A look at the economy and government relations

The relationship between government and business has always been a complex and often antagonistic one. Sometimes the lines between the economy generated by big business and the economy fostered by government become so blurred it is hard to see where the public good lies. To understand how politics and business shape the world we need to look at three political economy theories.

The Free Market

The free-market political theory can be described as an idea that proposes a hands-off form of capitalism where there is little or no formal ties between the government and business. It assumes that the public good aspect of a free market political economy is synonymous with economic efficiency and the improvement in living standards. It argues that when the buyer and seller decisions are undisturbed we get better, cheaper products for more people. Cheap, high-quality goods translates into better standards of living.

Socialism

Socialism proposes economic equality for all. Socialism attempts to keep the exploitative power of business over the government and its people. Socialists see the structure of a capitalist economy as one that requires those who own capital to exploit the working class for profit. According to socialism a government that is for the people acts in the best interest of the people by taking control of business and the economy on behalf of the people.

The Keynes approach

The economist, John Maynard Keynes argued that it would be inefficient for governments to control business and that control like that would lower the overall standard of living. Keynes also argued that a free market approach creates inequalities and contradictions that will lead to unstable socioeconomic situations. His approach advocates for governments to push business into social desired situations. For instance, government can use monetary policies to increase the supply of credit, create incentives for investments and stimulate economic growth.

 

A lot of Keynes’ ideas were used to deal with the great depression in the 1930s. Government created infrastructure projects in order to promote new growth and stabilize the economy when free market systematic ideals failed.

The current situation

There are two schools of thought on the subject of the World Economy Government Relations. One school argues that government interference in wealth creation hinders commerce and lowers the standard of living. The other paints business as being a predator that could cause mayhem by exploiting workers and consumers if the government does not control it.

When the subprime mortgage market collapsed in 2007/8 and the banking sector had to be rescued, it created a sense of anger towards the elite and caused much frustration it led to a drop in tax revenues and a rise in budget deficits forcing the government to be a little less nice to the wealthy. The government introduced strict regulations for banks and tried to crack down on tax dodgers and tax havens. That is all and good, but there is some danger in antagonizing big business that certain governments are weary off.

Governments are realising that they need business to drive economic growth, create jobs and ensure that they can pay their way in the world, on the other hand, for businesses to do their part they need governments to provide the legal systems, the human capital, the infrastructure and the security to enable companies to operate and get goods to market. Companies are obliged to engage with government on different levels and governments are expected to deal with social ills and protect people whilst ensuring that the environment is ideal for business to thrive. The scales do not balance each other out, but then no one ever expected the world to be perfect, it seems we have to contend ourselves with fairness.