Abstract. Purpose – This paper aims to unveil the business-government-society relationship in China, as compared with that in the USA. Watch video lessons on the relationship between business, government and society and learn about capitalism, interest groups, government agencies. What is the business-government-society (BGS) field and what is its importance? 2. Explain the Four basic models of the BGS relationship. Introduction.
In the Market Capitalism Model it is easier for any individual to enter the market. Any new business that enters the market is in to make profit and to create competition.
Competition creates and offers better value to customers and opponent firms. Businesses in this model focus on creative work and profitability. The creative work is well done therefore people are happy with the products, services etc. Government regulations are limited. The dominance model represents the perspective of business critics.
Society is in a pyramid but only a small group of privileged corporations, government and business leaders control society. Power and wealth are mostly concentrated in a selected group.
In this model society does not have any control and it would probability experience difficulties. The corporations and the government take advantage of society.
Business Government and Society
Business have too much power, changes in the systems is crucial. The countervailing Forces Model consists of four forces: None of the forces dominate; the countervailing forces model implies exchange of power and influence among all of them check and balance.
In this model the power of business is checked and controlled. The USA and other countries use this model. In The Stakeholder Model the corporation is the centerpiece that holds several relationships with persons, groups and stakeholders. Stakeholders are critical to the corporation and it is believed that corporations have ethical duties and social responsibility toward stakeholders because the impact those stakeholders have on them.
A corporation can benefit or burden stakeholders by its actions. Each model can be both descriptive and prescriptive; that is, it can be both an explanation of how the BGS relationship does work and, in addition, an ideal about how it should work.
There, it is substantially sheltered from direct impact by social and political forces. To appreciate this model, it is important to understand the history and nature of markets and the classic explanation of how they work. Markets are as old as humanity, but for most of recorded history they were a minor institution. People produced mainly for subsistence, not to trade. Then, in the s, some economies began to expand and industrialize, division of labor developed within them, and people started to produce more for trade.
As trade grew, the market, through its price signals, took on a more central role in directing the creation and distribution of goods. The advent of this kind of market economy, or an economy in which markets play a major role, reshaped human life. The classic explanation of how a market economy works comes from the Scottish professor of moral philosophy Adam Smith — He never used that word.
It was adopted later by the socialist philosopher Karl Marx —who contrived it as a term of pointed insult. But it caught on and soon lost its negative connotation.
Smith said that the desire to trade for mutual advantage lay deep in human instinct. He noted that the growing division of labor in society led more people to try to satisfy their self-interests by specializing their work, then exchanging goods with each other. As they did so, the market's pricing mechanism reconciled supply and demand, and its ceaseless tendency was to make commodities cheaper, better, and more available.
The beauty of this process, according to Smith, was that it coordinated the activities of strangers who, to pursue their selfish advantage, were forced to fulfill the needs of others. The greater good for society came when businesses competed freely. In Smith's day producers and sellers were individuals and small businesses managed by their owners.
Later, by the late s and early s, throughout the industrialized world, the type of economy described by Smith had evolved into a system of managerial capitalism. In it the innumerable, small, owner-run firms that animated Smith's marketplace were overshadowed by a much smaller number of dominant corporations run by hierarchies of salaried managers.
These managers had limited ownership in their companies and worked for shareholders. This form of capitalism has now spread throughout the world. Nowhere does it work exactly like Smith's theory. Nevertheless, the market capitalism model continues to exist as an ideal against which to measure practice.
The model incorporates important assumptions. One is that government interference in economic life is slight. It is costly because it lessens the efficiency with which free enterprise operates to benefit consumers.
It is for governments, not businesses, to correct social problems. Therefore, managers should define company interests narrowly, as profitability and efficiency. Another assumption is that individuals can own private property and freely risk investments. Under these circumstances, business owners are powerfully motivated to make a profit. If free competition exists, the market will hold profits to a minimum and the quality of products and services will rise as firms try to attract more buyers.
If one enterprise tries to increase profits by charging higher prices, consumers will go to a competitor. If one producer makes higher-quality products, others must follow. In this way, markets convert selfish competition into broad social benefits. Other assumptions include these: Consumers are informed about products and prices and make rational decisions. Moral restraint accompanies the self-interested behavior of business.Market Capitalism Model Part 1
Basic institutions such as banking and laws exist to ease commerce. There are many producers and consumers in competitive markets. The perspective of the market capitalism model leads to these conclusions about the BGS relationship: These tenets of market capitalism have shaped economic values in the industrialized West and, as markets spread, they do so increasingly elsewhere.
There are many critics of capitalism and the market capitalism model. As promised by its defenders, capitalism has created material progress. Yet there is trade-offs: It is argued that capitalism creates prosperity only at the cost of rising inequality. Karl Marx believed that owners of capital exploited workers and used imperialist foreign policies to spread markets.
Others believe that markets erode virtue. The avarice, self-love, and ruthlessness that energize them are base values that drive out virtues such as love and friendship. Another enduring fear is that markets place too much emphasis on money and material objects. Still other criticisms focus on the flaws that sometimes, perhaps inevitably, appear in them.
Without correction they may reward conspiracies and monopoly. Also, the profit motive has led companies to pollute and plunder the earth. All these criticisms of capitalism are pronounced today, but none are new. They represent a series of recurrent attacks that wind through the Western philosophical tradition. Adam Smith himself had some reservations and second thoughts. He feared both physical and moral decline in factory workers and the unwarranted idolization of the rich, who might have earned their wealth by unvirtuous methods.
In his later years, he grew to see more need for government intervention. But Smith never envisioned a system based solely on greed and self-interest. He expected that in society these traits must coexist with restraint and benevolence. The ageless debate over whether capitalism is the best means to human fulfillment will continue. Meanwhile, we turn our discussion to an alternative model of the BGS relationship that attracts many of capitalism's detractors.
It represents primarily the perspective of business critics. In it, business and government dominate the great mass of people. This idea is represented in the pyramidal, hierarchical image of society shown in Figure 1.
Those who subscribe to the model believe that corporations and a powerful elite control a system that enriches a few at the expense of the many. Such a system is undemocratic. In democratic theory, governments and leaders represent interests expressed by the people, who are sovereign.
Proponents of the dominance model focus on the defects and inefficiencies of capitalism. They believe that corporations are insulated from pressures holding them responsible, that regulation by a government in thrall to big business is feeble, and that market forces are inadequate to ensure ethical management.
Unlike other models, the dominance model does not represent an ideal in addition to a description of how things are. For its advocates, the ideal is to turn it upside down so that the BGS relationship conforms to democratic principles.
In the United States, the dominance model gained a following during the late nineteenth century when large trusts such as Standard Oil emerged, buying politicians, exploiting workers, monopolizing markets, and sharpening income inequality. Beginning in the s, farmers and other critics of big business rejected the ideal of the market capitalism model and based a populist reform movement called populism on the critical view of the BGS relationship implied in the dominance model.
Populism is a recurrent spectacle in which common people who feel oppressed or disadvantaged in some way seek to take power from ruling elite that thwarts fulfillment of the collective welfare. In America, the populist impulse bred a sociopolitical movement of economically hard-pressed farmers, miners, and workers lasting from the s to the s that blamed the Eastern business establishment for a range of social ills and sought to limit its power.
This was an era when, for the first time, on a national scale the actions of powerful business magnates shaped the destinies of common people.
Some displayed contempt for commoners. Vanderbilt told a reporter during an interview in his luxurious private railway car. The next day, newspapers around the country printed his remark, enraging the public. The populist movement in America ultimately fell short of reforming the BGS relationship to a democratic ideal.
Other industrializing nations, notably Japan, had similar populist movements. Marxism, an ideology opposed to industrial capitalism, emerged in Europe at about the same time as these movements, and it also contained ideas resonant with the dominance model.
In capitalist societies, according to Karl Marx, an owner class dominates the economy and ruling institutions. Many business critics worldwide advocated socialist reforms that, based on Marx's theory, could achieve more equitable distribution of power and wealth. In the United States the dominance model may have been most accurate in the late s when it first arose to conceptualize a world of brazen corporate power and politicians who openly represented industries.
However, it remains popular. Ralph Nader, for example, speaks its language. Over the past 20 years, big business has increasingly dominated our political economy. In recent years fear of transnational corporations has given the dominance model new life in a global context.
It suggests complex exchanges of influence among them, attributing dominance to none. This is a model of multiple or pluralistic forces. Their strength waxes and wanes depending on factors such as the subject at issue, the power of competing interests, the intensity of feeling, and the influence of leaders. The counter- with democratic traditions. Many important interactions implied in it would be evaluated as negligible in the dominance model.
What overarching conclusions can be drawn from this model? Business is a major initiator of change in society through its interaction with government, its production and marketing activities, and its use of new technologies.
Broad public support of business depends on its adjustment to multiple social, political, and economic forces. Incorrect adjustment leads to failure. This is the social contract at work. BGS relationships continuously evolve as changes take place in the main ideas, institutions, and processes of society.
Business Government and Society
The Stakeholder Model The stakeholder model in Figure 1. Stakeholders are those whom the corporation benefits or burdens by its actions and those who benefit or burden the firm with their actions. A large corporation has many stakeholders. These can be divided into two categories based on the nature of the relationship. But the assignments are relative, approximate, and inexact. Depending on the corporation or the episode, a few stakeholders may shift from one category to the other.
Primary stakeholders are a small number of constituents for which the impact of the relationship is immediate, continuous, and powerful on both the firm and the constituent.
They are stockholders ownerscustomers, employees, communities, and governments and may, depending on the firm, include others such as suppliers or creditors. Secondary stakeholders include a possibly broad range of constituents in which the relationship involves less mutual immediacy, benefit, burden, or power to influence.
Examples are activist groups, trade associations, and schools. Exponents of the stakeholder model debate how to identify who or what is a stakeholder.
Some use a broad definition and include, for example, natural entities such as the earth's atmosphere, oceans, terrain, and living creatures because corporations have an impact on them.
Others reject this broadening, since natural entities are represented by conventional stakeholders such as environmental groups. Some include competitors because, although they do not work to benefit the firm, they have the power to affect it.
At the furthest reaches of the stakeholder idea lie groups such as the poor and future generations. But in the words of one stakeholder advocate, stakeholder theory should not be used to weave a basket big enough to hold the world's misery. The stakeholder model reorders the priorities of management away from those in the market capitalism model. There, the corporation is the private property of those who contribute its capital.
Its immediate priority is to benefit one group— the investors. The stakeholder model, by contrast, is an ethical theory of management in which the welfare of each stakeholder must be considered as an end. Stakeholder interests have intrinsic worth; they are not valued only to the extent that they enrich investors. Critics of the stakeholder model argue that it is not a realistic assessment of power relationships between the corporation and other entities.
It seeks to give power to the powerless by replacing force with ethical duty, a timeless and often futile quest of moralists. In addition, it sets up too vague a guideline to substitute for the yardstick of profits for investors. With respect to corporate actions, laws and regulations protect stakeholder interests.
Creating surplus ethical sensitivity that soars above legal duty is impractical and unnecessary. Some puzzles exist in stakeholder thinking. It is not clear who or what is a legitimate stakeholder, to what each stakeholder is entitled, or how managers should balance competing demands among a range of stakeholders. Yet its advocates are compelled by two arguments.
First, a corporation that embraces stakeholders performs better. A corporation better sustains its wealth-creating function with the support of a network of parties beyond shareholders. Put bluntly by one advocate of the stakeholder perspective, executives ignore stakeholders at the peril of the survival of their companies. Irrespective of academic debates, in practice many large corporations have adopted methods and processes to analyze their stakeholders and engage them.
Henry Adams defined a historical force as "anything that does, or helps to do, work. Change in the business environment is the work of nine deep historical forces or streams of related events discussed below. The first historical force is the industrial revolution, a powerful force that grips the imagination of humanity.
The term industrial revolution refers to transforming changes that turn simple economies of farmers and artisans into complex industrial economies. In thousands of years before the industrial takeoff of Great Britain in the late eighteenth century, there had been no widespread, sustained economic growth to raise living standards.
The vast majority of the world's population was mired in poverty.
Industrial transformation requires specific conditions, including a sufficiency of capital, labor, natural resources, and fuels; ready transportation; strong markets; and ideas and institutions that support the productive blend of these ingredients.
Britain came first because it was first to have the right mix of social, political, and economic supports. It was an open society that allowed social mobility and encouraged individual initiative. Its parliament embodied values of political liberty, free speech, and public debate. Perhaps consequently, Britain was the source of scientific advances and inventions such as the steam engine that liberated energy s in the nation's massive coal deposits.
Its climate supported agriculture and its island geography put it at the hub of sea routes for world trade. From time immemorial, status distinctions, class structures, and gaps between rich and poor have characterized societies.
Inequality is ubiquitous, as are its consequences-envy, demands for fair distribution of wealth, and doctrines to justify why some people have more than others. The basic political conflict in every nation, and often between nations, is the antagonism between rich and poor. As the industrial revolution accelerated the accumulation of wealth, it worsened the persistent problem of uneven distribution.
Explosive economic growth widened the gap between rich and poor around the globe. In the international arena, the nation-state is an actor formed of three elements, a ruling authority, citizens, and a territory with fixed borders. The modern nation-state system arose in an unplanned way out of the wreckage of the Roman Empire.
The institution of the nation-state was well-suited for Western Europe, where boundaries were contiguous with the extent of languages. However, the idea was subsequently transplanted to territories in Eastern Europe, Southwest Asia, and the Middle East, partly by force of colonial empires and partly by mimicry among non-Western political elites for whom the idea had attained high prestige.
An ideology is a set of reinforcing beliefs and values that constructs a worldview- The industrial revolution in the West was facilitated by a set of interlocking ideologies, including capitalism, but also constitutional democracy, which protected the rights that allowed individualism to flourish; progress, or the idea that humanity was in upward motion toward material betterment; Darwinism, or Charles Darwin's finding that constant improvement characterized the biological world, which reinforced the idea of progress; social Darwinism, or Herbert Spencer's idea that evolutionary competition in human society, as well as the natural world, weeded out the unfit and advanced humanity; and the Protestant ethic, or the belief that sacred authority called for hard work, saving, thrift, and honesty as necessary for salvation.
Ideologies are more than the sum of sensory perception and rational thought. They fulfill the human need for concepts and categories of meaning that explain daily life. Ideologies in accord with experience and current conditions often spread widely. Their belief systems lead adherents to feel a collective identity and to follow common norms that direct social behavior, thereby promoting cooperation and stability.
And they give institutions that represent them, such as churches, and corporations, the power to interpret events and resolve human problems. Leaders have brought both beneficial and disastrous changes to societies and businesses. Alexander imposed his rule over the ancient Mediterranean world, creating new trade routes on which Greek merchants flourished. Adolf Hitler of Germany and Joseph Stalin in the Soviet Union were strong leaders, but they unleashed evil that retarded industrial growth in their countries.
There are two views about the power of leaders as a historical force.
One is that leaders simply ride the wave of history. When oil was discovered in western Pennsylvania inJohn D. Rockefeller was a young man living in nearby Cleveland, where he has accumulated a little money selling produce. He saw an opportunity in the new industry. His remarkable traits enabled his to domineer over a rising industry that reshaped the nation and the world. Yet is there any doubt that the reshaping would have occurred nonetheless had Rockefeller decided to stick with selling lettuce and carrots.
Scholars are reluctant to use the notion of chance, accident, or random occurrence as a category of analysis. Yet some changes in the business environment may be best explained as the product of unknown and unpredictable causes. No less perceptive a student of history than Niccolo Machiavelli observed that fortune determines about half the course of human events and human beings the other half. We cannot improve on this estimate, but we note it.