8) Interventionalist supply side policies Flashcards
interventionalist vs fiscal policy
Interventionist policies are often hard to distinguish from fiscal policy. They involve the government making a commitment of finances, resources and time, to a particular area of the economy. The main difference between these commitments and similar commitments we studied under fiscal policy is the target or objective of the government’s decision. With SSP, the recipient of support is on the supply side- i.e. it will be a business or a particular industry/market. The objective will be mainly long term. With fiscal policy, the objective is usually to increase AD, often in the short-term. Interventionist SSPs aim to increase AS, mainly LRAS.
what are subsidies, examples
A subsidy is the opposite of a tax- the government pays money to a business or organisation in order to encourage particular behaviour from them.
Subsidies are a slight exception in SSPs- they are often short-term. The government hopes that subsidies will not be needed in the long-term.
Many industries receive subsidies in the UK. For example:
Public Transport
Green Energy
Agriculture
examples of infrastructure
Infrastructure is the manmade environment. Best examples of infrastructure include:
Roads/Railways/Airports/Ports/Bridges/Tunnels/Broadband cables/Power-stations/Wind and Solar farms. It could be argued that hospitals/schools/army camps etc are also part of our infrastructure but the communications examples are best.
why is investment in infrastructure good
Making infrastructure better allows for businesses to conduct their business more quickly, more efficiently and ultimately at a lower cost. This makes businesses more profitable and attracts more businesses to set up in the economy
why is investment in education good
For education: also read qualifications e.g. apprenticeships. Government spending more money on this area should bring long-terms benefits to the economy. More educated, skilled and better- trained workers should bring big increases in productivity. A better worker should make more goods, provide more service in a given time period than an inferior one. Obviously, there should alss be improvements in the quality of the good or service. Higher productivity will increase output of firms- if this happens across the economy then it results in RGDP increasing significantly.
investment in R+D
R&D stands for research and development. This is vital for progressive businesses as it leads to the invention and innovation of new products, development of better technologies etc.
R&D is science based. Its very expensive for firms to and the returns are often very long term- firms make much smaller profits in the short to medium term if they spend loads on R&D. Even in the long-term, R&D often ends in failure.
In order to encourage R&D in the economy governments have 2 key interventionist options: i) subsidise firms to do it ii) spend money directly themselves. The former is more common, though organisations like GCHQ, the NHS and the Armed Forces may well be supported directly by the government to fund their own R&D.
examples of R+D
Health- e.g. cure for cancer, new vaccines
Defence- e.g. more sophisticated weapons, forces equipment
Technology- e.g the Silicon Valley area in California where Apple and many other tech giants operate- can we create a British equivalent? The Prime Minister wants the UK to be at the forefront of future developments in AI (see next slide)
Motor Industry- companies like VW/Toyota etc spend billions on R&D to try gaining a competitive advantage over their rivals (think hydrogen fuelled cars etc).
Successful R&D will make businesses and the economy more productive- more can be reduced from the same or fewer resources. This will shift LRAS to the right.
