Chapter 24- the role of government Flashcards
Local government
A government organization with the authority to administer a range of policies within an area of the country
Natural monopoly
Ab industry where a single firm can produce at a lower average cost than 2 or more firms because of the existence of significant economies of scale
Strategic Industries
Industries that are important for the economic development and safety of a country
National Champions
Industries that are or have the potential to be world leaders
Factors that influence the role of government
How much the government intervenes in mixed economies differs according to both the perceived extent of market failure and how effective government policy measures are
The governments influence on the local economy
Some local areas are very dependant on particular industries and some of these might be state owned enterprises. In this case governments will make decisions such as how much to produce and the wages to pay. The private sector industries may be subsidized by the government to prevent rising unemployment in relatively poor areas. Some decisions on economic policies are taken at the local level instead of the national level and the extent to which these decisions are made differ from country to country. Local governments may provide a range of goods and services which include refuse collection, libraries, housing and local roads. These are financed by the local government imposing taxes and charges and receiving grants from the national government.
Functions of government at local and national levels
It is an owner of industries and assets such as schools and hospitals, a producer, a regulator, a collector of taxes and director of the level of economic activity.
The government as a producer
It may produce products it believes are of key importance, Those that are produced by a natural monopoly, those that it believes are essential and hence should be available to all and those that are not produced or are under-produced by the private sector.
Countries like to ensure that their key industries such as strategic industries or national champions are doing well. To do this countries may make the firms state-owned, stop foreign firms from merging or taking over them, make banks give them favored loans. This also helps prevent consumer exploitation by private sector firms. Additionally producing at a low average cost would be required to prevent loss at such a high output.
lastly, government may also produce essential products, such as housing, on grounds of equity and merit goods.
Public Sector Contracts and Partnerships between Public and Private Sectors
Private sector firms provide a range of products and services for the public sector. Eg: private sector road building firms construct and maintain roads for the government in many countries. Recently more and more countries have governments forming contracts with private sector firms. One form of such contract is when a private sector firm initially provides the finance for a state project and then builds and maintains it for a number of years. The government rents is and operates it, buying is back over time. In some other cases, public and private sectors provide part of a service. Eg: private sector firms may run train operating firms whilst the government builds and trains the infrastructure.
The Government as an Employer
It employs workers and managers to run its state owned enterprises and by doing so it enables them to achieve some of its aims for the economy. To reduce unemployment they can employ more workers, to control rises in price they can limit wage rises of its own workers and the prices charged by its enterprises. It can also set an example in employment practice by providing workers with good quality training, preventing discrimination and insuring good pensions to its workers.
Role of Government in an International Level
Some governments promote free international trade which allows firms to import and export what they want. Other governments place restrictions on what can be purchased and sold to and from other countries. Governments policies also vary towards foreign MNCs wanting setting up in their country. Some seek to attract them as they believe they will increase jobs and output produced in the country while others may seek to stop them as they believe that foreign MNCs would drive domestic firms out of business.
Some governments are also members of Trade Blocs such as the EU that promote trade between the member nations and may restrict trade with non-members. Governments may also be members of international organizations such as the WTO or World Trade Organization. It deals with global rules of trade between member nations and its main aim is to promote free international trade.
Trade Bloc
a regional group of countries that remove trade restrictions between themselves
