Government And Business Introduction - Business Environment

All democratic market-based economies accept the need for government involvement in the day-to-day workings of the economy. The critical question, therefore, is not whether a role for government should exist, but what that role should be and where the boundaries should be drawn between private and public (i.e. collective) action. Governments of a ‘socialist’ persuasion normally favour a substantial role for the state as both producer and regulator, whereas non-socialist administrations tend to prefer limited state influence that is directed towards improving the operation of the free market. Either way, the actions of the state in the economy can be influential at both the macro and the micro level and this has important implications for the conduct of business in the non-state sector.

In examining the role of government in the macro economy, Chapter emphasized how changes in fiscal and monetary policy could be used to influence aggregrate levels of income, output and employment in the economy and how attempts to regulate the overall level of economic activity were related to a government’s macro economic policy objectives. By way of contrast, in this and a number of subsequent chapters the focus is on the ways in which government actions impinge upon the operations of firms and markets and the rationale underlying the decisions by the state to intervene at the micro level. Such interventions may take place at the request of the business community or despite its opposition, but it is rare for them to occur without business expressing an opinion which it expects government to take into consideration. This role of business as an important influence on government policy is examined in the concluding section of this chapter.

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