Chapter 1: Intro
Intro
• What is a policy?
▪ Policy comes from poiesis -> to do something/to make something → you do it
because you want to achieve a certain objective → we do something to achieve an
objective because the market isn’t doing a good job
Bv: Who fixes the price?
We have a lot of supplies and a lot of people who want to buy them
SO it is the market, so the government does not have to fix it
Bv: Who is fixing the price of the bread?
The market because you have a lot of bakers and a lot of people who
are buying it
BUT for a long time, the price of bread was fixed by the
government WHY THE GOVERNMENT? Because bread is something
fundamental (is a necessity) when the price went too high for bread
then the government set a price because they don’t believe that
the market would fix a fair price
Bv: we take the plane from BXL to Prague
It is a private company before it was a government company but
then they liberalized
Bv: Why are there public schools like Ugent?
Basic idea: education
Objective: everybody should have education at a reasonable price
We don’t leave it to the market because it would fail
• With policy there is an objective and the 1st step we should say is “the market can’t fix is”
▪ So, we must determine where and how the market fails → market failure (the most
difficult step)
▪ If the market fails → 2nd step: not take over but see if you can make the market work
▪ ONLY when we cannot make the market work then the policy must take over 3rd
step
SO, POLICY IS ABOUT ACHIEVING AN OBJECTIVE THAT THE MARKET DOES
NOT DO
1
, 1.1 What is policy?
Policy
• We are doing something by the set of rules / set of ideas / a plan and this can be done at
different levels
= Do something about something because the market doesn’t work
• A set of ideas or a plan of what to do in particular situations that has been agreed to officially by
▪ A group of people
▪ A business organization
▪ A university
▪ A government
▪ A political party
• Aristoteles: theoria (thinking), poiesis (making), and praxis (doing).
1.2 What is enterprise policy?
Enterprise policy
• First step: think about these steps
▪ What is the objective?
▪ Is there a market failure?
▪ Can we make the market work?
▪ What should policy do?
• When do we need a policy for enterprises?
▪ 1: What is the objective? In other words, why do we need enterprises, because …
We need goods and services
They gave jobs
They make wealth → make money → invest and export → part of the GDP → we need them
for the economy
A country needs big, small,.. So, we have enough goods and services, jobs
and wealth
We don’t need enterprises, but we need the secondary impact of them
▪ 2: Is there a market failure?
Identify the market failure
Example: pollution
It is a secondary effect of the enterprises
We need a regulation for the pollution of enterprises
Regulate the secondary effects that they pollute as little as possible
Positive ecology (make cars without polluting)
We don’t have enough enterprises who are recruiting employees
Because employment costs too much because of the taxes and
minimum wages
SO asks enterprises to recruit more employees and instead they
are having taxes reduced and subsidies, 00…
▪ 3: Can we make the market work?
Try to correct the market failure
2
, ▪ 4: what should policy do?
If it is not possible to correct the market failure ONLY THEN you can take
over as a government
How is the split between the free market and G intervention?
• The right side: GOV’ intervention
-> Countries where the government
is much more important than the
free market
▪ France, Finland, Denmark,
Greece, Italie and Belgium
▪ Countries where more than
50% is for the government
▪ They assume that the market
fails so much that the market
is less important than the
government
• The left side: free market →
▪ Ireland, US 37% GOV rest is
market
• What is the best level of intervention??
▪ Difficult but most of the studies
say between 37%- 42% of
intervention
• Summarize:
▪ There are two forces
▪ When the market fails there is a
government intervention
▪ WHY DO WE NEED POLICY?
Because the objectives are not realized by the market
The market is the invisible hand (supplies & demand) and then we need the
government = visible hand → these two forces are making the economy
! It is not because the market fails that the government does it better
! DON’T jump from 1 to 3 = failure that always happens
Example: companies don’t have enough finances to invest ->
they set up a public fund
3
, What can they do as a policy?
• Main instruments to make the market work or to take over:
▪ Taxes & subsidies
Example: the banks don’t work but we try to
make them work again → we give the bank a
subsidy each time when they give credit to a
small company
▪ Max & min. Prices
Example: education is too expensive, so we put a max. price on education and
give them subsidies
▪ Regulating the market
Example: you want to start a private school -> you have to go through a hole
procedure
▪ State ownership / state funding & provision
Example: The banks don’t work than we make public banks
! With these 4 elements you cover 90% of what the government can do
Why enterprise policy?
• Enterprise policy is trying to identify where it does not work and how to make it work again
• What are the objectives and where does the market fail (finds an answer in 3 steps)?
1. Identify the market failure
Few people like to set up their own company
BECAUSE it takes risks
2. Try to make the market work
Try to push people to set up a business
3. Only then, can the government take over
How are we going to do that????
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