Law, Economics, and Business Ethics - Coursework Example

Law, Economics and Business ethics Student’s name Grade course Professor’s name University name 14th March, 2012 Outline: Introduction Discussion Conclusion Word Count: 2062 Introduction The world has experienced tremendous growth in the economic area for the past two decades. The World Bank reports indicate that income inequality across the world continues to increase with each passing day (Stein 2010, p.9). The current crisis affecting the world financially only makes the situation gloomier. The people who bear the cost of this inequality are the poor and they are unlikely to have benefited to any significant measure, if at all, from the growth experienced previously. Many of the developed countries have to grapple with the problem of the ever rising gap in incomes among its citizen (Hardisty, Johnson & Weber 2010, p.89). The richest people continue to get richer while those who are poor have continued to get deeper into poverty (Momani 2007, p.17). The poor people find themselves deeply in debt and have very little to survive on while they are surrounded by riches. In the developing world, the story of inequality is even more pronounced. Many people in these countries continue to get deeper into poverty. A few people have benefited but this is just a drop in the ocean when compared to the majority who are able to survive. Inequalities in incomes could also be seen from a different angle. Income inequality could be seen from the point of view of the rich versus poor countries. Even though the developed countries experience the global economic crunch, the poorer countries happen to bear the brunt of this whole mess (Sepulveda & Martinez-Vazquez 2011, p.324). In dealing with issues of the world economies, there are some pertinent organizations which cannot escape mention. The first two organizations are the Bretton Woods Institutions. These institutions are the World Bank Group and the International Monetary Fund. These two organizations which shape the global agenda on the economy raise a lot of debate as to what difference there is between them. The World Bank is charged with the responsibility of ensuring development in the world. The International Monetary Fund on the other hand aims at ensuring that nations of the world maintain an orderly payment system. The other important institution is the World Trade Organization (W.T.O). The W.T.O provides a platform where rules which govern trade between countries are debated and passed. The organization thus seeks to ensure that there is smooth flow of trade across all countries of the earth (Milanovic 2009, p.20). It becomes apparent that there are serious issues with regard to the global economy and the questions that experts should answer are: What are measures are being taken to address the issue of inequality? What role can the organizations charged with ensuring the development of the world economy play in ensuring that things do not get worse but actually improve? This paper will thus focus on the role played by these organizations to address the inequality gap and poverty. Discussion With the economic problems facing Europe, the prospects of developing countries posting impressive figures are more of a mirage (Rigg et al 2009, p.130). The countries of the Euro zone are more concerned about getting solutions to their debts that have accumulated over the last few decades addressed. These are the main markets for goods produced by the developing countries. With uncertainty in such markets, economic prospects of these countries could not get any worse. The issue of carbon trading has raised a lot of friction between airlines and the European Union. The US financial crisis in the 2008/2009 period resulted to the adoption of unsustainable fiscal problems. EU has responded by issuing bailouts to the troubled economies like Greece. The issue of carbon tax has also affect trade across Europe (Rigg et al 2009, p.131). An example of how serious the issue is can be highlighted by the decision by China to suspend all contracts for purchase of European made planes (Milanovic 2009, p.19). Carbon tax would have the effect of enriching Europe at the expense of other countries. The EU requires that corporate in Europe to reduce their carbon emission by 80 percent by 2050 due to the high risk associated with carbon dioxide to the world economy (Anderson, Cockburn & Martin 2011, p.493). Since the 1970s, the IMF began the policy of lending to developing countries only. Economic data from the countries which are funded by the organization paints a grim picture (Shirai 2003, p.26). Researchers on economy and international development find that in the developing world, the problem of inequality is more pronounced. The fund introduced structural adjustment programmes as a precondition to countries receiving loans, popularly known as aid (Ferreira & Ravallion 2008 p.42). The result of the programmes advanced by the Bretton Woods Institutions has been to overburden the poorest countries with debt burdens which they can hardly bear (Shirai 2003, p.28). After crises which were experienced in the late 1990s, many people started criticizing the I.M.F's approach to restructuring of economies especially in Africa. The policies that the funds put forward did not match the needs of the countries in which they were applied. This made the problem of poverty in developing countries to move from bad to worse (Shirai 2003, p.29). In the 1990s, the I.M.F held the position that countries ought to increase the growth in their economies so as to reduce poverty (Clapp & Wilkinson 2010, p.51). The I.M.F's argument was Kuznets’s theory was not supported by any empirical evidence. The theory states to the effect that economic development in a country makes the problem of disparity in income worse at least in the early stages of economic growth. A research conducted by the I.M.F pointed to the fact that growth in economies could deal with the problem of poverty though it was evident that development does not necessarily amount to distribution of the wealth (Fosu 2009, p. 733). The I.M.F had a conference in the year 1995 and the organization came up with new ideas as the relationship which exists with regard to growth, inequality and poverty (Clapp & Wilkinson 2010, p.53). The fund concludes that poverty reduction might not be achieved merely because there is economic growth. The fund also came to realize that policies geared towards ensuring equity were more suited in ensuring that a country's economy prospered. The poor people in the developing countries required policies and institutions which would ensure participation of poor people in the process of economic growth (Ravallion 2009, p.311). Towards the end of the 1990s, the I.M.F came alive to the fact that the policy guidelines it gave to countries affected the distribution of incomes in a country and affect the growth of such a country's economy (Fosu 2009, p. 733). After 1999 the I.M.F decided to change its approach on how the countries borrowing money would utilize it (Momani 2007, p.33). The countries which would be borrowing money would then have a greater control on the policies that they developed. The fund also required a greater participation of the public in addition to the legislators and the civil society organization. The I.M.F is not able to raise the required number of experts who would ensure that the changes envisaged are actually realized. Another problem that the I.M.F realized was that its members of staff were almost all macroeconomists (Ferreira & Ravallion 2008 p.44). Experts continue calling for low income countries to move from the I.M.F to the World Bank. Those in support of this shift in the current status argue that the World Bank is the institution that is best suited to address issues of development in the poor countries (Cicowiez, Díaz-Bonilla & Díaz-Bonilla 2010, p.118). The core area of the I.M.F is expertise and pundits have argued that the institution would fare much better if it concentrated on surveillance of the world economies. The World Trade Organization (WTO) exists to deal with trade in the international arena. The member states of the WTO negotiate agreements which govern their engagements in the areas of trade. The agreements are meant to help those who produce goods and services to conduct business across the countries' borders. By looking at the objectives of the WTO, one would have a very rosy picture of the institution. The reality on the ground is that the WTO does not really create a level playing ground in which all countries can gain by conducting trade with each other (Cicowiez, Díaz-Bonilla & Díaz-Bonilla 2010, p.119). The need for international trade arises from the fact that different countries produce different types of goods (Clapp & Wilkinson 2010, p.74). It becomes more efficient and economical for a country to produce those goods that it is best suited in producing. Those in support of this idea argue that by countries specializing in producing goods in which they are good at then they would trade with other countries. There are a number of problems which this arguement fails to address. The first is with relation to countries whose economies are based on agriculture and those which are industrialized. In a situation where an industrialized country traded with an agriculturally based country, then the latter would end up losing (Cicowiez, Díaz-Bonilla & Díaz-Bonilla 2010, p. 120). The fact is that when people get enough food, then they can not buy any more of it. On the other hand, when people become rich they tend to consume more luxury items (Lundvall, Joseph & Chaminade 2009, p 62). This means that the country in the hypothetical situation above whose economy is based in agriculture would end up losing since the balance of trade would favour the industrialized country (Cicowiez, Díaz-Bonilla & Díaz-Bonilla 2010, p.121). There are also a host of other reasons which hinders the implementation of free trade in the world. A good number of countries employ protectionists’ measures (Athukorala 2011, p.537). For instance, the European Union subsidizes the production of sugar beet. The result of this is that sugar from the European Union becomes cheaper relative from sugar produced elsewhere in the world (Anderson, Cockburn & Martin 2011, p.491). Another country which employs protectionist measures is Japan. The Japanese government subsidizes heavily on rice production in the country. The Japanese government argues that issues of food security are issues of national security. These are just some of the measures which do not conform to the idea of free trade in the world (Anderson, Cockburn & Martin 2011, p.493). This means that free trade can only be practiced on paper. The decisions made at the WTO are not made in a totally democratic way. The United States plays a great role in determining the outcomes of WTO negotiations (Nicole 2011, p.17). The WTO seeks to privatize essential services which are traditionally provided by the individual governments. The General Agreement on Trade in Services has a list of services which governments ought to ensure that they get into private hands. Such a move would make such services out of reach for the middle class and the poor in many countries (Ravallion 2009, p.312). The WTO has a provision known as 'most favoured nation.' Countries ought to treat every other country in the same way as its most favoured trading partner. This fails to recognize the unique circumstances of each country. Conclusion Inequality between countries has existed for a long time. However, the most worrying trend is the fact in the developing and least developed countries, the gap between the richest and the poorest people continues to widen. The Bretton Woods Institutions are not entirely blameless for the murk in which poor countries find themselves. The International Monetary Fund has been criticized, and rightly so, from many quarters. The I.M.F proposed conditions which countries which had to meet before accessing loans from the institutions. The proposals by the I.M.F have ended up doing more harm than good to the developing countries. In the recent years, many economists have questioned the soundness of decisions which the I.M.F makes with respect to poor countries seeking financing. The World Trade Organization (WTO) is another headache for the developing and least developing countries. The decisions at the WTO are lopsided and in favour of the rich and developed countries. Poor countries rarely have the prerequisite expertise to advance any meaningful discussion. Poor countries are reduced to mere statistics at such meeting and they just approve decisions which they barely understand. It is thus safe to conclude that world trade is tilted in favour of the developed countries. References Anderson K, Cockburn J, & Martin W, 2011, ‘Would Freeing Up World Trade Reduce Poverty and Inequality? The Vexed Role of Agricultural Distortions’, The World Economy, vol. 34, no.4, pp 487-515. Athukorala P, 2011, ‘Trade Liberalisation and The Poverty of Nations: A Review Article’ Journal of Development Studies, vol. 47, no. 3, pp 533-543. Cicowiez M, Díaz-Bonilla C, & Díaz-Bonilla E, 2010, ‘Impacts of Trade Liberalization on Poverty and Inequality in Argentina: Policy Insights from a Non-parametric CGE Microsimulation Analysis’, International journal of microsimulation, vol. 3. no. 1. pp 118-122. Clapp J, & Wilkinson R, 2010, ‘Global Governance, Poverty and Inequality’ Taylor & Francis, New York. Ferreira F, & Ravallion M, 2008, ‘Global Poverty and Inequality: A Review of the Evidence’ Development Research Group, Washington DC. Fosu A, 2009, ‘Inequality and the Impact of Growth on Poverty: Comparative Evidence for Sub-Saharan Africa’ Journal of Development Studies, vol.45, no. 5, pp 726-745. Hardisty D, Johnson E, & Weber, E, 2010, ‘A Dirty Word or a Dirty World? 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