How Free Should Markets Be - Literature review Example

How free should markets be? Name Professor Institution Course Date How free should markets be? The rise of free market in the 1970s led to scholars and leaders getting divided in opinion. While others supported it because they thought it was good to make own choice in production, others were skeptical and thought it lacked a human face due it unethical issues which comes with it. The argument here is between the economist who supports profit maximization and those who advocates for business ethics within the markets. In the recent past majority of the world markets have been driven by increase of trade liberalization, low tax rates and trade promotions. Australia and other countries which adopted free market policies in 1970s have had their benefits and also disadvantages. In fact, some countries believe that free markets can lead to greate inequality. Therefore, this paper will analyze how free should markets be. It will argue that the free market should be to an extent offers high quality products and have consumer gains, to the extent that it protects human rights, protect consumer from exploitation and it protect the environment. A free market is defined as the system of the market whereby the prices of products and/or services are freely set by approval between traders and customers, and the forces and laws of supply and demand cannot be interfered by a government intervention, pricing monopoly and any other institution (Yaron & Don 2012). The spirit of free market policies are that traders are allowed to make their own choices on how they will develop products that satisfy consumer needs. Similarly, they are left to set prices depending on the market forces. It should be noted that, market forces can sometimes be created by few companies which influences the market through monopoly or duopoly (Devinney 2009, p.47). According John (2012), the proponent of free market argue that in embracing such school of thought, business owners and managers will be allowed to make profit depending on their production cost and free from interference from the government. Some of the advocates that have called on their countries to adopt free market include Milton Friedman, Friedrich Hayek, Milton Friedman, George Stigler, Vernon Smith Ronald Coase, James Buchanan, Margaret Thatcher and Ronald Reagan among others. Free economy allows them to use natural resources for the betterment of the economy. Some like Milton Friedman argue that the sole responsibility of the business should be to make profits (Yaron & Don 2012). This is because it will enable free hand in running their business and allows them to take risks and even re-invest after getting profits. In that way, they can create jobs and improve the economy. He thinks that the managers have the right to increase the profit at the confines of the law (Friedma, 1970, p.2). In his piece titled 'The social responsibility of business is to increase its profits', he say that, “There is only one social responsibility of business, which is to employ its resources and take part in activities created to enhance its profits provided that it remains within the rules of the game, that is, to engage in clear and free competition with no fraud or deceptio" (Friedma, 1970, p.2). Lenkowsky (2006) claims that the view of Milton Friedman is inclined towards supporting the action of directors and managers who believe that their role in an organization is to serve in the shareholders’ best interest who are actually the business owners. In this article, Friedman referred businessmen who supported the concept of regulated market as 'unwitting puppets of the rational forces that have been destabilizing the foundation of a free society' and blamed them of 'preaching pure and unadulterated socialism' (Friedman 1970, p.3). His claim is basically that managers of the organization are the workers of the shareholders and, per se, have a 'fiduciary duty to increase the profits. He argues that offering money to social causes or charity (apart from as public relations intended to increase business) and being engaged in community projects that do not maximize the corporation's profit is similar to robbing from the shareholders (Friedman 1970, p.3). Recently in an article published by Margolis, Elfenbein & Walsh (2007), Milton Freidman was quoted saying that “the corporate spending on social actions is a contravention of the responsibility of management to the shareholders”. Freeman (1984) posits the statement was made completely based on capitalist perspective, where such a universal society will certainly result to the damaging of the natural environment within which the company operates. Due to such argument, many companies can be accused of practices to accumulate profits. Some of the companies include BHP-Billiton, General Electric, Wiliams Energy, Dow Chemical, Northrop Grumman, U.S. Steel and ConAgra Foods among others. U.S. Steel Company is currently fighting endeavors to control pollution in many states in the US comprising of Indiana, Illinois and Ohio in which the environment agencies have recommended for closure of companies which does not conserve the environment (Fisman, Heal & Nair 2007). They contend that permitting U.S. Steel Company to carry on with releasing toxic substances such as mercury in Great Lakes results in great harm on the environment. Supporters of free market also argue that it’s a blessing to consumers in that more products are brought into the market, which enable them have a wide variety to choose from and get the high quality (Banks 2003, p.4). Most people agree with this point because if few people are allowed to provide goods and services, they create monopoly or duopoly and charge consumer at exorbitant prices. Banks (2003, p.46) stated that some of the sectors which have benefited from free market are auto industry and the dairy sector in Australia. For instance, the free market has enabled an increase in imports in the market. The growing import competition of cars has apparently inspired local vehicle producers and assemblers to embrace more innovative and effective manufacturing practices, to improve quality standards stare at new global market (Banks 2003, p.6). One of such Australian companies is an Elfin Sports Cars Company which has produced cars which participates in Formula 1. Dairy industry on the other hand was highly regulated. The situation favored few dairy companies while not enabling others to grow. Department of Foreign Affairs and Trade (2009, p.15) posit that when the deregulation and free market policies were adopted in 2000, it led industry to growth by 26% in the following year. To that extend, free market advocates can argue that such policies give everybody opportunity to grow. Free market also eliminates many tariffs and prices controls in the market and allows market forces to determine market prices. According to Banks (2003, p.4), the tariffs raise not just the import costs but also the costs, which domestic manufacturers and producers charge for the competing goods. Removing or reducing that form of tax implies that with time, Australian customers will be able to purchase similar quantity of product and services will less amount of money. This will leave consumer with some money to spend further. However, some of the skeptics think is that free market promotes environment pollution, dumping of low quality goods and violation of human rights among others. One of the advocates is Edward Freeman, who argues for regulated market and embracement of corporate social responsibility (Freeman 1984). The proponent of these views like Edward Freeman contend that the company holds the duty to the society to eliminate social issues which affect the large society. The argument of opponents of the free market is that business must been conducted with restraints of things which can affect humanity. Therefore, th free market must address pollution, human rights, and high quality products among other issues. Freeman’s claim is that companies are free to make profits within the constraints that they promote environmental conservation (Fisman, Heal & Nair 2007). For instance, the companies must buy environmental-friendly engines to ensure greenhouse gases emissions are minimized. In so doing, they prevent global warming. Opponents of free market also think that the free market does not mean the companies make low quality goods and sell them to customers as some Chinese companies does. Similarly, it does not mean the company makes low quality products for a particular market segment while making high quality for another. Company that uses this approach have realized, that corporate responsibility is one of the right strategies which creates an attractive public image, increase share price and secure a long term revenue increase. Additionally, Margolis, Elfenbein & Walsh (2007) posit that when companies hold high sense of corporate responsibility, they take great account of what their operations may result such as social and environmental concerns such as pollution and general degradation. Furthermore, its for the best interest of the society and corporation, it would be viable for them to create a strong relationship with the society through CSR because the court of public opinion supports the issue (Devinney 2009, p.51). Companies which have effective corporate are very popular with the public and they include Nike Inc, Coca Cola, Google Inc among others. On the other hand, companies which have not taken hid on corporate responsibility have suffered public condemnation and boycott. According to Walker (2014), a new environmental Non-governmental organization called Clean Air-Cool Planet based in the UK ranked Nike amongst the top three corporations (out of 56) which promote environment conservation in a study. Nike Inc. has time and again been admired for its program Nike Grind by groups such as Climate Counts (Walker 2014). The company has also been likened for commercial which it launched on Earth Day of 2008 which featured Steve Nash, a basketball star wearing Trash Talk Shoe from made by Nike (Ogden 2014). The shoe was made from leather piece and waste from the factory floors. The same shoe also characterized a sole produced from its shoe recycling initiative. Nike Inc (2014) claims that Trash Talk Shoe was the first basketball shoe which was manufactured from waste which produced up to 5,000 pairs. The program demonstrates Nike commitment to recycling and general environmental conservation. In conclusion, this paper has established that free market has led to massive growth in countrie like Australia in which individual consumers have benefited from varieties of products. Traders have accumulated profits grown their business and created more jobs. However, some countries have also suffered from free market due unethical practices such dumping of low quality goods, violation of human rights and unfair trade practices. Therefore, governments and traders must realize that the free market is not an end to itself and there must be grounds for particular measures which restrict trade to some extent. References Banks, G 2003, Gaining from trade liberalization: some reflections on Australia’s experience, Productivity Commission, pp.1-17. Devinney, T.M 2009, Is the Socially Responsible Corporation a Myth? The Good, the Bad, and the Ugly of Corporate Social Responsibility, Academy of Management Perspectives, pp.44- 56. Department of Foreign Affairs and Trade (DFAT), 2009, Benefits of trade and trade liberalization, Centre for International Economics Canberra & Sydney, pp.1-50. Fisman, R, Heal, G & Nair, V. B 2007, Social responsibility: Doing well by doing good? (Working paper) New York, Columbia University. Friedman, M 1970, The social responsibility of business is to increase its profits. New York Times Magazine, September 13: 32-33, 122-124. Freeman, R.E 1984, Strategic Management: A Stakeholder Approach, Boston, Pitman. John, T 2012, Free Market Fairness, Prince University Press. Lenkowsky, L, 2006, Milton Friedman Was Right About Philanthropy After All, Chronicle of Philanthropy, pp. 48-57. Margolis, J. D, Elfenbein, H. A & Walsh, J. P 2007, Does it pay to be good? A meta-analysis and redirection of research on corporate social and financial performance (Working Paper), Boston, Harvard Business School. Nike Inc 2014, Nike Inc. Official Website, viewed on 1st December 2014 from http://nikeinc.com/pages/responsibility Ogden, M 2014, Nike favourites to beat Adidas and Puma and remain Manchester United kit supplier in 'billion dollar deal, The Telegraph (London). Walker, M 2014, Nike's latest CSR report examines drop in emissions, labor challenges, south Florida Business journal, viewed on 1st December 2014 from http://www.bizjournals.com/portland/blog/sbo/2014/05/report-nike-breaks-pattern-lowering.html Yaron, B & Don, W 2012, Free Market Revolution: How Ayn Rand's Ideas Can End Big   Government, St. artins Press. Read More