Business, Government, and Society
...w. In 1943, Robert Wood Johnson, who created Johnson & Johnson enterprise, wrote and published the Johnson & Johnson Credo, a document outlining the corporate ethics in detail, and urged his management to apply it as part of their everyday business philosophy. The credo emphasizes that the company must be first responsible to its customers, followed by, employees, communities, and stockholders, respectively. Later, in 1980s, Tylenol, a company’s acetaminophen product, was adulterated with cyanide and used as a murder weapon. With Johnson & Johnson’s name and reputation, company managers made countless decisions that were inspired by the Credo philosophy. The company made voluntarily recalls of its product and took charges against its earnings. The decision was made to discontinue the sale of Tylenol in capsule form and introduce tablet form later. The company’s reputation was preserved and the Tylenol business was regained. (Johnson & Johnson website) In summary, since any business actions must be accepted by their society, business ethics, determined by the society, would be a part of business decision and play a major role in the BGS context. 2. Government Regulation Although free markets contribute to the effective management of scarce resources and have been at the center of social and economic development over the past two hundred years after industrial revolution, government regulation of business is still necessary. This section describes how government regulation has an important role to fix market failure. The market failure happens when the market does not function perfectly. In ideal situation, free market would contribute to the effective management of scarce resources and attribute to improvements in technology and benefit social welfare. Nevertheless, in many occasions, if the free market is left alone, and everyone pursues his or her self-interest, the society’s resources might be used ineffectively. Market failure usually involves the unethical business behaviors. There are many problems with competition in the real world that have to be dealt with in order to keep the system going. Some major types of market failure that requires government regulations are as follows: 1) Natural Monopoly & Destructive Competition – The ideal form of competition is pure competition, where the industry is not concentrated, where there are insignificant barriers to entry, and no product differentiations exist. In practice, completely unregulated markets tend toward concentration, as competition in any industry is never perfectly balanced. Eventually, one or a few firm will dominate their industries because they were better competitors or were lucky enough to be in the right place at the right time with the right product (Buchholz, R.A., and Rosenthal, S.B., p. 111). This is called natural monopoly. Without government regulations, markets may fail if the dominant firms in an industry are allowed to engage in collusive actions to maintain prices or interfere with the workings of supply and demand and the price mechanism in some fashion. For these reasons, establishment of government regulations (e.g., an antitrust law) is required. 2) Property Rights – The market system is based on the assumption that the property right, a right to use their property in their best interests to get highest profitability, overrides all other rights including human rights (Buchholz, R.A., and Rosenthal, S.B., p. 112-113). This emphasis makes the social justice be of no importance and causes problems when other groups in society begin to assert their rights, such as rights to be treated equally in the workplace with respect to hiring and promotion decisions, rights of customers to safe products, rights of workers to hazard-free workplaces, and right of employees to know when managers are considering closing of plants, to name only a few. The government regulations, i.e., employment regulation and consumer protection law, are needed to maintain the human rights in society. 3) Externalities – The term externality is often used to refer to a third party who is not involved in the exchange is unintentionally harmed. Sometimes, the third party could be the society as a whole. Without government regulations, the consenting parties to the transaction are able to damage the third party without compensating it; thus, the exchange does not appropriately reflect the true costs to society. In most environmental impact, there is no way the damage of pollution can be determined through a market process, since there is nothing to be exchanged. Market systems evolved to serve human needs and wants; they are not constructed to protect the environment (Buchholz, R.A., and Rosenthal, S.B., p. 114). In these circumstances, regulatory intervention is important to redress the balance, to ensure that costs and benefits are correctly aligned. (Wikipedia Website) 4) Inadequate Information – Free markets would operate efficiently if everyone has enough information to make informed choices. If such information is not available, the government must find justification for regulating the knowledge in question. This includes product quality, worker benefits, disclosure of financial information for investors, etc (Steiner, A.G., and Steiner, J.F., p. 289). Although government regulations were introduced mostly in response to market failure, some were introduced for social, political, and other reasons (Steiner, A.G., and Steiner, J.F., p. 289-290). The examples of the government regulations that were introduced for these reasons except market failure are below. 1) Socially Desirable Goods and Services – Socially desirable goods and services are hardly produced under free market system. The government must act to supply them. 2) Resolution of National and Global Problems – The government must take responsibility to resolve multi-national problems that are not resolvable by local government or individual businesses. Government regulations in this case would be acted to correct unfair trade practices among countries. 3) Regulation to Benefit Special Group – Groups of individuals might pressure the government to pass measures for their own benefit. This type of government regulations would protect the interests of special groups, such as producers of certain items or some high professional careers. 4) Conservation of Resources – The government regulations in this case seek to conserve and minimize the usage of national natural resources. While government regulations are necessary in certain circumstances, over regulation might create barriers to entry into a market. These barriers increase the opportunity for excess profits, to the enjoyment of the market participants, but do little to serve the interests of society as a whole. (Wikipedia Website) New government regulations would add burden and costs to related businesses and government agencies themselves. But as long as the new regulations can offset the cost and burden in significant degree by many benefits to society as a whole, they are worthwhile to be issued and regulated. (Steiner, A.G., and Steiner, J.F., p. 301, 306) In summary, Business, Government, and Society (BGS) in government regulation context are inseparable. Government issues regulations for business to repair market failure as well as response to social reasons. 3. Globalization and the WTO The term “globalization” describes the increased mobility of goods, services, labor, technology and capital throughout the world. (Canadian Government Website) Although globalization is not a new development, its pace has increased with the advent of new technologies, especially in the area of telecommunications. An advance in telecommunication makes people around the globe be more connected to each other than ever before. Information and money flow more quickly than ever. Goods and services produced in one part of the world are increasingly available in all parts of the world. International travel is more frequent Globalization does not only mean a global business, it is much more than that. The same forces that allow businesses to operate as if national borders did not exist also allow social activists, labor organizers, journalists, academics, and many others to work on a global stage (Portal, K.) Globalization has many pros. It has been the engines of world growth over the past 50 years. The tones of merchandise traded and services around the world have grown by 16 times since 1950, reflecting the lowering of tariff barriers (Globalisation Guide Website). The benefits of that growth have been shared among participating countries through quick productivity growth and technology transfer. In developed countries, globalization increases competition and import cheap merchandise to keep a lid on prices, resulting in low inflation. Simultaneously, in developing countries, per capita income has grown for millions of people and results in improvement of human rights (Steiner, A.G., and Steiner, J.F., p. 385). However, globalization has many drawbacks and attracts critics. In developed countries, millions of people have lost jobs as companies shift production abroad and employ more workers paid lower-wages in developing countries. High competition pressure would also make millions of people fear losing their jobs, especially in service and white-collar jobs. In developing countries, millions of people remain in poverty due to labor intensive jobs, and the gap between per capita incomes of developed and developing countries has widen. In addition, globalization has resulted in degrading of environment and local cultures. It could also damage the sovereignty of developing countries and induce world financial instability as evidenced in Asia and Latin America and the continuing marginalization of sub-Saharan Africa. (Steiner, A.G., and Steiner, J.F., p. 386-387 and Globalisation ...