Role Of Government In Economic Activities: Importance, Implications, And Analysis

Government Participation in Economic Activities

Discuss about the Importance Of The State For Governing For The Economic Activities.

Whether states should play an active role or not in the running of the economic activities is under rigorous research since decades. There has been various researches in this factor and most of them diverge from another according to its findings (Arthur, 2018). Some researches argue that participation of the state in the economic activates aids the economy to have higher level of confidence, which in turn enhance the validity and credibility of the economy. Whereas absence of the state as the backbone of the economic activities produce much amount of fuss regarding the same (Bateman, 2017). Under this situation, this report is aimed to analyse, whether it would be ideal for the state to intervene in the market activity or it need to refrain itself from the same. Through the analysis of the role played by the state to run the economy activities, this report will try to find the importance of the state for governing for the economic activities. And next to this it will portray implication of the same while mentioning the implication of the governmental presence on economic performance to trace the validity of the same. To conclude this will provide a summarised overview of its findings and portray which one should stat do, refrain itself or take active participation in the economic activities!

Government nowadays effectively takes participation in the economic activity of a state. From the case of East Asian countries, it can be seen that it has developed to a large extent with the help of the strong governmental presence. This astonishing development of the economy has enticed man researchers to research in this matter and it has been found that the economy with the governmental presence can be successful under certain condition. According to the research of Miller & Rose, (2017), it has been found that, there should be free hand to all the citizens to perform their desired economic activity and next to this, it has also been found that government need to take proactive position so as to ensure the smooth performance of the economy, where it can withstand against any undesired market shock. Through change in the institutional framework, government aids the economy to enhance its output and let it grow further to become sustainable. In addition to this, it has also been found that the presence of the government in the market economy framework provides much amount of effectiveness to the foreign exchange market of the country (Ghosh, Ostry & Chamon, 2016). Present inter-governmental trade take place through the government of the two representative that allow mutual benefit to both the economies and aids them to have better amount of profit. Thus it can be seen that presence of the government in the economic activity aids it to become better.

Government Intervention in Economic Performance

Presently it has been observed that the government takes participation in the various economic matters that indicated long are those days gone, when laissez-faire used to take place in the economy and market clearing equilibrium price and quantity demanded was gained through the invisible hand (Davidson, 2015). Presently, the economic condition has become highly complex and it require strong governmental presence in order to check the fall in the economic performance. State as an active participant of the economy takes the following initiative to control the performance of the economy:

• Control the organisational changes
• Looks after the economic and social overheads
• Promotes education
• Provide health and emergency service
• Providing protection to the infant industries to protect it from the strong international competition

Thus, considering these importance it can easily been said that the intervention of the state for the smooth running on the economy is highly essential. So, presently it has become highly important for the government to intervene in to the market.

Whether government strengthen or waken the state is under considerable amount of debate since decade. There are many researcher who argue that active participation of the state aids the economy to perform better, however there are researchers too who argue that direct intervention of the government in the economic performance of the state deteriorates the situation. According to the Borner et al., (2016), it has been found that the economy fails to perform under the governmental intervention in the free market mechanism and it restricts the growth path of the same. for instance it can be seen that the government opens up the door of international trade for the betterment of the economy and when it starts to face fall in the trade balance, government introduce restrictions like import quota, and brings up the trade barrier, which hamper interest of both the domestic as well as the foreign merchants. In addition to this, as argued previously, government takes effective steps to protect the small industries from the direct completion of the international players by utilizing the infant industry protection strategy (Rodan, 2016). It has been found that, under the open economic scenario, protection reduces the performance of a firm rather than enhancing it. In addition to this, if the government takes active participation in the economic events, then it would increase the tax rate, which will further generate excessive amount of dead weight loss to the economy (Ehrenberg & Smith, 2016). The amount of money lost due to taxation as the government impose higher amount of tax and thus it deteriorates the consumer as well as the producer surplus. Moreover, with the strong governmental intervention, it has been observed that free economic performance of the economic agents of the state gets restricted as it can be seen in the case of the North Korea or China (Chan et al., 2016). Both of the nation has strong governmental presence, which reduces the social welfare level of their respective economies and thus it has been argued by the Pigou, (2017) that governmental intervention is not good for the running of the economic activities rather it need to act as the guide to the economy.

Views on Government Intervention in Economic Activities

Contrary to this view of the governmental intervention there are people like Leonidou et al., (2015) who believes that it is important for the government to intervene the market for its smooth performance. For instance, government provides protection to any supply or demand side shock to the economy through maintain cash reserves. And in addition to this, under the open market scenario, it protects the firms from getting washed off in front of the global market players through utilising the various plans and infant industry protectionism is one of them. moreover, Garland, (2016) has argued that governmental presence enhance the social welfare level by introducing intellectual property right for the goods and services and taxation aids the citizen to have better infrastructure from the government.

Conclusion:

Considering the above discussion, it can be found that it is hard to subscribe to the view that states should not play an active role in the running of the economic activities. Over the time, there has been various researches in this regard, however, most of them has failed to assess the importance of the state in running the economic activities, however some of them has argued in favour of the state’s active participation. Considering the analysed details regarding the state intervention in the market economy, it can be stated that it is subjective to the economic framework of the nation. Depending upon the scale, economic performance and ability of a nation, government can help it to become successful enough in a big way and if the state is in frigid condition, then it will be hard for the government to control the economic performance of that nation.

Reference:

Arthur, W. B. (2018). Self-reinforcing mechanisms in economics. In The economy as an evolving complex system(pp. 9-31). CRC Press.

Bateman, M. (2017). LOCAL ECONOMIC DEVELOPMENT AND MICROCREDIT. The Essential Guide to Critical Development Studies, 228.

Borner, S., Brunetti, A., & Weder, B. (2016). Political credibility and economic development. Springer.

Chan, S., Lutz, H., Lam, D., & Clark, C. (Eds.). (2016). Beyond the developmental state: East Asia’s political economies reconsidered. Springer.

Davidson, P. (2015). Post keynesian theory and policy: a realistic analysis of the market oriented capitalist economy. Edward Elgar Publishing.

Ehrenberg, R. G., & Smith, R. S. (2016). Modern labor economics : Theory and public policy. Routledge.

Garland, D. (2016). The welfare state: a very short introduction. Oxford University Press.

Ghosh, A. R., Ostry, J. D., & Chamon, M. (2016). Two targets, two instruments: monetary and exchange rate policies in emerging market economies. Journal of International Money and Finance, 60, 172-196.

Leonidou, L. C., Fotiadis, T. A., Christodoulides, P., Spyropoulou, S., & Katsikeas, C. S. (2015). Environmentally friendly export business strategy: Its determinants and effects on competitive advantage and performance. International Business Review, 24(5), 798-811.

Miller, P., & Rose, N. (2017). Political power beyond the state: Problematics of government. In Foucault and Law (pp. 191-224). Routledge.

Pigou, A., 2017. The  economics of welfare. Routledge.

Rodan, G. (2016). The political economy of Singapore's industrialization: national state and international capital. Springer.