Is Government Intervention Necessary?

In every corner of the world, each and every country is governed by economic policies to stabilize the economy of that particular country. Some policies do more harm than good in terms of stabilizing the wealth of the particular country. As my high school teacher use to say “too much of everything is dangerous”, well I can justify that he was right or wrong until I know that it is dangerous in terms of what. In this piece of writing I shall discuss the government intervention on agricultural market specifically focusing on the maize market. I shall do this to find out if government intervention creates distortion that do more harm than good or not and the best to do that is to find lay down the effects of government intervention in details. One may ask “what is government intervention?”

Scholars like Simpson (2005) contend that the term ‘government intervention’ is basically means the natural activity initiated by the government to influence the economy of the country as a whole by creating legislation, fiscal and the monetary policy including the direct government involvement on the productive sectors of the economy. Every country in this universe is governed by policies or laws which are created by the government in order to create some order and formal way of doing things. The government tends to intervene in different ways; it might in terms of imposing a tax on certain products or wages, price controls and sometimes in terms of subsidies. Organizations such as NAMC (National Agricultural Marketing Council) argues that had brought alteration that hag a big impact on the different sectors of maize meal industry and those sectors are (1) the production side (2) the processing side and (3) marketing and consumption side (NAMC 2001). In addition NAMC (2001) argues that price controls of agricultural products is the most harmful policies because it hit the supplies mostly compared to the consumers hence; price controls on agricultural products should be removed except the health sector.

According to financial mail (2006) stresses about the inflation rate at Zimbabwe which has reached the highest level compared to other countries in the world. This increase in general prices of goods including maize forced the Zimbabwean government to do something about the situation in order to eliminate the panic of many Zimbabwean`s by intervening in the prices of basic commodities (Financial Mail 2006).  As a result the Zimbabwean government was forced too set a price ceiling which scholars like Parkin (2006) defined it as “regulation that makes it illegal to a price higher than that specific level”. In the case of Zimbabwe it was not just food prices but it was also on the price of fuel and as a result it s it difficult for the suppliers to set the price above the stipulated prices. Scholars like Parkin (2006) argues that as a results of the price intervention in Zimbabwe there was an illegal parallel markets which operated aside and its prices don`t follow the legally imposed prices and that market is well known as Black market.

Chizari (2010) on the other hand stresses that maize plays a very significant role in the agricultural markets. Chizari argues that maize is a “key stable crop which is used in the wide range of food industries and as a customary live feed in the world”. In addition he stresses out that maize is one of the largest of global course grain trading in past recent years by “trading almost 75% of it in total production volume”. Chizari (2010) stresses that agricultural commodity depends on precise and expected supply and demand changes hence; products such as maize are relatively price elastic which means that the quantity of maize demanded and the quantity of maize supplied change less relative to price.

In addition, Chizari (2010) argues that if the government can intervene in the market of maize by providing subsidies instead of imposing taxes on commodities it might help the production side of maize market especially if that year due to climate change there has been little rain. On the hand Wilkinson (1999) stresses out that the government intervention main purpose is to achieve social goals. Wilkinson (1999) argues that there are only two justifications that explain the best government intervention which are (1) to cover up areas where the market was unsuccessful to operate effectively and (2) to achieve social objective for equality and consumer protection. Does that imply that government intervention is good?

According to Wilkinson (1999) the market fail more often in many countries so government intervention in such instances to help on providing subsidies. The conditions that lead to market failure are broad and natural monopolies are essential one because some monopoly firms set prices that maximize their own utility hence; the government intervention could stop such activities by initiating a price control to protect the consumers of such products (Wilkinson 1999). Lastly, Wilkinson (1999) stresses the market failure can also takes place if the consumers of a certain products are not well informed by the producers about the services or the product as producers do, he called it “Information asymmetries” and in such cases the government have to intervene. So basically, the government intervene in the production, maintenance and management of the public good in order to maximize the society`s utility and hinder over exploitation or waste of usage of resources.

Conclusion

Sometimes government intervention creates markets such as Black markets due the price controls of goods and we have seen what happened to Zimbabwe due to price controls. We all have to learn something from that because if your price stipulated by the government affects the producers, their going to leave the market and that will result in the decrease in supply of that product and that might affect the countries economy. Government intervention creates harm in some instances but we can not really conclude that it creates distortions that do more harm than good because the motive for government intervention is to achieve social goals as scholars like Wilkinson (1999) contends.

For the reason that government intervene to cover up areas that the market failed to cover, makes government intervention a good thing than bad and that being said I think government intervention by controlling prices of goods is does create distortions that do more harm than good especially on goods such as maize meal which is a very unique and essential product for many people. Lastly, government should avoid inflation in order to run away from price controls as we have seen that the price ceiling that was initiated in Zimbabwe was due to the general increase in prices of goods and services.