What should the role of government be in respect to regulating economic activity? Discuss with a focus on either the connection between business and government, or the Marxist critique of capitalism. Use material from the economics readings to support your position (for example, the Global Financial Crisis, the gains from trade etc). In a market capitalist society, the role of government is to regulate economic activity in such a way as to promote the liberty, happiness and health (public good) of its citizens, within the constraints imposed upon it by the privileged position of business.
The privileged position of business, or more accurately the corporate capitalist class, allows them to hold the rest of society captive to their wants, thus overriding the public good. This position of privilege can be seen as legitimate if a market-capitalist system is more desirable than alternatives, eg state socialism. However if capitalism and its inherent need for economic growth were fundamentally in conflict with the public good then regardless of the problems that would accompany alternatives, the role of government or the public in regulating economic activity would legitimately have to be increased beyond the level that can exist in a capitalist society.
Before continuing, the origins of the market and the myth of a ‘free market’ must be mentioned. Capitalism and the market were ‘brought into existence by a landed aristocracy which transformed itself into a bourgeoisie’ (Wallerstein, cited in Carson 2002: 7) and is sustained by ‘continual state intervention’ (Carson 2002: 7). The state played a vital role in the creation of capitalist society and the ‘free market’ is a myth propagated to entrench the interests of the capitalist class. It does not exist in practice nor is it theoretically desirable (previous essay) and will not be treated as a valid option.
As accurately described by Lindblom, in a market system business occupies a position of privilege (Lindblom 1977). As business (capitalists) control the means of production (Marx & Engels 1848), the rest of society is reliant on the capitalist class for employment, and the provision of goods and services. Thus government must meet certain minimum business needs (profits) in order to induce business to employ workers and produce. (Lindblom 1977). The public good is therefore met through fulfilling business needs, unless the capitalist mode of production is replaced with an alternative.
As businesses seek to maximise profits they attempt to induce from government more than the minimum profits required to produce. The current global financial crisis illustrates this point. In response to business demands financial regulation was reduced in order to allow higher profits and ‘innovation’. The race to gain higher profits created a bubble, which inevitably burst. Despite creating this problem, business is able to demand, even require taxpayers’ money in order to ‘bail’ them out of their own mess.
They are able to do this legitimately because if they were not ‘bailed out’, the global recession would be far deeper and the rest of society would suffer. It may be that the post-war banking regulation was overly intrusive and should have been modified, but the current crisis shows that business was able to convince government to take it too far beyond what was required in order for them to produce.
Government must therefore (assuming that it is democratic and represents the public interest) tread a fine line between meeting the minimum and legitimate business needs in order for them to produce, and giving into their class interests. This however does not often happen in practise. Business seeks to ‘indoctrinate citizens to overlook their privileged position’ (Lindblom 1977: 203) and remove it from public discussion.
Because of this the public often support excessive business interest over their own. Another reason is the inevitable links the privilege creates between government and business, they often come from common backgrounds and many business people become politicians, eg Malcolm Turnbull, bringing business/capitalist interests into politics. It should not be concluded from this that business always gets their way. Not all capitalisms are the same. In Scandinavian countries the state plays a far larger role than in Australia, one that has primarily been accomplished by the labour movement. Ultimately it is government who calls the shots, thus when the state has been acting in the public interest, it normally plays a much larger role in regulating the economy.