ORGANIZATION AND SOCIETY PAPERS
ASSIGNMENT 1
Stakeholder Capitalism - Freeman, Martin en Parmar
Capitalism: competition, lilmited resources, winner-take-all mentality. Little room for ethical analysis,
simplistic view of human beings, focus on value-capture rather than value-creation.
Capitalism and markets have increased divide between rich and poor, within and across nations.
In pursuit of innovation we have become blind to some of harmful consequences of our actions
The paper:
- 5 contemporary narratives of capitalism
- 4 contemporary problems connected to the way we talk about capitalism
- Offer new narrative of capitalism, one that builds in morality and ethics from foundations ad
acknowledges stakeholders as essential to value creation and trade, rather than trying to put rights of
one group beyond discussion.
Market participants have naïve self interest, morality is separate from prosperity and competition for limited
resources is dominant mode of prosperity.
Narratives (verhalen) of capitalism
5 contemporary narratives of capitalism that dominate academic, political and practitioner discourse and
thinking.
Classic narratives of capitalism:
- Labor
- Government
- Investor
- Managerial
- Entrepreneurial
Tell story of value creation and trade from perspective of one stakeholder and not the whole
Labor = workers
Marx and Engels
Capitalist: own property
Proletariat: laborers, don’t own property and obligated to sell labor
Labor market is fraught with tension since interests of capitalist and laborer are diametrically opposed.
Laborer dominate in perspective of Marx and Engels: worker has interest in rapid growth of capital
Marxist version of capitalism tells story where opposing groups of labor and capital fight over fixed resources
of productive assets. Economic and business activity itself is amoral and only inevitable solution for labor is to
take control of those productive assets by force.
Government capitalism = government
John Maynard Kenes
Stability in national unemployment rates
Connections between unemployment, consumption and investment.
Capitalism could and should be managed by the government
World is too complex for individuals to bring about necessary changes for good society
Government that heavily regulate economic affairs can attain optimal levels of wealth and employment =
government capitalism, where government and its rights dominate needs of all other stakeholders in narrative
of capitalism
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,Capitalism left to its own devices (without government) would produce chaos and despotism through a love of
money.
‘Keynes belief in rationality of ends and homogeneity of values’: there is finite moral answer which everyone
should attain.
Ethics becomes about one person’s interpretation of good that is made to stand for everyone and thus becomes
unattainable in diverse and changing world.
Ethics is imposed by government through amoral tool of economic policies – regulate system that is seen as
actively leading society astray from good
Conflicted view of capitalism: system can do good, but requires government intervention
Be efficient as possible without offending our nations of satisfactory way of life
Investor capitalism = investors
Friedman
Laizzes-faire
Economic freedom: ability to buy and sell without interference from government
Economic freedom for particular groups: shareholders
Governments role should be relegated to eliminating monopolies, reforming tax laws in favor of corporations
and maintaining civil law and order
New dominant group: investors.
Engage in free and open competition without deception or fraud.
Goal is investors goal: in competition with alternative stakeholders’ goals.
Shareholders who are better off will continue to invest in the market and produce better results for all.
Views inner workings of capitalism as amoral. Description of capitalism is given in monetary terms and in
language of economics, a grammar that avoids non-factual value distinctions. Ethics and morality play large
role in importance of free enterprise and actions against centrally mandated economy
Ethics is a side constraint, since managers are expected to refrain from fraud and deception.
Increase wealth for investor.
Consideration outside that goal (bijv. Welfare customer, concern community) is seen as competition to
investors needs.
Social responsibility is a tax on investor and take money out of hand of primary stakeholder
Managerial capitalism = managers
Owner of private property is in control
Keynes, Marx and Friedman: investor is owner
Managerial capitalism clearly differentiates managers from investors and other stakeholders
Ownership and control are separated. Control in hands of managers.
Agency theory: managers have contractual duty to shareholder interests above and beyond any other
relationship in managing shareholder’s property
Process of business is considered amoral
Marris: managers who pay attention to competing social interests to detriment of profits may be popular. On
other hand: managers need to have growth and productivity as primary goals and constraints for their actions.
= financial motivations of managers. However, there should be flexibility to non-financial goals.
Entrepreneurial capitalism = entrepreneur
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,Entrepreneur is in process of creative destruction: necessitating the destruction of current market to introduce
a new market. Entrepreneur is positioned in status quo of the interest of other stakeholders
Creative discovery: leaves open possibility of strong role for business ethics.
Keynes government
Marx labor
Berle and Means management
Friedman investor
Baumol Entrepreneur
Problems with traditional narratives
Narratives assume that:
- market participants have a naïve version of self-interest
- morality is separate from economic prosperity
- competition for limited resources is dominant mode of prosperity
4 problems:
1. Competition
Competition as prerequisite (behoefte)
Competition is necessary due to individuals fighting over same resources.
Other individuals are seen as threat to survival rather than as potential partners for value creation and
capitalists are left with problem of resolving competitor demands and threats
Focus on competition rather than cooperation:
- You need collaborative relationships. Focusing on how to beat stakeholders and retain power in any
relationship leaves out those many instances where collaboration is necessary to survive.
- Instances with limited resources and minimal growth in form of commodity market. Leads to intense
rivalry and should be avoided. Large gains in prosperity throughout history are associated more with
mutually beneficial trade (creates value) than with dominance (tries to capture value)
Porter’s five forces analysis. Strategist focus on bargaining power of organizations vs customer and supplier,
while managers realize that good relationship with supply chain partners could be competitive advantage.
Single strong relationship with stakeholder would be detrimental as that stakeholder would hold too much
power over the firm.
2. Business ethics
Individuals are in a constant survival mode with value being taken rather than created
Mistakenly taught managers that business within capitalism is by its very nature amoral.
Separation fallacy: models needlessly separate capitalism from ethics by making foundations of capitalism
competition and autonomy.
Ignore fact that moral concepts are needed in those instances when survival is at stake
Separation fallacy is evidendced by phrase: its just business.
Managers ignore the ethical implications of their decisions. Does not make decisions amoral: rather it causes
managers to do ethics badly. Business ethicists are left to add ethics back
3. Dominant group
Must be one group whose rights trump the rights of others
Thinking: we should just follow the right leading group and align our interest with theirs, then ills of capitalism
would be solved
Goal of dominant group become goal of organization and all decisions must be taken into account rights of
dominant group
But each narrative have different, corresponding, dominant group to follow
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, Narrative presumes that by focusing on interests and rights of their dominant group, all other stakeholders will
benefit.
Benefits in meeting needs of dominant group in these narratives:
- Economy is prevented from falling into rut and precludes those who constitute economy from falling
into lethargy (onverschilligheid)
- Society is lead towards ideal values
- Other stakeholders see better results
- Economic growth rises
- Income justly distributed to other stakeholders
- Alternative, nonproductive interests kept in balance
These views improperly focuses on one group over the other
Winning or losing
Either/or mentality
4. Business in liberal democracy
Government should fix problems of competition, business ethics and dominant groups
Creating larger, more intrusive government in system that is founded on liberal democracy
3 primary roles:
- Resolves conflicts
Individuals cannot be trusted to find solutions that will benefit society
- Legislates morality
Legal system
- Redistributes resources
Tax code
These roles are self-perpetuating: solve problem that was never systemic problem, and thus solution in search
of problem and solution that begets more problems.
If government fulfills its role, consequences ae continuation of problem rather than solution:
- Rules governing morality of individuals and organizations, absolve those agents of their responsibility
to conduct business within community norms. Expected to behave poorly and without personal value-
system
- Rely upon state to redistribute wealth, then they will inevitably make a mistake and create further need
to re-redistribute. We make it worse
- Individuals and organizations never develop imagination required to create different, mutually
beneficial relationships. Don’t learn how to resolve issues themselves
Leaves out role for state as part of value creation.
Stakeholder capitalism
New vision of capitalism
Argue that we do not need to justify capitalistic systems based on outcome or alternatives – principles of
capitalism are worthy goal in and of themselves.
Capitalism is based on freedom, rights and creation by consent of positive obligations
1. Adults have freedom to do what they want including making voluntary agreements that are sustainable
over time
Focus on individuals voluntarily working together to create sustainable relationships in pursuit of value
creation
2. Individuals have rights protecting them in those agreements
Each stakeholder should be protected
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