Free markets are essentially important for economic growth and provisions of a variety of goods to the consumers. Trading in a free market is also important for the growth and development of trade since there is room for expansion. Moreover, free markets have been praised by economic experts for being very flexible and can therefore adapt to changes in demand and supply. However, in spite of these benefits, regulation of free markets is very important and hence the need for government intervention. The question concerning the role of the government in regulating free markets through intervention tends to generate more complications to the problem. For instance, many economists argue that it is the duty of the government to pick and choose the industry to regulate while others believe that market regulation should be the responsibility of the free market. It is in the realization of these observations that this paper takes an argumentative stance towards these issues (McNally, 2009).
In most cases, government intervention in free markets is usually aimed at achieving three main objectives which include the following; foster improvement in economic performance, to ensure equitable distribution of wealth and income and correct failures of the market. The government achieves these objectives by passing rules and regulations that monitor the activities of the industries in the economy. Such regulations include the following, employment laws, policy on competition, price control and rules governing the sale of particular products to particular groups of consumers (Bockman, 2011).
From the above mentioned laws, two intervention measures can be derived which therefore force the government to intervene in free markets to protect consumers and promote the element of competition among the companies in the market. These intervention measures include the following; intervention that is meant to lock the information space and the intervention that is touches on fiscal policy.
Intervention meant to lock the information space
This closing information gap as intervention is aimed at ensuring that all the consumers have right information on the product they consume. As such, the producers of various products and services should relay information to the consumers concerning the benefits and costs. This intervention measure is aimed at enhancing consumer awareness and protects them against exploitation. The most common examples of requirements that business have to meet with regards to this intervention measure is mandatory labeling of products. This ensure that the consumers are able acquire adequate information on the products. For instance, product such as alcohol and cigarettes should be properly labeled to ensure that consumers have the right the information on these products. Labeling of cigarettes also reduces its consumption among under age consumers. Other information provided to the consumers is information on the nutritional values of the food product. This applies to all processed and packed foods to ensure that consumers are protected from nutritional diseases such as obesity (Bockman, 2011).
The government also ensures that companies which manufacture items such as cars and motorbikes relay information on the misuse of the items such as over speeding, smoking while driving and using a cell phone while driving. Producers of various products are also encouraged to relay on information on the dangers of addiction especially for products such as alcohol.
Therefore intervention on locking the information space is meant to influence the perception on the benefits and cost of the products. This intervention measure does directly influence the price of the products but ultimately influences their demand. This intervention measure cannot be achieved if the government leaves it to the free market where price and demand are the regulative strategies (Rothbard, 2008)
Intervention on fiscal policy
Unlike the intervention measure on information gap which does not have direct impact on the prices of product, government intervention on fiscal policy directly affects the demand and price of products. The most common fiscal interventions used various governments include; adjustments to welfare payments and taxation, indirect taxes, tax relief and subsidies (Bockman, 2011).
Adjustments to welfare payments and taxation
This approach is used by the government to improve tax benefits. The government can achieve this by increase tax rates for the individuals in the upper class or increase the amount of welfare benefits to the poor. This step enables the government to ensure equal distribution of wealth and income.
The government may be forced to increase the prices of goods which have negative externalities to reduce the consumption among the consumers. Such goods may include drugs which have been legalized by the government. This practice enables the government to generate more tax revenues for economic development and at the same protect the health of the consumers.
In some cases the government may intervene into a free market to provide tax incentives which are aimed at promoting investment in areas such as new capital acquisition or development of research. Such a move may enable the government to create more employment opportunities to its citizens, or improve the growth of small and medium business which are important for economic development (Bockman, 2011).
Subsidies are provided by the government to improve the production of goods which do not have negative externalities. Subsidies help to improve the consumption of such goods and also ensure an increase in their supply and hence lower price. A good example is the government’s initiative to support firms which produce goods which are used on a regular basis by the consumers (Rothbard, 2008).
From the above reasons, it is therefore cognizance to note that it is the government’s duty to pick and choose industries to develop rather than leaving it to the free market. Government’s intervention promotes competition among firms in a given industry and also ensures protection to the consumers. This is also important in solving social problems such as unemployment and crime which is associated with abuse of products as alcohol and drugs. Intervention into free markets is therefore a sole reasonability of the governments.
Bockman, J. Markets in the name of Socialism: The Left-Wing origins of Neoliberalism. Stanford University Press. ISBN 978-0-8047-7566-3, 2011.
McNally, D. Against the Market: Political economy, market socialism and the Marxist critique. Verso. ISBN 978-0-86091-606-2, 2009.
Rothbard, N. “Free Market”. In David R. Henderson (ed.). Concise Encyclopedia of Economics (2nd ed.). Indianapolis: Library of Economics and Liberty. ISBN 978-0865976658. OCLC 237794267, 2008.