Governments are charged with numerous responsibilities towards its citizenry. Apart from the traditional roles of ensuring national security and improving the social welfare of the population, the government has to oversee numerous other activities with the aim of promoting a balanced ground for fair competition, accelerating the attainment of developmental goals as well as entrenching aspects of equity in the process of development and economic growth.
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The most important instrument used in executing this element of the government function is the policy. Government policy is basically a deliberate guide or action plan developed as an encompassing guide to the process of decision making geared towards achieving specific goals spelled out as favorable according to government interests. It spells out what should be done and why it should be done rather than how it should be done. In many cases, the policy is developed at the political level, and other government procedures such as legislation are conducted pursuant to the policies.
This paper looks at the importance of government policies, especially in areas which concern competition in the business arena as well as technological advancement, which has become synonymous with the modern world. It also analyzes the rationale of government policymaking with specific reference to clear examples from the developed as well as developing countries.
As has been mentioned above, government policies are an important ingredient towards the achievement of goals set out by the government. Competitiveness is an important hallmark of achieving an efficient economy. An efficient economy is one that optimizes resource use by eliminating what is commonly termed as “waste.” It ensures that hindrances to efficient utilization of resources are eliminated. Competitiveness is required in two main areas. The first is competitiveness in resource use, while the second is competitiveness in the market.
One of the most important roles of governments globally is poverty reduction. Governments strive to continually uplift the economic situations facing the people through employing favorable intervention measures, which ensure that as many people as possible are lifted from the poverty situation. Through encouraging competitiveness, the government is able to achieve two important goals that work towards poverty reduction.
First is the fact that in a competitive environment, prices tend to be at their minimum. This is supported by economic theory, which explains the occurrence of normal and abnormal profits. Non-competitive market structures enable firms to gain supernormal profits. This is due to the fact that the uncompetitive environment enables them to charge higher prices in order to gain high-profit margins but produce less quantity. The high profits are charged to the customers who are normally comprised of the general population. This provides a suitable platform for the monopolists and oligopolists to exploit consumers continually.
Remember, the higher prices mean that the purchasing power of the people is significantly reduced, a factor which works against the governments will to improve social welfare. Again, the lower amounts of goods and services produced means that there is less available in the market for sale to the customers and as a show of improved economic growth. This also goes against the government’s aim of improving social welfare as this goal can only be achieved through the production of more and not fewer goods and services (David, 2000, par3).
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The second importance of propagating competitiveness in the market in accordance with the poverty reduction goals of the government result from the fact that encouraging competitiveness opens up the ownership of productive capacities to a wider number of people within the population. This, in retrospect, results in more equitable sharing of returns got from engaging in the process of production across a larger population hence uplifting many more people economically.
Notably, uncompetitive market structures result from many factors. The most common are natural monopolies, which are as a result of the fact that only one firm has the requisite resources financial or otherwise to be able to engage in the production of the commodity under consideration. This means that competitors are barred from entering the market as they cannot access the resources. In such a situation, the government sets in with policies with the view of regulating the pricing of the goods and services in a bid to shield the customer from exploitation.
In addition, monopolies may emerge due to market constraints. Some investments may be so large that they require a large market size in order to avail of positive returns to the investors. The long-run average cost curve has its minimum point on a quantity level, which is close to or equivalent to the market for the commodity. In such a case, the government steps in with legislation to bar competitors as a way of ensuring that production cost is at the lowest level in the long run. Understandably, the actions of the government in all these cases may not necessarily be propagating competitiveness in the market; however, they ensure competitive resource utilization (Minniti, 2010, par4).
However, the most important intervention made by governments is a result of monopolistic behaviors portrayed, especially by large firms in developed countries. The social cost associated with a monopoly is about 9%, and this, if tolerated, introduces major inefficiencies in the economy.
Government policy is also important in ensuring the adequate provision of public goods. This stems from the fact that the private sector cannot efficiently allocate resources to ensure adequate provision of these types of goods. Goods such as education, defense, weather services, street lighting, defense, and even street lighting require elaborate government policies that ensure that they are provided in adequate quantities despite the unique characteristics of non-exclusivity and non-rivalry. These are important in improving the social welfare of the people despite the malfunctions of the market.
It is clear that economic agents always seek to maximize benefits for themselves at all costs. This is in line with the rationality principles of economics. This being the case, the government is obligated to intervene and ensure that the dominant economic agents existing in the economy are not allowed to exerting their powers at the detriment of the less dominant units. This is the main rationale for governments across the world to engage in the formulation of policies to guide the way different economic activities are carried out (Pasandaran et al., 2003).
In the US, government policy intervention in enhancing competitiveness in the market is most visible in the famous antitrust laws enacted with the aim of limiting anti-competitive tendencies in the economy. The anti-trust laws were based on three main functions that promote competitiveness. The first was restricting the suppression of free trade practiced by established cartels that seek to eliminate competition through unfair business practices.
Prior to the anti-trust laws, cartels trading in certain industries such as pharmaceuticals and oil could collude to hike prices or reduce production and hike prices with the aim of gaining higher profits at the expense of customers. These actions had to be countered through the laws. Secondly, the anti-trust laws sought to ban unfair business practices displayed by monopoly practices as well as sealing the loopholes, which facilitated the attainment of the dominant position. Examples of practices banned under the laws are refusal to deal and predatory pricing.
This way, the emergence of dominant monopolies would be significantly reduced while the unfairness resulting from the firm’s practices would be stopped. Finally, the anti-trust laws enabled government interventions in major transactions such as mergers, acquisitions, and joint ventures. This way, the government could be in a position to stop transactions that threaten competitiveness in the market. The most important factor in consideration is whether the transaction would lead to the domination of the market and thus introduce monopoly behavior.
In the developing nations, governments are mainly focused on developing policies that support the upcoming of more businesses across most of the industries with a view of enhancing competitiveness and resource use since a great deal of the countries resources remain untapped.
Technology, on the other hand, has grown to become an important integral element of modern-day business. Technological advancement has stepped in to offer numerous solutions to many problems facing the business community around the world. Indeed the extent to which technological advancement has occurred has become an important measure for economic development. Governments have an obligation to encourage such advancement in order to achieve the much sought economic development as well as improved social welfare. One of the most important policy interventions being witnessed today, especially in developing countries, is the abolishment of taxes on the devices used to facilitate the advancement of technology (Chen, 2006, p12).
Secondly, due to the ability of technology to solve problems, governments across the world have developed policies that encourage the adoption of technology in the way it provides goods and services to the citizenry. The rationale here is to ensure that the population receives the goods and services in adequate quantities as well as quality. This way, technology has easily become the fastest spreading phenomenon in the modern day (Ferrant, 2003, p3-6).
The fact that technological know-how is an important element in the promotion of social welfare it then emerges that the private sector cannot fully exploit the social benefits presented by technology. The quantities supplied by the private sector are inadequate presenting market failures. The government then steps in to correct such market anomalies by either ensuring that the quantities availed are adequate. This is mainly through developing policies that offer incentives to different players to improve access.
However, despite the numerous positive contributions technology has introduced, there are a host of other negative elements that accompany technological advancement. Information technology presents challenges in areas of privacy. As the sharing of information becomes more widespread, privacy issues are constantly violated. This has prompted governments to consider developing policies that protect the citizens against aspects of technology that violate privacy for both individuals and cooperates.
In developed countries, focus now is on utilizing technology for research and technology with the aim of introducing even better solutions facing the world. In the developing world, though, most policies are aimed at encouraging penetration of technology in order to benefit larger populations than is currently the case. This assertion can be supported by the proportion of expenditure on research and development in developed countries such as the US go towards ensuring the most modern technologies are used. Experts estimate this proportion to be about 40% of the total expenditure on research and development.
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Again technology introduces challenges in social settings. The internet enables ready access to pornography and other social vices. In this respect, governments in some countries such as China have moved in to develop policies that guide internet usage by introducing restrictions on some internet sites.
As can be seen, governments have immense responsibilities towards developing policies to regulate competition as well as technology. The promotion of competitiveness in the market enhances the efficient utilization of resources as well as the more equitable distribution of resources across populations. This based on the fact that despite the need to adhere to capitalist ideals, some members of the society are more privileged than others, and this gives them an opportunity to dominate and thus exploit others.
Policies seek to correct this by introducing restrictions on the behavior of some commercial entities with the aim of providing a more level field for all. Technology, on the other hand, introduces immense benefits that require a boost in order to enhance uptake in society, promoting the development of relevant policies. On the other hand, technology also introduces negative elements that have to be curtailed by the government.
Chen, Y., 2006. E-Government Strategies in Developed and Developing Countries: An Implementation Framework and Case Study. Journal of Global Information Management, Vol14 (1). [Online] Web.
David H., 2000. The Reasons and Rationale for Government & Policy. [Online]. Web.
Ferrant, D., 2003. Closing the gap in education and technology.
Minniti, M., 2010. The role of government policy on entrepreneurial activity: productive, unproductive, or destructive? [Online]. Web.
Pasandaran E., Gultom, B., Sri Adiningsih, J., Apsari, H. and Rochayati, S., 2003. Government policy support for technology promotion and adoption: a case study of urea tablet technology in Indonesia. Nutrient Cycling in Agroecosystems. Vol. 53(1).