Business ethics and economic growth

ASSOCIATION OF CERTIFIED CHATERED ECONOMIST (ACCE) BUSINESS ETHICS and ECONOMIC GROWTH STRUCTURE OF PRESENTATION: Economic growth Business Ethics Linking Business Ethics to Economic growth Assess the impact of Business Ethics on the Economy August 2009 F T Agyepong 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 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 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 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 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 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 THEORIES OF ECONOMIC GROWTH 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 Neoclassical theory: The theory that real GDP per person will increase as long as technology keeps advancing August 2009 F T Agyepong Growth theory cont 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 THINKING ETHICALLY: A FRAMEWORK FOR MORAL DECISION MAKING FIVE APPROACHES TO DEAL WITH MORAL ISSUES 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 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 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 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 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 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 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 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 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 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 watch­dog 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 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 decision­making 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 Encourages International Trade Government revenue goes up Government expenditure on health etc goes down 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 Human capital expands Sales increases locally / int Local products stand foreign competition Government expenditure on environment etc goes down New findings from research lead to new technology Quality of lives improves Shareholders (investors) are happy 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 things right to grow our businesses, improve our communities and above all develop our dear nation August 2009 F T Agyepong 30 BIBLIOGRAPHY Appiah ­ Kubi, K (2008), Principles of Macroeconomics, Sundel Services, Ghana Bade, R and Parkin, M (2007), Foundations of Macroeconomics, Pearson/ Addison Wesley Drucker, P.F (1982), The Changing World of Executives, Heineman Kanatas, G, and Stefanadis C, (2008), Ethics, Property Rights Institutions and Economic Growth, Research Paper Kast, F.E and Rosenzweig, J.E (1988), Organisation and Management: A Systems and Contigency Approach McGraw­Hill Int Ross, I How Lawless are Big Companies? (1980), Fortune 1st Dec Shorris, E (1981), The Oppressed Middle, Anchor/Doubleday Taylor, J F A (1965), Is the Corporate Above the Law Harvard Business Review, March­ April Vardy, P (1989), Business Morality, Marshall­ Pickering August 2009 F T Agyepong 31 ... PRESENTATION: Economic growth Business Ethics Linking Business Ethics to Economic growth Assess the impact of Business Ethics on the Economy August 2009 F T Agyepong THE BASICS OF ECONOMIC GROWTH Economic. .. 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... 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