Economic and Contemporary Moral Problem - Coursework Example

Economic and Contemporary Moral Problem Introduction       At present, most of the economies throughout the world are going through a critical phaseof economic downturn. The economic and financial crisis that first hit the most powerful economy of the world, the economy of U.S., at the beginning of 2008 spread very quickly among other nations.  This economic downturn that started in early 2008 is still continuing and being expected to get intensified in 2009. The level of growth in production is continuously declining in most of countries, even in number countries gross domestic product (GDP) has actually been falling. Decline in GDP has automatically translated into job cuts. Even the big names in the corporate world are cutting jobs to save cost and survive under such economic and financial scenario. Financial markets across the nations have become very tight. A number of companies have gone bankrupt. (Foldvary, 3-4)                                                 Three Different Positions       Many economists are considering the current economic downturn as the worst economic crisis that has ever been experienced. On a number of occasions, this crisis is also being compared with the Great Depression of 1930s. However, as far as the causes and potential solutions of the current problem are concerned, economists have not still reached on any agreement. There exists wide debate regarding the factors that have caused this huge global economic downturn and on the ways that should be adopted to get out of this situation.       Examining different views on the possible causes and potential solutions of the current problem, three different positions can be encountered. It is found that while some economists have held free market capitalism or in other words neo-liberalism as the major cause and advocated for new-capitalism calling for substantial changes in the present market arrangements, some other economists have voiced for a complete regulatory framework while holding the policy of deregulation and privatization as the major factor behind the current economic and financial problem, on the hands others have simply declined to held neo-capitalism as the potential solution of the problem and advocated for limited government intervention in the working of the economy to ensure efficient functioning of capitalists’ economy.        As far as the first position is concerned, the current policy free market economy that have been adopted by a huge number of countries for actively participating in the process of globalization, is being considered to have deteriorated moral values of the people which simply created moral hazard problems encountered by the financial institutions like banks and other financial intermediaries and resulted in system failure. According to this position, the ongoing market arrangement should be changed and the time has come to opt for new capitalism to get rid of this situation. On the other hand, the second position concerning the current economic and financial crisis is considering removal of state control on various economic activities and reliance on free market economy for maximizing economic performance, and thinking that now states should once again take the control of the economy from the private hand to stabilize the economy. And finally according to the third position it would not be right to put all the blame on the free market economic structure on account of moral degradation of people. According to this third point of view to stabilize the economy, intervention of the states should be combined with reliance on market economy also instead of going for full state controlled economic system or new-capitalism.       Therefore, it has been clear that different people have expressed different point of views, which ultimately resulted in three principal positions concerning the current economic and financial crisis. Now it would now interesting to examine the views of some of the prominent economists of recent time and what positions among the three described above they hold.       Starting with Immanual Wallerstein, it has been found that held Neoliberal Globalisation as the principal cause of moral degradation among people and of organizations, which has ultimately resulted in economic collapse (“2008: The Demise of Neoliberal Globalization”). The era of neoliberal globalization has started since 1980s. The basic idea underlying this economic system is that governments of all the nations across the world should get out of the path of big and efficiently operating business houses in their efforts to expand their business. In other words, all the governments should remove all sorts of regulations on the operations these enterprise in order to let them maximizing their profits. This sort of economic policy simply has three types of implications- first, the large business houses should be allowed to freely cross all borders with their products and capital, second, governments should privatize every industrial and service sector, and second, all sorts of transfer payments by governments for enhancing social welfare should be minimized. These ideas got a huge boost in the early years of 1980s, which experienced huge stagnation in profits. Wallerstein argues that although this neo-liberal globalization seems to have tasted political success as more and more nations are participating in this process, economic success of this policy has not been quite impressive. According to him, the stock market boom every where just before the world entered into this crisis era, was not a result of productive profits gained by the enterprises in he deregulated, liberalized era, but was a mere results of financial manipulations of the speculators. According to him, extensive liberalization has resulted in nothing but unhealthy aggressive competition among firms where all is running to maximize its own profit. This bad competitive environment very often has forced the organization to become dishonest less trustworthy. Looking at this drastic failure of neo-liberal globalisation, Wallerstein suggested some way outs including the return to high level of protectionism in all the countries across the globe, the acquisition of failing privately owned enterprises by the governments once again along with extensive implementation of Keynesian policies of government participation, the implementation of old policies followed to increase social welfare and the reduction in the level of dependence of other currencies on US Dollar. The policies proposed by Wallerstein to move out of this crisis simply imply that he holds the second position concerning the current economic and financial crisis. (“2008: The Demise of Neoliberal Globalization”)       Like Wallerstein, there is another economist who has blamed the implementation of the deregulation policy as the major cause of this current economic scenario. He is no one, but the Noble laureate Mr. Paul Krugman. He put all the blames on the Reagan era for the current dismal situation of U.S. He argued that Reagan’s deregulation policy in 1980s is now delivering its negative effects. Like Wallerstein, Krugman is also asking for putting an end to this capitalism and increased participation of the government in the policy making of the organizations and making huge public investments in the economic sectors. (“Reagan Did It”)       Like Wallerstein and Krugman, there are two other economists, Jeffery Sachs and Saskia Sassen, who also think that the existing nature of free market capitalism is responsible for the present critical situation. According to Sassen, the present day capitalism can be characterized as the financialised capitalism. She argues that in order to run several operations, different sorts of complicated financial instruments have been created by the organizations in order to extract the savings of the people. As a result, at present, people are with no savings and the countries are experiencing huge financial crisis which has translated into overall economic crisis. According to her, to get out of this critical situation, the economies have to be de-financialised and they have to move out from the current structure of capitalism by reforming it. (“Too big to save: the end of financial capitalism”)       On the other hand, while holding current free market capitalism as the major source of economic instability, Sachs thinks that the current free market economy has resulted in highly unequal distribution of resources. According to him, this has happened mainly because most of economies have surrendered all “political, moral, social and economic power” (“Economic Crisis Highlights Need for Free-Market Reform”) in the hands of the capitalists. As a result, in last thirty years of free market economic system market values have deteriorated drastically. He states that while market can be very influential tool for enhancing economic efficiency, they can turn out to be quite dangerous if they are left alone completely. According to him, in last thirty years, leaving every thing in the hands of markets, distribution of resources has gone seriously in a wrong direction. According to him, the only way out is to reform this capitalist structure and to establish new capitalism. According to him, the solutions “lie not in the limits of our technology, or our economy or our ability to fund change, but rather in our morals and in our intentions and understanding of these problems" (“Economic Crisis Highlights Need for Free-Market Reform”). He has stated that for implementation of this new kind of capitalism there is a need of “highly skilled and intelligent managers” (“Economic Crisis Highlights Need for Free-Market Reform”).       Now as far as the point of view of the world famous economist Joseph Stiglitz is concerned, he has held ‘moral depravity’ (“Stiglitz slams inflation-targeting”) of the financial institutions of the countries as the major cause of ongoing global economic and financial crisis. He has opposed the idea of inflation targeting for minimizing the negative effects of the economic downturn. Instead, like Wallerstein he has asked the countries to reduce their dependence on US dollar to move out of this crisis situation. Apart from this he has also welcomed governments’ participation. (“Stiglitz slams inflation-targeting”) Noble Laureate economist Amartya Sen. however, holds a different kind of thoughts. He argues that neither the policy of completely moving out of the free market system and relying on government only for economic efficiency, nor the policy of reforming the current structure of capitalism and introducing neo-capitalism can be an effective way out of the ongoing critical economic situation.  He questioned about how one can define neo-capitalism. He thinks that the present structure of capitalism does not have all the features of a capitalist’s economy. He expressed doubt on the process that could change the present structure as he thinks that the economic structure of the countries in Europe and America cannot be characterized as genuinely capitalist. So the question is what to reform? In a genuinely capitalist economy all payments should be made private organizations. But in many countries in Europe and America, public authority is still making several types of transfer payments. Not only that, unlike in capitalist economy several publicly funded health care facilities, educational systems as well as mass transportation are not run by the motive of profit maximization. According to him, there is no harm in having a free market economy and there is also need no such big structural reform, the need of the time is participation of government in order to ensure that the fruits of free market economic system are evenly distributed among all. According to him free market economy and capitalism are two different words and they should not be confused, government can well participate in a free market economic system to enhance public welfare. (“Capitalism Beyond the Crisis”)  Reflections Under ongoing situation the third position seems to be most appropriate to solve the current problem. Particularly, if developing countries are considered which have followed the path of developed countries like U.S, U.K., etc. and hence moved towards a more free market economy by relaxing trade barriers, the most appropriate way to follow is to increase government’s participation in welfare programs. Reforming their economic structure will not be a good option, as it would require high skilled and intelligent human resources, which need huge investment. Under current financially critical condition it is not possible, at least at present. Apart from this, there is also no clear agreement over what should be implemented to change the present economic structure and to move towards neo-capitalism. Complete government protection will also not be quite appropriate as it would reduce trade drastically and reduce overall welfare level as shown by Adam Smith. Apart from this reliance on complete state control as once suggested by Keynes during Great Depression does not seem to provide expected result as in the time of great Depression also it failed to provide any long term solution. (Smith, 189-190)    Works Cited 1. Foldvary, Fred E. The Depression of 2008. The Gutenberg Press. 2007 2. Krugman, Paul. Reagan Did It. 2009.  Retrieved on 10 July 2009 from. http://www.nytimes.com/2009/06/01/opinion/01krugman.html?_r=2. 3. Parker, Faranaa. Stiglitz slams inflation targeting. 2009. Retrieved on 10 July, 2009 from http://www.mg.co.za/article/2009-07-09-stiglitz-slams-inflationtargeting. 4. Sachs, Jeffery. Economic Crisis Highlights Need for Free-Market Reform. 2009. Retrieved on 10 July, 2009 from http://www.virginia.edu/uvatoday/newsRelease.php?id=8472-%20%20%20%20%20Sachs. 5. Sasse, Saskia. Too big to save: the end of financial capitalism. 2009. Retrieved on 10 July 2009 from http://www.opendemocracy.net/article/too-big-to-save-the-end-of-financial-capitalism-0. 6. Sen, Amartya. Capitalism Beyond the Crisis. 2009. Retrieved on 10 July, 2009 from http://sanhati.com/articles/1297/. 7. Smith, Adam. The Theory of Moral Sentiments. Clarendon Press. 1976. pp. 189–190 8. Wallerstein, Immanuel. 2008: The Demise of Neoliberal Globalization. 2008. Retrieved on 10 July 2009 from http://www.globalpolicy.org/component/content/article/162-general/27984.html. Read More