Essay on "Market Efficiency, Privatization and Productivity Growth"

Essay 6 pages (1745 words) Sources: 1+ Style: Harvard

[EXCERPT] . . . .

Market Efficiency, Privatization and Productivity Growth

Market efficiency is based on the market's true representation of the economic value of items via price allocation. In the relationship between supply and demand, the determination of price is intended to reflect a balance between that which consumers can reasonably afford and that which allows the supplier to either sustain a business or to achieve profitability. Where this occurs to the degree that a product or service is accessible to all of those who need it and to the degree that the supplier is able to sustain a successful operation that is capable of longevity, growth and innovation, the market may be said to have achieving pricing efficiency.

However, there are instances in which this pricing allocation approach to efficiency will ultimately manifest as a system in which distinct inequalities are observable. An example which comes from our research is one which also helps to point us toward some of the adopted resolutions in the face of such inequalities. The energy market is one in which wealth-transfer methods emerge as absolutely necessary, primarily because in an efficient and profitable fuel market, prices will tend to become prohibitively high for the average to below-average means consumer. So denotes Thoma (2007), who indicates that "people who cannot afford to heat their houses in the winter are subsidized to ensure their basic energy needs are met. We don't think it's fair that someone should have to suffer the cold because they cannot afford to heat their house without sacrificing other critical needs." (Thoma, 1)

Ironically, this is not a standard which has been applied to all industries. And in its absence, there do remain myriad market contexts in which inequality is a distinct repercussion of that which might be argued as market efficiency by its beneficiaries. One industry which immediately emerges as an example of this is the healthcare field. Here, the pricing of such aspects as in-patient treatments, insurance premiums, pharmaceuticals and general first aid or over-the-counter medicines are based on a deeply complex set of determinations. These are the chief considerations driving the cost of medical attention and its affiliated demands. Though for industry-makers it may be argued that these prices are based on distinct market-efficiencies, all evidence also suggests that there are clear exclusionary tendencies which are produced by this circumstance.

Indeed, for those of modest to severely impeded means of financial support, the cost of medicine is overwhelming and foreboding. Indeed, that there are an estimated 40 million Americans living without health insurance is a clear indication that the cost levels that are produced by market efficiency are symptomatic of a deeply unequal healthcare situation. In this context, a transfer of wealth might seem an appropriate step in repairing the healthcare market to a point where it serves the widest possible range of potential consumers.

Programs such as Medicare and Medicaid carry with them the implications of a transfer of wealth from rich to poor, using taxpayers money in order to fund these aid and assistance avenues. However, all indications are that there remain a great many individuals who are disenfranchised by the inequalities reigning in the healthcare market. Therefore, debates today over healthcare reform weigh heavily on the subject of a so-called 'public option,' which would employ government oversight to the brokering of insurance coverage for certain Americans. This would, of course, rely upon the allocation of tax moneys toward the creation of a more equal and accessible healthcare system, with a transfer of moneys from wealthy taxpayers to individuals in need of medical payment support helping ultimately to produce a market which is more inclusive. With the peripheral benefits to the economy of a healthier workforce and lower mortality rates, this greater equality would also ultimately improve market efficiencies as well.

4.

The concept of privatization refers to the investment of public trusts in the hands or privately run corporate enterprises. Generally, this terminology is reserved for the placement of a function, service or operation under the authority of a company with the distinct means, resources and experience to succeed. Frequently, this is done under the supposition that there is a greater efficiency in the company's operational capacity than in the government's. An example of this might be in the area of military contracts, where private developers are typically awarded projects that the government may lack the capacity to execute through its own publicly paid agencies.

Though this is a normal strategy for economic balance in most western democracies, it is certainly not an approach without its dangers. The extent to which public officials seek to drive markets toward privatization can produce philosophical and practical deviations from democracy. Namely, where private contracts are awarded on public projects, the taxpayers responsible for funding such contracts generally cede any degree of control or input over the way that money is spent. And indeed, the dedication of taxpayers money thusly can have the effect of severely diminishing available public funds.

In our current situation, where the Obama Administration is battling record deficits while simultaneously attempting to fund a recovery package, evidence suggests that efforts toward privatization of crucial public funds are at least partly responsible. The privatization of Social Security would be a key policy point of the preceding Bush Administration and its effects would be clearly damaging to the federal budget. Indeed, entering into the Bush Administration, the now decimated budget was actually listing a record surplus. Part of that surplus, accrued during a Clinton administration focused on creating a balanced budget, belonged to the Social Security fund. The Clinton administration enforced a policy largely encouraged by a widely accepted economic wisdom that the retirement of the baby boomer generation will create a potentially devastating strain on the nation's budget. Particularly, the government will owe its largest generation of retirees ever a solid retirement fund.

This ideology had been roundly rejected by the Bush administration, which stressed its belief in privatization and private investment. Thus, with regard to Social Security, Washington would word under a plan which offered Americans the option of placing their social security taxes in a private investment account in lieu of paying taxes to the federal Social Security fund. The position taken in support of this approach demonstrates the distinct ideological implications of privatization. The Bush Administration's privatization of Social Security would be endorsed under claims of its benefit to the budget. Here, it was argued that "Social Security has no way of truly saving money. Surplus funds are credited to Social Security's trust fund, but the actual cash just covers up deficits elsewhere in the budget. Increasing Social Security's surpluses without saving the money in individual accounts tempts another round of corporate handouts. Personal accounts are the only true "lock box" that the government can't pick." (Biggs & MacGuineas, 1) the outcome would be pointedly destructive though.

In short, the Social Security fund lost its surplus less than a year into the Bush tenure and has run a steadily growing deficit since. It is projected to deepen if it continues on its current path. The Bush administration's lack of restraint on tax-cutting and mega-bill spending reveals a number of priorities. Or more to the point, it makes a clear-cut distinction between the programs that the government values and those that he considers negligible. The previous administration's stance on Social Security threatened to undermine the American economy's capacity to absorb the coming storm of retirements, the shrinking of the American workforce and national healthcare demands that will most assuredly accompany the aging of the baby-boomers.

5.

Productivity growth is driven by a combination of innovation and a balance of labor. A domestic national policy which drives production according to these interests will often incorporate such policies and tax incentives for hiring drives and research & development subsidies. Unfortunately, the process of globalization has actually driven a national policy in the United States that is counter-intuitive in both of these areas. The transfer of jobs and production operations to developing economies as a way of cutting private spending costs is having a pointedly detrimental impact on local productivity growth.

Indeed, one of the major drawbacks to this form of outsourcing Kandikar (2005) argues, is that with the externalization of important business commissions, such aspects of the business are now being overseen by individuals not necessarily operating in concurrence with company culture, mission and vision. Another drawback is the damage which such outsourcing may bear on individuals involved in the in-house operation, who may resent the redistribution of responsibilities to external parties. This is also related to the warranted fear that outsourcing could even cost the devaluation or loss of in-house jobs. This devaluation is concurrent with an overall diminishment in the value of certain labor responsibilities in large markets, such as the United States, where a relocation of jobs to smaller markets has damaged the salary range for labor, service and even it work. This creates a fundamental problem of incongruity between economic assumptions formerly relevant in western markets,… READ MORE

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