Chapte r 1

The Study of Business,
Government, and Society
This chapter:
 Introduces four basic models of the businessgovernment-society relationship.
 Defines basic terms and explains the authors’ approach to the subject matter.

McGraw-Hill/Irwin

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

What is the Business–
Government– Society Field?
 Business – broad term encompassing a range of actions and institutions.
 Government – refers to structures and processes in society that authoritatively make and apply policies and rules.
 Society – a network of human relations that includes three interacting elements:
 Ideas
 Institutions
 Material things
McGraw-Hill/Irwin

1-3

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Why is the BGS Field Important to
Managers?
 To succeed in meetings its objectives a business must be responsive to both its economic and its noneconomic environment.
 Recognizing that a company operates not only within markets but within a society is critical.
 A basic agreement or social contract exists between the business institution and society.
 Managers must respect and adhere to society’s expectations. McGraw-Hill/Irwin

1-4

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Four Models of the BGS Relationship
The Market Capitalism Model

McGraw-Hill/Irwin

1-5

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Four Models of the BGS Relationship
The Market Capitalism Model
(continued)

 The market capitalism model depicts business as operating within a market environment, responding primarily to powerful economic forces.  The market acts as a buffer between business and nonmarket forces.
 History and nature of markets
 Adam Smith, The Wealth of Nations
 Capitalism
 Managerial capitalism
McGraw-Hill/Irwin

1-6

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Four Models of the BGS Relationship
The Market Capitalism Model
(continued)

 Important assumptions of the market capitalism model:
 Government interference in economic life is slight
(laissez-faire).
 Individuals can own private property and freely risk investments.  Consumers are informed about products and prices and make rational decisions.
 Moral restraint accompanies the self-interested behavior of business.
 Basic institutions such as banking and laws exist to ease commerce.
 There are many producers and consumers in competitive markets.
McGraw-Hill/Irwin

1-7

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Four Models of the BGS Relationship
The Market Capitalism Model
(continued)

 Market capitalism model perspective conclusions about the BGS relationship:
 Government regulation should be limited.
 Markets discipline private economic activity to promote social welfare.
 The proper measure of corporate performance is profit.
 The ethical duty of management is to promote the interests of shareholders.
McGraw-Hill/Irwin

1-8

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Four Models of the BGS Relationship
The Dominance Model

McGraw-Hill/Irwin

1-9

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Four Models of the BGS Relationship
The Dominance Model (continued)
 Proponents of the dominance model believe that corporations and a powerful elite control a system that enriches a few at the expense of many.
 Populist reform movement opposed the dominance model.
 Marxism emerged in Europe about the same time.  Most accurate in the 1800s, but is being resurrected due to the fear of transnational corporations in a global context.
McGraw-Hill/Irwin

1-10

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Four Models of the BGS Relationship
The Countervailing Forces Model

McGraw-Hill/Irwin

1-11

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Four Models of the BGS Relationship
The Countervailing Forces Model
(continued)

 Countervailing forces model conclusions:
 Business is