Policy Instruments Are Used in Protectionism - Assignment Example

Name Instructor Course Date Policy Instruments are Used In Protectionism The government plays a key role in businesses. One of the principle roles of the government is to ensure that domestic industries are safeguarded from competition from foreign firms. For instance, the government has a role to ensure that sunrise/infant or sunset/declining industries are protected from competition so as to allow them to develop, grow and become competitive in the global marketplace. To protect the domestic businesses/industries, the government uses a variety of policy instruments. This essay describes the policy instruments used in protectionism and highlight the instruments that tend to be used since the move away from protectionism. Tariffs are the most common protectionism policy instrument. Tariff is a form of tax imposed by the government on imported goods. Taxes are levied on the imported goods for two main reasons namely to raise government revenues and to protect local industries. Tariffs act as protectionism instrument because by taxing the imports, this raises the prices of the imported products in the local market, thus reducing the demand of those imported products due to high prices. The other instrument is the quotas. A quota is a non-tariff barrier that involves putting a limit on the amount of goods or services that can be imported from a foreign country for a given period of time. When the government imposes quotas on certain products, this limits the supply of that product in the local market, consequently causing the prices of that product in the local market to rise and this gives local businesses the opportunity to capitalize on the high demand for that product. The government can also use this policy instrument to protect local industries against dumping. Embargo is the other common policy instrument used by governments as a form of protectionism. Embargo is a physical control mechanism that involves putting a ban on the importation of certain products, such as drugs or arms. Embargo is regarded as the most severe form of quota. Embargo is imposed mainly for political or social reasons. For instance, the UK government has imposed an embargo on North Korea because of its terrorism related activities. Additionally, the government can sometimes opt to use exchange control as a form of protectionism. Exchange control is a form of protection that involves restricting or controlling the amount of foreign currencies that importers can buy. This measure is usually taken as a policy measure to restrict the ability to import, thus helping protect domestic industries. Other policy instruments include the use of exports taxes, export subsidies and exchange rate management and voluntary export restrictions. Although protectionism has been a common method that governments have used to protect local industries and jobs, the world has been slowly moving away from protectionism to a competitive market model. Under the competitive market model, the market is allowed to operate free of government regulations and the market direction is influenced by the forces of demand and supply. This implies that the market is left to operate freely without government interference. There are various policy instruments used under competitive market model. The first being researcher and development (R&D) concession offered by the government to various sectors of the economy to promote growth and development. There has been an increase in R&D tax concessions offered by governments in free market economies to catalyze local R&D. These tax incentives make it cheaper for companies to invest in R&D activities to promote the growth of local industries. There is also an increased use of subsidies under competitive market model. Subsidies are government supports in the form of money offered by the government to support to businesses to reduce the cost of doing business so that the same benefits can be transferred to the consumers. Additionally, governments are also increasing using the policy of deregulations by reducing government regulation of industries so as to allow markets to function freely without state interference. Other policy instruments that are commonly used in free markets include incentives and strategic investment facilitations. Conclusion The government plays a critical role in ensuring the success of businesses. However, to protect local industries, governments usually use varieties of policy instruments, including tariffs, quotas, embargo, exchange control, exports taxes, export subsidies and exchange rate management and voluntary export restrictions. However, the move away from protectionism to a competitive market model has seen some policy instrument becoming commonly in use, including R&D tax concessions, subsidies, incentives, and deregulation to allow markets to operate freely without state interference. Circumstances Where It Acceptable For Governments to Intervene In Specific Industries Introduction The degree to which the government should intervene in a free market economy has been a thorny issue in economics. Free market economists feel that the government intervention in a free market economy ought to be limited because government intervention has the potential of causing inefficient resource allocations. Proponents of government intervention, however, argue that the government must be allowed to intervene even in a free market economy so as to ensure that businesses and consumers are protected from market inefficiencies. This essay describes the circumstances under which it is acceptable for the government to intervene in specific industries and highlighting the conditions that must be met by such interventions. Although in a free market economy, the direction taken by the market is expected to be determined by the forces of demand and supply and operate free of government interference, there are circumstances under which the government is expected to intervene in an industry. First, the government can intervene in a free market in the event that there is failure in the market. Market failure can result from many different things. First, the government can intervene in a free market that is dominated by a monopoly that takes advantage of being the sole producer of a product to exploit the consumers. Monopolies can use their power to increase the prices of goods and services in a market in order to generate high prices. Because consumers have no choice but to buy from the single firm that provide the goods, this is likely to increase the cost of living for the population. Therefore, to address such inefficiencies and market failure, the government can intervene by initiating policies that encourage new companies to enter into the market so as to allow competition. Such policies may include providing tax incentives to new firms that enter the industry, such as tax holidays for new firms. The government can also intervene in a free market in situations where there is overconsumption of goods with negative externalities. Products with negative externalities are those whose consumption has negative implications on consumers and the society as a whole. For instance, in most countries the government has restricted the age limit for alcohol consumption to age limit at 18 years as is the case in the UK. Another example is the proposal to increase taxation of fast food businesses to reduce the growth of such businesses in a bid to address the growing obesity and related health problems. In this regard, as much as the markets are expected to operate freely without government interferences, intervention in alcohol consumption and fast food markets are necessitated by the negative externalities associated with these products that if left unchecked can result in serious consequences to the society as a whole. The government can also intervene in circumstances where there is under consumption of merit goods with positive externalities. A positive externality is a benefit enjoyed by individuals and organizations as a result of economic transactions. Merit goods such as education, healthcare, roads, bridges, airports and social housing are examples of goods with positive consumption externalities. Therefore, the government has an important role to play to ensure that these goods are easily accessible to the public and that they are consumed in large amounts. To promote the consumption of merit goods with positive externalities, the government can intervene by offering grand and subsidies to producers of these merit goods to help reduce the production costs and encourage more supply. Additionally, the government can intervene in such circumstances as where there is a failure of free market to provide pure public goods. Pure public goods are those goods that are consumed collectively by the members of the public and include goods such as broadcast services, street lighting system, public water supplies and national defense services, such as the military. In the event that free market fails to provide these goods to the public, the government has a responsibility to intervene by funding these public goods to make them available for consumption by all. Moreover, the government is free to intervene in an industry to achieve equitable distribution of wealth and income. In this regard, the government can intervene where people suffer from issues such as social exclusion and negative externalities. Conclusion In free markets, businesses and transactions are expected to be dictated by the forces of demand and supply. This implies that there should be not interference with regards to how businesses and markets operate. However, there are circumstances where government interventions might be necessary. In particular, the government is expected to intervene in an industry whenever there are market failures as interventions not only help the businesses in the industry, but also the consumers. Analysis of the Extent to which AirBnB and Uber Have Challenged the Sovereignty of the Federal and State Governments Introduction The world has experienced massive technological advancements in recent decades. The Internet and enabling technologies, such a communication technologies are some of the greatest innovations that the world has witnessed in the recent years. The internet and enabling communication technologies have created business opportunities for businesses key among them being Uber Taxis and AirBnB, which have taken advantage of social Web to create new business models that have revolutionized the taxi and hotel industries for Uber and AirBnB respectively. These companies have grown over the last few years to become multinational brands with global operations, including Australia. However, there has been a growing concern about how Uber and AirBnB conduct their businesses. This essay analyzes the extent to which the sovereignty of the federal and state governments is challenged by Uber and AirBnB. Uber is an American taxi company that allows passengers to request car ride through their mobile app. The company came up with a new business model that has caused disruption in the taxi industry. With mobile apps, people willing to travel using Uber taxis can request for a car ride and with Uber, the fares are determined according to the distance travelled, which is indicated through the app. Like Uber, AirBnB also operates using mobile app that allows users to book rooms from other users through its mobile app. Despite the increased popularity of these new taxi and hotel business models, Uber and AirBnB have affected the sovereignty of the state and federal governments in different ways. First, Uber has challenges the sovereignty of state and federal government by providing services that the federal and state governments could not provide through sharing. Uber has introduced a low fare taxi that adopts a new business model compared to the traditional taxi businesses. With Uber taxi, customers pay only the amount that they have spent as indicated on the app. Accordingly, this implies that there is no exploitation of customers by charging exorbitant fares. This implies that the power of the government to regulate the fares is drastically affected as the app regulates the amount of fares charged. Besides, under traditional taxi business model, the government had to keep intervening against fares. However, because Uber charges relatively lower prices that suit the consumer pockets, the federal and state powers have been drastically reduced as far as regulating the activities of Uber taxi is concerned. Uber is also associated with certain negative externalities, though the federal and state government has had a challenge correcting the negative externalities caused by Uber. In particular, Uber has been criticized not only for worsening traffic situations in the country, but also for luring away passengers, thus leaving traditional taxis without businesses. However, the federal and state government has no power to control these negative externalities because the growth of Uber taxis and its popularity as a mode of transport is regulated by the forces of demand and supply that the government has no control over. Similarly, AirBnB, the company provides hotel room booking services through its online platform. By simply downloading its app, a user can book hotel rooms at the comfort of their homes. However, the federal and state governments still lack the laws and policies to regulate the activities of AirBnB because this is a new business model that is based on sharing. There has been a growing concern in countries like Australia that AirBnB’s business model has had a negative effect on the hotel industry by reducing the supply of affordable housing in major cities across Australia, such as Sidney and Melbourne. However, because the there is a lack of laws to regulate social platforms like those of AirBnB, this has allowed the online Hotel booking serving providers like AirBnB to continue enjoying huge profits at the expense of the poor. Besides, the platforms like those of AirBnB are allegedly being used by bullies and strolls to perpetrate their heinous acts. Uber also challenges the sovereignty of the federal and state governments with regards to how it treats its employees. With Uber services, it is difficult to know whether the drivers should be treated as part-time or full-time employees. This is attributed to the fact that drivers are paid a fraction of the rides they make with the passengers received through Uber app. For the federal and state governments, it is hard for them to enforce employment laws on online companies like Uber because payment is made based on customers transported. This implies that the federal and state governments will have to enact new laws to cover the activities of the growing online business platforms. Conclusion Uber and AirBnB are some of the fastest growing online taxi and hotel booking platforms respectively. Whereas Uber allows users to request cars rides through its mobile app platform, AirBnB allows users of its app to book hotel rooms online at no extra cost. These new business models are increasingly becoming common. However, these new technologies are challenging the federal and state government sovereignty through their disruptive nature and the fact that there are no well-defined laws in place yet to regulate online businesses such as those of Uber and AirBnB. Read More