Public Money and Bailout of Privately Owned Companies - Coursework Example

Public money and bailout Public money and bailout of privately owned companies The current economic crisis has started a hot debate among generalpublic regarding the ethics behind the proposed bailout package by the governments to help the private companies. United States leads the table with a 700 billion dollar package to private companies especially to the automobile companies. Under what conditions would multi-billion-dollar bailouts of private businesses be acceptable' What are the criteria you'd use' All these are terrific question with no obvious answers. Arguments in favor of bailout "As always, job protection is being cited as the primary rationale for the bailouts." (Cronin, 2009) In a world where the number of unemployed people goes on increasing day by day, the governments try to justify their action in terms of the unemployment problem. The government's argument is based on the fact that if the private companies were not assisted properly, most of the companies will be forced to cancel the service contracts of thousands of workers which will again increase the unemployment problem. In a country like United States, most of the employment contracts are based on the at-will employment types. Such employment contracts grant permission for the employers to dismiss their workers even without citing a proper reason. So unemployment problem will go beyond the grasp of the governments if the private companies were not assisted properly at this juncture of financial crisis. It is under this perception that the Public money and bailout 2 governments justifying their action to bailout private companies. "In their valiant efforts to avoid pain now, our governments are not asking themselves how much employment could be generated if the billions they are earmarking could be invested more wisely. The truth, however, is that carmakers were already receiving lavish support from the public purse long before the foundations of the world's economy started to wobble. Between 2003 and 2007, the European Investment Bank gave '6.5bn in loans to carmakers, including companies like Jaguar and Land Rover that prize customers with more money than brains. (Cronin, 2009) "Currently, private businesses and companies around the world, especially in Western economies, have already started laying off thousands of their employees, attempting of course to save themselves from a credit crunch and a looming global recession. The US unemployment figures rose to 7.2 per cent from 4.9 per cent in Dec 2008" (Bureau of Labour Statistics, 2009).Reports from western countries showed that many people have lost their jobs and many are afraid of losing it in near future. The current crisis seems to be deepened from day by day. All the remedial measures taken by the governments were proved to be insufficient to tackle the issue. Nobody expect a magical recovery in the near future. This time recession came unexpectedly to most of the people. The economic pundits were failed to forecast the crisis early enough to warn the people or the governments. The new American administration led by Barak Obama is facing the huge challenge of how to tackle the current crisis and at the same time how to preserve the jobs of the working class. Most of the common people are working in Public money and bailout 3 private companies and hence the governments cannot stay away from their moral responsibility of assisting the common people in preserving their jobs. "According to a recent report by the IMF, growth in emerging and developing economies is expected to slow sharply, from 6.25 percent in 2008 to 3.25 percent in 2009." (Cardozo, 2009) One of the prominent growing economies in the world, India has reported that they are expecting a growth rate of 7.1% though they anticipated more than 9% before the crisis begun. Most of the other emerging and developing economies found it extremely difficult to sustain their growth rate even though the crude oil prices has come down a lot. In order to analyze the depth of the crisis, the current crude oil price alone is more than enough. Even at a time when the crude oil price reached the all time best of around $ 150 per barrel, most of the economies were not affected much in terms of their growth rate. Now the crude oil price has come down to almost around $ 40 per barrel and even then most of the countries have reported immense dip in their growth rate. So the problem is severe and hence the governments should take drastic steps to sustain the economic mobility and for that purpose the governments cannot avoid the private sector completely since for the development of a country both public and private sectors must be developed equally. . "Automakers all over, Domestic, Asian and European, are tanking in sales, which is attributed to the economy. The Japanese builders, Toyota in particular, lost money for the first time since 1937. (Dan Patrick, 2009) Auto industry is one of the worst Public money and bailout 4 affected industries as far as the current financial crisis is concerned. Millions of people are working in this sector all over the world, though most of them owned by private companies. Though the vehicle usage must be regulated (because of the excessive pollution it contribute to the atmosphere and also the lack of physical activities it provides to the public which may result in diseases) nobody can overlook the needs of the public employed in these industries. Nobody can argue that since they are working in private companies, it is not the duty of the governments to take measures to ensure their job stability. Arguments against bailout "If the U.S. government -- on behalf of the people -- is going to spend considerable sums of public money and incur public debt to keep these institutions alive, let's insist on returns that benefit society as a whole, not merely Big Three shareholders, management and employees." (Douglas Olin, 2008) Since money utilized for assisting these private companies coming from the pockets of ordinary people also, the governments should ensure the effective utilization of such money for the social interests also. The big three shareholders, management and employees are seems to be the beneficiaries form the current bailout packages. But since the bailout money is coming from other sources as well, it should give benefits to other segments of the society as well. The common people are not responsible for the current crisis in any cases and hence it is not justifiable to exploit them to assist the private companies. If Public money and bailout 5 300 million Americans are going to borrow money to bail out an industry, then it seems only reasonable to insist that that industry take more socially responsible positions toward energy conservation, safety and the environment. (Olin, 2008) "A socially constructive paradigm can and should be applied to the institutions and industries that would benefit from the wave of government spending designed to keep them alive in a time of dramatic financial distress." (Douglas Olin, 2008)Tax payer's money should be utilized for the general interests of the public. It should not be allocated to some specific segments alone. Most of the private companies are doing business activities to their own benefits rather than the public's interest. Even before the financial, when they were running smoothly, it is not evident that whether they did something spectacular to the society. "The financial giant Bank of America says it is no longer lobbying the federal government about its unfolding bank bailout. After receiving $45 billion in bailout money, lobbying was just too unseemly. Citigroup, recipient of another $45 billion, made the opposite call. While trying to keep a low profile, the company is still fielding an army of Washington lobbyists working on a host of issues, including the bailout. In the fourth quarter, it spent $1.77 million on lobbying fees, according to its lobbyists' filings." (Kirkpatrick & Savage, 2009) Lobbying is one of the main strategy most of the private companies exercises in order to conserve their business interests. To receive heavy subsidies and financial aids from the government, private companies are ready to spend Public money and bailout 6 millions of dollars for the lobbyists who can influence the law makers. In the present scenario, even the private companies are different in their opinions about the ethics of their activities. Even after receiving huge aids from the government some companies still lobbying for more aids. The general public who do not have any benefit from these companies, forced to assist these companies because of the law maker's unruly activities. "That taxpayer dollars intended to stabilize the economy could find their way into the bank accounts of lobbying firms" is completely unacceptable."(Kirkpatrick & Savage, 2009) Financial institutions like banks and insurance companies must be protected by the government since most of the common people have their investments and savings in such financial institutions. It is a social justice to bailout such organizations in order to protect the public interests. The governments should give priority to the interests of the common people rather than that of the business tycoons. In order to ensure social justice, it is necessary to spend the money received from the public, judiciously. But protecting a private company using the tax payer's money cannot be justified in any case. "A private company producing goods or services, competing in a competitive market cannot be treated on the same plank as banks. Why should tax payers' money be spent on bailing out a private company when it's needed for social expenditure' In the US, there have been some instances of bailout of companies from non-banking sectors too." (Tiwari & Sharma, 2009) Public money and bailout 7 Most of the economist's views regarding this bailout package seem to be ridiculous. Most of them are talking in terms of moral things rather than the economic terms. They seem to be highly diplomatic and philosophical in tackling this issue. Their opinions boost the governments in declaring more and more aids to the private companies. They are not addressing the root cause of the problem and also they are silent about the persons or organizations responsible for the current crisis. "One point is that economists are (standard jokes aside) moral human beings like the rest of us. They care about fairness, and they have a moral reaction when they see unfairness. Their opinions about fairness matter (though not more than anyone else's). You don't need advanced expertise in various philosophical theories of justice to see that, if the fat-cats who are responsible for this mess get well taken care of, while millions of average folks get left in the lurch, that's unfair." (MacDonald, 2008) Conclusion Governments have to stress the future rather than the present. Their actions must be formulated to long term benefits rather than the short term temporary benefits. The bailout package for the private companies seems to be more than enough. Though it is necessary to bailout the private companies, the declared packages created lot of suspicions among the minds of general public. The governments should explain their action in simple languages to make the common public aware of the essentiality of such huge aid to the private companies. At the same time governments should ensure that Public money and bailout 8 these financial aids were spend in the right direction by the private companies. They should make sure that these aids were spent in the right channels which provides some benefits to the common public as well rather than on the selfish motives of the private sectors to make more and more profits. Public money and bailout 9 References 1. David Cronin guardian.co.uk, (22 January 2009), Gas guzzlers don't deserve a bail-out, Retrieved on February 9, 2009 http://www.guardian.co.uk/commentisfree/2009/jan/22/bailing-out-carmakers-auto-industry 2. Douglas Olin (November 12, 2008), Earn the bailout, Detroit, Retrieved on February 9, 2009 http://www.latimes.com/news/opinion/commentary/la-oe-olin12-2008nov12,0,3572420.story 3. David D. Kirkpatrick and Charlie Savage (January 23, 2009), Firms That Got Bailout Money Keep Lobbying, Retrieved on February 9, 2009, http://www.nytimes.com/2009/01/24/business/24lobby.html'partner=rss 4. Mansi Tiwari & Shantanu Nandan Sharma (2009), No bailout for private companies, , Retrieved on February 9, 2009, http://economictimes.indiatimes.com/articleshow/4027950.cms 5. Francis A. Clifford Cardozo, (2009), Companies scaling back ops, govt must bail out private firms, Retrieved on February 9, 2009, Public money and bailout 10 http://www.arabtimesonline.com/kuwaitnews/pagesdetails.asp'nid=28090&ccid=9 6. Chris MacDonald, Ph.D.(2008), Economists on the U.S. Financial Crisis, and Bailout Retrieved on February 9, 2009, http://www.businessethics.ca/blog/2008/09/economists-on-us-financial-crisis-and.html 7. Dan Patrick, (2009), My personal bailout plan, Retrieved on February 9, 2009, http://ezinearticles.com/'My-Personal-Bailout-Plan&id=1868996 Read More