Download - The Market Capitalism Model
BUSINESS, GOVERNMENT AND INDIAN
SOCIETY ASSIGNMENT
BY:
RAUNAK DOSHI
1021327
1ST
MBA M
The Market Capitalism Model
� Business operates within a market environment
� Primarily responding to economic forces
� Sheltered from direct impact of social and political forces
� Business is substantially sheltered from the direct impact of sociopolitical
forces and focuses on the primary economic forces
� Market environment is shaped by business operations and by social and
political pressures
� The market is a buffer between business units and non-market forces
� “Classic Capitalism”: most economic activity is carried on by private firms
in competitive markets
� Based on the assumption of Laissez-faire (the government should let us
alone)
� Individuals have the freedom to pursue self-interest, and therefore
individuals are motivated by the desire to make money
� Assumes that individuals can own property and are free to risk investments
Model Origins:
� Historically people produced for subsistence
� 1700s people start to produce for trade
� Market Economy reshaped human life
� Emerges when people move beyond subsistence production to
production
for trade
� Adam Smith’s, The Wealth of Nations
� Capitalism and the “invisible hand”
� Market’s pricing mechanism reconciled supply & demand making
commodities cheaper, better, and more available
� Greater good for society when businesses compete freely
� Managerial Capitalism (early 1900s)
� Market economy in which dominant businesses are large firms run by
salaried managers, not smaller firms run by owners
Model Assumptions:
� Government interference is slight or “laissez-faire”
� Government, not business, should correct social problems
� Managers focus on profit and efficiency
� Individuals can own property and freely risk investments
� Markets convert selfish competition into broad social benefits
� Informed consumers making rational decisions
� Moral restraint of business
� Many producers and consumers
Market Capitalism Model Perspective Conclusions:
� Government regulation should be limited
� Markets discipline private economic activity to promote social welfare
� Proper measure of corporate performance is profit
� Ethical duty of management is to promote the interests of shareholders
Model Critics:
� Creates prosperity only at cost of rising inequality
� Markets erode virtue
� Greed
� Ruthlessness
� Profit motive encourages plundering of the earth
The Dominance Model
� Began in 1870s
� Resulted in reform movement of Populism
� President, Union Pacific “could buy Congress”
� Railroad magnate, Vanderbilt “The public be damned!”
� Rise of unionization of railroads and added government regulation