Role of Government in a Market Economy

                                            Role of Government in a Market Economy

 In his article titled, “Privatization, liberalization and all that—revisited,” Adel Beshai states that there exist both traditional and new roles for the government in a market economy. The traditional roles of government are those historical roles that the government used to play and is still playing while the new roles are roles emerging from changes within the economy.  This article is going to provide a discussion on the role played by government in a market economy based on information provided by three articles namely, “Planet Plutocrat,” “A giant problem,” and, “Privatization, liberalization and all that—revisited.”

Adel Beshai indicates that one key role of the government is the provision of national defense.  By providing national defense, the government ensures that the country’s economic environment is conducive for businesses to operate in. This, in turn, promotes economic growth and thus spurs competition within the market.  Adel also indicates that another traditional role for the government in a market economy is the provision of quasi-public goods or public goods.  A significant percentage of goods and services in the market are produced by the private sector, this types of goods are only available to individuals who can afford them.

 However, there are certain categories of goods that are too sensitive to be produced by private institutions, and thus they must be produced by the government/public sector.  This types of goods are paid for through taxes and are thus available to everyone regardless of whether or not an individual is able to afford it or not.  The government produced goods are characterized by non-exclusion and shared consumption. Non-exclusion is used to means that in a public good it is difficult to exclude non payers from utilizing a public good or service once it has been produced. Shared consumption implies that the utilization of a service or a good or a service by one person does not reduce the amount of that good or service that is available to other. An example of public goods includes road, education, security, etc.

 He also states that another role of the government is to provide a legal structure for the economy. This is achieved through government laws and policies.  The provision of a legal, economic structures is regarded as the most important role of any government because without it the economy may collapse. For the government to effectively perform this duty, it needs to provide the economy with legislation's, regulations, and methodologies of ensuring product quality.  The government should also enforce contracts and define ownership writes.  Some examples of how the U.S government can fulfill these tasks are seen in institutions like the FDA, SEC and the FED.

 In a market economy, the government is also expected to protect property rights.  Property rights is a term that is utilized to refer to the legal ownership of a particular resource. It includes the right to use, sell and own that resource.  Property rights are important for the effective transaction in a market economy, and without their protection, the economy may collapse as the transaction may be invalid. 

The exchange of goods from one individual to the other entails the exchange of property rights and once ownership of lobar is his property right which provides him or her with the right to receive compensation for his/her services.  In the event that the government does not protect property rights and ownership, organizations would not invest in the creation of factories and the production of goods or services because they would not be able to keep the compensation that they earn from the sale of their goods or services.

            Adel also indicates that another role of the government is to protect against market failures. Externalities are those instances where a market transaction impacts another person who did not take part in the transaction.  It is an example of a market failure.  Markets are only regarded have succeeded when they bring together an individual who is willing to purchase a particular good or service and an individual who is willing to sell that particular good or service.  The transaction between the two parties should be mutually beneficial to both the parties.

            The article titled, "A giant problem," the author discusses the threat of having no competition in the market place. This article stresses the importance of the government's role in promoting competition within the market.  Competition is regarded as an efficient and optimal market mechanism that motivates resource suppliers and producers to respond to consumer sovereignty and price signals. The government is thus expected to fight non-competitive behavior and monopoly powers

The article indicates that emerging monopolies are squashing their competitors and utilizing inappropriate management strategies to stay ahead of their completion. He indicates that even those this practice is not easy to solve, failure to solve it will be detrimental to everyone.  Thus the government needs to play its role and promote competition. He indicates that even though the success of today's superstar companies should be celebrated, measures should be taken to promote competition within the marketplace A Giant Problems.. 

            The article titled, “Planet Plutocrat,” discusses how the problem of poor income distribution in most countries is leading to the success of only a minority of the population at the expense of a majority of the population.  This article stresses the need for government to play its role of income redistribution in a market economy.  Income distribution is a term used to describe how the total income earned in an economy is divided between members of that economy. Equal income distribution implies that everyone within the economy receives the same thing.

However, obtaining an equal income distribution level is practically impossible, but the government should endeavor to promote functional income distribution.  Functional income distribution is how income is distributed among wages, rents, profits and interests. In the U.S for example, wages take approximately three-fourths of the total income.  The author indicates how in some countries, tycoons/ big businesses are colluding with government officials to take a larger percentage of the economy’s income (pie) than they are supposed to get.  The article also touches on the importance of competition in a marketplace.

 It indicates that in a market with perfect completion, rent would not exist and thus organizations that are exploiting the rent to succeed regardless of the harm it causes to other stakeholders in the market will not be able to do this. Thus the government is supposed to maintain and encourage competition by setting up laws that are aimed at regulating the monopolies that are already established in the market. This will in turn serve to spur economic growth as increased competition leads to increased innovation.