Economic interventionism

Economic interventionism is an action taken by a government or an international institution in a market economy or market-oriented mixed economy, beyond the basic regulation of fraud and enforcement of contracts, in an effort to impact the economy. Economic intervention can be aimed at a variety of political or economic objectives, such as promoting economic growth, increasing employment, raising wages, raising or reducing prices, promoting equality, managing the money supply and interest rates, increasing profits, or addressing market failures. The term economic intervention assumes the state and economy are inherently separate from each other; therefore applies to capitalist market or mixed economies where government action interrupts the market forces at play with orders or sanctions, which will benefit the state (although this does not apply to state-owned enterprises that operate in the market).

Economic planning in market economies is sometimes considered to be a form of intervention when it intervenes in the setting of prices and the distribution of goods determined by the market.

Economic planning tends to be associated with the political left, while economic interventionism is often associated with centrism, which believes that certain market outcomes are undesirable or ineffective and ought to be mitigated. Economic interventionism and planning are sometimes practiced by national conservative, fascist, economic nationalist and right-wing parties with the thinking that the free market can damage national traditions, social order, or the authority of the state itself.

Types of interventions

Economic interventions common in contemporary governments include^{[citation needed]} targeted taxes, targeted tax credits, minimum wage legislation, union shop rules, contracting preferences, direct subsidies to certain classes of producers, price supports, price caps, production quotas, import quotas, and tariffs. Demand management and Keynesian economics (helicopter money) are sometimes cited as mild forms of economic planning, designed to overcome cyclical instability inherent in market economies, or to make market economies function properly in a desired fashion.

Related concepts

Economic planning refers to planned economic activity in production. Planned economic activity may be direct (directive planning), or indirect as in the case of indicative planning. An economic system that is characterized by the primacy of economic planning over the market is referred to as a planned economy, where resource allocation and the quantity produced is allocated by non-market means, usually through state-led planning.

Government regulation can also be a type of intervention when it inhibits, corrects or distorts the market mechanism in setting the price of a good or service.

Effects

Advocates of free market or laissez-faire economics tend to see government intervention as harmful, due the fallacy of central planning, the law of unintended consequences, and other considerations. State economic interventionism, regulating the market for the means of social welfare, deters from the ultimate overthrow of capitalism. The economically left-wing entities can see economic interventionism as a way of ensuring that firms adhere to the social boundaries of that country and that they often outweigh potential negative unintended consequences.

Regulatory authorities do not consistently close markets, yet as one sees in Latin America, the states and various institutions (IMF and World Bank) engaged in liberalizing the economy "...financial liberalization and privatization coincided with democratization". One study suggests that after the lost decade an increasing "diffusion of regulatory authorities" emerged , these actors engaged in restructuring the economies within Latin America. Latin America through the 1980's had undergone a debt crisis and hyperinflation (during 1989 and 1990). These international stakeholders restricted the state's economic leverage, and bound it in contract to co-operate. Multiple projects and years of failed attempts, for the Argentine state to comply, the renewal and intervention seemed stalled. Two key intervention factors that instigated economic progress in Argentina, was substantially increasing privatization and the establishment of a currency board. As one can see this exemplifies global institutions including the International Monetary Fund and the World Bankinstigate and propagate openness to increase foreign investments and economic development within places including Latin America.

Why the government intervenes in the market: (Within a Western Liberal Democracy) The state will weigh the cost benefit for the intervention for the population or they succumb beneath coercion by a third private party and must take action. Also intervention for economic development is at the discretion and self-interest of the stake holders, the multifarious interpretations of progress and development theory could mean. To illustrate this during the 2008 debt crisis; the government and international institutions did not prop Lehman Brothers up therefore allowing them to file bankruptcy. Days later when AIG waned towards collapsing, the state was coerced into spending public money to keep it from falling. These corporations have had interconnected interests with the state. Therefore their distinct role in economic intervention is to encourage the government on regulatory policies and elicit as much capitalist freedom for the accumulation of property as possible.

See also

• Mixed Economy
• Crowding out
• Dirigisme
• Regulation
• Economic planning
• Indicative Planning

References