Policy of interventionism, what is it?

The interventionism is a administrative regulation action of the State on any Public body or private to decrease their autonomy. It does this by setting the operating standards that the intervened entity must follow, that is, defining the interventionism policy.

In practice, the term is used mainly in the economic field and when it is private activity that is affected by the intervening State. For this reason, the term “interventionism” has a negative connotation, because utopianly the State should be kept separate from private economic activity.

However, in many countries, the policy of interventionism can exceed required limits. In the history of the economy there have been cases of countries that have gone from a tight control of the economy on the part of the State, to the completely opposite situation, in which a minimal intervention. Countries are generally in intermediate levels of state regulation.

Bases of the interventionism policy

Keynes theory

In 1929, the United States suffered a great economic depression that led the population to the extreme famine. The main cause of its magnitude was to consider that the market was self-sufficient to get out of the crisis.

In 1936, the economist John Maynard Keynes developed a theory that criticized this liberal stance of the economy. Keynes argued that the employment creation through State intervention. This action would inject money into the population generating more employment and creating a upward spiral of economic bonanza.

With his proposed policy of State interventionism, he managed to lift the United States out of depression and lead it back to being a economic power. The Keynesian Theory remained in force until the 1970s when the phenomenon of stagflation occurred, stagnation with inflation. This forced his revision and proposal of new theories.

Objective of state intervention

The objective of applying a policy of state interventionism must be act as a regulator of the country’s economy. That is, mark the guidelines to economic activity in order to achieve a strong economy. However, as we said before, there are extreme limits to the application of a policy of state interventionism.

When the a country’s economy is run entirely by the state there is no longer talk of state interventionism but of socialist economy. Conversely, if there is no state intervention we are before a model of liberal economy.

State intervention seeks, on the one hand, meet the basic needs of the population, not satisfied by the private economy. These are: administration of justice, access to health and education, public infrastructure, etc. On the other hand, you must exercise control over economic activities liable to become monopolies: mail service, public transport, electricity, gas and running water.

Forms of regulation of state intervention

The interventionism policy applied by a State can take different ways which depend mainly on the level of regulation. Makes it through laws Y decrees. Some of the intervention actions are:

  • Tax burden. Represents the taxes that each citizen, institution or economic group must pay.
  • Withholdings. It refers to the amounts of money that the payer deducts from their taxpayers’ wages.
  • Determination of minimum salary. The minimum amount of money a worker receives is established based on a certain work period.
  • Working conditions. Established through laws that regulate aspects related to the development of work.
  • Control and price regulation. Setting the prices of goods and services to avoid speculation.
  • Change control for foreign currencies. It is established as a political measure to defend the value of the country’s currency and its reserves.
  • Duty to economic transactions. To the import, export and transit of products.

Pros and cons of interventionism policy

Main Benefits to apply a policy of state interventionism are social. A correctly applied policy raises the quality of life of people of any social level, improving the general conditions of the country.

This is why it is beneficial for a country with precarious living conditions of the population apply an intervention plan. This would allow distribute so more equitable rent produced by the collection of taxes. But this intervention in underdeveloped countries has led to populist practices, self-styled socialists, who have not favored their economy at all.

On the other hand, without adequate economic regulation by the State, imbalances arise between the supply and demand of goods and services. This produces economic cycles of ups and downs, what it produces instability Y lack of trust in the country’s economy. Besides, the liberal economy encourages control by monopolies or from oligopolies that determine the prices of the products. Finally, it also promotes Social inequality by the unequal distribution of income.

Is it always healthy to apply an intervention policy?

An obvious example of misuse of state intervention it can be seen in the policies applied in the Canary archipelago. In this eminently touristic region, decisions are made only by politicians, also with a bureaucratic burden which can involve national, regional, island and local administrations. This situation has caused the slowing down the development process, diverting resources to invest in other markets.

Interventionism in Spain

For the year 2017, Spain ranked 19th out of 28 countries in the European Union in terms of government intervention. For the preparation of the report, the degree of freedom of choice of the citizen.

Consumption bans, advertising restrictions, tax surcharges, among others, were considered. However, this measurement did not measure the effects of regulation. In Spain, a 74% of citizens consider that the State must intervene to maintain a decent standard of living. The rest consider that they are themselves responsible for their own well-being. Good or bad? Depends…

Leave a Reply

Your email address will not be published.