Government is a system that creates order in society. In most cases, the administration is constituted of the executive, legislature, and judiciary elements. All the arms of the government have different roles to guarantee checks and balances and support law enforcement. The regime is obligated to ensure that its citizens have a safe and comfortable life. Although the administration plays a significant role in the prosperity of a country’s economy, its actions may affect the operations of the private sector adversely.
Managing Economic Conditions
Today’s governments manage and create favorable conditions to ensure economic prosperity. However, not all administrations execute this function successfully. In the U.S., the private sector defines economic policies although the government implements such rules, ensuring peaceful coexistence for players of economic growth. The independent markets also need government intervention and regulation to allow consumer protection, enforcement of health and safety requirements, and formulation of labor contracts to ensure fairness and efficiency (Mitchell, 2005). Therefore, if markets operate without regulations, unorthodox approaches and inefficient market models may lead to unfair competition.
Redistributing Resources and Income
It is the responsibility of the government to ensure that the wealth accumulated is redistributed equally. The initiative can be achieved through taxation, which is later used to provide public services, including infrastructure development for the entire society. Today’s governments focus on welfare since the income collected from taxes is redistributed through service provision to disadvantaged groups, including the poor, and the old, socially and physically challenged individuals. Additionally, in countries with a strong economy, the government provides affordable health care, housing, and pension packages (Mitchell, 2005). Evidently, the administration directly affects wealth redistribution through taxation and the delivery of enhanced services to the less fortunate in society.
Providing Collective (Public) Goods
The government participates in the provision of public goods. The private sector may not have the impetus to provide public goods since its focus is on profit-making. In addition, investing in public services requires capital-intensive strategies, and the private sector may not have adequate resources to offer such services. For instance, it is the responsibility of the administration to provide national security for its citizens. Security provision is an expensive affair and can only be provided successfully by the government. Private security personnel may be hired to work against the same individuals they are supposed to protect, and therefore, national security must work efficiently to ensure equal benefits to citizens (Mitchell, 2005). Public goods are expensive and sensitive. Hence, it is the responsibility of the government to offer such goods since it has the resources and capability.
Externalities include indirect benefits resulting from activities that influence society. They usually have an impact on those people who do not benefit directly from products generated by factories or industries. For example, industries may pollute the environment and cause adverse effects on the local community. The individuals who suffer from the polluted environment do not benefit from the income generated by such a factory (Mitchell, 2005). Most industries or factories have positive economic effects since they employ the surrounding communities. However, they may pollute the environment, and the government should regulate their operations, especially when externalities affect society negatively.
Consequences of Government Spending
The government’s strategies directly influence economic growth. For a government to allocate resources, it must tax the citizens or borrow from international or domestic parties. However, government spending may harm the economy and lead to a number of different consequences for the private sector and society.
Market Distortion and Displacement Costs
Government spending usually prevents the allocation of resources due to effects on competition. In specific services such as health care and education, the government offers subsidies that reduce the overall cost. On the other hand, spending by the government usually displaces some activities in the private sector. Therefore, every cent spent translates to a dollar less in the productive sector, thus resulting in slower economic growth.
The Inefficiency Cost
Government spending is a less efficient way of service delivery because most of its projects are not profit-oriented, for example, transport, education, healthcare, and public security. However, the private sector can provide better quality services at cheaper rates as compared to the public sector due to ongoing innovations and efficient cost management.
The Stagnation Cost
Government spending discourages creativity and innovation due to competition and the need to increase wealth and income. On the contrary, the private sector is always seeking creative ways to deal with existing and new tasks. However, government tasks are usually inflexible and lead to stagnation costs.
Public Spending and Private Sector
Public choice spending has harmful effects on the economy. It is evident that an increase in government spending would result in a decline in productivity (Mitchell, 2005). Additionally, a one percent growth in government spending would increase the unemployment rate (Mitchell, 2005). Thus, it is important for the government to regulate its spending and involve the public sector in its projects.
The private segment is the leading employer when compared to the public sector. Private markets usually respond to the needs of the consumer and trends in the market, and due to demand for their products and services, more workforce is required. The public sector is mainly concerned with the provision of public goods, such as health, education, and infrastructure, and does not demonstrate rapid growth levels. The public sector does not focus on profit-making, and hence, may offer inefficient services, whereas the private sector strives to build competitive advantages (Pettinger, 2017). Thus, it is crucial for the government to provide support to the private sector to facilitate business development and reduce the unemployment rate.
The public sector may be efficient in providing public goods. It is the role of the government to offer public goods, including military, police, health care, and judicial system among other services. To reduce the under-consumption of government-sponsored services, the state should enhance its service delivery approaches to compete favorably with the private sector.
The government has a responsibility of ensuring economic growth and stability. Nonetheless, the private sector facilitates economic growth and provides better services when compared to government-sponsored initiatives. However, critical public services, such as national security, are monopolized to ensure efficiency and fairness. The private sector is a major employer that focuses on profit-making, and hence, provides better services. Nevertheless, both the public and private sectors contribute to economic prosperity. It is crucial for the government to cut public spending to create more opportunities for the private sector. However, the private sector would only thrive in a stable economy.
Mitchell, D. J. (2005). The impact of government spending on economic growth. The Heritage Foundation, 1813, 1-18.
Pettinger, T. (2017). Private sector vs public sector. Economics Help. Retrieved from https://www.economicshelp.org/blog/2634/economics/private-sector-vs-public-sector/