Invertir en un bien inmueble para la construcción de la terminal en el sector Norte de la ciudad de Quito

The issue of Government intervention in an economy has been of serious debate all over the world. The failure of the market system in ensuring effective income distribution, provision of certain indispensable goods and services, moderating cyclical fluctuations in the economy and establishing standards of weights and measures have made it necessary for the Government to be involved in the Economy.

8.1 Goal

This topic discusses the basic roles of Government in the economic system. The goal of this topic is to address the reasons for government involvement in the economy and the specific roles of government.

8.2 Learning Objectives

At the end of this topic learners should be able to understand the:

(i) Rationale for Government Participation in the Economy (ii) Government as an Economic Agent

(iii) Government in price determination

(iv) Government as a Regulator, Supervisor and Coordinator in the Economy.

(v) Role of Government in affecting social welfare.

8.3 Rationale for Government Participation in the Economy: Market Failure

The market system entails the interplay of demand and supply forces in the determination of economic variables e.g. price, output behaviors etc. The market system inter alia, allocates resources efficiently and promotes competition. However there are problems associated with the functioning of the economy when left to the market system. The failure of the market system shows up in the following areas: Public goods and Externalities.

8.3.1 The Public Goods Issue

There are some goods in which production and distribution cannot be left to the market system. In other words the market system cannot efficiently handle the production and distribution of such goods because by nature they are public. Examples of such goods include road network, security, defense etc. These goods for a reason or the other have attributes such as Non-excludability and Non-rivalry which could not encourage private sector to produce. By Non-excludability we mean that the consumption by one person does not prevent another person from consuming his own. Non-rivalry means the consumer are not competing for the goods and the consumer pays rivalry zero marginal cost for the consumption of the good, for instance road usage, civil, security, defense etc.

8.3.2 Externalities

Basically these are goods that generate spillover or neighbour effect in its production.

For example the pollution from oil sector in the Niger Delta is best taken care of by the Government. An individual will not for any economic reason spend money to remove the wastage/destruction caused by all spillage. Hence, the failure of market system necessitated the need for government intervention.

8.4 Government as an Economic Agent

An economic agent utilizes scarce resources to meet self-objectives in a rational manner. The Government as an economic agent makes rules, and tries to maximize economic benefit for all. Government through agencies such as:\Budget office, Central Bank of Nigeria (CBN), Debt Management Office (DM0), National Planning Commission of Nigeria (NPCN), National Health Insurance Scheme (NHIS), Nigerian National Petroleum Corporation

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(NNPC), Nigeria Deposit Insurance Corporation (NDIC) etc. maximizes the economic benefit of all (this is the primary goal of the government).

As an economic agent, the Government through NPCN (National Planning Commission of Nigeria) formulates medium and long term economic and development plans for the Nigerian economy. NPCN as an agency of the government monitors projects and progress relating to plan implementation, advise on changes and adjustments in institutions and management techniques as well as attitudes necessary for the alignment of actions with plan targets and goals, and conducts research into various aspects of national interest and public policy and ensure that the implications and results of the findings in such research are geared towards the enhancement of national, economic, social/ technological defense and security capabilities and management.

8.5 Government and Price Determination

The government may intervene in the market and mandate a maximum price (price ceiling) or minimum price (price floor) for a good or services. For example, some city government legislate the maximum price that a landlord can charge a tenant for rent. Such rent control policies, though well-intentioned, result in a disequilibrium in the housing market, since, the government mandated price ceiling, the quantity of housing supplied falls short of the quantity of houses A demanded. An example of minimum price (price floors) is the minimum wage which specifies the lowest hourly wage an employer can pay an employee.

Price floor result in market disequilibrium in that quantity supplied at the mandated p-,:e exceeds quantity demanded. The government can alter equilibrium price by changing market demand and/or supply. The government can restrict demand by rationing a good, i.e., by shifting the demand schedule down and to the left.

When a good is rationed, an individual not only must be willing and financially able to buy a commodity but also must possess a government issued coupon which permits purchase.

Equilibrium can be altered by shifting the market supply curve.

A tax on good will raise its supply price-shift the market supply up and to the left- and cause the equilibrium price to increase equilibrium quantity to fall. A subsidy to the producer lowers the commodity's supply price, shift market supply down and to the right, and results in lower equilibrium price and larger equilibrium quantity.

8.6 Government as a Regulator, Supervisor and Coordinator

Government to a very large extent organizes and exerts control over economic activities, through the subjection of the varying economic agents/actors to its rules and regulations. These functions of regulation, supervision and coordination can be captured in government's involvement in the running of the Oil industry through NNPC (Nigerian National Petroleum Corporation), this it does in a bid to achieving its goal of rapid industrial and commercial development. The role of' the Nigerian government in the Oil industry has overtime evolved from regulatory and supervisory nature, to direct involvement in oil exploration and development. Government's initial interest was the collection of royalties and other dues from the varying Oil companies, and in making of statutory laws to regulate the activities of the Oil industry. Presently, government's participation stands at 55% in Shell, and 66% in Chevron, Texaco, ExxonMobil, Agip, Elf and Pan Ocean. Nigerian Agency for food and Drug Administration and Control (NAFDAC) is another agency of the government, under the Federal ministry of Health, through which the Nigerian government regulates, supervises and coordinates the exportation, importation, manufacture, advertising, distribution, sale and use of drugs, food, cosmetics, prepackaged water (like pure water and bottled water) etc. With NAFDAC, government is able to coordinate the registration of food, drugs, medical services, bottled water and chemical products.

8.7 The Social Welfare Issue

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There are so many people (citizens) who are unable to afford the minimal provisions of a good life like food, cloth and shelter, hence prompting the government (the pursuer and promoter of general welfare) into action. Government by the ensuring of equality of opportunity, and equitable distribution of wealth, through its involvement in the operations of the economy, would pit every economic actor, be it households or industries, on a level playing field, but majorly it provides for the basic needs of the populace, most of which ranges from electricity, good roads, pipe-borne water, national security etc. basically goods and services that cannot be left in the hands of the private sectors, due to the private sectors tendency to forgo welfare in pursuit of their selfish motive of maximum profit making.

The Government does this based on the background of its commitment to ensuring an environment not depriving its citizenry of the basic necessities of life. Government tries as much as it can to provide a minimal level of wellbeing and social support for all its citizens, Welfare is largely provided by the government, in addition to charities, informal social groups, inter-governmental organizations and religious groups. Social welfare is a policy in which the well-being of a society at large is the main target. It includes every class/group of people in the society i.e. children, women, the disabled, old, etc. and the basic standard of living is guaranteed.

8.8 Assignment

(1) Government failure occurs when intervention by government in the economy fails to improve or even worsens:

(a) Poverty, (b) economic outcomes, (c) standard of living, (d) income shares among citizens

(2) One main rationale for government involvement in the economy is:

(a) Existence of externalities, (b) provision of fuel subsidy, (c) provision of aids to the market system, (d) distribution of economic goods

(3) Government intervention to alter market structure or prevent abuse of market power by firms is called:

(a) Antitrust, (b) equitable, (c) patency, (d) trademark.

(4) The external costs of production can be defined as:

(a) Private costs less social costs, (b) private costs plus social costs, (c) social costs less private costs, (d) social costs plus private costs

(5) In the laissez faire system the government is regarded to be:

(a) Dominant, (b) leading, (c) planning, (d) passive.

ANSWERS: (1) B, (2) A, (3) A, (4) C, (5) D.

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Module 9: GLOBALISATION AND NIGERIAN ECONOMIC DEVELOPMENT