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Business
Ethics MGT610
VU
LESSON
15
FREE
MARKET & PLANNED ECONOMY
FREE
TRADE THEORIES
Economic
Freedom: Idea, Performance, and
Trends
Economic
freedom is
characterized by the absence of
government coercion or constraint on
the
production
distribution, and/or consumption of
goods and services beyond the
extent necessary
for
citizens to protect and maintain
liberty itself. Thus, people
are free to work,
produce,
consume,
and invest in the ways they
choose. The Economic
Freedom Index approximates
the
extent to which a government
intervenes in the areas of
free choice, free
enterprise, and
market-driven
prices for reasons that go
beyond basic national needs.
Presently, countries
are
classified
as free,
mostly free, mostly unfree, and
repressed.
Determining
factors include: trade
policy,
the fiscal burden of the
government, the extent and
nature of government intervention
in
the
economy, monetary policy,
capital flows and investment,
banking and financial
activities,
wage
and price levels, property
rights, other government
regulation, and informal
market
activities.
Over time, more and more
countries have moved toward
greater economic freedom.
Countries
ranking highest on this
index tend to enjoy both
the highest standards of
living as
well
as the greatest degree of
political freedom
The
explanatory power of the
theories of absolute
and
comparative
advantage is limited
to the
demonstration
of how economic growth can
occur via specialization and trade.
The concept of
free
trade (a
positive-sum game) purports that
nations should neither
artificially limit
imports
nor
artificially promote exports.
The invisible
hand of the
market will determine
which
competitors
survive, as customers buy those
products that best serve
their needs. Free
trade
implies
specialization--just as individuals and
firms efficiently produce
certain products that
they
then exchange for things
they cannot produce
efficiently, nations as a whole
specialize in
the
production of certain products,
some of which will be consumed
domestically, and some of
which
may be exported; export
earnings can then in turn be
used to pay for imported
goods and
services.
This chapter examines the
ethical aspects of the
market system itself--how it
is
justified,
and what the strengths and
weaknesses of the system are
from the point of view
of
ethics.
It begins by discussing the economic
conditions in the U.S. at
the close of the 20th
century,
when proponents of industrial
policy were urging the
government to help
declining
industries
and their workers to adjust to
new economic conditions.
Others urged caution,
advising
the government to "avoid the
pitfalls of protectionism." This
dichotomy illustrates
the
difference
between two opposite ideologies, those
who believe in the "free
market" and those
who
advocate a "planned" economy.
These
two ideologies take different
positions on some very basic
issues: What is human
nature
really
like? What is the purpose of
social institutions? How
does society function? What
values
should
it try to protect?
In
general, two important
ideological camps, the
individualistic and communitarian
viewpoints,
characterize
modern societies. Individualistic
societies promote a limited
government whose
primary
purpose is to protect property, contract
rights, and open markets.
Communitarian
societies,
in contrast, define the
needs of the community first
and then define the rights
and
duties
of community membership to ensure that
those needs are met.
These
two camps face the problem
of coordinating the economic
activities of their members in
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Business
Ethics MGT610
VU
two
distinct ways. Communitarian systems
use a command system, in
which a single
authority
decides
what to produce, who will
produce it, and who will get
it. Free market systems
are
characteristic
of individualistic societies. Incorporating
ideas from thinkers like
John Locke and
Adam
Smith, they allow individual
firms to make their own decisions
about what to produce
and
how to do so.
Free
market systems have two main
components: a private property
system and a voluntary
exchange
system. Pure free market systems
would have absolutely no
constraints on what one
can
own and what one can do with
it. Since such systems would
allow things like slavery
and
prostitution,
however, there are no pure
market systems.
Free
Markets and Rights: John Locke
John
Locke (1632-1704), an English
political philosopher, is generally
credited with
developing
the idea that human beings
have a "natural right" to
liberty and a "natural right"
to
private
property. Locke argued that if
there were no governments,
human beings would
find
themselves
in a
state of nature. In this
state of nature, each man
would be the political equal
of
all
others and would be perfectly
free of any constraints
other than the law
of nature--that
is,
the
moral principles that God
gave to humanity and that each
man can discover by the use
of
his
own God-given reason. As he puts
it, in a state of nature,
all men would be
in:
"A
state of perfect freedom to
order their actions and
dispose of their possessions
and
persons
as they think fit, within
the bounds of the law of
nature, without asking
leave, or
depending
upon the will of any other
man".
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