Download Business Ethics to Economic growth

ASSOCIATION OF CERTIFIED
CHATERED ECONOMIST (ACCE)
BUSINESS ETHICS and ECONOMIC
GROWTH
STRUCTURE OF PRESENTATION:
1. Economic growth
2. Business Ethics
3. Linking Business Ethics to Economic growth
4. Assess the impact of Business Ethics on the
Economy .
August 2009
F. T. Agyepong
2
THE BASICS OF ECONOMIC GROWTH
Economic growth is a sustained expansion of
production measured as the increase in real
Gross Domestic Product (GDP) over a given
period.
Rapid economic growth maintained over a
number of years can transform a poor nation
into a rich one.
Slow economic growth or absence of growth can
a nation into poverty.
August 2009
F. T. Agyepong
3
CALCULATION OF GROWTH RATES
The economic growth rate is expressed as the
annual percentage change of real GDP.
Formula:
T2 - T1
Growth rate =
x 100
T1
Where: T1 is the real GDP in previous year
and T2 is the real GDP in the current year
August 2009
F. T. Agyepong
4
GROWTH RATE CALCULATION: EXAMPLE
We assume that a country has real GDP of
GH¢ 80bn in the 2008, and real GDP of
GH¢ 75bn in 2007.
Required
Calculate the growth rate of real GDP in 2008.
GH¢ 80bn – GH¢75bn
Growth rate =
x 100
GH¢75bn
Growth rate = 6.7%
August 2009
F. T. Agyepong
5
SOURCES OF ECONOMIC GROWTH
Real GDP grows when the factors of production
grow or when persistent advances in technology
make them increasingly productive.
Why are we interested in real GDP
 Because it contributes to improvement in our
standard of living.
Our standard of living improves only if we produce
more goods and services with each hour of labor.
August 2009
F. T. Agyepong
6
The real GDP depends on:
i. Aggregate lab our hours
ii. Labor productivity.
Labor productivity depends on:
i. The amount of physical capital
ii. The human capital
iii. The state of technology
Growth in aggregate hours and growth in labor
productivity bring real GDP growth.
August 2009
F. T. Agyepong
7
Population growth
Labor force
participation
Average hours per
worker
=
Physical capital growth
Human capital growth:
Education and
=
training
Job experience
Technological advances
August 2009
Aggregate
hours
growth
=
Labor
productivity
growth
F. T. Agyepong
Real
GDP
growth
8
THEORIES OF ECONOMIC
GROWTH
1. Classical growth / Malthusian/ Doomsday
theory:
The theory that the clash between an exploding
population and limited resources will
eventually bring economic growth to an end.
2. Neoclassical theory:
The theory that real GDP per person will
increase as long as technology keeps
advancing.
August 2009
F. T. Agyepong
9
Growth theory cont.
3. New growth theory:
The theory that our unlimited wants will lead
us to ever greater productive and perpetual
economic growth.
**** making choices and innovations
• Human capital expands because of choices.
• Discoveries results from choices
• Discoveries bring profit.
August 2009
F. T. Agyepong
10
PRECONDITIONS FOR ECONOMIC
GROWTH
1. Economic Freedom: A condition in which people are able
to make personal choices, their private properties are
protected, and they are free to buy and sell in markets.
2. Property rights: The social arrangements that govern the
protection of private property.
3. Free markets: Buyers and sellers get information
and do business with each other in markets. And
market prices send signals to buyers and sellers
that create incentives to increase or decrease the
quantities demanded. Markets enable people to
trade and to save and invest.
August 2009
F. T. Agyepong
11
POLICIES TO ACHIEVE FASTER
GROWTH
1. Create Incentive Mechanisms: Incentives to save, invest , and innovate.
2. Encourage savings: Savings finances investment, which brings capital
accumulation. So encouraging savings can increase the growth of
capital and stimulate economic growth
3. Encourage Research and Development: Everyone can use the fruits of
basic research and development efforts.
4. Encourage International Trade: Free international trade stimulates
economic growth by extracting all the available gains from
specialization and trade.
5. Improve the Quality of Education: The free market would produce too
little education because of it brings social benefits beyond the benefits
to the people who receive the education. By funding education and by
ensuring high standards in skills such as language, mathematics, and
science, governments can contribute enormously to a nation’s growth
potential.
August 2009
F. T. Agyepong
12
ETHICS
1. Gibson (2005) defines ethics as ‘ the practice
of studying morality’.
2. Doing the right thing
August 2009
F. T. Agyepong
13
BUSINESS ETHICS
Definition
Business ethics is a system of moral principles
applied in the commercial world. (Business the
ultimate resource 2006)
Business ethics provide guidelines for
acceptable behavior by organizations in both
their strategy formulation and day – to – day
operations.
August 2009
F. T. Agyepong
14
THE THEORETICAL BACKDROP OF
BUSINESS ETHICS
THE FOUR CONCEPTS BY ETHICAL THEORIST
1. Ethical Relativism: Ethics is a question of individual
choice and preference; we may not agree with others,
but we have no right to impose our views on them. This
view suggests there are no universal or absolute values
on which people can agree. However, we should not
take disagreement over values to suggest there are
none.
Thomas Beauchamp points out that the fact that people
follow different religions does not lead them to believe
that religion should be abandoned altogether.
Humans live in societies and at a basic level maintain
contracts to coexist.
August 2009
F. T. Agyepong
15
2.
Impartiality: Most classical theories suggest that we should treat
one another as equals where every one counts for one and none
for more than one.
The goal here is to maximise the happiness of the maximum
number, relies on us caring about everyone else in a significant
way.
3.
Sympathy: One way of understanding sympathy is as the
imaginative to put yourself in someone else’s shoes. In ethical
theory we are often asked to care about the rest of humanity,
often to the extent that we love our neighbors as ourselves. In
business terms, this may amount to a company being concerned
with the welfare of individuals who may never be paying
customers.
4.
Moral sufficiency: What separates the morally decent from the
morally heroic? If we are required, for example, to produce the
maximum good for the maximum number, is there a place that
one can stop on the grounds that we have done as much as could
be reasonably expected?
August 2009
F. T. Agyepong
16
THINKING ETHICALLY: A FRAMEWORK
FOR MORAL DECISION MAKING
FIVE APPROACHES TO DEAL WITH MORAL ISSUES
1. The Utilitarian Approach: Utilitarianism was conceived in the
19thcentury by Jeremy Bentham and John Stuart Mill. They
suggested that ethical actions are those that provide the greatest
balance of good and evil.
To analyze an issue using the utilitarian approach:
i.
First , we identify the various courses of action available to us.
ii.
Second, we ask who will be affected by each action and what
benefits or harms will be derived from each.
iii.
And third, we choose the action that will produce the greatest
benefits and the least harm. The ethical action is the one that
provides the greatest good for the greatest number.
August 2009
F. T. Agyepong
17
FIVE APPROACHES TO DEAL WITH MORAL ISSUES
Cont.
2. The Right Approach: This approach to ethics has its roots in
the philosophy of the 18th century thinker Immanuel Kant
and others like him, who focused on the individual’s right to
choose for himself or herself. According to these philosophers
, what makes human beings different from mere things is that
people have dignity based on their ability to choose freely
what they will do with their lives, and they have a
fundamental moral right to have these choices respected.
Other rights that humans have include:
 The right to the truth
 The right of privacy
 The right not be injured
 The right to what is agreed
August 2009
F. T. Agyepong
18
FIVE APPROACHES TO DEAL WITH MORAL ISSUES: Cont
.
3. The Fairness or Justice Approach: The fairness approach to
ethics has its roots in the teachings of the ancient Greek
philosopher Aristotle, who said that “equals should be
treated equally and unequals unequally.”
The basic moral question in this approach is: How fair is an
action? Does it treat everyone in the same way, or does it
show favoritism and discrimination?
Favoritism gives benefits to some people without a justifiable
reason for singling them out.
Discrimination imposes burdens on people who are no
different from those on whom burdens are not imposed.
Both favoritism and discrimination are unjust and wrong.
August 2009
F. T. Agyepong
19
FIVE APPROACHES TO DEAL WITH MORAL ISSUES: Cont
4. The Common – Good Approach: This approach to ethics
presents a vision of society as a community whose members
are joined in the shared pursuit of values and goals they hold
in common. This community comprises individuals whose
own good is inextricably bound the good of the whole.
The common good is a notion that originated more than 2,000
years ago in the writings of Plato, Aristotle, and Cicero.
More recently John Rawls defined the common good as
“certain general conditions that are ….. equally to every to
everyone’s advantage.”
In this approach, we focus on ensuring that the social
policies, social systems, institutions, and environments on
which we depend are beneficial to all.
August 2009
F. T. Agyepong
20
FIVE APPROACHES TO DEAL WITH MORAL ISSUES: Cont
5. The Virtue Approach: The virtue approach to ethics
assumes that there are certain ideals toward which we
should strive, which provide for the full development of
our humanity. These ideas are discovered through
thoughtful reflection on what kind of people we have the
potential to become.
Virtues are attitudes or character traits that enables us
to be and to act in ways that develop our highest
potential. They enable us to pursue the ideals we have
adopted.
Honesty, courage, compassion, generosity, fidelity,
integrity, fairness, self- control and prudence are all
examples of virtues.
August 2009
F. T. Agyepong
21
ETHICAL PROBLEM SOLVING
These five approaches suggest that once we have ascertained
the facts, we should ask ourselves five questions when trying
to resolve a moral issues:
i.
What benefits and what harms will each course of action
produce, and which alternative will lead to the best
overall consequences?
ii.
What moral rights do the affected parties have, and which
course of action best respects those rights?
iii.
Which course of action treats everyone the same, except
where there is a morally justifiable reason not to, and
does not show favoritism or discrimination?
iv.
Which course of action advances the common good?
v.
Which course of action develops moral virtue?
August 2009
F. T. Agyepong
22
SOCIAL AND ETHICAL
OBJECTIVES
1. Growing awareness of social and ethical responsibilities
Whereas twenty years ago many companies might have placed profits and growth at the top
of their corporate objectives ranking list, few would do so nowadays: there
are so many other issues to be taking into accounts . Not only doubts persist as to whether
profits and growth are desirable ends in themselves, there is also skepticism about their
practicality. Additional new measures related to pollution control, conservation of natural
resources, avoidance of environmental disfigurement by companies, and so on are now
highlighted. Over the past few decades a social conscience has developed in the
corporate body even though it is often at the cost lower profits.
'The possibility that ethical and commercial considerations will conflict has always faced
those who run companies. It is not a new problem. The difference now is that a more
widespread and critical interest is being taken in all decisions and in the ethical
judgements which he behind them.’
(Source: Adrian Cadbury, Chairman, Cadbury Schweppes, (Harvard Business Review, September - October,
1987))
August 2009
F. T. Agyepong
23
Social and ethical objectives- contd
As society changes, so do the organizations which are its substance. The
contemporary set of guidelines or principles governing company actions are
generally concerned with creating the correct public image, and anything likely to
create a bad press is avoided at all cost. There are plenty of pressure groups, such
as consumer protection societies and environmentalists, who stand watch-dog and
are , prepared to use political muscle against any erring organization. Commercial
pressure and social responsibility are now inextricably intertwined.
Andre Valldam summed it up, ‘ I would compare the relationship between
companies and society to that between the African Buffalo Bird and the
Rhinoceros: the bird lives on the back of the rhinoceros. In return for a gratis mobile
home, it renders a valuable service. When danger impends, it emits a loud shriek
and flies off the rhinoceros' back, thereby warning its host of the immediate peril.'
'We know that a business cannot operate in a vacuum, concerned only with
profits and markets and oblivious to the impact it has upon the rest of
society .... Now, perhaps, for the first time, we are part of a real attempt to
integrate two different value systems: those that are oriented toward making
a living with those that are oriented toward making a life.'
(Robert, A. Beck, Chairman, Prudential Insurance)
August 2009
F. T. Agyepong
24
Social and ethical objectives- contd
2. The srtakeholder Approach
The 'stakeholder' approach suggests that corporate objectives, are, or ought to be,
shaped and influenced by the collective pressures of those internal and external
organisations or coalitions of people which have sufficient involvement or interest in the
company's operational activities, such as:
Entrepreneurs who wish to 'do their own thing' - become financial magnates, develop
their own technical or commercial ideas, be independent.
Investors who are concerned with return on investment and capital appreciation and who
probably want information and participation in decision-making additional to the minimum
legal requirement (entitlement).
Managers often preoccupied with their own status measured in terms of size of office,
type of company car, number of staff working for them, sales turnover of their operation,
etc.
Non-managerial employees normally concerned with improving pay and conditions and
(particularly in the current economic situation), job security. Safety at work, freedom from
discrimination and industrial democracy are also concerns of employees.
Customers and final consumers interested in value of money, ethical advertising and
consumer protection.
Suppliers wanting a fair price, regular business and payment on time.
Government seeking finance through taxation and other means, as well as often seeking
political support for its legislated activities.
August 2009
F. T. Agyepong
25
Smith and Johnson (1996) differentiate three
general approaches that organizations take to
corporate responsibility:
i. Social obligation: the company does only what
is legally required.
ii. Social responsiveness: the company responds
to pressure from different stakeholder groups.
iii. Social responsibility: the company has an
agenda of proactively improve society.
Depending on the Smith and Johnson approach, we
can assess the impact of business ethics on
economic growth.
August 2009
F. T. Agyepong
26
SOCIAL OBLIGATION
Examples
• Standard and certified
products
• Issue VAT receipts
• Paying SSNIT contribution
on time
• Declare full income for
tax purposes
• Health and safety at work
• No damage to the
environment
August 2009
Impact
1. Encourages
International Trade
2. Government revenue
goes up.
3. Government
expenditure on health
etc goes down.
4. Excess revenue could be
directed to other
sectors or for PSDR
F. T. Agyepong
27
SOCIAL RESPONSIVENESS
Examples
• Sponsoring education
• Quality products
• Green environment
• Funding public R&D
• Employing local people
• No fatty bonuses and fees
for directors
• Respect human and animal
rights
August 2009
Impact
1. Human capital expands.
2. Sales increases locally / int.
3. Local products stand foreign
competition.
4. Government expenditure on
environment. etc goes down.
5. New findings from research
lead to new technology.
6. Quality of lives improves
7. Shareholders (investors) are
happy.
8. Labor grows.
F. T. Agyepong
28
SOCIAL RESPONSIBILITY
Examples
• Building schools, hospital
• Helping the police to fight
crime
• Staff development plan
August 2009
Impact
• Improve lives of end users
• Crime reduction
• Skills and experience labor
F. T. Agyepong
29
Corporate social obligation, social responsiveness and
social responsibility will improve lives of citizens which
will eventually lead to economic growth.
As from today , perhaps, we shall consider no
organization successful unless it is able to:
show continuous growth in operational performance,
continuous contribution to develop the community in
which it operates, and above all contribute to growth of
the economy.
Let us do things right to grow our businesses, improve
our communities and above all develop our dear nation.
August 2009
F. T. Agyepong
30
BIBLIOGRAPHY
1.
Appiah - Kubi, K. (2008), Principles of Macroeconomics, Sundel Services, Ghana
2.
Bade, R. and Parkin, M. (2007), Foundations of Macroeconomics, Pearson/ Addison
Wesley
3. Drucker, P.F. (1982), The Changing World of Executives, Heineman
4.
Kanatas, G, and Stefanadis C, (2008), Ethics, Property Rights Institutions and
Economic Growth, Research Paper
5.
Kast, F.E and Rosenzweig, J.E (1988), Organisation and Management: A Systems
and Contigency Approach. McGraw-Hill Int.
6.
Ross, I. How Lawless are Big Companies? (1980), Fortune 1st Dec.
7.
Shorris, E. (1981), The Oppressed Middle, Anchor/Doubleday
8.
Taylor, J. F. A (1965), Is the Corporate Above the Law. Harvard Business Review,
March- April
9.
Vardy, P. (1989), Business Morality, Marshall- Pickering
August 2009
F. T. Agyepong
31