Problem

Excessive government intervention in the private sector


Experimental visualization of narrower problems
Other Names:
Government interference in the national economy
Proliferation of government regulations
Excessive government participation in national economies
Nature:

According to the interventionist outlook, the state is not to be excluded from the strategic sectors of the economy; and political and trade union problems are thought to be best avoided, whatever the consequences to profitability, by keeping companies on the brink of bankruptcy from going out of business. In many countries, the major result has been a massive and debt-ridden state share-holding sector, often easily susceptible to political manipulation.

Incidence:

[Industrialized countries] Despite its liberal rhetoric, the Reagan administration in the USA participated in the Chrysler rescue plan, used quotas when tariffs would have accorded with market principles in offsetting foreign subsidies on steel; sanctioned tighter restrictions in the Multifibre Agreement for Textiles; reintroduced quotas on sugar; concluded a cartel arrangement for semi-conductors and obtained voluntary export quotas on Japanese automobiles. Similarly, the Japanese government, despite its strong reluctance to aid individual firms, bailed out the Sasebo shipbuilding company, and despite its abhorrence of formal trade barriers, protected its aluminium industry with tariffs. Germany, despite its commitment to the social market doctrine, allowed its overall subsidies to rise dramatically in the 1970s and was drawn into the rescue of the AEG corporation.

 

Claim:

The market price system never works perfectly, least of all in developing countries; the question is whether to rely on imperfect markets or imperfect governments. On the whole, the countries that have grown fastest kept inflation under control by pursuing prudent, unambitious monetary and fiscal policies; they promoted exports mainly by refraining from discriminating against exporters; they left their economies open to foreign competition, which spurred internal efficiency; they left their domestic price systems largely intact, instead of supplanting them with marketing boards and other state monopolies; they allowed their financial system to provide adequate returns to savers; and they gave the private sector a big role in deciding where those savings should be used. Intervention breeds intervention; a quota here creates a shortage there; shortages push prices up, so price ceilings are necessary; price ceilings put firms in difficulty, so some are given subsidized credit; others are not, and want to contract, so sackings are forbidden; and so on.

 

Counter Claim:

Government intervention has contributed to growth by reducing rigidities and correcting for market failures often resulting from the absence in developing countries of the array of conditions favourable to development. The case against intervention, in particular protection, in developing countries should be tempered by the fact that the motivations for protection in developing countries are quite different from those in industrialized countries. Broadly speaking, the adoption by developing countries of measures with the potential to restrict trade would appear to be designed to serve one or more of the following purposes: revenue collection, balance-of-payments protection, and infant-industry protection. Certainly, South Korea and Japan, let alone, the USA and most European countries can claim to be non-interventionists.

Problem Type:
D: Detailed problems
Date of last update
31.10.2017 – 18:11 CET