There are a couple of advantages of deregulation. Less regulation means that fewer regulators need to be employed by the government or local councils. Also less regulation should encourage more competition.
However, many rules affecting business were to stop exploitation: is this acceptable nowadays? Another disadvantage is that competition does not necessarily provide what society wants; it may only provide what is profitable.
Privatisation is another supply side policy. This involves selling off state-run organisations and transferring them to the private sector. The idea is that privately run companies are more efficient and competitive and as a result they will increase.
Advantages of privatisation are that the government can reduce its borrowing by selling these companies, and thus follow other policies which it believes increase efficiency, such as lowering income tax. Also, industrial relations and productivity should improve as workers recognise that there is no state support if the company fails. Managers will also have greater responsibilities for ensuring continuity of production.
Nevertheless, many state-run enterprises operate in areas where people have a basic right to enjoy the good or service without effective rationing by price. Examples include water, gas and electricity. Another argument against privatisation is that privatisation ‘bonuses’ are one-offs.
Cutting income tax is another policy. The idea here is to encourage people to work harder and this increases supply. This works best when the marginal rate of tax is reduced, e.g. by doing overtime is a contribution to the economy. This is a positive point and in the short term leads to economic growth. However, reducing income tax indirectly raises things like V.A.T and this is a disadvantage as goods and services may become more expensive, causing people to consume and invest less.
Cutting corporation tax is an additional policy. This should leave more funds for investment purposes which will have long-term benefits.
Reform of the welfare system is a further policy. This works alongside changes in taxation to encourage people to work or join the labour force. An example to look at is the ‘welfare to work’ programme set up the government. If a person registers themselves as unemployed, they jet jobseekers’ allowance. If they carry on training for a job in the market, they can receive this allowance for more than six months.
Another policy is the reform of trade unions. The idea here is to improve industrial relations so as to avoid less strikes and encourage productivity. This should increase AS. Advantages to union members is collective bargaining on their behalf and access to free legal advice and support. Also, local shop stewards can help in case of unsafe or unfair practices. Advantages of trade unions to businesses is the communication link between management and workforce. Also, a strong union may encourage managers to take worker needs seriously.
Improved education and training is one more supply side policy. Enhanced skills should help to increase productivity. This is because people will be better educated and trained in what they want to do, therefore being successful in what they want to do.
Regional policy is the last policy. This involves specific help for individual parts of the country for high rates of unemployment. Advantages are that it reduces inequality of incomes and of opportunities. It also reduces the hardship associated with structural decline and reduces congestion in other regions. By reducing unemployment, regional policy reduces the waste and cost of keeping other on the ‘dole’. Disadvantages are that there is little evidence that regional policy works to change long-term trends. Also, firms often move a very short distance to take advantage of the incentives but in doing so create no extra jobs or incomes.
If supply side policy works, it will improve the performance of the economy by:
- Reducing unemployment by increasing the incentive to work, improved training and education and reduced trade union power.
- Raising economic growth and increased living standards.
- Reducing inflation by raising the productivity of labour.
- Improving the balance of payments by making the UK industry more productive and efficient.
