State intervention supports the organization of the economy, which is manifested by eliminating market defects.
The latter finds objective expression in the normative regulation of economic activity. The state complements market self-regulation and gives stability to the economic system primarily by supporting the development of social and cultural activities.
The welfare state is a symbiosis between the classical market and the classical state. These two countries are imperfect alternatives.
The reasons for state intervention in the economy
The reasons for state intervention in the economy must be sought in the essence of the market system. Like any complex system, its integrity depends on the properties and components that make it up and their interaction. With the change of one or another component the organization of the system changes, the effect can be positive or negative.
If we accept the state as a market entity (and nowadays it is increasingly established as such – an element of the market system), then its intervention should strengthen the organization of the system, bring and arrange in a certain order its elements, not to upset them and thus bring chaos to the functioning of the economy. It must act constructively, not destructively. Reference: “Management contract and complete withdrawal of rights”, https://www.kievpress.info/management-contract-and-complete-withdrawal-of-rights/
The problem is not simply in the intervention of the state but in the extent of its behavior. Its criterion is the need for the system as a whole to function more efficiently and for public needs to be more fully met.
This general criterion should be consistent with the main thing of the market system – meeting public needs under market laws. In this way, the contradictions of the market are largely blunted and resolved, its defects are eliminated.
The market is an indisputable achievement of human civilization.
His contribution is undeniable. The pursuit of better profits (profit maximization) within the market system forces manufacturers not to preserve technology, but to develop it following the latest advances in scientific and technical thought.
The market creates conditions for highly efficient production. Universal competition is a prerequisite for the success of the one who adapts most quickly and bests to changes in consumer demand and most effectively implements the latest scientific and technological progress and thus reduces labor costs.
The state alternative to the market
The market as a kind of self-developing system encounters contradictions, difficulties that arise not only from its essence but also from its fluctuation, the inability to adapt to the external environment.
This fact disrupts the connections of the market system, its stability is violated, it faces entropy and bifurcation (branching of the possible paths of its evolution) with unpredictable consequences.
The designed parameters of the functioning system are endangered, the efficiency decreases, the negativity increases, the model of the future is uncertain, as chaos becomes an attribute of its development.
Each self-organization goes through many stages: first, self-generation and organization; second, maintaining the level of this organization; and third, a change in the internal and external conditions of its functioning, which requires external intervention – the state; fourth, the destruction of the self-organization of the social system. Reference: “Management forms for company management”, https://newia.info/management-forms-for-company-management/
If the market system is closed, it self-organizes according to its own internal rules, laws, opportunities, and forces. But since it is open, the environment can correct it. The regularities are not a priori fatally predetermined.
It is necessary to look for alternative ways to develop the economic system, which can be found in the face of state regulation. The state as a market entity is also an environment for market development. It can do a lot for this development if it follows the right policy. If inaction, the situation, and confidence in the market deteriorate, it is difficult to make decisions and take action in terms of rational choice.
Destructive market disaster can be eliminated by government regulation
The destructive market disaster can be eliminated by government regulation. It does not eliminate the market as a social phenomenon. On the contrary, the task is to find the measure between it and the most efficient functioning of the economy. The market is preserved, but its social efficiency is increased.
Preference is given to the market form of organization of economic activity. The state guarantees a successful transition to a civilized market. Its intervention in the economy is all the more effective the more it is clothed in a market form, as a result of which the economic impact will be more effective.
It must be borne in mind that today’s economic system is polystructural. Its functioning cannot be reduced to a single structure.
The state is an element of this structure, a market entity, not something secondary to it. Each complex system creates the missing elements of its functioning.
The market system in the face of the state creates such an element. The non-linear trajectory of economic growth, the optimal distribution of resources, the sustainable balance of the economy today are inconceivable without active state intervention.
The need for state intervention also stems from overcoming monopolization. Large-scale production gives rise to a tendency towards monopoly, which in turn undermines the foundations of commodity production.
However, monopolization cannot be completely abolished, as it is the fruit of industrial production. The problem is not in abolishing the monopoly, but in curbing it, the extent of which depends on the active intervention of the state and the effectiveness of antitrust law.
It should be aimed at limiting the monopolization of production and the market, to deconcentrate the companies leading to a monopoly; to increase competition above all indirectly.
The first steps in this regard have been taken: price liberalization, the Law on Protection of Competition, the Law on Consumer Protection, the Law on Foreign Investments, etc.
The question arises: what goals does the government pursue, what is its economic strategy. Because the goals of state regulation are determined by those of society. In case of ambiguity, the state regulation will not be effective, it will be directed in the wrong direction of development.
The complete refusal of direct state intervention
The complete refusal of direct state intervention means a lack of state influence and control – deregulation.
Generally speaking, deregulation is achieved through appropriate structural reforms in the market for products and services and the markets for factors of production – financial markets and the labor market.
The degree of regulation and deregulation in these markets is quite closely linked. Efficient deregulation of product markets is not possible without appropriate deregulation of financial and labor markets. And vice versa.
In the everyday life of the economic practice, the deregulation is expressed in simplification, acceleration, and reduction of the price of the beginning of the economic activity by the creation of a new enterprise; in continuing its activity; by minimizing the administrative formalities in the production and realization of the production; in relations with employees; in access to financial resources, especially in the most difficult initial phases of economic activity; in the order for its termination due to insolvency; in relations with creditors, suppliers, customers, social security, the budget, local authorities, labor authorities, occupational safety, sanitation, and other working conditions, etc.
There are two main trends in the world economic practice in this area: First, expanding the scope of deregulation and improving its mechanisms, leading to increasing its efficiency.
Second, narrowing the scope of regulation, while modernizing regulatory mechanisms and increasing their efficiency.
The withdrawal of territory from traditional regulatory mechanisms means the expansion of the territory of competition.
Competition is still difficult to penetrate in some areas of business known as natural monopolies. Appropriate regulation is needed in these areas to compensate for insufficient (still) competition. It will be difficult to gain territory in the traditional economic activity due to the opposition of forces interested in no competition. In these cases, an appropriate dose of regulation is required, albeit temporary.
Regulation is also needed in areas where competition is in full swing. First, because even with the greatest deregulation, this does not mean behaving without rules.
The fair competition requires compliance with certain rules of relations between economic operators and between them and consumers. Secondly, there are areas of activity related to human and animal health or environmental protection, where compliance with certain standards is mandatory.
Third, with the development of new directions of scientific and technological progress and especially of ICT and biotechnology (and over time, nanotechnology), where it is mandatory to comply with relevant norms of behavior.
Fourth, with the development of research and development, especially in the latest areas, the protection of the intellectual property is becoming increasingly imperative.
If we go back to the action and interaction between the main types of markets, we meet the same need for some dose of regulation, despite their increasing deregulation. The labor market and financial markets are particularly sensitive in this regard. The degree of deregulation that a society can afford, for example in the product market, is not possible in the money and labor markets.
The catching-up development of the economy in the coming decades is not possible without significant deregulation of economic activity. But it is not possible without maintaining the necessary dose of regulation, especially where competition is not a sufficiently disciplinary mechanism and where the interests of economic actors, human health, and nature are affected.
Nowadays, this economy is modern in which there is a high degree of deregulation, combined with limited in scope efficient regulation.