The Concentration of Economic Power in the Public Sector Undermines the Foundations of Economic Growth

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The Concentration of Economic Power in the Public Sector Undermines the Foundations of Economic Growth

In this essay, the concentration of economic growth in the public sector will be taken to mean the proportion of the economy that is governed by public ownership in the production of goods and services. Foundations of economic growth refer to the potential for the economy to expand, and hence this would be represented by an outward shift of the Production Possibility Curve. Therefore we shall discuss how a higher proportion of the economy that the government is directly involved in leads to a diminishing potential for future progress of the economy.

How can the public sector hinder economic
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The economy cannot solely rely on the profits of the government and subsequent government injection. This has been illustrated in previously communist regimes like China that suffered from numerous deficits and a deteriorating economy by solely depending on the state initiative.

Since investments and capital generation through entrepreneurship and enterprise is restricted with the concentration of economic power in the public sector, then the only other major source of investments to fuel economic growth is foreign direct investment. While this source of investment could singly sustain economic growth, the prospects of a public sector dominated economy may not be appealing. The labour force available for Multi-National Companies contemplating investing in a country would be small and not very skilled. This is since the public sector would very likely have the first pick and recruit the ‘cream of the crop’. In addition, foreign direct investments may be severely leaked out of the country with the lack of proper regulations, and hence the effect of the investments on economic growth is mitigated. The economic growth cannot solely depend on foreign direct investments due to this reason.

The concentration of economic power in the public sector also undermines the foundations of economic growth by affecting the labour as a resource. The per capita income of labour

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