The State always has an important role to play in market management. The question of the extent to which the state should interfere in the market is one of the most acute. This became especially important when production began to be carried out on a large scale, and the market mechanism was assigned the role of a regulator of economic relations (Chorowski and Kutner, 2021). Large-scale production and the market are unthinkable without developed economic relations, which are already outgrowing national borders and becoming international in current conditions. In addition, modern society differs significantly from the society of the formation of a market economy. It is characterized not only by a larger and more complex economy but also by the presence of a previously virtually absent social sector (Graafland and Verbruggen, 2022). These and several other circumstances have caused a radical change in views on the role and place of the state during the formation and development of the market economy and at present. Although state intervention in the market may not always be beneficial to entrepreneurs, the normal functioning of the market is not possible without it, and this intervention should be manifested to the maximum extent.
The attitude to state intervention in the market economy differed at different stages of its formation and development. Regulatory theories have evolved with the development of the market. There are three main theoretical directions: the classical economic, Keynesian, and monetarist theories (Huang et al., 2022). The starting point of these regulatory theories is the recognition that a competitive market economy functions in an autonomous mode based on the functions of self-regulation and self-development inherent in it. However, the boundaries of self-regulation are defined differently by different economic theories. The primary condition for the effective functioning of the market economy, recognized by all scientific trends, is its stability, which is achieved based on the equilibrium of macro-proportions, and the aggregate payment demand and the produced national product (Nasrudin, 2022). The inability of the market economic system to self-regulate and the need for state intervention was the basis of the Keynesian economic theory of state regulation.
Classical economic theory absolutized the market economy’s ability to self–regulate and denied the need for government intervention. The ideas of Keynesian theory refuted the classical views on the market economy. This theory talks about the need for government intervention to create a balance between supply and demand. It also argues about the importance of bringing the economy out of crisis and stabilizing it, which is impossible without government regulation (Li et al., 2022). The central conclusion of Keynesian theory is that macro equilibrium is achieved by combining market self-regulators with state regulators of direct and indirect action. At the same time, state regulation should be carried out in case of imbalance or to prevent violations and maintain stability. The Keynesian theory considers it necessary for the state to participate in socioeconomic processes.
The Chicago School of Economists stands on the position of automatic self-regulation of the economy. This direction is neoclassical and is derived from classical views on the market economy. Representatives of this school attach great importance to the monetary factor in shaping market conditions and deny the need for government intervention. Because of the emphasis on the crucial role of money, the idea of the Chicago school was called monetarism (Deng and Chen, 2019). Monetarists are in opposition to the Keynesian direction in regulating the regulation of the market. They talk about the exceptional internal stability of the capitalist economic system, which makes it unnecessary for the state to interfere in the economy (Deng and Chen, 2019). Monetarists focus on the mechanism of market competition and pricing, which should automatically balance supply and demand, as well as stabilize the economy. State control over changes in the money supply, according to monetarists, is sufficient to ensure the stable functioning of the market economy.
One of the essential tasks of the State in the market sphere is to provide general conditions for economic growth and innovation and to create a favorable climate for all types of entrepreneurship carried out in different firms. The State has material and financial resources, implements administrative and legislative measures, and uses various forms and methods of influencing the volume of production, investment processes, prices, and structural adjustment (Sadeh et al., 2021). The State also participates in the work of the market at the macroeconomic level, reducing unemployment and eradicating recessions that can develop into protracted ones. In addition, the State’s activities in market conditions are aimed at subsidizing certain types of goods and services to bring significant benefits to the population.
The market is a complex and continuously progressing developing mechanism, which is a self-governing and self-evolving structure. The market system plays a leading role in determining the stability of the economic system and its subsequent improvement. In the market environment, many manufacturers, regardless of the state, decide which products to produce, when, and in what quantity (Weißschnur, 2021). Also, consumers independently decide what, when, and in what quantity to purchase. Both producers and consumers make decisions taking into account only personal interests. Nevertheless, using their interests, manufacturers thus impartially satisfy the requests of the entire public. The market helps to combine the personal benefits of the producer with the interests of the consumer and society as a whole. In addition, it increases the personal interest of participants in economic processes in the results of labor. The market system ensures freedom of entrepreneurial activity and consumer choice. It coordinates economic activity, making it more efficient without coercion.
The state intervenes in the market economy to maintain economic equilibrium. It can adequately ensure monopoly power and regulate external factors and public goods. It also promotes the productive economic activity of entrepreneurs. To achieve this goal, the state increases the productivity of the market system. In addition, it provides a social climate and a legal framework that contribute to the productive existence of the market (Xiang, 2020). The state intervenes in the reproduction process at all stages of market formation. The state has some functions that determine its role in the market system and determine the areas of functioning of state structures.
The legal function is manifested in the management of the State of all spheres of the existence of state entities and their relationships. State bodies guarantee the protection of property rights, as well as equal rights for all members of farms. Government intervention in the market solves several questionable issues that arise among enterprises, consumers, and suppliers of resources. The State also manages the activities of firms to eliminate existing illegal financial transactions and ensure the implementation of consumer rights, using the power, including the order to implement appropriate penalties (Weißschnur, 2021). The prognostic function manifests itself in foreseeing and planning the formation of certain areas in the conditions of commercial relationships that are undesirable for production and may lead to losses. The stabilization function is manifested in the fact that the state apparatus implements measures to balance the balance of financial flows. That is, new places of work are being organized, as well as stable conditions for the functioning of enterprises; for example, by supporting small businesses, the state creates new jobs.
The production function guarantees the reliable operation of the production process from a material and technical view. It is needed when creating the necessary production parameters for the eventual purchase of good-quality products. Ensuring the practical work of all parties includes the supply of the necessary raw materials for the needs of production and the supply of firms with appropriate resources: labor, raw materials, technologies, and others. The last significant function is to ensure fair competition, which is manifested in the fact that the state undertakes several installations aimed at solving personal issues posed by the subjects of the market economy (Roshanae and Khoramshahi, 2020). These installations are oriented to the organization of the same conditions for their complete existence.
State intervention in the market has many advantages that bear fruit for both producers of goods, companies-sellers, as well as consumers. The first advantage is the protection of the competition mechanism from unfair competition. In modern times, competition plays a significant role in the development of the market, but sometimes competition comes to unfair methods, such as bribery, the creation of monopolies, predatory seizure of competitors, and others. The state seeks to minimize the bankruptcy of enterprises and helps with the help of various mechanisms, subsidies, and interest-free loans (Li et al., 2022). The state creates a balance in the country’s market system, which is a plus because, without the intervention of the state, chaos and lawlessness would reign.
Another advantage of government intervention in the market is the regulation of money. The State conducts both emission and tax and fiscal policies. The emission policy carries out the issue of banknotes in the country, while fiscal and tax policies collect funds and control them, controlling the economic security of economic entities and individuals. Moreover, the State creates stable legislation by creating various laws, by-laws, and codes. In this way, the State minimizes the risks of crime, deception, and unfair attitudes of market specialists. Through its intervention, the State controls the quality of goods that are produced in the country. Some manufacturers seek to increase their income by reducing production costs, thereby using lower-quality materials in production (Deng and Chen, 2019). The State has the right to interfere in production and prohibit any product; thus, the State monitors the quality of manufactured goods for consumers.
The state is fighting the shadow economy and monopolization of the market when more financially stable enterprises absorb less stable ones. Few people pay due attention to environmental protection. However, because the state intervenes in the country’s economy, these environmental protection measures are carried out. In a capitalist society, minimal attention is paid to environmental protection if simply – a clean environment does not bring income, and industry and cars with exhaust gases bring profit (Graafland and Verbruggen, 2022). It is in the case of state intervention in the market that proper environmental protection is possible. Thus, it passively affects the health of every person.
Despite many advantages, government intervention in the market has several disadvantages. In the market, when the state does not interfere, many processes operate on the principle that there is demand and there will be supply. That is when the state does not interfere in the market and production, then limited resources in society are adequately used only for those benefits that are needed in society (Huang et al., 2022). If there is no demand for the benefit, it means that it will not be produced. However, there are specific rules in the state according to which it is necessary to produce even what does not require demand. In market conditions, without government intervention, only profitable enterprises operate. If enterprises do not make a profit, due to one reason or another, they are closed; that is, only profitable enterprises operate.
When the state intervenes in the economy, there is a struggle with unemployment. However, with non-interference, every citizen is able to open his own business. There are more participants in the market process, which leads to the expansion of the economy and the creation of many various goods and services (Nasrudin, 2022). Some of them will still be closed because they will not be able to withstand competition, but in this case, the significant advantage will be that only those companies that will be able to provide quality goods and services will remain on the market. Although government intervention in the market has its drawbacks, the benefits that government work brings are more significant and necessary.
Today, the world is dominated by a market economy, and under this circumstance, state intervention in the economy is necessary. The market has its shortcomings, which are called failures, and these include monopolies, lack of information, externalities, and the production of public goods. With a monopoly, market entry for other economic entities is significantly difficult, and the market pricing mechanism is severely distorted, which violates the fundamentals of the market and the principles of free competition (Huang et al., 2022). In such conditions, it is necessary to ensure the conditions of free competition and the implementation of antimonopoly regulation. Also, another failure of the market is the presence of imperfect information, which generates inefficiency in market transactions. In these conditions, the information that is essential for the conclusion of the transaction is at the disposal of one of its participants.
The third market failure is externalities — costs or benefits that are not reflected in prices. They are called “external” since they concern, in addition to market transaction participants, third parties. There are positive and negative externalities, and these negative externalities are not amenable to market self-regulation and hurt the activities of some economic entities on others. In this case, regulation with the help of additional measures is necessary. With positive externalities, third parties, on the contrary, benefit. Another striking market failure is the production of public goods — goods produced at the expense of society and consumed by all its members. Examples of such benefits are national defense, law enforcement, and legislation (Graafland and Verbruggen, 2022). Their production and consumption occur collectively, not in parts. Thus, there are areas where state intervention is necessary since the market cannot cope with the problems arising, and society can suffer significantly without solving them.
Government intervention also varies from country to country with a market economy. It differs in methods, forms, the scale of impact on the economy, and others. The boundaries of state regulation are divided into minimum and maximum. Minimum boundaries are mandatory functions of state intervention in the economy. They include regulatory and legislative activities that have the goal of establishing rules of conduct that are mandatory for all citizens and economic entities and a system of measures that ensure their compliance. Without observing the guarantees of private property, it is impossible to talk about the effective operation of the market. It is the state that contributes to monitoring compliance with this guarantee. Also of considerable importance for the market are the guarantees of the state on compliance with the terms of contracts. The inefficiency of law enforcement agencies, the underdevelopment of the legislative framework, and the lack of mechanisms for the execution of court decisions on economic issues are the reasons for the criminalization of society (Nasrudin, 2022). The minimum limits also include the prevention of negative externalities and the stimulation of positive externalities, for example, tax benefits.
Along with the minimum limits of state intervention, there are also maximum limits that are permissible but not mandatory. Protection of competition and formation of an effective market environment. Monopolization harms society; for example, the prices of monopolies are much higher than those of firms of perfect competition, but production volumes, on the contrary, are lower. For such reasons, the state creates antimonopoly legislation that stimulates competition. The state is also engaged in supporting small and medium-sized businesses: tax incentives and subsidies are introduced, and a legal framework regulating the registration, licensing, and targeted programs is being established. Another maximum limit is the provision of full employment of labor resources. The market mechanism cannot ensure timely adaptation of the structure of labor supply to changes in demand for it (Chorowski and Kutner, 2021). Therefore, in developed countries, the state implements an employment policy and adopts various programs to stimulate employment growth, increase the number of jobs, train and retrain the workforce. An essential role in this area is played by state services to promote the hiring of labor, which studies the labor market situation, assists in employment, retrains the unemployed, and register the unemployed and vacant jobs.
The maximum limits also include regulating economic growth, reducing the asymmetry of information in which the state controls the quality of goods and services, and preventing the spread of misleading advertising. Other maximum limits include countercyclical regulation of the economy. In the case when it is necessary to get out of the economic depression, there is a reduction in taxes, an increase in government spending, a decrease in the critical rate, and the rate of mandatory reserves. In the event of a recovery, the economy exceeds the potential level, and a restraining policy is required to avoid falling into a crisis again — the opposite action of a recession (Graafland and Verbruggen, 2022). Social policy, in which the state influences the redistribution of income and material goods, which helps to reduce the differentiation of income of the population and provides social guarantees and protection of those in need, is the maximum limit.
In general, the market is flexible and dynamic in decision–making, both on the part of producers and consumers. Often, the state is the root cause of changes in the economic behavior of entrepreneurs. Decisions made at the micro level depend on the decisions made by the government. Public policy achieves its goal when it encourages and does not indicate in an informative manner (Chorowski and Kutner, 2021). When creating favorable conditions for entrepreneurs, their private interest will coincide with the interest of the state. Therefore, the state should make the sphere of the economy more accessible to the entrepreneur, which is the most priority for them.
In conclusion, the role of the state in regulating the market is relatively high, which necessitates its maximum intervention. In current conditions, the role of the state is even increasing since the market mechanism is not able to cope with all the tasks of rational distribution of resources and income. The state should complement the work of the market mechanism while preserving all the positive aspects of its impact on society. A large number of functions performed by the state in relation to the market contributes to the elimination of market shortcomings and the desire for a stable economic environment. The state has a beneficial effect on the market through the creation of various instruments. These tools include regulation of the pricing policy of markets, control of monopolies, and regulation of procedures for the introduction of legislative acts and projects. In addition, the state’s role is one of the leading ones in the formation of competition, which is also a necessary element of the functioning of the market. Thus, the non-interference of the state in the market should be minimal.
Reference List
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