All in summary European Business Policy (EEP), Notes included!

Chapter 1: Intro
Intro
• What is a policy?
▪ Policy comes from poiesis -> to do something/to make something → you do it
because you want to achieve a certain objective → we do something to achieve an
objective because the market isn’t doing a good job
 Bv: Who fixes the price?
 We have a lot of supplies and a lot of people who want to buy them
SO it is the market, so the government does not have to fix it
 Bv: Who is fixing the price of the bread?
 The market because you have a lot of bakers and a lot of people who
are buying it
 BUT for a long time, the price of bread was fixed by the
government WHY THE GOVERNMENT? Because bread is something
fundamental (is a necessity) when the price went too high for bread
then the government set a price because they don’t believe that
the market would fix a fair price
 Bv: we take the plane from BXL to Prague
It is a private company before it was a government company but
then they liberalized
 Bv: Why are there public schools like Ugent?
Basic idea: education
Objective: everybody should have education at a reasonable price
We don’t leave it to the market because it would fail
• With policy there is an objective and the 1st step we should say is “the market can’t fix is”
▪ So, we must determine where and how the market fails → market failure (the most
difficult step)
▪ If the market fails → 2nd step: not take over but see if you can make the market work
▪ ONLY when we cannot make the market work then the policy must take over 3rd
step
 SO, POLICY IS ABOUT ACHIEVING AN OBJECTIVE THAT THE MARKET DOES
NOT DO




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, 1.1 What is policy?

Policy
• We are doing something by the set of rules / set of ideas / a plan and this can be done at
different levels
= Do something about something because the market doesn’t work
• A set of ideas or a plan of what to do in particular situations that has been agreed to officially by
▪ A group of people
▪ A business organization
▪ A university
▪ A government
▪ A political party
• Aristoteles: theoria (thinking), poiesis (making), and praxis (doing).



1.2 What is enterprise policy?

Enterprise policy
• First step: think about these steps
▪ What is the objective?
▪ Is there a market failure?
▪ Can we make the market work?
▪ What should policy do?
• When do we need a policy for enterprises?
▪ 1: What is the objective? In other words, why do we need enterprises, because …
 We need goods and services
 They gave jobs
 They make wealth → make money → invest and export → part of the GDP → we need them
for the economy
 A country needs big, small,.. So, we have enough goods and services, jobs
and wealth
 We don’t need enterprises, but we need the secondary impact of them
▪ 2: Is there a market failure?
 Identify the market failure
 Example: pollution
 It is a secondary effect of the enterprises
 We need a regulation for the pollution of enterprises
 Regulate the secondary effects that they pollute as little as possible
 Positive ecology (make cars without polluting)
 We don’t have enough enterprises who are recruiting employees
 Because employment costs too much because of the taxes and
minimum wages
 SO asks enterprises to recruit more employees and instead they
are having taxes reduced and subsidies, 00…
▪ 3: Can we make the market work?
 Try to correct the market failure




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, ▪ 4: what should policy do?
 If it is not possible to correct the market failure ONLY THEN you can take
over as a government




How is the split between the free market and G intervention?
• The right side: GOV’ intervention
-> Countries where the government
is much more important than the
free market
▪ France, Finland, Denmark,
Greece, Italie and Belgium
▪ Countries where more than
50% is for the government
▪ They assume that the market
fails so much that the market
is less important than the
government
• The left side: free market →
▪ Ireland, US 37% GOV rest is
market
• What is the best level of intervention??
▪ Difficult but most of the studies
say between 37%- 42% of
intervention
• Summarize:
▪ There are two forces
▪ When the market fails there is a
government intervention
▪ WHY DO WE NEED POLICY?
 Because the objectives are not realized by the market
 The market is the invisible hand (supplies & demand) and then we need the
government = visible hand → these two forces are making the economy
! It is not because the market fails that the government does it better
! DON’T jump from 1 to 3 = failure that always happens
 Example: companies don’t have enough finances to invest ->
they set up a public fund




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, What can they do as a policy?
• Main instruments to make the market work or to take over:
▪ Taxes & subsidies
 Example: the banks don’t work but we try to
make them work again → we give the bank a
subsidy each time when they give credit to a
small company
▪ Max & min. Prices
 Example: education is too expensive, so we put a max. price on education and
give them subsidies
▪ Regulating the market
 Example: you want to start a private school -> you have to go through a hole
procedure
▪ State ownership / state funding & provision
 Example: The banks don’t work than we make public banks

! With these 4 elements you cover 90% of what the government can do

Why enterprise policy?
• Enterprise policy is trying to identify where it does not work and how to make it work again
• What are the objectives and where does the market fail (finds an answer in 3 steps)?
1. Identify the market failure
 Few people like to set up their own company
 BECAUSE it takes risks
2. Try to make the market work
 Try to push people to set up a business
3. Only then, can the government take over
 How are we going to do that????




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