Intervention of Government in Markets

Freshman (College 1st year) ・Business ・APA ・8 Sources

The external business environment consists of external factors, circumstances and entities that affect the activity of the company. Each organization has other external players, including the government, the market, the social system, and the monetary system, which influence its efficiency. Competents are constantly searching for opportunities to impact the company's earnings by continuing to learn from each other. They aim to distinguish between the offered products and services, to seek the best value and loyalty for the money invested by the consumer. When they are scarce, the financial system seeks to delegate money. Most businesses will thrive and succeed when the economy is growing, and the living standards are rising. The social system, on the other hand, entails of ideas, attitudes, and patterns in the behavior of target clients or customers for services or goods offered by a business. Consumer's attitude towards products offered influences the performance of the firm. The views are dependent on various factors such as age, gender, nature of work, and hobbies (Business Case Studies, 2014, pp. 44-56).

The internal environment is composed of elements of the business, which include employees, the management, and the culture within the firm. Other factors considered as a part of the internal environment include the leadership style and the mission statement(Abukhames, 2015). Unlike with the external environment, the business can control its internal environment. Leadership is an important aspect of the internal performance of the business, the leadership style influence the culture within a business. Employees are an essential internal factor, and they are likely to be efficient and effective at their work if motivated, talented and hard working.

Government intervention in a market economy is necessary to improve the environment in which businesses operate.

A good business environment is critical for attracting both foreign investments as well as encouraging the development of small-medium sized enterprise in any country. Companies are likely to flourish in a healthy business climate where they are assured of minimal risks such heavy taxations and regulation. A healthy business environment is essential for economic growth of every country. Government interventions and policies are necessary and pose a positive impact on the business environment of any industrialized country. Rules created by governments ensure smooth functioning of market systems though the rules are dependent on the state of a particular economy(Organisation for Security and Co-operation in Europe, 2006, p. 12).

The purpose of this paper is to outline the policies and interventions governments can implement to create a conducive business environment. The article will address the different approaches by government and their impact on the economic growth and sustainability of firms. The strategies include improving infrastructure, research and development, and deregulating key markets, laws in promoting price competition and regulating monopoly, national policy, maintaining stable and orderly labor and capital markets, and managing externalities

The following are key policies and interventions by governments in improving the business environment.

National security

Countries with good governance, stable and transparent legal and political systems provide foundations for economic growth. When the political and legal systems are lacking, which are crucial for economic growth, the environment becomes unfavorable for business operation. Political instability and insecurity interfere with business activities hence it’s the role of the government to ensure national security to encourage investment from both foreign and local investors(Nanto, 2010, p. 10). Though a country might offer low tax rates but with issues such as civil strife, the inability of the government to deal with the natural disaster, labor unrest investors are likely to decline to startup businesses. Unstable environments increase the risk for business operations which most investors are likely to avoid.

According to a World Economic Forum held in 2005 in Davos, the conclusion on the "The Best Places to do Business" indicated that security was the primary concern for everybody willing to invest in a particular location. And most of the participants argued that armed conflict was not the only security risks that governments in different countries ought to address. Governments were urged to lie down strategies that confront issues of health, natural disaster, and other events that pose threats to security(Organisation for Security and Co-operation in Europe, 2006, p. 23).

Stable and orderly capital markets

Financial markets are mechanisms that allow trade of long-term financial assets including corporate shares as well as public and private debts securities with a maturity of more than one year. With capital markets, they provide liquidity of shares that play a vital role in economic growth(Quandlous, 2010, p. 12). Investors contribute to the efficient functioning of these markets, hence for the need for government to establish rules and regulation that ensure transparency in trading the securities, disclosure all necessary information regarding the markets to investors, set eligibility requirements for industry, and monitor issues of securities to ensure compliance of every individual to the requirements. An example of government intervention to increase investors' activeness in buying and selling securities can be through favorable policies such cutting tax. Laws and bills passed by different levels of the government can directly or indirectly affect the marketable securities. In the United State the government in acted the Sarbanes-Oxley Act in 2002, with the law stricter securities regulations were established for publically traded companies. The result was monitoring of accounting and auditing system which led to increased corporate responsibility and disclosure hence more clarity to investors (Investpodia Staff, 2016, p. 22)


Physical and institutional foundations are the most important complementary assets for any business operation. Allocation of government grants, bonds, and funds to oversee the development of national transportation such roads, railroads creates significant additional assets to support the development of manufacturing, retail, and agricultural industries. Provision of physical infrastructure results to stable markets for a broad range of industries. Improvement of institutional infrastructure is an important role of the government in marketing for different businesses. A government can intervene in promoting stable and open institutional frameworks. Interventions can be through improving security and controlling violence and corruption(Boundless, 2015, p. 77).

Hungary, centrally located in Europe is considered one the best place to do business due to the road infrastructure. With four major Europe countries transportation running through the country, it's considered the central hub in the region. The government of Hungary continues to invest in upgrading and extending both motor and road infrastructure. With more than seven highways, the road infrastructure attracts investment from the local people as well as other investors from the neighboring countries all around Hungary.

Research and development

Investment in research and development is the other form of complementary assets the government offers to businesses through providing access to information and resources at little or no cost. It’s well known that government funded research and development have contributed to long horizons in technological development compared to most research aided by private companies or individuals(National Academy of Engineering, 1992, p. 49). Growths in the industries such pharmaceuticals and medicine have supported through research conducted by different institution and agencies under the government.

Laws to promote price competition and regulate monopoly

Competitions encourage greater allocation of resources and improve the living standards. Monopoly on another hand can set higher prices on different products compared to competitive markets. The government can control monopoly through price capping, preventing the growth of monopolistic power, and yardstick competition(Pettinger, 2015, p. 33). The government regulates monopoly through avoiding excess costs, with no regulation they can set the price above the expected range.

Business that exists in the monopolistic market tend to provide service below expectation, and that is where the governments come in to ensure all services and products provided by such business are of quality and meet all the required standards. The government intervenes in encouraging competition in areas where the provision of goods or services controlled by one or some industries which should not be the case. In cases where monopolies are natural due to economies of scales, the government cannot encourage competition but instead come up with regulation to prevent abuse of monopoly power.

In Australia, the Competition and Consumer 2010 Act requires that all businesses and firms in Australia compete. Activities such as price maintenance market zoning, price leadership, exclusive dealings, and interlocking leadership are illegal. Companies and businesses that break the laws face hefty penalties of up to$ 1 million, and directors who do not want a bind by the law may face jail sentences. Mergers and takeovers between companies are not considered to be in the interest of consumers and thoroughly scrutinized. The Australian Competition and Consumer Commission undertakes surveillances on prices where there is little competition, such as insurance, banking, petroleum, and power. In the event of price increase both public and private are supposed to justify the raise.

Deregulation to enhance competition

Removal of unnecessarily government regulation promotes healthy competition on important markets such labor, shipment, telecommunication, primary produce, and aviation. With deregulation, competition allows for lowered prices on commodities, increased efficiency and improved living standards(John Wiley and Sons Coporation, 2015, pp. 105-9). However government regulation can be beneficial especially in reducing monopoly, maintaining a balanced regional growth, and legalizing and standardization of both public and private sectors. In Australia, the productivity commission in 2015 made a recommendation to deregulate different aspects of the labor market. With the government adopting the recommendation or any other recommendations, the labor markets were free to determine wages and salaries depending on political consideration and the need to balance between equity and efficiency.

Management of externalities

An externality can be positive or negative, a negative externality may be a case of environmental pollution, and positive externality may be the effect of well-educated employees in a company to increase productivity. Government intervenes in unregulated markets where cartels and other organization can induce monopolistic power, raise the cost of entry goods, and undermine the development of infrastructure(World Trade, 2004). Lack of regulation can result in negative externalities, and the outcomes can be diminished resources, minimal trading activities, and stifled innovation. Through regulation, the government can address all issues of externalities. With environment issues such as pollution, the government can put into place taxes on negative externalities.

The UK even after decades of recycling, it’s still landfills more rubbish than any other country in the region. With each landfills releasing massive amounts of methane into the atmosphere. The British government under pressure from the European Union to reduce the amount of rubbish it buries introduced a landfill tax. With the introduction of the tax, local authorities were expected to raise the tax paid per ton every passing year. From 7 Euros per ton in 2000 to a total of 80 Euros per ton in 2014(Riley, 2015, p. 87).


Government interventions play a critical in improving the environment, in which businesses operate. National security one of the most considered aspect by both local and foreign investors. Good governance and political stability attract investment since there are indicators of favorable business climate. Concerning infrastructure, physical infrastructure such national transportations are important complementary assets for a broad range of industries. While institutional infrastructures protect businesses from insecurities and corruption which have an enormous impact on the overall performance of any business. Research and development provide the business world with crucial information and insights that can directly or indirectly affect the performance of different industries. Monopoly if not controlled and regulated can result in the exploitation of consumers and providers of poor quality services and goods. Lastly, deregulation of the primary markets provides a fair ground for healthy competition between local and foreign investments (Riley, 2015, p. 120).

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Reference list

Abukhames, H. (2015, May 8). Internal Factors that may Affect the Business Organization. Retrieved June 25, 2017, from LinkedIn

Boundless. (2015, August 4). Why Governments Intervene in Markets. Retrieved June 23, 2017, from Boundless:

Business Case Studies. (2014, August 17). External Business Environment Theory. Retrieved June 25, 2017, from Business Case Studies:

Investpodia Staff. (2016, January 23). How does the Government Influence the Securities Markets? Retrieved June 25, 2017, from Investopedia:

John Wiley and Sons Coporation. (2015). An Introduction to Macro Economics: Market Systems, Resource Allocation, and Government Intervention. Australia's Economy Prosperity, 22-30.

Nanto, D. K. (2010). Economics and National Security: Issues and Implication for U.S Policy. Boston: Diane Publishing.

National Academy of Engineering. (1992). The Influences of Government Investment and Regulatory Policies on Corporate Time Horizons. In N. A. Engineering, Time Horizons and Technological Investment (pp. 68-108). New York: National Academies Press.

Organization for Security and Co-operation in Europe. (2006). Best Guide Practice for a Postive Business and Investment Climate. Vienna: OSEC Organization.

Pettinger, T. (2015, November 15). Regulation of Monopoly. Retrieved June 25, 2017, from EconomicsHelp:

Quandlous, A. (2010). Capital Markets and Economic Development: A Framework from a Newly Liberalized Economy. Journal of Business and Economic Research, 9-14.

Riley, G. (2015, May 2). Negative Externalities and Government Intervention. Retrieved June 25, 2017, from Economics:

World Trade. (2004). Market Structure, Externalities and Policy Intervention. New York: World Trade.

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