Business Ethics-Adam Smith Perspective
Question 1 a) Perspective of Adam Smith: In An Inquiry into the Nature and Causes of the Wealth of Nations (1776) , Adam Smith stated that: “Free competition is the regulator that keeps a community activated only by self- interest from degenerating into a mob of ruthless profiteers. ” Smith believed that everyone was free to pursue their own self-interest and in doing so, their actions were socially beneficial as well- this was called “The Invisible Hand”.
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He believed that there needed to be structure within society in order for the Invisible Hand to be effective; such factors include: strong property rights, adherence by all to moral norms and prohibitions against theft and misrepresentation. Competition is also an important factor in steering individual self-interest in a socially beneficial direction. Wal-Mart is the world’s largest company and holds a large portion of the market share in countries around the globe. Adam Smith would support the following factors of the Wal-Mart case: Wal-Mart’s supremacy is a result of offering customers a wide range of products at bargain prices.
Essentially everybody wins, customers receive low prices that they cannot obtain anywhere else, and the firm continues making profits. This is due to the efficiencies that Wal-Mart has achieved due to its productivity, and the more the firm grows the lower prices for customers will be. Wal-Mart is not yet a monopoly, but rather part of a oligopolistic environment, competing against only a few other major retailers. According to Smith, competition ensures that prices of goods do not escalate however high prices are self-correcting.
Wal-Mart, being such a large retailer, contributes significantly the GDP and employment of a large proportion of the population, therefore contributing to alleviating poverty. According to http://www. dol. gov/whd/minwage/america. htm the highest minimum wage in the US is $8. 67 and the lowest is $5. 15, however the Federal minimum wage is $7. 25- this proving that Wal-Mart’s wages are not extremely low, even without health benefits which is one of the main criticisms of Wal-Mart’s employee payments. The Firm however is improving employee health care coverage, this way employees also benefit from Wal-Mart’s rapid retail ominance. According to Smith, the more labourers there are, the lower wages will become, and some labourers will become inefficient and need to seek other opportunities, therefore they benefit from gaining various experiences. In terms of property rights, Adam Smith believed that there needs to be strong property rights in terms of means of production and distribution; Wal-Mart has their own factories and distributing outlets and will run these with “self-interest” which will ultimately be in the interest of society.
Wal-Mart has also started adopting greener business practices, which will benefit the environment and essentially future generations and Wal-Mart’s own reputation. The only factor that Smith may not support would be the fact that Wal-Mart’s dominance is often too much for other much smaller retailers to compete with, and they often go out of business as a result which will limit consumers’ options. This would result in Wal-mart becoming a monopoly which could be abused by the firm which would not be in the interest of consumers.
Therefore as long as there are competitors for Wal-Mart, their rise to retail dominance has had positive effects on economic dominance, from the perspective of “the Invisible Hand. ” http://plus. maths. org/content/os/issue14/features/smith/index http://usgovinfo. about. com/od/moneymatters/a/Federal-Minimum-Wage. htm Wal-Mart’s rapid rise to retail dominance is a negative economic development according to Karl Marx. Karl Max believed that when the means of productions fall into the hands of the minority, the balance of power between capitalists and labourers tips in favour of the capitalists. BOOK) Here they are able to exploit the labourers as they have nothing to sell but their labour thus allowing the capitalists to pay them less for the value of the work created. With the control of capitalism it leads for the alienation of workers. These labourers then will revolt and thus overthrow their oppressors and set up an economic system that benefits all. In terms of the text Karl Marx will support the fact that Wal-Mart pays low wages. Karl Marx believes that when labourers get paid a low wage than what their work is worth they will then alienate which then causes Wal-Mart to make a profit nd then increase their capital. Wal-Marts labour costs are 20% lower than unionised supermarkets and their average sales clerk earns only $8. 23 an hour and their employees are expected to survive with no company health insurance. Wal-Mart then faces few expenses in terms of paying their employees and thus are able to use their capital more wisely on their products and being able to have more on offer in terms of choice variety. Karl Marx had argued that capitalism leads to an oligopoly which is a concentration of property and resources, and thus economic power.
He had also stated that high costs, expensive machinery, competition and large scale production lead to the survival of small firms. (BOOK) Marx also believes that forming a capitalistic company one can make a large profit and have Wal-Mart causing for the survival of a number of smaller industries. Karl Marx would have criticised the text in terms of Wal-Mart having buying power. Wal-Mart is also currently the world’s largest company through retailing. Wal-Mart’s growth has been exceptional and thus taken over a lot of the smaller industries due to its large growth and the huge distribution availability.
Karl Marx would have criticised this as he believes that by having an oligopoly it allows for small industries to be saved and thus have a chance to potential future growth. Wal-Mart controls about 30% of the market in household’s staples etc. Wal-Mart offers extremely low prices which then attract a large percentage of the American consumer market and thus many more American consumers are shopping more regularly at Wal-Mart, and causing the small outlets to lose their customers and then not have any items sold and in turn lose their business.
Wal-Mart also puts a large amount of pressure on its suppliers to lower their prices; the larger the store gets the more market title it claims and thus push down their prices further. By having the power to do this the small factories and industries are going to lose out as they are producing their goods on a large scale and selling them for less than what they are worth, in the long run has an effect on their functioning’s and still be able to function in the future. With Wal-Mart’s extreme growth over the years, they are exerting a downward pressure on retail wages and benefits throughout the country in America.
Wal-Mart’s hard line on costs has forced many smaller industries and shopping facilities to move overseas, which thus has an impact on Americans jobs and holds wages down. Thus according to Karl Marx in this aspect he would agree that Wal-Mart is exerting a negative impact on economic development. Due to Wal-Mart’s growth other small industries are being forced to leave which then have to fire their employees and thus has an impact on fewer being able to have a job and thus left impoverished.