THE GIST of Editorial for UPSC Exams : 27 November 2019 (Role of ethics in business of innovation (Mint))

Role of ethics in business of innovation (Mint)

  • Mains Paper 3 : Economy 
  • Prelims level : Gini coefficient
  • Mains level : India’s economic growth and development


  • ‘Innovation’ and ‘entrepreneurship’ have become business jargon. 
  • It seems every business conference, journal, and management curriculum must include innovation or enterprise in its title to be noticed. 

Gini coefficient:

  • Societies around the world are also troubled by large inequalities in incomes and wealth. Gini coefficients of income inequality, ranging over 0.5 in many countries, are alarming. More alarming is the inequality of wealth. 
  • The Gini coefficient of wealth inequality is estimated at over 0.9, as high as it can possibly be. 
  • Just eight persons own as much wealth as 50 per cent of the world’s population, i.e., as many as 3.9 billion people. Concepts of innovation and capitalist enterprise must be changed to make growth more inclusive and sustainable.

Seeking profit

  • A foundational principle of ethics in all religions, and in secular philosophy too, is compassion for others. 
  • All of them say that the conduct of any person who is concerned only with himself, and not with the impacts of his actions on others, is fundamentally unethical. 
  • Therefore, the principle that the business of business must be only business, which has driven corporate governance, is an unethical principle.
  • This is the foundational principle on which the governance of the limited-liability business corporation is founded. 
  • Its board and its executives are legally enjoined to serve the interests of the shareholders of the corporation, produce profits for them, and increase their wealth. 
  • They must not be distracted by soft-hearted social concerns. Those are the responsibility of governments. 

Who owns the enterprise and makes the profit? 

  • The shape of the global economy has changed. Wealth begets more wealth.
  • Labour costs can be reduced to increase profits, by outsourcing to lower cost countries, automation in richer ones, preventing workers’ unions from demanding higher wages, and by parcelling out bits of work in the gig economy — avoiding the employer-employee relationship altogether. 
  • Only 8 per cent of an Apple iPhone’s price is labour cost. The cost of materials and other inputs accounts for 22 per cent. And as much as 70 per cent is profits.

Intellectual monopoly

  • The ownership of intellectual property has become an enormous source of profit in the global economy. 
  • Innovative enterprises, in the capitalist world, stand out by the amount of profit and wealth they earn from intellectual property.
  • While production and sales of products are globalised, control of the rules of IPR (intellectual property rights) has become a great source for accumulation of wealth in richer countries. 

Way forward:

  • Democracies around the world are threatened by populist movements upset with the chokehold on public policies by capitalists and the economists who provide them with intellectual ammunition. Institutions of business must change to make capitalism more democratic. 
  • Ownership of the means of production must be dispersed more widely amongst workers, so that people at the bottom can accumulate wealth too. 
  • The IPR system must be overhauled to return it to its original intention, which was to enable knowledge of innovations to be disseminated more widely to multiply its benefits, rather than enabling the perpetuation of intellectual monopolies. 
  • Governments must play more effective roles in delivering public services either by providing them or by more firmly regulating businesses that provide them.

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Prelims Questions:

Q.1) With reference to the Department-related Standing Committee on Science report on Cancer patients, consider the following statements:
1. Mortality to incidence ratio of 0.68 in India is higher than that in very high human development index (HDI) countries (0.38) and high HDI countries (0.57).
2. The incidence of cancer is very high in all Southern States. 

Which of the statements given above is/are correct?
A.   1 only
B.   2 only
C.   Both
D.   None 

Answer: A

Mains Questions:
Q.1) The power of new technologies must be used to benefit the lives of many, rather than maximise the wealth of a few. Critically analyse the statement.