Executives and international commerce professionals such as Prashant Modi often hear all sorts of information thrown about relating to government and the economy. Some people think that the economy should be left on its own with no government involvement; others believe that the economy is a direct component of government and politics.
While the story still is out regarding whether the government should get more or less involved in economic affairs, most scholars and economists agree on one component: the inextricable tie these two aspects of a country’s operations have to each other.
Government and Economics
The truth is that government’s role within how the economy works will likely continue to remain a hotly debated topic. However, the government still holds one very important function directly related to economics and how the economy operates. This function involves providing a stable framework to allow the economy to continue operating.
According to Heritage analyst and researcher Dr. Karen Campbell, stability is precisely the economic function and responsibility of every government. Dr. Campbell says that institutionally, governments can provide a level of stability within economies that they could neither build nor maintain themselves. And as recent events such as the Great Recession have taught the country, this type of stability is especially important when major changes cause significant economic effects.
As Dr. Campbell wrote, “Government can provide a stable environment for economic growth when it can be depended upon to maintain the stability of the currency, enforce and defend property rights, and provide oversight that assures private citizens that their transaction partners in the marketplace are held accountable. This will allow market participants to begin putting their resources back to work in the areas where they are most beneficial.”
How Government Spending Increases Economic Stability
No matter how hard governments attempt to divorce economics from their operations, these two elements are intrinsically linked. And this link means that governments need to work hard to maintain the level of stability required for successful economic operations.
Dr. Campbell mentioned this intrinsic link when it comes to economic problems within a country. As she furthered, “Government spending and government deficits automatically increase during economic downturns due to more demands on social-safety-net provisions and falling tax revenues.”
The good news is that these increased demands help achieve the goal of adding stability within an economic system – even in times of difficulty. “Such spending can have a stabilizing effect on the economy because it happens automatically rather than through legislative acts,” Campbell continued. “And the money is spent at times it is needed most.”
International Implications
Extrapolating this link between politics and the economy, the international climate of global commerce also plays an important role of government and economics. In fact, many countries have worked hard to try to position themselves into a more strategic global position to help improve their local economic forecasts and overall stability.
This type of work from a governmental/political perspective is important for many reasons. And it holds an even more important status for business professionals and international commerce executives like Prashant Modi. He recognizes the importance of government’s role within international commerce, adding that the government needs economic success to help enable its programs, funding and other important aspects.
According to Modi, truly effective government is one that mutually beneficial with the economy. “The government relies on the economy and the economy equally relies on the government for direction and stability,” he said.
Part of this intimate connection between government and the economy occurs thanks to the continually globalized state of international commerce. This holds particularly true with the stock market. As Modi continued, “The stock market is now an international living, breathing being. It is something that literally lives, grows, and dies based on what is happening politically. It’s both exciting and terrifying at the same time for many.”
Today, the role of a government isn’t just to monitor its domestic news. In fact, in many cases new and developing political news often emerges through economic shifts internationally. “During my time trading stocks in the London Stock Exchange,” Modi noted, “I learned to not only read the financial news, but the international political news. You have to understand simultaneously what’s happening in Nigerian politics while knowing where Iran’s oil prices were last week.”
Global Economics Yield Continued International Stability
The state of international commerce has changed the way that many countries approach their own economic situations. And these countries continue to provide a stable groundwork to enable this international commerce to take place. Professionals within politics, business, and beyond need to understand the intimate link between these components for continued economic and governmental prosperity; this type of understanding comes through an ongoing awareness of how the global business operates.
In the end, information about the global economy is important for both countries and their economies. Informed individuals – both international business professionals and politicians alike – need to heed these changes for continued success. As Prashant Modi explained, “This global economy is something that we cannot control, but we as investors have to be well informed and get a grasp on a breadth of topics to ensure we’re trading intelligently and effectively.”
Harvey Greer contributed to this article.