8. Supply Side Policies Flashcards
What are supply side policies
Supply-side policies are a set of economic
measures and strategies that aim to improve the long-run productive capacity and efficiency of an economy.
Main aims of supply side policies
Improve incentives to work and invest in people’s skills (human capital)
Increase labour and capital productivity
Increase occupational and geographical mobility of labour
Increase capital investment and research and development spending
Promote contestability and stimulate innovation (dynamic efficiency)
Encourage start-ups and expansion of new businesses especially those
with significant export potential / promote economic diversification
Improve price & non-price competitiveness in global markets
Improve the trend rate of sustainable growth of real GDP to help
support improved living standards & better regional economic balance
Main Uk suply side weaknesses
Low r&d spending
low investment
skills shortages
economic inactivity
low labour mobility
ageing infrastructure
regional economic imbalances
productivity gap
What is trend growth
the long term non-inflationary increase in GDP caused by an increase in a countrys productive capacity. The trend rate of economic growth is the average sustainable rate of economic growth over time.
Examples of recent UK supply side policies
Royal mail 2016 privatisation
Tax free child care
Deregulation of energy markets
Creation of new 8 free ports and regional enterprise zones
Market based supply side polcies
tax cuts
free trade and capital mobility across borders
cutting red tape- less time spent on legislation
privitisation liberalisation
flexible labour markets
deregulation of markets
Supply side policies to improve incentives
Tax cuts - provides people with more disposable income which incentives work
Deregulation - lowers complience costs so firms can operate more easily
Trade liberalisation - reducing trade barriers stimulates international trade
Intelectual property protection - encourages innovation and entrepreneurship
Free market approaches to the supply side
these policies emphasise minimal gov’t intervention while promoting entrepreneurship and competition
Supply-side policies to improve competition
Authorities can break up monopolies or prevent mergers that might create dominance.
Deregulation - lower barriers to entry for competition
Open data
Supply side policies to reform labour markets
deregulation - easier for employer to take action
reducing trade union power - more flexible labour negotiations
immigration reforms - creates a more flexible immigration system
Gender & Diversity inclusion.
Migration & Labour supply to key sectors
Many industries are dependant on workers form overseas including: agriculture, tourism, health, construction.
Labour market dynamics can change over time
Major skill shortages in the UK.
Criticism of market based supply side policies
income inequality - wider wealth gap.
Reduced social safety net
Underinvestment in public goods
Market failures & financial instabilities
Interventionist supply side policies
Intervention to reduce poverty
Provision of key public and merit goods
Funding for early stage research
State ownership of key businesses
Policies to tackle labour market failures
Building more social housing
Criticism of inteventionist supply side policies
Bureaucracy and inefficiency - gov’t intervention can lead to economic processes slowing down
Crowding out private sector - may crowd out private investment and entrepreneurship
Reduced incentive - high taxes reduce incentive to work
Ineffective redistribution - high takes can lead to capital flight and tax evasion
Costly and inefficient state enterprises - state owned will be less cost effective.
Difference between policy and incentives
Policies - gov’ts laws
Incentive - you encourage firms to do something to follow the policies.
