>> So what we're going to look at right now
are the models that describe interactions
between business, government, and society.
Now this is one of the most
important concepts in this course.
You might want to pay attention, okay?
This will be on your individual
written assessment.
This will be on your written case
study, your oral presentations.
This is something that's going to come up
over and over and over again in this course.
And for that reason I'm going to
spend a little bit more time on these
than I do on some of the other concepts.
But before I get into the four
business/government/society models,
let's think about what a model
is in a very general sense.
A model is like an ontology.
It answers the question -- what is
the fundamental nature of reality?
How do I define reality?
How do I define my existence?
Think for a second about
that movie, The Matrix .
For those of you have seen it, one of the
characters thinks that the world that he sees
and everything he touches is real.
And a different character, that's Morpheus,
points out that actually there's another world
that exists outside this one,
and that's the real world.
So is the world that we see and touch real?
Or is it this other kind of world
outside the matrix that's the real world?
Those are kind of ontological questions, okay?
Do people even exist?
Or are we some sort of computer program?
Or are we someone's dream?
Those are all examples of
ontological questions, okay?
So these models are ontologies and they are
in some ways used to generalize about reality.
Let's look at the first model.
This is called the market capitalism model.
It starts over here.
So how does the market capitalism model work?
Well, I bet all of you already know quite
a bit about the market capitalism model.
This should actually be just a
refresher of your economics [inaudible].
It pretty much sums up the neoclassical
economic world in a funny picture, okay?
So what we have are three different squares.
Each of these squares represents a different
layer of business, government, and society.
In the outside we have the socio --
-- the sociopolitical environment.
Now, what is that, a sociopolitical environment?
Well, the sociopolitical environment
is basically an interaction
between members of society and the government.
Sociopolitical environment is the
underlying rules of the game, okay?
The people, through their elected
representatives, define laws, rules,
and regulations for businesses and markets.
So the people vote for their representatives
and the representatives, in theory at least,
try to reflect the cultural values of their
people in the legislation of laws and rules.
I'll give a couple of examples in just a minute.
So the sociopolitical environment dictates
the rules of the game for the market.
The market is where the exchange
of goods and services takes place.
If I were to put it in a nutshell, the market
is basically the intersection of the supply
and demand curve as all of you saw in Economics.
I won't spend a whole lot of time on this
because I'm assuming that when you come
into this course you've already
taken macro and micro economics.
If that's not the case, please feel free to
ask me any questions or come to office hours
and we can discuss that whole [inaudible].
Now, within the market, there are businesses.
So how does the relationship work?
Well, the sociopolitical environment
sets the rules of the market.
And then the market sets rules for business.
But it also goes the other way around.
Businesses can change the market and business
can change the sociopolitical environment.
And the market can also change
the sociopolitical environment.
Let's give some examples of how these
interactions actually take place.
Imagine that we've got a free liberal
society like the United States, okay?
Now our liberal society is a reflection
of our sociopolitical environment
because of our cultural institutions,
our cultural norms,
and our moralist voting patterns
over several hundred years.
We value what we'd call an
open market economy, okay?
So within the market, basically you are free to
open a business, you are free to own property,
there's all sorts of things that you are
free to do that define our liberal market.
And because you are free to do things business
react to that market and they try to form
or produce goods or profits in accordance
with the rules of the market and the laws
of the sociopolitical environment.
Well, let's take a contrasting example.
What about the Soviet Union?
The Soviet Union had a very
different sociopolitical environment,
one where free market did not exist.
Now businesses did exist, but
they usually existed in two forms.
They existed as state-run enterprises and
businesses operated in the black market.
Now those kinds of businesses are very,
very different than those that operate
in a free market economy like we
have today here in the United States.
So, hopefully you can see the sociopolitical
environment is in many ways setting the rules
of the game or redefining the rules
of the game through legislation.
Now businesses can also influence the
market in a sociopolitical environment.
Let's think about how that works.
Think about the Walkman, the Sony Walkman.
The Walkman combined two things that Sony
could do very well, music and miniaturization.
So suddenly you could take
the radio with you everywhere.
It had headphones.
You could be jogging and all sorts of things.
So businesses actually, Sony,
through the creation of the Walkman,
actually created a new market
for portable on-the-go music.
And that sort of led to higher
demand cassette tapes and CD players.
So the market actually changed, right?
Now, over time, when we started having more
things like MP3s and those kinds of things,
okay, again, because that demand for
portable music that a business created,
[inaudible] some of you may
remember, people started cheating.
They started downloading illegal music.
They started more or less stealing in some ways.
So the sociopolitical environment was
forced to react, that there was a market
for illegal music caused by a business.
Sociopolitical environment reacted and
created laws prohibiting the proliferation
of illegal music -- pirated CDs, pirated music.
So while, in theory, sociopolitical
environment influences the market in business,
business can also change the market and it can
change the sociopolitical environment, right?
So businesses started a couple
of mini functions.
They can react to imbalances
in the supply and demand curve.
And through the creation of business, restore
equilibrium and a supply and demand curve.
