Supply-Side policies: interventionist Flashcards
Interventionist SSPs
Interventionists SSPs: interventionists believe the government can directly
intervene to improve the long-term supply-side of the economy.
Types of interventionist SSPs
Investment in infrastructure: government investment in capital such as the
transport, energy & communication networks in the economy, building more social
housing, which can also help private sector businesses.
Interventions to reduce poverty: enables those on very low incomes to find work
and contribute to the economy more fully; opportunities for more
entrepreneurship and improved labour productivity if skills are built up.
Provision of key public and positive externality goods: government can invest in
human capital by providing healthcare and education/training; spending on public
goods such as defence and internet provision can improve security and
communication encouraging more investment and FDI.
Investment in ideas: the government can help fund R&D projects that lead to
more innovation, dynamic efficiency and competitiveness at home and abroad.
State ownership of key businesses: nationalisation of, for example, water, energy
& transport industries can help an economy develop and, if provided
effectively, can encourage private sector businesses to invest and grow.
Policies to tackle labour market failure: the government can provide more
education/training to increase occupational mobility, use regional policy to
improve geographical mobility & set up an immigration system that ensures skills
gaps and labour shortages are not a problem.
Ideas for evaluation of market-based & interventionist SSPs
Time lags: there is often a significant short-term cost (opportunity cost) while the
benefits come through in the long term, especially for interventionist SSPs.
Income distribution: interventionist SSPs often reduce inequality, while market-based
SSPs may increase it; there may be winners and losers depending on which economic
agents’ perspectives are being considered.
Potential for government failure: unintended consequences as government lacks
perfect information.
Problems with interventionist SSPs
Bureaucracy and inefficiency: government intervention can lead to
bureaucratic inefficiencies, which may slow down economic processes and
result in the misallocation of resources.
Crowding out private sector: interventions, e.g. those involving public
ownership/control of industries, may crowd out private investment and
entrepreneurship.
Reduced incentives: high taxation and extensive regulation can reduce
individuals’ and businesses’ incentives to work, invest, and innovate.
Ineffective redistribution: high levels of taxation can lead to capital flight and
tax evasion, undermining the intended redistribution.
Costly and inefficient state enterprises: state-owned enterprises can become
inefficient and financially burdensome, as they may not operate with the
same degree of cost-efficiency and innovation as private companies.
Examples of market-based & interventionist SSPs
- Privatisation – Royal Mail in 2016 (Channel 4 has been proposed)
- Deregulation of the UK retail energy market
- Creation of new 8 Free Ports and Regional Enterprise Zones
- Tax free childcare: £500 every 3 months (up to £2,000 a year) for each child
- Creating 20 Institutes of Technology, roll-out of T Levels, new National Skills Fund
- Unemployment: Kickstart scheme for long term unemployed, Apprenticeship
Levy on Firms - Reforms to the UK immigration system (moving to a points-based system)
- Super-deduction tax incentive for business capital investment (125% tax
allowance) - Major infrastructure projects (+ creating the new UK Infrastructure Bank)
- Lower Thames Crossing, London Super-Sewer
- Funding for rollout of electric vehicle charging infrastructure
- UK Gigabit Programme and the Shared Rural Network.
- Relaxation of planning for renewables (off-shore wind) / UK Emissions Trading
Scheme
