The hypothesis is based around that fact that an ordinary business owner is not equipped with the means to act in a way that would benefit both themselves and society and therefore should maintain a view to use its resources in its own interests, as doing otherwise would likely result in poor results for the business, its shareholders and the economy as a whole, as, with a free market economy, when a business acts in its own self interests, the entire economy benefits due to the invisible hand argument by Adam Smith (Winfield, Hull and Fried, n.d.). This normative premise is based on facts that portray the phenomena and problems facing society today and that ordinary businessmen would not be able to face or eliminate them in anyway.
Arguments for the Shareholder Primacy and objection
The first argument to examine is one touched upon briefly above, that being that profit seeking businesses benefit everyone, regardless of involvement in the business directly or not. This is based purely on the invisible hand argument made by Adam Smith in which a free market economy in operation works best when individuals act in their own self interests. However this theory has since been revised by economists such as John Nash which hints at the weakness of the argument.
This theory also does not allow for government interference or intervention which implies that in a free market, purely capitalist market, the societal needs and welfare is well looked after and there is no exploitation, injustice and inequality in the market place, with collusion and other such activities being null through the market partakers ‘playing by the rules’. This type of view is unrealistic in modern society as there have been and still are many cases of such incidences in unregulated markets.
This brings in the notion of corporate social responsibility and to what degree should a business, if any act in the economy’s best interest.
Despite this argument relying on the weak descriptive premise of the invisible hand, there are some counter arguments to regulating a market in which government allows control to the capitalists however maintains a certain standard for the on-goings there in. These being that regulators or government likely have imperfect information and therefore know not as much as insiders, and due to the way that the private and public sectors attract personnel, it is likely that the insiders of the market are far more knowledgeable. Also, despite regulation, large corporations would still be able to push regulations to their favour as they have great political and economic sway (Winfield, Hull and Fried, n.d.). As this argument is based on a weak premise it can be seen that such an argument is unsound however not conclusively so.
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