There has been a long term debate over the role of the government and economic progress. Is it there responsibility to be continually ensuring its progression? Are they playing a negative role in the economy? Regardless of how one feels the government has done in sustaining and improving the economy for which we live, it would be very naive to say that the government is void of economic involvement.
The government’s role can be traced back centuries and has global consideration. Many different countries have tried their hand at regulating and stimulating their own economy. Some successes have been maintained, even in modern day society. On the other hand, some have been used as a learning tool for ‘what not to do’. It is important to know that the government has either a direct or indirect role in economic progress, and without government involvement the likelihood of progression is not foreseen.
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"Governments and Economic Progress".
It has been assumed by many that the government’s role in the economy has been negative at best. They inflict taxes that seem to continually rise, create regulations that seem to do no more than hinder the desired quality of life, and are constantly spending an excessive amount of money that it appears we don’t really even have. So according to these findings, the economy would be better served void of governmental involvement.
It is not safe to assume that –that is in fact the case. The history of economy in general would challenge that theory. There those individuals who believe the government’s role in the economy is directly responsible for how it has evolved to date. It would not have found the progression is has had to date if the government didn’t intervene.
The industrial policy is one of the main ways that the government can help. By chasing the idea that an industrial policy is necessary for economic growth, they have directly found themselves behind the reason the economy is, in fact, moving upward. In the late 19th century, German chancellor for the government of Otto von Bismarck, tried his hand in aiding the economy. They mandated protective duties on manufactured goods and food related items. However, it was deemed beneficial to keep the importing of industrial needed raw materials void of duties.
This concept may be controversial as to its true benefits to the economy, however research does find a positive outcomes of such practices. Keven O’ Rourke of Trinity College Dublin, conducted research that supported such protectionist practices. By implementing economic policies like the government of Otto von Bismarck, they were able to find a successful outcome in their economic status. During the time period of 1875 to 1914, in ten countries, primarily America and Germany, the imposed tariffs had a positive growth outcome.
Clearly there is no argument regarding the fact that a strong industrial policy can directly invigorate economic development. On the other side of the argument however, it is a commonly maintained that the government needs to take a much more fundamental role. Historians, primarily those who have a strong association with Marxism, emphasize that the true development of the economy is based upon the foundation of capitalism. And this ideal would only be successful because the government is willing to overturn what has become a ‘traditional society’ and in turn demand that markets are created.
This idea is great, but the question would arise, how did this even happen? Austrian historian, Karl Polanyi, was responsible for “The Great Transformation”. In this he argued that creating markets can be traced back to the English state. In order to understand this, take a look at the idea of labor. In 1834 the Poor Laws were enacted, which generously provided relief to the poor working class. This process was maintained on a local scales, as an attempt to maintain societal stability, the handouts were unrestricted. This economic policy provided compensation for individuals who felt it was ok to not work, and acceptable to slack off on personal responsibilities. This was before the concept of economic efficiency existed. This is just one example of why Karl Polanyi believed there was no such thing as a labor market.
In 1834, things changed. Clearly the Poor Laws were not working as intended, so the rules for obtaining poor relief got a lot stricter. Just handing out cash proved to have a negative effect on societal progression. The government decided that requiring the unemployed to go to a workhouse instead of ‘rewarding’ them for being out of work. As a result of the policy revisions, the amount of governmental spending on poor relief fell drastically. This changed the view of unemployment, and it was viewed in a much less favorable manner. The people had to have a job and work in order to earn the money necessary for living. As a result, Polanyi determined that the government had a direct role in the labor market improvement.
In addition to imports and labor market, the government sought to establish a market in land. It is unknown when this act was established, but the act of ‘enclosure’ proved the option to transfer from common land revising it to private ownership. One example of this is Scotland’s Highland clearance. And an example that is still semi-debatable is the actions associated with the 1840 English state that occurred during the Great Irish Famine. Karl Marx described this action as Capital. This action was seen as what it was, a colossal theft. Taking private land that people were living off of required them to seek alternate employment and become what they considered to be wage-earners. Historians that relate most to Marxism call this idea primitive accumulation. During colonialism, the massive land-grab was seen as a means of primitive accumulation.
Even though there is still debate as to how effective the government is, the more radical historians attribute the success of market improvement to the role that the state played. This is confusing because is some situations it seemed that the greedy capitalist were the only reason that the state even existed. “Michel Foucault, possibly the most radical of the lot, writes in an early work that state institutions like hospitals, asylums and prisons emerged in the early part of the industrial revolution in order to play an explicit economic function. During periods of economic prosperity, the working classes could be let free to contribute to economic growth: that helped to keep wages down. But during downturns, the working classes were locked up (madness or criminality, argues Foucault, were effectively invented to justify so doing)” (London, 2013). The idea is that risk of a violent rebellion was eliminated by locking up the poorest people.
Finding cheap manpower during the times of high salaries and full employment, during the unemployment period, taking back the option of being indolent, and the protection from society in the event of an uprising or societal agitation. The book “Discipline and Punish” is one of Foucault’s most famous writings, is not such a reductionist, even though the ideals of structural Marxism, according to the leftists, still continues. However in the end, Foucault’s finding is comparable to Marx’s and Polanyi’s. The government is essential for capitalism. The common misconception is that the government’s only role is to control or slow down the ravages of the free market. The history of the economy reveals that the state has had a role in market invigoration. This clearly shows that the government’s invisible hand was not by any means inevitable. There is no denying that regardless of arguments of how well the government has served their role in economic progression, they have in fact, had a direct hand in its success.
