How Globalization affects Countries and Markets - WordPress.com

The Rule of Law in Business

From generations the rule of common law does not apply to business in its force and clarity because it is considered contra productive for providing most adequate conditions for business to grow up. Business environment should be foggy and deregulated for economy to prosper was considered. Unless in the Common Law where clarity was main priority in Business Law the opportunism was its main priority.

The ideas about the role of “the rule of law” differs:

“Not surprising, people disagree a great deal about how many laws (and what sort of laws) are just right. For example, liberals tend to think we need lots of laws to control corporations, to protect minorities, to protect the environment and to provide social goods. As another example, while American conservatives claim they are for “small government”, they tend to want more laws limiting things such as sex, drugs and various personal liberties they disagree with. This nicely matches the guiding “principle” of most people is “people should do what I want and not do what I do not want them to do.” So, people tend to favor many laws against what they dislike and many laws for what they like. They tend to be against laws that are for what they are against and against what they are for.”

For businesses an environment of “do not see do not say” with limited business laws is considered the best. Policies of “easy business” are widespread:

“Jun 1, 2010

Cameron announces his initiative for change. Picture: Andrew Yates/Getty
In his first speech as Prime Minister, David Cameron promised to aid companies by cutting red tape, improving the speed of business start-ups and kick starting bank lending.”
Cameron’s speech reflected the plans for businesses laid out in a new document, which was released last week in partnership with the Liberal Democrats.

In the document, the coalition government promised to introduce a one-in-one-out rule, whereby no piece of new regulation would be introduced without the exit of another. It also stated it would find a practical method of making small business rate relief automatic and would aim to level the playing field between small and large retailers, by enabling local councils to take into account competition laws whilst drawing up plans to shape new retail development.

The government added it would make the UK one of the fastest countries in the world to set up a new business and would end the ‘gold-plating’ of EU rules, so that British companies would no longer be at a disadvantage against their EU competitors.”

Any experienced business attorney can tell you countless stories of corporate management getting away with fraud and not paying on contracts; whole schemas of how to trick the system and avoid legal actions are developed in details: the limited liability of corporate, trust and other organizations are craftily exploited and are examples of this philosophy; countless fake offers on the Internet, through Junk mail or even on TV are coming from happy “honest” executives and advertisers with offers for easy money and immanent success if we buy their product, follow their advice or give them some money in advance. There are some laws that try to curb on such activities of fake advertising and canning promotions but these laws are so difficult to win in court unless multiple fraud is not resulted in serious financial harm thus preventive actions against possible fraud are very rarely taken. However the biggest harm for the economy does not come from pyramids and financial fraud but from general “insecurity” coming out of such lawlessness. When in the past “easy business” could have been positive to boost pro-supply economies but these have already changed into pro-demand economies of a global marketplace, so have changed financing: the narrowing profit margins of the US businesses have Large Capital well gone oversees particularly to China and now India even in case SMB have rarely been financed by large investors anyway, the ones left were the Small and Medium Investors who were the heaviest hit by the last recession.

“What Does Venture Capital Mean?
Money provided by investors to startup firms and small businesses with perceived long-term growth potential. This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but it has the potential for above-average returns.

Investopedia explains Venture Capital
Venture capital can also include managerial and technical expertise. Most venture capital comes from a group of wealthy investors, investment banks and other financial institutions that pool such investments or partnerships. This form of raising capital is popular among new companies or ventures with limited operating history, which cannot raise funds by issuing debt. The downside for entrepreneurs is that venture capitalists usually get a say in company decisions, in addition to a portion of the equity.”

In a pro-supply economy experiencing growth and in a limited marketplace (before the globalization took over) the system of deregulation and clueless business laws might have worked well, however the situation in the world has changed greatly and the relative insecurity of Small and Medium Businesses as a result of lacking clarity of business laws started having a negative effect: insecure contracting, bonding and limited personal liability of corporate structures consequences of underwriting financing difficulties.

Usual for SMB are

· limited access to public financing;

· limited access to foreign markets experiencing economic growth;

· limited ability to outsource production or move some production to somewhere more adventitious

Therefore the necessity of stable borrow-ability in volatile economic environment or in direct competition to foreign companies subsidized by their governments is paramount. For SMB to be competitive would be only if better access to financing is available.

The overall condition of Small and Medium Businesses and their profitability directly reflects the overall conditions of ones economy because SMB provide the highest percentage employment of all, thus if SMB struggle to survive as it happened through the 2007 Great Recession so the Middle Class and the Poor in the US economy overall. In an environment of globalization with open borders for business and ever rising productivity the Large Global Corporations are not anymore interested in maintaining industrial production on US territory, neither are these interested in investing into long term projects on US territory because of the less expensive labor and well ongoing economic growth of China, India, Vietnam and etc., same is with the Large Investors who really are not coming back on the US market either because of the lower Return on Investment ROI, therefore it is up to the Small and Medium Businesses to create employment and simultaneously to go global too, because the diversification needed for surviving market volatility may come only by going global. SMB are the one that still will continuing to maintain their main offices on US soil and they are the ones that could be easily persuaded to stay in there by right economics means such as low interest loans, subsidies and tax breaks from purely practical reasons of being close to the US market, same is with the Small and Medium Investors that are the most important to still retaining their investment on US soil. The clarity of business laws bringing out higher security to SMB and SMI is from great importance to revival US economy and to funnel so needed wealth distribution and redistribution for balancing demand-to-supply ratios.

Small and Medium Businesses are much more flexible than Large Global Corporations, SMB could develop in very diverse areas of business and reflect Governmental environmental policies much faster.

If the Market Economics is used by its best Small and Medium Business borrow-ability should be based on enhanced market “security” of SMB on the market not on artificially general subsidizing by governments in a lack of business laws marketplace as it is practiced until now, because by using genuine market forces lower market volatility and redundancy, and consequently prevent from economic turmoil.
Joshua Konov 2011