After three centuries of slavery, almost one hundred years of Jim Crow, and decades of racial segregation, yet America has still a long way to go regarding the economic equality of its White and Black citizens. It is exceptionally for African Americans to climb the wealth and prosperity ladder. Thus, millions of those of African descent are subjected to restrictions and limitations. There is little to no disagreement regarding the fact that financial inequities, particularly those related to an individuals or a communitys racial identity, are a complex issue. Despite that, there seems to be a rise in the popularity of public debate surrounding the origins and implications of such an imbalance. Economic inequality among Whites and Blacks has become an especially heated topic of current discussions about race, discrimination, and generational wealth. The following essay focuses on the reasons why it is challenging for the Black community in the United States to accumulate wealth and move upwards on the economic ladder. Systemic structural barriers in the form of government policies and discriminatory regulations serve as the cornerstone of the issue of racial wealth disparity in America.
The Myth of Economic Mobility
In the United States, there has been a prevailing misconception about economic mobility shared by millions of people. The very notion of the American Dream posits that everything is possible on the U.S. land as long as one works hard and shares American values. Thus, for decades now, the majority of the U.S. population has regarded economic mobility in America as the norm. However, this is certainly not the case for the Black community. Research demonstrates that it is extremely hard for African Americans to move up the ladder in terms of wealth accumulated over generations (White para. 6)., according to Katz and Krueger, there has been a large decline in the rate of upward mobility across successive U.S. birth cohorts (382). This statement reveals that the Black community has not been the only one affected by the challenges associated with economic mobility. Even for White and Asian households, which are considered some of the most prosperous in the nation, building wealth and passing it on to the next generation is increasingly hard. Therefore, economic mobility stopped being the norm in the United States long ago, despite common misconceptions and beliefs.
Current Realities
Before investigating the reasons behind the lack of economic mobility in the Black community, it is crucial to examine its direct outcome. Difficulties in accumulating and passing down wealth generation-to-generation result in low monetary inheritances for African Americans. Such inheritances serve as the foundation of all the current wealth Black people have in their possession nowadays. McIntosh et al. indicate that the most recent statistics demonstrate that median net worth for white households has far exceeded that of Black households through recessions and booms over the last thirty years (para. 4). In bringing up this evidence-based claim, the authors highlight that, as of 2020, Black family wealth is a lot lower than that of White family. According to Schermerhorn, the race-based wealth gap continues to expand as, currently, the typical black family has just 1/10th the wealth of the typical white one (para. 2). Despite the commonly-held assumption that there has been much progress in regards to the economic prosperity of African Americans since the Civil Rights movement, this is simply not the case.
The Government Is the Issue: The Quest to Uncover Complicit Actions and Regulations in Racial Economic Disparities
Primary Damages
The end of slavery seems to be only the beginning of the Black communitys struggle to overcome the legal barriers on the way to economic mobility. The authorities have simply replaced blatant theft in the form of slavery with institutional discrimination in the form of sharecropping, Jim Crow laws, and social security schemes. Furthermore, despite the progress in social mobility gained by the White population as a result of industrialization in the second half of the 19th century and 1900s, the Black population still faced various disadvantages. For instance, as industrial employment opportunities started to push the population towards cities, rents were disproportionally higher for those of African descent.
The Impact of the GI Bill
Apart from the challenges throughout the industrialization era, it is important to note the sham, which was the promise of GI benefits to Black veterans following World War II. This directive was following Jim Crow, which meant less well-paid employment and high-quality educational opportunities for African Americans (McCardle 122). Schermerhorn equates the disadvantages of missing out on GI benefits to negative interest compounding in each generation (para. 11). From this passage, it is evident that education and employment were the primary forces behind the mobility of the White population. Lessening the number of such opportunities and limiting the access to them for Black people affected the communitys overall potential to accumulate and transfer wealth.
The Politics of Prejudice
Apart from a variety of aforementioned mistreatments and discriminatory acts at the hands of the U.S. government, there has been a prevailing culture of racial prejudice in American society. Most alarmingly, it has transferred into politics and policing, resulting in mass incarceration. Contrary to popular belief, the trend of higher incarceration rates among Blacks is on the rise (Pettit and Gutierrez 1153). Schermerhorn notes that the likelihood of Black men going to prison has increased almost three times between 1980 and 2020 (para. 16). Thus, it is crucial to acknowledge that mass incarceration is the inescapable reality of the Black community.
On the one hand, this might have nothing to do directly with the economic immobility of African Americans. On the other hand, in the case of wealth accumulation and generational prosperity, incarceration rates do okay a big part. Incarceration often serves as the ultimate barrier for Black families to build wealth and transfer it generation-to-generation. Prison is rarely not synonymous with numerous missed opportunities associated with education, employment, family, and even voting. In summary, the mass incarceration of Black people in America is partially caused by a combination of the aforementioned historic challenges as well as an overall culture of resentment towards the Black community. Moreover, it is yet another example of structural failure to uplift the African American population on the way to economic mobility.
The Root Cause of Economic Immobility among African Americans
All of the government failures and discriminatory policies played a significant part in preventing the Black community from prospering. Most importantly, they served as a limitation to African Americans to transfer all the accumulated wealth over decades to the next generation. None of this can be applied to Whites, both in urban and rural areas who continuously passed down their wealth, creating a net of financial security and opportunity for their offspring. As a result, nowadays, according to the data provided by Schermerhorn, 20 percent of Black families have a net worth of $0 or below; 75 percent have less than $10,000 for retirement (para. 19). This demonstrates the severity of the racial economic divide between Black America and White America. Thus, it becomes apparent that the challenges the Black population faces on the way to economic mobility are systemic structural discrimination and racist prejudices, rather than individual factors. Unless the government learns from past mistakes and initiates solutions to alleviate barriers to racial economic equality in the U.S., there is little to no hope that the Black community will prosper and succeed in the long run.
Conclusion
In conclusion, it is crucial to recognize that there are numerous challenges, which limit the ability of Black people throughout the United States to accumulate and transfer wealth generation-to-generation. The main issue lies in the historic background shaping the current reality of the Black community in the United States. Segregation, discrimination, and the overall government support of the narrative of inequality between Whites and Blacks have all contributed to the politics of racial economic disparity. As a result of the U.S. authorities complicit actions and initiatives, African Americans are now facing an impending threat of moving even further down the economic ladder. Despite the common misconception that the end of slavery and the Civil Rights movement of the mid-20th century have eliminated the possibility of Blacks and Whites being unequal on an institutional level, the opposite is true. Structural, and not individual, factors are the driving force of the limitations and restrictions, which rob the Black community of any opportunity for building wealth in the long term.
McIntosh, Kriston, et al. Examining the Black-White Wealth Gap. Brookings Institution, 2020, Web.
Pettit, Becky, and Carmen Guiterrez. Mass Incarceration and Racial Inequality.The American Journal of Economics and Sociology, vol. 77, no. 3-4, 2018, pp. 11531182, Web.
Shermerhorn, Calvin. Why the Racial Wealth Gap Persists, More than 150 Years after Emancipation. Washington Post, Web.
White, Gillian B. Why Black Families Struggle to Build Wealth. The Atlantic, Web.
Part of the millennium development goals focus on poverty eradication, population stabilization, and supplying of all people of the world with adequate food. This aims at ensuring that living standards of the people rise and alleviate deaths related with food shortage and poverty.
Although economic crises limit the efforts of many countries in their quest to eradicate poverty, countries like China have moved a step forward and recorded great success in poverty reduction. In addition, in the pursuit of feeding citizens of many nations of the world, application of diverse measures such as increase in land productivity, proper water utilization schemes, and population stabilization to ensure food security becomes inevitable.
The most Important Points and personal feelings
The millennium development goal on poverty reduction entails the reduction of people going hungry, provision of universal primary education, reducing the number of people who cannot access clean drinking water, combating the spread of infectious diseases, and provision of healthcare services to the needy in the society. All these factors help to narrow the gap between the rich and the poor in the society.
Accessible education for all lowers poverty levels to insignificant levels. I regret the fact that, children with little or no formal education normally start life at a crippled economic state and this would mean they continue in abject poverty for the rest of their lives thus widening the gap between the rich and the poor. The World Bank supports countries with good education plans to achieve their universal primary education for all.
In the developing countries, health sector combats diseases such as diarrhea, respiratory illness, malaria, measles, and HIV AIDS, which affect many people and lead to increase in mortality rate. Prevention of these diseases would mean good health to the people and therefore, high economic productivity.
A nation with high percentage of unhealthy people is prone to suffering from poverty as sick people are less productive than healthy people are. The provision of clean drinking water, adequate food, and good waste disposal helps to alleviate disease outbreaks in the society. Prevention of infectious disease such as HIV AIDs ensures healthy life and high economic productive by all hence poverty reduction.
Falling fertility and increasing mortality rates help to shrink populations and helps to stabilize populations. Family planning methods assist in regulating women fertility whereas HIV and hunger increases mortality rates in many countries. Direct health care intervention helps in raising the literacy level of many women on family planning matters to help in regulating population sizes in many nations. Small sized populations ensure good provision of basic requirements hence reduction in poverty and hunger.
Food insecurity poses a threat to many nations of the world; however, I believe that use of different approaches has alleviated the food insecurity problem in many nations. Increase in land productivity by acquisition of more land for agricultural production and application of new farming techniques improves the land productivity for sustainable food supply.
From the readings, it is clear water, as a major resource in food production, remains a great challenge in many countries. Water shortage reduces food production and this risks food insecurity in the affected countries.
To prevent this problem, I think that adoption of irrigation skills, which help to reduce water usage as drip irrigation and sprinkler irrigations over flooding and furrowing irrigation methods would save the unbecoming problem of water shortage.
From the insights raised in the readings, I feel that the need to sustain food security in the future calls the elevation of responsibility of food production from the ministry of agriculture to the office of the head of state. Effects of other ministries affect food production for instance ministry of energy emit carbon dioxide in the air affecting crop production; therefore, all ministries need regulation to achieve food security.
Conclusion
Although economic crises affecting many nations of the world cause poverty increment and food insecurity, the pursuit to achieve the millennium development goals helps to alleviate the problem of poverty and food insecurity by the application of different approaches such as education for all, population stabilization through birth controls and increment in food production. The achievement of food security and reduced poverty levels remains justified by the appropriate application of these approaches.
The passage under analysis is taken from the work written by Adam Smith. The name of the work is An Inquiry into the Nature and Causes of the Wealth of Nations . The book is commonly known as The Wealth of Nations . The passage can be found in the middle of Chapter VII of the Book I entitled Of the Natural and Market Price of Commodities . Adam Smith wrote the book in 1776. The author of the work was an outstanding philosopher and one of the first economists who contributed significantly to the modern development of the economy. The book was written at the beginning of the Industrial Revolution. It defined general notions that promoted the development of the economy. Nowadays, Smiths ideas are classified as the classical economy.
Adam Smith wrote his book at the beginning of the Industrial Revolution. The Industrial Revolution should be regarded as the watershed moment in the history. It has changed the world dramatically. Industrial revolution commenced in the United Kingdom and soon expanded in the other countries of Western Europe. The primary change during that period concerned the substitution of the ways of productions. Thus, machines replaced people.
It was the age when the intensive usage of water and steam power began. Factories started using coal and other fuels in their work. According to historical evidence, people were against such drastic changes as far as they were afraid that they would be left without work. However, the later data showed that the standard of living of most people increased with the progress of manufacturing. New employment opportunities appeared, and the general income of people arose. The Industrial Revolution was followed by a substantial growth of population. The rapid progress led to new challenges concerning the proper division of labor force, the activities of free markets, and revenue-related issues.
Adam Smith provides readers with his understanding of the nature of the economy in The Wealth of Nations . The work comprises of five books. In the first two books, the general idea of the author refers to the division of labor. Smith emphasizes the significance of labor division and pays attention to the fact that it makes the nations prosperous. The author explains that the division of labor leads to the situation when every employee has to conduct the particular task, and it makes the work more efficient. In these books, Smiths also dwells on the nature of money and pricings. In the third book, the author proceeds to the description of the evolution of societies and their economic growth. In the fourth book, he criticizes the mercantilism and introduces the notion of gross domestic product.
Finally, in the fifth book, Smith describes the role of the sovereign or government in the economy. Before the part under consideration, the author contemplates the nature of natural price and market price. He demonstrates the way the availability of particular commodities and the demand influence the price. After the passage, Smith writes about the impact of market fluctuations in price.
The passage under analysis is a sum of the ideas that have been mentioned before. Also, the extract does not only concludes but gives new directions for investigations. That is why it is significant for the paper. Thus, Adam Smith writes about the demand and quantity of commodities in the market and the way they influence the price. Smith states that in some employments, the same quantity of industry will, in different years, produce very different quantities commodities 1. Then, he proceeds with examples proving that fact. For instance, the same amount of workers produce the same quantity of cloth annually, but the same amount of employees do not always produce the same quantity of corn or wine. The passage under analysis is central to this notion. However, the last sentence refers to the alternations in the market. It presupposes that the issue is not fully investigated and gives a hint about the following development of content.
The Wealth of Nations is of great significance for the modern world economy as far as it is the first book about free markets and labor division. Despite its importance, there are a few flaws in the book. Adam Smith dwells on his understanding of pricing. However, he fails to give a profound explanation of pricing. Smiths theory of value is the second aspect that is not exactly clear and does not fall under the current understanding of value. The author considered that the word value had two different meanings. The first meaning was value in use while the second value in exchange .
Smith failed to understand the paradox of water-diamond that presupposed the problem with the high cost of diamonds and their extreme uselessness in comparison to water. Besides, some scholars argue that there is no invisible hand of the market described by the author. What concerns the very passage, I do believe that it is still of great significance for the economy. Smith manages to provide profound examples to prove his opinion. The book has much more accomplishments rather than failures. Adam Smiths understanding of economy became vital for modern business.
Bibliography
Smith, Adam. The Wealth of Nations. London: Harriman House Limited, 2007. Web.
Most people have viewed unemployment as being an indicator of economy showing the number of individuals in a particular economy who have a will and ability to work but they have no jobs. If a person is found in this situation, then that person is unemployed. Individuals who lack the will of working for any reason are not categorized as being unemployment, but they are just economically inactive.
Economists have concluded that in case the levels of unemployment are too high in an economy, then that particular economy is just struggling to maintain its population. Under this situation, then the economy is not utilizing its resources in the best way possible.
From the graph of UK unemployment 1950-2001, in 1950s and 1960s, unemployment rates in UK were very low. According to Politics.co.uk par1 this amounts to about 3% on average. This was attributed to what is referred to as Post-war boom.
During Second World War, those individuals who served as servicemen in military were promised to be given full employment after winning. At this time, there was no government that was ready to break this promise.
It has been stated that, advancement in technology along with international trade that was stable and the success of Keynesian economics and the stability of the Phillips Curve created a situation which did approach full employment although of course, at that time the majority of women remained in the category of the economically inactive (Politics.co.uk, par. 6).
Moreover, in 1950s to late 1960s, the interest rates were very low; there were lots of incentives for those carrying out research and development as well as on general investment. As a result, there were many investments springing up month after month due to the above mentioned escalator mechanisms. Though this strategy worked in those times, in the current times the strategy is ineffective.
This is because, in the current times, this strategy will make government budget to increase, the government has no additional sources of revenue. In case the government tries to increase tax, it will affect consumption as well as investments negatively. As a result, it will be very important for the government to raise PSBR with the aim of countering this problem.
On the other hand, the current UK government can increase tax, and ensure that its spending also increases at the same rate. This balanced budget multiplier will helps the government to increase its national income in general. This is because not all extra money paid inform of tax will be spend. This extra tax will be as a result of increased investment and consumption.
In 1970s, unemployment rates in UK started to increase. This has been attributed to the collapse of orthodox boom. This was caused by the energy crisis in 1973, and the generated stagflation in 1979. These impacts resulted to high inflation rates as well as high unemployment rates in Europe. In 1972, unemployment rates topped a million for the first time in history.
This is because; labours through unions were demanding more salary rates. In around 1979, there was a situation referred to as winter of discontent, where even grave diggers protested pay freezes by calling for a strike. At this time, unemployment was a 1.1 million. This was the time the Labour party was swept out of power by the Conservatives in the name that the labour party was not doing anything to deal with the situation.
When conservatives were in power, it was thought that unemployment rates will decrease in 1980s, but to peoples surprise, unemployment rates escalated further. At this time, the number of unemployed people clocked 3 million, which was about 12 percent of the population that was working.
However, this was just an average because in some parts of the country, the number was even higher. For instance, in the northern parts of Ireland, unemployment clocked 20 percent of that population that was working. Moreover, those areas that declining industries dominated, for instance coal mining industries, unemployed population was even very large.
Early 1990s experienced a fall in unemployment percentage. And by late 1990s, that is 1999, the number was still bellow 2.2 million individuals. This kind of trend went on till 2005, with official figures putting the rate at around 1.398 million individuals. Nevertheless, in the last two years of Blairs era, unemployment rates went up again.
In 2008, when Gordon Brown was dealing with global recessions, figures of unemployment clocked 1.79 million, which has been considered as being the highest in the last decade. In May 2010, by the time the coalition government was coming to power, unemployed population was clocking 2.5 million people.
However, the current Prime Minister, (David Cameron) has promised that unemployment rates are expected to fall in the coming years under his government. He said, At the end of this Parliament unemployment will be falling (Politics.co.uk par. 4)
Moreover, there was a fall in unemployment rate in early 1990s because most industries moved from manual production to technological production. It is clear that, though there was slight unemployment, but those who remained working ended up receiving higher salary rates as a result of increased production, hence increasing aggregate demand for money.
Moreover, increased technology led to lower production costs; hence UK commodities gained lots of competitive advantage on global market, hence increased government revenues through tax. These two effects led to unemployment rate reduction in UK (Anderton 1993, 56).
However, according to civil societies, unemployment has been rising month after month. For instance, between June and August 2011, unemployment has increased to 2.57 million individuals, which has been considered as being the highest since 1994.
To explain this trend, it has been shown that in the entire history, policy makers have been holding a view that macroeconomic advantages of having high unemployment rates are much more as compared to its negative effects on the economy and social openness.
This is what happened in 1980s. On the other hand, the government has not been having a will to allow high unemployment rates of unemployment as a result of its effects on social environment, the economy, as well as public costs.
Moreover, figures of unemployment in UK just explain a partial story of what is happening in UK. This is because, for many years, there have been structural differences among UK regions making some parts of UK to experience higher percentages of unemployment as compared to others.
For instance, unemployment in Wales and Scotland is much higher as compared to other developed areas like London and South East (Curwin & Slater 67). This has been due to the fact that, there are some regions having fewer employers as well as business closures like the closure of mine industries in the 1980s.
The recent one has been in Birmingham, where Longbridge plant was closed down. This issue has brought lots of devastating situations in such areas.
The figures of unemployment in UK have been rising as a result of other complexities. For instance, prevalence of unemployment amongst ethnic minorities, women, disabled people, young people, and people who have been unemployed for long periods of time (Anderton 243), all of these people are grouped together, they make the current figure to be much high.
However, this group in early 1950s to early 1970s were still being considered as inactive, hence were not considered as being unemployed. However, the situation has changed since 1980s, as they also add up to the unemployed population.
Moreover, according to Begg, Fischer & Dornbusch 126, during election times like in 1997 and 2001, the number of unemployed people goes down, but this might not be true, as a result, the afterwards years the unemployment rates increases again.
This strategy was used by Labours party to gun up votes. This strategy has been successful due to the fact that there are two principles of measuring unemployment, namely Labour Force Survey and the Clamant Count. As a result, in some situations, Labour Force Survey has been used as it has the ability to minimize unemployment number for political reasons.
Moreover, in 1980s and around 1994, UK experienced higher numbers of unemployed individuals. This is because many workers were moving from one job to the other. According to Anderton Allan 78, most people were moving from military jobs to other jobs, and the period between the two jobs, was being considered as being unemployment.
In addition, this was the time workers were demanding higher salary rates, as a result, most workers were reluctant pick the first job they were being offered.
Some reasons which led to this reluctance include occupational and geographical immobility, which made some areas to experience higher unemployed rates as compared to others; people were also having higher expectations for higher salary rates, hence many people needed well paying jobs, hence people were reluctant in picking jobs that offered low salary rates (Grand & Vildler 200).
However, in around 2003 to 2008, the government did much to reduce this reluctance among people. For instance, the government introduced working trials where by individuals were being given temporary jobs to ensure that in case one gets satisfied with it, then he/she picks it up.
In case one is not satisfied, then is moved to another temporary job. Other measures that had been implemented by the UK government to reduce this problem include making some improvements in training and lowering peoples expectations by lowering the working hours. Though these were difficult measures to implement, but they really helped the UK government in reducing unemployment due to reluctance.
Between 1994 and 1996, and between 2008 up-to date, UK has been experiencing and is still experiencing real wage unemployment. This is because salary scales had been raised to a level that some industries were making losses hence closed down. Other factors which led to real wage unemployment are setting minimum salaries and high levels of benefits.
Moreover, these trends can be explained by Kondratieff wave, which provides prediction of economy success and economy failure as well as world events. According to this theory, unemployment exists for about 10 years due to industrial and trade falls. However, after that, trade and industries picks up again leading to lower employment rates.
Moynihan Daniel & Titley Brian 3 has argued that in early 2000, unemployment rates in UK were very low because the government as well as industries had minimized real wage unemployment. In doing this, the average real wage had been levelled to Market-clearing wage. To ensure that labour accepts this wage rates, inflation rates in UK were kept very low.
As a result workers salary rates were kept constant, but in real sense they were falling in value. However, this strategy worked till 2007 where workers started realizing the effect of falling value of their salary rates. As a result, in 2008, the worst effects of inflation were experienced.
For instance, commodity prices went higher as well as exchange rates. To date, this has not been dealt with, as workers are still demanding higher salary rates as unemployment rates goes higher.
It is due to high unemployment rates that led to the public demonstrations against the coalition government in mid 2011. This unemployment has been as a result of UK economic recession and high population. The strategy to deal with this situation has been very difficult in the current complex labour market.
This is based on the fact that, though the government has been trying to ensure that workers accept lower salary rates, but due to trade unions salary rates have remained artificially high.
Sloman, Hinde & Garrett 45 argue that, the main issue that is leading to high unemployment rates in UK is not really lack of job opportunities, but many employers are not willing to take those who have been unemployed for a long period of time, though this group has a will to accept employment at a lower salary rate.
Employers claim that such people lack up-to date skills and experience. In dealing with this, though the Coalition government has tried to initiate retraining programs, but it seems it is not working to employers satisfaction.
Using Philips Curve to Explain Unemployment in the UK
The curve representing the relationship inflation and the unemployment rate is referred to as the Philips curve. According to this curve, unemployment is inversely proportional to inflation (Phillips 283).
This curve can be used to explain unemployment in the UK because by the time unemployment is high in the UK, there have been chances that wage rates increases slowly, and when unemployment is low, UK has been experiencing rapid increase in wage rates. This was experienced in 1960s
This is because in 1960s, unemployment rates were low, the labour market in the UK was very tight, and as a result, faster industries ended up raising wage rates with the aim of attracting the scarce labour.
However, during high unemployment rates, this pressure is abated. According to the classical view of inflation in UK, inflation is as a result of money supply alteration. In case money supply is high, commodity prices also goes higher.
Most economists like Phelps 265 have challenged the theoretical understanding at the height of the Philips curve. It has been observed that employers and workers who are well informed and rational concentrate majorly on the real wagesthe inflation-adjusted purchasing power of money wages (Phelps 265).
As a result, real wages are usually adjusted with the aim of adjusting labour supply to ensure that it is at equilibrium with the labour demand. As a result, unemployment will not be associated with real wages (natural rate of unemployment).
In addition, the Philips curve calls for the governments to start trading high inflation rates with the aim of achieving lower unemployment rates. This is a theoretical advice that no government will ever aspire to borrow.
Take it for instance that unemployment rate is at a natural rate and real wages are also kept constant in UK. At this time, workers expecting certain price inflation end up demanding higher wages to prevent their purchasing power erosion. In case the UK government uses monetary in an attempt to lower unemployment bellow its natural rate in the region.
There will be an increase in demand which will make industries to increase prices at higher rates as compared to what UK workers anticipated. Since prices will be higher, companies will start having more revenues hence taking more employers at the old salary rates and even might decide to raise such salary rates a little bit.
For a short period, employees will be suffering from what is referred to as money illusion, hence they will supply more labour since their salary rates had increased, leading to unemployment rate drop. However, such employees will not realize that there has been erosion in their purchasing power because prices have increased at a very high rate than what they anticipated.
However, as time goes by, workers will start anticipating higher price inflation. As a result, they will start supplying less labour but still insist on the wage increase to keep up with price inflation rates.
This will lead to a situation that the real wage is restored to its old level, unemployment rate returning to natural rate. But the price inflation and wage inflation brought on by expansionary policies continue at the new, higher rates (Sheffrin 56).
This analysis can be of great help in distinguishing short run and long run Philips curves. As a result, given the fact that average inflation rates will remain constant in the UK just as what happened in 1960s, and then it is true that inflation rates and unemployment will have an inverse proportionality.
However, in case inflation rates will change regardless of the direction, particularly when decision makers try to lower unemployment rates below its natural rate, after sometime, unemployment will come back to its normal state as inflation rates remain high. This means that after labour has had enough time to adjust, natural rate of unemployment will withstand whatever the inflation rate.
This short run and long run relationships have been combined to mean expectation-augmented Philips curve. From this, it is clear that. the more quickly workers expectations of price inflation adapt to changes in actual rate of inflation, the quicker unemployment will return to natural rate, and the less successful the government will be in reducing unemployment through monetary policies (Friedman 5).
This issue of expectation-augmented was experienced in most countries in 1970s, where countries experienced both high inflation as well as unemployment. According to Philips theory, such state will never happen. At this time, rates of inflation rose from 2.5% in 1960s to about 7% in 1970s. On the other hand, instead of unemployment rate dropping, it increased from 4% to about 6%.
This made most economists to accept the principles presented by the analysis of Friedman and Phelps. All these imply that after price inflation, employees and employers start considering inflation as a whole.
These considerations will result to employment contracts that increase pay at rates near anticipated inflation, Unemployment would then begin to raise back to its previous level, but now with higher inflation rates (Phelps 268).
Friedman and Phelps argued that, there as a certain rate of unemployment which when maintained, unemployment rate and inflation rates will be compatible. This rate is what many economists have referred to as non-accelerating inflation rate of unemployment (Friedman 10).
GDP as A Measure of How Well-Off a Country and Its People Are
In most scenarios, GDP has been used in measuring market value of all products and services that have been produced within a particular country in a given time. It is considered as being the most appropriate way of looking at the economy performance of various countries.
However, GDP accounts for some things which are not helpful in assessing well-being of the country population. Such parameters include depreciation, income going to foreigners and regrettable like security expenditure (Layard 126).
GDP was not meant to measure how well-off a country and its people. The main objective that led to the development of GDP is measuring market value of final services and goods that are produced in a particular country. In general, GDP has four major shortcomings when used in measuring how well-off a country and its people. First of all, GDP encompasses depreciated capital replacements.
However, depreciation does not contribute to peoples welfare in any way, in addition, the process of replacing old capital means that there is nothing that has been happening. From the chart, it is clear that GDP does not help people in any way; instead, it goes back to the replacement of physical capital.
Another thing is that, GDP is used in measuring income that is produced within country, but it does not consider peoples income in that country. There is there are some income which do not go into the pockets of the country citizens, but in the pockets of foreigners.
Thirdly, due to the fact that GDP only considers monetary transactions, it does not put into consideration other activities that are of more value to the countrys people, like children. The measure also does not consider the value of leisure time that people spent with their families or relaxing with friends.
This is a very important parameter when measuring how well-off a country and its people. It also ignores the significance of clean and quality air and water. As a result, any important measure of well-being of citizens in a particular country has to consider the above stated parameters.
Last but not least, GDP accounts for a lot of features that not in any way care for peoples well-being. For instance, in case earthquakes or hurricane comes and destroy the entire region, the efforts input when reconstruction process is taking place is usually considered as being a boost to GDP. This may even count when the efforts are directed towards replacing something that existed previously.
Moreover, costs incurred when preventing crimes as well as setting security measures adds up to the countrys GDP, but this expenses are incurred just with the aim of creating a peaceful environment.
Nevertheless, medical expenses incurred in the process of dealing with health effects which arises as a result of pollution also boost GDP. On the other hand, if this reasoning is taken to the extreme, then basic needs like food and clothing are not included in GDP. As a result, there is need for other measures.
Alternative Measures
According to Frey & Alois 43 and Lyubomirsky et al.120, GDP cannot be used in measuring welfare of people. As a result, he proposes Measure of Economic Welfare that includes household services values and leisure to GNP. It minuses capital cost consumptions, as well as bad things like pollution and police services in dealing with crimes.
It is true that, A very comprehensive and thorough Index of Economic Well-Being comes from the Canadian Centre for the Study of Living Standards (Frey & Alois 409). This measure considers the consumption of both the government and the private sector, though it ignores household work. It also considers the human and physical capital that is owned by the residents of a country.
In doing this, the measure puts into consideration stocks of all productive resources that can be managed sustainably to ensure that they can utilized by the coming generations. Thirdly, this measure considers inequality as a Gini coefficient as well as the intensity of poverty.
Lastly, this measure considers aggregated components of security like rates of divorce and unemployment rates as well. In determining peoples well-being, a weighted average of the above stated parameters is calculated.
From the table provided, Norway is seen as having the highest economic welfare amongst 28 countries provided. However, though Sweden is considered as being the second, but based on GDP, it is number 17. As a result, this ranking greatly differs with the ranking based on GDP. As a matter of fact, this system favours those countries having high income levels, high equality and low levels of insecurity.
There are other methods which includes more measures of human welfare. It is clear that such methods consider wealth, security consumption, and equality among other parameters. As a result, these measures include other parameters as compare to the previous method.
They are based on the fact that We have failed to see how our economy, our environment and our society are all one. And that delivering the best possible quality of life for us all means more than concentrating solely on economic growth ( Layard 125).
Amongst those methods, The United Nations Annual Human Development Index is the best known, though it is considered by many as being very narrow. This Index puts together life expectancy levels, education as well as GDP in measuring how well-off a country and its people are.
This method is not far from the Measure of Economic Welfare because, it places Norway in the first position, followed by Sweden. However, this is because of higher education levels in such countries. However, countries like China, India and Ireland have gained more because of their high GDP.
Whoever, the most comprehensive method of measuring how well-off a country and its people are is Weighted Index of Social Progress appreciated as WISP. The index calculated in this method considers many dimensions of peoples well-being.
It looks at income, education, health, role of women, environment, social peace, diversity and welfare although data limitations admittedly lead to the inclusion of some peculiar measures (Kahneman et al 133). However, in ranking, this method does not differ greatly from The United Nations Annual Human Development Index and Measure of Economic Welfare.
This is because, though the two placed Norway as being the first, this method places Norway in the third position bellow Sweden and Denmark which were slightly below Norway in the previous methods. However, the rankings from these methods differ greatly from the ranking based on GDP.
Moreover, A Happy Planet Index (HPI) on the other hand considers life expectancy in a country apart from looking at their happiness without environmental destruction. It puts data collected from life expectancy, life satisfaction along with natural resource like energy consumption.
This index differs greatly from other methods as according to it, Vanuatu is placed in the first position. This is due to their environmental conservation. Countries around the equator are usually favoured by this method. It is used mainly in determining best destinations for holidays (Danziger & Taussig 501).
Measure of Domestic Progress is another method developed in UK with the aim of measuring its welfare. It is stated that From economic indicators subtract social costs like inequality, accidents; environmental costs and the loss of natural resources. The overall result is an indicator that peaked in the mid-1970s, declined until the mid-1980s and has not yet regained that peak (Frey & Alois 410).
Genuine Progress Indicator is just like Measure of Domestic Progress, but it considers individual consumption, the households work value, net fixed investments, and consumer durable values. Te index also puts into consideration commuting costs, environmental destruction costs and costs of depleting finite resources.
The indicators of well-being should show a wider picture of the society state as compared to what GDP provides. However, such methods have not explained how satisfied people are. As a result, the process of measuring happiness ought to take a different approach as compared to the indicators or methods described in the previous section.
According to the 2004 survey, Swedish said they were very satisfied with the life they lead the highest share in the sample. Only 17% of Germans and just 4% of the Portuguese felt the same way, as chart 11 shows (Kahneman et al.130). In the past 15 years, studies have indicated that though per capita income has increased, satisfaction with life has not changed greatly.
Research in Europe has indicated that happiness in this region does not depend on per capita income, but on other factors like football matches and results. For instance, in France, most people were happy in 1998 the year they hosted the world cup and won it.
Moreover, in Europe, individuals get satisfied with life if their compatriots are trustful. As a result, it is very difficult to manage life satisfaction sustainably in Europe. So basing on income levels alone cant explain happiness in Europe.
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Division of labor is specifically the need to have a specialized labor force in a country an organization or institution. This makes it possible for a person to be an expert in a certain field according to Smith. In a country where this is the case, there is greater wealth than in countries where it is not. According to smith division of labor and specialization has an effect on efficiency. This makes it possible for an organization or a country to produce goods that are high quality and highly competitive in the market for goods and services otherwise known as the goods market.
Increased efficiency saves time and labor. This is because continuous input of labor in a particular field increases ones expertise and makes him or her have greater effectiveness while doing it. This reduces the unit time allocated to the production of a unit service or good which leads to more products within a short period of time. Massive production means that costs are reduced and hence gods and services are sold more cheaply compared to other goods in the market. Increased consumption in effect means that workers are paid well and this increases their purchasing power.
This pulley belt effect leads to more demand for goods and services and creates employment. The final sum is that the country benefits in terms of competitiveness in the market, production quality and unmatched production quantities that make it increase its wealth considerably. Although it is sometimes criticized for it will bring boredom and hence redundancy, Smith points out that governments have a role to play in training workers to have a clear view towards employment and to have up-to-date information regarding their field of expertise. This will greatly reduce boredom and create the very important motivation needed to make workers remain engaged (Smith, 46).
Division of Labor and Exchange
Smiths assumption was that consumers always choose the minimalist prices while buying commodities. This is not always the case as different customers may be looking for different things in a product including status, satisfaction and their tastes and preferences. The exchange value of a commodity, according to Smith is measured by the input in terms of labor that has been put into it. When labor is divided, therefore, the cost of a unit commodity is highly reduced.
This reduction in the price of commodities affects an individual in many ways over time. First, it creates more deposable income as income increases and the cost of buying reduces. This increased purchasing power means that a person will want to spend more and may want to save more. This savings according to economists constitutes investments in the short and long run. In essence, it means that an individual will invest a bit more due to the division of labor and the benefits that it comes up with.
Labor creates a surplus that might be invested again into the future is the bottom line that smith reached. He was interested in determining why diamond which had little demand than water was that valuable. He concluded that the amount of labor that is required to obtain a single unit of diamond was enormous as compared to the labor needed to obtain a unit of water. Therefore over time, it is important for an individual to weigh the value of commodities that he intends to buy and to have a clear look at disposable income (Smith, 40).
Extra Credit
The exchange value in the current economic world is not static. It keeps on fluctuating and creates a situation of uncertainty in the goods and monetary market. Therefore in the neoclassical economic reality, the thoughts furthered by Adam Smith are rendered inapplicable. It is especially impossible to have just a specific skill and to remain competitive in the job market. The job market requires more than just a special skill in a certain field. To be and remain relevant, one has to have a number of skills that fit together to form what is required by employers the world over. Mangers are required to have accounting, human resource skills, management skills and a host of other proficiencies to be able to control the docket awarded to them.
Technology has also played a major role in redefining the concept of economics. Some labor inputs are quite technical and are highly paid than others though common goals are been sought in the marketplace. The medium of exchange also varies from country to country. This variation means labor is not and cannot be priced similarly in as much as production is similar. Hence in the neo-classical economic theory, Adam Smiths view faces many challenges. The money market which forms the basis for the exchange value of currencies is highly volatile and has very high unpredictability levels. Therefore division of labor may work in the current economic situation but much is a hindrance that it becomes almost impossible to control its applicability.
Work Cited
Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. London, United Kingdom: W. Strahan and T. Cadel, 1776. Print.
The article by Shai Bernstein, Josh Lerner, and Antoinette Schoar is devoted to the issues of sovereign wealth funds (SF). The authors use the history of SF and analyze the current situation through original quantitative research.
The authors begin with an overview that demonstrates that there exist up to 70 SF, with the 20 biggest ones encompassing 90% of the total SF asset (Bernstein, Lerner, and Schoar 220). SF are founded on various sources, including resources (like petroleum), state-owned property selling revenue or trade surpluses. SF are characterized by rapid growth (have grown ten times in the past two decades), a great part of which is attributed to the oil prices (the article was created in 2013).
The goals of an SF are often multiple: it is a reserve of capital meant for the future generations (which is particularly important for the resource-based SF), a stabilizing tool for the government revenues (similarly important for undiversified economies and in the crisis situations), and as a holding company for the governments investments (Bernstein, Lerner, and Schoar 222). The authors also point out the potential of the SF to accumulate the sudden wealth and prevent its mismanagement.
The issue that the authors mention in relation to SF deals with the fact that SF is often used to support various domestic businesses, which introduces the challenge of making a politically and economically correct decision. The authors analyze the publicly available data for 29 SF and come to the following conclusions concerning this challenge. The SF with politician involvement are indeed more prone to making economically less attractive decisions, that, however, tend to be strategic , that is, aimed at the countrys industry development at large. This factor is reflected in the tendency to invest in home industries and, especially, in the underperforming ones.
At the same time, these tendencies are not totally universal, and some variations do exist. As such, some SF are aimed at long-term development, and others are concerned with short-term objectives (for example, the acquisition of companies). Still, in either case, long-term return maximization is not characteristic of politically-driven SF, and this is the primary conclusion of the authors. Apart from that, SF can be managed externally, and in this case, the author claim, SF are more likely to invest abroad and their preferences are more economically attractive.
Having demonstrated the effects of political influences on economics-related choices in SF, the authors mention other challenges of the funds. One of them is transparency that is being demanded nowadays by the public (due to the increasingly public transactions of the funds and their growth), and that is being avoided by the government (possibly, as a result of fear of imitation or the understanding of the importance of the related decisions).
The other difficulty is concerned with the effective management of the growing SF and their returns, and it primarily stems from the enormous size of SF that puts it in a specific position and demands specific strategies. The authors mention the following coping strategies: avoiding illiquid markets and alternative assets (which lowers the required skill of the investor) as one extreme, heavy exploitation of private funds and direct investment as the other one, and building a structure of smaller funds for different investments and experimenting as an option that combines the two previous ones. Still, according to the authors, the question of the most attractive strategy of dealing with the SF issues remains open.
Works Cited
Bernstein, Shai, Josh Lerner, and Antoinette Schoar. The Investment Strategies Of Sovereign Wealth Funds. Journal of Economic Perspectives 27.2 (2013): 219-238. American Economic Association. Web.
Limited information is found on how economic enterprises can incorporate business ethics and social responsibility as a means through which their primary objective of shareholder wealth maximization is achieved (Hawley 1991, p. 714).
This lack of ethical considerations seems to be not only confined within the academic sphere but there is evidence of it taking a toll in the realm of corporate practice in the economy. Enterprises have ignored the ethical concerns in strategizing on how they will achieve their goal of wealth maximization.
Through their total disregard of ethical issues, corporates are assuming that the mere pursuit of the wealth maximization goal meets the social responsibilities that could possibly be expected from any entity. However, there has been limited research and analysis of the ethical foundations and the perceived implications of the goal of shareholder wealth maximization.
This paper seeks to analyze to what extent the corporate world incorporates business ethics and social responsibility in pursuing their primary objective of maximizing the shareholders wealth and how this pays back in terms of increased returns to the shareholders.
It highlights the main differences between the goal of profit maximization and that of wealth maximization and the role played by market forces in the pricing of stocks within the shareholder wealth maximization paradigm. It argues that empirical and theoretical evidence on this subject will most usually lead to overlapping interpretations (Smith 2003, p. 58).
Share Holder Wealth Maximization
Since Milton Friedmans largely criticized position that the social responsibility of business is to increase its profits , the ethical aspect in the maximization of shareholder wealth has been given a wide consideration. In order to build a logical analysis of this notion, it is of paramount that we understand the crucial link between the two distinct goals of a corporation, i.e. Wealth maximization and profit maximization.
While the two may share some similarities, they are also characterized by various inconsistencies as analysed by Solomon in his work, (Solomon 1963, p. 2). For instance, profit maximization as an objective best suits a traditional macroeconomic market which is characterized by minimal uncertainties; the entrepreneur is the main decision-maker, the shareholding is fixed and determines within a given period.
This kind of business structure is especially of great utility in analyzing the variables, i.e. Prices of raw materials and end products, production level etc., which occupies a central position for any corporate whole. According to Winch (1971, p. 14), profit maximization goes hand in hand with the ethical goal of the utilitarian mode of resource allocation.
Contrary to the microeconomic world, proper allocation of resources is very integral to a corporate entity in regard to its financial dealings (Beurden & Gossling 2008, p. 412). This difference in terms of the central focus of each establishes new fundamentals which the profit maximization paradigm declines to involve itself with.
For example, this whole new structure separates the entitys decision making from its ownership and places it in the hands of a separate and distinct management body. As this happens, uncertainties on the future earning capability of the firm sets-in when capital stock features in as a variable to be determined too.
The goal of wealth maximization is developed by maximally utilizing the utility maximization strategy, i.e. management, being agents of the shareholders are required to maximize the projected utility of the shareholders wealth.
If for instance wealth is the main argument in the utility of the shareholder, maximizing the anticipated utility of the wealth of the shareholder reduces the core objective of the entity as maximization of shareholder wealth.
To this end, the ethical concept of a corporate finance adopts the same approach as that of microeconomics as use of utility maximization incorporates characteristics of the utilitarian ethic (Shaw 2009, p. 569).
Conversely, the introduction of an element of the future, uncertainty, separated decision making structure creates complications in utilitarian allocation of resources. When even this basic objective cannot be achieved, it only holds strong for the argument that wealth maximization is incapable of providing a feasible ethical foundation for a corporate entity.
Nevertheless, some essential features of wealth maximization are not included in the utilitarian resource allocation framework. For instance, the wealth of the shareholder is directly linked to the price of capital stock and in extension, the mode through which marketing for ownership claims contains elements of ethical concerns by the entity (Wilcke 2004, p. 198).
Working on the assumption that the main objective of an entity is wealth maximization, various issues can be identified. For instance, since wealth maximization is completely dependent on market forces in order to create a strong value for the ownership of the firm, a question arises whether these market forces bring about stock prices incorporating the value of the social responsibility of the firm.
To answer this question, we need to determine to what extent security prices reflects information on a firms ethical concern. Unfortunately, if this debate continues, it will take us to the more irresolvable question of what the world perceives as constituting proper ethical behaviour.
It even gets more complex when management, as the agents of shareholders, gets into the picture and we are faced with the question of whether shareholders would count management actions as constituting acceptable ethical behaviour (Cosans 2009, p. 396).
Determining Share Prices
Determination of security prices is a fundamental concern of corporate finance. Through efficient market hypothesis, the price of securities is a reflection of the information available to investors when making investment decisions.
Through the market hypothesis, we can attempt to analyze the ethical impacts of the wealth maximization goal. For example, if wealth maximization is to meet a specified ethical standard, the price of securities should incorporate information containing ethical elements.
In order to succeed in this, we need to first set an ethical standard. Then empirical tests will be carried out based on the changes in prices of securities and determine the impact of ethical issues on the market prices.
The analysis will be made based on the assumption the main goal of the management is maximization of shareholders wealth (Husted & Salazar 2006, p. 83). The hypothesis could also test on separate aspects, for example when a certain firm has been known to exhibit differing degrees of adherent to ethical issues.
But this latter hypothesis will present various challenges. For example, there may be a situation whereby an organization allows management to engage in both socially acceptable behaviour as well as unethical acts which are perceived to result into positive effects.
This may occur where the returns of the illegal acts are significant as compared to the costs to be suffered when such acts come to light such as litigation costs, fines and other penalties, reduced goodwill, etc. there could also be other mitigating factors such as the ability to keep the illegal activities as well hidden company secrets or by putting up strategies for timely damage control when such activities come to light.
Besides, even when using efficient market hypothesis, it is hard to tell whether if an alternative course of action was taken it would have resulted in a different price change pattern. For example, it would be difficult to determine whether the unethical behaviour was a reflection of the ethical failures of the wealth maximization goal or that management diverted from practices consistent with wealth maximization objectives.
This debate is premised on the idea that the efficient market hypothesis, by its very nature is characterized by joint hypothesis, i.e. price determination models are usually implied. Such an assumed model of price determination if it dictates that we assess a particular ethical issue, then a null hypothesis of the efficient market hypothesis requires that unethical act would violate the primary goal of wealth maximization.
According to Treynor (1981, p. 7), management should address financial demands of the different factions within the organization if it is to emerge as a successful entity. These factions include customers, employees, suppliers and other stakeholders.
The wealth maximization goal requires that in pursuing its objectives, a corporation should take into consideration the interests of all the stakeholders of the organization, not just the shareholders. Thus we can use this argument to say that wealth maximization encourages the adoption of socially responsible business behaviour.
The crucial connection between wealth maximization and the efficient market hypothesis can be well illustrated using the classical corporate theory. This theory proposes that a firm would most likely invest in a project projecting positive net present value.
The variables used to calculate the projected cash flows is based on the performance of the firm which has been theorized by the management where it may have or may have not incorporated ethical behaviour.
Here, the price of securities will be based on the managements assessment of the market. Including social responsibility and ethical behaviour in calculating the projected cash flows will be in line with wealth maximization where such considerations are reflected on the prices of securities.
Empirical Considerations
As we have noted above, empirical evidence does not help us determine whether pursuing wealth maximization will amount to a socially responsible and ethical managerial behaviour.
It requires us to define what constitutes proper ethical behaviour and since ethical issues are complex in themselves, it will create conflicting opinions on the subject. Nevertheless, we can draw from the few theoretical and empirical studies relating to the impact of socially responsible behaviour on the price of stocks.
In this light, it has been argued that price fixing has the potential to increase new entrants into the market industry leading to higher competition and thus diminishing returns (Waldman 1988, p. 78). Therefore, if the wealth maximization is the main objective, price-fixing is aimed at offsetting losses in profit by offering a lower discount rate facilitated by a reduced business risk leading to a higher net profit margin.
Yet, if this is not the end result, then price fixing will ultimately have the effect of reducing shareholders wealth. Research has shown that disclosing a legal action intended to correct corporate price fixing has resulted in significant negative returns (Skantz et al. 1990, p. 159).
On this basis, while the reduced returns could be the markets punitive costs for behaving unethically, it could also have arisen from a perceived increased business risk which has nothing to do with ethical issues.
This is further evidence of the difficulties encountered in attempting to use market data to determine whether pursuing wealth maximization leads to ethical outcomes. Since the reduced returns arose because the market became aware of the unethical behaviour and not because of engaging in the actual price fixing, a question arises as to what information was originally included in the prices.
If the original share price were impacted by information on the firms engagement in price fixing, then the reduced returns could mean that the entity needs to adopt a risky, highly competitive, reduced profit margin business policy.
Here, the anticipated litigation costs arising from court cases will be expected to have been discounted into the stock prices. However, if price fixing was done in secrecy, then news on a legal action would lead to price adjustment to reflect the resulting costs of unethical act, which would include the lost goodwill. For this, the costs that would be involved in adopting a more competitive strategy are already reflected in the price.
The probability of reaching different conclusions using the same piece of evidence has been found in other areas of our present concern. There is evidence that in making investment decisions, investors do indeed rely on the information available on social responsibility (Patten 1990, p. 581).
Other sources reveal superior investment performance of previously divested portfolios, though these results could have resulted from a combination of factors as opposed to mere social concerns. This may be explained in a number of ways.
For example, following the net profit value method, the corporate financial theory holds that slight changes in either the projected net cash flows or the perceived discount rate impacts on the returns of capital stocks. Therefore, the grand performance of the divested funds may have resulted from a continuing increased risk or a weakening expected corporate performance as opposed to any ethical issues concerned.
This argument can also be applied to the impact of ethical behaviour on investment in the nuclear industry. It has been found that markets place a lower value on nuclear firms at 20% as compared to other industries (Fuller at al. 1990, p. 124).
On careful consideration, the results reveal that perceived risk changes could have contributed to the valuations observed. Thus this leaves us with the option that social responsibility concerns could have had a positive effect on the whole affair.
As witnessed above, untangling the effect of a certain activity on the prices of stock has its own complexities. Besides, we have to give room for the possible assumption that management may not be pursuing wealth maximization.
There is significant evidence that often times, management has been known to unethically chase their own selfish ends especially if they are in conflict with shareholder wealth maximization (Findlay & Whitmore 1974, p. 28).
This will give rise to additional agency costs which the shareholders will incur to monitor management activity and in effect, will lead to reduced returns. When agency costs are involved the equation becomes even more complicated as we need to now to assess the effect of agency costs on the security prices.
Evidence of price fixing can be used to explain how agency costs bring-out a whole new interpretation of the empirical data. For example, working on the assumption that there is no diverging information, the stock market values its own stocks from the assumption that wealth maximization is the main objective of the firm.
On this basis, announcement of a legal action could produce reduced returns because of the additional costs incurred in monitoring the activities of the management and not because of the unethical behaviour.
Therefore, without a way of determining what kind of information was included in the original share price, major difficulties arise in trying to assess whether a certain pricing activity was impacted on by social responsibility behaviour. This raises the requirement for exercise of caution in interpreting the results of any given Empirical Study.
The effect of agency costs may also help in the analysis of study results obtained for other perceived unethical activities, more so in the area of mergers and acquisition whereby there are insider dealings by the management. Of particular relevance is the case of hostile takeovers.
Drawing from debates on what constitutes ethical behaviour (Jones & Hunt 1991, 839), we can base our argument on the assumption that hostile takeovers are unethical. As such, it would appear that, ethical behaviour is being rewarded in this scenario.
This is because, ordinarily, the returns of the target group increase significantly while those of the hostile bidders become negative to zero following the announcement of the intended takeover, (Franks & Harris 1989, p. 238).
Further, due to the existence of agency costs, the use of poison pills or shark repellants by target management will most probably result in negative returns on the part of the target shareholders (Meulbroek et al. 1990, p. 1113).
So do these results support the argument that ethical considerations on hostile takeovers are evidenced in stock prices? Unfortunately, this evidence raises even more questions rather than answering them.
For instance, given the potentially negative returns suffered by bidding shareholders, it would not be appropriate to say that the management bidders are pursuing wealth maximization for their shareholders, thus increasing the likelihood of incurring agency costs.
On the other hand, it is likely that the bidding management only pays high prices to the target group innocently since the target bid premium payable is in most cases given back through wage concessions. Besides, the unethical bidders will most likely be the targets in the future other than the bidders who helped increase the firm value.
Thus from this conflicting evidence, it is only the unethical takeover activities that are properly reflected in the ultimate prices of stock. Undoubtedly, this is as a result of the obvious reduction in firm value that is a unique feature of the anti-takeover strategies.
Conclusions
This paper has argued that wealth maximization as an objective will naturally adopt the ethical expectations inherent in its particular niche of operation. The best indicator of managements performance is the price changes of the entitys stocks in the capital market.
Though management decisions could incorporate ethical concerns, it is the security market to determine whether these decisions are in accordance with wealth maximization goal through a valuation of stocks. Thus, this raises the question of to what degree is ethical behaviours reflected in the prices of securities?
This question requires a careful study on the implications of unethical behaviour to the ultimate stock prices. But this presents a problem in that there is no established procedure on how to determine what does or does not constitute ethical behaviour, among other difficulties.
For instance, assuming that stock markets rewards certain business ethical behaviour through attractive prices of securities, it does not automatically follow that when one pursues wealth maximization it will result into a socially responsible corporate behaviour.
However, enterprises would most likely choose this path by choosing to believe that as long as actions are geared towards wealth maximization, then they are ethical and, therefore, justifiable. With this, changing management policy may become a big challenge since even reduced securities prices may not be adequate market sanctions.
Thus even if it was determined that managerial decisions need to incorporate ethical considerations, market forces will not be sufficient to induce this. From this we can conclude that pursuing wealth maximization for the shareholders will definitely not result to a socially responsible corporate behaviour.
However, evidence shows that the pursuit of wealth maximization could deter an entity from engaging in illegal activities. For example, a negative pattern of security price changes is noted whenever it is revealed that an entity has been engaging in illegal activities.
Generally, it would appear reasonable to conclude that the stock market presumes that entities try to avoid engaging in illegal activities because of the possible incidental costs that they may suffer from engaging in such activities.
References
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BT Financial Group is one of the largest investment companies specializing in the wealth management. Being the part of the Westpac Group, the company seeks to introduce the production and allocation of investment, retirement products, and superannuation (Our History, n. d.). Insurance operations also involve distribution of loans, deposits, and mortgage among the population.
Due to the fact that the BT Financial Group strives to advance living standards of aged people as well as increase the overall wealth of the population, it introduces as number of important measures and opportunities that can be implemented.
To be more exact, the company should increase professional advice, enhance and promote investment, advance the insurance schemes as more and more people plan to buy houses, introduce higher rates of investment products, and, finally, contribute to augmentation of margin loans among the population.
In order to meet the needs of older generations, the BT Financial Groups should engage more resources and strategies. The major emphasis should be made on a fee-for-service arrangement for advice introduced to customers in the sphere of investments and pensions, eliminating any possible conflicts while preparing an investment portfolio.
In addition, the company also implements changes to the sphere of professional standards to enhance the recruitment requirements and control specific frameworks for measuring the delivery of advice, where the major focus is made on meeting sophisticated product and service needs of clients (BT Financial Group, n. d.).
Margin lending is one of the leading operations enhanced by the companys intention to protect and improve wealth of the Australian population (James, 2007, n. p.). In whole, this operation provides greater opportunities for the companys development because it creates a stronger platform for meeting the customers needs and demands.
Beside higher quality standards of advising policies, the innovation approaches, particularly the newly established IT frameworks, will contribute to greater productivity and performance of BT Financial Group (Fan, 2011, n. p.).
Hence, the introduction IT capability maturity system can initiate the company into a new strategic level for creating added value and for focusing on the most problematic areas of the production process. The opportunity to increase productivity has appeared due to customers growing demands whose request can be better controlled and operated with the introduction of the above presented framework.
Threats
For carrying out certain operations and activities, BT Financial Groups faces certain challenges and threats among which are rapidly aging generations, difficulties in knowledge managements, customers security, decline in population growth, and introducing innovations.
For implementing the existing opportunities, high quality and professional advice provided by BT Company is essential for facing the problem of aging generation, which is the major threat to increasing wealth in Australia.
Despite the fact that Australia is considered to be one of the most developed economies, it is still experiencing dramatic aging of its population (McCrindle, 2007, p. 5). Hence, the average age of the Australians is about 37 years compared to 28 years in 1976. If the median age increases, it can have significant influence on society.
Insurance is another cornerstone of the companys activities that needs to be considered and improved. The abundance of flood claims on the part of the BTs clients has been a major threat to the managers, but the problem has been successfully overcome as the managers provided new mechanism for handling and controlling revenues and earnings despite the insurance payout increase (Woodington, 2011).
More importantly, rise flood claims have provided the company with a much more favorable ground for strengthening its positions.
Due to the development of small businesses in Australia, BT Financial Group has become more concerned with lending and borrowing being the major sources for carrying out small business transactions (BT Financial Group, 2011).
Indeed, the Australian business landscape tends to be overwhelmed with new opportunities for small-scale projects. Historical perspective analysis also shows that Australia is considered to be the country where the dominating place is given to small businesses (Landstrom, 2009, p. 115).
Attracting more customers is another challenge that needs to be overcome to increase the clientele percentage (Woodington, 2011). Particularly emphasis should be made on meeting customer needs and creating more values for customer via the external marketing process.
Way Forward
With regard to the opportunities and threats outlines above, the company should react in the following manner. First, in order ensure the quality standards and advice efficiency, the company also applies to a customer-centric approach for introducing innovations to investment and superannuation activities (BT Financial Group, n. d.).
In fact, this customer-oriented culture contributes to creating a favorable ground for penetrating to all departments and sections of the company and enhancing the knowledge management (Deschamps, 2008, p. 84). Second, BT approach also involves the advisers at the beginning of the research and development process to ensure that a key strategic investment is congruent with the companys needs.
For ensuring the quality standards and advice efficiency, the company also applies to a customer-centric approach for introducing innovations to investment and superannuation activities (BT Financial Group, n. d.).
In fact, this customer-oriented culture contributes to creating a favorable ground for penetrating to all departments and sections of the company and enhancing the knowledge management (Deschamps, 2008, p. 84). More importantly, BT approach also involves the advisers at the beginning of the research and development process to ensure that a key strategic investment is congruent with the companys needs.
Reference List
BT Financial Group (2011). Wholesale and Retail Clients. BT Financial Group Submission. Web.
BT Financial Group. Annual Review and Sustainability Report. Web.
Deschamps, J. P. (2008). Innovation Leaders: How Senior Executives Stimulate, Steer, and Sustain Innovation. US: John Wiley and Sons.
Foo, F. (2011). IT Framework Helps BT Tap Business Value. Australian IT. Web.
James, A. (2007). BT Financial Group Streamlines Information Gathering and Saves A $ 540,000 Per Years. LivePoint. Web.
Landstrom, H. (2009). Pioneers in Entrepreneurship and Small Business Research. US: Springer.
McCrindle, M. (2007). New Generation at Work: Attracting, Recruiting, Retaining and Training Generation Y. US: The ABC of XYZ.
Wealth management analysts are entry-level professionals who support partners and associates by carrying out administrative and support tasks, doing financial research, and engaging in basic financial modeling. A holistic view of a clients financial situation is the goal of wealth management, which includes services like investment management, financial planning, tax planning, and estate planning (Wohlner, 2022). Although some financial professionals have dual roles as wealth managers and planners, the focus of wealth managers is on assets and investments, whereas planners also take into account daily household expenses, insurance requirements, and other factors. This project will be tasked with determining the location of a brick-and-mortar office within Connecticut.
Discussion
According to the data set, the majority of accredited investors in Connecticut are located in zip codes with higher incomes and higher rates of homeownership. The majority of accredited investors in Connecticut are located in zip codes with higher incomes and higher rates of homeownership. A person or business that is authorized to trade securities even though they are not officially registered with the financial authorities is known as an accredited investor (Hayes et al., 2020). They must satisfy at least one requirement regarding their income, net worth, asset size, governance status, or professional experience to be eligible for this exclusive access.
Certain requirements must be met to receive accreditation, such as working in the financial sector or earning more than $200,000 (Hayes et al., 2020). Because accredited investors are deemed to be financially savvy enough to bear the risks, they are the only ones permitted to purchase unregistered securities. Accredited investors are permitted to purchase and invest in unregistered securities so long as they meet one or more standards regarding income, net worth, asset size, governance status, or professional expertise. This is likely because these zip codes have a higher concentration of wealth, which accredited investors are more likely to have. The structure of the investor household is largely consisting of married couples with children because these households have a higher income and are more likely to be able to save for retirement. Household investment is a sizeable portion of all private investment, which has made a significant contribution to economic growth.
The retirement income mix of the investor is largely made up of 401(k)s and IRAs. The investors mix of retirement income is largely made up of 401(k)s and IRAs. The reason for this is because these are the most common retirement savings vehicles. Establishing retirement income objectives and the resources required to meet them as part of retirement planning. Identification of income sources, estimation of expenses, implementation of a savings plan, and management of assets and risk are all components of retirement planning (Kagan, 2019). Estimated future cash flows are used to determine the viability of the retirement income objective. Everybody longs for the day they can finally bid farewell to the labor force and resign. That is where retirement planning becomes possibly the most important factor. It does not matter where you are in life, either. Even if you are accustomed to a particular way of life, your Social Security benefits may not be sufficient. If someone puts money away now, they will have less to worry about in the future.
Based on the data, it appears that the best location for a brick-and-mortar office would be in a zip code with a high income and a high rate of homeownership. This is because these zip codes have a higher concentration of wealth, which accredited investors are more likely to have. Housing markets are complicated and dynamic. Strategic housing market analyses will not offer precise estimates of housing demand, need, or market circumstances as a result. However, they can offer insightful information on how housing markets function now and in the future. When developing planning and housing policies, they should take into account the characteristics of the housing market, the interplay of important variables, and the likely magnitude of change in future housing demand and need. To create regional spatial strategies, local development documents, regional housing strategies, and local housing strategies, it is essential to conduct strategic housing market assessments.
Conclusion
Based on the data, it appears that the best wealth management offerings for a brick-and-mortar office would be 401(k)s and IRAs. This is because these are the most common retirement savings vehicles. Seventy-four percent of adults in the United States believe they will never have high net worth, which is defined as possessing at least $1 million in investable or liquid assets. Yet, turning into a high-total assets individual throughout your lifetime includes more than making a decent salary or having different revenue sources (Gravier, 2022). We all have access to retirement investing, which plays a significant role in the portfolios of many millionaires. 55% of the wealth of the high-net-worth individuals who use the Personal Capital dashboard comes from retirement accounts like 401(k) plans and IRAs. People should use tools to keep track of their net worth over time as they work to increase their retirement savings.
Your class will soon be graduating from college. Some of your friends keep saying how their parents will buy them cars and pay for their holidays abroad. Is the most you can hope for a family photograph? Whatever one gets on graduation day is a clear reflection of their social class.
According to Nasseri, social class is the distinction between groups and individuals these distinctions are different from one society to another. Conversely, these divisions are also visible and different in one society. It is on the basis of age, gender, religion, education, and income that classes arise. Class in the United States is on the basis of age, education, and occupation. Furthermore, there is upper class, middle class, and the lower class (Distribution of wealth in America, n.d.). These differences in class are responsible for such things as where one lives, their friend to which schools they will attend and the kind of jobs they will hold; thus the rise of inequality. To sociologists, social class is a major determiner of beliefs, behaviors, lifestyle, and more importantly, life itself. Consider this, when the Titanic sank, 97% of the first-class survived, however, only 84% of the second and 55% of the third made it (Gilbert, 2007). Nevertheless, the question remains whether the class division is a matter of human nature or it is a changeable thing, which might be overcome by some approaches in the future prospective.
Firstly, according to Mantsios, (2003), one cannot only look at dollar figures and percentages if they seek to understand inequality. Even access to basic amenities can tell it all. It is evident that the distribution of wealth and income in the United States is skewed in favor of the upper class, even though it is rather a touchy question, which is being barely discussed publicly. Those who have gone to the best schools and can access the best services. Very few have a lot of the wealth and the small remainder is for subdivision among the middle class and the lower class, which is where most of the population falls. One also cannot analyze class differences on the basis of appearance. Mantsios opines that America has been successful at hiding poverty (Class in America-2003 312). However, it is generally argued that class does not only affect ones lifestyle and material wellbeing rather that it also affects ones physical as well as mental well-being. Accordingly, there is a link between social class and health. The lower class is more susceptible to certain diseases such as mental and heart diseases. Moreover, the lower class cannot access the best health care services (2003). The unequal distribution of wealth and the rising income inequality is responsible for the perseverance of classes (Devin, 1997). According to Harold Dalton, cultural myths inculcated to as in our families are also to blame (279). Most people grow up thinking that what they were born into, how things are in the way they are supposed to be.
Wealth is an indispensable aspect of social class. Wolff posits that wealth refers to the material possessions that one owns. This includes all the total assets one owns, from real estate to stocks and shares. After subtraction of debts, one then arrives at their wealth or what can also be referred to as net worth. Accordingly, the best way of measuring the distribution of wealth is by carrying out household surveys. From this, it can be easier to ascertain the levels of inequality. In the US, the inequality levels have been shown to be rising. The rich only seem to be getting richer. For instance, in the survey carried out in the US in 1998, it was established that a large proportion of the wealth was owned only by a few. Thus, the richest 1% of households owned a whopping 38% of the wealth. Furthermore, the top 5% of the rich households own over half of the wealth in the US, about 59%. Ultimately, the bottoms 20% are more often than not left with nothing (2003). Thus, the have and the have nots. By 2004, the bottom 60% of households only held a meager 4% of the national wealth. (Distribution of Wealth in America, n.d.) This results in classes, the upper class, the middle class, the working class, and the lower class (also the working poor). There are also subclasses within them such as the upper and the lower middle class. While the upper class can be classified as a capitalist who earns their income and make wealth from their assets, the upper-middle class are just usually well paid educated managers who rely mostly on their incomes. On the other end, the lower middle class comprises low-level managers while the working class comprises the low-paid unskilled workers (Wolff, 2003).
This has important ramifications, for one, it means that the children of the wealthy can attend better schools and will hold better jobs later in life. This is very different from those who are not wealthy and just struggle to get by in life. The same goes for access to health and even other social services. Those who have plenty have not troubled at all. Closely related to this is the power element (Wolff, 2003). Those who hold the most wealth, also happen to be the ones who hold political power as well. The result of this is that they are still going to make policies that are in their favor and seek to enrich them even more. Ultimately, it can also be argued that wealth is closely related to income. According to the distribution of wealth in America, not only does the bottom 60% of the households possess only 4% of the national income but they also just earn 26.8% of all income. Moreover, the argument is that for wealth to have a noteworthy impact on ones standard of living, it first has to translate into a high income (Distribution of Wealth in America, n.d.). Thus, the more income one earns the more potential one has to create wealth. This is the reason the rich only seem to be getting richer. Think about it. They have more wealth with which they can use to make even more wealth.
Social mobility is possible, however, Dalton opines that the first step that should be taken is to challenge the myths we have grown up believing are true. Social mobility according to the Canadian encyclopedia is,
The movement of people from one social position to another. There can be upward or downward social mobility. Upward social mobility refers to when people to a social position that is higher than where they were before. This can happen for instance in such cases as when one gets an inheritance which considerably increases ones wealth. Conversely, as a result of a weak economy and unemployment which results in poor returns on investment and even low incomes, people may slip lower in their social class (2008).
Thus, it is just a myth that most of America constitute the middle class. The truth is there are very rich people and there are very poor people. Even the middle class itself has people who earn more income than others and can be considered to be wealthier than their other middle-class counterparts.
The perspective, which might be achieved in the future is the socialistic approach. This approach aims at eliminating the class hierarchy to create a society where everybody is equal. It is important though to distinguish what in particular does someone expects as the notion of the concept socialism is so vast. This approach has been applied by the people throughout the centuries starting with Platon and further on. It became a popular approach after the French revolution and a following capitalistic oppressing system where there existed rich bourgeois and hard workers, who had to do their labor day in day out, wearing themselves out and giving astronomic profits to the owners of factories and so on. Thus, the rich class made a profit out of somebody elses work, namely their employees work, which nominally was much as high as the work done by the bourgeois. So, achieving the result, done by the socialistic approach the society might look really attracting and having the same income. Moreover, it is really a good theory for those, who are somehow oppressed now by their social standing either in money or education, as so far the de-jure claim of the society to be equal and classless appears to e nothing but a well-presented fairy tale for the rest uninitiated people to envy this at the de facto stage.
Still, needless to say, that each of the perspective approaches should be tested first, and as it has been proved many times by scientific researches in general and by history itself in particular, that the socialistic one, fails to be a worthy result to achieve as it appears to be more like a Utopian dream than like a reality to be lived out in our brutal life. It takes only to remember the social countries, made in the 20-th century to realize, that a socialistic approach is historically and politically impossible as the social society makes its own hierarchy of classes, but artificially created. So, why not live in the society we have now. It is natural for people to be divided into rich, poor, and somehow balancing in between these two. This viewpoint is supported by the words of the scholar, investigating the nature of the theory of socialism and the possibility of the embodiment of it into real life, who concluded that the Classless society looks more and more like a Utopian illusion. (Webpage)
It is not less important to define the definition of the word class for a person, as, as the investigations have shown, for different people, the classifications of people rests on different basics. For example, the lowest class (as it is classically called) tend to say that the main difference is money, while the top of the richest class opposes this viewpoint, saying that verification of the classes within any society has nothing to do with money or occupation (1967), but rests on values, pulled out by the people, their objectives and the rest non-material matters. The middle class associates the division with both money and occupation, but pays way too little attention to these matters, mentioning that the dignity and values, prized do matter a lot for the division. Consequently, while there is no agreement on the definitions, or the viewpoints are so complex within one society, it might be assumed, that the biased-formed opinions can not achieve or wait for a consensus. My opinion is that the original society we live in is versatile by its nature. While one is eager to make more money and is able to do that, he will be realized in the life, the other one, either more lazy or unable to make money or lacking educational or whichever more background will not earn as much as the first man. So, should one take money away from the first one to give it to the second one? Of course, even if the answer is yes , and one-day people will be equal if not in their intelligence and self-virtues but in the material matter, then in a week or two some people will manage to stand out again, having more money, as it is their nature to earn it, while the other people will be poorer as their talent is not earning money but spending it or just not enough desire to earn. The nature of a human being can not be changed by anyone at some cause. So, why not take the opportunity today in this society, trying to improve oneself, ones arrogance, passions, desires and rather controlling them all be happy to live every day and to seek personal happiness. In fact, it is definitely not embodied in the bank cheque.
Figure 1. The stratification within the society
The research sources, making statistic data, look at the question of stratification in the following way. The graph, presented by the U.S. consensus bureau detects the stratification within the society, relying on several principles.
Attainment is related to both occupation, as seen above, and income. This graph shows the educational attainment of individuals age 25-64, employed full-time, by occupational field. (U.S. consensus bureau)
It is understood that social stratification in America has seen the rise of social classes. As the word class is polysemantic, different people tend to forth assumptions about the basic differences which make some classes of a higher or a lower standard. Still, taking the classical division into consideration (i.e. according to the aspect of wealth) the top class is, the richest 1% holds a massive 38% of all the wealth in America meaning those who do not fall under this bracket have to fight to stay relevant. These classes have their basis on education, gender, race, income, and wealth. Nevertheless, it is theoretically possible through social mobility to move from one class to another. However, the odds are clearly against the have nots. The haves will still go to the best schools, access the best services, hold the best jobs, and use their wealth to make more money. And the question arises at this point, can it be changed somehow. Can man equalize all human beings? The answer to which humanity has received from the history and then from the results, made by the scholars, which are quite firm that the theoretical equality of people looks more like a Utopian dream than like a reality. It is too good to be true. Moreover, one can not overcome the nature of humanity, making some artificial conditions for the so-called justice to triumph as class divisions persevere as a vital structural characteristic of modern human culture. Consequently, being unable to change something in the world in the Global understanding, we should cultivate self-control and control of our desires somehow to be able to enjoy life as it is, not paying too much attention to the matter of class divisions as it is not very material.
Works Cited
Dalton, Harlon L. Horatio Alger. Rereading America. Ed. Gary Colombo, Robert Cullen, and Bonnie Lisle. 7th ed. Boston: Bedford/ St. Martins, 2007. 279, 283.
Devin, Fiona. Social class in America and Britain. Belford UK: Edinburgh University Press, 1997.
Distribution of wealth in America. n.d. 2008
Figure. US Census Bureau report on educational attainment in the United States, 20033.
Gilbert. Social class in America. 2007.
Mantsios, Gregory. Class in America-2003. Rereading America. Ed. Gary Colombo, Robert Cullen, and Bonnie Lisle. 7th ed. Boston: Bedford/St. Martins, 2007. 312
Mantsios, Gregory. Class in America in Rothenbergs, Paul S. Race, class and gender in the United States: An integrated study, 2003.
