To what extent should a government interfere in the economic system? There are two extremes in the spectrum. On the one hand a government can intervene minimally, allowing the forces of demand and supply and the price mechanism to determine what goods and services are to be produced. This is called a laissez-faire (or leave it alone) policy. The argument runs that people will vote with their money for the sorts of things they want. If they want to read a particular newspaper, they will buy it, and the newspaper will stay in business. If they do not like the newspaper, they will not buy it, and the newspaper will go out of business. The same applies to television sets and motor cars, holidays in Spain and Chinese take-aways.
At the other end of the spectrum is the centrally planned economy in which the government makes all the major decisions such as what is going to be produced, who is going to produce it, where it is going to be produced, and who is going to benefit from it when it is produced.
Most governments operate somewhere between these two extremes. In capitalist countries governments allow the business world get on with the jobs which satisfy the needs of the people. If they make profits, we will tax these profits and use the proceeds to support the Welfare State (which offers free education, subsidized health care and pensions) and defend ourselves against external aggression. There is, however, general agreement that some economic activities should be controlled by the state, which explains our nationalized industries.
In Britain governments concentrates their interest on controlling inflation, minimizing unemployment and encouraging economic growth. It is often the case that a policy which would be good for us in the short run would be against our interests in the long run. The point might be made in connection with a government's policy towards energy. In the short run we might benefit from a rapid disposal of our North Sea oil and gas supplies, but what happens when these supplies run out? Should the government intervene in these circumstances, or allow the multinational oil companies to make the crucial decisions?
Another problem facing a government in modern Britain is dealing with regional development. Inevitably, at the present time, as Britain draws closer to Europe economically, the south east of the country is prospering while the north goes into relative decline. Should the government let this happen or should it try to reverse the flow of people and jobs to the north. It is not an easy decision for a government to make because it seems wrong to let parts of the country decline while others prosper.
Whatever decisions are made by a government they are bound to affect the business community. If taxes are increased on beer, the brewers' profits will go down and jobs will be lost. If interest rates are lowered, businesses will borrow more from the banks, jobs will be created, but prices might rise and that means inflation. Whatever action a government takes it will have repercussions on the business community, which is why the captains of industry are so watchful and wary of their political masters.
____________________________________ ____________________________________
____________________________________ ____________________________________
____________________________________ ____________________________________
____________________________________ ____________________________________
____________________________________ ____________________________________
