Government’s role in the free marketIn a free market, it is the forces of demand and supply that controls the market. The government exercises little or no control on the market. Ideally, in a free market economy the buyers and sellers transact business freely based on mutual consent without government intervention by way of taxes, regulation and subsidies. However, in reality, a free market economy can not exist since there will always be state intervention through levying of taxes, control of prices and government restrictions that may keep competitors from entering the market.
This paper seeks to analyze different arguments for and against government interference. Arguments for government interference include maintenance of law and order and provision of security while arguments against interference include reduction in profitability brought about by taxation (Murray, 2009). From the analysis, it will be argued that the government’s role in business should only be regulatory. This is because over interference with the operations of a free market greatly reduces profits and keeps some players out of business. Our constitution gives room for government’s intervention on the free market.
The constitution however insists that that the intervention should be minimal. The constitution gives the government powers to regulate both national and international businesses within the country as well as powers to levy and spend the tax. It also grants the power to borrow and to promote the social welfare to the government. Government regulation of the free market is propagated by government agencies according to the laws passed by the parliament in an attempt to address the perceived market failure or attaining social goals. The government has the responsibility of setting legally enforceable laws for regulating business activities that are considered to be legal.
Other government agencies such as municipalities set laws that govern the production, marketing and transportation of goods and services within their jurisdiction (Julio & Lawson, 2007). Government’s interference with free market forces people to behave in ways which are not in their best interests when carrying out their duties. Therefore, government’s regulation usually distorts the organization’s behavior and choices. In an ideal free market, buyers and sellers exchange goods freely without being coerced.
However, regulation of free market compels people to transfer property rights directly to others. Therefore, the terms of exchange are coerced and against at least one of the participants in the exchange. The purpose of such regulation is aimed at making the government intervene and force an exchange that would otherwise not be agreed upon in the free market (Eliezer & Karras, 2008). A market failure is said to exist if the free market does not achieve its desired goals. In an ideal free market setting, public goods such as electricity and water would not be provided in an efficient manner.
Government intervention would also be called for in order to collect the inability of the free market to provide certain values (Kevin, 2005). The free market has also been blamed for its inability to produce certain goods and services at costs or quantities that are rational and acceptable by the majority. Therefore, the government has to interfere by compelling firms to produce the goods or services at the desired prices and quantities. In general, government intervention should occur in the following circumstances;