Morality and the Market (Routledge Revivals)

Consumer Pressure for Corporate Accountability

N. Craig Smith

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317590040
• Edition: 1
• Topic: Business
• Subtopic: Business Ethics
• Index: Business

Can businesses abandon the axiom that the customer is always right when consumers start questioning the ethics of business practices? Professor Craig Smith examines the theory and practice of ethical purchase behaviour, a crucial mechanism for ensuring social responsibility in business. He explains how and why consumers have used their purchasing power to influence corporate policies and practices. He argues the case for the social control of business, drawing on perspectives from marketing, economics, politics, sociology, and business policy. He concludes that the market may act as an arbiter of 'good' and 'bad' business practice. Dr Smith considers the practical aspects of ethical purchase behaviour, focusing on consumer boycotts as a specific form of this consumer behaviour, and explains how boycotted businesses should respond. This title, first published in 1990, is ideal for both business students and those who have a business of their own.

Part one

Ethical purchase behaviour and the social control of business

Chapter one

Capitalism and consumer sovereignty

Preview

What is the difference between capitalism and communism? Capitalism is the exploitation of man by man; communism is the reverse.

Polish joke¹

every individual… neither intends to promote the public interest… he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.

Adam Smith²

This chapter looks briefly at the form of political-economic systems and then examines capitalism, the form predominant in the West It is concluded that the rationale for capitalism is consumer sovereignty. This is demonstrated by exploring the origins of capitalism and, more importantly, the competitive model of capitalism, the dominant interpretation of capitalism. However, there are other interpretations and these are briefly considered. According to the competitive model of capitalism, the individual’s pursuit of self-interest results in the welfare of the community, as indicated in the famous quote above from Adam Smith. Capitalism provides material progress, but also economic and political freedom. This is both achieved by and expressed in consumer sovereignty. Consumer sovereignty as the rationale for capitalism and the degree to which it exists is the theme of this chapter.

While this feature of consumer sovereignty is shown to underlie classical economic thought, it is found to be questioned in later economic thought which emphasises the concept as a technical term; whereas in marketing, it is found that consumer sovereignty is central to the marketing concept. This rigid and theoretically suspect application of consumer sovereignty to marketing is shown to be a consequence of the ideological basis of marketing thought. Consumerism is briefly considered in illustration of this. Not surprisingly, this whole area is clouded by ideology. The conclusion is that despite the impact of one’s ideological position in assessing consumer sovereignty, it may at least be presumed that it is both the rationale for capitalist systems and does exist in some form and to varying degrees in different markets.

So this chapter demonstrates the significance of consumer sovereignty in capitalist societies, but raises doubts as to its substance. The scene is then set for the examination of the social control of business and the consumer’s role in this, the theme of Chapters 2 and 3. Equally important though is the identification in this chapter of a philosophical basis for ethical purchase behaviour, including consumer boycotts. Consumer sovereignty is here examined from a quite radical perspective and shown to be about the decisions made in markets. As explained in the Introduction, the degree of consumer sovereignty refers to whether decisions are made by consumers in markets – to who makes those decisions. The domain of consumer sovereignty refers to the issues involved – to what those decisions are or encompass. If this latter notion is accepted, then there is recognition given to die possibility of ethical decisions in purchase behaviour.

Political-economic systems

The role of the market in a society is the major distinguishing feature in identifying the form of the political-economic system. Western society is characterised by the extent to which the market predominates. This system is then justified in terms of efficiency and the freedom of the individual. Central to markets, and a necessary feature for the achievement of these benefits, is consumer sovereignty. Capitalism, consumer sovereignty, and the benefits which accrue are then inextricably linked.

In the Preface to his treatise on the world’s political-economic systems, Lindblom writes: ‘Aside from the difference between despotic and libertarian governments, the greatest distinction between one government and another is in the degree to which market replaces government or government replaces market. Both Adam Smith and Karl Marx knew this.’³ The role of the market is then a major political and economic issue. Economics texts, while tending not to be concerned with the political aspects, observe that the form of an economy will tend toward one or the other of the two possible extremes of the free-market economy and the centrally controlled or command economy. Neither of these two extremes has ever existed, at least in recent history, and in practice all economies are mixed economies with some decisions taken by firms and households and some by central authorities.⁴

Accepting Mills’s definition of power as ‘to do with whatever decisions men make about the arrangements under which they live, and about the events which make up the history of their period’,⁵ this observation on decision-making indicates the political significance of the form of the economy. This is because the form of the economy determines the locus of power within society. Hence the distinction between politics and economics is in this way arbitrary; a distinction which did not exist when economics was political economy. Although simplistic (and in accord with Western ideology), it can be claimed that decisions are decentralised and in the hands of ‘the people’ in a free-market form of economy, and centralised and in the hands of die state in a command form of economy.⁶ Western economists claim that the mixed economy in the West, which has a tendency toward the free-market extreme and is known as capitalism, is more efficient. Western politicians, not surprisingly, tend to agree with them, and claim that capitalism also means greater freedom. As Galbraith puts it: ‘Its solution of the problem of efficiency was what commended the competitive model to the economist … For the businessman and the political philosopher, by contrast, the appeal of the competitive model was its solution of the problem of power’.⁷

Decentralised decision-making expressed in markets means consumer sovereignty. This book is fundamentally concerned with whether and what decisions are made in markets. A major question it asks is: How far does this sovereignty extend? Consumer sovereignty as the rationale for capitalism is implied above and is argued in more detail in what follows. This chapter then considers the degree of consumer sovereignty; though, of course, the whole issue is plagued by ideology. Subsequent chapters then, in essence, examine the domain of consumer sovereignty. The importance of establishing the extent of consumer sovereignty is self-evident. It strikes not only at the core of economic and marketing thought, but also, as this section has shown, at the legitimacy of market society.

The origins of capitalism

Capitalism, progress, and freedom

The development of capitalism has brought two fundamental features to Western society: progress, in the form of continual improvements in the standard of living for much of the population; and economic and political freedom. This, at least, is the claim by Western economists; though some might question the human costs of these features and dispute the claim that capitalism entails political freedom. These two features are briefly examined below and then shown to be a consequence of the development of capitalism.

It is difficult to dispute the claim that material progress is a consequence of capitalism. Mises describes his Human Action as a treatise on economics, but it is perhaps more accurately described as an eloquent argument for capitalism. Yet one cannot but agree with his observations on the material progress benefits of capitalism:

The system of market economy has never been fully and purely tried. But there prevailed in the orbit of Western civilization since the Middle Ages by and large a general tendency toward the abolition of institutions hindering the operation of the market economy. With the successive progress of this tendency, population figures multiplied and the masses’ standard of living was raised to an unprecedented and hitherto undreamed of level. The average American worker enjoys amenities for which Croesus, Crassus, the Medici, and Louis XIV would have envied him.⁸

Heilbroner and Thurow’s description of the origins of capitalism further confirms this, as will be seen. Freedom, however, is altogether a more complicated feature to establish. As Mises observes, ‘Freedom and liberty always refers to interhuman relations’,⁹ but are they, as he claims, only obtainable within a market society?

There is no kind of freedom and liberty other than the kind which the market economy brings about. In a totalitarian hegemonic society the only freedom that is left to the individual, because it cannot be denied to him, is the freedom to commit suicide.¹⁰

For Mises, there is no distinction between the economic sphere and the non-economic sphere. Freedom means economic freedom – which invites the Marxist criticism that one’s personal worth amounts only to one’s exchange value, a point considered later. Friedman is more circumspect, permitting economic and political freedom: ‘Economic freedom is an essential requisite for political freedom. By enabling people to co-operate with one another without coercion or central direction, it reduces the area over which political power is exercised.’¹¹ This amounts to the same argument, however. As Mises explains, ‘Government means always coercion and compulsion and is by necessity the opposite of liberty. Government is a guarantor of liberty and is compatible with liberty only if its range is adequately restricted to the preservation of economic freedom.’¹² This is an extreme perspective. But this, perhaps in a more diluted form, is the argument of all advocates of capitalism; for it is posited on the recognition, expressed above, that societies can best be distinguished on the degree to which the market replaces government, or vice versa, and on the assumption that freedom is determined by this. Mises describes how freedom is a consequence of the market and the form which it takes:

The freedom of man under capitalism is an effect of competition. The worker does not depend on the good graces of an employer. The consumer is not at the mercy of the shopkeeper. He is free to patronize another shop if he likes. Nobody must kiss other people’s hands or fear their disfavour. Interpersonal relations are businesslike. The exchange of goods and services is mutual; it is not a favour to sell or to buy, it is a transaction dictated by selfishness on either side.¹³

While acknowledging that every person is, as a producer, ultimately dependent on the demands of consumers – because of consumer sovereignty – he or she is, even in this, ‘free to choose’. However, ‘He may have to pay a price for conviction.’¹⁴ (Ethical purchase behaviour may therefore come at a price!)

But freedom can have many other meanings. Hayek argues that socialism’s promise of freedom from necessity, another meaning of freedom, was only another name for the old demand for an equal distribution of wealth.¹⁵ He elaborates, in a manner similar to Mises:

The economic freedom which is the prerequisite of any other freedom cannot be the freedom from economic care which the socialists promise us and which can be obtained only by relieving the individual at the same time of the necessity and of die power of choice; it must be the freedom of our economic activity which, with the right of choice, inevitably also carries the risk and responsibility of that right.¹⁶

The Austrian and Chicago schools of economists do not have a monopoly on the definition of freedom. However, this view of freedom is basic to what shall later be described as the competitive model of capitalism. This model is dominant within business and probably society as a whole. Therefore, accepting the limitations and simplicity of this position, it will be assumed that the concept of freedom is as Mises, Friedman and Hayek claim: the freedom to choose in the market. This is thought to be in keeping with the dominant ideology, but is also a satisfactory position for this study, as will become apparent.

The road from serfdom

Given this all too brief examination of freedom (though it is to be considered further), it is possible to trace the origins of capitalism and sensibly assess these features of progress and freedom, with the past as a standard for comparison. A perspective on the past offers a standard for comparison that is different to and supportive of comparisons with other possible political-economic systems but perhaps less ideologically tainted than comparisons with current and competing political-economic systems, such as communism. Heilbroner and Thurow’s description of the origins of capitalism is used here.¹⁷ It is not sophisticated; Polanyi, for example, is far more detailed and analytical.¹⁸ However, they do convey the basic features, as follows.

Capitalism is not ‘as old as the hills’, as some claim. Societies prior to the sixteenth century lacked two special characteristics of capitalism: the institution of private property and a market system. Non-capitalist societies recognised the right of some individuals to own wealth, but the idea that a person’s property was inviolate was not acknowledged and none of these societies accorded the right of ownership to all persons. Slaves were a common, if not predominant feature of most precapitalist systems. Markets did exist prior to capitalism, but most production and distribution took place according to the dictates of tradition or the orders of a lord: ‘Markets were the ornaments of society, tradition and command its iron structure.’¹⁹ Freedom, in the sense earlier described, was not a relevant concept. Peasants were subject to the commands of their lords; the right to withhold one’s labour could not be conceived. Money-making was close to sin and society’s wealth was owned by the powerful, not the rich. Indeed, riches flowed from power, not power from riches. Economic life was stable for economic positions were fixed, and a comparison of Greek technology to that of the fifteenth century shows how little material progress took place over a thousand years, which ensured these fixed economic positions, but was perhaps a consequence too. So the revolutions which produced capitalism brought a phenomenal change to the world. The gradual and often violent dismantling of the feudal way of life under the ‘ancien regime’ gave rise to economic freedom. But this was a two-edged sword:

For the up-and-coming bourgeois merchants, it was the passport to a new status in life. Even for some of the poorest classes, the freedom of economic contract was a chance to rise from a station in life from which, in earlier times, there had been almost no exit But economic freedom also had a harsher side. This was the necessity to stay afloat by one’s own efforts in rough waters where all were struggling to survive.²⁰

The material progress which came as a consequence of capitalism was realised through the unleashing of technology. There was no incentive to innovate in precapitalist society. The technology of the time, while lavished on the needs of the ruling class – in the building of the ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Original Title Page
• Original Copyright Page
• Dedication
• Table of Contents
• Preface
• Introduction
• Part one: ethical purchase behaviour and the social control of business
• Part two: the use and effects of consumer boycotts
• Conclusions
• Appendix A: Markets and marketing
• Appendix B: Other instances of consumer boycotts
• Notes and references
• Author Index
• Subject Index