Government Intervention in Market Economy

Examine the nature of economic activity in the business market, understand the economic environment of business and evaluate the broad approaches to organisation and management?

In the growing competitiveness of businesses, the consideration of the external and internal environmental factors is necessary for an organization as well as for governments to ensure the sustainability of the businesses and growth in the economy. The business environment of the UK market is composed of both external environment and internal environment. From an organization perspective, the internal environment factors are controllable forces that can be controlled by an organization through changes in its organizational policies, systems, and structures (Beer, 2013). The internal environmental factors include employees morale, financial changes, management changes, organizational structures and cultural changes, and internal work environment.

The external environmental factors are uncontrollable forces that cannot be controlled by the firms. The external environmental factors are those forces that take place outside of the organizations. It is harder to predict and control these forces. The external environmental factors include political, legal, socio-cultural, technological, economic, competition and environmental factors. Similarly, government of UK has to assess the internal factors i.e. factors that are internal to country and also, the external factors that are outside the UK economy but these factors also affect the UK economy. All  these factors affect the business operations and activities of the industries greatly because these forces put pressures on the industries to follow the government legislations and environmental regulations while operating the businesses in the contemporary business environment (Hodder Education, 2015). This assessment discusses the impact of the government intervention and economic policies in the UK market economy. 

The UK government plays an important role in determining the economic behaviors in the market through its economic policies and intervention. There are several reasons for the government intervention in the UK market economy. Firstly, the government intervenes when the goods or services are under-consumed or over-consumed. Secondly, the government intervenes when it believes in the redistribution of the wealth and income in a more equitable way. It also intervenes, when it thinks that the intervention and policy changes are mandatory for the improvements in the economic performance in the market (Pierrakis and Westlake, 2009). The UK government intervenes in the market economy in the form of indirect taxation, subsidies, tariffs, pricing and distribution control, legislations, pollution control, buffer stocks, and state provision.

The UK government legislations and economic policies determine the environment in which the entrepreneurs operate their businesses. The fiscal and monetary policies of the UK government influence the market economy greatly. The fiscal policy is determined by the government in the form of taxes, such as VAT, sales tax, service tax, corporation taxes, employees state insurance tax, excise duty, and subsidies at local, federal and national level (Giudice, Kuenzel, and Springbett, 2012). For ex-employees state insurance tax imposes the taxes on the salary and wages of the employees. The UK government supports the import and export businesses by imposing the low taxes on the exchange of the goods and services.

Impact of Government Intervention on Industrial Activity and HR

The monetary policies are also determined by the UK government in the form of changes in the exchange rates, interest rates, inflation rates, and unemployment rates (Guay, 2014). The changes in the interest rates, inflation rates, currency value and GDP influence the pricing and product development strategies of the businesses. A rise in the interest rates reduces the purchasing power of the customers and industrial activities. If the UK government raises the interest rates, the borrowing costs, interest debt payments, and mortgage housing rates also increase. As a result, the entrepreneurs will have to pay more prices for the exchange of raw materials, technologies and labors. The high-interest rates and inflation rates will increase the transportation rates because of higher prices of oils, as a result of the prices of the goods and services will be increased. The high-interest rates, inflation rates, and high exchange rates will reduce the customer spending because of low purchasing power (Pelaez, 2008). These adverse economic conditions will decrease the sales figures, clientele, economies of scale and profitability of the organizations because of the low spendings by the customers. On the other hand, the low-interest rates, inflation rates, and low exchange rates will create more earnings to the industrial sectors by promoting the industrial activity. In these favorable economic conditions, the customers will prone to more spending because of a high purchasing power.

The government intervention influences the entrepreneurship and business partnerships with private and public enterprises. During an economic recession or crisis, if the UK government doesn’t support the industries by providing the financial assistance for purchasing the raw materials due to financial problem of the companies, the productivity and business performance of the firms will be affected. The government spending and intervention also affect the HR activities of the industrial sectors. For ex- if the UK government doesn’t organize the training and development programs, it can cause for the unskilled and inexperienced labors that will result into the decreased productivity and unexpected performance. The lower spending by the UK government in the training, research, education, and technology will affect the industrial activity and international trade adversely (Mitchell, 2012). The government intervention and economic policies also affect the investment pattern and production outputs of the industrial sectors. For ex- if the government imposes higher taxes and more legal issues on the businesses, the entrepreneurs will make less investment in the research, technology, training, education, and product development that will affect the productivity and annual turn-over of the industries.

Mixed Economic System in the UK

The Mixed economic system is followed in the UK marketplace where the UK government holds control on the international trade, resource allocation, demand and supply and research activities. Along with this, the competitive policies and regulatory mechanism of the UK Government also affect the HRM policies, production process, pricing, distribution, and customer buying activities. In the UK market economy, the government supports the industrial activity by taking the view that markets are best suited to allocating scarce resources and allow the market forces to determine prices through demand and supply pattern. The government intervention improves the national economic performance by maintaining the value of Pound (Walley, 2012). The government intervention plays an important role in achieving the equitable distribution of income and wealth. The competition policies and regulation mechanism in the UK market create a fair competition that provides the opportunities for the new firms to enter the UK market.

The government intervention brings improvements in the UK market economy by creating an allocative, dynamic efficient, and productive environment . The government intervention restricts or distorts the competitive markets. It supports the industrial activity or entrepreneurship by reducing the unemployment or to overcome the economic recession. The government intervention assists the industrial sector to redistribute the wealth and income by improving the equality of opportunities and output. The government intervention also assists in overcoming the market failure rates through funding public goods (Kitson and Michie, 2015). The government spending breaks the monopoly in the market. It brings a lot of improvements in the institutional infrastructure. It also plays an important role in overcoming the violence and corruptions in the UK market. For ex- if the government intervention is recognized in a way that it introduces insufficiency higher than rationalizing the entire economy system that will create a threat of damaging the UK economy. The distort intervention can result into higher costs and customer dissatisfaction.

The government intervention supports the industrial activity and international trade by providing the financial assistance to the businesses from the banks and financial institutions in the form of credits or loans. The government supports the businesses of the local industries by providing the subsidies and tariffs to make the profitable businesses. The government imposes taxes on the foreign products that make the foreign products more expensive than domestic products so that the demand for the domestic products could be increased. The government also supports the industrial sectors by providing the consistent supply of the raw materials, technology, labors, resources, and capital through their spending activities. The government employment legislations regulate the business organizations to create the equal employment opportunity for all whether freshers or experienced employees by avoiding the discrimination, prejudices, and biases (Bergstein, 2014). The government legislations encourage the business organizations to provide the employees a supportive and learning environment through training, development, and learning programs for the employee satisfaction and high moral. The government also regulates the customer protection laws instructing the companies to maintain the quality standards and value efficiency to deliver the quality products and value added services so that repetitive business could be made.

The UK government environmental legislations regulate the business organizations to follow the ethical code of conduct, corporate social responsibility (CSR), and eco-friendly policies in order to improve the corporate social performance locally and globally. For ex- if the government closely monitors the environmental hazardous and industrial polluted activities, the industries will be prone to reduce the waste disposals, excessive water usage, and resource wastage that will be beneficial for both communities and industries.

Conclusion

In the conclusive statement, it is analyzed that the government intervention in the market economy is essential to improve the environmental conditions in which the entrepreneurs operates their businesses. The government economic policies and legislations determine the way of a business in which it operates. The government intervention promotes the entrepreneurship and industrial activity to support the import and export businesses. Government economic policies and environmental legislations assist the businesses in creating a global corporate image. The UK government intervention and economic policies promote employment, consumerism, consumption, training, research, education, technology, infrastructure development, information technology, and customer spendings.

References

Beer, M. (2013) Early British Economics from the XIIIth to the middle of the XVIIIth century. UK: Routledge.

Bergstein, S. (2014) UK Government ‘Help to Buy’ scheme: A policy of genius or economic idiocy?. England: Grin Verlag.

Giudice, G., Kuenzel, R., and Springbett, T. (2012) The UK Economy: The Crisis in Perspective. Great Britain: Routledge.

Guay, R. T. (2014) The Business Environment of Europe: Firms, Governments, and Institutions. London: Cambridge University Press.

Hodder Education (2015) Edexcel Economics A Student Guide: Theme 2 The UK economy – performance and policies. UK: Hachette Publication.

Kitson, M. and Michie, J. (2015) The Political Economy of Competitiveness: Corporate Performance and Public Policy. UK: Routledge.

Mitchell, M. (2012) My Revision Notes: AQA GCSE Citizenship Studies. UK: Hachette.

Pelaez, C. (2008) Government Intervention in Globalization: Regulation, Trade and Devaluation Wars. UK: Palgrave Macmillan.

Pierrakis, Y. and Westlake, S. (2009) Reshaping the UK economy: The role of public investment in financing growth [Online]. Available at: https://www.nesta.org.uk/sites/default/files/reshaping_the_uk_economy.pdf. (Accessed: 27 March 2016).

Walley, J. (2012) A Green Economy: Twelfth Report of Session 2010-12, Vol. 1: Report, Together with Formal Minutes, Oral and Written Evidence, Volume 1. UK: The Stationery Office.