|Type of paper:||Literature review|
|Categories:||Macroeconomics Business law Business management|
In most countries, ownership is in three major forms. In the US, for example, some enterprises are owned by the public, that is, the parastatals, and are run and managed by the government and offer goods and services to the public. Individuals own other enterprises in the name of privately-owned enterprises. The individuals may be a single person who is usually the founder, groups of people, the founder, and close friends or partners or the founder and his/her family members. Other enterprises may be owned by banks or other institutions, while others may get owned through the issuance of public stock (Caves, 2011).
How Corporations are Governed
Corporations are legal entities that are distinct from their owners. They are owned by shareholders who elect a board of directors on an annual basis. The board of directors then appoints a management team that is responsible for overseeing the corporation's daily activities. The board of directors is responsible for overseeing the operations of the management team and executing the business plan of the corporation using any possible means available. The board members are not directly accountable for the debts of the corporation thus the name legal entity but are obligated to take good care of the corporation and can face the consequences if they neglect their duties or if they get involved in illegal activities that undermine the well-being of the corporation (Caves, 2011).
How is Capital Raised?
Corporations may raise capital through debt or equity or a combination of both. Debt capital includes loans, bonds, or overdrafts. The corporation also applies for a loan from financial institutions such as banks, referred to as debt capital. The debt used is for expansion or servicing business operations and will get paid with interest at a later date. On the other side of the coin, equity capital raising is through the sale of shares where if the debt capital is not adequate, the company may decide to raise more capital through the sale of shares. The advantage of equity capital over debt capital is that the company is not required to repay shareholders of their investment but instead refers to the number of investment returns that each shareholder expects depending on how the company performs during a financial year (Caves, 2018).
How Labor Markets Function
A labor market is a supply and demand for labor where workers or employers supply their labor to employers who demand it. Labor markets are a major economic component that is intricately related to capital, goods, and service markets. The supply and demand for labor in labor markets get influenced by both domestic and international aspects and other elements such as immigration, age, and education levels. The measures used in labor markets include productivity, unemployment, total income, and Gross Domestic Product. These aspects are only significant at a macroeconomic level (Layard et al., 2015). At a microeconomic level, local firms interact with employees by hiring, firing, promoting, raising, or by cutting their wages and salaries. The number of hours that the employees work get determined by the forces of supply and demand for labor and the related wages, benefits, and salaries. In the US microeconomic, for instance, before the financial crisis, unemployment was about 5 percent. During the financial crisis, many businesses failed to leave many people jobless, and the demand for goods and services plummeted. This raised the unemployment rate to about 11 percent in 2009. The rate, however, declined to about 5 percent later in 2016(Layard et al., 2015).
How is the government involved through taxation, spending, regulation, and redistribution?
Economic freedom index
Economic freedom refers to the fundamental rights that a person has to control his/her property, labor, or resources. As such, a person is free to work, consume, invest, or produce as per his/her wish as the government allows free movement of capital, labor, goods, and services. Economic freedom gets measured by the Economic Freedom Index, as based on twelve, both qualitative and quantitative factors of financial freedom (Carlsson & Lundstrom, 2017). The elements of economic freedom are further grouped in for groups as below;
- Rule of law-government integrity, property rights, and judicial effectiveness
- Government size-tax burden, government spending, and fiscal health.
- Open markets-investment freedom, trade freedom, and financial freedom.
- Regulatory efficiency-labor freedom, business freedom, and monetary freedom as well.
- How the government is involved in taxation
Taxation is imposed on all commercial activities to generate revenue to the government. When the tax burden is too heavy, businesses and individuals struggle to meet the tax requirements and at the same time make a profit or a living. Also, the cost of living rises, which in turn lowers economic freedom. Such will reduce the economic freedom index (Stout, 2017).
How the government is involved in spending.
Government spending increases the amount of money in circulation and is likely to lead to the creation of more job opportunities. More money in circulation and more jobs will improve the economic freedom of people hence raise the economic freedom index (Carlsson & Lundstrom, 2017).
How the government is involved in regulation.
The regulation efficiency of the government will affect labor freedom, business freedom and monetary freedom. If economic activities are not well regulated, some people may bully others and create an unhealthy business environment. However, when government regulation is efficient, there will be a pleasant business environment which will raise economic freedom (Carlsson & Lundstrom, 2017).
How the government is involved in redistribution.
The government redistributes the wealth generated from more developed areas to less developed ones. This wealth is used to fund development projects in less developed areas, which in turn raise the economic freedom of people living in those areas (Carlsson & Lundstrom, 2017).
How do the legal system and culture affect economic performance?
The economy of a country is impacted heavily by the legal system. Ignoring the orders from a court is a wrong act, especially in a business set up for this case. If a business body contravenes the court order, it may lead to severe chaos that may result in denting investors in the country. When a country makes good laws and fails to enforce these laws, it tends to attract fewer investors to the country. Therefore, this means the state acts have to be obeyed fully as going against them may look like belittling the orders of the court. Most investors tend to enjoy in the states where the legal framework environment favorably protects the interests of the investors. Since investment in most cases is all about the return and risk, most investors ask themselves what they will deliver in return. Economic stability, low political risks, and social cohesiveness will help to uphold the rule of law, which will attract more investors. When a country enjoys all these factors, the result will be a productive economy, with job creation at maximum, and the country will experience a generation of income (Stout, 2017).
On the other hand, culture may also take part in the influence of the economy of a country. For instance, culture may impact the economy through the choices that the people make on the allocation of scarce resources. Thus, economic activity may be an essential factor that determines the accumulation of capital, labor market, adoption of technology, and decision-making participation. As a result, this means that the influence of culture on the economy, in this case, will be described by this factor. In general, the legal system and the cultural aspect have to be considered critically to ensure that economic performance is stabilized (Stout, 2017).
Carlsson, F., & Lundstrom, S. (2017). Economic freedom and growth: Decomposing the effects. Public choice, 112(3-4), 335-344.
Caves, R. E. (2018). International corporations: The industrial economics of the foreign investment. Economica , 38(149), 1-27.
Layard, R., Layard, P. R., Nickell, S. J., & Jackman, R. (2015). Unemployment: macroeconomic performance and the labor market. Oxford University Press on Demand.
Stout, L. A. (2017). The shareholder value myth: How putting shareholders first harms investors, corporations, and the public. Berrett-Koehler Publishers.
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