The successful collaboration of public and private entities within a national economy is a valuable prospect that many governments seek to pursue. However, in some cases, it is not possible to achieve fairness in market coverage, budget allocation, and other factors directly affecting capacity development. State interventions manifested in strict regulations, restrictive policies, or sanction laws are barriers to the development of the private sector. This, in turn, hinders economic development due to the lack of growth opportunities for private business units. Government regulations may be positive, but from the perspective of their role in the economy, these projects are rather negative deterrents that slow down the development of trade and financial relations.
Fiscal Restrictions under Government Regulations
Fiscal policy has an impact on the national economy through commodity markets. Changes in government spending and taxes are reflected in aggregate demand, and through it, they affect macroeconomic goals. The main objectives of fiscal policy are to balance the macroeconomic system and keep the production of the non-inflationary gross national product (Palley, 2020). One of the main factors hindering the growth of the economy and preventing the coexistence of public and private entities is an irrational fiscal policy. The tax burden that the state imposes may be excessive and prevent production structures from conducting normal economic activities. For instance, Nieuwenhuizen (2019) cites the example of small and medium-sized enterprises in South Africa and notes the harsh tax requirements imposed by the government on local entrepreneurs. Those, in turn, cannot develop their businesses on the desired scale, which reduces the possibility of replenishing the budget due to the lack of trade and economic potential of private firms. Therefore, the role of fiscal policy is significant, and the absence of flexible principles for its formation is a direct prerequisite for the weakening of the economy.
Financial Sanctions as an Instrument of Government Regulations
Although sanction policies are more often a form of external influence, their application in domestic economies is also common. The ambiguity of this strategy of government intervention is due to several reasons. Firstly, sanctions, as a rule, are the result of not only normative but also ethical disagreements between the initiators (state agencies) and the objects of sanctions. As a consequence, individual industries are weakened because their members are unable to resist the government apparatus. As Izadi (2021) argues, the national economy loses an opportunity to profit from entities under financial sanctions, and this is directly reflected in the additional costs of maintaining other economic areas. Secondly, trust between the public and private spheres is erased if the sanction policy is promoted within the national economy. According to Izadi (2021), officials and authorities who initiate the imposition of sanctions on private companies and enterprises move away from the entrepreneurial market and cannot count on its support in case of potential crises. In other words, the demonstration of pressure excludes the possibility of maintaining favorable relationships and partnerships. Thus, there are no reliable possibilities to maintain financial stability in such conditions.
Sanction policies implemented by the state apparatus affect export volumes. Izadi (2021) highlights the need to transform sustainable supply chain models, trade channels, and other algorithms that structure the domestic market. Under such conditions, both the public and private sectors have to adapt to the new conditions of interaction with the global market, which does not have a positive effect on the budget growth rate. Sanctions that adversely affect the domestic economy cannot be considered a positive stimulus. Therefore, such government regulations are undesirable forms of influence if there are no objective grounds or other methods of influencing individual subjects.
Sharing Economy and State Property
As a form of interaction between the public and private sectors, one can note the promotion of the sharing economy. This strategy of controlling the consumption of resources in the domestic market is a relatively new development model, which has some ambiguous manifestations. For instance, Ganapati and Reddick (2018) draw attention to the risks of exacerbating class inequalities within a country under such a policy. State-controlled property is more inviolable than that of the private sector. As a result, as the researchers note, privileges are given to government resources, which, in turn, increases the risks of resource loss by private firms and does not allow for equal capital accumulation opportunities (Ganapati & Reddick, 2018). This perspective characterizes the sharing economy as an unfair program with biased government regulations.
Despite some advantages of the sharing economy, for instance, the flexibility of building financial systems and additional options for generating income, the negative side of this form of regulation is a weak legal framework. According to Buhalis, Andreu, and Gnoth (2020), participants in such a system need to take certain steps to protect themselves and their goods in case of litigation or damage. An example of such a solution is insurance, which is a simpler procedure for public than for private participants in the domestic economy. The absence of clear regulatory principles governing the safety of working in such an environment increases the risks for small companies and firms that cannot count on the free operation of available assets. In addition, as Buhalis et al. (2020) argue, resource security is also not absolute, which increases the threat of capital loss by private actors. As a result, the sharing economy benefits authorities more than individual market participants.
Finally, from a social perspective, the sharing economy does not allow for the full development of labor communities and unions, which identifies it as a deterrent from the government. Ganapati and Reddick (2018) note that since a significant share of resources is under authorities’ control, the power to distribute revenues and promote long-term development strategies belongs to them. Under these conditions, state benefits and subsidies do not perform the same function as in the normal economic system because there are few alternatives for the development of independent businesses. This form of government regulation is less aggressive than sanction policies or fiscal pressure. Nevertheless, from the standpoint of opportunities for the private market, the sharing economy implies the presence of barriers associated with a significant share of ownership by the public sector.
Conclusion
Trade and financial opportunities are unequal if government regulations are numerous in the domestic economy. On the example of fiscal pressure, sanction measures, and the sharing economy, one can notice the negative manifestations of the control methods promoted by the authorities. In such an environment, inequality between the private and public sectors emerges in favor of the latter. The minimum number of government regulations is positively correlated with the development of independent businesses with strong labor unions and safe resource allocation alternatives.
References
Buhalis, D., Andreu, L., & Gnoth, J. (2020). The dark side of the sharing economy: Balancing value co‐creation and value co‐destruction. Psychology & Marketing, 37(5), 689-704.
Izadi, H. R. (2021). Investigating the role of financial sanctions in utility function and their impact on household behavior. DLSU Business & Economics Review, 31(1), 132-141.
Ganapati, S., & Reddick, C. G. (2018). Prospects and challenges of sharing economy for the public sector. Government Information Quarterly, 35(1), 77-87.
Nieuwenhuizen, C. (2019). The effect of regulations and legislation on small, micro and medium enterprises in South Africa. Development Southern Africa, 36(5), 666-677.
Palley, T. (2020). What’s wrong with Modern Money Theory: Macro and political economic restraints on deficit-financed fiscal policy. Review of Keynesian Economics, 8(4), 472-493.