MONETARY AND FISCAL POLICY

BUSINESS ECONOMICS 4-2

October 11, 2022

Government Intervention VS Free Market

“GOVERNMENT INTERVENTION”

Opening Statement: (Mark Vinson A. Cantuba)

Good Morning Ma’am, our deserving rivals, and all of our fellow Business Economist
students. I, Mark Vinson A. Cantuba from the House of Representatives, will lead off my
honorable team in the debate on whether or not the government should intervene in the
economy. I feel humbled and privileged to take the position that the government should
intervene in the economy for our beloved nation.

We all know that our country is under a democratic system which we have the power to
elect who will lead our country and that’s Government. To illustrate in a picture, we can see the
government as the captain of a ship and we the sovereign are the passengers. My point is,
Government is essential to our country. State, local, or federal governments can be controlled
by all public officials, organizations, or entities. These controls are provided for our GDP, GNP,
unemployment, purchasing power parity, and inflation rate. Government intervention, also
referred to as socialism, is a system in which the means of production are held by the
government or cooperatives and the income is divided equally in accordance with necessity. In
the existing state of our economy, if the government intervenes, resources are regulated, there
are fewer incentives for efficiency and innovation, healthcare is financed by the government,
and there are taxes for public services. Furthermore, according to the World of Labor website,
government initiatives loosen restrictions on the labor market.

At this point, I humbly introduce to all of you our house Defenders:

1st Statement to defend by

2nd Statement to defend by Ms. Janelle Capiral

3rd Statement to defend by Mr. Ian Jay Panisales

4th Statement to defend by Ms. Marie Gianena C. Senador

Last but not the least;

5th Statement to defend by Ms. Kristine De Pedro

At this juncture, I will now formally give the time to present the relevant facts, sources,
and arguments in support of the motion that the government should get involved in our current
economic predicament.
--------------------------------------Statement 1. (Mark Vinson Cantuba)--------------------------------------

To solve inefficiencies, governments become involved in the market. Resources are

correctly distributed to those who need them in the quantities they require in an optimally
efficient market. That is not the case in marketplaces that are inefficient; some may have an
excess of a resource while others do not. There are numerous ways that inefficiency manifests.
Regulation, taxation, and subsidies are some of the ways the government works to address
these imbalances. When governments intervene in the market, they often have one or more of
four different goals in mind.

As Pettinger (2020) said that, one of the main issues in economics is the extent to which the
government should intervene in the economy. Free market economists argue that government
intervention should be strictly limited as government intervention tends to cause an inefficient
allocation of resources. However, others argue there is a strong case for government
intervention in different fields, such as externalities, public goods and monopoly power.

1. Greater equality – redistribute income and wealth to improve equality of opportunity and
equality of outcome.
2. Overcome market failure – Markets fail to take into account externalities and are likely to
under-produce public/merit goods. For example, governments can subsidise or provide
goods with positive externalities.
3. Macroeconomic intervention. – Intervention to overcome prolonged recessions and
reduce unemployment.
4. Disaster relief – only government can solve major health crisis such as pandemics.

“Government Intervention to Improve Equality”

In a free market, there tends to be inequality in income, wealth and opportunity. Private
charity tends to be partial. Government intervention is necessary to redistribute income within
society.
In a free market, inequality can be produced by privilege and monopoly power rather
than skill and manual labor. Without government interference, businesses can abuse their
monopoly power to underpay employees and overcharge customers. Without government
action, the strength of monopolies is likely to increase. Monopolies can be controlled by
government action, which also fosters competition. Therefore, government action can
encourage more income equality, which is seen as being more equitable.
Another is It's frequently argued that people need to be able to keep the benefits of their
labor. But is that justifiable if having access to riches, money, and opportunities depends on
being from the proper family? A wealth tax can lower the wealth of the richest people, and the
money raised can go toward funding education for people who are born into disadvantaged
circumstances.

Government intervention to overcome market failure.

Public goods like law and order and national defense would not be delivered in a free
market since there would be no financial incentive to do so and a free-rider problem (you can
enjoy without paying them). Therefore, a government must pay for them through general
taxation in order to provide public goods like lighthouses, police, roads, etc.
Health and education services are not simply public goods (though they are often
referred to as public goods). Provision is often uneven and patchy in a free market.
Theoretically, everyone can receive an education thanks to government-funded universal
education, which has a significant positive societal impact.

To sum up, There is no actual example of how a society would function without
government interference. Even the most ardent libertarian economists would concede that
expenditure on national defense and property rights protection by the state is necessary. Which
in fact the National Economic and Development Authority stated on May 2022 that the
government is expediting a comprehensive package of actions to lessen the effects of rising
commodity prices.
Hence, According to a study released by the Philippine Statistics Authority, the headline inflation
rate Philippines eased to 6.3 percent in August 2022, after five consecutive months of
acceleration. Moreover, Philippine annual inflation quickened to 6.9% in September, hitting its
fastest pace in four years, firming up expectations the central bank will hike rates further before
the year ends.

--------------------------------------Statement 2. (Janelle
Capiral)------------------------------------------------

GOVERNMENT INTERVENTION TO ADDRESS MARKET FAILURES

Free market cannot solve all problems (market failures) on its own , that is why government
plays a vital role in the market economy. Following are some of the market failures and how
government intervention helps.

1. Externalities are the benefits or costs of a product or its manufacture that affect people
external to the market for the product. The people will be better off if positive externalities are
promoted and negative externalites are reduced.

a) Positive externality has beneficial effects, such as the higher education that a segment
of society attains which benefits the whole economy. Government can encourage this
by subsidizing goods and services that generate benefits.

b) Negative externality has negative effects, of which the most common example is
pollution. Most negative externalities are widespread, affecting many people, so they
cannot be remedied by private parties. In order to eliminate market failures, several
remedies can be implemented. One of the ways that governments can manage market
failures is by implementing legislation that changes behavior. Another is price
mechanisms which are designed to change the behavior of both the consumers and
producers.

2. Asymmetrical information
Market failure may occur when one party in an economic transaction (either the buyer or
the seller)possesses more information than the other party.The government has a number of
policy tools at its disposal to correct asymmetric information and to control externalities. These
include taxes, education programs and production regulation intended to increase the flow of
information to consumers

3. Public Goods and Social Welfare

Defined as commodities or services that are readily available for the people. Almost all
of these goods are provided by the government through the process of taxation. A public good
has two characteristics: non-rivalry and non-excludability. Laws, security, national defense,
education, knowledge, infrastructure, the environment and health protection are examples of
public goods.

There is a free-rider issue with public goods, which is considered as market failure.This implies
that once a good has been made available, no one can be stopped from enjoying it. As a result,
there is no motivation for customers to pay for the good since they can use it for free. The idea
emphasizes what Samuelson refers to as free riders. The free rider problem is when people
utilize or overuse a shared resource without contributing their fair part or without contributing
anything at all. The traditional free-market techniques of producing and consuming goods and
services are hindered by free riding. As a result, it is unable to adequately reward the producer
and will produce fewer. Therefore the solution would be for the government to pay for it from
general taxation.

--------------------------------Statement 3. (Mr. Ian Panesales)------------------------------------------------

--------------------------------Statement 4. (Ms. Marie Gianena Senador)-----------------------------------

 
Government interference influences social and economic decisions made by individuals,
communities, and organizations. Government intervention can make a difference by making
sure there are clear rules for everyone to follow, and also make sure that consumers for
example know what their rights are and what they can expect when they're buying things, goods
or services in the market.

It nurtures, regulates, and supports market transactions in particular areas through specific
institutional arrangements, so as to promote the vitality and to maintain the order of the market.
For example, here in the Philippines, through the Department of Trade and Industry they urge
Filipino consumers to always assert their rights and practice their responsibilities at all times,
especially amidst the pandemic where transactions are mostly done online. It was made clear
that we,consumers, have eight (8) basic rights and five (8) responsibilities.

8 Rights to basic needs:

safety; information; choice; redress; representation; redress; consumer education, and a healthy
environment.
5 responsibilities:
critical awareness; action; social concern; environmental awareness; and solidarity.
There are various consumer-related laws to strengthen consumer awareness on these rights
and responsibilities such as Republic Act No. 7394, or the Consumer Act of the Philippines.

At large, local governments are willing to work with and listen to small businesses in order to
create economic legislation that benefits everyone. In the Philippines, 99.5% of all businesses in
the country being micro, small, and medium enterprises (MSMEs), small businesses are
practically the local economy’s lifeblood, pouring in 35.7% of total value-added.
There are several government programs for MSMEs in the Philippines, designed to give
potential entrepreneurs a little push in the right direction. One of those is the Barangay Micro
Business Enterprise (BMBE) Law in 2002. The benefits under this law help out
microentrepreneurs in the Philippines by giving them incentives to help run their small
businesses.

When entrepreneurs register as a BMBE, they get to enjoy several benefits. They are granted
the following:

1. Exemption of coverage from the minimum wage law

2. Income tax exemption
3. Social security and healthcare benefits
4. Priority for a special credit window
5. Assistance programs and training

Without government’s regulation and support, the country cannot boost the SME sector through
different types of benefits including tax reliefs, loans, social support, and financial support.

Government has a holistic approach to a functioning community and sustainable economic

development of a country. From the smallest parts of the community, the consumers, and up to
helping the thriving entrepreneurs in their MSMEs. Government laws can protect the
environment, consumers, and workers. Government boosts its people’s morale through giving
hope in making their business journey at ease.

-----------------------------------Statement 5. (Ms. Kristene De Pedro)----------------------------------------

One of the important factors in the economy is Labor or Employment. It stimulates the overall
economic growth. Without labor, the labor market will not function in the absence of production
of goods and services, there will be no income for the country, and high risk of poverty. The
government gives importance in providing benefits, protection, and securities to value all the
employers and employees.
The mandated statutory benefits or mandatory benefits for the Employees includes:
1. Social Security System (SSS)
2. Health insurance
3. Home Development Mutual Fund (HDMF) or PAG-IBIG Fund
4. Working Hours and Holidays
5. Weekly Rest Days
 6. Public Holidays
7. Minimum Wage
8. Night Shifts
9. Overtime Pay
10. Premium Pay
11. 13th Month Pay
12. Service Incentive Leave
13. Sick Leave
14. Maternity and Paternity Leave
15. Solo Parent Leave
16. Leave for Victims of Gender Violence
17. Bereavement Leave
18. Retirement Benefit
19. Pension
20. Death and Life Insurance

The government also implemented different laws for the Employees. In the Philippines, we
have The Labor Code of the Philippines that was enacted on Labor Day of 1974 by President
Ferdinand Marcos which helps avoid employee exploitation and abuse, and ensure equal work
opportunities. The benefits above was also mandated by the government through the Labor
Code.
1. Hours of Work
2. Weekly Rest Periods
3. Holidays, Leaves, and Service Charges
4. Wage System
 Minimum Wage Rate
 Formal payment of Wages
 Prohibitions regarding Wages
 Working condition for Special Groups – Women, Minors, House helpers, and
Homeworkers
The safety and welfare of workers in the Philippines are very important. This led to the
establishment of the Department of Labor and Employment or DOLE by the government to
properly implement the mandated employment laws, and polices.
The government is very important in the Labor Market or Employment to combat the
inequality, unfairness through economic policies, taxation, price controls, and regulations. They
help provide legal and social framework, maintain competition, provide public goods and
services, redistribute income, correct for externalities, and stabilize the economy. Without the
government intervention, there will be no policies, laws, or programs that protects the
employment and whole labor market. The risk of inequality, discrimination, exploitation and
abuse is very high. The possibility of a market failure will also be evident.

Closing Statement: (Mark Vinson A. Cantuba)

Returning to the original query, "Should the Government Intervene in the Economy?"
Yes is the clear answer. The government ought to step in. There is nothing more or less. In
order to combat inflation, the government must step in because it has the power to implement a
contractionary monetary policy that would shrink the money supply in a given country. They are
able to do it because they are given the green light. Government action is necessary to affect
the direction of the currency rate and stop it from falling too far in terms of Purchasing Power
Parity, which is the main factor influencing the exchange rate. Subsidized employment is the
answer to the Philippines' unemployment issue in terms of reducing it. Since the government
provides these subsidies, there is government meddling. We all know that our GDP and GNP
experienced a recession as of the Covid-19 issue, and as a result, the government has taken
steps to address containment, health concerns, and the economic support index.

In order to defend what is good and right, the government has once again made
statements in our house. Remember that we are Filipinos—the Government that enforces laws,
collects taxes, and makes informed decisions for the benefit of the Philippines. This constitutes
the verdict and ruling in the matter.

Other Members:
Bringino, Lorein Mae
Cabiguen, Tricia Danielle
Corroz, Grace Pearl
Hermonio, Marigold
Italia, Nikki
Lapurga, Maricris
Nangit, Catherine
Salmorin, Keziah Anne
Ulap, Sheena Loreyne
Valdez, Shienna