Why Capitalism Badly Needs Ethics: It Is Not Enough to Change or Re-Regulate the Rules of Corporate Capitalism. the Present Crisis Requires a More Substantive Transformation of Business

By Zsolnai, Laszlo | European Business Forum, Autumn 2002 | Go to article overview

Why Capitalism Badly Needs Ethics: It Is Not Enough to Change or Re-Regulate the Rules of Corporate Capitalism. the Present Crisis Requires a More Substantive Transformation of Business


Zsolnai, Laszlo, European Business Forum


The moral foundation of capitalism needs to be re-considered and renewed. With the collapse of communism and the accelerated trend of globalisation a new stage of capitalism has arrived. Street protests in recent years in Seattle, Washington, Milan and Prague clearly demonstrate that many people question the legitimacy of the free market system. The recent scandals involving major American companies and the audit firm Arthur Andersen suggest something fundamental is wrong with the present structure and functioning of capitalism.

Market Fundamentalism

One of the main underlying causes of the crisis is what George Soros calls market fundamentalism. With this term Soros describes the widely held view that all kinds of human values can be reduced to market values and that the free market is the only efficient mechanism for the rational allocation of resources.

[ILLUSTRATION OMITTED]

Laissez-faire capitalism, however, is dangerous since it can undermine the very values on which open and democratic societies depend. Soros has warned that the instabilities and inequalities of the capitalist system can feed into nationalistic, ethnic and religious fundamentalism, the most tragic illustration of which was the 2001 September 11 terrorist attacks on the World Trade Center in New York.

The market as an evaluation mechanism has inherent deficiencies. First of all, there are stakeholders that are simply not represented in the market, such as the natural environment and future generations. Secondly, the preferences of human individuals count rather unequally in proportion to their purchasing power, the interests of the poor and disadvantaged being inevitably under-represented in free market settings. Thirdly, the chosen preferences of those players who dominate the market tend to be self-centred and myopic; economic agents make their own decisions regarding short-term consequences only.

Such deficiencies imply that free markets cannot always be relied on to produce socially optimal, or even acceptable, outcomes. In many cases market evaluation is misleading from a social or environmental point of view--it may be a necessary form of evaluating economic activities, but it is not sufficient. Alternative evaluation of economic activities by the techniques of environmental and social reporting, accounting, and auditing is also needed. Only the combination of conventional, market-based and alternative evaluations will provide a fair and accurate picture of economic activities.

Dis-embeddedness of Capitalism

A capitalist economy can show individuals and organisations relative prices and profitable ways of resource allocation--but it cannot relieve them of the choice between goals and values. From the perspective of ethics the questioning of goals is as important as how these goals are to be achieved. One must ask about the reasonableness of the goals in the first place, as well as the rational allocation of resources for those goals. Ethics requires considering and balancing all relevant aspects (environmental, economic, and social) and not making decisions or evaluations based solely on individual preferences or profit criteria.

The introduction of laissez-faire capitalism in Eastern and Central Europe has demonstrated that lack of respect for cultural norms and institutional settings of society leads to great inefficiency and enormous social losses. In transitional economies the trade-off between speed of institutional change and the emerging business ethics and legal and economic order is crucial. Rapid institutional change can destabilise society and the development of the economy, endanger order, and undermine moral standards in business. Czech-style capitalism, which sacrificed ethical considerations in order to achieve economic rationalisation and efficiency, was doomed to fail. The point is that business ethics is not just a luxury for advanced economies, it is a source of wealth of all nations. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Why Capitalism Badly Needs Ethics: It Is Not Enough to Change or Re-Regulate the Rules of Corporate Capitalism. the Present Crisis Requires a More Substantive Transformation of Business
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.