A vast majority of government intervention into economic matters is for the benefit of the consumer or the worker, and in fact, many businesses see an active government as an obstacle or even an enemy. But there are government policies which when enacted actually create a better economic environment for business. This lesson will cover some of the most basic of these.
The government is a buyer in the market. It purchases weapons and materials from private corporations, and through this it stimulates the market. In America, the large defense companies like Boeing, Lockheed Martin, and Raytheon essentially depend on selling to the US government, and more generally, the US government’s purchases are a stimulus on the economy, which helps business; in classical economics, this is called expansionary fiscal policy. World War II necessitated the US government to spend enormous amounts of money to build the airplanes, boats, guns, and outfits used by US soldiers. This increase in spending stimulated manufacturing in America and helped to end the Great Depression.
In addition to buying, the government sells its services. While most of them are provided directly to the people, some are provided for businesses, the most important of which is infrastructure investments. Infrastructure is a public facility or installment which aids the operation of the economy, including roads, powerlines, airports, and even schools. These are vital because many companies can’t operate without them. Goods are transported on roads, while electricity is carried over power lines, and schools increase what is called human capital, or the labor force’s training and skills. In fact, Torben Andersen, a Professor of Economics at the University of Denmark, attributes the ability of Nordic countries to sustain high taxes and high growth to the reinvestment of taxes into the education of the population, making a more valuable group of workers. Infrastructure is also part of expansionary fiscal policy.
The Money Supply
The opposite of fiscal policy is monetary policy, which the government mainly enacts by controlling the amount of money in circulation, or the money supply. Increasing the money supply makes credit freer, and thus loans easier. With easy loans, businesses can more easily invest and grow. There are many options to affect the money supply, like changing the interest rate or buying and selling bonds. For an example of these policies, back in 2009, the Federal Reserve which is the Central Bank of the United States dropped the interest rate to 0% to soften the massive dry up in the financial markets.
Ease of Business
Outside of the traditional tools, the government can make policy that generally increases the ease of business. This usually means repealing burdensome regulations which obstruct businesses, but the government can also take proactive steps. Favorable trade deals and patent laws that ensure profitability on research and development can make the difference between a sluggish economy and a strong one.
Additionally, supporting new startups is important. Sweden allows workers to take a leave of absence to create a new business. This has resulted in 20 startups for every 1,000 workers in Sweden, while in the US, that number is five (data from OECD). Likewise, subsidizing business loans decreases the barrier to entry and thus increases innovation.
Part of ease of business is ease of hiring, so countries like Japan have established employment offices where businesses can find unemployed people, and Germany has actively pushed companies to establish apprenticeship programs, which have boosted employment and job training for students.
Just like how communism is an extreme of government intervention for the worker, fascism is an extreme of government intervention for the corporation. I’ll cover some of the trespasses of this extreme: Singapore’s rise as a production powerhouse came after the government forcefully broke labor strikes in the 1970s just like how the US government broke labor strikes with the army in the 19th century, forcing the workers to accept their abominably low pay and dangerous conditions. And like with labor, government can be too forceful with foreign companies; China routinely allows Chinese corporations to steal or violate American intellectual property, greatly benefiting Chinese corporations at the expense of foreign ones. These policies in the long-run end badly; even if the workers don’t revolt, foreign countries will. They’ll pull back and sanction, and if they don’t, the investors who provide the capital, which makes an economy successful will.
A small government doesn’t necessarily mean a good government for businesses. Rather, the government which ensures a fair and free environment for transactions and production will maximize economic success. This may come from buying and selling goods and services, investing in infrastructure, controlling the money supply, or simply making business easier. Not all problems can be resolved by a million individuals making decisions for themselves, and so sometimes it’s necessary for us to work together.