The role of the government in facilitating economic growth in the framework of the private sector is a subject of contention among various scholars. Most of them have staged various debates regarding the relationship that exists between government expenditure and economic growth of a country. The primary functions of the government are to offer protection to its citizens and provide certain public goods. Some of the public goods provided by the government include power, health, education, and roads. The government through a public expenditure funds provision of public goods (Mitchell, 2005). The dependent variable of the study is economic expenditure, while the independent variable is government expenditure in key sectors within the private sector. Some researchers such as Cooray (2009) and Ranjan and Sharma (2008) established that increasing government spending on physical and socio –economic infrastructure stimulates growth of an economy. For instance, an increase in government expenditure on education and health raises labor productivity while enhancing the total output of a nation. Correspondingly, increased government spending on infrastructure like power, communication, as well as roads among others reduces the costs of production incurred by manufacturing and processing industries, boosts investments in the private sector create opportunities for firms to make profits hence fostering economic growth (Cooray (2009), Ranjan & Sharma 2008).
The role of the government in enhancing economic growth is a critical subject that attracts great concern in various parts of world. It is notable that the economic development in every nation depends of the fiscal policies of the government. In this case, the decisions of the government in terms of how it spends and invests money is crucial to a country’s economic development. However, it is vital to note that since the private sector plays a key role in business growth and development in the country, government investment in key areas of the private sector will determine a country’s economic growth. As a result, this paper presents a study of how the government can empower different private sector industries to spur economic growth in the America.
Does the government empower the private sector to invest in key sectors to spur economic growth?
The government empowers the private sector to invest in key sectors to spur economic growth
The government does not empower the private sector to invest in key sectors to spur economic growth.
Opinions on the possible nexus between government spending and economic growth are overly controversial. The majority opinion is that the government is the main driver of the economy. Existing literature does not indicate where other contributors such as international aid and private sector activities rank in the economy of a state. A point of concession is that the government runs important programs that have a perspective on a state’s GDP. The primary function of any government is policy development and provision of essentials. States with two levels of government take precaution not devolve important sectors of the economy such as health and security. The existing literature indicates that citizens in developing States rely more on the government financial aid than the developed economies (Cynamon, Fazzari & Setterfield, 2012). However, this notion is devoid of proper appreciation of the extremes developed states go in providing provisions such as food stamps.
A major contention is whether this reliance is designed to shield citizens from adverse financial shortage or serves as a prerequisite for economic growth. Considering that economic growth involves the development of many sectors, it would be fallible to analyze the input of the government from a single perspective. Scholars have advanced opinions that the governments should take an active role in certain activities geared towards economic growth. Well, economists contend that governments should facilitate growth in varying sectors of the economy. A study that seeks to understand the role of the government expansion would find relevance for two reasons. First, it would help to define the scope of facilitative measures. Second, it would help to acquire a view of the role of other non-government sectors in the economic growth.
Private Sector and Expansion of Economic Opportunity
The concept of economic opportunity describes the situation where firms experience an increase in operational transactions to create value for both the business entity and the society. Among other things, business activities help in promoting technological transfer, generate revenues, create human capital and development of infrastructure. Each of the concepts has a way of increasing social-economic growth. Despite their contribution, the input of industries is least recognized in expanding economic growth. However, most of these industries are privately developed and managed. Whalley & Zhao, (2013) note that without a vibrant, competitive and innovative ideas in the economy, the world would not be able to reach its millennium development goals.
Economic opportunity is in itself not a solution to the problem but contexts in which people can develop own solutions. The private sector aids the public in several ways. First, it develops an inclusive business model that incorporates the poor into the value chain. These measures ultimately render them economically viable (Herzer & Vollmer, 2013). The private sectors such as local Non-Governmental Organizations (NGO) operate close to the people thus get a chance to understand their plight including the cause and possible solutions. Second, private sector implements complementary strategies (Hanushek & Ludger, 2011). These include improving institutional capacity, training human capital and defining policy. These supplementary policies are all-important and can be offered by the several or standalone entity. For instance, Microsoft Partnerships for Technology Access have been designed to improve the ability of the governments to offer services and citizens to acquire benefits.
However, the growth of private sector should be facilitated. This is where government intervention matters. The private sector also steers inclusive growth, providing about 84% of state’s GDP and 90 percent jobs (Whalley & Zhao, 2013). It is also an important contributor to national revenue through taxation. Finally, it informs further entrepreneurship thus informing diversification. At the very least, its recognition is worth recognizing. The European Commission, for instance, endeavors to support national governments efforts to promote the private sector. Its particular focus is on assisting, micro, and medium sized enterprises. The role of private sector in creating enabling and inclusive growth has been recognized I in several instances including, 2015 Addis Ababa action agenda, and Paris conference of 2015 on climate change. As already mentioned, it stills has to be assisted. This mainly requires adjustment of government’s monetary policy such as the expansion of business loans, removal of loans acquisition constraints and capping loans interests. Second, the government could also be required to maintain tranquility and maintain friendly local regulations.
It is a goal of every government to increase its Gross Domestic Product (GDP). Higher growth means increased gains in goods and services provisions. This translates to increased employment opportunities and income gains. A GDP that grows faster than the economy implies benefits to all stakeholders in the economy (Garrett, 2014). Three variables matter in the growth of an economy, government’s budget, GDP, and demand in the economy. The Keynesian model explains that during an economic recession, each government has to expand its spending to fasten the economy (Uribe, 2014). From the preceding, an increase in the government spending translates into more employments opportunities high rates of incomes and the growth of the economy. According to Keynesian model, these benefits would be felt both in the public and business sectors thus increasing purchasing power. The resulting economic growth would be more than the increase in government’s spending.
Despite its contribution, government spending has its flipside. First, an expanded public sector diminishes business sector. As a tradition, during a recession, the hiring of the workforce remains at its lowest (Cynamon, Fazzari, & Setterfield, 2012). The implication is that the increase in spending does not translate into an increase in income gain in public sector. Second, during this time the public sector favors redirecting its workforce to business sectors. The notion that increase would benefit all sectors is, therefore, left as an ideal that is difficult to achieve. If anything, while budgets expansion is easy a survival mechanisms, cuts backs are difficult to effect when it is over. The state then proceeds on binge and spending spree that is without any economic sense. Lack of political will is first to blame for it has not budget minister wishes to relinquish their authority afterward. Many governments continue to offer services that are no longer necessary for the growth of the economy (Anand et al., 2013). The result of this is an inflated and ineffective public sector that has a devastating implication on the growth of the economy. The implication of this is a misuse of resources including human capital, and finances through superfluous services.
Reduced incomes and profits indicate a reduction in tax revenues, which is an important source of revenue for governments. Many governments prefer maintaining their deficits at a manageable level to ensure that all the activities run smoothly. This scenario exemplifies the dangers of increasing spending. An exaggerated deficit could affect the stability of the economy. Recession is one of the adverse implications of an unstable economy. Governments have a noble duty of maintaining the stability of the economy. According to (Cynamon, Fazzari & Setterfield, (2012) public loans are crucial in financing this deficit. Such loans cause inflationary losses with adverse implication such as the unpredictability of pricing. The government issues these loans in the form of bonds. These have to be stable. If they turn risky, they could scare away both domestic and foreign investors. A more organized state such as European Economic Zone requires prospective and current members to keep their deficits below three percent to prevent the extremes mentioned earlier (Breton, 2015). As such, the notion that expanding government spending promotes growth could be fallacious. There are more dynamics attached to it.
Socio- Economic Overheads
Economic growth in underdeveloped states is moored down by an absence of socio-economics overheads. The initial stages of development involve growth in these areas. These do not have a direct effect on the growth of the economy but provides a state with the necessary impetus for growth. They unlock a state’s capacity to identify and implement its economic policy (Galor, 2005). These overheads include; schools, research institutions, hospital, transport system ports, bridges, and technical institutions. The bigger challenge lies in raising the necessary capital to set them to the required degree capable of promising a positive result. The initial capital is too much for the majority of the developing states to raise. These institutions not only serve as preconditions for the growth of an economy but also serve as important indicators for states level of growth. Most of these institutions focus on improving human capacity thus an ability to compete at the international level.
The rather sudden growth of China as an economic superpower is attributable to its innovative and powerful workforce (Whalley & Zhao, 2013). Obtaining the necessary skills is important to meet the standard of skills required at the international level. China as a state has focused much in developing its technical institutions. Their unique skills almost mirror those of workforce in the Western states (Berg & Ostry, 2011). On the other hand, infrastructural development, such as transport system improves the mobility of labor, goods, and services. Efficiency reduces the cost of products and services thus gaining a competitive edge. In addition to that, effective health services contribute to the health of the state. Good health translates into one’s rate of productivity abilities (Field, 2011). Most developing and underdeveloped states are grappling with challenges of improving these areas due to three things. First is an inability to remain on sustainable development. Sudden outbreaks of diseases such as Ebola require impromptu interventions from the national kitty reducing its capacity to finance income-generating programs. With strained resources, it is difficult to remain focused on the growth of the economy. Second, they are unable to improve their human capacity. Lastly, it is impossible to gain stability in the growth of an economy. One agrees that government expansion will not only to translate into economic growth but also a sustainable one. Notably, private investors rarely embark on social overheads since they require huge capital reimbursement. Therefore, national government should contrive to create a kitty to service these areas.
Managing Strategic Institutions
The government should always endeavor to facilitate economic growth. It could also stand on the way development through serious omissions. For instances, failure to maintain strategic financial institutions to finance private projects could imply economic retardation. As already mentioned, micro finances along with other banking facilities, create accessibility of funds needed by individuals for economic development. In a more organized setting, it is important the government invest on strategic entities that provide services to specialized sectors such as agriculture and mining that form the backbone of most economies. However, poor policing and regulatory practices could also undermine the success of these institutions.
As already mentioned, borrowing policy that requires short loan repayment durations, for instance, discourages borrowers. Nationalization of insurance bodies, tenancy reforms, banking reforms and insisting on cooperative farming could serve as important remedial measures. Important to note, a government should be willing to maintain measures that assure actual and prospective investors of their property rights. This way investors including, the foreign ones would gain confidence to put their resources to work (Cynamon, Fazzari & Setterfield, 2012). Notably, this is just as questions of policy and legal security. However, institutional credibility also matters. The demand is higher for economies that compete at national level. The International Monetary Fund takes account of fiscal responsibility before establishing credit for developing economies. The things are, the government must be prepared to manage its institutions properly to safeguard their credibility. To accomplish this requires an undertaking from the government institutions’ heads would do their job and always insisting on collaboration programs and not ones that undermine private sector.
This section describes how the research used stratified random sampling to test if the government can empower the private sector to invest in key sectors to spur economic growth. The main hypothesis that will be tested in this section is that the government empowers the private sector to spur economic growth. It will also consist of variable measurement through the data gathered from various sources during the research.
For this study, a descriptive cross-sectional survey research design was chosen. This design was preferred since it gives description about the current state of an investigated issue. It is characterized by collecting systematically the required data for the research from members of a chosen population mainly through use of questionnaires (Ogula, 2005).
This research design was chosen during the study for a number of reasons. First of all, this design is ideal in giving clear description of all the characteristics of the targeted population. It is also appropriate for research where a large sample is to be involved. Finally, this research design was employed since it allows the researcher to comfortably accommodate quantitative as well as qualitative approaches of analysis.
The research population for this study was made up of 7500 representative from the different categories of the private sector in America as presented in the table 1. The research population was chosen since these people directly benefited from the government spending and were thus familiar with the financial activities that the government was involved in.
Research Population in the Private Sector
|Population Category||Target Population|
|Private Health Sector||1000|
|Private Education Sector
Sampling Procedure and Sample Size
This research study made use of the stratified random sampling technique where a sample size of 30% of the entire target population was considered. Different private sectors that enjoyed funds spent by the government to boost the relevant industries where they operate were selected in a random manner to participate in the research study. The structure of the sample was therefore made up of 1000 possible respondents from the private sector categories who received survey questions indicated in table 2.
|Population Category||Target population||Sample size|
|Private Health Sector Institutions||1000||100|
|Private Education Sector
Method of Data Collection
This study made use of questionnaires for the collection of the required data both primary and secondary. The primary data in this case included the responses to the questionnaires presented to the respondents in every private sector category mentioned in the above tables. Secondary data consisted of the information obtained from the literature sources. In this case, the research utilized 100 researches who chose to involve questionnaires for a number of reasons: their potential to reach out to a great number of research respondents within a short time, the ability to give the research respondents ample time frame to respond well to the asked research questions, and a feeling of security (confidentiality) among the respondents. Also, questionnaire is an objective method since it lacks bias which may result from the characteristics of persons (as in case of face-to-face interview) (Ngechu, 2004). The research questionnaire was used to gather required data from the all the sampled private sector representatives who were from the categories listed above. It was then divided into the main areas of research to be investigated in exception of the first part of the questionnaire, which captures the demographic information of the research respondents. Other research sections were then organized in accordance with the main research objectives.
For any instrument used during research to be reliable, it must prove its ability to yield consistent results during research. When a method is used for more than one time to gather data from any two samples which are drawn randomly from the same research population, the results should be the same (Mugenda & Mugenda, 1999). For the researcher to establish the reliability of the intended instruments to be used during research, the researcher conducted a pilot test of the intended research instruments by use of another group that is similar to the intended research population. This pilot study was carried out to test if the aim of the research study would be realistic and whether the research instrument could by any means elicit the anticipated data type. Another reason to conduct the pilot test was to determine whether the researchers’ objectives are being addressed in an appropriate manner, thus enhancing its reliability and validity, and finally to show whether the data type which was collected could have meaning when analyzed in relation to the stated research questions and objectives. The research participants were thus encouraged to make comments and suggestions regarding the instructions in the research questions to ensure clarity of the questions as well as the question relevancy in order to ensure the reliability of the research instruments used. The instruments that were piloted were adopted for the research study. There was a total of 100 participants surveyed in the pilot study.
Data Analysis Procedures
After the research questionnaires were administered and collected, the data was thoroughly examined and checked for comprehensibility and completeness. Then, the results were subjected to statistical analysis. Later, the responses were coded, edited and analyzed using Statistical Package for Social Science (SPSS). The collected data was analyzed using descriptive techniques.
Limitation of the Study
The researcher encountered several one main challenges throughout the entire research process. There was a limitation of chance. The sample ended up including a disproportionate number of males or females since it was difficult to choose the respondents wanted because of the varied population mix in every private sector.
Findings and Conclusion
It is apparent, governments expansions are an imperative in the growth of the economy. However, it is the main but not the exclusive actor. The private sector has been a long time, unrecognized actor. However, in many states, this sector has to be facilitated. Bad and restrictive policies discourage private investments, and this denies a state a chance to reap the benefits of their input. Importantly, the national government should insist on collaborative measures. Other than gains through tax revenues, there no other known procedures for determining their input. The recent development, such as Paris agreement of 2015 has led to the recognition of the importance of the private sector. However, this is just recognition and does not advance a formula of quantifying its input. Scholars are yet to advance a procedure of determining the same. Besides, the existing literature does not advance a formula of integrating the activities of both the public and private sectors. It is agreed that this could have more reaching impact towards economic growth.
In addition to that, a government should be willing to spend more on social, economic overheads. Among other things, these help to infuse capacity of human resources and ultimately their productivity. The existing literature does not explore the options of empowering the private sector to attain the capacity to invest in these areas. Importantly, it would be crucial to ensure these institutions do not lose credibility. Government spending is especially important during a recession. It helps to keep the government’s activities running and buffer the public from the extremes of acute shortage. As already noted, the government meets its expenditure deficits through public debts usually in the form of bonds. Scholars agree that it is imperative to keep these debts contained to avoid losing foreign investors. The advent of recessions implies more spending. Unregulated spending during this period could be dangerous as budget cutbacks after a recession has proved difficult in the pasts. More study would be necessary to propose mechanisms to facilitate smooth and quick reversion to previous budgets to reduce wastage through provision superfluous services.
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