How Government plays its role in the economic growth of a state.

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UGANDA CHRISTIAN UNIVERSITY-MUKONO
FACULTY OF SOCIAL SCIENCES
DEPARTMENT OF PUBLIC ADMINISTRATION AND GOVERNANCE
COURSE: PUBLIC ADMINISTRATION AND MANAGEMENT
TOPIC: ROLE OF GOVERNMENT TOWARDS THE ECONOMIC DEVELOPMENT OF A
STATE.
NAME: ALINDA CHARITY RENELA
REG NO: S17B17/009
The government exists not for turning life on earth into a paradise but for preventing it from
turning into a complete hell.
Nikolai A. Berdyaev (1874-1948)

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THESIS STATEMENT;
A state may develop economically but cannot sustain its development without the intervention of
the government. A government therefore plays a vital role as an agent of economic development
in a state because its ultimate role is to promote human welfare which in turn improves people’s
standards of living and hence triggers the economic development.

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A government is a political organization through which the collective will of the people is
formulated, expressed and executed. Economic Development can be defined as efforts that seek to
improve the economic well-being and quality of life for a community by creating and/or retaining
jobs and supporting or growing incomes and the tax base. It suggests “progress” and
“improvement”. Economic development occurs when there’s reduced poverty, elimination of
inequality and unemployment in an economy. It also means among others, the improvement in
people’s standards of living for example through attainment of higher incomes, better health
services and improved education standards. The government provides legal and social framework,
maintains the competition, provides public goods and services, national defense and social welfare,
corrects externalities and stabilizes the economy. Much as its role is fundamental, there are other
factors that work complimentarily with it to ensure enhancement of economic development which
include among others natural resources, capital and technology. Although despite these other
factors, the government should be credited for being a substructure in the development of an
economy as its roles are critically analyzed in the essay below;
The government plays a significant role in the creation of an environment that fosters economic
stability and growth. Governments intervene in the economy to ensure relative stability in the level
of economic activity. This is done by application of the fiscal policy in which the government
expenditure is adjusted or taxes are cut and monetary policy in which the money supply is managed
by the central bank. It is through these policies that the performance of the economy is influenced
in the short run since they can speed up or slow down the economy’s rate of growth in the process,
affecting the level of prices and employment to increase or decrease. (Kibala, 2005, p. 1) When
taxes are cut, more money is put in the pockets of the consumers which ensures more expenditure.
This jump starts demand resulting into increased levels of production and supply of goods and
services in an economy. As if that’s not enough, it also creates more employment opportunities
which are lured by the escalating demand and necessity to create more industries which sees the
growth of entrepreneurship as individuals try out new and fast means of production. These among
others enhance economic development in a state.
Secondly, it furnishes social and economic infrastructure to the public. It facilitates economic
activity by provision of social and economic infrastructure to the public for example schools, roads,
hospitals, community centers among others. These work interdependently to improve development

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as roads improve the degree of communication and expand market with the ease of transportation
of goods, hospitals improve people’s health since those provided by the government offer free
medication to the public, community centers provide recreational and education facilities to
citizens among others. This sees the improvement of the public’s standards of living in various
sectors of which this improvement is an indicator of economic development. On the other hand,
absence of these facilities reduces the tempo of production and development which may lead to
economic depression. The government should therefore be credited for the significant role played
in in enhancement of economic development.
In addition to that, it also avails the public with goods that are not adequately provided by the
private sector. It should be noted that the private sector produces goods with a major aim of profit
maximization, this is why most of their products have fluctuating prices. As if that’s not enough,
the private sector at times produces harmful goods such as cocaine, alcohol among others all in the
name of profit maximization, this therefore leaves the public lacking in most essential goods such
as defense, urban sanitation among others. The government therefore intervenes to regulate the
production of harmful goods by the public sector for example by ensuring that these drugs are
taken by the people who are old and not those who are underage. It also provides the essential
goods of urban sanitation, defense and bodies that maintain law and order in the society. A case in
point is the Kampala Capital City Authority (KCCA) in Uganda which is responsible urban issues
such as urban sanitation among others which makes Uganda a better place to live in. The Police
defense force is also provided by the government which ensures that there’s law and order in the
society hence proper economic activity in the state which triggers economic development.
(Ddumba-Ssentamu, 2009, p. 24)
Besides, the executive also interferes in the price mechanism. Price mechanism is referred to as
system of economic organization in which each individual is engaged in economic activity with a
large measure of freedom. This occurs when the price of the commodity is not the most
advantageous to either the consumer or producer. This situation creates a necessity for an outside
agency like the government to intervene and set the price which is not established by market forces
of demand and supply. The government normally does this through the setting of the minimum
and maximum prices. The minimum price is a price set by the government above the equilibrium
price below which it is illegal to buy and sell a commodity. This is always set in favor of producers

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as it protects them from fluctuating prices and consumer exploitation. Sometimes it can also be set
to reduce the consumption of a commodity which may be endangering the public’s health for
instance the Ugandan government deliberately raised the price of sugar this year in an attempt to
reduce the number of diabetes patients which had increased rampantly. However, the maximum
price is set below the equilibrium price above which it is illegal to buy or sell a commodity. This
is done in favor of the consumers and protects them from producer exploitation. In most cases, this
is set during areas of terror in a state where retailers and producers tend to increase prices and
hoard goods to sell later at a very high price, the government renders this as illegal and responds
by setting a price that is to be used by all retailers in the exchange field. Through these interferences
and many more, it is able to guide the overall pace of the economic activity in a state hence
promoting its economic development. (Ddumba-Ssentamu, 2009, p. 25)
Furthermore, the incumbent regime always ensures proper and equal resource allocation in an
economy. It should be noted that one of the reasons for the introduction of the decentralization
policy for instance in Uganda was to ensure equal resource allocation and distribution through the
transfer of this role from the central government to the lower level government units such as the
local government. This ensures equal and balanced economic growth since resources are not
concentrated in one region because of presence of enough agencies. The appointed district leaders
consult the public which raises their social problems such as unemployment. The leaders then
forward these to the central government which in response allocates resources to them in form of
capital among others. This has worked for the Ugandan economy, a case in point is the “Youth
Livelihood Program” which was initiated by the central government in response to the escalating
poverty most especially among the youth. Here, the eligible youth are availed with capital to open
up small-scale projects such as poultry farms. This has tried to eliminate poverty among the youth
and has also advanced their entrepreneurship skills in vocations such as rearing animals, poultry
among others hence an indicator of economic development. (Amir, 2016)
Moreover, in order to regulate the economy, it tries to correct externalities in an attempt to advance
economic development. An externality is a consequence of an industrial or commercial activity
which affects other parties without this being reflected in market prices, such as the pollution of
surrounding crops by bees kept for honey. Externalities can also be called spillovers and they are
categorized into two; positive and negative externalities. Positive externalities are always

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beneficial to the society whereas negative externalities hinder the society. The government tries to
correct the negative externalities by for instance exempting the affected business owner from
paying tax for a certain period of time, providing subsidies such as payment of low taxes by the
affected producer and many more ways. This steadily provides economic stability and therefore
revamps the economic development of a state.
Significantly, it also acts as an economic agent because it is among the decision-taking units in an
economy. It has legal political power to control firms or businesses and households for example
its agencies such as the national police force, the central bank, the civil services among others.
These assist the government in stabilization, regulation and control of firms and households. The
government therefore plays a key role in the decision making most especially when it comes to
comprehensive planning for the economy. It chalks out strategies that can lead to balanced
economic growth and development most especially during the making of financial budgets for
example in Uganda, in the last three financial years there has been concentration on directing more
resources to infrastructure compared to other goods and services according to the financial budgets.
The aim of the finance minister is to ensure that Uganda is able to achieve its vision 2040 without
external help. This is an outstanding strategy because the development of infrastructure will lead
to foreign investment, improvement of people’s standards of living among others. These strategies
and many more drawn by the government steadily lead to economic development of a state.
(Bernard, 1998, p. 11)
Another key thing to note is that the government’s management is tasked with the role of promoting
effective and workable competition in a state. It deals with this in various ways for example
through the encouragement of the use of strategies for industrial development such as export-
promotion, import substitution-industrialization strategy among others. Through these strategies,
goods of an economy gain value for instance in export-promotion strategy, the imports that come
into a country are limited there by providing market for the goods produced by home industries,
this works as an incentive to the small-scale industries and also enlarges the employment gap which
in turn improves the people’s standards of living, an indicator of economic development. In
addition, the government also provides subsidies to upcoming entrepreneurs as a way of
encouraging them to work harder even amidst the stiff competition of the already developed firms.
This among others upgrades the economic development of a state.

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What’s more, the authorities in a state in order to cope with the growing requirements for finance
set up special institutions for providing agricultur-al, industrial and export finance. For instance,
The Agricultural Credit Facility (ACF) was set up by the Government of Uganda (GoU) in
partnership with Commercial Banks, Uganda Development Bank Ltd (UDBL), Micro Deposit
Taking Institutions (MDIs) and Credit Institutions all referred to as Participating Financial
institutions (PFIs). The facility is intended to provide medium and long-term loans to projects
engaged in agriculture and agro-processing on more favorable terms than are usually available
from the PFIs. The scheme is administered by the Bank of Uganda (BoU), with provision for a
maximum grace period of 3 years and the interest rate to the final borrower being a maximum of
10% per annum. This often leads to development of rural areas since most people with farming
techniques are granted loans with a fair interest. Additionally, the government also avails the public
with education and sensitization on how to improve their farming techniques in order to yield good
produce for instance the use of manure pesticides among others.
Additionally, it also has a regulatory function whose importance is to create conditions to promote
competition among producers as well as welfare of consumers. It also limits market failure. The
government uses the three views of government regulation function which include the Public
interest theory, the Industry interest theory and the Public choice approach. The public interest
theory has the idea that regulation serves the public interest by restricting harmful business
activities. This tends to protect the welfare of individuals most especially their health since
consumption of the harmful products like cocaine endangers the organs of their body systems such
as the heart and leads to heart failure. The industry interest theory of regulation asserts that
regulation is often tailored to serve the interests of regulated industries instead of those of the
public. This regulation protects producers from consumer exploitation and also promotes effective
competition among the firms. It also minimizes the rise of monopoly. The public choice approach,
on the other hand, offers a final possible explanation for regulatory behavior. All these three
theories work complementarily and see the development of the state.
Equally important, the government also properly manages and plans for government revenue spent
on the public. All governments, federal, central and local use taxes to raise revenue for public
projects such as roads, schools and national defense. Due to the fact that taxes are such an important
policy instrument, and because they affect our lives, the government financial sector carefully

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plans for the public with the less never enough revenue. It indicates priorities through the five-year
plans for the proper establishment of the government projects such as Uganda’s vision 2040. On
top of that, it also determines the level of taxes depending on the amount of government goods and
services provided. It’s also responsible for determining who bears the tax burden or incidence
although to a smaller extent. Tax burden refers to how the burden of tax is distributed among the
various people who make up the economy that is the buyers and sellers. The government in most
cases levies the tax burden of undesirable and unhealthy goods on the consumers in an attempt to
minimize their consumption which is harmful to health. This slowly but steadily sets off economic
development in an economy. (Mankiw, 2008, p. 124)
Comparatively, it controls market failures in a state. A situation in which the allocation of goods
and services is not efficient is referred to as market failure. It is categorized into four types namely;
public goods, market control, externalities and imperfect knowledge. Market failure is caused by
among others monopoly power and negative externalities. The government deals with the problem
of market failure through taxation whereby supply is reduced and therefore triggers the price, to
discourage consumption or production of a good that has negative externalities. It also provides
subsidies which increases supply and therefore reduces price, to encourage production or
consumption of a good with positive externalities. As if that’s not enough, the government also
controls monopoly power by setting a maximum price legislation which would make it illegal to
raise prices of certain commodities above the price equilibrium or setting of the quality control and
standard control. Sometimes the government passes acts against monopoly power for example the
Monopolies Restrictive Trade Act in India (MRTA) whereby the business houses have to seek
government permission for expansion, for merger, amalgamation or for restarting new
undertakings or determining prices of their produced goods. This has gradually led to the
development of the states that apply such methods. (Amir, 2016)
Notwithstanding the government’s salient role in economic development, other factors work
complimentarily with it to achieve this goal for instance the natural resources, capital, technology
and so on as markedly described in the following paragraphs;
The role of natural resources towards the economic development of a state. Natural resources are
substances created not through human effort but are available from nature. These natural resources
often exist in abundance and they include among others land, oil and mineral deposits which play

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a great role in the development process of a state. For sustainable economic development to prevail
in a state, the existence of these resources is essential and therefore a state deficient in natural
resources may not be in a position to develop rapidly. In fact, natural resources are a necessary
condition for economic development but not a sufficient one. For instance, in Japan most of the
natural resources are imported from other countries since it can not develop in their absence. These
resources can be used in the production process of various goods for example, land is used for
construction of infrastructure like roads, schools and hospitals which improve people’s standards
of living and also trigger the economic development of a state. (Mondal, 2016)
Conversely, capital also plays an outstanding role towards the economic development of a state.
Capital generally refers to financial wealth, especially that used to start or maintain a business. It
can be either human or physical capital. Physical capital can be in form of land, machinery,
equipment and natural resources whereas human capital is always in form of knowledge, skills,
health and fitness. Because of its strategic role in raising productivity, capital occupies a central
position in the process of economic development. Much economic development is not possible
without the making and using of machinery, construction of irrigation works, the production of
agricultural tools and implements, building of dams, bridges and factories, roads, railways,
airports, ships and harbors which are all capital. Broadening and deepening of capital are mainly
responsible for economic development. (Ddumba-Ssentamu, 2009, p. 486)
Additionally, technology also takes part in enhancement of economic development. It is referred
to as the branch of knowledge that deals with the creation and use of technical means and their
interrelation with life, society, and the environment, drawing upon such subjects as industrial arts,
engineering, applied science, and pure science. As the world experiences social change, there’s
often invention and innovation of technology which is normally due to the people’s desire for
discovery and the need for production of high quality goods for example the evolution of the world
exposed Africans to clothes with various materials like silk and made them abandon their
backcloths which clearly explains why there is demand for clothes manufactured with machines
which would have been next to impossible if there was no technological enhancement. Technology
therefore makes the people’s lives more comfortable and improves their standards of living for
example the invention of cancer machines has improved people’s health. These being indicators
of economic development clearly stipulate how technology fosters it. (Chetty, 2013)

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In a final analysis, it is right to assert that the government’s role towards economic development
is very indispensable and therefore should be given special consideration when analyzing the
factors that lead to the economic development of a state. This is because the authorities most
especially those working in the economic sectors are tasked with the roles mentioned in the essay
above for instance the correction of externalities which embellishes economic development.
However, the role of other factors such as capital, technology and natural resources should not be
dented since they work complementarily with the government to ensure economic development in
a state.

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References
Amir. (2016, February 7). Retrieved from ECONOMICSGUIDE Web site: http://www.economicsguide.com
Bernard, T. B. (1998). Basic Economics. Kampala: Simplified Textbooks Agency.
Chetty, L.-R. (2013, May 11). Retrieved from Fair Observer web site: http://www.fairobserver.com
Ddumba-Ssentamu, J. (2009). Basic Economics. Kampala: Fountain Publishers.
Kibala, Z. (2005). Essays on the African Political Economy: Problems, Needs and Solutions. Kampala:
Mukono Bookshop Printing and Publishing Company Limited.
Mankiw, N. G. (2008). Principles of Macroeconomics. Chicago: Cengage Learning.
Mondal, P. (2016, June 5). Retrieved from Your Article Library Web site:
http://www.youraticlelibrary.com