Ethics are the moral principles that impact the decisions made by a person. Ethics and Economy are strongly interlinked with each other as a person’s ethics, as well as his perception and attitude towards the economy greatly, affects his decision making which can have wide ranging consequences on the Economy of the region or country. The ethics affect the economy from basic grass root level problems like non-payment of taxes by an employee to the major problems like rising subsidies.
One of the basic problems that most of the economies face, especially emerging economies is the problem of non-payment of taxes. The act of non-payment of taxes and evasion of them in one form or another is unethical. There has been a rise in the number of tax evasion cases and the amount of black money in the economy in the years in which taxes have been increased. This normally when happens govt. increases the expenditure beyond its means.
Like non-payment of taxes, corruption is also a major problem faced by Indian Economy. Unlike other European Countries where Police and Judicial departments were set up to protect the interests of the nation, these were set in India to protect the interests of the Englishmen. These prestigious services along with the administration had one objective and that was to safeguard the British profits. These services were corrupt and promoted discrimination and some of their elements continued even after Independence. The unethical practices of corruption, hoarding of food grains, mal practices in the security market, financial sector and corporate frauds lead to the poor performance of economy.
Unethical practices lead to the loss of investor’s confidence in the system. The govt. is forced to put restrictions and measures to avoid these malpractices which lead to the bagging of already present lengthy official procedures. This repels the foreign investors from investing. The domestic customers also refrain themselves from getting involved in lucrative schemes of govt. because of lengthy procedures and paperwork established by govt. to prevent unethical practices. For ex. The farmers of India suffer from price volatility of food grains but still they don’t get involved in Future Commodity Markets even though it can help them hedge the price risk. One of the major reasons behind them is the operational difficulties in doing so. Not all the lengthy procedures and operations are to prevent unethical practices but if people can get more ethical, many things can be simplified.
When we talk about ethics we give more priority to the morals and care less about the profits. When PSUs were started, a lot of jobs were generated and more people were given jobs than required. This led to the pension problems in future. The major reason for the poor financial performance of most of the PSUs is the lack of quality and work ethics. The problems with the PSUs were that they were not profit oriented. Ethics can also lead to financial losses which is not good.
The logic behind the various subsidies is helping the poor and needed to meet their requirements which is purely ethical but this is financially not good. So ethics may not always be a good thing for an economy. Rising subsidies on various products and services cost govt. a lot and lead to the fiscal deficit. This fiscal deficit can result in raising of taxes by the govt. which when increased beyond normal limits can lead to tax evasion and non-payment of taxes which is unethical. So an idea behind an ethical activity can produce unethical results too.
The idea of thinking in terms of profit should not be misunderstood with selfishness. All the business and transactions that occur in day to day business in an economy are all profit oriented. The progress is measured in terms of profits and sacrificing the profits for ethical reasons may not be a good idea when there are other alternatives to the problem. Subsidies have also been used by the political parties to profit themselves. The political ethics are also a major ethical disaster faced by India. Political parties throw numerous grants, funds and announce other financial benefits when elections are near. This leads to the increase in govt. expenditure which ultimately adds to the fiscal deficit. The India has already seen the calamity caused by the fiscal deficits in the past. So, political ethics also play a major role in dictating the economy.
The ultimate aim of the economy is to make people self-dependent and make sure that all the people receive due benefits and the system works properly. What we need is a balance between the ethics and profits concerned. After the WW2, the European countries realized that instead of punishing the defeated, they should work on reconstruction and development. The World has progressed at a very rapid rate after realizing this. Economies are helping each other through various forums and organizations. The UN and its economic branches like WB & IMF are formed on the ethical grounds and since their formation, they have been working for the development of the poor nations thus stimulating the growth. These organizations are guided by the ethics.
An economy should focus on making people self-dependent and should think in long term regarding this. Subsidies may be used to tackle short term problems but this can never be the way ahead. These lead to the higher rate of unemployment. People should be provided with better investment opportunities and operational difficulties needs to be taken care of. An economy where good work ethics are present will attract foreign investments. FDIs & FPIs will bring modern technology and better managerial skills along with them. It’s good to be profit oriented but Banks, firms, and other financial institutions should also take care that no one is discriminated in their process of profit making. Profit making should not turn into greed and selfishness. Same goes for the companies indulged in foreign trading and other external market participators. Their malpractices may tarnish the image of an economy and can result in loss of investor’s confidence.
Awareness should be spread as to how one’s actions can result into the bigger problems for ex. People should be taught that how much their act of the non-payment of taxes can affect the economy. Similarly, employees of every organization and departments should be taught work ethics and the quality control methods. Business ethics are integral part for the development of an economy. The Proper work environment should be provided and procedures should be simplified for the ease of doing business.
Ethics dictate the economy. In a similar manner, economic conditions also dictate the ethics as we saw that high taxes can result in tax evasion and black money. We need to maintain a balance between the ethics and profits. Ethics should cover a limited ground because we cannot let an economy go into losses. Similarly, profits alone should not dictate the policy-making which will result in discrimination with one group. With the proper balance between profits & ethics and adequate planning, an economy can flourish and prosper.