Week 3 - COMM101 hand in PDF

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Download Week 3 - COMM101 hand in PDF

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Week 3 tutorial: Recent examples of irresponsible business (Assessed) “Company directors must not be allowed to socialise their losses and privatise their gains”. Do you agree? Why? Justify using examples from Enron. A gain within a business is defined as the positive difference concerning the sale cost and the purchase cost. This is where the disposition cost of the product is higher than the original purchased price. Whereas, a loss within a business is the negative difference between the sale cost and the purchase cost. The product is therefore sold at an expense that is not profitable for the business. I agree to disagree with the statement, as it can have two valid arguments. Down below will be detailed evidence arguing for both scenarios, disagreeing and agreeing. Scenario 1: I disagree with the statement, “Company directors must not be allowed to socialise their losses and privatise their gains”, because public listed companies like Enron, that provide essential services need to have access to lemon socialism, which is retrieved through socialising losses. Lemon socialism, is a term given for a government intervention where the government subsidises taxes from society and donates it to those public listed companies that are not meeting corporate profit targets and to businesses that could potentially close down due to bankruptcy. Governments must and should intervein where public listed companies like Enron, provide an essential service and there is no other competition and the bankruptcy of that company impacts the state and its consumers. A prime example of an organisation who has leant on the shoulders of the government in order for support for the free marketplace is the American energy company, Enron. Enron is a public listed company that produces energy recourses such as electricity and gas, which is essential to the Texas economy. When Enron was going into liquidation, it had major effects on its millions of customers and thousands of employees. This is where the term lemon socialism is applied, as the government would rather subsidise for Enron rather than let down millions of people and have thousands unemployed due to the bankruptcy. Scenario 2: However, on the other hand, I agree with the statement, “Company directors must not be allowed to socialise their losses and privatise their gains”, because companies like Enron should not rely on Lemon Socialism to fund the company when it runs into the grounds. This can be prevented by firms by managing their money in a way that when a potential case of bankruptcy occurs they are able to fund themselves. Lemon socialism is a deregulated financial scheme that places all the expenses of business risk-taking on innocent citizens and allows for the hypothetical investors to walk away with a costless failure. Society should not be

responsible for funding a business when it runs into the ground. Therefore, the company should be dependent on past profits to fund potential future losses. This management of money was evidently not seen within Enron which eventually led to the downfall of the company due to their irresponsible business behaviours. If Enron saved past earnings the outcome of the company’s bankruptcy nine times out of ten would have ended differently and to this day could be up and running Thus, in conclusion, it is arguable whether losses should be socialised and gains to not be privatised, due to the different scenarios and the impacts the company has on society. In the case of Enron, it had a great deal of impact therefore they should be entitled to access lemon socialism but also should have saved previous profits to fund for hypothetical upcoming losses, instead of relying on subsided money from tax payers – society....