Laissez faire government
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Laissez-faire government is a doctrine stating that a government should not directly interfere with economic affairs but rather keep law and order, and leave the shape of country's economy to the free market.
Origins of laissez faire economics
Laissez-faire is a French word meaning let do. As an idea it was coined by French physiocrats and used later by such a classical economist as Adam Smith. He believed that government's role should restrict to abide by the law and keep order, defend one's country, and provide services, such as health care, which the private enterprises would not be able to. At present, a doctrine which is close to the discussed one is the economic liberalism, which highlights the value of personal freedom both in economic and political activities.
Economy based on the laissez-faire idea is regulated only by the price; contrary to the doctrine of interventionism, no outer factors interfere with the marketplace. However, at the beginnings of the 20th century, as a result of the entrepreneurs' abuse of power, the American government stepped in acting as a guard controlling various organisations in order to protect public interest, and ensuring that the free-market rules are obeyed. Numerous institutions were set up with the right to build regulations and check whether the rules concerning the work of enterprises were respected.
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Examples of Laissez faire government
- The United States is a good example of a country that practices laissez faire economics. The US government generally does not actively intervene in the economy, allowing the free market to determine the price of goods and services, and allowing businesses to operate without government interference.
- The United Kingdom is another example of a country that practices laissez faire economics. The government generally does not interfere in the economy, and the free market is allowed to determine the price of goods and services.
- Hong Kong is a prime example of a laissez faire economy. The government has taken a hands-off approach to the economy, allowing businesses to operate freely and the free market to determine the price of goods and services.
- Singapore is another country that applies a laissez faire approach to its economy. The government has put in place certain regulations to ensure that businesses operate responsibly, but it does not directly interfere in the operations of businesses. The free market is allowed to determine the price of goods and services.
Advantages of Laissez faire government
Laissez-faire government is a doctrine that suggests that a government should not directly interfere with economic affairs but rather keep law and order, and leave the shape of countrys economy to the free market. This type of government has several advantages, including:
- It encourages individual initiative and innovation by allowing citizens to pursue their own economic interests without interference from the government. This fosters competition and encourages economic growth.
- It encourages investment and capital formation, which helps stimulate economic growth.
- It promotes efficiency as it allows businesses to operate without expensive government regulations and bureaucracy.
- It provides a level playing field for businesses, allowing them to compete on the open market without government interference.
- It allows for the efficient allocation of resources, as the market determines which resources are in demand and how much to produce.
- It allows for a free flow of capital and goods, creating a more efficient global market.
Limitations of Laissez faire government
Laissez-faire government is a doctrine which states that the government should not interfere with economic affairs and leave the shape of countrys economy to the free market. However, there are several limitations to this policy. These limitations include:
- Monopolies: Laissez-faire governments are often criticized for not regulating the market and allowing monopolies to form. Monopolies can lead to high prices and lower levels of innovation.
- Inequality: Without any government interference, the free market can lead to a high level of inequality between the wealthy and the poor. This can create a wide gap between the two classes and exacerbate existing social tensions.
- Lack of Regulation: Laissez-faire government can lead to a lack of regulation in certain industries, allowing unethical and dangerous practices to occur.
- Environmental Issues: A laissez-faire approach to the economy can result in a lack of concern for the environment, as corporations are not required to adhere to any stringent regulations. This can lead to pollution and other environmental issues.
- Financial Instability: Without any government intervention, financial markets can become unstable and lead to crashes or other economic issues.
Overall, while a laissez-faire government can have certain advantages, it does come with potential drawbacks that can have a negative effect on the economy and the population.
The list of other approaches related to Laissez-Faire government include:
- Supply-side economics: A macroeconomic theory which emphasizes the role of taxes, government spending, and investment on the supply-side of the economy and advocates tax cuts as a means to stimulate economic growth.
- Free-market capitalism: An economic system based on voluntary exchange in a free market, characterized by private ownership of capital, competitive markets, and minimal government regulations.
- Neoliberalism: An economic theory advocating free markets and free trade, while emphasizing the importance of state intervention to correct market failures and inequalities.
- Austrian economics: A school of economic thought which is based on the principles of free trade and economic freedom, and which emphasizes the role of entrepreneurship in driving economic growth.
In summary, Laissez-Faire government is a doctrine that supports limited government intervention into economic affairs, and there are a variety of other approaches and theories related to this philosophy, such as supply-side economics, free-market capitalism, neoliberalism, and Austrian economics.
References
- Caprio, G., & Summers, L. H. (1993). Finance and its reform: beyond laissez-faire (Vol. 1171). World Bank Publications.
- Keynes, J. M. (1926). The end of laissez-faire (Vol. 16). London: Hogarth Press.
- Viner, J. (1960). The intellectual history of laissez faire. The Journal of Law & Economics, 3, 45-69.
Author: Łukasz Groblicki
