Macro Economics: Reasons For Government Intervention

Macro Economics

Reasons for Government intervention

Governments may intervene in markets to address inefficiency. In a fully efficient market, resources are given to those who need them and in the quantities that they may need them. In inefficient markets that is not the case, some may have too much of a resource while others may a lack of it. The government tries to fix these inequalities through subsidies, regulations, and also taxation. Another reason for the intervention is to promote social welfare by involving public goods such as depletable goods, such as public parks that are not owned by an individual person. This means that no price is given to the use of that good and everyone can use it. As a result, it is very easy for

Another reason is efficiency, as it encourages worker to do better by giving them bonuses but also by job security. This is because a state paid employee does not have to push themselves as they can’t lose their job, but a private sector employee is more likely to be made redundant if the firm goes bankrupt or they get the sack if they do not perform well.

Lastly a reason to privatise could be to do with price and quality improvement for consumers as privatised firms, with the need to maintain a competitive edge, are often forced to implement improvements in their products in terms of price, speed of service, quality, etc.

Privatisation Example

The process of privatising Telecom Eireann began in 1996 and culminated when Eireann was floated on the stock exchange on July 8, 1999. Eircom was the largest commercial company operating in Ireland at the time of privatisation. It was investing heavily in it’s networks and was free of debt. Despite international best practice, the government decided to not retain it’s ‘golden rule’, which meant that it lost the right to veto rights over decisions, relating to changes in company ownership, when it

Thus providing other operators with access to the network and enabling them to offer their services directly to consumers.

Discussion

In conclusion the state lost control to a key utility when the telecoms sector became very important.

Investment levels in telecommunications have fallen since privatisation and Ireland still is below average broadband service provisions in all four major indicators of broadband performance; such as the coverage, penetration, speed and cost.

I think in the case of Eircom the aim was just purely greed based and not to improve the service. The Eircom story should convince a person to resist privatising state companies, more so when they are utilities and by selling off these essential state companies to those with a great deal of capital, intending to just maximise the profits at whatever