Why do governments intervene? Illustrate your answer with reference to two of the following: health care, education, housing, the environment.
The following paper will analyse the rationale behind government intervention in the areas of education and environment. Government intervention as the term signifies refers to the involvement of the government where it comes to the designing and implementing policies. Generally speaking government intervention takes the form of regulation. It might appear strange that in this competitive and privatised capitalist set up ‘government intervention’ is still a term which exists. Despite a negative tone attached to government intervention, it is imperative to have certain sectors regulated. This paper will evaluate government intervention in the areas of environment and education.
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At times government intervention is required to achieve economic efficiency. Economic efficiency is achieved when nobody can be made better off without someone else being made worse off. Such efficiency enhances prosperity by ensuring that resources are allocated and used in the most productive manner possible. One potential cause of inefficiency is where circumstances mean that the private returns which an individual or firm receives from carrying out a particular action differ from the returns to society as a whole. Market failureis a description of a situation where, for one reason or other, the market mechanism alone cannot achieve economic efficiency.
Traditionally the goods and services provided by the public sector have been to make basic amenities available to the public. These have included health and medical services, education, law and order, transport. A recent estimate provided by Kable suggested that a fifth of the public sector services could be delivered through outsourcing.
Government Intervention in Education
Government intervention in the education sector has been justified on various grounds. It has been argued that in the real world, there are many instances in which private markets fail to produce the socially optimal quantities of goods and services. Various forms of market failures can be identified when considering education, namely,
Capital market imperfections: The private purchase of schooling, especially of higher education, is beyond the means of many poor families. Most credit markets do not provide an effective solution because of strong imperfections that reduce participation, particularly among very poor people. In principle, the budget constraints can be overcome by borrowing, given the high private returns to education. However, there are high risks for both borrowers and lenders in educational financing, and banks would not accept the promise of future earnings as collateral.
Incomplete information: Market failure also relate to the problems of uncertainty and incomplete information. Households may not know the existence of services in education, or they may not be aware of the private returns to education, which have a long gestation period. As a result, they tend to under-invest in education.
Externalities: Some of the benefits from education accrue not only to its direct recipients but also to society at large. Literacy, for example, lowers the transaction costs amongst individuals; women’s education brings external benefits for fertility control and child health and nutrition. In deciding how much to purchase, individuals compare only the personal benefits and personal costs. Private provision, or full cost-recovery, would result in under-investment in education.
Principle-agent: It is generally the case that in a household, parents are the relevant decision-making unit and not the child. For example, in education, the important issue is the perceived balance between the costs and benefits to the parents of sending their child to school. Since only some portion of the returns to schooling will accrue to parents, there may be rational (if regrettable) reasons for households to under-invest in schooling, notwithstanding its apparently high economic returns.
According to a paper published by the World Bank, in the absence of market failures, there may also be a case for government intervention on grounds of equity and merit goods:
Equity: Not all groups in society can afford the direct and indirect costs associated with investing in education. The government therefore plays a role in promoting equality of opportunity. If education was provided under market conditions, only those who could afford to pay would be able to enroll. Not only would there be under-investment from the social point of view, but income inequalities would be preserved from one generation to the next, since education is itself a determinant of lifetime income.
Merit goods: Education is often considered a type of good with special merit that is not readily quantifiable and that might be under-supplied if left to the market. Basic education, for example, is an important channel through which governments advance nation building in addition to imparting basic literacy, numeracy and problem-solving skills.
From the late 1960s central government began to take more interest in the policies being carried out at the local level. In education as well, there was growing central government interest in standards2 and the curriculum, 3 as the debate moved from equality and selection to the performance of schools. The 1970s brought reforms which set the pattern of change for the future. The Labour government considered the introduction of a needs-based central grant in the 1977 green paper on local government finance.
The advocates of interventionism or government interference with the market protest that they do not want socialism, but rather to retain private ownership of the material factors of production, free enterprise, and market exchange. But they assert that these institutions of the market economy could be easily misused, and are often misused, by the propertied classes for an unfair exploitation of the poorer strata of the population. To prevent such an outcome they want to restrain the discretion of the individuals by governmental orders and prohibitions. The government should interfere with all those actions of the businessmen which it considers as detrimental to the public interest; in other respects, however, it should leave the market alone.
Government Intervention is essential for education and environment. Consider the scenario where education was fully privatized, it would result in an increase in illiteracy. Education would become competitive and the objective of organizations would be to make money rather than impart education. This would mean that economically poor people in the society would have fewer prospects to gain education. For instance the recent Skills for Life initiative have been devised to improve the literacy and numeracy levels of the people. This has only been possible to implement because the government has taken action. Had the education sector been completely privatized it would have become another money-making mechanism which would not have benefited the society. However, arguments against total government control are that the private sector can help the public sector to provide the services with the use of modern technology.
Government Intervention and the Environment
Usually regulation is needed where the good is classed as a public good. Government regulation is an alternative method of seeking to protect and preserve the quality of the environment. Regulation however does not always lead to ideal outcomes, and it can be enormously expensive. Regulation is not always based on market systems, so it is subject to all the problems associated with lack of information and lack of incentives that have plagued the socialist nations. For instance, in the case of global warming, emissions from carbon dioxide from efficient burning of all fuels case no harm where they are emitted. No one’s rights are being violated by the invasion of harmful pollutant, yet these emissions are building up in the atmosphere. Thus this may require that in the future regulations must take this into account.
Consider the scenario where the environmental resources are left in the hands of the private sector. Needless to say the resources would be depleted much faster. If there wasn’t government control in terms of dumping waste and pollution the industrialized societies would have led to a faster depletion of the ozone layer in the pursuit of making profits.
There are undoubtedly major benefits for governments to intervene in certain areas, however, public-private sector partnership is required to reach optimum level of success.
Some argue that governments must just serve as watchdogs and ensure that environmental policy is adhered to and that companies are made responsible for their actions. Taking responsibility towards protecting the environment would achieve a lot more than the government intervening all the time. It is a general belief that profit-seekers and corporations are too greedy and self-interested, the thinking goes, to give much thought to preserving wildlife, forests and wilderness.
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It can be argued that no one likes pollution, but getting rid of pollution requires resources. The more resources society devotes to lessening pollution, the fewer resources are available for all other goods and services. If someone else ws prepared topay to get rid of the pollution then undoubtedly one would experience an increase in utility at no cost to oneself. On the whole, rich countries are less polluted than poor countries, not more. The reason is that wealth increases both the demand for a healthier environment and the means to bring it about. Environmental regulation has been necessary to achieve this, to be sure, because pollution is indeed an externality. But it is not true that the problem has been left unattended in the rich world that things are therefore getting worse, and that CSR initiatives have to rise to the challenge of dealing with this neglect.
Strong environmental protection is already in place in Europe and the United States. In some cases, no doubt, it needs to be strengthened further. In some other cases, most likely, it is already too strong. Overall, the evidence fails to show systematic neglect, or any tendency, once government regulation is taken into account, for economic growth to make things worse.
Government regulation is an alternative method of seeking to protect and preserve the quality of the environment. Regulation however does not always lead to ideal outcomes, and it can be enormously expensive. Regulation is not always based o market systems, so it is subject to all the problems associated with lack of information and lack of incentives that have plagued the socialist nations. For instance, in the case of global warming, emissions from carbon dioxide from efficient burning of all fuels case no harm where they are emitted. No one’s rights are being violated by the invasion of harmful pollutant, yet these emissions are building up in the atmosphere. Thus this may require that in the future regulations must take this into account.
As a general rule, however, correcting market failures is best left to government. Businesses cannot be trusted to get it right, partly because they lack the wherewithal to frame intelligent policy in these areas. The right policy on global warming is not clear-cut even at the global level, to say nothing of the national level or the level of the individual firm or consumer. Devising such a policy, and sharing the costs equitably, is a political challenge of the first order. Settling such questions exceeds both the competence and the proper remit of private enterprise.
From the preceding paragraphs it can be concluded that the government plays an important role when it comes to decisions relating to public goods like health, safety education and environment. It can be seen that if the public goods are left completely in the hands of private sector it would not yield beneficial results. Profit being the main motive private sector would not care enough for the rate at which natural resources were getting depleted or the quality of education. Moreover, not all sections of the society will be privy to the same quality of education. Thus government intervention is vital in ensuring that economic development occurs uniformly and consistently in the country. Thus government intervention is essential when considering key goods like education and environment Even though arguments presented have suggested that governments tend to be bigger polluters than private sector companies, however, government has a duty towards the society to provide good quality education and a cleaner environment. Thus government intervention is important; however the level can vary depending on the development levels. Thus in summary government could play a role of watchdog more to achieve economic efficiency.
- Goodstein, E.S., Economics and Environment, (2004), John Wiley and Sons Ltd.
- Gwartney, James D., Stroup, Richard L., and Sobel, Russell S., Economics Private and Public Choice, (2000), Ninth Edition, The Dryden Press.
- Hammer, Jeffrey S. 1996. “The Public Economics of Education.” Public Economics Division, Policy Research Department, World Bank (mimeo).
- Hoxby, Caroline M. 1994b. “Does Competition between Public Schools Benefit Students and Taxpayers?” National Bureau of Economic Research Working Paper 4979.
- James, Estelle. 1984. “Benefits and Costs of Privatized Public Services: Lessons from the Dutch Education System.” Comparative Education Review 28(4): 605-624.
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