Introduction

In many countries the states role in the economy is not something that can be ignored. The state, which is characterized by a set of institutions made of the executive, legislature, the judiciary, the local government and the police, is a system of political domination that exercises power with the legitimate usage of violence, money supply and taxation. The presence of the state in any aspect of life of its citizens is pervasive, whether it is through microeconomic policies or its role as an employer or even through legislation. In the capitalist world we live in today the state cannot be left out in any aspect pertaining to its citizens. The state (government is applying policies on the basis that other participants in the economic system (employers and business men cannot manage to ta!e control of all the aspects involved in the system of the economy. The competing goals of the citizens and policy ma!ers are evident through the cartels and third parties. The managements objectives are paramount with regards to mar!et efficiency with limited space for other interests. Therefore, curtailing economic activities and setting tribunals to regulate conditions and wages in the name of free mar!ets is increasing. The states tal!s of advocating for democracy, having limited interventions so as to bring about industrial harmony in certain sectors of the economy, but in practice it has intervened in almost all the sectors of the economy. This therefore begs the "uestion, should the state play an intervening role in certain sectors of the economy, and if so, to what extent and why# The government has a fundamental role to play in the economy than one can imagine. $or instance, the government is a producer of goods and services. There are a number of goods and services that cannot be left in the hands of the private sector. %ormally, private investors pay a lot of attention to the production of goods and services that have high return. Therefore, many commodities that have fundamental uses to the citizens are never produced despite their significance. This leaves the government with no option to produce this goods and services. &oods such as roads, railways, health services, security are extremely essential to citizens, however, their returns are not that attractive, therefore, do not attract investors. It is therefore, the role of the government to ensure that these goods are produced and presented to the common people. 'ignificantly, the government acts as a failure mar!et corrector. In the case of a mixed mar!et economy, the government plays a crucial role in correcting mar!et failures. The government does this by using tools such as price floors and price ceilings. (rice floors are usually set above the normal mar!et price so as to protect consumers. )nce the government has set such prices, the sellers and other traders are under an obligation of setting their prices below the government set price. In a nutshell, this implies that the traders cannot go beyond the set price. )n the other hand, price ceilings are set below the prevailing mar!et prices so as to protect the producers from exploitation or from running into losses. I this case, the prices will never decrease to a level that is lower than the one set by the government. *n example of this is in the case of food prices. +hen the prices of common food commodities go to very high levels, to points where the consumers cannot afford them, the government has an obligation of correcting this mar!et failure by the use of both price floors and price ceilings. This action prevents exploitation of both the consumers and producers. The government also acts as a financier. The government plays a vital role in the provision of funds that are put in development projects in the economy. The state funds development projects in the economy by the use of the revenues and taxes it collects from people and institutions. +hen the government ants to fund a number of projects within a given financial year, it can decide to increase its rates and decrease on its spending. 'imilarly, the government can also finance the projects through borrowing from international institutions and communities such as the International ,onetary $und and +orld -an!. $or instance, if there is need for the construction of infrastructure and special amenities in a given area, the

government must come in and provide funds that will ma!e this goal attainable. The government can decide to increase tax rates so as to fund this project. In addition, government spending in other sectors must be cut down so as to implement this project. The protection of citizens against fraud and unscrupulous traders lies in the hands of the government. The state must protect citizens against enforced contracts and fraud. The legislative arm of the government revolves around formulating policies and rules that protect the citizens and investors. 'imilarly, the law enforcers must ensure that enough security and the laws are implemented and adhered to the core. This leads to order in the society. *n example of how this wor!s is evident in the labour mar!et. The state has a crucial role in definition the relationship that exists between employers and employees in the economy. The government influences this relationship directly through legislation, and the use of law courts. )n the other hand, the government can also influence this relationship indirectly through the provision of chief contexts. The chief contexts may include fundamental rules and regulations that govern the relationship between all the sta!eholders in the society. *ccording to ...., the government is a guarantor and enforcer of free and fair competition of property rights. The government is under an obligation of treating all its citizens e"ually despite their economical and regional bac!grounds. There should be no discrimination of the citizens by use of regional, economical and geographical factors. The partisans in the economy need to feel safe and protected from any form of insecurity in order to carry out their businesses. The government has a role to ensure that the mar!et is free and fair to all the partisans to run their activities. This is possible through the enforced legislatives and the enforcement of property rights. This can go beyond settling disputes and maintaining amicable and healthy relationships between all the participants in the economy. The government can do all this by setting rules and regulations that can protect ban!ers so that they carry out their operations freely in the economy just li!e any other entity. Merits and Demerits There are a number of merits and demerits associated with government involvement in the economy. Through the government, economic stability and proper allocation of resources is enabled. $rom studies, it is evident that a mature capitalist economy suffers from a number of economic instability and unemployment. The government remedies this through regulating the economy and implementing various development plans. Through economic planning, economic resources are utilized and put in more efficient and optimal use. The government ensures that there is rational organization and production. /ases of overproduction and underproduction are minimized and eliminated. The government eliminates the rigours of unemployment and ine"ualities. *s a result, this ma!es the economy enjoy the basic merits associated with a socialist economy. Through government involvement in the economy, free enterprise and initiative is possible. In a mixed economy, there are a number of institutions such as private property0 profit motive and competition have an ample scope. The government ensures that there are ade"uate incentives for all the participants in the economy depending on their endeavours and efforts. The issue of price mechanism presents a dynamism element to the economy. Through the governments involvement in the economy, rapid development is enhanced. In underdeveloped economies, the government accelerates the rate of development of the economy. $or instance, in the case of absolute poverty in the economy, the government must play a fundamental role in the ensuring that the poverty is eradicated from the face of this nation. It is imperative that the state must come forward to play a fundamental role. The state see!s cooperation from other institutions since they possess ade"uate expertise, resources and experience.

The government is the base for amalgam of public and private enterprise. There is the coexistence of a number of institutions both from the private and public sector in the economy which wor! together for the betterment of the economy. Through the government, a peaceful coexistence is enhanced between the two rival firms and in the process create healthy environment for business activities. The government does not only bring advantages to the economy, it is also accompanied by a number of demerits. The government presents a compromise between capitalism and socialism. Though the government has the best for the economy, a number of its goals my only be realized when it is too late. The coordination between the various players in the economy is only possible in the presence of perfect coordination and comprehension of the two sectors. The governments roles in the economy rely on various irreconcilable ideologies which are diametrically opposed to each other. In one hand, the object of production is defined by profit0 while on the other hand, the object is the product itself. *s the government tries to combine these forces, the economy may find itself performing less than their capabilities. *s the government tries to regulate the profits made by entities, it may find itself in trouble with the private sector. 'imilarly, the public enterprise may start being unmindful of the social purpose and wor! on the same principles the private sector is using. The government involvement in the economy is short lived. In instances of time and competition, fierce struggle ensues between the private and public sector for supremacy. The sector that proves to be the supreme may lead to the government failing to regulate the economy as it would have wished. In the process, the public sector may lose to the private sector thus losing its vitality. This action may ma!e the economy to transform into a capitalist economy. -ibliography *'+*T1*((*, *nic!le. International Business 4E. (New York: Tata McGraw-Hill Education, 2 ! ". 232 '*/1', Ignacy. #lannin$ and econo%ic de&elo'%ent. (()ica$o: #olis) *cienti+ic
#u,lis)ers, 2 4". 2-. THE /0TH12. Go&ern%ent and Business. (34 #u,lications, 2 ! ". T*020, *)i$eto. Essa5s on econo%ic de&elo'%ent. (4inokuni5a Bookstore (o., 2 6". 2-7

T451*%, ,u!esh. and T2EH/N, 2an8u. Business En&iron%ent. 34 #u,lications.

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