Curtin Graduate School of Business

FACULTY OF BUSINESS AND LAW

MGMT3006 – Business Ethics

MODULE 4 –
The Key Features of Capitalism
Why

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 In this section:

• What is capitalism?

• What are the key features of capitalism?

 What is Capitalism?
• Capitalism is very familiar to all of us – most of
us live in societies that have economies that are
capitalist in at least some ways.

• Yet for many of us it might be hard to define.

• In this section we offer a definition of capitalism

and explain some of the key features of
capitalism.
 What is Capitalism?
• Capitalism is an economic system in which the means of production
(resources, factories, tools, land etc.) are privately owned and used
to make profit.
• Unlike socialism, under a capitalist economy, individuals and
companies, rather than the government, decide what goods and
services will be produced and how much they will be sold for,
subject to the market forces of supply and demand.
• Unlike older models such as feudalism, individuals legally own their
labour and are free to choose their own employment and to keep the
wages from that.

Adapted from: https://plato.stanford.edu/entries/socialism/#SociCapi

 Why does this matter?
• Capitalism is the operating system within which
many businesses operate.

• It’s the background to many of our discussions

on business ethics in this unit – the very idea
that businesses have a licence to operate to
make a profit and pursue their own interest is a
capitalist idea.
 Capitalism: key features
• Individuals and companies have private property that
they use to make profit, subject to market forces (i.e.
supply and demand).

• As consumers, we make free, rational, market based

choices in our own self-interest.
 Key features of capitalism

Companies Profit motive Competition Private

• Have the legal • Based upon a • Prevents prices property
stature of critical assumption from • Capitalism
individual that human beings escalating,
persons, and are are basically requires private
able to enjoy economic because ownership of
many of the creatures, who people have the major
rights and recognise and are the ability to means of
entitlements that motivated by their choose from production and
a person has own economic different distribution
self-interest suppliers
 Supply and Demand
• The effects of supply and demand are central
to these features.
• Advocates of capitalism argue that free
markets, subject to the law of supply and
demand, increase efficiency.
• Market signals are held, by advocates of this
view, to lead to efficient uses of resources and
goods and thus better outcomes.

These market prices are how the system can tell us that, for example, a particular
rare earth metal is highly valued by those on the other side of the world in an
industry we have not heard of and therefore tell us how much effort we should go
to in mining it.
 Capitalism on private property
• Another main commitment to the capitalist
point of view:
– That private property rights should be
extended as far as possible – in other words,
we should as far as possible increase the
number and kinds of things that can be
privately owned and controlled.

“The capitalist ideal is to

extend as far as possible
the range of things that
are privately owned.”
Gerald Gaus, ‘The idea and ideal of capitalism’ In George G.
Brenkert & Tom L. Beauchamp (eds.), The Oxford Handbook of
Business Ethics. Oxford University Press (2010)
p. 77
 • Advocates of the capitalist view argue that private ownership of things
leads to better outcomes because it ensures the best protection and
use of them. As a result, they argue that as many things as possible
should be privately owned

Also • Avoids the ‘tragedy of the commons’ (Hardin, 1968).

• “When goods remain in the common pool”, those who overuse them are
rewarded (by immediate gain) and those who refrain are not. Moreover,
the resources are quickly ruined. (Gaus, p. 77)

Image: https://www.agric.wa.gov.au/small-landholders-
western-australia/rotational-grazing-small-landholders
 Some Things to Consider
• What does it mean to say that companies
have the same legal standing as people?
In effect it means that they have the same
right to own property and have their
interests protected as you or I do.
 Some Things to Consider
• Is it correct to
believe that the
market force of
competition will
keep prices
low?
 Some Things to Consider
• What about the assumption that we are all rational decision makers
who act in our own best interest? Don’t we sometimes make very
bad decisions that are not in our self-interest?

At other times we might not

Sometimes it is hard to know
what is in our interest
(especially if businesses take
steps to hide this from us or
deceive us).
be free to only do what is
ultimately in our own best
interest.

http://consumersfederation.org.au/asic-continues-crackdown-on-
payday-lending-avoidance-models/
 Moreover …
• As we will see later, the
idea of the ‘Invisible
Hand’ is that each of us
acting in our own self-
interest will serve the
greater good.
• But this is sometimes
clearly not the case.

https://edition.cnn.com/2020/03/05/world/coronavirus-australia-toilet-paper-scli-
intl/index.html
 Next
• In the next section we will look at the most
common arguments in favour of capitalism
and some of the arguments against it.

• It turns out that the overall arguments for

and against capitalism are ethical
arguments.