Supply Side Policies are one of the three government economic policies to achieve some of the six government economies objectives. They are set by the government to make the local domestic economy more efficient in comparison with economies of other countries. Supply side policies include: privatization, training and education for workers, deregulation (increasing competitiveness), adjusting domestic policy and foreign policy.
Deregulation
Deregulation means lifting various restrictions that prevent competition between businesses.
There are many ways to conduct deregulation.
First, reduction or complete removal of government controls over an industry. This will ensure creation of new companies in a certain market.
Second, by acting against monopolies in a specific industry. Breaking down monopolies will ensure industrial competitiveness between businesses.
And third, to allow private companies to compete with government-owned industries. This will improve the quality of public businesses.
Government policies supporting deregulation
Government policies that aim to increase industrial competitiveness aim to improve the supply efficiency of the country. If deregulation is successful, these policies will make the country’s economy more competitive against other countries in global markets.
Here are six examples of supply side policies that could increase competitiveness:
- Reducing Individual Income TAX. Workers will be encouraged to work harder to earn more money and be motivated to gain promotions. It is because lower amount of TAX will be deducted from their pay, so their Net Income will increase. Â
- Reducing Corporate TAX. More people will take risks setting up their own businesses. It is because rewards for entrepreneurs will be higher. With lower Corporate TAXes, Net Profit After Interest and TAX will increase, therefore higher dividends for the business owners. Secondly, lower TAX rates on the operating profits will leave more funds for reinvestment in businesses. This will encourage new projects and stimulate investments increasing the competitiveness of businesses.Â
- Increasing labor flexibility. Workers are a key economic resource to any business organization. Many governments use flexible targeted policies that will increase the movement of workers across sectors of the economy. Being able to relocate for better job opportunities will also give workers a strong incentive to seek new employment. With more flexible labor market, the skills and efficiency of the country’s workforce will be improved.Â
- Allowing bidding for governmental projects. After deregulation, bidding for governmental projects by any company either from the private sector or the public sector is now possible and common. Private contractors are given an equal chance to bid for a chance to provide goods and services previously supplied only by the state-owned public organizations.
- Discouraging welfare benefits for productive workers. In principle, welfare benefits should only be given to those people who are really in need. The working population of the country that is healthy and able to work should not be encouraged to stay idle living off the state doing nothing at home. The government ought to restrict any welfare benefits to unqualified applicants. The unqualified applicants are those who are healthy and potentially productive workers.
- Encouraging immigration. The government can also open up the market to workers from foreign countries. Immigration of skilled workers can easily fill in any job vacancies. These workers will help to increase total industrial output and drive the growth of country’s economy.
Deregulation will leave businesses to operate on their own.
This should stimulate healthy competition and may attract foreign direct investments, as it is easier and faster to conduct business in such environment.
Also, political corruption will be eradicated which can be a major and ongoing threat for businesses as there is a strong correlation between corruption, poverty and international competitiveness.
