The word “government”, is defined as an organization or a political body that exercises political authority, controls and administers public policy. They are also responsible for controlling the actions of the government body and the entire nation itself.
“Economy”, the word means a systemic approach of correct and effective usage of available resources (taking into consideration of economic scarcity) in producing and distributing of goods and services in a particular geographic region.
This report will highlight on both the positive and negative aspect of government interference in the economy of an individual nation.
It is a known fact that the success of a nations’ Government body is closely related to the success of its’ economy. Nevertheless, we cannot neglect the fact that government interference does not only benefit a certain economy, it also does more damages than good.
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Researches show that the country’s economic success seemsÂ operates best when government does not get involved in businesses and individuals to succeed or fail. The success or failure is merely on their own merits in open, competitive markets.
General Overview of Government interference in the economy
The question arises, “why does government intervene with an economy?” The main and the most common reason according to the government would be to “stabilize the economy”.
The role of the government in the country’s economy is mainly focused on three magnitude; these are namely allocation, redistribution and stabilization.
It is believed that there are two types of government intervention, meaning the extent of government involvement in the economy. Namely they are Capitalist policies and Socialist policies. In capitalism there must be a little or no intervention of government in the economy of the country, and on the other hand in socialism believes in complete government intervention.
Some believe that the government is responsible in protecting the public good by systematic regulation of the private sector, while it is also believed that for a certain economy to survive there should be some government interference to ensure economic goals are achieved, freedom and individualism remains existing.
Should the government interfere in the economy? (Justification)
The next most common question that arises is “Does government intervention or interference causes more harm than good or vice- versa?”
As mentioned earlier, the answer is subjected depending on different cases and countries. However most scholars believe that in order for an economy to succeed it should be let free. Economies of countries are treated as business. Similar to a business economy of a country is supposed to make money. Like business in order to survive long term, generating income becomes compulsory one way or the other. If the economy fails to fulfill its needs and wants, it eventually fails. Likewise economy standing alone without interference from the government makes them more pressured in working towards their objectives.
Government interference eventually becomes as an obstacle in an economy which is trying to reach its objective of generating revenue. Therefore the scholars believe that the best solution is to provide a “free Market”.
A free market is defined as an economy which is free from economic intervention, government regulations with an exception of property rights and ownership and contracts. It is the exact contradict of a “Controlled Market”, where the government is responsible in regulating the usage of all the resources in the economy.
Below briefly explains reasons why government should not intervene the economy:
1. Corporate Tax
In the globalized world of today, the most current ongoing issue is taxing. Scholars believe that taxes should be abolished, since it is the main reason for the unsuccessfulness of and economy. In corporate business taxes is a big issue since they are taxed in all aspects. The government thinks the corporate businesses do not pay enough for the poor people of the country. Businesses are taxed differently, namely Federal taxes, Property taxes, Sales and Payroll taxes etc. They are taxed on taxes.
Taxing seems to be a beneficial and a brilliant idea in getting or squeezing out money from big corporations, by creating an obstacle for them from growing more powerful and big. However, besides the fact taxes generate money from corporation to the economy, but on the other hand the corporations also benefit more by creating a more effective and obvious barrier between the competitors.
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For instance, big multi-national companies will be able to afford these taxes and remain as competitive as they were in the market; nevertheless the small corporations are unable to do so. This creates a major gap between the competitors and enables them to lead the market. This also becomes a barrier for new emerging corporations to enter the market. In other words, taxes help the big corporations in protecting themselves in the market by reducing the competitiveness, thereby the monopolizing the market.
Taxes not only reduce competitiveness, it also leads to leakages in the economy. This enables international organization to establish their firm, since they are able to afford the taxes.
There are other numerous ways the government harms the economy besides the Corporate tax. As mentioned earlier the government is responsible in making rules, regulations and policies of a nation. But imposing of these barriers in the economy creates more complications in business in conducting their business, hence making it more time consuming and to an extent unproductive.
2. Minimum Wage
Minimum wages mostly affects the small business, especially due to the inflation caused by it. Businesses are looking for ways to reduce cost, and one of the ways is minimizing the wages or salary. Skilled people have the high tendency of getting jobs with minimum wages while the unskilled people remain jobless. Therefore this is also creating unemployment in the economy.
As we all know, that insurance policies are a new ongoing trend in the global market. Larger corporations benefit from this, since they are able to afford to provide insurance for their staff, meanwhile the small business are at harmed. Like corporate taxes, small corporations or business are unable to pay insurance for their staff, hence again creating a market advantage for the large corporations.
4. Subsidies and “redistribution”
The free market idea proposed above is most helpful in economic growth. It fully utilizes the demand and supply in the economic market. Free market process enables the full utilization of the capital in the most productive way.
Subsidizing do suppress the competition but it also cause the capital to flow in wrong direction, leading to malinvestment. The same problem is also caused by the Redistribution on the government side.
5. Contracting to corps
Contracting with the corps can cause various problems in economic, such as malinvestment, misallocation and mismanagement of all economic resources. Since all of them will be exploited by foreign corps, and multi-national corps will cause scarcity of resources will be left for the local economy.
The fact remains that franchising and foreign corps do create more job opportunities, but on contrary it also creates monopolies and exploitation.
6. Special privileges
Special privileges in corps mean exploitation and unnecessary usage economic benefits. Distribution of special privileges to corporation and to the other areas of production is the cause of monopolies and corruption.
7. Resource Privileges
This is something which is similar to special privileges, where the economies resources are exploited. Example: The government gives the permission to mine a certain area or cultivate crop or chop a certain area. This does not mean the corp are owning the land, but they are using the land on rent basis. This method reduce the chances for locals to use land for their own economic benefits.
This report mainly highlighted the outcomes of government interference in terms of corps and business. This interference can creates economic benefit, but on the other hand it also causes negligence in areas like welfare, legal monopolies and so on. The report highlights one main reason why government should not interfere in the economy, which is to reduce the corruption by abolishing the taxing policy. However, this is not the only reason behind the objection.
As mentioned earlier scholars have agreed that the economy of a country will only be successful, if government does not intervene the best interest of economy, which is revenue generation. In general they can perform well, without of the government backing them up. Therefore, I conclude that there’s more harm done than good by government interfering the economy.
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