Your SlideShare is downloading. ×
Uwi  Government And Business Relations2005summary
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×

Saving this for later?

Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime - even offline.

Text the download link to your phone

Standard text messaging rates apply

Uwi Government And Business Relations2005summary

893
views

Published on

Published in: Business, Health & Medicine

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
893
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
12
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. SECTION 5 THE BUSINESS-GOVERNMENT RELATIONS
    • This session will address:
    • Market Failure
    • The Development of Public Enterprises
    • Regulation
    • Government Failure
  • 2. The Market Mechanism
    • The operation of the market mechanism focuses on the efficiency of the private sector.
    • Focus is placed on two types of efficiency:
    • Allocative Efficiency
    • Productive Efficiency
  • 3. The Market Mechanism
    • Allocative Efficiency: This occurs when resources are distributed in such a way that no consumers could be made better off without other consumers becoming worse off.
    • Productive Efficiency: This is achieved when production is carried out at its lowest costs
  • 4. Market Mechanism Allocative and productive efficiency is achieved through the assumptions of perfect competition, as purported by Adam Smith- laissez-faire approach :
  • 5. Reasons for Market Failure
    • Imperfect Knowledge
    • Differentiation of Goods & Services
    • Market Power
    • Inadequate Provision
    • Inequality
  • 6. Market Failure
    • Imperfect Knowledge:
      • Consumers do not have adequate technical knowledge
      • Advertising can mislead or mis-inform
      • Producers unaware of all opportunities
      • Producers cannot accurately measure productivity
      • Decisions often based on past experience rather than future knowledge
  • 7. Market Failure
    • Market Power:
      • Existence of monopolies and oligopolies
      • Collusion
      • Price fixing
      • Abnormal profits
      • Rigging of markets
      • Barriers to entry
  • 8. Market Failure
    • Inadequate Provision:
    • Merit Goods and Public Goods
      • Merit Goods – Could be provided by the market but consumers may not be able to afford or feel the need to purchase – market would not provide them in the quantities society needs
      • Sports facilities?
  • 9. Market Failure
    • Merit Goods
    • Education – nurseries, schools, colleges, universities – could all be provided by the market but would everyone be able to afford them?
    Schools: Would you pay if the state did not provide them?
  • 10. Private Goods
    • A private good is characterised by:
    • Excludability: consumers can be excluded from consuming the product if they are not willing to pay for it.
    • Rivalry: One person’s consumption reduces the amount, another person is able to consume.
  • 11. Market Failure
    • Inequality:
      • Poverty – Absolute and Relative
      • Distribution of factor ownership
      • Distribution of Income
      • Wealth Distribution
      • Discrimination
      • Housing
  • 12. Market Failure
    • De-Merit Goods
    • Goods which society over-produces
    • Goods and services provided by the market which are not in our best interests!
      • Tobacco and alcohol
      • Drugs
      • Gambling
  • 13. Externalities Externality: A third party (spill-over) effect arising from the production and/or consumption of goods and services for which no appropriate compensation is paid.
  • 14. Positive and Negative Externalities
    • The effects of a decision by consumers and producers that has an impact on a third party
      • Positive Externalities – beneficial effects on third parties
      • Negative Externalities – costs incurred by third parties
  • 15. Market Failure
    • External Costs and Benefits
    • External or social costs
      • The cost of an economic decision to a third party
    • External benefits
      • The benefits to a third party as a result of a decision by another party
  • 16.
    • Costs and benefits in consumption:
    • External costs in consumption – where MSB < MPB
      • e.g. passive smoking, litter, noise, anti-social behaviour
    • External benefits in consumption – where MSB > MPB
      • e.g. preventative health care – vaccinations, public transport, attractive gardens, bathing regularly!
    Positive and Negative Externalities
  • 17. Market Failure
    • External benefits –
      • by products of production and decision making that raise the welfare of a third party
      • e.g. education and training, public transport, health education and preventative medicine, refuse collection, investment in housing maintenance, law and order
  • 18. Market Failure
    • External Costs
    • Decision makers do not take into account the cost imposed on society and others as a result of their decision
      • e.g. pollution, traffic congestion, environmental degradation, depletion of the ozone layer, misuse of alcohol, tobacco, anti-social behaviour, drug abuse, poor housing
  • 19. Government Intervention Market failure presents a rationale for government intervention in markets – the pursuit of individual self interest rarely results in maximum social welfare.
  • 20. Government Intervention
    • When does government step in?
      • To correct shortages or surpluses
      • To provide when the market does not or can not
      • To regulate and correct where there is perceived inequality or inefficiency
      • To protect individuals and groups in society and provide a safety net for those unable to help themselves
      • To reduce poverty
  • 21. Government Intervention
    • How does government intervene?
      • Taxation – to redistribute and provide incentive or disincentive effects
      • Subsidies – to encourage production/consumption
      • Regulation – guides, codes of practice, legislation, independent regulators
      • Direct provision of goods and services – health, education, via public enterprises
  • 22. Government Failure
    • Government failure refers to situations where allocative efficiency may have been reduced following government intervention in markets designed to correct market failure.
  • 23. Government Failure
    • ‘ Rent seeking’ or ‘Log rolling’:
      • Traditional theory would suggest that decisions will be made that give the greatest utility to the maximum number of people
      • Rent seeking – where decisions are made leading to resource allocation that maximises the benefit to the decision maker at the expense of another party or parties.
      • Log rolling – where decisions may be made on resource allocation to projects that have less importance in return for the support of the interested party in other decision making areas.
  • 24. Government Failure
    • How does Government Failure manifest itself?
      • Distortion of markets – e.g. rent control, minimum wage, agricultural subsidies, taxes on fuel
  • 25. Government Failure
    • Disincentive Effects –
      • High taxes hampering business expansion or enterprise
      • Welfare benefits reducing the incentive to find work
    • Short termism – solving the ‘hot topics’ of the day rather than the long term important issues – e.g. ID cards versus pension crisis?
  • 26. Government Failure
    • Electoral Pressure
      • Desire to get elected and pass ‘popular’ policies to capture votes
      • e.g. spending on public services at the risk of higher inflation and future interest rates?
  • 27. Public Goods
    • Public goods are services which are in demand, but which must be provided by government:
    • -Non excludability: the goods cannot be confined to those who have paid for it
    • -Non rivalry in consumption: the consumption of one individual does not reduce the availability of the goods to others
  • 28. Public Enterprises One way in which government seeks to correct market failure and provide public goods is through public enterprises
  • 29. Public Enterprise A goal oriented and revenue generating entity owned or controlled by the government. Its objective is to act as an instrument of growth, development and redistribution in society. It may be an autonomous/semi-autonomous commercial organisation in the public sector
  • 30. Public Enterprise
    • Specific Objectives:
    • Productive Growth (contribute to GNP)
    • Generate public sector revenue
    • Effective use of human and other resources
    • Social Equity
    • Policy Objectives
    • Conservation of vital resources
  • 31. Public Enterprise Classification Promotive (BIDC) Regulatory Replacive (Insurance)
  • 32. Public Enterprise Structure: -Board of Management -CEO -Middle Management -Staff
  • 33. Public Enterprise-Critique
    • Organisational/Resource Issues
    • Management Issues
    • Training
    • Lack of Strategic Planning
    • Political Interference
  • 34. Government Failure These problems resulted in government failure (see Downes, Margetts)
  • 35. Regulatory Management One of the interfaces between the private and public sectors is through regulation (see introduction)
  • 36. Regulatory Management -Is seen as an important instrument to public sector entities to enforce compliance with nationally established development objectives
  • 37. Regulatory Management This has a positive and negative aspect. The regulatory function involves the executive, legislative and judicial powers Executive-Formulate policies Legislative- make laws and provide for sanctions Judiciary-applies, interpret and enforces
  • 38. Regulatory management-Issues Management Staff/Infrastructural Support Outdated legislation Lack Teeth (toothless tiger) Small Societies Economic Power Standardisation Unequal relations
  • 39. Neo-liberalism A response to government failure. It purports that underdevelopment results from poor resource allocation, incorrect pricing policies and too much state intervention
  • 40. Neo-liberalism Developing countries are underdeveloped, not because of predatory actions of TNCs and international agencies, but due to the “heavy hand of the state”, corruption, inefficiency and lack of economic incentives
  • 41. Neoliberalism There is no need for international economic reform or increases in foreign aid. It is the government interference and resulting distortions in product and financial markets that reduce efficiency.
  • 42. Neoliberalism Government must allow the magic of the marketplace and the invisible hand of market prices to guide resource allocation and stimulate economic development (Adam Smith?)
  • 43. Neo-liberalism
    • -Has 3 main components
    • Free Market Approach: Markets alone are efficient, as they provide the best signals for investment and productive activity. Competition is effective, once information and technology are freely available
  • 44. Neo-liberalism Public Choice Theory:Government can do nothing right. Politicians and bureaucrats are only concerned with self-interest (rent seeking behaviour) They use government resources to consolidate and maintain position of power and authority
  • 45. Market Friendly approach
    • Governments have a role to play by facilitating the operations of the market through non-selective market friendly interventions
    • By investing in physical and social infrastructure
  • 46. Neoliberalism The International Monetary Fund and World Bank are advocates of the neoliberal thinking, as manifested through structural adjustment programmes.
  • 47. Based on Caribbean examples, what is a SAP and what impact has there been on economic growth and development?
  • 48. Public Enterprises One way in which government seeks to correct market failure and provide public goods is through public enterprises
  • 49. Public Enterprise A goal oriented and revenue generating entity owned or controlled by the government. It s objective is to act as an instrument of growth, development and redistribution in society. It may be an autonomous/semi-autonomous commercial organisation in the public sector
  • 50. Public Enterprise-Critique
    • Organisational/Resource Issues
    • Management Issues
    • Training
    • Lack of Strategic Planning
    • Politics
  • 51. Government Failure
    • Regulatory Capture
      • Regulatory agencies become dominated by the firms they are supposed to be regulating!
  • 52. Regulatory Management One of the interfaces between the private and public sectors is through regulation (see introduction)
  • 53. Regulatory Management -Is seen as an important instrument to public sector entities to enforce compliance with nationally established development objectives
  • 54. Regulatory Management This has a positive and negative aspect. The regulatory function involves the executive, legislative and judicial powers Executive-Formulate policies Legislative- make laws and provide for sanctions Judiciary-applies, interpret and enforces
  • 55. Regulatory management-Issues
    • Management Staff/Infrastructural Support
    • Outdated legislation
    • Lack Teeth (toothless tiger)
    • Small Societies
    • Economic Power
    • Standardisation
    • Unequal relations
  • 56. Neo-liberalism A response to government failure. It purports that underdevelopment results from poor resource allocation,incorrect pricing policies and too much state intervention
  • 57. Neoliberalism Government must allow the magic of the marketplace and the invisible hand of market prices to guide resource allocation and stimulate economic development
  • 58. Neo-liberalism
    • -Has 3 main components
    • Free Market Approach: Markets alone are efficient, as they provide the best signals for investment and productive activity. Competition is effective, once information and technology are freely available
  • 59. Neo-liberalism Public Choice Theory: Government can do nothing right. Politicians and bureaucrats are only concerned with self-interest (rent seeking behaviour) They use government resources to consolidate and maintain position of power and authority
  • 60. Market Friendly Approach
    • Governments have a role to play by facilitating the operations of the market through non-selective market friendly interventions
    • By investing in physical and social infrastructure
  • 61. Neoliberalism The International Monetary Fund and World Bank are advocates of the neoliberal thinking, as manifested through structural adjustment programmes.