Government's role in guiding the economy By Eric Ng

Discussion in 'Economics' started by cantona299, May 16, 2007.

  1. Sometimes I wonder if intervention by the government does help the economy at all. A good example of the government failing to assist the economy would be the Japanese economy where bad policy decisions has led to Japan having so many uncompetitive industrieswith no share of international markets at all.

    For a long time an export led growth policy was promoted by the government where intervention and protection methods such as sanctioned cartels and subsidised activities were used to help the country to conserve its resources.

    However, according to Michael E. Porter and Hirotaka Takeuchi (1999) in an article called "Fixing what really ails Japan" these "help" from the government were not the main cause for success in some industries in Japan such as motorcycles in 1960s, audio equipment in 1970s, automobile in 1980s and gaming software in the 1990s. In fact the government virtually played no part at all in aiding these industires. During those times, the government was actually hopelessly aiding failure industries such as the chemical industry where price controls, cartels are used to reduce excess capacities.

    Effects of these bad policy decisions are extensive. for example due to low levle of competition prices are high which increases their cost of living.

    Persisitence in pouring funds into industries doomed to failure has not only led to no returns for the economy at all, but also made it worse.
  2. It could be government influence has absolutely nothing to do with "what's best for the economy". It could be they influence the markets because it's profitable for them.