Group # 1 1Presented To: Ma’am Amna Majid
Rizvi
Dr. Keith Y.N. Ng
Ph.D., MBA, MCIM
THINKING AND MANAGING ETHICALLY
The Business System: Government,
Markets And Internatio...
Group # 1 4Presented To: Ma’am Amna Majid
Rizvi
Globalization
֎The process by which t he
economic and social syst ems
of nat ions are connect ed
t oget her so t hat goods...
Globalization
֎ Threat s
– Local business wiped out
– Worker s laid of f
– Lower envir onment al st andards
֎ I ssues
– Gl...
Economic System
֎The syst em a societ y uses
t o provide goods and
services it needs t o
survive and f lourish.
Group # 1 ...
Economic Systems
֎ The economic syst em accomplishes
t wo basic economic t ask:
– The t ask of producing goods and
service...
Economic Systems
֎ To accomplish t hese t wo t asks,
economic syst em rely on t hree
kinds of social devices:
– Tradit ion...
Economic Systems
Tradition-Based Societies
֎ Small and rely on t radit ional
communal roles and cust oms t o
carry out t h...
Economic Systems
Command Economy
֎ Based primarily on a gover nment
aut horit y (a per son or a gr oup)
making t he econom...
Economic Systems
Market Economy
֎ An economic syst em based
primarily on privat e individuals
making t he main decisions a...
Economic Systems
Mixed Economy
֎ An economic syst em consist ing
t he element s of t he t hree
economic syst ems:
– Tradit...
Free Markets
֎Market s in which individuals
are able t o volunt arily
exchange goods wit h ot hers
and t o decide what wil...
Issues Today
֎Argument s f or and against “f ree
market s” wit hin a nat ion
֎Argument s f or and against “f ree
t rade” b...
Free Markets And Rights:
John Locke
֎J ohn Locke (1632-1704), an English
polit ical philosopher developed t he
idea t hat ...
Free Markets And Rights:
John Locke
֎ The t wo nat ural r ight s t hat f r ee mar ket s
are supposed t o pr ot ect ar e:-
...
Locke’s State of Nature
֎All are f ree and equal
– each individual would be equal t o
ot hers
– f ree f rom const raint s
...
Lockean Rights
֎ The right t o lif e, libert y and propert y
֎ I ndividuals have an absolut e right t o do
what ever t hey...
Criticism of Lockean Rights
Locke’s cr it ics f ocus on f our weakness in his
argument :
1. The assumption that individual...
Criticism of Lockean Rights
Locke’s cr it ics f ocus on f our weakness in his
ar gument :
3. The conflict between Lockean ...
Group # 1 22Presented To: Ma’am Amna Majid
Rizvi
Free Markets And Utility:
Adam Smith
֎ Adam Smit h (1723-1790), t he “f at her
of modern economics” is t he originat or
of...
Free Markets And Utility:
Adam Smith
֎ Second maj or def ense of unregulat ed market s
rest s on t he ut ilit arian argume...
Free Markets And Utility:
Adam Smith
֎ I n a compet it ive market , a mult iplicit y
of privat e businesses must all compe...
Free Markets And Utility:
Adam Smith
֎ Smit h argued t hat a syst em of compet it ive market s
allocat es resources ef f i...
Free Markets And Utility:
Adam Smith
֎ Smit h argued t hat a syst em of compet it ive
market s allocat es r esources ef f ...
Free Markets And Utility:
Adam Smith
֎ According t o Adam Smit h, t he best
policy of a government t o advance
public welf...
Criticisms of Adam Smith
Smit h' s ut ilit arian argument is crit icized
f or making unrealist ic argument s:
֎ Smit h ass...
Criticisms of Adam Smith
֎ Smit h assumes t hat human beings are
solely mot ivat ed by self -int erest ed
desire f or prof...
Keynesian Criticism of Adam
Smith
֎ Most inf luent ial crit icism of Adam Smit h’s
classical assumpt ion came f rom J ohn ...
Keynesian Criticism of Adam
Smith
֎ This mismat ch bet ween aggregat e demand and
aggregat e supply will occur when househ...
Keynesian Criticism of Adam
Smith
֎ According t o Keynes
– Gover nment can inf luence t he pr opensit y t o
save via monet...
Keynesian Criticism of Adam
Smith
֎ These views became t he kernels of
Keynesian economics
– The t heory which holds t hat...
Keynesian Criticism of Adam
Smith
֎ Dur ing t he 1970s St agf lat ion (due
t o union syst em) cont radict s
Keynes’s view....
The Utility of Survival of the Fittest:
Social Darwinism
֎ The doct rines of social Darwinism
named af t er Charles Darwin...
The Utility of Survival of the Fittest:
Social Darwinism
֎ Social Darwinism - belief t hat economic
compet it ion produces...
The Utility of Survival of the Fittest:
Social Darwinism
Social Darwinist s argued t hat :
֎I f Government int erf ere wit...
The Utility of Survival of the Fittest:
Social Darwinism
֎ Crit icism:
– The survival of humanit y depend on
cooperat ive ...
Group # 1 40Presented To: Ma’am Amna Majid
Rizvi
Free Trade and Utility:
David Ricardo
֎ Count ries dif f er in t heir abilit y t o
produce goods (Adam Smit h).
֎ One coun...
Free Trade and Utility:
David Ricardo
֎ David Ricardo (1772-1823), a Brit ish
economist , said t hat even if one count ry
...
Free Trade and Utility:
David Ricardo
֎ What if one count ry has an absolut e
advant age over anot her count ry in
produci...
Free Trade and Utility:
David Ricardo
֎ Wit h 220 labors in England and 170
labors in Port ugal, and no t rade:
Group # 1 ...
Free Trade and Utility:
David Ricardo
֎ I n England:
– To produce 1 bar rel of wine, it must give u
1.2 r olls of clot h.
...
Free Trade and Utility:
David Ricardo
֎ Ricardo says t hat a nat ion should produce
t he pr oduct which it has compar at i...
Free Trade and Utility:
David Ricardo
֎ Suppose t he rat e of exchange is 1.04
rolls of clot h f or 1 barrel of wine, and
...
Free Trade and Utility:
David Ricardo
֎ Conclusion:
– Af t er specializat ion bot h count ries
have more product s t han e...
Criticisms of David Ricardo
֎ Ricardo makes a number of assumpt ions
do not hold in t he real world:
1. Assume resources u...
Criticisms of David Ricardo
֎ Ricardo makes a number of assumpt ions
t hat do not hold in t he real world:
3. Assumes t ha...
Group # 1 51Presented To: Ma’am Amna Majid
Rizvi
Marx and Justice:
Criticizing Markets and Trade
֎ Karl Marx (1818-1883) during t he
I ndust rial Revolut ion was t he hars...
Marx and Justice:
Criticizing Markets and Trade
֎ According t o Marx:
– Capit alism of f er s only t wo sour ces of income...
Marx and Justice:
Criticizing Markets and Trade
֎ The owner does not pay workers t he f ull
value of t heir labor, only wh...
Alienation
֎ In Marx’s view capitalism ‘alienates’ the
lower working classes by not allowing them
to develop their product...
Alienation
֎ According t o Marx, capit alist economies
alienat e workers in f our ways:-
1. I n capit alist societ ies, pr...
Alienation
֎ Privat e propert y and f ree market s leads
t o alienat ion, which is unj ust and in
conf lict wit h t he dem...
The Real Purpose Of
Government
֎ According t o Marx, t he act ual f unct ion
t hat government s have served is t hat
of pr...
Economic Substructure
֎ Consist s of t he mat erials and social
cont rols t hat societ y uses t o produce it s
economic go...
Economic Substructure
֎ Marx called t he social cont rols used in
producing goods (i.e. t he social cont rols
by which soc...
Economic Substructure
֎ I n modern indust rial societ y, capit alist
owners cont rol t heir f act ory laborers
because:
– ...
Social Superstructure
֎ Consist s of it s government and it s popular
ideologies.
֎ Marx claim t hat t he ruling class cre...
Social Superstructure
֎ According t o Marx:
– Societ y’s government and it s ideologies are
designed t o prot ect t he int...
Immiseration of workers
֎ I mmiserat ion of workers
– Capit alism produces t he combined
ef f ect s of increased concent r...
Replies from Proponents of the
Free Market
Def enders of f ree market count er Marx
crit icism by:
֎ Marx cr it icism wr o...
Group # 1 66Presented To: Ma’am Amna Majid
Rizvi
Mixed Economy
֎ The debat e f or/ against f ree market s,
f ree t rade and privat e propert y has been
spurred on by recen...
Mixed Economy
֎ Mixed economy
– An economy t hat r et ains a mar ket and pr ivat e
pr oper t y syst em but r elies heavily...
Mixed Economy
֎ Monopolies are regulat ed,
nat ionalized or out lawed.
֎ Sweden, Germany, Denmark,
J apan, t he Net herlan...
Property Systems and
New Technologies
֎ I nt ellect ual propert y:
֎ Propert y t hat consist s of an abst ract
and nonphys...
Property Systems and
New Technologies
֎ Locke and ut ilit arian view t hat int ellect ual
propert y should be t reat ed as...
The End of Marxism?
֎ The f all of Soviet Union
represent t he end of Marxism!
֎ The soviet union broke up and
reorganized...
Group # 1 73Presented To: Ma’am Amna Majid
Rizvi
Group # 1 74Presented To: Ma’am Amna Majid
Rizvi
Governments, Market and International Trade
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The impact of Globalization on Businesses and the issues raised due to the freezone and free market and trade system

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Governments, Market and International Trade

  1. 1. Group # 1 1Presented To: Ma’am Amna Majid Rizvi
  2. 2. Dr. Keith Y.N. Ng Ph.D., MBA, MCIM THINKING AND MANAGING ETHICALLY The Business System: Government, Markets And International Trade The Business System: Government, Markets and International Trade Business Ethics: Concepts and Cases
  3. 3. Group # 1 4Presented To: Ma’am Amna Majid Rizvi
  4. 4. Globalization ֎The process by which t he economic and social syst ems of nat ions are connect ed t oget her so t hat goods, services, capit al and knowledge move f reely Group # 1 Presented To: Ma’am Amna Majid Rizvi 5
  5. 5. Globalization ֎ Threat s – Local business wiped out – Worker s laid of f – Lower envir onment al st andards ֎ I ssues – Globalizat ion and f ree t r ade VS Government int er vent ion in economic af f air s Group # 1 6Presented To: Ma’am Amna Majid Rizvi
  6. 6. Economic System ֎The syst em a societ y uses t o provide goods and services it needs t o survive and f lourish. Group # 1 Presented To: Ma’am Amna Majid Rizvi 7
  7. 7. Economic Systems ֎ The economic syst em accomplishes t wo basic economic t ask: – The t ask of producing goods and services, which requires det ermining what will be produced, how it will be produced and who will produce it . – The t ask of dist ribut ing t hese goods and services among it s members which requires det ermining who will get what and how much each will get .Group # 1 Presented To: Ma’am Amna Majid Rizvi 8
  8. 8. Economic Systems ֎ To accomplish t hese t wo t asks, economic syst em rely on t hree kinds of social devices: – Tradit ion-based societ ies – Command economy – Market economy Group # 1 Presented To: Ma’am Amna Majid Rizvi 9
  9. 9. Economic Systems Tradition-Based Societies ֎ Small and rely on t radit ional communal roles and cust oms t o carry out t he t wo basic economic t asks. ֎ I ndividuals are mot ivat ed by t he communit y’s expression of approval or disapproval and t he communit y’s product ive resourcesGroup # 1 Presented To: Ma’am Amna Majid Rizvi 10
  10. 10. Economic Systems Command Economy ֎ Based primarily on a gover nment aut horit y (a per son or a gr oup) making t he economic decisions about what is t o be produced, who will produce it and who will get it . ֎ Pr oduct ive r esources such as land and f act or ies ar e owned or cont r olled by government and are consider ed belong t o t he public.Group # 1 Presented To: Ma’am Amna Majid Rizvi 11
  11. 11. Economic Systems Market Economy ֎ An economic syst em based primarily on privat e individuals making t he main decisions about what t hey will produce and who will get it . ֎ Product ive resources like land and f act ories are owned and managed by privat e individuals. ֎ Essent ially on Supply and Group # 1 Presented To: Ma’am Amna Majid Rizvi 12
  12. 12. Economic Systems Mixed Economy ֎ An economic syst em consist ing t he element s of t he t hree economic syst ems: – Tradit ion-based societ ies – Command economy – Market economy Group # 1 13Presented To: Ma’am Amna Majid Rizvi
  13. 13. Free Markets ֎Market s in which individuals are able t o volunt arily exchange goods wit h ot hers and t o decide what will be done wit h what he or she owns wit hout int erf erence f rom government .Group # 1 Presented To: Ma’am Amna Majid Rizvi 14
  14. 14. Issues Today ֎Argument s f or and against “f ree market s” wit hin a nat ion ֎Argument s f or and against “f ree t rade” bet ween nat ions ֎I deology is a syst em of normat ive belief s shared by members of some social group. – J ohn Locke (based on moral right s)Group # 1 15Presented To: Ma’am Amna Majid Rizvi
  15. 15. Free Markets And Rights: John Locke ֎J ohn Locke (1632-1704), an English polit ical philosopher developed t he idea t hat human beings have a “nat ural right ” t o libert y and a “nat ural right ” t o privat e propert y. ֎Locke argued t hat if t here were no government s, human beings would f ind t hemselves in a st at e of nat ure and would be f ree f rom t he law of nat ure.Group # 1 Presented To: Ma’am Amna Majid Rizvi 16
  16. 16. Free Markets And Rights: John Locke ֎ The t wo nat ural r ight s t hat f r ee mar ket s are supposed t o pr ot ect ar e:- – t he r ight t o f r eedom – t he r ight t o pr ivat e pr opert y ֎ Fr ee mar ket s pr eser ve t he r ight t o f reedom f or each individual t o volunt arily exchange goods wit h ot her s f ree f r om t he coer cive power of gover nment . ֎ Fr ee market s preserve t he r ight t o privat e pr opert y f or each individual t o decide whatGroup # 1 Presented To: Ma’am Amna Majid Rizvi 17
  17. 17. Locke’s State of Nature ֎All are f ree and equal – each individual would be equal t o ot hers – f ree f rom const raint s ֎Each person owns his body and labor, and what ever he mixes his labor int o. ֎People agree t o f orm aGroup # 1 Presented To: Ma’am Amna Majid Rizvi 18
  18. 18. Lockean Rights ֎ The right t o lif e, libert y and propert y ֎ I ndividuals have an absolut e right t o do what ever t hey want wit h t heir propert y and t he government has no right t o int erf ere wit h or conf iscat e an individual’s privat e propert y even f or t he good of societ y (Fif t h Amendment of US Const it ut ion) – e.g. Land Acquisit ion Act ֎ When a person expends labor/ ef f ort t o creat e or improve somet hing, t hat Group # 1 Presented To: Ma’am Amna Majid Rizvi 19
  19. 19. Criticism of Lockean Rights Locke’s cr it ics f ocus on f our weakness in his argument : 1. The assumption that individuals have natural rights: This assumpt ion is unproven and assumes t hat t he right s t o liber t y and pr opert y should t ake precedence over all ot her r ight s. I f humans do not have t he overr iding r ight s t o liber t y and proper t y, t hen t he f act t hat f r ee market s would pr eser ve t he r ight s does not mean a gr eat deal.Group # 1 Presented To: Ma’am Amna Majid Rizvi 20
  20. 20. Criticism of Lockean Rights Locke’s cr it ics f ocus on f our weakness in his ar gument : 3. The conflict between Lockean rights and justice: Fr ee mar ket s cr eat e unj ust inequalit ies, and people who have no pr oper t y/ who ar e unable t o wor k will not be able t o live. As a r esult , wit hout gover nment int er vent ion, t he gap bet ween r ichest and poor est will widen. Unless gover nment int er venes t o adj ust t he dist r ibut ion of pr oper t y, lar ge gr oups of cit izens will remain at a subsist ence level while ot her s gr ow ever Group # 1 Presented To: Ma’am Amna Majid Rizvi 21
  21. 21. Group # 1 22Presented To: Ma’am Amna Majid Rizvi
  22. 22. Free Markets And Utility: Adam Smith ֎ Adam Smit h (1723-1790), t he “f at her of modern economics” is t he originat or of t his ut ilit arian argument f or f ree market . ֎ Adam Smit h argued t hat when privat e individuals are lef t f ree t o seek t heir own int erest s in f ree market s, t hey will inevit ably be led t o f urt her t he public welf are by an invisible hand. ֎ Invisible Hand: According t o AdamGroup # 1 Presented To: Ma’am Amna Majid Rizvi 23
  23. 23. Free Markets And Utility: Adam Smith ֎ Second maj or def ense of unregulat ed market s rest s on t he ut ilit arian argument t hat unregulat ed market s and privat e propert y will produce great er benef it s t han any regulat ion could. ֎ I n a syst em wit h f ree market s and privat e propert y, buyers will seek t o purchase what t hey want f or t hemselves at t he lowest prices t hey can f ind: – Privat e businesses will produce and sell what consumers want ; – Sell at lowest possible prices ֎ The f ree market coupled wit h privat e propert y, ensures t hat t he economy is producing what Group # 1 Presented To: Ma’am Amna Majid Rizvi 24
  24. 24. Free Markets And Utility: Adam Smith ֎ I n a compet it ive market , a mult iplicit y of privat e businesses must all compet e wit h each ot her f or t he same buyers. ֎ To at t ract cust omers, each seller is f orced t o sell what t he consumers want and t o drop t he price as low as possible. ֎ The compet it ion produced by a mult iple of self -int erest ed privat e sellers serves t o lower prices, conserve resources, and make producers respond Group # 1 Presented To: Ma’am Amna Majid Rizvi 25
  25. 25. Free Markets And Utility: Adam Smith ֎ Smit h argued t hat a syst em of compet it ive market s allocat es resources ef f icient ly. Examples:- – Natural Price: The price t hat covers t he price of producing a commodit y including t he going rat e of prof it s in ot her market s. – When a supply of a cert ain commodit y is not enough t o meet demand, t he buyers need t o pay a higher price t han t he nat ural price. – Producers of t hat commodit y will reap prof it s higher t hen t hose available t o producers of ot her commodit ies. – The higher prof it s will induce producers of ot her product s t o swit ch t heir resources int o t he Group # 1 Presented To: Ma’am Amna Majid Rizvi 26
  26. 26. Free Markets And Utility: Adam Smith ֎ Smit h argued t hat a syst em of compet it ive market s allocat es r esources ef f icient ly. Examples:- – Supply of a commodit y is great er t han t he quant it y demanded, it s price f alls, inducing it s producers t o swit ch t heir resources int o product ion of more prof it able commodit ies. ֎ The mar ket allocat e r esour ce so as t o most ef f icient ly meet consumer demand t hereby promot ing social ut ilit y. Group # 1 Presented To: Ma’am Amna Majid Rizvi 27
  27. 27. Free Markets And Utility: Adam Smith ֎ According t o Adam Smit h, t he best policy of a government t o advance public welf are is t o do not hing – t o let each individual pursue self -int erest in ‘nat ural libert y’, so he is f ree t o buy and sell what ever he wishes. ֎ Any int ervent ions in t he market , by t he government can only int errupt t he self - regulat ing ef f ect of compet it ion and reduce it s many benef icial Group # 1 Presented To: Ma’am Amna Majid Rizvi 28
  28. 28. Criticisms of Adam Smith Smit h' s ut ilit arian argument is crit icized f or making unrealist ic argument s: ֎ Smit h assumes t hat monopoly does not exist . – For ces of supply and demand will f orce pr ices down t o t heir lowest levels. ֎ Smit h assumes t hat all relevant cost s are paid by manuf act urer. – Pollut ion is an example of using social resour ces wit hout paying. Group # 1 Presented To: Ma’am Amna Majid Rizvi 29
  29. 29. Criticisms of Adam Smith ֎ Smit h assumes t hat human beings are solely mot ivat ed by self -int erest ed desire f or prof it . – Somet imes caring can lead t o a bet t er- of f sit uat ion. ֎ Some degree of economic planning is possible and desirable. – All we need t o know t o set appr opr iat e pr ices ar e repor t s on t he sizes of t he invent or ies of producers.Group # 1 Presented To: Ma’am Amna Majid Rizvi 30
  30. 30. Keynesian Criticism of Adam Smith ֎ Most inf luent ial crit icism of Adam Smit h’s classical assumpt ion came f rom J ohn Maynard Keynes (1883-1946). ֎ Smit h assumed t hat wit hout any help f rom government , t he aut omat ic play of market f orces ensure f ull employment of all economic resources including labor. ֎ Aggregate Demand: Keynes argued t hat t he t ot al demand f or goods & services is t he sum of t he demand of t hree sect ors of t he economy: household, businesses andGroup # 1 Presented To: Ma’am Amna Majid Rizvi 31
  31. 31. Keynesian Criticism of Adam Smith ֎ This mismat ch bet ween aggregat e demand and aggregat e supply will occur when household pref er t o save some of t heir income in liquid securit ies inst ead of spending it on goods and services. ֎ When aggregat e demand is less t han aggregat e supply t he result is a cont ract ion of supply. ֎ Businesses realize t hey are not selling all t heir goods and services t hey will cut back on product ion – causes cut back on employment . ֎ As product ion f alls t he incomes of household also f all but t he amount households are willing t o save f all even f ast er: – The economy reaches a st able point of equilibrium at which demand equals supply but Group # 1 Presented To: Ma’am Amna Majid Rizvi 32
  32. 32. Keynesian Criticism of Adam Smith ֎ According t o Keynes – Gover nment can inf luence t he pr opensit y t o save via monet ar y (money supply) and f iscal (t ax and gover nment spending) policies, and t her ef or e can lower t he level of unemployment . – Gover nment can pr event excess savings t hr ough it s inf luence on int er est r at es by r egulat ing t he money supply. The higher t he money supply, t he lower t he int er est r at e – Gover nment can inf luence t he household savings be r aising or lower ing t axes Group # 1 Presented To: Ma’am Amna Majid Rizvi 33
  33. 33. Keynesian Criticism of Adam Smith ֎ These views became t he kernels of Keynesian economics – The t heory which holds t hat f ree market s alone are not necessarily t he most ef f icient means f or co-ordinat ing t he use of societ y’s resources ֎ During 1970s, Keynesian remedy f or unemployment (increased government spending) had t he expect ed ef f ect of creat ing increasing inf lat ion but did notGroup # 1 Presented To: Ma’am Amna Majid Rizvi 34
  34. 34. Keynesian Criticism of Adam Smith ֎ Dur ing t he 1970s St agf lat ion (due t o union syst em) cont radict s Keynes’s view. ֎ Post- Keynesian school: Economist s who have sought t o challenge and modif y Keynesian economics believed t hat gover nment must also curb t he power of lar ge oligopolist ic gr oups.Group # 1 Presented To: Ma’am Amna Majid Rizvi 35
  35. 35. The Utility of Survival of the Fittest: Social Darwinism ֎ The doct rines of social Darwinism named af t er Charles Darwin (1809- 1882), who argued t hat t he various species of living t hings were evolving as t he result of t he act ion of an environment t hat f avored t he survival of some t hings while dest roying ot hers. Group # 1 Presented To: Ma’am Amna Majid Rizvi 36
  36. 36. The Utility of Survival of the Fittest: Social Darwinism ֎ Social Darwinism - belief t hat economic compet it ion produces human progress. ֎ Darwin claimed t hat species change gradually because only t he “f it t est ” survive t o pass t heir f avorable charact erist ics on t o t heir progeny. – I ndividuals whose aggressive business dealings enable t hem t o succeed in t he compet it ive world of business are t he ‘f it t est ’ and are t he best . – Free compet it ion enriches someGroup # 1 Presented To: Ma’am Amna Majid Rizvi 37
  37. 37. The Utility of Survival of the Fittest: Social Darwinism Social Darwinist s argued t hat : ֎I f Government int erf ere wit h t he compet it ions – t hey would unint ent ionally be impeding progress. ֎Government must not lend economic aid t o t hose who f all behind in t he compet it ion f or survival and if t hese economic misf it s survive, t hey will pass on t heir inf erior qualit ies and human race will decline ֎Economic compet it ion ensures t he ‘best ’ f irms survive and t he economic syst em will Group # 1 Presented To: Ma’am Amna Majid Rizvi 38
  38. 38. The Utility of Survival of the Fittest: Social Darwinism ֎ Crit icism: – The survival of humanit y depend on cooperat ive at t it udes and mut ual willingness of people t o help each ot her, not a rut hless disregard f or ot her human beings which might advance t he business world. – Naturalistic fallacy: The assumpt ion which implies t hatGroup # 1 Presented To: Ma’am Amna Majid Rizvi 39
  39. 39. Group # 1 40Presented To: Ma’am Amna Majid Rizvi
  40. 40. Free Trade and Utility: David Ricardo ֎ Count ries dif f er in t heir abilit y t o produce goods (Adam Smit h). ֎ One count ry can produce a good more cheaply t hen anot her and it is said t o have an ‘absolut e advant age’ in producing t hat good. ֎ These cost dif f erences may be based on dif f erences in labor cost s and skills, in climat e, in t echnology, in equipment , in land or in nat ural resources. Group # 1 Presented To: Ma’am Amna Majid Rizvi 41
  41. 41. Free Trade and Utility: David Ricardo ֎ David Ricardo (1772-1823), a Brit ish economist , said t hat even if one count ry has an absolut e advant age at producing everyt hing, it is st ill bet t er f or it t o specialize and t rade. ֎ Comparat ive advant age – A sit uat ion wher e t he oppor t unit y cost s (cost s in t er m of ot her goods given up) of making a commodit y are lower f or one count ry t han f or anot her . ֎ One count ry may be more ef f icient in Group # 1 Presented To: Ma’am Amna Majid Rizvi 42
  42. 42. Free Trade and Utility: David Ricardo ֎ What if one count ry has an absolut e advant age over anot her count ry in producing everyt hing? Group # 1 Presented To: Ma’am Amna Majid Rizvi 43 100 Barrels of Wine 100 Rolls of Clot h Cost in Man- years Cost in Man- Years Englan d 120 100 Port ug al 80 90
  43. 43. Free Trade and Utility: David Ricardo ֎ Wit h 220 labors in England and 170 labors in Port ugal, and no t rade: Group # 1 Presented To: Ma’am Amna Majid Rizvi 44 Wine Clot h England 100 100 Port ugal 100 100 Tot al Out put 200 200
  44. 44. Free Trade and Utility: David Ricardo ֎ I n England: – To produce 1 bar rel of wine, it must give u 1.2 r olls of clot h. – To pr oduce 1 r oll of clot h, it must give up 0.83 bar rels of wine. ֎ I n Por t ugal: – To pr oduce 1 bar r el of wine, it must give up 0.89 rolls of clot h. – To pr oduce 1 r oll of clot h, it must give up 1.1 barr els of wine. ֎ ConclusionGroup # 1 Presented To: Ma’am Amna Majid Rizvi 45
  45. 45. Free Trade and Utility: David Ricardo ֎ Ricardo says t hat a nat ion should produce t he pr oduct which it has compar at ive advant age in producing, and t rade it f or what t he ot her count r y has an compar at ive advant age in pr oducing. Group # 1 Presented To: Ma’am Amna Majid Rizvi 46 Wine Clot h England 0 220 rolls Port ugal 212 barrels 0 Tot al Out put 212 barrels 220 rolls
  46. 46. Free Trade and Utility: David Ricardo ֎ Suppose t he rat e of exchange is 1.04 rolls of clot h f or 1 barrel of wine, and England t rades 106 of it s rolls of clot h f or 102 of Port ugal’s barrels of wine. (Bot h will have more of bot h product s t han eit her had when t hey did not specialize or t rade). Group # 1 Presented To: Ma’am Amna Majid Rizvi 47 Wine Clot h England 102 barrels 114 rolls Port ugal 110 barrels 106 rolls Tot al Out put 212 barrels 220 rolls
  47. 47. Free Trade and Utility: David Ricardo ֎ Conclusion: – Af t er specializat ion bot h count ries have more product s t han eit her had when t hey did not specialize or t rade. ֎ Ricardo’s t heory is considered t o be most signif icant concept in int ernat ional t rade t heory t oday and is t he most signif icant economic argument s people propose in t he f avour of globalizat ion.Group # 1 Presented To: Ma’am Amna Majid Rizvi 48
  48. 48. Criticisms of David Ricardo ֎ Ricardo makes a number of assumpt ions do not hold in t he real world: 1. Assume resources used t o produce goods (e.g. labor, equipment , f act ories) do not move f rom one count ry t o anot her. –Today mult inat ional companies can easily move t heir product ive capit al f rom one count ry t o anot her. 1. Assumes t hat each count ry’sGroup # 1 Presented To: Ma’am Amna Majid Rizvi 49
  49. 49. Criticisms of David Ricardo ֎ Ricardo makes a number of assumpt ions t hat do not hold in t he real world: 3. Assumes t hat wor ker s can easily and move cost less f rom one indust ry t o anot her . – I n realit y re-t renched workers of t en cannot f ind comparable j obs and need ret raining t o st ay employable. 4. I gnores int ernat ional r ule set t er s. – I nt ernat ional t r ade inevit ably leads t o disagr eement s and conf lict s and so count r ies must agr ee t o abide by some set of r ules and r ule set t er s. Group # 1 Presented To: Ma’am Amna Majid Rizvi 50
  50. 50. Group # 1 51Presented To: Ma’am Amna Majid Rizvi
  51. 51. Marx and Justice: Criticizing Markets and Trade ֎ Karl Marx (1818-1883) during t he I ndust rial Revolut ion was t he harshest and most inf luent ial crit ic of t he inequalit ies t hat privat e propert y inst it ut ions, f ree market s, and f ree t rade are accused of creat ing. ֎ Suf f ering and misery t hat capit alism was imposing on it s workers: – Exploit at ive working hours – Pulmonary diseases – Premat ure deat hs caused by unsanit ary Group # 1 Presented To: Ma’am Amna Majid Rizvi 52
  52. 52. Marx and Justice: Criticizing Markets and Trade ֎ According t o Marx: – Capit alism of f er s only t wo sour ces of income: oSale of one’s own labor; oOwnership of t he means of product ion (buildings, machinery, land, raw mat erials) – 1s ar e f or ced t o sell t heir labor t o 2s because t hey cannot pr oduce anyt hing wit hout access t o t he means of pr oduct ion. – As a result , t he income gap bet ween 1s and 2s is widened. ֎ Workers cannot produce anyt hing wit hout access t o t he means of product ion so t hey are f orced t o sell t heir labor t o t he owner in Group # 1 Presented To: Ma’am Amna Majid Rizvi 53
  53. 53. Marx and Justice: Criticizing Markets and Trade ֎ The owner does not pay workers t he f ull value of t heir labor, only what t hey need t o subsist . ֎ The dif f erence (“surplus”) bet ween t he value of t he labor and t he subsist ence wages becomes t he source of t he owner’s prof it s. ֎ Those who own t he means of product ion becomes wealt hier and workers becomes relat ively poorer. ֎ Capit alism promot es inj ust ice andGroup # 1 Presented To: Ma’am Amna Majid Rizvi 54
  54. 54. Alienation ֎ In Marx’s view capitalism ‘alienates’ the lower working classes by not allowing them to develop their productive potential nor to satisfy their real human needs nor to form satisfying human relationship. Group # 1 Presented To: Ma’am Amna Majid Rizvi 55
  55. 55. Alienation ֎ According t o Marx, capit alist economies alienat e workers in f our ways:- 1. I n capit alist societ ies, product s t hat workers produce are t aken away by t he capit alist employer. 2. Capit alism f orces people int o work t hat t hey f ind dissat isf ying and unf ulf illing and t hat is cont rolled by someone else. 3. Capit alism alienat es people by inst illing in t hem f alse views of what t heir real human needs and desires are. 4. Capit alist societ ies alienat e human being f rom each ot her by separat ing t hem int o ant agonist ic and unequal social classes Group # 1 Presented To: Ma’am Amna Majid Rizvi 56
  56. 56. Alienation ֎ Privat e propert y and f ree market s leads t o alienat ion, which is unj ust and in conf lict wit h t he demands of caring. – So common propert y inst it ut ions should be est ablished inst ead. Product ive societ y can st ill be t he result because t he desire t o be product ive is an inst inct . Group # 1 Presented To: Ma’am Amna Majid Rizvi 57
  57. 57. The Real Purpose Of Government ֎ According t o Marx, t he act ual f unct ion t hat government s have served is t hat of prot ect ing t he int erest s of t he ruling economic class. ֎ According t o Marx, societ y can be analyzed in t erms of it s t wo main component s: – Economic Subst ruct ure – Social Superst ruct ure Group # 1 Presented To: Ma’am Amna Majid Rizvi 58
  58. 58. Economic Substructure ֎ Consist s of t he mat erials and social cont rols t hat societ y uses t o produce it s economic goods. ֎ Marx ref ers t o t he mat erials (land, labor, nat ural resources, machinery, energy, t echnology) used in product ion as t he f orces of product ion. Group # 1 Presented To: Ma’am Amna Majid Rizvi 59
  59. 59. Economic Substructure ֎ Marx called t he social cont rols used in producing goods (i.e. t he social cont rols by which societ y organizes and cont rols it s workers) t he relat ions of product ion. ֎ Two main t ypes of relat ions of product ion: – Cont rol based on ownership of t he mat erials used t o produce goods – Cont rol based on aut horit y t o commandGroup # 1 Presented To: Ma’am Amna Majid Rizvi 60
  60. 60. Economic Substructure ֎ I n modern indust rial societ y, capit alist owners cont rol t heir f act ory laborers because: – The capit alist own t he machinery on which laborers must work if t hey are t o survive. – Laborers must ent er a wage cont ract by which t hey give t he owner (or manager) t he legal aut horit y t o command. Group # 1 Presented To: Ma’am Amna Majid Rizvi 61
  61. 61. Social Superstructure ֎ Consist s of it s government and it s popular ideologies. ֎ Marx claim t hat t he ruling class creat ed by t he economic subst ruct ure inevit ably cont rols t his superst ruct ure. ֎ The members of t he ruling class will cont rol t he government and use it t o prot ect t heir posit ion and prosperit y and will popularize ideologies t hat j ust if y t heirGroup # 1 Presented To: Ma’am Amna Majid Rizvi 62
  62. 62. Social Superstructure ֎ According t o Marx: – Societ y’s government and it s ideologies are designed t o prot ect t he int erest s of it s ruling economic classes. These classes are creat ed by t he societ y’s underlying relat ions of product ion. – These relat ions of product ions, in t urn, are det ermined by t he underlying f orces of product ion. – Marx claimed all maj or hist orical changes are ult imat ely produced by t he changes in societ y’s f orces of product ion. ֎ Hist orical mat erialism: t he Marxist view ofGroup # 1 Presented To: Ma’am Amna Majid Rizvi 63
  63. 63. Immiseration of workers ֎ I mmiserat ion of workers – Capit alism produces t he combined ef f ect s of increased concent rat ion of indust rial power, cyclic crises due t o an over supply of goods, rising unemployment , and declining relat ive compensat ion. Group # 1 Presented To: Ma’am Amna Majid Rizvi 64
  64. 64. Replies from Proponents of the Free Market Def enders of f ree market count er Marx crit icism by: ֎ Marx cr it icism wr ongly assume j ust ice means eit her equalit y or dist ribut ion accor ding t o need. ֎ Re-emphasizing t hat j ust ice means dist ribut ion according t o cont r ibut ion – e.g. when mar ket s ar e f r ee and f unct ioning compet it ively, wor ker s’ will be paid accor ding t o t heir value and cont r ibut ions as t hey add t o t he out put of t he economy ֎ Even if pr ivat e ownership causes Group # 1 Presented To: Ma’am Amna Majid Rizvi 65
  65. 65. Group # 1 66Presented To: Ma’am Amna Majid Rizvi
  66. 66. Mixed Economy ֎ The debat e f or/ against f ree market s, f ree t rade and privat e propert y has been spurred on by recent world event s: – The collapse of several communist regimes such as f ormer Soviet Union; and – The emergence of st rong compet it ors in several Asian nat ions, such as China, J apan, Singapore and Taiwan. ֎ Collapse of communist regimes around t he world has shown t hat capit alism wit h it s emphasis on f ree market s is t he clear winner. Group # 1 Presented To: Ma’am Amna Majid Rizvi 67
  67. 67. Mixed Economy ֎ Mixed economy – An economy t hat r et ains a mar ket and pr ivat e pr oper t y syst em but r elies heavily on gover nment policies t o remedy t heir def iciencies. ֎ Gover nment t ransf er s (of privat e income) are used t o get r id of t he wor st aspect s of inequalit y by drawing money f r om t he wealt hy in t he f or m of income t axes and dist ribut ing it t o t he disadvant aged in t he f or m of welf are. Group # 1 Presented To: Ma’am Amna Majid Rizvi 68
  68. 68. Mixed Economy ֎ Monopolies are regulat ed, nat ionalized or out lawed. ֎ Sweden, Germany, Denmark, J apan, t he Net herlands, Belgium, Norway, Finland, Swit zerland are all mixed economies wit h high levels of government int ervent ion. Group # 1 Presented To: Ma’am Amna Majid Rizvi 69
  69. 69. Property Systems and New Technologies ֎ I nt ellect ual propert y: ֎ Propert y t hat consist s of an abst ract and nonphysical obj ect . – e.g. a program, a song, an idea, et c. ֎ Unlike physical propert y, int ellect ual propert y can be copied, used, or consumed by count less individual at t he same t ime. Group # 1 70Presented To: Ma’am Amna Majid Rizvi
  70. 70. Property Systems and New Technologies ֎ Locke and ut ilit arian view t hat int ellect ual propert y should be t reat ed as privat e propert y. – Wit hout such privat e propert y right s, int ellect ual creat ion would dry up. ֎ Marx views t hat int ellect ual propert y should be t reat ed as public propert y. – I nt ellect ual creat ivit y does not require t he f inancial incent ives. Group # 1 71Presented To: Ma’am Amna Majid Rizvi
  71. 71. The End of Marxism? ֎ The f all of Soviet Union represent t he end of Marxism! ֎ The soviet union broke up and reorganized st at es discarded t he t radit ional Marxian concept s and incorporat ed bot h socialist and capit alist element s. – The dominat ion of mixed economyGroup # 1 72Presented To: Ma’am Amna Majid Rizvi
  72. 72. Group # 1 73Presented To: Ma’am Amna Majid Rizvi
  73. 73. Group # 1 74Presented To: Ma’am Amna Majid Rizvi

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