The role of government in market economies
It is common practice amongst mainstream Western economic scholars to cite the theory of market failures as a justification for government intervention and possible active engagement in economic activities. In this essay market failures directly refer to developments in the market that occurs when natural economic activities do not stimulate general economic allocative efficiency in any way. An explicit feature of liberal market economies is the conventional business cycle. As stated in most textbooks the business cycle goes through a series of up and down developments stretched along a given time. One thing that is obviously very desirable by all players or stakeholders in an economy is massive macroeconomic stability, this notwithstanding is often very difficult to achieve in view of the diverse players involved in economic activity. There is still a school of thought that believes that government should be seen to be active at all levels of the economic management process especially to deal with all questions that boarder on its efficiency and stability. It is therefore on this premise that this essay will be assessing the veracity or otherwise of this assertion with how it applies to the East Asian economies.
It is worth stating that a little over three decades ago, most of the economies in Asia were performing abysmally below their threshold capacity. They were lumped among the wider group of third world economies. Policy analysts never paid any special attention to the potential of these economies to significantly turn around. It explains why the sudden peak in economic development by the leading economies in the region have amazed policy makers across the world leading to what has become known as the “East Asian Economic Miracle.” The level of development was so unprecedented that it attracted widespread interests and lots of questions were being asked. One of the dominant concerns was the role of government involvement or contribution to this amazing success. In another sense others still wanted to be sure if the success was entirely a product of market economic policies or a blend of it. A closer examination of all the contending issues in this debate generates a lot of mixed responses.
It is in the light of this that this paper will be conducting an in depth analysis of all the contending issues in this debate. As the paper progresses, specific emphasis will be laid on the Japanese economy since it is the leading pillar of the East Asian success story. For good reasons Japan’s corporate environment provides a very explicit illustration of active government regulation in an economy and its impact on the general performance of the economy.
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