Power, Economics, and a Return to Political Economy
Pareto optimality can also be regarded as pareto efficiency, it is a state of resource allocation that does not allow the reallocation of resources once allocated since the reallocation to make one individual better will make at least one individual worse (Atkinson & Stiglitz, 1980 P. 337). This means that resources are allocated in the most economical manner, despite this the allocation of these resources cannot be deemed fair or equal (Mornati,2013). An economy can be said to be in pareto optimum when the economic changes being made in the economy to favour one individual makes it worse for at least one individual. Pure pareto optimality can only exists in theory, many economic policies have been based on Pareto optimality since it’s very difficult to make changes in the economy without making various individuals worse off (Mornati,2013). Social welfare is expressed as a function of the utilities indicators of people in the society. When it comes to deciding whether certain policies are desirable or not it is important to determine the effect the implementation if the policy will have on social welfare (Miltiades, 986, P. 482) Social welfare is developed and implemented depending on the country.
In an economic context equity can be defined as fairness that is based on equal access and distribution of resources that are necessary in promoting welfare (Hodgson, 2010). The matter of equity can only be understood by how followers of different political ideologies perceive it, it is important to learn how different groups view matters of economic equity. According to the opinion of many policy makers and economists, equality and fairness is more about morals and the ethics of individuals. The libertarian, utilitarian, Rawlsian and egalitarian views of equity differ from each other extensively. Defining and identifying equity is a hard task, it might prove impossible to point out complete equity but it is easy to identify inequality. Unlike simplicity and efficiency equity cannot be measured since it is a subjective concept. Equity has stood as vital concept that is used in the development and reviewal of the tax system and policy. The taxation system is utilised by the government to improve the welfare of the citizens of a nation (Phelps, 1973, P. 418). Among the factors that contribute to inequality is the structure of the tax system.
The libertarian ideologies are based on free will and equal rights for every individual. Libertarians are a group of individuals that are recognised for campaigning for individual rights which leads to total freedom which is obtained through allowing people to maximumly utilize their capabilities while utilising the available resources as a means to an end (Nozick, 1973, P. 45, 46). According to libertarians the rights of individuals are important and are prioritised over any other collective rights of a society. Libertarians are firm believers that that mechanism operating in the market allow the operation of free will. Nozick, a popular libertarian has explored the libertarian view and framework via the entitlement theory and concluded that no individual or a collective group of individuals has the right to control resources (Nozick, 1973, P. 48). He paints a picture of a free market where individuals are entitled to holdings to include capital and earnings and have free rights to transfer these holdings.
In most cases utilitarianism measures the concept of social welfare as the collective sum up of all the members of a society (Peter,1992, P. 121). According to this view, if the welfare of one individual in a society increases it is okay to say that the welfare of the society as a whole has increased provide that the decrease in welfare that was recorded is less compared to the increase of the individual whose welfare has increased. For many decades the concept of welfare economics has been founded on the Utilitarian philosophy, since it ensures that the available resources are distributed amongst members of a society with a focus on maximising the welfare of the members. Unlike the egalitarianism philosophy, this philosophy does not promote the idea that redistribution of resources is necessary while ensuring that all members of a society have equal resources (Stein, 2008). Special consideration is accorded to transaction cost since they play a significant role in the utilitarian analysis since the loss that can be incurred through such costs is capable of reducing the chances of maximizing the overall welfare of the society.
Among the four philosophies only the egalitarianism philosophy has come close to equating equality with equity. This philosophy campaigns for equality for all people in a society. Egalitarians campaign for the equal distribution of income and wealth. Despite their view there are two compelling factor that argue against egalitarianism, the first factor is the failure to recognise effort, secondly if wealth and resources are to be redistributed there would be no way of creating equality since natural skills and luck cannot be redistributed (Marx, 2008). Rawlsian believe that individuals are in a binding contract with the society and they have obligations towards society that are dictated by the contract (Cohen, 1989, P. 929). Equity and justice are some of the terms of the contract. Rawlsian believe that the contract allows them to participate in the society as long as they fully observe the law. However, these rules must be fair and must allow all members of the society to participate fully (Cohen, 1989, P. 931). According to this philosophy there are two principles, which are; every individual in the society has equal rights and liberties and social and economic inequalities are used to solely satisfy two conditions, first applied to offices operating under all conditions in a fair and equal manner, second they are to be viewed as a benefit that is derived from the least advantaged individuals in a society (Peter,1992, P. 122). It is assumed that the society and the members enter into the contract without considering any history of privileges to ensure that both parties are equal.
A conflict between efficiency and equity objectives may occur when trying to maximize the productive efficiency of a market, this subsequently leads to a reduction in the equity and how equitable the wealth is distributed. For decades the debate about the conflict between these two has focused on addressing the inequality in a country or inequality being experienced in a region where the GDP is constantly rising (Choudhury, 1988). Academics and economists have argued about the possibility of equity and efficiency co-existing in a situation where both can rise at once instead of always being inversely related to each other.
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