Imagine having a game of Monopoly with your friends. Monopoly is a strategy game in which the goal is to amass the biggest quantity of wealth, charging others when they pass through your properties. To play this game, the first step is normally to lay out the rules of the game and to establish which token is going to be each person, as well as who is going to stand out as the bank. In a perfect game of monopoly, you should have five people, four playing as tokens and one as the bank. Also, everyone should know the rules beforehand to avoid any discrepancies or misunderstandings. Now, imagine having one single person who serves as the banker, who has sole access to the sheet of rules and is still a player with the hat token. That one player tells everyone what to do because he literally controls the rules, and, potentially, he could be the player who amasses the biggest quantity of money in the game, having properties such as Broadway, New York Ave. or even all of the Train, Water, and Electric properties (which are some of the most valuable and cost-effective properties in the board game). Is that fair? Is that player balanced in comparison with all the other players? Did he have the same start as everyone? While this example comes from a fictional game, we have to ask ourselves if some shady breaking of the rules happens in real life. Are these types of all power players exist in real life, and if they do, who are they?
Government intervention in the economy works in a similar way as the player in Monopoly, who, in fact, has control of the bank and special knowledge of the rules. Acquiring properties as a public facility stops the progression of the free market and increases the power of a centralized state. This article will argue that the government should not intervene in the national economy, but, most importantly, will break down the myth that believes there are no alternatives to government intervention in topics such as public transport, healthcare, fuel and minerals, and the market.
To better break down this proposal we need to define government intervention in the economy. State intervention in the economy is when the central government, federal state or governmental administration creates an economic policy that grants them control over a company, organ, function or physical representation in the economy. The most common examples of this government intervention are in the form of public, private or partially private-public ownerships.
It’s also considered a type of government intervention when the government directly involves itself with a business in the form of economic policies in order to fund an agency or company by giving them grants, loans, or subsidies. However, this system usually leads to business dependence on the state, bringing the possibility to state ownership over the business since they control part of their finances. A grant is when the government gives money to private or public investors without repayment on their part. While they are normally the most beneficial way to stimulate a business but the worst directly to the governmental accounts. Also, grants are given when the current administration wants to promote private investment and growth in a given area of the economy without receiving anything in return. Normally, the government repairs the costs of this financial aid by taxes, rising employment or unique contributions. Loans are grants that must be paid back with interest. They are beneficial in the short term because they can help the growth of business at the moment; however, any debt is a big cost for a business in the long term, especially if it doesn’t maintain a good economic stand in the future.
The last type of government intervention comes in the form of subsidies. A subsidy is a direct contribution from the government to a private or public institution in the form of funds, tax breaks or special attributions in exchange for a certain stake of intervention from the government in the company, either in decision making, financial decisions, ownership or control of the company through stocks.
To put everything in perspective, let’s look at an example in order to understand the difference between grants, loans and subsidies. The government of the United States is trying to evaluate an intervention through economic policy in a private company that extracts petroleum in Montana. The company is running out of cash quickly because they are investing in three more drilling sites to increase the output of petroleum in the place which will increase the production of gas in the state. In the case of grants, the government supplies an amount of money as a “gift” to this company in order to finish the construction of the drilling sites while still maintaining the rest of the costs. In the long run, the government will receive more taxes from the increase in production in the drilling sites, which will pay for the grant they gave to the company. In the case of loans, the company applies for a loan from the government, and, after careful evaluation, the administration decides to give or deny the loan. Normally, if it’s approved, the company will have a number of years to repay this loan with interest. This would be in addition to paying taxes to the government, which will eventually hurt the business but benefit the government since more money is drawn from the business to the state arcs. For subsidies, the government will give the business a grant; the company will, in return, give up some portion of their decision-making. In the example of the Montana petroleum company, the government can argue that, in exchange for the money, they need to receive a percentage of the increased newly generated oil in their drilling facilities. The company wouldn’t have to repay the money, but, instead, the government would physically own some stake in the company in the form of oil.
One of the real-life problems of subsidies was presented in Spain a few years ago when the unemployment crisis struck the nation. In response to the 2013 rate of unemployment of 26.09%, the government gave subsidies to many farming and agricultural facilities in return for food in order to make food boxes for the unemployed people. While one may believe this is a great plan, and I would agree for the most part, in early 2020, a problem appeared from this system. The sustainable food system for the unemployed had two main issues: the government intervention and sustainability of the company led to weaker private farming owners and excess on food return to the government. Farmers were earning less for their products because of the subsidies, making them lose money overall since the government planted a general price for food. For example, oranges, which cost around 0.20 euros to 0.22 euros each to produce, were being sold for 0.18 euros each by government restrictions, making the farmers lose money, which actually caused many farmers to lose money, even though the government was supplying money to them for their production. Aside from that, the government also placed a CAP (Common Agricultural Policy) in subsidies, which hurt the current production that was being taken care of in the farms.This made them lose not only the continuous income that the government made them depend on but also the decrease in prices because of government regulations. Apart from that, due to the massive subsidies and loans given by the Spanish government every year, Spain has one of the highest debt-GDP ratios in the world, with 95.12% just in one quarter, which eventually hurts the Spanish economy as a whole from the massive debt payments they annually pay. This could potentially be used for funding instead of paying down the debt. Last but not least, the idea that the Spanish government was going to permanently fund businesses like farms led to a shortage of money when the CAP was imposed, as many businesses counted the money given before to work their lands. Now, the current production in those farms will decrease since there’s not enough money to maintain it.
After reviewing these three types of state intervention, it’s important to go back to the basics of government intervention in the form of ownership. The three common types of government intervention are private companies being publicly funded, public companies being governmentally funded and partially private-public companies being private or publicly funded. In the first scenario, a private company receives funds or a tax break from the government, which helps them grow. A clear example of this could be a privatized healthcare system in the state of New York. While the administration is private and is owned by a particular entity other than the state, it receives funds from the state government to supply its services to the people. However, with this system, if the government is unable to keep up with the funding of the healthcare company, this could lead to the same problem that happened in Spain with the farming sector, as many people depend on the continuous supply of money from the government to have their healthcare. While the term “state intervention by ownership” most resembles cases of public ownership, privately-owned companies that are publicly funded are considered a type of state intervention by ownership since the dependence of growth of the company comes from the state, which, in the majority of situations, influences the decision making of the business in question.
The second scenario works when a company is publicly owned, like the MTA (Metropolitan Transportation Authority), which is owned and funded by the State of New York. The public management of the transport in New York has led to several issues, such as the worst on-time rating for the subway cars and a deficit of over 42 billion dollars. I want to clarify that there are cases when publicly owned and publicly funded companies could work, but a great majority of the cases either proposes a debt to the state from the subsidized prices that it normally gives or a problem in changing political administrations that will be explained further in the essay.
The third scenario of government intervention by ownership comes in cases of partially private-public companies that are either privately or publicly funded. This case resembles the best and worst of both worlds, as any party could have the final word in the decision-making. When having private investment in this type of scenario, corporations or individuals are privately funding the government, which, in many cases, can align or disagree with political beliefs. For example, if a very conservative person is funding a healthcare company that is both privately and publicly owned, and this company supports abortion, the private investment could possibly be withdrawn, making them as volatile as subsidies. Also, the private part of the company will keep in check the accounts, as normally privately owned businesses have a different perception of debts than publicly owned ones.
With these facts in mind, we must ask, is there a system of government intervention that contributes to no direct issues to the economy. There are two possibilities I think are reasonable. The first one is to equilibrate the spending of public companies with taxes, creating systems of massive recollection similar to the ones found in Denmark or Sweden taxing 50%-52% of your income in order to maintain their social programs. The fundamental criticism of this system is that, while it presents a good for the overall community, individuals are not working for themselves but for the government, as the majority of your income goes to the social programs that they may or may not use.
The second possibility is to distribute government vouchers, which support private investment, private growth, free market and libertarian policies in the market without direct government intervention. Simplistically, a voucher could be compared to a free meal cafeteria pass, where you can choose the food you like. The funding of vouchers comes from an equilibrium of individual taxes and company taxes. In the same example of the cafeteria, while it’s technically a “free pass,” that food is paid for with your room and board since the cost of that pass needs to come from somewhere. Vouchers are an annual opportunity that the government supplies to the citizens in which social programs can be paid by individuals with the help of the government, supporting the national economy and eliminating government intervention. An example of this alternative would be healthcare vouchers, which directly help people unable to pay for healthcare by themselves and support private companies in the market. The government issues healthcare vouchers to everyone that is economically unable to pay fully for healthcare. Then, individuals negotiate with their company of preference and apply for healthcare with that private business with their healthcare voucher, which will pay for it as a free meal cafeteria pass would. The logic in this system is that the government would pay the healthcare voucher (paying the company via the private citizen) but would leave the selection of the healthcare provider to the individual Eventually, citizens will pay for the healthcare vouchers in their annual taxes, and there will be an equilibrium in the economy since the healthcare voucher system is less expensive than the universal healthcare system.
In other words, and to be clear with the purpose of the government voucher, it creates a way in which individuals can acquire private services of the economy with the freedom of choosing. The government gives a voucher to each person in order to buy in full a health insurance plan from a private issuer. The voucher pays in full for the policy, instead of paying for the full costs of the operation or the healthcare services. It has been often referred to as the Purple Healthcare Plan because it joins the best of both proposals from the Republicans and Democrats. Moreover, it’s important to explain the difference between a Single-Payer healthcare system and the voucher system. The proposed system is a single issuer healthcare network with many private insurance providers behind it. The government, as said before, is not involved in the process of health per se, only, acquiring the policy. There are many interesting parts of this plan which are explored in this Forbes article by Laurence Kotlikoff.
However, this system has some advantages and disadvantages, and can also be demonstrated with the healthcare voucher example. This case brings efficiency to the market, as more customers are brought to the business, and, instead of making the state a competitor for the customers with the healthcare systems, it becomes an advocate for private insurance. This supports jobs, infrastructure, a long line of supplies and health to citizens. The cost of the healthcare voucher system is approximate of $3,000, depending on the needs of the person. In contrast with the current healthcare system in the US which sits around $11,000 per person annually (and is expected to increase to $18,000 annually by 2028), or 32.6 trillion dollars over the course of the next 10 years, healthcare vouchers would be less expensive. However, the current healthcare system of the United States is not universal and unlimited, which drops the price lower than the cost of the alternative proposed. If the US wanted to create a fully universal healthcare system, it would cost approximately 149 billion dollars annually more than the current system while still needing the investment of hospitals, healthcare jobs, administrative structure and a long chain of supplies to maintain the system which the government needs to take care of since it’s publicly managed. Apart from this, we are not taking into consideration that a change in the political administrations can turn universal healthcare back to its original incarnation.,. One of the biggest problems of universal healthcare is that it supports healthcare for both people who could potentially pay for private insurance and those who cannot pay private insurance, creating a big deficit for the government as some people, in fact, would not use the universal healthcare proposed by the government because their deals with private insurance could offer better benefits. Another potential problem is that those who do not want universal healthcare are still forced to pay taxes towards the healthcare system. Healthcare vouchers could be a place for agreement in the future between policies and standards as they bring to the table the goals of both republicans and democrats. This system is striving for giving healthcare to all citizens, while still proposing a way to help the market proliferate, have a smaller government and individual pay. It also values the free choice of provider for the person when getting a healthcare system and substantially decreases the tax impact in the pockets of each person. However, either in the Universal Healthcare system or the Voucher still create jobs, customers for the private companies or the public administration, a line of supply to maintain the system and infrastructure.. This system would essentially decrease debt since it costs less and would only support the people that require or ask for it, which would remove maintenance costs from the government.
Before entering into the disadvantages of the healthcare voucher system, we must acknowledge that this system substantially creates more clients to private companies, which will create bigger taxes to these healthcare companies. More funds are going through their administrations, in some way, repaying the healthcare vouchers that were given by the government to the people. However, the main problem in the voucher system is that there’s a big population of people depending on the government voucher. If the government is unable to pay them, it would lead to many people losing their healthcare status, which can be compared with a debt crisis on the universal healthcare system. Another problem with this system is that it could potentially lead to monopolies in the healthcare market when a company obtains too many customers. It’s the responsibility of the market and society to put in check these companies with competition, free will and with the stock market from becoming monopolies, as long as their detriment to society is way higher than the benefits they produce.
In theory, vouchers could be applied to many other cases in the economy, such as transportation, business grants, education, oil and gas vouchers, pensions, social security, etc. This would create a direct alternative to state-owned companies while supporting the free market. That monopoly player would potentially never exist, as the bank, rules, and market would be separated. The government should not have any direct economic intervention in the economy as any economic policy or ownership since the administration in question, or any in the future, would make the intervention in their preference, as the example of healthcare mentioned before. Apart from that, there are many mechanisms in which the government can ensure social security from private companies without government involvement and owning. Choosing the right way to act now is better than staying several more years turning back and forth.