Summary
The article by Arnold and Bowie delves into the current practices of MNEs (Multi-National Enterprises) and how they are guilty of facilitating inhumane working conditions and giving low salaries to the various workers that are employed at the factories that they outsource their methods of production too. They present the notion that such practices are highly unethical and need to be changed since people have the right to a decent working wage and proper working conditions (Arnold and Bowie, 227).
Flaws in the author’s logic
One of the identified flaws in the logic of the authors is that while they focus on the ethical issues surrounding sweatshops and the responsibility of multinational corporations in providing decent working conditions, Arnold and Bowie fail to take into consideration the current competitive market and the desire for consumers for low-cost products (Arnold and Bowie, 225). What must be understood is that an average consumer is influenced by a myriad of different factors that affect how they choose to patronize a particular company.
This can range from various psychological reactions such as how they think and feel about different products (i.e. brand perception) to how the market environment they are currently present in affects how they perceive a particular product or service (i.e. local culture, their family, local media influences, etc.). The current market environment that consumers are experiencing, which can be described as a recession given the low levels of economic activity within the U.S., has greatly affected how consumers perceive the things that they buy or patronize.
It should also be noted that the concept of rational behavior assumes that all consumers are rational individuals who try to use their earned income to derive the greatest amount of satisfaction/utility. In other words, consumers try to get the most out of their income through rational buying behavior which results in a maximization of total utility from the products or services used. Consumers will act in an economically competent manner in that they will not spend too much money on irrational purchases or services.
Taking these factors into consideration, if a corporation were to try to sell products within the U.S. utilizing U.S. based factories, then the cost of the products would be higher as compared to a similar company selling the same type of product yet utilizing workers from China, India or other locations that companies outsource to. From the buyer’s point of view, when presented with the same type of product yet having different prices, it is obvious that under the concept of rational behavior they would purchase the product that is cheaper yet has the same quality.
This is one of the reasons why companies continue to outsource their manufacturing departments to other countries since from a competitive perspective they need to be able to appeal to the rational buying behavior of customers (Arnold and Bowie, 232). Arnold and Bowie fail to address this and do not present a viable alternative to current outsourcing practices (Arnold and Bowie, 225). The low employee salaries and the unsafe working conditions are what make the products cheap to produce in the first place.
If American standards were to be applied in these locations, then the price of production would simply be too high. The authors mention the need for better working conditions, higher salaries, more responsible corporate practices as well as ethical methods of production yet neglect to take into consideration how companies are supposed to survive in the current market environment if they were to implement such practices ((Arnold and Bowie, 232).
It is easy to criticize the practices of companies when looking at their practices from afar, however, when an individual is experiencing the daily operations that are conducted within a multinational corporation, they would be able to see that there is a delicate balancing act in place between financial success and financial ruin. This balance is often dependent on consumer perception of a company’s products with the most likely basis behind continued patronage being the price of the product. As such, the concept of rational behavior assumes all consumers engage in rational buying behaviors which becomes the basis for any future analysis of consumer patronage towards a particular type of product or utility.
While one potential scenario that could occur under the methods suggested by Arnold and Bowie is that the price point (i.e. the price consumers would be willing to pay) would shift upwards to accommodate the increase in prices so long as more ethical methods of production are implemented, what they fail to consider is that customers have a certain “limit” to the amount they are willing to pay on particular products and services.
Consumers are inherently aware of how much in the way of marginal utility they can derive from successive use/consumption of a particular product or service. It must be noted though that the amount of marginal and total utility derived from a particular product or service differs based on each consumer group since they all have individual tastes, preferences, and ideologies. Under the concept of budget constraints, each consumer is assumed to have a fixed and finite income due to the limited amount of work in exchange for income each consumer is capable of achieving. In this case, it is assumed that there is unlimited demand for goods and services however this is offset by a limited income.
Due to the limited amount of income each consumer is capable of achieving, they must choose to obtain the best combination of goods that maximizes their total utility while at the same time remaining within a certain price range. Thus, even if a company were to advertise that it was utilizing ethical methods of production which appeal to consumers, if the resulting product is outside of their price point then consumers are unlikely to purchase it no matter how much they like the product.
Lastly, while the authors continue to delve into the duties of MNEs about CSR (Corporate Social Responsibility) as well as the need to ensure the safety and security of their workers, they neglect to take into consideration the obligation these companies have to their shareholders (Arnold and Bowie, 231). When taking all the factors that have been mentioned into consideration, it becomes immediately obvious that while the arguments that Arnold and Bowie are valid from an ethical standpoint, they do not face up well when confronted with the realities of the current global economic market.
Questions
- What potential alternative methods of operation could be implemented that take into account rational consumer buying behavior and ethical methods of production?
- Is there a way that corporations can balance the need to operate competitively while at the same time creating better conditions for their workers? Explain.
- Do you believe that corporations will shift to more expensive methods of production simply because it is unethical to continue along their current path? Explain.
References
Arnold, D. G., & Bowie, N. E. (2005). Sweatshops and respect for persons. Journal of Philosophical Research, 30(9999), 165-188. Web.