Role of the State in the Market - Essay Example

The state has the role of influencing various macroeconomic policies that would ensure equal distribution and efficient allocation of resources. Through government monetary and fiscal policies, business rules and regulations, and legal structure the state can bring sanity to the market. The state has the constitutional power to regulate prices through price floors and ceilings to protect the firms and the consumers (Tanzi 92-7).

The government plays a central role in regulating the production and supply of goods and services by firms in their different market structure with the focus of ensuring efficient allocation of resources. Taking the case of monopoly firms, the government gives them incentives through different methods to retain their status quo. However, the government still uses pricing policy to influence the monopoly firms’ behavior in terms of output to the consumers. The state set up various institutions that oversee the various economic activities in the country so that the working of the economy is consistent with the manpower and resources potential available. Through an improved partnership with the private sector, the state undertakes research and development on various socio-economic variables, and the resultant findings are used to establish feasible economic policies that boost the efficiency of the economy. This includes partnering to develop infrastructure which is an incentive to improve the performance of the market and economy at large.

The state is mandated to form bilateral and multilateral trade relations with other countries so that there is labor mobility, exchange of technology,y, and other input factors. This promotes the performance of the economy through increased input factor availability and expanded markets for the final products. It is important that the country institute laws that protect local firms from the stiff competition from established multinationals by giving them incentives like tax holidays, subsidies, and infrastructure as this will boost the level of production and performance of the economy. The state needs to include other public welfare issues as part of the market operation processes.

Regarding the emerging and ongoing debate on environmental care and climate change, the firms need to be held accountable for the level of pollution which is a negative externality to the general public (Tanzi 105-8). The state therefore needs to tighten rules that ensure remedial measures against the negative externalities that explain the market failure. On the other hand, the government needs to encourage firms to engage more in corporate social responsibility which indirectly boosts poverty reduction and increases the distribution of income hence expanding consumer size. The state calls shorts on the level of security that ensures economic activities go on interrupted and the productivity circle is continuous. Security promotes foreign investments and local confidence in the business ventures hence critical for better market performance. Read More