Research paper on Advantages of Government Intervention to Correct Market Failures

Exploring government intervention to correct market failures, we should remember that in contrast to the command economy, market conditions will provide financial assistance for economic recovery companies on a contractual basis, taking into account the mutual responsibilities of the parties.

The State requires substantial financial resources, which are formed in the state budget for the economic impact. Politics of changes in government revenue and expenditure is mainly to deal with the economic downturn was called budgetary or fiscal policy. During a recession the government increases spending on the so-called government programs, for example, provides funds for the construction and launch of spacecraft. This allows a variety of companies associated with the development and manufacture of space vehicles, receive large government contracts, i.e. government will purchase a significant portion of their products. These firms will be able to hire new workers and, in turn, will order raw materials and equipment to other firms. As a result, production, employment and investment will begin to rise throughout the economy. Another area of fiscal policy may be an increase or decrease of the state revenues through taxes. Little (2004) noted that taxes are a major source of government revenue, which is formed as a result of state budget.

In all these cases the state may intervene in the redistribution of income, because what is true from the perspective of the market mechanism, is unfair to the universal norms of morality, and violates individual rights of human existence in society. The countries with developed market economies have experienced sharp social conflicts; they took a long time to come to a public agreement, understanding of various social strata of the absolute value of the human right to life. As a result, economic functions of the state were increased, being actively involved in the redistribution of income. Thinking about employment, according to Fischer (2003), we can describe the situation in the following way: the market mechanism does not implement automatic right to work for those who can and want to work. It is good to note that the provision of this law is not identical to giving guaranteed jobs to all able-bodied members of society. As mentioned above, an optimal reserve of labor force is important for the effective operation of the market. Of course, unemployment, which makes the state a lot of difficult problems, is inevitable for several reasons in a market economy. The state’s responsibility includes the regulation of the labor market in order to maintain a certain level of employment and provision of financial security of people who have lost their jobs or not being able to find them.

To remind, monopoly and inflation are serious ”˜chronic diseases’ of the market economy, which needs to be constantly pursued by the state and the anti-inflationary and anti-monopoly prevention. The development of basic scientific research and related large-scale investments with long payback periods, a high degree of risk and uncertainty about earnings are almost beyond the power of the market mechanism. It can not do without the state, which stimulates the structural policies and scientific and technological progress. On the contrary, the market works effectively in the commercial development of promising new technology. The State shall conduct regional policy, solving problems that arise under the influence of the market economy in the frames of historical, ethnic, demographic and other non-market factors. The implementation of national interests in the global economy implies a corresponding state of foreign policy, control of the international migration of capital and labor, the impact on exchange rates, management of balance of payments, etc. These are the upper limits of state intervention in the market economy in general terms. These frames are wide enough so that a reasonable symbiosis of a state regulation and an efficient market mechanism has solved the major socio-economic problems of modern society. If the state is trying to do more than it meted out a market economy (for instance, it continues to allocate production resources, retains administrative control over prices, uses companies’ credit debt forgiveness, keeps jobs in a technologically backward industries, conducts fiscal tax policy, is trying to provide a high level of social protection of population without taking into account the real possibilities of the economy) than the national economy preserves backward production structure, low product quality, increases lag behind developed countries in the field of scientific and technological progress and people’s living standards.

Leave a Reply