Welcome to Study Unit 1 of Business Government and Society. In Chapter 1, we will be disentangling the various types of interactions between business, government, and society. In particular, we will be unpacking the business, government and society nexus, through the use of four business models found in the 13 th edition of the Steiner and Steiner book, Business government and society: A managerial perspective, text and cases. 1
In your reading, taken from Chapter One of Steiner and Steiner, the authors outlined four models namely, the market capitalism model dominance model countervailing forces model and stakeholder model. In the next few slides, we will be taking a closer look at each of the four models. 2
The first model that we will look at is the market capitalism model. This is the classic capitalism model, as described by Adam Smith. In this model, the business is embedded within a market environment, which shelters the business from direct impact by social and political forces. The business is mainly concerned with making money. The market capitalism model operates on the principle of demand and supply, and minimal government intervention, or laissez faire. In this model, the business must ensure its operational viability and profitability by producing good quality products, and keeping on top of changes in market forces such as consumer demand, price movements of raw materials, as well as interest rate and exchange rate movements. Interference by the government is deemed undesirable, as it would skew the market, and not allow it to come to its natural equilibrium. Under this state of perfect competition, consumers can find businesses that provide similar goods and services. Thus, businesses are unlikely to over price their goods and services. Business greed is also reined in by consumers who will buy their goods from another business that is providing the product at a cheaper price. The key features of the market capitalism model are as follows: 1. the management s main responsibility and ethical duty is towards the shareholders in promoting the interests of owners and investors. 2. the amount of profits made is thus the key measure of corporate performance. 3. government regulation is kept to a minimal. And finally, 4. the business is assumed to be benevolent, promoting social welfare on its own accord. However, critics of capitalism say that is too optimistic a view. Given the opportunity to make greater profits, businesses are likely to act in their own self interest, and to do so at the expense of the hapless consumer. 3
The Dominance model offers another perspective of the relationship between business, government and society. This model focuses on the defects and inefficiencies of capitalism, which encourages greed and business ruthlessness. It thus offers a damning critique of the market capitalism model. - 1 In particular, the Dominance model highlights the reality that businesses can and do abuse their power. In this model, the concentration of economic power enables big businesses to dominate politics. - 2 It is this collusion between business and government that leads to the implementation of pro-business public policies, resulting in exploitation of workers, greater income disparities, and blatant disregard for interests of the people. There is thus a hierarchical division in society with the elite in business and government exerting their power over the commoners in society. -3 Asset concentration is in the hands of big businesses resulting in a monopoly or oligopoly situation... 4
and the close relationship between business and government leads to rampant corruption. 4
The countervailing forces model offers a counter example to the dominance model. In this model, power is fluid which means no single entity whether business, government, or society will ever fully dominate. - 1 The power and fortunes of any one entity can rise or fall, depending on the particular environmental conditions at that point in time. Unlike the market capitalism model, where market forces reign supreme, non-market forces can influence as well as exert an impact on business in the countervailing forces model. 2 Because businesses cannot be fully in control of the changes in its operating environment, they must be flexible enough to respond to any changes. As a result, many of the businesses take a short to medium view in its operations. This makes the business reactive, rather than proactive, in its dealings with other groups in society. 5
The fourth and final model is the Stakeholder model. In this model, the business is at the centre of a web of mutual relationships with persons, groups, and entities called stakeholders. In particular, this model highlights the symbiotic relationships between the business and its stakeholders. -1 Primary stakeholders are made up of a small number of constituents who are immediately affected by any decision the business makes. At the same time, any decisions the primary stakeholders make can also directly impact the business. Examples of primary stakeholders are stockholders, customers, employees, communities in which the business operates, as well as governments. Secondary stakeholders are made up of a broad range of constituents whose impact on the business is likely to be smaller. These could be groups in society such as activist groups, trade associations, labour unions and the businesses direct competitors. In the stakeholder model, the business is seen taking a proactive stance in managing its environment. -2 6
In particular, the business has an ethical duty towards its multiple stakeholders. And it must manage its business to make them all better off. - 3 To do this, the business will need to balance its quest for profitability against its responsibility towards the multiple stakeholders. 6
As seen from the slides before, the four models the market capitalism model, dominance model, countervailing forces model, and stakeholder model offer us different ways of looking at how business, government and society interact. Each of the models was developed at a particular period of time in history the market capitalism model was fueled by Adam Smith s laissez faire economy; while the dominance model was the Marxist critique of the market capitalism model. The countervailing forces model was an acknowledgement of the changing dynamics brought about by the rise of pluralistic societies; while the stakeholder model took root with increasing interest and attention on business ethics, following the news of questionable ethics practised by big corporations. Do remember, however, that although these models are useful, they oversimplify how things work in the real world. At best, they only offer us a slice of reality. 7
Now that you have a better idea of the different models of interaction between business, government and society, you might want to reflect on what you've learnt, and consider how the political system or the media system could shape the relationship between business, government and society. For example, of the four models, which ones are likely to be found in an authoritarian political system? What about in a democracy? Also, would a relatively free press be more likely found in the dominance model, or the stakeholder model? How would a free press shape the relationship between business, government and society? 8