This article discusses three ways government policies can improve an economy.
Improve Efficiency of Markets, Reduce Red Tape, Promote Investment
- Government policy can increase the efficiency of markets by promoting competition and trade between different economic actors. It does this by increasing transparency in markets through publicizing information on business practices and forbidding anti-competitive behavior that restricts consumer choice or hampers healthy competition between businesses. This is related to the “free market” philosophy because it allows entrepreneurs to more freely enter existing industries with new products without interference from existing firms with entrenched interests in maintaining their control over a market.
- According to Peter DeCaprio promoting trade with other countries also increases efficiency as it gives domestic companies access to cheaper resources not found locally, which reduces barriers to entry for potential new businesses.
- In addition, because competition between companies reduces profit margins, it can also reduce costs for consumers while incentivizing companies to be more efficient in the use of resources and other factors. In other words, a competitive market rewards firms that produce goods with less waste, use raw materials more efficiently, etc. Government policy has an indirect effect on efficiency because business practices are determined by the interaction of different actors in a market rather than government decree. However, government policies can encourage or discourage specific behavior from companies via taxes and subsidies which influence how profitable it is for them to engage in a certain activity. For example, a tax on carbon emissions discourages companies from polluting because doing so becomes cost prohibitive due to the tax. Governments can also reduce inefficiency by reducing “red tape”, or unnecessary, burdensome regulations on businesses. This includes eliminating laws that may have been well intentioned but are obsolete or no longer necessary. Reducing red tape increases efficiency by reducing the time and money companies spend complying with government rules and regulations instead of focusing on productive economic activity that adds value to society
- Promoting investment is another way governments can increase economic growth and improve labor productivity because it means more people will be working, which increases the amount of goods and services produced and consumed (the GDP). Investment is encouraged when there is a positive rate of return; i.e., when an entrepreneur invests $100,000 into their business it must grow sufficiently for them to make at least $10,000 in return. A positive rate of return is made possible when there are enough customers to buy the entrepreneur’s product at a profitable price, which increases demand for their goods and services. This occurs when economic growth is high due to increased productivity via efficiency gains or population growth, both of which require investment.
- Promoting investment usually involves either directly subsidizing businesses that reinvest profits into capital (like machinery or new hires) or indirectly increasing savings rates within the economy so that more money is saved rather than consumed. This allows individuals to save their earned income in banks where it can be lent out by banks as additional investments into business ventures with potential for productive returns.
Government policies can improve an economy by increasing employment, stimulating consumer spending and investment, or boosting morale.
Government policies that may increase employment include:
- lowering taxes to make more jobs available for workers
- providing better education and vocational training programs so workers have the skills most in demand by employers
- expanding infrastructure projects such as road construction and repair to provide more jobs
- making it easier for people to start their own businesses with less red tape and regulation Government policies that may stimulate consumer spending include:
- providing tax incentives or subsidies to businesses that offer lower prices on goods or services considered basic necessities (e.g., food, electricity)
- giving assistance to low income families so they can afford to buy items they need
- increasing the minimum wage so more families can purchase consumer goods Government policies that may stimulate investment include:
- offering tax benefits or other incentives to encourage businesses to invest in new equipment or buildings
- Providing subsidies for companies that shift production from overseas back into the domestic economy, thus upping demand for local goods and services.
- Other government policies aim at boosting morale by encouraging citizens to feel good about themselves and their nation as a whole. These policies include:
- increasing funding for programs that help low income communities or victims of crime or natural disasters
- Taking steps to protect employees’ rights (to unionize, vote on whether they want their workplace union, etc.)
- making more of the government workforce diverse (to reflect the population at large)
- restricting credit or making it harder to borrow money, which may encourage people to spend less and save more
- Providing more support for high school and college students so they feel confident in their ability to complete higher education.
Conclusion:
Governments can improve economic growth by promoting investment, stimulating consumer spending and investment, or boosting morale.The article is about how some third world countries are not developing because of the corrupt governments. The economy is required for development but some people monopolize it to live luxuriously rather than help develop their own country says Peter DeCaprio. The government has its role in helping the economy grow through policy changes that increase employment, spending, and investment for all citizens.