Government Business Relations - Essay Example

Government Business Relations Name: Tutor: Subject: Date: Government refers to a system in a society which magisterially constitute and reinforce policies and rules. A business, on the other hand, is defined as wide range of performance, institutions and actions with a main objective of making a profit through the provision of services and products for meeting human wants and needs. The government and business are two principal institutions in the society (Carroll & Buchholtz, 2014, p 99). The relation between this two institutions is much complex and studying their relations is an important element in realizing how the wider society is coordinated as verified from the unit “Government-Business Relations”. This essay will discuss the main international issues pertaining government business relations, considering both international and domestic settings. This will provide a solid realization of the complex integration of the government and business at the local, national and also the wider international levels. The government is an essential institution in economic growth. It has the duty to ensure stability of the economy. The role of governing is very vital for the restoration of economic stability. The government owes the duty of maintaining investors’ confidence thus allowing them to invest more and more in their resources thus improving the nation’s economy. Government expenditures and deficits rise when there are economic downfalls. This is due to the fact that there is an increase in demand for social-safety-net provisions and diminishing revenues especially from tax. It is much more difficult and riskier to borrow to hasten economic growth. This can be observed from the financial crisis in Greece that emerged forcing the Greece’s government to borrow highly from international organizations such as the I.M.F and the E.U in order to fund substantial budget and current account shortages. Between the year 2001 and 2008, when Greece began using the euro as its national currency, the budget deficits of the nation averaged out to 5% per year compared to 2% of The Eurozone. Greece current account shortages were estimated to be 9% per year compared to the Eurozone’s 1%. In fact, the Greece’s budget deficit was approximated to have been 13% over the country’s GDP. In order to finance the deficits, Greece government had to borrow from international institutions such as the I.M.F and the E.U imparting a high external debt of approximately 116% of the GDP in the year 2009. This debt level is above the recommended levels permitted by the regulations of the European Union’s Economic and Monetary Union (EMU). This debt depicts how Greece is over-relying on external funding for their budget and current account thus scaring investors (Ferrell & Fraedrich, 2014, p 45-51).  The Democratic deficit, as depicted by the European Union, refers to the lack of representation of the normal citizen and the unaccountability of European Union institutions. In this state, the European Union lacks popular legitimacy somehow. According to Matej democratic deficit is evaluated in accordance to the ideal initial legitimacy corresponding to lawfulness realized in the case where popular institutions and procedures which creates the law on which they not only abide by but also grounded on. The Democratic deficit has been evident in the current economic situation of Greece where by international institutions such as the International Monetary Fund (IMF) and the European Union (EU) are influencing the economic recovery of the nation. According to David Marquand, a British political scientist, the ensuing “democratic deficit” is not acceptable in a society which is devoted to democratic principles. This statement depicts how the democratic deficit has both merits and shortcomings. There was a much-heated debate on the involvement of international institutions such as the IMF and the EU with the Greece economic crisis (Aharoni, 2014, p 96).  Although, many EU officials were clamant on the International Institutions taking over the issue, economic experts and analysts were reluctant on the acceptance of the proposal. They were on the view that interventions by external institutions was like mortification to the wider Eurozone. German Chancellor Merkel’s willingness to provide financial assistance was reported to be the reason for involvement of the IMF in the Greece economic crisis. Experts warned that in the involvement of the international institutions there would be a massive accumulation of debt thus rattling the investors’ confidence. According to ND party leader Antonis Samaras in Greece, IMF was going to enforce new measures in Greece that neither its population nor economy could bear with. However, there were compelling reasons for the EU to intervene in the crisis. First, the serious instability in the Greek economy was not only having side effects on the nation but also on the wider European nations especially in countries like Portugal, Italy, Spain and even Ireland. Secondly, the economic crisis was contributing to the weakening of the euro currency in the Eurozone (Wild et al., 2014, p 171). However there has been reluctance of the EU countries in the idea of rescuing the Greece economy with many arguing that Greek government hasn’t exercised “budget discipline” has altered past financial stats and has also failed to modernise its economy for growth. In fact, many have been reluctant and strongly wish to avert in freeing out a country whose government has failed to deal with their finances substantially. The intervention of IMF and the EU has affected the economic recovery of Greece in two perspectives i.e. assistance and hindrance. First, the high debt figure has caused uneasiness for investors on the economic stability of the nation. Since the government has the primary objective of providing investors with confidence, there is a risk of investors selling off their bonds and turning down to purchase bonds that the nation attempt to auction since there is instability. Secondly, the high-interest rates charged by both the IMF and EU on loans have raised questions about the sustainability of the country’s widening debt. According to the Washington, DC, Prime minister, “unprincipled speculators” were making billions every day by taking advantage of the economic situation of Greece. He depicted how some countries were using the international institutions in generating incomes while imposing high-interest rates on the Greek nation. This will make the Greek nation have difficulties in borrowing and servicing their current debt thus hindering the economic recovery of the nation (Shaw & Barry, 2015, 67).  Thirdly, the assistance of the international institutions could affect negatively trading activities between Greece and other Eurozone nations due to the overstretching debt value. There have been fears that trading with Greece among the EU nations would lower the value of the euro currency thus spreading financial instability in the broader Eurozone. This however will make United States more attractive to investors thus increasing massively the capital flows to the U.S. There have been suggestions to contain the crisis within Greece so as to avoid the effects of economic instability wide spreading in the whole of Eurozone in order to curb U.S commercial interests. This step may hinder the economic recovery of Greece. However, due to the current deficit, the Greek government put some domestic policy measures and in order to reduce the current deficit (Hoffman, 2014, p 159). This is clear evidence on the importance of government linking with business in important aspects of the economy. First, When Papandreou’s government took office in October 2009; it unveiled four different packages of fiscal austerity measures. Its main objective was to lower the deficit from the estimated 13.6% of GDP in year 2009 to approximately below 3% by the year 2014. Secondly, the government cut spending and also raised tax in order to restore “investor confidence” in the nation’s economy. This was a way of reducing external financial help so as to reduce debts. However, experts have warned that this measure may result in higher unemployment levels and thus declining more the economy of the country. More concerns have been raised about whether the government will be able to depend on the public sector for the compression measures in the period of a crisp recession (Schaffer, 2014, p 99-105). Finally, the government has taken measures by reforming systems such as the health care, pension and also the public administration. The government has introduced strict measures to curb social contribution dodging. These reforms are aimed at boosting the economic competitiveness by increasing employment opportunities, sustaining and encouraging research, technology, innovation and also nurturing private sector growth. This essay has depicted the relationship between government and business and how they link in fostering economic growth. Policies made by the government have both negative and positive impacts on the economy of a country. So the government has a duty of making significant policies which foster economic growth. References Carroll, A., & Buchholtz, A. (2014). Business and society: Ethics, sustainability, and stakeholder management. Cengage Learning. Ferrell, O. C., & Fraedrich, J. (2014). Business ethics: Ethical decision making & cases. Cengage learning. Aharoni, Y. (Ed.). (2014). Coalitions and competition: the globalization of professional business services. Routledge. Wild, J., Wild, K. L., & Han, J. C. (2014). International business. Pearson Education Limited. Jeston, J., & Nelis, J. (2014). Business process management. Routledge. Shaw, W., & Barry, V. (2015). Moral issues in business. Cengage Learning. Hoffman, W. M., Frederick, R. E., & Schwartz, M. S. (Eds.). (2014). Business ethics: Readings and cases in corporate morality. John Wiley & Sons. Schaffer, R., Agusti, F., & Dhooge, L. (2014). International business law and its environment. Cengage Learning. Read More