The Nature and Rationale for Government Intervention

Subject: Economics
Pages: 2
Words: 527
Reading time:
2 min

The role and form of government intervention in international business are subjective because different countries operate their economies successfully with varying levels of government involvement in business affairs. For example, in America and many western countries, government involvement in business is kept at a minimum because of the belief in the philosophy of free trade. Comparatively, some governments in developing nations have a tighter control on business activities because of the fragility of their economies. In the context of this discussion, the rationale for government involvement in international trade and investment is outlined through compliance and enforcement of laws, consumer protection and employee rights safeguards.

Compliance and Enforcement of Laws

The business environment is characterised by the multiplicity of different needs, products and services that have to be exchanged to create value. Without order, it would be difficult for the market to function as it should because there will be nobody to act as an arbitrator. In such an environment, chaos would likely ensue. This is especially true in international trade because it involves business transactions across state and national borders. In such markets, it would be difficult to complete business transactions without the presence of a central authority that can enforce laws and regulations.

In this regard, the role of government intervention in international trade and investment is justified because it acts as the guarantor of business transactions. For example, governments play an important role in enforcing business contracts and solving disputes among traders. It is only through such guarantees that business persons can engage in free trade because, individually, people do not have the tools or means of compelling other people to meet their business goals.

Consumer Protection and Safety

International business usually involves the exchange of goods and services across national borders. Usually, people who engage in this type of trade may not know each other but exchange many valuable goods and services in the process. The difficulty of verifying the credentials of each business partner or the goods to be shipped before payments are made makes it difficult to guarantee the safety of items bought in global trade. The government comes in to bridge this gap by protecting consumers from unethical business practices and promoting adherence to health and safety guidelines.

The government’s outreach is unlike any other because it can compel companies and individuals to pursue certain courses of action for “the greater good.” Without their involvement, it would be difficult for one trader or individual to have an impact on the activities of international businesses. For example, government intervention stopped the use of child labour by the multinational company Nestle, which operated in West African cocoa plantations. The practice had been going on for years, thereby allowing the company to profit from the use of cheap child labour in Sierra Leone and thereafter repatriate its profits back to its parent company. Government intervention helped to stop this practice and led to the formulation of child labour laws that prevent similar companies from engaging in similar practices.