Global Economy and Government

To better understand and make educated arguments on the topic of global business and economic autonomy, I am going address government’s role in an economy[1].

What is the role of government in an economy, or what should the role of government be? Are state governments only expected to intervene at times such as the Great Depression? Do governments of all states try to maximize welfare and development? Do all states try to minimize corruption, or are there governments that maximize the opportunities for corruption and the opportunities for bureaucracy?

Institutions, such as the World Bank, look for connections between the extent of corruption and bureaucracy and poverty, and have tried to quantify the results of their findings, which happen to be striking. Not all states address the concern of incentives or disincentives and try to manage producer and consumer behavior. Economists in free markets have very different views of making an economy work, as opposed to the proponents of tougher laws and regulations. However, it is also very important for states to enforce laws in order to discourage opportunities for corruption. It is very important for the laws and regulations to be very clear as well, even if they are less than desirable, such as open discriminations (e.g. in favor of the Malay people in Malaysia).

State governments also manage property rights, and how they handle these rights may vary greatly among states. Not all states encourage ownership, everything from land or production rights to intellectual property rights, which helps an economy by encouraging the proper growth and development of their societies.

States have to play a constructive role: government officials and business leaders must lead by example and enforce laws against fraud. Government has a major role in managing (and in most cases, owning) essential public services. In some states, government agencies are not responsive to the public’s needs. As a result, not just in the U.S., but also in a number of countries, many public services have been privatized. We have prisons, hospitals, and public utilities, such as water and electricity that are either privately owned or run jointly with private management.     

When Dr. Jackson addresses the issue of private vs. state economic governance, one of the things, the economists argue, that governments really need to address the issue of externalities – which is what a private company experiences in terms of costs and benefits, when it differs from what society at large experiences in terms of costs and benefits. If we take pollution, for instance: when a company minimizes costs and maximizes profits, they could be ruining the environment for everyone else. This is where the government has to equalize public and private costs and benefits.  

While it’s important that government does something when public and private costs and benefits differ, what specifically is going to be done is up for discussion (fees, taxes, subsidies, etc.). Another issue many states’ governments are faced with, is the issue of short-termism, and having a vision beyond the next election cycle. 


[1] AU SISG-774