encourage economic growth
Encourage Economic Growth
The current modern and highly globalized world is a far reflection from the world a century ago. This is attributed to among other factors; constant economic growth experienced the world over post-world war 2. Economic growth can be described as the increase in market value of merchandise and services in an economy after being adjusted for inflation. Essentially, it involves the growth of GDP (Gross Domestic Product) on population that is mainly affected by efficiency in the use of inputs within an economy.
Hong Kong and Singapore, in particular, are two of the fastest growing economies in the modern age experiencing significantly high levels of economic growth. It is estimated that these economies averaged an average growth of 6% in real terms over the past three decades establishing themselves as major economic powers in the Asian continent. Hong Kong, a service-oriented economy, is one of the world’s top international financial centers enjoying low taxation, well-established financial markets, and an almost free-trade port. Singapore, on the other hand, is more of a trade-oriented economy and similarly enjoys low taxes, low corruption levels and one of the most open economies in the world CITATION Wor14 l 1033 (World Bank, 2014).
This paper aims to establish a number of methods used in Hong Kong and Singapore to encourage economic growth for typical firms in both economies from which one will be chosen for further analysis. It will then evaluate ethical issues accruing from the polarization of income and wealth at a domestic and international level. This effort is geared towards helping the World Bank in advising newly industrialized nations on how they can encourage growth in their economies.
Methods Used To Encourage Growth
The first method used to encourage growth is proper implementation of taxation laws that cover all sectors of the economy. Both of these countries are hailed for their low taxation levels with a comparison to other world economies. These tax regimes levy limited taxes on capital gains, no gift or estate taxes and light tax rates on personal income. The major effect of such strategies is maintaining low costs of doing business for firms thus making the investment environment in the economy attractive for new firms. Already existing firms can retain more funds that would have otherwise been paid as taxes that can be used in expansion programs in addition to further investment in capital.
The second method is establishment and enforcement of favorable property rights. Hong Kong is said to be the second best country for commercial investment in the world whereas Singapore shares the first spot under property rights and trade freedom. The fact is people and firms desire to know they have ownership of some form of property. For firms, this factor is particularly important because full ownership of assets saves them the cost of financing debt that in most if not all cases lead to payments of amounts higher than the value of the asset as a result of interest paid. In addition, they can make independent decisions regarding the use of the property without depending on approval from external sources not familiar with the firm’s business processes.
The third strategy is the negotiation of trade agreements and becoming signatories to trade associations. One of such organizations is ASEAN (Association of Southeast Asian Nations), a political and economic organization comprising ten countries from southeast Asia forming one of the world’s leading free trade groupings. One of the main benefits for firms is the elimination or reduction in trade tariffs between member countries. This factor encourages trade between member nations making the cost of foreign-acquired inputs lower while expanding markets for the output of local firms.
For the purpose of this paper, the first strategy will be chosen as a suggestion for the typical company in Singapore and Hong Kong. The reason behind this decision lies in the direct, and immediate impact taxes have on the operations and decision making of firms. Favorable tax regimes for businesses essentially involve lower taxes slumped on capital gains, income, estate, gifts and indirect taxes such as V.A.T (Value Added Tax). Lower taxes would have the impact of improved after-tax returns for the business by the reduced proportion of tax. This, in turn, means releases funds available to the firm for reinvestment or expansion purposes that consequently leads to growth that represents desired progress for businesses. Additionally, cuts in personal income taxes lead to increase in disposable income that is the proportion of income available to consumers for expenditure purposes. This consequently reflects increased demand for a firm’s goods and services because of a rise in purchasing power of consumers meaning they can purchase more from their disposable income. Finally, favorable tax rates act as a motivation for employees to work because they find more value in their earning while still being able to work overtime to earn more CITATION Ber10 l 1033 (Berube & Pinto, 2010). These factors are important for both individual employees and the firm since both stand to gain one way or the other and lead to eventual growth regarding finances, capital and capacity.
Ethical Issues Posed By Polarization of Income and Wealth
Income and wealth polarization simply means the distribution of income and wealth with respect to deviation from the middle-class income level. In other words, it signifies inequality in the distribution of income and wealth in a nation or economy. Debate on ethics of this form of inequality has been on an all time high in the recent past mainly due to globalization and media that have grown tremendously in the past decade. The rich-poor gap has been widening further in recent years raising the issue of whether it’s fair that 1% of the population control a large significant portion of wealth both domestically and globally. This creates an unequal playing field for people when it comes to competing for recourses and livelihoods. Its viewed as unjust and wrong for some few people to have more wealth than they need that is left unused for years while other people either in the country or abroad are struggling to survive let alone enjoy life.
This form of polarization can also be viewed from a perspective of national income and wealth. Some countries have a lot of wealth to which they use to exploit poorer nations who look up to them for support. Exploitation arises from some ways such as giving selfish conditions on loans, extracting their natural recourses in an unfair manner and political infringement among other ways that are unethical from a neutral stand point. However, some people are of the opinion that inequality is justified and doesn’t qualify as a moral problem. They attribute this to the fact that there are equal opportunities for everyone, but the difference arises on how people exploit these opportunities. This problem and subsequent debate is sure to continue into the distant future as long as the rich are constantly looking to enrich themselves further at the cost of the poor CITATION Rod14 l 1033 (Rodriguez, 2014)Conclusion
This paper has identified economic strategies that could be advisable for developing economies concerning Hong Kong and Singapore further analyzing taxation policies as the most viable option. It later looked into ethics of income and wealth polarization.
BIBLIOGRAPHY Berube, W., & Pinto, C. (2010). Taxation, Tax Policies and Income Taxes. New York: Nova Science Publishers.
Rodriguez, J. G. (2014). A class of social welfare functions that depend on mean income and income polarization. Review of Income and Wealth.
World Bank. (2014). world development indicators 2014. Washington: world Bank Publications.