4/11/2011

Business Environment Framework:

Free Market

MEC 479 - Spring 2011

Lecture 5

Topics
1. Definitions of kinds of markets
2. Free market
• Framing principles
• Economic assumptions
3. Competition
4. Reading Assignments for Lectures 5 & 6
Beyond Integrity Chapters 4 & 5
Business Ethics Chapter 4

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Why consider business

environment frameworks?
1. Differing views exist.
2. Try to develop a frame of reference that
explains how business really operates
(is).
3. Try to connect that framework to CWV
and other views (aught).
4. Framework should allow us to anticipate
issues rather than react to issues.
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Business environment framework

Alternatives:
1. Socialism
2. Totalitarian
3. Adventure capitalistic
4. Free market
5. Capitalism

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Business environment framework

Are there exclusive differences?
1. No!
2. What are the implications to business?
a. ___________________________________
b. ___________________________________
c. ___________________________________
3. Implications to society?
a. ____________________________________
b. ____________________________________
c. ____________________________________
4. CWV problem of “the business environment”
a. ________________________________________
b. ________________________________________

Business environment framework:

Definitions
1. Socialistic:
a. Dictionary.com:
a theory or system of social organization that advocates the vesting of
the ownership and control of the means of production and
distribution, of capital, land, etc., in the community as a whole.
b. Enterprise ownership is by, on-behalf of, and for the
society/community.
c. Note similarities to prior discussions:
1. Social contract theory: _____________________
2. _______________________________________
3. _______________________________________
d. Country examples:
1. ___________________________________________
2. ____________________________________________

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Business environment framework:

Definitions
2. Totalitarian:
a. Dictionary.com
2. absolute control by the state or a governing branch of a highly
centralized institution.3.the character or quality of an autocratic or
authoritarian individual, group, or government: the
totalitarianism of the father.
Government is controlled by dictator or small group. Succession is a power transfer
b. Implications:
1. Government determines who gets to engage in business
a) Permits _________________________________________
b) Expropriation _____________________________________
c) Monopoly ________________________________________
d) Elements of competition appear to exist, but tend to operate under MMR
e) Key is this is not community owned or centrally planned.
2. Government extracts from engagers/business fees/tariffs at will for both civic and
personal gain
a) Generally this is referred to as corruption.
b) Can be an every level.
1. Biblical example is ____ collectors
c. Country examples:
1. ________________________________________________
2. ________________________________________________
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Business environment framework:

Definitions
3. Adventure capitalistic:
a. Term of Max Weber: Buccaneers, warlords, financiers who go
forth solely to gain wealth for themselves.
1. Not ulterior motive: self wealth gaining.
b. Can operate/be found in most business environments.
1. Can be found throughout history.
2. Can be found in every type of country
3. Why is this the case?
a. ___________________________________________________
b. ___________________________________________________
c. Examples:
1. Alexander the __________________________________
2. Barbarians at ___________________________________
3. Adam _________________________________________
4. Milton _________________________________________
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Business environment framework:

Definitions
4. Free market: Laissez-Faire
a. Dictionary.com
1.the theory or system of government that upholds the autonomous
character of the economic order, believing that government
should intervene as little as possible in the direction of economic
affairs.
2.the practice or doctrine of noninterference in the affairs of others,
esp. with reference to individual conduct or freedom of action.
b. Individual’s acting in their self interest will achieve an optimum
allocation of society’s scare resources: Adam Smith
c. Therefore, governments should minimize their influences on
the markets, allowing the markets to take care of themselves.

Business environment framework:

Definitions
5. Capitalism:
a. Dictionary.com
an economic system in which investment in and ownership of the
means of production, distribution, and exchange of wealth is
made and maintained chiefly by private individuals or
corporations, esp. as contrasted to cooperatively or state-owned
means of wealth.
b. Class definition: Three components:
1. Privately owned enterprises determine what to produce, how
much to produce, at what price to sell, in order to make a profit.
2. Free labor sells their services to enterprises for production.
3. Profits are not consumed, but reinvested to expand the enterprise
and produce more profits.
c. Relationship to free markets: ___________
d. Country examples:
1. ______________________________________________
2. ______________________________________________
[Note Purpose of business will directly affect view/CWV]
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Free Market: Government role

1. Create laws to [Create the Market Box]
a. Respect property interests
1. Directly relates to capacity to exercise one’s self interest
2. Underlies basics of capitalism
b. Allow free flow of goods and services so that pricing will reflect
demand
1. Issue is whether this is local, regional or global flow
c. Allow for efficient entry/exit of market players to maximize
marketable goods and services
1. Issue is how much influence over quality and consumption
2. Examples:
a) ______________________________________________
b) _____________________________________________
d. Issue is – how big is the box?

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Free Market: Government role

2. Police and road example
a. Community sets traffic rules for
1. Safety
2. Smooth movement of traffic/travelers
b. Police enforce the rules
1. Keeping traffic flowing smoothly.
2. Keeping speeders at bay.
3. Aiding in accidents.
c. What about road construction?
1. Does community have to undertake this?
a) Toll roads
b) Freeways
c) Local streets
d. What about levels of rules?
1. Speeding and accidents to resolve safety
2. Licenses and safety and speeding rules
3. Enforcement, licensing, safety and speeding rules
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Free Market: Government role

3. General Aviation example
a. License rules
1. Pilots license and recurrent training required
2. Airplane inspection required
b. No police (limited FAA oversight)
c. Open space
d. Accidents fatal (risk/reward?).

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Free Market: Government role

4. Effects of Government:
a. Absolute limits on entry
b. Costs of entry and exit
c. Limits on downside risks
d. Protections of players
1. Sellers – monopoly/licenses
2. Buyers – consumer/investor
e. Done via regulation
f. However, see the issue of humanity in controlling
the market
1. Break down of regulation – corruption
2. Break down of market priorities – protection vs entrants vs
caveat emptor.
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Free Market: Government role

5. CWV:
a. Property ownership?
b. Government to protect property?
c. Government to create environment for
peaceful interchange?
d. Protection of poor?

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Free Market: basic econ.

1. Market propensity to equilibrium:
a. Supply and demand set price
b. Higher the price, less demand, less supply
needed.
c. Higher the supply, the lower the price to
increase the demand to equal available
goods.

[Homer chapter 2]
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Free Market: basic econ.

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Free Market: basic econ.

1. equilibrium point
2. Gen 3:15 re
equilibrium
3. Cost effects on chart
4. Is this a
1. Concept
(aught)?__
2. Reality (is)
_______

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Free Market: basic econ.

2. Labor market:
a. Uses similar curves:
b. What is the key problem with these curves in labor
market analysis?
1. _______________________________________
2. _______________________________________
c. Unemployment and Says law:
1. “Say’s law” says: __________________________
2. Does this really happen? ___________________
a. See effective of ‘destructive innovation’ in Chapter 5 Capitalism
3. What are the current politicians arguing about this?
a. _________________________________________
b. _________________________________________ 19

Free Market: basic econ.

3. Division of labor:
a. As labor specializes productivity increases.
1. Shown by GDP per ___________________
2. The greater the division of labor the greater the
_________________________
b. Leads to concept of Competitive Advantage
1. Open markets increase available goods at
reduced costs because each community can
exploit its ________________________
2. Thus open markets/laissez-faire lead to best
resource allocation and maximum available
goods and services
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Problems with Free market

assumptions
1. Do governments stay out of the box?
a. _________________________________
b. _________________________________
c. _________________________________
2. Why does this happen?
a. Tribe? _____________________________
b. Power? ____________________________
c. Lack of understanding? ________________

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Problems with Free market

assumptions
2. Competitive Advantage: does it exist?
a. What about farming and Africa? __________
b. What about China and closed markets?
__________
c. Why are these examples relevant to today?
1. Outsourcing? ____________________________
2. Minimizing costs in manufacturing assumes
_______________________
3. Other factors? ___________________________
d. Effect on running your business?
1. _______________________________________________
2. _______________________________________________
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Problems with Free market

assumptions
3. Free labor markets
a. Why is free labor critical to free markets?
1. ______________________________________
2. ______________________________________
3. ______________________________________
b. Are unions positive to free market for labor?
1. _______________________________________
2. _______________________________________
3. _______________________________________
c. What are unions analogous to? Implications?
1. ____________________________________________
2. ____________________________________________
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Can Governments participate in

Free Markets?
1. Buying goods and services?
a. _________________________________________
b. _________________________________________
c. _________________________________________
2. Does government demand cause a squeeze? If so, is it OK?
a. _________________________________________
b. _________________________________________
c. Examples today: ___________________________
3. Is the Box idea helpful?
a. _________________________________________
4. Business implications:
a. ___________________________________________
b. ___________________________________________
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Competition
1. Definition
a. Dictionary: http://www.merriam-webster.com/dictionary/competition
1: the act or process of competing : rivalry : as
a: the effort of two or more parties acting independently to secure
the business of a third party by offering the most favorable terms
b: active demand by two or more organisms or kinds of organisms
for some environmental resource in short supply
b. Practical
1. Father to daughter – see that man over there? He works for the
competition. He wants to put you father out of business. He wants to
make sure I cannot ever get a job in this business. In short he wants
us to lose everything – house, car, …
2. Daughter – that’s awful! What are you going to do about it?
3. Father – that is why I go to work everyday and even work on the
weekends!!!
c. CWV – see the wars in OT.

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Competition: Economic
perspectives

2. Economists view competition

1. Effective way to allocate ______________
2. Creates product _____________________
3. Creative destruction is ________________
a. Only change is __________________________
4. Are these true?

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Competition
3. Takes us back to the purpose of the company
a. Innovation is it
1. For the customer _____________________
2. For the company _____________________
b. Process of competition vs morality
1. James 1:12-17 temptation, James 4:13-15 God’s world
2. Scale affects a change in view
a) Start with survival – lots of prayer and miracles
b) Become a stable company - ______________________
c) Abundance = dominion - _________________________
1) ____________________________________
2) 10th ________________________________
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Assignment 8
1. See if you can find business situations of competition
in the Bible:
a. Both OT and NT
b. See if God encourages or Jesus comments on competition

2. Read articles in Business Ethics readings 5-1 (pp.169-

178) and answer the following questions:
a. Do you agree with Friedman that the sole goal of a corporation
is to increase shareholder wealth? Why or why not?
b. When management gives to charity, do you think that
management is actually stealing from shareholders as
Friedman asserts?
Maximum 3 pages
Due April 18
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