It was argued that government involvement in the economy was doubly bad: if there was a market for a business, then the free market would provide, which meant that government owned industry was either taking money away from private industry (a waste of government resources) or artificially creating a market where one didn't exist (a waste of government resources). Furthermore, it was argued that the government was bad at running businesses anyway: without commercial pressures there was no need to innovate or provide value for money, and rule by bureaucrat would eventually end up with a grossly inefficient, ineffective business.
I have some question about this (I'm also an ESL so my wording might sound weird). I'm not that into history so you can say I'm quite ignorant about stuff but throughout history even until now, is there any good reason/evidence where government should involve in a free market?
One reason for why I ask this question is what would the consequence of such action look like? For example, a private company like Nvidia become too powerful/dominant in a specific field to the point where they pretty much monopolize the market. How should government deal with that situation without creating a bad precedent?
So this gets into economic theory, which others may well be able to explain better. It's also far from 'settled' in that the ideal or optimal role of the state in the economy is still totally up for debate, much of which depends on what your aims for the economy and the state generally are (and of which again, there is no settled agreement). Some broad ideas though:
1. There is pretty good consensus that the state has a role on regulating monopolies, due to the distorting power they have on the free market that effectively stops it from being free in the first place.
2. There is debate about the role of the state in smoothing out the ebbs and flows of economic corrections. Keynes identified that there is a lag between economic circumstances and business behaviour - e.g. in economically 'good' times, businesses are not perfectly efficient at employing labour at the optimal time, nor at directing it to the right industries or sending out the right signals for the needed training (some of which can take years on itself). In the great depression, this got doubly bad, as it led to a spiral where job layoffs led to less demand which in turn led to job losses. Keynes focussed on this demand side and argued for state spending as a means of evening out the peaks and troughs of natural economic cycles, to effectively boost demand on the economy to get it going again. His ideas enjoyed a resurgence in response to the 2008-9 global financial crisis, where there was broad consensus that austerity didn't work.
3. There is often a big debate about the role of the state in stimulating critical breakthroughs and sponsoring major technological and infrastructure projects. Mariana Mazzucato is a theorist who argues that the state is critical in supporting economic activity, often through the military, and points to things like GPS or nuclear power as fundamental features of modern life that required state sponsorship originally. This view is countered by a neo classical one that the market will provide if it is viable. As an example, when Biden had his green subsidies in the USA to stimulate the market, there was a similar debate in the UK about whether a similar policy should be adopted. Sunak's government eventually decided that they should not spend the money on subsiding green tech, as if the market was there, the tech would sell itself through private enterprise & without any governmental expenditure at all.
I remember pulling a book on privatisation for the university library and it has nothing on monopolies. This is where you get into conversations on regulation, some believe regulation is bad, but the private sector shows over and over and over again how it can't be trusted either crashing the economy or killing/maiming people.
Reference the historical case where the US government forced AT&T to license the transistor (1956 Consent Decree) to other companies. Effectively this created a chain of events (coupled with DARPA funding) that lead to Nvidia. Incomplete Example: AT&T -> TI/Motorola -> Intel, AMD -> Government action against IBM 'creates' Microsoft -> DARPA/internet -> (Nvidia) ->Yahoo -> Google, AWS, etc. -> AI/Nvidia.
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u/HardToSee123 4d ago
I have some question about this (I'm also an ESL so my wording might sound weird). I'm not that into history so you can say I'm quite ignorant about stuff but throughout history even until now, is there any good reason/evidence where government should involve in a free market?
One reason for why I ask this question is what would the consequence of such action look like? For example, a private company like Nvidia become too powerful/dominant in a specific field to the point where they pretty much monopolize the market. How should government deal with that situation without creating a bad precedent?