01 ethical aspects of business curs
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Introductory
Elements
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THE CONCEPT OF BUSINESS
State-owned enterprises are not businesses! The profit they make
if anyis managed by the government and local administration inorder to achieve certain social and political objectives.
a pr ivately-ownedcommercial enterprise
Individuals and organizations that make products and / or render
services for other reasons than profit are working, but not doingbusiness.
whose intrinsic purpose is to make a prof i tforits owners
Profit means money, but making money does not always mean doing
business. Selling an inherited house or grandma's silver andgrandpa's stamp collection could make one very rich, but as a luckyguy, not as a business person.
by means of legallyselling on the free marketprodu cts and services
Drug dealing, smuggling or prostitution are very profitable activities,but they are i l legalbusinesses, because they harm a lot of people.
designed to satisfy soc ial ly accepted humanneeds
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1. Is profit the sole andultimate purpose of
any business?
Twoopenquestionsabout
profit:
PROFIT
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The answer depends on the broadness of our perspective.
X
society -economic
environment,offering businessopportunities
society -system ofneeds and wants,demanding productsand services, offeredby businesses
XY
Z
Business needs society asmeans to make profititsintrinsic purpose.
Society needs businesses asmeans to satisfy human needsthe purpose of market economy.
YES
From a narrow viewpoint, focused ona single business, the answer isaffirmative. Each single business (X)is founded by its owners, who put atrisk their capital, as a system ofresources (workers and managers,facilities, technology, raw materials,
utilities, etc.) ment to make a profit forthe investors.
NO
Enlarging our perspective, so that toencompass the social and economicsystem, the right answer is negative.There are businesses (X, Y, Z) insofaras they function as efficient means tofulfill the needs and wants of thepeople. Profit is a deserved reward for
those who can satisfy the socialdemand.
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2. How large should
be the profit?
PROFIT
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PROFIT
maximum
The supporters of thenarrow, micro-levelperspective logically claimthat a good, competent andcompetitive management
should aim at maximizingthe company's profit (usingmethods permitted by thelaw), since this is the bestway to satisfy the owners'interests.
reasonable
The supporters of the large,macro-level perspectiveideologically rather thanlogically claim that a good,competent and responsible
management should aim atthe best fulfillment of thesocial needs and wants,since this is the best way tosatisfy the consumers'interests. As a deserved
reward for economicperformance, profit shouldbe 'reasonable'.
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PROFIT
It's easy to define clearly
what maximum profitmeans, and to
understand the objectivelogic of maximizing
profit.
Business persons are
not greedy, but rationalself-motivated people.Trying to maximize their
profit, they strive toserve the best the public
interest.
It's extremely difficult todefine clearly what a
reasonable profitmeans, and to supportwith objective reasons
why, when and howprofit should not be
maximized.
Business persons are
greedy, selfish andirresponsible people.Obsessed with
maximizing their profit,they don't give a damn
about the public interest.
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PROFIT IN PHARMACEUTICAL INDUSTRY
Drug companies in the US are granted a patent on any new pharmaceuticaldrug they develop, which gives them a monopoly on that drug for 20 years.Not surprisingly, high monopoly profits, well beyond the average rate of
profits in other industries, are characteristic of the pharmaceutical industry.
In a study published in 2003, Public Citizens
Congress Watch noted that in 2002 average profitsfor drug companies in the Fortune 500 were 17% of
revenues whereas average profits for Fortune 500companies in all other industries were 3% ofrevenues.
PeriodDrug companies median profit on revenuescompared to all other industries in the Fortune 500
1970s and 1980s double
1990s 4 times
today 8 times
17%
3%
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PROFIT IN PHARMACEUTICAL INDUSTRY
Drug companies say they need these profits to cover the costsof research for new drugs.
A 2004 study of drug costs showed that prescription drugs havemarkups of 5,000%, 30,000% and 50,000% over the cost of theiringredients.
Ingredients cost / 100 tabletsDrug Selling price
Norvasc 14 cents $ 220
Prozac 11 cents $ 247
Tenormin 13 cents $ 104
Xanax 3 cents $ 136
research 14%
profits for shareholders 17%
advertising and administration 31%