The assertion that a government failure may be worse than a market is not a baseless statement. As Wheelan notes in his book, a government may acquire more problems while trying to fix the currently existing issues (176). These newly aggregated problems may be more damaging to the country and its relations with other states which means that sometimes stability and compliance with the established traditions appear to be the safest options. Examples from the book and personal knowledge will be presented further to support the point that failures of a government may be worse than those of a market.
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The example of mohair manufacturers is a clear representation of how small groups may be recognized as important influencers if one looks at them not as separate entities but as a system. These people’s impact on the government’s funding decisions is substantial, although they alone do not take up a significant portion of the population. According to Wheelan, this level of control is explained by politicians’ reliance on active citizens (177). Voters who are active and able to utilize all opportunities are also more likely to support the system and motivate other people to do the same. Thus, such small groups are valuable to the government not because their budget may be modest but because their participation creates a mutually helpful relationship. The failure to adhere to these communities’ interests may impact the success of the government significantly. The proposition to exclude some small interest groups from the system can result in opposition, protests, and decreasing numbers of active supporters. Therefore, while some industries may fail and rebuild themselves again using different companies and new strategies, governments rely on the continuous support of their citizens.
Governments can try to fix market failures using many different ways, including taxes, subsidies, investments, and educational campaigns. Subsidies are a form of financial support for organizations and industries that help increase supply and lower the price, resulting in favorable conditions for consumption. For example, a number of countries offer such assistance to the rail industry. The development of this sector is beneficial to the nations and the environment. It is possible that governments may prioritize building railways as opposed to highways, which may negatively affect the rates of atmospheric pollution or decrease the sizes of greenfield spaces. Thus, subsidies to improve railways can be interpreted as an effort to combat these problems. While these issues may not be seen as economic mistakes, the prices which industries and individuals have to pay for ecological disasters can be seen as a problem created by market failures. Thus, this example shows the indirect influence of the government in fixing possible errors made by industries.
The relationship between the government and the country’s economy is often based on mutual agreements. It is clear that businesses can influence politics and vice versa. Provided examples show that small groups can protect their interests by being active in their efforts to use existing policies. Similarly, the government can attempt to encourage certain industries to perform better than before. Both sides have their own motives that are likely to affect more spheres than their personal profits. The environment, other countries, and the state’s residents can benefit or suffer from government mistakes. However, the attempts at fixing the established system may be even more devastating than one’s activities supporting it. To sum up, both government failures and interventions can affect people’s lives substantially. Thus, it is unclear which of these two processes may be more damaging than the other.
Wheelan, Charles. Naked Economics: Undressing the Dismal Science (Fully Revised and Updated). 2nd ed., WW Norton & Company, 2010.