Government Intervention in Competitive Markets

1. Introduction

Despite the transformation within the South African Labour Market since 1994, the growing concern has brought many thoughts and unrest to where the South African economy is heading. It is thus inexorable for one to ask, has irreparable damage been done to the Brand SA and whether the South African reputation for reliability, quality and a competitive price is at stake.

2. The South African Free Market Economic System and the Government Intervention

In a free market economic system, scarce resources are allocated through the price mechanism where the preferences and spending decisions of consumers and the supply decisions of businesses converge to determine equilibrium prices. The free market works through price signals. When demand is high, the potential profit from supplying to a market rises, leading to an expansion in supply (output) to meet rising demand from consumers. The free market mechanism remains a powerful device for determining how resources are allocated among competing ends. In light of this government may choose to intervene in the price mechanism solely for the purposes of bringing about adjustments to the allocation of resources and to attain what is believed to be a development in economic and social welfare. Generally the reasons for government intervention in the market are to overcome or to correct market failures (i.e. as a result of a lack of information or externalities), achieve a more equitable distribution of income and wealth and to improve the performance of the economy. (tutor2u, 2012)This can be achieved in many respects; however the focus will remain on the issue presented at hand. The pertinent issue relates to the South African government agreeing to increase the minimum wages for farmworkers following violent pay strikes in the Western Cape. This brings me to examine and discuss the rationale behind and possible welfare effects of government intervention within the South African Labour Market....