Economic efficiency vs. social justice

ECONOMIC EFFICIENCY VS. SOCIAL JUSTICE

In economics, there are apparent contradictions between such concepts as: ‘economic efficiency’ and ‘social justice’. Today, the issue of implementation of the principles or an attempt to integrate the opposites, is especially relevant.

What is ‘economic efficiency’? As a rule, it implies the effectiveness of production, which is determined by comparing costs and profits. The economic efficiency of the country is characterized by a number of factors:

• •    the rate of labor productivity (in Russia, for instance, the products produced per hour are worth $25.9, while this figure is twice as much in the EU);

• •    the country’s rate of global competitiveness;

• •    production of products per capita (for example, the production of electricity per capita). [1, c.107]

Generally, the market mechanism regulates economic efficiency. However, this mechanism has its weaknesses. It fails when we try to distribute incomes evenly. In the market the distribution of revenues is based on the principle of economic viability: you earn as much as you produce. This results in social stratification of the society: when some people get richer, while others get poorer.

This problem can be solved through the redistribution of incomes. The following figure illustrates this type of decision:

Fig.1. Redistribution of incomes

Incomes of rich people

Point A indicates the most effective result, when the national revenue is maximized, while point E corresponds to an equal distribution of incomes. If the economy’s task is to move from point A, in which it is now, to the point of equality E (which can be achieved through progressive taxation), then this trend will be determined by line AE. But as a rule, this leads to the loss of efficiency, that’s why the most probable trajectory will be curve AZ. Where Z is an estimated point.

Let's cosider the other concept. ‘Social justice’ is a system of public institutions, which provides political, economic and other rights and material values that meets the needs of the majority of citizens. [2, c.178]

Graphically, the two concepts have the following correlation:

Fig. 2. The correlation between ‘economic efficience’ and ‘social justice’

On the one hand, if we adhere to the principles of ‘social justice’ only, it will lead to the minimization of economic efficiency. In reality, this means that people will not be motivated to work hard to improve their financial situation. On the other hand, we will exclude truly talented people who are able to promote the economy of the country, which may have negative consequences. The goal of the socially-oriented economy is to integrate the two controversial concepts. For example, the public-private partnership in an educational sphere can help achieve a compromise between them.

E.E.

• •    First of all, the public-private partnership is beneficial to the private sector (e.g. improvement of educational standards, training programs meeting the labor market’s modern requirements).

• •    Secondly, it will reduce social inequality. For example, the private sector can finance the grant programs for the best students and this support will help talented students realize their abilities.

Socially-oriented economy implies that the problems of one group of the society shouldn’t be solved at the expense of the weaker group. [2, c.184] Moreover, this type of economy means that the wants of citizens can’t be met by squandering natural resources without considering the needs of the future generations. This leads us to the concept of ‘diversification strategy’. Which involves:

• •    creation of the innovation system;

• •    promotion of the competitiveness of major sectors in the economy using the mechanisms of public-private partnership. [1, c.119]

Intermediate diversification results were announced in 2014, and generally, this approach has shown positive results.

It turns out that the concepts of ‘social justice’ and ‘economic efficiency’ are not as contradictory as they seem to be at the first glance. Following only one of them will result in negative effects.

We shouldn’t forget that economy is only a part of the social mechanism. The stability and development of the state depend both on the moral values of the society and on the economic conditions. So our task is to find a reasonable balance between ‘social justice’ and ‘efficient economy’, which will lead to the state prosperity.