Balades en expertise comptable :
State Intervention

Actu Anglais mai 2022

State Intervention... décrypté par Jean-François Allafort, co-auteur des Fiches DCG UE12 Anglais des affaires, collection « Expert Sup », Dunod, et présenté par Ian Waddelow.

#Intervention#Government#Monopoly#PublicGoods #Redistribution

Should the State Intervene in the Economy

Welcome to the series of DUNOD podcasts designed to help improve your English in your own time on topics related to your studies.

Should the state intervene in the economy or not ? This is one of the main issues in economics. Free market economists argue that government intervention should be strictly limited as government intervention tends to cause an inefficient allocation of resources. However, others argue there is a strong case for government intervention in different fields, such as public goods and monopoly power.

Let’s look at some of the main arguments for state intervention :

In a free market, there tends to be inequality in income, wealth and opportunity. Government intervention is necessary to redistribute income within society.

Without government intervention, firms can exploit monopoly power to pay low wages to workers and charge high prices to consumers.

Government intervention can regulate monopolies and promote competition. Therefore governments can promote greater equality of income, which is perceived as more fair.

Often the argument is made that people should be able to keep the rewards of their hard work. But, if wealth and income and opportunity depend on being born into the right family, is that justified ? A wealth tax can reduce the wealth of the richest, and this revenue can be used to spend on education for those who are born in poor circumstances.

Education and health care are public goods. Universal education and health care provided by the government have a strong social benefit.

In major disasters such as Coronavirus, there is a strong need for government intervention in many forms as the market cannot solve everything. This is what the British government did in 2020 by giving loans and subsidies to firms to keep hiring workers during that difficult time period.

However, there are some strong arguments against state interventionism :

When governments spend on public goods, they may create excess bureaucracy and inefficiency.

State owned industries tend to lack any profit incentive and so tend to be run inefficiently. Privatising state owned industries can lead to substantial efficiency savings.

Politicians don’t have the same market discipline of seeking to maximise the use of limited resources and government intervention causes more problems than it solves. For example, state support of industries may encourage the survival of inefficient firms.

Real business cycle theorists argue that at best government intervention makes no difference to the length of a recession, but may just create additional problems, such as the accumulation of public sector debt.

So in conclusion, there is no real model of a society run in the absence of government intervention. Even the most extreme libertarian economists would accept there needs to be some state protection of property rights and spending on national defence.

The debate comes on the extent of government intervention. This needs to take place in every aspect of government intervention.