Question

5)    What is a reasonable profit and what is theft?

6)    Has the pursuit of private gain been at the expense of the public good?

7)    Taxes: who should pay and how much?

8)    Does the mechanism of the marketplace ‘automatically’ correct abuse and concentrations of monopolistic power or is regulation required? If required, what should be regulated and how?

9)    Is global free trade more of a gain or more of a loss for the human race? Why?

10) Given the various issues that we studied in this course, what are your main conclusions about business practices today and their impacts on a democratic society? What changes would you recommend and how could they be achieved?  

Answer 1

5)    What is a reasonable profit and what is theft?

While there is no clear definition or a percentage of profit that demarcates between profit and theft. There are a fee metrics that are good indicators whether or a given firm or a business is operating fairly.

• Whether or not they're compliant of the minimum wage laws in their country

• Whether or not their pay grade for their employees is on par or within eh upper and lower limits of industry standard

• Whether they have a monopoly or a duopoly or operate in perfect competition. If they are a monopoly or a duopoly are their prices considered fair by international trade bodies and governance standards. If they operate in perfect completion, do they collude to set prices or do they let the free market decide their prices.

• Whether or not their pricing is arbitrary or whether or not their pricing is dependant on the amount of money the consumer is willing to pay or whether it's dependant on Cost of Goods sold & operating costs

• Whether the firm has a considerable amount of CSR or Corporate Social Responsibility Activities

• Whether or not the firm practices ethical sources

6)    Has the pursuit of private gain been at the expense of the public good?

I wouldn't say that this is true for most industry with the exception of oil and gas companies. I'd say that the purist of private gain has been at the expense of the public good when there are large environmental costs.

For eg

The British Petroleum Oil spill is the perfect example. On April 20, 2010 a BP commissioned oil exploration rig called the Deep Water Horizon caught fire and resulted in a major oil spill in the Gulf of Mexico. This had a major impact on the wildlife , the ocean and also raised health concerns. Although BP was fined with 2.5 billion USD in fines, the environmental impact is still visible today. Deep Water Horizon's primary reason for failure was BP's or BP executives call to continue exploration into other oil wells against the RIG leader's advice, The drilling team at Deep Water Horizon Time and again warned that the Oil Well was unstable and that the tests conducted were inconclusive. However the leadership at BP who hired the Deep Water Horizon over rode their analysis and had the rig attempt to move before the well was stabilised which caused the tragedy. Despite of the fact that the Deep Water Horizon passed the pressure tests, they should've had a higher compliance standards than the minimum requirements. They should've given the drilling teams expert opinion equal importance.

This was a clear instance where private gain was put ahead of public good by rejecting the advice of the Deep Water Horizon Staff and by not securing or cementing the BP well properly.

7)    Taxes: who should pay and how much?

Taxes should always be progressive and not regressive. A progressive tax system works to ensure that the % of taxes and individual or a business pays increases as their share of income increases. The reason why most comities follow a progressive tax system is to encourage saving, investing , job, wealth creation and overall economic prosperity. If taxes are too low they may not meet the Federal Spending resulting in a deficit. On the other hand if taxes are too high, they will de incentivise the rich and businesses from growing and will restrict innovation, economic creation and job creation. Laffer's Curve which shows the inverse relationship between tax rates and the net amount of tax collected.

8)    Does the mechanism of the marketplace ‘automatically’ correct abuse and concentrations of monopolistic power or is regulation required? If required, what should be regulated and how?

Marketplace mechanisms are great at correcting prices when firms are under perfect competition. I.e Similar firms offering similar products and services. However monopolies and duopolies have an edge over market mechanisms, since market cannot dictate prices for monopolies and duopolies upto a certain extent.

There are two ways to keep demand at an constant or to increase demand. The first is to increase prices and the second is to differentiate the product or the service being offered. If price changes without any changes in the net value that the product or a service is adding to a customer, it would inevitably effect the demand for the product or service. This is best highlighted by the demand curve in behavioural economics through a series of graphs known as elasticity of demand. Monopolistic firms are the only ones who enjoy perfectly inelastic demand for their products or service, where a change in price is't followed by the change in demand. For all other companies however, they would have to add a degree of value to prevent demand levels from falling.

Prices for essentials such as pharmaceuticals, oil and gas should be regulated. A good example of a monopoly or a duopoly is Monsanto-Syngenta merger.

Background

Monsanto was originally a chemical company which later ventured into GMO or genetically modified food products. It began researching and manufacturing seeds which provided faster and bigger crop yields through target exposure and un natural infusion of fungus, bacteria and agricultural sciences and engineering.

Benefits of a Mega Merger

ImprovedAgricultural Efficiency to meet the demand for food

With a rapidly increasing global population. the need to food and water security has become paramount. Having a company that increase the efficiency by giving yields which are not only bigger but which can also be cultivated faster in environments where it would have been impossible to do so. This form of disruptive technology will help us meet global food shortages with a great deal of efficiency.

Only large firms like Monsanto-Syngent have the resources for such Research and Development

While it may seem tempting to prevent mega mergers from taking place, the fact still remains that disruptive technology requires a large amount of financing, human resources, technology and thought process. This is only possible when the free markets allow and encourage large firms like Monsanto-Syngent to merge with each other in order to bring in technology and innovation which will help move agricultural technology to the next level.

Detriments of a Mega Merger

Detriments of a Mega Merger

Mega Mergers result in imperfect competition & monopolies

Mega Mergers are the type of mergers where the two or more companies involved in the merger's valuation is substantially large. Ideally at or above a billion dollars and the product of the merger would be an organisation which could be valuated at an ever more higher amount. Mega Mergers sometimes result in either a monopoly (only one company controlling the supply for a given product or a market), a duopoly (Only two monopolistic firms operating within an industry) or an oligopoly (limited competition due to few players controlling the entire industry).

Monopolistic Markets lead to Cartelisiaton & Collusion

Historical data points shows that in most monopolistic markets like OIL, minerals etc, the few companies who controlled the supply of a product or a service for an entire market often tend to collude or form cartels and resort to price manipulation or rigging prices. In a market with perfect competition, the free market dictates the prices on the basis of demand or supply. However in monopolistic markets, the lack of a close substitute often leads to little control over prices. This means that the Monsanto-Syngenta could essentially drop the prices of crop to a level which would kill any smaller firms trying to compete and then they could potentially hike the prices to a level beyond whats considered a fair market price for produce.