Answer to Question #289656 in Finance for Vinu

Question

An Essay on the Critical Evaluation of the Role of Government in an Economy

The essay must have the following components:

1. The Historical Perspective about Role of Government in Economy (How the role has changed since the views of Adam Smith)

2. Role of Government in different types of economies (Capitalist/Socialist/Mixed)

3. Theoretical Arguments for the Role of Government

4. Examples and Real Life Evidence

5. Criticism of the Role of Government

6. Conclusion

Answer 1

Smith believed in free market and therefore saw the role of government as limited in the society. The roles advocated for are; provision of national defense, justice administration, provision of public goods and finally, putting in place justice systems to promote and protect free and fair competition.

This roles have changed over time to include old age pensions, healthcare provision, and other programs typically comprising of modern welfare state.

The role of government in various markets

Capitalist

The main roles here include;

• Development and sustaining a free market mechanism system
• Elimination of any kind of restrictions on the working of free competitive market.
• Increasing the effectiveness of free competitive market system through various measures such as policies.

Socialist Economy

Government plays a comprehensive role in almost all the activities ranging from production, distribution and consumption of a nation. It does planning and regulation of all economic activities at a central state level. Finally, it regulates individual decisions for example through policies.

Mixed Economy

This one combines the roles of a capitalist and socialist economy. For example, the private sector is encouraged to work on a free market but under political and economic outline by the government. On the other side for the public sector, government is involved in growth and development of public utilities based on social economic principles.

Criticism

The government has been criticized against competencies of it's leaders in making the right decisions and being corrupt and not providing social amenities to its citizens.

Theoretical Arguments

Functionalism

According to this theory, the government has four main functions; planning and directing, meeting social needs, keeping law and order and management of international relations. It is seen as a way of enforcing norms and regulating conflict.

Conflict Theory

It focuses on the inequality and power difference in the society. It was developed by Karl Marx and viewed social structure to be the cause of many social problems such as poverty and crime. He believed that conflicts arise either due to struggle to attain power or wealth. Through conflicts the underprivileged finally get some measure of equality.

Conclusion

The government plays a very vital role in regulating the economy by ensuring that fair policies are enacted. Free and fair competition is realized as the outcome.