Question 2
Adam Smith’s “fellow-feeling” fits with a free market economy because it increases the assurance of buyers and sellers of the market.
Peter Chen’s character in the novel Saving Adam Smith exemplifies Adam Smith’s views of business management in a number of ways. Peter Chen puts the values of his company and himself before his profits. Chen said that if he puts profits before his core values, then business functions will begin to “install safety and pollution equipment only to the minimum letter of the law” and require employees to work too many hours for too little pay (Wight, p. 217). This decline in quality is very similar to Adam Smith’s example of the butcher: “Suppose that it were possible to possible for the butcher to sell an inferior cut of meat without being discovered. Will he do it, assuming he could get away with it?” (Wight, p. 225) Both Peter Chen and the butcher are motivated not only by the threat of being caught, but also for their own self worth. A positive self-image is “essential for peace of mind” which Adam Smith argues should be the motivation for business.
Chen’s business approach contains both strengths and weaknesses. The first strength is increased productivity in workers which yields higher-value added to the process. This strength relies upon one principle: “The employees come first” (Wight, p.216). If the company operates with core values that will empower the employees develops a sincere “fellow-feeling,” then the employees will take a personal interest in the successes and failures of the business. Chen found that productivity increased which allowed for entry into a business based on “specialty chips with high value added” (Wight, p. 220). Another strength includes that companies and consumers are more willing to purchase products from a company they trust. As Smith describes, “trust arises when you deal with people you know to have an internal self-image to uphold” (Wight, p. 225). Chen’s business approach is based on self-image and core values which yields positive results from employees and customers. (Wight, p. 216-225)
Sometimes, the strong values do not always coincide with retaining customers. Chen lost his largest customer because of his dedication to his employees and other customers. Although it was a minor setback, the business model is very progressive and there is evidence of real-life companies using a similar management strategy. Google currently operates its company with a “Don’t be evil” slogan. They also give employees plenty of time to work on a project of the employees choosing which can be completely unrelated to their discipline. This kind of plan fosters creativity and innovation (Wight, p.216-218).
Question 4
Four common types of protectionist policies are tariffs, quotas, anti-dumping laws, and subsidies. Tariffs and quotas are different in concept but their results are virtually the same (Roberts, p.38). Tariffs are taxes that are placed on imports. This tax is essentially passed on to the end customer (added to the original price). Quotas are a quantitative barrier placed on imports where a limited number of a certain product is allowed entrance to the domestic market. The end result of these two barriers is the same in concept. As the price increases for the foreign products under tariff and the number of foreign products is restricted by a quota, the demand for domestic products will significantly increase. The domestic producer can keep their original prices for a limited amount of time before they must produce beyond capacity, due to increased demand. This expansion will require substantially more capital and will result in increased prices and increased need for human capital. The increase in human capital goes against Ricardo’s idea of comparative advantage. These workers could be working in an industry or on a product that allows the “roundabout way to wealth.” Comparative advantage pushes innovation which will stall under protectionist restrictions (Roberts, p. 37-40).
Anti-dumping laws prohibit dumping and require sales at the “market” price. Dumping is defined by the Department of Commerce as “anytime that producer’s price in the United States was below the price in its home market” (Roberts, p. 82). Naturally, other countries retaliated with a similar policy of their own. This stifles comparative advantage and the flow of goods and money between economies (Roberts, p. 82-84).
Subsidies are paid to certain businesses out of the pockets of the government, or essentially the taxpayer. The government subsidizes certain industries or products because the government feels that it is necessary to keep them afloat for the good of the nation. This strategy also goes against the principle of comparative advantage. Unprofitable businesses can be divested because a company somewhere else can produce just as easily but profitably.