State Capitalism Model
State Capitalism: a detriment to the economy
Our world today is witnessing dramatic political changes that are effecting the global business environment. Across the United States, Europe and much of the developed world, we can witness examples of state intervention to lessen the pain of the recent global recession to spark long-term growth. It is evident that our world is shifting from free market capitalism to state capitalism but we must ask ourselves, if this is the optimal solution for our economy. The injection of politics into free market decision-making has introduced large inefficiencies, allowing the state to make political investment decisions as opposed to economic focused reasoning. A free market capitalism model is the right …show more content…
direction, positively effecting the economy and business environment in four different areas; market freedom, competition, efficiency and ethical management.
First we must look at recent economic events and the idea of market freedom. Many believe that the reason for the economic downturn in 2008 was primarily due to a free market capitalism model in the United States of America. Many attribute the financial crisis to “greed” and “immorality” even through the real cause was driven by the absence of government regulation. In essence, many American citizens and parts of the government have exerted a “straw man fallacy”, expressing a distorted misrepresentation of the economic downturn rather than focusing on the true core issue, the deregulation of the financial markets (ref: Business Ethics, Peter Kissick – p.34). In a free market economy, companies are continuously learning to innovate and adapt, however, in any type of economic model due to the business cycle; organizations experience extreme financial struggles. This allows us to dive into the issue of market freedom in a state capitalism model. During recessionary times in a state capitalistic model, government bailouts affect future strategic outlooks and market competitiveness. Although it has been proven to be beneficial to leverage government capital at times of financial distress to minimize the risk of colossal damage, private industries will continue rely on government during similar situations. An analogy is thinking about running a business with an “unlimited number of lives”. Bailouts and financial aid are great from the perspective of the corporation, however they essentially encourage bad decision making by taking large risks without fear of the possible consequences, a view that would not be persistent a free market capitalism and in the absence of government bailouts.
Secondly we must look at how free market capitalism fosters a competitive and efficient economy. In a state capitalism model, small and big businesses do not see eye-to-eye. Government investments are traditionally made in esteemed big-business groups and large corporations. Businesses today, large or small, are viewed as vehicles to create wealth and prosperity for citizens. Negligence of small businesses that employs over half of the country’s workforce does not benefit the economy and defeats a main objective of the state capitalism model. With reference to the course pack reading, “The Ethics of Drug Patents”, we notice how government regulations of patents are encouraging pharmaceutical firms to allocate a large amount of capital on research and development, minimizing risk of sunk costs by other competitors while creating jobs for their citizens (ref: “The Ethics of Drug Patents” – Case 6, Case Pack). Similarly, in a competitive and free market capitalism, all organizations, regardless of size, will look towards ways to innovate, providing better quality and service to grow their organization. In free market capitalism, no one company is at a disadvantage due to selective government funding for large corporations. It has been proven that the companies that strive to deliver a competitive advantage hold the highest level of job growth and investments in research and development, thus being able to provide more jobs in the market (ref: International Labor Conference Report, 2008). In a state capitalism model, state involvement in an economy has traditionally led to bureaucratic waste leading to systematic inefficiencies from a profit maximization standpoint. The reasons behind the inefficiencies are due to both the expertise and motivation of state officials due to mix of political gain versus economic benefits. Based from Mr. Ian Bremmer’s book – “End of the Free Market”, through a state capitalism model, motives are not economic, but rather political, maximizing the state’s power and leadership (ref: “The End of The Free Market, Ian Bremmer – p.11). Essentially through state capitalism, investments are not optimal for the economy and will provide the greater political gain for the state. Free market capitalism mitigates this risk, allowing private investors to make economically optimal investment decisions that not only benefit them, but also the economy as a whole.
Lastly we must focus on the effects of one key stakeholder, company management. In the past we have seen how managers in particular organizations have held unethical practices that have negatively affected the economy. Through a state investment, organizations are less likely to perform unethical practices due to the even larger negative public relations risks (ref: International Labor Conference Report, 2008). However, in a free market capitalism model, these risks can still be mitigated as well. The solution is not from government investments but rather towards government regulation, combining the efforts of board of directors, government policies and NGOs to work against the development of unethical management practices. Due to recent tragic events, such as the collapse of the factory complex in Bangladesh, management understands the importance of following these ethical guidelines and the negative effects it can have on their firm’s profits if breached. With a free market capitalism model, organizations will be closer aligned to an “economic rationalist model”, recognizing the importance of embracing multiple goals, a tradeoff against a standard of enlightened self-interest (ref: Business Ethics, Peter Kissick – p.143) (ref: Addicted to profit – Stuart Sim – p.155). Ethical business practices in free market capitalism are steps towards a strategic advantage, benefiting not only for its shareholders but also other key stakeholders including employees, customers and the environment.
A free market capitalism model, with improved government regulations to mitigate serious financial and ethical risks combines the discipline of the market with intelligent state guidance.
Through a free market capitalism model, organizations will be able to compete on a level playing field against their competitors, exercise efficient practices while striving to grow as an organization. A state capitalism model is proven to be unsustainable for governments and does not execute optimal economic investments but rather, decisions based upon political gain. Free market capitalism motivates organizations to compete by producing innovative advancements through R&D and supporting the economy through job creation. By allowing the market to perform without major financial involvement from the government will produce sustainable growth, adequate income formation and encourage ethical business …show more content…
practices.
Works Cited
Bremmer, Ian.
"P.34, P.143." The End of the Free Market: Who Wins the War between States and Corporations? New York: Portfolio, 2010. N. pag. Print. [academic source]
Kissick, W. Peter. "P.34, P.143." Business Ethics: Concepts, Cases, and Canadian Perspectives. Toronto, Canada: Emond Montgomery Publications, 2012. N. pag. Print.
Sim, Stuart. "P.155 (Conclusion)." Addicted to Profit: Reclaiming Our Lives from the Free Market. Edinburgh: Edinburgh UP, 2012. N. pag. Print. [academic source]
Skipton, Chuck, and Dan Verreault. "Business Ethics and Free Markets: A Social Contracts Perspective." Paper Presented at the Academy of Economics n. Print. [academic source]
"OECD Annual Report 2012." (n.d.): n. pag. Web. 31 Jan. 2014.
"The Ethics of Drug Patents." COMM 104 - Course Package Readings. N.p., n.d. Web. 31 Jan. 2014.
"Tackling the Global Jobs Crisis." N.p., Feb. 2009. Web. 31 Jan. 2014.
Bacon, Derek. "The Rise of State Capitalism." The Economist. The Economist Newspaper, 21 Jan. 2012. Web. 31 Jan. 2014.
Wooldridge, Adrian. "State Capitalism." The Economist. The Economist Newspaper, 24 Jan. 2012. Web. 31 Jan. 2014
WORD COUNT:
1112
Our world today is witnessing dramatic political changes that are effecting the global business environment. Across the United States, Europe and much of the developed world, we can witness examples of state intervention to lessen the pain of the recent global recession to spark long-term growth. It is evident that our world is shifting from free market capitalism to state capitalism but we must ask ourselves, if this is the optimal solution for our economy. The injection of politics into free market decision-making has introduced large inefficiencies, allowing the state to make political investment decisions as opposed to economic focused reasoning. A free market capitalism model is the right …show more content…
direction, positively effecting the economy and business environment in four different areas; market freedom, competition, efficiency and ethical management.
First we must look at recent economic events and the idea of market freedom. Many believe that the reason for the economic downturn in 2008 was primarily due to a free market capitalism model in the United States of America. Many attribute the financial crisis to “greed” and “immorality” even through the real cause was driven by the absence of government regulation. In essence, many American citizens and parts of the government have exerted a “straw man fallacy”, expressing a distorted misrepresentation of the economic downturn rather than focusing on the true core issue, the deregulation of the financial markets (ref: Business Ethics, Peter Kissick – p.34). In a free market economy, companies are continuously learning to innovate and adapt, however, in any type of economic model due to the business cycle; organizations experience extreme financial struggles. This allows us to dive into the issue of market freedom in a state capitalism model. During recessionary times in a state capitalistic model, government bailouts affect future strategic outlooks and market competitiveness. Although it has been proven to be beneficial to leverage government capital at times of financial distress to minimize the risk of colossal damage, private industries will continue rely on government during similar situations. An analogy is thinking about running a business with an “unlimited number of lives”. Bailouts and financial aid are great from the perspective of the corporation, however they essentially encourage bad decision making by taking large risks without fear of the possible consequences, a view that would not be persistent a free market capitalism and in the absence of government bailouts.
Secondly we must look at how free market capitalism fosters a competitive and efficient economy. In a state capitalism model, small and big businesses do not see eye-to-eye. Government investments are traditionally made in esteemed big-business groups and large corporations. Businesses today, large or small, are viewed as vehicles to create wealth and prosperity for citizens. Negligence of small businesses that employs over half of the country’s workforce does not benefit the economy and defeats a main objective of the state capitalism model. With reference to the course pack reading, “The Ethics of Drug Patents”, we notice how government regulations of patents are encouraging pharmaceutical firms to allocate a large amount of capital on research and development, minimizing risk of sunk costs by other competitors while creating jobs for their citizens (ref: “The Ethics of Drug Patents” – Case 6, Case Pack). Similarly, in a competitive and free market capitalism, all organizations, regardless of size, will look towards ways to innovate, providing better quality and service to grow their organization. In free market capitalism, no one company is at a disadvantage due to selective government funding for large corporations. It has been proven that the companies that strive to deliver a competitive advantage hold the highest level of job growth and investments in research and development, thus being able to provide more jobs in the market (ref: International Labor Conference Report, 2008). In a state capitalism model, state involvement in an economy has traditionally led to bureaucratic waste leading to systematic inefficiencies from a profit maximization standpoint. The reasons behind the inefficiencies are due to both the expertise and motivation of state officials due to mix of political gain versus economic benefits. Based from Mr. Ian Bremmer’s book – “End of the Free Market”, through a state capitalism model, motives are not economic, but rather political, maximizing the state’s power and leadership (ref: “The End of The Free Market, Ian Bremmer – p.11). Essentially through state capitalism, investments are not optimal for the economy and will provide the greater political gain for the state. Free market capitalism mitigates this risk, allowing private investors to make economically optimal investment decisions that not only benefit them, but also the economy as a whole.
Lastly we must focus on the effects of one key stakeholder, company management. In the past we have seen how managers in particular organizations have held unethical practices that have negatively affected the economy. Through a state investment, organizations are less likely to perform unethical practices due to the even larger negative public relations risks (ref: International Labor Conference Report, 2008). However, in a free market capitalism model, these risks can still be mitigated as well. The solution is not from government investments but rather towards government regulation, combining the efforts of board of directors, government policies and NGOs to work against the development of unethical management practices. Due to recent tragic events, such as the collapse of the factory complex in Bangladesh, management understands the importance of following these ethical guidelines and the negative effects it can have on their firm’s profits if breached. With a free market capitalism model, organizations will be closer aligned to an “economic rationalist model”, recognizing the importance of embracing multiple goals, a tradeoff against a standard of enlightened self-interest (ref: Business Ethics, Peter Kissick – p.143) (ref: Addicted to profit – Stuart Sim – p.155). Ethical business practices in free market capitalism are steps towards a strategic advantage, benefiting not only for its shareholders but also other key stakeholders including employees, customers and the environment.
A free market capitalism model, with improved government regulations to mitigate serious financial and ethical risks combines the discipline of the market with intelligent state guidance.
Through a free market capitalism model, organizations will be able to compete on a level playing field against their competitors, exercise efficient practices while striving to grow as an organization. A state capitalism model is proven to be unsustainable for governments and does not execute optimal economic investments but rather, decisions based upon political gain. Free market capitalism motivates organizations to compete by producing innovative advancements through R&D and supporting the economy through job creation. By allowing the market to perform without major financial involvement from the government will produce sustainable growth, adequate income formation and encourage ethical business …show more content…
practices.
Works Cited
Bremmer, Ian.
"P.34, P.143." The End of the Free Market: Who Wins the War between States and Corporations? New York: Portfolio, 2010. N. pag. Print. [academic source]
Kissick, W. Peter. "P.34, P.143." Business Ethics: Concepts, Cases, and Canadian Perspectives. Toronto, Canada: Emond Montgomery Publications, 2012. N. pag. Print.
Sim, Stuart. "P.155 (Conclusion)." Addicted to Profit: Reclaiming Our Lives from the Free Market. Edinburgh: Edinburgh UP, 2012. N. pag. Print. [academic source]
Skipton, Chuck, and Dan Verreault. "Business Ethics and Free Markets: A Social Contracts Perspective." Paper Presented at the Academy of Economics n. Print. [academic source]
"OECD Annual Report 2012." (n.d.): n. pag. Web. 31 Jan. 2014.
"The Ethics of Drug Patents." COMM 104 - Course Package Readings. N.p., n.d. Web. 31 Jan. 2014.
"Tackling the Global Jobs Crisis." N.p., Feb. 2009. Web. 31 Jan. 2014.
Bacon, Derek. "The Rise of State Capitalism." The Economist. The Economist Newspaper, 21 Jan. 2012. Web. 31 Jan. 2014.
Wooldridge, Adrian. "State Capitalism." The Economist. The Economist Newspaper, 24 Jan. 2012. Web. 31 Jan. 2014
WORD COUNT:
1112