Laissez-faire vs. Government Intervention
Less government intervention in economic affairs means more economic freedom and
prosperity. In other words, when people are free to choose and pursue profitable
opportunities, the economy of a country runs more efficiently, creating greater wealth and
improving the standard of living. While this is a true statement for some people, others argue
that government involvement is necessary in order to respond to market failures and limit
abuses
of
market
power.
Laissez-faire is a French expression based upon the theories of Adam Smith, an 18 century Scot
political economist, whose writings greatly influenced the growth of capitalism in several parts
of the world (Biography). Smith believed that as long as markets were free and competitive, the
actions of private individuals, would lead to better social results. The idea behind the concept
of Laissez-faire is that economies function more efficiently when people can pursue their
economic activities and interests freely. Laissez-faire opposes governmental regulation and
intervention in commerce and states that the government should not interfere with decisions
made by individuals. The theory also embodies free trade. It indicates that protectionist
measures
should
not
be
used.
Protectionism is a view that free trade is injurious and should be restricted. Protectionist
policies are used in order to protect domestic industries. Protectionism is often criticized by the
supporters of free trade as harming economies instead of assisting them (Frank and Bernanke).
Tariff is an example of a protectionist measure which the supporters of Laissez-faire view as an
obstacle to free trade among nations limiting their opportunities to benefit from exchanging
goods
and
services
with
one
another.
People who support a laissez faire system are against minimum wages and any other forms of
trade restrictions. They also consider limited government interference in private economic
decisions such as pricing and production of goods and/or services as very beneficial, because it
strengthens and makes the economies more efficient (Frank and Bernanke). One strong
argument against government intervention that the supporters of Laissez-faire often use is the
fact that economic freedom has been shown to associate strongly with higher incomes, higher
quality of life, and so on. This means that when government limits its participation, the
economies run more efficiently making it possible for the countries to improve the standard of
living.
The supporters of Laissez-faire claim that government does not have any right to accuse
thriving companies of having monopoly power. For example, Microsoft Corporation, which is a
computer technology corporation with global annual revenue of $44,282 as of July, was
accused by the United States of enjoying monopoly power (Income Statement). Many people
claim the government is wrongly punishing Microsoft for being productive and successful,
arguing that Windows dominates the market because of the product's popularity. Others who
argue in favor of the government claim that Microsoft's monopolistic practices are harmful to
people who also want to get involved in the same market. Many anti-Microsoft people think
that when there is a company such as Microsoft, which is extremely successful, there must be
something wrong. These people believe that one has to be doing something illegal in order to
become number one in the world and to put other businesses out of the market. This is not
always the case. Microsoft simply produces products to satisfy peoples' needs and then
obviously people from all over the world purchase those products. The company continually
releases new and improved versions of its PC operating system. The fact that there are a large
numbers of people using Windows makes the product more attractive to consumers. So does
the government have the right to interfere in today's marketplace and accuse successful
companies of dominating the market? The opponent of Laissez-faire will most probably say
"yes"
and
demand
the
break-up
of
the
giant
company.
People opposing the theory argue that laissez-faire practices have not prevented private
interests from turning to the government for help on a number of occasions. This fact shows
that there were times when free markets experienced problems and had to turn to their local
governments for assistance. Another argument against Laissez-faire is the example of the
American agriculture which has benefited from government assistance several times even
though
it
has
been
private
most
of
the
time
(Welling).
People in favor of government involvement in business affairs argue that the main objectives of
government intervention are aimed at preventing monopoly power, which creates a strong
potential for market failures and limiting abuses of market power. These people also believe
that regulation of capital, goods, and services by government promotes equality, encourages
employment, and copes with failures in market. The conclusion that one can draw from all
these information is that government intervention seeks to correct the economic damages
created by market failure and to improve the efficiency in the way that markets operate.
The opponents of laissez-faire often cite too much economic freedom as a primary cause of the
Great Depression. They point out that increased productivity, easy access to credit, and the
uneven distribution of wealth can lead to financial collapse which many years ago caused a
rapid economic downturn in the United States. As the depression spread, millions of people lost
their jobs. Thousands more traveled from state to state searching for employment. Americans
were angry that the attempts to fight the depression were failing. The Great Depression caused
a lot of chaos on the stock market, banking, and industries. It not only affected the United
States
but
many
European
countries
as
well.
Laissez-faire principles proved unable to deal with the social and economic problems
throughout the history. Even though a lot of people still favor Laissez-faire, most countries
today are not representative of it, since they usually involve some amounts of government
intervention in the economy. Government intervention includes setting minimum wages,
regulation of market competition in order to let other businesses try their luck as well, and so
on. The most often cited economy that is regarded to be based on the principles of laissez-faire
is that of Hong Kong's. According to the Economic Freedom of World, 2004 annual Report,
Hong Kong is ranked number one for its economic freedom (Dorn).
There are people who feel that the Laissez-faire principles are the best and believe that the
economies should be based on it, because they think that when undisturbed by regulation, the
natural economic order tends to secure the maximum well-being for the majority of individuals
and the surrounding community. On the other hand, those who do not like such economic
principles argue that government intervention is vital in the economic affairs if one wants to
create
equality
and
avoid
abuses
of
market
power
in
a
country.
Both sides have strong opinions representing their respective viewpoints, and the vast majority
of the population is divided when it comes to taking a stand in the issue. After observing all
factors on the two conflicting sides, one can think that government intervention is the only way
an economy can expand for the benefit of its citizens and the country as a whole.
Works Cited"Adam Smith, important advocate of laissez-faire policies" Microsoft Encarta Online
Encyclopedia 2006"Biography of Adam Smith". The Concise Encyclopedia of Eonomics. The
library
of
Economics
and
Liberty.
Dorn, James A. "Hong Kong: World's Freest Economy". July 2004Frank, Robert H, and Bernanke
Ben S. Principles of Economics. Third Edition"Income Statement". Microsoft Corporation Annual
Report 2006Welling, George M. "From Revolution to Reconstruction". 2006