Answer to Question #249860 in Economics for Maphula

Question

Why do economic problems persist despite various intervation from the government and other organisations

Answer 1

Is the state regulation of the economy necessary? Today the state in almost all countries is an integral subject of the economy. At the same time, its role in various economic systems, despite the similarity of many of the tasks being solved, is not the same. As already noted, the market has been regulating the national economy for centuries. The historical experience of the 20th century has clearly demonstrated that there is no alternative to the market as the basis of the economic activity of society and that the greatest economic efficiency is achieved under the conditions of a competitive market mechanism. At the same time, the market on its own can no longer cope with the problems of the national economy, as a result of which it became necessary to regulate it by the state.

The possibility and necessity of state intervention in the economic life of society, primarily in the interests of private business, is due to the growth in the concentration of production and capital; exacerbation of the internal contradictions of the market economy; its militarization; increased international competition. The main reason for the need for state intervention in the economy lies in the contradiction between the nature of production, which is becoming more and more public, and the private (in the interests of individual subjects) form of appropriation of its results.

Each manufacturer in the competition strives to bypass, squeeze out the other, release the maximum amount of products, or, conversely, reduce production and increase prices to the limit in order to get as much profit as possible. These actions are carried out not only at your own peril and risk but also in isolation, as a rule, in the absence of the necessary information. As a result, this leads to a general overproduction and disruption of economic stability. Development of a number of types of economic activities, creation of large enterprises, roads, bridges, communications, etc. requires huge costs associated with low profits and the risk of capital loss. But without them the very functioning of the economic system and society is impossible. Since they are not of interest to private entrepreneurship, the risk of such investments is largely borne by the state.

The largest firms destroyed the free competition market, established their monopoly domination on it, eliminated equilibrium prices, and thereby the equality of supply and demand at the macroeconomic level, formed a speculative bubble economy, etc. This requires the government to actively engage in antimonopoly activities. As studies and historical experience show, for the most part, business entities pursue mainly only immediate goals. Therefore, the state should also undertake the upholding of promising common interests.