Ways in which the Government Intervenes in the Economy
Introduction
Governments worldwide today have more interest in market intervention than in previous years. In the United Kingdom, the government has decided to help minimize the influence of the economic downturn and financial crisis on consumers, companies, and employees to assist in economic recovery and secure future economic growth (Dicken, 2015). Generally, today, markets and governments are highly linked. Government enacts institutional and legal frameworks that the market operates. Government raises taxes depending on the business practices and consumers’ activities in the market. Also, the government has a considerable interest in the outcomes of the market and wants to encourage the market to offer specific products and services for economic benefits. Thus, this essay highlights how the government intervenes in the country’s economy, such as privatization, Deregulation of markets, Creating Laws, Regulations, and policies, direct participation, and through subsidies and taxation.
Privatization
Privatization implies the transfer of different assets to the private sector from the public sector. Privatization is one way in which the government can intervene in the economy. In the United Kingdom, privatization has resulted in a sizable decrease in the size of the public sector. According to (OECD, 2020), in the UK, state-owned enterprises provide at most 2% of the GDP and less than 1.5% of the total employment. Privatization has become a fundamental micro-shift in the economic transition in Europe. In the past few years, UK’s economic privatization has provided a way for new nationalization waves, such as building societies, profile banks, and transport services (Worthington, Britton, and Thompson, 2018, p.419-422). Some examples of significant privatization in the UK today include British Airways, British Gas, British Rail, British Steel Corporation, Electricity Supply Industry, and Rolls Royce. Typically, the government intervention in privatizing some of the public assets in the free market is essential for effecting the management of businesses, hence, improving the economic welfare.
Deregulation of Markets
The government also intervenes in the economy through the Deregulation of markets. Market Deregulation entails opening up the markets and encouraging new suppliers to enter. In the UK, examples of Deregulation of markets include opening up markets for household energy suppliers, bus services, financial Deregulation, and household liberalization impacting building societies and banks. The European Single market expansion has precipitated the process of market liberation (Worthington, Britton, and Thompson, 2018, p.315-318). The single markets boost four freedoms: free labor movement, financial capital, products, and services. In the long run, people expect to see microeconomic impacts in the EU single market working its way through different British markets. Also, the general expectation that the public has is that through this government intervention, the competitive pressures for business organizations working in the European Union will intensify. In short, the market liberation brought through government intervention brings down prices for customers, improves market supply, and encourages competition and investment, leading to economic efficiency.
Creating Laws, Regulations, and Policies
Government plays a critical role in establishing fundamental policies and frameworks within which open competitive, and fair markets can exist. At the elementary stage of its intervention, the government has to create the rule of law and establish policies and regulations, entailing property rights, ensuring that business contracts are upheld, and building the required institution to function in the markets appropriately. Typically, the government intervenes by creating a consumer law framework and a competition that directs how individual businesses and organizations should conduct themselves during their operations in the market. Competition laws prevent organizations from involving in anti-competitive agreements and ensure that the dominant companies cannot use their position to distort market results (Worthington, Britton, and Thompson, 2018, p.427-435). For example, the government can restrict the entry of new organizations and charge higher competitive prices. The policy also restricts mergers that may result in a robust lessening of competition. In short, through laws, regulations, and policies, the government intervenes by protecting consumers from scams, Freud, and abusive activities in the market (Dicken, 2015).
Direct Participation
Government can intervene through direct participation in the market. The are two main ways through which the government can intervene and participate in the economy. Government can intervene by offering public products and services that are unlikely to be provided by the free market at a considerable level and also to profit from the public sector assets’ commercial value (Dicken, 2015; Gössling, Scott, and Hall, 2020). The government usually buys services and products from different private sectors. The approximation of public procurement’s total size in the UK ranges from 11% to 18% of GDP (OECD, 2020). Government purchases from the private sector to give public services and continue its functions. For example, it provides IT items, offices, and research services. In essence, different governments utilize public-private partnerships to procure multiple assets. Rather than borrowing to pay for asset construction, the government contracts with an organization that pays for the assets. In exchange, the government shows commitment to pay the company to cover the cost (Dicken, 2015).
Subsidies and Taxation
Government intervenes in the economy by imposing taxes and providing subsidies. The government utilizes subsidies and taxes to influence the behavior and incentives of private organizations. There are different reasons why government employs subsidies and taxes in this manner. First, when the government needs to address the market failures, they can decide to tax businesses that cause negative externalities like pollution. An example is subsidizing education, lo-carbon, innovation, and environmentally friendly products. Secondly, taxation and subsidies are applied when the government wants to solve the cyclical difficulties in the market (Worthington, Britton, and Thompson, 2018, p.419-422). Government can utilize grants to support organizations in financial trouble, especially when the collapse of these companies would bring massive consequences. For instance, during COVID-19, the UK government recently supported UK banks and organizations at risk of collapsing due to financial issues.
Conclusion
The recent growth in the economic downturn and financial markets has highlighted the government’s new role in the markets. The public’s trust in the market’s ability to provide stability and efficiency has primarily been challenged. Therefore, there is a need for a government to intervene through privatization, Deregulation of markets, Creating Laws, Regulations, and policies, direct participation, and through subsidies and taxation to provide good services, protection, and opportunities for efficient operation in the market. Even in the markets seen as natural monopolies, government intervention has made them improve quality, develop new and cheap products for consumers, and foster innovation. Through intervention, the government gives critical facilities and allows private organizations to compete for operations in the free market within the regulatory framework.
Reference list
Dicken, P. (2015). Global shift : mapping the changing contours of the world economy. 7th ed. Los Angeles (California): Sage.
Gössling, S., Scott, D. and Hall, C.M. (2020). Pandemics, tourism, and global change: a rapid assessment of COVID-19. Journal of Sustainable Tourism, [online] 29(1), pp.1–20. Available at: https://www.tandfonline.com/doi/full/10.1080/09669582.2020.1758708.
OECD (2020). OECD Economic Surveys: United Kingdom 2020. OECD Publishing.
Worthington, I., Britton , C. and Thompson, E. (2018). The Business Environment: A Global Perspective . 8th ed. Pearson.
Discuss the Key aspects of the External Environment that Have an Impact on Business.
Introduction
Business environments frequently change, and they need consideration by the business owners when doing operations and planning. Organizational executives and managers are responsible for examining external issues and how their concerns can influence business decisions. According to (the World Bank Group, 2020), a business’s external environment, also understood as the macro-environment, consists of factors outside an organization’s reach that can affect the company’s operations. Usually, external factors influence a business’s choices because they identify risks and opportunities. Therefore, an organization must understand and monitor any external environmental factors that can affect how a company operates and develop approaches for overcoming the issues. This article discusses some critical aspects of the external environment that impact businesses, such as political, economic, social, cultural and demographic, technological, legal, ethical, and ecological.
Political
The political environment is one aspect of the external environment that businesses must be aware of. Some of the considerations in the political environment are challenges like government instability, tight tax policies, trade restrictions, regulation of competitions, law discrimination, and safety and data protection (Worthington, Britton and Thompson, 2018, p.64-80). Generally, most political aspects emanate from the government, and businesses may have no say or do anything to regulate. Remarkably, political actors primarily influence the ability of a business organization to maintain and serve consumers while benefiting through profits. For instance, in recent years, the high organizational tax era in the United Kingdom resulted in organizations such as Cadbury moving sections of their businesses to other locations with low taxes. (OECD, 2020) indicates that Cadbury established a European HQ in Swaziland a few years ago.
Technological
The technological landscape has realized robust transformation in recent years; hence, understanding technological advancement is critical for the business. Understanding technology in business entails various elements, including the rate of technological change, the level of technology in a specific business industry, communication infrastructure, access to the latest technology, and internet infrastructure (Worthington, Britton and Thompson, 2018, p.64-84). For the organizations like Amazon, technological advancement and innovations over the last ten years have resulted in different new product and service opportunities. For instance, according to (Causo et al., 2020), Sparrow is one of the latest Amazon robotic systems intelligence essential in streamlining the fulfillment procedure by moving individual products before they are packed. Furthermore, the fundamental area in businesses that have benefited from technology is manufacturing, where various manufacturing and production lines are becoming automated.
Legal Aspect
The legal aspect of the external environment is incredibly essential. The legal aspect is critical regarding its ability to leverage any chance. Businesses must keep up with the pace to remain within the law. Some legal areas include laws of discrimination, anti-trust laws, data protection and safety laws, consumer protection laws, employment, and copyright laws (Worthington, Britton and Thompson, 2018, p.64-84). However, Trademarks are an area of most interest in most businesses, where organizations ‘own’ their branding aspects. On many occasions, the UK courts have rejected other organizations’ applications to register a specific Trademark which have already been utilized with another business. For instance, the application that was brought against Cadbury by Nestle concerning the Shade of Purple as a UK chocolate Trademark had the European Union Court of Justice affirmed that only one color can be registered as a Trademark (OECD, 2020).
Economic
One of the external environmental aspects that play a crucial role in several businesses, governments, and citizens is the aspect of economics. Different economic factors, including demand and supply, unemployment, rates of exchange, inflation, and wages, greatly influence how organizations make profits and improve efficiency and effectiveness (Worthington, Britton and Thompson, 2018, p.64-84). Businesses that study these economic factors have the potential to predict the customer and plan their marketing energy to boost their performance. For instance, currently, the United Kingdom’s economy is approximately 5.5 percent poorer than it would be if it remained in the EU (Dicken, 2015). Typically, exports and imports have significantly been affected, and so is investment. According to (Dicken, 2015), the Centre for European Reform research shows that had the UK remained in the EU; tax revenues would have been approximately £40 billion more than it is currently.
Social, Cultural, and Demographic
Contemporary businesses have different experiences for various individuals and classes in the Social, Cultural, and Demographic environment. There is no doubt that the current society is changing continually; there is a rapid population increase, a change in human settlements, a shift in the use of social media platforms like Twitter by the youth, and a transformation in the dressing style. Therefore, businesses must study and understand these changes and adjust to customer needs (Worthington, Britton and Thompson, 2018, p.64-84). For instance, an increase in population may require firms to increase production. According to (OECD, 2020), the world population has been growing, and it is approximated that by 2030, the global population will hit 8.5 billion, and by 2050, it will be 9.7 billion. Based on the study, the number of people in the UK alone will rise above 69 million by 2029. This indicates that businesses have to change their production rates.
Ethical and Ecological
The ecological factors affecting businesses are linked to activities and procedures required to protect the natural environment and equally keep efficiency in the organization. Ecology takes the form of corporate environmentalism, including all the activities boosting sustainability, getting customer appreciation of eco-friendly commodities, and building the image of a responsible organization (Worthington, Britton and Thompson, 2018, p.64-84). In the UK today, some of the most pressing local business concern is whether. More rainfall interferes with business activities since people find moving goods from place to place hard.
Ethical aspects also affect businesses since every person has different beliefs and concepts of morality and ethics. Therefore, some organizations need help to balance the personal lives of their employees and the company’s expectations. For instance, several times, companies worldwide have experienced challenges where personal social media accounts like Facebook portray activities differently from organizations. On the other hand, the company requires employees to engage in activities that protect the business’s image.
Conclusion
The external business environment keeps changing in all categories. Therefore, businesses and organizations must consider external environmental aspects while executing and planning their operations. A company manager must analyze and understand the different external factors and how such factors can affect the organization’s activities and decisions. Every external environmental aspect, political, economic, legal, technological, ethical and ecological, and Social, Cultural and Demographic aspects, can affect the operation of the business. Typically, the consistent shifts in the external environment of a business are way beyond the control and management of a business. The only thing that a business can do is to track the changes and reduce their effects.
Reference list
Causo, A., Durham, J., Hauser, K., Kei Okada, (College Teacher, Rodriguez, A. and SpringerLink (Online Service (2020). Advances on Robotic Item Picking : Applications in Warehousing & E-Commerce Fulfillment. Cham: Springer International Publishing, Imprint Springer.
Dicken, P. (2015). Global shift : mapping the changing contours of the world economy. 7th ed. Los Angeles (California): Sage.
OECD (2020). OECD Economic Surveys: United Kingdom 2020. OECD Publishing.
World Bank Group (2020). Doing Business 2020: Comparing Business Regulation in 190 Economies. Doing Business. [online] doi https://doi.org/10.1596/978-1-4648-1440-2.
Worthington, I., Britton , C. and Thompson, E. (2018). The Business Environment: A Global Perspective . 8th ed. Pearson.
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