For the past two or three decades, determining the role of the government in business cycle has perhaps been the central political and economic issue in industrial democracies. Although the number of nationalized industries is steadily declining in most parts of the world, people with left-wing views still generally believe that the government has an essential role to play in providing the economic infrastructure (public transport, telecommunications, and so on) and ensuring the provision of services such as education, health care, social security and perhaps housing, and regulating working conditions, health and safety standards, and so on. People with right-wing views, on the contrary, generally argue that many (or most, or maybe all) of these activities can be left to private enterprise and the market system, and that the role of the government should perhaps be restricted to activities such as defense, the police, and the justice system. They argue that too much regulation is bad for business, and leads to inefficiency.

Foe example if we look at the role of the Department of Trade and Industry which is under the jurisdiction of the British government, we’ll see the following picture. The key areas of DTA involvement are developing of trade, investments and export, developing of industry inside the UK, and regulating or ensuring open, competing markets, mergers and monopoly policy. And the main focus of DTI’s work at the moment is to provide detailed analysis of the markets, the priority markets that Britain is aiming fir, for service of industry, and then help, particularly for the small and medium sized companies, to tackle those markets in an efficient way. The specific help is that each priority market, there are 80 of them around the world, have a desk officer who’s wholly responsible for providing information about that country,  detailed economic and political description of the market, sector information on whatever interest you. And then beyond that they can give you the help of the embassy of that country.

Besides that kind of help, government can be of help in other areas. One well-known American economist J.K. Galbraith tried to describe responsibilities of the state as he sees it. First of all, in no country does the market system provide good low-cost housing. This is a matter of prime importance and must everywhere be a public responsibility, because  badly-housed or homeless people are visibly at odds with the good society.

Health care is also a public responsibility in all civilized lands as well as many other essential functions – parks and recreational facilities, police, libraries, the arts. All those are more needed by the underclass than by the affluent. Those who attack the services of the state are usually those who can afford to provide similar services for themselves.

In the good society it also must be attention to science, including medical research. The market system invests for relatively short-run return. Therefore to support science is the responsibility of the state.

But all above mentioned information doesn’t mean that everyone share this opinion. According to another well-known economist R.Friedman, the role of government as it is now has greatly limited our human freedom. According to his words the limitations imposed on our economic freedom threaten to bring two centuries of economic progress to an end.

I’ll try to explain this point of view. An essential part of economic freedom is freedom to choose how to use our income: how much to spend on ourselves and on what items; how much to save and in what form; how much to give away and to whom. Currently, more than 40% of our income is disposed of on our behalf by government at federal, state and local levels combined.

As consumers we are not even free to choose how to spend that part of out income that is left after taxes as there are a lot of restrictions on buying or consuming some goods – for instance cars without seat belts.

And freedom to use the resources we possess in accordance with our own values – freedom to entry any occupation, engage in any business enterprise, buy from or sell to anyone else  – all these are regulated by the state. Today you are not free to offer your services as a lawyer, a dentist, for example, without getting first a permit or licence from a government official. You are not free to work overtime at terms mutually agreeable to you and your employer, unless the terms conform to rules and regulations laid down by a government official.

So it was another opinion, contrary to the first one. Both of them are quite logical and have right for existence.  Maybe we should combine them somehow  to create an ideal system suitable for everyone?


A tax is a payment of money legally demanded by a government authority to meet public expenses.

Everyone knows that taxation is necessary in ? modern state: without it, it would not be possible to pay the soldiers and policemen who protect us; nor the workers in government offices who look after our health, our food, our water, and all the other things that we cannot do for ourselves, nor also the ministers and members of parliament who govern the country for us. By means of taxation we pay for things that we need just as much as we need somewhere to live and something to eat.

But though everyone knows that taxation is necessary, different people have different ideas about how taxation should be arranged. There are two main ways, by which taxes may be paid:

1) each person have to ??? ? certain amount of money to the government each year;

2) there is ? tax on things that people buy and sell.

In most countries, ? direct tax on persons, which is called income tax exists. It is arranged in such ? way, that the poorest people ??? nothing, and the percentage of tax grows greater as the taxpayer’s income grows.

But countries with direct taxation nearly always have indirect taxation, too. Many things imported into the country have to pay taxes or “duties”. Of course, it is the men and women who buy these imported things in the shops who really have to pay the duties, in the form of higher prices. In some countries, too, there is ? tax on things sold in the shops. If the most necessary things are taxed, ? lot of money is collected, but the poor people suffer most. If unnecessary things like jewels and fur coats are taxed less money is obtained, but the tax is fairer, as the rich pay it.

Probably, this last kind of indirect tax together with a direct tax on income which is low for the poor and high for the rich is the best arrangement.

The primary function of taxation is, of course, to raise revenue to finance government expenditure, but taxes can also have other purposes. Indirect excise duties, for example, can be designed to dissuade people from smoking, drinking alcohol, and so on. Governments can also encourage capital investment by permitting various methods of accelerated depreciation accounting that allow companies to deduct more of the cost of investments from their profits, and consequently reduce their tax bills.

There is always ? lot of debate as to the fairness of tax systems. Business profits, for example, are generally taxed twice: companies pay tax on their profits (corporation tax in Britain, income tax in the USA), and shareholders pay income tax on dividends. Income taxes in most countries are progressive, and are one of the ways in which governments can redistribute wealth. The problem with progressive taxes is that the marginal rate – the tax people pay on any additional income – is always high, which is generally ? disincentive to both working and investing. On the other hand, most sales taxes are slightly regressive, because poorer people need to spend ? larger proportion of their income on consumption than the rich.

In many countries taxes are quite fair and do not harm interests of the citizens. It may exist in countries, where the expenditures of the government are not very high and consequently it need not to collect high taxes or the government has other sources of income, such as profitable business activities. Or the police of the state is to give more freedom to business to make the economic situation better. But some governmnents have insufficient money to finance it’s expenditures and they increase tax rates as an alternative of borrowing money. Or they may limit unnecessary business activities. This of course decreases incentive to work, because profits become very small.amd many businessmen try to hide their incomes. There are lots of methods, both legal and illegal, to hide profits from taxation. For example, tax avoidance (reducing the amount of tax you pay to a legal minimum) or tax evasion (making false declaration to tax authorities).

The higher the tax rates, the more people are tempted to cheat, but there is ? substantial «black» or «underground» economy nearly everywhere. In Italy, for example, self-employed people – whose income is more difficult to control than that of company employees – account for morethan half of national income. Lots of people also have undeclared, part-time evening jobs (some people call this

«moonlighting») with small and medium-sized family firms, on which no one pays any tax or national insurance. At the end of 1986, the Director of the Italian National Institute of Statistics calculated the size of the underground economy, and added 16.7% to Italy’s gross national product (GNP) figure, and then claimed that Italy had overtaken Britain to become the world’s fifth largest economy.

To reduce income tax liability, some employers give highly-paid employees lots of  «perks» (short for perquisites) instead of taxable money, such as company cars, free health insurance, and subsidized lunches. Legal ways of avoiding tax, such as these, are known as loopholes in tax laws. Life insurance policies, pension plans and other investments by which individuals can postpone the payment of tax, are known as tax shelters. Donations to charities can be subtracted from the income on which tax is calculated.

Companies have ? variety of ways of avoiding tax on profits. They can bring forward capital expenditure (on new factories, machines, and so on) so that at the end of the year all the profits have been used up; this is known as making ? tax loss. Multinational companies often set up their head offices in countries such as Liechtenstein, Monaco, the Cayman Islands, and the Bahamas, where taxes are low; such countries are known as tax havens. Criminal organizations, meanwhile, tend to pass money through ? series of companies in very complicated transactions in order to disguise its origin from tax inspectors – and the ??li??; this is known as laundering money.

Business ethics

In the 1920s, many large American corporations began, on a wide scale, to establish pension funds, employees stock ownership, life insurance schemes, unemployment compensation funds, limitations on working hours, and high wages. They built houses, churches, schools and libraries, provided medical and legal services, and gave money to charities. Since this is fairly surprising behavior for business corporations, there must be a good explanation. And I guess we have it.

First of all I’d like to mention that such words as “ethic” or “culture” used to be considered as having less in common with business. But it’s not so. Nowadays the positive image of an entrepreneur is essential part of any businessman, necessary for success in business.  And hopefully this image isn’t just showing-off.

Business and moral values are connected much closer than it might seem at first sight. Business undertakings include dealing with people, creating different contacts, and as you know contacts with people are usually built upon the basis of trust. You don’t need to cheat to get profit. It is usually the result of situation when market price exceeds expenditures.

Though many examples of concluding a bargain on parole testify to the fact that promise given by the person you trust sometime more valued than money given by somebody else.

Cheating, compromises with one’s conscience are witnesses of immaturity of market relations, ignorance of businessmen. It seems to be quite logical, but many people running their own businesses forget about this elementary truism – unfair business has no future. Once betrayed, a person won’t trust you or even start to play this game himself.

So to make a conclusion of the all above mentioned I’d rather say that a company, any business has responsibilities to its suppliers, its customers, its employees, the local community and society in general as well as to its shareholders. It will provide profit in the way of fair bargains with partners, loyalty of workers, better environment, etc. Consequently large corporations introduced ‘welfare capitalism’ as a way of creating favorable public opinion. Even rational capitalists, starting with Henry Ford, realized that a better paid work force would be more loyal, and would be able to buy more goods and services, and that a better educated work force would be more efficient one.

Of course, pure free market theorists disapprove of welfare capitalism and all actions inspired by ‘social responsibility’ rather than the attempt to maximize profit. Since the benefits of such initiatives are not visible, Milton Friedman criticized them for being unbisinesslike and for threatening the survival not only of individual corporations but also the general vitality of capitalism. In newspaper article titled ‘The social responsibility of business is to increase its profits’ he argued that responsibility of any company is to conduct the business in accordance with their desires, which generally will be to make as much money as possible, while of course  conforming to the basic rules of the society, both those embodied in laws and those embodied in ethical custom.

Thus executives should not make expenditures on reducing pollution beyond the mount that is required by law or that is in the best interest of the firm. Nor should they deliberately hire less-qualified, long-term unemployed workers, or workers from ethnic minorities suffering from discrimination. To do is to be guilty of spending the stockholders’ (or the customers’ or the employees’, whatever)  money. Friedman does not consider the possibility that stockholders might prefer to receive lower dividends but live in a society with less pollution or less unemployment and fewer social problems.

An alternative view to the stockholder model exemplified by Friedman’s article is a stakeholder model, outlined, for example, in John Kenneth Galbraith’s book, The New Industrial State.  According to this approach, business managers have responsibilities to all the groups of people with a stake in or an interest in or a claim on the firm. A firm which is managed for the benefits of all its shareholders, will not, for example, pollute the area around its factories, or close down a factory employing several hundred people in a small town with no other significant employers, and relocate production elsewhere in order to make small financial savings. Proponents of the stakeholder approach suggest that suppliers, customers, employees and member of the local community should be strongly represented on a company’s board of directors.

Another aspect of business ethic I’d like to cover concerns the difference between legitimacy of some actions and their relevance, conformation to the basic rules of society. Sometimes some actions we do are wide-spread but it does not mean they are legal. For instance industrial espoinage or bribing corrupt officials, telling only half the truth in advertisements and keeping quiet about bad aspects of a product. Lobbing, I mean trying to persuade politicians to pass laws favorable to your particular industry, is legal, but can be condemned by public opinion. So it’s rather difficult to choose what rules to follow – laws, business practice, own conscience…