Goverment Intervention in South Africa

Intervention in the market

The main reasons for policy intervention are:

• To correct for market failure

• To achieve a more equitable distribution of income and wealth

• To improve the performance of the economy

There are many ways in which intervention can take place – some examples are given below

Government Legislation and Regulation

Examples include:

• Laws on minimum ages for buying cigarettes and alcohol

• The Competition Act which penalizes businesses found guilty of price fixing cartels

• Statutory national minimum wage

• A new law in Scotland banning under-18s from using sun-beds

• Equal Pay Act and acts preventing other forms of discrimination

• Changes in the law on cannabis

• Maximum CO2 emissions for new vehicles, laws which restrict flight times at night

• Government appointed utility regulators who may impose price controls on privatized monopolists e.g. telecommunications, the water industry

The economy operates with a huge and growing amount of regulation. The government appointed regulators who can impose price controls in most of the main utilities such as telecommunications, electricity, gas and rail transport. Free market economists criticize the scale of regulation in the economy arguing that it creates an unnecessary burden of costs for businesses – with a huge amount of “red tape” damaging the competitiveness of businesses.

Regulation may be used to introduce fresh competition into a market – for example breaking up the existing monopoly power of a service provider. A good example of this is the attempt to introduce more competition for British Telecom. This is known as market liberalization.

It has a mixed economy, with substantial government intervention and a number of state-owned enterprises existing jointly with a strong private sector. A chief characteristic of the private sector is the high concentration of ownership by a small group of integrated conglomerate structures.

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