Economic interventionism

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This article is about government intervention in market-based economies. For an alternative mechanism to markets, see Economic planning.
Red tape binds 19th century documents, the origin of phrase "red tape" to describe economic interventionist laws and regulations

Economic interventionism (sometimes state interventionism) is an economic policy perspective that advocates for government intervention in the market process to correct market failures in the public interest. An economic intervention is any action taken by a government or international institution in a market economy in an effort to impact the economy beyond the basic regulation of fraud and enforcement of contracts and provision of public goods.[1][2][3] 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 income equality, managing the money supply and interest rates, increasing profits, or addressing market failures.

The term intervention assumes on a philosophical level that the state and economy should be inherently separated from each other;[4] therefore the terminology applies to capitalist market-based economies where government action interrupts the market forces at play through regulations, economic policies or subsidies (however state-owned enterprises that operate in the market do not constitute an intervention). The term "intervention" is typically used by advocates of laissez-faire and free markets.[5][6]

Capitalist market economies that feature high degrees of state intervention are often referred to as Interventionist Economies. This is one form of hampered market economy. The other hampered market economy is a mixed economies where government owned enterprises exist alongside privately owned enterprises.[7]

Types of interventions[edit]

Economic interventions common in contemporary market-based economies[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 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.

Government regulation over markets and/or firms 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.

Indicative planning in market economies is sometimes considered to be a form of intervention when it greatly influences the setting of prices in markets.[citation needed]

Political perspectives[edit]

Libertarians and other advocates of free market or laissez-faire economics generally view government interventions as harmful, due to the law of unintended consequences, belief in government's inability to effectively manage economic concerns, and other considerations. Government officials tend to be naturally disposed to seek more power and authority, and the money that usually goes with those things, and this quest often takes the form of economic interventionism which they then seek to justify. Many modern liberals (in the United States) and contemporary social democrats (in Europe) are inclined to support interventionism, seeing state economic interventions as an important means of achieving wealth redistribution or to promote social welfare.

On the other hand, Marxists often feel that government welfare programs might interfere with the goal of overthrowing capitalism and replacing it with socialism, because a welfare state makes capitalism more tolerable to the average worker.[8] Socialists often criticize interventionism (as supported by social democrats and social liberals) as being untenable and liable to cause more economic distortion in the long-run. From this perspective, any attempt to "patch up" capitalism's contradictions would lead to distortions in the economy elsewhere, so that the only real and lasting solution is to entirely replace capitalism with a socialist economy.[9]

Political conservatives of the nationalist variety also frequently support economic interventionism as a means of protecting the power and wealth of a country or its people, particularly via advantages granted to industries seen as nationally vital.

Effects[edit]

The effects of government economic interventionism are widely disputed.

Regulatory authorities do not consistently close markets, yet as seen in economic liberalization efforts by states and various institutions (International Monetary Fund and World Bank) in Latin America, "...financial liberalization and privatization coincided with democratization".[10] One study suggests that after the lost decade an increasing "diffusion of regulatory authorities" emerged,[11] these actors engaged in restructuring the economies within Latin America. Latin America through the 1980s 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.[12] 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, were substantially increasing privatization and the establishment of a currency board.[12] As one can see this exemplifies global institutions including the International Monetary Fund and the World Bank instigate and propagate openness to increase foreign investments and economic development within places including Latin America.[3]

In Western countries, government officials theoretically weigh the cost benefit for an intervention for the population or they succumb beneath coercion by a third private party and must take action.[13] 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.[14] 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 spent public money to keep it from falling.[13] These corporations have interconnected interests with the state. Therefore their incentive is to influence the government to designate regulatory policies[13] that will not inhibit their accumulation of assets.[8]

In Japan, Abenomics is a form of intervention with respect to Prime Minister Shinzo Abe's desire to restore the country's former glory in the midst of a globalized economy.[15]

See also[edit]

References[edit]

  1. ^ Ellen Frankel, Paul (1980). "Laissez Faire in Nineteenth Century Britain: Fact or Myth". Literature of Liberty iii (4): 5–38. Retrieved 5 February 2012. 
  2. ^ Karagiannis, Nikolaos (2001). "KEY ECONOMIC AND POLITICO-INSTITUTIONAL ELEMENTS OF MODERN INTERVENTIONISM.". Social and Economic Studies 50 (3/4): 17–47. JSTOR 27865245. 
  3. ^ a b von Mises, Ludwig (Ed.1998). INTERVENTIONISM: AN ECONOMIC ANALYSIS. New York: The Foundation for Economic Education, Inc. pp. 10–12. 
  4. ^ Lu, Catherine. "Intervention". Encyclopedia of Political Theory. SAGE. Retrieved 5 February 2012. 
  5. ^ von Mises, Ludwig (Ed. 1998). INTERVENTIONISM: AN ECONOMIC ANALYSIS. New York: The Foundation for Economic Education, Inc. pp. 10–12. 
  6. ^ Brown, Douglas (November 11, 2011). Towards a Radical Democracy (Routledge Revivals): The Political Economy of the Budapest School. Routledge. pp. 10–11. ISBN 978-0415608794. 
  7. ^ Brown, Douglas (November 11, 2011). Towards a Radical Democracy (Routledge Revivals): The Political Economy of the Budapest School. Routledge. pp. 10–11. ISBN 978-0415608794. "The political definition refers to the degree of state intervention in what is basically a capitalist market economy. Thus this definition 'portray[s] the phenomenon in terms of state encroaching upon market and thereby suggest[s] that market is the natural or preferable mechanism" 
  8. ^ a b Pierson, Chris (Ed. 1999). Marxism and Social Science Ed. Gamble et al.. Urbana and Chicago: University of Illinois Press. pp. 176–177. 
  9. ^ Schweickart, David. Democratic Socialism. Encyclopedia of Activism and Social Justice (2006): http://orion.it.luc.edu/~dschwei/demsoc.htm: "Social democrats supported and tried to strengthen the basic institutions of the welfare state--pensions for all, public health care, public education, unemployment insurance. They supported and tried to strengthen the labor movement. The latter, as socialists, argued that capitalism could never be sufficiently humanized, and that trying to suppress the economic contradictions in one area would only see them emerge in a different guise elsewhere. (E.g., if you push unemployment too low, you'll get inflation; if job security is too strong, labor discipline breaks down; etc.)"
  10. ^ Karagiannis, Nikolaos (2001). "KEY ECONOMIC AND POLITICO-INSTITUTIONAL ELEMENTS OF MODERN INTERVENTIONISM.". Social and Economic Studies 50 (3/4): 19–21. JSTOR 27865245. 
  11. ^ Jordana, Jacint; David Levi-Faur (Mar 2005). "The Diffusion of Regulatory Capitalism in Latin America: Sectoral and National Channels in the Making of a New Order". Annals of the American Academy of Political and Social Science 598 (The Rise of Regulatory Capitalism: The Global Diffusion of a new Order): 102–124. doi:10.1177/0002716204272587. JSTOR 25046082. 
  12. ^ a b de Beaufort Wijnholds, J. Onno. "The Argentine Drama: A View from the IMF Board". The Crisis That Was Not Prevented: Argentina, the IMF, and Globalisation. FONDAD. Retrieved 2 February 2012. 
  13. ^ a b c Lanchester, John (November 5, 2009). "Bankocracy". London Review of Books 31 (21). 
  14. ^ von Mises, Ludwig (Ed.1998). INTERVENTIONISM: AN ECONOMIC ANALYSIS. New York: The Foundation for Economic Education, Inc. pp. 1–51. 
  15. ^ del Rosario, King (15 August 2013). "Abenomics and the Generic Threat". Retrieved 15 August 2013.