Economic Views On Government Intervention

Category: Economy


It is quite often easy to find inscribed in different business plan's SWOT (the Strengths, Weaknesses, Opportunities, and Threats ) analysis under opportunities and threats columns, government policies and regulations. The government was designed among other things to intervene in human interactions including economic activities. Therefore, it is not uncommon to find instances where a government regulation affects a company negatively on one side and facilitating its growth on the other side. The government steps into economic welfare within its boundaries at all levels from the point of registration of a business entity to the production of a goods and services, and even in the exchange of the final product. The interventions include creating a level of the playing field for all players in the market and protecting consumers from exploitation and harmful products (Ricketts 2003). According to the Public Choice Theory and the Austrian Theory view, the above government practices explain what is supposed to be of the governments (normative standpoint), but not what is of the government (positive standpoint) in their pursuit of public interest.

Public Choice Theory

Public choice theory as a school of thought and a discipline considers human behavior used in economic tools as an aspect in crafting a hypothesis and applies it to government policies. This theory works on the premise that government policies are not aimed at the good of the public, but they are a result of economic incentives or otherwise. Proponents of the Public Choice Theory, such as Edward Elgar, come to the irrefutable agreement that the decisions that a government comes to in terms of policies or the agendas that politicians push for, or even the choices that the electorate makes regarding who or what to vote for, is subject to some rational assessment and a rational conclusion. The same has been extrapolated to the government in its intervention in economic welfare.

When the government steps in to protect small and medium-sized businesses from financial giants, which ideally is the responsibility of a government, it is viewed not as an action, but a reaction to a particular self-interest that the government accrues by intervening (Ricketts 2003). If the government is proactive and is implementing the policies for the good of the public, there are lobby groups that still push the government to the extremes to pass regulations and policies that favor their special interests.

In as much as this theory turnishes the image of the government before the ordinary consumers, public choice theorists claim that the theory does not cause the public, groups, or the government to act in a certain way, but it only outlines what the practice is and has been. Therefore, this theory attaches self-interest to government decisions on policies (Peacock and Ricketts 2001). For instance, a government pushes for health care reforms, it is the responsibility of a government to provide quality medical care to its citizens, but at the same time, providing this care comes at a cost, and thus, self-interest sets in. Different groups push for favorable policies, such as the Medicare insurance, and that enables them to make a profit; for instance, a regulation is to be given to only local insurance firms.

Austrian Economic Theory

According to this theory, coined by Paul Samuelson, the theories that presume logical deduction as the only factor responsible for a conclusion are weak and limited. According to this, Samuelson considers that the approach should be subjective; it takes into account the specific causes of motivations and viewpoints in each and every individual responsible for making a decision. This theory looks at the government in its intervention in economic welfare as a conglomerate of different opinions that have to make a decision, and these different opinions influence the government policies depending on their ratios. Perhaps this explains why in American politics the number of Democrats and/or republicans making up the Senate has an influence on what policies are implemented by that government (Peacock and Ricketts 2001).

Therefore, as suggested by the theory, government intervention in economic welfare may or may not be for the good of the public. It asserts that it is due to a particular motivation, just as public choice theory puts it, or it may be due to certain viewpoints that the particular individuals in the government have. It is imperative to note that public choice theory fits into the Austrian economic theory, however, the vice versa may not be true.


It goes without saying that government influences economic welfare of its area of jurisdiction is looked at differently (from diverse viewpoints), and in this case, government intervention is perceived not to be an act of benevolence, but combinations of other factors, such as the individual's viewpoints and/or self-interest or other motivational factors. Therefore, government decisions, such as privatizations of government properties, outsourcing government services (such as security among others) is arrived at after rational considerations that are set to satisfy personal interests. Therefore, from the eyes of the public, what is and what ought to be appear the same thing, but a keen analysis as depicted by the two theories reveals that the politics of government is not driven by having the interest of the public at heart, but merely pushes for the interests of decision-makers (Nellis and Shirley 2003). In view of the aforementioned aspects of the two theories, it suffices to conclude that economics view about the impact of government intervention on economic welfare has been influenced by the Public Choice Theory and the Austrian Economic Theory.

Reference List

Nellis, R & Shirley, M 2003, Privatization: the lessons of experience, World Bank Publications, Washington, DC.

Parker, D & Saal, D 2003, International handbook privatization. Edward Elgar Publishing, Boston.

Peacock, A & Ricketts, M 2001, Government, industry and privatization. [Online] Available at: <> [Accessed on 4 June, 2013]

Ricketts,  M 2003. The economics of business enterprise: an introduction to the economic organization and the theory of the firm.Edward Elgar Publishing, Boston.