Group Members

Ali Asad, Usman Shahid, Javeria Rashid, Nazish Farooq,

Sana Jalal, Paras Aman

The Ethics of Marketing: Capitalist Business and the

Consumer

The Consumer, The Market&

Competition

Markets V/s Bazaars• Central institution of

Capitalist society.• Individuals are

autonomous & anonymous.

• Utility and Profit-maximizing.

• Prices are determined by supply and demand. They are the basis for resource allocation.

• Islamic/Christian mode of thought.

• Individuals are not autonomous.

• No commitment to self-interestedness.

• Social determination of value of economic processes & products. (Just price & regulation by a religious guild)

Capitalist Markets• Capitalist property is divided into specific formations,

called firms.• Capitalist law: usage of assets for profit maximization

in response to market prices.• Activities which are likely to hinder capital

accumulation in the long run, are prohibited.• Consumer is the ‘King’ in the market.

» Preferences require no justification.» No concept of Halal and Haram in Capitalist

Order.

Capitalist Markets• Markets are integrated.

» Equilibrium price is restored

• Market is an instrument for satisfying consumer preferences.

» Shouldn’t be irrelevant or injurious to capital accumulation.

• Consumers must have money to enter the market.

Important ConceptEfficient Capitalist Markets:• Where goods are produced with the highest relative

value at the lowest prices and at the lowest average socially necessary cost.

Inefficient Capitalist Markets:• Capitalist markets which fail to become “efficient”

capitalist markets.

Government Regulation• Efficient and competitive markets reduce the need for

government regulation.• Government should only ensure the security of the

capitalist property.• Interference by Government in price and output

determination is illegitimate.– Restrict the individual’s right to accumulate.

• Unrestricted markets are also defended on Utilitarian grounds.

Perfectly Competitive Markets• They generate efficient outcomes.

• Equilibrium price is fair, both for the seller and the consumer.

• They maximize utility and respect the rights of sellers and consumers to enter contracts.

• They ensure capitalist justice on the assumption that: distribution of resources among market participants, (before they exchange contracts) -is just.

• State intervention may be justified;– To create a pattern of resource distribution (welfare of least privileged segment of

society)

– To ensure that all participants have sufficient resources to voluntarily choose to enter or leave contracts.

Civil society or not?• Some philosophers such as Hegel believe that civil

society is market society, which as a whole is a good thing.

• Advocates of Ethics of Care believe that markets undermine communities.

• Others believe that cultural and political spheres of justice in a market are harmful for capitalism

— Market Imperialism.

Imperfectly Competitive Markets• As capitalism matures, perfect competition is systematically

abolished.

• Markets in the Capitalist Order are then dominated by a small number of major sellers or major buyers (Oligopoly).

• The prices are higher than the competitive prices and the quantity produced is lower.

• This violates the norms of capitalist justice as consumers have to pay a higher price than that which is necessary.

• Oligopolistic markets are forced to mimic competitive markets in balancing the search for abnormal profits with the quest for enhanced efficiency.

MANAGING REPUTATION AND RETAINING LOYALTY

Introduction• Mutual dependence between consumers &

producers• No self sufficient producing units in Pakistan• Profit is the intrinsic good for firms• Instrumental good for consumers

– Technological advances– Lower costs and prices

Customer loyalty• Long run customer loyalty is important for

long-run profitability• Costs of long run customer loyalty should be

incurred by the firm• Telling truth to the customer• According to Albert Z Carr, business has a

right to invent its own moral standards.

Continued…• Civil society is market society

• Business cannot deceive consumers

• Safeguarding consumer interests is in the enlightened self interest of corporation.

• Preferential treatment of profitable customers

• Firms practice Ethics of Care

Continued…• Business ethics traditionalists customers are

defined by an explicit contract• Voluntary entry of a customer into sales

contract with the firm• Firms and consumers have full knowledge • According to Kant

– Such contracts ensured universalibility– Treatment of persons as ends and not means

Continued…

• According to Rawls– Freedom is expanded by the recognition of

contractual rights and obligations– Contracting parties do not have any

intention to misinterpret – Possibility of deception will make members

of a society less free

Obligations of firms

• The customer is treated as he wishes to be treated and recognized as a free equal contractee.

• Firms obligations– Product safety– Reliability– Service life

Continued…

• The information should include– Defects posing a risk to customer’s health

and safety– The product’s components and ingredients– Performance characteristics of product– Operation costs– The products rating on applicable,

acceptable standards

Continued…

• Information is a highly priced good

• Information is essential for freedom of choice

• Free choice is restricted by misinformation– Deliberate lies– False implications– False associations– Firms should not take advantage

Contract theory

• The assumptions of contract theory are unrealistic

• Sellers do not make formal contracts with customers

• Manufacturers can opt out of obligations

• Firm and customer are not equal partners in sales agreements

CUSTOMER PROTECTION

Introduction• Deception and dishonoring of contracts• Consumer choices are based on probability

– Prior probabilities are ignored when even new information becomes available

– Risks to life are usually underestimated– Relevant information that is not seen as

causal is ignored– Generalizations are made on the basis of

small unrepresentative samples

Role of government• Governments have a duty to protect

customers• Strict and comparative liability• Contracting parties have become unequal as

capitalism matures• Information is not available and cannot be

assimilated by the average customer• Growth of oligopolies restricts freedom of

choice

Due care theory• Due care theory has following

considerations:– The design of the product– Selection of material and components– The manufacturing process– Quality control and production monitoring– Labeling and instruction for use

• Social responsibilities of firms have increased

Ethics of Advertising

Advertising• “Humanizing” corporations, giving

brands human and personal characteristics• Through “BRANDING”, corporations create unique and

attractive images for themselves• Advertisements seek to form emotional and intellectual

bonds between corporations and customers • “Good Corporate Citizenship”, a response to mass

protest against corporate fraud, waste, environmental depletion

What to avoid in Advertising?• Advertising must avoid “manipulation

indoctrination, propaganda, emotional pressures, irrational persuasion and temptation”

• Advertisers have been challenged on differences in interpretations of claims, use of obscene material and targeting of vulnerable groups

Why to Avoid?

Such practices undermine trust in firms and in capitalist business practices in general and are therefore against the long run profit maximization interest of the firms themselves.

Paternalism

• Paternalism is an attitude which seeks to protect consumers from goods and services regarded as harmful by others.

• Policy makers are forced to avoid paternalism since it overrules autonomy.

• Regulators of advertisements must balance general welfare and personal autonomy

Capitalist Paternalism?

Balancing Utility & Autonomy

• Advertisers are expected both to promote utility through maximizing profit/well-being and to encourage autonomous behavior or at least respect individual autonomy.

Criticism to civil society• Advertising promotes “the lower pleasures”

involved in consumption and creates “false consciousness”.

• Advertising encourages external motivation, emulating the rich, the successful, the role model not self-reflection.

Criticisms on Advertising

• Advertising increases cost, which in turn increases the prices of products paid by the consumer

• Environmentalists have pointed out that advertising increases consumption which may have unbearable long term costs

Criticisms on Advertising

• Advertising creates monopolized markets and does not promote perfect competition.

• Advertising violates the individual’s right to choose freely and determine production.

DECEPTION

How does advertising deceive?• Using paid for testimonials by

celebrities• False usage of the word

“guarantee”• Quoting misleading prices• Failing to disclose defects• Making misleading comparison with

competitive products• Simulating well known brands

Who is blamed for the deception?

• Firm, which owns the ad

• Employees who make the ad (with an intention to deceive)

• Media, which carries the ad

• Retailers who sell the advertised products

Advertisers are not to be blamed if…

• Advertiser did not intend to mislead by statement or implication

• Advertiser did not know what the ad was stating or implying was false

What then must advertising do?

• It should provide information regarding price, quality, durability, safety etc. of the product.

• It should persuade the customer rationally to buy a product, since, irrational persuasion reduces the customer’s right to choose i.e. reducing freedom.

Islamic Approaches to Capitalist Marketing Process

The Orthodox View• The Orthodox Islamic approach rejects Enlightenment

epistemology and capitalist rationality

• The process of marketing aims to enhance consumption and Islamic teachings seek to minimize and restrict consumption and also consider consumption as a basic cause of economic injustice

• Aql is regarded as “a means for obtaining knowledge of what God has commanded and of what he has forbidden and a means for winning His favor” – Imam Ghazali

• Aqaliyat is concerned with surrendering autonomy and living a life of submission to God’s will

The Orthodox View• Knowledge leads not to self-determination and autonomy but

to surrender to God’s will

• In Islamic order preferred form of consumption is charity (infaq).

• Islam condemns pleasure (shahwat) and describes pleasure as “means through which devil captures the hearts of men” –Imam Ghazali

• Rejecting pleasure and suppressing desire is the sole way to reach God –Imam Ghazali

• Devil inflames desires as it is the easiest way to distance man from God

The Orthodox View• The stomach is the source of all desires, it is the desire

for consumption which generates lust for wealth and status and promotes the vices of competitiveness (hasad) and acquisitiveness (hirs) this is the consequence of not keeping the stomach empty.

• There are six necessities: food, clothing, dwelling, household equipment, family and income

• It is said that “The quest for wealth should be abandoned when an amount sufficient for acquiring necessities for at most a year had been obtained.”

Imam Ghazali – Principles of Marketing

• The merchant enters the market to enjoin good and forbid evil

• The time spent in the market should be strictly limited and he should continue to hymn the praise of God while involved in trade

• The trader must avoid the vices of avarice and covetousness

• He should limit his desire (for profit and wealth)

• He should limit his consumption and close his shop as soon as he has earned enough to satisfy his needs

The Orthodox View• Islam lays a particular stress on the

maintenance of low prices. [job of Muhtasib]

• Traders are encouraged not to stock commodities, they should be content with low profits and not seek an increase in returns

• Thus, Islamic teaching seeks to minimize and restrict consumptions

The Revisionist View• Islamic revisionists seek a legitimization of

capitalist practice

• Revisionists claim that Islam does not deny market forces. Laws of supply and demand are considered as natural

• Islamic revisionist rejects the Islamic values of “Zuhd” and “Fuqr”

The Revisionist View• The profit motive is acceptable to a

reasonable extent –Taqi Usmani (1999 P17)

• “All human efforts whether for material, social, educational or scientific goal is spiritual in character, working hard for material well being is as spiritual as the offering of prayers” –Chapra

The Revisionist View• The Islamic state is said to have an explicit obligation

to “maximize welfare”

• “The mission of Holy Prophet includes the fostering of a good life, welfare, provision of care and alleviation of hardship, generating prosperity” –Chapra

• “The welfare role is to be played within the frame work of individual freedom Islam has incorporated within its economic system the essential elements of free enterprise, private property and the market mechanism.” –Chapra

The Revisionist View• Many Shariah compliant financial products have

evolved during the past decade.– Islamic Banking, Islamic Finance

• Islamic revisionists are in favor of multinational investment in Muslim countries and of accelerated interaction between Islamic and international financial institutions.

• They oppose state intervention in monopolistic markets

Islamic State in Market Regulation• It cannot charge

monopoly prices• It cannot levy custom

duties or impose quantitative restrictions

• It cannot establish exchange controls

• It cannot levy consumption taxes

• It cannot protect industry

• It cannot levy income tax. Corporate tax and any tax for the performance of state functions. It cannot impose death duties

• It cannot levy any indirect taxes

-Yusuf 1993

CONSUMER PROTECTION IN PAKISTAN

Consumer Rights and Relevant Legislations

• There are very few legislative acts protecting and promoting consumer interests and even those few laws are not enforced properly

• Consumer Rights Commission of Pakistan (CRCP) was established in 1988

• The CRCP established a draft “model law” in 1999 for consumer protection

THE PUNJAB CONSUMER PROTECTION ACT 2005

• Manufacturers are liable for defective products

• Product characteristics disclosure required

• Display of product prices and issue receipts

• They should formulate a refund and return policy

• Misleading sales information and attractive false advertisements are outlawed

• They are no restrictions targeting sections of the population with low literacy

• District Co-ordination officers (DCO) are appointed to hear complaints

• DCO takes complaints to consumer courts, which are established at district levels

• These consumer courts work under the provisional Consumer Protection Council (CPC)

• CPC may impose punishment on the violation of this act

• Maximum punishment is a fine of Rs. 100,000 and 2 years imprisonment

THE ISLAMABAD CONSUMER PROTECTION ACT – 1995

• In this act the public sector is excluded

• The process is slow and expensive

• Legal representation is necessary as court does not agree with the burden of evidence placed against suppliers/manufacturers

THE NWFP CONSUMER PROTECTION ACT – 1997

• This act also excludes the public sector as the Islamabad act does

• The procedure is also expensive

• The legal process is more complicated than the Islamabad act

The Wafaqi Mohtasib (Ombudsman)

Order 1983

• Claims may be bought against defective services by the federal government

• The mohtasib is not under legal obligation to impose penalty on the opposing government agency on causing harm to him.

Transmission and Distribution of Electric Power 1997

• Consumers of electric power could file a complaint against the generating and distributing

• But there is no provision under this act for loss caused by failure of electrical services

Pakistan Telecommunication (Reorganization) Act 1996

• Consumer interests are mentioned in this act

• But the definition of user is ambiguous

• Telecommunication power providers are not responsible to provide compensation to aggrieved customers

Natural Gas Regulatory Authority Act 2000

• Licensed providers of gas may interrupt services to individual retail consumers without notice

• There is no formal complaint procedure specified in this act

• There are no provisions of compensation or damages to retail customers in case of any harm

West Pakistan Pure Food Ordinance 1963

• There is a variation in penalties imposed for violation of this act in every province

• Violators in Sindh and NWFP enjoy lenient treatment. There is no compensation for consumers injured or harmed through violation of this act

• On the other hand, in the other provinces, penalties are very light.

Drugs Act 1940

• Manufacturing, sale and storage of misbranded drugs and drugs not displaying ingredients in an easily understandable manner are considered offensive acts

• Non licensed sale is prohibited

• No compensation for injured customers