Role of Government in a Market Economy - Essay Example

Running Head: Role of government in a market economy Role of government in a market economy Customer’s Name: Institution: Customer’s Course Tutor’s Name March 15, 2013 Introduction The recent history has led to the occurrence of a great number of changes in relation to the role that is played by the government when it comes to the issue of a market economy. With the worldwide defeat of communalism as well as the universal ambush of privatization, a new paradigm seems to be emerging. The direct role of the government in the economy is shrinking and its direct role is increasing. Arguably privatization does not necessarily mean “no government” but rather better government. This essay therefore sets out to discuss the role of the government in market economy and why there can never be truly free economy. Role of government in a market economy Government is said to play certain roles in the aim of creating a strong economy for their country. One of the major roles of the government is to act as a regulator. Most of the economic activities that take place in the world are usually businesses and people who are trading with one another. The government plays an active role in that it regulates their interactions. This seems to be the first as well as the most important role of the government in its economy and failure of the formulation of regulations and rules that relates to business interactions will eventually lead to the collapse of a country’s economy (Acemoqlu & Robinson, 2012). Government is mainly tasks with the task of creating laws that will govern the manner in which business transactions will take place in their country. This role necessitates the government of the land to make certain that the property rights offers clear and concise rules in the enactments of contracts and also acts as referrals and imposes certain penalties for those who plans to engage in foul play when undertaking the various business transactions(Acemoqlu & Robinson, 2012). In the aim of performing this role, the government is supposed to endow the country’s economy with legislations, regulations and other means of ensuring that there are product quality as well as defined ownership rights. An example of such a regulation is the contract laws. The other forms of laws which have a great significance are those that have been passed in parliament (Wade, 2003). Irrespective of the scope to the form, the regulations that are designed by the government serve the same purpose which is to advance the operations in their markets and make the doing of business easier for all those concerned and also ensure that there is farness for all those who are involved in the business process. Clear and concise regulations will ultimately lead to the enhancement of a country’s economy. The other role of the government is that it also acts as the tax gatherer. The government is mainly tasked with the duty of collecting taxes and this is usually done on a yearly basis. The government later uses the revenue that has been collected to develop various facilities and sectors in their economy. Taxes are commonly seen as essential aspects that can determine the behavior of the people (Wade, 2003). Economic research which have been carried out indicate that based on how a government is able to use the taxes they have collected can at times be a crucial factor when it comes to determining the level of investment and savings in that country’s economy. Another role of the government is the creation of jobs. Jobs in this case cannot only mean the government jobs but also the private sector jobs. The Government plays an important role in the creation of jobs in the private sector by offering funds to the various projects that are taking place (Winston, 2006). It is commonly believed that when one sector in the government offers some funds to the projects, it tend to attract funding from other levels in the government and at times from private foundations that are based in the country. The other active role that is played by the government is that of being a provider. This role is seen as been the opposite of the role of the government as the tax gatherer. The major scenarios in which the government offers services to its citizens are through health services and education (Winston, 2006). Services are at times provided directly by the government owned bodies like the government schools as well as district hospitals. The other common option is when the services are offered through indirect means other companies or organizations. The governments also tend to play a major role in enhancing competition in a country. Competition is usually viewed as an optimal as well as efficient market system that tend to offer some level of courage to the resource suppliers and the producers to aim them at responding to consumer sovereignty and to price signals. The government is therefore tasked with the duty of ensuring that there is no monopoly and there is also competitive behavior in the marketing environment (Tanzi, 2011). The government ensures this by the creating of anti monopoly laws in the aim of regulating the business behavior and also promoting competition. Through this there is a possibility that the number of players in each industry will increase and thus the consumers are more likely to be offered with quality products and at reasonable prices. The government also ensures that there is redistribution of income. The governments also have a role to play in ensuring that it offers relief to the dependant, handicapped, unemployed and the poor ion the society. Some examples of programs that are in support for the sick, poor and the elderly are programs such as the social security funds and other Medicare programs (Meltzer, 2012). These programs are mainly designed so as to transfer a certain level of income from the high income earner to the low income earners and this is usually done through progressive taxes. The other common means so through various price support programs such as offering low interest loans to students. The government also plays an active role in the promotion of growth and stability. Every government is supposed to promote macroeconomic stability and growth in that they should be able to increase a country’s GDP, decrease the rates of unemployment and inflation and this is usually done through the change in monetary and fiscal policies (Chacko et al., 2011). Why there can be never be a true free market economy A true free market economy is commonly termed as an economy where there are no government interventions whatever in that there are no regulations or laws. And the only role that the government is supposed to play in such a market is to offer a common currency to the buyers and sellers and enforce contracts (Sirico, 2012). In this kind of markets, the individuals cooperate willingly without the application of any form of coercion. Thus, the economic decision been made are agreed upon freely by the parties involved in the business transaction and there is no form of force form the government or the state. True free markets economies have never existed since it has been found to lead to various social problems. The true free markets economies do not exist but they are really mixed and therefore they are far for being truly free market. This is based on the fact that almost all countries have regulations for almost all industries, an imposed monetary system, and subsidies for each if the businesses had been operated in the various sectors of the country economy and various government monopolies such as the postal services. The truly free markets that most people are in support of have never existed (Uble, 2009). Thus from this perspective the anti capitalists seems to be right when they stated that the concept of free markets was an abstract concept which had no varied basis. Thus there exist no time in each country’s history that a country can claim to had or have be a truly free market economy. Conclusion Based on the above discussion, it is evident that the government has a number to roles that it is expected to play so as to enhance its economy. The government is therefore supposed to form and implement regulations, redistribute incomes among its citizens, enhance completion and create jobs for its citizens. It has also been found that true free markets economies have never existed. And if they were to exist, they could cause a lot of societal problems. Thus the ideology of free market economies ought to be used as a basis through which individuals can be bale to observe the free market perspectives. Therefore free market perspective ought to be viewed as a measuring tool and not as a formula of the ideal society. Thus it ought to be viewed as a way of determining the freedom that individuals have when undertaking their economic activities. References Acemoqlu, D. & Robinson, J. & (2012).Why Nations Fail: The Origins of Power, Prosperity, and Poverty. New York: Crown Business. Chacko, G., Evans, C., Gunawan, H. & Sjoman, A. (2011).The Global Economic System: How Liquidity Shocks Affect Financial Institutions and Lead to Economic Crises. New Jersey: FT Press. Meltzer, A. (2012). Why Capitalism? USA: Oxford University Press. Sirico, R. (2012). Defending the free market: the moral case for a free Economy. Washington: Regnery Publishing. Tanzi, V. (2011).Government versus Markets: The Changing Economic Role of the State. Cambridge: Cambridge University Press Uble, P. (2009). Free market madness: Why Human Nature is at Odds with Economics--and Why it Matters. Harvard: Harvard Business School Press Wade, R (2003). Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization. New Jersey: Princeton University Press. Winston, C (2006).Government Failure versus Market Failure: Microeconomic Policy Research and Government Performance. America: Brookings Institution Press and American Enterprise Institute for Public Policy Research. Read More