Global Economy Policy
The Kaldor-Hicks Compensation Criterion is a welfare economic theory that highlights the changes in social welfare, which arise from any changes in economics that can either harm an individual or benefit them (Morey 228). This criterion particularly tries to fill the gaps where the Pareto optimality did not address adequately. This theory critically examines the compensation principle that is as a result of changes in economic policy. The Kaldor-Hicks Compensation Criterion assumes that the satisfaction of individuals is independent to others, the taste of an individual is always constant, and there are no externalities of consumption and production (Morey 228). According to this criterion if a change in economic policy will make others better and others worse, then a change in social welfare will occur if and only if those who benefit compensate the losers. Professor Baumol reinstates that the criterion explains that in a society a change is an improvement if those who benefit as a result economic organization change evaluate the benefits higher than the value set by the losers (Morey 228). Thus, generally, if there is a financial policy change that benefits any group in a society such that after compensation, it is better than that of losers then the change leads to increasing in social welfare.
On the other hand, neoliberalism in its dominant ideology of global capitalism theory states the political causes of the growth in inequalities (Dawes, and Flew 228). This theory postulates that the decline of governments interfering with economic and social welfare activities has eased potential capitalism to create an era of social well-being that has never been seen before. This theory of neo-liberalism proposes that human well-being can be driven by liberating the entrepreneurial freedom and skills within an institution such that there is equality and there is no instance where one gains while the other suffers (Dawes, and Flew 228). This theory is characterized by substantial property rights, free markets and free trade. This theory of neo-liberalism proposes monetarist orthodoxy, which entails price stability, balanced budgets and austerity. Unlike the Kaldor-Hicks Compensation Criterion, which relies on compensation after payment, the dominant ideology of global capitalism proposes equality before payment. The dominant ideology of global capitalism highlights that government intervention in economic and social welfare in a state is not a solution but rather a problem (Dawes, and Flew 228). Government policies can interfere with policies like stable and equal monetary policy and radical tax cuts in the top brackets, which ensure a healthier economy that does not have gainers or losers. This ideology, therefore, acts as symbolic glue by binding social order and binding individuals to social equality.
The new institution theory in institutionalism, on the other hand, defines that for equality in a society then the background of an institution matters because it shapes the reality of public administration and processes (Hotho, and Saka-Helmhout 648). This theory or ideology has almost the same plan as the dominant ideology of global capitalism discussed above. This similarity is because both of the two approaches describe tackling inequality before payment, unlike the Kaldor-Hicks Compensation Criterion, which relies on compensation after payment. The new institution theory explains the roles that institutions should play in promoting equal social outcomes. The approach also explains what social welfares should do to ensure fair, efficient and effective distribution of goods and services in a group (Hotho, and Saka-Helmhout 648). The rational choice institutionalism in this ideology stresses the political phenomena by highlighting the importance of handling the costs of a transaction when an action is supposed to be taken as a group to achieve a common equitable objective (Hotho, and Saka-Helmhout 648). In rational choice institutionalism, there are procedures to be followed when there is an instance of lower transactional costs. These procedures include agreements that allow fair distribution such that all the members in a group are gainers.
Works cited
Dawes, Simon, and Terry Flew. “Neoliberalism, Voice And National Media Systems: An Interview With Terry Flew”. Networking Knowledge: Journal Of The Mecca Postgraduate Network, vol 9, no. 5, 2016, p. 226. Networking Knowledge Mecca PGN Journal, doi:10.31165/nk.2016.95.467.
Dawes, Simon, and Terry Flew. “Neoliberalism, Voice And National Media Systems: An Interview With Terry Flew”. Networking Knowledge: Journal Of The Mecca Postgraduate Network, vol 9, no. 5, 2016, p. 226. Networking Knowledge Mecca PGN Journal, doi:10.31165/nk.2016.95.467.
Morey, Edward R. “What Are The Ethics Of Welfare Economics? And, Are Welfare Economists Utilitarians?”. International Review Of Economics, vol 65, no. 2, 2018, pp. 201-230. Springer Science And Business Media LLC, doi:10.1007/s12232-018-0294-y.