THE INQUIRY INTO THE ESSENCE OF GOVERNMENT IN AN ECONOMY

THE INQUIRY INTO THE ESSENCE OF GOVERNMENT IN AN ECONOMY

EMAIL: EDE, KENECHUKWU KENNETH by edekenechukwuk@gmail.com

Government of every society goes a long way in provision of goods and services in the economy. Such goods which include: Education facilities, health care facilities, good roads, security, employment, price stability, electricity, and a few but to mention.

Fiscal and Monetary Policies and their instruments are used to control activities in an economy. The concern here is to examine the role in bridging the insufficiencies and inefficiencies in the production and distribution of goods and services in the economy which we call “Market Failure”.

MARKET FAILURE

Market failure is referred to as a situation in which the conditions necessary to achieve market efficient solution fail to exist or contravened in one way or the other. The imperfections to market efficiency are brought to equilibrium by the actions of the government. Left for itself, the market system of any economy is unlikely to operate efficiently. There will be tendencies for it to produce too much of some goods and services and some inefficient amount of others. And in extreme cases, the market crashes, or the market will fail to exist and so, some goods may not be produced at all.

Some factors which bring about market failure are:

   A.  Existence of public goods and externalities.    

   B.  Uncertainty.

   C.  Incomplete information

   D.  Imperfect competitions (cartels, duopolists, etc).

In most cases, the existence of market failure would be due to imperfect competition and incomplete information, which is the approximately the concern of the government. Government intervenes in this case to salvage the situation.

In the case of cartels, monopoly, and pervasive incomplete information which can be caused by bargaining costs, legal costs, decision costs and information costs. The market will not achieve efficiency, the government comes in to provide to the economy (“the role of allocation”).

In another dimension, there is also needs to distribute income and wealth in the economy in order therefore to maximize the welfare in the economy in just and fair. Some Economic scholars like (Musgrave), refers to this as (“distributive role of government”).

In addition, there are roles which government assumes in the economy as intervention which includes:

Firstly, the “Stabilization role”, periodically, inflation, unemployment, price instability, lack of real growth balances, unfavourable exchange rates, occurs and the stabilization role of government exist in order to intervene in the economy by the use of Monetary and Fiscal policies to stabilize the economy, there by improve the welfare of the members of the society.

Secondly, “Regulatory Role,” apart from locative, stabilization and distributive roles which government plays, government also intervene in the economy to provide regulatory functions. Laws are made by the government of the nation for the nation, but through the regulatory role, the law would be enforced in the nation. In order to ensure that all the exchanges taking place in the economy are smoothly done, government provides Laws and Justices that regulates the behaviours of individuals i.e. regulation of freedom and liberty of individuals.