Given the fact that Markets Fail for various reasons present a defense for Governments to ever enter in to Monopoly businesses, such as BC Hydro and ICBC and the Knowledge Network.
Introduction
The free market system regulates all private businesses in an economy. As a result, the creation of a monopoly is very difficult, due to the high rate of competition. The monopolies can be created in an economy via the help of the government or the passage of certain patents or policies. There are many countries where the government owns and runs monopoly based businesses as a part of their economy, such as Canada’s Postal Service and Health Care, and America’s Alcohol control business, etc. Monopolies are often criticized for being too conventional or hindering progress and innovation in their industry. However, despite the disadvantages, government run businesses or monopolies may have numerous advantages in the economic system of a country, such as the prevention of failure of the economy.
Defense for Governments to entering into Monopoly Business
Although Adam Smith heavily promoted the idea of unregulated markets, it has been recognized that completely unregulated private markets can fail to achieve Pareto efficiency or even production efficiency in the economy, which may result in market failure. Essentially, market failure may be caused due to four possible reasons which include imperfect competition, asymmetric information, incomplete property rights and poorly designed government policies (Brander, 2005). Therefore, it can be stated that despite having a free market economy, a country can have imperfect competition brewing within the private sector, which can have disastrous consequences of failure. In such circumstances, it is beneficial if the government has a presence in the economy via the private sector companies. For instance, Hydro-Quebec is a government-owned company, which enables the government to regulate the economy as well as protect the citizens from being faced with harsh monopolies and high prices. Public monopoly can help to regulate certain practices in an economy and help keep in control certain undesirable practices and conducts in the market. For instance, in the United States of America, the government owns and runs the Alcohol Beverage Control (ABC) Company, which essentially sells alcoholic beverages to the consumers. Although the company tends to come under severe criticism for hindering the economy, the government argues that since drinking is morally wrong, therefore, it is their responsibility to hinder that sector of the economy. In addition to this, the monopoly also helps the economy by providing the state with a consistent source of high income. If this source of income is cut out of the state’s budget, then the government would have to make up for the deficit by raising taxes, tariffs, and other prices. Such steps would, in turn, increase the cost of living for the citizens and increase expenses making it difficult for the people to maintain their normal standard of living. Therefore, it can be argued that in order to maintain a constant source of income for the government and in order to reduce the drunkenness of the society, the monopoly of the United States government in this sector of the economy is fully justified.
If asymmetric information conditions are prevalent in the economy, then the buyer or consumer may not be completely aware of the negative aspects of certain products or services. Such circumstances may tilt the economy in a certain undesirable direction. The presence of a public monopoly in such sectors could ensure that the government remains highly vigilant, as well as ensure the fact that complete information is available to all parties. Incorporation of public and private sectors in the same industry would help the government regulate the economy in a more effective manner. Such actions would also reduce the chances of failure of an economy. Even though it has been argued that a government owned monopoly of a country can hinder progress and innovation, it can also be stated that the government owned monopoly can sometimes, look after the rights of the citizens as well. For instance, Canada’s public health care system, although may not be the most efficient system possible, it still manages to provide excellent health care to almost all of its citizens and visitors, which is a highly desirable trait of any country. In order to promote innovation, the country can create a balance between the public and private sectors in the health care industry (National Post, 2011).
Similarly, incomplete property rights or common property resources may cause abuse of resources, which may damage the ecology as well as the economy of the country (Hubbard, Garnett, & Lewis, 2012). The Pareto Optimality will be compromised if the government does not enter the economy with certain rules and regulations. Poorly designed government policies can also cause failure of the economy. However, if the government itself is present in the economy via the public company, then the policies will be very specifically designed, thus, protecting the economy of a country.
Conclusion
Hence, it can be concluded that the economy of a country can fail for various reasons, with or without the presence of a public company. Despite the advantages of a free economy, the government needs to intervene in the economy in order to protect it from failure or other undesirable economic circumstances. Therefore, public monopolies can help prevent the failure of an economy and provide economic as well as a social benefit to the people of the country, which is a major goal of the government of all countries in the world.
References
Brander, J. A. (2005). Government Policy Toward Business. Mississauga, Ont.: John Wiley & Sons Canada.
Hubbard, G., Garnett, A., & Lewis, P. (2012). Essentials of Economics. Upper Saddle River, New Jersey: Pearson Higher Education.
National Post. (2011). National Post editorial board: Canada must abandon its health-care monopoly. Retrieved from http://news.nationalpost.com/full-comment/national-post-editorial-board-canada-must-abandon-its-health-care-monopoly
