What Role Should German Government Play in Business? Essay

710 Words May 20th, 2011 3 Pages
Argumentative essay
What role should German government play in business?
As part of her efforts to combat the economic crisis, German Chancellor Angela Merkel is increasing the state's influence in the market, buying holdings in banks and bailing out individual industries and companies. Considering these new course of the government, there arises the question what role should the German government play in business?
On the one hand, if done correctly and in a limited way, government intervention can correct negative externalities like pollution, which impose a social cost on society. The German government implement this for example through eco taxes. Eco taxes are one of the most effective measures to speed the crucial transition
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Agricultural subsidies are a prime example of this. We subsidize the production of certain agricultural goods, which encourages over-production, at a cost to taxpayers. That overproduction results in falling prices for agricultural goods. To combat that, the government agrees to buy those excess goods, especially dairy products, and destroy them. So you’re paying the farmer to grow the good, then paying them to buy the good, and then destroying it. The net effect is higher prices for food that impact all customers, a waste of taxpayer euros, and continued over-production of certain agricultural products.
Furthermore a notably amount of goods is usually shipped to Third World nations in the form of "food aid”. This food aid is great for urban poor people, who get free or very cheap food. But it destroys agriculture in those Third World nations, since their farmers can`t compete with free or cheap food dumped into their economies by often well-meaning development professionals.
Finally, where governments attempt to help industries, they are essentially "picking winners." This distorts the natural action of the marketplace and may result in more efficient, but less politically well-connected firms going under, while companies who have politicians as their friends, technical speaking “doing lobby work”, survive regardless of their efficiency.

In Conclusion of course there is some truth in Adam Smith´s often-cited theory

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