Global Businesses

In the next few months, I am going to talk and share about things I am learning at Harvard Business Online

Politics as a Vocation — Max Weber:

Government officials work for a state. The state is a human community that successfully claims the monopoly of the legitimate use of physical force.

It encapsulates explicitly what we have known implicitly over the centuries.

Madisonian Dilemma:

Any government powerful enough to protect us from domestic and foreign predators is powerful enough to become a predator — James Madison, The principal architect of the constitution of the United States.

Capacity is the government's ability to get things done. A capacious government can enforce laws and affect the changes it wants. It can be generally effective, by using fear or greed or a combination of both. A constrained government has limitations on what it can do. It has restrictions. It can’t just act on the leader’s whim. For a government to behave in a manner consistent with its citizens’ welfare, it has to be both capacious and constrained.

The closest thing to a solution that has so far been found

Government: Love, Greed & Fear:

Ensuring the law of the land is oftentimes the highest priority of any Government. In fact, it acts as a reference point to citizens for what can be or can be done. The government enforces law of the land using fear, love, or greed as motivations depending on the prevailing situations. Fear is often used when there is an absolute necessity of strict implementation of a law, for example, enforcing lockdown or quarantine during a viral pandemic. On the other hand, greed and love are very effective motivations that can take time to build among the citizens, usually which evolves over time.

Welfare Economics:

The fundamental theorem of welcome economics is under certain assumptions, a competitive equilibrium will yield efficient allocation of resources, such that no person can be made better off unless someone is made worse off.

What can governments do about market power?

Governments might pursue some sort of antitrust policy to counteract the market power of big firms. They might impose a cap on the firm’s profits, or directly on its prices.

The problem is that firms constantly seek to create market power in order to enrich their shareholders, and governments want firms to compete in vigorous and innovative ways because that competition stimulates the macroeconomy. If it is aggressive in constraining the firm from enjoying the fruits of its behavior, the government may fear that it will blunt the firm’s incentives to be an effective competitor.

What can governments do about externalities?

Economists are nearly unanimous in arguing that the best way for governments to regulate externalities is either by imposing taxes to equalize private and social costs, or by building some sort of property rights system that creates the missing market (in emissions, for example). Most governments today tend to rely instead on command-and-control regulations that require or proscribe particular kinds of behavior, which may be substantially less efficient than more market-oriented systems.

What can governments do about information asymmetry?

Governments can try to impose transparency requirements on corporations, especially before notable events like bond issuance or an initial public offering of stock. They can require corporate structures that involve representatives of shareholders (such as a Board of Directors). They often make laws against outright fraud.

There is a cement manufacturing company in Kishnapatnam port in India. The Government allowed its manufacturing only if the company does any green and public helping initiatives. To do so the manufacturing company adopted few neighborhoods with roads and green belts.

…to be continued