Business Ethics and Corporate Governance, Second Edition

GOVERNMENT INTERFERENCE IN MARKET ECONOMIES

The modern capitalist or market economies are characterized by government interference in varying degrees. A variety of reasons explain why this is the case, but the following are the most important ones:

1. The contractual arrangements and exchanges needed for free market operations cannot exist without the protection and enforcement of a governmentally provided legal structure.
2. The claim that the market mechanism leads to efficient use of resources (i.e. produces what consumers want most and does so in the cheapest possible way) is based on the assumption of competition in factor and product markets. This means that there are no obstacles to free entry and free exit and that consumers and producers ...