Negative Externalities


With the increasing levels of globalization, multinational businesses are opening different subsidiaries in various parts of the world with the aim of diversifying their revenue base. In addition, liberalization of markets has opened room for organizations to take advantage of the unexploited markets, an aspect that boosts their income. However, some firms have been associated with unethical practices in their attempts to remain competitive in the global market. This paper will therefore, discuss in details and their importance in understanding ethical issues in the business environment. 

Negative externality is a cost that is incurred by a third party as a result of actions of another individual, organization, or property owner. Therefore, people who are not associated with the said transactions or activities end up suffering. In many cases, negative externality emanates from lack of action by the political leaders to stop the actions of a party due to direct benefits they will receive from the results of the transaction. For instance, in JPMorgan case, the company hired children of prominent Chinese personnel with the aim of winning various deals that will boost the income of the organization (John & Gan, 2017). However, the actions curtailed the dreams of other young personnel who were highly qualified to work in the organization. The reason is that some of those employed did not have the technical knowhow to work in the positions that they were assigned. All organizations are expected to evaluate the skills and experience of the employees before hiring them to work in the organization. Nevertheless, the process should be transparent and no potential employee should be left out without the appropriate reasons. In this case, JPMorgan violated the rights of those who were suited to fit in the available positions. 

Leaders of organizations are expected to be non-partisan when addressing matters regarding the employees. As a result, they are expected to be committed towards addressing the interests of the subordinates. With the varying challenges facing employees, lobby groups have become critical in ensuring that issues affecting employees in the workplace are addressed and all grievances are attended to by the top managers. Directors of companies are expected to push for the interests of the whole organization (Theo and Brody, 2016). Although they are allowed to lobby for those organizations, they are not expected to hold any positions in any trade groups. The reason is that they are likely to use their positions to influence the decisions of the groups towards the organizations. These links will have a negative externality to the employees. The reason is that directors will use their powers to supress the voice of the organizations’ workers in the trade groups. Therefore, their grievances will go unaddressed, an aspect that will affect the morale of the employees. With businesses expanding their operations to different markets across the world, the structures of these firms have become complex. Therefore, internal politics is affecting the decisions that are made at the top level. For instance, the ties of board of directors with trade groups influenced them to approve a 90% raise for the chief executive. This is putting into perspective that other employees have compensation grievances that goes unaddressed. In addition, they are unlikely to serve the interests of the shareholders. The reason is that they are forced to balance the interests of the two bodies when making critical decisions that will affect the future of the organization. 

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The liberalization of markets is meant to ensure that market forces controls the prices of the products in the market. However, governments have been protecting their infant industries with the aim of shielding them from external competition. The introduction of a subsidy program in the US was meant to benefit farmers and customers. In the long-run, negative externalities have become more evident as the program has failed to achieve the intended purpose. Instead, poor farmers have continued to suffer. However, major corporations involved in milk production are the major beneficiaries of the program. Over the years, rich individuals have been bribing politicians who try to come up with legislations to disband the subsidy program. The reason is that based on the economies of scale, large scale producers have been benefiting due to low cost of production. However, customers have been affected significantly by the existence of the program. The reason is that producers have become complacent and they use their resources to create a barrier of entry for other interested investors. Therefore, inefficiencies in the production process have forced customers to pay more for a product that is much cheaper in other markets. The reason is that free markets encourage competition. As a result, producers are able to invest heavily in the modern technology with the aim of lowering the cost of production. Therefore, a low breakeven price makes it possible for the producers to shift the benefits to customers. Many of the large farms are owned by politicians. As a result, they are hesitant to pass legislations that would benefit other small farmers. Consequently, many of these small-holder farmers have been forced to sell their produce through these well-established organizations. Therefore, most of the profits remain with the organizations despite the farmers using a lot of the resources to sustain their enterprises (Lessig, 2012). This explains why, a large segment of farmers remain poor despite the subsidy program being in existence for many years. 

Organizations cannot use the available positions to lure government officials towards their deals. The unethical practice of hiring a son of renowned personality in the Chinese government with the aim of winning contracts was uncalled for. During retrenchment, poor performing employees are the first to be targeted. However, in this case, the firm reserved Gao Jue despite being incompetent due to his father’s position which would benefit the company (Ned, Emily, and Christopher, 2015). However, this was setting a bad precedence. The reason is that those deserving to remain in the organization paid the price for the unethical behaviour of the company. Although hiring the son might have enabled the company to make exuberant prices, his position could have been filled by a more deserving employee. 

In conclusion, organizations are expected to observe ethical guidelines when interacting with different parties. The reason is that unethical behaviour has negative externalities to people who were not involved in the transaction. With the expanding market, organization has increased in size and the level of competition has increased tremendously. Many firms have opened various subsidiaries with the aim of reducing the risks and uncertainties associated with focusing on few markets. However, in order to retain their competitive position, some leaders are using dubious means, thereby, affecting the reputation of the business and denying deserving employees and opportunity to work in the organization. Therefore, there is need to have internal mechanisms to avoid these cases. 

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  1. John, A., & Gan, N. (2017, 14). JPMorgan settles bribery case for US$264 million after probe into Chinese hires. Retrieved from
  2. Lessig, L. (2012). Republic, lost: How money corrupts Congress, and a plan to stop it. New York: Twelve.
  3. Ned, L., Emily G. and Christopher M. M. (2015, February 6). In J.P. Morgan Emails, a Tale of China and Connections. Retrieved from
  4. Theo, F. and Brody, M. (2016, October 4). Lobbyists as Directors Test Rules for Corporate Boards. Retrieved from
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