Sainsbury's. Market systems, governmental regulations and coorporate responsibilities.

Table of Contents

List of Tables

List of Figures

Abbreviations

Question One – Part One
1. Introduction – Cameron’s Speech
2. Free Market System as a Feature of Capitalism
3. Ethics and Morality of ‘Let Capitalism Rip’
4. Conclusion

Question One – Part Two
1. Introduction to Corporate Social Responsibility (CSR)
2. Friedman’s and Bowie’s Traditional Models of CSR
3. Carroll’s Pyramid of Corporate Social Responsibility
4. Conclusion

Question Two
1. Sainsbury’s - Company Profile
2. Sainsbury’s CSR Activities
3. The Triple Bottom Line (TBL)
4. Cradle to Cradle
5. Sustainable Sourcing
6. Conclusion

References

Appendix I – Sainsbury’s 20 by 20 Sustainability Plan

List of Tables

Table 1: Types of relations between government and business within a capitalist framework

Table 2: Definition of Ethics and Morality

Table 3: Overview of Friedman’s and Bowie’s Models of CSR

Table 4: How Sainsbury’s improves all aspects of the Triple Bottom Line

List of Figures

Figure 1: Carroll’s Pyramid of Corporate Social Responsibility

Figure 2: Triple Bottom Line

Figure 3: Cradle to Cradle

Abbreviations

illustration not visible in this excerpt

Question One – Part One

Using your knowledge of the free markets perspective, examine the ethics and morality of the ‘let capitalism rip’ allegation made by British Prime Minister David Cameron.

1. Introduction – Cameron’s Speech

Early this year, the leader of the Conservative Party, David Cameron, gave a speech on moral capitalism. In his speech, he claimed that in order to build a fair and worthwhile economy, social responsibility as well as responsible capitalism need to be promoted. While Cameron accuses the Labour Party of having encouraged turbo-capitalism in recent years, he believes that politics cannot just step back and let capitalism rip but instead should ensure socially responsible capitalism by creating a free and fair market environment. In his view, “open markets and free enterprise are the best imaginable force for improving human wealth and happiness” (NewStatesman, 2012). Cameron’s speech provides grounds for a discussion about the moral and ethical implications of market systems, which will be the subject-matter in following paragraphs.

2. Free Market System as a Feature of Capitalism

A free market system encourages free competition to the extent that access to the market is not limited by any power and allows all natural resources, capital and labour to move freely within the system. Additionally, it is not controlled either by government or by any group of individuals. Along with available accumulation of industrial capital and private ownership of the means of production, a free market is a feature of a capitalist economic system as defined below (De George, 2010 cited in Sastry, 2012, p.97).

“Capitalism is an economic system under which the means of production are privately owned, and the price of inputs and outputs are determined by markets within which people engage on a free and voluntary basis, and within which goods and services are sold with a view to making a profit.”

(Blowfield and Murray, 2011, p.376)

Even though, traditional capitalism in its pure form does not exist in any country worldwide, there are various shades of capitalism, in which the mentioned features are implemented to a different extent (De George, 2010 cited in Sastry, 2012, p.97). Table 1 provides an overview.

illustration not visible in this excerpt

Table 1: Types of relations between government and business within a capitalist framework

Source: De George, 2010 cited in Sastry, 2012, p.103

In his speech, Cameron accuses the Labour Party of having “turned a blind eye to corporate excess” and supporting a system of “let capitalism rip” (NewStatesman, 2012). As ‘let capitalism rip’ stands for a system in which the government steps back and leaves the market to regulate itself, it can best be described by the model of laissez-faire capitalism, which refers to “a preparedness to let markets sort themselves out, even during periods of disequilibrium and apparent malfunctioning” (Fisher, 2006, p.22).

The degree of governmental intervention to regulate market practices in order to create economic well-being does not only form the basis for an on-going debate between the UK’s main political parties, but can also be assessed from a moral point of view as the rules according to which an economic system, in this case capitalism, operates seriously affect people’s lives (Blowfield and Murray, 2011, p.376). Therefore, the following section will discuss ethical and moral implications of an economy characterised by laissez-faire capitalism.

3. Ethics and Morality of ‘Let Capitalism Rip’

Before examining Cameron’s ‘let capitalism rip’ allegation from an ethical and moral point of view, the two terms need to be defined (Table 2).

illustration not visible in this excerpt

Table 2: Definition of Ethics and Morality

Source: De George, 2010 cited in Sastry, 2012, p.48

As suggested by De George (2010 cited in Sastry, 2012, p.102), the model of laissez-faire capitalism does not morally justify any kind of business regulation by government except for keeping peace and providing laws to act upon. It could be argued that such a practice is morally wrong as it does not guarantee responsible behaviour of businesses. The model suggests that if businesses do not act morally, the market mechanism will act as a corrective (De George, 2010 cited in Sastry, 2012, p.102). But it should be questioned up to which point the market will be able to correct itself. In recent years, irresponsible behaviour of businesses let into a severe recession, in which many companies failed to tackle their growing business problems themselves, which left governments to restore market balance.

Furthermore, laissez-faire supports the believe of Adam Smith, who argued that if people put their own interests first in all their actions while staying within a moral and legal framework, such a behaviour will automatically lead to a greater benefit for the whole society. The morality of this belief can be questioned as it only includes society members who enter into economic transactions while leaving out those who cannot participate in business activities. It can therefore be argued that the model actually fails to take into account the good of overall society and instead creates an imbalance between the two groups of society (Idowu and Louche, 2011, p.94).

This leads back to Cameron, who said that Labour’s ‘let capitalism rip’ approach allowed a “debt-fuelled boom to get out of control” and let to “lethal imbalances” in the UK economy in recent years (NewStatesman, 2012). Thus, while the country went into recession, some members of society benefited and many suffered. Such a development clearly is not ethically and morally justifiable if regarded from a utilitarian point of view, which proposes that “society ought not be arranged in any way that would benefit one group at the expense of the others” (DesJardins, 2007 cited in Sastry, 2012, p.27) and describes that impartiality and equality are essential necessities of ethics (Fisher, 2006, p.127).

Fisher (2006, p.23) provides a contrasting view by stating that although some members of society may suffer as a result of market-based outcomes, for example through unemployment or loss of capital, these are only unintended consequences of the multitude of transactions that comprise a free market and can therefore not be considered as immoral.

4. Conclusion

While examining laissez-faire capitalism from an ethical perspective, it became evident that the model certainly provides grounds for an ethical debate. But when regarding the different levels of capitalism (Table 1) from a moral point of view, it can be concluded that immoral practices could develop in either system as each model stands for different values and is defined by a different mixture of freedom, security and risk. Therefore, it can be agreed with De George who stated that, from a moral point of view, there is no one best society (De George, 2010 cited in Sastry, 2012, p.107). But the developments of recent years showed that a move towards more social responsibility as well as responsible capitalism, as Cameron suggests in his speech, should be encouraged by governments in order to create a greater economic well-being.

Question One – Part Two

Evaluate the system using Milton Friedman’s and Norman Bowie’s neo-classical models of corporate social responsibility (CSR). Make recommendations on the way forward for a more ‘sustainable’ market economics.

1. Introduction to Corporate Social Responsibility (CSR)

According to Blowfield and Murray (2011, p.7), corporate social responsibility (CSR) is not easy to define due to the existence of various interpretations of the principle. In broad terms, CSR can be regarded “as the accommodation of corporate behaviour to society’s values and expectations” (Griseri and Seppala, 2010, p.8). A more precise explanation is provided by Davis (1973 cited in Blowfield and Murray, 2011) for whom CSR “is about what companies do to make a positive contribution to society above and beyond that which constitutes their legal obligations”, or in simpler terms, “corporate responsibility begins were the law ends”.

Since corporate decisions can greatly impact people’s lives, a debate was generated about the appropriate scope and nature of constraints that should be put on companies’ activities in order to ensure they conduct business in line with the objectives and values of societies in which they operate (Griseri and Seppala, 2010, p.8). Milton Friedman (1979) and Norman Bowie (1982) provide differing views on the social responsibility of companies, which will be discussed in the following.

2. Friedman’s and Bowie’s Traditional Models of CSR

Friedman’s and Bowie’s models of CSR (Table 3) can be contrasted in the way that each suggests a different level of legal and ethical constraints upon the goal of maximising profits (DesJardins, 2007 cited in Sastry, 2012, p.29). While Friedman argues that business managers’ only responsibility is to maximise profits within the legal constraints of the environment in which they operate, Bowie takes it a step further by including the moral duty of businesses to cause no harm, even if such activities are permitted by law (DesJardins, 2007 cited in Sastry, 2012, p.29).

illustration not visible in this excerpt

Table 3: Overview of Friedman’s and Bowie’s Models of CSR

Source: Schwartz and Saiia, 2012

Friedman’s version of appropriate CSR represents a very narrow view. His primary argument is that “there is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits” (1962 cited in Schwartz and Saiia, 2012). According to Friedman, managers act on behalf of the company’s owners, whose primary interest is assumed to be the increase of wealth. Therefore, neglecting the duty to maximise profits can be regarded as a violation of owners’ property rights. If taken to the extreme, Friedman’s model would, for example, suggest that a company would be obligated to legally pollute as much as possible, if such actions would maximise profit (Schwartz and Saiia, 2012). Clearly, this shows that Friedman’s model is insufficient for satisfying moral responsibilities.

Friedman considers companies’ moral responsibilities towards the society to the extent that profits should only be increased “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” (Friedman, 1962 cited in Schwartz and Saiia, 2012). While Friedman seems to assume the law is always ethically justified, sometimes the law might appear to be unethical, as for example the Apartheid laws in South Africa, for which reason a violation of legislation could be justified (Schwartz and Saiia, 2012).

[...]