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Discuss the assertion that the concentration of economic power in the public sector undermines the foundations of economic growth.

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Introduction

Economics 'S' Paper Assignment Discuss the assertion that 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. ...read more.

Middle

Hence numerous state funded factories came into operation under the supervision of the Jurong Town Council. Ship building industry was also developed and Jurong island was a site for agglomeration of similar factories. This government initiated move proved that coordination was efficient and the factories enjoyed economies of scale, sharing and quick assimilation of knowledge, lower transport costs, shared infrastructure, etc that promoted economic growth. Engaging in manufacturing also tapped on the latent potential of labour at that time. Unemployment dropped drastically and per capita incomes rose due to the employment of cheap labour in the public sector, and these were indicators of strong economic growth. With the revenue generated from manufacturing, state control of funds allowed the government to best use the funds to expand economic growth. Infrastructure was rapidly developed and improved and the foundations for economic growth were built up. The public sector was responsible for the managing of key infrastructure and services and this included previously known as city council - PUB (power and water), SingTel (telecommunications), SIA (airlines), Temasek Holdings (trading), NOL (shipping), DBS (banking). These facilities further consolidated Singapore's entrepot status, as well as persuaded many foreign investors to invest in Singapore, being the most developed nation in the region whilst enjoying cheap labour at that time. The installation of this key infrastructure by the public was the crux for Singapore's strong economic growth in the 1980s. The public sector had immense economic power during that early period of Singapore's development and contrary to the stated assertion, did not undermine the foundations of economic growth but instead, promoted rapid economic growth. ...read more.

Conclusion

Without such basic infrastructure, investors are reluctant to invest in the country. Secondly, the public sector is responsible for undertaking the task of goods and services with high start up costs. This includes telecommunications and subway system, which led to the rise of SingTel and MRT. Other new services include cable television and this is undertaken by Starhub. With such high costs involved, the public sector steps in with government funding to provide these value-added facilities that indirectly promote economic growth. Note that once these firms have been established, the role of the public sector has diminished, with MRT being privatized with the merging of SBS and MRT to SMRT and the deregulation of the telecommunications industry with the introduction of M1 and Starhub. Furthermore, the public sector is responsible of promoting economic growth by providing merit goods. 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. ~End~ Done by: Shawn Quek 2AHR ...read more.

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