Business Ethics: Concepts & Cases: Chapter 3
The Business System

Introduction

• Globalization (Marx & Engels 1848): http://www.marxists.org/archive/marx/works/1848/communist-manifesto/ch01.htm
  • The need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe. It must nestle everywhere, settle everywhere, establish connexions everywhere.
  • The bourgeoisie has through its exploitation of the world market given a cosmopolitan character to production and consumption in every country. To the great chagrin of Reactionists, it has drawn from under the feet of industry the national ground on which it stood. All old-established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries, whose introduction becomes a life and death question for all civilised nations, by industries that no longer work up indigenous raw material, but raw material drawn from the remotest zones; industries whose products are consumed, not only at home, but in every quarter of the globe. In place of the old wants, satisfied by the production of the country, we find new wants, requiring for their satisfaction the products of distant lands and climes. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations. And as in material, so also in intellectual production. The intellectual creations of individual nations become common property. National one-sidedness and narrow-mindedness become more and more impossible, and from the numerous national and local literatures, there arises a world literature.
  • The bourgeoisie, by the rapid improvement of all instruments of production, by the immensely facilitated means of communication, draws all, even the most barbarian, nations into civilisation. The cheap prices of commodities are the heavy artillery with which it batters down all Chinese walls, with which it forces the barbarians’ intensely obstinate hatred of foreigners to capitulate. It compels all nations, on pain of extinction, to adopt the bourgeois mode of production; it compels them to introduce what it calls civilisation into their midst, i.e., to become bourgeois themselves. In one word, it creates a world after its own image.
• Controversy: Free Markets v. Government Regulation
• Regulators argue unregulated markets are defective with regard to
• problems of recession, depression, & inflation
• ensuring open and fair trade and competition
• protecting the environment
• providing equal opportunities to the disadvantaged
• helping the poor
• providing just compensation & safe working conditions to workers
• fostering long-range basic research and innovation
• Laissez-faire advocates: antiregulators argue that regulation is bad because it
• violates rights
• restricts freedom
• leads to inefficient allocation of resources

Economic Systems

• Definitions
  • economic system: the system a society uses to provide goods and services
• tradition-based societies: societies that rely on traditional communal roles and customs to carry out basic economic tasks
• command economy: an economic system based primarily on government authorities 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 [and corporations] 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 the government.
• ideology: a system or normative (or evaluative) beliefs shared by members of a social group concerning human nature and motivation, the purpose of social institutions, how societies actually function, the values societies should try to protect
  • A business ideology is such a system of normative beliefs shared by members of a business group such as managers.
  • A person's ideology is the system of normative beliefs they believe to be shared -- or think ought to be shared -- by the group
• Every economic system today is "mixed": mixed economies contain both command & free-market elements in addition to tradition-based elements present in every economy.
• Command System (idealized)
• A single authority (a person or committee) decides
• what will be produced
• who will produce it
• how the product will be distributed
• Decisions are communicated to those responsible for carrying it out
• as enforceable commands
• Production and transfers take place in accordance with those commands
• Nearest Examples
• integrated corporations
• U.S. & British economies during World War II
• Soviet Economy: particularly between 1928 & 1953.
• Free Market System (idealized)
• Overview
• Individuals and privately owned & controlled corporations make their own decisions about what to produce and how.
• Each firm exchanges its goods with other firms and consumers at the most advantageous prices it can get.
• Price levels serve to coordinate production by
• encouraging investment in profitable enterprises
• auto tires circa 1910
• microchips circa 1990
• discouraging investment in unprofitable ones
• buggy whips circa 1910
• typewriter ribbons circa 1990
• Two main components
• system of private property embodied property laws
• assigning to individuals the rights to make decisions about the goods or property they own
• reassigning these rights when individuals exchange property or goods
• a market system enabling individuals & corporations to freely contract to exchange goods or property: e.g., the system of monetary exchange
• Pure market system
• no restraints on rights of ownership & exchange whatsoever
• unsavory consequences
• people could be owned: slavery & indentured servitude would be legal
• prostitution & all drugs, including hard drugs, would be legal
• Constraints typical of all real economic systems: impositions due to government concern for the public welfare
• things that may be owned: e.g., slaves
• things that may not be be sold: e.g., organs for transplantation, heroin
• illegal exchanges: e.g., child labor
• imposed exchanges: e.g., taxation
• Debate over whether governments should intervene -- & to what extent -- in the workings of the market system
• Pro free-market arguments
• John Locke: a free market best insures & protects individual rights & freedom.
• Adam Smith: free markets are the best way to provide utilitarian benefits to society
• Anti free-market arguments
• Karl Marx: capitalist systems promote injustice.
• "Liberals": capitalist systems fail in various ways to promote the general welfare & needs to be supplemented by governmental (hence command-based) programs.

3.1 Free Markets and Rights: John Locke

• Overview: Locke's Case for Free Markets
• Humans have certain "natural rights" including
• the right to freedom
• the right to private property
• A free market system best serves to protect and guarantee those rights
• to freedom: insofar as they allow individuals to freely exchange goods with others without government interference
• to property: insofar as each individual is allowed to dispose of what they own however they see fit, without government interference
• Therefore a free market system is, morally, the best kind of system (i.e., better than command systems)
• John Locke (1632-1704)
• Imagine a state of nature with no government, no legal rights
• In such a state human beings, we can see, would still have certain natural rights --- things which individuals in such a state would naturally take themselves to be entitled to
• life
• liberty
• property
• But in such a state of nature, these rights would be extremely insecure
• without the restraints of law (in the natural state) there's no protection of these rights: in pursuing their lives, exercising their liberty, and acquiring and defending property individuals are apt to interfere with the life, liberty, and property of others.
• therefore "governments are instituted among men"
• by the consent of the governed
• in order to secure these natural rights
• limits on government flowing from the consensual nature of the compact or covenant
• cannot interfere with the life, liberty, or property of the individual
• except to prevent their infringing on the life, liberty, or property of another.
• Application in defense of free markets
• government interference in the marketplace infringes on peoples life, liberty, and especially their property
• therefore, government interference in the marketplace is wrongful violation of natural human rights
• and should not be tolerated.

Criticisms of Lockean Defense of Free Markets

1. Locke's assertion of natural rights is unjustifiable: it's just an unproven assertion that people have rights to life, liberty and property that take precedence over all else
• "reason . . . teaches all . . . who will but consult it" that these rights exist, Locke says
• "We hold these truths to be self evident" says the Declaration of Independence
• We're supposed to intuitively see this "self-evident" truth: but many rational human beings do not have these intuitions
2. Locke's assertion of the priority of negative (life, liberty, and property) rights over positive (happiness & welfare) rights is also just an unproven assertion
• even if humans do have natural (life, liberty, and property rights)
• does not follow that these negative rights override positive rights to, e.g.,
• to food
• housing
• medical care
• clean air
3. Lockean (life, liberty, and property) rights conflict with -- and may sometimes be overridden by -- demands of distributive justice
• free market economies by their very natures create distributive injustices
• the rich get comparatively richer due to their
• access to educational opportunities
• business opportunities
• interest on their investments: sort of like being paid a stipend for having money
• the poor -- lacking all of the above -- grow comparatively poorer
• case in point: the U.S.A. circa 2001
• 32.9 million living in poverty:
• 11.7% of the population
•  33 million suffer from hunger
• 83 million people under age 65 had no health insurance
• 2.3 to 3.5 million homeless
• top 1% of the population
• held nearly half of all personal wealth
• owned more than a third of the nation's net worth
• and the gap has been steadily widening as show by the Table on p. 133-5
  • Figure 3.1 shows increasing inequality as measured by the Gini index increasing steadily since 1968
  • Figure 3.2 shows increasing family inequality between
  • Figure 3.3 shows the steady decrease of the share of total U.S. income earned by the poorer 80% of households
4. Individualistic assumptions are false and in conflict with the demands of caring

• Locke's individualistic assumptions
• life, liberty, and property rights flow from an individual's personal nature, independently of their relations to the community
• because these rights exist prior to and independently of the community, the community is not entitled to interfere with these rights except pursuant to its mutual protective function
• implied in the original covenant
• voluntarily entered into
• On the contrary: humans are by nature social animals
• not atomistic individuals with rights prior to and independent of their membership in communities
• persons naturally belong to communities which
• make those (life, liberty, and property) rights possible
• make the person who and what they are
• persons, consequently, are morally obliged
• to sustain communal relations
• to care for others as others have cared for them
• Conclusion:
• the community can legitimately restrict the liberty and make claims on the property and even the lives of its members
• because the community and the care it provides are the ultimate source of individuals' liberty, property, and lives.

3.2  The Utility of Free Markets: Adam Smith

• Smith's Thesis: economic utility is maximized by the private property and free market system
•  Defense: this system
• ensures that the the economy produces what consumers want since producers produce to meet consumer demand
• produce it at the lowest possible prices since buyers cause sellers to bid the prices down
• and with the greatest efficiency since competition drives out the inefficient
• Conclusion
• The economic utility of society is well served by free markets
• where agents are motivated only by self interest.
• Thus, private businesses are led to serve society "as if by an invisible hand"
• Corollaries
• interventions into the market by government are undesirable
• interrupt the self regulating effect of competition thus reducing its many beneficial consequences.
• Human planners cannot allocate resources as efficiently as the "invisible hand" of the market
• can never have enough information · or calculate what to do fast enough
• The market allocates resources efficiently
• demand high supply low
• consumers bid prices up causing
• increased profits leading to
• increased production
• causing supply to increase to meet demand
• supply high demand low
• sellers bid each other down causing
• decreased profits leading to
• decreased production
• causing supply to decrease to the level of demand
•  tending toward a natural equilibrium
• where supply = demand: consumers get what they want
• and goods find their "natural price" =
• cost of production +
• going rate of profit available in other markets

Criticisms of Adam Smith

• The argument rests on false and unrealistic assumptions about competition
1. unrealistically assumes there are many producers freely competing to provide various products to consumers
• but monopolies develop
• without competition, they are immune to the market forces
• they are able to set prices artificially high: Microsoft Access, e.g.
• and are apt to be unresponsive to consumers
• "We don't have to care, we're the phone company"
• Microsoft's move to integrate Explorer into Windows
• against fundamental principle of sound software design: strive for modularity
• for reasons having to do with their "marketing" strategy against Netscape
2. falsely assumes firms pay for all the resources they use in production & consequently: to keep down costs they conserve resources
• this overlooks resources for which producers use but do not pay for
• the market then doesn't encourage conservation
• rather it leads to careless exploitation of resources like these
• left unchecked, freely competing businesses would use up clear air & water by polluting
• More general point: external effects that businesses have on surrounding natural and social environments is ignored in Smith's cost-benefit analysis
• psychological effects of mechanization on workers
• health effects of products & production
• depletion of natural resources
3. falsely assumes profit is the only human motivation: that each "intends only his own gain" by following the rule of "economic rationality"
• construes people & corporations just as consumers & producers
• as purely rational
• with economy -- buy low & sell high -- as their only motive
• but people & corporations are not purely rational purely economic agents
• actuated by other motives besides economic ones
• people don't just seek their own gain
• there's kindness, & generosity in us
• and goods you can't buy
• friendship
• love
• creativity
• tradition & religion
• and they don't always act according to economic rationality
• tend to show brand loyalty
• tend to buy local
• sometimes weigh things money can't buy above profit
• socialist criticism: assuming that people are "self seeking" and merely consumers becomes self fulfilling
• the requisite selfishness is inculcated by the system
• virtues of kindness & generosity & cooperation are discouraged
• vices of mercilessness & greed & ruthless competition are encouraged
• rampant materialistic-consumerism is likewise encouraged
• idea that you can buy happiness is promoted (e.g., by advertising)
• goods money can't buy get downgraded & neglected
• status depends on what you have not on who you are (on character)
• the car you drive, your income, etc. become more honored than good character
• "He who dies with the most toys wins."
• Economic Planning is possible
• Examples
• Positive: French, Dutch, and Swedish economic planning
• Negative: the Soviet Union
• Velasquez conclusion from these examples
• planning is possible: by measuring supply (in the form of inventories), demand (in the form of back orders), etc.
• but only so long as it remains one component within an economy in which exchanges are for the most part based on market forces.

The Keynesian Criticism (skim)

•  Keynes analysis: supply outruns demand
• total (aggregate) demand is the sum of the demand from three economic sectors
• households
• businesses
• government
• aggregate supply tends to outrun aggregate demand because
• households prefer to save some of their income in liquid securities (e.g., stocks & bonds)
• instead of spending it
• oversupply leads to layoffs as producers cut production
• resulting in a vicious cycle
• overproduction
• recession & depression
• until eventually supply decreases to level of demand:  less supply due to diminished production
• savings will fall faster than incomes
• folks sell off their stocks to pay the rent
• value of stocks still held will decrease due to supply & demand in a bear market
• Keynesian Remedy: Government Intervention
• Gov't can influence the propensity to save by regulating interests rates directly or indirectly via control of the money supply.
• Gov't can affect the amount of money households have available by taxation.
• Gov't spending can close the gap between aggregate supply and demand.
• by taking up the slack in demand from households and businesses
• which, alas, creates inflation
• Contra Smith: government intervention in the economy is needed to maximize social utility
• by moderating the ups and downs of the business cycle
• by pursuing spending & other fiscal policies that serve to
• enlarge effective demand
• decrease unemployment
• Post Keynesian's
• Stagflation -- inflation in conjunction with unemployment -- inexplicable on Keynesian assumptions
• unemployment means less money chasing available goods
• should result in deflation
• Post Keynesian explanation of stagflation
• it's due to nonmarket forces determining prices
• e.g., labor costs set by conventional agreements between producers and unions, not market forces of supply & demand
• prices set by oligopolies agreement or monopolistic fiat
• oligopoly: a few groups control the markets & production in the economy of some sector
• monopoly: a condition in which one group controls markets and production in some sector
• Post Keynesian solution: even larger role for government
• besides boosting aggregate consumption & demand (a la Keynes)
• curbing the power of large oligopolistic groups

The Utility of Survival of the Fittest: Social Darwinism

• Claim: non-economic benefit -- the human good in a larger sense -- results from capitalistic competition
• Classic Social Darwinism
• Supporting Argument
• Capitalism is an extension into the economic realm of the Darwinian mechanism of "survival of the fittest"
• in nature survival of the fittest results in the continuing progress and improvement of animal species
• in a capitalist society only the ablest individuals survive & prosper in the competitive world of business
• the fittest survive & prosper
• the unfit get left behind and die out
•  the government should not intervene, e.g., with health benefits for the poor
• this only interfere with the mechanism:
• "if these economic misfits survive, they will pass on their inferior qualities to their offspring"
• Upshot of capitalist competition, therefore, is improvement of the human species.
• Objections
• mean-spirited, even facistic, in its disdain for "useless mouths" (as the Nazi's called the unproductive).
• Traits that are useful in business not necessarily those that help humanity survive on the planet
• advancement in business might depend on ruthless disregard for others
• human survival might depend on cooperation and mutual helpfulness
• it can be doubted that capitalistic fitness = human fitness
• in a physical genetic sense
• in any sort of spiritual sense: Jesus scores low on the capitalistic fitness measure
• "Take all your money and give it to the poor," Jesus says.
• What kind of investment advice is that!?
• Velasquez: Naturalistic fallacy: fiscal fitness =/=> physical or moral fitness
• but the economically fittest individuals -- those who do survive and prosper in business
• not necessarily the best individuals -- those whose survival truly betters humanity
• Kinder Gentler Social Darwinism
• The selection mechanism applies to firms not individuals
• Economic competition insures that the best business firms survive
• Leading to improvement of the economic system (rather than the human species)

3.3 Free Trade and Utility: David Ricardo {skim}

• Smith: "If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage."
• Ricardo's discovery: "that both countries could benefit from specialization and trade even though one can make everything more cheaply than the other" (143)
• Point those favoring globalization take from Ricardo: Globalization is good because specialization and free trade boost  total economic output and everyone can share in this increased output.

Criticisms of Ricardo

• Against the economic utility of free trade
  • Ricardo falsely assumes that resources used to produce goods do not move
  • Ricardo ignores economies of scale.
  • Ricardo falsely assumes that workers can easily and costlessly move from one industry to another.
  • Ricardo falsely assumes an absence of international rule setters such as the WTO, World Bank, and IMF
• Economic utility <> Utility: offsetting noneconomic costs of globalization
  • stability & relative self-sufficiency of local communities undermined
  • traditional life-styles, customs, and cultures are swept aside
  • like Marx and Engels said

Marxist Criticisms

• Karl Marx ( 1818-1883)
• the harshest critic of capitalist system of private ownership & free markets
• chief theorist of Communism
• in collaboration with Friedrich Engels
• with addenda by Vladimir Ilyich Lenin
• Motivated in part by exploitative excesses of early capitalism which Marx witnessed
• forced displacement of peasants from countryside to the city caused by industrial & consequent agricultural revolutions
• exploitation of the new class of industrial workers
• long hours
• unsafe working conditions
• subsistence pay
• child labor
• Marx's diagnosis: such exploitation no passing accident but symptomatic of the underlying -- inequality creating -- dynamics of the capitalist system
• Capitalist system offers only two basic sources of income
• wages got from sale of one's labor
• profits got from ownership of the means of production: interest on capital
• Owners do not pay workers full value for their labor but only subsistence wages
• workers must like it or lump it
• owners have the leverage
• value = labor
• only part of the value added to the raw materials by the production process returned to the workers as wages
•  the rest -- what Marx called "surplus value" -- kept by the owners as profits
• Resulting economic & distributive injustice
• the rich get richer
• the poor get poorer
• the gap between rich & poor continually increases
• Indictment of Capitalism
• Capitalism promotes injustice
• undermines communal relations
• causes alienation

Alienation

• Human fulfillment (self-actualization) v. Alienation
• People are naturally social and productive
• A good life involves
  • creative & productive self expression
• satisfaction of genuine human needs
• for sustenance & shelter
• for fellowship & community
• for fulfilling labor
• Capitalism offers monotonous, oppressive unfulfilling drudgery, not creative self expressive work
• stifles satisfaction
• low wages
• breakdown of family & community
• has led, historically, to the breakdown of extended & lately, more & more, the nuclear family
• close-knit communities of yore have give way to bedroom communities of commuter/cucooners
• mind numbing, stifling work
• sows confusion -- especially about the causes of the aforesaid dissatisfaction
• promotes the idea that you can buy happiness: "He who dies with the most toys wins."
• encouraged by advertising
• also by the way that other avenues of fulfillment -- through work & community -- are closed off
• human value defined in terms of income & economic standing
• it's not who you are
• but how much you make
• Four forms of alienation
1. expropriation of the products of our labor
• surplus value created by labor of workers is pocketed by Capitalist bosses
• products are designed & used for purposes antagonistic to the worker's own interests
• Marx's day
• nightsticks for strike-breakers
• guns for the colonizers
• Today
• prison-industrial complex
• mind-numbing infotainment
2. alienation from our own productive activities: from our work
• jobs that are repetitive, uncreative, & unfulfilling
• and controlled by others: the owner & his representatives (the bosses)
3. alienation from self: reduced to worker/consumers
• pursuit of wealth preoccupies us
• leaving us little time or inclination genuinely rewarding pursuits & activities
• leisure pursuits have a desperate quality
• generally unedifying & "escapist" -- TV & sports, for example
• they merely distract us from the basic emptiness & purposelessness of our lives
4. alienation from others
• class conflict between
• bourgeois: the owners of the means of production
• proletariat: the workers (wage laborers)
• between workers in the workplace: workplace arrangements undermine community & solidarity (even effort)
• if you produce more than you fellows more will be demanded of them
• advancement is from the ranks not with the ranks: requires going over to the bosses side against your former coworkers
• more widely in society (as already mentioned)
• breakdown of extended & nuclear families already noted above
• bedroom communities of commuter/consumers/ cocoon
• class & race conflicts incited
• justified resentment against the bosses gets displaced
• onto others who are perceived, e.g., as taking our jobs
• immigrants
• beneficiaries of social benefits
• beneficiaries of hiring preferences (affirmative action)

The Real Purpose of Government

• The real purpose of government is to serve the interests of the ruling class
• to organize & run society in the way that's most beneficial to the Capitalists
• this requires controlling the workers
• by police and military force
• by control of culture:
• high: e.g., religion, art, literature, philosophy
• low: popular news and entertainment media
• "The executive of the modern state is nothing but a committee for managing the common affairs of the whole bourgeoisie." (Marx & Engels)
• Marx's analysis of Society
• Rests on a material basis: economic substructure
• Means & Forces of Production: raw materials, land, factories, machinery, etc.
• Relations of Production
• ownership relation between Capitalists & the means of production
• command relation between Capitalists & their workers
• established by the wage contract
• which the worker must accept in order to make a living
• Relations of production define the main classes in any society
• feudal society (agricultural basis)
• lords: own the land
• vassals: work the land
• capitalist society (industrial basis)
• bourgeois (capitalists): own the factories
• proletarians (workers): work in the factories
• Dialectical Materialism: the available means & forces of production determine the social relations
• development of new forces of production -- e.g., steam power & mechanization
• force development of new social relations
• the old arrangements get outgrown: e.g., feudal sharecrop & ancestral loyalty system
• replaced by new arrangement: labor hired for wages
• Ideology: social superstructure
• relations of production determine the culture produced
• culture as ideology: serving the interest of the ruling class
• most important cultural products
• the state: "a committee for managing the common affairs of the whole bourgeoisie."
• protects the property and prerogatives of the ruling class
• maintains order favorable to continuation & consolidation of ruling class control
• religion: pronounces its blessing on existing social distribution of wealth & power
• medieval church blessed the feudal order & preached the divine right of kings
• Protestantism along with the rise of capitalism:
• removed condemnation of "usury"
• preached prosperity doctrine: the good prosper: wealth proves virtue
• political philosophy: rationalizes existing forms of government
• Locke: provides a would-be rationalization of Capitalism
• held government exists to protect life, liberty & property of all
• & rules by mutual consent of all
• Marx: the truth is
• government exists to protect property & prerogatives of the ruling class
• & rules by mutual consent of the ruling class
• over the working class
• when necessary by naked exercise of force
• when possible by persuasion & thought control
• control of cultural expressions
• engineering consent under the guise of democracy
• other manifestations of culture also tailored to the purposes of the ruling class
• it's mainly the ruling class that has the leisure to create culture
• and the wealth to fund it

Immiseration of Workers

• Capitalist exploitation of the working class contains internal contradictions: the system contains the seeds of its own destruction
• Three contradictions:
1. Large firms will swallow up the small & drive them out of business
• fewer & fewer corporations & individuals come to control increasingly large share of the economic assets and markets
• "the rich get richer" & the ranks of the proletariat swell
2. The business cycle & periodic economic crises
• surplus value siphoned off by the capitalists
• causes overproduction: workers can't afford to consume all they produce
• capitalists can only consume so much caviar & so many jewel encrusted eggs
• investment in modernization & expansion also fuels consumption
• some goes into stocks & other liquid securities which do not fuel consumption
• so periodic episodes of oversupply occur
• leading to layoffs & unemployment
• taking even more purchasing power out of the hands of worker/consumers
• in a vicious cycle leading to repression & depression
• in which the surplus is gradually used up
• workers get rehired
• at less than the value of the products of their labor (of course)
• reinitiating the cycle
3. Gradual worsening of the lot of the workers
• owners seek a bigger & bigger share of the pie
• leading to labor-saving tactics
• e.g., automation & downsizing
• leading to increased unemployment & underemployment
• Marx's proposed solution: Communism
1. Collective ownership of the means of production:
• "Expropriate the expropriators" -- take their property
• by violent revolution
2. institute a centrally planned economy to replace unregulated markets
3. stages
• socialism: the dictatorship of the proletariat
• communism: the withering away of the state in a classless society

Replies

• Factual Replies
1. the predicted immiseration of the workers has not occurred
• Lenin's rejoinder: Theory of Imperialism
• immiseration gets exported to the undeveloped world
• · workers at home get bought off out of the profits from exploitation of third-world workers
2. the business cycle has proven not to be inevitable
•  can be managed in ways such as Keynes suggested: Ben Bernicke's job
• the extremes can be avoided thereby
• no depressions since 1929 -- knock on wood
3. capitalism not.the cause of breakdown of community
• other factors are responsible ("secular humanism")
• at any rate, communism causes worse breakdown by restricting peoples rights of association
• of religious association
• of economic association
• Normative replies
• Capitalist distribution is not unjust
• only appears so on egalitarian & needs-based principles of distributive justice
• on other principles the distribution arguably is just
• contribution-based distribution
• wherein invested capital counts as a (very great) contribution
• if none of these principles is provably correct
• the Marxist "solution" involves violation of (property) rights & freedom
• with no provable gain in justice
• Utilitarian benefits sufficient to outweigh distributive injustice
• the distribution of wealth under capitalism is unjust
• but the productivity & efficiency of the system produces benefits outweighing these distributive injustices
• sure the workers deserve a bigger cut: it's not fair
• but 10% of $100 is better than 50% of $10

3.4  Conclusion: The Mixed Economy, The New Property, and the End of Marxism

• Mixed Economy:
• partially free markets
• subject to some government intervention to
• insure competition: prevent monopolies
• moderate the effects of the business cycle
• prevent the most egregious kinds of exploitation of workers, e.g., unsafe conditions & child labor
• guard the environment against destructive effects of pollution, strip-mining, etc.
• soften possible injustices of distribution through redistributive mechanisms such as
• welfare benefits
• guarantees of health-care
• free universal public education
• limited property rights
• Debate today -- even in remaining nominally "communist" countries like China -- mainly about what's the best mix of
• property rights &  free markets
• governmental regulation

Property Systems and New Technologies

• Intellectual Property consists in ownership rights over abstract and nonphysical objects such as
  • software programs
  • a song
  • a recipe
  • a digital image or sound
  • a genetic code?!
• Nonexclusive nature of intellectual property: "one person's use of intellectual property does not exclude other people's simultaneous use of that property," unlike physical objects.
• Competing Ideas
  • Lockean: a software program or song I create, since it is the product of my mental labor, is my private property.
  • Utilitarian: private ownership of intellectual property provides incentives that increase intellectual productivity.
  • Marxist/socialist: intellectual property belongs to the community
    • contra Locke: intellectual labor is inherently communal: "while people may have a right to the fruit of their labor, they have a duty to reward society which made the very fruitfulness of labor possible" (Paul Steidlmeir)
    • contra Utilitarianism: private ownership of intellectual property in not needed to inspire intellectual creativity and is an impediment to the dissemination of ideas & understanding & innovation (e.g. it prevents others from developing improved versions of protected software or from taking advantage of key new drug discoveries).
• U.S. Policy: A Mixed Solution
  • Article I, Section 8, Clause 8 of the United States Constitution, known as the Copyright Clause (or the intellectual property clause) empowers the United States Congress: To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries
  • Ideas vs. Expressions
    • Ideas cannot be owned: e.g.,
      • blues in a minor key
      • stories about space travel
      • soap operas about gangsters
      • number systems: Microsoft Patents Ones Zeros (satire from The Onion)
      • graphical interface operating systems
    • Expressions of ideas can be granted a copyright making it the private property of an individual or corporation
      • St. James Infirmary Blues (thankfully this is "traditional" and in the public domain): still a particular performance of the St. James Infirmary Blues may be protected
      • Star Trek: The Next Generation
      • The Sopranos
      • binary computer code
      • Windows XP
  • Copyrights & Patents & the Public Domain:
    • Copyrights: grants that indicate that a particular expression of an idea is the private property of an individual or a company.
      • crucially imposes restrictions on the right to duplicate the expressions
      • exceptions for "fair use" to promote public discourse and criticism
      • granted for "a limited term": 95 years (currently)
        • it keeps getting extended
        • "Mickey Mouse will never go out of copyright" some predict.
      • Works of art, literature, etc. are protected by copyright
    • Patents
      • apply to machines, drugs, chemicals, or other "compositions of matter"
      • also included: software programs, nonsexually reproduced plants, genetically modified organisms, product designs
      • granted for periods of 14 or 24 years
    • Public Domain: after their terms expire the expressions become "the common property of everyone"

The End of Marxism?

• Fall of the Soviet Union
  • Sept. 24, 1990: Soviet legislature votes to switch to a free market economy
  • Summer 1991: Communist party outlawed in Russia after an attempted coup
• The giddy Capitalist interpretation voiced by Francis Fukuyama
  • the fall of Soviet-style communism marks "The End of History"
  • "there will be no more 'progress' toward a better or more perfect economic system"
  • "The whole world now agrees that the best system is capitalism." (Velasquez: 156)
• Velasquez's more sober assessment
  • the fall of Soviet-style communism only shows the bankruptcy of extreme command-based economics
  • what almost the whole world agrees on is mixed economics: combining both command & free-market elements .
  • remaining debate concerns the best mixture for combining
    • the economic-utilitarian benefits of free markets
    • the social justice & care benefits of planned economies
• The Political Compass (Online Self-Test)
  • authoritarian/communitarian: Stalinism
  • authoritarian/individualistic: Fascism
  • anarchist/communitarian: Anarcho-syndicalism (Chomsky)
  • anarchist/individualistic: Libertarianism

Case for Discussion

GlaxoSmithKline, Bristol-Myers Squibb, and AIDS in Africa (ABC News CD-ROM)

Case Outline

• HIV/AIDS: a deadly communicable disease mainly transmitted
  • by sexual contact
  • by IV drug use
  • in childbirth
• 2005 World Estimates: WHO: 2006 Report on the Global AIDS epidemic
  • 38.6 million infected:
  • 4.1 million newly infected
  • 2.8 million died
• World's poorest countries in sub-Saharan Africa hardest hit
  • 70% of those infected as of 2004 (about 28 million)
  • Average adult infection rate 8.8% across the region
• Anti-retro viral treatment
  • 4 different classes of retro-viral drugs developed (1991-1996) most importantly by GSK and B-MS
  • Standard "cocktail" treatment combining 3 different classes of these drugs developed in 1996
  • Unavailable to sub-Saharan African HIV/AIDS victims due to prohibitive costs
    • Avg. income in the region: $500/yr.
    • Avg. cost /year of drugs (circa 2001): $10,000
• Moral-Legal Dilemma for GSK & BMS
  • GSK & BMS hold 15-20 yr. patents on these drugs
  • $10,000 far above the cost of production due to
    • high drug industry profits
    • funding R&D for tomorrow's drugs from today's income
  • CHALLENGE: Given the deadliness of this disease and the extent of the epidemic, GSK & BMS should (be compelled to) sell their drugs much more cheaply to make them more affordable to poor HIV/AIDS sufferers. 
    • GSK&BMS argued they should not
      1. because prevention programs were more cost effective public health measures than drug therapy
      2. because uneducated & impoverished people would be unable to follow the complicated regimen (involving precisely timed doses of the different drugs) that the "cocktail" therapies required, which could lead to the development of drug-resistant strains of HIV
      3. R&D and testing needed to bring future drugs on the market is very expensive & the drugs would be resold & reimported to the developed world, undercutting.
    • Doctors Without Borders and other critics replied
      1. prevention isn't 100% effective and those already infected still need treatment
      2. public health workers & low-skilled paramedics effectively oversee the administration of the drugs in poor communities
      3. drug companies exaggerate the expense of R&D and make huge profits
• Laws & Developments: WTO, TRIPS, & Cipla
  • The 1997 Trade-Related aspects of Intellectual Property rights agreement requires all signatory countries to give patent holders 20 yr. exclusive rights to make and market their inventions.
  • Developing countries, including India, Brazil, & China, were given until 2006 before they had to implement the agreement
  • 2001: Cipla, an Indian drug company, begins manufacturing generic versions of GSK & BSM patented drugs to include in its own "cocktail": cost per 1 yr. supply = $350.
    • Other Indian companies followed suit
    • By 2003 another Indian company was selling a similar cocktail: cost per 1 yr. supply = $201
• Dispute & Resolution
  • GSK's CEO "branded the Indian companies as 'pirates' and asserted that what they were doing was theft, even if they broke no laws" due to the "developing nations" loophole
  • Cipla also cites the "national emergency" provision of TRIPS allowing 'compulsory licensing' and the import of unlicensed drugs from foreign countries in the event of a national emergency and the HIV/AIDS epidemic being a national emergency.
  • By 2003, pressured by "the discounted prices of the Indian companies and world opinion," GSK & BMS were offering "discounts" to poor countries bringing the price of their products down to $727 "still to high for most sub-Saharan AIDS victims and their governments" (Velasquez, p.161)
  • The AIDS epidemic continues: estimated there will be 5 million new cases in 2006
• WHO "3x5" initiative to bring anti-retro viral treatment to 3 million people by the end of 2005:
  • table: Number of people receiving anti-retro viral treatment triples in low and middle income countries: 2002-2005

Questions for Discussion

1. What would Locke, Smith, Ricardo, or Marx probably say about the events in this case?
2. Explain what view of property -- Locke's or Marx's -- lies behind the positions of the drug companies GlaxoSmithKline, Britol-Myers Squibb and of the Indian companies such as Cipla.  Which of the two groups do you think holds the correct view of property in this case?
3. Evaluate the position of Cipla or of GlaxoSmithKline in terms of utilitarianism, rights, justice, and caring? Which of these two positions do you think is right from an ethical point of view?
4. What other issues do you believe this case raises or what else to you think it shows?

Accolade versus Sega

Questions for Discussion

1. Analyze this case from the perspective of any of the theories of private property described in this chapter (Lockean, utilitarian, or Marxist).  Which of these theories do you most agree with you and which do you think is most appropriate in this case?
2. Do you agree that Accolade had "really stolen" Sega's property?  Why or why not?
3. Did Accolade go too far in trying to discover the underlying source code of Sega's programs?  Does a company have a right to reverse engineer any product it wants?
4. What other issues do you believe this case raises or what else to you think it shows?