Organisations & Society
Articles – Course Organisation & Society 2020-2021 – Radboud University – DienekeF
,Week 1 Overview Globalization
Stakeholder capitalism – Freeman
• Five capitalisms; Labour capitalism (Marx), Government capitalism (Keynes), Investor
capitalism (Friedman), Managerial capitalism (Berle & Means), Entrepeneurial capitalism
(Schumpeter and Kirzner)
• Four problems with these capitalisms; Competition, ethics, dominant groups and liberal
democracy.
• Stakeholder capitalism; Creating shared value by taking all stakeholder groups into account.
Social responsibility of business is to increase it profits – Friedman
• Friedman thinks the only objective for a corporation should be to increase it’s profits.
• He thinks that all individuals should listen to the general in a society. They have a vote, but
they have to conform to the majority.
• Executives must not spend the money from the stakeholders or from his/her employees on
social responsibilities like communities, inflation, integration or the environment.
• If an executive decides to spend money on social responsibility it raises political questions on
two levels; principle (spending taxes and executing a government function) and
consequences (does the executive knows what he does)
Making globalisation work – Stiglitz
• Complaints about globalization; people are worse off, money should go from rich to poor but
its going the other way around, A lot of debt, poor countries never received benefits.
• Why didn’t it work yet; Economic globalisation had outgrow political globalisation therefore
we cant do a lot of stuff yet, we were fighting communism, Pollyanna view.
• What should we do; invest in education and research, create safety nets and have more
progressive tax systems.
• Three things that stop globalisation; Intellectual property rights, Global warming and global
debt.
Globalization: what it is and who benefits – Johnson
• Globalization was made possible by; knowledge, faster and cheaper transportation, faster
and cheaper communication, the growth of income and the reduction of barriers to trade.
• Four aspects which were important for globalization; flow of ideas, flow of capabilities, the
spread of literacy and the flow of institutions and policies.
• These aspects made sure that the poorer didn’t get more poor. That children mortality
decreased and that life expectancy increased.
Organizational structures supporting rich survival – Achterbergh & Johnson
• Rich survival is about organizations contributing to the creation of societal conditions,
enabling human beings to live a fulfilled life.
• Two instances of integrity;
o integrity of incorporation, we mean that societal programs are incorporated into
organizational decision premises because it is considered the right thing to do, i.e.,
because these programs are considered to enable citizens to live a fulfilled life.
o integrity beyond incorporation, we refer to deviations from societal programs or
program-based decision premises in concrete cases, because deviation is judged the
right thing to do in the given circumstances.
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,Stakeholder capitalism
Week 1 – Article 1 – Freeman - 2007
In this article we will discuss five ideas of capitalism and show that each find one group more
important than another. All these capitalisms make assumptions about markets and capitalism that
they believe to be counterproductive. In the final section of this article we offer a new kind of
capitalism; Stakeholder capitalism, is a way to resolve some of the deep tensions within capitalism,
and to better foster the powerful innovations that can help us all live better.
Capitalisms
Labour capitalism
Marxism, and its political derivatives socialism and communism, turn on the dialectic between the
capitalists who own property and the means of production and the laborers who own no property
and are obligated to sell their labour to the bourgeoisie to gain subsistence. The Marxist version of
capitalism tells a story where the opposing groups of labour and capital, fight over the fixed
resources of productive assets. Economic and business activity itself is amoral and the only inevitable
solution for labour is to take control of those productive assets by force.
Government capitalism
Keynes’ revolutionary shift of economic thought from a micro view (pricing and cost mechanisms) to
a macro view (national income and employment) has had tremendous policy implications for political
economists and theoretical implications for business academics. To the requisite institutions of
capitalism, he added the idea that capitalism could and should be managed by the government. The
metaphor in this narrative is of a garden, that capitalism left to its own devices would produce chaos
and despotism through a love of money. The government is seen as the gardener, who by his skill,
knowledge, and wise management keeps the productive powers of capitalism at bay, and creates a
utopia by enacting policies that keep growth and weeds in balance. Keynes view of capitalism is
conflicted – the system can do good, but this requires government intervention.
Investor capitalism
Milton Friedman advocates economic freedom – the ability to buy and sell without interference from
the government – becomes central to Friedman’s vision. It is important to note, that Friedman
believes in economic freedom for particular groups, namely shareholders. In fact the whole of
commercial business activity has one specific purpose: ‘‘to use its resources and engage in activities
designed to increase its profits, so as it stays within the rules of the game, which is to say, engages in
free and open competition, without deception or fraud’’. Friedman and those who give priority to
the concerns of investors above and beyond the concerns of other stakeholders, subscribe to
investor capitalism. Nevertheless, ethics and morality play a large role in justifying Friedman’s claims
about the importance of free enterprise and actions against a centrally mandated economy.
Managerial capitalism
Managerial capitalism, on the other hand, clearly differentiates the managers of the organization
from the investors and other stakeholders. For Berle and Means, we are now dealing with distinct
functions: ownership on the one side, control on the other. The process of business is considered
amoral with a reconciliation to morality or community interests required. Marris continues by stating
that directors or managers who pay attention to competing social interests to the detriment of
profits may be popular. However, he also believes managers to have growth and productivity as
primary goals and constraints for their actions. Marris’ view of morality and motivation outlines the
financial motivations of managers in their role as controllers of the corporation. Marris does,
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,however, find the rules of the game to be open and flexible giving managers the opportunity to
pursue alternative goals than those which are financial.
Entrepeneurial capitalism
Within modern theory, economists such as Schumpeter, Kirzner, and more recently Baumol
emphasize the role of the entrepreneur within capitalism and epitomize what we are calling
entrepreneurial capitalism. For these authors, the entrepreneur functions as the dominant player
within the capitalist system. Schumpeter argues that the entrepreneur is in the process of creative
destruction – necessitating the destruction of the current market to introduce a new market. Each
author differentiates the entrepreneur and singles her out from capitalists, property owners,
managers, and laborers. One piece that is common to all, however, is the importance of the role of
the entrepreneur in the capitalist system as the agitator who leads all others out of the status quo.
Problems with the traditional narratives
All five narratives make a similar set of assumptions about markets and capitalism that they believe
to be counterproductive. Each narrative assumes that market participants have a naive version of
self-interest, that morality is separate from (or even antithetical to) economic prosperity, and that
competition for limited resources (value as a zero-sum game) is the dominant mode of prosperity.
These three assumptions combine to create four problems; the problems of competition, business
ethics, the dominant group, and of business in a liberal democracy.
The Problem of Competition
The focus on competition rather than cooperation is mistaken on two counts. First, it leaves out the
many times where collaboration is necessary to survive. Second, we do have these instances with
limited resources and minimal growth. This would lead to intense rivalry and should be avoided, but
value-creation can also emerge from joint resolutions of these issues.
The Problem of business Ethics
Ethics is assumed to have a limited role in capitalism. The traditional models separate capitalism
from ethics. The problem of business ethics is that it is entirely left out of capitalism. People have
created a separate sphere of norms, rules, and morals and named it capitalism where competition
and winning, dictates the rules of the game. Business ethicists reinforce this separation of moral and
capitalist rules with the constant question of if and how to reintegrate the two and the assumption
that capitalism is based on competition. In doing so, this approach guides managers to ignore the
ethical implications of their decisions.
The problem of the dominant group
This competitive framing of capitalism leads to debates over who is the ‘‘dominant’’ group in a
market – the ideas of competition tumble over to those intimately involved in the organization. The
problem of the dominant group is that there must be one group whose rights trump the rights of
others. Example, Keynes; government, Marx, labours right; Berle and Means, separate rights for
management, Friedman, investor rights. Each narrative presumes that by focusing on the interests
and rights of their dominant group, all other stakeholders will benefit. However, by entering into
every decision with this type of a priori prioritization leads academics and practitioners to make
decisions that can hurt the long-term value creation of the company. In practice, placing stakeholders
in opposition to one another leads to a focus on winning and losing as opposed to working together.
The problem of business in a liberal democracy
The state has three primary roles in support of the problems created above. First, the government
resolves conflicts between stakeholders. Rather than allowing organizations and individuals to create
their own relationships, the state becomes the place to resolve conflicting, because individuals
‘‘cannot be trusted to find solutions that will benefit society.’’ Second, the state legislates morality of
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,capitalism. It is assumed that individuals and organizations are allowed to move freely and within
moral norms within the bounds set by legislators. Third, the state redistributes resources. One group
is assumed to be constantly taking from all others; and the government is in existence to protect
these disadvantaged groups and redistribute the resources through a tax code. However, as it stands,
the government is too busy solving problems that need not exist.
Stakeholder capitalism
Stakeholder capitalism – founded on libertarian and pragmatist lines. Rather stakeholder capitalism
is ‘‘based on freedom, rights, and the creation by consent of positive obligations.’’. We offer six
principles that together build a framework for our value creation and trade that infuses ethics at the
foundations, respects the complexity of human beings, fosters innovation, and can help us move
beyond the problems outlined above.
1. The Principle of Stakeholder Cooperation – We must create value in a context, with the help
of others and with others who value what we create.
2. The Principle of Stakeholder Engagement – this principle acknowledges that a large cast of
stakeholders are necessary to sustain value creation. value creation.’’
3. The Principle of Stakeholder Responsibility – Being proactive about effects on others, rather
than waiting for government recourse, will help managers build stakeholder trust and loyalty
which will help create more sustainable business
4. The Principle of Complexity - ’ Individuals are socially situated and their values are connected
to their social context. There actions benefit themselves and others, and people usually take
that into account.
5. . The Principle of Continuous Creation - Working with others and for others can be a stronger
motivation to enhance the pace of progress.
6. The Principle of Emergent Competition - We should do our best to look for the win-win
before jumping to other sub-optimal solutions.
There will always be a small minority who are focused on their own self-interest at the expense of
others. Our claim is that we should set the bar for capitalism at the best we can achieve not limit it by
trying to only avoid the worst.
Conclusion
The current narratives of capitalism assume naive self-interest, the separation of business and
morality, and that valuable resources are limited. These assumptions form the core of four problems
that we currently face: the problem of competition, business ethics, dominant groups, and of
business in a liberal democracy. If we are to overcome these problems we will have to change the
way we talk about business as well as the way we actually conduct it. Business should be about the
best that we can create together, rather than about avoiding the worst. We need to think critically,
acknowledge the social nature of value creation, and work with an insatiable passion to create value
for our stakeholders.
Article Friedman The social responsible of business is to increase its
profits
Week 1 – Article 2 – Friedman - 1970
According to some businessmen business were not concerned only with making profit but also with
promoting the social side of a business. A business had a social mind, it takes responsibilities to
eliminate discrimination and offering work. But this is not the case according to Friedman. According
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,to Friedman business cannot have responsibilities, because they are artificial. Therefore we can only
look at the executives of the business since they are real persons who can have responsibilities.
The first question we need to answer before we can clarify the discussion about the social
responsibility of business is; what is implies for whom? Normally the objective of an executive will be
money and the business will have the basic rules according to society and the law. Some
corporations will have other objectives if they are non-profit. But the key-point is that an executive is
just the puppet of the people who own the business and his responsibilities are to them.
The social responsibilities of a business men, may be things like inflation, integration or
environmental issues. If he spends money on these things, he will spend the money of the
stakeholders. Therefore the stakeholders will have less profit. The executive decides how
somebodies money will be spend.
There are political questions about this on two levels; principle and consequences.
On the level of political principle, the imposition of taxes and the expenditure of these taxes are
governmental functions. These bodies have been established because they know how to deal with it.
If the executive decides to spend money of others he will be a legislator, executive and jurist all in
one. An executive is chosen by the stakeholders because he will act in their interest. So the idea of an
executive will be taken away if he spends their money on social responsibilities. He will be a civil
servant and he must be chosen by a political process if that is the case.
This is the basic reason why the doctrine of "social responsibility" involves the acceptance of the
socialist view that political mechanisms, not market mechanisms, are the appropriate way to
determine the allocation of scarce resources to alternative uses.
On the level of political consequences; How does a executive know on which social responsibility he
must spend the money on? How does he know which actions will contribute to the cause? He is an
expert on leading a company, not on how to counteract inflation. You could say that a company who
tries to be social responsible will make an impact way faster than if a government tries to do this. But
they you take out the whole grounds of principle. People who are an advocate for social
responsibilities from the government failed to pursue other people and therefore undermine the
democratic process by pushing their agenda through companies.
If an individual spend his money on these causes, then its his right because its his money. But if an
executive does this, it is different. Of course, in practice the doctrine of social responsibility is
frequently a cloak for actions that are justified on other grounds rather than a reason for those
actions.
You can for example as a company invest money in the community, this can be seen as an act of
social responsibility. But companies can do this also to invest in their selves, they might do it for
other reasons than the community might see it. They might want to do this because they can get
loyal worker through that who won’t criticize. There is a strong temptation to rationalize these
actions as an exercise of "social responsibility." In the present climate of opinion, with its widespread
aversion to "capitalism," "profits," the "soulless corporation" and so on, this is one way for a
corporation to generate goodwill as a by-product of expenditures that are entirely justified on its
own self-interest. The use of the cloak of social responsibility, and the nonsense spoken in its name
by influential and prestigious businessmen, does clearly harm the foundations of a free society.
In an ideal free market, no individual can coerce any other. There are not values values, no social
responsibilities. The individual must serve a more general interest. It may have a vote, but he must
conform to the majority. But the doctrine of "social responsibility" taken seriously would extend the
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,scope of the political mechanism to every human activity. It differs only by professing to believe that
collectivist ends can be attained without collectivist means. That is why, in Friedman’s book
Capitalism and Freedom, he has called it a "fundamentally subversive doctrine" in a free society, and
have said that in such a society, "there is one and only one social responsibility of business--to use its
resources and engage in activities designed to increase its profits so long as it stays within the rules of
the game, which is to say, engages in open and free competition without deception or fraud."
Globalization: What it is and who benefits
Week 1 – Article 3 – Johnson - 2002
Globalization is trending at the moment for all kind of groups of people. Globalization is also blamed
for the rising inequality of income. Another view is that inequality has risen because it hasn’t spread
fast and far enough yet.
1. What made globalization possible and effective?
Five developments have had a major role in making globalization both possible and effective in
improving the well-being of the majority of the people of the world.
1. Knowledge—Nearly all scientific knowledge related to living things come in the last two and
a half centuries.
2. Faster and cheaper transportation—With the improvements in transportation, goods,
services and ideas could flow much more easily from one place to another.
3. Faster and cheaper communication—Imagine the impact of the telegraph that became
available in the last years of the 19th century plus the addition of the telephone and then the
radio and satellite television.
4. The growth of income that permitted the expansion of trade—Higher incomes combined
with the lower costs of transportation and communication increased the flow of trade in the
20th century.
5. Reduction of barriers to trade, especially following WWII—in 1950 world exports were 5.5%
of world gross domestic product; in 1998, 17.2%.
2. Why the world is different now: knowledge
The world is so different now because of knowledge. We know the laws of nature, how to use
resources and so on better than ever before. In the past because of all the inventions and the
increase in income there were institution created that made is possible for people to specialize in
knowledge (universities, research centres).
3. Sources of benefits of globalization
Globalization is generally associated with the flow of goods. And this is very important. All countries
who have opened their economies to trade in the last years have gained significantly (china, korea).
This also accounts for small countries in europe, all countries benefit if they open their markets and
they grew at the same or higher rate.
There is more to globalization than trade, there are four aspects;
• The flow of ideas – because of communication improvement ideas spread faster
• The flow of capabilities – ideas must be transformed into products like vaccinations
• The spread of literacy and education – consequence of globalization.
• The flow of institutions and policies – these are required for sustained economic growth.
4. Have the poor benefited?
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,Let us now turn to the distribution of some of the major benefits of globalization. Recent income
growth rates for developing countries as a group are high by historical standards.
5. Life expectancy
The increase in life expectancy in the developing countries in less than 40 years equalled India’s life
expectancy in 1900. What has been the primary source of the increase in life expectancy? It has been
the decline in infant and child mortality. Between 1960 and 1997 child mortality in the developing
countries fell by 61%. The increases in life expectancy in the developing countries has been due
primarily to the increased availability of clean water, improved sanitation, the availability of
vaccination for childhood diseases, and increased food supplies.
6. Increased agricultural productivity
Because of globalization and the spread of knowledge we made improvements in wheat, grains and
rice. They could grow faster and at more places. A major factor in higher yields has been the
availability of low cost nitrogen fertilizer. The process for making nitrogen fertilizer was transferred
from the developed to the developing world.
7. Immunization
A further positive benefit of globalization is the large percentage of the children in developing
countries who receive immunization shots. These and other immunizations have been important in
reducing child mortality. Without globalization very few of these children would now be protected
against major childhood diseases.
8. Knowledge
Globalization has made it possible for knowledge created in one part of the world to become
available everywhere due to the low cost and speed of communication and the spread of literacy and
education.
9. Where markets have not been permitted to function
One of the complaints about globalization is that it has resulted in an increase in the inequality of
income. And it has—the rich have gotten richer but the poor have not gotten poorer. when markets
and the effects of globalization are restricted the increase in inequality can be enormous.
10. Concluding comment
I should not leave the impression that all of the effects of globalization are positive for all people all
the time. I hope it is clear that globalization involves far more than trade and investment. As
important as these are in the improvement of the conditions of life, the spread of ideas throughout
the world has been at least as important in affecting the lives of ordinary people. the increase in
inequality has not been because the poor have gotten poorer but because the rich have gotten far
richer.
Making globalization work
Week 1 – Article 4 – Stiglitz - 2008
What are the legitimate complaints about globalisation?
A lot of people said that globalisation made them worse off and this was found out to be true.
Advanced industrial countries give aid to poor countries, but they damage more than they give to
these countries. Also the global financial system is not working the way it should be. The money is
supposed to flow from rich countries to poor countries, but it is happening the other way around.
Therefore instead of the rich countries dealing with risk it are the poor countries who actually wear
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, the risk. Therefore a lot of poor countries have a lot of debt. And this is not only the case in poor
countries, look at America. Also a lot of poor countries had to achieve certain requirements and
when they would do that they receive certain benefits. They did achieve these requirements, but
they never received the benefits. Africa as an whole is actually seeing income going down and
poverty increasing again.
Are things getting better or worse?
There have been enormous changes in the global landscape. Like for example India and China, who
earlier have been closed for trades, are now open for global trading and are now part of the global
economy. They have taken advantage of global export markets and the movement of technology and
education, and the result is of historic proportions. This succes of globalisation can also be brought
back to education and technology. But some companies like for example Microsoft, make it more
difficult to enter into certain areas. We do have become more aware of the problems of
globalisation. But for many of the poorest of the world, integration through capital market had not
let to more growth and also did not led to more stability. For example America wants to keep its veto
rights at the WTO, while the rest of the world is noticing that the spread is not fair. In a world where
we talk about democracy, it certainly has undermined the legitimacy to have a public institution
whose voting rights are so inequitably distributed.
Why globalisation has not lived up to its potential
There are three underlying core problems; trade, financial markets and resources. The first problem
is simple, economic globalisation has outplaced political globalisation in terms of the change of
mindset. We need to work more together, but we do not have the institutions everywhere to do this
effectively. The second reason why it isn’t working is because a couple of years back we were very
busy with making sure that countries would not go communist, because it was the enemy. Therefore
we spend a lot of resources and energy on these developing countries so they wouldn’t turn
communist. The third problem is the Pollyanna view of globalisation; Globalisation would be great for
everybody and it would go automatically. Therefore the real problems were not seen. What we need
to do is invest more in education and research, strengthen the safety nets and have more progressive
tax systems. This would benefit the most people.
There is a whole set of specific problems: intellectual property, trade, global financial markets,
natural resources and the environment.
Intellectual Property Rights (example medicine)
The problem of intellectual property rights can be viewed in patents. Its not about the knowledge
you share with others, but if you can use the knowledge because it might be patent by somebody
else. It has more to do with protection. With patents you can also abuse your power, like Microsoft
does. Or another examples, medicine. Look at the us and you can see that some companies have
crazy expensive drugs, while the costs to make them aren’t that high. An alternative for patents is a
prize system.
Global Warming (Example Maldives, America)
The second problem area is global warming. Without an earth we don’t have to worry about
globalisation or economics. Two failures regarding global warming; failures of governance and global
warming can be a reason for everything to go to shit. The world will look a whole lot different if we
keep going at this rate. The result of greenhouse gases is that heat is captured, just like in a
greenhouse, causing temperatures and water levels to rise, and a host of complicated changes occur,
such as the movement of the Gulf Stream. The effects on Europe are going to be particularly
complicated. There is one huge problem, namely the US as always. The US is the biggest polluter and
it does not want to agree to the protocols. Since they are one of the biggest economies it gives other
countries a reason to say why should we comply while they don’t? We can reduce edmissions a lot
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