Ethics of bailouts

Abstract

 

Financial crisis leading to government bailouts provides a reason for re-evaluating the conception of the relation between the business and society. It is argued that the cause of crisis is due to greed and lack of government control. Businesses fail to self-regulate and only by government intervention can economic stability be maintained.

The objective of government bailout is to prevent economic chaos. It would avoid massive layoffs, protect homeowners, rescue trouble companies and strengthen the economy. Thus, the ultimate aim of the bailout is to protect the economic system, not merely to give protection for certain groups or sectors.

It is in the interest of all people to enter into a contract to support governmental assistance policies, such as bailouts. Bailouts can be defended by both using a utilitarian and right-based approach. Bailouts would prevent an even greater tragedy in which there would be more negative effects if there is no government rescue. Bailouts policies could also maintain the rights of people to work and proper living.

Although bailouts are most likely to produce net benefits to society, there is an element of injustice in which the most accused parties to the crisis, the greedy executives and owners of companies might be free from any corrective action. This situation has led to public fury toward government bailouts. This injustice situation might be improved by employing a contractual theory. The contract at the macro level requires businesses to limit risk taking behavior and be regulated and controlled by effective regulation. At micro level, businesses must consider the worker and the general public as well as environmental issues. By accepting this new contract, society will support the government policies to bail out the companies in distressed. Society would no longer see the businesses as narrow self  terested evil, but consider them as member of the a whole society and trustworthy partners