Kingfisher

School of Business and Finance

The Business
System:
z
Government,
Markets, and
International
Trade
Module 4
©DarylEjeilSinlao

Daryl Ejeil F. Sinlao

darylejeilsinlao@gmail.com
 z
Learning Objectives
▪ Explain the impact of globalization on the business
system
▪ Analyze John Locke’s theory of natural rights as it
relates to free markets
▪ Assess key arguments associated with Adam
Smith’s utilitarian view of free markets
▪ Analyze comparative advantage as a foundation for
free trade among nations
▪ Interpret Marxist views on the impact on workers
of free trade and free markets
▪ Explain the mixed economy and redefinitions of
property that affect the business system
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Business Ethics

▪ Is a specialized study of moral right

and wrong that focuses on moral
standards in business institutions,
organizations, and activities
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Corporate Social Responsibility

▪ A corporation’s responsibilities or
obligations toward society as well
as toward the environment
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Globalization
▪ The way nations have become
more connected so that goods,
services, capital, knowledge, and
cultural artifacts move across
national borders at an increasing
rate
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Globalization

▪ To a large extent driven by multinational corporations

▪ Beneficial in that it has brought great benefits to
developing countries including jobs, skills, income,
technology, a decrease in poverty, specialization
▪ Blamed for many ills including rising inequality, cultural
losses, a “race to the bottom”, introduction of
inappropriate technologies into developing countries
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Ethical Relativism
▪ A theory that there are no ethical standards
that are true absolutely
▪ An ethical standard is true depends on (is
relative to) what a particular culture or
society accepts or believes

Meritocracy vs Nepotism
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Free Trade or Government Intervention ?

▪ Economic System

- the system a society uses to provide goods and

services it needs to survive and flourish. Has two basic
economic tasks: PRODUCE and DISTRIBUTE
4 Kinds of Economic System
➢ Traditional

➢ Command

➢ Free Market
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➢ Mixed
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1. Traditional Economy

▪ Allocation of resources is based on

rituals, habits, or customs
▪ Roles are defined by family

▪ People work together for the common

good
▪ Little individual choice
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2. Command Economy

▪ Central ownership of property and

resource
▪ Centrally planned economy

▪ Lack of consumer choice

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3. Market Economy

▪ Private ownership of property and

resource
▪ Business decisions are driven by the
desire to earn a profit
▪ There is a great deal of competition

▪ Consumers have many choices

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4. Mixed Economy

▪ Individuals and businesses as decision

makers for the private sector
▪ Government as decision maker for the
public sector
▪ A greater government role than in a free
market economy
▪ Most common economic system today
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Market Theories and Market Practices

▪ John Locke’s Free Markets and Rights

▪ Adam Smith’s Free Markets and Utility

▪ David Ricardo’s Free Trade and Utility

▪ Karl Marx’s Justice: A Critique of Free

Trade and Free Markets
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John Locke’s Free Markets and
Rights
▪ Natural rights

- Right to Life

- Right to Liberty

- Right to Property

▪ Humans, in their state of nature,

are reasonable.

▪ Government’s Role: To protect

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these natural rights

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John Locke’s Free Markets and Rights

Salient Principles

❑ Every human is free from acquiring properties

as long as he/she does not harm others’
property.

❑ Property right is innate in humans; it is not

created by the government.

❑ The government just protects these rights.

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John Locke’s Free Markets and Rights

Criticisms on Locke’s principles

❑ Negative rights take precedence over positive

rights

❑ Not all humans have properties (and liberties)

❑ Can lead to more injustices and inequalities

❑ Caring relationship and demand of care

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Adam Smith’s Free Markets and Utility

▪ Utilitarian Argument

▪ Invisible Hand

▪ The only fair is Laissez-faire.

▪ Absolute Advantage – is achieved

when one producer is able to
produce a competitive product
using fewer resources, or the same
resources in less time
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▪ Specialization
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Adam Smith’s Free Markets and Utility

Salient Principles
❑ It is impossible for the government or any
human being to allocate resources with the
same efficiency as the market.
❑ If the government intervenes, they will just
commodify.
Commodification – not everything should
be turned into a marketable commodity.
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❑ Private Property System

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Adam Smith’s Free Markets and Utility

Social Darwinism (Herbert Spencer)

- survival of the fittest;
- competition is good not because
it destroys weak individuals, but because it
weeds out weak firm
- assumes that those who survive
in in business are ‘better” people than those do
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not.
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Adam Smith’s Free Markets and Utility

Criticisms on Smith’s principles

❑ Existence of monopoly companies

❑ Cost of pollutions ignored

❑ Not all humans are motivated only by a self-

interested desire for profit
❑ John Maynard Keynes’ UNEMPLOYMENT &
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Government Intervention
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David Ricardo’s Free Trade and Utility

▪ Comparative Advantage

- ability to produce
goods and services at a lower
opportunity cost than that of
trade partners

▪ Supports Globalization
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▪ Specialization
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David Ricardo’s Free Trade and Utility

Criticism on Ricardo’s principles

❑ Multinational companies can and easily move

productive capital from one country to
another.

❑ Undermine the role of technology

❑ Non-transferability of Jobs

❑ Unemployment
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Karl Marx’s Justice: A Critique of Free
Trade and Free Markets
▪ Worker exploitation brought by
CAPITALISM

▪ Capitalism – an economic system

wherein there are only two sources
of income: sale of one’s own labor
(Workers/Proletariats) and
ownership of the means of
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production
(Capitalists/Bourgeoisie)
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Karl Marx’s Justice: A Critique of Free
Trade and Free Markets

Alienation – separation or estrangement

1. From there own productive work
2. From the products of their labor
3. By denying them control
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4. From their fellow workers

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Karl Marx’s Justice: A Critique of Free
Trade and Free Markets

Commodity Fetishism -
human interactions
have been so
commercialized and
turned into commodities
that everyone and
everything has its price.
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Karl Marx’s Justice: A Critique of Free
Trade and Free Markets

Immiseration of Workers
1. Increased concentration
2. Periodic economic downturns
3. Rising unemployment
4. Declining wages
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Karl Marx’s Justice: A Critique of Free
Trade and Free Markets

Private Property Productive Property

▪ Allows private control of
▪ Should benefit
productive property is
the basis of the
everyone, and so it
alienation, inequalities, should be owned
and immiseration that by everyone.
characterize capitalist
societies.
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Karl Marx’s Justice: A Critique of Free
Trade and Free Markets

Problem Solution

Classless
society
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Karl Marx’s Justice: A Critique of Free
Trade and Free Markets
Criticisms on Marx’s principles
❑ Not provable

❑ The benefits of private property

and free markets are more
important than equality.
❑ Community instead of alienation

❑ Workers’ conditions have

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improved
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Paradigm Shift

A.Mixed Economy – retains a

market and private property
system but relies heavily on
government policies to remedy
their deficiencies
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Paradigm Shift
B. Intellectual Property – is property that consists of a
nonphysical object, such as a software program, a song, an idea,
an invention, a recipe, a digital image or sound, a genetic code,
or any form of information

Intellectual Property Rights

➢ Copyright – a legally protected exclusive right to copy,

publish, perform, record, or license a written, musical, or
artistic work

➢ Patent – an exclusive right granted by a government to make,

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use, or sell an invention for a specific period of time

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Paradigm Shift

C. Capitalism – End Game

- Francis Fukuyama’s “End of History”
with the end of communism, there will be no
more so-called progress toward a better or
more perfect economic system: the whole
world now agrees that the best system is
capitalism
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Challenge Accepted

“Trade can make

Everyone BETTER off”
~N.G. Mankiw
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 Kingfisher
School of Business and Finance

The Business
System:
z
Government,
Markets, and
International
Trade
Module 4
©DarylEjeilSinlao

Daryl Ejeil F. Sinlao

darylejeilsinlao@gmail.com