Current Events

Ex: Politics in Wales

1) What is the basic problem in this scenario?

• Recognition of Wales has suffered abroad since it no longer has an agency dedicated to promoting trade, say MPs.
• In 10 years, 171 factories in Wales closed with the loss of 31,000 jobs
• Welsh success in attracting foreign businesses has deteriorated since the late 1980s and early 90s when it accounted for 15% of investment into the UK. By 2009-10 it was down to 6%.

2) How is this an example of how a government intervening or not intervening and making/not making a better outcome for the economy?

• The government has intervened in a good way because it encouraged private
• enterprises and investments before the abolition of the WDA due to the Labour Party’s initiative of nationalising private industries. WDA, before its abolition, helped the economy to remain healthy and the Welsh government was really healthy.
• After the abolition, the government made situations worse

3) How does the situation in this current event relate to the principle that “government can sometimes improve market outcomes”?

• The key word in this principle is that government sometimes improves market outcomes. Similarly, in this case the Government Business Administrator Edwina Hart, failed to do her job which had a drastic effect. Also, there was a lack of contact between the Welsh and UK governments. In this scenario, the governments actually did not improve the situation and rather harmed it. Now the government is thinking of new ways to attract foreign investment and enhance trade in this competitive market.  

4) What is the Welsh government doing for improvement?

• “We have established a major projects team to lead on trade and investment.”
• "We are delighted that the committee has endorsed our proposals for a new London office and a fresh approach to inward investment.”
• "A large number of new leads and enquiries are being generated and delivered.”
• "Our new model is a more flexible and responsive model and fit for the future, not simply a throw-back to the WDA, which had run its course."

5) What is the purpose of government and why do we need government?

• One reason we need government if that the invisible hand can work its magic only if the government enforces the rules and maintains the institutions that are key to a market economy. Most important, market economies need institutions to enforce property rights so individuals can own and control scarce resources. Another reason is that although the invisible hand is powerful, it isn’t omnipotent. There are two broad reasons for a government to intervene in the economy and change the allocation of resources that people would choose on their own: to promote efficiency or to promote equality. Many public policies such as the income tax and the welfare system, aim to achieve a more equal distribution of economic well-being.

6. What are some causes of market failures?

• One cause of market failure is an externality, which is the impact of one person’s actions on the well-being of a bystander. One type of externality is pollution. Another cause is market power, the ability of a single person (or small group) to unduly influence market prices.

7. Why do you think the concept of property rights is so important?

• Property rights are important so that individuals can own and control scarce resources. Government protects an individual against expropriation. Property rights are important so that others won’t take people’s assets forcefully. They are also important so that people have an incentive to work with diligence and make progress. For example, a farmer won’t grow food if he expects his crop to be stolen. Property rights are fairly respected in the United States and Europe however in other parts of the world, property rights aren’t well implemented. For example, in South Africa, corruption occurs in every position. Government officials and businessmen are corrupt.

8. What are the distinctions of direct government intervention on the market and governmental encouragement of private enterprise?

• The WDA emphasized more of a governmental encouragement of private enterprise, and it did not rely on nationalisation or takeover of private property but instead encouraged healthy competition and individual initiative in the private sector.

9. What can a government do to encourage foreign investments?

• A government can actively advertise and provide business incentives in target geographical or economic regions such as tax cuts access to resources. A government can commission and host competitions of corporations and individuals for certain licences and rights to business for a project or a region, providing a stimulus to the  region’s economy and increasing its reserve of invested finances.

Following Questions were answered by looking into the polotics of Wales on a bbc article linked here: http://www.bbc.co.uk/news/uk-wales-politics-17100270