Free Markets vs. Social Contract Environments

Free Markets vs. Social Contract Environments

Today, business contexts can operate on the free market or social contract mechanisms. If an organization operates on the free market technique, its tendency to engage in bad behavior will be checked by competition. In contrast, if a company chooses to subscribe to the social contract mechanism, it will rely on the federal government to use means, such as legal enforcement, to control transactions and bad behavior. The extensive analysis of the mentioned market models aids in determining my perception and preference of them from the different perspectives as a customer and as a business owner.

As a customer, I prefer to transact with organizations that use the social contract market model as the mode of their operation. My choice is influenced by the need to protect myself from consumer exploitation, which can be practiced by an entire industry if the government does not intervene. For instance, there may be a lack of rice in the market, a basic food commodity that is necessary to help me survive. The traders selling rice may take this deficiency as an opportunity to exploit consumers by charging them high prices, and this decision could be made across the industry (Johnson, 2018). In the above case, perhaps the traders can import the rice and sell it at low prices, but because there is a general agreement across the industry to exploit clients, then this bad behavior will not be checked by competition as would wish (Wilson, 2020). However, if the federal government is involved, as in the case of a social contract market, then competitors across the rice-trading industry will not exploit me as the consumer as they will be capped by the national consumer protection entity.

As a business person, I also prefer to operate using the social market approach, as it ensures that other competitor corporations do not engage in unfair business acts (Loewe et al., 2021). For instance, there is a possibility that a new entrant in the business will outrageously underprice its products to attract clients, a practice that will hurt my business profitability if I also cannot underprice my goods and services. The federal government in the above setting will interfere and regulate product prices if I am operating under the social contract market approach (Cramer et al., 2020). However, if I rely on the free market method of conducting business, a new entrant that wants to attract clients by underpricing its products severely may influence other competitors to do the same, and this may hurt my business in the long run. Overall, I would operate on the social contract model if I were a business person.

References

Cramer, A., Allison-Hope, D., McElrath, R., Abbott, K., & Tam-Claiborne, D. (2020). The Business Role in Creating a 21st-Century Social Contract. BSR. https://www.bsr.org/reports/BSR-21-Century-Social-Contract.pdf

Johnson, B. (2018). Toward a 21st century approach to consumer protection. Consumer Financial Protection Bureau. https://www.consumerfinance.gov/about-us/newsroom/toward-21st-century-approach-consumer-protection/

Loewe, M., Zintl, T., & Houdret, A. (2021). The social contract as a tool of analysis: Introduction to the special issue on “Framing the evolution of new social contracts in Middle Eastern and North African countries”. World Development, 145. https://doi.org/10.1016/j.worlddev.2020.104982

Wilson, C. S. (2020). Free Markets, Regulation, and Legislation: A Place for Everything, and Everything in Its Place. United States of America Federal Trade Commission, 1-21. https://www.ftc.gov/system/files/documents/public_statements/1568831/wilson_-_free_state_foundation_keynote_3-10-

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The primary aim of a free market is to make a profit. Competition rather than regulation keeps bad behavior in check, and companies work hard to differentiate themselves in order to make more profit. In a social contract environment, outside forces such as regulation, laws, enforcement, and outside governance produce limits to a corporation’s power and reach.

Free Markets vs. Social Contract Environments

As a consumer, which approach are you most comfortable with, the Free Market or Social Contract, and why? As a business owner, which approach would you rather follow and why?