Different businesses on the market will be impacted to a various degree by the government involvement in markets.
It is because the politics has tremendous impact on the countries. National laws can influence businesses, either positively, neutrally or negatively. And country-specific regulations can determine the spending power of customers, their saving abilities and even consumption patterns.
The government usually gets involved in markets to ensure: consumer safety, encourage healthy competition between all firms in the industry, set quality standards that must be met, prevent exploitation of customers, prevent overuse of natural resources, regulate prices from growing too fast, and so on.
In general, there are two types of government involvement in markets.
1. Interventionist government
Adopting a planned-economy approach to managing the country’s economy.
The government uses legislation and policies to intervene in the level of business activity. There are strict laws regulating the markets. Rules overseeing businesses and protecting customers exist and are considered absolutely necessary.
The state also has total control over important for the country industries such as land, air and sea transportation, energy, healthcare and education in order to allocate the resources.
2. Laissez-faire government
Adopting a free-market approach to managing the country’s economy.
The government rarely uses legislation and policies to intervene in the level of business activity. There are no strict laws regulating the markets. Rules overseeing businesses and protecting customers only exist when absolutely necessary. The government is letting the country’s economy to rely on the competition to provide the best deals for consumers.
The state decides to privatize important for the country industries such transportation, energy, healthcare and education in order to improve quality and product choices for customers.
Three government policies
The government’s decisions regarding involvement in markets can be broadly categorized into three macroeconomy policies: Fiscal Policies, Monetary Policy and Supply Side Policies. These three policies help governments to achieve six governments objectives.
1. Fiscal Policies. TAX and government spending.
2. Monetary Policy. Interest rates.
3. Supply Side Policies. Privatization, training and education, deregulation (increasing competitiveness), adjusting domestic policy & foreign policy.
These policies hugely impact the whole country, therefore all businesses that operate in that particular country will be affected to some extent.
