Question

Discuss the potential for the achievement of social justice in the absence of government and insurance markets. How might a donor’s charitable intentions be exploited and how might they overcome such exploitation?

Answer 1

Government is an institution or a group of people who governs over a community. Classical economists supposed the theory of laissez faire, i.e., they supported an economy with no government intervention. However, soon enough, economists started to realize the importance of government sector. Government sector is important for an economy as it is the one sector which works for the welfare of the economy. So if there is a project which has the potential of increasing the welfare of the society but is less profitable, then it can be expected from the government sector to undertake that project. However, if we assume absence of government sector, then the picture could be different.

Talking about social justice in the absence of government and insurance market, if government isn't there, there will not be any supervisory body to keep an eye on different sectors. Also, if insurance markets are not there, there might be the chances of moral hazard. People might claim for something but there won't be any regulatory body to find the truth or to prove it. Therefore, there is a less potential for social justice if government and insurance markets are not present in the economy.

Now, if there is no government, people might be less interested in doing charitable work and will be more interested in profit maximization (as proposed by Adam Smith). However, there won't be anyone working for the betterment of the society and thus, fortunate people will keep on thriving and the poor people will keep suffering, leading to the increase in inequality. Even if someone decides to do charity, there won't be a proper supervision by anyone to see if the charitable amount has actually gone in the good hands or not. This will lead to the exploitation of the donor's charitable intentions. To overcome this exploitation, the presence of government is a must. If that is not the case, then the charity can only be expected at a small level but not on a mass level.