Elinor Ostrom and Oliver Williamson shared the 2009 Nobel Prize for Economics (and a prize of $1.4m) on Monday for their work on how economic transactions operate outside markets in common spaces and within companies. Their work includes topics such as the free-rider problem and how this can lead to a sub-optimal over-consumption of a resource. Their work also considers economic governance and how this has led to the increasing popularity of outsourcing for companies.
Despite the prestige of a Nobel Prize, there have been suggestions that a Nobel Prize in Economics should not have been awarded this year, given the inability of economists to predict the financial crisis and mixed opinions about how to prevent another one in the future. What do you think?
US duo wins Nobel for economics Financial Times, Chris Giles (12/10/09)
Two Americans win Nobel economics prize MSNBC, Associated Press (14/10/09)
What this year’s Nobel Prize in Economics says about the Nobel Prize in Economics The New York Times, Steven Levitt (12/10/09)
Humbling year for bickering economists Financial Times, Alan Beattie (11/10/09)
Questions
- What is market failure and how does the free-rider problem fit in?
- Do you think economists were at fault for not foreseeing the financial crisis?
- Do you think that the research of Elinor Ostrom and Oliver Williamson was deserving of the Nobel Prize and how important is their research in the context of economic theory?
Are businesses concerned solely with profits or sales, or do they take broader social objectives into account? Is ‘corporate social responsibility’ (CSR) a key part of their decision-making? In other words, do they care about the welfare of their employees, about being honest with shareholders and customers, about being energy efficient and non-polluting and about caring for local communities? In general, do they make a genuine attempt to be ethical? One view is that they should do this because, in the end, it’s profitable to do so. Another view is that they should be socially responsible because they have a duty to be so.
In the current economic climate, CSR is being tested. Is CSR something that should be inextricably part of everything a firm does? Or is it a luxury that can be dispensed with when times get tough? The first article below looks at this issue and comes to a fairly optimistic conclusion. The other articles look at approaches to CSR in various countries.
A stress test for good intentions The Economist (14/5/09)
The Future of CSR: 2009 report CSR Asia (05/09) (This may take a little while to load: try right clicking and saving it before opening)
CSR efforts score well in trusted brand poll BusinessMirror (Philippines) (29/5/09)
Minister Presents Corporate Responsibility Index Awards Australia.TO (28/5/09)
CSRwire Welcomes New Members to its Global Network of CSR News and Information CRSwire (27/5/09)
Straight Talk about Corporate Social Responsibility The Huffington Post (13/5/09)
Social Responsibility WA Today
See also the UK government’s CSR site Corporate Social Responsibility
and Business in the Community’s Corporate Responsibility Index
Questions
- Explain how self-interest can go some way to making companies more socially responsible.
- Why may the free market fail to provide the optimum level of CSR?
- To what extent does the current recession threaten CSR? Are there any ways in which it could encourage companies to be more socially responsible?
The current financial crisis has led many to wonder whether this may mark the ‘death of capitalism’. While this may almost certainly be an over-statement, it may mark a fundamental sea change in the way in which we oversee and manage a capitalist system. The articles below look at some of the implication of this possible change in approach.
Positive thinking Guardian (18/10/08)
A category error Guardian (10/10/08)
History can guide, yet there are new limits of the possible Guardian (10/10/08)
I’ve watched the economy for 30 years. Now I’m truly scared Guardian (28/10/08)
The new New Dealers Guardian (26/9/08)
Europe and America in the shadows as a new era dawns Telegraph (26/10/08)
Questions
| 1. |
Explain what is meant by a capitalist system of economic organisation. |
| 2. |
Assess the extent to which a ‘soft-touch’ regulatory approach can be blamed for the current financial crisis. |
| 3. |
Discuss the extent to which greater levels of government intervention and economic regulation are likely to result from the current financial crisis. |
| 4. |
Are we witnessing the death of capitalism? |
Hayek, through his book the ‘Road to Serfdom’ became one of the founding fathers of the market economic system that we have adopted as the principal method of organising economic activity. However, like all neo-liberal economists, his views and recommendations have come under increasing scrutiny in the current financial crisis.
Faith. Belief. Trust. This economic orthodoxy was built on superstition Guardian (6/10/08)
Dangers of worshipping false god of self-regulating markets Irishtimes.com (3/10/08)
Questions
| 1. |
Write a short paragraph setting out the key arguments in Hayek’s book ‘The Road to Serfdom’. |
| 2. |
Assess the importance of confidence in an economic system. To what extent is a lack of confidence a ‘self-fulfilling prophecy’? |
| 3. |
Discuss the extent to which Hayek’s work influenced the adoption of neo-liberal economic policies. |
Public choice theory is an area of economics that uses standard economic tools to consider the decisions made by politicians and others within the public sector. In essence the theory applies economic principles to politics. In the article below Simon Caulkin argues that public sector reform and the application of public choice theory has failed and likens the public sector reforms that have been implemented to Soviet central planning.
Labour’s public sector is a Soviet tractor factory Observer (4/5/08)
Questions
| 1. |
Explain what is meant by public choice theory. |
| 2. |
Describe the principal public-sector reforms that were implemented under the Blair government. |
| 3. |
Discuss the extent to which recent public-sector reforms have succeeded in delivering a more responsive and efficient public sector. |