The Concentration of Economic Power in the Public Sector Undermines the Foundations of Economic Growth

The Concentration of Economic Power in the Public Sector Undermines the Foundations of Economic Growth

In this essay, the concentration of economic growth in the public

sector will be taken to mean the proportion of the economy that is

governed by public ownership in the production of goods and services.

Foundations of economic growth refer to the potential for the economy

to expand, and hence this would be represented by an outward shift of

the Production Possibility Curve. Therefore we shall discuss how a

higher proportion of the economy that the government is directly

involved in leads to a diminishing potential for future progress of

the economy.

How can the public sector hinder economic growth? Economic growth is

determined by the potential of the country to produce additional

outputs of goods and services. This is in turn dependent on two

factors- availability of resources and productivity. Therefore if the

public sector influences these two factors negatively, then it would

undermine the foundations of economic growth

The government can affect the capital aspect of resources. Assuming

ceteris paribus (other factors like land, natural resources- oil,

timber, etc are also rigid), it is commonly recognized that heavy

involvement of the public sector could hinder capital generation. This

is since with majority of the workforce employed by the public sector,

there are few entrepreneurs and the extent of free enterprise is

limited. Hence with the lack of entrepreneurship and business

ventures, there is also the lack of profits and hence the inflow of

capital into the country. The lack of capital results in inadequate

funds ...

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...ods. Such goods are socially desirable but

often under produced because their worth is under valued. This

includes education for youths, Research and Development for firms and

industries, as well as retraining for existing workforce. All these

services provided by the public sector are crucial to the sustained

economic growth of Singapore.

Therefore in conclusion, a temporal scale must be considered with this

assertion. In the early stages of development, the concentration of

economic power in the public sector actually promotes economic growth.

But in the later stages of development, the assertion is true that the

concentration of economic power in the public sector undermines the

foundations of economic growth, though it must be stressed an

appropriate size of public sector must exist to ensure economic

growth.