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Public Policy and Unintended Consequences: A Review of Stakeholders and Incentives
There are a myriad of unintended consequences that relate to changes in public policy, specifically relating to management characteristics and priorities. Without taking these changes into consideration, it is impossible to impart change that will positively impact any group or population. The specific changes relative to the public sector reform in the UK are causing many unintended consequences themselves. The action and reaction to which are relatively negative from a public policy standpoint. When government changes public policy, it creates specific incentives to prioritize government resources and benefits, regardless of the goals of the reform. The Ghobadian, et. al. (2009) paper helps to develop a clear picture of just such a reprioritization and how this affects the general population. Government regulation or policy reform is important. But such reform and regulation implementation needs to occur in moderation, otherwise the government becomes key stakeholder and the power of resource allocation becomes misused.
Managers are trained to automatically prioritize the interests of their largest stakeholders (Ghobadian, et.al. 2009). This means that the largest providers of resources and wealth are those who receive the most attention relative to policy and social decisions. This has a direct influence on the direction that the company moves during a policy change, vis-a-vis the manager's prioritization. The public policy changes are therefore put lower down on the priorities list of the management, in favor of a policy or social plan that will benefit the management and company in a way that guarantees further government sustenance or resources. In this way, government resources directly influence the behavior of companies and policy makers, insomuch as to create a new set of priorities, irrespective of the policy plan or implementation goals.
Another major argument that supports the fact that priorities of public policy makers and companies change relative to their resource allocations is the fact that, as authors Ghobadian, et.al. (2009) points out, that the key stake holder's priorities in such public policy changes, i.e. The government, changes. Instead of the end-user's own concerns and policy tools being considered, the key stakeholders' are. This means that as far as the public is concerned, policy changes are made that will ultimately benefit the government as a stakeholder, with secondary and tertiary considerations put forth toward the end-user (public). This distorts the policy changes and creates massive inefficiencies in how resources are used and allocated.
This sort of public-policy distortion is in no means new to relative to policy actions. Ever since governments have had a stake in the policies have there been distortions created via stakeholder considerations and prioritizations. Professor Michael Mainelli and Bernard Manson (2011) argue that unintended consequences in the UK financial system relative to public policy changes are rampant and rather poorly understood. Beyond this general assertion, the authors make the case that relative to the 2008 global economic meltdown; the government's decision to step in and affect change in the financial realm in the UK was perhaps one of the worst decisions for the public that could have been made (Mainelli and Manson, 2011). This is to say that when financial institutions are financially insoluble, they should not be bailed-out or helped by changes within public policy. This is an excellent example of how the public, or end users, are put in a position of having to adopt the counterparty risk for a company or business entity while that company receives the rewards or financial assistance from the government. Also of concern are the unintended consequences of such firms' behaviors in the future. In other words, firms that know they are "too big to fail" will engage in risky behavior, offset by public policy changes designed to impart much of the risk of these behaviors onto the public. The government, as stakeholder, has essentially created a risk-free business policy or proposition where the firm is now the major stakeholder instead of the public. This also leads to changes in public policy that benefit the company first and the public last. Certainly the public benefits in the very short-term through these actions as financial institutions and banks that would have failed and created quite a short-term mess were not allowed to do so. But the systemic risk has only increased as an unintended consequence of these specific government actions that were designed to benefit the public.
This begs the question of whether more government regulation or public policy changes are the answer in terms of helping to offset and avert financial disaster or counterparty risk. Relative to UK financial reform and public policy, authors Green et.al. (2011) argue that further regulations are not the answer to efficient and effective public change. They argue quite the opposite, relative to unintended consequences. These authors posit that the system should be allowed to fail, unhindered, which would eliminate the firm as stakeholder and hold up the end-user's benefits, in this case, the public's (Green, et.al., 2011). In this scenario, management would have no choice but to submit to the public's desire to be prioritized as number one stakeholder, with government a close second. When a company's survival is based upon it serving other stakeholders, pushing its own concerns into a secondary or tertiary position, it serves the public in a much more effective manner. As long as a company identifies the public as its key stakeholder, than the public policy changes will likely positively impact the public as end-user. However, most public policies are not enacted or implemented with this in mind, and only serve to create reprioritization of stakeholders within the firms' own interpretations. This means that the policy changes, as a process, do not yield formulaic results that benefit the public so long as the company identifies larger stakeholders than the public as end-user.
Within a certain economic model or environment like a monopoly, the government's policy changes, or lack thereof, that were intended to benefit the public, ultimately benefit the company. As long as the key stakeholder is the company's own ability to turn a profit, the monopoly will become the path of least resistance for the management, from a theoretical standpoint. This is to say that companies who can engage in monopolistic behavior will prioritize themselves as key stakeholder in their financial and business behavior (Evans, 2011). This is where government regulation or policy reform is important. Moderated reform and regulation implementation to ensure that the government does not become key stakeholder and the power of resource allocation therefore becomes misused is essential. This means that a balance must be struck between the firm's behavior and incentiviation structure created by government policy reform and the needs or ultimate outcomes of the policy reform itself on the public. Within a system where perfect competition exists, the moderation that is so necessary to balance public policy reform and ensure the public as the end user and key stakeholder does not exist. This is to say that perfect competition for firms is just as negative as perfect monopolies (Evans, 2011). When perfect competition exists as the public policy implementation, government becomes the key stakeholder. This is not to say that monopolies are positive for the public as end users, but that the firm, as a perfect competitor, will be burdened by the government to reprioritize its own priorities as a for-profit entity, and instead look to spend the loin-share of its resources on complying with governmental regulations enforcing such policy. In this way, the government unwittingly becomes the key stakeholder, stealing this position from the much-deserved public as end-user option.
In my own experiences, I have noticed that complete regulation in public policy matters leaves room for only the government as stakeholder. Just as damaging to the public as end user argument, when no government regulation exists within the market, the firm's management sees only profits and prioritizes its own survival as key in its own world as stakeholder. Both of these scenarios do not benefit the public. However, when the market is dictated through a lose set of government regulations and mostly through end-user input of demand, the public policy change is affected most accurately with the least amount of distortions. The management cannot move to act as a monopoly yet they are also not incentivized to hold up the government and its resource allocation (or lack thereof) as the key stakeholder. When demand is the key motivator of stakeholder status, i.e. when the public can accurately and fairly dictate demand for the firm's goods or services, the public can best benefit from a shared by primary stake-holder position.
Author Evans (2011) suggests that within the UK financial system, transparency or lack thereof is responsible for much of the failed public policy framework relative to the 2008 economic recession (Evans, 2011). This is to say that demand for goods or services within the vacuum or absence of overbearing regulations or lack of any regulation is only as strong or as accurate an influencer as the public's understanding of…[continue]
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