NCPA - National Center for Policy Analysis

Government's Proper Economic Role

December 19, 1996

Government has a role to play in advancing free markets, according to a recent study. Stanford University economists Robert Hall and Charles Jones say that role is to enforce the rules that allow free markets to operate. While too much regulation and wasteful spending hurts markets, bureaucrats can also function as the economic "cops" that keep a market functioning.

  • Among 133 countries studied, the researchers found a huge gap between nations with high worker output, i.e., higher productivity, and low output.
  • As of 1988, output per worker was 48 times higher in the most productive nation compared to the least productive.
  • About three-quarters of the variation could be traced to the economic "infrastructure" of government policies, within a culture and climate that helps workers use their nation's resources in the most productive way.
  • A proper infrastructure encourages capital accumulation, skill acquisition, invention and technology transfer.

Strong laws which protect private property also protect private resources from being diverted for security purposes and protection programs, rather than being used for production. It also helps if the country's citizens speak an international language, such as French, Spanish or English.

Source: Perspective, "Good Government," Investor's Business Daily, December 19, 1996.

 

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