Role Of Government

The role of government in the economy depends on the form of society. There are differences between each state about the question how far a government should interfere with the economy and even within a society there are no consistent opinions about it. A current example for this controversial issue is the introduction of the minimum wage. From the neoliberal perspective, minimum wage may lead to unemployment, from the socio-political perspective minimum wage is important to guarantee a fair income. The task of the state is now to decide if an intervention in the economy is necessary or not.

According to Adam Smith scarce resources are distributed efficiently to the advantage of all by the “invisible hand” of the market. He embodies the neoliberal thinking that refuses the government regulation due to interconnection between economy and state. For supporters of this way of thinking freedom is equated with no state intervention concerning the economy. Any kind of breach means a reduction of individual freedom.

However, the advocates of the social market economy endorse the state as an essential player for the economy. The state is responsible for the general welfare and has to be a guarantor for the principle of equal opportunities. The state creates a legal framework within the economic activities can happen. He supports socially disadvantaged people and interferes with the economy in the form of an anti-cyclical approach. In the opinions of the advocates of the social market economy, the self regulation of the market is not enough for a functioning society. Social, ethical and moral issues have great importance for them and they are elementary components for public welfare.

In my opinion state interventions in the economy are necessary. It is the task of government to make sure that all members of society have equal opportunities. If someone loses his job or is no longer able to work the state has a role to support these people. I also attach importance to government intervention like mandatory health insurance or statutory pension insurance. Without regulation people would be left on their own. Nevertheless, limits must exist. Of course, the government should not have absolute power- the welfare of the society has to be the top priority of government.