The paper 'Government’ s Role in a Market Economy" is a great example of macro and microeconomics coursework. One of the major and most contentious debates in the 20th century was in regard to the role of the government in the market economy. This is an epoch in history which experienced a massive struggle between the governments which advocated for capitalism and on the opposite hand other governments championing for centralism and absolute control of the economy. In 1992, this struggle came to a sudden halt with the disintegration of the Soviet Union which was a government system which advocated and upheld policies for central control as well as the promotion of equality (Merchant, 1997).
Nonetheless, despite the seeming triumph of capitalism, this phenomenon resulted in many scholars from diverse realms of academia as well as different policymakers questioning the role of the government in the market economy. This discourse has generated a wide alley of issues. These are related to the extent and nature of government regulation in the economy as well as the ways in which a government can play an effective role in the process of redistributing economic power and concurrently keep the free market economy unperturbed.
In addition, other issues have been related to how the government itself can be regulated as well as how can the government be prevented from becoming an instrument of tyranny and injustice (Khan, 1994). Against this backdrop, this paper will focus on the role of the government in the market economy. Moreover, it will also demonstrate the reason why there can never be a truly ‘ free market’ economy. Role of the government in the market economy According to Aly (2008), there has been an extensive consensus among proponents in the economic literature in regard to the government’ s role in the market economy.
Thus the government has been called forth to perform five basic functions. Provision of a legal structure to the economy; this is perhaps the most fundamental role of the government in the market economy, failure of which the economy is bound to collapse. This role necessitates the government to be at the forefront of ensuring property rights, act as an arbitrator in case of foul play in the market as well as the provision of enforcement of contracts.
In this scenario, the government is mandated with the role of furnishing the economy with legislations and regulations, defining the ownership rights and enforcement of contracts as well as provision of means of ensuring quality in the production process (Aly, 2008). This role of the government contravenes the basic assumptions among the proponents of the free-market economy where there is the non-existence of government intervention in the economic processes in terms of regulations and legislation to govern these economic processes.
Nonetheless, despite some countries priding themselves of being free-market economies, the government is to some extent involved in passing legislation and regulations to govern the economic processes which cement the fact that there can never be a truly ‘ free market’ economy. In actual sense, research has revealed that governmental policies which exhibit reliance on processes of the market economy within a stable legal structure culminate in positive outcomes. These outcomes are often compatible with the goals of securing elevated national income, human well-being, acceptable resources distribution as well as certain environmental goals (Berggren, 2003).