Government Intervention in Global Economy - Essay Example

? GOVERNMENT INTERVENTION IN GLOBAL ECONOMY Government Intervention in Global Economy methodology proposal It is true that the governments of the world are often involved in one way or another in intervening in the economic performance of the world. The global economy in a broad perspective represents the overall economic performances of the countries and states in sum. Therefore, though individual government’s intervention to the world economy may be negligible, the summation of these effects dictates the shape that the world economy takes. This paper intends to study in detail the reasons why and effects of governments’ intervention in the world economy. Introduction We first study the methods that the governments have in the past intervened. Research studies indicate that governments adopt various methods to intervene in economic performance dictated by the nature of intervention. History shows that the interventions have been directed by the world economic forces such as the recessions, booms, debt crises among others. However, we shall note that the disparity also arises from the generational change. Most of the interventions methods that governments adopted in the early regimes after independence have changed as the economies mature. Moreover, a defense is noted in the economic intervention mechanisms by the governments in the developed economies as opposed to the mechanisms adopted by the third world economies. Research studies reveal that much of government intervention in the growing economies revolve around boosting the economies, while in the developed economies are mostly interested in stability as well as growth. Mechanisms adopted by governments are in essence directed to offering cover to their economies against economic forces from outside or well too to regulate the internal economic performances of their countries. Nevertheless, there are policies that are universally designed and adapted by the world governments. We shall discuss some of the commonly used methods of government intervention. Past studies in this area have analyzed partnerships, economic diversification, government spending, taxation, privatization and capital subsidization among other methods of intervention. Economic partnerships Normally, the government and the private sector run as distinct identities as regards the business environment. Moreover, different governments run distinctively in economic matters though at times circumstances require collective working in order to realize set goals. The government of a state may join hands in economic dealings through what is called partnership moreover; one government may enter into formal arrangement with other governments to serve together economically. These partnerships dictate the economic environment of a state or an economic block. Small economies such as are the African countries are the best examples of economic partnership. They form economic blocks such as the south-south through which they stand to negotiate their deals in the global economic front. However, such partnerships always face the challenge of specialization. However, it is a challenge because majority of young African economies over-specialize in their mode of production. Agriculture is the basic example in this (OECD, United Nations OSAA, 2011, 6 of 14). Diversification Governments have the sole mandate of dictating the means of production within a country. Specialization policies as against diversification policies dictate that an economy relies on specialized sector of production within an economy. On the other hand; diversification entails policies that encourage various modes of production as against only one. Through this therefore, a government is able tgo influence her economic performance as well as the performance of her trade partners even within the global market. The government intervenes into the economic performance of a country through such policies that encourage diversification as against specialization. Government spending The theory of macroeconomics reveals that in the production function, the gross domestic product is constituted of government spending as well as government consumption among other variables. The argument here is that the money in circulation would to a great extent depend on the amount held in government securities as opposed to the amount of governments money that is ploughed back to circulate in the economy. Government consumption is an intervention in that when a government intends to increase money in circulation within an economy, she does so by buying government bond and securities. On the reverse, when the motive is to reduce the amount of currency in circulation for such reasons as inflation, this government sells public bonds and securities to the public. It can thus be interpreted as mechanism that the government uses successfully to regulate the currency in circulation within an economy. Taxation Governments raise their income in among other ways taxation. Every government adopts a tax regime that is feasible to her subjects. However, through tax variation mechanisms, the government can regulate the economic performance within her economy. Moreover, commonly agreed on tax terms influence trade within economic groups or economic blocks. A country would regulate trade activities by imposing higher tax regimes or encourage more investor through low taxation. High taxation implies hire income tp the government and this regulates the spending mechanisms of a government to fulfill her obligations to the public. The income is necessary for use in providing public services that are paramount for any healthy economy. Taxation si therefore a tool that the governments use for intervening in economic performance of their countries as well as within trading blocks. Privatization When economic forces dictate the need for an economy to adopt policies that encourage private enterprises as against public ventures, the government designs and adopts privatization policies. Sometimes, public ventures face stiff competition and due to low profitability, the government opts to privatize them through sale or partnering with private investors in running the ventures. This therefore is equally another way that the government will intervene and influence the performance of her economy and in extension, the economy of the globe. Capital subsidization A government is in a position to design regulatory policies that among other roles, they encourage investment within the economy. Subsidy is one of the ways that governments use to encourage investors. However, some governments take the initiative of offering subsidies in form of capital for the purpose of encouraging investment. Author Overview evaluation OECD, United Nations OSAA (2011) 6 of 14 After the world economic crises of 2008, many economies were destabilized. This study was carried out to investigate the effects of the said crises to the developing economies with special focus to African countries. It looks at how the governments in Benin, Angola, Kenya, Tunisia and South Africa have adopted diversification as a means to stabilize the respective economies after the shocks that resulted from the crises. In the method discussed, the governments were faced with the difficult of regional integration. This was because most of the African countries are specialized in their production sector. Knowles and Garces (2000) 20 By using neoclassical growth model to evaluate the intervention by government on output per worker. This paper found that high levels of spending by government negatively affect output per worker. Despite the affirmation by other studies that government spending has direct relation to output per worker this study argues that there may be no actual relation between the two. The study says that the relationship revealed by the other studies may be as a result of poor measurement of the variables. My study suggests that government spending may not be the best proxy to determine the intervention by a government to the whole economy as it evaluates only one aspect of the government involvement. SIMPSON (2005) 73-77 This paper analyzes the impact of government diversification policies to the entire economic performance. It uses a case study of Malaysia intervention between 1970 and 1990 with which recommendations were intended to be imposed to South Africa republic. The paper found out that the government spearheaded the diversification process in the country and the overall output of the country in GDP greatly improved over the years. Among the other advantages that were realized were the growth in employment rates, quality in service delivery, agricultural production expanded and the export trade thrived better. The government was very vibrant in ensuring political stability as well as other macro-economic variables. Critical analysis reveals that the government’s efforts in ensuring stable macroeconomic environment for the well being of an economy. However, the application of this mechanism varies from a country to another. Economic infrastructures of a country to a large extent determine the applicability of these mechanisms. It is worth noting that adopting new methods of production may be more expensive than the expected returns which in actual sense may retard the country’s economic performance. This should therefore be done not in the short term perspective but rather a long term perspective. Adelman (1990) 27-28 of 28 The world economic policies architect has been viewed to pose a strain on the government’s autonomy in influencing the economic performance of her economy. The government involvement has been constrained to give room to the participation of other economic players. Subsidies offer incentives to investors, both local and foreign and through their participation in an economy; the overall economic performance of the country is seen. Critical review of the same gives an abit of a better way of intervention by the government. However, the method requires proper infrastructural background in order to have the subsidies well implemented. Corruption cases in most countries adversely affect the efforts of the government to win the confidence of investors through the subsidies. Moreover, the method lacks empirical method of evaluation as no units can be used to evaluate the effectiveness of the subsidies. Lam (2011) 2 In this study, Lam studied the US housing crises which had a great impact to the general economic performance. The evaluation found out that private sector was more efficient in allocation of resources in the housing sector as compared to the government through the public system. This is equally an intervention method through which this case study in the US found to influence the economic performance especially after the housing crises. An evaluation of this study reveals that private sector stands better placed to oversee proper utilization of resources. However, the independence of the private sector against government intervention is equally questionable with critiques saying that the independence of the private sector in economic activities is normally influenced by government policies. By the above analysis, there are many ways through which the governments gets involved I intervening into economic performance. The governments intervene in their respective economic performance and the performance is globally felt. Therefore, in understanding the overall economic performance of the world, it is inevitable to analyze the impacts of government interventions in the economic performances of their respective countries are well still through a commonly agreed upon mechanisms through the regional integration or the global monitoring agencies. The Proposed Methodology By the government adopting many mechanisms of production, there is a spread of opportunities as well as risks. Governments implement and impose policies that discourage over specialization and on the contrary encourage investing in a wide range of production. The proxies that can be used are relatively easy to compare by using the neoclassical production models. Empirical tests are also possible through analyzing the performance of each sector and the overall impact the sector has in the economy. By understanding through what ways the governments intervene in economic performance, this paper will eventually be in a position to analyze the advantages as well as the disadvantages associated to the various ways through which governments intervene. It is the assumption of this paper that by evaluating the impacts of government intervention in the economy, this paper will recommend the appropriate mechanisms that can be adopted to intervene in varying accessions. In conclusion, there are many ways through which a government intervenes in the performance of economies. This can be at the discretion of the concerned government and the influence of other regional players. Through this paper we shall be in a position to understand the best way through which governments can actively participate in the economic performance. Bibliography Adelman I. 1990. 27-28 of 28. THE ROLE OF GOVERNMENT IN ECONOMIC DEVELOPMENT. DEPARTMENT AGRICULTURAL AND RESOURCE ECONOMICS AND POLICY DIVISION OF AGRICULTURAL AND NATURAL RESOURCES UNIVERSITY OF CALIFORNIA AT BERKELEY. Working Paper No. 890 May, 1999 Knowles S. and Garces A. 2000. 20. Measuring Government Intervention and Estimating its Effect on Output: With Reference to the High Performing Asian Economies. CREDIT Research Paper. No. 00/14. October 2000 Lam A.2011. 2. Government Interventions in Housing Finance Markets – An International Overview. A working paper. March 2011. LAM 6/15/2011 OECD, United Nations OSAA. 2011. 6 of 14. ECONOMIC DIVERSIFICATION IN AFRICA. A Review of Selected Countries. OECD, United Nations OSAA 2011. Retrieved on 27/4/2013. Web: Simpson R. A. 2005. 73-77. Government Intervention In The Malaysian Economy, 1970-1990: Lessons For South Africa. MPA research report, Faculty of Economic and Management Sciences, University of the Western Cape. Proposed questionnaire: This study intends to employ interview method of data collection. Administered questionnaires are to be employed to collect data from the ministry trade, agriculture, regional planning and the other economic planning sectors. PART 1 Respondent’s information Name………………………………………………………………………………………………………………………………………..... Gender ( ) Male ( ) Female Age ( ) 25-30 ( ) 31- 45 ( ) Above 45 Ministry ministry trade ( ) Ministry of agriculture ( ) Ministry regional planning ( ) Ministry of fisheries ( ) Ministry of natural resources ( ) Ministry of industrialization ( ) Any other (specify) Job description (position)……………………………………………………………………………………………………………. Job Number…………… Date …./… /20.. Background information: Am a student in the university of ………………….and currently undertaking my research paper on the role of government and the methods through which the government intervenes in the economic performance of a nation. There are different ways through which the government is seen to intervene in the economic affairs of her respective country as well as the economy of the globe. Nevertheless this study is customized to evaluate the ways the government intervenes in the economy in encouraging and discouraging diversification. I am therefore collecting the information on the ways that you as an individual feels that the government has competently used to influence the economic activities of this country with special attention to diversification. I will outline various sectors of the economy and you will rate them in a scale to revel your perception on how much the government has successfully exploited the sector. Ministry rating: The following ministries actively contribute to the overall performance of the economy. On a scale of 1-10, rate the success of the government to harness economic gains for this country. (Where represent best performance and 10 worst performances). a) Ministry of trade (1) (2) (3) (4) (5) (6) (7) (8) (9) (9) (10) Comment…………………………………………………………………………………………………………………. b) Ministry of agriculture (1) (2) (3) (4) (5) (6) (7) (8) (9) (9) (10) Comment…………………………………………………………………………………………………………………. c) Ministry regional planning (1) (2) (3) (4) (5) (6) (7) (8) (9) (9) (10) Comment…………………………………………………………………………………………………………………. d) Ministry of fisheries (1) (2) (3) (4) (5) (6) (7) (8) (9) (9) (10) Comment…………………………………………………………………………………………………………………. e) Ministry of natural resources (1) (2) (3) (4) (5) (6) (7) (8) (9) (9) (10) Comment…………………………………………………………………………………………………………………. f) Ministry of industrialization (1) (2) (3) (4) (5) (6) (7) (8) (9) (9) (10) Comment…………………………………………………………………………………………………………………. Any other (specify) ………………………………………………………………………………………………………………………………………………….. (1) (2) (3) (4) (5) (6) (7) (8) (9) (9) (10) Comment…………………………………………………………………………………………………………………. Opinion section: 1. In your opinion, should the government get involved in economic aspects of the country? (Tick where appropriate) a. (Yes)……….. b. (No)……….. Why…………………………………………………………………………………………………………………………………………….. 2. Is the government’s intervention in economic affairs beneficial? (Tick where appropriate) a. (Yes)……….. b. (No)……….. Why…………………………………………………………………………………………………………………………………………….. 3. Should the government invest in diversification or specialization? (Tick where appropriate) a. (Yes)……….. b. (No)……….. Why…………………………………………………………………………………………………………………………………………….. 4. What other methods can the government employ to intervene in the economic affairs of the country? Partnerships (Tick where appropriate) (Yes)……….. (No)……….. Why…………………………………………………………………………………………………………………………………………….. Government spending (Tick where appropriate) (Yes)……….. (No)……….. Why…………………………………………………………………………………………………………………………………………….. Taxation (Tick where appropriate) (Yes)……….. (No)……….. Why…………………………………………………………………………………………………………………………………………….. Privatization (Tick where appropriate) (Yes)……….. (No)……….. Why…………………………………………………………………………………………………………………………………………….. Capital subsidization (Tick where appropriate) (Yes)……….. (No)……….. Why…………………………………………………………………………………………………………………………………………….. Any other (specify) ………………………………………………………………………………………………………………………………………………….. If you were to propose on government policies, which policies would you advocate for? (Tick where appropriate) Diversification (Yes)……….. (No)……….. Why…………………………………………………………………………………………………………………………………………….. Specialization (Yes)……….. (No)……….. Why…………………………………………………………………………………………………………………………………………….. Through what ways has the government influenced diversification in the country? a. Direct investments b. Taxation c. Policies Any other (specify) ………………………………………………………………………………………………………………………………………………….. Read More