Group Members

Ali Asad, Usman Shahid, Javeria

Rashid, Nazish Farooq,
Sana Jalal, Paras Aman
The Ethics of Marketing:
Capitalist Business and the
Consumer
The Consumer, The Market
&
Competition
 Markets V/s Bazaars
• Central institution of
Capitalist society.
• Individuals are autonomous
& anonymous.
• Utility and Profit-maximizing.
• Prices are determined by
supply and demand. They
are the basis for resource
allocation.
• Islamic/Christian mode
of thought.
• Individuals are not
autonomous.
• No commitment to self-
interestedness.
• Social determination of
value of economic
processes & products.
(Just price & regulation
by a religious guild)
 Capitalist Markets
• Capitalist property is divided into specific formations,
called firms.
• Capitalist law: usage of assets for profit maximization
in response to market prices.
• Activities which are likely to hinder capital
accumulation in the long run, are prohibited.
• Consumer is the ‘King’ in the market.
» Preferences require no justification.
» No concept of Halal and Haram in Capitalist
Order.
 Capitalist Markets
• Markets are integrated.
» Equilibrium price is restored
• Market is an instrument for satisfying
consumer preferences.
» Shouldn’t be irrelevant or injurious to capital
accumulation.
• Consumers must have money to enter the
market.
 Important Concept
Efficient Capitalist Markets:
• Where goods are produced with the highest relative
value at the lowest prices and at the lowest average
socially necessary cost.

Inefficient Capitalist Markets:

• Capitalist markets which fail to become “efficient”
capitalist markets.
 Government Regulation
• Efficient and competitive markets reduce the need for
government regulation.
• Government should only ensure the security of the
capitalist property.
• Interference by Government in price and output
determination is illegitimate.
– Restrict the individual’s right to accumulate.
• Unrestricted markets are also defended on Utilitarian
grounds.
 Perfectly Competitive Markets
• They generate efficient outcomes.

• Equilibrium price is fair, both for the seller and the consumer.

• They maximize utility and respect the rights of sellers and consumers to
enter contracts.

• They ensure capitalist justice on the assumption that: distribution of

resources among market participants, (before they exchange contracts)
-is just.

• State intervention may be justified;

– To create a pattern of resource distribution (welfare of least privileged segment of
society)

– To ensure that all participants have sufficient resources to voluntarily choose to enter or
leave contracts.
 Civil society or not?
• Some philosophers such as Hegel believe that civil
society is market society, which as a whole is a good
thing.
• Advocates of Ethics of Care believe that markets
undermine communities.
• Others believe that cultural and political spheres of
justice in a market are harmful for capitalism
— Market Imperialism.
Imperfectly Competitive Markets
• As capitalism matures, perfect competition is systematically abolished.

• Markets in the Capitalist Order are then dominated by a small number

of major sellers or major buyers (Oligopoly).

• The prices are higher than the competitive prices and the quantity
produced is lower.

• This violates the norms of capitalist justice as consumers have to pay

a higher price than that which is necessary.

• Oligopolistic markets are forced to mimic competitive markets in

balancing the search for abnormal profits with the quest for enhanced
efficiency.
MANAGING REPUTATION AND
RETAINING LOYALTY
 Introduction
• Mutual dependence between consumers &
producers
• No self sufficient producing units in Pakistan
• Profit is the intrinsic good for firms
• Instrumental good for consumers
– Technological advances
– Lower costs and prices
 Customer loyalty
• Long run customer loyalty is important for
long-run profitability
• Costs of long run customer loyalty should be
incurred by the firm
• Telling truth to the customer
• According to Albert Z Carr, business has a
right to invent its own moral standards.
 Continued…
• Civil society is market society
• Business cannot deceive consumers
• Safeguarding consumer interests is in the
enlightened self interest of corporation.
• Preferential treatment of profitable customers
• Firms practice Ethics of Care
 Continued…
• Business ethics traditionalists customers are
defined by an explicit contract
• Voluntary entry of a customer into sales
contract with the firm
• Firms and consumers have full knowledge
• According to Kant
– Such contracts ensured universalibility
– Treatment of persons as ends and not means
 Continued…
• According to Rawls
– Freedom is expanded by the recognition of
contractual rights and obligations
– Contracting parties do not have any
intention to misinterpret
– Possibility of deception will make members
of a society less free
 Obligations of firms
• The customer is treated as he wishes to
be treated and recognized as a free
equal contractee.
• Firms obligations
– Product safety
– Reliability
– Service life
 Continued…
• The information should include
– Defects posing a risk to customer’s health
and safety
– The product’s components and ingredients
– Performance characteristics of product
– Operation costs
– The products rating on applicable,
acceptable standards
 Continued…
• Information is a highly priced good
• Information is essential for freedom of choice
• Free choice is restricted by misinformation
– Deliberate lies
– False implications
– False associations
– Firms should not take advantage
 Contract theory
• The assumptions of contract theory are
unrealistic
• Sellers do not make formal contracts
with customers
• Manufacturers can opt out of
obligations
• Firm and customer are not equal
partners in sales agreements
CUSTOMER
PROTECTION
 Introduction
• Deception and dishonoring of contracts
• Consumer choices are based on probability
– Prior probabilities are ignored when even new
information becomes available
– Risks to life are usually underestimated
– Relevant information that is not seen as causal
is ignored
– Generalizations are made on the basis of small
unrepresentative samples
 Role of government
• Governments have a duty to protect
customers
• Strict and comparative liability
• Contracting parties have become unequal as
capitalism matures
• Information is not available and cannot be
assimilated by the average customer
• Growth of oligopolies restricts freedom of
choice
 Due care theory
• Due care theory has following
considerations:
– The design of the product
– Selection of material and components
– The manufacturing process
– Quality control and production monitoring
– Labeling and instruction for use
• Social responsibilities of firms have
increased
Ethics of
Advertising
 Advertising
• “Humanizing” corporations, giving
brands human and personal characteristics
• Through “BRANDING”, corporations create unique and
attractive images for themselves
• Advertisements seek to form emotional and intellectual
bonds between corporations and customers
• “Good Corporate Citizenship”, a response to mass
protest against corporate fraud, waste, environmental
depletion
 What to avoid in Advertising?
• Advertising must avoid “manipulation
indoctrination, propaganda, emotional
pressures, irrational persuasion and
temptation”
• Advertisers have been challenged on
differences in interpretations of claims, use of
obscene material and targeting of vulnerable
groups
 Why to Avoid?
Such practices undermine trust in firms
and in capitalist business practices in
general and are therefore against the
long run profit maximization interest of
the firms themselves.
 Paternalism

• Paternalism is an attitude which seeks to

protect consumers from goods and services
regarded as harmful by others.
• Policy makers are forced to avoid paternalism
since it overrules autonomy.
• Regulators of advertisements must balance
general welfare and personal autonomy
Capitalist Paternalism?
 Balancing Utility & Autonomy
• Advertisers are expected both to
promote utility through maximizing
profit/well-being and to encourage
autonomous behavior or at least
respect individual autonomy.
 Criticism to civil society
• Advertising promotes “the lower pleasures”
involved in consumption and creates “false
consciousness”.

• Advertising encourages external motivation,

emulating the rich, the successful, the role model
not self-reflection.
 Criticisms on Advertising
• Advertising increases cost, which in turn
increases the prices of products paid by the
consumer

• Environmentalists have pointed out that

advertising increases consumption which
may have unbearable long term costs
 Criticisms on Advertising
• Advertising creates monopolized
markets and does not promote perfect
competition.

• Advertising violates the individual’s right

to choose freely and determine
production.
DECEPTION
How does advertising deceive?
• Using paid for testimonials by
celebrities
• False usage of the word “guarantee”
• Quoting misleading prices
• Failing to disclose defects
• Making misleading comparison with
competitive products
• Simulating well known brands
Who is blamed for the deception?
• Firm, which owns the ad
• Employees who make the ad (with an
intention to deceive)
• Media, which carries the ad
• Retailers who sell the advertised
products
 Advertisers are not to be blamed
if…
• Advertiser did not intend to mislead by
statement or implication

• Advertiser did not know what the ad was

stating or implying was false
What then must advertising do?
• It should provide information regarding price,
quality, durability, safety etc. of the product.

• It should persuade the customer rationally to

buy a product, since, irrational persuasion
reduces the customer’s right to choose i.e.
reducing freedom.
 Islamic Approaches to
Capitalist Marketing Process
 The Orthodox View
• The Orthodox Islamic approach rejects Enlightenment
epistemology and capitalist rationality

• The process of marketing aims to enhance consumption and

Islamic teachings seek to minimize and restrict consumption
and also consider consumption as a basic cause of economic
injustice

• Aql is regarded as “a means for obtaining knowledge of what

God has commanded and of what he has forbidden and a
means for winning His favor” – Imam Ghazali

• Aqaliyat is concerned with surrendering autonomy and living

a life of submission to God’s will
 The Orthodox View
• Knowledge leads not to self-determination and autonomy but
to surrender to God’s will

• In Islamic order preferred form of consumption is charity

(infaq).

• Islam condemns pleasure (shahwat) and describes pleasure

as “means through which devil captures the hearts of men” –
Imam Ghazali

• Rejecting pleasure and suppressing desire is the sole way to

reach God –Imam Ghazali

• Devil inflames desires as it is the easiest way to

distance man from God
 The Orthodox View
• The stomach is the source of all desires, it is the desire
for consumption which generates lust for wealth and
status and promotes the vices of competitiveness
(hasad) and acquisitiveness (hirs) this is the
consequence of not keeping the stomach empty.

• There are six necessities: food, clothing, dwelling,

household equipment, family and income

• It is said that “The quest for wealth should be

abandoned when an amount sufficient for acquiring
necessities for at most a year had been obtained.”
 Imam Ghazali – Principles of
Marketing
• The merchant enters the
market to enjoin good and
forbid evil
• The time spent in the market
should be strictly limited and
he should continue to hymn
the praise of God while
involved in trade
• The trader must avoid the
vices of avarice and
covetousness
• He should limit his desire
(for profit and wealth)
• He should limit his
consumption and close his
shop as soon as he has
earned enough to satisfy
his needs
 The Orthodox View
• Islam lays a particular stress on the
maintenance of low prices. [job of Muhtasib]

• Traders are encouraged not to stock

commodities, they should be content with low
profits and not seek an increase in returns

• Thus, Islamic teaching seeks to minimize and

restrict consumptions
 The Revisionist View
• Islamic revisionists seek a legitimization of
capitalist practice

• Revisionists claim that Islam does not deny

market forces. Laws of supply and demand
are considered as natural

• Islamic revisionist rejects the Islamic values

of “Zuhd” and “Fuqr”
 The Revisionist View
• The profit motive is acceptable to a
reasonable extent –Taqi Usmani (1999 P17)

• “All human efforts whether for material, social,

educational or scientific goal is spiritual in
character, working hard for material well
being is as spiritual as the offering of prayers”
–Chapra
 The Revisionist View
• The Islamic state is said to have an explicit obligation
to “maximize welfare”

• “The mission of Holy Prophet includes the fostering of

a good life, welfare, provision of care and alleviation
of hardship, generating prosperity” –Chapra

• “The welfare role is to be played within the frame

work of individual freedom Islam has incorporated
within its economic system the essential elements of
free enterprise, private property and the market
mechanism.” –Chapra
 The Revisionist View
• Many Shariah compliant financial products have
evolved during the past decade.
– Islamic Banking, Islamic Finance

• Islamic revisionists are in favor of multinational

investment in Muslim countries and of accelerated
interaction between Islamic and international financial
institutions.

• They oppose state intervention in monopolistic

markets
Islamic State in Market Regulation
• It cannot charge • It cannot protect
monopoly prices industry
• It cannot levy custom • It cannot levy income
duties or impose tax. Corporate tax and
any tax for the
quantitative restrictions performance of state
• It cannot establish functions. It cannot
exchange controls impose death duties
• It cannot levy • It cannot levy any
consumption taxes indirect taxes
-Yusuf 1993
CONSUMER PROTECTION
IN PAKISTAN
Consumer Rights and Relevant
Legislations
• There are very few legislative acts protecting and
promoting consumer interests and even those few
laws are not enforced properly

• Consumer Rights Commission of Pakistan (CRCP)

was established in 1988

• The CRCP established a draft “model law” in 1999

for consumer protection
 THE PUNJAB CONSUMER PROTECTION ACT 2005
• Manufacturers are liable for defective products

• Product characteristics disclosure required

• Display of product prices and issue receipts

• They should formulate a refund and return policy

• Misleading sales information and attractive false

advertisements are outlawed

• They are no restrictions targeting sections of the

population with low literacy
• District Co-ordination officers (DCO) are appointed to
hear complaints

• DCO takes complaints to consumer courts, which are

established at district levels

• These consumer courts work under the provisional

Consumer Protection Council (CPC)

• CPC may impose punishment on the violation of this

act

• Maximum punishment is a fine of Rs. 100,000 and 2

years imprisonment
 THE ISLAMABAD CONSUMER
PROTECTION ACT – 1995

• In this act the public sector is excluded

• The process is slow and expensive

• Legal representation is necessary as court

does not agree with the burden of evidence
placed against suppliers/manufacturers
THE NWFP CONSUMER PROTECTION
ACT – 1997

• This act also excludes the public sector as

the Islamabad act does

• The procedure is also expensive

• The legal process is more complicated than

the Islamabad act
 The Wafaqi Mohtasib (Ombudsman)
Order 1983

• Claims may be bought against defective

services by the federal government

• The mohtasib is not under legal obligation to

impose penalty on the opposing government
agency on causing harm to him.
Transmission and Distribution of Electric
Power 1997

• Consumers of electric power could file a

complaint against the generating and
distributing

• But there is no provision under this act for

loss caused by failure of electrical services
 Pakistan Telecommunication
(Reorganization) Act 1996
• Consumer interests are mentioned in this act

• But the definition of user is ambiguous

• Telecommunication power providers are not

responsible to provide compensation to
aggrieved customers
 Natural Gas Regulatory Authority Act
2000
• Licensed providers of gas may interrupt services to
individual retail consumers without notice

• There is no formal complaint procedure specified in

this act

• There are no provisions of compensation or damages

to retail customers in case of any harm
West Pakistan Pure Food Ordinance 1963
• There is a variation in penalties imposed for violation
of this act in every province

• Violators in Sindh and NWFP enjoy lenient treatment.

There is no compensation for consumers injured or
harmed through violation of this act

• On the other hand, in the other provinces, penalties

are very light.
 Drugs Act 1940
• Manufacturing, sale and storage of
misbranded drugs and drugs not displaying
ingredients in an easily understandable
manner are considered offensive acts

• Non licensed sale is prohibited

• No compensation for injured customers