The government participates in the control of business activities to ensure that there is an overall growth in all sectors of the economy. It implements policies that are geared towards achieving high levels of employment, continuous growth in GDP and controlling the levels of price stability. These policies are either fiscal or monetary depending on the desired change it expects to achieve. Fiscal policies involves the adjustment of interest rates and tax rates while monetary policy entails the controlling the money supply in the economy. Employment of these policies affects the overall level of growth and stability in the economy. The government also aims to regulate and control business activities in the economy. It exercises control of the private sector in achieving social goals and to provide essential services i.e. education and health that may require huge amounts of capital outlay. If left to the private sector, exploitation may occur through increased pricing. It is also mandated with provision of financial assistance to individuals and firms in form of loans.
Business activities need a well drawn environment where certainty and desired goals can be achieved. The social, political and environmental aspects should be in balance to minimize risks and to promote socialism through elimination of negative aspects of capitalist ideologies. It is the role of the government to provide regulations that will guide business conduct to encourage investment. Although it is necessary, the participation should be limited in order to allow business to remain independent and also to prevent cases of inflation and depression that may occur as a result of excessive regulations.
Intervention is aimed at maintaining order and equitability in the economy. Market imperfections should be avoided at all costs to protect the consumers from the negative effects. Individual freedom in matters of decision making is a vital element required in business administration and degree of freedom must be allowed. Allocation of resources is highly efficient in the free market system whereby the forces of demand and supply determine the market prices. It also encourages competition among different business entities to prevent monopolies. Information and knowledge is also necessary to consumers in perfect markets. Since the market system is not always perfect, the government intervenes to ensure that there is coordination in the above factors.
The issue that requires much consideration is the extent and nature to which the government must reach as far as implementation of these policies is concerned. Effective implementation of requires that these policies be designed using the applicable resources and be drawn by qualified individuals in those disciplines. The complexity of the problem in question should be given much emphasis towards the achievement of national interest. Incase these policies fail, the economy will suffer a lot in terms of achieving the overall economic effects. Individuals working on these policies should put more emphasize on the level of economic growth and the productive capability of the economy in question. The expertise of each individual must be considered and critically analyzed before the policy is implemented. All contradictions must be brought into account and alternative ways that can be used to achieve similar objectives must be considered.
Business entities operate under the well set rules that have been designed to enable them meet their long term goals. These policies are evaluated from time to time to meet the ever changing levels of technology as well as counteraction competition techniques from their competitors. The policies are reassessed within specified periods to determine whether they have succeeded or new strategies are required to be employed to meet the situation. The effectiveness of a strategy is measured in terms of strengths, limiting factors, the external and internal threats and the opportunities that the strategy may achieve. According to Ohmae, (1982, pp. 156-169) the strategy must pass through a step by step procedure before it is implemented. It must be suitable in its ability to address the economic scale of the organization, the resources to implement it must be available and how well will it meet the expectations of the stakeholders.
Most developed economies have assumed overall leadership in controlling the economies of developing economies through their international finance institutions i.e. International Monetary Fund (IMF) and the World Bank. They implement micro and macro economic policies that they will help towards the structural adjustments of less developing nations. These financial institutions finance the budgets of these nations subject to their policy rules. The result is totally threatening in that these nations remain in worse economic states such as poverty and debt. The developing and third world countries are left to depend on aid from the rich nations. Structural adjustment policies (SAPS) are now being imposed to enable the dependent nations to repay their debt and also to help in restructuring the economy. This has led to the implementation of Neoliberism ideology in which poor countries have to reduce their budget expenditures on vital goods like health and education and put much emphasis on repaying their debt and prioritizing other economic policies.
Is there no hidden agendas? This brings the issue of self-interest and poor ideologies in policy making. They insist that these economies be liberalized and open their markets for export and imports as part of their deal. Government minimization should then be minimized to encourage privatization and foreign investment. Governments are urged to devalue their currencies and eliminate subsidies to commodities such as food. The impact of SAP preconditions to these nations is so devastating in that their economies are driven into further misery keeping them dependent on foreign aid. The countries are urged to export more so that that they can get the necessary amount to pay their debts. It leads to common exports i.e. cash crops flooding the market making them cheaper which favors the importing nations. To maintain stability of currency, exports must be increased.
In the long run, the value of labor will decrease and volatility of capital flows will become rampant. The economy starts to fall and social unrest will occur. This leads to these nations being urged to peg their currencies to a stable currency i.e. the dollar. Difficulty in stabilizing the exchange rate becomes costly and investment is crowded-out (Robbins 1999, p.95). This is well exemplified by the economic collapse of economies due to capital flight that were experienced in the Global financial crises in Asian economies during the period 1997-1999 due to the deregulation of emerging markets and structural adjustment programs.
According to Madeley (1999 p.103) competition is ruthless in manufacturing companies in developing countries. Obtaining contracts from established retailers becomes a problem and thus companies resort to unfavorable practices to increase their productivity. Smith (1994 pp.127,139) in explaining imbalance of trade that exists between the rich and poor nations discovered that developed countries are getting rich while poor countries remain poor by selling products which are capital-intensive at a higher price that should otherwise be low priced. The same nations buy labor-intensive (expensive due to input) products at a lower price. This is why an industrialized nation which exports product and imports commodities is usually wealthy and an undeveloped country imports products using the exchange acquired exporting commodities is poor.
The use of mercantilist approach in designing policies for strategic management shows an element of dictatorship. This shows that there is lack of democracy in formulating policies that govern businesses in the corporate world. I think it isn’t a good idea for a powerful organization i.e. IMF and World Bank to control the activities of other countries in the whole world. These institutions the real concern that faces these countries but rather serve to fulfill the agenda of the countries that control them.The pressures imposed to their spending rates have led them in reducing their allocation to sectors like education and health. Education standards have gone down, health standards have deteriorated and development is slowing down. Were it not for the then Malaysian Prime Minister Mahathir Mohamad to reject the World Bank policies, Malaysia would not be a tiger economy today. His slogan and objective ‘look east’ enabled him to transform Malaysia into a strong modern economy. His principle was that all that works must be done and abandoned the never working World Bank strategies (Mahathir 2002, p.236).
The Structural Adjustment Programs are now facing criticisms from organizations around the world i.e. UNICEF, Oxfam International, WHO among others. The IMF and World Bank policies have undermined the democratic accountability for less developed governments. These financial institutions need to revise their policy strategies to avoid the inevitable results of the rich being richer and the poor remaining in their cycles of poverty. The superpower will continue being powerful and there will be no more emerging economies in the world.
Medley, J 2008 ‘ Big business Poor Peoples;, how transitional corporations damage the
worlds poor, Zed books p.103
Robbins R, 1999, Global problems and the culture of capitalism, Allyn and Bacon, p. 95
Mahathir M, 2002, ‘Globalization and New Realities’, Pelanduk Pulications, p. 236
Smith, J. W 1994, ‘the world’s wasted 2’, (institute for economic decision,1994) ,
Ohmae, K., 1982, the mind of the strategist, Mcgraw hill, NY