BCom Notes Part I Business Nature of Business
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Nature of Business
Industry
Manufacturing Industry
Manufacturing Industry converts the basis goods (raw materials) into the finished goods. In other words, industry creates form utility in the goods already produced by nature like furniture by wood, machines by iron and cloth is made by cotton.
Extractive Industry
Extractive industry is generally related with the production of Primary Gods. These industries are associated with agriculture, pastures, mining, and fish keeping or finishing. These industries produce primary goods, which are used in the manufacturing industries as raw materials. These industries get the goods from surface, beneath the surface and in the space.
Construction Industry
Activities of the construction industry are related to the houses, buildings, dams, bridges, canals etc.
Genetic Industry
Genetic Industry is concerned with the activities, which increase the kinds of species. These industries can increases or change the kinds and species of plants, fruits, animals. etc. through genetic changes.
Qualities of Good Businessman
A well-managed business is generally a reflection of a person or persons who have inherent or acquired qualities of leadership and direction. So a businessman to succeed must be a well-balanced and full-fledged man of talent. He must have a consistent mind for clearness, steadiness and firmness in his dealings with others. Some of important and basic qualities of businessman are following:
1. Accuracy
The businessman is that who knows what he is talking about, and what he mean, because he deals with a number of simple wants. Accurate actions depends upon accurate thinking. The goods businessman must be able to grasp his problems by treating them quantitatively.
2. Time Sense
Besides quantity and the nature of his product, the businessman must appreciate time. He must always thinking in terms of time. Actions cannot be taken in complete isolation from each other. There is also a chain of actions, which must fit in with the rapidly changing desires of the ultimate consumer. This makes it vital to be able to visualize the various actions in their places in time. There are no hunches in business, but all actions depend upon figures and facts.
The businessman who has given adequate attention of quality and time will always be ready to make the most of each opportunity as it arises, and to look ahead as far as he needs.
3. Alertness
A businessman keen on success must keep in with the world, and not keep himself to himself. He should move about and see what is going on for he has to gauge new wants and new inventions for creating fresh wants. In this sense he is to be merchant. For selling goods, which have been produced requires character and knowledge. Even to decide what sort of articles to try and produce with his machinery. The producer must be something of a merchant. He must be wide-awake and meet the existing demands and be in a position to create new ones.
4. Honesty
In order to adequately satisfy consumer demands, the businessman must be honest. Misfit sales may be forced for a time by high pressure salesmanship or misleading publicity, but they will not maintain themselves; for each sale installs in the possession of the buyer an article which begins at once to educate him as to error he made in acquiring it, and there is little likelihood of a second order. But if the seller uses all his ability to provide precisely what is wanted, he makes goodwill for himself. This honesty and optimism which goes with it are attributes of the businessman at his best.
5. Ability to Co-Operate
Another notable quality of the businessman is ability to co-operate with a large number of other. He must be able to compromise, adjust, adapt and be willing to admit that his judgment may on occasions be wrong. Besides he must be temperamentally fitted to exercise a divided authority. He shall be a goods businessman, if he can place himself in the shoes of other people inside his own business so as to see into the minds of customers who are outside it.
6. Dependability
Having once brought an organization into existence the businessman should use every effort to hold it constant and dependable, so that those who work under it know what to expect, as it remains unfluctuating from day to day. At all times everybody knows what can and what cannot be done. What is expected of him and what somebody else will do and can adapt himself accordingly. A dependable businessman has satisfied co-workers who are inevitably loyal to him and the unit directed by him.
7. Energy
A bountiful endowment of physical and nervous energy is another requisite without which other qualities are hardly of any value. As in any other activity so in business, infinite capacity to taking pains is essential. In addition to possessing an abundance of energy, he should possess forcefulness enough to put across his ideas and suggestions, which he believes to be right.
8. Character
All talents are greatly enhanced in value when to them is added moral character, because this gives the promise of energy, loyalty and steady growth in ability and economy in supervision. Such a person, in the words of Professor Hocking, will “through his eye, through his voice, through his gestures, through the substance of what to say, through absorption in his work and belief in his mission infuse his own, state of mind into his men.” He will avoid any sort of double-dealing, either with his associates or with the rank and file. All false dealing is futile; and it is absolutely destructive of loyalty.
Capitalism
Economic Systems Any society, whether it is rural without any advancements or it is specialized, must somehow confront three fundamental and inter-dependent economic problems.
1. What and how much to produce? 2. How to produce? 3. For whom to produce?
These three questions are fundamental and common to all economic but different economic systems differ in the fact that they try to solve these differently. Over the past two hundred years, different philosophies have developed in regard to the accomplishment of the economic function. The basic nature of all economic systems is the same. It is the role of the individuals and the governments that are quite different.
Capitalism
Definition
Under Capitalism, all means of production are the property of private individuals and firms. They are free to use them with a view of making profit or not to use them, if it so suits them. The desire for profit is the sole consideration with the property-owners in the use of their property. Besides free and unfettered use of their property, everybody is free to enter into any contract with other fellow-citizens for his profit.
What to produce, how to produce and for whom to produce-all these central problems of economics are settled by the free working of the forces of demand and supply.
Salient Features of Capitalism
1. Right of Private Property
Everybody has a right to acquire private property, to keep it, and after his death, to pass it on to his heirs. The result of this system is that inequalities of wealth distribution are perpetuated.
2. Freedom of Enterprise
This freedom implies three things: a) freedom of enterprise b) freedom of contract and c) freedom to use one’s property. Everybody is free to take up any occupation that he likes and to enter into contracts or agreements with his fellow-citizens in a manner most profitable to him. Every citizen has the freedom to form any firm or company and set up a factory anywhere hi likes.
3. Freedom of Choice by the Consumers
Every consumer enjoys a freedom of choice of the commodities and services that he wishes to consume. It is the consumers likes and dislikes which determine the magnitude and pattern of production.
4. Profit Motive
The profit motive of individuals governs business enterprise. Those commodities and services are produced under capitalism, which are expected to yield maximum profit rather than social benefit.
5. Class Conflict
The society has been divided into two classes the “Haves” and “Have-Nots” which are constantly at war with each other class conflicts is inherent in capitalism.
6. Un-Coordinated Nature
There is no conscious regulation or central direction of economic activity. Every thing seems to go on automatically. Somehow the demand and supply adjust themselves to each other. Price serves as the signpost or the signal.
7. Entrepreneurs Role
The entire productive machinery of the country is under the direction of the entrepreneur. It is he who hires the other factors of production and undertakes to pay them. Everything hinges on him.
8. Control With Risks
This has been called the Golden Rule of Capitalism. He who risks his money must also control the business.
9. Competition
The producers compete with one another is selling the commodity as much as they can through advertisement. On the other hand, there is also competition among the buyers to obtain the commodity who did against one another and offer higher prices for the purpose. Similarly, there is competition among workers for jobs.
10. Importance of Price System
Capitalism is said to be governed by price. It is the price which equates the demand and supply of commodities and factors of production. Price is a signal which guides the producers as to what to produce and what not to produce. A higher price is also warning to the consumers to cut down their consumption.
11. Economic Inequalities
A few are very rich indulging in all sorts of conceivable luxuries, whereas the masses are not able to get even two square meals a day. The gulf between the rich and poor is ever widening.
Merits of Capitalism
1. Automatic Working
Capitalism does not require any central directing authority for its functioning. It functions automatically through the price-mechanism. It at any time, there is some disturbance in the economy, it is rectified through price change.
2. Higher Efficiency and Incentive of Hard Working
Under capitalism workers and entrepreneurs are encouraged to work hard to earn higher profits and higher wages. Hence the entire manpower resources of the country work the hardest (In this way the national output increases and economic development is accelerated).
3. Higher Rate of Capitalism Formation
People under capitalism have the right to hold property and pass it on to then heirs and successors. Owing to this people save a part of their income so that it can be invested to earn more income and leave larger property for their heirs. This accelerates economic growth.
4. Economic Development and Prosperity
The lure of profit compels the entrepreneurs to take risks and to conquer new fields in production. Capitalism offers great incentive for saving and large opportunities for investment. It encourages innovation and technological progress. It is thus conductive to economic growth and prosperity.
5. Optimum Utilization of Resources
Every producer and entrepreneur tries to use the productive resources at his disposal in the most economical manner in order to make maximum profit. In this way, capitalism encourages the most efficient use of the resources of the country.
6. Just System
The richest reward under capitalism goes to the ablest, the most daring as well as the most prudent entrepreneur. A man who shows extraordinary resourcefulness and pluck makes the highest profits.
7. Democratic
In the capitalistic economy an attempt is made to adjust production to the consumer wishes. They consume that they like and not what is supplied to them. The consumers constitute the general public. Hence, the system is democratic.
8. Encouragement to Enterprise
Capitalism discourages the entrepreneurs to take risks and adopt bold policies. Higher the risk greater is the profit. They also make innovations in order to cut their costs and maximize their profits. Hence, capitalism brings about a great technological progress in the country.
9. Flexibility
One of the principal advantages of capitalism is its flexibility and adaptability, which has enabled it to function from time to time according to changing circumstances and emerge victorious.
Demerits of Capitalism
1. Wasteful Competition
Competition is a sheer waste. Colossal expenditure is incurred on advertisement and salesmanship simply to defeat a rival. Resources employed by those who are defeated go to waste.
Competition results in the production of too many varieties. But too much variety is wasteful, because a small variety, but each large in quantity, can be more economically produced.
2. Human Welfare Ignored
The economic decisions made by individual entrepreneurs and producers under capitalism are based on their self-interest and not from the point of view of good of the society. However, necessary and useful the commodity may be, the producers will produced it if price does not exceed the cost, because it is only the profit motive which drives them. Social welfare is ignored altogether.
3. Economic Instability and Unemployment
Production is unplanned and is being augmented by ever increasing accumulation of capital, while the bulk of the consumers are being impoverished more and more. The result is economic instability. The workers have to live under a perpetual dread of losing their job. They have no sense of security.
4. Property Rights take Precedence Over Human Rights
Capitalism lays under emphasis on property rights as against human rights. Money, not man, rules the world and debases humanity.
5. Class-Conflict
Capitalism divides the society into two hostile camps of capital and labour, the “haves” and “have nots”. The labour wants higher wages and short working hours, which is against the interests of capitalists. Strikes and lockouts are inevitable.
6. Economic Inequalities
A feature of capitalistic countries is the glaring inequalities of wealth and income. A few are very rich indulging in all sorts of luxuries, whereas the masses are not able to get even two square meals a day. The gulf between the rich and poor is ever widening.
7. Mis-Allocation of Resources
Capitalism is also criticized on the ground that the productive resources are utilized for the production of luxuries for the rich without producing sufficient quantity of goods for mass consummating.
The market prices are not a correct index of the wishes and needs of the general public because the rich people are able to influence the market prices by their higher income.
8. Emergence of Monopolies
I also happens under capitalism that perfect and free competition ceases to prevail and instead of big combinations of powerful producers and monopolies emerge against whom it becomes difficult for an ordinary entrepreneur to compete. The monopolists produce small quantity but charge high prices and thus exploit the consumers. There is lot of concentration of economic power in a few hands.
9. Malpractices
In recent years, the image of capitalism has been tarnished by malpractices indulged in by high industrialists and businessmen. Such practices include payment of handsome salaries to influential directors, the large-scale evasion of fiscal laws, luxurious living at nation’s cost and persistent generation of black money.
10. Lack of Coordination
The in-coordinated nature of such an economic order sometimes becomes a disadvantage. Production is conducted as a result of the decisions of numerous isolated entrepreneurs and consumers, which is liable to create confusion in the system.
Socialism
Definition
Socialism is an economic system, which implies state ownership of instruments of production. The management of business and industry is reduced to the monopolistic control of the government. What is produced is equally divided among those who helped produce rather than having anything into profits. Thus, economy is run for social benefit rather than private profit.
Salient Features
1. State Ownership of Means of Production
The means of production are the property of the state and not of private individuals. The profits of all enterprises go to the state exchequer to be utilized for the benefit of society rather than for the benefit of few private individuals.
2. No Private Enterprise
production is to be initiated and conducted by the state, which will pay wages and other costs and keep profits to itself. Interest and rent as payments respectively to the capitalists and the landlords will disappear, the for the state will by the capitalist, landlord and entrepreneur.
3. Economic Equality
Remuneration for work is to be according to the nature of work and is not to be equal. Earnings will vary according to ability.
4. Equality of Opportunity
Every individual, whether he belongs to a rich family or a poor family has an equal opportunity to rise in life under socialism. Every young person is given equal opportunity to receive education or training according to his aptitude os that he can enter a profession of his choice.
5. Economic Planning
The state is in charge of both production and distribution. The allocation of the productive resources of the community will be determined according to the direction of a central authority.
6. Social Welfare and Social Security
It is social welfare consideration, which guides productive activity in the economy rather than private profit. Commodities and services of such type and in such quantities are produced which are essential for promoting social welfare.
7. Classless Society
The socialists believe in a classless society where the distinction between the rich and the poor and the “haves” and the “have-nots” has completely disappeared.
Merits of Socialism
1. Social Justice
Under socialism, the inequalities of income are reduced to the minimum and the national income is more equitably and evenly distributed.
2. Better Allocation of Resources
The productive resources of the nation are more economically and optimally allocated among the various productive uses. A central planning authority determines the allocation of resources among the various uses who is in a better position to assess the basic needs of the people and the intensity of their desires.
3. Rapid Economic Growth
A socialist state promotes rapid economic growth. The task of promoting economic growth is not left in the hands of free private enterprise or market mechanism. A socialist state adopts economic planning and makes it possible to use potential productive resources in the most effective and fruitful manner.
4. Improving Productive Efficiency
Under socialism, improved techniques of production and scientific research are made freely available to all organizations that may need them. Also, under socialism, concentrating production in big firms results in improvement of production techniques. A socialist state makes the fullest use of productive activity.
5. Social Security and Welfare
The socialists believe that people should be given protection against uncertainties relating to income work and living conditions and the burden of this provision should be borne by the entire society. That is why modern socialists include in their programme, schemes of the social insurance covering unemployment, accidents, sickness, old age pensions, death grants, etc.
6. Economic Stability
Socialism eliminates trade cycles, We do not come across depression, unemployment and idel productive capacity in socialists economies. Since the means of production are owned and controlled by the state, the level of investment and the level of aggregate demand can also be effectively determined. This ensures economic stability.
7. Equality of Opportunity
Every individual, whether he belongs to a rich family or a poor family has an equal opportunity to rise in life under socialism. Every young person is given equal opportunity to receive education or training according to his aptitude so that he can enter a profession of his choice.
8. Social Welfare and Social Security
It is social welfare consideration, which guides productive activity in the economy rather than private profit. Commodities and services of such type and in such quantities are produced which are essential for promoting social welfare.
9. Classless Society
The socialists believe in a classless society where the distinction between the rich and the poor and the “haves” and the “have-nots” has completely disappeared.
Demerits of Socialism
1. Bureaucracy and Red Tapism
The most important set of arguments advanced against socialism is one against the bureaucratic running of the economic machinery. The civil servant does not feel the same keen self-interest as the employee of a private corporation, where his tenure is not so secure. His main concern is to lot things go on somehow without a positive break down. Bureaucracy will further mean bossism, loss of individual liberty, Gestapo, etc.
2. Not Successful in Business
The government personnel are not such as can conquer new fields. The conditions in government services are not congenial for the display of extraordinary ability.
3. Insufficient Resources
It is also urged that government cannot raise the huge amounts of capital, which are necessary for the efficient running, and expanding of all industries and trades.
4. Mis-Allocation of Resources
Under socialism, there will be no automatic indicator like price mechanism for the most economical allocation of the resources of the community among different industries. Some commodities will be produced in excess and wasted, whereas there may be a shortage of others resulting in unsatisfied demand. As such a chronic maladjustment in demand and supply is feared.
5. Lack of Incentives
It is also feared that incentive to hard work and stimulus to self-improvement will disappear altogether when personal gain or self-interest is eliminated. Inventive ability, enterprising spirit and the go-ahead attitude will languish.
6. Loss of Economic Freedom
A serious charge against socialism is that, when freedom of enterprise disappears, even the free choice of occupation will go. Workers will be assigned certain jobs and they cannot change them without the consent of the planning authority.
7. No Economic Equality
Socialism has failed to bring about economic equality. The dream of a classless society is far from being realized. Some degree of skepticism in the efficacy of socialism as a panacea for all social ills has grown and damped the armour of some enthusiastic socialists.
8. Concentration of Power in the State
Under socialism, the State is not merely a political authority but it also exercises unlimited authority in the economic sphere. The State is everything and individual is nothing. He may not count at all.
9. Loss of Personal Liberty
That under socialism there is no unemployment is conceded out. Critics regard a socialist State as one big prison-house and they do not think that employment is any compensation for the loss of liberty.
Economic System of Pakistan
In Pakistan, we have neither of the two extreme systems but our economic system is a via media compromise of both the systems of capitalistic and socialistic patterns. It can safely be said that it is a mixed economy.
Concept of Mixed Economy
Mixed Economy is an economic system, which combines in itself the elements of socialism as well as of capitalism. It is an economic system, which is planned and directed partly by the state and by private enterprise. Under the “Mixed Capitalist System” or “Mixed Enterprise System”, both State and private institutions exercise economic control.
Panacea of the Defects of Capitalism and Socialism
A privately owned capitalist system cannot guarantee full employment and elimination of poverty. It may lead to unequal distribution of wealth and air and water pollution. It produces trade cycles. i.e. sometimes depression and at other times an inflationary situation. On the other hand, a government owned business system might stifle innovation and invention. It may not be quickly responsive to public desired for products and services and may even limit the freedom of the people. It is so realized that economic development cannot be achieved at the desired rate of growth without any active government help and guidance. That is why most of the capitalistic and socialistic economics of world have become mixed economics in order to minimize the evils of unadulterated capitalism and socialism to accelerate economic growth.
Salient Features of Economic System of Pakistan
1. Co-Existence of the Public and Private Sectors
In the economy both public sector and the private sector function together. In one part are those industries, the responsibility for the development of which is entrusted to the state and they are owned and managed by the state. Other industries are left under the authority and control of the private entrepreneurs. The private sector is free to develop them and start new enterprises in this sector.
2. Role of Price System And Government Directives
So far as the public sector is concerned, economic decisions relating to production, prices and investment are made by the government or authorities appointed by the government. In industries in the private sector, the decisions regarding investment, production, prices, etc, are made by private entrepreneurs with the object of making maximum profit on the basis of the price system.
3. Government Regulation and Control of Private Sector
In a mixed economy, the government adopts necessary measures to regulate and influence the private sector, so that it may function in the interests of the nation rather than exclusively in the interests of the private entrepreneurs.
4. consumer’s Sovereignty Protected
The consumers are free to buy commodities of their choice and the private entrepreneurs produce commodities according to consumer’s demand or preferences, although the government can control their prices in public interest so that they can be prevented from rising unduly high. Besides, the government can also ration the commodities in short supply so that the limited available quantities can be fairly distributed.
5. Government Protection of Labour
In a mixed economy, Government saves labour from exploitation by the exploitation by the capitalists. Several factory acts have been passed to regulate the working conditions of labour. The government also takes necessary steps to prevent industrial disputes.
6. Reduction of Economic Inequalities
The governments in mixed economics take necessary steps for the reduction of inequalities of income and wealth for promoting social justice and social stability and social welfare, increasing production and for providing equal opportunities for all.
7. Control of Monopoly
A charge against monopolies is that they reduce output and raise prices in order to get maximum profit leading to miss-allocation of productive resources of the community, economic inequalities, and unemployment and hampering of industrial development.
The government tries to control and regulate monopolies in order to remove the above evils and make them function in public interest. Also, when the government considers it necessary in public interest, it takes over monopolies and operates them in public interest.
8. Government Provision of Public Services
The government provides certain indispensable public services without which community life would be unthinkable and which by their nature cannot appropriately be left to private enterprises. Examples are the maintenance of national defense, of internal law and order and the administration of justice etc.
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