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PASEO DE CORO

Do governments create jobs?

/ 03:22 PM December 04, 2013

I had been reading many books in economics and I could never remember reading a line which says that government is there to create jobs. What is the role of government in the economy? Is it to create jobs? It depends on the problem the nation faces.

If a country suffers low productivity or inefficiency, then the government will focus on its efficiency enhancing role or objective. This will require moving resources from areas where their value or contribution to gross domestic product (GDP) creation is little into areas that give greater value per unit of investment and greater contribution to the GDP. This also includes building up the infrastructure of the country and providing basic support services to make business profitable and the whole society function smoothly, including changing the basic law of the land and other laws when necessary to make the country more investment friendly.

If the problem is too much inequality, then the government focuses on programs and projects that have higher re-distributional functions in favor of the lesser members of society that may even include taxing the rich, based on the ability-to-pay principle, to pay, for services directed at the poor because the free market economy does not guarantee equity and elimination of poverty. In the US, for example, much of the government budget goes to programs intended to help the downtrodden members of their society that Democrat President Barack Obama wants to maintain but which his Republican detractors want to reduce, if not abolish by defunding. Necessarily, government intervention in this aspect of governance must also include providing opportunities for all young people to get good education because its role in levelling the field in the job market and making them more responsible citizens by voting with their heads this time, for example, instead of exchanging their votes for a measly sum.

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If the problem is economic instability as seen, for example, in high government deficit, high inflation rate, or high unemployment rate (internal imbalance) or high trade deficit, distortions in the balance of payments and the exchange rate, etc. (external imbalance), then the focus of government action is stabilization measures that reduce these imbalances. To achieve internal balance, these may involve changing the level of government revenues and expenditures, which depending on the state of government finance, may require the budget to be in balance, surplus or deficit. In addition, the government’s central bank may inject or take out money from the system that could lead to easy or tight credit, depending again on whether the economy is overheating or cooling. To achieve external balance, some measures may be undertaken to control the trade deficit and the wild fluctuation in the exchange rate. It may also include counter measures to mitigate the impact of financial and economic shocks coming from outside or the inflow of hot money that will easily disappear with the minuteness of change in the economic policies of their country of origin.

If everything is done well by the government that involves careful balancing of its different roles and objectives that are also often conflicting, then the economy functions smoothly. This now assures faster economic growth with higher employment rates, low inflation, stable exchange rate, a more or less balance trade and budget regimes and hopefully with more equity and lower poverty with the majority of the people finally contributing to and partaking of what the nation produces as a whole. As we can see, the many roles that the government must play, the conflicting objectives that it must meet, and the myriad of things that it must look into for the nation not to go astray makes governance not a relaxing past time for people running the country. Unfortunately, many countries in the world, especially poor ones like the Philippines, do not have the luxury of having an efficient, effective, and honest people in government. In our country, many of our public officials, high and low, are concerned mainly of their own personal interest and continued stay in power and operate alongside vested interest groups in business and other sectors that are more concerned only with getting more favors from their friends in government, in winning fat government contracts, protection of their business from competition, and other shenanigans to profit more their investments.

If we find our economy unproductive and uncompetitive that leaves many workers unemployed, underemployed or disguised employed, it is not only because our corrupt and inept officials in government bungle our economic policies but also due to the actions of many other key players in national development in the private sector that thrive on the corruptibility and ineptness of our decisions makers in government. I am not saying the free market system (less government) is bad. It is proven superior already by the result of the competition between the free market western economies and the command economies in the iron curtain in the last century.

Free market admittedly is good but having plenty of capitalists in our midst does not necessarily make our country a fully working free market even if our government accounts only for less than 20 percent of the GDP measured by the type of expenditures. This is due to the fact that in many so called capitalistic countries, especially poor countries like ours, their capitalism is just ersatz capitalism in reality.

In ersatz capitalism, economic gains are highly privatized but economic losses are socialized. This happens when the power of the capitalists is so strong that they also control government policies for their own good. And the power of the capitalists becomes very strong when the market they are in is highly characterized by oligopoly, if not pure monopoly, that restricts free competition in the real sense of that word. Competition means not just having many competing buyers but also many competing producers and sellers. And I do not think that the second half of that equation is true in our beloved Philippines at the moment.

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