitive Markets; (i) Principle of Diminishing Marginal Utility - each additional item consumed is less useful or satisfying than each of d earlier items and consequently is less valuable than each of d earlier items. .. "d price consumers are willing to pay for goods diminishes as d quantity of goods they buy increases" - affecting demand. (ii) Principle of Increasing Marginal Costs - each additional item produced after a certain point, costs more to produce than earlier items. Point determined by countervailing economies of scale and scarcity or plenitude of resources. Costs breakdown = ordinary costs + normal profits ("ordinary" costs of production and distribution - costs of labour, materials marketing distribution etc. "normal" profit: "d average profit d producers could make in other markets that carry similar risks") - affecting supply. Capitalist distributive justice is well served by perfectly competitive markets. Economic utility or efficiency is best

served; sellers sell and producers produce what consumers want. Negative rights are well respected, especially rights of economic liberty to buy and sell whatever you choose, whenever you choose to and from whomever you choose. Limitations on Perfectly Competitive Markets' Claims to Moral Superiority: (a) Justice under competing conceptions not so well served (b) Egalitarian justice violated by income & wealth disparities arising under PCMs (c) Distribution according to ability to pay vs. need is contrary to needs-based conceptions (d) Counting the value of labor as the price it commands on the job market contrary to Marxian contribution-based justice. Justice and benefits alleged accrue only to market participants or those with money to buy. Positive rights of the poor may be violated: e.g. rights to food & shelter, education, health-care. Conditions for perfect competition may conflict with care. Rational egoistic utility maximization neglects caring. Encourage bad character traits (i.e. greed & self-seeking, materialism) and discourage certain good traits (i.e. kindness, caring, generosity). Threats to Competition Monopoly, Oligopoly, Anti-competitive practices Monopoly Competition: 1-2 are violated; Not distributed but concentrated and not open but closed. 2 Key Characteristics: Only one seller: 100% market share Extremely high barriers to entry: High capitalization costs (Example: electric power and Patents). Example: pharmaceutical drugs Monopoly Economic Effect Control over prices: -Higher prices than would occur without competition -Higher profits for the monopolist Monopoly Moral Effect Violates utilitarianism

Deadweight loss to society from higher prices Inefficiency?

Violates rights: restricted choices Violates justice: unfair to consumers

Monopoly Regulation Natural monopoly: regulate prices Example: electric power? Government-granted monopoly through patents: limit length of patent protection Example: pharmaceutical drugs Earned monopoly: regulate ability to use earned monopoly power to extend monopoly to new markets Example: Microsoft? Principal Market-Distorting Effect - inability of other competitors to enter d market (increasing supplies; bidding prices down). Results in artificially high prices - above d "natural price" or equilibrium point. Natural price = cost of production + going-rate-of-profit (CP + GRP) d seller charges more than d goods are worth (i.e., their natural price) .. d prices d buyer is forced to pay are unjust (i.e. > CP +GRP). Under monopoly conditions prices kept above equilibrium; against capitalist justice that says "to each according to their contribution of labor or investment. Monopolies foster distributive inefficiency: demand is not served. Shortages (indicated by high profits) while other firms unable to enter d market to make up these shortages. Excess profits absorbed by d seller are resources not needed to supply d amounts of goods d consumers are getting. Monopolies remove competitive pressures making for productive efficiency; Discretionary preferences of consumers not as well-served: consumers forced cut back more than they would have had to (under "normal" conditions) and have to buy d monopolized goods. Oligopolistic Competition: 1-2 are absent. Not distributed but concentrated and not open but closed. 2 Key Characteristics: -Small number of sellers dominate the market -High barriers to entry Result: -Threat of collusion among sellers to act in unison: act as monopoly instead of competitors -Government regulation:

-Prevent collusion MERGERS Mergers can generate anti-trust concerns. Mergers are thus subject to government regulation 3 types of mergers: Horizontal merger, Vertical integration, Conglomerate merger. Vertical Integration Merger up or down the chain of production and distribution. Example: Merger of Time-Warner (content) & AOL (distribution) Anti-trust concern: might harm competition significantly. Why? Possibility of cut-off supply to the competitor.. Issue: Are there alternative sources of supply that are economically viable?. Regulate merger terms & conditions Conglomerate Merger Totally unrelated companies merge. Example: US Steel and Marathon Oil. Rationale: diversificationdont put all your eggs in one basket. Anti-trust concern: deep pockets / internal cross-subsidization / may facilitate predatory pricing. Regulate merger terms & conditions Horizontal mergers; "unification of two or more companies that were formerly competing in the same line of business" - the chief cause of oligopolistic conditions. Anticompetitive Dynamic: Creation of Virtual Monopoly Conditions via Collusion. With only a few firms in the market it is relatively easy for them to join forces and act as a unit "much like a single giant firm" (a) by agreeing to set prices at the same (excessively high) level (i.e. tacitly: a "gentlemen's agreement" and explicitly: price fixing). (b) by agreeing to restrict output & control supply (OPEC). Violations of capitalist justice; cause negative impacts on (a) economic utility by (i) distributive inefficiencies (ii) productive inefficiencies and (iii) diminished discretionary preference satisfaction and (b) similar negative (economic freedom) rights violations. Explicit agreements: (a) Price fixing: managers meet (secretly) and agree to set prices at artificially high levels (b) Manipulation of Supply: firms agree to limit their production result in artificially induced

shortages hence in artificially high prices (c) Exclusive Dealing Arrangements: firms sell to retailers on condition that retailers will not buy from certain other companies (contra openness) or will not sell outside of a certain geographical area (contra distribution) (d) Tying Arrangements: d seller agrees to sell to buyer only on condition that the buyer agrees to buy other products from d firm (e) Retail Price Maintenance Agreements: manufacturer sells to retailer only on d condition that they agree to charge d same set retail price for d goods. Tacit Agreements: Most collusion between oligopolies consequently is based on genesis of unspoken cooperation. Without any explicit agreement to cooperate, (i) they undertake to act as if there were such an agreement (ii) you might say there is such an agreement de facto or in practice. Ex: Price-setting: when one major player raises prices, all the would-be competitors follow suit. 3 Major US Anti-Trust Laws Sherman Anti-Trust Act (1890), Clayton Act (1914), Federal Trade Commission Act (1914) Sherman Anti-Trust Act (1890) Forbids: restraints of trade, monopolization, attempts to monopolize, and conspiracies to monopolize. Example of restraints of trade: price fixing. Criminal statute

Violations can be felonies Fines: corporations & individuals Prison: individuals

Civil lawsuits: treble damages Clayton Act (1914) Forbids specific anti-competitive practices: Mergers that tend to create a monopoly Interlocking Boards of Directors among competitors Exclusive dealing arrangements Tying arrangements Price discrimination (goods only, not services) Civil statute: no criminal penalties FTC Act (1914) Forbids: Unfair methods of competition Unfair or deceptive acts or practices that affect commerce Civil statute:

Quantity ofResource

ConsumedEach Year

TimeToday Depletion

Remedies: cease and desist orders Chap 5: Natural Resource & Environment Triple Bottom Line: An accounting framework that incorporates three dimensions of performance: social, environmental and financial (3Ps: people, planet and profits). Ecological system: an interrelated and interdependent set of organisms and environments. Because the various parts of an ecological systems is interdependent, the activities of one of its parts will affect all the other parts and the well-being of each part depends on the wellbeing of the other parts. Ecological Ethics: the ethical view that nonhuman parts of the environment deserve to be preserved for their own sake, regardless of whether this benefits human beings.

Economic variables ought to be variables that deal with the bottom line and the flow of money. It could look at income or expenditures, taxes, business climate factors, employment, and business diversity factors. Environmental variables should represent measurements of natural resources and reflect potential influences to its viability. It could incorporate air and water quality, energy consumption,

natural resources, solid and toxic waste, and land use/land cover. Social variables refer to social dimensions of a community or region and could include measurements of education, equity and access to social resources, health and well-being, quality of life, and social capital. Issues: (a) Resource utilization (i) Resource depletion (ii) Resource allocation across time And (b) Pollution Resource depletion: the consumption of finite or scarce resources. Global warming: the increase in temperatures around the globe due to rising levels of greenhouse gases Depletion Models: Exponential Depletion & Peaked Depletion. Environmental rights a. Blackstone argues human have a right to fulfil their

capacities as free and rational and a liveable environment is essential to such fulfilment

b. So humans have a right to a liveable environment which is violated by practices that destroy the environment

c. Such environmental rights can lead to absolute bans on pollution even when the costs far outweigh the benefits.

Provide cost: the cost an individual or company must [pay out of its own pocket to engage in a particular economic activity. Social cost: the private internal costs plus the external costs of engaging in a particular economic activity. Pollution is an example of an external cost. Ex: dump hazardous waste into a river. Unregulated free market only considers private cost: market price reflects private cost only. Exponential Depletion: Rate of use increases exponentially over time. Resource is used until it is depleted.

PeakedDepletion:

Quantity ofResource

ConsumedEach Year

TimeToday

Usage: Increases exponentially for a while, peaks and then declines. Resource never depleted. Reasons: As use increases, cost of extraction rises. Higher costs result in higher prices. Higher prices create incentives. Incentives for consumers (cut use directly and substitutes) and producers (substitutes). Resource Depletion/Conservation: Supporters of free markets say dont worry about resource depletion. Free markets automatically take care of the issue. Critics: Dont assume that technology will bail us out of the problem Resource Allocation Across Time: Do the current generations have a moral obligation to save (conserve) resources for future generations? Apply principles: Utilitarian, Rights and Distributive Justice. Utilitarian Principle: Free market ensures resource will be used at the time of its highest value. Why? Owner of resource wants the greatest value. Critics: Uncertainty, Discounting to present value, Problem of multiple access / Dilemma of the commons. Rights: Which generation has a right to use the resource? People who do not exist cannot have rights. If they have rights, are they of higher priority than our rights? Rights protect interests. We dont know the interests of future generations. Distributive Justice: Is it fair that the current generations get the benefits of using the resource and leave the burdens for the future generations? John Rawls: Put yourself in the original position. Conclusion: Fix what you can, but at least dont make things worse.

Quantity

Price

Demand

Supply =Private Costs

Social Costs =Private Costs +External Costs

Qc

Pc

Q*

P*External Costs

Pollution: the undesirable and unintended contamination of the environment by human activity such as manufacturing, waste disposal, burning fossil fuels, etc. Pollution: Why? Natural environment as a free good No one owns it, so no owner seeks to protect it; allows us to externalize the cost of disposing of our wastes by simply dumping it into the environment. Natural environment as an unlimited good Each persons pollution is small compared to the natural environment. Pollution Moral Issues: How far do we have a moral duty to go in order to protect moral rights to a liveable environment? Rights Principle: (a) Human Rights: Each human being has a moral right to life and to a liveable environment. (b) Animal Rights: All animals have a moral right to life and to a liveable environment. (c) Rights of All Living Things: All living things have a moral right to life and to a liveable environment. (d) Eco-feminists: Care for the natural environment: all things have a right to exist. Protect the environment at all costs? Leads to a consideration of the utilitarian principle. Private cost: cost born by the seller External cost: cost not born by the seller Social cost = Private cost + External cost Pollution is an example of an external cost. Ex: dump hazardous waste into a river. Unregulated free market only considers private cost: market price reflects private cost only.

Effects of External Costs: Free market price is too low; does not consider the external costs. Regulation needed to raise the market price. Optimum Pollution Removal:

IncrementalBenefits

% PollutionRemoved

$

Optimum

IncrementalCosts

Optimum amount of pollution to remove depends on: Benefits of removing pollution and Costs of removing pollution. Standards Approach: Regulation specifies the maximum amount of pollution allowed. Set standard at optimum. Incentives Approach: More efficient than standards approach. Methods: Pollution tax and Marketable pollution rights.

Ethical approaches to environmental protection a. Nonhuman have intrinsic value b. Human have a right to a liveable environment c. Market approach: external costs violate utility, rights,

and justice so they should be internalized.

Internalization of the costs of pollution: absorption of external costs by the producer, who then takes them into account when determining the price of goods. Environmental injustice: the baring of external costs of pollution largely by those who do not enjoy a net benefit from the activity that produces the pollution.

Environmental racism: claims that pollution levels tend to be correlated with race so that the higher the proportion of racial minorities living in an area, the higher the likelihood that the area is subject to pollution. Resource Depletion/Conservation: Supporters of free markets say dont worry about resource depletion. Free markets automatically take care of the issue. Critics: Dont assume that technology will bail us out of the problem Resource Allocation Across Time: Do the current generations have a moral obligation to save (conserve) resources for future generations? Apply principles: Utilitarian, Rights and Distributive Justice. Utilitarian Principle: Free market ensures resource will be used at the time of its highest value. Why? Owner of resource wants the greatest value. Critics: Uncertainty, Discounting to present value, Problem of multiple access / Dilemma of the commons. Rights: Which generation has a right to use the resource? People who do not exist cannot have rights. If they have rights, are they of higher priority than our rights? Rights protect interests. We dont know the interests of future generations. Distributive Justice: Is it fair that the current generations get the benefits of using the resource and leave the burdens for the future generations? John Rawls: Put yourself in the original position. Conclusion: Fix what you can, but at least dont make things worse. Pollution: Why? Natural environment as a free good No one owns it, so no owner seeks to protect it; allows us to externalize the cost of disposing of our wastes by simply dumping it into the

environment. Natural environment as an unlimited good Each persons pollution is small compared to the natural environment. Pollution Moral Issues: How far do we have a moral duty to go in order to protect moral rights to a liveable environment? Rights Principle: (a) Human Rights: Each human being has a moral right to life and to a liveable environment. (b) Animal Rights: All animals have a moral right to life and to a liveable environment. (c) Rights of All Living Things: All living things have a moral right to life and to a liveable environment. (d) Eco-feminists: Care for the natural environment: all things have a right to exist. Ethical Positions: Anthropocentrism: Human centred morality. Only humans have intrinsic value and moral standing. The rest of the natural world has instrumental value (use to humans). We can best protect nature by looking out for human needs. (Ex: saving the rainforests will provide O2 and medicines for humans). Sentio-centrism: Sentient-being centred morality. All and only sentient beings (animals that feel pain) have intrinsic value and moral standing. The rest of the natural world has instrumental value. Both humans and sentient animals have rights and/or interests that must be considered. Bio-centric Individualism: Life-centred morality. All and only living beings, specifically individual organisms (not species or ecosystems) have intrinsic value and moral standing. Humans are not superior to other life forms nor privileged, and must respect the inherent worth of every organism. Humans should minimize harm and interference with nature: eat vegetarian since less land needs to be cultivated. Eco-centric Holism: ecosystem centred morality. Non-individuals (the earth as an interconnected ecosystem, species, natural processes) have moral standing or intrinsic value and are deserving of respect. Individuals must be concerned about the whole community of life/nature. Humans should strive to preserve ecological balance and stability.

Patriarchal Dualisms: Justifies domination by men over Nature and Women. Human, mind, rationality, and man are linked and superior. Nature, body, feelings, and woman are linked, and inferior. Ecofeminism: Rejects Patriarchal Dualisms. The domination of nature by men is wrong (is similar to and related to the domination of women by men). Must break the pattern of "power over" relationships; will benefit both women and the natural world. Deep Ecology: Humans are deeply connected with nature. If humans identify with nature, then taking care of the natural world will become part of taking care of one's self. Sitting Bull, 1877: Behold, my brothers, the spring has come; the earth has received the embraces of the sun and we shall soon see the results of that love! Every seed has awakened and so has all animal life. It is through this mysterious power that we too have our being and we therefore yield to our neighbours, even our animal neighbours, the same right as ourselves, to inhabit this land Bioregionalism: Lead a simple life with local production of food and other products by people that you know. Thus, increases environmental awareness and caring while decreases exploitation of the environment and people.

Chap 6: The Ethics of consumer protection

The risk translates into injury, death and high costs. Consumers must also bear the costs of deceptive sales practices, shoddy merchandise, and un-honored warranties. This chapter examines ethical issues raised by product quality and advertising Markets and Consumer Protection (1) Consumer safety is seen as a good that is most efficiently provided through the mechanism of free market whereby sellers must respond to consumer demands. If consumers want products to be safer - must be willing to pay more for safer products and shows preference for manufacturers of safe products. Producers must build more safety into their products or they risk losing customers to competitors. Market ensures that producers respond adequately to consumers desires for safety If consumers: do not place a high value on safety unwilling to pay for safety or has no preference for safer products Then it is wrong to push increased levels of safety down their throat through government regulations. Such government interference distorts markets, making them unjust, disrespectful of rights and inefficient. Only consumers can say what value they place on safety and they should be allowed to register their preferences through free choices in markets and not to be coerced by businesses or governments into paying for safety levels they may not want. The critics of this market approach respond that the benefits of free markets are obtained with certainty only when markets have the seven characteristics that define them:- a) there are numerous sellers and buyers b) everyone can freely enter and exit the market c) everyone has full and perfect information d) all goods in the market are exactly similar e) there is no external costs f) all buyers and sellers are rational utility maximizes g) the market is unregulated These characteristics are absent in consumer markets, focusing especially on characteristics (c) everyone has full and perfect information and (f). all buyers and sellers are rational utility maximizes Markets are efficient only if participants have full and perfect information about the goods they are buying. Theories of ethical duties of manufacturers Contract view places greater responsibility on the

consumer

Due care view places greater responsibility on the manufacturer

Social cost view places greater responsibility on the manufacturer

Contract View of Business Firms Duties to Consumers

The view that the relationship between a business firm and its consumers is essentially a contractual relationship and the firms moral duties to the customer are those created by this contractual relationship. Moral Duties to Consumers Under Contractual Theory (1) Complying with the terms of the sales contract and

secondary duties (Duty to comply). Disclosing the nature of the product (Duty of Disclosure). Avoiding misrepresentation and (Duty Not to

Misrepresent). Avoiding the use of duress and undue influence (Duty not

to Coerce). Moral Duties to Consumers Under Contractual Theory (2) (1) Duty To Comply The next basic moral duty that a business firm owns its customers (under contract view) is the duty to provide consumers with a product that lives up to those claims that the firms expressly made about the product which led the customers to enter the contract freely. Eg. Winthrop Laboratories - marketed a painkiller that it advertised as non-addictive. A patient using the painkiller became addicted to it and died of overdose. Court found Winthrop liable for the patients death because although it had expressly stated that the drug as non addictive Winthrop Labs. had failed to live up to its duty to comply with this express contractual claim (1) DUTY TO COMPLY The express or implied claims that a seller might make about the qualities possessed by the product range over a variety of areas are affected by a number of factors. The definition of product quality used here is : the degree to which product performances meet predetermined expectation with respect to : reliability, service life, maintainability, safety. (a) Reliability The probability that at product will function as the consumer is led to expect that it will function. (b) Service Life The period of time during which the product will function as effectively as the consumer is lead to expect it to function; Eg. wear and tear: obsolescence (technological changes) (c) Maintainability

The ease with which the product can be repaired and kept in operating condition; Eg. warranty (d) Product Safety The degree of risk associated with using a product. (2) THE DUTY OF DISCLOSURE An agreement is not binding unless both parties to the agreement knows what they are doing and freely choose to do it. The seller who intends to enter to contract with a customer has a duty to disclose exactly what the customer is buying and what the terms of the sale are. The seller has a duty to inform the buyer of any characteristics of the product that could affect the customers decision to purchase the product. Moral Duties to Consumers Under Contractual Theory (10) For Example: if the product the consumer is buying possesses a defect that poses a risk to the users health or safety, the consumer should be so informed. Sellers should also disclose a products components or ingredients, its performance characteristics, cost of operation, product ratings and any other applicable standards. (3) THE DUTY NOT TO MISREPRESENT Misrepresentation renders freedom of choice impossible Misrepresentation is coercive A person who intentionally misled, acts as the deceiver

wants the person to act and not as the person would freely have chosen to act if the person had known the truth.

Free choice is an essential ingredient of a binding contract intentionally misrepresenting the nature of a commodity is wrong.

The deception may be created by a verbal lie as when a new model is described as new or may be created by a gesture as when as unmarked used model is displayed together with several new models.

Varieties of Misrepresentation computer software or hardware manufacturer may market

a product it knows contains bugs without informing the buyers of that fact.

Manufacturer may give a product a name that the manufacturer knows will confuse with the brand name of a higher-quality competing product (Microsoft).

A producer may solicit paid testimonials from professionals who have never really used the product. Eg. Slimming products, herbal products.

(4) DUTY NOT TO COERCE People act irrationally when under the influence of fear or

emotional stress. When a seller takes advantage of a buyers fear or

emotional stress to extract consent to an agreement that the buyer would not make if the buyer was thinking rationally, the seller is using duress or undue influence to coerce.

An unscrupulous funeral director may skillfully induce guilt-ridden and grief-stricken survivors to invest in funeral services they cannot afford.

Entry into a contract requires freely given consent, therefore the seller has a duty to refrain from exploiting emotional states that induce buyers to act irrationally against their best interests.

The Due Care Theory The due care theory of the manufacturers duties to consumers The view that because manufacturers are in a more advantaged position, they have a duty to take special care to ensure that consumers interests are not harmed by the products that they offer them.

The doctrine of caveat emptor (buyer beware) is replaced with the doctrine of caveat vendor (seller beware)

The due care view hold that because consumers must depend on the greater expertise of the manufacturer, the manufacturer not only has a duty to deliver a product that lives up to the express and implied claims about it, but also has a duty to exercise due care to prevent others from being injured by the product even if the manufacturer explicitly disclaims such responsibility and the buyer agrees to the disclaimer (Exemption clause -reasonableness) Due care must enter into: the design of the product the choice of reliable materials for constructing the product manufacturing processes involved in putting the product

together the quality control used to test and monitor production warning, labels and instructions attached to the product According to due care view, the manufacturer in virtue of a greater expertise and knowledge, has a positive duty to take whatever steps to ensure that when the product leaves the plant it is safe as possible and customer has right to such assurance. Producers Responsibilities According to Due Care Theory (1) DESIGN Manufacturer should ascertain whether the design of an article conceals any danger, whether it incorporates all feasible safety

devices, whether it uses materials that are adequate for the purposes the product is intended to serve. Manufacturer must conduct research and extensive tests to

uncover any risks that will be involved in employing the article under various conditions of use.

This requires testing the product under different conditions of consumer use and selecting materials strong enough to stand up to all probable usages (Taguchi Methods)

(2) PRODUCTION Production manager should control the manufacturing

processes so as to eliminate any defective items, identify any weaknesses that become apparent during production.

Ensure that shortcuts, substitution of weaker materials or other economizing measures are not taken during manufacture that would compromise the safety of the final product.

There must be adequate quality control over materials that are to be used in the manufacture of the product and over various stages of manufacture. (SPC, IPQC, Ishikawa diagram)

(3) INFORMATION Manufacturer should fix labels, notices, or instructions on

the product that will warn the user of all dangers involved in using or misusing the item, and that will adequately guard the user against harm or injury. Eg. Poison labels on pharmaceutical products.

Instruction should be clear and simple, and warning of any hazards involved in using or misusing the product should be clear, simple and prominent.

In case of drugs, manufacturers have a duty to warn physicians of any risks or dangerous side effects that research or prolonged use have revealed (Vioxx, Celebrex, Lipobay, Phenylpropanolamine, Thalidomide)

The Social Costs View of Manufacturers Duties The view that a manufacturer should pay the costs of any injuries sustained through any defects in the product even when the manufacturer exercised all due care in the design and manufacture of the product and has taken all reasonable precautions to warn users of every foreseen danger. Manufacturer has a duty to assume the risks of even those injuries that arise out of defects in the product that no one could reasonably have foreseen or eliminated. This theory is a strong version of the doctrine caveat vendor. Let the seller take care. Strict Liability (Absolute Liability) A legal doctrine that holds that manufacturers must bear the costs of injuries resulting from product defects regardless of fault. The third theory formed the basis of the legal doctrine of strict liability

The Social Cost View (1) Manufacturer should pay the costs of all injuries caused by the defect in a product even if exercised due care (Eg. Proton : defects in the steering wheel) Argues that injuries are external costs that should be internalized. Manufacturer bear the external costs that results from these injuries as well as the internal costs of design and manufacture and all costs are internalized and added on as part of the price of the product. The Social Cost View (2) Internalizing all costs in this way, will lead to a more efficient use of societys resources: First, because the price will reflect all the costs of producing and using the artifact, market forces will ensure that the product is not over produced and resources are not wasted on it. Second, since manufactures have to pay the costs for the injuries they will be motivated to exercise greater care and reduce the number of accidents. Criticism of the Social Cost View Unfair to manufacturers since it forces them to compensate unforeseeable injuries. Assumption that adherence to the social cost view will prevent accidents is false. By relieving consumers of the responsibility of paying for their own injuries the social costs theory will encourage carelessness in consumers

Leads to successful consumer lawsuits in cases where manufacturers took all due care.