economics

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Should the government control the economy?

Introduction

In the globalized world of today, a lot of knowledge is available at the ease of any interested party to analyze and interpret, however, the fact that knowledge and literature is abundant has made the seeking process to find the information more difficult and detailed, thus making the questioning process of the scholars more of an assumption rather than hard facts.

It is proven that the economy of a country and the ruling government are closely related in a linear manner, making the growth of the economy of a named country dependent on the government performance.

Purpose of the study

The government’s role in leading the economic growth of the countries has recently into a downhill stance, as we witness more interference and merger of the public and private sectors in the economies, in return, the increased interaction between these two sectors has lead into forming an important factor of success for the local and regional economy, this has helped shape several (Jacques Poot 1999)

The purpose of this research is to provide clearer information in the government’s role in the shaping of a country’s economy, and whether the government role should be entirely unquestioned as a positive economic motivation factor, or it has to be limited to a certain degree, so as to provide more freedom in the economy.

The Government’s Role in Economy

Although it is agreed that the governments are largely contributing to shape the economy of the country, several other factors are also taken into consideration, such as; education, institutional support systems, cultural factors, and efficient business organization, these factors which contribute to a named economy are of immeasurable nature, they are also considered highly important (Jacques Poot 1999), the previously mentioned factors are usually set by the government and the culture of the people of the named country, however, it is important to highlight that these factors can also be influenced by the private sector, which can lead to a bipolar relationship between the economic stakeholders (like multi national corporations ) and the government.

The role of the government in the country’s economy is mainly focused on three dimensions; these are namely allocation, redistribution and stabilization,

Allocation of the resources is one of the main roles of the government in controlling and guiding the economy, this is the process where the government allocates the resources which it sees necessary to the development and the well being of the population, correcting market failures is one of the aspects covered in the allocation process, as the resources might not be well distributed between the stakeholders and the society, the government’s interference is then seen as a necessary move to correct the failure and adjust the market to fit the current needs of the society.

Another aspect under allocation is the government’s merit good, this can be simply seen as a process of providing the basic necessities to the people of the country, an example of that is the foodstamps method in the United States.

Other aspects of allocation which require government’s interference are;

externalities

public goods

monopolies

Another Role of the government is “Redistribution”, this is known as the process of dividing the wealth of the country equally between the society, the main aspects of this process are through the restructuring the taxes policy and also redistributing in kind and cash, where restructuring the taxes policy offers an equal opportunity to the working class to gain a higher disposable income eventually, however, this depends on the government’s policies, while redistributing in kind and cash is mainly targeting the poor people. e.g. Welfare, housing…etc.

Another direct role of the government in economy is the “Stabilization process” whereas the government takes the matters into its hands so as to confirm a stable economic policy for the benefit of the country, the main policies used by the governments today are namely the monetary policy and the fiscal policy, whereas the government determines which policy to be used so as to counter measure or fix an economic fluctuation or also lead the economy to a better and safer position, or also forecast and determine the future development of a the country’s economy.

The fiscal policy involves the government adjusting the level of demand in the economy by altering government spending and taxation, the government can also influence the level of economic activity as it can help to raise the demand, firms will produce more and eventually employ more people, the demand can be raised by lowering the income taxes so as to increase the disposable income of the which will influence the spending pattern and thus create a higher demand, alternatively the government can spend more on public works such as building roads and so forth and create more demand.

Fiscal policy has been used to create demand and thereby reduce unemployment.

Negative effect of the governments on the economy

The fact that government interferes in the economy is seldom considered as a hindering effect, however, several studies have shown that the government can cause inflation, which is described as a general hike in prices of the goods and services in the entire country or region, this can affect the economy of the country in the long run, as the government stimulus can backfire and produce a recession in the economy, this policy eventually effects the behavior of the several stock holders of the economy and instead of spending, the entire country participates in a saving scheme causing a further downturn in the economy. Like the government spending, the tax-cut comes from reduced investment and a higher trade deficit or from government spending (Steve Warshaw 2009)

Corruption is another factor which contributes negatively to a country’s economy, as it is considered a way to illegally pay off governmental official so as to acquire a governmental service and economic gain to certain stakeholder, the public is therefore deceived in believing the costs of certain project and is later surprised that what was planned was not implemented according to the information revealed, the process of offering below-market valued products or services is another factor hindering the economic development of the country, as the economic gain is taken into the governmental organizations which usually leads to distribution of wealth amongst government official instead of the public (Susan Rose-Ackerman 1994)

Conclusion

Last but not least, we have seen in the empirical evidence provided in this article that the governments can influence the economic development, growth and regulations of a country, however, it is not advisable to leave the matters totally to the hands of the government.

The roles of Non Governmental Organizations (NGO’s) to adjust and balance the economy is therefore to be expanded, as these NGO’s are more trusted by the public, however, it has shown that these NGO’s have a limited influence and effect on the economy (Gayle Allard).

An increase in the transparency of the economic information and more involvement of Non-Governmental organizations in the economic process of the country, as the limited governmental and the public interference will help the economy into a more balanced and can also lead to fairer distribution of wealth amongst the stakeholders of the economy


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